G.R. No.

L-50008 August 31, 1987

PRUDENTIAL BANK, petitioner,

vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of
First Instance of Zambales and Olongapo City; FERNANDO MAGCALE &
TEODULA BALUYUT-MAGCALE, respondents.

PARAS, J.:

This is a petition for review on certiorari of the November 13, 1978 Decision * of
the then Court of First Instance of Zambales and Olongapo City in Civil Case No.
2443-0 entitled "Spouses Fernando A. Magcale and Teodula Baluyut-Magcale vs.
Hon. Ramon Y. Pardo and Prudential Bank" declaring that the deeds of real estate
mortgage executed by respondent spouses in favor of petitioner bank are null and
void.

The undisputed facts of this case by stipulation of the parties are as follows:

... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and

Teodula Baluyut Magcale secured a loan in the sum of P70,000.00 from
the defendant Prudential Bank. To secure payment of this loan,
plaintiffs executed in favor of defendant on the aforesaid date a deed of
Real Estate Mortgage over the following described properties:

l. A 2-STOREY, SEMI-CONCRETE, residential building with

warehouse spaces containing a total floor area of 263 sq. meters, more
or less, generally constructed of mixed hard wood and concrete
materials, under a roofing of cor. g. i. sheets; declared and assessed in
the name of FERNANDO MAGCALE under Tax Declaration No.
21109, issued by the Assessor of Olongapo City with an assessed value
of P35,290.00. This building is the only improvement of the lot.

2. THE PROPERTY hereby conveyed by way of MORTGAGE

includes the right of occupancy on the lot where the above property is
erected, and more particularly described and bounded, as follows:

A first class residential land Identffied as Lot No. 720, (Ts-

308, Olongapo Townsite Subdivision) Ardoin Street, East
Bajac-Bajac, Olongapo City, containing an area of 465 sq.
m. more or less, declared and assessed in the name of
FERNANDO MAGCALE under Tax Duration No. 19595
issued by the Assessor of Olongapo City with an assessed
value of P1,860.00; bounded on the

NORTH: By No. 6, Ardoin

Street

SOUTH: By No. 2, Ardoin

Street

EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

All corners of the lot marked by conc.

cylindrical monuments of the Bureau of
Lands as visible limits. ( Exhibit "A, " also
Exhibit "1" for defendant).

Apart from the stipulations in the printed portion of the

aforestated deed of mortgage, there appears a rider typed
at the bottom of the reverse side of the document under the
lists of the properties mortgaged which reads, as follows:

AND IT IS FURTHER AGREED that in the

event the Sales Patent on the lot applied for
by the Mortgagors as herein stated is released
or issued by the Bureau of Lands, the
Mortgagors hereby authorize the Register of
Deeds to hold the Registration of same until
this Mortgage is cancelled, or to annotate this
encumbrance on the Title upon authority
from the Secretary of Agriculture and Natural
Resources, which title with annotation, shall
be released in favor of the herein Mortgage.

From the aforequoted stipulation, it is obvious that the

mortgagee (defendant Prudential Bank) was at the outset
aware of the fact that the mortgagors (plaintiffs) have
 already filed a Miscellaneous Sales Application over the
lot, possessory rights over which, were mortgaged to it.

Exhibit "A" (Real Estate Mortgage) was registered under

the Provisions of Act 3344 with the Registry of Deeds of
Zambales on November 23, 1971.

On May 2, 1973, plaintiffs secured an additional loan from

defendant Prudential Bank in the sum of P20,000.00. To
secure payment of this additional loan, plaintiffs executed
in favor of the said defendant another deed of Real Estate
Mortgage over the same properties previously mortgaged
in Exhibit "A." (Exhibit "B;" also Exhibit "2" for
defendant). This second deed of Real Estate Mortgage was
likewise registered with the Registry of Deeds, this time in
Olongapo City, on May 2,1973.

On April 24, 1973, the Secretary of Agriculture issued Miscellaneous

Sales Patent No. 4776 over the parcel of land, possessory rights over
which were mortgaged to defendant Prudential Bank, in favor of
plaintiffs. On the basis of the aforesaid Patent, and upon its transcription
in the Registration Book of the Province of Zambales, Original
Certificate of Title No. P-2554 was issued in the name of Plaintiff
Fernando Magcale, by the Ex-Oficio Register of Deeds of Zambales,
on May 15, 1972.

For failure of plaintiffs to pay their obligation to defendant Bank after

it became due, and upon application of said defendant, the deeds of Real
Estate Mortgage (Exhibits "A" and "B") were extrajudicially
foreclosed. Consequent to the foreclosure was the sale of the properties
therein mortgaged to defendant as the highest bidder in a public auction
sale conducted by the defendant City Sheriff on April 12, 1978 (Exhibit
"E"). The auction sale aforesaid was held despite written request from
plaintiffs through counsel dated March 29, 1978, for the defendant City
Sheriff to desist from going with the scheduled public auction sale
(Exhibit "D")." (Decision, Civil Case No. 2443-0, Rollo, pp. 29-31).

Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real
Estate Mortgage as null and void (Ibid., p. 35).
On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-
53), opposed by private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an
Order dated January 10, 1979 (Ibid., p. 63), the Motion for Reconsideration was
denied for lack of merit. Hence, the instant petition (Ibid., pp. 5-28).

The first Division of this Court, in a Resolution dated March 9, 1979, resolved to
require the respondents to comment (Ibid., p. 65), which order was complied with
the Resolution dated May 18,1979, (Ibid., p. 100), petitioner filed its Reply on June
2,1979 (Ibid., pp. 101-112).

Thereafter, in the Resolution dated June 13, 1979, the petition was given due course
and the parties were required to submit simultaneously their respective memoranda.
(Ibid., p. 114).

On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while
private respondents filed their Memorandum on August 1, 1979 (Ibid., pp. 146-155).

In a Resolution dated August 10, 1979, this case was considered submitted for
decision (Ibid., P. 158).

In its Memorandum, petitioner raised the following issues:

1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE

VALID; AND

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF

PRIVATE RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776
ON APRIL 24, 1972 UNDER ACT NO. 730 AND THE COVERING ORIGINAL
CERTIFICATE OF TITLE NO. P-2554 ON MAY 15,1972 HAVE THE EFFECT
OF INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE.
(Memorandum for Petitioner, Rollo, p. 122).

This petition is impressed with merit.

The pivotal issue in this case is whether or not a valid real estate mortgage can be
constituted on the building erected on the land belonging to another.

The answer is in the affirmative.

In the enumeration of properties under Article 415 of the Civil Code of the
Philippines, this Court ruled that, "it is obvious that the inclusion of "building"
separate and distinct from the land, in said provision of law can only mean that a
building is by itself an immovable property." (Lopez vs. Orosa, Jr., et al., L-10817-
18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38,
May 30,1958).

Thus, while it is true that a mortgage of land necessarily includes, in the absence of
stipulation of the improvements thereon, buildings, still a building by itself may be
mortgaged apart from the land on which it has been built. Such a mortgage would
be still a real estate mortgage for the building would still be considered immovable
property even if dealt with separately and apart from the land (Leung Yee vs. Strong
Machinery Co., 37 Phil. 644). In the same manner, this Court has also established
that possessory rights over said properties before title is vested on the grantee, may
be validly transferred or conveyed as in a deed of mortgage (Vda. de Bautista vs.
Marcos, 3 SCRA 438 [1961]).

Coming back to the case at bar, the records show, as aforestated that the original
mortgage deed on the 2-storey semi-concrete residential building with warehouse
and on the right of occupancy on the lot where the building was erected, was
executed on November 19, 1971 and registered under the provisions of Act 3344
with the Register of Deeds of Zambales on November 23, 1971. Miscellaneous Sales
Patent No. 4776 on the land was issued on April 24, 1972, on the basis of which
OCT No. 2554 was issued in the name of private respondent Fernando Magcale on
May 15, 1972. It is therefore without question that the original mortgage was
executed before the issuance of the final patent and before the government was
divested of its title to the land, an event which takes effect only on the issuance of
the sales patent and its subsequent registration in the Office of the Register of Deeds
(Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director of Lands vs. De Leon, 110
Phil. 28; Director of Lands vs. Jurado, L-14702, May 23, 1961; Pena "Law on
Natural Resources", p. 49). Under the foregoing considerations, it is evident that the
mortgage executed by private respondent on his own building which was erected on
the land belonging to the government is to all intents and purposes a valid mortgage.

As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554,

it will be noted that Sections 121, 122 and 124 of the Public Land Act, refer to land
already acquired under the Public Land Act, or any improvement thereon and
therefore have no application to the assailed mortgage in the case at bar which was
executed before such eventuality. Likewise, Section 2 of Republic Act No. 730, also
a restriction appearing on the face of private respondent's title has likewise no
application in the instant case, despite its reference to encumbrance or alienation
before the patent is issued because it refers specifically to encumbrance or alienation
on the land itself and does not mention anything regarding the improvements
existing thereon.

But it is a different matter, as regards the second mortgage executed over the same
properties on May 2, 1973 for an additional loan of P20,000.00 which was registered
with the Registry of Deeds of Olongapo City on the same date. Relative thereto, it is
evident that such mortgage executed after the issuance of the sales patent and of the
Original Certificate of Title, falls squarely under the prohibitions stated in Sections
121, 122 and 124 of the Public Land Act and Section 2 of Republic Act 730, and is
therefore null and void.

Petitioner points out that private respondents, after physically possessing the title for
five years, voluntarily surrendered the same to the bank in 1977 in order that the
mortgaged may be annotated, without requiring the bank to get the prior approval of
the Ministry of Natural Resources beforehand, thereby implicitly authorizing
Prudential Bank to cause the annotation of said mortgage on their title.

However, the Court, in recently ruling on violations of Section 124 which refers to
Sections 118, 120, 122 and 123 of Commonwealth Act 141, has held:

... Nonetheless, we apply our earlier rulings because we believe that as

in pari delicto may not be invoked to defeat the policy of the State
neither may the doctrine of estoppel give a validating effect to a void
contract. Indeed, it is generally considered that as between parties to a
contract, validity cannot be given to it by estoppel if it is prohibited by
law or is against public policy (19 Am. Jur. 802). It is not within the
competence of any citizen to barter away what public policy by law was
to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and
Alino supra). ... (Arsenal vs. IAC, 143 SCRA 54 [1986]).

This pronouncement covers only the previous transaction already alluded to and
does not pass upon any new contract between the parties (Ibid), as in the case at bar.
It should not preclude new contracts that may be entered into between petitioner
bank and private respondents that are in accordance with the requirements of the
law. After all, private respondents themselves declare that they are not denying the
legitimacy of their debts and appear to be open to new negotiations under the law
(Comment; Rollo, pp. 95-96). Any new transaction, however, would be subject to
whatever steps the Government may take for the reversion of the land in its favor.

PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales

& Olongapo City is hereby MODIFIED, declaring that the Deed of Real Estate
Mortgage for P70,000.00 is valid but ruling that the Deed of Real Estate Mortgage
for an additional loan of P20,000.00 is null and void, without prejudice to any
appropriate action the Government may take against private respondents.

SO ORDERED.
G.R. No. L-32917 July 18, 1988

JULIAN S. YAP, petitioner,

vs.
HON. SANTIAGO O. TAÑADA, etc., and GOULDS PUMPS
INTERNATIONAL (PHIL.), INC., respondents.

Paterno P. Natinga for private respondent.

NARVASA, J.:

The petition for review on certiorari at bar involves two (2) Orders of respondent
Judge Tañada 1 in Civil Case No. 10984. The first, dated September 16, 1970,
denied petitioner Yap's motion to set aside execution sale and to quash alias writ of
execution. The second, dated November 21, 1970, denied Yap's motion for
reconsideration. The issues concerned the propriety of execution of a judgment
claimed to be "incomplete, vague and non-final," and the denial of petitioner's
application to prove and recover damages resulting from alleged irregularities in
the process of execution.

The antecedents will take some time in the telling. The case began in the City
Court of Cebu with the filing by Goulds Pumps International (Phil.), Inc. of a
complaint 2 against Yap and his wife 3 seeking recovery of P1,459.30 representing
the balance of the price and installation cost of a water pump in the latter's
premises. 4 The case resulted in a judgment by the City Court on November 25,
1968, reading as follows:

When this case was called for trial today, Atty. Paterno Natinga
appeared for the plaintiff Goulds and informed the court that he is
ready for trial. However, none of the defendants appeared despite
notices having been served upon them.

Upon petition Atty. Natinga, the plaintiff is hereby allowed to present

its evidence ex-parte.

After considering the evidence of the plaintiff, the court hereby

renders judgment in favor of the plaintiff and against the defendant
(Yap), ordering the latter to pay to the former the sum of Pl,459.30
with interest at the rate of 12% per annum until fully paid, computed
 from August 12, 1968, date of the filing of the complaint; to pay the
sum of P364.80 as reasonable attorney's fees, which is equivalent " to
25% of the unpaid principal obligation; and to pay the costs, if any.

Yap appealed to the Court of First Instance. The appeal was assigned to the sala of
respondent Judge Tañada. For failure to appear for pre-trial on August 28, 1968,
this setting being intransferable since the pre-trial had already been once postponed
at his instance, 5 Yap was declared in default by Order of Judge Tañada dated
August 28, 1969, 6 reading as follows:

When this case was called for pre-trial this morning, the plaintiff and
counsel appeared, but neither the defendants nor his counsel appeared
despite the fact that they were duly notified of the pre-trial set this
morning. Instead he filed an Ex-Parte Motion for Postponement which
this Court received only this morning, and on petition of counsel for
the plaintiff that the Ex-Parte Motion for Postponement was not filed
in accordance with the Rules of Court he asked that the same be
denied and the defendants be declared in default; .. the motion for the
plaintiff being well- grounded, the defendants are hereby declared in
default and the Branch Clerk of Court ..is hereby authorized to receive
evidence for the plaintiff and .. submit his report within ten (10) days
after reception of evidence.

Goulds presented evidence ex parte and judgment by default was rendered the
following day by Judge Tañada requiring Yap to pay to Goulds (1) Pl,459.30
representing the unpaid balance of the pump purchased by him; (2) interest of 12%
per annum thereon until fully paid; and (3) a sum equivalent to 25% of the amount
due as attorney's fees and costs and other expenses in prosecuting the action.
Notice of the judgment was served on Yap on September 1, 1969. 7

On September 16, 1969 Yap filed a motion for reconsideration. 8 In it he insisted

that his motion for postponement should have been granted since it expressed his
desire to explore the possibility of an amicable settlement; that the court should
give the parties time to arrive at an amicable settlement failing which, he should be
allowed to present evidence in support of his defenses (discrepancy as to the price
and breach of warranty). The motion was not verified or accompanied by any
separate affidavit. Goulds opposed the motion. Its opposition 9 drew attention to
the eleventh-hour motion for postponement of Yap which had resulted in the
cancellation of the prior hearing of June 30, 1969 despite Goulds' vehement
objection, and the re-setting thereof on August 28, 1969 with intransferable
character; it averred that Yap had again sought postponement of this last hearing
by another eleventh-hour motion on the plea that an amicable settlement would be
explored, yet he had never up to that time ever broached the matter, 10 and that
this pattern of seeking to obtain last-minute postponements was discernible also in
the proceedings before the City Court. In its opposition, Goulds also adverted to
the examination made by it of the pump, on instructions of the City Court, with a
view to remedying the defects claimed to exist by Yap; but the examination had
disclosed the pump's perfect condition. Yap's motion for reconsideration was
denied by Order dated October 10, 1969, notice of which was received by Yap on
October 4, 1969. 11

On October 15, 1969 Judge Tañada issued an Order granting Goulds' Motion for
Issuance of Writ of Execution dated October 14, 1969, declaring the reasons
therein alleged to be meritorious. 12 Yap forthwith filed an "Urgent Motion for
Reconsideration of Order" dated October 17, 1969, 13 contending that the
judgment had not yet become final, since contrary to Goulds' view, his motion for
reconsideration was not pro forma for lack of an affidavit of merit, this not being
required under Section 1 (a) of Rule 37 of the Rules of Court upon which his
motion was grounded. Goulds presented an opposition dated October 22,
1969. 14 It pointed out that in his motion for reconsideration Yap had claimed to
have a valid defense to the action, i.e., ".. discrepancy as to price and breach of
seller's warranty," in effect, that there was fraud on Goulds' paint; Yap's motion for
reconsideration should therefore have been supported by an affidavit of merit
respecting said defenses; the absence thereof rendered the motion for
reconsideration fatally defective with the result that its filing did not interrupt the
running of the period of appeal. The opposition also drew attention to the failure of
the motion for reconsideration to specify the findings or conclusions in the
judgment claimed to be contrary to law or not supported by the evidence, making it
a pro forma motion also incapable of stopping the running of the appeal period. On
October 23, 1969, Judge Tañada denied Yap's motion for reconsideration and
authorized execution of the judgment.15 Yap sought reconsideration of this order,
by another motion dated October 29, 1969. 16 This motion was denied by Order
dated January 26, 1970. 17 Again Yap moved for reconsideration, and again was
rebuffed, by Order dated April 28, 1970. 18

In the meantime the Sheriff levied on the water pump in question, 19 and by notice
dated November 4, 1969, scheduled the execution sale thereof on November 14,
1969. 20 But in view of the pendency of Yap's motion for reconsideration of
October 29, 1969, suspension of the sale was directed by Judge Tañada in an order
dated November 6, 1969.21
 Counsel for the plaintiff is hereby given 10 days time to answer the
Motion, dated October 29, 1969, from receipt of this Order and in the
meantime, the Order of October 23, 1969, insofar as it orders the
sheriff to enforce the writ of execution is hereby suspended.

It appears however that a copy of this Order was not transmitted to the Sheriff
"through oversight, inadvertence and pressure of work" of the Branch Clerk of
Court. 22 So the Deputy Provincial Sheriff went ahead with the scheduled auction
sale and sold the property levied on to Goulds as the highest bidder. 23 He later
submitted the requisite report to the Court dated November 17, 1969, 24 as well as
the "Sheriffs Return of Service" dated February 13, 1970, 25 in both of which it
was stated that execution had been "partially satisfied." It should be observed that
up to this time, February, 1970, Yap had not bestirred himself to take an appeal
from the judgment of August 29, 1969.

On May 9, 1970 Judge Tañada ordered the issuance of an alias writ of execution
on Gould's ex parte motion therefor. 26 Yap received notice of the Order on June
11. Twelve (1 2) days later, he filed a "Motion to Set Aside Execution Sale and to
Quash Alias Writ of Execution." 27 As regards the original, partial execution of
the judgment, he argued that —

1) "the issuance of the writ of execution on October 16, 1969 was contrary to law,
the judgment sought to be executed not being final and executory;" and

2) "the sale was made without the notice required by Sec. 18, Rule 39, of the New
Rules of Court," i.e., notice by publication in case of execution sale of real
property, the pump and its accessories being immovable because attached to the
ground with character of permanency (Art. 415, Civil Code).

And with respect to the alias writ, he argued that it should not have issued because
—

1) "the judgment sought to be executed is null and void" as "it deprived the
defendant of his day in court" and "of due process;"

2) "said judgment is incomplete and vague" because there is no starting point for
computation of the interest imposed, or a specification of the "other expenses
incurred in prosecuting this case" which Yap had also been ordered to pay;

3) "said judgment is defective because it contains no statement of facts but a mere

recital of the evidence; and
4) "there has been a change in the situation of the parties which makes execution
unjust and inequitable" because Yap suffered damages by reason of the illegal
execution.

Goulds filed an opposition on July 6, 1970. Yap's motion was thereafter denied by
Order dated September 16, 1970. Judge Tañada pointed out that the motion had
"become moot and academic" since the decision of August 29, 1969, "received by
the defendant on September 1, 1969 had long become final when the Order for the
Issuance of a Writ of Execution was promulgated on October 15, 1969." His Honor
also stressed that —

The defendant's Motion for Reconsideration of the Courts decision

was in reality one for new trial. Regarded as motion for new trial it
should allege the grounds for new trial, provided for in the Rules of
Court, to be supported by affidavit of merits; and this the defendant
failed to do. If the defendant sincerely desired for an opportunity to
submit to an amicable settlement, which he failed to do extra
judicially despite the ample time before him, he should have appeared
in the pre- trial to achieve the same purpose.

Judge Tañada thereafter promulgated another Order dated September 21, 1970
granting a motion of Goulds for completion of execution of the judgment of
August 29, 1969 to be undertaken by the City Sheriff of Cebu. Once more, Yap
sought reconsideration. He submitted a "Motion for Reconsideration of Two
Orders" dated October 13, 1970, 28 seeking the setting aside not only of this Order
of September 21, 1970 but also that dated September 16, 1970, denying his motion
to set aside execution dated June 23, 1970. He contended that the Order of
September 21, 1970 (authorizing execution by the City Sheriff) was
premature, since the 30-day period to appeal from the earlier order of September
16, 1970 (denying his motion to set aside) had not yet expired. He also reiterated
his view that his motion for reconsideration dated September 15, 1969 did not
require that it be accompanied by an affidavit of merits. This last motion was also
denied for "lack of merits," by Order dated November 21, 1970. 29

On December 3, 1970, Yap filed a "Notice of Appeal" manifesting his intention to

appeal to the Supreme Court on certiorari only on questions of law, "from the
Order ... of September 16, 1970 ... and from the Order ... of November 21, 1970, ...
pursuant to sections 2 and 3 of Republic Act No. 5440." He filed his petition for
review with this Court on January 5, 1971, after obtaining an extension therefor. 30
The errors of law he attributes to the Court a quo are the following: 31

1) refusing to invalidate the execution pursuant to its Order of October 16, 1969
although the judgment had not then become final and executory and despite its
being incomplete and vague;

2) ignoring the fact that the execution sale was carried out although it (the Court)
had itself ordered suspension of execution on November 6, 1969;

3) declining to annul the execution sale of the pump and accessories subject of the
action although made without the requisite notice prescribed for the sale of
immovables; and

4) refusing to allow the petitioner to prove irregularities in the process of execution

which had resulted in damages to him.

Notice of the Trial Court's judgment was served on Yap on September 1, 1969. His
motion for reconsideration thereof was filed 15 days thereafter, on September 16,
1969. Notice of the Order denying the motion was received by him on October 14,
1969. The question is whether or not the motion for reconsideration — which was
not verified, or accompanied by an affidavit of merits (setting forth facts
constituting his meritorious defenses to the suit) or other sworn statement (stating
facts excusing his failure to appear at the pre-trial was pro forma and consequently
had not interrupted the running of the period of appeal. It is Yap's contention that
his motion was not pro forma for lack of an affidavit of merits, such a document
not being required by Section 1 (a) of Rule 37 of the Rules of Court upon which
his motion was based. This is incorrect.

Section 2, Rule 37 precisely requires that when the motion for new trial is founded
on Section 1 (a), it should be accompanied by an affidavit of merit.

xxx xxx xxx

When the motion is made for the causes mentioned in subdivisions (a)
and (b) of the preceding section, it shall be proved in the manner
provided for proof of motions. Affidavit or affidavits of merits shall
also be attached to a motion for the cause mentioned in subdivision
(a) which may be rebutted by counter-affidavits.

xxx xxx xxx 32

Since Yap himself asserts that his motion for reconsideration is grounded on
Section 1 (a) of Rule 37, 33 i.e., fraud, accident, mistake or excusable negligence
which ordinary prudence could not have guarded against and by reason of which ...
(the) aggrieved party has probably been impaired in his rights" — this being in any
event clear from a perusal of the motion which theorizes that he had "been
impaired in his rights" because he was denied the right to present evidence of his
defenses (discrepancy as to price and breach of warranty) — it was a fatal
omission to fail to attach to his motion an affidavit of merits, i.e., an affidavit
"showing the facts (not conclusions) constituting the valid x x defense which the
movant may prove in case a new trial is granted." 34 The requirement of such an
affidavit is essential because obviously "a new trial would be a waste of the court's
time if the complaint turns out to be groundless or the defense ineffective." 35

In his motion for reconsideration, Yap also contended that since he had expressed a
desire to explore the possibility of an amicable settlement, the Court should have
given him time to do so, instead of declaring him in default and thereafter
rendering judgment by default on Gould's ex parte evidence.

The bona fides of this desire to compromise is however put in doubt by the
attendant circumstances. It was manifested in an eleventh-hour motion for
postponement of the pre-trial which had been scheduled with intransferable
character since it had already been earlier postponed at Yap's instance; it had never
been mentioned at any prior time since commencement of the litigation; such a
possible compromise (at least in general or preliminary terms) was certainly most
appropriate for consideration at the pre-trial; in fact Yap was aware that the matter
was indeed a proper subject of a pre-trial agenda, yet he sought to avoid
appearance at said pre-trial which he knew to be intransferable in character. These
considerations and the dilatory tactics thus far attributable to him-seeking
postponements of hearings, or failing to appear therefor despite notice, not only in
the Court of First Instance but also in the City Court — proscribe belief in the
sincerity of his avowed desire to negotiate a compromise. Moreover, the disregard
by Yap of the general requirement that "(n)otice of a motion shall be served by the
applicant to all parties concerned at least three (3) days before the hearing thereof,
together with a copy of the motion, and of any affidavits and other papers
accompanying it," 36 for which no justification whatever has been offered, also
militates against the bona fides of Yap's expressed wish for an amicable settlement.
The relevant circumstances do not therefore justify condemnation, as a grave abuse
of discretion, or a serious mistake, of the refusal of the Trial Judge to grant
postponement upon this proferred ground.
The motion for reconsideration did not therefore interrupt the running of the period
of appeal. The time during which it was pending before the court — from
September 16, 1969 when it was filed with the respondent Court until October 14,
1969 when notice of the order denying the motion was received by the movant —
could not be deducted from the 30-day period of appeal. 37 This is the inescapable
conclusion from a consideration of Section 3 of Rule 41 which in part declares
that, "The "time during which a motion to set aside the judgment or order or for a
new trial has been pending shall be deducted, unless such motion fails to satisfy the
requirements of Rule 37. 38

Notice of the judgment having been received by Yap on September 1, 1969, and
the period of appeal therefrom not having been interrupted by his motion for
reconsideration filed on September 16, 1969, the reglementary period of appeal
expired thirty (30) days after September 1, 1969, or on October 1, 1969, without an
appeal being taken by Yap. The judgment then became final and executory; Yap
could no longer take an appeal therefrom or from any other subsequent orders; and
execution of judgment correctly issued on October 15, 1969, "as a matter of
right." 39

The next point discussed by Yap, that the judgment is incomplete and vague, is not
well taken. It is true that the decision does not fix the starting time of the
computation of interest on the judgment debt, but this is inconsequential since that
time is easily determinable from the opinion, i.e., from the day the buyer (Yap)
defaulted in the payment of his obligation, 40 on May 31, 1968. 41 The absence of
any disposition regarding his counterclaim is also immaterial and does not render
the judgment incomplete. Yap's failure to appear at the pre-trial without
justification and despite notice, which caused the declaration of his default, was a
waiver of his right to controvert the plaintiff s proofs and of his right to prove the
averments of his answer, inclusive of the counterclaim therein pleaded. Moreover,
the conclusion in the judgment of the merit of the plaintiff s cause of action was
necessarily and at the same time a determination of the absence of merit of the
defendant's claim of untenability of the complaint and of malicious prosecution.

Yap's next argument that the water pump had become immovable property by its
being installed in his residence is also untenable. The Civil Code considers as
immovable property, among others, anything "attached to an immovable in a fixed
manner, in such a way that it cannot be separated therefrom without breaking the
material or deterioration of the object." 42 The pump does not fit this description.
It could be, and was in fact separated from Yap's premises without being broken or
suffering deterioration. Obviously the separation or removal of the pump involved
nothing more complicated than the loosening of bolts or dismantling of other
fasteners.

Yap's last claim is that in the process of the removal of the pump from his house,
Goulds' men had trampled on the plants growing there, destroyed the shed over the
pump, plugged the exterior casings with rags and cut the electrical and conduit
pipes; that he had thereby suffered actual-damages in an amount of not less than P
2,000.00, as well as moral damages in the sum of P 10,000.00 resulting from his
deprivation of the use of his water supply; but the Court had refused to allow him
to prove these acts and recover the damages rightfully due him. Now, as to the loss
of his water supply, since this arose from acts legitimately done, the seizure on
execution of the water pump in enforcement of a final and executory judgment,
Yap most certainly is not entitled to claim moral or any other form of damages
therefor.

WHEREFORE, the petition is DENIED and the appeal DISMISSED, and the
Orders of September 16, 1970 and November 21, 1970 subject thereof,
AFFIRMED in toto. Costs against petitioner.
G.R. No. L-58469 May 16, 1983

MAKATI LEASING and FINANCE CORPORATION, petitioner,

vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF
APPEALS, respondents.

Loreto C. Baduan for petitioner.

Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.

Jose V. Mancella for respondent.

DE CASTRO, J.:

Petition for review on certiorari of the decision of the Court of Appeals (now
Intermediate Appellate Court) promulgated on August 27, 1981 in CA-G.R. No.
SP-12731, setting aside certain Orders later specified herein, of Judge Ricardo J.
Francisco, as Presiding Judge of the Court of First instance of Rizal Branch VI,
issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981
of the said appellate court, denying petitioner's motion for reconsideration.

It appears that in order to obtain financial accommodations from herein petitioner

Makati Leasing and Finance Corporation, the private respondent Wearever Textile
Mills, Inc., discounted and assigned several receivables with the former under a
Receivable Purchase Agreement. To secure the collection of the receivables
assigned, private respondent executed a Chattel Mortgage over certain raw
materials inventory as well as a machinery described as an Artos Aero Dryer
Stentering Range.

Upon private respondent's default, petitioner filed a petition for extrajudicial

foreclosure of the properties mortgage to it. However, the Deputy Sheriff assigned
to implement the foreclosure failed to gain entry into private respondent's premises
and was not able to effect the seizure of the aforedescribed machinery. Petitioner
thereafter filed a complaint for judicial foreclosure with the Court of First Instance
of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower
court.
Acting on petitioner's application for replevin, the lower court issued a writ of
seizure, the enforcement of which was however subsequently restrained upon
private respondent's filing of a motion for reconsideration. After several incidents,
the lower court finally issued on February 11, 1981, an order lifting the restraining
order for the enforcement of the writ of seizure and an order to break open the
premises of private respondent to enforce said writ. The lower court reaffirmed its
stand upon private respondent's filing of a further motion for reconsideration.

On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises
of private respondent and removed the main drive motor of the subject machinery.

The Court of Appeals, in certiorari and prohibition proceedings subsequently filed

by herein private respondent, set aside the Orders of the lower court and ordered
the return of the drive motor seized by the sheriff pursuant to said Orders, after
ruling that the machinery in suit cannot be the subject of replevin, much less of a
chattel mortgage, because it is a real property pursuant to Article 415 of the new
Civil Code, the same being attached to the ground by means of bolts and the only
way to remove it from respondent's plant would be to drill out or destroy the
concrete floor, the reason why all that the sheriff could do to enfore the writ was to
take the main drive motor of said machinery. The appellate court rejected
petitioner's argument that private respondent is estopped from claiming that the
machine is real property by constituting a chattel mortgage thereon.

A motion for reconsideration of this decision of the Court of Appeals having been
denied, petitioner has brought the case to this Court for review by writ of certiorari.
It is contended by private respondent, however, that the instant petition was
rendered moot and academic by petitioner's act of returning the subject motor drive
of respondent's machinery after the Court of Appeals' decision was promulgated.

The contention of private respondent is without merit. When petitioner returned the
subject motor drive, it made itself unequivocably clear that said action was without
prejudice to a motion for reconsideration of the Court of Appeals decision, as
shown by the receipt duly signed by respondent's representative. 1 Considering that
petitioner has reserved its right to question the propriety of the Court of Appeals'
decision, the contention of private respondent that this petition has been mooted by
such return may not be sustained.

The next and the more crucial question to be resolved in this Petition is whether the
machinery in suit is real or personal property from the point of view of the parties,
with petitioner arguing that it is a personality, while the respondent claiming the
contrary, and was sustained by the appellate court, which accordingly held that the
chattel mortgage constituted thereon is null and void, as contended by said
respondent.

A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143
where this Court, speaking through Justice J.B.L. Reyes, ruled:

Although there is no specific statement referring to the subject house

as personal property, yet by ceding, selling or transferring a property
by way of chattel mortgage defendants-appellants could only have
meant to convey the house as chattel, or at least, intended to treat the
same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise. Moreover, the subject house
stood on a rented lot to which defendants-appellants merely had a
temporary right as lessee, and although this can not in itself alone
determine the status of the property, it does so when combined with
other factors to sustain the interpretation that the parties, particularly
the mortgagors, intended to treat the house as personality. Finally,
unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. &
Leung Yee vs. F.L. Strong Machinery & Williamson,wherein third
persons assailed the validity of the chattel mortgage, it is the
defendants-appellants themselves, as debtors-mortgagors, who are
attacking the validity of the chattel mortgage in this case. The doctrine
of estoppel therefore applies to the herein defendants-appellants,
having treated the subject house as personality.

Examining the records of the instant case, We find no logical justification to

exclude the rule out, as the appellate court did, the present case from the
application of the abovequoted pronouncement. If a house of strong materials, like
what was involved in the above Tumalad case, may be considered as personal
property for purposes of executing a chattel mortgage thereon as long as the parties
to the contract so agree and no innocent third party will be prejudiced thereby,
there is absolutely no reason why a machinery, which is movable in its nature and
becomes immobilized only by destination or purpose, may not be likewise treated
as such. This is really because one who has so agreed is estopped from denying the
existence of the chattel mortgage.

In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the

Court of Appeals lays stress on the fact that the house involved therein was built on
a land that did not belong to the owner of such house. But the law makes no
distinction with respect to the ownership of the land on which the house is built
and We should not lay down distinctions not contemplated by law.

It must be pointed out that the characterization of the subject machinery as chattel
by the private respondent is indicative of intention and impresses upon the property
the character determined by the parties. As stated in Standard Oil Co. of New York
v. Jaramillo, 44 Phil. 630, it is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be real property,
as long as no interest of third parties would be prejudiced thereby.

Private respondent contends that estoppel cannot apply against it because it had
never represented nor agreed that the machinery in suit be considered as personal
property but was merely required and dictated on by herein petitioner to sign a
printed form of chattel mortgage which was in a blank form at the time of signing.
This contention lacks persuasiveness. As aptly pointed out by petitioner and not
denied by the respondent, the status of the subject machinery as movable or
immovable was never placed in issue before the lower court and the Court of
Appeals except in a supplemental memorandum in support of the petition filed in
the appellate court. Moreover, even granting that the charge is true, such fact alone
does not render a contract void ab initio, but can only be a ground for rendering
said contract voidable, or annullable pursuant to Article 1390 of the new Civil
Code, by a proper action in court. There is nothing on record to show that the
mortgage has been annulled. Neither is it disclosed that steps were taken to nullify
the same. On the other hand, as pointed out by petitioner and again not refuted by
respondent, the latter has indubitably benefited from said contract. Equity dictates
that one should not benefit at the expense of another. Private respondent could not
now therefore, be allowed to impugn the efficacy of the chattel mortgage after it
has benefited therefrom,

From what has been said above, the error of the appellate court in ruling that the
questioned machinery is real, not personal property, becomes very apparent.
Moreover, the case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil.
70, heavily relied upon by said court is not applicable to the case at bar, the nature
of the machinery and equipment involved therein as real properties never having
been disputed nor in issue, and they were not the subject of a Chattel Mortgage.
Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant
case to be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are
hereby reversed and set aside, and the Orders of the lower court are hereby
reinstated, with costs against the private respondent.

SO ORDERED.
G.R. No. 155076 February 27, 2006

LUIS MARCOS P. LAUREL, Petitioner,

vs.
HON. ZEUS C. ABROGAR, Presiding Judge of the Regional Trial Court,
Makati City, Branch 150, PEOPLE OF THE PHILIPPINES& PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY,Respondents.

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari of the Decision1 of the Court of

Appeals (CA) in CA-G.R. SP No. 68841 affirming the Order issued by Judge Zeus
C. Abrogar, Regional Trial Court (RTC), Makati City, Branch 150, which denied
the "Motion to Quash (With Motion to Defer Arraignment)" in Criminal Case No.
99-2425 for theft.

Philippine Long Distance Telephone Company (PLDT) is the holder of a

legislative franchise to render local and international telecommunication services
under Republic Act No. 7082.2 Under said law, PLDT is authorized to establish,
operate, manage, lease, maintain and purchase telecommunication systems,
including transmitting, receiving and switching stations, for both domestic and
international calls. For this purpose, it has installed an estimated 1.7 million
telephone lines nationwide. PLDT also offers other services as authorized by
Certificates of Public Convenience and Necessity (CPCN) duly issued by the
National Telecommunications Commission (NTC), and operates and maintains an
International Gateway Facility (IGF). The PLDT network is thus principally
composed of the Public Switch Telephone Network (PSTN), telephone handsets
and/or telecommunications equipment used by its subscribers, the wires and cables
linking said telephone handsets and/or telecommunications equipment, antenna,
the IGF, and other telecommunications equipment which provide
interconnections.3 1avvphil.net

PLDT alleges that one of the alternative calling patterns that constitute network
fraud and violate its network integrity is that which is known as International
Simple Resale (ISR). ISR is a method of routing and completing international long
distance calls using International Private Leased Lines (IPL), cables, antenna or air
wave or frequency, which connect directly to the local or domestic exchange
facilities of the terminating country (the country where the call is destined). The
IPL is linked to switching equipment which is connected to a PLDT telephone
line/number. In the process, the calls bypass the IGF found at the terminating
country, or in some instances, even those from the originating country.4

One such alternative calling service is that offered by Baynet Co., Ltd. (Baynet)
which sells "Bay Super Orient Card" phone cards to people who call their friends
and relatives in the Philippines. With said card, one is entitled to a 27-minute call
to the Philippines for about ¥37.03 per minute. After dialing the ISR access
number indicated in the phone card, the ISR operator requests the subscriber to
give the PIN number also indicated in the phone card. Once the caller’s identity (as
purchaser of the phone card) is confirmed, the ISR operator will then provide a
Philippine local line to the requesting caller via the IPL. According to PLDT, calls
made through the IPL never pass the toll center of IGF operators in the Philippines.
Using the local line, the Baynet card user is able to place a call to any point in the
Philippines, provided the local line is National Direct Dial (NDD) capable.5

PLDT asserts that Baynet conducts its ISR activities by utilizing an IPL to course
its incoming international long distance calls from Japan. The IPL is linked to
switching equipment, which is then connected to PLDT telephone lines/numbers
and equipment, with Baynet as subscriber. Through the use of the telephone lines
and other auxiliary equipment, Baynet is able to connect an international long
distance call from Japan to any part of the Philippines, and make it appear as a call
originating from Metro Manila. Consequently, the operator of an ISR is able to
evade payment of access, termination or bypass charges and accounting rates, as
well as compliance with the regulatory requirements of the NTC. Thus, the ISR
operator offers international telecommunication services at a lower rate, to the
damage and prejudice of legitimate operators like PLDT.6

PLDT pointed out that Baynet utilized the following equipment for its ISR
activities: lines, cables, and antennas or equipment or device capable of
transmitting air waves or frequency, such as an IPL and telephone lines and
equipment; computers or any equipment or device capable of accepting
information applying the prescribed process of the information and supplying the
result of this process; modems or any equipment or device that enables a data
terminal equipment such as computers to communicate with other data terminal
equipment via a telephone line; multiplexers or any equipment or device that
enables two or more signals from different sources to pass through a common
cable or transmission line; switching equipment, or equipment or device capable of
connecting telephone lines; and software, diskettes, tapes or equipment or device
used for recording and storing information.7
PLDT also discovered that Baynet subscribed to a total of 123 PLDT telephone
lines/numbers.8 Based on the Traffic Study conducted on the volume of calls
passing through Baynet’s ISR network which bypass the IGF toll center, PLDT
incurred an estimated monthly loss of P10,185,325.96.9 Records at the Securities
and Exchange Commission (SEC) also revealed that Baynet was not authorized to
provide international or domestic long distance telephone service in the country.
The following are its officers: Yuji Hijioka, a Japanese national (chairman of the
board of directors); Gina C. Mukaida, a Filipina (board member and president);
Luis Marcos P. Laurel, a Filipino (board member and corporate secretary); Ricky
Chan Pe, a Filipino (board member and treasurer); and Yasushi Ueshima, also a
Japanese national (board member).

Upon complaint of PLDT against Baynet for network fraud, and on the strength of
two search warrants10 issued by the RTC of Makati, Branch 147, National Bureau
of Investigation (NBI) agents searched its office at the 7th Floor, SJG Building,
Kalayaan Avenue, Makati City on November 8, 1999. Atsushi Matsuura,
Nobuyoshi Miyake, Edourd D. Lacson and Rolando J. Villegas were arrested by
NBI agents while in the act of manning the operations of Baynet. Seized in the
premises during the search were numerous equipment and devices used in its ISR
activities, such as multiplexers, modems, computer monitors, CPUs, antenna,
assorted computer peripheral cords and microprocessors, cables/wires, assorted
PLDT statement of accounts, parabolic antennae and voltage regulators.

State Prosecutor Ofelia L. Calo conducted an inquest investigation and issued a

Resolution11 on January 28, 2000, finding probable cause for theft under Article
308 of the Revised Penal Code and Presidential Decree No. 40112 against the
respondents therein, including Laurel.

On February 8, 2000, State Prosecutor Calo filed an Information with the RTC of
Makati City charging Matsuura, Miyake, Lacson and Villegas with theft under
Article 308 of the Revised Penal Code. After conducting the requisite preliminary
investigation, the State Prosecutor filed an Amended Information impleading
Laurel (a partner in the law firm of Ingles, Laurel, Salinas, and, until November 19,
1999, a member of the board of directors and corporate secretary of Baynet), and
the other members of the board of directors of said corporation, namely, Yuji
Hijioka, Yasushi Ueshima, Mukaida, Lacson and Villegas, as accused for theft
under Article 308 of the Revised Penal Code. The inculpatory portion of the
Amended Information reads:
On or about September 10-19, 1999, or prior thereto, in Makati City, and within
the jurisdiction of this Honorable Court, the accused, conspiring and confederating
together and all of them mutually helping and aiding one another, with intent to
gain and without the knowledge and consent of the Philippine Long Distance
Telephone (PLDT), did then and there willfully, unlawfully and feloniously take,
steal and use the international long distance calls belonging to PLDT by
conducting International Simple Resale (ISR), which is a method of routing and
completing international long distance calls using lines, cables, antennae, and/or air
wave frequency which connect directly to the local or domestic exchange facilities
of the country where the call is destined, effectively stealing this business from
PLDT while using its facilities in the estimated amount of P20,370,651.92 to the
damage and prejudice of PLDT, in the said amount.

CONTRARY TO LAW.13

Accused Laurel filed a "Motion to Quash (with Motion to Defer Arraignment)" on

the ground that the factual allegations in the Amended Information do not
constitute the felony of theft under Article 308 of the Revised Penal Code. He
averred that the Revised Penal Code, or any other special penal law for that matter,
does not prohibit ISR operations. He claimed that telephone calls with the use of
PLDT telephone lines, whether domestic or international, belong to the persons
making the call, not to PLDT. He argued that the caller merely uses the facilities of
PLDT, and what the latter owns are the telecommunication infrastructures or
facilities through which the call is made. He also asserted that PLDT is
compensated for the caller’s use of its facilities by way of rental; for an outgoing
overseas call, PLDT charges the caller per minute, based on the duration of the
call. Thus, no personal property was stolen from PLDT. According to Laurel, the
P20,370,651.92 stated in the Information, if anything, represents the rental for the
use of PLDT facilities, and not the value of anything owned by it. Finally, he
averred that the allegations in the Amended Information are already subsumed
under the Information for violation of Presidential Decree (P.D.) No. 401 filed and
pending in the Metropolitan Trial Court of Makati City, docketed as Criminal Case
No. 276766.

The prosecution, through private complainant PLDT, opposed the

motion,14 contending that the movant unlawfully took personal property belonging
to it, as follows: 1) intangible telephone services that are being offered by PLDT
and other telecommunication companies, i.e., the connection and interconnection
to their telephone lines/facilities; 2) the use of those facilities over a period of time;
and 3) the revenues derived in connection with the rendition of such services and
the use of such facilities.15

The prosecution asserted that the use of PLDT’s intangible telephone

services/facilities allows electronic voice signals to pass through the same, and
ultimately to the called party’s number. It averred that such service/facility is akin
to electricity which, although an intangible property, may, nevertheless, be
appropriated and be the subject of theft. Such service over a period of time for a
consideration is the business that PLDT provides to its customers, which enables
the latter to send various messages to installed recipients. The service rendered by
PLDT is akin to merchandise which has specific value, and therefore, capable of
appropriation by another, as in this case, through the ISR operations conducted by
the movant and his co-accused.

The prosecution further alleged that "international business calls and revenues
constitute personal property envisaged in Article 308 of the Revised Penal Code."
Moreover, the intangible telephone services/facilities belong to PLDT and not to
the movant and the other accused, because they have no telephone services and
facilities of their own duly authorized by the NTC; thus, the taking by the movant
and his co-accused of PLDT services was with intent to gain and without the
latter’s consent.

The prosecution pointed out that the accused, as well as the movant, were paid in
exchange for their illegal appropriation and use of PLDT’s telephone services and
facilities; on the other hand, the accused did not pay a single centavo for their
illegal ISR operations. Thus, the acts of the accused were akin to the use of a
"jumper" by a consumer to deflect the current from the house electric meter,
thereby enabling one to steal electricity. The prosecution emphasized that its
position is fortified by the Resolutions of the Department of Justice in PLDT v.
Tiongson, et al. (I.S. No. 97-0925) and in PAOCTF-PLDT v. Elton John Tuason,
et al. (I.S. No. 2000-370) which were issued on August 14, 2000 finding probable
cause for theft against the respondents therein.

On September 14, 2001, the RTC issued an Order16 denying the Motion to Quash
the Amended Information. The court declared that, although there is no law that
expressly prohibits the use of ISR, the facts alleged in the Amended Information
"will show how the alleged crime was committed by conducting ISR," to the
damage and prejudice of PLDT.
Laurel filed a Motion for Reconsideration17 of the Order, alleging that international
long distance calls are not personal property, and are not capable of appropriation.
He maintained that business or revenue is not considered personal property, and
that the prosecution failed to adduce proof of its existence and the subsequent loss
of personal property belonging to another. Citing the ruling of the Court in United
States v. De Guzman,18Laurel averred that the case is not one with telephone calls
which originate with a particular caller and terminates with the called party. He
insisted that telephone calls are considered privileged communications under the
Constitution and cannot be considered as "the property of PLDT." He further
argued that there is no kinship between telephone calls and electricity or gas, as the
latter are forms of energy which are generated and consumable, and may be
considered as personal property because of such characteristic. On the other hand,
the movant argued, the telephone business is not a form of energy but is an
activity.

In its Order19 dated December 11, 2001, the RTC denied the movant’s Motion for
Reconsideration. This time, it ruled that what was stolen from PLDT was its
"business" because, as alleged in the Amended Information, the international long
distance calls made through the facilities of PLDT formed part of its business. The
RTC noted that the movant was charged with stealing the business of PLDT. To
support its ruling, it cited Strochecker v. Ramirez,20 where the Court ruled that
interest in business is personal property capable of appropriation. It further
declared that, through their ISR operations, the movant and his co-accused
deprived PLDT of fees for international long distance calls, and that the ISR used
by the movant and his co-accused was no different from the "jumper" used for
stealing electricity.

Laurel then filed a Petition for Certiorari with the CA, assailing the Order of the
RTC. He alleged that the respondent judge gravely abused his discretion in
denying his Motion to Quash the Amended Information.21 As gleaned from the
material averments of the amended information, he was charged with stealing the
international long distance calls belonging to PLDT, not its business. Moreover,
the RTC failed to distinguish between the business of PLDT (providing services
for international long distance calls) and the revenues derived therefrom. He
opined that a "business" or its revenues cannot be considered as personal property
under Article 308 of the Revised Penal Code, since a "business" is "(1) a
commercial or mercantile activity customarily engaged in as a means of livelihood
and typically involving some independence of judgment and power of decision; (2)
a commercial or industrial enterprise; and (3) refers to transactions, dealings or
intercourse of any nature." On the other hand, the term "revenue" is defined as "the
income that comes back from an investment (as in real or personal property); the
annual or periodical rents, profits, interests, or issues of any species of real or
personal property."22

Laurel further posited that an electric company’s business is the production and
distribution of electricity; a gas company’s business is the production and/or
distribution of gas (as fuel); while a water company’s business is the production
and distribution of potable water. He argued that the "business" in all these cases is
the commercial activity, while the goods and merchandise are the products of such
activity. Thus, in prosecutions for theft of certain forms of energy, it is the
electricity or gas which is alleged to be stolen and not the "business" of providing
electricity or gas. However, since a telephone company does not produce any
energy, goods or merchandise and merely renders a service or, in the words of
PLDT, "the connection and interconnection to their telephone lines/facilities," such
service cannot be the subject of theft as defined in Article 308 of the Revised Penal
Code.23

He further declared that to categorize "business" as personal property under Article

308 of the Revised Penal Code would lead to absurd consequences; in prosecutions
for theft of gas, electricity or water, it would then be permissible to allege in the
Information that it is the gas business, the electric business or the water business
which has been stolen, and no longer the merchandise produced by such
enterprise.24

Laurel further cited the Resolution of the Secretary of Justice in Piltel v.

Mendoza,25 where it was ruled that the Revised Penal Code, legislated as it was
before present technological advances were even conceived, is not adequate to
address the novel means of "stealing" airwaves or airtime. In said resolution, it was
noted that the inadequacy prompted the filing of Senate Bill 2379 (sic) entitled
"The Anti-Telecommunications Fraud of 1997" to deter cloning of cellular phones
and other forms of communications fraud. The said bill "aims to protect in number
(ESN) (sic) or Capcode, mobile identification number (MIN), electronic-
international mobile equipment identity (EMEI/IMEI), or subscriber identity
module" and "any attempt to duplicate the data on another cellular phone without
the consent of a public telecommunications entity would be punishable by
law."26 Thus, Laurel concluded, "there is no crime if there is no law punishing the
crime."

On August 30, 2002, the CA rendered judgment dismissing the petition.27 The
appellate court ruled that a petition for certiorari under Rule 65 of the Rules of
Court was not the proper remedy of the petitioner. On the merits of the petition, it
held that while business is generally an activity

which is abstract and intangible in form, it is nevertheless considered "property"

under Article 308 of the Revised Penal Code. The CA opined that PLDT’s
business of providing international calls is personal property which may be the
object of theft, and cited United States v. Carlos28 to support such conclusion. The
tribunal also cited Strochecker v. Ramirez,29 where this Court ruled that one-half
interest in a day’s business is personal property under Section 2 of Act No. 3952,
otherwise known as the Bulk Sales Law. The appellate court held that the
operations of the ISR are not subsumed in the charge for violation of P.D. No. 401.

Laurel, now the petitioner, assails the decision of the CA, contending that -

THE COURT OF APPEALS ERRED IN RULING THAT THE

PERSONAL PROPERTY ALLEGEDLY STOLEN PER THE
INFORMATION IS NOT THE "INTERNATIONAL LONG DISTANCE
CALLS" BUT THE "BUSINESS OF PLDT."

THE COURT OF APPEALS ERRED IN RULING THAT THE TERM

"BUSINESS" IS PERSONAL PROPERTY WITHIN THE MEANING OF
ART. 308 OF THE REVISED PENAL CODE.30

Petitioner avers that the petition for a writ of certiorari may be filed to nullify an
interlocutory order of the trial court which was issued with grave abuse of
discretion amounting to excess or lack of jurisdiction. In support of his petition
before the Court, he reiterates the arguments in his pleadings filed before the CA.
He further claims that while the right to carry on a business or an interest or
participation in business is considered property under the New Civil Code, the term
"business," however, is not. He asserts that the Philippine Legislature, which
approved the Revised Penal Code way back in January 1, 1932, could not have
contemplated to include international long distance calls and "business" as personal
property under Article 308 thereof.

In its comment on the petition, the Office of the Solicitor General (OSG) maintains
that the amended information clearly states all the essential elements of the crime
of theft. Petitioner’s interpretation as to whether an "international long distance
call" is personal property under the law is inconsequential, as a reading of the
amended information readily reveals that specific acts and circumstances were
alleged charging Baynet, through its officers, including petitioner, of feloniously
taking, stealing and illegally using international long distance calls belonging to
respondent PLDT by conducting ISR operations, thus, "routing and completing
international long distance calls using lines, cables, antenna and/or airwave
frequency which connect directly to the local or domestic exchange facilities of the
country where the call is destined." The OSG maintains that the international long
distance calls alleged in the amended information should be construed to mean
"business" of PLDT, which, while abstract and intangible in form, is personal
property susceptible of appropriation.31 The OSG avers that what was stolen by
petitioner and his co-accused is the business of PLDT providing international long
distance calls which, though intangible, is personal property of the PLDT.32

For its part, respondent PLDT asserts that personal property under Article 308 of
the Revised Penal Code comprehends intangible property such as electricity and
gas which are valuable articles for merchandise, brought and sold like other
personal property, and are capable of appropriation. It insists that the business of
international calls and revenues constitute personal property because the same are
valuable articles of merchandise. The respondent reiterates that international calls
involve (a) the intangible telephone services that are being offered by it, that is, the
connection and interconnection to the telephone network, lines or facilities; (b) the
use of its telephone network, lines or facilities over a period of time; and (c) the
income derived in connection therewith.33

PLDT further posits that business revenues or the income derived in connection
with the rendition of such services and the use of its telephone network, lines or
facilities are personal properties under Article 308 of the Revised Penal Code; so is
the use of said telephone services/telephone network, lines or facilities which allow
electronic voice signals to pass through the same and ultimately to the called
party’s number. It is akin to electricity which, though intangible property, may
nevertheless be appropriated and can be the object of theft. The use of respondent
PLDT’s telephone network, lines, or facilities over a period of time for
consideration is the business that it provides to its customers, which enables the
latter to send various messages to intended recipients. Such use over a period of
time is akin to merchandise which has value and, therefore, can be appropriated by
another. According to respondent PLDT, this is what actually happened when
petitioner Laurel and the other accused below conducted illegal ISR operations.34

The petition is meritorious.

The issues for resolution are as follows: (a) whether or not the petition for
certiorari is the proper remedy of the petitioner in the Court of Appeals; (b)
whether or not international telephone calls using Bay Super Orient Cards through
the telecommunication services provided by PLDT for such calls, or, in short,
PLDT’s business of providing said telecommunication services, are proper subjects
of theft under Article 308 of the Revised Penal Code; and (c) whether or not the
trial court committed grave abuse of discretion amounting to excess or lack of
jurisdiction in denying the motion of the petitioner to quash the amended
information.

On the issue of whether or not the petition for certiorari instituted by the petitioner
in the CA is proper, the general rule is that a petition for certiorari under Rule 65 of
the Rules of Court, as amended, to nullify an order denying a motion to quash the
Information is inappropriate because the aggrieved party has a remedy of appeal in
the ordinary course of law. Appeal and certiorari are mutually exclusive of each
other. The remedy of the aggrieved party is to continue with the case in due course
and, when an unfavorable judgment is rendered, assail the order and the decision
on appeal. However, if the trial court issues the order denying the motion to quash
the Amended Information with grave abuse of discretion amounting to excess or
lack of jurisdiction, or if such order is patently erroneous, or null and void for
being contrary to the Constitution, and the remedy of appeal would not afford
adequate and expeditious relief, the accused may resort to the extraordinary
remedy of certiorari.35 A special civil action for certiorari is also available where
there are special circumstances clearly demonstrating the inadequacy of an appeal.
As this Court held in Bristol Myers Squibb (Phils.), Inc. v. Viloria:36

Nonetheless, the settled rule is that a writ of certiorari may be granted in cases
where, despite availability of appeal after trial, there is at least a prima facie
showing on the face of the petition and its annexes that: (a) the trial court issued
the order with grave abuse of discretion amounting to lack of or in excess of
jurisdiction; (b) appeal would not prove to be a speedy and adequate remedy; (c)
where the order is a patent nullity; (d) the decision in the present case will arrest
future litigations; and (e) for certain considerations such as public welfare and
public policy.37

In his petition for certiorari in the CA, petitioner averred that the trial court
committed grave abuse of its discretion amounting to excess or lack of jurisdiction
when it denied his motion to quash the Amended Information despite his claim that
the material allegations in the Amended Information do not charge theft under
Article 308 of the Revised Penal Code, or any offense for that matter. By so doing,
the trial court deprived him of his constitutional right to be informed of the nature
of the charge against him. He further averred that the order of the trial court is
contrary to the constitution and is, thus, null and void. He insists that he should not
be compelled to undergo the rigors and tribulations of a protracted trial and incur
expenses to defend himself against a non-existent charge.

Petitioner is correct.

An information or complaint must state explicitly and directly every act or

omission constituting an offense38and must allege facts establishing conduct that a
penal statute makes criminal;39 and describes the property which is the subject of
theft to advise the accused with reasonable certainty of the accusation he is called
upon to meet at the trial and to enable him to rely on the judgment thereunder of a
subsequent prosecution for the same offense.40 It must show, on its face, that if the
alleged facts are true, an offense has been committed. The rule is rooted on the
constitutional right of the accused to be informed of the nature of the crime or
cause of the accusation against him. He cannot be convicted of an offense even if
proven unless it is alleged or necessarily included in the Information filed against
him.

As a general prerequisite, a motion to quash on the ground that the Information

does not constitute the offense charged, or any offense for that matter, should be
resolved on the basis of said allegations whose truth and veracity are
hypothetically committed;41 and on additional facts admitted or not denied by the
prosecution.42 If the facts alleged in the Information do not constitute an offense,
the complaint or information should be quashed by the court.43

We have reviewed the Amended Information and find that, as mentioned by the
petitioner, it does not contain material allegations charging the petitioner of theft of
personal property under Article 308 of the Revised Penal Code. It, thus, behooved
the trial court to quash the Amended Information. The Order of the trial court
denying the motion of the petitioner to quash the Amended Information is a patent
nullity.

On the second issue, we find and so hold that the international telephone calls
placed by Bay Super Orient Card holders, the telecommunication services provided
by PLDT and its business of providing said services are not personal properties
under Article 308 of the Revised Penal Code. The construction by the respondents
of Article 308 of the said Code to include, within its coverage, the aforesaid
international telephone calls, telecommunication services and business is contrary
to the letter and intent of the law.

The rule is that, penal laws are to be construed strictly. Such rule is founded on the
tenderness of the law for the rights of individuals and on the plain principle that the
power of punishment is vested in Congress, not in the judicial department. It is
Congress, not the Court, which is to define a crime, and ordain its
punishment.44 Due respect for the prerogative of Congress in defining
crimes/felonies constrains the Court to refrain from a broad interpretation of penal
laws where a "narrow interpretation" is appropriate. The Court must take heed to
language, legislative history and purpose, in order to strictly determine the wrath
and breath of the conduct the law forbids.45 However, when the congressional
purpose is unclear, the court must apply the rule of lenity, that is, ambiguity
concerning the ambit of criminal statutes should be resolved in favor of lenity.46

Penal statutes may not be enlarged by implication or intent beyond the fair
meaning of the language used; and may not be held to include offenses other than
those which are clearly described, notwithstanding that the Court may think that
Congress should have made them more comprehensive.47 Words and phrases in a
statute are to be construed according to their common meaning and accepted usage.

As Chief Justice John Marshall declared, "it would be dangerous, indeed, to carry
the principle that a case which is within the reason or

mischief of a statute is within its provision, so far as to punish a crime not

enumerated in the statute because it is of equal atrocity, or of kindred character
with those which are enumerated.48 When interpreting a criminal statute that does
not explicitly reach the conduct in question, the Court should not base an
expansive reading on inferences from subjective and variable understanding.49

Article 308 of the Revised Penal Code defines theft as follows:

Art. 308. Who are liable for theft.– Theft is committed by any person who, with
intent to gain but without violence, against or intimidation of persons nor force
upon things, shall take personal property of another without the latter’s consent.

The provision was taken from Article 530 of the Spanish Penal Code which reads:

1. Los que con ánimo de lucrarse, y sin violencia o intimidación en las personas ni
fuerza en las cosas, toman las cosas muebles ajenas sin la voluntad de su dueño.50

For one to be guilty of theft, the accused must have an intent to steal (animus
furandi) personal property, meaning the intent to deprive another of his
ownership/lawful possession of personal property which intent is apart from and
concurrently with the general criminal intent which is an essential element of a
felony of dolo (dolus malus).
An information or complaint for simple theft must allege the following elements:
(a) the taking of personal property; (b) the said property belongs to another; (c) the
taking be done with intent to gain; and (d) the taking be accomplished without the
use of violence or intimidation of person/s or force upon things.51

One is apt to conclude that "personal property" standing alone, covers both
tangible and intangible properties and are subject of theft under the Revised Penal
Code. But the words "Personal property" under the Revised Penal Code must be
considered in tandem with the word "take" in the law. The statutory definition of
"taking" and movable property indicates that, clearly, not all personal properties
may be the proper subjects of theft. The general rule is that, only movable
properties which have physical or material existence and susceptible of occupation
by another are proper objects of theft.52 As explained by Cuelo Callon: "Cosa
juridicamente es toda sustancia corporal, material, susceptible de ser aprehendida
que tenga un valor cualquiera."53

According to Cuello Callon, in the context of the Penal Code, only those movable
properties which can be taken and carried from the place they are found are proper
subjects of theft. Intangible properties such as rights and ideas are not subject of
theft because the same cannot be "taken" from the place it is found and is occupied
or appropriated.

Solamente las cosas muebles y corporales pueden ser objeto de hurto. La

sustracción de cosas inmuebles y la cosas incorporales (v. gr., los derechos, las
ideas) no puede integrar este delito, pues no es posible asirlas, tomarlas, para
conseguir su apropiación. El Codigo emplea la expresión "cosas mueble" en el
sentido de cosa que es susceptible de ser llevada del lugar donde se encuentra,
como dinero, joyas, ropas, etcétera, asi que su concepto no coincide por completo
con el formulado por el Codigo civil (arts. 335 y 336).54

Thus, movable properties under Article 308 of the Revised Penal Code should be
distinguished from the rights or interests to which they relate. A naked right
existing merely in contemplation of law, although it may be very valuable to the
person who is entitled to exercise it, is not the subject of theft or larceny.55 Such
rights or interests are intangible and cannot be "taken" by another. Thus, right to
produce oil, good will or an interest in business, or the right to engage in business,
credit or franchise are properties. So is the credit line represented by a credit card.
However, they are not proper subjects of theft or larceny because they are without
form or substance, the mere "breath" of the Congress. On the other hand, goods,
wares and merchandise of businessmen and credit cards issued to them are
movable properties with physical and material existence and may be taken by
another; hence, proper subjects of theft.

There is "taking" of personal property, and theft is consummated when the

offender unlawfully acquires possession of personal property even if for a short
time; or if such property is under the dominion and control of the thief. The taker,
at some particular amount, must have obtained complete and absolute possession
and control of the property adverse to the rights of the owner or the lawful
possessor thereof.56 It is not necessary that the property be actually carried away
out of the physical possession of the lawful possessor or that he should have made
his escape with it.57 Neither asportation nor actual manual possession of property is
required. Constructive possession of the thief of the property is enough.58

The essence of the element is the taking of a thing out of the possession of the
owner without his privity and consent and without animus revertendi.59

Taking may be by the offender’s own hands, by his use of innocent persons
without any felonious intent, as well as any mechanical device, such as an access
device or card, or any agency, animate or inanimate, with intent to gain. Intent to
gain includes the unlawful taking of personal property for the purpose of deriving
utility, satisfaction, enjoyment and pleasure.60

We agree with the contention of the respondents that intangible properties such as
electrical energy and gas are proper subjects of theft. The reason for this is that, as
explained by this Court in United States v. Carlos61 and United States v.
Tambunting,62 based on decisions of the Supreme Court of Spain and of the courts
in England and the United States of America, gas or electricity are capable of
appropriation by another other than the owner. Gas and electrical energy may be
taken, carried away and appropriated. In People v. Menagas,63 the Illinois State
Supreme Court declared that electricity, like gas, may be seen and felt. Electricity,
the same as gas, is a valuable article of merchandise, bought and sold like other
personal property and is capable of appropriation by another. It is a valuable article
of merchandise, bought and sold like other personal property, susceptible of being
severed from a mass or larger quantity and of being transported from place to
place. Electrical energy may, likewise, be taken and carried away. It is a valuable
commodity, bought and sold like other personal property. It may be transported
from place to place. There is nothing in the nature of gas used for illuminating
purposes which renders it incapable of being feloniously taken and carried away.
In People ex rel Brush Electric Illuminating Co. v. Wemple,64 the Court of Appeals
of New York held that electric energy is manufactured and sold in determinate
quantities at a fixed price, precisely as are coal, kerosene oil, and gas. It may be
conveyed to the premises of the consumer, stored in cells of different capacity
known as an accumulator; or it may be sent through a wire, just as gas or oil may
be transported either in a close tank or forced through a pipe. Having reached the
premises of the consumer, it may be used in any way he may desire, being, like
illuminating gas, capable of being transformed either into heat, light, or power, at
the option of the purchaser. In Woods v. People,65 the Supreme Court of Illinois
declared that there is nothing in the nature of gas used for illuminating purposes
which renders it incapable of being feloniously taken and carried away. It is a
valuable article of merchandise, bought and sold like other personal property,
susceptible of being severed from a mass or larger quantity and of being
transported from place to place.

Gas and electrical energy should not be equated with business or services provided
by business entrepreneurs to the public. Business does not have an exact definition.
Business is referred as that which occupies the time, attention and labor of men for
the purpose of livelihood or profit. It embraces everything that which a person can
be employed.66 Business may also mean employment, occupation or profession.
Business is also defined as a commercial activity for gain benefit or
advantage.67 Business, like services in business, although are properties, are not
proper subjects of theft under the Revised Penal Code because the same cannot be
"taken" or "occupied." If it were otherwise, as claimed by the respondents, there
would be no juridical difference between the taking of the business of a person or
the services provided by him for gain, vis-à-vis, the taking of goods, wares or
merchandise, or equipment comprising his business.68 If it was its intention to
include "business" as personal property under Article 308 of the Revised Penal
Code, the Philippine Legislature should have spoken in language that is clear and
definite: that business is personal property under Article 308 of the Revised Penal
Code.69

We agree with the contention of the petitioner that, as gleaned from the material
averments of the Amended Information, he is charged of "stealing the international
long distance calls belonging to PLDT" and the use thereof, through the ISR.
Contrary to the claims of the OSG and respondent PLDT, the petitioner is not
charged of stealing P20,370,651.95 from said respondent. Said amount of
P20,370,651.95 alleged in the Amended Information is the aggregate amount of
access, transmission or termination charges which the PLDT expected from the
international long distance calls of the callers with the use of Baynet Super Orient
Cards sold by Baynet Co. Ltd.

In defining theft, under Article 308 of the Revised Penal Code, as the taking of
personal property without the consent of the owner thereof, the Philippine
legislature could not have contemplated the human voice which is converted into
electronic impulses or electrical current which are transmitted to the party called
through the PSTN of respondent PLDT and the ISR of Baynet Card Ltd. within its
coverage. When the Revised Penal Code was approved, on December 8, 1930,
international telephone calls and the transmission and routing of electronic voice
signals or impulses emanating from said calls, through the PSTN, IPL and ISR,
were still non-existent. Case law is that, where a legislative history fails to
evidence congressional awareness of the scope of the statute claimed by the
respondents, a narrow interpretation of the law is more consistent with the usual
approach to the construction of the statute. Penal responsibility cannot be extended
beyond the fair scope of the statutory mandate.70

Respondent PLDT does not acquire possession, much less, ownership of the voices
of the telephone callers or of the electronic voice signals or current emanating from
said calls. The human voice and the electronic voice signals or current caused
thereby are intangible and not susceptible of possession, occupation or
appropriation by the respondent PLDT or even the petitioner, for that matter.
PLDT merely transmits the electronic voice signals through its facilities and
equipment. Baynet Card Ltd., through its operator, merely intercepts, reroutes the
calls and passes them to its toll center. Indeed, the parties called receive the
telephone calls from Japan.

In this modern age of technology, telecommunications systems have become so

tightly merged with computer systems that it is difficult to know where one starts
and the other finishes. The telephone set is highly computerized and allows
computers to communicate across long distances.71 The instrumentality at issue in
this case is not merely a telephone but a telephone inexplicably linked to a
computerized communications system with the use of Baynet Cards sold by the
Baynet Card Ltd. The corporation uses computers, modems and software, among
others, for its ISR.72

The conduct complained of by respondent PLDT is reminiscent of "phreaking" (a

slang term for the action of making a telephone system to do something that it
normally should not allow by "making the phone company bend over and grab its
ankles"). A "phreaker" is one who engages in the act of manipulating phones and
illegally markets telephone services.73 Unless the phone company replaces all its
hardware, phreaking would be impossible to stop. The phone companies in North
America were impelled to replace all their hardware and adopted full digital
switching system known as the Common Channel Inter Office Signaling.
Phreaking occurred only during the 1960’s and 1970’s, decades after the Revised
Penal Code took effect.

The petitioner is not charged, under the Amended Information, for theft of
telecommunication or telephone services offered by PLDT. Even if he is, the term
"personal property" under Article 308 of the Revised Penal Code cannot be
interpreted beyond its seams so as to include "telecommunication or telephone
services" or computer services for that matter. The word "service" has a variety of
meanings dependent upon the context, or the sense in which it is used; and, in
some instances, it may include a sale. For instance, the sale of food by restaurants
is usually referred to as "service," although an actual sale is involved.74 It may also
mean the duty or labor to be rendered by one person to another; performance of
labor for the benefit of another.75 In the case of PLDT, it is to render local and
international telecommunications services and such other services as authorized by
the CPCA issued by the NTC. Even at common law, neither time nor services may
be taken and occupied or appropriated.76 A service is generally not considered
property and a theft of service would not, therefore, constitute theft since there can
be no caption or asportation.77 Neither is the unauthorized use of the equipment
and facilities of PLDT by the petitioner theft under the aforequoted provision of
the Revised Penal Code.78

If it was the intent of the Philippine Legislature, in 1930, to include services to be

the subject of theft, it should have incorporated the same in Article 308 of the
Revised Penal Code. The Legislature did not. In fact, the Revised Penal Code does
not even contain a definition of services.

If taking of telecommunication services or the business of a person, is to be

proscribed, it must be by special statute79 or an amendment of the Revised Penal
Code. Several states in the United States, such as New York, New Jersey,
California and Virginia, realized that their criminal statutes did not contain any
provisions penalizing the theft of services and passed laws defining and penalizing
theft of telephone and computer services. The Pennsylvania Criminal Statute now
penalizes theft of services, thus:

(a) Acquisition of services. --

(1) A person is guilty of theft if he intentionally obtains services for himself or for
another which he knows are available only for compensation, by deception or
threat, by altering or tampering with the public utility meter or measuring device
by which such services are delivered or by causing or permitting such altering or
tampering, by making or maintaining any unauthorized connection, whether
physically, electrically or inductively, to a distribution or transmission line, by
attaching or maintaining the attachment of any unauthorized device to any cable,
wire or other component of an electric, telephone or cable television system or to a
television receiving set connected to a cable television system, by making or
maintaining any unauthorized modification or alteration to any device installed by
a cable television system, or by false token or other trick or artifice to avoid
payment for the service.

In the State of Illinois in the United States of America, theft of labor or services or
use of property is penalized:

(a) A person commits theft when he obtains the temporary use of property, labor or
services of another which are available only for hire, by means of threat or
deception or knowing that such use is without the consent of the person providing
the property, labor or services.

In 1980, the drafters of the Model Penal Code in the United States of America
arrived at the conclusion that labor and services, including professional services,
have not been included within the traditional scope of the term "property" in
ordinary theft statutes. Hence, they decided to incorporate in the Code Section
223.7, which defines and penalizes theft of services, thus:

(1) A person is guilty of theft if he purposely obtains services which he knows are
available only for compensation, by deception or threat, or by false token or other
means to avoid payment for the service. "Services" include labor, professional
service, transportation, telephone or other public service, accommodation in hotels,
restaurants or elsewhere, admission to exhibitions, use of vehicles or other
movable property. Where compensation for service is ordinarily paid immediately
upon the rendering of such service, as in the case of hotels and restaurants, refusal
to pay or absconding without payment or offer to pay gives rise to a presumption
that the service was obtained by deception as to intention to pay; (2) A person
commits theft if, having control over the disposition of services of others, to which
he is not entitled, he knowingly diverts such services to his own benefit or to the
benefit of another not entitled thereto.
Interestingly, after the State Supreme Court of Virginia promulgated its decision in
Lund v. Commonwealth,80declaring that neither time nor services may be taken
and carried away and are not proper subjects of larceny, the General Assembly of
Virginia enacted Code No. 18-2-98 which reads:

Computer time or services or data processing services or information or data stored

in connection therewith is hereby defined to be property which may be the subject
of larceny under § § 18.2-95 or 18.2-96, or embezzlement under § 18.2-111, or
false pretenses under § 18.2-178.

In the State of Alabama, Section 13A-8-10(a)(1) of the Penal Code of Alabama of

1975 penalizes theft of services:

"A person commits the crime of theft of services if: (a) He intentionally obtains
services known by him to be available only for compensation by deception, threat,
false token or other means to avoid payment for the services …"

In the Philippines, Congress has not amended the Revised Penal Code to include
theft of services or theft of business as felonies. Instead, it approved a law,
Republic Act No. 8484, otherwise known as the Access Devices Regulation Act of
1998, on February 11, 1998. Under the law, an access device means any card,
plate, code, account number, electronic serial number, personal identification
number and other telecommunication services, equipment or instrumentalities-
identifier or other means of account access that can be used to obtain money,
goods, services or any other thing of value or to initiate a transfer of funds other
than a transfer originated solely by paper instrument. Among the prohibited acts
enumerated in Section 9 of the law are the acts of obtaining money or anything of
value through the use of an access device, with intent to defraud or intent to gain
and fleeing thereafter; and of effecting transactions with one or more access
devices issued to another person or persons to receive payment or any other thing
of value. Under Section 11 of the law, conspiracy to commit access devices fraud
is a crime. However, the petitioner is not charged of violation of R.A. 8484.

Significantly, a prosecution under the law shall be without prejudice to any liability
for violation of any provisions of the Revised Penal Code inclusive of theft under
Rule 308 of the Revised Penal Code and estafa under Article 315 of the Revised
Penal Code. Thus, if an individual steals a credit card and uses the same to obtain
services, he is liable of the following: theft of the credit card under Article 308 of
the Revised Penal Code; violation of Republic Act No. 8484; and estafa under
Article 315(2)(a) of the Revised Penal Code with the service provider as the
private complainant. The petitioner is not charged of estafa before the RTC in the
Amended Information.

Section 33 of Republic Act No. 8792, Electronic Commerce Act of 2000 provides:

Sec. 33. Penalties.— The following Acts shall be penalized by fine and/or
imprisonment, as follows:

a) Hacking or cracking which refers to unauthorized access into or interference in a

computer system/server or information and communication system; or any access
in order to corrupt, alter, steal, or destroy using a computer or other similar
information and communication devices, without the knowledge and consent of the
owner of the computer or information and communications system, including the
introduction of computer viruses and the like, resulting on the corruption,
destruction, alteration, theft or loss of electronic data messages or electronic
documents shall be punished by a minimum fine of One hundred thousand pesos
(P100,000.00) and a maximum commensurate to the damage incurred and a
mandatory imprisonment of six (6) months to three (3) years.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed

Orders of the Regional Trial Court and the Decision of the Court of Appeals are
REVERSED and SET ASIDE. The Regional Trial Court is directed to issue an
order granting the motion of the petitioner to quash the Amended Information.

SO ORDERED.
G.R. No. L-61311 September 2l, 1987

FELICIDAD VILLANUEVA, FERNANDO CAISIP, ANTONIO LIANG,

FELINA MIRANDA, RICARDO PUNO, FLORENCIO LAXA, and RENE
OCAMPO, petitioners,
vs.
HON. MARIANO CASTAÑEDA, JR., Presiding Judge of the Court of First
Instance of Pampanga, Branch III, VICENTE A. MACALINO, Officer-in-
Charge, Office of the Mayor, San Fernando, Pampanga, respondents.

CRUZ, J.:

There is in the vicinity of the public market of San Fernando, Pampanga, along
Mercado Street, a strip of land measuring 12 by 77 meters on which stands a
conglomeration of vendors stalls together forming what is commonly known as
a talipapa. This is the subject of the herein petition. The petitioners claim they
have a right to remain in and conduct business in this area by virtue of a previous
authorization granted to them by the municipal government. The respondents deny
this and justify the demolition of their stalls as illegal constructions on public
property. At the petitioners' behest, we have issued a temporary restraining order to
preserve the status quo between the parties pending our decision. 1 Now we shall
rule on the merits.

This dispute goes back to November 7, 1961, when the municipal council of San
Fernando adopted Resolution No. 218 authorizing some 24 members of the
Fernandino United Merchants and Traders Association to construct permanent
stags and sell in the above-mentioned place. 2 The action was protested on
November 10, 1961, in Civil Case No. 2040, where the Court of First Instance of
Pampanga, Branch 2, issued a writ of preliminary injunction that prevented the
defendants from constructing the said stalls until final resolution of the
controversy. 3 On January 18, 1964, while this case was pending, the municipal
council of San Fernando adopted Resolution G.R. No. 29, which declared the
subject area as "the parking place and as the public plaza of the
municipality, 4 thereby impliedly revoking Resolution No. 218, series of 1961.
Four years later, on November 2, 1968, Judge Andres C. Aguilar decided the
aforesaid case and held that the land occupied by the petitioners, being public in
nature, was beyond the commerce of man and therefore could not be the subject of
private occupancy. 5 The writ of preliminary injunction was made permanent. 6
The decision was apparently not enforced, for the petitioners were not evicted from
the place; in fact, according to then they and the 128 other persons were in 1971
assigned specific areas or space allotments therein for which they paid daily fees to
the municipal government. 7 The problem appears to have festered for some more
years under a presumably uneasy truce among the protagonists, none of whom
made any move, for some reason that does not appear in the record. Then, on
January 12, 1982, the Association of Concerned Citizens and Consumers of San
Fernando filed a petition for the immediate implementation of Resolution No. 29,
to restore the subject property "to its original and customary use as a public plaza. 8

Acting thereon after an investigation conducted by the municipal

attorney, 9 respondent Vicente A. Macalino, as officer-in-charge of the office of the
mayor of San Fernando, issued on June 14, 1982, a resolution requiring the
municipal treasurer and the municipal engineer to demolish the stalls in the subject
place beginning July 1, 1982. 10The reaction of the petitioners was to file a
petition for prohibition with the Court of First Instance of Pampanga, docketed as
Civil Case No. 6470, on June 26, 1982. The respondent judge denied the petition
on July 19, 1982, 11 and the motion for reconsideration on August 5,
1982, 12 prompting the petitioners to come to this Court on certiorari to challenge
his decision. 13

As required, respondent Macalino filed his comment 14 on the petition, and the
petitioners countered with their reply. 15 In compliance with our resolution of
February 2, 1983, the petitioners submitted their memorandum 16 and respondent
Macalino, for his part, asked that his comment be considered his
memorandum. 17 On July 28, 1986, the new officer-in-charge of the office of the
mayor of San Fernando, Paterno S. Guevarra, was impleaded in lieu of Virgilio
Sanchez, who had himself earlier replaced the original respondent Macalino. 18

After considering the issues and the arguments raised by the parties in their
respective pleadings, we rule for the respondents. The petition must be dismissed.

There is no question that the place occupied by the petitioners and from which they
are sought to be evicted is a public plaza, as found by the trial court in Civil Case
No. 2040. This finding was made after consideration of the antecedent facts as
especially established by the testimony of former San Fernando Mayor Rodolfo
Hizon, who later became governor of Pampanga, that the National Planning
Commission had reserved the area for a public plaza as early as 1951. This
intention was reiterated in 1964 through the adoption of Resolution No. 29. 19
It does not appear that the decision in this case was appealed or has been reversed.
In Civil Case G.R. No. 6740, which is the subject of this petition, the respondent
judge saw no reason to disturb the finding in Civil Case No. 2040 and indeed used
it as a basis for his own decision sustaining the questioned order. 20

The basic contention of the petitioners is that the disputed area is under lease to
them by virtue of contracts they had entered into with the municipal government,
first in 1961 insofar as the original occupants were concerned, and later with them
and the other petitioners by virtue of the space allocations made in their favor in
1971 for which they saw they are paying daily fees. 21 The municipal government
has denied making such agreements. In any case, they argue, since the fees were
collected daily, the leases, assuming their validity, could be terminated at will, or
any day, as the claimed rentals indicated that the period of the leases was from day
to day. 22

The parties belabor this argument needlessly.

A public plaza is beyond the commerce of man and so cannot be the subject of
lease or any other contractual undertaking. This is elementary. Indeed, this point
was settled as early as in Municipality of Cavite vs. Rojas, 23decided in 1915,
where the Court declared as null and void the lease of a public plaza of the said
municipality in favor of a private person.

Justice Torres said in that case:

According to article 344 of the Civil Code: "Property for public use in
provinces and in towns comprises the provincial and town roads, the
squares, streets, fountains, and public waters, the promenades, and
public works of general service supported by said towns or provinces.

The said Plaza Soledad being a promenade for public use, the
municipal council of Cavite could not in 1907 withdraw or exclude
from public use a portion thereof in order to lease it for the sole
benefit of the defendant Hilaria Rojas. In leasing a portion of said
plaza or public place to the defendant for private use the plaintiff
municipality exceeded its authority in the exercise of its powers by
executing a contract over a thing of which it could not dispose, nor is
it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not
outside the commerce of man may be the object of a contract, and
 plazas and streets are outside of this commerce, as was decided by the
supreme court of Spain in its decision of February 12, 1895, which
says: "communal things that cannot be sold because they are by their
very nature outside of commerce are those for public use, such as the
plazas, streets, common lands, rivers, fountains, etc."

Therefore, it must be concluded that the contract, Exhibit C, whereby

the municipality of Cavite leased to Hilaria Rojas a portion of the
Plaza Soledad is null and void and of no force or effect, because it is
contrary to the law and the thing leased cannot be the object of a was
held that the City of contract.

In Muyot vs. de la Fuente, 24 it was held that the City of Manila could not lease a
portion of a public sidewalk on Plaza Sta. Cruz, being likewise beyond the
commerce of man.

Echoing Rojas, the decision said:

Appellants claim that they had obtained permit from the present of the
City of Manila, to connect booths Nos. 1 and 2, along the premises in
question, and for the use of spaces where the booths were constructed,
they had paid and continued paying the corresponding rentals.
Granting this claim to be true, one should not entertain any doubt that
such permit was not legal, because the City of Manila does not have
any power or authority at all to lease a portion of a public sidewalk.
The sidewalk in question, forming part of the public plaza of Sta.
Cruz, could not be a proper subject matter of the contract, as it was
not within the commerce of man (Article 1347, new Civil Code, and
article 1271, old Civil Code). Any contract entered into by the City of
Manila in connection with the sidewalk, is ipso facto null and ultra
vires. (Municipality of Cavite vs. Roxas, et a1, 30 Phil. 603.) The
sidewalk in question was intended for and was used by the public, in
going from one place to another. "The streets and public places of the
city shall be kept free and clear for the use of the public, and the
sidewalks and crossings for the pedestrians, and the same shall only
be used or occupied for other purpose as provided by ordinance or
regulation; ..." (Sec. 1119, Revised Ordinances of the City of Manila.)
The booths in question served as fruit stands for their owners and
often, if not always, blocked the fire passage of pedestrians who had
to take the plaza itself which used to be clogged with vehicular traffic.
Exactly in point is Espiritu vs. Municipal Council of Pozorrubio, 25 where the
Supreme Court declared:

There is absolutely no question that the town plaza cannot be used for
the construction of market stalls, specially of residences, and that such
structures constitute a nuisance subject to abatement according to law.
Town plazas are properties of public dominion, to be devoted to
public use and to be made available to the public in general They are
outside the common of man and cannot be disposed of or even leased
by the municipality to private parties.

Applying this well-settled doctrine, we rule that the petitioners had no right in the
first place to occupy the disputed premises and cannot insist in remaining there
now on the strength of their alleged lease contracts. They should have realized and
accepted this earlier, considering that even before Civil Case No. 2040 was
decided, the municipalcouncil of San Fernando had already adopted Resolution
No. 29, series of 1964, declaring the area as the parking place and public plaza of
the municipality.

It is the decision in Civil Case No. 2040 and the said resolution of the municipal
council of San Fernando that respondent Macalino was seeking to enforce when he
ordered the demolition of the stags constructed in the disputed area. As officer-in-
charge of the office of the mayor, he had the duty to clear the area and restore it to
its intended use as a parking place and public plaza of the municipality of San
Fernando, conformably to the aforementioned orders from the court and the
council. It is, therefore, not correct to say that he had acted without authority or
taken the law into his hands in issuing his order.

Neither can it be said that he acted whimsically in exercising his authority for it has
been established that he directed the demolition of the stalls only after, upon his
instructions, the municipal attorney had conducted an investigation, to look into the
complaint filed by the Association of Concerned Citizens and Consumers of San
Fernando. 26 There is evidence that the petitioners were notified of this
hearing, 27which they chose to disregard. Photographs of the disputed
area, 28 which does look congested and ugly, show that the complaint was valid and
that the area really needed to be cleared, as recommended by the municipal
attorney.

The Court observes that even without such investigation and recommendation, the
respondent mayor was justified in ordering the area cleared on the strength alone of
its status as a public plaza as declared by the judicial and legislative authorities. In
calling first for the investigation (which the petitioner saw fit to boycott), he was
just scrupulously paying deference to the requirements of due process, to remove
an taint of arbitrariness in the action he was caged upon to take.

Since the occupation of the place in question in 1961 by the original 24 stallholders
(whose number later ballooned to almost 200), it has deteriorated increasingly to
the great prejudice of the community in general. The proliferation of stags therein,
most of them makeshift and of flammable materials, has converted it into a
veritable fire trap, which, added to the fact that it obstructs access to and from the
public market itself, has seriously endangered public safety. The filthy condition of
the talipapa, where fish and other wet items are sold, has aggravated health and
sanitation problems, besides pervading the place with a foul odor that has spread
into the surrounding areas. The entire place is unsightly, to the dismay and
embarrassment of the inhabitants, who want it converted into a showcase of the
town of which they can all be proud. The vendors in the talipapa have also spilled
into the street and obstruct the flow of traffic, thereby impairing the convenience of
motorists and pedestrians alike. The regular stallholders in the public market, who
pay substantial rentals to the municipality, are deprived of a sizable volume of
business from prospective customers who are intercepted by the talipapa vendors
before they can reach the market proper. On top of all these, the people are denied
the proper use of the place as a public plaza, where they may spend their leisure in
a relaxed and even beautiful environment and civic and other communal activities
of the town can be held.

The problems caused by the usurpation of the place by the petitioners are covered
by the police power as delegated to the municipality under the general welfare
clause. 29 This authorizes the municipal council "to enact such ordinances and
make such regulations, not repugnant to law, as may be necessary to carry into
effect and discharge the powers and duties conferred upon it by law and such as
shall seem necessary and proper to provide for the health and safety, promote the
prosperity, improve the morals, peace, good order, comfort, and convenience of the
municipality and the inhabitants thereof, and for the protection of property
therein." This authority was validly exercised in this casethrough the adoption of
Resolution No. 29, series of 1964, by the municipal council of San Fernando.

Even assuming a valid lease of the property in dispute, the resolution could have
effectively terminated the agreement for it is settled that the police power cannot
be surrendered or bargained away through the medium of a contract. 30 In fact,
every contract affecting the public interest suffers a congenital infirmity in that it
contains an implied reservation of the police power as a postulate of the existing
legal order. 31 This power can be activated at any time to change the provisions of
the contract, or even abrogate it entirely, for the promotion or protection of the
general welfare. Such an act will not militate against the impairment clause, which
is subject to and limited by the paramount police power. 32

We hold that the respondent judge did not commit grave abuse of discretion in
denying the petition for prohibition. On the contrary, he acted correctly in
sustaining the right and responsibility of the mayor to evict the petitioners from the
disputed area and clear it of an the structures illegally constructed therein.

The Court feels that it would have been far more amiable if the petitioners
themselves, recognizing their own civic duty, had at the outset desisted from their
original stance and withdrawn in good grace from the disputed area to permit its
peaceful restoration as a public plaza and parking place for the benefit of the whole
municipality. They owned this little sacrifice to the community in general which
has suffered all these many years because of their intransigence. Regrettably, they
have refused to recognize that in the truly democratic society, the interests of the
few should yield to those of the greater number in deference to the principles that
the welfare of the people is the supreme law and overriding purpose. We do not see
any altruism here. The traditional ties of sharing are absent here. What we find, sad
to say, is a cynical disdaining of the spirit of "bayanihan," a selfish rejection of the
cordial virtues of "pakikisama " and "pagbibigayan" which are the hallmarks of our
people.

WHEREFORE, the petition is DISMISSED. The decision dated July 19, 1982, and
the order-dated August 5, 1982, are AFFIRMED. The temporary restraining order
dated August 9, 1982, is LIFTED. This decision is immediately executory. Costs
against the petitioners.

SO ORDERED.
G.R. No. 95907 April 8, 1992

JOSE REYNANTE, petitioner,

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

PARAS, J.:

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

The facts as culled from the records of the case are as follows:

More than 50 years ago, petitioner Jose Reynante was taken as tenant by the late
Don Cosme Carlos, owner and father-in-law of herein private respondents, over a
fishpond located at Barrio Liputan, Meycauayan, Bulacan with an area of 188.711
square meters, more or less and covered by Transfer Certificate of Title No. 25618,
Land Registry of Bulacan.

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

Pursuant to the said written agreement, petitioner surrendered the fishpond and the
two huts located therein to private respondents. Private respondents thereafter
leased the said fishpond to one Carlos de la Cruz. Petitioner continued to live in the
nipa hut constructed by him on lots 1 and 2 and to take care of the nipa palms he
had planted therein.

On February 17, 1988, private respondents formally demanded that the petitioner
vacate said portion since according to them petitioner had already been
indemnified for the surrender of his rights as a tenant. Despite receipt thereof,
petitioner refused and failed to relinquish possession of lots 1 and 2.

Hence, on April 22, 1988, private respondents filed a complaint for forcible entry
with preliminary mandatory injunction against petitioner alleging that the latter by
means of strategy and stealth, took over the physical, actual and material
possession of lots 1 and 2 by residing in one of the kubos or huts bordering the
Liputan River and cutting off and/or disposing of the sasa or nipa palms adjacent
thereto.

On January 10, 1989, the trial court rendered its decision dismissing the complaint
and finding that petitioner had been in prior possession of lots 1
and 2.

Private respondents appealed to the Regional Trial Court and on August 8, 1989 it
rendered its decision, the dispositive portion of which reads as follows:

WHEREFORE, this Court renders judgment in favor of the plaintiffs

and against defendant and hereby reverses the decision of the Court a
quo. Accordingly, the defendant is ordered to restore possession of
that piece of land particularly described and defined as Lots 1 & 2 of
the land survey conducted by Geodetic Engineer Restituto Buan on
March 2, 1983, together with the sasa or nipa palms planted thereon.
No pronouncement as to attorney's fees. Each party shall bear their
respective costs of the suit.
 SO ORDERED. (Rollo, p. 55; Decision, p. 4).

From said decision, petitioner filed with the Court of Appeals a petition for review
(Rollo, p. 30; Annex "A"). On February 28, 1990, the Court of Appeals rendered
its decision, the dispositive portion of which reads as follows:

WHEREFORE, the decision of the court a quo, being consistent with

law and jurisprudence, is hereby AFFIRMED in toto. The instant
petition seeking to issue a restraining order is hereby denied.

SO ORDERED. (Rollo, p. 30; Decision, p. 3).

On November 5, 1990, the Court of Appeals denied the motion for reconsideration
filed by petitioner (Rollo, p. 35; Annex "B").

Hence, this petition.

In its resolution dated May 6, 1991, the Second Division of this court gave due
course to the petition and required both parties to file their respective memoranda
(Rollo, p. 93).

The main issues to be resolved in this case are: a) who between the petitioner and
private respondents has prior physical possession of lots 1 and 2; and b) whether or
not the disputed lots belong to private respondents as a result of accretion.

An action for forcible entry is merely a quieting process and actual title to the
property is never determined. A party who can prove prior possession can recover
such possession even against the owner himself. Whatever may be the character of
his prior possession, if he has in his favor priority in time, he has the security that
entitles him to remain on the property until he is lawfully ejected by a person
having a better right by accion publiciana or accion reivindicatoria (German
Management & Services, Inc. v. Court of Appeals, G.R. No. 76216, September 14,
1989, 177 SCRA 495, 498, 499). On the other hand, if a plaintiff cannot prove
prior physical possession, he has no right of action for forcible entry and detainer
even if he should be the owner of the property (Lizo v. Carandang, 73 Phil. 469
[1942]).

Hence, the Court of Appeals could not legally restore private respondents'
possession over lots 1 and 2 simply because petitioner has clearly proven that he
hadprior possession over lots 1 and 2.
The evidence on record shows that petitioner was in possession of the questioned
lots for more than 50 years. It is undisputed that he was the caretaker of the
fishpond owned by the late Don Cosme Carlos for more than 50 years and that he
constructed a nipa hut adjacent to the fishpond and planted nipa palms therein.
This fact is bolstered by the "SINUMPAANG SALAYSAY" executed by Epifanio
Lucero (Records, p. 66), Apolonio D. Morte (Records, p. 101) and Carling
Dumalay (Records, p. 103), all of whom are disinterested parties with no motive to
falsify that can be attributed to them, except their desire to tell the truth.

Moreover, an ocular inspection was conducted by the trial court dated December 2,
1988 which was attended by the parties and their respective counsels and the court
observed the following:

The Court viewed the location and the distance of the constructed nipa
hut and the subject "sasahan" which appears exists (sic) long ago,
planted and stands (sic) adjacent to the fishpond and the dikes which
serves (sic) as passage way of water river of lot 1 and lot 2. During the
course of the hearing, both counsel observed muniment of title
embedded on the ground which is located at the inner side of the
"pilapil" separating the fishpond from the subject "sasa" plant with a
height of 20 to 25 feet from water level and during the ocular
inspection it was judicially observed that the controversial premises is
beyond the titled property of the plaintiffs but situated along the
Liputan, Meycauayan River it being a part of the public domain.
(Rollo, p. 51; Decision, p. 12).

On the other hand, private respondents based their claim of possession over lots 1
and 2 simply on the written agreement signed by petitioner whereby the latter
surrendered his rights over the fishpond.

Evidently, the trial court did not err when it ruled that:

An examination of the document signed by the defendant (Exhibit

"B"), shows that what was surrendered to the plaintiffs was the
fishpond and not the "sasahan" or the land on which he constructed
his hut where he now lives. That is a completely different agreement
in which a tenant would return a farm or a fishpond to his landlord in
return for the amount that the landlord would pay to him as a
disturbance compensation. There is nothing that indicates that the
tenant was giving other matters not mentioned in a document like
 Exhibit "B". Moreover, when the plaintiffs leased the fishpond to Mr.
Carlos de La Cruz there was no mention that the lease included the
hut constructed by the defendant and the nipa palms planted by him
(Exhibit "1"), a circumstance that gives the impression that the nipa
hut and the nipa palms were not included in the lease to Mr. de la
Cruz, which may not belong to the plaintiffs. (Rollo, p. 49; Decision,
p. 9).

With regard to the second issue, it must be noted that the disputed lots involved in
this case are not included in Transfer Certificate of Title No. 25618 as per
verification made by the Forest Management Bureau, Department of Environment
and Natural Resources. That tract of land situated at Barrio Liputan, Meycauayan,
Bulacan containing an area of 1.1107 hectares as described in the plan prepared
and surveyed by Geodetic Engineer Restituto Buan for Jose Reynante falls within
Alienable and Disposable Land (for fishpond development) under Project No. 15
per B.F.L.C. Map No. 3122 dated May 8, 1987 (Rollo, p. 31; Decision, p. 2).

The respondent Court of Appeals ruled that lots 1 and 2 were created by alluvial
formation and hence the property of private respondents pursuant to Article 457 of
the New Civil Code, to wit:

Art. 457. To the owners of lands adjoining the banks of rivers belong
the accretion which they gradually receive from the effects of the
current of the waters.

Accretion benefits a riparian owner when the following requisites are present: (1)
that the deposit be gradual and imperceptible; (2) that it resulted from the effects of
the current of the water; and (c) that the land where accretion takes place is
adjacent to the bank of a river (Republic v. Court of Appeals, G.R. No. L-61647,
October 12, 1984, 132 SCRA 514, cited in Agustin v. Intermediate Appellate
Court, G.R. Nos. 66075-76, July 5, 1990, 187 SCRA 218).

Granting without conceding that lots 1 and 2 were created by alluvial formation
and while it is true that accretions which the banks of rivers may gradually receive
from the effect of the current become the property of the owner of the banks, such
accretion to registered land does not preclude acquisition of the additional area by
another person through prescription.

This Court ruled in the case of Ignacio Grande, et al. v. Hon. Court of Appeals, et
al., G.R. No. L-17652, June 30, 1962, 115 Phil. 521 that:
 An accretion does not automatically become registered land just
because the lot which receives such accretion is covered by a Torrens
Title. Ownership of a piece of land is one thing; registration under the
Torrens system of that ownership is another. Ownership over the
accretion received by the land adjoining a river is governed by the
Civil Code. Imprescriptibility of registered land is provided in the
registration law. Registration under the Land Registration and
Cadastral Act does not vest or give title to the land, but merely
confirms and, thereafter, protects the title already possessed by the
owner, making it imprescriptible by occupation of third parties. But to
obtain this protection, the land must be placed under the operation of
the registration laws, wherein certain judicial procedures have
been provided.

Assuming private respondents had acquired the alluvial deposit (the lot in
question), by accretion, still their failure to register said accretion for a period of
fifty (50) years subjected said accretion to acquisition through prescription by third
persons.

It is undisputed that petitioner has been in possession of the subject lots for more
than fifty (50) years and unless private respondents can show a better title over the
subject lots, petitioner's possession over the property must be respected.

PREMISES CONSIDERED, the decision of the respondent Court of Appeals dated

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

SO ORDERED.
 [G.R. No. 98045. June 26, 1996]

DESAMPARADO VDA. DE NAZARENO and LETICIA NAZARENO

TAPIA, petitioners, vs. THE COURT OF APPEALS, MR. & MRS. JOSE
SALASALAN, MR. & MRS. LEO RABAYA, AVELINO LABIS, HON.
ROBERTO G. HILARIO, ROLLEO I. IGNACIO, ALBERTO M.
GILLERA and HON. ABELARDO G. PALAD, JR., in their official
and/or private capacities, respondents.
SYLLABUS
1. CIVIL LAW; OWNERSHIP; RIGHTS OF ACCESSION WITH RESPECT
TO IMMOVABLE PROPERTY; ARTICLE 457; REQUISITES.- In the
case of Meneses vs. CA, this Court held that accretion, as a mode of acquiring
property under Art. 457 of the Civil Code, requires the concurrence of these
requisites: (1) that the deposition of soil or sediment be gradual and
imperceptible; (2) that it be the result of the action of the waters of the river (or
sea); and (3) that the land where accretion takes place is adjacent to the banks of
rivers (or the sea coast). These are called the rules on alluvion which if present
in a case, give to the owners of lands adjoining the banks of rivers or streams
any accretion gradually received from the effects of the current of waters.
2. ID.; ID.; ID.; ID.; ID.; NOT PRESENT IN CASE AT BAR.- Where the
accretion was formed by the dumping of boulders, soil and other filling materials
on portions of the Balacanas Creek and the Cagayan River bounding petitioner's
land, it cannot be claimed that the accumulation was gradual and imperceptible,
resulting from the action of the waters or the current of the creek and the
river. In Hilario vs. City of Manila, this Court held that the word current
indicates the participation of the body of water in the ebb and flow of waters due
to high and low tide. Not having met the first and second requirements of the
rules of alluvion, petitioners cannot claim the rights of a riparian owner.
3. ID.; ID.; ID.; ID.; ID.; THAT DEPOSIT IS DUE TO THE CURRENT OF
THE RIVER, MANDATORY.- In Republic vs. CA, this Court ruled that the
requirement that the deposit should be due to the effect of the current of the river
is indispensable. This excludes from Art. 457 of the Civil Code all deposits
caused by human intervention. Putting it differently, alluvion must be the
exclusive work of nature. Thus, in Tiongco vs. Director of Lands, et al., where
the land was not formed solely by the natural effect of the water current of the
river bordering said land but is also the consequence of the direct and deliberate
intervention of man, it was deemed a man-made accretion and, as such, part of
 the public domain. In the case at bar, the subject land was the direct result of the
dumping of sawdust by the Sun Valley Lumber Co. consequent to its sawmill
operations.
4. ID.; PUBLIC LANDS; FINDINGS AS SUCH BY THE BUREAU OF
LANDS, RESPECTED.- The mere filing of the Miscellaneous Sales
Application constituted an admission that the land being applied for was public
land, having been the subject of a Survey Plan wherein said land was described
as an orchard. Furthermore, the Bureau of Lands classified the subject land as an
accretion area which was formed by deposits of sawdust in the Balacanas Creek
and the Cagayan river, in accordance with the ocular inspection conducted by
the Bureau of Lands. This Court has often enough held that findings of
administrative agencies which have acquired expertise because their jurisdiction
is confined to specific matters are generally accorded not only respect but even
finality. Again, when said factual findings are affirmed by the Court of Appeals,
the same are conclusive on the parties and not reviewable by this Court.
5. ID.; PUBLIC LAND LAW; JURISDICTION OVER PUBLIC
LANDS.- Having determined that the subject land is public land, a fortiori, the
Bureau of Lands, as well as the Office of the Secretary of Agriculture and
Natural Resources have jurisdiction over the same in accordance with the Public
Land Law. Under Sections 3 and 4 thereof, the Director of Lands has
jurisdiction, authority and control over public lands.Here respondent Palad as
Director of Lands, is authorized to exercise executive control over any form of
concession, disposition and management of the lands of the public domain. He
may issue decisions and orders as he may see fit under the circumstances as long
as they are based on the findings of fact. In the case of Calibo vs.
Ballesteros, this Court held that where, in the disposition of public lands, the
Director of Lands bases his decision on the evidence thus presented, he clearly
acts within his jurisdiction, and if he errs in appraising the evidence, the error is
one of judgment, but not an act of grave abuse of discretion annullable by
certiorari.
6. ADMINISTRATIVE LAW; ADMINISTRATIVE REMEDIES;
EXHAUSTED IN CASE AT BAR.- The administrative remedies have been
exhausted. Petitioners could not have intended to appeal to respondent Ignacio
as an Officer-In-Charge of the Bureau of Lands. The decision being appealed
from was the decision of respondent Hilario who was the Regional Director of
the Bureau of Lands. Said decision was made "for and by authority of the
Director of Lands." It would be incongruous to appeal the decision of the
Regional Director of the Bureau of Lands acting for the Director of the Bureau
 of Lands to an Officer-In-Charge of the Bureau of Lands. In any case, respondent
Ignacio's official designation was "Undersecretary of the Department of
Agriculture and Natural Resources." He was only an "Officer-In-Charge" of the
Bureau of Lands. When he acted on the late Antonio Nazareno's motion for
reconsideration by affirming or adopting respondent Hilario's decision, he was
acting on said motion as an Undersecretary on behalf of the Secretary of the
Department. In the case of Hamoy vs. Secretary of Agriculture and Natural
Resources, this Court held that the Undersecretary of Agriculture and Natural
Resources may modify, adopt, or set aside the orders or decisions of the Director
of Lands with respect to questions involving public lands under the
administration and control of the Bureau of Lands and the Department of
Agriculture and Natural Resources. He cannot, therefore, be said to have acted
beyond the bounds of his jurisdiction under Sections 3, 4 and 5 of
Commonwealth Act No. 141.
APPEARANCES OF COUNSEL
Manolo L. Tagarda, Sr. for petitioners.
Arturo R. Legaspi for private respondents.

DECISION
ROMERO, J.:

Petitioners Desamparado Vda. de Nazareno and Leticia Nazareno Tapia

challenge the decision of the Court of Appeals which affirmed the dismissal of
petitioners' complaint by the Regional Trial Court of Misamis Oriental, Branch
22. The complaint was for annulment of the verification, report and
recommendation, decision and order of the Bureau of Lands regarding a parcel of
public land.
The only issue involved in this petition is whether or not petitioners exhausted
administrative remedies before having recourse to the courts.
The subject of this controversy is a parcel of land situated in Telegrapo, Puntod,
Cagayan de Oro City. Said land was formed as a result of sawdust dumped into the
dried-up Balacanas Creek and along the banks of the Cagayan river.
Sometime in 1979, private respondents Jose Salasalan and Leo Rabaya leased
the subject lots on which their houses stood from one Antonio Nazareno, petitioners'
predecessor-in-interest. In the latter part of 1982, private respondents allegedly
stopped paying rentals. As a result, Antonio Nazareno and petitioners filed a case
for ejectment with the Municipal Trial Court of Cagayan de Oro City, Branch 4. A
decision was rendered against private respondents, which decision was affirmed by
the Regional Trial Court of Misamis Oriental, Branch 20.
The case was remanded to the municipal trial court for execution of judgment
after the same became final and executory. Private respondents filed a case for
annulment of judgment before the Regional Trial Court of Misamis Oriental, Branch
24 which dismissed the same. Antonio Nazareno and petitioners again moved for
execution of judgment but private respondents filed another case for certiorari with
prayer for restraining order and/or writ of preliminary injunction with the Regional
Trial Court of Misamis Oriental, Branch 25 which was likewise dismissed. The
decision of the lower court was finally enforced with the private respondents being
ejected from portions of the subject lots they occupied.
Before he died, Antonio Nazareno caused the approval by the Bureau of Lands
of the survey plan designated as Plan Csd-106-00571 with a view to perfecting his
title over the accretion area being claimed by him. Before the approved survey plan
could be released to the applicant, however, it was protested by private respondents
before the Bureau of Lands.
In compliance with the order of respondent District Land Officer Alberto M.
Gillera, respondent Land Investigator Avelino G. Labis conducted an investigation
and rendered a report to the Regional Director recommending that Survey Plan No.
MSI-10-06-000571-D (equivalent to Lot No. 36302, Cad. 237) in the name of
Antonio Nazareno, be cancelled and that private respondents be directed to file
appropriate public land applications.
Based on said report, respondent Regional Director of the Bureau of Lands
Roberto Hilario rendered a decision ordering the amendment of the survey plan in
the name of Antonio Nazareno by segregating therefrom the areas occupied by the
private respondents who, if qualified, may file public land applications covering
their respective portions.
Antonio Nazareno filed a motion for reconsideration with respondent Rolleo
Ignacio, Undersecretary of the Department of Natural Resources and Officer-in-
Charge of the Bureau of Lands who denied the motion. Respondent Director of
Lands Abelardo Palad then ordered him to vacate the portions adjudicated to private
respondents and remove whatever improvements they have introduced thereon. He
also ordered that private respondents be placed in possession thereof.
Upon the denial of the late Antonio Nazareno's motion for reconsideration,
petitioners Desamparado Vda. de Nazareno and Leticia Tapia Nazareno, filed a case
before the RTC, Branch 22 for annulment of the following: order of investigation by
respondent Gillera, report and recommendation by respondent Labis, decision by
respondent Hilario, order by respondent Ignacio affirming the decision of respondent
Hilario and order of execution by respondent Palad. The RTC dismissed the
complaint for failure to exhaust administrative remedies which resulted in the
finality of the administrative decision of the Bureau of Lands.
On appeal, the Court of Appeals affirmed the decision of the RTC dismissing
the complaint. Applying Section 4 of C.A. No. 141, as amended, it contended that
the approval of the survey plan belongs exclusively to the Director of Lands. Hence,
factual findings made by the Metropolitan Trial Court respecting the subject land
cannot be held to be controlling as the preparation and approval of said survey plans
belong to the Director of Lands and the same shall be conclusive when approved by
the Secretary of Agriculture and Natural Resources.[1]
Furthermore, the appellate court contended that the motion for reconsideration
filed by Antonio Nazareno cannot be considered as an appeal to the Office of the
Secretary of Agriculture and Natural Resources, as mandated by C.A. No. 141
inasmuch as the same had been acted upon by respondent Undersecretary Ignacio in
his capacity as Officer-in-Charge of the Bureau of Lands and not as Undersecretary
acting for the Secretary of Agriculture and Natural Resources. For the failure of
Antonio Nazareno to appeal to the Secretary of Agriculture and Natural Resources,
the present case does not fall within the exception to the doctrine of exhaustion of
administrative remedies. It also held that there was no showing of oppressiveness in
the manner in which the orders were issued and executed.
Hence, this petition.
Petitioners assign the following errors:
I. PUBLIC RESPONDENT COURT OF APPEALS IN A WHIMSICAL,
ARBITRARY AND CAPRICIOUS MANNER AFFIRMED THE
DECISION OF THE LOWER COURT WHICH IS CONTRARY TO
THE PREVAILING FACTS AND THE LAW ON THE MATTER;
II. PUBLIC RESPONDENT COURT OF APPEALS IN A WHIMSICAL,
ARBITRARY AND CAPRICIOUS MANNER AFFIRMED THE
DECISION OF THE LOWER COURT DISMISSING THE ORIGINAL
CASE WHICH FAILED TO CONSIDER THAT THE EXECUTION
ORDER OF PUBLIC RESPONDENT ABELARDO G. PALAD, JR.,
DIRECTOR OF LANDS, MANILA, PRACTICALLY CHANGED THE
DECISION OF PUBLIC RESPONDENT ROBERTO HILARIO,
REGIONAL DIRECTOR, BUREAU OF LANDS, REGION 10, THUS
MAKING THE CASE PROPER SUBJECT FOR ANNULMENT WELL
WITHIN THE JURISDICTION OF THE LOWER COURT.
 The resolution of the above issues, however, hinges on the question of whether
or not the subject land is public land. Petitioners claim that the subject land is private
land being an accretion to his titled property, applying Article 457 of the Civil Code
which provides:

"To the owners of lands adjoining the banks of rivers belong the accretion which
they gradually receive from the effects of the current of the waters."

In the case of Meneses v. CA,[2] this Court held that accretion, as a mode of
acquiring property under Art. 457 of the Civil Code, requires the concurrence of
these requisites: (1) that the deposition of soil or sediment be gradual and
imperceptible; (2) that it be the result of the action of the waters of the river (or sea);
and (3) that the land where accretion takes place is adjacent to the banks or rivers
(or the sea coast).These are called the rules on alluvion which if present in a case,
give to the owners of lands adjoining the banks of rivers or streams any accretion
gradually received from the effects of the current of waters.
For petitioners to insist on the application of these rules on alluvion to their case,
the above-mentioned requisites must be present. However, they admit that the
accretion was formed by the dumping of boulders, soil and other filling materials on
portions of the Balacanas Creek and the Cagayan River bounding their land.[3] It
cannot be claimed, therefore, that the accumulation of such boulders, soil and other
filling materials was gradual and imperceptible, resulting from the action of the
waters or the current of the Balacanas Creek and the Cagayan River. In Hilario v.
City of Manila,[4] this Court held that the word "current" indicates the participation
of the body of water in the ebb and flow of waters due to high and low
tide. Petitioners' submission not having met the first and second requirements of the
rules on alluvion, they cannot claim the rights of a riparian owner.
In any case, this court agrees with private respondents that petitioners are
estopped from denying the public character of the subject land, as well as the
jurisdiction of the Bureau of Lands when the late Antonio Nazareno filed his
Miscellaneous Sales Application MSA (G-6) 571.[5] The mere filing of said
Application constituted an admission that the land being applied for was public land,
having been the subject of Survey Plan No. MSI-10-06-000571-D (Equivalent to Lot
No. 36302, Cad-237) which was conducted as a consequence of Antonio Nazareno's
Miscellaneous Sales Application wherein said land was described as an
orchard. Said description by Antonio Nazareno was, however, controverted by
respondent Labis in his investigation report to respondent Hilario based on the
findings of his ocular inspection that said land actually covers a dry portion of
Balacanas Creek and a swampy portion of Cagayan River. The investigation report
also states that except for the swampy portion which is fully planted to nipa palms,
the whole area is fully occupied by a part of a big concrete bodega of petitioners and
several residential houses made of light materials, including those of private
respondents which were erected by themselves sometime in the early part of 1978.[6]
Furthermore, the Bureau of Lands classified the subject land as an accretion area
which was formed by deposits of sawdust in the Balacanas Creek and the Cagayan
river, in accordance with the ocular inspection conducted by the Bureau of
Lands.[7] This Court has often enough held that findings of administrative agencies
which have acquired expertise because their jurisdiction is confined to specific
matters are generally accorded not only respect but even finality.[8] Again, when said
factual findings are affirmed by the Court of Appeals, the same are conclusive on
the parties and not reviewable by this Court.[9]
It is this Court's irresistible conclusion, therefore, that the accretion was man-
made or artificial. In Republic v. CA,[10] this Court ruled that the requirement that the
deposit should be due to the effect of the current of the river is indispensable. This
excludes from Art. 457 of the Civil Code all deposits caused by human
intervention. Putting it differently, alluvion must be the exclusive work of
nature. Thus, in Tiongco v. Director of Lands, et al.,[11] where the land was not
formed solely by the natural effect of the water current of the river bordering said
land but is also the consequence of the direct and deliberate intervention of man, it
was deemed a man-made accretion and, as such, part of the public domain.
In the case at bar, the subject land was the direct result of the dumping of sawdust
by the Sun Valley Lumber Co. consequent to its sawmill operations.[12] Even if this
Court were to take into consideration petitioners' submission that the accretion site
was the result of the late Antonio Nazareno's labor consisting in the dumping of
boulders, soil and other filling materials into the Balacanas Creek and Cagayan River
bounding his land,[13] the same would still be part of the public domain.
Having determined that the subject land is public land, a fortiori, the Bureau of
Lands, as well as the Office of the Secretary of Agriculture and Natural Resources
have Jurisdiction over the same in accordance with the Public Land
Law. Accordingly, the court a quo dismissed petitioners' complaint for non-
exhaustion of administrative remedies which ruling the Court of Appeals affirmed.
However, this Court agrees with petitioners that administrative remedies have
been exhausted. Petitioners could not have intended to appeal to respondent Ignacio
as an Officer-in-Charge of the Bureau of Lands. The decision being appealed from
was the decision of respondent Hilario who was the Regional Director of The Bureau
of Lands. Said decision was made "for and by authority of the Director of
Lands."[14]It would be incongruous to appeal the decision of the Regional Director
of the Bureau of Lands acting for the Director of the Bureau of Lands to an Officer-
In-Charge of the Bureau of Lands.
In any case, respondent Rolleo Ignacio's official designation was
"Undersecretary of the Department of Agriculture and Natural Resources." He was
only an "Officer-In-Charge" of the Bureau of Lands. When he acted on the late
Antonio Nazareno's motion for reconsideration by affirming or adopting
respondent's Hilario's decision, he was acting on said motion as an Undersecretary
on behalf of the Secretary of the Department. In the case of Hamoy v. Secretary of
Agriculture and Natural Resources,[15] This Court held that the Undersecretary of
Agriculture and Natural Resources may modify, adopt, or set aside the orders or
decisions of the Director of Lands with respect to questions involving public lands
under the administration and control of the Bureau of Lands and the Department of
Agriculture and Natural Resources. He cannot therefore, be said to have acted
beyond the bounds of his jurisdiction under Sections 3, 4 and 5 of Commonwealth
Act No. 141.[16]
As borne out by the administrative findings, the controverted land is public land,
being an artificial accretion of sawdust. As such, the Director of Lands has
jurisdiction, authority and control over the same, as mandated under Sections 3 and
4 of the Public Land Law (C.A. No. 141) which states, thus:

"Sec. 3. The Secretary of Agriculture and Natural Resources shall be the exclusive
officer charged with carrying out the provisions of this Act through the Director of
Lands who shall act under his immediate control.

Sec. 4. Subject to said control, the Director of Lands shall have direct executive
control of the survey, classification, lease, sale or any other form of concession or
disposition and management of the lands of the public domain, and his decisions as
to questions of fact shall be conclusive when approved by the Secretary of
Agriculture and Natural Resources."

In connection with the second issue, petitioners ascribe whim, arbitrariness or

capriciousness in the execution order of public respondent Abelardo G. Palad, the
Director of Lands. This Court finds otherwise since said decision was based on the
conclusive finding that the subject land was public land. Thus, this Court agrees with
the Court of Appeals that the Director of Lands acted within his rights when he
issued the assailed execution order, as mandated by the aforecited provisions.
Petitioners' allegation that respondent Palad's execution order directing them to
vacate the subject land practically changed respondent Hilario's decision is
baseless. It is incorrect for petitioners to assume that respondent Palad awarded
portions of the subject land to private respondents Salasalans and Rayabas as they
had not yet been issued patents or titles over the subject land. The execution order
merely directed the segregation of petitioners' titled lot from the subject land which
was actually being occupied by private respondents before they were ejected from
it. Based on the finding that private respondents were actually in possession or were
actually occupying the subject land instead of petitioners, respondent Palad, being
the Director of Lands and in the exercise of this administrative discretion, directed
petitioners to vacate the subject land on the ground that private respondents have a
preferential right, being the occupants thereof.
While private respondents may not have filed their application over the land
occupied by them, they nevertheless filed their protest or opposition to petitioners'
Miscellaneous Sales Application, the same being preparatory to the filing of an
application as they were in fact directed to do so. In any case, respondent Palad's
execution order merely implements respondent Hilario's order. It should be noted
that petitioners' own application still has to be given due course.[17]
As Director of lands, respondent Palad is authorized to exercise executive
control over any form of concession, disposition and management of the lands of the
public domain.[18] He may issue decisions and orders as he may see fit under the
circumstances as long as they are based on the findings of fact.
In the case of Calibo v. Ballesteros,[19] this Court held that where, in the
disposition of public lands, the Director of Lands bases his decision on the evidence
thus presented, he clearly acts within his jurisdiction, and if he errs in appraising the
evidence, the error is one of judgment, but not an act or grave abuse of discretion
annullable by certiorari. Thus, except for the issue of non-exhaustion of
administrative remedies, this Court finds no reversible error nor grave abuse of
discretion in the decision of the Court of Appeals.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.
DIONISIA P. BAGAIPO, petitioner, vs. THE HON. COURT OF APPEALS
and LEONOR LOZANO, respondents.
QUISUMBING, J.:

This petition assails the decision dated June 30, 1994 of the Court of Appeals
affirming the dismissal by the Regional Trial Court of Davao City, Branch 8, in Civil
Case No. 555-89, of petitioners complaint for recovery of possession with prayer for
preliminary mandatory injunction and damages.
The undisputed facts of the case are as follows:
Petitioner Dionisia P. Bagaipo is the registered owner of Lot No. 415, a 146,900
square meter agricultural land situated in Ma-a, Davao City under Transfer
Certificate of Title No. T-15757 particularly described as follows:

Bounded on the NE., by Lots Nos. 419 and 416; on the SE by the Davao River; on
the SE., (sic) by Lots Nos. 1092 and 1091; and on the NW., by Lots Nos. 413 and
418[1]

Respondent Leonor Lozano is the owner of a registered parcel of land located

across and opposite the southeast portion of petitioners lot facing the Davao
River. Lozano acquired and occupied her property in 1962 when his wife inherited
the land from her father who died that year.
On May 26, 1989, Bagaipo filed a complaint[2] for Recovery of Possession with
Mandatory Writ of Preliminary Injunction and Damages against Lozano for: (1) the
surrender of possession by Lozano of a certain portion of land measuring 29,162
square meters which is supposedly included in the area belonging to Bagaipo under
TCT No. T-15757; and (2) the recovery of a land area measuring 37,901 square
meters which Bagaipo allegedly lost when the Davao River traversed her
property. Bagaipo contended that as a result of a change in course of the said river,
her property became divided into three lots, namely:Lots 415-A, 415-B and 415-C.
In January 1988, Bagaipo commissioned a resurvey of Lot 415 and presented
before the trial court a survey plan[3] prepared by Geodetic Engineer Gersacio A.
Magno. The survey plan allegedly showed that: a) the area presently occupied by
Bagaipo, identified as Lot 415-A, now had an area of only 79,843 square meters; b)
Lot 415-B, with an area measuring 37,901 square meters, which cut across Bagaipos
land was taken up by the new course of the Davao River; and c) an area of 29,162
square meters designated as Lot 415-C was illegally occupied by respondent
Lozano. The combined area of the lots described by Engineer Magno in the survey
plan tallied with the technical description of Bagaipos land under TCT No. T-
15757. Magno concluded that the land presently located across the river and parallel
to Bagaipos property still belonged to the latter and not to Lozano, who planted some
350 fruit-bearing trees on Lot 415-C and the old abandoned river bed.
Bagaipo also presented Godofredo Corias, a former barangay captain and long-
time resident of Ma-a to prove her claim that the Davao River had indeed changed
its course. Corias testified that the occurrence was caused by a big flood in 1968 and
a bamboo grove which used to indicate the position of the river was washed
away. The river which flowed previously in front of a chapel located 15 meters away
from the riverbank within Bagaipos property now flowed behind it. Corias was also
present when Magno conducted the relocation survey in 1988.
For his part, Lozano insisted that the land claimed by Bagaipo is actually an
accretion to their titled property. He asserted that the Davao River did not change its
course and that the reduction in Bagaipos domain was caused by gradual erosion due
to the current of the Davao River. Lozano added that it is also because of the rivers
natural action that silt slowly deposited and added to his land over a long period of
time. He further averred that this accretion continues up to the present and that
registration proceedings instituted by him over the alluvial formation could not be
concluded precisely because it continued to increase in size.
Lozano presented three witnesses: Atty. Pedro Castillo, his brother-in-law;
Cabitunga Pasanday, a tenant of Atty. Castillo; and Alamin Catucag, a tenant of the
Lozanos.
Atty. Castillo testified that the land occupied by the Lozanos was transferred to
his sister, Ramona when they extra-judicially partitioned their parents property upon
his fathers death. On September 9, 1973, Atty. Castillo filed a land registration case
involving the accretion which formed on the property and submitted for this purpose,
a survey plan[4] approved by the Bureau of Lands as well as tax
declarations[5]covering the said accretion. An Order of General Default[6] was
already issued in the land registration case on November 5, 1975, but the case itself
remained pending since the petition had to be amended to include the continuing
addition to the land area.
Mr. Cabitunga Pasanday testified that he has continuously worked on the land
as tenant of the Castillos since 1925, tilling an area of about 3 hectares. However,
the land he tilled located opposite the land of the Lozanos and adjacent to the Davao
River has decreased over the years to its present size of about 1 hectare. He said the
soil on the bank of the river, as well as coconut trees he planted would be carried
away each time there was a flood. This similar erosion occurs on the properties of
Bagaipo and a certain Dr. Rodriguez, since the elevation of the riverbank on their
properties is higher than the elevation on Lozanos side.
 Alamin Catucag testified that he has been a tenant of the Castillos since 1939
and that the portion he occupies was given to Ramona, Lozanos wife. It was only 1
hectare in 1939 but has increased to 3 hectares due to soil deposits from the
mountains and river. Catucag said that Bagaipos property was reduced to half since
it is in the curve of the river and its soil erodes and gets carried away by river water.
On April 5, 1991, the trial court conducted an ocular inspection. It concluded
that the applicable law is Article 457[7]. To the owners of lands adjoining the banks
of rivers belong the accretion which they gradually receive from the effects of the
current of the waters.7 of the New Civil Code and not Art. 461[8] The reduction in
the land area of plaintiff was caused by erosion and not by a change in course of the
Davao River. Conformably then, the trial court dismissed the complaint.
On appeal, the Court of Appeals affirmed the decision of the trial court and
decreed as follows:

WHEREFORE, the decision appealed from is hereby affirmed, with costs against
the plaintiff-appellant.[9]

Hence, this appeal.

Petitioner asserts that the Court of Appeals erred in:

....NOT GIVING PROBATIVE VALUE TO THE RELOCATION SURVEY

(EXHIBIT B) PREPARED BY LICENSED GEODETIC ENGINEER
GERSACIO MAGNO. THE CASE OF DIRECTOR OF LANDS VS. HEIRS
OF JUANA CAROLINA 140 SCRA 396 CITED BY THE RESPONDENT
COURT IN DISREGARDING EXHIBIT B IS NOT APPLICABLE TO THE
CASE AT BAR.

....NOT FINDING THAT ASSUMING WITHOUT ADMITTING THAT THE

QUESTIONED LOT 415-C (EXHIBIT B-1) OCCUPIED BY RESPONDENT
LEONOR LOZANO WAS THE RESULT OF AN ACCRETION, THE
PRINCIPLE OF ACCRETION CANNOT AND DOES NOT APPLY IN THE
INSTANT CASE TO FAVOR SAID RESPONDENT BECAUSE SAID LOT
415-C IS WITHIN AND FORM PART OF PETITIONERS LAND
DESCRIBED IN TCT NO. 15757 (EXHIBIT A)

....FINDING PETITIONER GUILTY OF LACHES WHEN SHE

INSTITUTED THE SUIT.
 ....NOT ORDERING RESPONDENT LEONOR LOZANO TO VACATE
AND SURRENDER LOT 415-C IN FAVOR OF PETITIONER AND FOR
HIM TO PAY PETITIONER DAMAGES FOR ITS UNLAWFUL
OCCUPATION THEREOF.

....NOT HOLDING PETITIONER ENTITLED TO THE ABANDONED

RIVER BED.[10]

For this Courts resolution are the following issues: Did the trial court err in
holding that there was no change in course of the Davao River such that petitioner
owns the abandoned river bed pursuant to Article 461 of the Civil Code? Did private
respondent own Lot 415-C in accordance with the principle of accretion under
Article 457? Should the relocation survey prepared by a licensed geodetic engineer
be disregarded since it was not approved by the Director of Lands? Is petitioners
claim barred by laches?
On the first issue. The trial court and the appellate court both found that the
decrease in land area was brought about by erosion and not a change in the rivers
course. This conclusion was reached after the trial judge observed during ocular
inspection that the banks located on petitioners land are sharp, craggy and very much
higher than the land on the other side of the river. Additionally, the riverbank on
respondents side is lower and gently sloping. The lower land therefore naturally
received the alluvial soil carried by the river current.[11] These findings are factual,
thus conclusive on this Court, unless there are strong and exceptional reasons, or
they are unsupported by the evidence on record, or the judgment itself is based on a
misapprehension of facts.[12] These factual findings are based on an ocular inspection
of the judge and convincing testimonies, and we find no convincing reason to
disregard or disbelieve them.
The decrease in petitioners land area and the corresponding expansion of
respondents property were the combined effect of erosion and accretion
respectively. Art. 461 of the Civil Code is inapplicable.Petitioner cannot claim
ownership over the old abandoned riverbed because the same is inexistent. The
riverbeds former location cannot even be pinpointed with particularity since the
movement of the Davao River took place gradually over an unspecified period of
time, up to the present.
The rule is well-settled that accretion benefits a riparian owner when the
following requisites are present: 1) That the deposit be gradual and imperceptible;
2) That it resulted from the effects of the current of the water; and 3) That the land
where accretion takes place is adjacent to the bank of the river.[13] These requisites
were sufficiently proven in favor of respondents. In the absence of evidence that the
change in the course of the river was sudden or that it occurred through avulsion, the
presumption is that the change was gradual and was caused by alluvium and
erosion.[14]
As to Lot 415-C, which petitioner insists forms part of her property under TCT
No. T-15757, it is well to recall our holding in C.N. Hodges vs. Garcia, 109 Phil.
133, 135:

The fact that the accretion to his land used to pertain to plaintiffs estate, which is
covered by a Torrens certificate of title, cannot preclude him (defendant) from
being the owner thereof. Registration does not protect the riparian owner against
the diminution of the area of his land through gradual changes in the course of the
adjoining stream. Accretions which the banks of rivers may gradually receive from
the effect of the current become the property of the owners of the banks (Art. 366
of the old Civil Code; Art. 457 of the new). Such accretions are natural incidents to
land bordering on running streams and the provisions of the Civil Code in that
respect are not affected by the Land Registration Act.[15]

Petitioner did not demonstrate that Lot 415-C allegedly comprising 29,162
square meters was within the boundaries of her titled property. The survey plan
commissioned by petitioner which was not approved by the Director of Lands was
properly discounted by the appellate court. In Titong vs. Court of Appeals[16] we
affirmed the trial courts refusal to give probative value to a private survey plan and
held thus:

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. 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

In view of the foregoing, it is no longer necessary now to discuss the defense of

laches. It is mooted by the disquisition on the foregoing issues.
 WHEREFORE, the assailed decision dated June 30, 1994, of the Court of
Appeals in C.A.-G. R. CV No. 37615, sustaining the judgment of the court a quo, is
AFFIRMED. Costs against petitioner.
SO ORDERED.
BPS – GOOD FAITH

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

FRANCISCO DEPRA, Plaintiff-Appellee, vs. AGUSTIN

DUMLAO, Defendant-Appellant.

Roberto D. Dineros for plaintiff-appellee.chanrobles virtual law library

Veil D. Hechanova for defendant-appellant.

MELENCIO-HERRERA, J.:

This is an appeal from the Order of the former Court of First Instance of Iloilo to
the then Court of Appeals, which the latter certified to this instance as involving
pure questions of law chanrobles virtual law library

Plaintiff-appellee, Francisco Depra, is the owner of a parcel of land registered

under Transfer Certificate of Title No. T3087, known as Lot No. 685, situated in
the municipality of Dumangas, Iloilo, with an area of approximately 8,870 square
meters. Agustin Dumlao, defendant-appellant, owns an adjoining lot, designated as
Lot No. 683, with an approximate area of 231 sq.
ms.chanroblesvirtualawlibrary chanrobles virtual law library

Sometime in 1972, when DUMLAO constructed his house on his lot, the kitchen
thereof had encroached on an area of thirty four (34) square meters of DEPRA's
property, After the encroachment was discovered in a relocation survey of
DEPRA's lot made on November 2,1972, his mother, Beatriz Depra after writing a
demand letter asking DUMLAO to move back from his encroachment, filed an
action for Unlawful Detainer on February 6,1973 against DUMLAO in the
Municipal Court of of Dumangas, docketed as Civil Case No 1, Said complaint
was later amended to include DEPRA as a party plain.
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library

After trial, the Municipal Court found that DUMLAO was a builder in good faith,
and applying Article 448 of the Civil Code, rendered judgment on September 29,
1973, the dispositive portion of which reads:

Ordering that a forced lease is created between the parties with the plaintiffs, as
lessors, and the defendants as lessees, over the disputed portion with an area of
thirty four (34) square meters, the rent to be paid is five (P5.00) pesos a month,
payable by the lessee to the lessors within the first five (5) days of the month the
rent is due; and the lease shall commence on the day that this decision shall have
become final.

From the foregoing judgment, neither party appeal so that, ff it were a valid
judgment, it would have ordinarily lapsed into finality, but even then, DEPRA did
not accept payment of rentals so that DUMLAO deposited such rentals with the
Municipal Court.chanroblesvirtualawlibrary chanrobles virtual law library

On July 15,1974, DEPRA filed a Complaint for Quieting of Title against

DUMLAO before the then Court of First Instance of Iloilo, Branch IV (Trial
Court), involving the very same 34 square meters, which was the bone of
contention in the Municipal Court. DUMLAO, in his Answer, admitted the
encroachment but alleged, in the main, that the present suit is barred by res
judicata by virtue of the Decision of the Municipal Court, which had become final
and executory.chanroblesvirtualawlibrary chanrobles virtual law library

After the case had been set for pre-trial, the parties submitted a Joint Motion for
Judgment based on the Stipulation of Facts attached thereto. Premised thereon, the
Trial Court on October 31, 1974, issued the assailed Order, decreeing:

WHEREFORE, the Court finds and so holds that the thirty four (34) square meters
subject of this litigation is part and parcel of Lot 685 of the Cadastral Survey of
Dumangas of which the plaintiff is owner as evidenced by Transfer Certificate of
Title No. 3087 and such plaintiff is entitled to possess the
same.chanroblesvirtualawlibrary chanrobles virtual law library

Without pronouncement as to costs.chanroblesvirtualawlibrarychanrobles virtual

law library

SO ORDERED.

Rebutting the argument of res judicata relied upon by DUMLAO, DEPRA claims
that the Decision of the Municipal Court was null and void ab initio because its
jurisdiction is limited to the sole issue of possession, whereas decisions affecting
lease, which is an encumbrance on real property, may only be rendered by Courts
of First Instance.chanroblesvirtualawlibrary chanrobles virtual law library

Addressing out selves to the issue of validity of the Decision of the Municipal
Court, we hold the same to be null and void. The judgment in a detainer case is
effective in respect of possession only (Sec. 7, Rule 70, Rules of Court). 1 The
Municipal Court over-stepped its bounds when it imposed upon the parties a
situation of "forced lease", which like "forced co-ownership" is not favored in law.
Furthermore, a lease is an interest in real property, jurisdiction over which belongs
to Courts of First Instance (now Regional Trial Courts) (Sec. 44(b), Judiciary Act
of 1948; 2 Sec. 19 (2) Batas Pambansa Blg. 129). 3 Since the Municipal Court,
acted without jurisdiction, its Decision was null and void and cannot operate as res
judicata to the subject complaint for Queting of Title. Besides, even if the Decision
were valid, the rule on res judicata would not apply due to difference in cause of
action. In the Municipal Court, the cause of action was the deprivation of
possession, while in the action to quiet title, the cause of action was based on
ownership. Furthermore, Sec. 7, Rule 70 of the Rules of Court explicitly provides
that judgment in a detainer case "shall not bar an action between the same parties
respecting title to the land. " 4 chanrobles virtual law library

Conceded in the Stipulation of Facts between the parties is that DUMLAO was a
builder in good faith. Thus,

8. That the subject matter in the unlawful detainer case, Civil Case No. 1, before
the Municipal Court of Dumangas, Iloilo involves the same subject matter in the
present case, the Thirty-four (34) square meters portion of land and built thereon in
good faith is a portion of defendant's kitchen and has been in the possession of the
defendant since 1952 continuously up to the present; ... (Emphasis ours)

Consistent with the principle that our Court system, like any other, must be a
dispute resolving mechanism, we accord legal effect to the agreement of the
parties, within the context of their mutual concession and stipulation. They have,
thereby, chosen a legal formula to resolve their dispute to appeal ply to DUMLAO
the rights of a "builder in good faith" and to DEPRA those of a "landowner in good
faith" as prescribed in Article 448. Hence, we shall refrain from further examining
whether the factual situations of DUMLAO and DEPRA conform to the juridical
positions respectively defined by law, for a "builder in good faith" under Article
448, a "possessor in good faith" under Article 526 and a "landowner in good faith'
under Article 448.chanroblesvirtualawlibrary chanrobles virtual law library

In regards to builders in good faith, Article 448 of the Civil Code

provides: chanrobles virtual law library

ART. 448. The owner of the land on which anything has been built sown or
planted in good faith,

shall have the right chanrobles virtual law library

to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in articles 546 and 548, or chanrobles virtual law library

to oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent.chanroblesvirtualawlibrary chanrobles virtual law library

However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the
building or trees after proper indemnity. The parties shall agree upon the terms of
the lease and in case of disagreement, the court shall fix the terms thereof
(Paragraphing supplied)

Pursuant to the foregoing provision, DEPRA has the option either to pay for the
encroaching part of DUMLAO's kitchen, or to sell the encroached 34 square
meters of his lot to DUMLAO. He cannot refuse to pay for the encroaching part of
the building, and to sell the encroached part of his land, 5 as he had manifested
before the Municipal Court. But that manifestation is not binding because it was
made in a void proceeding.chanroblesvirtualawlibrary chanrobles virtual law
library

However, the good faith of DUMLAO is part of the Stipulation of Facts in the
Court of First Instance. It was thus error for the Trial Court to have ruled that
DEPRA is "entitled to possession," without more, of the disputed portion implying
thereby that he is entitled to have the kitchen removed. He is entitled to such
removal only when, after having chosen to sell his encroached land, DUMLAO
fails to pay for the same. 6 In this case, DUMLAO had expressed his willingness to
pay for the land, but DEPRA refused to sell.

The owner of the building erected in good faith on a land owned by another, is
entitled to retain the possession of the land until he is paid the value of his
building, under article 453 (now Article 546). The owner of the land, upon the
other hand, has the option, under article 361 (now Article 448), either to pay for
the building or to sell his land to the owner of the building. But he cannot as
respondents here did refuse both to pay for the building and to sell the land and
compel the owner of the building to remove it from the land where it erected. He is
entitled to such remotion only when, after having chosen to sell his land. the other
party fails to pay for the same (italics ours).chanroblesvirtualawlibrary chanrobles
virtual law library
We hold, therefore, that the order of Judge Natividad compelling defendants-
petitioners to remove their buildings from the land belonging to plaintiffs-
respondents only because the latter chose neither to pay for such buildings nor to
sell the land, is null and void, for it amends substantially the judgment sought to be
executed and is. furthermore, offensive to articles 361 (now Article 448) and 453
(now Article 546) of the Civil Code. (Ignacio vs. Hilario, 76 Phil. 605, 608[1946]).

A word anent the philosophy behind Article 448 of the Civil

rode.chanroblesvirtualawlibrary chanrobles virtual law library

The original provision was found in Article 361 of the Spanish Civil Code; which
provided:

ART. 361. The owner of land on which anything has been built, sown or planted in
good faith, shall have the right to appropriate as his own the work, sowing or
planting, after the payment of the indemnity stated in Articles 453 and 454, or to
oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent.

As will be seen, the Article favors the owner of the land, by giving him one of the
two options mentioned in the Article. Some commentators have questioned the
preference in favor of the owner of the land, but Manresa's opinion is that the
Article is just and fair.

. . . es justa la facultad que el codigo da al dueno del suelo en el articulo 361, en el

caso de edificacion o plantacion? Algunos comentaristas la conceptuan injusta, y
como un extraordinario privilegio en favor de la propiedad territorial. Entienden
que impone el Codigo una pena al poseedor de buena fe y como advierte uno de
los comentaristas aludidos 'no se ve claro el por que de tal pena . . . al obligar al
que obro de buena fe a quedarse con el edificio o plantacion, previo el pago del
terreno que ocupa, porque si bien es verdad que cuando edifico o planto demostro
con este hecho, que queria para si el edificio o plantio tambien lo es que el que
edifico o planto de buena fe lo hizo en la erronea inteligencia de creerse dueno del
terreno Posible es que, de saber lo contrario, y de tener noticia de que habia que
comprar y pagar el terreno, no se hubiera decidido a plantar ni a edificar. La ley
obligandole a hacerlo fuerza su voluntad, y la fuerza por un hecho inocente de que
no debe ser responsable'. Asi podra suceder pero la realidad es que con ese hecho
voluntario, aunque sea inocente, se ha enriquecido torticeramente con perjuicio de
otro a quien es justo indemnizarle, chanrobles virtual law library
En nuestra opinion, el Codigo ha resuelto el conflicto de la manera mas justa y
equitativa y respetando en lo possible el principio que para la accesion se establece
en el art. 358. 7

Our own Code Commission must have taken account of the objections to Article
361 of the Spanish Civil Code. Hence, the Commission provided a modification
thereof, and Article 448 of our Code has been made to provide:

ART. 448. The owner of the land on which anything has been built, sown or
planted in good faith, shall have the right to appropriate as his own the works,
sowing or planting, after payment of the indemnity provided for in articles 546 and
548, or to oblige the one who built or planted to pay the price of the land, and the
one who sowed, the proper rent. However, the builder or planter cannot be obliged
to buy the land if its value is considerably more than that of the building or trees.
In such case, he shall pay reasonable rent, if the owner of the land does not choose
to appropriate the building or trees after proper indemnity. The parties shall agree
upon the terms of the lease and in case of disagreement, the court shall fix the
terms thereof.

Additional benefits were extended to the builder but the landowner retained his
options.chanroblesvirtualawlibrary chanrobles virtual law library

The fairness of the rules in Article 448 has also been explained as follows:

Where the builder, planter or sower has acted in good faith, a conflict of rights
arises between the owners, and it becomes necessary to protect the owner of the
improvements without causing injustice to the owner of the land. In view of the
impracticability of creating a state of forced co-ownership, the law has provided a
just solution by giving the owner of the land the option to acquire the
improvements after payment of the proper indemnity, or to oblige the builder or
planter to pay for the land and the sower to pay for the proper rent. It is the owner
of the land who is authorized to exercise the option, because his right is older, and
because, by the principle of accession, he is entitled to the ownership of the
accessory thing. (3 Manresa 213; Bernardo vs. Bataclan, 37 Off. Gaz. 1382; Co
Tao vs. Chan Chico, G.R. No. 49167, April 30, 1949; Article applied: see Cabral,
et al vs. Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs. Velasco, [C.A.] 52 Off. Gaz.
2050). 8

WHEREFORE, the judgment of the trial Court is hereby set aside, and this case is
hereby ordered remanded to the Regional Trial Court of Iloilo for further
proceedings consistent with Articles 448 and 546 of the Civil Code, as
follows: chanrobles virtual law library

1. The trial Court shall determine

a) the present fair price of DEPRA's 34 square meter area of land; chanrobles
virtual law library

b) the amount of the expenses spent by DUMLAO for the building of the
kitchen; chanrobles virtual law library

c) the increase in value ("plus value") which the said area of 34 square meters may
have acquired by reason thereof, and chanrobles virtual law library

d) whether the value of said area of land is considerably more than that of the
kitchen built thereon.

2. After said amounts shall have been determined by competent evidence, the
Regional, Trial Court shall render judgment, as follows:

a) The trial Court shall grant DEPRA a period of fifteen (15) days within which to
exercise his option under the law (Article 448, Civil Code), whether to appropriate
the kitchen as his own by paying to DUMLAO either the amount of tile expenses
spent by DUMLAO f or the building of the kitchen, or the increase in value ("plus
value") which the said area of 34 square meters may have acquired by reason
thereof, or to oblige DUMLAO to pay the price of said area. The amounts to be
respectively paid by DUMLAO and DEPRA, in accordance with the option thus
exercised by written notice of the other party and to the Court, shall be paid by the
obligor within fifteen (15) days from such notice of the option by tendering the
amount to the Court in favor of the party entitled to receive it; chanrobles virtual
law library

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

c) In any event, DUMLAO shall pay DEPRA an amount computed at Ten Pesos
(P10.00) per month as reasonable compensation for the occupancy of DEPRA's
land for the period counted from 1952, the year DUMLAO occupied the subject
area, up to the commencement date of the forced lease referred to in the preceding
paragraph; chanrobles virtual law library

d) The periods to be fixed by the trial Court in its Precision shall be inextendible,
and upon failure of the party obliged to tender to the trial Court the amount due to
the obligee, the party entitled to such payment shall be entitled to an order of
execution for the enforcement of payment of the amount due and for compliance
with such other acts as may be required by the prestation due the obligee.

No costs, chanrobles virtual law library

SO ORDERED.
G.R. No. L-57288 April 30, 1984

LEONILA SARMINETO, petitioner,

vs.
HON. ENRIQUE A. AGANA, District Judge, Court of First Instance of Rizal,
Seventh Judicial District, Branch XXVIII, Pasay City, and SPOUSES
ERNESTO VALENTINO and REBECCA LORENZO-
VALENTINO, respondents.

Mercedes M. Respicio for petitioner.

Romulo R. Bobadilla for private respondents.

MELENCIO-HERRERA, J.:ñé+.£ªwph!1

This Petition for certiorari questions a March 29, 1979 Decision rendered by the
then Court of First Instance of Pasay City. The Decision was one made on
memoranda, pursuant to the provisions of RA 6031, and it modified, on October
17, 1977, a judgment of the then Municipal Court of Paranaque, Rizal, in an
Ejectment suit instituted by herein petitioner Leonila SARMIENTO against private
respondents, the spouses ERNESTO Valentino and Rebecca Lorenzo. For the
facts, therefore, we have to look to the evidence presented by the parties at the
original level.

It appears that while ERNESTO was still courting his wife, the latter's mother had
told him the couple could build a RESIDENTIAL HOUSE on a lot of 145 sq. ms.,
being Lot D of a subdivision in Paranaque (the LAND, for short). In 1967,
ERNESTO did construct a RESIDENTIAL HOUSE on the LAND at a cost of
P8,000.00 to P10,000.00. It was probably assumed that the wife's mother was the
owner of the LAND and that, eventually, it would somehow be transferred to the
spouses.

It subsequently turned out that the LAND had been titled in the name of Mr. &
Mrs. Jose C. Santo, Jr. who, on September 7 , 1974, sold the same to petitioner
SARMIENTO. The following January 6, 1975, SARMIENTO asked ERNESTO
and wife to vacate and, on April 21, 1975, filed an Ejectment suit against them. In
the evidentiary hearings before the Municipal Court, SARMIENTO submitted the
deed of sale of the LAND in her favor, which showed the price to be P15,000.00.
On the other hand, ERNESTO testified that the then cost of the RESIDENTIAL
HOUSE would be from P30,000.00 to P40,000.00. The figures were not
questioned by SARMIENTO.

The Municipal Court found that private respondents had built the RESIDENTIAL
HOUSE in good faith, and, disregarding the testimony of ERNESTO, that it had a
value of P20,000.00. It then ordered ERNESTO and wife to vacate the LAND after
SARMIENTO has paid them the mentioned sum of P20,000.00.

The Ejectment suit was elevated to the Court of First Instance of Pasay where, after
the submission of memoranda, said Court rendered a modifying Decision under
Article 448 of the Civil Code. SARMIENTO was required, within 60 days, to
exercise the option to reimburse ERNESTO and wife the sum of 40,000.00 as the
value of the RESIDENTIAL HOUSE, or the option to allow them to purchase the
LAND for P25,000.00. SARMIENTO did not exercise any of the two options
within the indicated period, and ERNESTO was then allowed to deposit the sum of
P25,000.00 with the Court as the purchase price for the LAND. This is the hub of
the controversy. SARMIENTO then instituted the instant certiorari proceedings.

We agree that ERNESTO and wife were builders in good faith in view of the
peculiar circumstances under which they had constructed the RESIDENTIAL
HOUSE. As far as they knew, the LAND was owned by ERNESTO's mother-in-
law who, having stated they could build on the property, could reasonably be
expected to later on give them the LAND.

In regards to builders in good faith, Article 448 of the Code provides:têñ.£îhqwâ£

ART. 448. The owner of the land on which anything has been built,
sown or planted in good faith,

shall have the right

to appropriate as his own the works, sowing or planting, after payment

of the indemnity provided for in articles 546 and 548, or

to oblige the one who built or planted to pay the price of the land, and
the one who sowed, the proper rent.

However, the builder or planter cannot be obliged to buy the land if its
value is considerably more than that of the building or trees. In such
case, he shall pay reasonable rent, if the owner of the land does not
choose to appropriate the building or trees after proper indemnity. The
 parties shall agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof. (Paragraphing
supplied)

The value of the LAND, purchased for P15,000.00 on September 7, 1974, could
not have been very much more than that amount during the following January
when ERNESTO and wife were asked to vacate. However, ERNESTO and wife
have not questioned the P25,000.00 valuation determined by the Court of First
Instance.

In regards to the valuation of the RESIDENTIAL HOUSE, the only evidence

presented was the testimony of ERNESTO that its worth at the time of the trial
should be from P30,000.00 to P40,000.00. The Municipal Court chose to assess its
value at P20,000.00, or below the minimum testified by ERNESTO, while the
Court of First Instance chose the maximum of P40,000.00. In the latter case, it
cannot be said that the Court of First Instance had abused its discretion.

The challenged decision of respondent Court, based on valuations of P25,000.00

for the LAND and P40,000.00 for the RESIDENTIAL HOUSE, cannot be viewed
as not supported by the evidence. The provision for the exercise by petitioner
SARMIENTO of either the option to indemnify private respondents in the amount
of P40,000.00, or the option to allow private respondents to purchase the LAND at
P25,000.00, in our opinion, was a correct decision.têñ.£îhqwâ£

The owner of the building erected in good faith on a land owned by

another, is entitled to retain the possession of the land until he is paid
the value of his building, under article 453 (now Article 546). The
owner, of the land. upon, the other hand, has the option, under article
361 (now Article 448), either to pay for the building or to sell his land
to the owner of the building. But he cannot, as respondents here
did, refuse both to pay for the building and to sell the land and compel
the owner of the building to remove it from the land where it is
erected. He is entitled to such remotion only when, after having
chosen to sell his land, the other party fails to pay for the same.
(Emphasis ours)

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

defendants-petitioners to remove their buildings from the land
belonging to plaintiffs-respondents only because the latter chose
neither to pay for such buildings nor to sell the land, is null and void,
 for it amends substantially the judgment sought to be executed and is,
furthermore, offensive to articles 361 (now Article 448) and 453 (now
Article 546) of the Civil Code. (Ignacio vs. Hilario, 76 Phil. 605, 608
[1946]).

WHEREFORE, the Petition for Certiorari is hereby ordered dismissed, without

pronouncement as to costs.

SO ORDERED.1äwphï1.ñët
 FIRST DIVISION

SULO SA NAYON, INC. and/or G.R. No. 170923

PHILIPPINE VILLAGE HOTEL, INC.
and JOSE MARCEL E. PANLILIO,
Petitioners, Present:
PUNO, C.J., Chairperson,
CARPIO,
CORONA,
- versus - AZCUNA, and
LEONARDO-DE CASTRO, JJ.

NAYONG PILIPINO FOUNDATION, Promulgated:

Respondent. January 20, 2009

x--------------------------------------------------------
---x

DECISION

PUNO, C.J.:

On appeal are the Court of Appeals (CAs) October 4, 2005 Decision[1] in CA-
G.R. SP No. 74631 and December 22, 2005 Resolution,[2] reversing the November
29, 2002 Decision[3] of the Regional Trial Court (RTC) of Pasay City in Civil Case
No. 02-0133. The RTC modified the Decision[4] of the Metropolitan Trial Court
(MeTC) of Pasay City which ruled against petitioners and ordered them to vacate
the premises and pay their arrears. The RTC declared petitioners as builders in good
faith and upheld their right to indemnity.

The facts are as follows:

Respondent Nayong Pilipino Foundation, a government-owned and
controlled corporation, is the owner of a parcel of land in Pasay City, known as the
Nayong Pilipino Complex. Petitioner Philippine Village Hotel, Inc. (PVHI),
formerly called Sulo sa Nayon, Inc., is a domestic corporation duly organized and
existing under Philippine laws. Petitioner Jose Marcel E. Panlilio is its Senior
Executive Vice President.

On June 1, 1975, respondent leased a portion of the Nayong Pilipino Complex,

consisting of 36,289 square meters, to petitioner Sulo sa Nayon, Inc. for the
construction and operation of a hotel building, to be known as the Philippine Village
Hotel. The lease was for an initial period of 21 years, or until May 1996. It is
renewable for a period of 25 years under the same terms and conditions upon due
notice in writing to respondent of the intention to renew at least 6 months before its
expiration. Thus, on March 7, 1995, petitioners sent respondent a letter notifying the
latter of their intention to renew the contract for another 25 years. On July 4, 1995,
the parties executed a Voluntary Addendum to the Lease Agreement. The addendum
was signed by petitioner Jose Marcel E. Panlilio in his official capacity as Senior
Executive Vice President of the PVHI and by Chairman Alberto A. Lim of the
Nayong Pilipino Foundation. They agreed to the renewal of the contract for another
25 years, or until 2021. Under the new agreement, petitioner PVHI was bound to pay
the monthly rental on a per square meter basis at the rate of P20.00 per square meter,
which shall be subject to an increase of 20% at the end of every 3-year period. At
the time of the renewal of the lease contract, the monthly rental amounted
to P725,780.00.

Beginning January 2001, petitioners defaulted in the payment of their monthly

rental. Respondent repeatedly demanded petitioners to pay the arrears and vacate the
premises. The last demand letter was sent on March 26, 2001.

On September 5, 2001, respondent filed a complaint for unlawful detainer

before the MeTC of Pasay City. The complaint was docketed as Civil Case No. 708-
01. Respondent computed the arrears of petitioners in the amount of twenty-six
million one hundred eighty-three thousand two hundred twenty-five pesos and
fourteen centavos (P26,183,225.14), as of July 31, 2001.

On February 26, 2002, the MeTC rendered its decision in favor of

respondent. It ruled, thus:
 . . . . The court is convinced by the evidence that indeed,
defendants defaulted in the payment of their rentals. It is basic that the
lessee is obliged to pay the price of the lease according to the terms
stipulated (Art. 1657, Civil Code). Upon the failure of the lessee to pay
the stipulated rentals, the lessor may eject (sic) and treat the lease as
rescinded and sue to eject the lessee (C. Vda[.] De Pamintuan v. Tiglao,
53 Phil. 1). For non-payment of rentals, the lessor may rescind the
lease, recover the back rentals and recover possession of the leased
premises. . .

xxx

. . . . Improvements made by a lessee such as the defendants

herein on leased premises are not valid reasons for their retention
thereof. The Supreme Court has occasion to address a similar issue in
which it ruled that: The fact that petitioners allegedly made repairs on
the premises in question is not a reason for them to retain the
possession of the premises. There is no provision of law which grants
the lessee a right of retention over the leased premises on that
ground. Article 448 of the Civil Code, in relation to Article 546, which
provides for full reimbursement of useful improvements and retention
of the premises until reimbursement is made, applies only to a
possessor in good faith, i.e., one who builds on a land in the belief that
he is the owner thereof. This right of retention does not apply to a mere
lessee, like the petitioners, otherwise, it would always be in his power
to improve his landlord out of the latters property (Jose L. Chua and
Co Sio Eng vs. Court of Appeals and Ramon Ibarra, G.R. No. 109840,
January 21, 1999).
Although the Contract of Lease stipulates that the building and
all the improvements in the leased premises belong to the defendants
herein, such will not defeat the right of the plaintiff to its property as
the defendants failed to pay their rentals in violation of the terms of the
contract. At most, defendants can only invoke [their] right under Article
1678 of the New Civil Code which grants them the right to be
reimbursed one-half of the value of the building upon the termination
of the lease, or, in the alternative, to remove the improvements if the
lessor refuses to make reimbursement.
 The dispositive portion of the decision reads as follows:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of Nayong Pilipino Foundation, and against the
defendant Philippine Village Hotel, Inc[.], and all persons claiming
rights under it, ordering the latter to:
1. VACATE the subject premises and surrender
possession thereof to plaintiff;
2. PAY plaintiff its rental arrearages in the sum of
TWENTY SIX MILLION ONE HUNDRED EIGHTY
THREE THOUSAND TWO HUNDRED TWENTY
FIVE PESOS AND 14/100 (P26,183,225.14) incurred as
of July 31, 2001;
3. PAY plaintiff the sum of SEVEN HUNDRED
TWENTY FIVE THOUSAND SEVEN HUNDRED
EIGHTY PESOS (P725,780.00) per month starting from
August 2001 and every month thereafter by way of
reasonable compensation for the use and occupation of the
premises;
4. PAY plaintiff the sum of FIFTY THOUSAND
PESOS (P50,000.00) by way of attorneys fees[; and]
5. PAY the costs of suit.
The complaint against defendant Jose Marcel E. Panlilio is
hereby dismissed for lack of cause of action. The said defendants
counterclaim however is likewise dismissed as the complaint does not
appear to be frivolous or maliciously instituted.

SO ORDERED.[5]

Petitioners appealed to the RTC which modified the ruling of the MeTC. It
held that:
. . . it is clear and undisputed that appellants-lessees were
expressly required to construct a first-class hotel with complete
facilities. The appellants were also unequivocally declared in the Lease
Agreement as the owner of the improvements so constructed. They
were even explicitly allowed to use the improvements and building as
security or collateral on loans and credit accommodations that the
Lessee may secure for the purpose of financing the construction of the
building and other improvements (Section 2; pars. A to B, Lease
Agreement). Moreover, a time frame was setforth (sic) with respect to
the duration of the lease initially for 21 years and renewable for another
25 years in order to enable the appellants-lessees to recoup their huge
money investments relative to the construction and maintenance of the
improvements.
xxx
Considering therefore, the elements of permanency of the
construction and substantial value of the improvements as well as the
undispute[d] ownership over the land improvements, these, immensely
engender the application of Art. 448 of the Civil Code. The only
remaining and most crucial issue to be resolved is whether or not the
appellants as builders have acted in good faith in order for Art. 448 in
relation to Art. 546 of the Civil Code may apply with respect to their
rights over improvements.
xxx
. . . it is undeniable that the improvement of the hotel building of
appellants (sic) PVHI was constructed with the written consent and
knowledge of appellee. In fact, it was precisely the primary purpose for
which they entered into an agreement. Thus, it could not be denied that
appellants were builders in good faith.
Accordingly, and pursuant to Article 448 in relation to Art. 546
of the Civil Code, plaintiff-appellee has the sole option or choice, either
to appropriate the building, upon payment of proper indemnity
consonant to Art. 546 or compel the appellants to purchase the land
whereon the building was erected. Until such time that plaintiff-
appellee has elected an option or choice,
it has no right of removal or demolition against appellants unless after
having selected a compulsory sale, appellants fail to pay for the land
(Ignacio vs. Hilario; 76 Phil. 605). This, however, is without prejudice
from the parties agreeing to adjust their rights in some other way as they
may mutually deem fit and proper.

The dispositive portion of the decision of the RTC reads as follows:

 WHEREFORE, and in view of the foregoing, judgment is hereby
rendered modifying the decision of [the] MTC, Branch 45 of Pasay City
rendered on February 26, 2002 as follows:
1. Ordering plaintiff-appellee to submit within thirty (30)
days from receipt of a copy of this decision a written
manifestation of the option or choice it selected, i.e., to
appropriate the improvements upon payment of proper
indemnity or compulsory sale of the land whereon the hotel
building of PVHI and related improvements or facilities were
erected;
2. Directing the plaintiff-appellee to desist and/or refrain from
doing acts in the furtherance or exercise of its rights and
demolition against appellants unless and after having selected
the option of compulsory sale and appellants failed to pay
[and] purchase the land within a reasonable time or at such
time as this court will direct;
3. Ordering defendants-appellants to pay plaintiff-appellee
[their] arrears in rent incurred as of July 31, 2001 in the
amount of P26,183,225.14;
4. Ordering defendants-appellants to pay to plaintiff-appellee
the unpaid monthly rentals for the use and occupation of the
premises pending this appeal from July to November 2002
only at P725,780.00 per month;
5. The fourth and fifth directives in the dispositive portion of
the trial courts decision including that the last paragraph
thereof JME Panlilios complaint is hereby affirmed;
6. The parties are directed to adjust their respective rights in
the interest of justice as they may deem fit and proper if
necessary.
SO ORDERED.[6]

Respondent appealed to the CA which held that the RTC erroneously applied
the rules on accession, as found in Articles 448 and 546 of the Civil Code when it
held that petitioners were builders in good faith and, thus, have the right to
indemnity. The CA held:
 By and large, respondents are admittedly mere lessees of the
subject premises and as such, cannot validly claim that they are builders
in good faith in order to solicit the application of Articles 448 and 546
of the Civil Code in their favor. As it is, it is glaring error on the part of
the RTC to apply the aforesaid legal provisions on the supposition that
the improvements, which are of substantial value, had been introduced
on the leased premises with the permission of the petitioner. To grant
the respondents the right of retention and reimbursement as builders in
good faith merely because of the valuable and substantial
improvements that they introduced to the leased premises plainly
contravenes the law and settled jurisprudential doctrines and would, as
stated, allow the lessee to easily improve the lessor out of its property.
. . . . Introduction of valuable improvements on the leased
premises does not strip the petitioner of its right to avail of recourses
under the law and the lease contract itself in case of breach
thereof. Neither does it deprive the petitioner of its right under Article
1678 to exercise its option to acquire the improvements or to let the
respondents remove the same.

Petitioners Motion for Reconsideration was denied.

Hence, this appeal.[7]

Petitioners assign the following errors:

I

THE HONORABLE COURT OF APPEALS COMMITTED A

GRAVE REVERSIBLE ERROR IN NOT HOLDING THAT
PETITIONERS WERE BUILDERS IN GOOD FAITH OVER THE
SUBSTANTIAL AND VALUABLE IMPROVEMENTS WHICH
THEY HAD INTRODUCED ON THE SUBJECT PROPERTY, THUS
COMPELLING THE APPLICATION OF ARTICLE 448 OF THE
CIVIL CODE IN RELATION TO ARTICLE 546 OF THE SAME
CODE, INSTEAD OF ARTICLE 1678 OF THE CIVIL CODE.

II
THE HONORABLE COURT OF APPEALS COMMITTED A
SERIOUS REVERSIBLE ERROR WHEN IT DISREGARDED THE
FACT THAT THE LEASE CONTRACT GOVERNS THE
RELATIONSHIP OF THE PARTIES AND CONSEQUENTLY THE
PARTIES MAY BE CONSIDERED TO HAVE IMPLIEDLY
WAIVED THE APPLICATION OF ARTICLE 1678 OF THE CIVIL
CODE TO THE INSTANT CASE.
III
ASSUMING ARGUENDO THAT THE PETITIONERS ARE
NOT BUILDERS IN GOOD FAITH, THE HONORABLE COURT
OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR
WHEN IT OVERLOOKED THE FACT THAT RESPONDENT
ALSO ACTED IN BAD FAITH WHEN IT DID NOT HONOR AND
INSTEAD BREACHED THE LEASE CONTRACT BETWEEN THE
PARTIES, THUS BOTH PARTIES ACTED AS IF THEY ARE IN
GOOD FAITH.
IV
TO SANCTION THE APPLICATION OF ARTICLE 1678 OF
THE CIVIL CODE INSTEAD OF ARTICLE 448 OF THE CIVIL
CODE IN RELATION TO ARTICLE 546 OF THE SAME CODE
WOULD NOT ONLY WREAK HAVOC AND CAUSE
SUBSTANTIAL INJURY TO THE RIGHTS AND INTERESTS OF
PETITIONER PHILIPPINE VILLAGE HOTEL, INC. WHILE
RESPONDENT NAYONG PILIPINO FOUNDATION, IN
COMPARISON THERETO, WOULD SUFFER ONLY SLIGHT OR
INCONSEQUENTIAL INJURY OR LOSS, BUT ALSO WOULD
CONSTITUTE UNJUST ENRICHMENT ON THE PART OF
RESPONDENT AT GREAT EXPENSE AND GRAVE PREJUDICE
OF PETITIONERS.

V
THE HONORABLE COURT OF APPEALS COMMITTED A
GRAVE REVERSIBLE ERROR IN NOT HOLDING THAT THE
COURTS A QUO DID NOT ACQUIRE JURISDICTION OVER THE
UNLAWFUL DETAINER CASE FOR NON-COMPLIANCE WITH
JURISDICTIONAL REQUIREMENTS DUE TO THE ABSENCE OF
A NOTICE TO VACATE UPON PETITIONERS.[8]
 First, we settle the issue of jurisdiction. Petitioners argue that the MeTC did
not acquire jurisdiction to hear and decide the ejectment case because they never
received any demand from respondent to pay rentals and vacate the premises, since
such demand is a jurisdictional requisite. We reiterate the ruling of the MeTC, RTC
and CA. Contrary to the claim of petitioners, documentary evidence proved that a
demand letter dated March 26, 2001 was sent by respondent through registered mail
to petitioners, requesting them to pay the rental arrears or else it will be constrained
to file the appropriate legal action and possess the leased premises.

Further, petitioners argument that the demand letter is inadequate because it

contained no demand to vacate the leased premises does not persuade. We have ruled
that:

. . . . The word vacate is not a talismanic word that must be

employed in all notices. The alternatives in this case are clear cut. The
tenants must pay rentals which are fixed and which became payable in
the past, failing which they must move out. There can be no other
interpretation of the notice given to them. Hence, when the petitioners
demanded that either he pays P18,000 in five days or a case of
ejectment would be filed against him, he was placed on notice to move
out if he does not pay. There was, in effect, a notice or demand to
vacate.[9]

In the case at bar, the language of the demand letter is plain and
simple: respondent demanded payment of the rental arrears amounting
to P26,183,225.14 within ten days from receipt by petitioners, or respondent will be
constrained to file an appropriate legal action against petitioners to recover the said
amount. The demand letter further stated that respondent will possess the leased
premises in case of petitioners failure to pay the rental arrears within ten days. Thus,
it is clear that the demand letter is intended as a notice to petitioners to pay the rental
arrears, and a notice to vacate the premises in case of failure of petitioners to perform
their obligation to pay.

Second, we resolve the main issue of whether the rules on accession, as found
in Articles 448 and 546 of the Civil Code, apply to the instant case.
 Article 448 and Article 546 provide:
Art. 448. The owner of the land on which anything has been built,
sown or planted in good faith, shall have the right to appropriate as his
own the works, sowing or planting, after payment of the indemnity
provided for in Articles 546 and 548, or to oblige the one who built or
planted to pay the price of the land, and the one who sowed, the proper
rent. However, the builder or planter cannot be obliged to buy the land
if its value is considerably more than that of the building or trees. In
such case, he shall pay reasonable rent, if the owner of the land does
not choose to appropriate the building or trees after proper indemnity.
The parties shall agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof.

Art. 546. Necessary expenses shall be refunded to every

possessor; but only the possessor in good faith may retain the thing until
he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good
faith with the same right of retention, the person who has defeated him
in the possession having the option of refunding the amount of the
expenses or of paying the increase in value which the thing may have
acquired by reason thereof.

We uphold the ruling of the CA.

The late Senator Arturo M. Tolentino, a leading expert in Civil Law, explains:
This article [Article 448] is manifestly intended to apply only to
a case where one builds, plants, or sows on land in which he believes
himself to have a claim of title,[10] and not to lands where the only
interest of the builder, planter or sower is that of a holder, such as a
tenant.[11]

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

With regard to ornamental expenses, the lessee shall not be

entitled to any reimbursement, but he may remove the ornamental
objects, provided no damage is caused to the principal thing, and the
lessor does not choose to retain them by paying their value at the time
the lease is extinguished.

Under Article 1678, the lessor has the option of paying one-half of the value of the
improvements which the lessee made in good faith, which are suitable for the use
for which the lease is intended, and which have not altered the form and substance
of the land. On the other hand, the lessee may remove the improvements should the
lessor refuse to reimburse.

Petitioners argue that to apply Article 1678 to their case would result to sheer
injustice, as it would amount to giving away the hotel and its other structures at
virtually bargain prices. They allege that the value of the hotel and its appurtenant
facilities amounts to more than two billion pesos, while the monetary claim of
respondent against them only amounts to a little more than twenty six-million
pesos. Thus, they contend that it is the lease contract that governs the relationship of
the parties, and consequently, the parties may be considered to have impliedly
waived the application of Article 1678.
 We cannot sustain this line of argument by petitioners. Basic is the doctrine
that laws are deemed incorporated in each and every contract. Existing laws always
form part of any contract. Further, the lease contract in
the case at bar shows no special kind of agreement between the parties as to how to
proceed in cases of default or breach of the contract. Petitioners maintain that the
lease contract contains a default provision which does not give respondent the right
to appropriate the improvements nor evict petitioners in cases of cancellation or
termination of the contract due to default or breach of its terms. They cite paragraph
10 of the lease contract, which provides that:

10. DEFAULT. - . . . Default shall automatically take place upon

the failure of the LESSEE to pay or perform its obligation during the
time fixed herein for such obligations without necessity of demand, or,
if no time is fixed, after 90 days from the receipt of notice or demand
from the LESSOR. . .
In case of cancellation or termination of this contract due to the
default or breach of its terms, the LESSEE will pay all reasonable
attorneys fees, costs and expenses of litigation that may be incurred by
the LESSOR in enforcing its rights under this contract or any of its
provisions, as well as all unpaid rents, fees, charges, taxes, assessment
and others which the LESSOR may be entitled to.

Petitioners assert that respondent committed a breach of the lease contract

when it filed the ejectment suit against them. However, we find nothing in the above
quoted provision that prohibits respondent to proceed the way it did in enforcing its
rights as lessor. It can rightfully file for ejectment to evict petitioners, as it did before
the court a quo.

IN VIEW WHEREOF, petitioners appeal is DENIED. The October 4, 2005

Decision of the Court of Appeals in CA-G.R. SP No. 74631 and its December 22,
2005 Resolution are AFFIRMED. Costs against petitioners.

SO ORDERED.
 G.R. No. 152319

Present:
HEIRS OF THE LATE JOAQUIN
LIMENSE, namely: CONCESA
LIMENSE, Surviving Spouse; and QUISUMBING,* J.,
DANILO and JOSELITO, both
CARPIO, J., Chairperson,
surnamed Limense, children,
Petitioners, CHICO-NAZARIO,
PERALTA, and
- versus -
ABAD,** JJ.

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 Promulgated:
JACINTA RAMOS,
Respondents. October 28, 2009
X-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - -X

DECISION

PERALTA, J.,

This is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to annul and set aside the Decision[1] of the Court of Appeals dated
December 20, 2001 in CA-G.R. CV No. 33589 affirming in toto the Decision[2] 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. 96886[6] 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 Complaint[7] 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 Answer[8] 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 Decision[10] 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 Decision[13] 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 Certiorari[14] 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. 48866[19] 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
fromrespondents 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 x[28]

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 x[35]

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.
 LUCIANO BRIONES and NELLY G.R. No. 150666
BRIONES,
Petitioners, Present:

CARPIO MORALES, J.,

Chairperson,
- versus - BRION,
BERSAMIN,
ABAD,* and
VILLARAMA, JR., JJ.
JOSE MACABAGDAL, FE D.
MACABAGDAL and VERGON Promulgated:
REALTY INVESTMENTS
CORPORATION, August 3, 2010
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR., J.:

On appeal under Rule 45 of the 1997 Rules of Civil Procedure, as amended,

is the Decision[1] dated December 11, 2000 of the Court of Appeals (CA) in CA-
G.R. CV No. 48109 which affirmed the September 29, 1993 Decision[2] 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 527[14] 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 2208[20] 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.

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.
BPS – BAD FAITH

G.R. No. L-54526 August 25, 1986

METROPOLITAN WATERWORKS AND SEWERAGE

SYSTEM, petitioner,
vs.
THE COURT OF APPEALS and THE CITY OF DAGUPAN, respondents.

Miguel T. Caguioa, Ireneo B. Orlino and Manuel D. Victorio for respondent City
of Dagupan.

FERIA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals
which affirmed the decision of the then Court of First Instance of Pangasinan. The
lower court had declared respondent City of Dagupan the lawful owner of the
Dagupan Waterworks System and held that the National Waterworks and
Sewerage Authority, now petitioner Metropolitan Waterworks and Sewerage
System, was a possessor in bad faith and hence not entitled to indemnity for the
useful improvements it had introduced.

Before proceeding further, it may be necessary to invite attention to the common

error of joining the court (be it a Regional Trial Court, the Intermediate Appellate
Court, or the Sandiganbayan) as a party respondent in an appeal by certiorari to
this Court under Rule 45 of the Rules of Court. The only parties in an appeal by
certiorari are the appellant as petitioner and the appellee as respondent. (Cf. Elks
Club vs. Rovira, 80 Phil. 272) The court which rendered the judgment appealed
from is not a party in said appeal. It is in the special civil action of certiorari under
Section 5 of Rule 65 of the Rules of Court where the court or judge is required to
be joined as party defendant or respondent. The joinder of the Intermediate
Appellate Court or the Sandiganbayan as party respondent in an appeal by
certiorari is necessary in cases where the petitioner-appellant claims that said court
acted without or in excess of its jurisdiction or with grave abuse of discretion. An
example of this is a case where the petitioner-appellant claims that the Intermediate
Appellate Court or the Sandiganbayan acted with grave abuse of discretion in
making its findings of fact, thus justifying the review by this court of said findings
of fact. (See the exceptions to the rule of conclusiveness of the findings of fact of
the Intermediate Appellate Court or the Sandiganbayan in the case of Sacay vs.
Sandiganbayan, G.R. Nos. 66497-98, July 10, 1986.) In such a case, the petition
for review on certiorari under Rule 45 of the Rules of Court is at the same time a
petition for certiorari under Rule 65, and the joinder of the Intermediate Appellate
Court or the Sandiganbayan becomes necessary. (Cf. Lianga Lumber Company vs.
Lianga Timber Co., Inc., March 31, 1977, 76 SCRA 197).

The City of Dagupan (hereinafter referred to as the CITY) filed a complaint against
the former National Waterworks and Sewerage Authority (hereinafter referred to
as the NAWASA), now the Metropolitan Waterworks and Sewerage System
(hereinafter referred to as MWSS), for recovery of the ownership and possession of
the Dagupan Waterworks System. NAWASA interposed as one of its special
defenses R.A. 1383 which vested upon it the ownership, possession and control of
all waterworks systems throughout the Philippines and as one of its counterclaims
the reimbursement of the expenses it had incurred for necessary and useful
improvements amounting to P255,000.00. Judgment was rendered by the trial court
in favor of the CITY on the basis of a stipulation of facts. The trial court found
NAWASA to be a possessor in bad faith and hence not entitled to the
reimbursement claimed by it. NAWASA appealed to the then Court of Appeals
and argued in its lone assignment of error that the CITY should have been held
liable for the amortization of the balance of the loan secured by NAWASA for the
improvement of the Dagupan Waterworks System. The appellate court affirmed
the judgment of the trial court and ruled as follows:

However, as already found above, these useful expenses were made in

utter bad faith for they were instituted after the complaint was filed
and after numerous Supreme Court decisions were promulgated
declaring unconstitutional the taking by NAWASA of the patrimonial
waterworks systems of cities, municipalities and provinces without
just compensation.

Under Article 546 of the New Civil Code cited by the appellant, it is
clear that a builder or a possessor in bad faith is not entitled to
indemnity for any useful improvement on the premises. (Santos vs.
Mojica, L-25450, Jan. 31, 1969). In fact, he is not entitled to any right
regarding the useful expenses (II Paras (1971) 387). He shall not have
any right whatsoever. Consequently, the owner shall be entitled to all
of the useful improvements without any obligation on his part (Jurado,
Civil Law Reviewer (1974) 223).
Petitioner-Appellant MWSS, successor-in-interest of the NAWASA, appealed to
this Court raising the sole issue of whether or not it has the right to remove all the
useful improvements introduced by NAWASA to the Dagupan Waterworks
System, notwithstanding the fact that NAWASA was found to be a possessor in
bad faith. In support of its claim for removal of said useful improvements, MWSS
argues that the pertinent laws on the subject, particularly Articles 546, 547 and 549
of the Civil Code of the Philippines, do not definitely settle the question of whether
a possessor in bad faith has the right to remove useful improvements. To bolster its
claim MWSS further cites the decisions in the cases of Mindanao Academy, Inc.
vs. Yap (13 SCRA 190) and Carbonell vs. Court of Appeals (69 SCRA 99).

The CITY in its brief questions the raising of the issue of the removal of useful
improvements for the first time in this Court, inasmuch as it was not raised in the
trial court, much less assigned as an error before the then Court of Appeals. The
CITY further argues that petitioner, as a possessor in bad faith, has absolutely no
right to the useful improvements; that the rulings in the cases cited by petitioner
are not applicable to the case at bar; that even assuming that petitioner has the right
to remove the useful improvements, such improvements were not actually
identified, and hence a rehearing would be required which is improper at this stage
of the proceedings; and finally, that such improvements, even if they could be
identified, could not be separated without causing substantial injury or damage to
the Dagupan Waterworks System.

The procedural objection of the CITY is technically correct. NAWASA should

have alleged its additional counterclaim in the alternative-for the reimbursement of
the expenses it had incurred for necessary and useful improvements or for the
removal of all the useful improvements it had introduced.

Petitioner, however, argues that although such issue of removal was never pleaded
as a counterclaim nevertheless it was joined with the implied consent of the CITY,
because the latter never filed a counter-manifestation or objection to petitioner's
manifestation wherein it stated that the improvements were separable from the
system, and quotes the first part of Sec. 5 of Rule 10 of the Rules of Court to
support its contention. Said provision reads as follows:

SEC. 5. Amendment to conform to or authorize presentation of

evidence.-When issues not raised by the pleadings are tried by 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 so to amend does
not affect the result of the trial of these issues. ...

This argument is untenable because the above-quoted provision is premised on the

fact that evidence had been introduced on an issue not raised by the pleadings
without any objection thereto being raised by the adverse party. In the case at bar,
no evidence whatsoever had been introduced by petitioner on the issue of
removability of the improvements and the case was decided on a stipulation of
facts. Consequently, the pleadings could not be deemed amended to conform to the
evidence.

However, We shall overlook this procedural defect and rule on the main issue
raised in this appeal, to wit: Does a possessor in bad faith have the right to remove
useful improvements? The answer is clearly in the negative. Recognized
authorities on the subject are agreed on this point. *

Article 449 of the Civil Code of the Philippines provides that "he who builds,
plants or sows in bad faith on the land of another, loses what is built, planted or
sown without right to indemnity." As a builder in bad faith, NAWASA lost
whatever useful improvements it had made without right to indemnity (Santos vs.
Mojica, Jan. 31, 1969, 26 SCRA 703).

Moreover, under Article 546 of said code, only a possessor in good faith shall be
refunded for useful expenses with the right of retention until reimbursed; and under
Article 547 thereof, only a possessor in good faith may remove useful
improvements if this can be done without damage to the principal thing and if the
person who recovers the possession does not exercise the option of reimbursing the
useful expenses. The right given a possessor in bad faith is to remove
improvements applies only to improvements for pure luxury or mere pleasure,
provided the thing suffers no injury thereby and the lawful possessor does not
prefer to retain them by paying the value they have at the time he enters into
possession (Article 549, Id.).

The decision in the case of Mindanao Academy, Inc. vs. Yap (13 SCRA 190) cited
by petitioner does not support its stand. On the contrary, this Court ruled in said
case that "if the defendant constructed a new building, as he alleges, he cannot
recover its value because the construction was done after the filing of the action for
annulment, thus rendering him a builder in bad faith who is denied by law any
right of reimbursement." What this Court allowed appellant Yap to remove were
the equipment, books, furniture and fixtures brought in by him, because they were
outside of the scope of the judgment and may be retained by him.

Neither may the decision in the case of Carbonell vs. Court of Appeals (69 SCRA
99), also cited by petitioner, be invoked to modify the clear provisions of the Civil
Code of the Philippines that a possessor in bad faith is not entitled to
reimbursement of useful expenses or to removal of useful improvements.

In said case, both the trial court and the Court of Appeals found that respondents
Infantes were possessors in good faith. On appeal, the First Division of this Court
reversed the decision of the Court of Appeals and declared petitioner Carbonell to
have the superior right to the land in question. On the question of whether or not
respondents Infantes were possessors in good faith four Members ruled that they
were not, but as a matter of equity allowed them to remove the useful
improvements they had introduced on the land. Justice Teehankee (now Chief
Justice) concurred on the same premise as the dissenting opinion of Justice Munoz
Palma that both the conflicting buyers of the real property in question, namely
petitioner Carbonell as the first buyer and respondents Infantes as the second
buyer, may be deemed purchasers in good faith at the respective dates of their
purchase. Justice Munoz Palma dissented on the ground that since both purchasers
were undoubtedly in good faith, respondents Infantes' prior registration of the sale
in good faith entitled them to the ownership of the land. Inasmuch as only four
Members concurred in ruling that respondents Infantes were possessors in bad faith
and two Members ruled that they were possessors in good faith said decision does
not establish a precedent. Moreover, the equitable consideration present in said
case are not present in the case at bar.

WHEREFORE, the decision of the appellate court is affirmed with costs against
petitioner.

SO ORDERED.
 [G.R. No. 117642. April 24, 1998]

EDITHA ALVIOLA and PORFERIO

ALVIOLA, petitioners, vs. HONORABLE COURT OF APPEALS,
FLORENCIA BULING VDA DE TINAGAN, DEMOSTHENES
TINAGAN, JESUS TINAGAN, ZENAIDA T. JOSEP AND JOSEPHINE
TINAGAN, respondents.

DECISION
MARTINEZ, J.:

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 attorneys 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 attorneys 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.
ELVIRA T. ARANGOTE, G.R. No. 178906
Petitioner,
Present:

- versus - QUISUMBING, J.,*

AUSTRIA-MARTINEZ,
Acting Chairperson,
CHICO-NAZARIO,
SPS. MARTIN NACHURA, and
MAGLUNOB and LOURDES S.
PERALTA, JJ.
MAGLUNOB, and ROMEO
SALIDO,
Respondents. Promulgated:

February 18, 2009

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997
Revised Rules of Civil Procedure seeking to reverse and set aside the
Decision[1] dated 27 October 2006 and Resolution[2] dated 29 June 2007 of the Court
of Appeals in CA-G.R. SP No. 64970. In its assailed Decision, the appellate court
affirmed the Decision[3] dated 12 September 2000 of the Regional Trial Court
(RTC), 6th Judicial Region, Branch 1, Kalibo, Aklan, in Civil Case No. 5511, which
reversed the Decision[4] dated 6 April 1998 of the 7th Municipal Circuit Trial Court
(MCTC) of Ibajay-Nabas, Ibajay, Aklan, in Civil Case No. 156; and declared[5] the
herein respondent-Spouses Martin and Lourdes Maglunob (Spouses Maglunob) and
respondent Romeo Salido (Romeo) as the lawful owners and possessors of Lot
12897 with an area of 982 square meters, more or less, located in Maloco, Ibajay,
Aklan (subject property). In its assailed Resolution, the appellate court denied herein
petitioner Elvira T. Arangotes Motion for Reconsideration.

Elvira T. Arangote, herein petitioner married to Ray Mars E. Arangote, is the

registered owner of the subject property, as evidenced by Original Certificate of Title
(OCT) No. CLOA-1748.[6]Respondents Martin (Martin II) and Romeo are first
cousins and the grandnephews of Esperanza Maglunob-Dailisan (Esperanza), from
whom petitioner acquired the subject property.

The Petition stems from a Complaint[7] filed by petitioner and her husband against
the respondents for Quieting of Title, Declaration of Ownership and Possession,
Damages with Preliminary Injunction, and Issuance of Temporary Restraining Order
before the MCTC, docketed as Civil Case No. 156.

The Complaint alleged that Esperanza inherited the subject property from her uncle
Victorino Sorrosa by virtue of a notarized Partition Agreement[8] dated 29 April
1985, executed by the latters heirs.Thereafter, Esperanza declared the subject
property in her name for real property tax purposes, as evidenced by Tax Declaration
No. 16218 (1985).[9]

The Complaint further stated that on 24 June 1985, Esperanza executed a Last Will
and Testament[10] bequeathing the subject property to petitioner and her husband, but
it was never probated. On 9 June 1986, Esperanza executed another document, an
Affidavit,[11] in which she renounced, relinquished, waived and quitclaimed all her
rights, share, interest and participation whatsoever in the subject property in favor
of petitioner and her husband. On the basis thereof, Tax Declaration No. 16218 in
the name of Esperanza was cancelled and Tax Declaration No. 16666 [12] (1987) was
issued in the name of the petitioner and her husband.

In 1989, petitioner and her husband constructed a house on the subject

property. On 26 March 1993, OCT No. CLOA-1748 was issued by the Secretary of
the Department of Agrarian Reform (DAR) in the name of petitioner, married to Ray
Mars E. Arangote. However, respondents, together with some hired persons, entered
the subject property on 3 June 1994 and built a hollow block wall behind and in front
of petitioners house, which effectively blocked the entrance to its main door.

As a consequence thereof, petitioner and her husband were compelled to institute

Civil Case No. 156.

In their Answer with Counterclaim in Civil Case No. 156, respondents averred that
they co-owned the subject property with Esperanza. Esperanza and her siblings,
Tomas and Inocencia, inherited the subject property, in equal shares, from their
father Martin Maglunob (Martin I). When Tomas and Inocencia passed away, their
shares passed on by inheritance to respondents Martin II and Romeo,
respectively. Hence, the subject property was co-owned by Esperanza, respondent
Martin II (together with his wife Lourdes), and respondent Romeo, each holding a
one-third pro-indiviso share therein.Thus, Esperanza could not validly waive her
rights and interest over the entire subject property in favor of the petitioner.

Respondents also asserted in their Counterclaim that petitioner and her

husband, by means of fraud, undue influence and deceit were able to make
Esperanza, who was already old and illiterate, affix her thumbmark to the Affidavit
dated 9 June 1986, wherein she renounced all her rights and interest over the subject
property in favor of petitioner and her husband. Respondents thus prayed that the
OCT issued in petitioners name be declared null and void insofar as their two-thirds
shares are concerned.
After trial, the MCTC rendered its Decision dated 6 April 1998 in Civil Case No.
156, declaring petitioner and her husband as the true and lawful owners of the subject
property. The decretal portion of the MCTC Decision reads:

WHEREFORE, judgment is hereby rendered:

A. Declaring the [herein petitioner and her husband] the true, lawful and
exclusive owners and entitled to the possession of the [subject property]
described and referred to under paragraph 2 of the [C]omplaint and covered
by Tax Declaration No. 16666 in the names of the [petitioner and her
husband];

B. Ordering the [herein respondents] and anyone hired by, acting or working
for them, to cease and desist from asserting or claiming any right or
interest in, or exercising any act of ownership or possession over the
[subject property];

C. Ordering the [respondents] to pay the [petitioner and her husband] the
amount of P10,000.00 as attorneys fee. With cost against the
[respondents].[13]

The respondents appealed the aforesaid MCTC Decision to the RTC. Their appeal
was docketed as Civil Case No. 5511.

Respondents argued in their appeal that the MCTC erred in not dismissing the
Complaint filed by the petitioner and her husband for failure to identify the subject
property therein. Respondents further faulted the MCTC for not declaring
Esperanzas Affidavit dated 9 June 1986 -- relinquishing all her rights and interest
over the subject property in favor of petitioner and her husband -- as null and void
insofar as respondents two-thirds share in the subject property is concerned.

On 12 September 2000, the RTC rendered its Decision reversing the MCTC
Decision dated 6 April 1998. The RTC adjudged respondents, as well as the other
heirs of Martin Maglunob, as the lawful owners and possessors of the entire subject
property. The RTC decreed:

WHEREFORE, judgment is hereby rendered as follows:

1) The appealed [D]ecision is REVERSED;

2) [Herein respondents] and the other heirs of Martin Maglunob are declared
the lawful owners and possessors of the whole [subject property] as
described in Paragraph 2 of the [C]omplaint, as against the [herein
petitioner and her husband].

3) [Petitioner and her husband] are ordered to immediately turn over

possession of the [subject property] to the [respondents] and the other
heirs of Martin Maglunob; and

4) [Petitioner and her husband] are ordered to pay [respondents] attorneys fees
of P5,000.00, other litigation expenses of P5,000.00, moral damages
of P10,000.00 and exemplary damages of P5,000.00.[14]

Petitioner and her husband filed before the RTC, on 26 September 2000, a Motion
for New Trial or Reconsideration[15] on the ground of newly discovered evidence
consisting of a Deed of Acceptance[16] dated 23 September 2000, and notice[17] of
the same, which were both made by the petitioner, for herself and in behalf of her
husband,[18] during the lifetime of Esperanza. In the RTC Order[19] dated 2 May
2001, however, the RTC denied the aforesaid Motion for New Trial or
Reconsideration.

The petitioner and her husband then filed a Petition for Review, under Rule 42 of
the 1997 Revised Rules of Civil Procedure, before the Court of Appeals, where the
Petition was docketed as CA-G.R. SP No. 64970.

In their Petition before the appellate court, petitioner and her husband raised
the following errors committed by the RTC in its 12 September 2000 Decision:

I. It erred in reversing the [D]ecision of the

[MCTC];

II. It erred in declaring the [herein respondents] and

the other heirs of Martin Maglunob as the lawful owners and
possessors of the whole [subject property];

III. It erred in declaring [OCT] No. CLOA-1748 in the

name of [herein petitioner] Elvie T. Arangote as null and void;

IV. It erred in denying [petitioner and her husbands]

[M]otion for [N]ew [T]rial or [R]econsideration dated [26
September 2000; and

V. It erred in not declaring the [petitioner and her

husband] as possessors in good faith.[20]
On 27 October 2006, the Court of Appeals rendered a Decision denying the Petition
for Review of petitioner and her husband and affirming the RTC Decision dated 12
September 2000. Petitioner and her husbands subsequent Motion for
Reconsideration was similarly denied by the Court of Appeals in its Resolution
dated 29 June 2007.

Hence, petitioner[21] now comes before this Court raising in her Petition the
following issues:

I. Whether the [RTC] acted with grave abuse of

discretion amounting to lack or excess of jurisdiction when it
declared the [petitioner and her husbands title to the subject
property] null and void;

II. Whether the [RTC] acted with grave abuse of

discretion amounting to lack of jurisdiction when it declared the
Affidavit of Quitclaim null and void; and

III. Whether the [RTC] and the Honorable Court of

Appeals acted with grave abuse of discretion amounting to lack
or excess of jurisdiction when it rejected petitioners claim as
possessors (sic) in good faith, hence, entitled to the rights
provided in [Article] 448 and [Article] 546 of the Civil Code.[22]

Petitioner contends that the aforesaid OCT No. CLOA-1748 was issued in her
name on 26 March 1993 and was registered in the Registry of Deeds of Aklan on 20
April 1993. From 20 April 1993 until the institution of Civil Case No. 156 on 10
June 1994 before the MCTC, more than one year had already elapsed. Considering
that a Torrens title can only be attacked within one year after the date of the issuance
of the decree of registration on the ground of fraud and that such attack must be
through a direct proceeding, it was an error on the part of the RTC and the Court of
Appeals to declare OCT No. CLOA-1748 null and void.

Petitioner additionally posits that both the RTC and the Court of Appeals committed
a mistake in declaring null and void the Affidavit dated 9 June 1986 executed by
Esperanza, waiving all her rights and interest over the subject property in favor of
petitioner and her husband. Esperanzas Affidavit is a valid and binding proof of the
transfer of ownership of the subject property in petitioners name, as it was also
coupled with actual delivery of possession of the subject property to petitioner and
her husband. The Affidavit is also proof of good faith on the part of petitioner and
her husband.

Finally, petitioner argues that, assuming for the sake of argument, that Esperanzas
Affidavit is null and void, petitioner and her husband had no knowledge of any flaw
in Esperanzas title when the latter relinquished her rights to and interest in the subject
property in their favor. Hence, petitioner and her husband can be considered as
possessors in good faith and entitled to the rights provided under Articles 448 and
546 of the Civil Code.

This present Petition is devoid of merit.

It is a hornbook doctrine that the findings of fact of the trial court are entitled to great
weight on appeal and should not be disturbed except for strong and valid reasons,
because the trial court is in a better position to examine the demeanor of the
witnesses while testifying. It is not a function of this Court to analyze and weigh
evidence by the parties all over again. This Courts jurisdiction is, in principle,
limited to reviewing errors of law that might have been committed by the Court of
Appeals.[23] This rule, however, is subject to several exceptions,[24] one of which is
present in this case, i.e., when the factual findings of the Court of Appeals and the
trial court are contradictory.
In this case, the findings of fact of the MCTC as regards the origin of the subject
property are in conflict with the findings of fact of both the RTC and the Court of
Appeals. Hence, this Court will have to examine the records to determine first the
true origin of the subject property and to settle whether the respondents have the
right over the same for being co-heirs and co-owners, together with their grand aunt,
Esperanza, before this Court can resolve the issues raised by the petitioner in her
Petition.
After a careful scrutiny of the records, this Court affirms the findings of both
the RTC and the Court of Appeals as regards the origin of the subject property and
the fact that respondents, with their grand aunt Esperanza, were co-heirs and co-
owners of the subject property.

The records disclosed that the subject property was part of a parcel of
[25]
land situated in Maloco, Ibajay, Aklan, consisting of 7,176 square meters and
commonly owned in equal shares by the siblings Pantaleon Maglunob (Pantaleon)
and Placida Maglunob-Sorrosa (Placida). Upon the death of Pantaleon and Placida,
their surviving and legal heirs executed a Deed of Extrajudicial Settlement and
Partition of Estate in July 1981,[26] however, the Deed was not
notarized. Considering that Pantaleon died without issue, his one-half share in the
parcel of land he co-owned with Placida passed on to his four siblings (or their
respective heirs, if already deceased), namely: Placida, Luis, Martin I, and Victoria,
in equal shares.

According to the aforementioned Deed of Extrajudicial Settlement and

Partition of Estate, the surviving and legal heirs of Pantaleon and Placida agreed to
have the parcel of land commonly owned by the siblings declared for real property
tax purposes in the name of Victorino Sorrosa (Victorino), Placidas husband. Thus,
Tax Declarations No. 5988 (1942),[27] No. 6200 (1945)[28] and No. 7233
(1953)[29] were all issued in the name of Victorino.

Since Martin I already passed away when the Deed of Extrajudicial Settlement
and Partition of Estate was executed, his heirs[30] were represented therein by
Esperanza. By virtue of the said Deed, Martin I received as inheritance a portion of
the parcel of land measuring 897 square meters.

After the death of Victorino, his heirs[31] executed another Partition

Agreement on 29 April 1985, which was notarized on the same date. The Partition
Agreement mentioned four parcels of land. The subject property, consisting of a
portion of the consolidated parcels 1, 2, and 3, and measuring around 982 square
meters, was allocated to Esperanza. In comparison, the property given to Esperanza
under the Partition Agreement is bigger than the one originally allocated to her
earlier under the Deed of Extrajudicial Settlement and Partition of Estate dated July
1981, which had an area of only 897 square meters. It may be reasonably assumed,
however, that the subject property, measuring 982 square meters, allocated to
Esperanza under the Partition Agreement dated 29 April 1985, is already inclusive
of the smaller parcel of 897 square meters assigned to her under the Deed of
Extrajudicial Settlement and Partition of Estate dated July 1981. As explained by the
RTC in its 12 September 2000 Decision:

The [subject property] which is claimed by the [herein petitioner and

her husband] and that which is claimed by the [herein respondents] are
one and the same, the difference in area and technical description being
due to the repartition and re-allocation of the parcel of land originally
co-owned by Pantaleon Maglunob and his sister Placida Maglunob and
subsequently declared in the name of [Victorino] under Tax
Declaration No. 5988 of 1949.[32]

It is clear from the records that the subject property was not Esperanzas
exclusive share, but also that of the other heirs of her father, Martin
I. Esperanza expressly affixed her thumbmark to the Deed of Extrajudicial
Settlement of July 1981 not only for herself, but also on behalf of the other heirs of
Martin I. Though in the Partition Agreement dated 29 April 1985 Esperanza affixed
her thumbmark without stating that she was doing so not only for herself, but also
on behalf of the other heirs of Martin I, this does not mean that Esperanza was
already the exclusive owner thereof. The evidence shows that the subject property is
the share of the heirs of Martin I. This is clear from the sketch[33] attached to the
Partition Agreement dated 29 April 1985, which reveals the proportionate areas
given to the heirs of the two siblings, Pantaleon and Placida, who were the original
owners of the whole parcel of land[34] from which the subject property was taken.

Further, it bears emphasis that the Partition Agreement was executed by and
among the son, grandsons, granddaughters and cousins of Victorino. Esperanza was
neither the granddaughter nor the cousin of Victorino, as she was only Victorinos
grandniece. The cousin of Victorino is Martin I, Esperanzas father. In effect,
therefore, the subject property allotted to Esperanza in the Partition Agreement was
not her exclusive share, as she holds the same for and on behalf of the other heirs of
Martin I, who was already deceased at the time the Partition Agreement was made.

To further bolster the truth that the subject property was not exclusively
owned by Esperanza, the Affidavit she executed in favor of petitioner and her
husband on 6 June 1985 was worded as follows:

That I hereby renounce, relinquish, waive and quitclaim all my

rights, share, interest and participation whatsoever in the [subject
property] unto the said Sps. Ray Mars Arangote and Elvira T. Arangote,
their heirs, successors, and assigns including the improvement found
thereon;[35]

Logically, if Esperanza fully owned the subject property, she would have
simply waived her rights to and interest in the subject property, without mentioning
her share and participation in the same. By including such words in her Affidavit,
Esperanza was aware of and was limiting her waiver, renunciation, and quitclaim to
her one-third share and participation in the subject property.
 Going to the issues raised by the petitioner in this Petition, this Court will
resolve the same concurrently as they are interrelated.

In this case, the petitioner derived her title to the subject property from the
notarized Affidavit executed by Esperanza, wherein the latter relinquished her rights,
share, interest and participation over the same in favor of the petitioner and her
husband.

A careful perusal of the said Affidavit reveals that it is not what it purports to
be. Esperanzas Affidavit is, in fact, a Donation. Esperanzas real intent in executing
the said Affidavit was to donate her share in the subject property to petitioner and
her husband.

As no onerous undertaking is required of petitioner and her husband under the

said Affidavit, the donation is regarded as a pure donation of an interest in a real
property covered by Article 749 of the Civil Code.[36] Article 749 of the Civil Code
provides:

Art. 749. In order that the donation of an immovable may be

valid, it must be made in a public document, specifying therein the
property donated and the value of the charges which the donee must
satisfy.

The acceptance may be made in the same deed of donation or in

a separate public document, but it shall not take effect unless it is done
during the lifetime of the donor.

If the acceptance is made in a separate instrument, the donor shall

be notified thereof in an authentic form, and this step shall be noted in
both instruments.
 From the aforesaid provision, there are three requisites for the validity of a
simple donation of a real property, to wit: (1) it must be made in a public instrument;
(2) it must be accepted, which acceptance may be made either in the same Deed of
Donation or in a separate public instrument; and (3) if the acceptance is made in a
separate instrument, the donor must be notified in an authentic form, and the same
must be noted in both instruments.

This Court agrees with the RTC and the Court of Appeals that the Affidavit executed
by Esperanza relinquishing her rights, share, interest and participation over the
subject property in favor of the petitioner and her husband suffered from legal
infirmities, as it failed to comply with the aforesaid requisites of the law.

In Sumipat v. Banga,[37] this Court declared that title to immovable property

does not pass from the donor to the donee by virtue of a Deed of Donation until and
unless it has been accepted in a public instrument and the donor duly notified
thereof. The acceptance may be made in the very same instrument of donation. If
the acceptance does not appear in the same document, it must be made in
another. Where the Deed of Donation fails to show the acceptance, or where the
formal notice of the acceptance, made in a separate instrument, is either not given to
the donor or else not noted in the Deed of Donation and in the separate
acceptance, the donation is null and void.[38]

In the present case, the said Affidavit, which is tantamount to a Deed of Donation,
met the first requisite, as it was notarized; thus, it became a public
instrument. Nevertheless, it failed to meet the aforesaid second and third
requisites. The acceptance of the said donation was not made by the petitioner and
her husband either in the same Affidavit or in a separate public instrument. As there
was no acceptance made of the said donation, there was also no notice of the said
acceptance given to the donor, Esperanza. Therefore, the Affidavit executed by
Esperanza in favor of petitioner and her husband is null and void.
 The subsequent notarized Deed of Acceptance[39] dated 23 September 2000,
as well as the notice[40] of such acceptance, executed by the petitioner did not cure
the defect. Moreover, it was only made by the petitioner several years after the
Complaint was filed in court, or when the RTC had already rendered its Decision
dated 12 September 2000, although it was still during Esperanzas
lifetime. Evidently, its execution was a mere afterthought, a belated attempt to cure
what was a defective donation.

It is true that the acceptance of a donation may be made at any time during
the lifetime of the donor. And granting arguendo that such acceptance may still be
admitted in evidence on appeal, there is still need for proof that a formal notice
of such acceptance was received by the donor and noted in both the Deed of
Donation and the separate instrument embodying the acceptance.[41] At the very
least, this last legal requisite of annotation in both instruments of donation and
acceptance was not fulfilled by the petitioner. Neither the Affidavit nor the Deed of
Acceptance bears the fact that Esperanza received notice of the acceptance of the
donation by petitioner. For this reason, even Esperanzas one-third share in the
subject property cannot be adjudicated to the petitioner.

With the foregoing, this Court holds that the RTC and the Court of Appeals
did not err in declaring null and void Esperanzas Affidavit.

The next issue to be resolved then is whether the RTC, as well as the Court of
Appeals, erred in declaring OCT No. CLOA-1748 in the name of petitioner and her
husband null and void.

Again, this Court answers the said issue in the negative.

Section 48 of Presidential decree No. 1529 states:

 SEC. 48. Certificate not subject to collateral attack. - 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.

Such proscription has long been enshrined in Philippine jurisprudence. The judicial
action required to challenge the validity of title is a direct attack, not a collateral
attack.[42]

The attack is considered direct when the object of an action is to annul or set
aside such proceeding, or enjoin its enforcement. Conversely, an attack is indirect or
collateral when, in an action to obtain a different relief, an attack on the proceeding
is nevertheless made as an incident thereof. Such action to attack a certificate of
title may be an original action or a counterclaim, in which a certificate of title
is assailed as void.[43]

A counterclaim is considered a new suit in which the defendant is the plaintiff

and the plaintiff in the complaint becomes the defendant. It stands on the same
footing as, and is to be tested by the same rules as if it were, an independent action.[44]

In their Answer to the Complaint for Quieting of Title filed by the petitioner
and her husband before the MCTC, respondents included therein a Counterclaim
wherein they repleaded all the material allegations in their affirmative defenses, the
most essential of which was their claim that petitioner and her husband -- by means
of fraud, undue influence and deceit -- were able to make their grand aunt,
Esperanza, who was already old and illiterate, affix her thumbmark to the Affidavit,
wherein she renounced, waived, and quitclaimed all her rights and interest over the
subject property in favor of petitioner and her husband. In addition, respondents
maintained in their Answer that as petitioner and her husband were not tenants either
of Esperanza or of the respondents, the DAR could not have validly issued in favor
of petitioner and her husband OCT No. CLOA-1748. Thus, the respondents prayed,
in their counterclaim in Civil Case No. 156 before the MCTC, that OCT No. CLOA-
1748 issued in the name of petitioner, married to Ray Mars E. Arangote, be declared
null and void, insofar as their two-thirds shares in the subject property are concerned.

It is clear, thus, that respondents Answer with Counterclaim was a direct

attack on petitioners certificate of title. Furthermore, since all the essential facts of
the case for the determination of the validity of the title are now before this Court,
to require respondents to institute a separate cancellation proceeding would be
pointlessly circuitous and against the best interest of justice.

Esperanzas Affidavit, which was the sole basis of petitioners claim to the
subject property, has been declared null and void. Moreover, petitioner and her
husband were not tenants of the subject property. In fact, petitioner herself admitted
in her Complaint filed before the MCTC that her husband is out of the country,
rendering it impossible for him to work on the subject property as a tenant.Instead
of cultivating the subject property, petitioner and her husband possessed the same
by constructing a house thereon. Thus, it is highly suspicious how the petitioner was
able to secure from the DAR a Certificate of Land Ownership Award (CLOA) over
the subject property. The DAR awards such certificates to the grantees only if they
fulfill the requirements of Republic Act No. 6657, otherwise known as the
Comprehensive Agrarian Reform Program (CARP).[45] Hence, the RTC and the
Court of Appeals did not err in declaring null and void OCT No. CLOA-1748 in the
name of the petitioner, married to Ray Mars E. Arangote.

Considering that Esperanza died without any compulsory heirs and that the
supposed donation of her one-third share in the subject property per her Affidavit
dated 9 June 1985 was already declared null and void, Esperanzas one-third share in
the subject property passed on to her legal heirs, the respondents.
As petitioners last-ditch effort, she claims that she is a possessor in good faith and,
thus, entitled to the rights provided for under Articles 448 and 546 of the Civil Code.

This claim is untenable.

The Civil Code describes a possessor in good faith as follows:

Art. 526. He is deemed a possessor in good faith who is not
aware that there exists in his title or mode of acquisition any flaw which
invalidates it.
He is deemed a possessor in bad faith who possesses in any case
contrary to the foregoing.

Mistake upon a doubtful or difficult question of law may be the

basis of good faith.

Art. 1127. 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.

Possession in good faith ceases from the moment defects in the title are made known
to the possessor by extraneous evidence or by a suit for recovery of the property by
the true owner. Every possessor in good faith becomes a possessor in bad faith from
the moment he becomes aware that what he believed to be true is not so.[46]

In the present case, when respondents came to know that an OCT over the subject
property was issued and registered in petitioners name on 26 March 1993,
respondents brought a Complaint on 7 August 1993 before
the Lupon of Barangay Maloco, Ibajay, Aklan, challenging the title of petitioner to
the subject property on the basis that said property constitutes the inheritance of
respondent, together with their grandaunt Esperanza, so Esperanza had no authority
to relinquish the entire subject property to petitioner. From that moment, the good
faith of the petitioner had ceased.

Petitioner cannot be entitled to the rights under Articles 448 and 546 of the
Civil Code, because the rights mentioned therein are applicable only to builders in
good faith and not to possessors in good faith.

Moreover, the petitioner cannot be considered a builder in good faith of the

house on the subject property. In the context that such term is used in particular
reference to Article 448 of the Civil Code, a builder in good faith is one who, not
being the owner of the land, builds on that land, believing himself to be its owner
and unaware of any defect in his title or mode of acquisition.[47]

The various provisions of the Civil Code, pertinent to the subject, read:

Article 448. The owner of the land on which anything has been
built, sown, or planted in good faith, shall have the right to appropriate
as his own the works, sowing or planting, after payment of the
indemnity provided for in Articles 546 and 548, or to oblige the one
who built or planted to pay the price of the land, and the one who sowed,
the proper rent. However, the builder or planter cannot be obliged to
buy the land if its value is considerably more than that of the building
or trees. In such a case, he shall pay reasonable rent, if the owner of the
land does not choose to appropriate the building or trees after proper
indemnity. The parties shall agree upon the terms of the lease and in
case of disagreement, the court shall fix the terms thereof.

Article 449. He who builds, plants, or sows in bad faith on the

land of another, loses what is built, planted or sown without right to
indemnity.
 Article 450. The owner of the land on which anything has been
built, planted or sown in bad faith may demand the demolition of the
work, or that the planting or sowing be removed, in order to replace
things in their former condition at the expense of the person who built,
planted or sowed; or he may compel the builder or planter to pay the
price of the land, and the sower the proper rent.

Under the foregoing provisions, 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. 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. In order, however, that the builder can invoke that accruing benefit
and enjoy his corresponding right to demand that a choice be made by the landowner,
he should be able to prove good faith on his part.[48]

Good faith, here understood, is an intangible and abstract quality with no

technical meaning or statutory definition, and it encompasses, among other things,
an honest belief, the absence of malice and the absence of design to defraud or to
seek an unconscionable advantage. An individuals personal good faith is a concept
of his own mind and, therefore, may not conclusively be determined by his
protestations alone. It implies honesty of intention, and freedom from knowledge of
circumstances which ought to put the holder upon inquiry. 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.[49]
 In this case, the subject property waived and quitclaimed by Esperanza to the
petitioner and her husband in the Affidavit was only covered by a tax declaration in
the name of Esperanza.Petitioner did not even bother to look into the origin of the
subject property and to probe into the right of Esperanza to relinquish the
same. Thus, when petitioner and her husband built a house thereon in 1989 they
cannot be considered to have acted in good faith as they were fully aware that when
Esperanza executed an Affidavit relinquishing in their favor the subject property the
only proof of Esperanzas ownership over the same was a mere tax declaration. This
fact or circumstance alone was enough to put the petitioner and her husband under
inquiry. Settled is the rule that a tax declaration does not prove ownership. It is
merely an indicium of a claim of ownership. Payment of taxes is not proof of
ownership; it is, at best, an indicium of possession in the concept of
ownership. Neither tax receipts nor a declaration of ownership for taxation purposes
is evidence of ownership or of a right to possess realty when not supported by other
effective proofs.[50]

With the foregoing, the petitioner is not entitled to the rights under Article 448
and 546 as the petitioner is not a builder and possessor in good faith.

WHEREFORE, premises considered, the instant Petition is hereby DENIED. The

Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 64970, dated 27
October 2006 and 29 June 2007, respectively, affirming the RTC Decision dated 12
September 2000 in Civil Case No. 5511 and declaring the respondents the lawful
owners and possessors of the subject property are hereby AFFIRMED. No costs.

SO ORDERED.
G.R. No. 172292 July 23, 2010

ALIDA MORES Petitioner,

vs.
SHIRLEY M. YU-GO, MA. VICTORIA M. YU-LIM, and MA. ESTRELLA
M. YU, Respondents.

DECISION

CARPIO, J.:

G.R. No. 172292 is a petition for review1 assailing the Decision2 promulgated on
26 August 2005 by the Court of Appeals (appellate court) as well as the
Resolution3 promulgated on 14 March 2006 in CA-G.R. CV No. 76076. The
appellate court partially granted the petition filed by Shirley M. Yu-Go, Ma.
Victoria M. Yu-Lim, and Ma. Estrella M. Yu (Yu siblings) and reversed the
decision of the Regional Trial Court of Naga City, Branch 27 (trial court), dated 28
June 2002 in Civil Case No. 99-4216. The appellate court ordered spouses Antonio
and Alida Mores (spouses Mores) to pay the Yu siblings moral damages in the
amount of ₱100,000.

The Facts

Antonio Mores passed away during the pre-trial stage. Hence, Alida Mores
remained as the only defendant, per the trial court’s order dated 3 May 2000.4

The appellate court narrated the facts as follows:

On January 21, 1998, plaintiffs-appellants Shirley M. Yu-Go, Ma. Victoria M. Yu-

Lim and Ma. Estrella M. Yu ("appellants") filed a Complaint for Injunction and
Damages with Prayer for Issuance of a Temporary Restraining Order and
Preliminary Injunction before the Regional Trial Court in Naga City against
defendants-appellees, spouses Antonio and Alida Mores ("appellees"). Appellants
alleged that they co-owned a parcel of land located in Sto. Tomas, Magarao,
Camarines Sur on which a building of strong materials ("subject property") was
built. In March 1983, appellees pleaded to appellants that they be allowed to stay
in the subject property in the meantime that they did not own a house yet. Since
appellee Antonio Mores used to be an errand boy of appellants’ family, they
readily agreed without asking for any rental but subject only to the condition that
the said stay would last until anyone of appellants would need the subject property.
Forthwith, appellees and their children occupied the same as agreed upon.
In November 1997, appellants made known to appellees that they were already in
need of the subject property. They explained that appellant Shirley Yu-Go needed
the same and, besides, appellees already have their own house in Villa Grande
Homes, Naga City. Yet, appellees begged that they be given a 6-month extension
to stay thereat or until May 1998. However, even after May 1998, appellees failed
to make good their promise and even further asked that they be allowed to stay
therein until October 1998, which was again extended until the end of the same
year. Thus, sometime in the first week of January 1999, appellants gave their final
demand for appellees to vacate the subject property. However, instead of heeding
such demand, appellees hired some laborers and started demolishing the
improvements on the subject property on January 20, 1999.

Appellants’ protest fell on deaf ears because appellees continued their demolition
and even took away and appropriated for themselves the materials derived from
such unlawful demolition. Consequently, appellants instituted the said action for
injunction where they also prayed for the reimbursement of the value of the
residential building illegally demolished as well as for the payment of moral
damages, attorney’s fees, litigation expenses and costs of suit.

On February 5, 1999, appellees filed their Answer where they denied the material
averments of the complaint. They claimed that appellee Antonio Mores, who was
appellants’ uncle, used to be the assistant manager and cashier of appellants’ father
at their Caltex Service Station until the later’s death sometime in 1980. Appellants’
Caltex Filling Station had stopped operation and was just rented out to Herce
Trucking Service. Upon the expiration of such lease contract, appellees were
allowed to occupy the subject property as their dwelling places. They were the
ones who caused its renovation consisting of a 3-bedroom annex, a covered
veranda and a concrete hollow block fence, at their own expense, and with
appellants’ consent, which renovation was made without altering the form and
substance of the subject property. They denied that appellants made a demand for
them to vacate the subject property, insisting that it was merely a sort of reminder
that sooner or later appellees should yield possession thereof since, after all, they
had already bought a second-hand house which was undergoing repair. Appellees
argued that what they removed was merely the improvements made on the subject
property, which removal had not caused any substantial damage thereto as, in fact,
it remained intact. By way of counterclaims, they demanded payment of actual
damages, attorney’s fees and litigation expenses.5

The Trial Court’s Ruling

On 28 June 2002, the trial court promulgated its Decision in favor of the spouses
Mores. The trial court ratiocinated and ruled thus:

Defendants, who are possessors in good faith, were able to prove by preponderance
of evidence that they removed only the improvements they introduced without
destroying the principal building, after the plaintiffs refused to pay them the
reasonable value of the improvements. x x x

But defendants failed to prove the allegations in their counterclaims that plaintiffs
acted in bad faith and/or through gross and reckless negligence in filing this
complaint, and the damages defendants allegedly suffered. Failing in this, plaintiffs
must also be presumed to have acted in good faith when they filed this complaint
with the honest belief that their rights were violated when defendants removed the
useful improvements from the principal building and land of plaintiffs. Applying
the same principle, the equipoise rule, defendants’ counterclaims must necessarily
fail.

Both parties having acted in good faith, the court will not disturb the present status,
and will leave the parties where it found them. Wounds should not be scratched in
order to hasten the healing process, and neither should this Court scratch herein
parties rift that torn [sic] them apart from being close relatives before this
controversy started. Parties owe to their siblings and to their posterity to reconcile.
Anyway, this case was started because parties were very close relatives.

The courts are not only courts of justice but also courts of equity.

WHEREFORE, the complaint and the counterclaims are hereby dismissed. No

pronouncement as to cost.

SO ORDERED.6

The trial court gave due course to the Yu siblings’ Notice of Appeal in an Order
dated 22 July 2002.

The Appellate Court’s Ruling

The appellate court partially granted the Yu siblings’ appeal. The appellate court
disagreed with the trial court’s conclusion that the spouses Mores were builders in
good faith and have the right of accession under Articles 546 and 547 of the Civil
Code. Instead, the appellate court believed that the relationship between the Yu
siblings and the spouses Mores is one between a lessor and a lessee, making
Article 1678 of the Civil Code applicable to the present case. The options given by
Article 1678, the right of appropriating the useful improvements after reimbursing
50% of its value or the right of removal of the useful improvements, are given by
law to the lessor - the Yu siblings. The spouses Mores, however, failed to give the
Yu siblings the opportunity to choose from these two options. The appellate court
thus ordered the spouses Mores to pay the Yu siblings moral damages worth
₱100,000.

The appellate court resolved to deny Alida Mores’ Motion for Reconsideration for
want of merit.7

The Issues

In her petition, Alida Mores stated that the decision of the appellate court awarding
the Yu siblings moral damages in the amount of ₱100,000 is rendered with grave
abuse of discretion and is not in accord with the decisions of this Court.8

The Court’s Ruling

The petition has merit.

Alida Mores argues that in case of breach of contract between a lessor and a lessee,
moral damages are not awarded to the lessor if the lessee is not shown to have
acted in bad faith. She proves her and her husband’s alleged good faith by quoting
the appellate court’s decision which stated that:

[The Spouses Mores’] good faith is underscored by the fact that no one from
appellants had objected or prevented appellees from effecting said improvements
which, obviously, were undertaken in quite a span of time. Even if we believe
appellant Victoria Yu-Lim’s testimony that they would only learn of the
introduction of such improvements after each of such improvements had already
been built, [the Yu siblings] never made known their objections thereto nor did
they pose a warning against future introduction of any improvement. After all, the
said improvements were not introduced simultaneously.9

The good faith referred to by Alida Mores was about the building of the
improvements on the leased subject property. However, tenants like the spouses
Mores cannot be said to be builders in good faith as they have no pretension to be
owners of the property.10 Indeed, 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.11

The appellate court is correct in ruling that Article 1678 of the Civil Code should
apply in the present case. Article 1678 reads:

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.1avvphi1

With regard to the ornamental expenses, the lessee shall not be entitled to any
reimbursement, but he may remove the ornamental objects, provided no damage is
caused to the principal thing, and the lessor does not choose to retain them by
paying their value at the time the lease is extinguished.

It is incorrect, however, for the appellate court to state that the spouses Mores did
not give the Yu siblings the option to retain the improvements. The appellate court
stated that "nothing in the records reveal that [the Yu siblings] were given the
chance to choose from the options of either paying one-half (½) of the value of the
improvements at the time they were made on the subject property, or to demand
the removal by [the spouses Mores] of such improvements at their expense."12 The
trial court even quoted from the transcript of Alida Mores’ direct testimony on 10
October 2001 on the subject:

Q: Plaintiff Yu-Lim likewise testified that the plaintiffs demanded in 1998

that you vacate the premises because it will be needed by plaintiff Shirley
Yu-Co, what can you say to that?

A: It was in November 1998 that the plaintiff intimated that we will soon
vacate the place because by that time we had already bought a second-hand
house.

Q: What happened after that?

A: My husband good-naturedly asked for reimbursement for the

improvements we constructed at our expense.
 Q: What happened to that demand?

A: The plaintiffs became mad at us and refused to pay.

Q: What happened after that, what did your husband do?

A: My husband removed the roofing, coco lumber, trusses, the electrical

installation and the improvements constructed, glass panel and window
panel.

Q: By the way, who spent for the introduction of these improvements?

A: My husband and I.13

There is thus no reason for the appellate court’s award of moral damages to the Yu
siblings. We agree with the trial court’s finding that the spouses Mores "removed
only the improvements they introduced without destroying the principal building,
after the [Yu siblings] refused to pay them the reasonable value of the
improvements."14 When the spouses Mores demanded reimbursement, the Yu
siblings should have offered to pay the spouses Mores one-half of the value of the
improvements. Since the Yu siblings failed to make such offer, the spouses Mores
had the right to remove the improvements.

WHEREFORE, we GRANT the petition. We AFFIRM with

MODIFICATION the Decision of the Court of Appeals promulgated on 26
August 2005 as well as the Resolution promulgated on 14 March 2006 in CA-G.R.
CV No. 76076. Article 1678 of the Civil Code is applicable to the present case.
The award of moral damages worth ₱100,000 to the Yu siblings is deleted.

SO ORDERED.