G.R. No. L-49219 April 15, 1988 provisions on co-ownership than on accession.
provisions on co-ownership than on accession. Planiol and Ripert are also of the
SPOUSES CONCEPCION FERNANDEZ DEL CAMPO and ESTANISLAO
DEL CANTO, plaintiffs-appellees,
vs.
BERNARDA FERNANDEZ ABESIA, defendant-appellant.
In this appeal from the decision of the Court of First Instance (CFI) of Cebu, certified
to this Court by the Court of Appeals on account of the question of law involved, the
sole issue is the applicability of the provisions of Article 448 of the Civil Code relating
to a builder in good faith when the property involved is owned in common.
This case involves a parcel of land, Lot No. 1161 of the Cadastral Survey of Cebu,
with an area of only about 45 square meters, situated at the corner of F. Flores and
Cavan Streets, Cebu City covered by TCT No. 61850. An action for partition was filed
by plaintiffs in the CFI of Cebu. Plaintiffs and defendants are co-owners pro
indiviso of this lot in the proportion of and 1/3 share each, respectively. The trial court
appointed a commissioner in accordance with the agreement of the parties. ,the Id
commissioner conducted a survey, prepared a sketch plan and submitted a report to the
trial court on May 29, 1976, recommending that the property be divided into two lots:
Lot 1161-A with an area of 30 square meters for plaintiffs and Lot No. 1161-B with an
area of 15 square meters for the defendants. The houses of plaintiffs and defendants
were surveyed and shown on the sketch plan. The house of defendants occupied the
portion with an area of 5 square meters of Lot 1161-A of plaintiffs. The parties
manifested their conformity to the report and asked the trial court to finally settle and
adjudicate who among the parties should take possession of the 5 square meters of the
land in question.
In solving the issue the trial court held as follows:
The Court believed that the plaintiffs cannot be obliged to pay for the value of
the portion of the defendants' house which has encroached an area of five (5)
sq. meters of the land alloted to them. The defendants cannot also be obliged to
pay for the price of the said five (5) square meters. The rights of a builder in
good faith under Article 448 of the New Civil Code does (sic) not apply to a
case where one co-owner has built, planted or sown on the land owned in
common. "Manresa agreeing with Sanchez Roman, says that as a general rule
this article is not applicable because the matter should be governed more by the
opinion that this article is not applicable to a co-owner who constructs, plants or
sows on the community property, even if the land where the construction,
planting or sowing is made is a third person under the circumstances, and the
situation is governed by the rules of co-ownership. Our Court of Appeals has
held that this article cannot be invoked by one co-owner against another who
builds, plants or sows upon their land, since the latter does not do so on land not
belonging to him. (C.A.), O.G. Supp., Aug. 30, 194, p. 126). In the light of the
foregoing authorities and considering that the defendants have expressed their
conformity to the partition that was made by the commissioner as shown in the
sketch plan attached to the commissioner's report, said defendants have no other
alternative except to remove and demolish part of their house that has
encroached an area of five (5) sq. meters of the land allotted to the plaintiffs.
WHEREFORE, judgment is hereby rendered assigning Lot 1161-A with an
area of thirty (30) sq. meters to the plaintiffs spouses Concepcion Fernandez
Abesia, Lourdes Fernandez Rodil, Genaro Fernandez and Dominga A.
Fernandez, in the respective metes and bounds as shown in the subdivision
sketch plan attached to the Commissioner's Report dated may 29, 1976
prepared by the Commissioner, Geodetic Engineer Espiritu Bunagan. Further,
the defendants are hereby ordered at their expense to remove and demolish part
of their house which has encroached an area of five (5) square meters from Lot
1161-A of the plaintiffs; within sixty (60) days from date hereof and to deliver
the possession of the same to the plaintiffs. For the Commissioner's fee of
P400.00, the defendants are ordered to pay, jointly and severally, the sum of
P133.33 and the balance thereof to be paid by the plaintiffs. The costs of suit
shall be paid by the plaintiffs and the defendants in the proportion of two-thirds
(2/3) and one-third (1/3) shares respectively. A certified copy of this judgment
shall be recorded in the office of the Register of Deeds of the City of Cebu and
the expense of such recording shall be taxed as a part of the costs of the action.
Hence, this appeal interposed by the defendants with the following assignments of
errors:
I
THE TRIAL COURT ERRED IN NOT APPLYING THE RIGHTS OF A
BUILDER IN GOOD FAITH UNDER ART. 448 OF THE NEW CIVIL CODE
1
 TO DEFENDANTS-APPELLANTS WITH RESPECT TO THAT PART OF
THEIR HOUSE OCCUPYING A PROTION OF THE LOT ASSIGNED TO
PLAINTIFFS-APPELLEES.
II
THE TRIAL COURT ERRED IN ORDERING DEFENDANTS-
APPELLANTS TO REMOVE AND DEMOLISH AT THEIR EXPENSE,
THAT PART OF THEIR HOUSE WHICH HAS ENCROACHED ON AN
AREA OF FIVE SQUARE METERS OF LOT 1161-A OF PLAINTIFFS-
APPELLEES.
Article 448 of the New Civil Code provides as follows:
Art. 448. The owner of the land on which anything has been built, sown, or
planted in good faith, shall have the right to appropriate as his own the works,
sowing or planting, after payment of the indemnity provided for in articles 546
and 548, or to oblige the one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However, the builder or planter cannot
be obliged to buy the land if its value is considerably more than that of the
building or trees. In such case, he shall pay reasonable rent, if the owner of the
land does not choose to appropriate the building or trees after proper indemnity.
The parties shall agree upon the terms of the lease and in case of disagreement,
the court shall fix the terms thereof.
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 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. 1
However, when, as in this case, the co-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. Manresa and
Navarro Amandi agree that the said provision of the Civil Code may apply even when
there was co-ownership if good faith has been established. 2
Applying the aforesaid provision of the Civil Code, the plaintiffs have the right to
appropriate said portion of the house of defendants upon payment of indemnity to
defendants as provided for in Article 546 of the Civil Code. Otherwise, the plaintiffs
may oblige the defendants 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 defendants built thereon, then the latter cannot be obliged to
buy the land. The defendants shall then pay the reasonable rent to the plaintiff upon
such terms and conditions that they may agree. In case of disagreement, the trial court
shall fix the terms thereof. Of course, defendants may demolish or remove the said
portion of their house, at their own expense, if they so decide.
WHEREFORE, the decision appealed from is hereby MODIFIED by ordering plaintiff
to indemnify defendants for the value of the Id portion of the house of defendants in
accordance with Article 546 of the Civil Code, if plaintiffs elect to appropriate the
same. Otherwise, the defendants shall pay the value of the 5 square meters of land
occupied by their house at such price as may be agreed upon with plaintiffs and if its
value exceeds the portion of the house that defendants built thereon, the defendants
may choose not to buy the land but defendants must pay a reasonable rental for the use
of the portion of the land of plaintiffs As may be agreed upon between the parties. In
case of disagreement, the rate of rental shall be determined by the trial court.
Otherwise, defendants may remove or demolish at their own expense the said portion
of their house. No costs. SO ORDERED.
G.R. No. L-21783 November 29, 1969
PACIFIC FARMS, INC., plaintiff-appellee,
vs.
SIMPLICIO G. ESGUERRA, ET AL., defendants,
CARRIED LUMBER COMPANY, defendant-appellant.
Before us for review, on appeal by the defendant Carried Lumber Company
(hereinafter referred to as the Company), is the decision, dated May 30, 1962, of the
Court of First Instance of Pangasinan in civil case D-1317, annulling the levy and
certificate of sale covering six buildings owned by the plaintiff Pacific Farms, Inc.,
executed by the defendant deputy provincial sheriff Simplicio G. Esguerra in favor of
the Company to satisfy a money judgment against the Insular Farms, Inc., the
plaintiff's predecessor-in-interest over the said buildings.
2
The environmental setting is uncontroverted.
On several occasions from October 1, 1956 to March 2, 1957 the Company sold and
delivered lumber and construction materials to the Insular Farms, Inc. which the latter
used in the construction of the aforementioned six buildings at its compound in
Bolinao, Pangasinan, of the total procurement price of P15,000, the sum of P4,710.18
has not been paid by Insular Farms, Inc. Consequently, on October 17, 1958 the
Company instituted civil case D-775 with the Court of First Instance of Pangasinan to
recover the said unpaid balance from the Insular Farms, Inc. On August 23, 1961 the
trial court rendered judgment sustaining the Company's claim. The judgment debtor
did not appeal; so on December 19, 1961 the corresponding writ of execution was
issued. On January 16, 1962 the defendant sheriff levied upon the six buildings. On
January 30, 1962 the Pacific Farms, Inc. filed a third-party claim, subscribed by its
corporate president, asserting ownership over the levied buildings which it had
acquired from the Insular Farms, Inc. by virtue of a deed of absolute sale executed on
March 21, 1958, about seven months before the Company filed the above-mentioned
action (civil case D-775). Shielded by an indemnity bond of P7,120 put up by the
Company and the Cosmopolitan Insurance Company, Inc., the sheriff proceeded with
the announced public auction on February 12, 1962 and sold the levied buildings to the
Company for P6,110.78.
Asserting absolute and exclusive ownership of the buildings in question, the Pacific
Farms, Inc. filed a complaint on May 14, 1962 against the Company and the sheriff
with the court a quo, praying that judgment be rendered, (a) declaring null and void the
levy and judicial sale of the six buildings, and (b) adjudging the defendants jointly and
severally liable to the plaintiff in the sum of P2,000 by way of actual damages and for
such amount as the court may deem proper and just to impose by way of exemplary
damages and for costs of the suit.
After due trial, the court a quo on May 30, 1963 rendered judgment annulling the levy
of January 16, 1962 and the certificate of sale of February 12, 1962. The court,
however, denied the plaintiff's claim for actual and exemplary damages on the ground
that it was not "prepared to find that there was gross negligence or bad faith on the part
of any of the defendants."
Hence this appeal, imputing errors which, according to the appellant's formulation, are
the following:
1. The lower court erred in holding that the credit of the defendant-appellant,
Carried Lumber Company, against the Insular Farms, Inc., consisting of the
value of lumber and construction materials used in the buildings which were
later acquired by the Pacific Farms, Inc., the appellee, was not a statutory lien
on those buildings; .
2. The lower court, likewise, erred in holding that the doctrine laid down in
De Barretto, et al. vs. Villanueva, et al. (G.R. No. L-14938, December 29,
1962) is applicable to the facts of this case as found by said court; and .
3. The lower court erred, finally, in declaring that the sale at public auction
conducted by the defendant deputy provincial sheriff of Pangasinan, covering
the six buildings described in the certificate of sale dated February 12, 1962,
was null and void.
1. In ruling against the appellant below, the trial court relied mainly on the resolution
(on the motion for reconsideration) promulgated on December 29, 1962 by this Court
in De Barretto, et al. vs. Villanueva, et al., L-14938 (6 SCRA 928). The said case,
however, is inapplicable because it concerned not one but two or more preferred
creditors who, pursuant to articles 2242 and 2249 of the Civil Code, must necessarily
be convened and the nature and extent of their respective claims ascertained. Thus, we
held that before there can be a pro rata payment of credits entitled to preference as to
the same specific real property, there must first be some proceeding where the claims
of all the preferred creditors may be bindingly adjudicated, such as insolvency, the
settlement of a decedent's estate under Rule 87 of the Rules of Court, or liquidation
proceedings of similar import.
But the case before us does not involve a question of preference of credits, and is not
one where two or more creditors have separate and distinct claims against the same
debtor who has insufficient property. Indeed, it is a matter of necessity and logic that
the question of preference should arise only where the debtor cannot pay his debts in
full. For, if debtor A is able in full to pay all his three creditors, B, C, and D, how can
the need arise for determining which of the three creditors shall be paid first or
whether they shall be paid out of the proceeds of a specific property?
2. It is undenied and undeniable that the appellant furnished lumber and construction
materials to the Insular Farms, Inc. (the appellee's predecessor-in-interest) which the
latter used in the construction of the six buildings. Likewise unchallenged is the lower
3
court's factual finding that out of the total procurement price of P15,000, the amount of
P4,710.18 remains outstanding and unpaid by the Insular Farms, Inc. The appellant is
therefore an unpaid furnisher of materials.
Whether there exists a materialman's lien over the six buildings in favor of the
appellant, is a question we do not here decide. To our mind the application by analogy
of the rules of accession would suffice for a just adjudication.
Article 447 of the Civil Code1 provides:
The owner of the land who makes thereon personally or through another,
plantings, constructions or works with the materials of another, shall pay their
value; and, if he acted in bad faith, he shall also be obliged to the reparation
of damages. The owner of the materials shall have the right to remove them
only in case he can do so without injury to the work constructed, or without
the plantings, constructions or works being destroyed. However, if the
landowner acted in bad faith, the owner of the materials may remove them in
any event with a right to be indemnified for damages.
The abovequoted legal provision contemplates a principal and an accessory, the land
being considered the principal, and the plantings, constructions or works, the
accessory. The owner of the land who in good faith — whether personally or through
another — makes constructions or works thereon, using materials belonging to
somebody else, becomes the owner of the said materials with the obligation however
of praying for their value.2 The owner of the materials, on the other hand, is entitled to
remove them, provided no substantial injury is caused to the landowner. Otherwise, he
has the right to reimbursement for the value of his materials.
Although it does not appear from the records of this case that the land upon which the
six buildings were built is owned by the appellee, nevertheless, that the appellee claims
that it owns the six buildings constructed out of the lumber and construction materials
furnished by the appellant, is indubitable. Therefore, applying article 447 by analogy,
we perforce consider the buildings as the principal and the lumber and construction
materials that went into their construction as the accessory. Thus the appellee, if it
does own the six buildings, must bear the obligation to pay for the value of the said
materials; the appellant — which apparently has no desire to remove the materials,
and, even if it were minded to do so, cannot remove them without necessarily
damaging the buildings — has the corresponding right to recover the value of the
unpaid lumber and construction materials.
Well-established in jurisprudence is the rule that compensation should be borne by the
person who has been benefited by the accession.3 No doubt, the appellee benefited
from the accession, i.e., from the lumber and materials that went into the construction
of the six buildings. It should therefore shoulder the compensation due to the appellant
as unpaid furnisher of materials.
Of course, the character of a buyer in good faith and for value, if really possessed by
the appellee, could possibly exonerate it from making compensation.
But the appellee's stance that it is an innocent purchaser for value and in good faith is
open to grave doubt because of certain facts of substantial import (evident from the
records) that cannot escape notice.
In the deed of absolute sale, exhibit 1, the Insular Farms, Inc. (vendor) was represented
in the contract by its president, J. Antonio Araneta. The latter was a director of the
appellee (Pacific Farms, Inc.) and was the counsel who signed the complaint filed by
the appellee in the court below. J. Antonio Araneta was, therefore, not only the
president of the Insular Farms, Inc. but also a director and counsel of the appellee.
During the trial of civil case D-775 the Insular Farms, Inc. was represented by
Attorney Amado Santiago, Jr. of the law firm of J. Antonio Araneta. The latter was
one of the counsels of the Pacific Farms, Inc. The appellee cannot claim ignorance of
the pendency of civil case D-775 because the Insular Farms, Inc. was defended by the
same lawyer from the same law firm that commenced the present action. J. Antonio
Araneta, as counsel for the Pacific Farms, Inc., cannot close his eyes to facts of which
he as president of the Insular Farms, Inc. had actual knowledge. Significantly, exhibit
1 (supra) itself shows that the Insular Farms, Inc. and the Pacific Farms, Inc. were
housed in adjacent rooms (nos. 304 and 303, respectively), of the same building, the
Insular Life Building, as early as March 21, 1958.
It is reasonable therefore to conclude that the appellee, through its director and
counsel, J. Antonio Araneta, knew about the unpaid balance of the purchase price of
the lumber and construction materials supplied or furnished by the appellant to the
Insular Farms, Inc.
4
Parenthetically, it is likewise worth our attention that despite the appellee's knowledge
of the suit instituted by the appellant against the Insular Farms, Inc. (the appellee's
predecessor-in-interest) for the recovery of the unpaid balance of the purchase price of
the lumber and materials used in the construction of its six buildings, it merely folded
its arms in disinterest and waited, so to speak. Not until a decision was rendered
therein in favor of the appellant, a writ of execution issued, and the six buildings levied
upon by the sheriff, did it file a third-party claim over the levied buildings. In the face
of the knowledge that its predecessor-in-interest had not fully paid for the lumber and
construction materials used in the six buildings it had purchased, its natural and
expected reaction should have been to intervene in the suit filed by the appellant
against the Insular Farms, Inc. and hold the latter to account for breach of the
warranties deemed included in the deed of absolute sale conveying said building to it.
Curiously enough, although the six buildings in question were supposedly sold by the
Insular Farms to the appellee on March 21, 1958, as evidenced by the deed of absolute
sale (exhibit 1), about seven months before the appellant filed civil case D-775, the
Insular Farms, Inc. never moved to implead the appellee therein as a necessary party-
defendant, and remained completely and strangely silent about the sale. It is not amiss
to surmise that it is entirely possible that the Insular Farms, Inc. and the appellee chose
to remain silent in the hope that the appellant's claim against the Insular Farms, Inc. in
civil case D-775 would be dismissed or non-suited.
Moreover, the appellee was in a better position to protect its interest. It knew that the
Insular Farms, Inc., its predecessor-in-interest, was a mere lessee of the premises on
which the buildings were located. This should have placed it on guard and compelled it
to ascertain the circumstances surrounding the construction of the said buildings on the
premises.
On the other hand, the appellant was not as advantageously situated as the appellee.
There being no separate registry of property for buildings and no procedure provided
by law for registering or annotating the claim of an unpaid furnisher of materials, it
was helpless to prevent the sale of the property built from lumber and construction
materials it furnished. But certainly, because it has a right, pursuant to article
447, supra, to reimbursement for the value of its unpaid materials, the appellant could
pursue any remedy available to it under the law in order to enforce the said right. Thus,
the appellant acted correctly in bringing an action (D-775) against the Insular Farms,
Inc. and enforcing its right of reimbursement through the execution of the final
judgment it obtained in the said case against the six buildings in the possession of the
appellee who now stands to benefit therefrom. It follows, as a necessary corollary, that
the sale at public auction conducted by the defendant sheriff of the six buildings
described in the certificate of sale dated February 12, 1962, exhibit 7, was valid and
effective.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is hereby
dismissed.
In view, however, of the equities clearly attendant in this case, it is the sense of this
Court that the plaintiff-appellee Pacific Farms, Inc. should be, as it is hereby, granted a
period of thirty (30) days from the date this judgment becomes final, within which it
may exercise the option of redeeming the six buildings, by paying to the defendant-
appellant Carried Lumber Company the sum of P4,710.18, with legal interest from
September 23, 1961 (the date the judgment in civil case D-775 became final), until the
said amount shall have been fully paid. No pronouncement as to costs.
G.R. No. 115814 May 26, 1995
PEDRO P. PECSON, petitioner,
vs.
COURT OF APPEALS, SPOUSES JUAN NUGUID and ERLINDA
NUGUID, respondents.
This petition for review on certiorari seeks to set aside the decision1 of the Court of
Appeals in CA-G.R. SP No. 32679 affirming in part the order 2 of the Regional Trial
Court (RTC) of Quezon City, Branch 101, in Civil Case No. Q-41470.
The factual and procedural antecedents of this case as gathered from the record are as
follows:
Petitioner Pedro P. Pecson was the owner of a commercial lot located in Kamias
Street, Quezon City, on which he built a four-door two-storey apartment building. For
his failure to pay realty taxes amounting to twelve thousand pesos (P12,000.00), the lot
was sold at public auction by the city Treasurer of Quezon City to Mamerto
Nepomuceno who in turn sold it on 12 October 1983 to the private respondents, the
spouses Juan Nuguid and Erlinda Tan-Nuguid, for one hundred three thousand pesos
(P103,000.00).
5
The petitioner challenged the validity of the auction sale in Civil Case No. Q-41470
before the RTC of Quezon City. In its decision of 8 February 1989, the RTC dismissed
the complaint, but as to the private respondents' claim that the sale included the
apartment building, it held that the issue concerning it was "not a subject of the . . .
litigation." In resolving the private respondents' motion to reconsider this issue, the
trial court held that there was no legal basis for the contention that the apartment
building was included in the sale.3
Both parties then appealed the decision to the Court of Appeals. The case was
docketed as CA-G.R. CV No. 2931. In its decision of 30 April 1992, 4 the Court of
Appeals affirmed in toto the assailed decision. It also agreed with the trial court that
the apartment building was not included in the auction sale of the commercial lot.
Thus:
Indeed, examining the record we are fully convinced that it was only the land —
without the apartment building — which was sold at the auction sale, for
plaintiff's failure to pay the taxes due thereon. Thus, in the Certificate of Sale of
Delinquent Property To Purchaser (Exh. K, p. 352, Record) the property subject
of the auction sale at which Mamerto Nepomuceno was the purchaser is
referred to as Lot No. 21-A, Block No. K-34, at Kamias, Barangay Piñahan,
with an area of 256.3 sq. m., with no mention whatsoever, of the building
thereon. The same description of the subject property appears in the Final
Notice To Exercise The Right of Redemption (over subject property) dated
September 14, 1981 (Exh. L, p. 353, Record) and in the Final Bill of Sale over
the same property dated April 19, 1982 (Exh. P, p. 357, Record). Needless to
say, as it was only the land without any building which Nepomuceno had
acquired at the auction sale, it was also only that land without any building
which he could have legally sold to the Nuguids. Verily, in the Deed of
Absolute Sale of Registered Land executed by Mamerto Nepomuceno in favor of
the Nuguids on October 25, 1983 (Exh. U, p. 366, Record) it clearly appears
that the property subject of the sale for P103,000.00 was only the parcel of
land, Lot 21-A, Blk. K-34 containing an area of 256.3 sq. meters, without any
mention of any improvement, much less any building thereon. (emphases
supplied)
The petition to review the said decision was subsequently denied by this Court. 5 Entry
of judgment was made on 23 June 1993.6
On November 1993, the private respondents filed with the trial court a motion for
delivery of possession of the lot and the apartment building, citing article 546 of the
Civil Code.7 Acting thereon, the trial court issued on 15 November 1993 the
challenged order8 which reads as follows:
Submitted for resolution before this Court is an uncontroverted [sic] for the
Delivery of Possession filed by defendants Erlinda Tan, Juan Nuguid, et al.
considering that despite personal service of the Order for plaintiff to file within
five (5) days his opposition to said motion, he did not file any.
In support of defendant's motion, movant cites the law in point as Article 546 of
the Civil Code . . .
Movant agrees to comply with the provisions of the law considering that
plaintiff is a builder in good faith and he has in fact, opted to pay the cost of the
construction spent by plaintiff. From the complaint itself the plaintiff stated that
the construction cost of the apartment is much more than the lot, which
apartment he constructed at a cost of P53,000.00 in 1965 (par. 8 complaint).
This amount of P53,000.00 is what the movant is supposed to pay under the law
before a writ of possession placing him in possession of both the lot and
apartment would be issued.
However, the complaint alleges in paragraph 9 that three doors of the apartment
are being leased. This is further confirmed by the affidavit of the movant
presented in support of the motion that said three doors are being leased at a
rental of P7,000.00 a month each. The movant further alleges in his said
affidavit that the present commercial value of the lot is P10,000.00 per square
meter or P2,500,000.00 and the reasonable rental value of said lot is no less
than P21,000.00 per month.
The decision having become final as per Entry of Judgment dated June 23,
1993 and from this date on, being the uncontested owner of the property, the
rents should be paid to him instead of the plaintiff collecting them. From June
23, 1993, the rents collected by plaintiff amounting to more than P53,000.00
from tenants should be offset from the rents due to the lot which according to
movant's affidavit is more than P21,000.00 a month.
6
 WHEREFORE, finding merit in the Motion, the Court hereby grants the
following prayer that:
1. The movant shall reimburse plaintiff the construction cost of P53,000.00.
2. The payment of P53,000.00 as reimbursement for the construction cost,
movant Juan Nuguid is hereby entitled to immediate issuance of a writ of
possession over the Lot and improvements thereon.
3. The movant having been declared as the uncontested owner of the Lot in
question as per Entry of Judgment of the Supreme Court dated June 23,
1993, the plaintiff should pay rent to the movant of no less than P21,000.00
per month from said date as this is the very same amount paid monthly by
the tenants occupying the lot.
4. The amount of P53,000.00 due from the movant is hereby offset against
the amount of rents collected by the plaintiff from June 23, 1993, to
September 23, 1993.
SO ORDERED.
The petitioner moved for the reconsideration of the order but it was not acted upon by
the trial court. Instead, on 18 November 1993, it issued a writ of possession directing
the deputy sheriff "to place said movant Juan Nuguid in possession of subject property
located at No. 79 Kamias Road, Quezon City, with all the improvements thereon and
to eject therefrom all occupants therein, their agents, assignees, heirs and
representatives."9
The petitioner then filed with the Court of Appeals a special civil action
for certiorari and prohibition assailing the order of 15 November 1993, which was
docketed as CA-G.R. SP No. 32679. 10 In its decision of 7 June 1994, the Court of
Appeals affirmed in part the order of the trial court citing Article 448 of the Civil
Code. In disposing of the issues, it stated:
As earlier pointed out, private respondent opted to appropriate the improvement
introduced by petitioner on the subject lot, giving rise to the right of petitioner
to be reimbursed of the cost of constructing said apartment building, in
accordance with Article 546 of the . . . Civil Code, and of the right to retain the
improvements until he is reimbursed of the cost of the improvements, because,
basically, the right to retain the improvement while the corresponding
indemnity is not paid implies the tenancy or possession in fact of the land on
which they are built . . . [2 TOLENTINO, CIVIL CODE OF THE
PHILIPPINES (1992) p. 112]. With the facts extant and the settled principle as
guides, we agree with petitioner that respondent judge erred in ordering that
"the movant having been declared as the uncontested owner of the lot in
question as per Entry of Judgment of the Supreme Court dated June 23, 1993,
the plaintiff should pay rent to the movant of no less than P21,000 per month
from said date as this is the very same amount paid monthly by the tenants
occupying the lot.
We, however, agree with the finding of respondent judge that the amount of
P53,000.00 earlier admitted as the cost of constructing the apartment building
can be offset from the amount of rents collected by petitioner from June 23,
1993 up to September 23, 1993 which was fixed at P7,000.00 per month for
each of the three doors. Our underlying reason is that during the period of
retention, petitioner as such possessor and receiving the fruits from the
property, is obliged to account for such fruits, so that the amount thereof may
be deducted from the amount of indemnity to be paid to him by the owner of
the land, in line with Mendoza vs. De Guzman, 52 Phil. 164 . . . .
The Court of Appeals then ruled as follows:
WHEREFORE, while it appears that private respondents have not yet
indemnified petitioner with the cost of the improvements, since Annex I shows
that the Deputy Sheriff has enforced the Writ of Possession and the premises
have been turned over to the possession of private respondents, the quest of
petitioner that he be restored in possession of the premises is rendered moot and
academic, although it is but fair and just that private respondents pay petitioner
the construction cost of P53,000.00; and that petitioner be ordered to account
for any and all fruits of the improvements received by him starting on June 23,
1993, with the amount of P53,000.00 to be offset therefrom.
IT IS SO ORDERED.11
Aggrieved by the Court of Appeals' decision, the petitioner filed the instant petition.
7
The parties agree that the petitioner was a builder in good faith of the apartment
building on the theory that he constructed it at the time when he was still the owner of
the lot, and that the key issue in this case is the application of Articles 448 and 456 of
the Civil Code.
The trial court and the Court of Appeals, as well as the parties, concerned themselves
with the application of Articles 448 and 546 of the Civil Code. These articles read as
follows:
Art. 448. The owner of the land on which anything has been built, sown or
planted in good faith, shall have the right to appropriate as his own the works,
sowing or planting, after payment of the indemnity provided for in articles 546
and 548, or to oblige the one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However, the builder or planter cannot
be obliged to buy the land if its value is considerably more than that of the
building or trees. In such case, he shall pay reasonable rent, if the owner of the
land does not choose to appropriate the building or trees after proper indemnity.
The parties shall agree upon the terms of the lease and in case of disagreement,
the court shall fix the terms thereof. (361a)
xxx xxx xxx
Art. 546. Necessary expenses shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until he has been reimbursed
therefor.
Useful expenses shall be refunded only to the possessor in good faith with the
same right of retention, the person who has defeated him in the possession
having the option of refunding the amount of the expenses or of paying the
increase in value which the thing may have acquired by reason thereof. (453a)
By its clear language, Article 448 refers to a land whose ownership is claimed by two
or more parties, one of whom has built some works, or sown or planted something.
The building, sowing or planting may have been made in good faith or in bad faith.
The rule on good faith laid down in Article 526 of the Civil Code shall be applied in
determining whether a builder, sower or planter had acted in good faith. 12
Article 448 does not apply to a case where the owner of the land is the builder, sower,
or planter who then later loses ownership of the land by sale or donation. This Court
said so in Coleongco vs. Regalado: 13
Article 361 of the old Civil Code is not applicable in this case, for Regalado
constructed the house on his own land before he sold said land to Coleongco.
Article 361 applies only in cases where a person constructs a building on the
land of another in good or in bad faith, as the case may be. It does not apply to a
case where a person constructs a building on his own land, for then there can be
no question as to good or bad faith on the part of the builder.
Elsewise stated, where the true owner himself is the builder of works on his own land,
the issue of good faith or bad faith is entirely irrelevant.
Thus in strict point of law, Article 448 is not apposite to the case at bar. Nevertheless,
we believe that the provision therein on indemnity may be applied by analogy
considering that the primary intent of Article 448 is to avoid a state of forced co-
ownership and that the parties, including the two courts below, in the main agree that
Articles 448 and 546 of the Civil Code are applicable and indemnity for the
improvements may be paid although they differ as to the basis of the indemnity.
Article 546 does not specifically state how the value of the useful improvements
should be determined. The respondent court and the private respondents espouse the
belief that the cost of construction of the apartment building in 1965, and not its
current market value, is sufficient reimbursement for necessary and useful
improvements made by the petitioner. This position is, however, not in consonance
with previous rulings of this Court in similar cases. In Javier vs. Concepcion,
Jr., 14 this Court pegged the value of the useful improvements consisting of various
fruits, bamboos, a house and camarin made of strong material based on the market
value of the said improvements. In Sarmiento vs. Agana, 15 despite the finding that the
useful improvement, a residential house, was built in 1967 at a cost of between eight
thousand pesos (P8,000.00) to ten thousand pesos(P10,000.00), the landowner was
ordered to reimburse the builder in the amount of forty thousand pesos (P40,000.00),
the value of the house at the time of the trial. In the same way, the landowner was
required to pay the "present value" of the house, a useful improvement, in the case
of De Guzman vs. De la Fuente, 16 cited by the petitioner.
8
The objective of Article 546 of the Civil Code is to administer justice between the
parties involved. In this regard, this Court had long ago stated in Rivera vs. Roman
Catholic Archbishop of Manila 17 that the said provision was formulated in trying to
adjust the rights of the owner and possessor in good faith of a piece of land, to
administer complete justice to both of them in such a way as neither one nor the other
may enrich himself of that which does not belong to him. Guided by this precept, it is
therefore the current market value of the improvements which should be made the
basis of reimbursement. A contrary ruling would unjustly enrich the private
respondents who would otherwise be allowed to acquire a highly valued income-
yielding four-unit apartment building for a measly amount. Consequently, the parties
should therefore be allowed to adduce evidence on the present market value of the
apartment building upon which the trial court should base its finding as to the amount
of reimbursement to be paid by the landowner.
The trial court also erred in ordering the petitioner to pay monthly rentals equal to the
aggregate rentals paid by the lessees of the apartment building. Since the private
respondents have opted to appropriate the apartment building, the petitioner is thus
entitled to the possession and enjoyment of the apartment building, until he is paid the
proper indemnity, as well as of the portion of the lot where the building has been
constructed. This is so because the right to retain the improvements while the
corresponding indemnity is not paid implies the tenancy or possession in fact of the
land on which it is built, planted or sown. 18 The petitioner not having been so paid, he
was entitled to retain ownership of the building and, necessarily, the income therefrom.
It follows, too, that the Court of Appeals erred not only in upholding the trial court's
determination of the indemnity, but also in ordering the petitioner to account for the
rentals of the apartment building from 23 June 1993 to 23 September 1993.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 32679 and
the Order of 15 November 1993 of the Regional Trial Court, Branch 101, Quezon City
in Civil Case No. Q-41470 are hereby SET ASIDE.
The case is hereby remanded to the trial court for it to determine the current market
value of the apartment building on the lot. For this purpose, the parties shall be
allowed to adduce evidence on the current market value of the apartment building. The
value so determined shall be forthwith paid by the private respondents to the petitioner
otherwise the petitioner shall be restored to the possession of the apartment building
until payment of the required indemnity. No costs. SO ORDERED.
G.R. No. 108894 February 10, 1997
TECNOGAS PHILIPPINES MANUFACTURING CORPORATION, petitioner,
vs.
COURT OF APPEALS (FORMER SPECIAL SEVENTEENTH DIVISION) and
EDUARDO UY, respondents.
The parties in this case are owners of adjoining lots in Parañaque, Metro Manila. It
was discovered in a survey, that a portion of a building of petitioner, which was
presumably constructed by its predecessor-in-interest, encroached on a portion of the
lot owned by private respondent. What are the rights and obligations of the parties? Is
petitioner considered a builder in bad faith because, as held by respondent Court, he is
"presumed to know the metes and bounds of his property as described in his certificate
of title"? Does petitioner succeed into the good faith or bad faith of his predecessor-in-
interest which presumably constructed the building?
These are the questions raised in the petition for review of the Decision1 dated August
28, 1992, in CA-G.R. CV No. 28293 of respondent Court2 where the disposition
reads:3
WHEREFORE, premises considered, the Decision of the Regional Trial Court
is hereby reversed and set aside and another one entered —
1. Dismissing the complaint for lack of cause of action;
2. Ordering Tecnogas to pay the sum of P2,000.00 per month as reasonable
rental from October 4, 1979 until appellee vacates the land;
3. To remove the structures and surrounding walls on the encroached area;
4. Ordering appellee to pay the value of the land occupied by the two-storey
building;
5. Ordering appellee to pay the sum of P20,000.00 for and as attorney's fees;
6. Costs against appellee.
9
Acting on the motions for reconsideration of both petitioner and private respondent,
respondent Court ordered the deletion of paragraph 4 of
the dispositive portion in an Amended Decision dated February 9, 1993, as follows: 4
WHEREFORE, premises considered, our decision of August 28, 1992 is hereby
modified deleting paragraph 4 of the dispositive portion of our decision which
reads:
4. Ordering appellee to pay the value of the land occupied by the two-
storey building.
The motion for reconsideration of appellee is hereby DENIED for lack of merit.
The foregoing Amended Decision is also challenged in the instant petition.
The Facts
The facts are not disputed. Respondent Court merely reproduced the factual findings of
the trial court, as follows: 5
That plaintiff (herein petitioner) which is a corporation duly organized and
existing under and by virtue of Philippine laws is the registered owner of a
parcel of land situated in Barrio San Dionisio, Parañaque, Metro Manila known
as Lot 4331-A (should be 4531-A) of Lot 4531 of the Cadastral Survey of
Parañaque, Metro Manila, covered by Transfer Certificate of Title No. 409316
of the Registry of Deeds of the Province of Rizal; that said land was purchased
by plaintiff from Pariz Industries, Inc. in 1970, together with all the buildings
and improvements including the wall existing thereon; that the defendant
(herein private respondent) is the registered owner of a parcel of land known as
Lot No. 4531-B of Lot 4531 of the Cadastral Survey of Parañaque, LRC
(GLRO) Rec. No. 19645 covered by Transfer Certificate of Title No. 279838,
of the Registry of Deeds for the Province of Rizal; that said land which adjoins
plaintiff's land was purchased by defendant from a certain Enrile Antonio also
in 1970; that in 1971, defendant purchased another lot also adjoining plaintiffs
land from a certain Miguel Rodriguez and the same was registered in
defendant's name under Transfer Certificate of Title No. 31390, of the Registry
of Deeds for the Province of Rizal; that portions of the buildings and wall
bought by plaintiff together with the land from Pariz Industries are occupying a
portion of defendant's adjoining land; that upon learning of the encroachment or
occupation by its buildings and wall of a portion of defendant's land, plaintiff
offered to buy from defendant that particular portion of defendant's land
occupied by portions of its buildings and wall with an area of 770 square
meters, more or less, but defendant, however, refused the offer. In 1973, the
parties entered into a private agreement before a certain Col. Rosales in
Malacañang, wherein plaintiff agreed to demolish the wall at the back portion
of its land thus giving to defendant possession of a portion of his land
previously enclosed by plaintiff's wall; that defendant later filed a complaint
before the office of Municipal Engineer of Parañaque, Metro Manila as well as
before the Office of the Provincial Fiscal of Rizal against plaintiff in connection
with the encroachment or occupation by plaintiff's buildings and walls of a
portion of its land but said complaint did not prosper; that defendant dug or
caused to be dug a canal along plaintiff's wall, a portion of which collapsed in
June, 1980, and led to the filing by plaintiff of the supplemental complaint in
the above-entitled case and a separate criminal complaint for malicious
mischief against defendant and his wife which ultimately resulted into the
conviction in court of defendant's wife for the crime of malicious mischief; that
while trial of the case was in progress, plaintiff filed in Court a formal proposal
for settlement of the case but said proposal, however, was ignored by
defendant.
After trial on the merits, the Regional Trial Court6 of Pasay City, Branch 117, in Civil
Case No. PQ-7631-P, rendered a decision dated December 4, 1989 in favor of
petitioner who was the plaintiff therein. The dispositive portion
reads: 7
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
defendant and ordering the latter to sell to plaintiff that portion of land owned
by him and occupied by portions of plaintiff's buildings and wall at the price of
P2,000.00 per square meter and to pay the former:
1. The sum of P44,000.00 to compensate for the losses in materials and
properties incurred by plaintiff through thievery as a result of the
destruction of its wall;
2. The sum of P7,500.00 as and by way of attorney's fees; and
10
 3. The costs of this suit.
Appeal was duly interposed with respondent Court, which as previously stated,
reversed and set aside the decision of the Regional Trial Court and rendered the
assailed Decision and Amended Decision. Hence, this recourse under Rule 45 of the
Rules of Court.
The Issues
The petition raises the following issues:8
(A)
Whether or not the respondent Court of Appeals erred in holding the petitioner
a builder in bad faith because it is "presumed to know the metes and bounds of
his property."
(B)
Whether or not the respondent Court of Appeals erred when it used the
amicable settlement between the petitioner and the private respondent, where
both parties agreed to the demolition of the rear portion of the fence, as estoppel
amounting to recognition by petitioner of respondent's right over his property
including the portions of the land where the other structures and the building
stand, which were not included in the settlement.
(C)
Whether or not the respondent Court of Appeals erred in ordering the removal
of the "structures and surrounding walls on the encroached area" and in
withdrawing its earlier ruling in its August 28, 1992 decision for the petitioner
"to pay for the value of the land occupied" by the building, only because the
private respondent has "manifested its choice to demolish" it despite the
absence of compulsory sale where the builder fails to pay for the land, and
which "choice" private respondent deliberately deleted from its September 1,
1980 answer to the supplemental complaint in the Regional Trial Court.
In its Memorandum, petitioner poses the following issues:
A.
The time when to determine the good faith of the builder under Article 448 of
the New Civil Code, is reckoned during the period when it was actually being
built; and in a case where no evidence was presented nor introduced as to the
good faith or bad faith of the builder at that time, as in this case, he must
be presumed to be a "builder in good faith," since "bad faith cannot be
presumed."9
B.
In a specific "boundary overlap situation" which involves a builder in good
faith, as in this case, it is now well settled that the lot owner, who builds on the
adjacent lot is not charged with "constructive notice" of the technical metes and
bounds contained in their torrens titles to determine the exact and precise extent
of his boundary perimeter. 10
C.
The respondent court's citation of the twin cases of Tuason &
Co. v. Lumanlan and Tuason & Co. v. Macalindong is not the "judicial
authority" for a boundary dispute situation between adjacent torrens titled lot
owners, as the facts of the present case do not fall within nor square with the
involved principle of a dissimilar case. 11
D.
Quite contrary to respondent Uy's reasoning, petitioner Tecnogas continues to
be a builder in good faith, even if it subsequently built/repaired the walls/other
permanent structures thereon while the case a quo was pending and even while
respondent sent the petitioner many letters/filed cases thereon. 12
D.(E.)
11
 The amicable settlement between the parties should be interpreted as a contract
and enforced only in accordance with its explicit terms, and not over and
beyond that agreed upon; because the courts do not have the power to create a
contract nor expand its scope. 13
E.(F.)
As a general rule, although the landowner has the option to choose between:
(1) "buying the building built in good faith", or (2) "selling the portion of his
land on which stands the building" under Article 448 of the Civil Code;
the first option is not absolute, because an exception thereto, once it would be
impractical for the landowner to choose to exercise the first alternative, i.e. buy
that portion of the house standing on his land, for the whole building might be
rendered useless. The workable solution is for him to select the second
alternative, namely, to sell to the builder that part of his land on which was
constructed a portion of the house. 14
Private respondent, on the other hand, argues that the petition is "suffering from the
following flaws: 15
1. It did not give the exact citations of cases decided by the Honorable Supreme
Court that allegedly contradicts the ruling of the Hon. Court of Appeals based
on the doctrine laid down in Tuason vs. Lumanlan case citing also Tuason
vs. Macalindong case (Supra).
2. Assuming that the doctrine in the alleged Co Tao vs. Chico case is
contradictory to the doctrine in Tuason vs. Lumanlan and Tuason
vs. Macalindong, the two cases being more current, the same should prevail.
Further, private respondent contends that the following "unmistakably" point to the
bad faith of petitioner: (1) private respondent's purchase of the two lots, "was ahead of
the purchase by petitioner of the building and lot from Pariz Industries"; (2) the
declaration of the General Manager of Tecnogas that the sale between petitioner and
Pariz Industries "was not registered" because of some problems with China Banking
Corporation; and (3) the Deed of Sale in favor of petitioner was registered in its name
only in "the month of May 1973." 16
The Court's Ru1ing
The petition should be granted.
Good Faith or Bad Faith
Respondent Court, citing the cases of J.M. Tuason & Co., Inc. vs. Vda. de
Lumanlan 17 and J.M. Tuason & Co., Inc. vs. Macalindong, 18 ruled that petitioner
"cannot be considered in good faith" because as a land owner, it is "presumed to know
the metes and bounds of his own property, specially if the same are reflected in a
properly issued certificate of title. One who erroneously builds on the adjoining lot
should be considered a builder in (b)ad (f)aith, there being presumptive knowledge of
the Torrens title, the area, and the extent of the boundaries." 19
We disagree with respondent Court. The two cases it relied upon do not support its
main pronouncement that a registered owner of land has presumptive knowledge of the
metes and bounds of its own land, and is therefore in bad faith if he mistakenly builds
on an adjoining land. Aside from the fact that those cases had factual moorings
radically different from those obtaining here, there is nothing in those cases which
would suggest, however remotely, that bad faith is imputable to a registered owner of
land when a part of his building encroaches upon a neighbor's land, simply because he
is supposedly presumed to know the boundaries of his land as described in his
certificate of title. No such doctrinal statement could have been made in those cases
because such issue was not before the Supreme Court. Quite the contrary, we have
rejected such a theory in Co Tao vs. Chico, 20 where we held that unless one is versed
in the science of surveying, "no one can determine the precise extent or location of his
property by merely examining his paper title."
There is no question that when petitioner purchased the land from Pariz Industries, the
buildings and other structures were already in existence. The record is not clear as to
who actually built those structures, but it may well be assumed that petitioner's
predecessor-in-interest, Pariz Industries, did so. Article 527 of the Civil Code
presumes good faith, and since no proof exists to show that the encroachment over a
narrow, needle-shaped portion of private respondent's land was done in bad faith by
the builder of the encroaching structures, the latter should be presumed to have built
them in good faith. 21 It is presumed that possession continues to be enjoyed in the
same character in which it was acquired, until the contrary is proved. 22 Good faith
consists in the belief of the builder that the land he is building on is his, and his
12
ignorance of any defect or flaw in his title. 23 Hence, such good faith, by law, passed
on to Pariz's successor, petitioner in this case. Further, "(w)here one derives title to
property from another, the act, declaration, or omission of the latter, while holding the
title, in relation to the property, is evidence against the former." 24 And possession
acquired in good faith does not lose this character except in case and from the moment
facts exist which show that the possessor is not unaware that he possesses the thing
improperly or wrongfully. 25The good faith ceases from the moment defects in the title
are made known to the possessor, by extraneous evidence or by suit for recovery of the
property by the true owner. 26
Recall that the encroachment in the present case was caused by a very slight deviation
of the erected wall (as fence) which was supposed to run in a straight line from point 9
to point 1 of petitioner's lot. It was an error which, in the context of the attendant facts,
was consistent with good faith. Consequently, the builder, if sued by the aggrieved
landowner for recovery of possession, could have invoked the provisions of Art. 448
of the Civil Code, which reads:
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.
The obvious benefit to the builder under this article is that, instead of being
outrightly ejected from the land, he can compel the landowner to make a choice
between the two options: (1) to appropriate the building by paying the
indemnity required by law, or (2) sell the land to the builder. The landowner
cannot refuse to exercise either option and compel instead the owner of the
building to remove it from the land. 27
The question, however, is whether the same benefit can be invoked by petitioner who,
as earlier stated, is not the builder of the offending structures but possesses them as
buyer.
We answer such question in the affirmative.
In the first place, there is no sufficient showing that petitioner was aware of the
encroachment at the time it acquired the property from Pariz Industries. We agree with
the trial court that various factors in evidence adequately show petitioner's lack of
awareness thereof. In any case, contrary proof has not overthrown the presumption of
good faith under Article 527 of the Civil Code, as already stated, taken together with
the disputable presumptions of the law on evidence. These presumptions state, under
Section 3 (a) of Rule 131 of the Rules of Court, that the person is innocent of a crime
or wrong; and under Section 3 (ff) of Rule 131, that the law has been obeyed. In fact,
private respondent Eduardo Uy himself was unaware of such intrusion into his
property until after 1971 when he hired a surveyor, following his purchase of another
adjoining lot, to survey all his newly acquired lots. Upon being apprised of the
encroachment, petitioner immediately offered to buy the area occupied by its building
— a species of conduct consistent with good faith.
In the second place, upon delivery of the property by Pariz Industries, as seller, to the
petitioner, as buyer, the latter acquired ownership of the property. Consequently and as
earlier discussed, petitioner is deemed to have stepped into the shoes of the seller in
regard to all rights of ownership over the immovable sold, including the right to
compel the private respondent to exercise either of the two options provided under
Article 448 of the Civil Code.
Estoppel
Respondent Court ruled that the amicable settlement entered into between petitioner
and private respondent estops the former from questioning the private respondent's
"right" over the disputed property. It held that by undertaking to demolish the fence
under said settlement, petitioner recognized private respondent's right over the
property, and "cannot later on compel" private respondent "to sell to it the land since"
private respondent "is under no obligation to sell." 28
13
We do not agree. Petitioner cannot be held in estoppel for entering into the amicable
settlement, the pertinent portions of which read: 29
That the parties hereto have agreed that the rear portion of the fence that
separates the property of the complainant and respondent shall be demolished
up to the back of the building housing the machineries which demolision (sic)
shall be undertaken by the complainant at anytime.
That the fence which serve(s) as a wall housing the electroplating machineries
shall not be demolished in the mean time which portion shall be subject to
negotiation by herein parties.
From the foregoing, it is clear that petitioner agreed only to the demolition of a portion
of the wall separating the adjoining properties of the parties — i.e. "up to the back of
the building housing the machineries." But that portion of the fence which served as
the wall housing the electroplating machineries was not to be demolished. Rather, it
was to "be subject to negotiation by herein parties." The settlement may have
recognized the ownership of private respondent but such admission cannot be equated
with bad faith. Petitioner was only trying to avoid a litigation, one reason for entering
into an amicable settlement.
As was ruled in Osmeña vs. Commission on Audit, 30
A compromise is a bilateral act or transaction that is expressly acknowledged as
a juridical agreement by the Civil Code and is therein dealt with in some detail.
"A compromise," declares Article 2208 of said Code, "is a contract whereby the
parties, by making reciprocal concessions, avoid a litigation or put an end to
one already commenced."
xxx xxx xxx
The Civil Code not only defines and authorizes compromises, it in fact
encourages them in civil actions. Art. 2029 states that "The Court shall
endeavor to persuade the litigants in a civil case to agree upon some fair
compromise." . . .
In the context of the established facts, we hold that petitioner did not lose its rights
under Article 448 of the Civil Code on the basis merely of the fact that some years
after acquiring the property in good faith, it learned about — and aptly recognized —
the right of private respondent to a portion of the land occupied by its building. The
supervening awareness of the encroachment by petitioner does not militate against its
right to claim the status of a builder in good faith. In fact, a judicious reading of said
Article 448 will readily show that the landowner's exercise of his option can only take
place after the builder shall have come to know of the intrusion — in short, when both
parties shall have become aware of it. Only then will the occasion for exercising the
option arise, for it is only then that both parties will have been aware that a problem
exists in regard to their property rights.
Options of Private Respondent
What then is the applicable provision in this case which private respondent may invoke
as his remedy: Article 448 or Article 450 31 of the Civil Code?
In view of the good faith of both petitioner and private respondent, their rights and
obligations are to be governed by Art. 448. The essential fairness of this codal
provision has been pointed out by Mme. Justice Ameurfina Melencio-Herrera, citing
Manresa and applicable precedents, in the case of Depra vs. Dumlao, 32 to wit:
Where the builder, planter or sower has acted in good faith, a conflict of rights
arises between the owners, and it becomes necessary to protect the owner of the
improvements without causing injustice to the owner of the land. In view of the
impracticality of creating a state of forced 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 the proper rent. It is the owner
of the land who is authorized to exercise the option, because his right is older,
and because, by the principle of accession, he is entitled to the ownership of the
accessory thing. (3 Manresa 213; Bernardo vs. Bataclan, 37 Off. Gaz. 1382; Co
Tao vs. Chan Chico, G.R. No. 49167, April 30, 1949; Article applied; see
Cabral, et al. vs. Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs. Velasco, [C.A.] 52
Off. Gaz. 2050).
The private respondent's insistence on the removal of the encroaching structures as the
proper remedy, which respondent Court sustained in its assailed Decisions, is thus
14
legally flawed. This is not one of the remedies bestowed upon him by law. It would be
available only if and when he chooses to compel the petitioner to buy the land at a
reasonable price but the latter fails to pay such price. 33 This has not taken place.
Hence, his options are limited to: (1) appropriating the encroaching portion of
petitioner's building after payment of proper indemnity, or (2) obliging the latter to buy
the lot occupied by the structure. He cannot exercise a remedy of his own liking.
Neither is petitioner's prayer that private respondent be ordered to sell the land 34 the
proper remedy. While that was dubbed as the "more workable solution" in Grana and
Torralba vs. The Court of Appeals, et al., 35 it was not the relief granted in that case as
the landowners were directed to exercise "within 30 days from this decision their
option to either buy the portion of the petitioners' house on their land or sell to said
petitioners the portion of their land on which it stands." 36 Moreover, in Grana and
Torralba, the area involved was only 87 square meters while this case involves 520
square meters 37. In line with the case of Depra vs. Dumlao, 38 this case will have to be
remanded to the trial court for further proceedings to fully implement the mandate of
Art. 448. It is a rule of procedure for the Supreme Court to strive to settle the entire
controversy in a single proceeding leaving no root or branch to bear the seeds of future
litigation. 39
Petitioner, however, must also pay the rent for the property occupied by its building as
prescribed by respondent Court from October 4, 1979, but only up to the date private
respondent serves notice of its option upon petitioner and the trial court; that is, if such
option is for private respondent to appropriate the encroaching structure. In such event,
petitioner would have a right of retention which negates the obligation to pay
rent. 40 The rent should however continue if the option chosen is compulsory sale, but
only up to the actual transfer of ownership.
The award of attorney's fees by respondent Court against petitioner is unwarranted
since the action appears to have been filed in good faith. Besides, there should be no
penalty on the right to litigate. 41
WHEREFORE, premises considered, the petition is hereby GRANTED and the
assailed Decision and the Amended Decision are REVERSED and SET ASIDE. In
accordance with the case of Depra vs. Dumlao, 42 this case is REMANDED to the
Regional Trial Court of Pasay City, Branch 117, for further proceedings consistent
with Articles 448 and 546 43 of the Civil Code, as follows:
The trial court shall determine:
a) the present fair price of private respondent's 520 square-meter area of land;
b) the increase in value ("plus value") which the said area of 520 square meters
may have acquired by reason of the existence of the portion of the building on
the area;
c) the fair market value of the encroaching portion of the building; and
d) whether the value of said area of land is considerably more than the fair
market value of the portion of the building thereon.
2. After said amounts shall have been determined by competent evidence, the regional
trial court shall render judgment as follows:
a) The private respondent shall be granted a period of fifteen (15) days within
which to exercise his option under the law (Article 448, Civil Code), whether to
appropriate the portion of the building as his own by paying to petitioner its fair
market value, or to oblige petitioner to pay the price of said area. The amounts
to be respectively paid by petitioner and private respondent, in accordance with
the option thus exercised by written notice of the other party and to the court,
shall be paid by the obligor within fifteen (15) days from such notice of the
option by tendering the amount to the trial court in favor of the party entitled to
receive it;
b) If private respondent exercises the option to oblige petitioner to pay the price
of the land but the latter rejects such purchase because, as found by the trial
court, the value of the land is considerably more than that of the portion of the
building, petitioner shall give written notice of such rejection to private
respondent and to the trial court within fifteen (15) days from notice of private
respondent'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 trial court formal written notice of the
agreement and its provisos. If no agreement is reached by the parties, the trial
court, within fifteen (15) days from and after the termination of the said period
fixed for negotiation, shall then fix the terms of the lease provided that the
15
 monthly rental to be fixed by the Court shall not be less than two thousand
pesos (P2,000.00) per month, payable within the first five (5) days of each
calendar month. The period for the forced lease shall not be more than two (2)
years, counted from the finality of the judgment, considering the long period of
time since 1970 that petitioner has occupied the subject area. The rental thus
fixed shall be increased by ten percent (10%) for the second year of the forced
lease. Petitioner shall not make any further constructions or improvements on
the building. Upon expiration of the two-year period, or upon default by
petitioner in the payment of rentals for two (2) consecutive months, private
respondent shall be entitled to terminate the forced lease, to recover his land,
and to have the portion of the building removed by petitioner or at latter's
expense. The rentals herein provided shall be tendered by petitioner to the trial
court for payment to private respondent, and such tender shall constitute
evidence of whether or not compliance was made within the period fixed by the
said court.
c) In any event, petitioner shall pay private respondent an amount computed at
two thousand pesos (P2,000.00) per month as reasonable compensation for the
occupancy of private respondent's land for the period counted from October 4,
1979, up to the date private respondent serves notice of its option to appropriate
the encroaching structures, otherwise up to the actual transfer of ownership to
petitioner or, in case a forced lease has to be imposed, up to the commencement
date of the forced lease referred to in the preceding paragraph;
d) The periods to be fixed by the trial court in its decision shall be non-
extendible, and upon failure of the party obliged to tender to the trial court the
amount due to the obligee, the party entitled to such payment shall be entitled to
an order of execution for the enforcement of payment of the amount due and for
compliance with such other acts as may be required by the prestation due the
obligee.
No costs. SO ORDERED.
G.R. No. 79688 February 1, 1996
PLEASANTVILLE DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, WILSON KEE, C.T. TORRES ENTERPRISES, INC.
and ELDRED JARDINICO, respondents.
Is a lot buyer who constructs improvements on the wrong property erroneously
delivered by the owner's agent, a builder in good faith? This is the main issue resolved
in this petition for review on certiorari to reverse the Decision1of the Court of
Appeals2 in CA-G.R. No. 11040, promulgated on August 20, 1987.
By resolution dated November 13, 1995, the First Division of this Court resolved to
transfer this case (along with several others) to the Third Division. After due
deliberation and consultation, the Court assigned the writing of this Decision to the
undersigned ponente.
The Facts
The facts, as found by respondent Court, are as follows:
Edith Robillo purchased from petitioner a parcel of land designated as Lot 9, Phase II
and located at Taculing Road, Pleasantville Subdivision, Bacolod City. In 1975,
respondent Eldred Jardinico bought the rights to the lot from Robillo. At that time, Lot
9 was vacant.
Upon completing all payments, Jardinico secured from the Register of Deeds of
Bacolod City on December 19, 1978 Transfer Certificate of Title No. 106367 in his
name. It was then that he discovered that improvements had been introduced on Lot 9
by respondent Wilson Kee, who had taken possession thereof.
It appears that on March 26, 1974, Kee bought on installment Lot 8 of the same
subdivision from C.T. Torres Enterprises, Inc. (CTTEI), the exclusive real estate agent
of petitioner. Under the Contract to Sell on Installment, Kee could possess the lot even
before the completion of all installment payments. On January 20, 1975, Kee paid
CTTEI the relocation fee of P50.00 and another P50.00 on January 27, 1975, for the
preparation of the lot plan. These amounts were paid prior to Kee's taking actual
possession of Lot 8. After the preparation of the lot plan and a copy thereof given to
Kee, CTTEI through its employee, Zenaida Octaviano, accompanied Kee's wife,
Donabelle Kee, to inspect Lot 8. Unfortunately, the parcel of land pointed by
16
Octaviano was Lot 9. Thereafter, Kee proceeded to construct his residence, a store, an
auto repair shop and other improvements on the lot.
After discovering that Lot 9 was occupied by Kee, Jardinico confronted him. The
parties tried to reach an amicable settlement, but failed.
On January 30, 1981, Jardinico's lawyer wrote Kee, demanding that the latter remove
all improvements and vacate Lot 9. When Kee refused to vacate Lot 9, Jardinico filed
with the Municipal Trial Court in Cities, Branch 3, Bacolod City (MTCC), a complaint
for ejectment with damages against Kee.
Kee, in turn, filed a third-party complaint against petitioner and CTTEI.
The MTCC held that the erroneous delivery of Lot 9 to Kee was attributable to CTTEI.
It further ruled that petitioner and CTTEI could not successfully invoke as a defense
the failure of Kee to give notice of his intention to begin construction required under
paragraph 22 of the Contract to Sell on Installment and his having built a sari-sari store
without the prior approval of petitioner required under paragraph 26 of said contract,
saying that the purpose of these requirements was merely to regulate the type of
improvements to be constructed on the Lot.3
However, the MTCC found that petitioner had already rescinded its contract with Kee
over Lot 8 for the latter's failure to pay the installments due, and that Kee had not
contested the rescission. The rescission was effected in 1979, before the complaint was
instituted. The MTCC concluded that Kee no longer had any right over the lot subject
of the contract between him and petitioner. Consequently, Kee must pay reasonable
rentals for the use of Lot 9, and, furthermore, he cannot claim reimbursement for the
improvements he introduced on said lot.
The MTCC thus disposed:
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered as
follows:
1. Defendant Wilson Kee is ordered to vacate the premises of Lot 9, covered
by TCT No. 106367 and to remove all structures and improvements he
introduced thereon;
2. Defendant Wilson Kee is ordered to pay to the plaintiff rentals at the rate of
P15.00 a day computed from the time this suit was filed on March 12, 1981
until he actually vacates the premises. This amount shall bear interests (sic) at
the rate of 12 per cent (sic) per annum.
3. Third-Party Defendant C.T. Torres Enterprises, Inc. and Pleasantville
Subdivision are ordered to pay the plaintiff jointly and severally the sum of
P3,000.00 as attorney's fees and P700.00 as cost and litigation expenses. 4
On appeal, the Regional Trial Court, Branch 48, Bacolod City (RTC) ruled that
petitioner and CTTEI were not at fault or were not negligent, there being no
preponderant evidence to show that they directly participated in the delivery of Lot 9
to Kee5 . It found Kee a builder in bad faith. It further ruled that even
assuming arguendo that Kee was acting in good faith, he was, nonetheless, guilty of
unlawfully usurping the possessory right of Jardinico over Lot 9 from the time he was
served with notice to vacate said lot, and thus was liable for rental.
The RTC thus disposed:
WHEREFORE, the decision appealed from is affirmed with respect to the
order against the defendant to vacate the premises of Lot No. 9 covered by
Transfer Certificate of Title No. T-106367 of the land records of Bacolod
City; the removal of all structures and improvements introduced thereon at his
expense and the payment to plaintiff (sic) the sum of Fifteen (P15.00) Pesos a
day as reasonable rental to be computed from January 30, 1981, the date of
the demand, and not from the date of the filing of the complaint, until he had
vacated (sic) the premises, with interest thereon at 12% per annum. This
Court further renders judgment against the defendant to pay the plaintiff the
sum of Three Thousand (P3,000.00) Pesos as attorney's fees, plus costs of
litigation.
The third-party complaint against Third-Party Defendants Pleasantville
Development Corporation and C.T. Torres Enterprises, Inc. is dismissed. The
order against Third-Party Defendants to pay attorney's fees to plaintiff and
costs of litigation is reversed.6
17
Following the denial of his motion for reconsideration on October 20, 1986, Kee
appealed directly to the Supreme Court, which referred the matter to the Court of
Appeals.
The appellate court ruled that Kee was a builder in good faith, as he was unaware of
the "mix-up" when he began construction of the improvements on Lot 8. It further
ruled that the erroneous delivery was due to the negligence of CTTEI, and that such
wrong delivery was likewise imputable to its principal, petitioner herein. The appellate
court also ruled that the award of rentals was without basis.
Thus, the Court of Appeals disposed:
WHEREFORE, the petition is GRANTED, the appealed decision is
REVERSED, and judgment is rendered as follows:
1. Wilson Kee is declared a builder in good faith with respect to the
improvements he introduced on Lot 9, and is entitled to the rights granted him
under Articles 448, 546 and 548 of the New Civil Code.
2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville
Development Corporation are solidarily liable under the following
circumstances:
A. If Eldred Jardinico decides to appropriate the improvements
and, thereafter, remove these structures, the third-party defendants
shall answer for all demolition expenses and the value of the
improvements thus destroyed or rendered useless;
b. If Jardinico prefers that Kee buy the land, the third-party
defendants shall answer for the amount representing the value of Lot
9 that Kee should pay to Jardinico.
3. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville
Development Corporation are ordered to pay in solidum the amount of
P3,000.00 to Jardinico as attorney's fees, as well as litigation expenses.
4. The award of rentals to Jardinico is dispensed with.
Furthermore, the case is REMANDED to the court of origin for the
determination of the actual value of the improvements and the property (Lot
9), as well as for further proceedings in conformity with Article 448 of the
New Civil Code.7
Petitioner then filed the instant petition against Kee, Jardinico and CTTEI.
The Issues
The petition submitted the following grounds to justify a review of the respondent
Court's Decision, as follows:
1. The Court of Appeals has decided the case in a way probably not in accord
with law or the the (sic) applicable decisions of the Supreme Court on third-
party complaints, by ordering third-party defendants to pay the demolition
expenses and/or price of the land;
2. The Court of Appeals has so far departed from the accepted course of
judicial proceedings, by granting to private respondent-Kee the rights of a
builder in good faith in excess of what the law provides, thus enriching
private respondent Kee at the expense of the petitioner;
3. In the light of the subsequent events or circumstances which changed the
rights of the parties, it becomes imperative to set aside or at least modify the
judgment of the Court of Appeals to harmonize with justice and the facts;
4. Private respondent-Kee in accordance with the findings of facts of the
lower court is clearly a builder in bad faith, having violated several provisions
of the contract to sell on installments;
5. The decision of the Court of Appeals, holding the principal, Pleasantville
Development Corporation (liable) for the acts made by the agent in excess of
its authority is clearly in violation of the provision of the law;
6. The award of attorney's fees is clearly without basis and is equivalent to
putting a premium in (sic) court litigation.
18
From these grounds, the issues could be re-stated as follows:
(1) Was Kee a builder in good faith?
(2) What is the liability, if any, of petitioner and its agent, C.T. Torres
Enterprises, Inc.? and
(3) Is the award of attorney's fees proper?
The First Issue: Good Faith
Petitioner contends that the Court of Appeals erred in reversing the RTC's ruling that
Kee was a builder in bad faith.
Petitioner fails to persuade this Court to abandon the findings and conclusions of the
Court of Appeals that Kee was a builder in good faith. We agree with the following
observation of the Court of Appeals:
The roots of the controversy can be traced directly to the errors committed by
CTTEI, when it pointed the wrong property to Wilson Kee and his wife. It is
highly improbable that a purchaser of a lot would knowingly and willingly
build his residence on a lot owned by another, deliberately exposing himself
and his family to the risk of being ejected from the land and losing all
improvements thereon, not to mention the social humiliation that would
follow.
Under the circumstances, Kee had acted in the manner of a prudent man in
ascertaining the identity of his property. Lot 8 is covered by Transfer
Certificate of Title No. T-69561, while Lot 9 is identified in Transfer
Certificate of Title No. T-106367. Hence, under the Torrens system of land
registration, Kee is presumed to have knowledge of the metes and bounds of
the property with which he is dealing. . . .
xxx xxx xxx
But as Kee is a layman not versed in the technical description of his property,
he had to find a way to ascertain that what was described in TCT No. 69561
matched Lot 8. Thus, he went to the subdivision developer's agent and
applied and paid for the relocation of the lot, as well as for the production of a
lot plan by CTTEI's geodetic engineer. Upon Kee's receipt of the map, his
wife went to the subdivision site accompanied by CTTEI's employee,
Octaviano, who authoritatively declared that the land she was pointing to was
indeed Lot 8. Having full faith and confidence in the reputation of CTTEI,
and because of the company's positive identification of the property, Kee saw
no reason to suspect that there had been a misdelivery. The steps Kee had
taken to protect his interests were reasonable. There was no need for him to
have acted ex-abundantia cautela, such as being present during the geodetic
engineer's relocation survey or hiring an independent geodetic engineer to
countercheck for errors, for the final delivery of subdivision lots to their
owners is part of the regular course of everyday business of CTTEI. Because
of CTTEI's blunder, what Kee had hoped to forestall did in fact transpire.
Kee's efforts all went to naught.8
Good faith consists in the belief of the builder that the land he is building on is his and
his ignorance of any defect or flaw in his title 9 . And as good faith is presumed,
petitioner has the burden of proving bad faith on the part of Kee 10 .
At the time he built improvements on Lot 8, Kee believed that said lot was what he
bought from petitioner. He was not aware that the lot delivered to him was not Lot 8.
Thus, Kee's good faith. Petitioner failed to prove otherwise.
To demonstrate Kee's bad faith, petitioner points to Kee's violation of paragraphs 22
and 26 of the Contract of Sale on Installment.
We disagree. Such violations have no bearing whatsoever on whether Kee was a
builder in good faith, that is, on his state of mind at the time he built the improvements
on Lot 9. These alleged violations may give rise to petitioner's cause of action against
Kee under the said contract (contractual breach), but may not be bases to negate the
presumption that Kee was a builder in good faith.
Petitioner also points out that, as found by the trial court, the Contract of Sale on
Installment covering Lot 8 between it and Kee was rescinded long before the present
action was instituted. This has no relevance on the liability of petitioner, as such fact
does not negate the negligence of its agent in pointing out the wrong lot. to Kee. Such
19
circumstance is relevant only as it gives Jardinico a cause of action for unlawful
detainer against Kee.
Petitioner next contends that Kee cannot "claim that another lot was erroneously
pointed out to him" because the latter agreed to the following provision in the Contract
of Sale on installment, to wit:
13. The Vendee hereby declares that prior to the execution of his contract
he/she has personally examined or inspected the property made subject-matter
hereof, as to its location, contours, as well as the natural condition of the lots
and from the date hereof whatever consequential change therein made due to
erosion, the said Vendee shall bear the expenses of the necessary fillings,
when the same is so desired by him/her. 11
The subject matter of this provision of the contract is the change of the location,
contour and condition of the lot due to erosion. It merely provides that the vendee,
having examined the property prior to the execution of the contract, agrees to shoulder
the expenses resulting from such change.
We do not agree with the interpretation of petitioner that Kee contracted away his right
to recover damages resulting from petitioner's negligence. Such waiver would be
contrary to public policy and cannot be allowed. "Rights may be waived, unless the
waiver is contrary to law, public order, public policy, morals, or good customs, or
prejudicial to a third person with a right recognized by law." 12
The Second Issue: Petitioner's Liability
Kee filed a third-party complaint against petitioner and CTTEI, which was dismissed
by the RTC after ruling that there was no evidence from which fault or negligence on
the part of petitioner and CTTEI can be inferred. The Court of Appeals disagreed and
found CTTEI negligent for the erroneous delivery of the lot by Octaviano, its
employee.
Petitioner does not dispute the fact that CTTEI was its agent. But it contends that the
erroneous delivery of Lot 9 to Kee was an act which was clearly outside the scope of
its authority, and consequently, CTTEI I alone should be liable. It asserts that "while
[CTTEI] was authorized to sell the lot belonging to the herein petitioner, it was never
authorized to deliver the wrong lot to Kee" 13 .
Petitioner's contention is without merit.
The rule is that the principal is responsible for the acts of the agent, done within the
scope of his authority, and should bear the damage caused to third persons 14 . On the
other hand, the agent who exceeds his authority is personally liable for the damage 15
CTTEI was acting within its authority as the sole real estate representative of petitioner
when it made the delivery to Kee. In acting within its scope of authority, it was,
however, negligent. It is this negligence that is the basis of petitioner's liability, as
principal of CTTEI, per Articles 1909 and 1910 of the Civil Code.
Pending resolution of the case before the Court of Appeals, Jardinico and Kee on July
24, 1987 entered into a deed of sale, wherein the former sold Lot 9 to Kee. Jardinico
and Kee did not inform the Court of Appeals of such deal.
The deed of sale contained the following provision:
1. That Civil Case No. 3815 entitled "Jardinico vs. Kee" which is now
pending appeal with the Court of Appeals, regardless of the outcome of the
decision shall be mutually disregarded and shall not be pursued by the parties
herein and shall be considered dismissed and without effect whatso-ever; 16
Kee asserts though that the "terms and conditions in said deed of sale are strictly for
the parties thereto" and that "(t)here is no waiver made by either of the parties in said
deed of whatever favorable judgment or award the honorable respondent Court of
Appeals may make in their favor against herein petitioner Pleasantville Development
Corporation and/or private respondent C.T. Torres Enterprises; Inc." 17
Obviously, the deed of sale can have no effect on the liability of petitioner. As we have
earlier stated, petitioner's liability is grounded on the negligence of its agent. On the
other hand, what the deed of sale regulates are the reciprocal rights of Kee and
Jardinico; it stressed that they had reached an agreement independent of the outcome
of the case.
20
Petitioner further assails the following holding of the Court of Appeals:
2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville
Development Corporation are solidarily liable under the following
circumstances:
a. If Eldred Jardinico decides to appropriate the improvements and,
thereafter, remove these structures, the third-party defendants shall
answer for all demolition expenses and the value of the
improvements thus destroyed or rendered useless;
b. If Jardinico prefers that Kee buy the land, the third-party
defendants shall answer for the amount representing the value of Lot
9 that Kee should pay to Jardinico. 18
Petitioner contends that if the above holding would be carried out, Kee would be
unjustly enriched at its expense. In other words, Kee would be able to own the lot, as
buyer, without having to pay anything on it, because the aforequoted portion of
respondent Court's Decision would require petitioner and CTTEI jointly and solidarily
to "answer" or reimburse Kee therefor.
We agree with petitioner.
Petitioner' s liability lies in the negligence of its agent CTTEI. For such negligence, the
petitioner should be held liable for damages. Now, the extent and/or amount of
damages to be awarded is a factual issue which should be determined after evidence is
adduced. However, there is no showing that such evidence was actually presented in
the trial court; hence no damages could flow be awarded.
The rights of Kee and Jardinico vis-a-vis each other, as builder in good faith and owner
in good faith, respectively, are regulated by law (i.e., Arts. 448, 546 and 548 of the
Civil Code). It was error for the Court of Appeals to make a "slight modification" in
the application of such law, on the ground of "equity". At any rate, as it stands now,
Kee and Jardinico have amicably settled through their deed of sale their rights and
obligations with regards to Lot 9. Thus, we delete items 2 (a) and (b) of the dispositive
portion of the Court of Appeals' Decision [as reproduced above] holding petitioner and
CTTEI solidarily liable.
The Third Issue: Attorney's Fees
The MTCC awarded Jardinico attorney's fees and costs in the amount of P3,000.00 and
P700.00, respectively, as prayed for in his complaint. The RTC deleted the award,
consistent with its ruling that petitioner was without fault or negligence. The Court of
Appeals, however, reinstated the award of attorney's fees after ruling that petitioner
was liable for its agent's negligence.
The award of attorney's fees lies within the discretion of the court and depends upon
the circumstances of each case 19 . We shall not interfere with the discretion of the
Court of Appeals. Jardinico was compelled to litigate for the protection of his interests
and for the recovery of damages sustained as a result of the negligence of petitioner's
agent 20 .
In sum, we rule that Kee is a builder in good faith. The disposition of the Court of
Appeals that Kee "is entitled to the rights granted him under Articles 448, 546 and 548
of the New Civil Code" is deleted, in view of the deed of sale entered into by Kee and
Jardinico, which deed now governs the rights of Jardinico and Kee as to each other.
There is also no further need, as ruled by the appellate Court, to remand the case to the
court of origin "for determination of the actual value of the improvements and the
property (Lot 9), as well as for further proceedings in conformity with Article 448 of
the New Civil Code."
WHEREFORE , the petition is partially GRANTED. The Decision of the Court of
Appeals is hereby MODIFIED as follows:
(1) Wilson Kee is declared a builder in good faith;
(2) Petitioner Pleasantville Development Corporation and respondent C.T.
Torres Enterprises, Inc. are declared solidarily liable for damages due to
negligence; however, since the amount and/or extent of such damages was not
proven during the trial, the same cannot now be quantified and awarded;
21
 (3) Petitioner Pleasantville Development Corporation and respondent C.T.
Torres Enterprises, Inc. are ordered to pay in solidum the amount of
P3,000.00 to Jardinico as attorney's fees, as well as litigation expenses; and
(4) The award of rentals to Jardinico is dispensed with.
SO ORDERED.
G.R. No. 120303 July 24, 1996
FEDERICO GEMINIANO, MARIA GEMINIANO, ERNESTO GEMINIANO,
ASUNCION GEMINIANO, LARRY GEMINIANO and MARLYN
GEMINIANO, petitioners,
vs.
COURT OF APPEALS, DOMINADOR NICOLAS, and MARY A.
NICOLAS, respondents.
This petition for review on certiorari has its origins in Civil Case No. 9214 of Branch
3 of the Municipal Trial Court in Cities (MTCC) in Dagupan City for unlawful
detainer and damages. The petitioners ask the Court to set aside the decision of the
Court of Appeals affirming the decision of Branch 40 of the Regional Trial Court
(RTC) of Dagupan City, which, in turn, reversed the MTCC; ordered the petitioners to
reimburse the private respondents the value of the house in question and other
improvements; and allowed the latter to retain the premises until reimbursement was
made.
It appears that Lot No. 3765-B-1 containing an area of 314 square meters was
originally owned by the petitioners' mother, Paulina Amado vda. de Geminiano. On a
12-square-meter portion of that lot stood the petitioners' unfinished bungalow, which
the petitioners sold in November 1978 to the private respondents for the sum of
P6,000.00, with an alleged promise to sell to the latter that portion of the lot occupied
by the house. Subsequently, the petitioners' mother executed a contract of lease over a
126 square-meter portion of the lot, including that portion on which the house stood, in
favor of the private respondents for P40.00 per month for a period of seven years
commencing on 15 November 1978.1 The private respondents then introduced
additional improvements and registered the house in their names. After the expiration
of the lease contract in November 1985, however, the petitioners' mother refused to
accept the monthly rentals.
It turned out that the lot in question was the subject of a suit, which resulted in its
acquisition by one Maria Lee in 1972. In 1982, Lee sold the lot to Lily Salcedo, who in
turn sold it in 1984 to the spouses Agustin and Ester Dionisio.
On 14 February 1992, the Dionisio spouses executed a Deed of Quitclaim over the said
property in favor of the petitioners.2 As such, the lot was registered in the latter's
name.3
On 9 February 1993, the petitioners sent, via registered mail, a letters addressed to
private respondent Mary Nicolas demanding that she vacate the premises and pay the
rentals in arrears within twenty days from notice. 4
Upon failure of the private respondents to heed the demand, the petitioners filed with
the MTCC of Dagupan City a complaint for unlawful detainer and damages.
During the pre-trial conference, the parties agreed to confine the issues to: (1) whether
there was an implied renewal of the lease which expired in November 1985; (2)
whether the lessees were builders in good faith and entitled to reimbursement of the
value of the house and improvements; and (3) the value of the house.
The parties then submitted their respective position papers and the case was heard
under the Rule on Summary Procedure.
On the first issue, the court held that since the petitioners' mother was no longer the
owner of the lot in question at the time the lease contract was executed in 1978, in
view of its acquisition by Maria Lee as early as 1972, there was no lease to speak of,
much less, a renewal thereof. And even if the lease legally existed, its implied renewal
was not for the period stipulated in the original contract, but only on a month-to-month
basis pursuant to Article 1687 of the Civil Code. The refusal of the petitioners' mother
to accept the rentals starting January 1986 was then a clear indication of her desire to
terminate the monthly lease. As regard the petitioners' alleged failed promise to sell to
the private respondents the lot occupied by the house, the court held that such should
be litigated in a proper case before the proper forum, not an ejectment case where the
only issue was physical possession of the property.
22
The court resolved the second issue in the negative, holding that Articles 448 and 546
of the Civil Code, which allow possessors in good faith to recover the value of
improvements and retain the premises until reimbursed, did not apply to lessees like
the private respondents, because the latter knew that their occupation of the premises
would continue only during the life of the lease. Besides, the rights of the private
respondents were specifically governed by Article 1678, which allow reimbursement
of up to one-half of the value of the useful improvements, or removal of the
improvements should the lessor refuse to reimburse.
On the third issue, the court deemed as conclusive the private respondents' allegation
that the value of the house and improvements was P180,000.00, there being no
controverting evidence presented.
The trial court thus ordered the private respondents to vacate the premises, pay the
petitioners P40.00 a month as reasonable compensation for their stay thereon from the
filing of the complaint on 14 April 1993 until they vacated, and to pay the sum of
P1,000.00 as attorney's fees, plus costs.5
On appeal by the private respondents, the RTC of Dagupan City reversed the trial
court's decision and rendered a new judgment: (1) ordering the petitioners to reimburse
the private respondents for the value of the house and improvements in the amount of
P180,000.00 and to pay the latter P10,000.00 as attorney's fees and P2,000.00 as
litigation expenses; and (2) allowing the private respondents to remain in possession of
the premises until they were fully reimbursed for the value of the house. 6 It ruled that
since the private respondents were assured by the petitioners that the lot they leased
would eventually be sold to them, they could be considered builders in good faith, and
as such, were entitled to reimbursed of the value of the house and improvements with
the right of retention until reimbursement and had been made.
On appeal, this time by the petitioners, the Court of Appeals affirmed the decision of
the RTC7 and denied8the petitioners' motion for reconsideration. Hence, the present
petition.
The Court is confronted with the issue of which provision of law governs the case at
bench: Article 448 or Article 1678 of the Civil Code? The said articles read as follows:
Art 448. The owner of the land on which anything has been built, sown or
planted in good faith, shall have the right to appropriate as his own the works,
sowing or planting, after payment of the indemnity provided for in articles 546
and 548, or to oblige the one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However, the builder or plantercannot
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 if disagreement,
the court shall fix the terms thereof.
xxx xxx xxx
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 remover 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
reimbursed, 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.
The crux of the said issue then is whether the private respondents are builder in good
faith or mere lessees.
The private respondents claim they are builders in good faith, hence, Article 448 of the
Civil Code should apply. They rely on the lack of title of the petitioners' mother at the
time of the execution of the contract of lease, as well as the alleged assurance made by
the petitioners that the lot on which the house stood would be sold to them.
It has been said that while the right to let property is an incident of title and possession,
a person may be lessor and occupy the position of a landlord to the tenant although he
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is not the owner of the premises let.9After all, ownership of the property is not being
transferred, 10 only the temporary use and enjoyment thereof.11
In this case, both parties admit that the land in question was originally owned by the
petitioners' mother. The land was allegedly acquired later by one Maria Lee by virtue
of an extrajudicial foreclosure of mortage. Lee, however, never sought a writ of
possession in order that she gain possession of the property in question. 12The
petitioners' mother therefore remained in possession of the lot.
It is undisputed that the private respondents came into possession of 126 square-meter
portion of the said lot by virtue of contract of lease executed by the petitioners' mother
as lessor, and the private respondents as lessees, is therefore well-established, and
carries with it a recognition of the lessor's title.13 The private respondents, as lessees
who had undisturbed possession for the entire term under the lease, are then estopped
to deny their landlord's title, or to assert a better title not only in themselves, but also in
some third person while they remain in possession of the leased premises and until
they surrender possession to the landlord.14 This estoppel applies even though the
lessor had no title at the time the relation of lessor and lessee was created, 15 and may
be asserted not only by the original lessor, but also by those who succeed to his title. 16
Being mere lessees, the private respondents knew that their occupation of the premises
would continue only for the life of the lease. Plainly, they cannot be considered as
possessors nor builders in good faith.17
In a plethora of cases,18 this Court has held that Article 448 of the Civil Code, in
relation to Article 546 of the same Code, which allows full reimbursement of useful
improvements and retention of the premises until reimbursement is made, applies only
to a possessor in good faith, i.e., one who builds on land with the belief that he is the
owner thereof. It does not apply where one's only interest is that of a lessee under a
rental contract; otherwise, it would always be in the power of the tenant to "improve"
his landlord out of his property.
Anent the alleged promise of the petitioners to sell the lot occupied by the private
respondents' house, the same was not substantiated by convincing evidence. Neither
the deed of sale over the house nor the contract of lease contained an option in favor of
the respondent spouses to purchase the said lot. And even if the petitioners indeed
promised to sell, it would not make the private respondents possessors or builders in
good faith so as to covered by the provision of Article 448 of the Civil Code. The latter
cannot raise the mere expectancy or ownership of the aforementioned lot because the
alleged promise to sell was not fulfilled nor its existence even proven. The first thing
that the private respondents should have done was to reduce the alleged promise into
writing, because under Article 1403 of the Civil Code, an agreement for the sale of real
property or an interest therein is unenforceable, unless some note or memorandum
thereof be produced. Not having taken any steps in order that the alleged promise to
sell may be enforced, the private respondents cannot bank on the promise and profess
any claim nor color of title over the lot in question.
There is no need to apply by analogy the provisions of Article 448 on indemnity as
was done in Pecson vs. Court of Appeals,19 because the situation sought to be avoided
and which would justify the application of that provision, is not present in this case.
Suffice it to say, "a state of forced coownership" would not be created between the
petitioners and the private respondents. For, as correctly pointed out by the petitioners,
the right of the private respondents as lessees are governed by Article 1678 of the Civil
Code which allows reimbursement to the extent of one-half of the value of the useful
improvements.
It must be stressed, however, that the right to indemnity under Article 1678 of the Civil
Code arises only if the lessor opts to appropriate the improvements. Since the
petitioners refused to exercise that option,20 the private respondents cannot compel
them to reimburse the one-half value of the house and improvements. Neither can they
retain the premises until reimbursement is made. The private respondents' sole right
then is to remove the improvements without causing any more impairment upon the
property leased than is necessary.21
WHEREFORE, judgment is hereby rendered GRANTING the instant petition,
REVERSING and SETTING ASIDE the decision of the Court of Appeals of 27
January 1995 in CA-G.R. SP No. 34337; and REINSTATING the decision of Branch
3 of the Municipal Trial Court in Cities of Dagupan City in Civil Case No. 9214
entitled "Federico Geminiano, et al. vs. Dominador Nicolas, et al."
Cost against the private respondents. SO ORDERED.
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