Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-30402 January 28, 1980

MANGULON CALAGAN, FERNANDO CALAGAN, ASUNCION CALAGAN, MIRASOL

CALAGAN, ARSENIA CALAGAN, PAULA CALAGAN, CRISTITUTO CALAGAN,
CANDELARIA CALAGAN and CRISPINA CALAGAN, petitioners,
vs.
HON. COURT OF FIRST INSTANCE OF DAVAO (BRANCH II) and PETRA
SANDOVAL, respondents.

G. F. Vega for petitioners.

T Q. Osorio for private respondent.

MELENCIO-HERRERA, J.:

Sought to be reviewed herein is that portion of the judgment of the Court of First
Instance of Davao, Branch II, ordering the payment by petitioners to private respondent
of the amount of P3,000.00 representing the value of the house constructed on the
homestead in question by said private respondent.

The antecedent facts show that in 1954, petitioner Mangulon Calagan and his wife,
Takura, were granted a Homesstead Patent over a 5.2905 hectares in Dawis Digos
Davao, and were issued Original Certificate of Title No. P-2388 therefor.

In 1955, Takura died. survived by her husband, Mangulan and their children, Fernando,
Asuncion, Mirasol, Arsenia, Paula, Cristituto, Candelaria and Crispina, all surnamed
Calagan, all of whom are petitioners herein.

On August 8, 1961, Mangulon and his daughter, Paula sold a portion of 9,230 square
meters of their homestead to private respondent, Petra Sandoval in consideration of the
sum of P2,340.00. Petitioners title to the land was borrowed by private respondent so
that the latter could have the sale annotated thereon. In 1963, Mangulon offered to the
portion sold but private respondent refuse. Petition subsequent offers to repurchase but
private was adamant. The latter maintains that she was to comply with petitioners'
demands provided she was imbursed the value of the house that she had constructed
on the subject land

On April 15, 1966, petitioners brought this action for reconveyance against private
respondent On October 10, 1968, the trial Court rendered judgment, the dispositive
portion of which reads:

IN VIEW OF THE FOREGOING judgment is hereby entered for the

plaintiffs and against the defendant:

(1) That the defendant is ordered to reconvey unto the plaintiffs the piece
of land having an area of 9,230 described in the complaint upon returning
of the sum of P2,340.00 and payment of P3,000 as value of the house
constructed in good faith by the defendant on the said lot.
 (2) To deliver to the plaintiffs the duplicate certificate of Title No. P-2388.

(3) To pay attorney's fees in the sum of P500.00.

(4) And to pay the costs.

SO ORDERED.

In this appeal petitioners maintain solely that the Court erred in ordering petitioners to
pay the sum of P3,000.00 "as value of the house constructed in good faith."

There is no dispute on the following basic points: 1) the subject land is a portion of a
homestead belonging to petitioners; 2) a repurchase is proper pursuant to Section 119
of the Public Land Act (CA No. 141) providing that "every conveyance of land acquired
under the free patent or homestead provisions, when proper, shall be subject to
repurchase by the applicant, his widow or legal heir within a period of five years from
the date of the conveyance"; and 3) this action for repurchase was filed within the five-
year period from the date of sale.

The controversy revolves around the legality of that portion of the judgment requiring
petitioners to pay private respondent another amount of P3,000.00 representing the
value of the residential house built by private respondent on the portion of the land
which petitioners seek to repurchase.

Petitioner present their digest of arguments thus:

1. Only necessary expenses are subject to reimbursement. House

constructed on a coconut land is not necessary It is only useful,

2. In a repurchase under Section 119 of the Public Land Act,, a

homesteader is only supposed to tender the purchase price. To require
him to pay for the value of the house constructed on the land sought to be
repurchased, in addition to the purchase price, constitutes a circumvention
of the Public Land Act.

3. A vendee who introduced a building on a land sought to be repurchased

under the Public Land Act, and during the time when the homesteader can
validly repurchase the same, cannot be considered a in good faith,
because his possesion over the land is of a precarious character: 1

Private respondent's counter-argument is that when she bought the land in dispute "she
was not merely a tenant nor a lessee or a possessor in good faith therein but the owner
of the tenement itself. 2 As she needed a house where she and her family could live,
she constructed a modest house in the lawful exercise of her rights as an owner.

There is no provision in the Public Land Act (CA No. 141) which provides for the terms
and conditions under which repurchase may be effected by a homesteader except that
it should be made within five years from the date of conveyance. That Act is silent as to
the nature of expenses that should be reimbursed by a repurchasing homesteader or
his heir. Resort may, however, be had to the general provisions of the Civil Code on the
subject, particularly Article 1616 (formerly Article 1518), which provides:

Art. 1616. The vendor cannot avail himself of the right of repurchase
without returning to the vendee the price of the sale, and in addition:
 1) The expenses of the contract, and any other ligitimate payments made
by reason of the sale;

2) The necessary and useful expenses made on the thing sold.

Under the above-quoted codal provision, the vendor a retro cannot avail himself of the
right of repurchase without returning to the vendee the price of the sale, the expenses of
the contract and other legitimate payments, and the necessary and useful expenses
made on the thing sold.

There can be no question but that the house which private respondent constructed is a
useful expense, defined as that which increases the value or augments the income of
the property, as contrasted to a necessary expense which is incurred for the
preservation of the thing. 3

We agree that the provision of Article 1616 of the Civil Code, supra, on redemption, is,
in general, the applicable law to a homesteader desirous to redeem his property.
However, considering the purpose of the law on homesteads, which is to conserve
ownership in the hands of the homesteader and his family Article 1616 of the Civil Code
should be construed in conjunction with Articles 546 and 547 of the Civil Code
prescribing the rules on refund of necessary and useful expenses, inasmuch as a
vendee a retro is, as a rule, considered in good faith. Said Articles read thus:

ART. 546. Necessary expenses shall be refunded to every possessor; but

only the possessor in good faith may retain the thing until he has been
reimbursed therefor.

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

ART. 547. If the useful improvements can be removed without damage to

the principal thing, the possessor in good faith may remove them unless
the person who recovers the possession exercises the option under
paragraph 2 of the preceding article.

Applying Article 547, therefore, the homesteader desiring to repurchase should be given
the option to require the vendee a retro to remove the useful improvements on the land
subject of the sale a retro, which option is not granted the vendor a retro under Article
1616. Under the latter Article, the vendor a retro must pay for the useful improvements
introduced by the vendee a retro, otherwise, the latter may retain possession of the
property until reimbursement is made. 4 To allow a vendee a retro of a homestead,
however, the right of retention until payment of useful expenses is made by the
redemptioner would be to render nugatory the right of repurchase granted by law to a
homesteader because all a vendee a retro can do to prevent repurchase is to build
something on the homestead beyond the capacity to pay of the homesteader who seeks
to repurchase. Such a situation should not be allowed to pass. To the same effect was
our ruling in Philippine National Bank v. Landeta 5 where we held that although the
mortgagee-bank therein (after it had bought it at the foreclosure sale), had sold the
homestead to a third party within the five-year period, the homesteader should be
allowed to repurchase the mortgaged homestead from the bank and not from the third
person for, otherwise, a vendee a retro could make "conveyance of the property for
amounts beyond the capacity of said owner to pay.
To recapitulate, it being obvious that petitioners are not exercising the option to refund
the amount of the expenses incurred by private respondent for the house that the latter
built, not to pay the increase in value acquired by the land by reason of such expenses
as provided for in Article 546 of the Civil Code, private respondent, as the vendee a
retro, may remove her house since this can be done without damage to the principal
thing, as stipulated in Article 547 of the Civil Code. Petitioners should not, as opined by
the trial Court, be made to refund the value of that house to private respondent, else,
the salutary policy behind the Public Land Law would be thwarted and rendered
meaningless.

WHEREFORE, the judgment appealed from is modified by eliminating that portion

requiring petitioners to pay private respondent the amount of P3,000.00 representing
the value of the house constructed by her. Private respondent, however, is given the
right to remove her house without damage to the land on which it is built. In all other
respects, the judgment of the trial Court is affirmed.

No costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez, Guerrero, and De Castro, JJ., concur.

Footnotes

1 pp. i-ii Brief for the Petitioners

2 Brief, p. 2.

3 Arts. 488-489, Civil Code.

4 Gargalo vs. Duero and Espejo, I SCRA 1311 (1961).

5 18 SCRA 273 (1966).

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 108952 January 26, 1995

NILO A. MERCADO, petitioner,

vs.
THE COURT OF APPEALS AND AUREA A. MERCADO, respondents.

PUNO, J.:

This is a petition for certiorari to review the Decision of the respondent Court of Appeals
dated August 30, 1991 declaring private respondent a co-owner of the lot covered by
TCT No. 123560 of the Register of Deeds of Quezon City.1

The facts are well established in the disputed Decision, viz:

Plaintiff Aurea A. Mercado seeks the partition and reconveyance to her of

one-half of a real property located at No. 181 Esteban Abada Street,
Quezon City, described as Lot 17-A, Block 40 in Transfer Certificate of
Title No. 123560 of the Registry of Deeds of Quezon City, containing an
area of P1,000 square meters, more or less and registered in the name of
defendant Nilo A. Mercado.

Plaintiff Aurea A. Mercado is 69 years old, still single, a professor, holder

of a degree in Ph. D. Data of Philosophy, Research, Statistics and
Measurement from the University of Maryland, U.S.A and used to work in
the United States. She is a legitimate sister of Nilo A. Mercado.

Before she left for the United States in 1964 where she stayed up to 1984,
she gave her brother University of the Philippines. She wanted a property
near U.P because she planned to teach in the said university when she
comes back. She was not given any receipt for the money handed to her
brother.

Sometime in 1967, she was informed through letters received from the
Philippines coming from her mother and sister that her brother Nilo had
already purchased a property located at No. 181 Esteban Abada Street,
Quezon City. She never saw the title of the property covered by TCT No.
123560.

In 1972, her brother went to the United States and visited her in her house
at Jersey City. On this occasion, she asked her brother about the
purchase of the property. Her brother responded telling her not to worry
for he would give her a paper with respect to that property. In 1978, her
brother Nilo sent through their mother an affidavit (Exh. A) wherein Nilo
admitted the existence of co-ownership over the property.
 Through letters, she communicated with her brother Nilo regarding the
subject property. In one of those letters (Exh. B), she told her brother to
pay her for the lot. In two other letters (Exh. C & D), the same property
was the subject matter. She did not receive any reply so she started
calling him through the telephone, insisting on the partition of the property
because she committed the land as payment to the contractor, Mr.
Escora, who constructed her school building in Davao City.

Nilo A. Medina (sic), defendant herein, is 57 years old, a graduate of law

UP class 1957 and a businessman by occupation. He testified that the
plaintiff is his sister.

In 1967, he decided to buy a house and lot worth P95,000.00 located at

181 Esteban Abada Street, Quezon City from the spouses Francisco
Vargas and Teresita Vargas. Out of his personal savings, money
borrowed from his mother and sister Esmeralda and P20,000.00 borrowed
from his sister Aurea, he was able to pay the downpayment of P38,000.00
to spouses Vargas. It was only upon his tender of the downpayment that
the spouses executed a Deed of Conditional Sale (Exh. 5). He applied for
a housing loan with the Social Security System (System for short) and
upon its approval by the System, a Deed of Absolute Sale was executed
between him and the spouse Vargas (Exhs. 1, 2, 3, 4 & 6).

He paid the amortization for the loan (Exh. 11). However, due to financial
reverses, the property was foreclosed by the System (Exh. 9). Fortunately,
he was able to redeem the property from the System in 1980 out of the
insurance proceeds of his burned property in Davao. A certificate of
redemption (Exh. 10) was issued to him and he caused the cancellation of
the mortgage with the System.

As proof of his ownership, he has the tax declaration (Exh. 8), Transfer
Certificate of Title No. 123560 in his name (Exh. 7) and real property tax
bill receipts evidencing payment of real estate taxes on the property
(Exhs. 13, 13-a).

The petition for certiorari was initially denied by this Court2 in its Resolution on May 17,
1993 for non-compliance with our Revised Circular
1-88, for raising factual issues and for lack of reversible error committed by the
respondent Court of Appeals.3 The Court also denied with finality petitioner's Motion for
Reconsideration in a Resolution dated July 14, 1993. The motion raised no substantial
argument and the Court found no compelling reason to
grant it.

On August 23, 1993, however, petitioner filed a Motion for Leave to file a Second
Motion for Reconsideration. He argued, among others, that even assuming the
correctness of the factual findings of the respondent Court of Appeals, still, there could
not be any co-ownership of the subject property. The Court required private respondent
to comment and, in its Resolution of August 22, 1994, granted the Motion "in the interest
of justice and considering the crucial importance of the issue of extinguishment of co-
ownership" and gave due course to the petition. 4 Extensive memoranda were then filed
by the petition.

We find no merit in the petition.

We sustain the finding of the respondent court that the subject property is co-owned by
petitioner and private respondent. This finding is based on the admission made by
petitioner himself in his Affidavit (Exh. "A") dated March 2, 1973, which states:

AFFIDAVIT

That I, NILO A. MERCADO, of legal age, married, Filipino and a resident

of Davao City, Philippines, after having been duly sworn to in accordance
with law, depose and say the following:

That I am the co-owner of a residential land, including all the

improvements existing thereon, located at 81 E. Abada,
Loyola Heights, Quezon City, with my sister Aurea
A.Mercado;

That being co-owners, we share equally over the above-

mentioned properties, including all the encumbrances and its
obligations and liabilities to the Social Security System and
other governmental agencies;

That I am executing this affidavit to inform the proper

authorities concerned that the parcel of residential land,
including the residential house, together with all its liabilities,
is owned by me in co-ownership with Aurea A. Mercado.

That I am executing this

affidavit freely and voluntarily without any force or
intimidation imposed upon me.

IN WITNESS WHEREOF, I have hereunto set my hand this

2(nd) day of March, 1973, at the City of Davao City,
Philippines.

NILO MERCADO
Affiant

This affidavit is high quality evidence. It contains admission against interest on the part
of petitioner. As a lawyer, petitioner cannot pretend that the plain meaning of his
admission eluded his mind.

We now come to the issue of whether the mortgage of the subject property to the SSS,
its foreclosure and subsequent redemption by the petitioner extinguished private
respondent's co-ownership. The applicable law is Article 493 of the New Civil Code
which spells out the rights of co-owners over a co-owned property, viz:

Art. 493. Each co-owner shall have the full ownership of his part and of the
fruits and benefits pertaining thereto, and he may therefore alienate,
assign or mortgage it and even substitute another person in its enjoyment,
except when personal rights are involved. But the effect of the alienation
or mortgage, with respect to the co-owners, shall be limited to the portion
which may be allotted to him in the division upon the termination of the co-
ownership. (emphasis ours)

Pursuant to this law, a co-owner has the right to alienate his pro-indiviso share in the
co-owned property even without the consent of the other co-owners. Nevertheless, as a
mere part owner, he cannot alienate the shares of the other co-owners. The prohibition
is premised on the elementary rule that "no one can give what he does not have" (Nemo
dat guod non habet). Thus, we held in Bailon-Casilao vs. Court of Appeals,5 viz:

. . . since a co-owner is entitled to sell his undivided share, a sale of the

entire property by one-co-owner without the consent of the other co-
owners is not null and void. However, only the rights of the co-owner-seller
are transferred, thereby making the buyer a co-owner of the property.

The proper action in cases like this is not for the nullification of the sale or
for the recovery of possession of the thing owned in common from the
third person who substituted the co-owner or co-owners who alienated
their shares, but the DIVISION of the common property of the co-owners
who possessed and administered it.

In the case at bench, it is established that petitioner, for his own benefit, borrowed
money from the SSS and mortgaged the subject property to the SSS on June 5, 1967
without the knowledge and consent of his co-owner, herein private respondent.
Necessarily, private respondent could not have helped in the payment of the SSS loan
nor could she have redeemed the subject property from the SSS. Under these
circumstances, it will not accord with the letter and intent of Article 493 of the Civil Code
to rule private respondent lost her part ownership of the subject property finds no
warrant both in law and in equity. It will be the height of absurdity to reward petitioner for
his illegal act of appropriating the share of private respondent in the subject property.

Prescinding from these premises, petitioner's reliance in the case of Tan vs. Court of
Appeals6 is misplaced.

In Tan, the disputed property was mortgaged by spouses Tan Tiong Tick and Tan Ong
Hun to China Bank. Tan Tiong Tick died. He was survived by his widow and six
children, including D. Annie Tan. Meanwhile, China Bank foreclosed the mortgage. It
was the highest bidder at the public auction. Thereafter, the heirs of Tan Tiong Tick
sought to nullify the real estate mortgage and the foreclosure sale before the defunct
CFI of Manila. The widow, Tan Ong Hun, died.

The one-year redemption period lapsed on July 6, 1973, but the heirs of the spouses
Tan failed to redeem the property. China Bank then consolidated its ownership over the
disputed property and a new title was issued in its name. In the meantime, a
compromise agreement was forged between China Bank and the Tan heirs. The Bank
allowed the heirs to repurchase the property on or before August 31, 1974, otherwise, it
would dispose of the property to another party. Within the agreed period, or on August
30, 1974, only petitioner D. Annie Tan repurchased the entire property using her own
funds. The bank, however, insisted that the repurchase be made for or in behalf of the
other heirs as well. Left without any choice, D. Annie Tan filed an action in court,
asserting her exclusive ownership over the property on the ground that the co-
ownership between her and her brothers and sisters had already been extinguished.
We sustained her contention and ruled:

The first question which arises is the correctness of the assumption that
there was a co-ownership among the children of Tan Tiong Tick and Tan
Ong Hun when the petitioner purchased and property.

Since the lot and its improvements were mortgaged by the deceased
parents, there can be no question that a co-ownership existed amount the
heirs during the period given by law to redeem the foreclosed property.
Redemption by one during this period would have inured to the benefit of
all . . . .
 The records show, however, that when petitioner purchased the disputed
property on August 30, 1974, any co-ownership among the brothers and
sisters no longer existed. The period to redeem had expired more than
one year earlier, on July 6, 1973. The respondent China Bank
consolidated its ownership and a new title was issued in the bank's name.
When the heirs allowed the one year period to expire without redeeming
their parent's former property and permitted the consolidation of ownership
and the issuance of a new title, the co-ownership was extinguished. The
challenged ruling of the respondent court is, therefore, based on
erroneous premises.

Under Section 63-B of Presidential Decree No. 1529, the Property

Registration Decree, in case of non-redemption, the purchaser at the
foreclosure sale, meaning the respondent Bank in case of non-
redemption, the purchaser at the foreclosure sale, meaning the
respondent Bank in this case, is entitled to a new certificate of title in his
name after filing the necessary papers with the Register of Deeds.
(Spouses Teofisto and Eulalia Verceles v. Court of First Instance of Rizal,
et al., G.R. No. 62219, February 28, 1989). It becomes a ministerial duty
to place the buyer in possession of the property he now owns. (Banco
Filipino v. Intermediate Appellate court, G.R. No. 68878, 142 SCRA 44
[1986]. Ownership, therefore, passed to China Bank and there was no
more co-ownership among the heirs.

In is thus obvious that the Tan ruling is propped on a different factual setting and hence,
is inapplicable to the case at bench. In Tan, ". . . the heirs (i.e., the co-owners) allowed
the one year redemption period to expire without redeeming their parents' former
property and permitted the consolidation of ownership and the issuance of a new title . .
."7 in favor of China Bank. By their knowing acts of omission, the heirs in the Tan case
allowed the extinction of their co-ownership. As aforestated, private respondent did not
know of the mortgage of their co-owned property in favor of the SSS and the expiry date
of its period of redemption. In other words, private respondent did not voluntary
relinquish at any period of time her pro-indiviso share in the subject property.

IN VIEW WHEREOF, the Decision of the respondent Court of Appeals dated August 30,
1991 and its Resolution dated January 29, 1993, are affirmed. Costs against petitioner.

SO ORDERED.

Narvasa, C.J. and Regalado, J., concur.

Mendoza, J., took no part.

Footnotes

1 Respondent court also denied petitioner's Motion for

Reconsideration in a Resolution dated January 29, 1993.

2 More specifically, the First Division of this Court.

3 Ninth Division composed of Associate Justice Serafin V.C.

Guingona (ponente), Associate Justice Luis A. Javellana and Jorge
Imperial, concurring.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

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

FRANCISCO DEPRA, plaintiff-appellee,

vs.
AGUSTIN DUMLAO, defendant-appellant.

Roberto D. Dineros for plaintiff-appellee.

Veil D. Hechanova for defendant-appellant.

MELENCIO-HERRERA, J.:

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

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

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

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

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

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

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

On July 15,1974, DEPRA filed a Complaint for Quieting of Title against DUMLAO before
the then Court of First Instance of Iloilo, Branch IV (Trial Court), involving the very same
34 square meters, which was the bone of contention in the Municipal Court. DUMLAO,
in his Answer, admitted the encroachment but alleged, in the main, that the present suit
is barred by res judicata by virtue of the Decision of the Municipal Court, which had
become final and executory.

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

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

Without pronouncement as to costs.

SO ORDERED.

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

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

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

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

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

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

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

shall have the right

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

the indemnity provided for in articles 546 and 548, or

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

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

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

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

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

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

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

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

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

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

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

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

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

En nuestra opinion, el Codigo ha resuelto el conflicto de la manera mas

justa y equitativa y respetando en lo possible el principio que para la
accesion se establece en el art. 358. 7

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

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

Additional benefits were extended to the builder but the landowner retained his options.

The fairness of the rules in Article 448 has also been explained as follows:
 Where the builder, planter or sower has acted in good faith, a conflict of
rights arises between the owners, and it becomes necessary to protect the
owner of the improvements without causing injustice to the owner of the
land. In view of the impracticability of creating a state of forced co-
ownership, the law has provided a just solution by giving the owner of the
land the option to acquire the improvements after payment of the proper
indemnity, or to oblige the builder or planter to pay for the land and the
sower to pay for the proper rent. It is the owner of the land who is
authorized to exercise the option, because his right is older, and because,
by the principle of accession, he is entitled to the ownership of the
accessory thing. (3 Manresa 213; Bernardo vs. Bataclan, 37 Off. Gaz.
1382; Co Tao vs. Chan Chico, G.R. No. 49167, April 30, 1949; Article
applied: see Cabral, et al vs. Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs.
Velasco, [C.A.] 52 Off. Gaz. 2050). 8

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

1. The trial Court shall determine

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

b) the amount of the expenses spent by DUMLAO for the building of the
kitchen;

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

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

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

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

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

c) In any event, DUMLAO shall pay DEPRA an amount computed at Ten

Pesos (P10.00) per month as reasonable compensation for the occupancy
of DEPRA's land for the period counted from 1952, the year DUMLAO
occupied the subject area, up to the commencement date of the forced
lease referred to in the preceding paragraph;

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

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

No costs,

SO ORDERED.

Teehankee, Actg. C.J., Plana, Relova, De la Fuente and Alampay, JJ., concur.

Gutierrez, Jr., * J., took no part.

Footnotes

1 "Rule 70

Forcible Entry and Detainer

"Sec. 7. Judgment conclusive only on possession; not conclusive in

actions involving title or ownership. The judgment rendered in an action for
forcible entry or detainer shall be effective with respect to the possession
only and in no wise bind the title or affect the ownership of the land or
building. Such judgment shall not bar an action between the same parties
respecting title to the land or building, nor shall it be held conclusive of the
facts therein found in a case between the same parties upon a different
cause of action not involving possession."

2 "Sec. 44. Original jurisdiction. ...

(b) In all civil actions which involve the title to, or possession of real
property, or any interest therein, or the legality of any tax, impose or
assessment, except actions of forcible entry into and detainer on lands or
buildings, original jurisdiction of which is conferred by this Act upon city
and municipal courts; "

3 "Sec. 19. Jurisdiction in civil ease ...

(2) In all civil actions which involve the title to, or possession of, real
property, or any interest therein, except actions for forcible entry into and
unlawful detainer of lands or buildings, original jurisdiction over which is
conferred upon Metropolitan Trial Courts, Municipal Trial Courts, and
Municipal Circuit Trial Courts;

4 Supra.

5 Ignacio vs. Hilario, 76 Phil. 605 (1946).

6 Ibid.

7 3 Manresa, 7th Ed., pp. 300-301.

8 II Tolentino, Civil Code of the Philippines, 1963 ed., p. 97.

* Mr. Justice Hugo E. Gutierrez, Jr. took no part, having been one of the
two members of a Court of Appeals' Division of Five Justices who
dissented from the majority opinion certifying this case to this Court.
 RODOLFO V. ROSALES, (represented by his heirs, Rodolfo, Jr., Romeo

Allan, Lillian Rhodora, Roy Victor, Roger Lyle and Alexander Nicolai, all

surnamed Rosales) and LILY ROSQUETA-ROSALES,Petitioners,

- versus -

MIGUEL CASTELLTORT, JUDITH CASTELLTORT, and LINA LOPEZ-

VILLEGAS, assisted by her Attorney-in-Fact, Rene Villegas,Respondents.

FACTS:

Spouses-petitioners Rodolfo V. Rosales and Lily Rosqueta-Rosales

(petitioners) are the registered owners of a parcel of land with an area of

approximately 315 square meters, covered by Transfer Certificate of Title

(TCT) No. 36856 and designated as Lot 17, Block 1 of Subdivision Plan LRC

Psd-55244 situated in Los Baos, Laguna.

On August 16, 1995, petitioners discovered that a house was being

constructed on their lot, without their knowledge and consent, by respondent

Miguel Castelltort (Castelltort). It turned out that respondents Castelltort and his wife
Judith had purchased a lot, Lot 16 of the same Subdivision Plan, from respondent Lina

Lopez-Villegas (Lina) through her son-attorney-in-fact Rene Villegas

(Villegas) but that after a survey thereof by geodetic engineer Augusto Rivera,

he pointed to Lot 17 as the Lot 16 the Castelltorts purchased.

Admittedly, the appellants house erroneously encroached on the

property of the appellees due to a mistake in the placement of stone

monuments as indicated in the survey plan, which error is directly

attributable to the fault of the geodetic engineer who conducted the same. This

fact alone negates bad faith on the part of appellant Miguel.

ISSUE:

Whether Castelltort is a builder in good faith.

RULING:

The issue determinative of the controversy in the case at bar hinges on whether
Castelltort is a builder in good faith.

A builder in good faith is one who builds with the belief that the land he is building on is
his, or that by some title one has the right to build thereon, and is ignorant of any defect
or flaw in his title.27

Article 527 of the Civil Code provides that good faith is always presumed, and upon him
who alleges bad faith on the part of a possessor rests the burden of proof. 28

In the case at bar, Lot 16 was sold by Lina, through her attorney-in-fact Villegas, to
Castelltort and a certain Elizabeth Cruz29 for a consideration of ₱500,000.00. While prior
to the sale, what Villegas showed Castelltort as evidence of his mother Lina’s ownership
of the property was only a photocopy of her title TCT No. (T-42171) T-1855030 he
explaining that the owner’s duplicate of the title was lost and that judicial reconstitution
thereof was ongoing, Castelltort acted in the manner of a prudent man and went to the
Registry of Deeds of Laguna to procure a certified true copy of the TCT. 31 The certified
true copy bore no annotation indicating any prior adverse claim on Lot 16.

The records indicate that at the time Castelltort began constructing his house on
petitioners’ lot, he believed that it was the Lot 16 he bought and delivered to him by
Villegas.

As correctly found by the CA, both parties having acted in good faith at least until
August 21, 1995, the applicable provision in this case is Article 448 of the Civil Code
which reads:

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.

Under the foregoing provision, the landowner can choose between appropriating the
building by paying the proper indemnity or obliging the builder to pay the price of the
land, unless its value is considerably more than that of the structures, in which case the
builder in good faith shall pay reasonable rent.34 If the parties cannot come to terms
over the conditions of the lease, the court must fix the terms thereof.

The choice belongs to the owner of the land, a rule that accords with the principle of
accession, i.e., that the accessory follows the principal and not the other way around.
Even as the option lies with the landowner, the grant to him, nevertheless, is
preclusive.35 The landowner cannot refuse to exercise either option and compel instead
the owner of the building to remove it from the land.36

The raison d’etre for this provision has been enunciated thus:

Where the builder, planter or sower has acted in good faith, a conflict of rights arises
between the owners, and it becomes necessary to protect the owner of the
improvements without causing injustice to the owner of the land. In view of the
impracticability of creating a state of forced co-ownership, the law has provided a just
solution by giving the owner of the land the option to acquire the improvements after
payment of the proper indemnity, or to oblige the builder or planter to pay for the land
and the sower the proper rent. He cannot refuse to exercise either option. It is the owner
of the land who is authorized to exercise the option, because his right is older, and
because, by the principle of accession, he is entitled to the ownership of the accessory
thing.37

Possession acquired in good faith does not lose this character except in the case and
from the moment facts exist which show that the possessor is not unaware that he
possesses the thing improperly or wrongfully.38 The good faith ceases or is legally
interrupted 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. 39

In the case at bar, Castelltort’s good faith ceased on August 21, 1995 when petitioners
personally apprised him of their title over the questioned lot. As held by the CA, should
petitioners then opt to appropriate the house, they should only be made to pay for that
part of

the improvement built by Castelltort on the questioned property at the time good faith
still existed on his part or until August 21, 1995.

The CA, however, failed to qualify that said part of the improvement should be pegged
at its current fair market value consistent with this Court’s pronouncement in Pecson v.
Court of Appeals.40

And, as correctly found by the CA, the commencement of Castelltort’s payment of

reasonable rent should start on August 21, 1995 as well, to be paid until such time that
the possession of the property is delivered to petitioners, subject to the reimbursement
of expenses, that is, if such option is for petitioners to appropriate the house.

This Court quotes the CA’s ratiocination with approval:

x x x Generally, Article 448 of the Civil Code provides that the payment of reasonable
rent should be made only up to the date appellees serve notice of their option as
provided by law upon the appellants and the court a quo; that is, if such option is for
appellees to appropriate the encroaching structure. In such event, appellants would
have a right to retain the land on which they have built in good faith until they are
reimbursed the expenses incurred by them. 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.

However, considering that appellants had ceased as builders in good faith at the time
that appellant Miguel was notified of appellees’ lawful title over the disputed property,
the payment of reasonable rent should accordingly commence at that time since he can
no longer avail of the rights provided under the law for builders in good faith.41

If the option chosen by petitioners is compulsory sale, however, the payment of rent
should continue up to the actual transfer of ownership.42

Respecting petitioners’ argument that the appellate court erred in rendering a decision
that is "unenforceable against Judith who is not the owner of the house and Elizabeth
Cruz who was found to be a part owner of the house built on their lot but is not a party
to the case," the same does not lie.
While one who is not a party to a proceeding shall not be affected or bound 43 by a
judgment rendered therein,44 like Elizabeth Cruz, this does not detract from the validity
and enforceability of the judgment on petitioners and respondents Castelltorts.

WHEREFORE, the petition is DENIED. The Decision dated October 2, 2002 and
Resolution dated February 6, 2003 of the Court of Appeals
are AFFIRMED with MODIFICATION such that the trial court shall include for
determination the increase in value ("plus value") which petitioners’ 315 square meter
lot may have acquired by reason of the existence of that portion of the house built
before respondents Miguel and Judith Castelltort were notified of petitioners’ rightful
claim on said lot, and the current fair market value of said portion.

SO ORDERED.

CONCHITA CARPIO MORALES

Associate Justice

WE CONCUR: