EN

BANC
[G.R. No. L-2659. October 12, 1950.]
In the matter of the testate estate of Emil Maurice Bachrach, deceased. MARY MCDONALD BACHRACH, petitioner-
appellee, vs. SOPHIE SEIFERT and ELISA ELIANOFF, oppositors-appellants.
Ross, Selph, Carrascoso & Janda, for appellants. Delgado & Flores, for appellee.
SYLLABUS
1. USUFRUCT; STOCK DIVIDED CONSIDERED CIVIL FRUIT AND BELONGS TO USUFRUCTUARY. Under the Massachusetts
rule, a stock dividend is considered part of the capital and belongs to the remainderman; while under the Pennsylvania rule,
all earnings of a corporation, when declared as dividends in whatever form, made during the lifetime of the usufructuary,
belong to the latter.
2. ID.; ID. The Pennsylvania rule is more in accord with our statutory laws than the Massachusetts rule. Under section 16
of our Corporation Law, no corporation may make or declare from its business. Any dividend, therefore, whether cash or
stock, represent surplus profits. Article 471 of the Civil Code provides that the usufructuary shall be entitled to receiveall the
natural, industrial, and civil fruits of the property in the usufruct. The stock dividend in question in this case is a civil fruit of
the original investment. The shares of stock issued in payment of said dividend may be sold independently of the original
shares just as the offspring of a domestic animal may be sold independently of its mother.
DECISION
OZAETA, J p:
Is a stock dividend fruit or income, which belongs to the usufructuary, or is it capital or part of the corpus of the estate, w
hich pertains to the remainderman? That is the question raised in this appeal.
The deceased E. M. Bachrach, who left no forced heir except his widow Mary McDonald Bachrach, in his last will and
testament made varius legacies in cash and willed the remainder of his estate as follows:
"Sixth: It is my will and do herewith bequeath and devise to my beloved wife Mary McDonald Bachrach for life all the fruits
and usufruct of the remainder of all my estate after payment of the legacies, bequests, and gifts provided for above; and she
may enjoy said usufruct and use or spend such fruits as she may in any manner wish."
The will further provided that upon the death of Mary McDonald Bachrach, one-half of all his estate "shall be divided share
and share alike by and between my legal heirs, to the exclusion of my brothers."
The estate of E. M. Bachrach, as owner of 108,000 shares of stock of the Atok-Big Wedge Mining Co., I nc., received from the
latter 54,000 shares representing 50 per cent stock dividend on the said 108,000 shares. On June 10, 1948, Mary McDonald
Bachrach, as usufructuary or life tenant of the estate, petitioned the lower court to authorize the Peoples Bank and Trust
Company, as administrator of the estate of E. M. Bachrach, to transfer to her the said 54,000 shares of stock dividend by
indorsing and delivering to her the corresponding certificate of stock, claiming that said dividend, although paid out in the
form of stock, is fruit or income and therefore belonged to her as usufructuary or life tenant. Sophie Siefert and Elisa Elianoff,
legal heirs of the deceased, opposed said petition on the ground that the stock dividend in question was not income but
formed part of the capital and therefore belonged not to the usufructuary but to the remainderman. And they have appealed
from the order granting the petition and overruling their objection.
While appellants admit that a cash dividend is an income, they contend that a stock dividend is not, but merely represents an
addition to the invested capital. The so-called Massachusetts rule, which prevails in certain jurisdictions in the United States,
supports appellants' contention. It regards cash dividends, however large, as income, and stock dividends, however made, as
capital. (Minot vs. Paine, 99 Mass., 101; 96 Am. Dec., 705.) It holds that a stock dividend is not in any true sense any dividend
at all since it involves no division or severance from the corporate assets of the subject of the dividend; that it does not
distribute property but simply dilutes the shares as they existed before; and that it takes nothing from the property of the
corporation, and adds nothing to the interests of the shareholders.
On the other hand, the so-called Pennsylvania rule, which prevails in various other jurisdictions in the United States,
supports appellee's contention. This rule declares that all earnings of the corporation made prior to the death of the testator
stockholder belong to the corpus of the estate, and that all earnings, when declared as dividends in whatever form, made
during the lifetime of the usufructuary or life tenant are income and belong to the usufructuary or life tenant. (Earp's Appeal,

28 Pa., 368.)
". . . It is clear that testator intended the remaindermen should have only the corpus of the estate he left in trust, and that all
dividends should go to the life tenants. It is true that profits realized are not dividends until declared by the proper officials
of the corporation, but distribution of profits, however made, is dividends, and the form of the distribution is immaterial." (In
re Thompson's Estate, 262 Pa., 278; 105 Atl. 273, 274.)
In Hite vs. Hite (93 Ky., 257; 20 S. W., 778, 780), the Court of Appeals of Kentucky, speaking thru its Chief Justice, said:
". . . Where a dividend, although declared in stock, is based upon the earnings of the company, it is in reality, whether called
by one name or another, the income of the capital invested in it. It is but a mode of distributing the profit. If it be not income,
what is it? If it is, then it is rightfully and equitably the property of the life tenant. If it be really profit, then he should have it,
whether paid in stock or money. A stock dividend proper is the issue of new shares paid for by the transfer of a sum equal to
their par value from the profit and loss account to that representing capital stock; and really a corporation has no right to
declare a dividend, either in cash or stock, except from its earnings; and a singular state of case it seems to us, an
unreasonable one is presented if the company, although it rests with it whether it will declare a dividend, can bind the
courts as to the proper ownership of it, and by the mode of payment substitute its will for that of the testator, and favor the
life tenants or the remainder-men, as it may desire. It cannot, in reason, be considered that the testator contemplated such a
result. The law regards substance, and not form, and such a rule might result not only in a violation of the testator's
intention, but it would give the power to the corporation to beggar the life tenants, who, in this case, are the wife and
children of the testator, for the benefit of the ramainder-men, who may perhaps be unknown to the testator, being unborn
when the will was executed. We are unwilling to adopt a rule which to us seems so arbitrary, and devoid of reason and
justice. If the dividend be in fact a profit, although declared in stock, it should be held to be income. It has been so held in
Pennsylvania and many other states, and we think it the correct rule. Earp's Appeal, 28 Pa. St. 368; Cook, Stocks & S. sec. 554.
. . ."
We think the Pennsylvania rule is more in accord with our statutory laws than the Massachusetts rule. Under section 16 of
our Corporation Law, no corporation may make or declare any dividend except from the surplus profits arising from its
business. Any dividend, therefore, whether cash or stock, represents surplus profits. Article 471 of the Civil Code provides
that the usufructuary shall be entitled to receive all the natural, industrial, and civil fruits of the property in usufruct. And
articles 474 and 475 provide as follows:
"ART. 474. Civil fruits are deemed to accrue day by day, and belong to the usufructuary in proportion to the time the usufruct
may last.
"ART. 475. When a usufruct is created on the right to receive an income or periodical revenue, either in money or fruits, or
the interest on bonds or securities payable to bearer, each matured payment shall be considered as the proceeds or fruits of
such right.
"When it consists of the enjoyment of the benefits arising from an interest in an industrial or commercial enterprise, the
profits of which are not distributed at fixed periods, such profits shall have the same consideration.
"In either case they shall be distributed as civil fruits, and shall be applied in accordance with the rules prescribed by the
next preceding article."
The 108,000 shares of stock are part of the property in usufruct. The 54,000 shares of stock dividend are civil fruits of the
original investment. They represent profits, and the delivery of the certificate of stock covering said dividend is equivalent to
the payment of said profits. Said shares may be sold independently of the original shares, just as the offspring of a domestic
animal may be sold independently of its mother.
The order appealed from, being in accordance with the above-quoted provisions of the Civil Code, is hereby affirmed, with
costs against the appellants.
Moran, C.J., Paras, Feria, Pablo, Bengzon, Tuason, Montemayor and Reyes, JJ., concur.

EN BANC
[G.R. No. 35223. September 17, 1931.]

THE BACHRACH MOTOR CO., INC., plaintiff-appellee, vs. TALISAY- SILAY MILLING CO. ET AL., defendants-appellees. THE
PHILIPPINE NATIONAL BANK, intervenor-appellant.
Ramon J. Lacson for intervenor-appellant.
Mariano Ezpeleta for plaintiff-appellee.
Nolan & Hernaezfor defendants-appellees Talisay-Silay Milling Co. and Cesar Ledesma.
SYLLABUS
1. REAL PROPERTY; CIVIL FRUITS. The bonus which the Talisay-Silay Milling Co., Inc., had to pay the planters who had
mortgaged their lands to the Philippine National Bank in order to secure the payment of the company's debt to the bank, is
not a civil fruit of the mortgaged property.
2. ID.; ID. Article 355 of the Civil Code considers three things as civil truths; (1) rents from building, (2) proceeds from
leases of lands, and (3) the income from perpetual or life annuities or similar sources of revenue. The phrase "u otras
analogas" used (in the original Spanish, art. 355, last paragraph, Civil Code) in the following context: "Y el importe de las
rentas perpetuas, vitalicias u otras analogas," refers to "rentas," for the adjectives "otras" and "analogas" agree with the noun
"rentas," as do also the other adjectives "perpetuas" and "vitalicias."
DECISION
ROMUALDEZ, J p:
This proceeding originated in a complaint filed by the Bachrach Motor Co., Inc. against the Talisay-Silay Milling Co., Inc., for
the delivery of the amount of P13,850 or promissory notes or other instruments of credit for that sum payable on June 30,
1930, as bonus in favor of Mariano Lacson Ledesma; the complaint further prays that the sugar central be ordered to render
an accounting of the amounts it owes Mariano Lacson Ledesma by way of bonus, dividends, or otherwise, and to pay the
plaintiff a sum sufficient to satisfy the judgment mentioned in the complaint, and that the sale made by said Mariano Lacson
Ledesma be declared null and void.
The Philippine National Bank filed a third party claim alleging a preferential right to receive any amount which Mariano
Lacson Ledesma might be entitled to from the Talisay-Silay Milling Co. as bonus, because that would be civil fruits of the land
mortgaged to said bank by said debtor for the benefit of the central referred to, and by virtue of a deed on assignment, and
praying that said central be ordered to deliver directly to the intervening bank said sum on account of the latter's credit
against the aforesaid Mariano Lacson Ledesma.
The corporation Talisay-Silay Milling Co., Inc., answered the complaint stating that of Mariano Lacson Ledesma's credit,
P7,500 belonged to Cesar Ledesma because he had purchased it, and praying that it be absolved from the complaint and that
the proper party be named so that the remainder might be delivered.
Cesar Ledesma, in turn, claiming to be the owner by purchase in good faith and for a consideration of the P7,500 which is a
part of the credit referred to above, answered praying that he be absolved from the complaint.
The plaintiff Bachrach Motor Co., Inc., answered the third party claim alleging that its credit against Mariano Lacson Ledesma
w as prior and preferential to that of the intervening bank, and praying that the latter's complaints be dismissed.
At the trial all the parties agreed to recognize and respect the sale made in Favor of Cesar Ledesma of the P7,500 part of the
credit in question, for which reason the trial court dismissed the complaint and cross-complaint against Cesar Ledesma
authorizing the defendant central to deliver to him the aforementioned sum of P7,500. And upon conclusion of the hearing,
the court held that the Bachrach Motor Co., Inc., had a preferred right to receive the amount of P11,076.02 which was
Mariano Lacson Ledesma's bonus, and it ordered the defendant central to deliver said sum to the plaintiff.
The Philippine National Bank appeals, assigning the following alleged errors as committed by the trial court:

"1. In holding that the bonus which the Talisay-Silay Milling Co., Inc., bound itself to pay the planters who had mortgaged
their land to the Philippine National Bank to secure the payment of the debt of said central to said bank is not civil fruits of
said land.
"2. In not holding that said bonus became subject to the mortgage executed by the defendant Mariano Lacson Ledesma to the
Philippine National Bank to secure the payment of his personal debt to said bank when it fell due.
"3. In holding that the assignment (Exhibit 9, P. N. B.) of said bonus made on March 7, 1930, by Mariano Lacson Ledesma to
the Philippine National Bank to be applied to the payment of his debt to said Philippine National Bank is fraudulent.
"4. In holding that the Bachrach Motor Co., Inc., in civil case No. 31597 of the Court of First Instance of Manila levied a valid
attachment upon the bonus in question.
"5. In admitting and considering the supplementary complaint filed by the Bachrach Motor Co., Inc., alleging as a cause of
action the attachment of the bonus in question which said Bachrach Motor Co., Inc., in civil case No. 31821 of the Court of
First Instance of Manila levied after the filing of the original complaint in this case, and after Mariano Lacson Ledesma in this
case had been declared in default.
"6. In holding that the Bachrach Motor Co., Inc., has a preferential right to receive from the Talisay-Silay Milling Co., Inc., the
amount of P11,076.02 which is in the possession of said corporation as the bonus to be paid to Mariano Lacson Ledesma, and
in ordering the Talisay-Silay Milling Co., Inc., to deliver said amount to the Bachrach Motor Co., Inc.
"7. In not holding that the Philippine National Bank has a preferential right to receive from the Talisay-Silay Milling Co., Inc.,
the amount of P11,076.02 held by said corporation as Mariano Lacson Ledesma's bonus, and in not ordering said Talisay-
Silay Milling Co., Inc., to deliver said amount to the Philippine National Bank.
"8. In not holding that the amended complaint and the supplementary complaint of the Bachrach Motor Co., Inc., do not state
facts sufficient to constitute a cause of action in favor of the Bachrach Motor Co., Inc., and against the Talisay-Silay Milling Co.,
Inc., or against the Philippine National Bank."
The appellant bank bases its preferential right upon the contention that the bonus in question is civil fruits of the land which
the owners had mortgaged for the benefit of the central giving the bonus, and that, a civil fruits of said land, said bonus was
assigned by Mariano Lacson Ledesma on March 7, 1930, by virtue of the document Exhibit 9 of said intervening institution,
which admitted in its brief that "if the bonus in question is not civil fruits or rent which became subject to the mortgage in
favor of the Philippine National Bank when Mariano Lacson Ledesma's personal obligation fell due, the assignment of March
7, 1930 (Exhibit 9, P. N. B.), is null and void, not because it is fraudulent, for there was no intent of fraud in executing the
deed, that the cause or consideration of the assignment was erroneous, for it was based upon the proposition that the bonus
was civil fruits of the land mortgaged to the Philippine National Bank." (P. 31.)
The fundamental question, then, submitted to our consideration is whether or not the bonus in question is civil fruits.
This is how that bonus came to be granted: On December 22, 1923, the Talisay-Silay Milling Co., Inc., was indebted to the
Philippine National Bank. To secure the payment of its debt, it succeeded in inducing its planters, among whom was Mariano
Lacson Ledesma, to mortgage their land to the creditor bank. And in order to compensate those planters for the risk they
were running with their property under that mortgage, the aforesaid central, by a resolution passed on that same date, i.e.,
December 22, 1923, and amended on March 23, 1928, undertook to credit the owners of the plantation thus mortgaged
every year with a sum equal to two per centum of the debt secured according to the yearly balance, the payment of the bonus
being made at once, or in part from time to time, as soon as the central became free of its obligations to the aforesaid bank,
and of those contracted by virtue of the contract of supervision, and had funds
which might be so used, or as soon as it obtained from said bank authority to make such payment. (Exhibits 5, 6; P. N. B.)
Article 355 of the Civil Code considers three things as civil fruits: First, the rents of buildings; second, the proceeds from
leases of lands; and, third, the income from perpetual or life annuities, or other similar sources of revenue. It may be noted
that according to the context of the law, the phrase "u otras analogas" refers only to rents or income, for the adjectives
"otras" and "analogas" agree with the noun "rentas," as do also the other adjectives "perpetuas" and "vitalicias." That is why
we say that by "civil fruits" the Civil Code understands one of three and only three things, to wit: the rent of a building, the
rent of land, and certain kinds of income. As the bonus in question is not the rent of a building or of land, the only meaning of
"civil fruits" left to be examined is that of "income."

Assuming that in the broad juridical sense of the word "income" it might be said that the bonus in question is "income" under
article 355 of the Civil Code, it is obvious to inquire whether it is derived from the land mortgaged by Mariano Lacson
Ledesma to the appellant bank for the benefit of the central; for if it is not obtained from that land but from something else, it
is not civil fruits of that land, and the bank's contention is untenable.
It is to be noted that the said bonus bears no immediate, but only a remote and accidental relation to the land mentioned,
having been granted as compensation for the risk of having subjected one's land to a lien in favor of the bank, for the benefit
of the entity granting said bonus. If this bonus be income or civil fruits of anything, it is income arising from said risk, or, if
one chooses, from Mariano Lacson Ledesma's generosity in facing the danger for the protection of the central, but certainly it
is not civil fruits or income from the mortgaged property, which, as far as this case is concerned, has nothing to do with it.
Hence, the amount of the bonus, according to the resolution of the central granting it, is not based upon the value,
importance or any other circumstance of the mortgaged property, but upon the total value of the debt thereby secured,
according to the annual balance, which is something quite distinct from and independent of the property referred to.
Finding no merit in this appeal, the judgment appealed from is affirmed, without express finding as to costs. So ordered.
Johnson, Street, Malcolm, Villamor, Ostrand, Villa-RealandImperial, JJ., concur.
EN BANC
[G.R. No. 133879. November 21, 2001.] EQUATORIAL REALTY DEVELOPMENT, INC. , petitioner, vs.
MAYFAIR THEATER, INC., respondent. Estelito P. Mendoza for petitioner.
De Borja Medialdea Bello Guevarra & Gerodias Law Offices for private respondent.
SYNOPSIS
Mayfair Theater, Inc. was a lessee of portions of a building owned by Carmelo & Bauermann, Inc. Their lease contracts
contained a provision granting Mayfair a right of first refusal to purchase the subject properties. However, before the
contracts ended, the subject properties w ere sold by Carmelo to Equatorial Realty Development, Inc. which prompted
Mayfair to file a case for the annulment of the Deed of Absolute Sale between Carmelo and Equatorial, specific performance
and damages. In 1996, the Court ruled in favor of Mayfair. Barely five months after Mayfair had submitted its Motion for
Execution, Equatorial filed an action for collection of sum of money against Mayfair claiming payment of rentals or
reasonable compensation for the defendant's use of the subject premises after its lease contracts had expired. The lower
court debunked the claim of Equatorial for unpaid back rentals, holding that the rescission of the Deed of Absolute Sale in the
mother case did not confer on Equatorial any vested or residual propriety rights, even in expectancy. It further ruled that the
Court categorically stated that the Deed of Absolute Sale had been rescinded subjecting the present complaint to res judicata.
Hence, Equatorial filed the present petition.
Theoretically, a rescissible contract is valid until rescinded. However, this general principle is not decisive to the issue of
whether Equatorial ever acquired the right to collect rentals. What is decisive is the civil law rule that ownership is acquired,
not by mere agreement, but by tradition or delivery. Under the factual environment of this controversy as found by this
Court in the mother case, Equatorial was never put in actual and effective control or possession of the property because of
Mayfair's timely objection. In the mother case, this Court categorically denied the payment of interest, a fruit of ownership.
By the same token, rentals, another fruit of ownership, cannot be granted without mocking this Court's en banc Decision,
which had long become final.
SYLLABUS
1. CIVIL LAW; PROPERTY; CIVIL FRUIT OF OWNERSHIP; RENTALS. Rent is a civil fruit that belongs to the owner of the
property producing it by right of
accession. Consequently and ordinarily, the rentals that fell due from the time of the perfection of the sale to petitioner until
its rescission by final judgment should belong to the owner of the property during that period.
2. ID.; SALES; OWNERSHIP OF THE THING SOLD IS TRANSFERRED, NOT BY CONTRACT ALONE, BUT BY TRADITION OR
DELIVERY. By a contract of sale, "one of the contracting parties obligates himself to transfer ownership of and to deliver a
determinate thing and the other to pay therefor a price certain in money or its equivalent." Ownership of the thing sold is a
real right, which the buyer acquires only upon delivery of the thing to him "in any of the ways specified in Articles 1497 to

1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee." This
right is transferred, not by contract alone, but by tradition or delivery. Non nudis pactis sed traditione dominia rerum
transferantur.
3. ID.; ID.; ID.; THERE IS DELIVERY WHEN THE THING SOLD IS PLACED UNDER THE CONTROL AND POSSESSION OF THE
VENDEE. [T]here is said to be delivery if and when the thing sold "is placed in the control and possession of the vendee."
Thus, it has been held that while the execution of a public instrument of sale is recognized by law as equivalent to the
delivery of the thing sold, such constructive or symbolic delivery, being merely presumptive, is deemed negated by the
failure of the vendee to take actual possession of the land sold. Delivery has been described as a composite act, a thing in
which both parties must join and the minds of both parties concur. It is an act by which one party parts with the title to and
the possession of the property, and the other acquires the right to and the possession of the same. In its natural sense,
delivery means something in addition to the delivery of property or title; it means transfer of possession. In the Law on Sales,
delivery may be either actual or constructive, but both forms of delivery contemplate "the absolute giving up of the control
and custody of the property on the part of the vendor, and the assumption of the same by the vendee." aHDTAI
4. ID.; ID.; ID.; NOT PRESENT IN CASE AT BAR. [T]heoretically, a rescissible contract is valid until rescinded. However, this
general principle is not decisive to the issue of whether Equatorial ever acquired the right to collect rentals. What is decisive
is the civil law rule that ownership is acquired, not by mere agreement, but by tradition or delivery. Under the factual
environment of this controversy as found by this Court in the mother case, Equatorial was never put in actual and effective
control or possession of the property because of Mayfair's timely objection.
5. ID.; ID.; ID.; EXECUTION OF CONTRACT OF SALE AS FORM OF CONSTRUCTIVE DELIVERY HOLDS TRUE ONLY WHEN
THERE IS NO IMPEDIMENT THAT MAY PREVENT THE PASSING OF THE PROPERTY FROM THE VENDOR TO THE VENDEE.
From the peculiar facts of this case, it is clear that petitioner never took actual control and possession of the property sold,
in view of respondent's timely objection to the sale and the continued actual possession of the property. The objection took
the form of a court action impugning the sale which, as we know, was rescinded by a judgment rendered by this Court in the
mother case. It has been held that the execution of a contract of sale as a form of constructive delivery is a
legal fiction. It holds true only when there is no impediment that may prevent the passing of the property from the hands of
the vendor into those of the vendee. When there is such impediment, "fiction yields to reality the delivery has not been
effected." Hence, respondent's opposition to the transfer of the property by way of sale to Equatorial was a legally sufficient
impediment that effectively prevented the passing of the property into the latter's hands.
6. ID.; ID.; EXECUTION OF PUBLIC INSTRUMENT GIVES RISE ONLY TO A PRIMA FACIE PRESUMPTION OF DELIVERY. The
execution of a public instrument gives rise, . . . only to a prima facie presumption of delivery. Such presumption is destroyed
when the instrument itself expresses or implies that delivery was not intended; or when by other means it is shown that
such delivery was not effected, because a third person was actually in possession of the thing. In the latter case, the sale
cannot be considered consummated.
7. ID.; OBLIGATIONS AND CONTRACTS; RESCISSIBLE CONTRACTS; NOT ONLY THE LAND AND BUILDING SOLD SHALL BE
RETURNED TO THE SELLER BUT ALSO THE RENTAL PAYMENTS PAID, IF ANY. [T]he point may be raised that under
Article 1164 of the Civil Code, Equatorial as buyer acquired a right to the fruits of the thing sold from the time the obligation
to deliver the property to petitioner arose. That time arose upon the perfection of the Contract of Sale on July 30, 1978, from
which moment the laws provide that the parties to a sale may reciprocally demand performance. Does this mean that despite
the judgment rescinding the sale, the right to the fruits belonged to, and remained enforceable by, Equatorial? Article 1385 of
the Civil Code answers this question in the negative, because " [r]escission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price with its interest; . . . ." Not only the land and building
sold, but also the rental payments paid, if any, had to be returned by the buyer.
8. ID.; SALES; CONTRACT OF SALE; RENTAL PAYMENTS MADE SHOULD NOT BE CONSTRUED AS A RECOGNITION OF THE
BUYER AS NEW ORDER BUT MERELY TO AVOID IMMINENT EVICTION; CASE AT BAR. The fact that Mayfair paid rentals
to Equatorial during the litigation should not be interpreted to mean either actual delivery or ipso facto recognition of
Equatorial's title. The CA Records of the mother case show that Equatorial as alleged buyer of the disputed properties and
as alleged successor-in-interest of Carmelo's rights as lessor submitted tw o ejectment suits against Mayfair. Filed in the
Metropolitan Trial Court of Manila, the first was docketed as Civil Case No. 121570 on July 9, 1987; and the second, as Civil
Case No. 131944 on May 28, 1990. Mayfair eventually won them both. However, to be able to maintain physical possession of
the premises while awaiting the outcome of the mother case, it had no choice but to pay the rentals. The rental payments
made by Mayfair should not be construed as a recognition of Equatorial as the new owner. They were made merely to avoid
imminent eviction.

9. STATUTORY CONSTRUCTION; GENERAL PROPOSITIONS DO NOT DECIDE SPECIFIC CASES. As pointed out by Justice
Holmes, general propositions do not decide specific cases. Rather, "laws are interpreted in the context of the peculiar
factual situation of each case. Each case has its own flesh and blood and cannot be decided on the basis of isolated clinical
classroom principles."
10. CIVIL LAW; SALES; VALID FROM INCEPTION BUT JUDICIALLY RESCINDED BEFORE IT COULD BE CONSUMMATED; CASE
AT BAR. [T]he sale to Equatorial may have been valid from inception, but it was judicially rescinded before it could be
consummated. Petitioner never acquired ownership, not because the sale was void, as erroneously claimed by the trial court,
but because the sale w as not consummated by a legally effective delivery of the property sold.
11. ID.; ID.; BUYER IN BAD FAITH; NOT ENTITLED TO ANY BENEFIT; ENTITLED SOLELY TO THE RETURN OF THE
PURCHASE PRICE; MUST BEAR ANY LOSS. [A]ssuming for the sake of argument that there was valid delivery, petitioner is
not entitled to any benefits from the "rescinded" Deed of Absolute Sale because of its bad faith. This being the law of the
mother case decided in 1996, it may no longer be changed because it has long become final and executory. . . . Thus,
petitioner was and still is entitled solely to the return of the purchase price it paid to Carmelo; no more, no less. This Court
has firmly ruled in the mother case that neither of them is entitled to any consideration of equity, as both "took
unconscientious advantage of Mayfair." In the mother case, this Court categorically denied the payment of interest, a fruit of
ownership. By the same token, rentals, another fruit of ownership, cannot be granted without mocking this Court's en banc
Decision, which has long become final. Petitioner's claim of reasonable compensation for respondent's use and occupation of
the subject property from the time the lease expired cannot be countenanced. If it suffered any loss, petitioner must bear it in
silence, since it had wrought that loss upon itself. Otherwise, bad faith would be rewarded instead of punished. ICaDHT
12. REMEDIAL LAW; CIVIL PROCEDURE; EFFECT OF FINALITY OF JUDGMENT; RES JUDICATA; ELUCIDATED. Under the
doctrine of res judicata or bar by prior judgment, a matter that has been adjudicated by a court of competent jurisdiction
must be deemed to have been finally and conclusively settled if it arises in any subsequent litigation between the same
parties and for the same cause. Thus, "[a] final judgment on the merits rendered by a court of competent jurisdiction is
conclusive as to the rights of the parties and their privies and constitutes an absolute bar to subsequent actions involving the
same claim, demand, or cause of action." Res judicata is based on the ground that "the party to be affected, or some other
with whom he is in privity, has litigated the same matter in a former action in a court of competent jurisdiction, and should
not be permitted to litigate it again." It frees the parties from undergoing all over again the rigors of unnecessary suits and
repetitive trials. At the same time, it prevents the clogging of court dockets. Equally important, it stabilizes rights and
promotes the rule of law.
13. ID.; ID.; ID.; ID.; APPLICABLE IN CASE AT BAR. Suffice it to say that, clearly, our ruling in the mother case bars
petitioner from claiming back rentals from respondent. Although the court a quo erred when it declared "void from
inception" the Deed of Absolute Sale between Carmelo and petitioner, our foregoing
discussion supports the grant of the Motion to Dismiss on the ground that our prior judgment in GR No. 106063 has already
resolved the issue of back rentals. On the basis of the evidence presented during the hearing of Mayfair's Motion to Dismiss,
the trial court found that the issue of ownership of the subject property has been decided by this Court in favor of Mayfair. . . .
Hence, the trial court decided the Motion to Dismiss on the basis of res judicata, even if it erred in interpreting the meaning
of "rescinded" as equivalent to "void." In short, it ruled on the ground raised; namely, bar by prior judgment. By granting the
Motion, it disposed correctly, even if its legal reason for nullifying the sale was wrong.
MELO, J., concurring opinion:
1. REMEDIAL LAW; CIVIL PROCEDURE; FINAL AND EXECUTORY DECISION SHOULD BE RESPECTED. Equatorial profited
from the use of the building for all the years when it had no right or, as stated in our decision, had an inferior right over the
property. Mayfair, which had the superior right, continued to pay rent but it was the rate fixed in the lease contract with
Carmelo. We see no reason for us to now deviate from the reasoning given in our main decision. The decision has been final
and executory for five (5) years and petitioner has failed to present any valid and reasonable ground to reconsider, modify or
reverse it. Let that which has been fairly adjudicated remain final.
2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; RESCISSIBLE CONTRACTS; REMAINS VALID AND BINDING UPON THE
PARTIES UNTIL THE SAME IS RESCINDED; NOT APPLICABLE TO A PERSON WHO IS NOT A PRIVY TO A CONTRACT.
Equatorial relies on the Civil Code provision on rescissible contracts to bolster its claim. Its argument is that a rescissible
contract remains valid and binding upon the parties thereto until the same is rescinded in an appropriate judicial
proceeding. Equatorial conveniently fails to state that the July 31, 1978 Deed of Absolute Sale was between Equatorial and
Carmelo only. Respondent Mayfair was not a party to the contract. The deed of sale was surreptitiously entered into between

Carmelo and Equatorial behind the back and in violation of the rights of Mayfair. Why should the innocent and wronged
party now be made to bear the consequences of an unlawful contract to which it was not privy? Insofar as Equatorial and
Carmelo are concerned, their 1978 contract may have validly transferred ownership from one to the other. But not as far as
Mayfair is concerned.
3. ID.; ID.; ID.; NON-EXISTENT OR VOID FROM ITS INCEPTION AS FAR AS THE INJURED THIRD PARTY IS CONCERNED.
Mayfair starts its arguments with a discussion of Article 1381 of the Civil Code that contracts entered into in fraud of
creditors are rescissible. There is merit in Mayfair's contention that the legal effects are not restricted to the contracting
parties only. On the contrary, the rescission is for the benefit of a third party, a stranger to the contract. Mayfair correctly
states that as far as the injured third party is concerned, the fraudulent contract, once rescinded, is non-existent or void from
its inception. Hence, from Mayfair's standpoint, the deed of absolute sale which should not have been executed in the first
place by reason of Mayfair's superior right to purchase the property and which deed was cancelled for that reason by this
Court, is legally non-existent. There must
be a restoration of things to the condition prior to the celebration of the contract[.]
4. ID.; ID.; ID.; INJURED THIRD PARTY SHOULD NOT BE GIVEN AN EMPTY OR VACUOUS VICTORY. [The] Court
emphasized in the main case that the contract of sale between Equatorial and Carmelo was characterized by bad faith. The
Court described the sale as "fraudulent" in its 1996 decision. It stated that the damages w hich Mayfair suff ered are in terms
of actual injury and lost opportunities, emphasizing that Mayfair should not be given an empty or vacuous victory. Moreover,
altogether too many suits have been filed in this case. Four separate petitions have come before us, necessitating full length
decisions in at least 3 of them. The 1996 decision stressed that the Court has alw ays been against multiplicity of suits.
TADIHE
5. ID.; ID.; ID.; BAD FAITH OF THE PRIVIES ON THE EXECUTION OF THE DEED OF SALE WAS PRESENT. There was bad
faith from the execution of the deed of sale because Equatorial and Carmelo affirmatively operated with furtive design or
with some motive of self-interest or ill-will or for ulterior purposes (Air France vs. Carrascoso, 18 SCRA 166 [1966]). There
was breach of a known duty by the two parties to the unlawful contract arising from motives of interests or ill-will calculated
to cause damages to another (Lopez vs. Pan American World Airways, 123 Phil. 264 [1966]).
6. ID.; ID.; ID.; ID.; PRIVIES COULD NOT AVAIL OF ANY CONSIDERATIONS BASED ON EQUITY. We ruled that because of
bad faith, neither may Carmelo and Equatorial avail themselves of considerations based on equity which might warrant the
grant of interests and, in this case, unconscionably increased rentals. . . . Considering the judgments in our 3 earlier decisions,
Mayfair is under no obligation to pay any interests, whether based on law or equity, to Carmelo or Equatorial. Mayfair is the
wronged entity, the one which has suffered injury since 1978 or for the 23 years it was deprived of the property. Equatorial
has received rentals and other benefits from the use of the property during these 23 years, rents and benefits which would
have accrued to Mayfair if its rights had not been violated. There is no obligation on the part of respondent Mayfair to pay
any increased, additional, back or future rentals or interests of any kind to petitioner Equatorial under the circumstances of
this case.
7. ID.; ID.; ID.; ID.; NATURAL PERSON AFFECTED IS EVEN ENTITLED TO MORAL DAMAGES. [I]f Mayfair were a natural
person, it could very well have asked for moral damages instead of facing a lengthy and expensive suit to pay rentals many
times higher than those stipulated in the contract of lease. Under the Civil Code, Mayfair is the victim in a breach of contract
where Carmelo and Equatorial acted fraudulently and in bad faith.
VITUG, J., dissenting opinion:
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CLASSIFICATION OF DEFECTIVE CONTRACTS. Civil Law, in its usual
sophistication, classifies defective contracts (unlike the seemingly generic treatment in Common Law), into, first, the
rescissible contracts, which are the least infirm; followed by, second, the voidable contracts;
then, third, the unenforceable contracts; and, finally, fourth, the worst of all or the void contracts.
2. ID.; ID.; RESCISSIBLE CONTRACTS; VALID, BINDING AND EFFECTIVE UNTIL RESCINDED. In terms of their
efficaciousness, rescissible contracts are regarded, among the four, as being the closest to perfectly executed contracts. A
rescissible contract contains all the requisites of a valid contract and are considered legally binding, but by reason of injury
or damage to either of the contracting parties or to third persons, such as creditors, it is susceptible to rescission at the
instance of the party who may be prejudiced thereby. A rescissible contract is valid, binding and effective until it is rescinded.
The proper way by which it can be assailed is by an action for rescission based on any of the causes expressly specified by
law.

3. ID.; ID.; ID.; VALIDLY TRANSFERRED OWNERSHIP OF THE PROPERTY TO THE BUYER FROM THE TIME THE DEED OF
SALE WAS EXECUTED. [W]hen the Court held the contract to be "deemed rescinded" in G.R. No. 106063, the Court did not
mean a "declaration of nullity" of the questioned contract. The agreement between petitioner and Carmelo, being effi cacious
until rescinded, validly transferred ownership over the property to petitioner from the time the deed of sale was executed in
a public instrument on 30 July 1978 up to the time that the decision in G.R. No. 106063 became final on 17 March 1997. It
was only from the latter date that the contract had ceased to be efficacious. The fact that the subject property was in the
hands of a lessee, or for that matter of any possessor with a juridical title derived from an owner, would not preclude a
conferment of ownership upon the purchaser nor be an impediment from the transfer of ownership from the seller to the
buyer.
4. ID.; ID.; ID.; ID.; GOOD FAITH AND BAD FAITH PLAY NO ROLE; BUYER IS ENTITLED TO ALL INCIDENTS OF OWNERSHIP
INCLUSIVE OF THE RIGHT TO THE FRUITS OF THE PROPERTY; APPLICABLE IN CASE AT BAR. Petitioner, being the owner
of the property (and none other) until the judicial rescission of the sale in its favor, was entitled to all incidents of ownership
inclusive of, among its other elements, the right to the fruits of the property. Rentals or rental value over that disputed
property from 30 July 1978 up to 17 March 1997 should then properly pertain to petitioner. In this respect, the much abused
terms of "good faith" or "bad faith" play no role; ownership, unlike other concepts, is never described as being either in good
faith or in bad faith.
5. ID.; ID.; RESCISSION OF CONTRACTS DIFFERENTIATED FROM THE RESOLUTION OF RECIPROCAL OBLIGATIONS. The
remedy of rescission in the case of rescissible contracts under Article 1381 is not to be confused with the remedy of
rescission, or more properly termed "resolution," of reciprocal obligations under Article 1191 of the Civil Code. While both
remedies presuppose the existence of a juridical relation that, once rescinded, would require mutual restitution, it is
basically, however, in this aspect alone when the two concepts coincide. Resolution under Article 1191 would totally release
each of the obligors from compliance with
their respective covenants. It might be worthwhile to note that in some cases, notably Ocampo vs. Court of Appeals, and
Velarde vs. Court of Appeals, where the Court referred to rescission as being likened to contracts which are deemed "void at
inception" the focal point is the breach of the obligation involved that would allow resolution pursuant to Article 1191 of the
Civil Code. The obvious reason is that when parties are reciprocally bound, the refusal or failure of one of them to comply
with his part of the bargain should allow the other party to resolve their juridical relationship rather than to leave the matter
in a state of continuing uncertainty. The result of the resolution, when decreed, renders the reciprocal obligations
inoperative "at inception." Upon the other hand, the rescission of a rescissible contract under Article 1381, taken in
conjunction with Article 1385, is a relief which the law grants for the protection of a contracting party or a third person from
injury and damage that the contract may cause, or to protect some incompatible and preferential right created by the
contract. Rescissible contracts are not void ab initio, and the principle, "quod nullum est nullum producit effectum," in void
and inexistent contracts is inapplicable. Until set aside in an appropriate action rescissible contracts are respected as being
legally valid, binding and in force. It would be wrong to say that rescissible contracts produce no legal effects whatsoever and
that no acquisition or loss of rights could meanwhile occur and be attributed to the terminated contract. The effects of the
rescission, prospective in nature, can come about only upon its proper declaration as such. cHCaIE
SANDOVAL-GUTIERREZ, J., dissenting opinion:
1. CIVIL LAW; SALES; OWNERSHIP IS TRANSFERRED TO THE VENDEE BY MEANS OF DELIVERY. Firmly incorporated in
our Law on Sales is the principle that ownership is transferred to the vendee by means of delivery, actual or constructive.
There is actual delivery when the thing sold is placed in the control and possession of the vendee. Upon the other hand, there
is constructive delivery when the delivery of the thing sold is represented by other signs or acts indicative thereof. Article
1498 of the Civil Code is in point. It provides that "When the sale is made through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not
appear or cannot clearly be inferred."
2. ID.; ID.; ID.; PRESENT IN CASE AT BAR. To say that this Court found no transfer of ownership between Equatorial and
Carmelo is very inaccurate. For one, this Court, in disposing of G.R. No. 106063 explicitly ordered Equatorial to "execute the
deeds and documents necessary to return ownership to Carmelo & Bauermann of the disputed lots." I suppose this Court
would not have made such an order if it did not recognize the transfer of ownership from Carmelo to Equatorial under the
contract of sale. For why would the Court order Equatorial to execute the deeds and documents necessary to return
ownership to Carmelo if, all along, it believed that ownership remained with Carmelo? Furthermore, this Court explicitly
stated in the Decision that Equatorial received rentals from Mayfair during the pendency of the case. . . . Obviously, this Court
acknowledged the delivery of the property from Carmelo to Equatorial. As aptly described by Justice Panganiban himself, the
sale betw een Carmelo and Equatorial had not only been "perfected" but also

"consummated."
3. ID.; PROPERTY; RECEIVING RENTALS IS AN EXERCISE OF ACTUAL POSSESSION. That actual possession of the property
was turned over by Carmelo to Equatorial is clear from the fact that the latter received rents from Mayfair. Significantly,
receiving rentals is an exercise of actual possession. Possession, as defined in the Civil Code, is the holding of a thing or the
enjoyment of a right. It may either be by material occupation or by merely subjecting the thing or right to the action of our
will. Possession may therefore be exercised through one's self or through another. It is not necessary that the person in
possession should himself be the occupant of the property, the occupancy can be held by another in the name of the one who
claims possession. In the case at bench, Equatorial exercised possession over the disputed property through Mayfair. When
Mayfair paid its monthly rentals to Equatorial, the said lessee recognized the superior right of Equatorial to the possession of
the property. And even if Mayfair did not recognize Equatorial's superior right over the disputed property, the fact remains
that Equatorial was then enjoying the fruits of its possession.
4. ID.; ID.; DEGREES OF POSSESSION. [I]t will be of aid to lay down the degrees of possession. The first degree is the mere
holding, or possession without title whatsoever, and in violation of the right of the owner. Here, both the possessor and the
public know that the possession is wrongful. An example of this is the possession of a thief or a usurper of land. The second is
possession with juridical title, but not that of ownership. This is possession peaceably acquired, such that of a tenant,
depositary, or pledge. The third is possession with a just title, or a title sufficient to transfer ownership, but not from the true
owner. An example is the possession of a vendee of a piece of land from one who pretends to be the owner but is in fact not
the owner thereof. And the fourth is possession with a just title from the true owner. This is possession that springs from
ownership. Undoubtedly, Mayfair's possession is by virtue of juridical title under the contract of lease, while that of
Equatorial is by virtue of its right of ownership under the contract of sale.
5. ID.; SALES; TIMELY OBJECTION AND CONTINUED ACTUAL POSSESSION OF THE PROPERTY OF THE INJURED THIRD
PARTY DID NOT PREVENT THE PASSING OF THE PROPERTY FROM THE SELLER TO THE BUYER; CASE AT BAR. The fact
that Mayfair has remained in "actual possession of the property," after the perfection of the contract of sale between Carmelo
and Equatorial up to the finality of this Court's Decision in G.R. No. 106063 (and even up to the present), could not prevent
the consummation of such contract. As I have previously intimated, Mayfair's possession is not under a claim of ownership. It
cannot in any way clash with the ownership accruing to Equatorial by virtue of the sale. The principle has always been that
the one who possesses as a mere holder acknowledges in another a superior right or right of ownership. A tenant possession
of the thing leased as a mere holder, so does the usufructuary of the thing in usufruct; and the borrower of the thing loaned
in commodatum. None of these holders asserts a claim of ownership in himself over the thing. Similarly, Mayfair does not
claim ownership, but only possession as a lessee with the prior right to purchase the property. In G.R. No. 106063, Mayfair's
main concern in its action for specific performance was the
recognition of its right of first refusal. Hence, the most that Mayfair could secure from the institution of its suit was to be
allowed to exercise its right to buy the property upon rescission of the contract of sale. Not until Mayfair actually exercised
what it was allowed to do by this Court in G.R. No. 106063, specifically to buy the disputed property for P11,300,000.00,
would it have any right of ownership. How then, at that early stage, could Mayfair's action be an impediment in the
consummation of the contract between Carmelo and Equatorial? Pertinently, it does not always follow that, because a
transaction is prohibited or illegal, title, as between the parties to the transaction, does not pass from the seller, donor, or
transferor to the vendee, donee or transferee.
6. ID.; ID.; ID.; BUYER HAS THE RIGHT TO BE PAID WHATEVER MONTHLY RENTALS DURING THE EXISTENCE OF THE
CONTRACT. [C]onformably to the foregoing disquisition, I maintain that Equatorial has the right to be paid whatever
monthly rentals during the period that the contract of sale was in existence minus the rents already paid. In Guzman vs.
Court of Appeals, this Court decreed that upon the purchase of the leased property and the proper notice by the vendee, the
lessee must pay the agreed monthly rentals to the new owner since, by virtue of the sale, the vendee steps into the shoes of
the original lessor to whom the lessee bound himself to pay. His belief that the subject property should have been sold to him
does not justify the unilateral withholding of rental payments due to the new owner of the property. It must be stressed that
under Article 1658 of the Civil Code, there are only two instances wherein the lessee may suspend payment of rent, namely:
in case the lessor fails to make the necessary repairs or to maintain the lessee in peaceful and adequate enjoyment of the
property leased. In this case, the fact remains that Mayfair occupied the leased property. It derived benefit from such
occupation, thus it should pay the corresponding rentals due. Nemo cum alterius detrimento locupletari potest. No one shall
enrich himself at the expense of another. TcHCIS
7. ID.; CONTRACTS; PRESENCE OF BAD FAITH DOES NOT PREVENT THE AWARD OF RENT. Neither should the presence
of bad faith prevent the award of rent to Equatorial. While Equatorial committed bad faith in entering into the contract with
Carmelo, it has been equitably punished when this Court rendered the contract rescissible. That such bad faith was the very
reason why the contract was declared rescissible is evident from the Decision itself. To utilize it again, this time, to deprive

Equatorial of its entitlement to the rent corresponding to the period during which the contract was supposed to validly exist,
would not only be unjust, it would also disturb the very nature of a rescissible contract.
8. ID.; ID.; RESCISSIBLE CONTRACT AND VOID CONTRACT; DIFFERENTIATED. Articles 1380 through 1389 of the Civil
Code deal with rescissible contracts. A rescissible contract is one that is validly entered into, but is subsequently terminated
or rescinded for causes provided for by law. . . . Necessarily, therefore, a rescissible contract remains valid and binding upon
the parties thereto until the same is rescinded in an appropriate judicial proceeding. On the other hand, a void
contract, which is treated in Articles 1490 through 1422 of the Civil Code, is inexistent and produces no legal effect
whatsoever. The contracting parties are not bound thereby and such contract is not subject to ratification.
9. ID.; ID.; RESCISSIBLE CONTRACT; VALIDLY TRANSFERRED OWNERSHIP OF THE SUBJECT PROPERTY TO THE BUYER.
This Court did not declare the Deed of Absolute Sale betw een Carmelo and Equatorial void but merely rescissible.
Consequently, the contract was, at inception, valid and naturally, it validly transferred ownership of the subject property to
Equatorial. It bears emphasis that Equatorial wasnot automatically divested of its ownership. Rather, as clearly directed in
the dispositive portion of our Decision, Carmelo should return the purchase price to Equatorial which, in turn, must execute
such deeds and documents necessary to enable Carmelo to reacquire its ownership of the property.
10. ID.; ID.; ID.; ID.; BUYER HAS THE RIGHT TO DEMAND PAYMENT OF RENTALS FROM THE LESSEE WITH RIGHT TO
REPURCHASE. I must reiterate that Equatorial purchased the subject property from Carmelo and became its owner on
July 31, 1978. While the contract of sale was "deemed rescinded" by this Court in G.R. No. 106063, nevertheless the sale had
remained valid and binding between the contracting parties until March 17, 1997 when the Decision in G.R. No. 106063
became final. Consequently, being the owner, Equatorial has the right to demand from Mayfair payment of rentals
corresponding to the period from July 31, 1978 up to March 17, 1997.
DECISION
PANGANIBAN, J p:
General propositions do not decide specific cases. Rather, laws are interpreted in the context of the peculiar factual situation
of each proceeding. Each case has its own flesh and blood and cannot be ruled upon on the basis of isolated clinical
classroom principles.
While we agree with the general proposition that a contract of sale is valid until rescinded, it is equally true that ownership
of the thing sold is not acquired by mere agreement, but by tradition or delivery. The peculiar facts of the present
controversy as found by this Court in an earlier relevant Decision show that delivery w as not actually eff ected; in fact, it w
as prevented by a legally eff ective impediment. Not having been the owner, petitioner cannot be entitled to the civil fruits of
ownership like rentals of the thing sold. Furthermore, petitioner's bad faith, as again demonstrated by the specific factual
milieu of said Decision, bars the grant of such benefits. Otherwise, bad faith would be rewarded instead of punished.
The Case Filed before this Court is a Petition for Review 1 under Rule 45 of the Rules of Court,
challenging the March 11, 1998 Order 2 of the Regional Trial Court of Manila (RTC), Branch 8, in Civil Case No. 97-85141.
The dispositive portion of the assailed Order reads as follows:
"WHEREFORE, the motion to dismiss filed by defendant Mayfair is hereby GRANTED, and the complaint filed by plaintiff
Equatorial is hereby DISMISSED." 3
Also questioned is the May 29, 1998 RTC Order 4 denying petitioner's Motion for Reconsideration.
The Facts
The main factual antecedents of the present Petition are matters of record, because it arose out of an earlier case decided by
this Court on November 21, 1996, entitled Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. 5 (henceforth
referred to as the "mother case"), docketed as GR No. 106063. IHEAcC
Carmelo & Bauermann, Inc. ("Carmelo") used to own a parcel of land, together with two 2-storey buildings constructed
thereon, located at Claro M. Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name by the Register of Deeds
of Manila.

On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. ("Mayfair") for a period of 20 years. The
lease covered a portion of the second floor and mezzanine of a two-storey building with about 1,610 square meters of floor
area, which respondent used as a movie house known as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second Contract of Lease with Carmelo for the lease of another
portion of the latter's property namely, a part of the second floor of the two-storey building, with a floor area of about
1,064 square meters; and two store spaces on the ground floor and the mezzanine, with a combined floor area of about 300
square meters. In that space, Mayfair put up another movie house known as Miramar Theater. The Contract of Lease was
likewise for a period of 20 years.
Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject properties. However, on
July 30, 1978 within the 20-year-lease term the subject properties were sold by Carmelo to Equatorial Realty
Development, Inc. ("Equatorial") for the total sum of P11,300,000, without their first being offered to Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the Regional Trial Court of
Manila (Branch 7) for (a) the annulment of the Deed of Absolute Sale between Carmelo and Equatorial, (b) specific
performance, and (c) damages. After trial on the merits, the lower court rendered a Decision in favor of Carmelo and
Equatorial. This case, entitled "Mayfair Theater, Inc. v. Carmelo and Bauermann, Inc., et al.," was docketed as Civil Case No.
118019.
On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals (CA) completely reversed and set aside the judgment of
the lower court.
The controversy reached this Court via GR No. 106063. In this mother case, it denied the Petition for Review in this wise:
"WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918,
is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc. and Carmelo &
Bauermann, Inc. is hereby deemed rescinded; Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty
Development the purchase price. The latter is directed to execute the deeds and documents necessary to return ownership
to Carmelo & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy the
aforesaid lots for P11,300,000.00." 6
The foregoing Decision of this Court became final and executory on March 17, 1997. On April 25, 1997, Mayfair filed a Motion
for Execution, which the trial court granted.
However, Carmelo could no longer be located. Thus, following the order of execution of the trial court, Mayfair deposited
with the clerk of court a quo its payment to Carmelo in the sum of P11,300,000 less P847,000 as withholding tax. The lower
court issued a Deed of Reconveyance in favor of Carmelo and a Deed of Sale in favor of Mayfair. On the basis of these
documents, the Registry of Deeds of Manila canceled Equatorial's titles and issued new Certificates of Title 7 in the name of
Mayfair. TAIaHE
Ruling on Equatorial's Petition for Certiorari and Prohibition contesting the foregoing manner of execution, the CA in its
Resolution of November 20, 1998, explained that Mayfair had no right to deduct the P847,000 as withholding tax. Since
Carmelo could no longer be located, the appellate court ordered Mayfair to deposit the said sum with the Office of the Clerk
of Court, Manila, to complete the full amount of P11,300,000 to be turned over to Equatorial.
Equatorial questioned the legality of the above CA ruling before this Court in GR No. 136221 entitled "Equatorial Realty
Development, Inc. v. Mayfair Theater, Inc." In a Decision promulgated on May 12, 2000, 8 this Court directed the trial court to
follow strictly the Decision in GR No. 106063, the mother case. It explained its ruling in these words:
"We agree that Carmelo and Bauermann is obliged to return the entire amount of eleven million three hundred thousand
pesos (P11,300,000.00) to Equatorial. On the other hand, Mayfair may not deduct from the purchase price the amount of
eight hundred forty-seven thousand pesos (P847,000.00) as withholding tax. The duty to withhold taxes due, if any, is
imposed on the seller, Carmelo and Bauermann, Inc." 9
Meanwhile, on September 18, 1997 barely five months after Mayfair had
submitted its Motion for Execution before the RTC of Manila, Branch 7 Equatorial filed with the Regional Trial Court of
Manila, Branch 8, an action for the collection of a sum of money against Mayfair, claiming payment of rentals or reasonable

compensation for the defendant's use of the subject premisesafter its lease contracts had expired. This action was the
progenitor of the present case.
In its Complaint, Equatorial alleged among other things that the Lease Contract covering the premises occupied by Maxim
Theater expired on May 31, 1987, while the Lease Contract covering the premises occupied by Miramar Theater lapsed on
March 31, 1989. 10 Representing itself as the owner of the subject premises by reason of the Contract of Sale on July 30,
1978, it claimed rentals arising from Mayfair's occupation thereof.
Ruling of the RTC Manila, Branch 8 As earlier stated, the trial court dismissed the Complaint via the herein assailed
Order and denied the Motion for Reconsideration filed by Equatorial. 11
The lower court debunked the claim of petitioner for unpaid back rentals, holding that the rescission of the Deed of Absolute
Sale in the mother case did not confer on Equatorial any vested or residual proprietary rights, even in expectancy.
In granting the Motion to Dismiss, the court a quo held that the critical issue was whether Equatorial was the owner of the
subject property and could thus enjoy the fruits or rentals therefrom. It declared the rescinded Deed of Absolute Sale as
"void at its inception as though it did not happen." EScHDA
The trial court ratiocinated as follows:
"The meaning of rescind in the aforequoted decision is to set aside. In the case of Ocampo v. Court of Appeals, G.R. No. 97442,
June 30, 1994, the Supreme Court held that, 'to rescind is to declare a contract void in its inception and to put an end as
though it never were. It is not merely to terminate it and release parties from further obligations to each other but to
abrogate it from the beginning and restore parties to relative positions which they would have occupied had no contract ever
been made.'
"Relative to the foregoing definition, the Deed of Absolute Sale between Equatorial and Carmelo dated July 31, 1978 is void at
its inception as though it did not happen.
"The argument of Equatorial that this complaint for back rentals as 'reasonable compensation for use of the subject property
after expiration of the lease contracts presumes that the Deed of Absolute Sale dated July 30, 1978 from whence the fountain
of Equatorial's alleged property rights flows is still valid and existing.
xxx xxx xxx
"The subject Deed of Absolute Sale having been rescinded by the Supreme Court, Equatorial is not the owner and does not
have any right to demand backrentals from the subject property. . . . ." 12
The trial court added: "The Supreme Court in the Equatorial case, G.R. No. 106063, has categorically stated that the Deed of
Absolute Sale dated July 31, 1978 has been rescinded subjecting the present complaint to res judicata." 13
Hence, the present recourse. 14
I ssues Petitioner submits, for the consideration of this Court, the following issues: 15
"A.
The basis of the dismissal of the Complaint by the Regional Trial Court not only disregards basic concepts and principles in
the law on contracts and in civil law, especially those on rescission and its corresponding legal effects, but also ignores the
dispositive portion of the Decision of the Supreme Court in G.R. No. 106063 entitled 'Equatorial Realty Development, Inc. &
Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc.' cSITDa
"B.
The Regional Trial Court erred in holding that the Deed of Absolute Sale in favor of petitioner by Carmelo & Bauermann, Inc.,
dated July 31, 1978, over the premises used and occupied by respondent, having been 'deemed rescinded' by the Supreme
Court in G.R. No. 106063, is 'void at its inception as though it did not happen.'

"C.
The Regional Trial Court likewise erred in holding that the aforesaid Deed of Absolute Sale, dated July 31, 1978, having been
'deemed rescinded' by the Supreme Court in G.R. No. 106063, petitioner 'is not the owner and does not have any right to
demand backrentals from the subject property,' and that the rescission of the Deed of Absolute Sale by the Supreme Court
does not confer to petitioner 'any vested right nor any residual proprietary rights even in expectancy.'
"D.
The issue upon which the Regional Trial Court dismissed the civil case, as stated in its Order of March 11, 1998, was not
raised by respondent in its Motion to Dismiss.
"E.
The sole ground upon which the Regional Trial Court dismissed Civil Case No. 97-85141 is not one of the grounds of a Motion
to Dismiss under Sec. 1 of Rule 16 of the 1997 Rules of Civil Procedure."
Basically, the issues can be summarized into two: (1) the substantive issue of whether Equatorial is entitled to back rentals;
and (2) the procedural issue of whether the court a quo's dismissal of Civil Case No. 97-85141 was based on one of the
grounds raised by respondent in its Motion to Dismiss and covered by Rule 16 of the Rules of Court.
This Court's Ruling
The Petition is not meritorious.
First Issue: Ownership of Subject Properties
We hold that under the peculiar facts and circumstances of the case at bar, as found by this Court en banc in its Decision
promulgated in 1996 in the mother case, no right of ownership was transferred from Carmelo to Equatorial in view of a
patent failure to deliver the property to the buyer.
Rental a Civil Fruit of Ownership
To better understand the peculiarity of the instant case, let us begin with some basic parameters. Rent is a civil fruit 16 that
belongs to the owner of the property producing it 17 by right of accession. 18 Consequently and ordinarily, the rentals that
fell due from the time of the perfection of the sale to petitioner until its rescission by final judgment should belong to the
owner of the property during that period.
By a contract of sale, "one of the contracting parties obligates himself to transfer ownership of and to deliver a determinate
thing and the other to pay therefor a price certain in money or its equivalent." 19
Ownership of the thing sold is a real right, 20 which the buyer acquires only upon delivery of the thing to him "in any of the
ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred
from the vendor to the vendee." 21 This right is transferred, not by contract alone, but by tradition or delivery. 22 Non nudis
pactis sed traditione dominia rerum transferantur. And there is said to be delivery if and when the thing sold "is placed in the
control and possession of the vendee." 23 Thus, it has been held that while the execution of a public instrument of sale is
recognized by law as equivalent to the delivery of the thing sold, 24 such constructive or symbolic delivery, being merely
presumptive, is deemed negated by the failure of the vendee to take actual possession of the land sold. 25
Delivery has been described as a composite act, a thing in which both parties must join and the minds of both parties concur.
It is an act by which one party parts with the title to and the possession of the property, and the other acquires the right to
and the possession of the same. In its natural sense, delivery means something in addition to the delivery of property or title;
it means transfer of possession. 26 In the Law on Sales, delivery may be either actual or constructive, but both forms of
delivery contemplate "the absolute giving up of the control and custody of the property on the part of the vendor, and the
assumption of the same by the vendee."
27

Possession Never Acquired by Petitioner

Let us now apply the foregoing discussion to the present issue. From the peculiar facts of this case, it is clear that petitioner
never took actual control and possession of the property sold, in view of respondent's timely objection to the sale and the
continued actual possession of the property. The objection took the form of a court action impugning the sale which, as we
know, was rescinded by a judgment rendered by this Court in the mother case. It has been held that the execution of a
contract of sale as a form of constructive delivery is a legal fiction. It holds true only when there is no impediment that may
prevent the passing of the property from the hands of the vendor into those of the vendee.28 When there is such
impediment, "fiction yields to reality the delivery has not been effected." 29
Hence, respondent's opposition to the transfer of the property by way of sale to Equatorial was a legally sufficient
impediment that effectively prevented the passing of the property into the latter's hands. IcAaSD
This was the same impediment contemplated in Vda. de Sarmiento v. Lesaca, 30 in which the Court held as follows:
"The question that now arises is: Is there any stipulation in the sale in question from which we can infer that the vendor did
not intend to deliver outright the possession of the lands to the vendee? We find none. On the contrary, it can be clearly seen
therein that the vendor intended to place the vendee in actual possession of the lands immediately as can be inferred from
the stipulation that the vendee 'takes actual possession thereof . . . with full rights to dispose, enjoy and make use thereof in
such manner and form as would be most advantageous to herself.' The possession referred to in the contract evidently refers
to actual possession and not merely symbolical inferable from the mere execution of the document.
"Has the vendor complied with this express commitment? She did not. As provided in Article 1462, the thing sold shall be
deemed delivered when the vendee is placed in the control and possession thereof, which situation does not here obtain
because from the execution of the sale up to the present the vendee was never able to take possession of the lands due to the
insistent refusal of Martin Deloso to surrender them claiming ownership thereof. And although it is postulated in the same
article that the execution of a public document is equivalent to delivery, this legal fiction only holds true when there is no
impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee. . . . ." 31
The execution of a public instrument gives rise, therefore, only to a prima facie presumption of delivery. Such presumption is
destroyed when the instrument itself expresses or implies that delivery was not intended; or when by other means it is
shown that such delivery was not effected, because a third person was actually in possession of the thing. I n the latter case,
the sale cannot be considered consummated. ESacHC
However, the point may be raised that under Article 1164 of the Civil Code, Equatorial as buyer acquired a right to the fruits
of the thing sold from the time the obligation to deliver the property to petitioner arose. 32 That time arose upon the
perfection of the Contract of Sale on July 30, 1978, from which moment the laws provide that the parties to a sale may
reciprocally demand performance. 33 Does this mean that despite the judgment rescinding the sale, the right to the fruits34
belonged to, and remained enforceable by, Equatorial?
Article 1385 of the Civil Code answers this question in the negative, because " [r]escission creates the obligation to return the
things which were the object of the contract, together with their fruits, and the price with its interest; . . . ." Not only the land
and building sold, but also the rental payments paid, if any, had to be returned by the buyer.
Another point. The Decision in the mother case stated that "Equatorial . . . has received rents" from Mayfair "during all the
years that this controversy has been litigated." The Separate Opinion of Justice Teodoro Padilla in the mother case also said
that Equatorial was "deriving rental income" from the disputed property. Even herein ponente's Separate Concurring
Opinion in the mother case recognized these rentals. The question now is: Do all these statements concede actual delivery?
EDHCSI
The answer is "No." The fact that Mayfair paid rentals to Equatorial during the litigation should not be interpreted to mean
either actual delivery or ipso facto recognition of Equatorial's title.
The CA Records of the mother case 35 show that Equatorial as alleged buyer of the disputed properties and as alleged
successor-in-interest of Carmelo's rights as lessor submitted two ejectment suits against Mayfair. Filed in the
Metropolitan Trial Court of Manila, the first was docketed as Civil Case No. 121570 on July 9, 1987; and thesecond, as Civil
Case No. 131944 on May 28, 1990. Mayfair eventually won them both. However, to be able to maintain physical possession of
the premises while awaiting the outcome of the mother case, it had no choice but to pay the rentals.

The rental payments made by Mayfair should not be construed as a recognition of Equatorial as the new owner. They were
made merely to avoid imminent eviction. It is in this context that one should understand the aforequoted factual statements
in the ponencia in the mother case, as well as the Separate Opinion of Mr. Justice Padilla and the Separate Concurring
Opinion of the herein ponente.
At bottom, it may be conceded that, theoretically, a rescissible contract is valid until rescinded. However, this general
principle is not decisive to the issue of whether Equatorial ever acquired the right to collect rentals. What is decisive is the
civil law
rule that ownership is acquired, not by mere agreement, but by tradition or delivery. Under the factual environment of this
controversy as found by this Court in the mother case, Equatorial was never put in actual and effective control or possession
of the property because of Mayfair's timely objection.
As pointed out by Justice Holmes, general propositions do not decide specific cases. Rather, "laws are interpreted in the
context of the peculiar factual situation of each case. Each case has its own flesh and blood and cannot be decided on the
basis of isolated clinical classroom principles." 36
In short, the sale to Equatorial may have been valid from inception, but it was judicially rescinded before it could be
consummated. Petitioner never acquired ownership, not because the sale was void, as erroneously claimed by the trial court,
but because the sale was not consummated by a legally effective delivery of the property sold.
Benefits Precluded by Petitioner's Bad Faith
Furthermore, assuming for the sake of argument that there was valid delivery, petitioner is not entitled to any benefits from
the "rescinded" Deed of Absolute Sale because of its bad faith. This being the law of the mother case decided in 1996, it may
no longer be changed because it has long become final and executory. Petitioner's bad faith is set forth in the following
pertinent portions of the mother case:
"First and foremost is that the petitioners acted in bad faith to render Paragraph 8 'inutile.'
xxx xxx xxx
"Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree
with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because
its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in
good faith, and, therefore, rescission lies.
xxx xxx xxx
"As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it was
knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court
of Appeals, Equatorial admitted that its lawyers had studied the contract of lease prior to the sale. Equatorial's knowledge of
the stipulations therein should have cautioned it to look further into the agreement to determine if it involved stipulations
that would prejudice its own interests.
xxx xxx xxx
"On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full knowledge
that Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial took unconscientious
advantage of Mayfair." 37 (emphasis supplied)
Thus, petitioner was and still is entitled solely to the return of the purchase price it paid to Carmelo; no more, no less. This
Court has firmly ruled in the mother case that neither of them is entitled to any consideration of equity, as both "took
unconscientious advantage of Mayfair." 38
In the mother case, this Court categorically denied the payment of interest, a fruit of ownership. By the same token, rentals,
another fruit of ownership, cannot be granted without mocking this Court's en banc Decision, which has long become final.
AEDHST

Petitioner's claim of reasonable compensation for respondent's use and occupation of the subject property from the time the
lease expired cannot be countenanced. If it suffered any loss, petitioner must bear it in silence, since it had wrought that loss
upon itself. Otherwise, bad faith would be rewarded instead of punished.
We uphold the trial court's disposition, not for the reason it gave, but for (a) the patent failure to deliver the property and (b)
petitioner's bad faith, as above discussed.
Second Issue: Ground in Motion to Dismiss
Procedurally, petitioner claims that the trial court deviated from the accepted and usual course of judicial proceedings when
it dismissed Civil Case No. 97-85141 on a ground not raised in respondent's Motion to Dismiss. Worse, it allegedly based its
dismissal on a ground not provided for in a motion to dismiss as enunciated in the Rules of Court.
We are not convinced. A review of respondent's Motion to Dismiss Civil Case No. 97- 85141 shows that there were two
grounds invoked, as follows:
"(A) Plaintiff is guilty of forum-shopping.
"(B) Plaintiff's cause of action, if any, is barred by prior judgment." 39
The court a quo ruled, inter alia, that the cause of action of petitioner (plaintiff in the case below) had been barred by a prior
judgment of this Court in GR No. 106063, the mother case.
Although it erred in its interpretation of the said Decision when it argued that the rescinded Deed of Absolute Sale was
"void," we hold, nonetheless, that petitioner's
cause of action is indeed barred by a prior judgment of this Court. As already discussed, our Decision in GR No. 106063
shows that petitioner is not entitled to back rentals, because it never became the owner of the disputed properties due to a
failure of delivery. And even assuming arguendo that there was a valid delivery, petitioner's bad faith negates its entitlement
to the civil fruits of ownership, like interest and rentals.
Under the doctrine of res judicata or bar by prior judgment, a matter that has been adjudicated by a court of competent
jurisdiction must be deemed to have been finally and conclusively settled if it arises in any subsequent litigation between the
same parties and for the same cause. 40 Thus, "[a] final judgment on the merits rendered by a court of competent
jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an absolute bar to subsequent
actions involving the same claim, demand, or cause of action." 41 Res judicata is based on the ground that "the party to be
affected, or some other with whom he is in privity, has litigated the same matter in a former action in a court of competent
jurisdiction, and should not be permitted to litigate it again." 42
It frees the parties from undergoing all over again the rigors of unnecessary suits and repetitive trials. At the same time, it
prevents the clogging of court dockets. Equally important, it stabilizes rights and promotes the rule of law.
We find no need to repeat the foregoing disquisitions on the first issue to show satisfaction of the elements of res judicata.
Suffice it to say that, clearly, our ruling in the mother case bars petitioner from claiming back rentals from respondent.
Although the court a quo erred when it declared "void from inception" the Deed of Absolute Sale between Carmelo and
petitioner, our foregoing discussion supports the grant of the Motion to Dismiss on the ground that our prior judgment in GR
No. 106063 has already resolved the issue of back rentals.
On the basis of the evidence presented during the hearing of Mayfair's Motion to Dismiss, the trial court found that the issue
of ownership of the subject property has been decided by this Court in favor of Mayfair. We quote the RTC:
"The Supreme Court in the Equatorial case, G.R. No. 106063 has categorically stated that the Deed of Absolute Sale dated July
31, 1978 has been rescinded subjecting the present complaint to res judicata. " 43 (Emphasis in the original)
Hence, the trial court decided the Motion to Dismiss on the basis of res judicata, even if it erred in interpreting the meaning
of "rescinded" as equivalent to "void." In short, it ruled on the ground raised; namely, bar by prior judgment. By granting the
Motion, it disposed correctly, even if its legal reason for nullifying the sale was wrong. The correct reasons are given in this
Decision.

WHEREFORE, the Petition is hereby DENIED. Costs against petitioner. ADCTac

SO ORDERED. Davide, Jr., C.J., Quisumbing, Pardo, Buena, Ynares-Santiago and Carpio, JJ., concur. Melo, J., please see
concurring opinion. Puno and Mendoza, JJ., concur and join the concurring opinion of J. Melo. Bellosillo, J., join the dissenting
opinion of J. Sandoval-Gutierrez. Vitug, J., please see dissenting opinion. Kapunan, J., I join the dissenting opinions of JJ. Vitug
and Sandoval-Gutierrez. De Leon, Jr., J., join the dissenting opinion of J. Vitug. Sandoval-Gutierrez, J., please see my dissenting
opinion.
Separate Opinions MELO, J., concurring opinion:
While I express my conformity to the ponencia of our distinguished colleague, Mr. Justice Artemio V. Panganiban, I would just
like to make the following observations:
1. The issue in this case was squarely resolved in our 1996 En Banc decision in the main case. What petitioner is asking us to
do now is to reverse or modify a judgment which is accurate in every respect, conformable to law and jurisprudence, and
faithful to principles of fairness and justice.
2. Petitioner's submissions are deceiving. It is trying to collect unjustified and unbelievably increased rentals by provoking a
purely academic discussion, as far as respondent is concerned, of a non-applicable provision of the Civil Code on contracts.
3. To grant the petition is to reward bad faith, for petitioner has deprived respondent of the latter's property rights for
twenty- three (23) years and has forced it to defend its interests in case after case during that lengthy period. Petitioner now
tries to inflict further injury in the fantastic and groundless amount of P115,947,867.00. To remand this case to the lower
court in order to determine the back rentals allegedly due to petitioner Equatorial Realty Development Corporation, Inc. is to
encourage continuation of crafty tactics and to allow the further dissipation of scarce judicial time and resources.
The instant petition arose from a complaint for back rentals, increased rentals and interests filed by petitioner Equatorial
Realty Development, Inc. (Equatorial) against respondent Mayfair Theater, Inc. (Mayfair). It has to be adjudicated in the
context of three earlier petitions decided by this Court.
A dispute between the two parties over the ownership of a commercial lot and building along Claro M. Recto Avenue in
Manila has led to 23 years of protracted litigation, including the filing of 4 petitions with the Court, namely, G.R. No. L-
106063, decided on November 21, 1996 (264 SCRA 483); G.R. No. 103311 decided on March 4, 1992; G.R. No. 136221,
decided on May 12, 2000; and the present petition, G.R. No. 133879.
The case at bar is a classic illustration of how a dubious interpretation of the dispositive portion of the 1996 decision for
petitioner could lead to 5 more years of bitter litigation after the initial 18 years of legal proceedings over the first case.
Lease contracts over the subject property were executed on June 1, 1967 and March 31, 1969 by original owner Carmelo and
Bauermann, Inc. (Carmelo) in favor of herein respondent Mayfair. The leases expired on May 31, 1987 and March 31, 1989,
respectively. The lease contracts embodied provisions giving Mayfair a right- of-first-refusal should Carmelo sell the
property.
In an act characterized as bad faith by this Court, the property, in violation of the right-of-first-refusal, was sold by Carmelo
to herein petitioner Equatorial, on July 31, 1978 for P11,300,000.00. On September 13, 1978, Mayfair filed the first case for
annulment of the contract of sale, specific performance of the right-of-first-refusal provision, and damages. The Regional
Trial Court (RTC) of Manila decided the case in favor of Equatorial on February 7, 1991. Counterclaims for compensation
arising from the use of the premises were awarded to Equatorial by the 1991 RTC decision.
On June 23, 1992, the Court of Appeals reversed the RTC decision, thus leading to the first petition, G.R. No. 106063, filed
against Mayfair by both Equatorial and Carmelo.
On November 21, 1996, this Court En Banc rendered its decision (264 SCRA 483 [1996]), disposing:
WHEREFORE, the petition for review of the decision of the Court of Appeals dated June 23, 1992, in CA-G.R. CV No. 32918, is
HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc. and Carmelo &
Bauermann, Inc. is hereby rescinded; petitioner Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty
Development the purchase price. The latter is directed to execute the deeds and documents necessary to return ownership
to Carmelo & Bauermann of the disputed lots. Carmelo and Bauermann is ordered to allow Mayfair Theater, Inc. to buy the
aforesaid lots for P11,300,000.00. IScaAE

In the Court of Appeals decision (CA-G.R. CV No. 32918, June 23, 1992) in the main case, raised to this Court, Mayfair was
ordered to directly pay P11,300,000.00 to Equatorial w hereupon Equatorial w ould execute the deeds and documents
necessary for the transfer of ownership to Mayfair and the registration of the
property in its name. The execution of documents and the transfer of the property were directly between Equatorial and
Mayfair. Our decision in 1996 (G.R. No. 106063) affirmed the appellate decision. However, while the 1978 deed of sale
questioned by Mayfair was rescinded, we ordered Carmelo to first return to Equatorial the purchase price of the property,
whereupon Equatorial would return ownership to Carmelo, after which Mayfair would buy the lot for P11,300,000.00 from
Carmelo.
When the case was remanded to the RTC for execution of the decision, it was ascertained that Carmelo and Bauermann, Inc.
was no longer in existence. The Sheriff could not enforce the portions of the judgment calling for acts to be performed by
Carmelo. Mayfair, therefore, deposited the amount of P11,300,000.00 with the RTC for payment to Equatorial, hoping that
the latter would faithfully comply with this Court's decision. In this regard, it may be mentioned that buyer Mayfair also paid
P847,000.00 in taxes which the vendors should have paid. The RTC ordered the execution of deeds of transfer, the
cancellation of Equatorial's titles to the property, and the issuance of new titles in favor of Mayfair. Accordingly, the property
was registered in the name of Mayfair and titles issued in its favor.
Equatorial, however, saw an opening for further litigation. It questioned the method employed by the RTC to execute the
Court's judgment, arguing that the directives involving Carmelo's participation were ignored by the trial court. The litigation
over the alleged incorrectness of the execution eventually led to the second petition earlier mentioned G.R. No. 136221.
It may be mentioned at this point that on July 9, 1987, while the right-of-first- refusal and cancellation case was pending,
Equatorial filed an action for ejectment against Mayfair. Because the issue of ownership was still pending in the case for
rescission of deed of sale including the enforcement of the right-of-first-refusal provision, the ejectment case was dismissed.
Appeals to the RTC and the Court of Appeals were denied.
On March 26, 1990, still another ejectment case was filed by Equatorial. In decisions which reached all the way to this Court
in G.R. No. 103311, the cases for ejectment did not prosper. Mayfair won the cases on March 4, 1992.
The three cases decided by the Court in these litigations between Equatorial and Mayfair, all of them in favor of Mayfair, are
antecedents of the present and fourth petition. Equatorial has been adjudged as having unlawfully and in bad faith acquired
property that should have belonged to Mayfair since 1978. Ownership and title have been unquestionably transferred to
Mayfair.
Seemingly, Equatorial now seeks to profit from its bad faith. While the case involving the allegedly incorrect execution of the
1996 decision on cancellation of the deed of sale in G.R. No. 106063 was being litigated, Equatorial filed on September 18,
1997 with the RTC of Manila two complaints for payment of back and increased rentals arising from the use by Mayfair of the
lot, building, and other fixed improvements. From the time the property was sold by Carmelo to Equatorial, lessee Mayfair
had been paying to Equatorial the rentals fixed in the 1967 and 1969
lease contracts with the original owner. This was during the pendency of the complaint for annulment of the contract of sale,
specific performance of the right-of- first-refusal provision, and damages.
As found in our 1998 decision in G.R. No. 106063, the disputed property should have actually belonged to Mayfair at the
time. However, to avoid the ejectment cases, which Equatorial nonetheless later filed, Mayfair was forced to pay rentals to
Equatorial. It paid the rentals based on the rates fixed by Carmelo in the lease contracts.
Equatorial, claiming the 1967 and 1969 rentals to be inadequate, claimed increased amounts as reasonable compensation.
Because the amounts fixed by the lease contract with Carmelo but paid to Equatorial were only at the rate of P17,966.21
monthly while Equatorial wanted P210,000.00 every month plus legal interests, the suit was for the payment of
P115,947,867.68 as of June 19, 1997.
Citing the 1996 decision in G.R. No. 106063, Mayfair contended that it owned the property under the decision. It stated that
the sale by Carmelo to Equatorial had been cancelled, and, as owner, Mayfair owed no increased rentals to Equatorial based
on said decision.
The present case on back rentals could not be conclusively decided because the execution and finality of the issue of
ownership were being contested for 5 years in the petition on the proper execution filed in G.R. No. 136221. This petition
had to wait for the resolution of G.R. No. 136221.

In its decision dated May 12, 2000, in G.R. No. 136221 (First Division, per Mr. Justice Pardo; Davide, Jr., C.J., Kapunan, and
Ynares-Santiago, JJ., concurring), this Court reiterated the judgment in G.R. No. 106063. It emphasized that the 1996 decision
awarding the property to Mayfair was clear. It stated that the decision having attained finality, there was nothing left for the
parties to do but to adhere to the mandates of the decision. AISHcD
In the dispositive portion, however, the Court ordered the trial court "to carry out the execution following strictly the terms"
of the 1996 decision. However, as earlier stated, this could not be done because Carmelo had ceased to exist. There was no
longer any Carmelo which could return the P11,300,000.00 consideration of the 1978 sale to Equatorial as ordered in the
dispositive portion of the 1996 decision. Equatorial could not and would not also execute the deeds returning the property to
Carmelo, as directed in the decision. Neither could the defunct Carmelo sell the property to Mayfair at the sale price in 1978
when the right of first refusal was violated.
Mayfair had to file a motion for partial reconsideration, emphasizing that it was impossible for a corporation which has gone
out of existence to obey the specific orders of this Court. A resolution was, therefore, rendered on June 25, 2001 putting an
end to the controversy over the proper implementation of the 1996 judgment.
This June 25, 2001 Resolution in G.R. No. 136221 validated the issuance of new titles in the name of the adjudicated owner,
Mayfair. The Court ordered the direct release to Equatorial of the P11,300,000.00 deposited in court for the account of the
defunct Carmelo.
In the follow-up Resolution of the First Division in G.R. No. 136221 dated June 25, 2001, the Court, after describing the case
as a Promethean one involving the execution of a decision which has been long final, and after calling the efforts to stave off
execution as a travesty of justice, instructed the trial court:
1. To execute the Court's Decision strictly in accordance with the ruling in G.R. No. 106063 by validating the acts of the sheriff
of Manila and the titles in the name of Mayfair Theater, Inc. issued by the Register of Deeds of Manila consistent therewith;
2. In case of failure of Carmelo and Bauermann to accept the amount of P11,300,000.00 deposited by Mayfair Theater, Inc.
with the Clerk of Court, Regional Trial Court, Manila, to authorize the Clerk of Court to RELEASE the amount of
P11,300,000.00 deposited with the court for the account of Carmelo and Bauermann, Inc. to petitioner;
3. To devolve upon the trial court the determination of other issues that may remain unresolved among the parties, relating
to the execution of this Court's final decision in G.R. No. 106063.
In light of the Court's judgments in G.R. No. 106063 and G.R. No. 136221, the present petition in G.R. No. 133879 for back
rentals should now be finally resolved, applying the rulings in those earlier decisions.
Indubitably, the 1978 deed of sale executed by Carmelo in favor of Equatorial over the disputed property has been set aside
by this Court. Equatorial was declared a buyer in bad faith. The contract was characterized as a fraudulent sale and the
entirety of the indivisible property sold to Equatorial was the property we ordered to be conveyed to Mayfair for the same
price paid by Equatorial to Carmelo.
It is also beyond question that the method of execution of the 1996 decision by the RTC, the direct payment by Mayfair to
Equatorial, bypassing and detouring the defunct Carmelo corporation, has been validated by this Court. There are no longer
any procedural obstacles to the full implementation of the decision.
And finally, the property sold to Equatorial in violation of Mayfair's right of first refusal is now indisputably possessed by,
and owned and titled in the name of, respondent Mayfair.
Parenthetically, the issue on the payment of back and increased rentals, plus interests, was actually settled in the 1996
decision in G.R. No. 106063. It could not be enforced at the time only because of the controversy unfortunately raised by
Equatorial over the proper execution of the 1996 decision. DTAESI
It is now time to reiterate the 1996 decision on interests and settle the dispute
between Mayfair and Equatorial once and for all. Thus, we reiterate that:
On the question of interest payments on the principal amount of P11,300.000.00, it must be borne in mind that both Carmelo
and Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a contract entered into with Mayfair. It sold the
property to Equatorial with purpose and intent to withhold any notice or knowledge of the sale coming to the attention of

Mayfair. All the circumstances point to a calculated and contrived plan of non-compliance with the agreement of first refusal.
On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full knowledge
the Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial took unconscientious
advantage of Mayfair.
Neither may Carmelo and Equatorial avail of consideration based on equity which might warrant the grant of interests. The
vendor received as payment from the vendee what, at the time, was a full and fair price for the property. It has used the
P11,300,000.00 all these years earning income or interest from the amount. Equatorial, on the other hand, has received rents
and otherwise profited from the use of the property turned over to it by Carmelo. In fact, during all the years that this
controversy was being litigated. Mayfair paid rentals regularly to the buyer who had an inferior right to purchase the
property. Mayfair is under no obligation to pay any interests arising from this judgment to either Carmelo or Equatorial (264
SCRA 483, pp. 511-512).
Worthy quoting too is the concurring opinion in our 1996 decision of Mr. Justice Teodoro R. Padilla as follows:
The equities of the case support the foregoing legal disposition. During the intervening years between 1 August 1978 and
this date, Equatorial (after acquiring the C.M. Recto property for the price of P11,300,000.00) had been leasing the property
and deriving rental income therefrom. In fact, one of the lessees in the property was Mayfair. Carmelo had, in turn, been
using the proceeds of the sale, investment-wise and/or operation wise in its own business. cSaADC
It may appear, at first blush, that Mayfair is unduly favored by the solution submitted by this opinion, because the price of
P11,300,000.00 which it has to pay Carmelo in the exercise of its right of first refusal, has been subjected to the inroads of
inflation so that its purchasing power today is less than when the same amount was paid by Equatorial to Carmelo. But then
it cannot be overlooked that it was Carmelo's breach of Mayfair's right of first refusal that prevented Mayfair from paying the
price of P11,300,000.00 to Carmelo at about the same time the amount was paid by Equatorial to Carmelo. Moreover, it
cannot be ignored that Mayfair had also incurred consequential or "opportunity" losses by reason of its failure to acquire and
use the property under its right of first refusal. In fine, any loss in
purchasing power of the price of P11,300,000.00 is for Carmelo to incur or absorb on account of its bad faith in breaching
Mayfair's contractual right of first refusal to the subject property. (ibid., pp. 511-512).
It can be seen from the above ruling that the issue of rentals and interests was fully discussed and passed upon in 1996.
Equatorial profited from the use of the building for all the years when it had no right or, as stated in our decision, had an
inferior right over the property. Mayfair, which had the superior right, continued to pay rent but it was the rate fixed in the
lease contract with Carmelo. We see no reason for us to now deviate from the reasoning given in our main decision. The
decision has been final and executory for five (5) years and petitioner has failed to present any valid and reasonable ground
to reconsider, modify or reverse it. Let that which has been fairly adjudicated remain final. CTEacH
My second observation relates to the clever but, to my mind, deceptive argument foisted by Equatorial on the Court.
Equatorial relies on the Civil Code provision on rescissible contracts to bolster its claim. Its argument is that a rescissible
contract remains valid and binding upon the parties thereto until the same is rescinded in an appropriate judicial
proceeding.
Equatorial conveniently fails to state that the July 31, 1978 Deed of Absolute Sale was between Equatorial and Carmelo only.
Respondent Mayfair was not a party to the contract. The deed of sale was surreptitiously entered into between Carmelo and
Equatorial behind the back and in violation of the rights of Mayfair. Why should the innocent and wronged party now be
made to bear the consequences of an unlawful contract to which it was not privy? Insofar as Equatorial and Carmelo are
concerned, their 1978 contract may have validly transferred ownership from one to the other. But not as far as Mayfair is
concerned.
Mayfair starts its arguments with a discussion of Article 1381 of the Civil Code that contracts entered into in fraud of
creditors are rescissible. There is merit in Mayfair's contention that the legal effects are not restricted to the contracting
parties only. On the contrary, the rescission is for the benefit of a third party, a stranger to the contract. Mayfair correctly
states that as far as the injured third party is concerned, the fraudulent contract, once rescinded, is non-existent or void from
its inception. Hence, from Mayfair's standpoint, the deed of absolute sale which should not have been executed in the first
place by reason of Mayfair's superior right to purchase the property and which deed was cancelled for that reason by this
Court, is legally non- existent. There must be a restoration of things to the condition prior to the celebration of the contract
(Respondent relies on Almeda vs. J.M. & Company, 43072-R, December 16, 1975, as cited in the Philippine Law Dictionary; IV

Arturo M. Tolentino, Civil Code of the Philippines, 570, 1990 Ed., citing Manresa; IV Edgardo L. Paras, Civil Code of the
Philippines, 717-718, 1994 Ed.).
It is hard not to agree with the explanations of Mayfair, to wit:
4.22. As a consequence of the rescission of the Deed of Absolute Sale, it was as if Equatorial never bought and became the
lessor of the subject properties. Thus, the court a quo did not err in ruling that Equatorial is not the owner and does not have
any right to demand back rentals from [the] subject property.
4.23. Tolentino, supra, at 577-578 further explains that the effects of rescission in an accion pauliana retroact to the date
when the credit or right being enforced was acquired.
"While it is necessary that the credit of the plaintiff in the accion pauliana must be prior to the fraudulent alienation, the date
of the judgment enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory, with
retroactive effect to the date when the credit was constituted. . . ." (emphasis supplied)
4.24. The clear rationale behind this is to prevent conniving parties, such as Equatorial and Carmelo, from benefiting in any
manner from their unlawful act of entering into a contract in fraud of innocent parties with superior rights like Mayfair.
Thus, to allow Equatorial to further collect rentals from Mayfair is to allow the former to profit from its own act of bad faith.
Ex dolo malo non oritur actio. (Respondent's Comment, pp. 338-339, Rollo).
This brings me to my third and final observation in this case. This Court emphasized in the main case that the contract of sale
between Equatorial and Carmelo was characterized by bad faith. The Court described the sale as "fraudulent" in its 1996
decision. It stated that the damages which Mayfair suffered are in terms of actual injury and lost opportunities, emphasizing
that Mayfair should not be given an empty or vacuous victory. Moreover, altogether too many suits have been filed in this
case. Four separate petitions have come before us, necessitating full length decisions in at least 3 of them. The 1996 decision
stressed that the Court has always been against multiplicity of suits.
There was bad faith from the execution of the deed of sale because Equatorial and Carmelo affirmatively operated with
furtive design or with some motive of self- interest or ill-will or for ulterior purposes (Air France vs. Carrascoso, 18 SCRA
166 [1966]). There was breach of a known duty by the two parties to the unlawful contract arising from motives of interests
or ill-will calculated to cause damage to another (Lopez vs. Pan American World Airways, 123 Phil. 264 [1966]).
The presence of bad faith is clear from the records. Our resolution of this issue in 1996 (G.R. 106063) is res judicata.
We stated:
First and foremost is that the petitioners (referring to Equatorial and Carmelo) acted in bad faith to render Paragraph 8
"inutile." TcDAHS
xxx xxx xxx
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree
with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because
its lawyers had, prior to the sale, studied the said contracts. As such Equatorial cannot tenably claim to be a purchaser in
good faith and, therefore, rescission lies.
xxx xxx xxx
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it was
knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court
of Appeals, Equatorial admitted that its lawyers had studied the contract of lease prior to the sale. Equatorial's knowledge of
the stipulations therein should have cautioned it to look further into the agreement to determine if it involved stipulations
that would prejudice its own interests.
xxx xxx xxx
On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full knowledge
that Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial took unconscientious
advantage of Mayfair (264 SCRA 506, 507-511).

We ruled that because of bad faith, neither may Carmelo and Equatorial avail themselves of considerations based on equity
which might warrant the grant of interests and, in this case, unconscionably increased rentals.
Verily, if Mayfair were a natural person it could very well have asked for moral damages instead of facing a lengthy and
expensive suit to pay rentals many times higher than those stipulated in the contract of lease. Under the Civil Code, Mayfair is
the victim in a breach of contract w here Carmelo and Equatorial acted fraudulently and in bad faith.
Considering the judgments in our 3 earlier decisions, Mayfair is under no obligation to pay any interests, whether based on
law or equity, to Carmelo or Equatorial. Mayfair is the wronged entity, the one which has suffered injury since 1978 or for
the 23 years it was deprived of the property. cETCID
Equatorial has received rentals and other benefits from the use of the property during these 23 years, rents and benefits
which would have accrued to Mayfair if its rights had not been violated.
There is no obligation on the part of respondent Mayfair to pay any increased, additional, back or future rentals or interests
of any kind to petitioner Equatorial under the circumstances of this case.
I, therefore, concur with the majority opinion in denying due course and dismissing
the petition.
VITUG, J., dissenting opinion:
Civil Law, in its usual sophistication, classifies defective contracts (unlike the seemingly generic treatment in Common Law),
into, first, the rescissible contracts, 1 which are the least infirm; followed by, second, the voidable contracts; 2 then, third, the
unenforceable contracts; 3 and, finally, fourth, the worst of all or the void contracts.4 In terms of their efficaciousness,
rescissible contracts are regarded, among the four, as being the closest to perfectly executed contracts. A rescissible contract
contains all the requisites of a valid contract and are considered legally binding, but by reason of injury or damage to either
of the contracting parties or to third persons, such as creditors, it is susceptible to rescission at the instance of the party who
may be prejudiced thereby. A rescissible contract is valid, binding and effective until it is rescinded. The proper way by
which it can be assailed is by an action for rescission based on any of the causes expressly specified by law. 5
The remedy of rescission in the case of rescissible contracts under Article 1381 is not to be confused with the remedy of
rescission, or more properly termed "resolution," of reciprocal obligations under Article 1191 of the Civil Code. While both
remedies presuppose the existence of a juridical relation that, once rescinded, would require mutual restitution, it is
basically, however, in this aspect alone when the two concepts coincide.
Resolution under Article 1191 would totally release each of the obligors from compliance with their respective covenants. It
might be worthwhile to note that in some cases, notably Ocampo vs. Court of Appeals, 6 a n d Velarde vs. Court of Appeals, 7
where the Court referred to rescission as being likened to contracts which are deemed "void at inception," the focal issue is
the breach of the obligation involved that would allow resolution pursuant to Article 1191 of the Civil Code. The obvious
reason is that when parties are reciprocally bound, the refusal or failure of one of them to comply with his part of the bargain
should allow the other party to resolve their juridical relationship rather than to leave the matter in a state of continuing
uncertainty. The result of the resolution, when decreed, renders the reciprocal obligations inoperative "at inception."
Upon the other hand, the rescission of a rescissible contract under Article 1381, taken in conjunction with Article 1385, is a
relief which the law grants for the protection of a contracting party or a third person from injury and damage that the
contract may cause, or to protect some incompatible and preferent right created by the contract. 8 Rescissible contracts are
not void ab initio,and the principle, "quod nullum est nullum producit eff ectum," in void and inexistent contracts is
inapplicable. Until set aside in an appropriate action rescissible contracts are respected as being legally valid, binding and in
force. It would be wrong to say that rescissible contracts produce no legal effects whatsoever and that no acquisition or loss
of rights could meanwhile occur and be attributed to the terminated contract. The effects of the rescission, prospective in
nature, can come about only upon its proper declaration as such.
Thus, when the Court 9 held the contract to be "deemed rescinded" in G.R. No. 106063, the Court did not mean a "declaration
of nullity" of the questioned contract. The agreement between petitioner and Carmelo, being efficacious until rescinded,
validly transferred ownership over the property to petitioner from the time the deed of sale was executed in a public
instrument on 30 July 1978 up to the time that the decision in G.R. No. 106063 became final on 17 March 1997. It was only
from the latter date that the contract had ceased to be efficacious. The fact that the subject property was in the hands of a

lessee, or for that matter of any possessor with a juridical title derived from an owner, would not preclude a conferment of
ow nership upon the purchaser nor be an impediment from the transfer of ownership from the seller to the buyer. Petitioner,
being the owner of the property (and none other) until the judicial rescission of the sale in its favor, was entitled to all
incidents of ownership inclusive of, among its other elements, the right to the fruits of the property. Rentals or rental value
over that disputed property from 30 July 1978 up to 17 March 1997 should then properly pertain to petitioner. In this
respect, the much abused terms of "good faith" or "bad faith" play no role; ownership, unlike other concepts, is never
described as being either in good faith or in bad faith.
With all due respect, I am thus unable to join in this instance my colleagues in the majority.
SANDOVAL-GUTIERREZ, J., dissenting opinion:
"Stare decisis et non quieta movere follow past precedents and do not disturb what has been settled. Adherence to this
principle is imperative if this Court is to maintain stability in jurisprudence.
I regret that I am unable to agree with the majority opinion.
The principal issue in this case is whether arescissible contract is void and ineffective from its inception. This issue is not a
novel one. Neither is it difficult to resolve as it involves the application of elementary principles in the law on contracts,
specifically on rescissible contracts, as distinguished from void or inexistent contracts.
The facts are simple.
On June 1, 1967, respondent Mayfair Theater, Inc. (Mayfair) leased portions of the ground, mezzanine and second floors of a
two storey commercial building located along C.M. Recto Avenue, Manila. The building together with the land on which it was
constructed was then owned by Carmelo & Bauermann, Inc. (Carmelo). Respondent used these premises as "Maxim Theater."
The lease was for a period of twenty (20) years. IEHSDA
On March 31, 1969, Mayfair leased from Carmelo another portion of the second floor, as well as two (2) store spaces on the
ground and mezzanine floors of the
same building. Respondent Mayfair used the premises as a movie theater known as "Miramar Theater."
Both leases contained the following identical provisions:
"That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase
the same.
In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and
obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize
this lease and be bound by all the terms and conditions thereof.
On July 31, 1978, Carmelo entered into a Deed of Absolute Sale whereby it sold the subject land and two-storey building to
petitioner Equatorial Realty Development, Inc. (Equatorial) for P11,300,000.00. Having acquired from Carmelo ownership of
the subject property, Equatorial received rents from Mayfair for sometime. cEaCTS
Subsequently, Mayfair, claiming it had been denied its right to purchase the leased property in accordance with the
provisions of its lease contracts with Carmelo, filed with the Regional Trial Court, Branch 7, Manila, a suit for specific
performance and annulment of sale with prayer to enforce its "exclusive option to purchase" the property. The dispute
between Mayfair, on the one hand, and Carmelo and Equatorial on the other, reached this Court in G.R. No. 106063,
"Equatorial Realty Development, Inc. & Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc." 1 On November 21, 1996, this
Court rendered a Decision, the dispositive portion of which reads:
"WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918,
is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc. and Carmelo &
Bauermann, Inc. is hereby deemed rescinded; Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty
Development the purchase price. The latter is directed to execute the deeds and documents necessary to return ownership
to Carmelo & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy the
aforesaid lots for P11,300,000.00.

SO ORDERED."
The Decision of this Court in G.R. No. 106063 became final and executory on March 17, 1997.
On April 25, 1997, Mayfair filed with the trial court a motion for execution which was granted.
However, Carmelo could no longer be located. Thus, Mayfair deposited with the trial court its payment to Carmelo in the sum
of P11,300,000.00 less P847,000.00 as
withholding tax.
The Clerk of Court of the Manila Regional Trial Court, as sheriff, executed a deed of re-conveyance in favor of Carmelo and a
deed of sale in favor of Mayfair. On the basis of these documents, the Registry of Deeds of Manila cancelled Equatorial's titles
and issued new Certificates of Title 2 in the name of Mayfair.
In G.R. No. 136221, 3 "Equatorial Realty Development, Inc. vs. Mayfair Theater, Inc.," this Court instructed the trial court to
execute strictly this Court's Decision in G.R. No. 106063.
On September 18, 1997, or after the execution of this Court's Decision in G.R. No. 106063, Equatorial filed with the Regional
Trial Court of Manila, Branch 8, an action for collection of a sum of money against Mayfair, docketed as Civil Case No. 97-
85141. Equatorial prayed that the trial court render judgment ordering Mayfair to pay:
(1) the sum of P11,548,941.76 plus legal interest, representing the total amount of unpaid monthly rentals/reasonable
compensation from June 1, 1987 (Maxim Theater) and March 31, 1989 (Miramar Theater) to July 31, 1997; cACTaI
(2) the sums of P849,567.12 and P458,853.44 a month, plus legal interest, as rental/reasonable compensation for the use
and occupation of the subject property from August 1, 1997 to May 31, 1998 (Maxim Theater) and March 31, 1998 (Miramar
Theater);
(3) the sum of P500,000.00 as and for attorney's fees, plus other expenses of litigation; and
(4) the costs of the suit. 4 On October 14, 1997, before filing its answer, Mayfair filed a "Motion to Dismiss"
Civil Case No. 97-85141 on the following grounds: "(A)
PLAINTIFF IS GUILTY OF FORUM SHOPPING. (B) PLAINTIFF'S CAUSE OF ACTION, IF ANY, IS BARRED BY PRIOR
JUDGMENT." 5
On March 11, 1998, the court a quo issued an order dismissing Civil Case No. 97- 85141 on the ground that since this Court,
in G.R. No. 106063, rescinded the Deed of Absolute Sale between Carmelo and Equatorial, the contract is void at its inception.
6 Correspondingly, Equatorial is not the owner of the subject property and, therefore, does not have any right to demand
from Mayfair payment of rentals or reasonable compensation for its use and occupation of the premises.
Equatorial filed a motion for reconsideration but was denied.
Hence, the present petition.
At this stage, I beg to disagree with the ruling of the majority that (1) Equatorial did not acquire ownership of the disputed
property from Carmelo because of lack of delivery; and that (2) Equatorial is not entitled to the payment of rentals because
of its bad faith. SHEIDC
Firmly incorporated in our Law on Sales is the principle that ow nership is transferred to the vendee by means of delivery,
actual or constructive. 7 There is actual delivery when the thing sold is placed in the control and possession of the vendee. 8
Upon the other hand, there is constructive delivery when the delivery of the thing sold is represented by other signs or acts
indicative thereof. Article 1498 of the Civil Code is in point. It provides that "When the sale is made through a public
instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from
the deed the contrary does not appear or cannot clearly be inferred." 9
Contrary to the majority opinion, the facts and circumstances of the instant case clearly indicate that there was indeed actual

and constructive delivery of the disputed property from Carmelo to Equatorial.

Let me substantiate my claim.
First, I must take exception to the majority's statement that this Court found in G.R. No. 106063 10 that, "no right of
ownership was transferred from Carmelo to Equatorial in view of a patent failure to deliver the property to the buyer." 11
A perusal of the Decision dated November 21, 1996 would reveal otherwise.
To say that this Court found no transfer of ownership between Equatorial and Carmelo is very inaccurate. For one, this Court,
in disposing of G.R. No. 106063, explicitly ordered Equatorial to "execute the deeds and documents necessary to return
ownership to Carmelo & Bauermann of the disputed lots." 12 I suppose this Court would not have made such an order if it
did not recognize the transfer of ownership from Carmelo to Equatorial under the contract of sale. For why would the Court
order Equatorial to execute the deeds and documents necessary to return ownership to Carmelo if, all along, it believed that
ownership remained with Carmelo?
Furthermore, is Court explicitly stated in the Decision that Equatorial received rentals from Mayfair during the pendency of
the case. Let me quote the pertinent portion of the Decision, thus:
". . . Equatorial, on the other hand, has received rents and otherwise profited from the use of the property turned over to it by
Carmelo. In fact, during all the years that this controversy was being litigated, Mayfair paid rentals regularly to the buyer
(Equatorial) who had an inferior right to purchase the property. Mayfair is under no obligation to pay any interests arising
from this judgment to either Carmelo or Equatorial." 13
Justice Teodoro R. Padilla, in his Separate Opinion, made the following similar observations:
"The equities of the case support the foregoing legal disposition. During the intervening years between 1 August 1978 and
this date, Equatorial (after acquiring the C.M. Recto property for the price of P11,300,000.00) had been leasing the property
and deriving rental income therefrom. In fact, one of the lessees in the property was Mayfair. Carmelo had, in turn, been
using the proceeds of the sale, investment-wise and/or operation-wise in its own business." 14
Obviously, this Court acknowledged the delivery of the property from Carmelo to Equatorial. As aptly described by Justice
Panganiban himself, the sale between Carmelo and Equatorial had not only been "perfected" but also "consummated." 15
That actual possession of the property was turned over by Carmelo to Equatorial is clear from the fact that the latter
received rents from Mayfair. Significantly, receiving rentals is an exercise of actual possession. Possession, as defined in the
Civil Code, is the holding of a thing or the enjoyment of a right. 16 It may either be by material occupation or by merely
subjecting the thing or right to the action of our w i l l . 17 Possession may therefore be exercised through one's self or
through another. 18 It is not necessary that the person in possession should himself be the occupant of the property, the
occupancy can be held by another in the name of the one who claims possession. In the case at bench, Equatorial exercised
possession over the disputed property through Mayfair. When Mayfair paid its monthly rentals to Equatorial, the said lessee
recognized the superior right of Equatorial to the possession of the property. And even if Mayfair did not recognize
Equatorial's superior right over the disputed property, the fact remains that Equatorial was then enjoying the fruits of its
possession.
At this juncture, it will be of aid to lay down the degrees of possession. The first degree is the mere holding, or possession
without title whatsoever, and in violation of the right of the owner. Here, both the possessor and the public know that the
possession is wrongful. An example of this is the possession of a thief or a usurper of land. The second is possession with
juridical title, but not that of ownership. This is possession peaceably acquired, such that of a tenant, depositary, or pledge.
The third is possession with a just title, or a title sufficient to transfer ownership, but not from the true owner. An example is
the possession of a vendee of a piece of land from one who pretends to be the owner but is in fact not the owner thereof. And
the fourth is possession with a just title from the true owner. This is possession that springs from ownership. 19
Undoubtedly, Mayfair's possession is by virtue of juridical title under the contract of lease, while that of Equatorial is by
virtue of its right of ownership under the contract of sale.
Second, grantingarguendo that there was indeed no actual delivery, would Mayfair's alleged "timely objection to the sale and
continued actual possession of the property" constitute an "impediment" that may prevent the passing of the

property from Carmelo to Equatorial? 20

I believe the answer is no.
The fact that Mayfair has remained in "actual possession of the property," after the perfection of the contract of sale between
Carmelo and Equatorial up to the finality of this Court's Decision in G.R. No. 106063 (and even up to the present), could not
prevent the consummation of such contract. As I have previously intimated, Mayfair's possession is not under a claim of
ownership. It cannot in any way clash with the ownership accruing to Equatorial by virtue of the sale. The principle has
always been that the one who possesses as a mere holder acknowledges in another a superior right or right of ownership. A
tenant possesses the thing leased as a mere holder, so does the usufructuary of the thing in usufruct; and the borrower of the
thing loaned in commodatum. None of these holders asserts a claim of ownership in himself over the thing. Similarly, Mayfair
does not claim ownership, but only possession as a lessee with the prior right to purchase the property. HATICc
In G.R. No. 106063, Mayfair's main concern in its action for specific performance was the recognition of its right of first
refusal. Hence, the most that Mayfair could secure from the institution of its suit was to be allowed to exercise its right to buy
the property upon rescission of the contract of sale. Not until Mayfair actually exercised what it was allowed to do by this
Court in G.R. No. 106063, specifically to buy the disputed property for P11,300,000.00, w ould it have any right of ownership.
How then, at that early stage, could Mayfair's action be an impediment in the consummation of the contract between
Carmelo and Equatorial?
Pertinently, it does not always follow that, because a transaction is prohibited or illegal, title, as between the parties to the
transaction, does not pass from the seller, donor, or transferor to the vendee, donee or transferee. 21
And third, conformably to the foregoing disquisition, I maintain that Equatorial has the right to be paid whatever monthly
rentals during the period that the contract of sale was in existence minus the rents already paid. In Guzman v. Court of
Appeals, 22 this Court decreed that upon the purchase of the leased property and proper notice by the vendee, the lessee
must pay the agreed monthly rentals to the new owner since, by virtue of the sale, the vendee steps into the shoes of the
original lessor to whom the lessee bound himself to pay. His belief that the subject property should have been sold to him
does not justify the unilateral withholding of rental payments due to the new owner of the property. 23 It must be stressed
that under Article 1658 of the Civil Code, there are only two instances wherein the lessee may suspend payment of rent,
namely: in case the lessor fails to make the necessary repairs or to maintain the lessee in peaceful and adequate enjoyment of
the property leased. 24 In this case, the fact remains that Mayfair occupied the leased p r o p e r t y. I t d e r i v e d b e n e fi t f
r o m s u c h o c c u p a t i o n , t h u s , i t s h o u l d p a y t h e corresponding rentals due. N emo cum alterius detrimento
locupletari potest. No one shall enrich himself at the expense of another. 25
Neither should the presence of bad faith prevent the award of rent to Equatorial. While Equatorial committed bad faith in
entering into the contract with Carmelo, it
has been equitably punished when this Court rendered the contract rescissible. That such bad faith was the very reason why
the contract was declared rescissible is evident from the Decision itself. 26 To utilize it again, this time, to deprive Equatorial
of its entitlement to the rent corresponding to the period during which the contract was supposed to validly exist, would not
only be unjust, it would also disturb the very nature of a rescissible contract. cAEaSC
Let me elucidate on the matter.
Articles 1380 through 1389 of the Civil Code deal with rescissible contracts. A rescissible contract is one that is validly
entered into, but is subsequently terminated or rescinded for causes provided for by law.
This is the clear implication of Article 1380 of the same Code which provides:
"Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law."
Rescission has been defined as follows:
"Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of
damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at
the moment prior to the celebration of said contract. It is a relief for the protection of one of the contracting parties and third
persons from all injury and damage the contract may cause, or to protect some incompatible and preferential right created
by the contract. It implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone. It sets

aside the act or contract for justifiable reasons of equity." 27

Necessarily, therefore, a rescissible contract remains valid and binding upon the parties thereto until the same is rescinded
in an appropriate judicial proceeding. aCcADT
On the other hand, a void contract, which is treated in Articles 1409 through 1422 of the Civil Code, is inexistent and
produces no legal effect whatsoever. The contracting parties are not bound thereby and such contract is not subject to
ratification.
In dismissing petitioner Equatorial's complaint in Civil Case No. 97-85141, the trial court was apparently of the impression
that a rescissible contract has the same effect as a void contract, thus:
"However, the words in the dispositive portion of the Supreme Court "is hereby deemed rescinded" does not allow any other
meaning. The said Deed of Absolute Sale is void at its inception.
xxx xxx xxx
The subject Deed of Absolute Sale having been rescinded by the Supreme Court, Equatorial is not the owner and does not
have any right to demand
back rentals from subject property. The law states that only an owner can enjoy the fruits of a certain property or jus utendi
which includes the right to receive from subject property what it produces, . . ."
The trial court erred. In G.R. No. 106063 (involving Mayfair's suit for specific performance), this Court clearly characterized
the Deed of Absolute Sale between Carmelo and petitioner Equatorial as a rescissible contract. We stated therein that:
"Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree
with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because
its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in
good faith, and therefore, rescission lies."
This Court did not declare the Deed of Absolute Sale between Carmelo and Equatorial void but merely rescissible.
Consequently, the contract was, at inception, valid and naturally, it validly transferred ownership of the subject property to
Equatorial. It bears emphasis that Equatorial was not automatically divested of its ownership. Rather, as clearly directed in
the dispositive portion of our Decision, Carmelo should return the purchase price to Equatorial which, in turn, must execute
such deeds and documents necessary to enable Carmelo to reacquire its ownership of the property.
As mentioned earlier, Mayfair deposited with the Regional Trial Court, Branch 7, Manila, the purchase price of
P10,452,000.00 (P11,300,000.00 less P847,000.00 as withholding tax). In turn, the Clerk of Court executed the deed of sale of
the subject property in favor of Mayfair.
In the meantime, Mayfair has continued to occupy and use the premises, the reason why Equatorial filed against it Civil Case
No. 97-85141 for sum of money representing rentals and reasonable compensation.
At this point, I must reiterate that Equatorial purchased the subject property from Carmelo and became its owner on July 31,
1978. While the contract of sale was "deemed rescinded" by this Court in G.R. No. 106063, nevertheless the sale had
remained valid and binding between the contracting parties until March 17, 1997 when the Decision in G.R. No. 106063
became final. Consequently, being the owner, Equatorial has the right to demand from Mayfair payment of rentals
corresponding to the period from July 31, 1978 up to March 17, 1997. THIcCA
Records show that the rentals and reasonable compensation which Equatorial demands from Mayfair are those which
accrued from the year 1987 t o 1998. As earlier stated, prior thereto, Mayfair had been paying the rents to Equatorial.
In line with this Court's finding that Equatorial was the owner of the disputed property from July 31, 1978 to March 17,
1997, it is, therefore, entitled to the payment of rentals accruing to such period.
Consequently, whether or not Mayfair paid Equatorial the rentals specified in the lease contracts from June 1, 1987 to March
17, 1997 is for the trial court to resolve.
One last word. In effect, the majority have enunciated that:

1. A lessor, in a contract of sale, cannot transfer ownership of his property, occupied by the lessee, to the buyer because there
can be no delivery of such property to the latter; and
2. Not only a possessor, but also an owner, can be in bad faith. I cannot subscribe to such doctrines. WHEREFORE, I vote to
GRANT the petition.
EN BANC
[G.R. No. 44606. November 28, 1938.]
VICENTE STO. DOMINGO BERNARDO, plaintiff-appellant, vs. CATALINO BATACLAN, defendant-appellant. TORIBIO
TEODORO, purchaser-appellee.
Pedro de Leon, for plaintiff-appellant. Angel H. Mojica and Francisco Lavides, for defendant-appellant. Jose Y. Garde, for
appellee.
SYLLABUS
1. OWNERSHIP; ACCESSION; LAND AND IMPROVEMENTS. The Civil Code confirms certain time-honored principles of the
law of property. One of these is the principle of accession whereby the owner of property acquires not only that which it
produces but that which is united to it either naturally or artificially. Whatever is built, planted or sown on the land of
another, and the improvements or repairs made thereon, belong to the owner of the land. Where, however, the planter,
builder, or sewer 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.
2. ID.; ID.; ID.; OPTION GRANTED TO OWNER OF LAND. In view of the impracticability of creating w hat Manresa calls a
state of "forced coownership" (vol. 3, 4th ed., p. 213), the law has provided a just and equitable solution by giving the owner
of the land the option to acquire the improvements after payment of the proper indemnity or to oblige the builder or planter
to pay for the land and the sewer to pay the proper rent. It is the owner of the land who is allowed to exercise the option
because his right is older and because, by the principle of accession, he is entitled to the ownership of the accessory thing.
The plaintiff, as owner of the land, chose to require the defendant, as owner of the improvements, to pay for the land. When
the latter failed to pay for the land, he lost his right of retention.
DECISION
LAUREL, J p: This is an appeal taken by both the plaintiff and the defendant from the
order of September 26, 1935, hereinbelow referred to, of the Court of First Instance of Cavite in Civil Case No. 2428.
There is no controversy as to the facts. By a contract of sale executed on July 17, 1920, the plaintiff herein acquired from
Pastor Samonte and others ownership of the parcel of land of about 90 hectares situated in sitio Balayunan, Silang Cavite. To
secure possession of the land from the vendors the said plaintiff, on July 20, 1929, instituted Civil Case No. 1935 in the Court
of First Instance of Cavite. The trial court found for the plaintiff in a decision which was affirmed by this Supreme Court on
appeal (G. R. No. 33017). 1 When plaintiff entered upon the premises, however, he found the defendant herein, Catalino
Bataclan, who appears to have been authorized by former owners, as far back as 1922, to clear the land and make
improvements thereon, As Bataclan, who appears to have been authorized by former owners, as far bank as 1922, to clear
the land and make improvements thereon. As Bataclan was not a party in Case No. 1935, plaintiff, on June 11, 1931,
instituted against him, in the Court of First Instance of Cavite, Civil Case No. 2428. In this case, plaintiff was declared owner
but the defendant w as held to be possessor in good faith, entitled to reimbursement in the total sum of P1,642, for work
done and improvements made. The dispositive part of the decision reads:
"Por las consideraciones expuestas, se declara al demandante Vicente Santo Domingo Bernardo dueo con derecho a la
posesion del terreno que se describe en la demanda, y al demandado Catalino Bataclan con derecho a que el demandante le
pague la suma de P1,642 por gastos utiles hechos de buena fe en el terreno, y por el cerco y ponos de coco y abaca existentes
en el mismo, y con derecho, ademas a retener la posesion del terreno hasta que se le pague dicha cantidad. Al demandante
puede optar, en el plazo de treinta dias, a partir de la fecha en que fuere notificado de la presente, por pagar esa suma al
demandado, haciendo asi suyos el cerco y todas las plantaciones existentes en el terreno, a razon de trescientos pesos la
hectarea. En el caso de que el demandante optara por que el demandado le pagara el precio del terreno, el demandado
efectuara el pago en el plazo conveniente por las partes o que sera fijado por el Juzgado. Sin costas."

Both parties appealed to this court (G. R. No. 37319). 1 The decision appealed from was modified by allowing the defendant
to recover compensation amount to P2,212 and by reducing the price at which the plaintiff could require the defendant to
purchase the land in question from P300 to P200 per hectare. Plaintiff was given by this court 30 days from the date when
the decision became final within which to exercise his option, either to sell the land to the defendant or to buy the
improvements from him. On January 9, 1934, the plaintiff manifested to the lower court his desire "to require the defendant
to pay him the value of the land at the rate of P200 per hectare or a total price of P18,000 for the whole tract of land." The
defendant informed the lower court that he was unable to pay for the land and, on January 24, 1934, an order was issued
giving the plaintiff 30 days within which to pay the defendant the sum of P2,212 stating that, in the event of failure to make
such payment, the land would be ordered sold at public auction "Para hacer pago al demandante de la suma de P2,212 y el
remanente despus de deducidos los gastos legales de la venta en
publica subasta sera entregado al demandante." On February 21, 1934, plaintiff moved to reconsider the foregoing order so
that he would have preference over the defendant in the order of payment. The motion was denied on March 1, 1934 but on
March 16 following the court below, muto proprio, modified its order of January 24, "en el sentido de que el demandante
tiene derecho preferente al importe del terreno no se vendiere en publica subasta, a razon de P200 por hecatarea y el
remanente, si acaso o hubiere se entregara el demandado en pago de la cantidad de P2,212 por la limpieza del terreno y las
mejoras introducidas en el mismo por el citado demandado." On April 24, 1934, the court below, at the instance of the
plaintiff and without objection on the part of the defendant, ordered the sale of the land in question at public auction. The
land was sold on April 5, 1935 to Toribio Teodoro, the highest bidder, for P8,000. In the certificate of sale issued to said
purchaser on the very day of sale, it was stated that the period of redemption of the land sold was to expire on April 5, 1936.
Upon petition of Toribio Teodoro the court below ordered the provincial sheriff to issue another certificate not qualified by
any equity of redemption. This was complied with by the sheriff on July 30, 1935. On September 18, 1935, Teodoro moved
that he be placed in possession of the land purchased by him. The motion was granted by order of September 26, 1935, the
dispositive part of which is as follows:
"Por tanto, se ordena al Shriff Provincial de Cavite ponga a Toribio Teodoro en posesion del terreno comprado por el en
subasta publica y por el cual se le expidio certificado de vente definitiva, reservando al demandado su derecho de ejercitar
una accion ordinaria para reclamar del demandante la cantidad de P2,212 a que tiene derecho por la limpieza y mejoras del
terreno y cuya suma, en justicia y equidad, debe ser descontada y deducida de la suma de P8,000 que ya ha recibido el
demandante."
The Civil Code confirms certain time-honored principles of the law of property. One of these is the principle of accession
whereby the owner of property acquires not only that which it produces but that which is united to it either naturally or
artificially. (Art. 353.) Whatever is built, planted or sown on the land of another, and the improvements or repairs made
thereon, belong to the owner of the land (art. 358). Where, however, the planter, builder, or sower has acted in good faith, a
conflict of rights arises between the owners and it becomes necessary to protect the owner of the improvements without
causing injustice to the owner of the land. In view of the impracticability of creating what Manresa calls a state of "forced
coownership" (vol. 3, 4th ed., p. 213), the law has provided a just and equitable solution by giving the owner of the land the
option to acquire the improvements after payment of the proper indemnity or to oblige the builder or planter to pay for the
land and the sower to pay the proper rent (art. 361). It is the owner of the land who is allowed to exercise the option because
his right is older and because, by the principle of accession, he is entitled to the ownership of the accessory thing (3 Manresa,
4th ed., p. 213). In the case before us, the plaintiff, as owner of the land, chose to require the defendant, as owner of the
improvements, to pay for the land.
The defendant states that he is a possessor in good faith and that the amount of P2,212 to which he is entitled has not yet
been paid to him.
Therefore, he says, he has a right to retain the land in accordance with the provisions of article 453 of the Civil Code. We do
not doubt the validity of the premises stated. "Considera la ley tan sagrada y legitima la deuda, que, hasta que sea pagada, no
consiente que la cosa se restituya al vencedor." (4 Manresa, 4th ed., p., 304.) We find, however, that the defendant has lost his
right to retention. In obedience to the decision of his right to retention. In obedience to the decision of this court in G. R. No.
37319, the plaintiff expressed his desire to require the defendant to pay for the value of the land. The said defendant could
have become owner of both land and improvements and continued in possession thereof. But he said he could not pay and
the land was sold at public auction to Toribio Teodoro. The law, as we have already said, requires no more than that the
owner of the land should choose between indemnifying the owner of the improvements or requiring the latter to pay for the
land. When he failed to pay for the land, the defendant herein lost his right of retention.
The sale at public auction having been asked by the plaintiff himself (p. 22, bill of exceptions) and the purchase price of
P8,000 received by him from Toribio Teodoro, we find no reason to justify a rupture of the situation has created between
them, the defendant- appellant not being entitled, after all, to recover from the plaintiff the sum of P2,212.

The judgment of the lower court is accordingly modified by eliminating therefrom the reservation made in favor of the
defendant- appellant to recover from the plaintiff the sum of P2,212. In all other respects, the same is affirmed, without
pronouncement regarding costs. So ordered.
Avancea, C.J., Villa-Real, Imperial and Diaz, JJ., concur.
Footnotes
1. Promulgated December 6, 1930, not reported.
1. Promulgated December 2, 1933 (59 Phil., 903).

EN BANC
[G.R. No. L-175. April 30, 1946.]
DAMIAN IGNACIO, FRANCISCO IGNACIO and LUIS IGNACIO, petitioners, vs. ELIAS HILARIO and his wife DIONISIA
DRES, and FELIPE NATIVIDAD, Judge of First Instance of Pangasinan, respondents.
Leoncio R. Esliza for petitioners. Mauricio M. Monta for respondent.
SYLLABUS
1. PROPERTY; IMPROVEMENTS; RIGHT AND OBLIGATIONS OF OWNERS OF LAND AND OF OWNER OF IMPROVEMENTS.
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 of the Civil Code. The owner of the land, upon the other hand, has
the option, under article 361, either to pay for the building or to sell his land to the owner of the building. But he cannot, as
respondents here did, refuse both to pay for the building and to sell the land and compel the owner of the building to remove
it from the land where it is erected. He is entitled to such remotion only when, after having chosen to sell his land, the other
party fails to pay for the same.
2. JUDGMENTS; ADDITIONS TO FINAL JUDGMENTS; SHERIFF NOT AUTHORIZED TO SETTLE MATTERS INVOLVING
EXERCISE OF JUDICIAL DISCRETION; CASE AT BAR. The trial court's decision defining rightly the rights of both parties
under articles 361 and 453 of the Civil Code, fails to determine the value of the buildings and of the lot where they are
erected as well as the periods of time within which the option may be exercised and payment should be made, these
particulars having been left for determination apparently after the judgment has become final. This procedure is erroneous,
for after the judgment has become final, no additions can be made thereto and nothing can be done therewith except its
execution. And execution cannot be had, the sheriff being ignorant as to how, for how much, and within what time may be the
option be exercised, and certainly no authority is vested in him to settle these matters which involve exercise of judicial
discretion. Thus the appealed judgment has never become final, it having left matters to be settled for its completion in a
subsequent proceeding, matters which remained unsettled up to the time the petition is filed in the instant case.
DECISION
MORAN, C.J p:
This is a petition for certiorari arising from a case in the Court of First Instance of Pangasinan between the herein
respondents Elias Hilario and his wife Dionisia Dres as plaintiffs, and the herein petitioners Damian, Francisco and Luis
surnamed Ignacio, as defendants, concerning the ownership of a parcel of land, partly rice-land and partly residential. After
the trial of the case, the lower court, presided over by Hon. Alfonso Felix, rendered judgment holding plaintiffs as the legal
owners of the whole property but conceding to defendants the ownership of the houses and granaries built by them on the
residential portion with the rights of a possessor in good faith, in accordance with article 361 of the Civil Code. The
dispositive part of the decision , hub of this controversy, follows:
"Wherefore, judgment is hereby rendered declaring:
"(1) That the plaintiffs are the owners of the whole property described in transfer certificate of title No. 12872 (Exhibit A)
issued in their name, and entitled to the possession of the same;

"(2) That the defendants are entitled to hold the possession of the residential lot until after they are paid the actual market
value of their houses and granaries erected thereon, unless the plaintiffs prefer to sell them said residential lot, in which case
defendants shall pay the plaintiffs the proportionate value of said residential lot taking as a basis the price paid for the whole
land according to Exhibit B; and
"(3) That upon defendant's failure to purchase the residential lot in question, said defendants shall remove their houses and
granaries after this decision becomes final and within the periods of sixty (60) days from the date that the court is informed
in writing of the attitude of the parties in this respect.
"No pronouncement is made as to damages and costs.
"Once this decision becomes final, the plaintiffs and defendants may appear again before this court for the purpose of
determining their respective rights under article 361 of the Civil Code, if they cannot come to an extra-judicial settlement
with regard to said rights."
Subsequently, in a motion filed in the same Court of First Instance but now presided over by the herein respondent Judge
Hon. Felipe Natividad, the plaintiffs prayed for an order of execution alleging that since they chose neither to pay defendants
for the buildings nor to sell to them the residential lot, said defendants should be ordered to remove the structure at their
own expense and to restore plaintiffs in the possession of said lot. Defendants objected to this motion which, after hearing,
was granted by Judge Natividad. Hence, this petition by defendants praying for (a) a restraint and annulment of the order of
execution issued by Judge Natividad; (b) an order to compel plaintiffs to pay them the sum of P2,000 for the buildings, or sell
to them the residential lot for P45; or (c) a rehearing of the case for a determination of the rights of the parties upon failure
of extra-judicial settlement.
The judgment rendered by Judge Felix is founded on articles 361 and 453 of the Civil Code which are as follows:
"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.
"ART. 453. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the
thing until such expenses are made good to him.
"Useful expenses shall be refunded 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 paying the increase in value
which the thing may have acquired in consequence thereof."
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. The owner of the land, upon the other hand, has the option, under
article 361, either to pay for the building or to sell his land to the owner of the building. But he cannot, as respondents here
did, refuse both to pay for the building and to sell the land and compel the owner of the building to remove it from the land
where it is erected. He is entitled to such remotion only when, after having chosen to sell his land, the other party fails to pay
for the same. But this is not the case before us.
W e h o l d , t h e r e f o r e , t h a t t h e o r d e r o f J u d g e N a t i v i d a d co m p e l l i n g 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 and 453 of the Civil Code.
There is. however, in the decision of Judge Felix a question of procedure which calls for clarification, to avoid uncertainty and
delay in the disposition of cases. In that decision, the rights of both parties are well defined under articles 361 and 453 of the
Civil Code, but it fails to determine the value of the buildings and of the lot where they are erected as well as the periods of
time within which the option may be exercised and payment should be made, these particulars having been left for
determination apparently after the judgment has become final. This procedure is erroneous, for after the judgment has
become final, no additions can be made thereto and nothing can be done therewith except its execution. And execution
cannot be had, the sheriff being ignorant as to how, for how much, and within what time may the option be exercised, and
certainty no authority is vested in him to settle these matters which involve exercise of judicial discretion. Thus the judgment
rendered by Judge Felix has never become final, it having left matters to be settled for its completion in a subsequent
proceeding, matters which remained unsettled up to the time the petition is filed

in the instant case.

For all the foregoing, the writ of execution issued by Judge Natividad is hereby set aside and the lower court ordered to hold
a hearing in the principal case wherein it must determine the prices of the buildings and of the residential lot where they are
erected, as well as the period of time within which the plaintiffs-respondents may exercise their option either to pay for the
buildings or to sell their land, and, in the last instance, the period of time within which the defendants-petitioners may pay
for the land, all these periods to be counted from the date the judgment becomes executory or unappealable. After such
hearing, the court shall render a final judgment according to the evidence presented by the parties.
The costs shall be paid by plaintiffs-respondents.
Ozaeta, Paras, Jaranilla, Feria, De Joya, Pablo, Perfecto, Hilado, Bengzon, and Briones, JJ., concur.
SECOND DIVISION
[G.R. No. 57288. April 30, 1984.]
LEONILA SARMIENTO, petitioner, vs. HON. ENRIQUE A. AGANA, District Judge, Court of First Instance of Rizal, Seventh
Judicial District, Branch XXVIII, Pasay City, and SPOUSES ERNESTO VALENTlNO and REBECCA LORENZO-VALENTINO,
respondents.
Mercedes M . Respicio for petitioner. Romulo R. Bobadilla for private respondents.
SYLLABUS
1. CIVIL LAW; PROPERTY; POSSESSION; BUILDERS IN GOOD FAITH; GOOD FAITH MANIFESTED WHERE RESIDENTIAL
HOUSE WAS BUILT WITH THE CONSENT OF THE ALLEGED OWNER. We agree that Ernesto and wife were builders in
good faith in view of the peculiar circumstances under which they had constructed the residential house. As far as they knew,
the land was owned by Ernesto's mother-in- law who, having stated they could build on the property, could reasonably be
expected to later on give them the land.
2. ID.; ID.; ID.; ID.; OPTIONS OF LANDOWNER; CASE AT BAR. The challenged decision of respondent Court, based on
valuations of P25,000.00 for the land and P40,000.00 for the residential house, cannot be viewed as not supported by the
evidence. The provision for the exercise of petitioner Sarmiento of either the option to indemnify private respondents in the
amount of P40,000.00 or the option to allow private respondents to purchase the land at P25,000.00, in our opinion, was a
correct decision. "The owner of the building erected in good faith on a land owned by another, is entitled to retain 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 . . . refuse both to pay for the building and to sell the land and compel the owner of the building
to remove it from the land where it is erected. He is entitled to such remotion only when, after having chosen to sell his land,
the other party fails to pay for the same" (Ignacio vs. Hilario, 76 Phil. 605, 608 [1946]).
DECISION
MELENCIO-HERRERA, J p: This Petition for Certiorari questions a March 29, 1979. Decision rendered by the
then Court of First Instance of Pasay City. The Decision was one made on memoranda, pursuant to the provisions of RA 6031,
and it modified, on October 17, 1977, a judgment of the then Municipal Court of Paraaque, Rizal, in an Ejectment suit
instituted by herein petitioner Leonila SARMIENTO against private respondents, the spouses ERNESTO Valentino and
Rebecca Lorenzo. For the facts, therefore, we have to look to the evidence presented by the parties at the original level.cdll
It appears that while ERNESTO was still courting his wife, the latter's mother had told him the couple could build a
RESIDENTIAL HOUSE on a lot of 145 sq. ms., being Lot D of a subdivision in Paraaque (the LAND, for short). In 1967,
ERNESTO did construct a RESIDENTIAL HOUSE on the LAND at a cost of P8,000.00 to P10,000.00. It was probably assumed
that the wife's mother was the owner of the LAND and that, eventually, it would somehow be transferred to the spouses.
It subsequently turned out that the LAND had been titled in the name of Mr. & Mrs. Jose C. Santos, Jr. who, on September 7,
1974, sold the same to petitioner SARMIENTO. The following January 6, 1975, SARMIENTO asked ERNESTO and wife to
vacate and, on April 21, 1975, filed an Ejectment suit against them. In the evidentiary hearings before the Municipal Court,
SARMIENTO submitted the deed of sale of the LAND in her favor, which showed the price to be P15,000.00. On the other

hand, ERNESTO testified that the then cost of the RESIDENTIAL HOUSE would be from P30,000.00 to P40,000.00. The figures
w ere not questioned by SARMIENTO.
The Municipal Court found that private respondents had built the RESIDENTIAL HOUSE in good faith, and, disregarding the
testimony of ERNESTO, that it had a value of P20,000.00. It then ordered ERNESTO and wife to vacate the LAND after
SARMIENTO has paid them the mentioned sum of P20,000.00.
The Ejectment suit was elevated to the Court of First Instance of Pasay where, after the submission of memoranda, said Court
rendered a modifying Decision under Article 448 of the Civil Code. SARMIENTO was required, within 60 days, to exercise the
option to reimburse ERNESTO and wife the sum of P40,000.00 as the value of the RESIDENTIAL HOUSE, or the option to
allow them to purchase the LAND for P25,000.00. SARMIENTO did not exercise any of the two options within the indicated
period, and ERNESTO was then allowed to deposit the sum of P25,000.00 with the Court as the purchase price for the LAND.
This is the hub of the controversy. SARMIENTO then instituted the instant Certiorari proceedings.LLjur
We agree that ERNESTO and wife were builders in good faith in view of the peculiar circumstances under which they had
constructed the RESIDENTIAL HOUSE. As far as they knew, the LAND was owned by ERNESTO's mother-in-law who, having
stated they could build on the property, could reasonably be expected to later on give them the LAND.
In regards to builders in good faith, Article 448 of the Code provides:
"ART. 448. The owner of the land on which anything has been built, sown or planted in good faith,
shall have the right.
to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in articles 546 and
548, or
to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building
or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or
trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall
fix the terms thereof." (Paragraphing supplied).
The value of the LAND, purchased for P15,000.00 on September 7, 1974, could not have been very much more than that
amount during the following January when ERNESTO and wife were asked to vacate. However, ERNESTO and wife have not
questioned the P25,000.00 valuation determined by the Court of First Instance.
In regards to the valuation of the RESIDENTIAL HOUSE, the only evidence presented was the testimony of ERNESTO that its
worth at the time of the trial should be from P30,000.00 to P40,000.00. The Municipal Court chose to assess its value at
P20,000.00, or below the minimum testified by ERNESTO, while the Court of First Instance chose the maximum of
P40,000.00. In the latter case, it cannot be said that the Court of First Instance had abused its discretion.
The challenged decision of respondent Court, based on valuations of P25,000.00 for the LAND and P40,000.00 for the
RESIDENTIAL HOUSE, cannot be viewed as not supported by the evidence. The provision for the exercise by petitioner
SARMIENTO of either the option to indemnify private respondents in the amount of P40,000.00, or the option to allow
private respondents to purchase the LAND at P25,000.00, in our opinion, was a correct decision.LexLib
"The owner of the building erected in good faith on a land owned by another, is entitled to retain the possession of the land
until he is paid the value of his building, under article 453 (now Article 546). The owner of the land, upon the other hand, has
the option, under article 361 (now Article 448), either to pay for the building or to sell his land to the owner of the building.
But he cannot as respondents here did, refuse both to pay for the building and to sell the land and compel the owner of the
building to remove it from the land where it is erected. He is entitled to such remotion only when, after having chosen to sell
his land, the other party fails to pay for the same. (emphasis supplied).
"We hold, therefore, that the order of Judge Natividad compelling defendants-petitioners to remove their buildings from the
land belonging to plaintiffs-respondents only because the latter chose neither to pay for such buildings nor to sell the land, is
null and void, for it amends substantially the judgment sought to be executed and is, furthermore, offensive to articles
361 (now Article 448) and 453 (now Article 546) of the Civil Code." (Ignacio vs. Hilario, 76 Phil. 605, 608 [1946]).

WHEREFORE, the Petition for Certiorari is hereby ordered dismissed, without pronouncement as to costs.
SO ORDERED. Teehankee, Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ ., concur.
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. Neil D. Hechanova for defendant-appellant.
DECISION
MELENCIO-HERRERA, J p:
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. T-3087,
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 Derla, 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
Dumangas, docketed as Civil Case No. I. Said complaint was later amended to include DEPRA as a party 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: Cdpr
"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 that
day that this decision shall have become final."
From the foregoing judgment, neither party appealed so that, if 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 voidab 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 ourselves to the issue of validity of the Decision of the Municipal Court, we hold the same to be null and void. The
judgment in a detainer case is effective in respect of possession only (Sec. 7, Rule 70, Rules of Court). 1 The Municipal Court
overstepped 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,LLpr
"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; . . ." (Italics ours)
Consistent with the principles 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 apply 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 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 Code.
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.LLpr
". . . es justa la facultad que el codigo da al dueo 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 dueo 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 eddficar. 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 eniquecido 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 posible 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 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. Ibaez [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 h e r e b y o r d e r e d r e m a n d e d t o t h e
R e g i o n a l Tr i a l C o u r t o f I l o i l o f o r f u r t h e r proceedings consistent with Articles 448 and 546 of the Civil Code, as
follows:
1. The trial Court shall determine
1. a) the present fair price of DEPRA's 34 square meter-area of land;
2. 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. Regional Trial Court shall render judgment, as follows:
After said amounts shall have been determined by competent evidence, the
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 a his own by paying to DUMLAO either the amount of the expenses
spent by DUMLAO for 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.LLphil
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 Decision shall be inextendible, and upon failure of the party obliged to
tender to the trial Court the amount due to the obligee, the party entitled to such payment shall be entitled to an order of
execution for the enforcement of payment of the amount due and for compliance with such other acts as may be required by
the prestation due the obligee.
No costs. SO ORDERED. Teehankee, Actg. C.J., Plana, Relova, De la Fuente and Alampay, JJ., concur. Gutierrez, Jr., J., took no
part.

THIRD DIVISION
[G.R. No. 108894. February 10, 1997.]
TECNOGAS PHILIPPINES MANUFACTURING CORPORATION , petitioner, vs. COURT OF APPEALS (FORMER SPECIAL
SEVENTEENTH DIVISION) and EDUARDO UY, respondents.
De Jesus Paguio and Manimtim for petitioner. M.R. Pamaran Law Offices for private respondent. Acebes Del Carmen Cinco &
Cordova for private respondent.
SYLLABUS
1. CIVIL LAW; PROPERTY; POSSESSION; GOOD FAITH, PRESUMED. When petitioner purchased the land from Pariz I
ndustries, 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. It is presumed that possession continues to be enjoyed in the same character in
which it was acquired, until the contrary is proved. 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. 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." 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. The good faith ceases from the moment defects in the title are
made known to the possessor, by extraneous evidence or by suit for recovery of the property by the true owner.
2. ID.; ID.; OWNERSHIP; RIGHT OF ACCESSION; IMMOVABLE PROPERTY; BUILDER IN GOOD FAITH CAN COMPEL THE
LANDOWNER TO EXERCISE HIS OPTION UNDER ART. 448; APPLICABLE TO BUYER IN GOOD FAITH. The builder in good
faith under Article 448 of the Civil Code, instead of being outrightly ejected from the land, 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. The same benefit can be invoked by petitioner who is not the builder of the offending
structures but possesses them in good faith as buyer. 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.
3. ID.; ID.; ID.; ID.; ID.; ID.; ID. 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.
4. ID.; ID.; ID.; ID.; ID.; ARTICLE 148; APPLICATION IN CASE AT BAR; ATTORNEY'S FEES, AWARD OF, UNWARRANTED. In
line with the case of Depra vs. Dumlao, this case will have to be remanded to the trial court for further proceedings to fully
implement the mandate of Art. 448. It is a rule of procedure for the Supreme Court to strive to settle the entire controversy
in a single proceeding leaving no root or branch to bear the seeds of future litigation. 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. 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.
DECISION

PANGANIBAN, J p:
The parties in this case are owners of adjoining lots in Paraaque, Metro Manila. It was discovered in a survey that a portion
of a building of petitioner, which was presumably constructed by its predecessor-in-interest, encroached on a portion of the
lot owned by private respondent. What are the rights and obligations of the parties? I s 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 Decision 1 dated August 28, 1992, in CA-G.R. CV No. 28293 of
respondent Court 2 where the disposition reads: 3
"WHEREFORE, premises considered, the Decision of the Regional Trial Court is hereby reversed and set aside and another
one entered
1. Dismissing the complaint for lack of cause of action;
2. Ordering Tecnogas to pay the sum of P2,000.00 per month as reasonable rental from October 4, 1979 until appellee
vacates the land;
3. To remove the structures and surrounding walls on the encroached area;
4. Ordering appellee to pay the value of the land occupied by the two-storey building;
5. Ordering appellee to pay the sum of P20,000.00 for and as attorney's fees;
6. Costs against appellee."
Acting on the motions for reconsideration of both petitioner and private respondent, respondent Court ordered the deletion
of paragraph 4 of the dispositive portion in an Amended Decision dated February 9, 1993, as follows: 4
"WHEREFORE, premises considered, our decision of August 28, 1992 is hereby modified deleting paragraph 4 of the
dispositive portion of our decision which reads:
'4. Ordering appellee to pay the value of the land occupied by the two-storey building.'
The 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, Paraaque, Metro Manila known as Lot 4331-A
(should be 4531-A) of Lot 4531 of the Cadastral Survey of Paraaque, Metro Manila, covered by Transfer Certificate of Title
No. 409316 of the Registry of Deeds of the Province of Rizal; that said land was purchased by plaintiff from Pariz Industries,
Inc. in 1970, together with all
the buildings and improvements including the wall existing thereon; that the defendant (herein private respondent) is the
registered owner of a parcel of land known as Lot No. 4531-B of Lot 4531 of the Cadastral Survey of Paraaque, LRC (GLRO)
Rec. No. 19645 covered by Transfer Certificate of Title No. 279838, of the Registry of Deeds for the Province of Rizal; that
said land which adjoins plaintiff's land was purchased by defendant from a certain Enrile Antonio also in 1970; that in 1971,
defendant purchased another lot also adjoining plaintiff's 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 Malacaang, wherein plaintiff agreed to demolish

the wall at the back portion of its land thus giving to defendant possession of a portion of his land previously enclosed by
plaintiff's wall; that defendant later filed a complaint before the office of Municipal Engineer of Paraaque, Metro Manila as
well as before the Office of the Provincial Fiscal of Rizal against plaintiff in connection with the encroachment or occupation
by 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 Court 6 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
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 ofTuason & 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.) 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 ageneral 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 Ruling
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 cda
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 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. 25 The good faith ceases from the moment defects in the title are made
known to the possessor, by extraneous evidence or by suit for recovery of the property by the true owner. 26
Recall that the encroachment in the present case was caused by a very slight deviation of the erected wall (as fence) which
was supposed to run in a straight line from point 9 to point 1 of 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
ow nership 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 betw een 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
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 electro-plating machineries was not to be demolished. Rather, it was to "be subject to
negotiation by herein parties." The settlement may have recognized the ownership of private respondent but such admission
cannot be equated with bad faith. Petitioner was only trying to avoid a litigation, one reason for entering into an amicable
settlement.
As was ruled in Osmea vs. Commission on Audit, 30
"A compromise is a bilateral act or transaction that is expressly acknowledged as a juridical agreement by the Civil Code and
is therein dealt with in some detail. 'A compromise,' declares Article 2208 of said Code, 'is a contract whereby the parties, by
making reciprocal concessions, avoid a
litigation or put an end to one already commenced.' xxx xxx xxx
The Civil Code not only defines and authorizes compromises, it in fact encourages them in civil actions. Art. 2029 states that
'The Court shall endeavor to persuade the litigants in a civil case to agree upon some fair compromise.' . . ."
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. Ibaez [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 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
W HEREFORE, 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:
1. 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) I f 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 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.
Narvasa, C .J ., Davide, Jr., Melo and Francisco, JJ ., concur.

SECOND DIVISION
[G.R. No. L-32974. July 30, 1979.]
BARTOLOME ORTIZ, petitioner, vs. HON. UNION C. KAYANAN, in his capacity as Judge of the Court of First Instance of
Quezon, Branch IV; ELEUTERIO ZAMORA, QUIRINO COMINTAN, VICENTE FERRO, AND GREGORIO PAMISARAN,
respondents.
Salonga, Ordoez, Yap, Sicat & Associates and Salvador, Ulgado & Carbon for petitioner.
Jose A. Cusi for private respondents.
DECISION
ANTONIO, J p:
Petition for Certiorari and Prohibition with Preliminary Injunction to nullify the Order of respondent Judge directing the
execution of the final judgment in Civil Case No. C-90, entitled "Bartolome Ortiz vs. Secretary of Agriculture and Natural
Resources, et al.," and the Writ of Execution issued to implement said Order, allegedly for being inconsistent with the
Judgment sought to be enforced.LLpr
Civil Case No. C-90 was filed by Bartolome Ortiz who sought the review and/or annulment of the decision of the Secretary of
Agriculture and Natural Resources, giving preference to the sales applications of private respondents Quirino Comintan and
Eleuterio Zamora over Lot No. 5785, PLS-45, located at Barrio Cabuluan, Calauag, Quezon.
I The factual background of the case, as found by respondent Court, is as follows:
". . . The lot in controversy was formerly the subject of Homestead Application No. 122417 of Martin Dolorico II, plaintiff's
ward who died on August 20, 1931; that since then it was plaintiff who continued the cultivation and possession of the
property, without however filing any application to acquire title thereon; that in the Homestead Application No. 122417,
Martin Dolorico II named his uncle, Martin Dolorico I as his heir and successor in interest, so that in 1951 Martin Dolorico I
executed an affidavit relinquishing his rights over the property in favor of defendants Quirino Comintan and Eleuterio
Zamora, his grandson and son-in-law, respectively, and requested the Director of Lands to cancel the homestead application;
that on the strength of the affidavit, Homestead Application No. 122417 was cancelled and thereafter, defendants Comintan
and Z amora filed their

respective sales applications Nos. 8433 and 9258; that plaintiff filed his protest on November 26, 1951 alleging that he
should be given preference to purchase the lot inasmuch as he is the actual occupant and has been in continuous possession
of the same since 1931; and inspite of plaintiff's opposition, 'Portion A' of the property was sold at public auction wherein
defendant Comintan was the only bidder; that on June 8, 1957, investigation was conducted on plaintiff's protest by Assistant
Public Lands Inspector Serapion Bauzon who submitted his report to the Regional Land Officer, and who in turn rendered a
decision on April 9, 1958, dismissing plaintiff's claim and giving due course to defendants' sales applications on the ground
that the relinquishment of the homestead rights of Martin Dolorico I in favor of Comintan and Zamora is proper, the former
having been designated as successor in interest of the original homestead applicant and that because plaintiff failed to
participate in the public auction, he is forever barred to claim the property; that plaintiff filed a motion for reconsideration of
this decision which was denied by the Director of Lands in his order dated June 10, 1959; that finally, on appeal to the
Secretary of Agriculture and Natural Resources, the decision rendered by the Regional Land Officer was affirmed in toto." 1
On March 22, 1966, respondent Court rendered judgment in the afore-mentioned civil case, the dispositive portion of which
reads as follows:
"IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered awarding Lot No. 5785-A of PLS-45,
(Calauag Public Land Subdivision) one-half portion of the property in litigation located at Bo. Cabuluan, Calauag, Quezon in
favor of defendant QUIRINO COMINTAN, being the successful bidder in the public auction conducted by the Bureau of Lands
on April 18, 1955, and hereby giving due course to the Sales Application No. 9258 of defendant Eleuterio Zamora over the
other half, Lot No. 5785-B of PLS-45, Calauag, without prejudice to the right of plaintiff BARTOLOME ORTIZ to participate in
the public bidding of the same to be announced by the Bureau of Lands, Manila. However, should plaintiff Bartolome Ortiz be
not declared the successful bidder thereof defendants Quirino Comintan and Eleuterio Zamora are ordered to reimburse
jointly said plaintiff the improvements he has introduced on the whole property in the amount of THIRTEEN THOUSAND SIX
HUNDRED THIRTY-TWO (P13,632.00) PESOS, the latter having the right to retain the property until after he has been fully
paid therefor, without interest since he enjoys the fruits of the property in question, with prejudice and with costs against
the plaintiff." 2
Plaintiff appealed the decision to the Court of Appeals.
Two (2) years after the rendition of the judgment by the court a quo, while the case was pending appeal and upon petition of
private respondents Quirino Comintan and Eleuterio Zamora, respondent Court appointed respondent Vicente Ferro, Clerk
of Court, as Receiver to collect tolls on a portion of the property used as a diversion road. On August 19, 1969, the Court of
Appeals issued a Resolution annulling the Order appointing the Receiver. Subsequently, on February 19, 1970, the Appellate
Court affirmed the decision of the trial court. A petition for review on certiorari of the decision of the Court of Appeals was
denied by this Court on April 6, 1970. At
this point, private respondents filed a petition for appointment of a new receiver with the court a quo. This petition was
granted and the receiver was reappointed. Petitioner sought the annulment of this Order with the Court of Appeals, but said
Court ruled that its decision had already become final and that the records of the case were to be remanded to the trial
court.LLpr
Not satisfied with such denial, petitioner filed a petition for certiorari, prohibition and mandamus with preliminary
injunction before this Court, 3 praying for the annulment of the Order reappointing the Receiver. On July 13, 1970, the
petition was dismissed by this Court on the ground of insufficient showing of grave abuse of discretion.
II
The judgment having become final and executory private respondents filed a motion for the execution of the same, praying
as follows:
"WHEREFORE, it is respectfully prayed of this Honorable Court to order the issuance of a writ of execution in accordance
with the judgment of this Honorable Court, confirmed by the Court of Appeals and the Supreme Court, commanding any
lawful officer to deliver to defendants Comintan and Zamora the land subject of the decision in this case but allowing
defendants to file a bond in such amount as this Honorable Court may fix, in lieu of the P13,632.00 required to be paid to
plaintiff, conditioned that after the accounting of the tools collected by plaintiff, there is still an amount due and payable to
said plaintiff, then if such amount is not paid on demand, including the legal interests, said bond shall be held answerable.
"Ordering further the plaintiff to render an accounting of the tolls he collected from March of 1967 to December 31, 1968
and from September 1969 to March 31, 1970, and deliver said tolls collected to the receiver and if judgment is already
executed, then to Quirino Comintan and Eleuterio Zamora; and,

"Finally, to condemn plaintiff to pay moral damages for withholding the tools which belong to your movant in an amount this
Court may deem just in the premises." 4
A ct i n g September 23, 1970, stating, among others, the following:
u p o n t h e f o r e g o i n g m o t i o n , r e s p o n d e n t J u d g e i s s u e d a n O r d e r , dated
"The records further disclosed that from March 1967 to December 31, 1968, plaintiff Bartolome Ortiz collected tolls on a
portion of the property in question wherein he has not introduced any improvement particularly on Lot No. 5785-A; PLS-45
awarded to defendant Quirino Comintan, thru which vehicular traffic was detoured or diverted, and again from September
1969 to March 31, 1970, the plaintiff resumed the collection of tools on the same portion without rendering any accounting
on said tolls to the Receiver, who was reappointed after submitting the required bond and specifically authorized only to
collect tolls leaving the harvesting of the improvements to
the plaintiff.
xxx xxx xxx
"In virtue of the findings of this Court as contained in the dispositive portion of its decision, the defendants are jointly
obligated to pay the plaintiff in the amount of P13,632.00 as reasonable value of the improvements he introduced on the
whole property in question, and that he has the right of retention until fully paid. It can be gleaned from the motion of the
defendants that if plaintiff submits an accounting of the tolls he collected during the periods above alluded to, their damages
of about P25,000.00 can more than offset their obligation of P13,362.00 in favor of the plaintiff, thereafter the possession of
the land he delivered to the defendants since the decision of the Supreme Court has already become final and executory, but
in the interregnum pending such accounting and recovery by the Receiver of the tolls collected by the plaintiff, the
defendants pray that they allowed to put up a bond in lieu of the said P13,632.00 to answer for damages of the former, if any.
"On the other hand, plaintiff contends in his opposition, admitting that the decision of the Supreme Court has become final
and executory; (1) the offer of a bond in lieu of payment of P13,632.00 does not, and cannot, satisfy the condition imposed in
the decision of this Court which was affirmed in toto; (2) the public sale of Portion 'B' of the land has still to take place as
ordained before the decision could be executed; and, (3) that whatever sums plaintiff may derive from the property cannot
be set off against what is due him for the improvements he made, for which he has to be reimbursed as ordered.
xxx xxx xxx
"Let it be known that plaintiff does not dispute his having collected tolls during the periods from March 1967 to December
31, 1968 and from September 1969 to March 31, 1970. The Supreme Court affirmed the decision of this Court in its findings
that said tolls belong to the defendants, considering that the same were collected on a portion of the land in question where
the plaintiff did not introduce any improvement. The reimbursement to the plaintiff pertains only to the value of the
improvements, like coconut trees and other plants which he introduced on the whole property. The tolls collected by the
plaintiff on an unimproved portion naturally belong to the defendants, following the doctrine on accretion. Further, the
reappointment of a Receiver by this Court was upheld by the Supreme Court when it denied the petition for certiorari filed
by the plaintiff, bolstering the legal claim of defendants over said tolls. Thus, the decision of the Supreme Court rendered the
decision of this Court retroactive from March 22, 1966 although pending appeal its implementation was suspended. It is our
honest conviction, therefore, that the putting up of a bond by the defendants pending accounting of the tolls collected by the
plaintiff is justified and will not prejudice anybody, but certainly would substantially satisfy the conditions imposed in the
decision. However, insofar as the one-half portion
'B' of the property, the decision may he executed only after public sale by the Bureau of Lands shall be accomplished.
"WHEREFORE, finding the Motion for Execution filed by the defendants to be meritorious, the same is granted; provided,
however, that they put up a bond equal the adjudicated amount of P13,632.00 accruing in favor of the plaintiff, from a
reputable or recognized bonding or surety company, conditioned that after an accounting of the tolls collected by the
plaintiff should there be found out any balance due and payable to him after reckoning said obligation of P13,632.00 the
bond shall be held answerable therefor." 5
Accordingly, a Writ of Execution was issued after private respondent Quirino Comintan had filed the required bond. The writ
directed the Sheriff to enforce the decision of the Court, and stated, in part, the following:
"But should there be found any amount collectible after accounting and deducting the amount of P13,632.00, you are hereby

ordered that of the goods and chattels of Bartolome Ortiz of Bo. Kabuluan, Calauag, Quezon, be caused to be made any excess
in the abovementioned amount together with your lawful fees and that you render same to defendant Quirino Comintan. If
sufficient personal property cannot be found thereof to satisfy this execution and lawful fees thereon, then you are
commanded that of the lands and buildings of the said BARTOLOME ORTIZ you make the said excess amount in the manner
required by the Rules of Court, and make return of your proceedings within this Court within sixty (60) days from date of
service.
"You are also ordered to cause Bartolome Ortiz to vacate the property within fifteen (15) days after service thereof the
defendant Quirino Comintan having filed the required bond in the amount of THIRTEEN THOUSAND SIX HUNDRED THIRTY-
TWO (P13,632.00) PESOS." 6
On October 12, 1970, petitioner filed a Motion for Reconsideration of the aforesaid Order and Writ of Execution, alleging:
"(a) That the respondent judge has no authority to place respondents in possession of the property;
"(b) That the Supreme Court has never affirmed any decision of the trial court that tolls collected from the diversionary road
on the property, which is public land, belong to said respondents;
"(c) That to assess petitioner a P25,000.00 liability for damages is purely punitive imposition without factual or legal
justification."
The foregoing Motion for Reconsideration was denied by respondent Judge per Order dated November 18, 1970. Said Order
states, in part:
"It goes without saying that defendant Comintan is entitled to be placed in possession of Lot No. 5785-A of PLS-45 (Calauag
Public Land Subdivision)
and enjoyment of the tolls from March, 1967 to March, 1968 and from September, 1969 to March 31, 1970 which were
received by plaintiff Bartolome Ortiz, collected from the property by reason of the diversion road where vehicular traffic was
detoured. To defendant Comintan belongs the tolls thus collected from a portion of the land awarded to him used as a
diversionary road by the doctrine of accretion and his right over the same is ipso jure, there being no need of any action to
possess said addition. It is so because as consistently maintained by the Supreme Court, an applicant who has complied with
all the terms and conditions which entitle him to a patent for a particular tract of public land, acquires a vested right therein
and is to be regarded as equitable owner thereof so that even without a patent, a perfected homestead or sales application is
a property right in the fullest sense, unaffected by the fact that the paramount title is still in the Government and no
subsequent law can deprive him of that vested right. The question of the actual damages suffered by defendant Comintan by
reason of the unaccounted tolls received by plaintiff had already been fully discussed in the order of September 23, 1970 and
the Court is honestly convinced and believes it to be proper and regular under the circumstances.
"Incidentally, the Court stands to correct itself when in the same order, it directed the execution of the decision with respect
to the one-half portion 'B' of the property only after the public sale by the Bureau of Lands, the same being an oversight, it
appearing that the Sales Application of defendant Eleuterio Zamora had already been recognized and fully confirmed by the
Supreme Court.
"In view thereof, finding the motion filed by plaintiff to be without merit, the Court hereby denies the same and the order of
September 23, 1970 shall remain in full force subject to the amendment that the execution of the decision with respect to the
one-half portion 'B' shall not be conditioned to the public sale by the Bureau of Lands.
"SO ORDERED." 7
III
Petitioner thus filed the instant petition, contending that in having issued the Order and Writ of Execution, respondent Court
"acted without or in excess of jurisdiction, and/or with grave abuse of discretion, because the said order and writ in effect
vary the terms of the judgment they purportedly seek to enforce." He argued that since said judgment declared the petitioner
a possessor in good faith, he is entitled to the payment of the value of the improvements introduced by him on the whole
property, with right to retain the land until he has been fully paid such value. He likewise averred that no payment for
improvements has been made and, instead, a bond therefor had been filed by defendants (private respondents), which,
according to petitioner, is not the payment envisaged in the decision which would entitle private respondents to the
possession of the property. Furthermore, with respect to portion "B", petitioner alleges that, under the decision, he has the

right to retain the same until after he has participated and lost in the public bidding of the land to be conducted by the
Bureau of Lands. It is claimed that it is only in the event that he
loses in the bidding that he can be legally dispossessed thereof.cdll
It is the position of petitioner that all the fruits of the property, including the tolls collected by him from the passing vehicles,
which according to the trial court amounts to P25,000.00, belongs to petitioner and not to defendant/private respondent
Quirino Comintan, in accordance with the decision itself, which decreed that the fruits of the property shall be in lieu of
interest on the amount to be paid to petitioner as reimbursement for improvements. Any contrary opinion, in his view,
would be tantamount to an amendment of a decision which has long become final and executory and, therefore, cannot be
lawfully done.
Petitioner, therefore, prayed that (1) a Writ of Preliminary Injunction be issued enjoining the enforcement of the Orders of
September 23, 1970 and November 18, 1970, and the Writ of Execution issued thereto, or restoring to petitioner the
possession of the property if the private respondents had been placed in possession thereof; (2) annulling said Orders as
well as the Writ of Execution, dissolving the receivership established over the property; and (3) ordering private
respondents to account to petitioner all the fruits they may have gathered or collected from the property in question from
the time of petitioner's illegal dispossession thereof.
On January 29, 1971, this Court issued the Writ of Preliminary Injunction. On January 30, 1971, private respondents filed a
Motion for Reconsideration and/or Modification of the Order dated January 29, 1971. This was followed by a Supplemental
Motion for Reconsideration and Manifestation on February 3, 1971. In the latter motion, private respondents manifested that
the amount of P14,040.96, representing the amount decreed in the judgment as reimbursement to petitioner for the
improvements, plus interest for six months, has already been deposited by them in court, "with the understanding that said
amount shall be turned over to the plaintiff after the court a quo shall have determined the improvement on Lot 5785- A, and
subsequently the remaining balance of the deposit shall be delivered to the petitioner (plaintiff therein) in the event he loses
the bid for Lot 5785-B in favor of private respondent Eleuterio Zamora." 8 The deposit is evidenced by a certification made
by the Clerk of the Court a quo. 9 Contending that said deposit was a faithful compliance w ith the judgment of the trial court,
private respondent Quirino Comintan prayed for the dissolution of the Writ of Injunction.llcd
It appears that as a consequence of the deposit made by private respondents, the Deputy Sheriff of Calauag, Quezon ousted
petitioner's representative from the land in question and put private respondents in possession thereof. 10
On March 10, 1971, petitioner filed a "Comment on Respondents' 'Motion for R e co n s i d e r a t i o n ' d a t e d J a n u a r y 2 9
, 1 9 7 1 ' a n d ' S u p p l e m e n t a l M o t i o n f o r Reconsideration and Manifestation,"' contending that the tender of
deposit mentioned in the Supplemental Motion was not really and officially made, "'inasmuch as the same is not supported
by any official receipt from the lower court, or from its clerk or cashier, as required by law;" that said deposit does not
constitute sufficient compliance with the judgment sought to be enforced, neither was it
legally and validly made because the requisites for consignation had not been complied with; that the tender of legal interest
for six months cannot substitute petitioner's enjoyment of the fruits of the property as long as the judgment in Civil Case No.
C-90 has not been implemented in the manner decreed therein; that contrary to the allegations of private respondents, the
value of the improvements on the whole property had been determined by the lower court, and the segregation of the
improvements for each lot should have been raised by them at the opportune moment by asking for the modification of the
decision before it became final and executory; and that the tolls on the property constituted "civil fruits" to which the
petitioner is entitled under the terms of the decision.
IV
The issue decisive of the controvercy is after the rendition by the trial court of its judgment in Civil Case No. C-90 on
March 22, 1966 confirming the award of one- half of the property to Quirino Comintan whether or not petitioner is still
entitled to retain for his own exclusive benefit all the fruits of the property, such as the tolls collected by him from March
1967 to December 1968, and September 1969 to March 31, 1970, amounting to about P25,000.00. In other words, petitioner
contends that so long as the aforesaid amount of P13,632.00 decreed in the judgment representing the expenses for clearing
the land and the value of the coconuts and fruit trees planted by him remains unpaid, he can appropriate for his exclusive
benefit all the fruits which he may derive from the property, without any obligation to apply any portion thereof to the
payment of the interest and the principal of the debt.LexLib
We find this contention untenable.

There is no question that a possessor in good faith is entitled to the fruits received before the possession is legally
interrupted. 11 Possession in 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 the filing of an action in court by the true owner for the recovery of the
property. 12 Hence, all the fruits that the possessor may receive from the time he is summoned in court, or when he answers
the complaint, must be delivered and paid by him to the owner or lawful possessor. 13
However, even after his good faith ceases, the possessor in fact can still retain the property, pursuant to Article 546 of the
New Civil Code, until he has been fully reimbursed for all the necessary and useful expenses made by him on the property.
This right of retention has been considered as one of the conglomerate of measures devised by the law for the protection of
the possessor in good faith. Its object is to guarantee the reimbursement of the expenses, such as those for the preservation
of the property, 14 or for the enhancement of its utility or productivity. 15 It permits the actual possessor to remain in
possession while he has not been reimbursed by the person who defeated him in the possession for those necessary
expenses and useful improvements made by him on the thing possessed. The principal characteristic of the right of retention
is its accessory character. It is accessory to a principal obligation. Considering that the right of the possessor to receive the
fruits
terminates when his good faith ceases, it is necessary, in order that this right to retain may be useful, to concede to the
creditor the right to secure reimbursement from the fruits of the property by utilizing its proceeds for the payment of the
interest as well as the principal of the debt while he remains in possession. This right of retention of the property by the
creditor, according to Scaevola, in the light of the provisions of Article 502 of the Spanish Civil Code, 16 is considered not a
coercive measure to oblige the debtor to pay, depriving him temporarily of the enjoyment of the fruits of his property, but as
a means of obtaining compensation for the debt. The right of retention in this case is analogous to a contract of antichresis
and it can be considered as a means of extinguishing the obligation, inasmuch as the right to retain the thing lasts only for the
period necessary to enable the creditor to be reimbursed from the fruits for the necessary and useful expenses. 17
According to Manresa, the right of retention is, therefore, analogous to that of a pledge, if the property retained is a movable,
and to that of antichresis, if the property held is immovable. 18 This construction appears to be in harmony with similar
provisions of the civil law which employs the right of retention as a means or device by which a creditor is able to obtain the
payment of a debt. Thus, under Article 1731 of the New Civil Code, any person who has performed work upon a movable has
a right to retain it by way of pledge until he is paid. Similarly, under Article 1914 of the same Code, the agent may retain in
pledge the things which are the object of the agency until the principal effects reimbursement of the funds advanced by the
former for the execution of the agency, or he is indemnified for all damages which he may have suffered as a consequence of
the execution of the agency, provided he is free from fault. To the same effect, the depository, under Article 1994 of the same
Code, may retain the thing in pledge until the full payment of what may be due him by reason of the deposit. The
usufructuary, pursuant to Article 612 of the same Code, may retain the property until he is reimbursed for the amount paid
for taxes levied on the capital (Article 597) and for extraordinary repairs (Article 594).LLjur
In all of these cases, the right of retention is used as a means of extinguishing the
obligation. As amply observed by Manresa: "El derecho de retencion, lo hemos dicho,
es el derecho de prenda o el de anticresis constituido por la ley con independencia de
la voluntad de las partes." 19 In a pledge if the thing pledged earns or produces
fruits, income, dividends or interests, the creditor shall compensate what he
receives with those which are owing him. 20 In the same manner, in a contract of
antichresis, the creditor acquires the right to receive the fruits of an immovable of
his debtor with the obligation to apply them to the payment of the interest, if
owing, and thereafter to the principal of his credit. 21 The debtor can not reacquire
enjoyment of the immovable until he has actually paid what he owes the creditor.
22

Applying the afore-cited principles to the case at bar, petitioner cannot appropriate for his own exclusive benefit the tolls
which he collected from the property retained by him. It was his duty under the law, after deducting the necessary expenses
for his administration, to apply such amount collected to the payment of the interest,
and the balance to the payment of the principal of the obligation.
We hold, therefore, that the disputed tolls, after deducting petitioner's expenses for administration, belong to Quirino
Comintan, owner of the land through which the toll road passed, further considering that the same was on portions of the
property on which petitioner had not introduced any improvement. The trial court itself clarified this matter when it placed
the toll road under receivership. The omission of any mention of the tolls in the decision itself may be attributed to the fact
that the tolls appear to have been collected after the rendition of the judgment of the trial court.
The records further reveal that earnest eff orts have been made by private respondents to have the judgment executed in the
most practicable manner. They deposited in court the amount of the judgment in the sum of P13,632.00 in cash, subject only
to the accounting of the tolls collected by the petitioner so that whatever is due from him may be set off with the amount of
reimbursement. This is just and proper under the circumstances and, under the law, compensation or set off may take place,
either totally or partially. Considering that petitioner is the creditor with respect to the judgment obligation and the debtor
with respect to the tolls collected, Comintan being the ow ner thereof, the trial court's order for an accounting and
compensation is in accord with law. 23
With respect to the amount of reimbursement to be paid by Comintan, it appears that the dispositive portion of the decision
was lacking in specificity, as it merely provided that Comintan and Zamora are jointly liable therefor. When two persons are
liable under a contract or under a judgment, and no words appear in the contract or judgment to make each liable for the
entire obligation, the presumption is that their obligation is joint or mancomunada, and each debtor is liable only for a
proportionate part of the obligation. 24 The judgment debt of P13,632.00 should, therefore, be pro-rated in equal shares to
Comintan and Zamora.
Regarding Lot 5785-B, it appears that no public sale has yet been conducted by the Bureau of Lands and, therefore,
petitioner is entitled to remain in possession thereof. This is not disputed by respondent Eleuterio Zamora. 25 After public
sale is had and in the event that Ortiz is not declared the successful bidder, then he should be reimbursed by respondent
Zamora in the corresponding amount for the improvements on Lot 5785-B.
WHEREFORE, in view hereof, the Order of respondent Court of November 18, 1970 is hereby modified to conform to the
foregoing judgment. The Writ of Preliminary I njunction, dated J anuary 29, 1971, is hereby dissolved. W ithout special
pronouncement as to costs.
Barredo (Chairman), Concepcion, Jr., and Guerrero, JJ., concur. Aquino, J., concurs in the result.
Santos and Abad Santos, JJ., are on leave. Guerrero, J., was designated to sit in the Second Division.

THIRD DIVISION
[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.
Decano and Decano Law Office for petitioners. Bengson, Baraan, Fernandez Law Offices for private respondents.
SYLLABUS
1. CIVIL LAW; PROPERTY; OWNERSHIP; RIGHT TO FULL REIMBURSEMENT OF USEFUL IMPROVEMENTS AND RETENTION
OF THE PREMISES UNTIL REIMBURSEMENT IS MADE, APPLIES ONLY TO A POSSESSOR IN GOOD FAITH. This Court has
held that Article 448 of the Civil Code, in relation to Article 546 of the same Code, which allowed 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.

2. ID.; LEASE; THE RIGHT TO INDEMNITY ARISES ONLY IF THE LESSOR OPTS TO APPROPRIATE THE IMPROVEMENTS.
The right to indemnity under Article 1678 of the Civil Code arises only if the lessor opts to appropriate the improvements.
Once the petitioners refused to exercise that option, 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.
DECISION
DAVIDE, JR., J p:
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 names. 3
On 9 February 1993, the petitioners sent, via registered mail, a letter 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 regards 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.
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
allows 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 reimbursement of
the value of the house and improvements with the right of retention until reimbursement had been made.
On appeal, this time by the petitioners, the Court of Appeals affirmed the decision of the RTC 7 and denied 8 the 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 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.
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 remove the improvements, even though the principal thing may suffer damage thereby. He shall not, however,
cause any more impairment upon the property leased than is necessary.
With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he may remove the
ornamental objects, provided no damage is caused to the principal thing, and the lessor does not choose to retain them by
paying their value at the time the lease is extinguished.
The crux of the said issue then is whether the private respondents are builders 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 a lessor and occupy the position of a landlord to the
tenant although he is not the owner of the premises let. 9 After 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 mortgage. Lee, however, never sought a
writ of possession in order that she gain possession of the property in question. 12 The petitioners' mother therefore
remained in possession of the lot.
It is undisputed that the private respondents came into possession of a 126 square- meter portion of the said lot by virtue of
a contract of lease executed by the petitioners' mother in their favor. The juridical relation between the petitioners' mother
as lessor, and the private respondents as lessees, is therefore w ell- 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 be covered by the provisions of Article 448 of the
Civil Code. The latter cannot raise the mere expectancy of 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 that 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 co-ownership" would not be created between the petitioners and the private
respondents. For, as correctly pointed out by the petitioners, the rights 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."
Costs against the private respondents SO ORDERED. Narvasa, C . J ., Melo, Francisco, and Panganiban, JJ ., concur.

THIRD DIVISION
[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.
Mirano, Mirano & Associates Law Offices for petitioner. Abraham D. Caa for Wilson Kee.
SYLLABUS
1. CIVIL LAW; PROPERTY; OWNERSHIP; BUILDER IN GOOD FAITH; BUILDER IN GOOD FAITH DEFINED; APPLICATION IN
CASE AT BAR. 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. 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. And as good faith is presumed, petitioner has the burden of proving bad faith on
the part of Kee. 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. cdll
2. ID.; AGENCY; PETITIONER, AS PRINCIPAL, IS RESPONSIBLE FOR THE NEGLIGENCE OF ITS AGENT, CTTEI, WHICH ACTED
WITHIN THE SCOPE OF ITS AUTHORITY. 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. On the other hand, the agent who exceeds his
authority is personally liable for the damage. CTTEI was acting within its authority as the sole real estate representative of
petitioner when it made the delivery to Kee. In acting within its scope of authority, it was, however, negligent. It is this
negligence that is the basis of petitioner's liability, as principal of CTTEI, per Articles 1909 and 1910 of the Civil Code.
3. ID.; DAMAGES; AMOUNT OF DAMAGES TO BE AWARDED IS A FACTUAL ISSUE WHICH SHOULD BE DETERMINED AFTER
EVIDENCE IS ADDUCED. Now, the extent and/or amount of damages to be awarded is a factual issue which should be
determined after evidence is adduced. However, there is no showing that such evidence was actually presented in the trial
court; hence no damages could now be aw arded.
4. LEGAL ETHICS; ATTORNEY'S FEES; THE AWARD OF ATTORNEY'S FEES LIES WITHIN THE DISCRETION OF THE COURT
AND DEPENDS UPON THE CIRCUMSTANCES OF EACH CASE. The award of attorney's fees lies within the discretion of the
court and depends upon the circumstances of each case. 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.
DECISION
PANGANIBAN, J p:
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 Decision 1 of the Court of
Appeals 2 in CA-G.R. SP No. 11040, promulgated on August 20, 1987. cda
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
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 Kee. 5
It found Kee a builder in bad faith. It further ruled that even assuming arguendo that Kee was acting in good faith, he was,
nonetheless, guilty of unlawfully usurping the possessory right of Jardinico over Lot 9 from the time he was served with
notice to vacate said lot, and thus was liable for rental.
The RTC thus disposed:
"WHEREFORE, the decision appealed from is affirmed with respect to the order against the defendant to vacate the premises
of Lot No. 9 covered by Transfer Certificate of Title No. T-106367 of the land records of Bacolod City; the removal of all
structures and improvements introduced thereon at his expense and the payment to plaintiff (sic) the sum of Fifteen
(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
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 CITEI,
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; cdlex

"6. The award of attorney's fees is clearly without basis and is equivalent to putting a premium in (sic) court litigation."
From these grounds, the issues could be re-stated as follows:
(1) Was Kee a builder in good faith?
(2) What is the liability, if any, of petitioner and its agent, C.T. Torres Enterprises, Inc.? and
(3) Is the award of 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 circumstance is relevant only as it
gives Jardinico a cause of action for unlawful detainer against Kee. Lex Libris

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 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. LLpr
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 whatsoever;" 16
Kee asserts though that the "terms and conditions in the 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.
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. cda
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 now be awarded.
The rights of Kee and Jardinico vis-a-vis each other, as builder in good faith and owner in good faith, respectively, are
regulated by law (i.e., Arts. 448, 546 and 548 of the Civil Code). It was error for the Court of Appeals to make a "slight
modification" in the application of such law, on the ground of "equity". At any rate, as it stands now, Kee and Jardinico have
amicably settled through their deed of sale their rights and obligations with regards to Lot 9. Thus, we delete items 2 (a) and
(b) of the dispositive portion of the Court of Appeals' Decision [as reproduced above] holding petitioner and CTTEI solidarily
liable.
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 the 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 proven during the trial,
the same cannot now be quantified and awarded;
(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. Narvasa, C.J., Davide, Jr., and Melo, JJ., concur.
Francisco, J., took no part. Member of the division in the CA which rendered the assailed decision.
EN BANC
[G.R. No. L-11269. February 28, 1958.]
SILVERIO FELICES, plaintiff-appellee, vs. MAMERTO IRIOLA, defendant-appellant.
Ezekiel S. Grageda for appellant. Reyes & Dy-Liaco for appellee.
SYLLABUS
1. PUBLIC LANDS; HOMESTEAD; SALE WITHIN PROHIBITIVE PERIOD, NULL AND VOID; EFFECT ON TITLE OF GRANTEE.
A sale of homestead executed within the five-year prohibitive period under Section 118 of the Public Land Law is null and
void ab initio. Consequently, the grantee- vendor never lost his title or ownership over the homestead, and there is no need
for him to repurchase the same from the vendee, or for the latter to execute a deed of reconveyance in his favor. The case is
actually for mutual restitution, incident to the nullity of the conveyance.
2. ID.; ID.; ID.; FORFEITURE OF IMPROVEMENTS MADE IN BAD FAITH. While both grantee and vendee acted in bad faith
because they knew that the sale was illegal and void, and consequently, under Art. 453 of the Civil Code, their rights should
be the same as though both had acted in good faith, however, the vendee in the case at bar, can not recover the value of the
improvements introduced by him because they were made on the premises only after the grantee had tried to recover the
land in question from him. By so doing, he acted in bad faith and as a penalty therefor, he must forfeit his improvements
without any right to reimbursement. "He who builds, plants or sows in bad faith on the land of another, loses what is built,
planted or sown without right to indemnity" (Art. 449, New Civil Code).
DECISION
REYES, J. B. L., J p: Originally brought to the Court of Appeals, this appeal was certified to us by
that Court on the ground that it does not raise any genuine issue of fact.
It appears that plaintiff and appellee Silverio Felices was the grantee of a homestead of over eight hectares located in barrio
Curry, Municipality of Pili, Province of Camarines Sur, under Homestead Patent No. V-2117 dated January 26, 1949, and by
virtue of which he was issued Original Certificate of Title No.
104 over said property. The month following the issuance of his patent, on February 24, 1949, appellee conveyed in
conditional sale to defendant and appellant Mamerto Iriola a portion of his homestead of more than four hectares, for the
consideration of P1,700. The conveyance (Exh. 1) expressly stipulates that the sale was subject to the provisions of Sec. 119
of Act 141, as amended, and to the prohibitions spread on the vendor's patent; and that after the lapse of five years or as
soon as may be allowed by law, the vendor or his successors would execute in vendee's favor a deed of absolute sale over the
land in question.
Two years after the sale, on April 19, 1951, appellee tried to recover the land in question from appellant, but the latter
refused to allow it unless he was paid the amount of P2,000 as the alleged value of improvements he had introduced on the
property. In view of appellant's persistent refusal, plaintiff deposited the received price in court and filed this action on
October 4, 1951.
I n the court below , appellant, w hile recognizing appellee's right to "redeem", insisted that he must first be reimbursed the

value of his improvements. Whereupon, the court appointed a commissioner to ascertain the nature and value of the alleged
improvements, and thereafter found that said improvements were made by defendant either after plaintiff had informed him
of his intention to recover the land, or after the complaint had been filed; some of the improvements were even introduced
after a commissioner had already been appointed to appraise their value. Wherefore, the lower court held defendant in bad
faith and not entitled to reimbursement for his improvements. Defendant was, likewise, ordered to accept the amount of
P1,700 deposited by plaintiff in court, to execute in favor of the latter the corresponding deed of reconveyance, and to
restore him in possession of the land in question.
At the outset, it must be made clear that as the sale in question was executed by the parties within the five-year prohibitive
period under section 118 of the Public Land Law, the same is absolutely null and void and ineffective from its inception.
Consequently, appellee never lost his title or ownership over the land in question, and there was no need either for him to
repurchase the same from appellant, or for the latter to execute a deed of reconveyance in his favor. The case is actually for
mutual restitution, incident to the nullity ab initio of the conveyance.
The question now is: May appellant recover or be reimbursed the value of his improvements on the land in question, on the
theory that as both he and appellee knew that their sale was illegal and void, they were both in bad faith and consequently,
Art. 453 of the Civil Code applies in that "the rights of one and the other shall be the same as though both had acted in good
faith"?
The rule of Art. 453 of the Civil Code invoked by appellant1 can not be applied to the instant case for the reason that the
lower court found, and appellant admits, that the improvements in question were made on the premises only after appellee
had tried to recover the land in question from appellant, and even during the pendency of this action in the court below.
After appellant had refused to restore the land to the appellee, to the extent that the latter even had to resort to the present
action to recover his property, appellee could no longer be
regarded as having impliedly assented or conformed to the improvements thereafter made by appellant on the premises.
Upon the other hand, appellant, recognizing as he does appellee's right to get back his property, continued to act in bad faith
when he made improvements on the land in question after he had already been asked extra-judicially and judicially, to
surrender and return its possession to appellee; and as a penalty for such bad faith, he must forfeit his improvements
without any right to reimbursement therefor. "He who builds, plants or sows in bad faith on the land of another, loses what is
built, planted, or sown without right to indemnity" (Art. 449, New Civil Code).
Wherefore, the judgment appealed from is affirmed, with the sole modification that appellant need not execute a deed of
reconveyance in appellee's favor, the original conveyance being hereby declared void ab initio. Costs against appellant
Mamerto Iriola. So ordered.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Endencia and Felix, JJ., concur.
Footnote
1.

ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on the land of
another, but also on the part of the owner of such land, the rights of one and the other shall be the same as though
both had acted in good faith. . . .

FIRST DIVISION
[G.R. No. 151815. February 23, 2005.]

SPOUSES JUAN NUGUID AND ERLINDA T. NUGUID , petitioners, vs. HON. COURT OF APPEALS AND PEDRO P. PECSON ,
respondents.
DECISION
QUISUMBING, J p:
This is a petition for review on certiorari of the Decision 1 dated May 21, 2001, of the Court of Appeals in CA-G.R. CV No.
64295, which modified the Order dated July 31, 1998 of the Regional Trial Court (RTC) of Quezon City, Branch 101 in Civil
Case No. Q-41470. The trial court ordered the defendants, among them petitioner herein Juan Nuguid, to pay respondent

herein Pedro P. Pecson, the sum of P1,344,000 as reimbursement of unrealized income for the period beginning November
22, 1993 to December 1997. The appellate court, however, reduced the trial court's award in favor of Pecson from the said
P1,344,000 to P280,000. Equally assailed by the petitioners is the appellate court's Resolution 2 dated January 10, 2002,
denying the motion for reconsideration.
It may be recalled that relatedly in our Decision dated May 26, 1995, in G.R. No. 115814, entitled Pecson v. Court of Appeals,
we set aside the decision of the Court of Appeals in CA-G.R. SP No. 32679 and the Order dated November 15, 1993, of the RTC
of Quezon City, Branch 101 and remanded the case to the trial court for the determination of the current market value of the
four-door two-storey apartment building on the 256-square meter commercial lot.
The antecedent facts in this case are as follows:
Pedro P. Pecson owned a commercial lot located at 27 Kamias Road, Quezon City, on which he built a four-door two-storey
apartment building. For failure to pay realty taxes, the lot was sold at public auction by the City Treasurer of Quezon City to
Mamerto Nepomuceno, who in turn sold it for P103,000 to the spouses Juan and Erlinda Nuguid. EcICDT
Pecson challenged the validity of the auction sale before the RTC of Quezon City in Civil Case No. Q-41470. In its Decision, 3
dated February 8, 1989, the RTC upheld the spouses' title but declared that the four-door two-storey apartment building was
not included in the auction sale. 4 This was affirmed in toto by the Court of Appeals and thereafter by this Court, in its
Decision 5 dated May 25, 1993, in G.R. No. 105360 entitled Pecson v. Court of Appeals.
On June 23, 1993, by virtue of the Entry of Judgment of the aforesaid decision in
G.R. No. 105360, the Nuguids became the uncontested owners of the 256-square meter commercial lot.
As a result, the Nuguid spouses moved for delivery of possession of the lot and the apartment building.
In its Order 6 of November 15, 1993, the trial court, relying upon Article 546 7 of the Civil Code, ruled that the Spouses
Nuguid were to reimburse Pecson for his construction cost of P53,000, following which, the spouses Nuguid were entitled to
immediate issuance of a writ of possession over the lot and improvements. In the same order the RTC also directed Pecson to
pay the same amount of monthly rentals to the Nuguids as paid by the tenants occupying the apartment units or P21,000 per
month from June 23, 1993, and allowed the offset of the amount of P53,000 due from the Nuguids against the amount of
rents collected by Pecson from June 23, 1993 to September 23, 1993 from the tenants of the apartment. 8
Pecson duly moved for reconsideration, but on November 8, 1993, the RTC issued a Writ of Possession, 9 directing the
deputy sheriff to put the spouses Nuguid in possession of the subject property with all the improvements thereon and to
eject all the occupants therein. caAICE
Aggrieved, Pecson then filed a special civil action for certiorari and prohibition docketed as CA-G.R. SP No. 32679 with the
Court of Appeals. jur2005cd
In its decision of June 7, 1994, the appellate court, relying upon Article 448 10 of the Civil Code, affirmed the order of
payment of construction costs but rendered the issue of possession moot on appeal, thus:
WHEREFORE, while it appears that private respondents [spouses Nuguid] have not yet indemnified petitioner [Pecson] 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 [Underscoring supplied.] Frustrated by this turn of events, Pecson filed a petition for review docketed
as G.R.
No. 115814 before this Court. On May 26, 1995, the Court handed down the decision in G.R. No 115814, to wit:
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 [Spouses Juan and Erlinda Nuguid] to the
petitioner [Pedro Pecson] otherwise the petitioner shall be restored to the possession of the apartment building until
payment of the required indemnity.
No costs.
SO ORDERED. 12 [Emphasis supplied.]
In so ruling, this Court pointed out that: (1) Article 448 of the Civil Code is not apposite to the case at bar where the owner of
the land is the builder, sower, or planter who then later lost ownership of the land by sale, but may, however, be applied by
analogy; (2) the current market value of the improvements should be made as the basis of reimbursement; (3) Pecson was
entitled to retain ownership of the building and, necessarily, the income therefrom; (4) the Court of Appeals erred not only in
upholding the trial court's determination of the indemnity, but also in ordering Pecson to account for the rentals of the
apartment building from June 23, 1993 to September 23, 1993.
On the basis of this Court's decision in G.R. No. 115814, Pecson filed a Motion to Restore Possession and a Motion to Render
Accounting, praying respectively for restoration of his possession over the subject 256-square meter commercial lot and for
the spouses Nuguid to be directed to render an accounting under oath, of the income derived from the subject four-door
apartment from November 22, 1993 until possession of the same was restored to him.
In an Order 13 dated January 26, 1996, the RTC denied the Motion to Restore Possession to the plaintiff averring that the
current market value of the building should first be determined. Pending the said determination, the resolution of the Motion
for Accounting was likewise held in abeyance.
With the submission of the parties' assessment and the reports of the subject realty, and the reports of the Quezon City
Assessor, as well as the members of the duly constituted assessment committee, the trial court issued the following Order 14
dated October 7, 1997, to wit:
On November 21, 1996, the parties manifested that they have arrived at a compromise agreement that the value of the said
improvement/building is P400,000.00 The Court notes that the plaintiff has already received P300,000.00. However, when
defendant was ready to pay the balance of P100,000.00, the plaintiff now insists that there should be a rental to be paid by
defendants. Whether or not this should be paid by defendants, incident is hereby scheduled for hearing on November 12,
1997 at 8:30 a.m. DCASEc
Meantime, defendants are directed to pay plaintiff the balance of P100,000.00.
SO ORDERED. 15
On December 1997, after paying the said P100,000 balance to Pedro Pecson the spouses Nuguid prayed for the closure and
termination of the case, as well as the cancellation of the notice of lis pendens on the title of the property on the ground that
Pedro Pecson's claim for rentals was devoid of factual and legal bases. 16
After conducting a hearing, the lower court issued an Order dated July 31, 1998, directing the spouses to pay the sum of
P1,344,000 as reimbursement of the unrealized income of Pecson for the period beginning November 22, 1993 up to
December 1997. The sum was based on the computation of P28,000/month rentals of the four-door apartment, thus:
The Court finds plaintiff's motion valid and meritorious. The decision of the Supreme Court in the aforesaid case [Pecson vs.
Court of Appeals, 244 SCRA 407] which set aside the Order of this Court of November 15, 1993 has in effect upheld plaintiff's
right of possession of the building for as long as he is not fully paid the value thereof. It follows, as declared by the Supreme
Court in said decision that the plaintiff is entitled to the income derived therefrom, thus
xxx xxx xxx
Records show that the plaintiff was dispossessed of the premises on November 22, 1993 and that he was fully paid the value
of his building in December 1997. Therefore, he is entitled to the income thereof beginning on November 22, 1993, the time
he was dispossessed, up to the time of said full payment, in December 1997, or a total of 48 months.

The only question left is the determination of income of the four units of apartments per month. But as correctly pointed out
by plaintiff, the defendants have themselves submitted their affidavits attesting that the income derived from three of the
four units of the apartment building is P21,000.00 or P7,000.00 each per month, or P28,000.00 per month for the whole four
units. Hence, at P28,000.00 per month, multiplied by 48 months, plaintiff is entitled to be paid by defendants the amount of
P1,344,000.00. 17
The Nuguid spouses filed a motion for reconsideration but this was denied for lack of merit. 18
The Nuguid couple then appealed the trial court's ruling to the Court of Appeals, their action docketed as CA-G.R. CV No.
64295.
In the Court of Appeals, the order appealed from in CA-G.R. CV No. 64295, was modified. The CA reduced the rentals from
P1,344,000 to P280,000 in favor of the appellee. 19 The said amount represents accrued rentals from the determination of
the current market value on January 31, 1997 20 until its full payment on December 12, 1997.
Hence, petitioners state the sole assignment of error now before us as follows:
THE COURT OF APPEALS ERRED IN HOLDING PETITIONERS LIABLE TO PAY RENT OVER AND ABOVE THE CURRENT
MARKET VALUE OF THE IMPROVEMENT WHEN SUCH WAS NOT PROVIDED FOR IN THE DISPOSITIVE PORTION OF THE
SUPREME COURT'S RULING IN G.R. No. 115814. ECTSDa
Petitioners call our attention to the fact that after reaching an agreed price of P400,000 for the improvements, they only
made a partial payment of P300,000. Thus, they contend that their failure to pay the full price for the improvements will, at
most, entitle respondent to be restored to possession, but not to collect any rentals. Petitioners insist that this is the proper
interpretation of the dispositive portion of the decision in G.R. No. 115814, which states in part that "[t]he value so
determined shall be forthwith paid by the private respondents [Spouses Juan and Erlinda Nuguid] to the petitioner [Pedro
Pecson] otherwise the petitioner shall be restored to the possession of the apartment building until payment of the required
indemnity." 21
Now herein respondent, Pecson, disagrees with herein petitioners' contention. He argues that petitioners are wrong in
claiming that inasmuch as his claim for rentals was not determined in the dispositive portion of the decision in G.R. No.
115814, it could not be the subject of execution. He points out that in moving for an accounting, all he asked was that the
value of the fruits of the property during the period he was dispossessed be accounted for, since this Court explicitly
recognized in G.R. No. 115814, he was entitled to the property. He points out that this Court ruled that "[t]he petitioner
[Pecson] not having been so paid, he was entitled to retain ownership of the building and, necessarily, the income
therefrom." 22 In other words, says respondent, accounting was necessary. For accordingly, he was entitled to rental income
from the property. This should be given effect. The Court could have very well specifically included rent (as fruit or income of
the property), but could not have done so at the time the Court pronounced judgment because its value had yet to be
determined, according to him. Additionally, he faults the appellate court for modifying the order of the RTC, thus defeating
his right as a builder in good faith entitled to rental from the period of his dispossession to full payment of the price of his
improvements, which spans from November 22, 1993 to December 1997, or a period of more than four years.
It is not disputed that the construction of the four-door two-storey apartment, subject of this dispute, was undertaken at the
time when Pecson was still the owner of the lot. When the Nuguids became the uncontested owner of the lot on June 23,
1993, by virtue of entry of judgment of the Court's decision, dated May 25, 1993, in G.R. No. 105360, the apartment building
was already in existence and occupied by tenants. In its decision dated May 26, 1995 in G.R. No. 115814, the Court declared
the rights and obligations of the litigants in accordance with Articles 448 and 546 of the Civil Code. These provisions of the
Code are directly applicable to the instant case.
Under Article 448, the landowner is given the option, either to appropriate the improvement as his own upon payment of the
proper amount of indemnity or to
sell the land to the possessor in good faith. Relatedly, Article 546 provides that a builder in good faith is entitled to full
reimbursement for all the necessary and useful expenses incurred; it also gives him right of retention until full
reimbursement is made.
While the law aims to concentrate in one person the ownership of the land and the improvements thereon in view of the
impracticability of creating a state of forced co-ownership,23 it guards against unjust enrichment insofar as the good-faith
builder's improvements are concerned. The right of retention is considered as one of the measures devised by the law for the

protection of builders in good faith. Its object is to guarantee full and prompt reimbursement as it permits the actual
possessor to remain in possession while he has not been reimbursed (by the person who defeated him in the case for
possession of the property) for those necessary expenses and useful improvements made by him on the thing possessed.24
Accordingly, a builder in good faith cannot be compelled to pay rentals during the period of retention 25 nor be disturbed in
his possession by ordering him to vacate. In addition, as in this case, the owner of the land is prohibited from offsetting or
compensating the necessary and useful expenses with the fruits received by the builder-possessor in good faith. Otherwise,
the security provided by law would be impaired. This is so because the right to the expenses and the right to the fruits both
pertain to the possessor, making compensation juridically impossible; and one cannot be used to reduce the other. 26
As we earlier held, since petitioners opted to appropriate the improvement for themselves as early as June 1993, when they
applied for a writ of execution despite knowledge that the auction sale did not include the apartment building, they could not
benefit from the lot's improvement, until they reimbursed the improver in full, based on the current market value of the
property. DTIaHE
Despite the Court's recognition of Pecson's right of ownership over the apartment building, the petitioners still insisted on
dispossessing Pecson by filing for a Writ of Possession to cover both the lot and the building. Clearly, this resulted in a
violation of respondent's right of retention. Worse, petitioners took advantage of the situation to benefit from the highly
valued, income-yielding, four-unit apartment building by collecting rentals thereon, before they paid for the cost of the
apartment building. It was only four years later that they finally paid its full value to the respondent.
Petitioners' interpretation of our holding in G.R. No. 115814 has neither factual nor legal basis. The decision of May 26, 1995,
should be construed in connection with the legal principles which form the basis of the decision, guided by the precept that
judgments are to have a reasonable intendment to do justice and avoid wrong. 27
The text of the decision in G.R. No. 115814 expressly exempted Pecson from liability to pay rentals, for we found that the
Court of Appeals erred not only in upholding the trial court's determination of the indemnity, but also in ordering him to
account for the rentals of the apartment building from June 23, 1993 to September 23, 1993, the period from entry of
judgment until Pecson's
dispossession. As pointed out by Pecson, the dispositive portion of our decision in G.R. No. 115814 need not specifically
include the income derived from the improvement in order to entitle him, as a builder in good faith, to such income. The
right of retention, which entitles the builder in good faith to the possession as well as the income derived therefrom, is
already provided for under Article 546 of the Civil Code.
Given the circumstances of the instant case where the builder in good faith has been clearly denied his right of retention for
almost half a decade, we find that the increased award of rentals by the RTC was reasonable and equitable. The petitioners
had reaped all the benefits from the improvement introduced by the respondent during said period, without paying any
amount to the latter as reimbursement for his construction costs and expenses. They should account and pay for such
benefits.
We need not belabor now the appellate court's recognition of herein respondent's entitlement to rentals from the date of the
determination of the current market value until its full payment. Respondent is clearly entitled to payment by virtue of his
right of retention over the said improvement.
WHEREFORE, the instant petition is DENIED for lack of merit. The Decision dated May 21, 2001 of the Court of Appeals in
CA-G.R. CV No. 64295 is SET ASIDE and the Order dated July 31, 1998, of the Regional Trial Court, Branch 101, Quezon City,
in Civil Case No. Q-41470 ordering the herein petitioners, Spouses Juan and Erlinda Nuguid, to account for the rental income
of the four-door two-storey apartment building from November 1993 until December 1997, in the amount of P1,344,000,
computed on the basis of Twenty-eight Thousand (P28,000.00) pesos monthly, for a period of 48 months, is hereby
REINSTATED. Until fully paid, said amount of rentals should bear the legal rate of interest set at six percent (6%) per annum
computed from the date of RTC judgment. If any portion thereof shall thereafter remain unpaid, despite notice of finality of
this Court's judgment, said remaining unpaid amount shall bear the rate of interest set at twelve percent (12%) per annum
computed from the date of said notice. Costs against petitioners. SETaHC
SO ORDERED. Davide, Jr., C.J., Ynares-Santiago, Carpio and Azcuna, JJ., concur.

FIRST DIVISION
[G.R. No. L-61647. October 12, 1984.]
REPUBLIC OF THE PHILIPPINES (DIRECTOR OF LANDS), petitioner, vs. THE HON. COURT OF APPEALS, BENJAMIN
TANCINCO, AZUCENA TANCINCO REYES, MARINA TANCINCO IMPERIAL and MARIO C. TANCINCO, respondents.
The Solicitor General for petitioner. Martin B. Laurea for private respondents.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE TRIAL COURT AND THE COURT OF APPEALS ARE BINDING IN
THE SUPREME COURT; EXCEPTIONS, The rule that the findings of fact of the trial court and the Court of Appeals are binding
upon this Court admits of certain exceptions. Thus in Carolina Industries Inc. vs. CMS Stock Brokerage, Inc. (97 SCRA 734) we
held that this Court retains the power to review and rectify the findings of fact of said courts when (1) the conclusion is a
finding grounded entirely on speculations, surmises and conjectures; (2) when the inference made is manifestly mistaken,
absurd, and impossible; (3) where there is grave abuse of discretion; (4) when the: judgment is based on a misapprehension
of facts; and (5) when the court, in making its findings, went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee.
2. CIVIL LAW; OWNERSHIP; RIGHT OF ACCESSION; REQUISITES OF ACCRETI ON. The above-quoted article requires the
concurrence of three requisites before an accretion covered by this particular provision is said to have taken place. They are
(1) that the deposit be gradual and imperceptible; (2) that it be made through the effects of the current of the water, and (3)
that the land where accretion takes place is adjacent to the banks of rivers.
3. ID.; ID.; ID.; ID.; ALLUVION MUST BE THE EXCLUSIVE WORK OF NATURE; CASE AT BAR. The requirement that the
deposit should be due to the effect of the current of the river is indispensable. This excludes from Art. 457 of the New Civil
Code all deposits caused by human intervention. Alluvion must be the exclusive work of nature. In the instant case, there is
no evidence whatsoever to prove that the addition to the said property was made gradually through the effects of the current
of the Meycauayan and Bocaue rivers. We agree with the observation of the Solicitor General that it is preposterous to
believe that almost four (4) hectares of land came into being because of the effects of the Meycauayan and Bocaue Rivers.
There is evidence that the alleged alluvial deposits were artificial and man-made and not the exclusive result of the current
of the Meycauayan and Bocaue rivers. The alleged alluvial deposits came into being not because of the sole effect of the
current of the rivers but as result of the transfer of the dike towards the river and encroaching upon it. The land sought to be
registered is not even dry land cast imperceptibly and gradually by the river's current on the fishpond adjoining it. It is under
two meters of water. The private respondents' own evidence shows that the water in the fishpond is two meters deep on the
side of the pilapil facing the fishpond and only one meter deep on the side of the pilapil facing river.
4. ID.; ID.; ID.; LAW GIVES RIPARIAN OWNER THE RIGHT TO ANY LAND OR ALLUVION; RATIONALE. The reason behind
the law giving the riparian owner the right to any land or alluvion deposited by a river is to compensate him for the danger of
loss that he suffers because of the location of his land. If estates bordering on rivers are exposed to floods and other evils
produced by the destructive force of the waters and if by virtue of lawful provisions, said estates are subject to incumbrances
and various kinds of easements, it is proper that the risk or danger which may prejudice the owner thereof should be
compensated by the right of accretion (Cortes vs. City of Manila, 10 Phil. 567). Hence, the riparian owner does not acquire the
additions to his land caused by special works expressly intended or designed to bring about accretion. When the private
respondents transferred their dikes towards the river beds, the dikes were meant for reclamation purposes and not protect
their property from the destructive force of the waters of the river.
DECISION
GUTIERREZ, JR., J p:
This is a petition for certiorari to set aside the decision of the respondent Court of Appeals (now Intermediate Appellate
Court) affirming the decision of the Court of First Instance of Bulacan, Fifth Judicial District, Branch VIII, which found that
Lots 1 and 2 of Plan Psu-131892 are accretion to the land covered by Transfer Certificate of Title No. 89709 and ordered
their registration in the names of the private respondents.
Respondents Benjamin Tancinco, Azucena Tancinco Reyes, Marina (should be "Maria") Tancinco Imperial and Mario C.
Tancinco are registered owners of a parcel of land covered by Transfer Certificate of Title No. T-89709 situated at Barrio

Ubihan, Meycauayan, Bulacan bordering on the Meycauayan and Bocaue rivers.

On June 24, 1973, the private respondents filed an application for the registration of three lots adjacent to their fishpond
property and particularly described as follows:
"Lot 1 Psu-131892 (Maria C. Tancinco)
"A parcel of land (lot 1 as shown on plan Psu-131892), situated in the Barrio of Ubihan, Municipality of Meycauayan,
Province of Bulacan. Bounded on the NE., along line 1-2, by Lot 3 of plan Psu-131892; on the SE., along lines 2-3- 4, by
Meycauayan River; on the S.W., along lines 4-5-6-7-8-9, by Bocaue
River; on the NE., along line 9-10, by property of Joaquina Santiago; on the E., NE., and NW., along lines 10-11-12-1, by
property of Mariano Tancinco (Lot 2, Psu-111877). . . . containing an area of THIRTY THREE THOUSAND NINE HUNDRED
THIRTY SEVEN (33,937) SQUARE METERS. . . . "
"Lot 2 Psu-131892 (Maria C. Tancinco)
"A parcel of land (Lot 2 as shown on plan Psu-131892), situated in the Barrio of Ubihan, Municipality of Meycauayan,
Province of Bulacan, Bounded on the E., along line 1-2, by property of Rafael Singson; on the S., along line 2-3, by Meycauayan
River; on the SW., along line 3-4, by Lot 3 of plan Psu-131892; and on the N., along line 4-1, by property of Mariano Tancinco
(Lot 1, Psu- 111877). . . . containing an area of FIVE THOUSAND FOUR HUNDRED FIFTY THREE (5,453) SQUARE METERS. . . .
"
"Lot 3 Psu-131892 (Maria C. Tancinco)
"A parcel of land (Lot 3 as shown on plan Psu-131892), situated in the Barrio of Ubihan, Municipality of Meycauayan,
Province of Bulacan, Bounded on the NE., along line 1-2, by property of Mariano Tancinco (Lot 1, Psu-111877); and along line
2-3, by Lot 2 of plan Psu-131892; on the S., along line 3-4, by Meycauayan River, on the SW., along line 4-5, by Lot 1 of plan
Psu-131892; and along line 5-6 by property of Mariano Tancinco (Lot 2, Psu-111877), and on the NW., along line 6-1, by
property of Joaquina Santiago. . . . containing an area of ONE THOUSAND NINE HUNDRED EIGHTY FIVE (1,985) SQUARE
METERS. . . . "
On April 5, 1974, Assistant Provincial Fiscal Amando C. Vicente, in representation of the Bureau of Lands filed a written
opposition to the application for registration.
On March 6, 1975, the private respondents filed a partial withdrawal of the application for registration with respect to Lot 3
of Plan Psu-131892 in line with the recommendation of the Commissioner appointed by the Court.
On March 7, 1975, Lot 3 was ordered withdrawn from the application and trial proceeded only with respect to Lots 1 and 2
covered by Plan Psu-131892.
On June 26, 1976, the lower court rendered a decision granting the application on the finding that the lands in question are
accretions to the private respondents' fishponds covered by Transfer Certificate of Title No. 89709. The dispositive portion
of the decision reads:
"WHEREFORE, it appearing that Lots 1 & 2 of plan Psu-131892 (Exh. H) are accretions to the land covered by Transfer
Certificate of Title No. 89709 of the Register of Deeds of Bulacan, they belong to the owner of said property. The Court,
therefore, orders the registration of Lots 1 & 2 situated in the barrio of Ubihan, municipality of Meycauayan, province of
Bulacan, and more particularly described in plan Psu-131892 (Exh. H) and their accompanying technical descriptions (Exhs.
E, E-1) in favor of Benjamin Tancinco, married
to Alma Fernandez and residing at 3662 Heatherdown, Toledo, Ohio 43614 U.S.A.; Azucena Tancinco Reyes, married to Alex
Reyes, Jr., residing at 4th St., New Manila, Quezon City; Marina Tancinco Imperial, married to Juan Imperial, residing at Pasay
Road, Dasmarias Village, Makati, Rizal; and Mario C. Tancinco, married to Leticia Regidor, residing at 1616 Cypress St.,
Dasmarias Village, Makati, Rizal, all of legal age, all Filipino citizens."
On July 30, 1976, the petitioner Republic appealed to the respondent Court of Appeals.
On August 19, 1982, the respondent Court rendered a decision affi rming in toto the decision of the lower court. The
dispositive portion of the decision reads:

"DAHIL DITO, ang hatol na iniakyat ay sinasangayunan at pinagtitibay sa kanyang kabuuan nang walang bayad."
The rule that the findings of fact of the trial court and the Court of Appeals are binding upon this Court admits of certain
exceptions. Thus in Carolina Industries Inc. v. CMS Stock Brokerage, Inc. (97 SCRA 734) we held that this Court retains the
power to review and rectify the findings of fact of said courts when (1) the conclusion is a finding grounded entirely on
speculations, surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd, and impossible; (3)
where there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; and (5) when the
court, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both
appellant and appellee.
There are facts and circumstances in the record which render untenable the findings of the trial court and the Court of
Appeals that the lands in question are accretions to the private respondents' fishponds.
The petitioner submits that there is no accretion to speak of under Article 457 of the New Civil Code because what actually
happened is that the private respondents simply transferred their dikes further down the river bed of the Meycauayan River,
and thus, if there is any accretion to speak of, it is man-made and artificial and not the result of the gradual and imperceptible
sedimentation by the waters of the river.
On the other hand, the private respondents rely on the testimony of Mrs. Virginia Acua to the effect that: llcd
xxx xxx xxx
". . . when witness first saw the land namely, Lots 1 & 2, they were already dry almost at the level of the Pilapil of the
property of Dr. Tancinco, and that from the boundaries of the lots, for about two (2) arms length the land was still dry up to
the edge of the river; that sometime in 1951, a new Pilapil was established on the boundaries of Lots 1 & 2 and soil from the
old Pilapil was
transferred to the new Pilapil and this was done sometime in 1951; that the new lots were then converted into fishpond, and
water in this fishpond was two (2) meters deep on the side of the Pilapil facing the fishpond . . . . "
The private respondents submit that the foregoing evidence establishes the fact of accretion without human intervention
because the transfer of the dike occurred after the accretion was complete.
We agree with the petitioner. Article 457 of the New Civil Code provides:
"To the owners of lands adjoining the banks of rivers belong the accretion which they gradually receive from the effects of
the current of the waters."
The above-quoted article requires the concurrence of three requisites before an accretion covered by this particular
provision is said to have taken place. They are (1) that the deposit be gradual and imperceptible; (2) that it be made through
the effects of the current of the water; and (3) that the land where accretion takes place is adjacent to the banks of
rivers.Cdpr
The requirement that the deposit should be due to the effect of the current of the river is indispensable. This excludes from
Art. 457 of the New Civil Code all deposits caused by human intervention. Alluvion must be the exclusive work of nature. In
the instant case, there is no evidence whatsoever to prove that the addition to the said property was made gradually through
the effects of the current of the Meycauayan and Bocaue rivers. We agree with the observation of the Solicitor General that it
is preposterous to believe that almost four (4) hectares of land came into being because of the effects of the Meycauayan and
Bocaue rivers. The lone witness of the private respondents who happens to be their overseer and whose husband was first
cousin of their father noticed the four hectare accretion to the twelve hectare fishpond only in 1939. The respondents claim
that at this point in time, accretion had already taken place. If so, their witness was incompetent to testify to a gradual and
imperceptible increase to their land in the years before 1939. However, the witness testified that in that year, she observed
an increase in the area of the original fishpond which is now the land in question. If she was telling the truth, the accretion
was sudden. However, there is evidence that the alleged alluvial deposits were artificial and man-made and not the exclusive
result of the current of the Meycauayan and Bocaue rivers. The alleged alluvial deposits came into being not because of the
sole effect of the current of the rivers but as a result of the transfer of the dike towards the river and encroaching upon it. The
land sought to be registered is not even dry land cast imperceptibly and gradually by the river's current on the fishpond
adjoining it. It is under two meters of water. The private respondents' own evidence shows that the water in the fishpond is
two meters deep on the side of the pilapil facing the fishpond and only one meter deep on the side of the pilapil facing the
river.

The reason behind the law giving the riparian owner the right to any land or alluvion deposited by a river is to compensate
him for the danger of loss that he
suffers because of the location of his land. If estates bordering on rivers are exposed to floods and other evils produced by
the destructive force of the waters and if by virtue of lawful provisions, said estates are subject to incumbrances and various
kinds of easements, it is proper that the risk or danger which may prejudice the owners thereof should be compensated by
the right of accretion. (Cortes v. City of Manila, 10 Phil. 567). Hence, the riparian owner does not acquire the additions to his
land caused by special works expressly intended or designed to bring about accretion. When the private respondents
transferred their dikes towards the river bed, the dikes were meant for reclamation purposes and not to protect their
property from the destructive force of the waters of the river.
We agree with the submission of the Solicitor General that the testimony of the private respondents' lone witness to the
effect that as early as 1939 there already existed such alleged alluvial deposits, deserves no merit. It should be noted that the
lots in question were not included in the survey of their adjacent property conducted on May 10, 1940 and in the Cadastral
Survey of the entire Municipality of Meycauayan conducted between the years 1958 to 1960. The alleged accretion was
declared for taxation purposes only in 1972 or 33 years after it had supposedly permanently formed. The only valid
conclusion therefore is that the said areas could not have been there in 1939. They existed only after the private respondents
transferred their dikes towards the bed of the Meycauayan river in 1951. What private respondents claim as accretion is
really an encroachment of a portion of the Meycauayan river by reclamation.LLpr
The lower court cannot validly order the registration of Lots 1 & 2 in the names of the private respondents. These lots were
portions of the bed of the Meycauayan river and are therefore classified as property of the public domain under Article 420
paragraph 1 and Article 502, paragraph 1 of the Civil Code of the Philippines. They are not open to registration under the
Land Registration Act. The adjudication of the lands in question as private property in the names of the private respondents
is null and void.
WHEREFORE, the instant petition is GRANTED. The decision appealed from is hereby REVERSED and SET ASIDE. The private
respondents are ordered to move back the dikes of their fishponds to their original location and return the disputed
property to the river to which it belongs.
SO ORDERED. Teehankee, Melencio-Herrera, Plana, Relova and De la Fuente, JJ ., concur.
EN BANC
[G.R. No. L-17652. June 30, 1962.]
IGNACIO GRANDE, ET AL., petitioners, vs. HON. COURT OF APPEALS, DOMINGO CALALUNG and ESTEBAN CALALUNG ,
respondents.
Bartolome Guirao and Antonio M. Orara for petitioners. Gonzales & Fernandez for respondent.
SYLLABUS
1. PROPERTY; ACCRETION; ALLUVIAL DEPOSITS ON REGISTERED LAND; I N C R E M E N T N O T A U T O M A T I C A L LY R
E G I S T E R E D . A n a c c r e t i o n d o e s n o t automatically become registered land just because the lot which receives
such accretion is covered by a Torrens title. Ownership of a piece of land is one thing; registration under the Torrens system
of that ownership is another. Ownership over the accretion received by the land adjoining a river is governed by the Civil
Code. Imprescriptibility of registered land is provided in the registration law. Registration under the Land Registration and
Cadastral Acts does not vest or give title to the land, but merely confirms and, thereafter, protects the title already possessed
by the owner, making it imprescriptible by occupation of third parties. But to obtain this protection, the land must be placed
under the operation of the registration laws, wherein certain judicial procedures have been provided.
DECISION
BARRERA, J p:
This is an appeal taken by petitioners Ignacio, Eulogia, Alfonso, Eulalia, and Sofia Grande, from the decision of the Court of
Appeals (CA-G. R. No. 25169-R) reversing that of the Court of First Instance of Isabela (Civil Case No. 1171), and dismissing
petitioners' action against respondents Domingo and Esteban Calalung, to quiet title to and recover possession of a parcel of
land allegedly occupied by the latter without petitioners' consent.

The facts of the case, which are undisputed, briefly are: Petitioners are the owners of a parcel of land, with an area of 3.5032
hectares, located at barrio Ragan, municipality of Magsaysay (formerly Tumauini), province of Isabela, by inheritance from
their deceased mother Patricia Angui (who inherited it from her parents Isidro
Angui and Ana Lopez, in whose name said land appears registered, as shown by Original Certificate of Title No. 2982, issued
on June 9, 1934). Said property is identified as Lot No. 1, Plan PSU-83342. When it was surveyed for purposes of registration
sometime in 1930, its northeastern boundary was the Cagayan River (the same boundary stated in the (title). Since then, and
for many years thereafter, a gradual accretion on the northeastern side took place, by action of the current of the Cagayan
River, so much so, that by 1958, the bank thereof had receded to a distance of about 105 meters from its original site, and an
alluvial deposit of 19,964 square meters (1.9964 hectares), more or less, had been added to the registered area (Exh. C-1).
On January 25, 1958, petitioners instituted the present action in the Court of First Instance of Isabela against respondents, to
quiet title to said portion (19,964 square meters) formed by accretion, alleging in their complaint (docketed as Civil Case No.
1171) that they and their predecessors-in-interest, were formerly in peaceful and continuous possession thereof, until
September, 1948, when respondents entered upon the land under claim of ownership. Petitioners also asked for damages
corresponding to the value of the fruits of the land as well as attorney's fees and costs. In their answer (dated February 18,
1958), respondents claim ownership in themselves, asserting that they have been in continuous, open, and undisturbed
possession of said portion, since prior to the year 1933 to the present.
After trial, the Court of First Instance of Isabela, on May 4, 1959, rendered a decision adjudging the ownership of the portion
in question to petitioners, and ordering respondents to vacate the premises and deliver possession thereof to petitioners,
and to pay to the latter P250.00 as damages and costs. Said decision, in part, reads:
"It is admitted by the parties that the land involved in this action was formed by the gradual deposit of alluvium brought
about by the action of the Cagayan River, a navigable river. We are inclined to believe that the accretion was formed on the
northeastern side of the land covered by Original Certificate of Title No. 2982 after the survey of the registered land in 1931,
because the surveyors found out that the northeastern boundary of the land surveyed by them was the Cagayan River, and
not the land in question. Which is indicative of the fact that the accretion has not yet started or began in 1931. And, as
declared by Pedro Laman, defendants' witness and the boundary owner on the northwest of the registered land of the
plaintiffs, the accretion was a little more than one hectare, including the stony portion, in 1940 or 1941. Therefore, the
declarations of the defendant Domingo Calalung and his witness, Vicente C. Bacani, to the effect that the land in question was
formed by accretion since 1933 do not only contradict the testimony of defendants' witness Pedro Laman, but could not
overthrow the incontestable fact that the accretion with an area of 4 hectares, more or less, was formed in 1948, reason for
which, it was only declared in that same year for taxation purposes by the defendants under Tax Dec. No. 257 (Exh. '2') when
they entered upon the land. We could not give credence to defendants' assertion that Tax Dec. No. 257 (Exh. '2') cancelled
Tax Dec. No. 28226 (Exh. '1'), because Exh. "2" says that 'tax under this declaration
begins with the year 1948. But, the fact that defendants declared the land for taxation purposes since 1948, does not mean
that they become the owner of the land by mere occupancy, for it is a new provision of the New Civil Code that ownership of
a piece of land cannot be acquired by occupation (Art. 714, New Civil Code). The land in question being an accretion to the
mother or registered land of the plaintiffs, the accretion belongs to the plaintiffs (Art. 457, New Civil Code; Art. 366, Old Civil
Code). Assuming, arguendo, that the accretion has been occupied by the defendants since 1948, or earlier, is of no moment,
because the law does not require any act of possession on the part of the owner of the riparian owner, from the moment the
deposit becomes manifest (Roxas vs. Tuason, 9 Phil. 408; Cortez vs. City of Manila, 10 Phil. 567). Further, no act of
appropriation on the part of the riparian owner is necessary, in order to acquire ownership of the alluvial formation, as the
law does not require the same (3 Manresa, C.C., pp. 321-326).
"This brings us now to the determination of whether the defendants, granting that they have been in possession of the
alluvium since 1948, could have acquired the property by prescription. Assuming that they occupied the land in September,
1948, but considering that the action was commenced on January 25, 1958, they have not been in possession of the land for
ten (10) years; hence, they could not have acquired the land by ordinary prescription (Arts. 1134 and 1138, New Civil Code).
Moreover, as the alluvium is, by law, part and parcel of the registered property, the same may be considered as registered
property, within the meaning of Section 46 of Act No. 496; and, therefore, it could not be acquired by prescription or adverse
possession by another person."
Unsatisfied, respondents appealed to the Court of Appeals, which rendered, on September 14, 1960, the decision adverted to
at the beginning of this opinion, partly stating:
"That the area in controversy has been formed through a gradual process of alluvion, which started in the early thirties, is a
fact conclusively established by the evidence for both parties. By law, therefore, unless some superior title has supervened, it

should properly belong to the riparian owners, specifically in accordance with the rule of natural accession in Article 366 of
the old Civil Code (now Article 457), which provides that 'to the owner of lands adjoining the banks of rivers, belongs the
accretion which they gradually receive from the effects of the current of the water.' The defendants, however, contend that
they have acquired ownership through prescription. This contention poses the real issue in this case. The Court a quo, has
resolved it in favor of the plaintiffs, on two grounds: First, since by accession, the land in question pertains to the original
estate, and since in this instance the original estate is registered, the accretion, consequently, falls within the purview of
Section 46 of Act No. 496, which states that 'no title to registered land in derogation to that of the registered owner shall be
acquired by prescription or adverse possession'; and, second, the adverse possession of the defendant began only in the
month of September, 1948, or less than the 10-year period required for prescription before the present
action was instituted.
"As a legal proposition, the first ground relied upon by the trial court, is not quite correct. An accretion to registered land,
while declared by specific provision of the Civil Code to belong to the owner of the land as a natural accession thereof, does
not ipso jure become entitled to the protection of the rule of imprescriptibility of title established by the Land Registration
Act. Such protection does not extend beyond the area given and described in the certificate. To hold otherwise, would be
productive of confusion. It would virtually deprive the title, and the technical description of the land given therein, of their
character of conclusiveness as to the identity and area of the land that is registered. Just as the Supreme Court, albeit in a
negative manner, has stated that registration does not protect the riparian owner against the erosion of the area of his land
through gradual changes in the course of the adjoining stream (Payatas Estate Development Co. vs. Tuason, 53 Phil. 55), so
registration does not entitle him to all the rights conferred by the Land Registration Act, in so far as the area added by
accretion is concerned. What rights he has, are declared not by said Act, but by the provisions of the Civil Code on accession;
and these provisions do not preclude acquisition of the additional area by another person through prescription. This Court
has held as much in the case of Galindez, et al. vs. Baguisa, et al., CA-G. R. No. 19249-R, July 17, 1959.
"We now proposed to review the second ground relied upon by the trial court, regarding the length of time that the
defendants have been in possession. Domingo Calalung testified that he occupied the land in question for the first time in
1934, not in 1948 as claimed by the plaintiffs. The area under occupancy gradually increased as the years went by. In 1946,
he declared the land for purposes of taxation (Exhibit 1). This tax declaration was superseded in 1948 by another (Exhibit 2),
after the name of the municipality wherein it is located was changed from Tumauini to Magsaysay. Calalung's testimony is
corroborated by two witnesses, both owners of properties nearby. Pedro Laman, 72 years of age, who was Municipal
president of Tumauini for three terms, said that the land in question adjoins his own on the south, and that since 1940 or
1941, he has always known it to be in the peaceful possession of the defendants. Vicente C. Bacani testified to the same effect,
although, he said that the defendants' possession started sometime in 1933 or 1934. The area thereof, he said, was then less
than one hectare.
"We find the testimony of the said witnesses entitled to much greater weight and credence than that of the plaintiff Pedro
Grande and his lone witness, Laureana Rodriguez. The first stated that the defendants occupied the land in question only in
1948; that he called the latter's attention to the fact that the land was his, but the defendants, in turn, claimed that they were
the owners; that the plaintiffs did not file an action until 1958, because it was only then that they were able to obtain the
certificate of title from the surveyor, Domingo Parlan; and that they never declared the land in question for taxation
purposes or paid the taxes thereon. Pedro Grande admitted
that the defendants had the said land surveyed in April, 1958, and that he tried to stop it, not because he claimed the
accretion for himself and his co- plaintiffs, but because the survey included a portion of the property covered by their title.
This last fact is conceded by the defendants who, accordingly, relinquished their possession to the part thus included,
containing an area of some 458 square meters.
"The oral evidence for the defendants concerning the period of their possession from 1933 to 1958 is not only
preponderant in itself, but is, moreover, supported by the fact that it is they and not the plaintiffs who declared the disputed
property for taxation, and by the additional circumstance that if the plaintiffs had really been in prior possession and were
deprived thereof in 1948, they would have immediately taken steps to recover the same. The excuse they gave for not doing
so, namely, that they did not receive their copy of the certificate of title to their property until 1958 for lack of funds to pay
the fees of the surveyor Domingo Parlan, is too flimsy to merit any serious consideration. The payment of the surveyor's fees
had nothing to do with their right to obtain a copy of the certificate. Besides, it was not necessary for them to have it in their
hands, in order to file an action to recover the land which was legally theirs by accession and of which, as they allege, they
had been illegally deprived by the defendants. We are convinced, upon consideration of the evidence, that the latter, were
really in possession since 1934, immediately after the process of alluvion started, and that the plaintiffs woke up to their
rights only when they received their copy of the title in 1958. By then, however, prescription had already supervened in
favor of the defendants."

It is this decision of the Court of Appeals which petitioners seek to be reviewed by us.
The sole issue for resolution in this case is whether respondents have acquired the alluvial property in question through
prescription.
There can be no dispute that both under Article 457 of the new Civil Code and Article 366 of the old, petitioners are the
lawful owners of said alluvial property, as they are the registered owners of the land to which it adjoins. The question is
whether the accretion becomes automatically registered land just because the lot which receives it is covered by a Torrens
title thereby making the alluvial property imprescriptible. We agree with the Court of Appeals that it does not, just as an
unregistered land purchased by the registered owner of the adjoining land does not, by extension, become ipso facto
registered land. Ownership of a piece of land is one thing, and registration under the Torrens system of that ownership is
quite another. Ownership over the accretion received by the land adjoining a river is governed by the Civil Code.
Imprescriptibility of registered land is provided in the registration law. Registration under the Land Registration and
Cadastral Acts does not vest or give title to the land, but merely confirms and thereafter protects the title already possessed
by the owner, making it imprescriptible by occupation of third parties. But to obtain this protection, the land must be placed
under the operation of the registration laws wherein certain judicial procedures have been provided. The fact
remains, how ever, that petitioners never sought registration of said alluvial property (which was formed sometime after
petitioners' property covered by Original Certificate of Title No. 2982 was registered on June 9, 1934) up to the time they
instituted the present action in the Court of First Instance of Isabela in 1958. The increment, therefore, never became
registered property, and hence is not entitled or subject to the protection of imprescriptibility enjoyed by registered
property under the Torrens system. Consequently, it was subject to acquisition through prescription by third persons.
The next issue is, did respondents acquire said alluvial property through acquisitive prescription? This is a question which
requires determination of facts: physical possession and dates or duration of such possession. The Court of Appeals, after
analyzing the evidence, found that respondents-appellees were in possession of the alluvial lot since 1933 or 1934, openly,
continuously and adversely, under a claim of ownership up to the filing of the action in 1958. This finding of the existence of
these facts, arrived at by the Court of Appeals after an examination of the evidence presented by the parties, is conclusive as
to them and can not be reviewed by us.
The law on prescription applicable to the case is that provided in Act 190 and not the provisions of the Civil Code, since the
possession started in 1933 or 1934 when the pertinent articles of the Old Civil Code were not in force and before the
effectivity of the New Civil Code in 1950. Hence, the conclusion of the Court of Appeals that the respondents acquired the
alluvial lot in question by acquisitive prescription is in accordance with law.
The decision of the Court of Appeals under review is hereby affirmed, with costs against the petitions. So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Paredes and Dizon, JJ., concur.
Reyes, J.B.L., Regala and Makalintal, JJ., took no part.
FIRST DIVISION
[G.R. No. 68166. February 12, 1997.]
HEIRS OF EMILIANO NAVARRO, petitioner, vs. INTERMEDIATE APPELLATE COURT AND HEIRS OF SINFOROSO
PASCUAL , respondents.
Yolanda Quisumbing - Javellana & Associates for petitioner. Joracio R. Viola, Sr. for private respondents.
SYLLABUS
1. CIVIL LAW; PROPERTY; ACCRETION AS A MODE OF ACQUIRING PROPERTY; REQUISITES; LEGAL CONSEQUENCES.
Accretion as a mode of acquiring property under Article 457 of the Civil Code, requires the concurrence of the following
requisites: (1) that the accumulation of soil or sediment be gradual and imperceptible; (2) that it be the result of the action of
the waters of the river: and (3) that the land where the accretion takes place is adjacent to the bank of the river. Accretion is
the process whereby the soil is deposited, while alluvium is the soil deposited on the estate fronting the river bank; the
owner of such estate is called the riparian owner. Riparian owners are, strictly speaking, distinct from littoral owners, the
latter being owners of lands bordering the shore of the sea or lake or other tidal waters. The alluvium, by mandate of Article
457 of the Civil Code, is automatically owned by the riparian owner from the moment the soil deposit can be seen hut is not

automatically registered property, hence, subject to acquisition through prescription by third persons.
2. ID.; ID.; ID.; THIRD REQUISITE NOT PRESENT IN CASE AT BAR. There is no dispute as to the location of: (a) the
disputed land; (b) petitioners' own tract of land: (c) the Manila Bay; and, (d) the Talisay and Bulacan Rivers. Petitioners' own
land lies between the Talisay and Bulacan Rivers; in front of their land on the northern side lies now the disputed land where
before 1948, there lay the Manila Bay. If the accretion were to be attributed to the action of either or both of the Talisay and
Bulacan Rivers, the alluvium should have been deposited on either or both of the eastern and western boundaries of
petitioners' own tract of land, not on the northern portion thereof which is adjacent to the Manila Bay. Clearly lacking, thus,
is the third requisite of accretion, which is, that the alluvium is deposited on the portion of claimant's land which is adjacent
to the river bank.
3. ID.; ID.; ID.; ID.; THE DISPUTED LAND IS AN ACCRETION NOT ON A RIVER BANK BUT ON A SEA BANK; THE APPLICABLE
LAW IS NOT ARTICLE 457 OF THE CIVIL CODE BUT ARTICLE 4 OF THE SPANISH LAW OF WATERS OF 1866. There is no
dispute as to the fact that petitioners' own tract of land adjoins the Manila Bay. Manila Bay is obviously not a river, and
jurisprudence is already settled as to what
kind of body of water the Manila Bay is. It is to be remembered that we held in Ignacio vs. Director of Lands and Valeriano
(108 Phil. 336, 338 [1960]) that: "Appellant next contends that . . . Manila Bay cannot be considered as a sea. We find said
contention untenable. A bay is part of the sea, being a mere indentation of the same: 'Bay, An opening into the land where
the water is shut in on all sides except at the entrance; an inlet of the sea; an arm of the sea, distinct from a river, a bending or
curbing of the shore of the sea or of a lake,' 7 C.J. 1013-1014." The disputed land, thus, is an accretion not on a river bank but
on a sea bank, or on what used to be the foreshore of Manila Bay which adjoined petitioners' own tract of land on the
northern side. As such, the applicable law is not Article 457 of the Civil Code but Article 4 of the Spanish Law of Waters of
1866.
4. ID.; ID.; ID.; THE DISPUTED PROPERTY IS AN ACCRETION ON A SEA BANK, MANILA BAY BEING AN INLET OR AN ARM OF
THE SEA; AS SUCH, THE DISPUTED PROPERTY IS UNDER ARTICLE 4 OF THE SPANISH LAW OF WATERS OF 1866, PART OF
THE PUBLIC DOMAIN. The instant controversy brings a situation calling for the application of Article 4 of the Spanish Law
of Waters of 1866, the disputed land being an accretion on the foreshore of Manila Bay which is, for all legal purposes,
considered a sea. Article 4 of the Spanish Law of Waters of August 3, 1866 provides as follows: "Lands added to the shores by
accretions and alluvial deposits caused by the action of the sea, form part of the public domain. When they are no longer
washed by the waters of the sea and are not necessary for purposes of public utility, or for the establishment of special
industries, or for the coast-guard service, the Government shall declare them to be the property of the owners of the estates
adjacent thereto and as increment thereof." In the light of the aforecited vintage but still valid law, unequivocal is the public
nature of the disputed land in this controversy, the same being an accretion on a sea bank which, for all legal purposes, the
foreshore of Manila Bay is. As part of the public domain, the herein disputed land is intended for public uses, and "so long as
the land in litigation belongs to the national domain and is reserved for public uses, it is not capable of being appropriated by
any private person, except through express authorization granted in due form by a competent authority." Only the executive
and possibly the legislative departments have the right and the power to make the declaration that the lands so gained by
action of the sea is no longer necessary for purposes of public utility or for the cause of establishment of special industries or
for coast guard services. Petitioners utterly fail to show that either the executive or legislative department has already
declared the disputed land 1966, to be the property of petitioners as owners of the estates adjacent thereto.
DECISION
HERMOSISIMA, JR., J p:
Unique is the legal question visited upon the claim of an applicant in a Land Registration case by oppositors thereto, the
Government and a Government lessee, involving as it does ownership of land formed by alluvium.
The applicant owns the property immediately adjoining the land sought to be registered. His registered property is bounded
on the east by the Talisay River, on the west by the Bulacan River, and on the north by the Manila Bay. The Talisay River and
the Bulacan River flow down towards the Manila Bay and act as boundaries of the applicant's registered land on the east and
on the west.
The land sought to be registered was formed at the northern tip of the applicant's land. Applicant's registered property is
bounded on the north by the Manila Bay.
The issue: May the land sought to be registered be deemed an accretion in the sense that it naturally accrues in favor of the
riparian owner or should the land be considered as foreshore land?

Before us is a petition for review of: (1) the decision 1 and (2) two subsequent resolutions 2 of the Intermediate Appellate
Court 3 (now the Court of Appeals) in Land Registration Case No. N-84, 4 the application over which was filed by private
respondents' predecessor-in-interest, Sinforoso Pascual, now deceased, before the Court of First Instance 5 (now the
Regional Trial Court) of Balanga, Bataan.
There is no dispute as to the following facts:
On October 3, 1946, Sinforoso Pascual, now deceased, filed an application for foreshore lease covering a tract of foreshore
land in Sibocon, Balanga, Bataan, having an area of approximately seventeen (17) hectares. This application was denied on
January 15, 1953. So was his motion for reconsideration.
Subsequently, petitioners' predecessor-in-interest, also now deceased, Emiliano Navarro, filed a fishpond application with
the Bureau of Fisheries covering twenty five (25) hectares of foreshore land also in Sibocon, Balanga, Bataan. Initially, such
application was denied by the Director of Fisheries on the ground that the property formed part of the public domain. Upon
motion for reconsideration, the Director of Fisheries, on May 27, 1988, gave due course to his application but only to the
extent of seven (7) hectares of the property as may be certified by the Bureau of Forestry as suitable for fishpond purposes.
The Municipal Council of Balanga, Bataan, had opposed Emiliano Navarro's application. Aggrieved by the decision of the
Director of Fisheries, it appealed to the Secretary of Natural Resources who, however, affirmed the grant. The then Executive
Secretary, acting in behalf of the President of the Philippines, similarly affirmed the grant.
On the other hand, sometime in the early part of 1960, Sinforoso Pascual filed an application to register and confirm his title
to a parcel of land, situated in Sibocon, Balanga, Bataan, described in Plan Psu-175181 and said to have an area of 146,611
square meters. Pascual claimed that this land is an accretion to his property, situated in Barrio Puerto Rivas, Balanga, Bataan,
and covered by Original Certificate of Title No. 6830. It is bounded on the eastern side by the Talisay River, on the western
side by the Bulacan River, and on the northern side by the Manila Bay. The Talisay River as well as the Bulacan River flow
downstream and meet at the Manila
Bay thereby depositing sand and silt on Pascual's property resulting in an accretion thereon. Sinforoso Pascual claimed the
accretion as the riparian owner.
On March 25, 1960, the Director of Lands, represented by the Assistant Solicitor General, filed an opposition thereto stating
that neither Pascual nor his predecessors-in-interest possessed sufficient title to the subject property, the same being a
portion of the public domain and, therefore, it belongs to the Republic of the Philippines. The Director of Forestry, through
the Provincial Fiscal, similarly opposed Pascual's application for the same reason as that advanced by the Director of Lands.
Later on, however, the Director of Lands withdrew his opposition. The Director of Forestry become the sole oppositor.
On June 2, 1960, the court a quo issued an order of general default excepting the Director of Lands and the Director of
Forestry. lexlib
Upon motion of Emiliano Navarro, however, the order of general default was lifted and, on February 13, 1961, Navarro
thereupon filed an opposition to Pascual's application. Navarro claimed that the land sought to be registered has always been
part of the public domain, it being a part of the foreshore of Manila Bay; that he was a lessee and in possession of a part of the
subject property by virtue of a fishpond permit issued by the Bureau of Fisheries and confirmed by the Office of the
President; and that he had already converted the area covered by the lease into a fishpond.
During the pendency of the land registration case, that is, on November 6, 1960, Sinforoso Pascual filed a complaint for
ejectment against Emiliano Navarro, one Marcelo Lopez and their privies, alleged by Pascual to have unlawfully claimed and
possessed, through stealth, force and strategy, a portion of the subject property covered by Plan Psu-175181. The defendants
in the case were alleged to have built a provisional dike thereon: thus they have thereby deprived Pascual of the premises
sought to be registered. This, notwithstanding repeated demands for defendants to vacate the property.
The case was decided adversely against Pascual. Thus, Pascual appealed to the Court of First Instance (now Regional Trial
Court) of Balanga, Bataan, the appeal having been docketed as Civil Case No. 2873. Because of the similarity of the parties
and the subject matter, the appealed case for ejectment was consolidated with the land registration case and was jointly
tried by the court a quo.
During the pendency of the trial of the consolidated cases, Emiliano Navarro died on November 1, 1961 and was substituted
by his heirs, the herein petitioners.

Subsequently, on August 26, 1962, Pascual died and was substituted by his heirs, the herein private respondents.
On November 10, 1975, the court a quo rendered judgment finding the subject property to be foreshore land and, being a
part of the public domain, it cannot be the subject of land registration proceedings. The decision's dispositive portion reads:
"WHEREFORE, judgment is rendered:
(1) (2) (3)
Dismissing plaintiff [private respondent] Sinforoso Pascual's complaint for ejectment in Civil Case No. 2873;
Denying the application of Sinforoso Pascual for land registration over the land in question; and
Directing said Sinforoso Pascual, through his heirs, as plaintiff in Civil Case No. 2873 and as applicant in Land Registration
Case No. N-84 to pay costs in both instances." 6
The heirs of Pascual appealed and, before the respondent appellate court, assigned the following errors:
"1. The lower court erred in not finding the land in question as an accretion by the action of the Talisay and Bulacan Rivers to
the land admittedly owned by applicants-appellants [private respondents].
2. The lower court erred in holding that the land in question is foreshore land.
3.. The lower court erred in not ordering the registration of the and is controversy in favor of applicants-appellants [private
respondents].
4. The lower court erred in not finding that the applicants-appellants [private respondents] are entitled to eject the
oppositor-appellee [petitioners]." 7
On appeal, the respondent court reversed the findings of the court a quo and granted the petition for registration of the
subject property but excluding therefrom fifty (50) meters from corner 2 towards corner 1; and fifty meters (50) meters
from corner 5 towards corner 6 of the Psu-175181.
The respondent appellate court explained the reversal in this wise:
"The paramount issue to be resolved in this appeal as set forth by the parties in their respective briefs is whether or not
the land sought to be registered is accretion or foreshore land, or, whether or not said land was formed by the action of the
two rivers of Talisay and Bulacan or by the action of the Manila Bay. If formed by the action of the Talisay and Bulacan rivers,
the subject land is accretion but if formed by the action of the Manila Bay then it is foreshore land.
xxx xxx xxx
It is undisputed that applicants-appellants [private respondents] owned the land immediately adjoining the land sought to
be registered. Their property which is covered by OCT No. 6830 is bounded on the east by the Talisay River, on the west by
the Bulacan River, and on the north by the Manila Bay. The Talisay and Bulacan rivers come from inland flowing downstream
towards the Manila Bay. In other words, between the Talisay River and the Bulacan River is the property of applicants with
both rivers acting as the boundary to said land and the flow of both rivers meeting and emptying into the Manila Bay. The
subject land was formed at the tip or apex of appellants' [private respondents'] land adding thereto the land now sought to
be registered.
This makes this case quite unique because while it is undisputed that the subject land is immediately attached to appellants'
[private respondents'] land and forms the tip thereof, at the same time, said land immediately faces the Manila Bay which is
part of the sea. We can understand therefore the confusion this case might have caused the lower court, faced as it was with
the uneasy problem of deciding whether or not the subject land was formed by the action of the two rivers or by the action of
the sea. Since the subject land is found at the shore of the Manila Bay facing appellants' [private respondents'] land, it would
be quite easy to conclude that it is foreshore and therefore part of the patrimonial property of the State as the lower court
did in fact rule . . . .
xxx xxx xxx

It is however undisputed that [private respondents'] land lies between these two rivers and it is precisely appellants'
[private respondents'] land which acts as a barricade preventing these two rivers to meet. Thus, since the flow of the two is
downwards to the Manila Bay the sediments of sand and silt are deposited at their mouths.
It is, therefore, difficult to see how the Manila Bay could have been the cause of the deposit thereat for in the natural course
of things, the waves of the sea eat the land on the shore, as they suge [sic] inland. It would not therefore add anything to the
land but instead subtract from it due to the action of the waves and the wind. It is then more logical to believe that the two
rivers flowing towards the bay emptied their cargo of sand, silt and clay at their mouths, thus causing [private respondents']
land to accumulate therein
However, our distinguished colleage [sic], Mr. Justice Serrano, do [sic] not seem to accept this theory and stated that the
subject land arose only when . . . Pascual planted 'palapat' and 'bakawan' trees thereat to serve as a boundary or strainer. But
we do not see how this act of planting trees by Pascual would explain how the land mass came into being. Much less will it
prove that the same came from the sea. Following Mr. Justice Serrano's argument that it were the few trees that acted as
strainers or blocks, then the land that grew would have stopped at the place where the said trees were planted. But this is
not so because the land mass went far beyond the boundary, or where the trees were planted.
On the other hand, the picture-exhibits of [private respondents'] clearly show that the land that accumulated beyond the so-
called boundary, as well as the entire area being applied for is dry land, above sea level, and bearing innumerable trees . . . .
The existence of vegetation on the land could only confirm that the soil thereat came from inland rather than from the sea,
for what could the sea bring to the shore but sand, pebbles, stones, rocks and corrals? On the other hand, the two rivers
would be bringing soil on their downward flow which they brought along from the eroded mountains, the lands along their
path, and dumped them all on the northern portion of appellants' [private respondents'] land.
In view of the foregoing, we have to deviate from the lower court's finding. While it is true that the subject land is found at
the shore of the Manila Bay fronting appellants' [private respondents'] land, said land is not foreshore but an accretion from
the action of the Talisay and Bulacan rivers. In fact, this is exactly what the Bureau of Lands found out, as shown in the
following report of the Acting Provincial Officer, Jesus M. Orozco, to wit:
'Upon ocular inspection of the land subject of this registration made on June 11, 1960, it was found out that the said land is . .
. sandwitched [sic] by two big rivers . . . These two rivers bring down considerable amount of soil and sediments during
floods every year thus raising the soil of the land adjoining the private property of the applicant [private respondents'].
About four-fifth [sic] of the area applied for is now dry land whereon are planted palapat trees thickly growing thereon. It is
the natural action of these two rivers that has caused the formation of said land . . . subject of this registration case. It has
been formed, therefore, by accretion. And having been formed by accretion, the said land may be considered the private
property of the riparian owner who is the applicant [private respondents'] . . . .
In view of the above, the opposition hereto filed by the government should be withdrawn, except for the portion
recommended by the land investigator in his report dated May 2, 1960, to be excluded and considered foreshore. . . .'
Because of this report, no less than the Solicitor General representing the Bureau of Lands withdrew his opposition dated
March 25, 1960, and limited 'the same to the northern portion of the land applied for, compromising a strip 50 meters wide
along the Manila Bay, which should be declared public land as part of the foreshore' . . . . 8
Pursuant to the aforecited decision, the respondent appellate court ordered the issuance of the corresponding decree of
registration in the name of private respondents and the reversion to private respondents of the possession of the portion of
the subject property included in Navarro's fishpond permit.
On December 20, 1978, petitioners filed a motion for reconsideration of the aforecited decision. The Director of Forestry also
moved for the reconsideration of the same decision. Both motions were opposed by private respondents on January 27,
1979.
On November 21, 1980, respondent appellate court promulgated a resolution denying the motion for reconsideration filed
by the Director of Forestry. It, however, modified its decision, to read, viz:
"(3). Ordering private oppositors Heirs of Emiliano Navarro to vacate that portion included in their fishpond permit covered
by Plan Psu-175181 and hand over possession of said portion to applicants-appellants, if the said portion is not within the
strip of land fifty (50) meters wide along Manila Bay on the northern portion of the land subject of the registration
proceedings and which area is more particularly referred to as fifty (50) meters from corner 2 towards corner 1; and fifty
(50) meters from corner 5 towards corner 6 of Plan Psu-175181 . . ." 9

On December 15, 1980, we granted the Solicitor General, acting as counsel for the Director of Forestry, an extension of time
within which to file in this court, a petition for review of the decision dated November 29, 1978 of the respondent appellate
court and of the aforecited resolution dated November 21, 1980.
Thereafter, the Solicitor General, in behalf of the Director of Forestry, filed a petition for review entitled, "The Director of
Forestry vs. the Court of Appeals." 10 We, however, denied the same in a minute resolution dated July 20, 1981, such petition
having been prematurely filed at a time when the Court of Appeals was yet to resolve petitioners' pending motion to set
aside the resolution dated November 21, 1980.
On October 9, 1981, respondent appellate court denied petitioners' motion for reconsideration of the decision dated
November 29, 1978.
On October 17, 1981, respondent appellate court made an entry of judgment stating that the decision dated November 29,
1978 had become final and executory as against herein petitioners as oppositors in L.R.C. Case No. N-84 and Civil Case No.
2873 of the Court of First Instance (now the Regional Trial Court) of Balanga, Bataan.
On October 26, 1981, a second motion for reconsideration of the decision dated November 29, 1978 was filed by petitioners'
new counsel.
On March 26, 1982, respondent appellate court issued a resolution granting petitioners' request for leave to file a second
motion for reconsideration.
On July 13, 1984, after hearing, respondent appellate court denied petitioners' second motion for reconsideration on the
ground that the same was filed out of time, citing Rule 52, Section 1 of the Rules of Court which provides that a motion for
reconsideration shall be made ex-parte and filed within fifteen (15) days from the notice of the final order or judgment.
Hence this petition where the respondent appellate court is imputed to have palpably erred in appreciating the facts of the
case and to have gravely misapplied statutory and case law relating to accretion, specifically, Article 457 of the Civil Code.
We find no merit in the petition.
The disputed property was brought forth by both the withdrawal of the waters of Manila Bay and the accretion formed on
the exposed foreshore land by the action of the sea which brought soil and sand sediments in turn trapped by the palapat
and bakawan trees planted thereon by petitioner Sulpicio Pascual in 1948.
Anchoring their claim of ownership on Article 457 of the Civil Code, petitioners vigorously argue that the disputed 14-
hectare land is an accretion caused by the joint action of the Talisay and Bulacan Rivers which run their course on the
eastern and western boundaries, respectively, of petitioners' own tract of land.
Accretion as a mode of acquiring property under said Article 457, requires the concurrence of the following requisites: (1)
that the accumulation of soil or sediment be gradual and imperceptible; (2) that it be the result of the action of the waters of
the river; and (3) that the land where the accretion takes place is adjacent to the bank of the river. 11 Accretion is the
process whereby the soil is deposited, while alluvium is the soil deposited on the estate fronting the river bank 12 ; the
owner of such estate is called the riparian owner. Riparian owners are, strictly speaking, distinct from littoral owners, the
latter being owners of lands bordering the shore of the sea or lake or other tidal waters. 13 The alluvium, by mandate of
Article 457 of the Civil Code, is automatically owned by the riparian owner from the moment the soil deposit can be seen 14
but is not automatically registered property, hence, subject to acquisition through prescription by third persons. 15
Petitioners' claim of ownership over the disputed property under the principle of accretion, is misplaced.
First, the title of petitioners' own tract of land reveals its northeastern boundary to be Manila Bay. Petitioners' land,
therefore, used to adjoin, border or front the Manila Bay and not any of the two rivers whose torrential action, petitioners
insist, is to account for the accretion on their land. In fact, one of the petitioners, Sulpicio Pascual, testified in open court that
the waves of Manila Bay used to hit the disputed land being part of the bay's foreshore but, after he had planted palapat and
bakawan trees thereon in 1948, the land began to rise. 16
Moreover, there is no dispute as to the location of: (a) the disputed land; (b) petitioners' own tract of land; (c) the Manila
Bay; and, (d) the Talisay and Bulacan Rivers. Petitioners' own land lies between the Talisay and Bulacan Rivers; in front of
their land on the northern side lies now the disputed land where before 1948, there lay the Manila Bay. If the accretion were

to be attributed to the action of either or both of the Talisay and Bulacan Rivers, the alluvium should have been deposited on
either or both of the eastern and western boundaries of petitioners' own tract of land, not on the northern portion thereof
which is adjacent to the Manila Bay. Clearly lacking, thus, is the third requisite of accretion, which is, that the alluvium is
deposited on the portion of claimant's land which is adjacent to the river bank.
Second, there is no dispute as to the fact that petitioners' own tract of land adjoins the Manila Bay. Manila Bay is obviously
not a river, and jurisprudence is already settled as to what kind of body of water the Manila Bay is. It is to be remembered
that we held that:
"Appellant next contends that . . . Manila Bay cannot be considered as a sea. We find said contention untenable. A bay is part
of the sea, being a mere indentation of the same:
'Bay. An opening into the land where the water is shut in on all sides except at the entrance; an inlet of the sea; an arm of
the sea, distinct from a river, a bending or curbing of the shore of the sea or of a lake.' 7 C.J. 1013-1014." 17
The disputed land, thus, is an accretion not on a river bank but on a sea bank, or on what used to be the foreshore of Manila
Bay which adjoined petitioners' own tract of land on the northern side. As such, the applicable law is not Article 457 of the
Civil Code but Article 4 of the Spanish Law of Waters of 1866.
The process by which the disputed land was formed, is not difficult to discern from the facts of the case. As the trial court
correctly observed:
"A perusal of the survey plan . . . of the land subject matter of these cases shows that on the eastern side, the property is
bounded by Talisay River, on the western side by Bulacan River, on the southern side by Lot 1436 and on the northern side
by Manila Bay. It is not correct to state that the Talisay and Bulacan Rivers meet a certain portion because the two rivers
both flow towards Manila Bay. The Talisay River is straight while the Bulacan River is a little bit meandering and there is no
portion where the two rivers meet before they end up at Manila Bay. The land which is adjacent to the property belonging to
Pascual cannot be considered an accretion caused by the action of the two rivers].
Applicant Pascual . . . has not presented proofs to convince the Court that the land he has applied for registration is the result
of the settling down on his registered land of soil, earth or other deposits so as to be rightfully be considered as an accretion
[caused by the action of the two rivers]. Said Art. 457 finds no applicability where the accretion must have been caused by
action of the bay." 18
The conclusion formed by the trial court on the basis of the foregoing observation is that the disputed land is part of the
foreshore of Manila Bay and therefore, part of the public domain. The respondent appellate court, however, perceived the
fact that petitioners' own land lies between the Talisay and Bulacan Rivers, to be basis to conclude that the disputed land
must be an accretion formed by the action of the two rivers because petitioners' own land acted as a barricade preventing
the two
rivers to meet and that the current of the two rivers carried sediments of sand and silt downwards to the Manila Bay which
accumulated somehow to a 14-hectare land. These conclusions, however, are fatally incongruous in the light of the one
undisputed critical fact: the accretion was deposited, not on either the eastern or western portion of petitioners' land where
a river each runs, but on the northern portion of petitioners' land which adjoins the Manila Bay. Worse, such conclusions are
further eroded of their practical logic and consonance with natural experience in the light of Sulpicio Pascual's admission as
to having planted palapat and bakawan trees on the northern boundary of their own land. In amplification of this, plainly
more reasonable and valid are Justice Mariano Serrano's observations in his dissenting opinion when he stated that:
"As appellants' (titled) land . . . acts as a barricade that prevents the two rivers to meet, and considering the wide expanse of
the boundary between said land and the Manila Bay, measuring some 593.00 meters . . . it is believed rather farfetched for
the land in question to have been formed through 'sediments of sand and salt [sic] . . . deposited at their [rivers'] mouths.'
Moreover, if 'since the flow of the two rivers is downwards to the Manila Bay the sediments of sand and silt are deposited at
their mouths,' why then would the alleged cargo of sand, silt and clay accumulate at the northern portion of appellants' titled
land facing Manila Bay instead of merely at the mouths and banks of these two rivers? That being the case, the accretion
formed at said portion of appellants' titled [land] was not caused by the current of the two rivers but by the action of the sea
(Manila Bay) into which the rivers empty.
The conclusion . . . is not supported by any reference to the evidence which, on the contrary, shows that the disputed land
was formed by the action of the sea. Thus, no less than Sulpicio Pascual, one of the heirs of the original applicant, testified on
cross-examination that the land in dispute was part of the shore and it was only in 1948 that he noticed that the land was

beginning to get higher after he had planted trees thereon in 1948. . . . cdasia
. . . it is established that before 1948 sea water from the Manila Bay at high tide could reach as far as the dike of appellants'
fishpond within their titled property, which dike now separates this titled property from the land in question. Even in 1948
when appellants had already planted palapat and bakawan trees in the land involved, inasmuch as these trees were yet
small, the waves of the sea could still reach the dike. This must be so because in . . . the survey plan of the titled property
approved in 1918, said titled land was bounded on the north by Manila Bay. So Manila Bay was adjacent to it on the north. It
was only after the planting of the aforesaid trees in 1948 that the land in question began to rise or to get higher in elevation.
The trees planted by appellants in 1948 became a sort of strainer of the sea water and at the same time a kind of block to the
strained sediments from being carried back to the sea by the very waves that brought them to the former shore at the end of
the dike, which must have caused the shoreline to recede and dry up eventually raising the former shore leading to the
formation of the land in question." 19
In other words, the combined and interactive effect of the planting of palapat and bakawan trees, the withdrawal of the
waters of Manila Bay eventually resulting in the drying up of its former foreshore, and the regular torrential action of the
waters of Manila Bay, is the formation of the disputed land on the northern boundary of petitioners' own tract of land.
The disputed property is an accretion on a sea bank, Manila Bay being an inlet or an arm of the sea; as such, the disputed
property is, under Article 4 of the Spanish Law of Waters of 1866, part of the public domain
At the outset, there is a need to distinguish between Manila Bay and Laguna de Bay.
While we held in the case of Ignacio v. Director of Lands and Valeriano 20 that Manila Bay is considered a sea for purposes of
determining which law on accretion is to be applied in multifarious situations, we have ruled differently insofar as accretions
on lands adjoining the Laguna de Bay are concerned.
In the cases of Government of the P.I. v. Colegio de San Jose 21 , Republic v. Court of Appeals 22 , Republic v. Alagad 23 , and
Meneses v. Court of Appeals 24 , we categorically ruled that Laguna de Bay is a lake the accretion on which, by the mandate
of Article 84 of the Spanish Law of Waters of 1866, belongs to the owner of the land contiguous thereto.
The instant controversy, however, brings a situation calling for the application of Article 4 of the Spanish Law of Waters of
1866, the disputed land being an accretion on the foreshore of Manila Bay which is, for all legal purposes, considered a sea.
Article 4 of the Spanish Law of Waters of August 3, 1866 provides as follows:
"Lands added to the shores by accretions and alluvial deposits caused by the action of the sea, form part of the public
domain. When they are no longer washed by the waters of the sea and are not necessary for purposes of public utility, or for
the establishment of special industries, or for the coast-guard service, the Government shall declare them to be the property
of the owners of the estates adjacent thereto and as increment thereof."
In the light of the aforecited vintage but still valid law, unequivocal is the public nature of the disputed land in this
controversy, the same being an accretion on a sea bank which, for all legal purposes, the foreshore of Manila Bay is. As part of
the public domain, the herein disputed land is intended for public uses, and "so long as the land in litigation belongs to the
national domain and is reserved for public uses, it is not capable of being appropriated by any private person, except through
express authorization granted in due form by a competent authority." 25 Only the executive and possibly the legislative
departments have the right and the power to make the declaration that the lands so gained by action of the sea is no longer
necessary for purposes of public utility or for the cause of establishment of special industries or for coast guard services. 26
Petitioners utterly fail to show that either the executive or legislative department has already declared the disputed land as
qualified, under Article 4 of the Spanish Law of Waters of 1866, to be the property of petitioners as owners of the estates
adjacent thereto.
WHEREFORE, the instant Petition for Review is hereby DENIED and DISMISSED. Costs against petitioners. SO
ORDERED. Padilla, Bellosillo and Kapunan, JJ., concur.
Vitug, J., concurs: The amendatory provisions of the Water Code (P.D. 1067) did not affect Article 4 of the Spanish Law of
Waters of 1866.

FIRST DIVISION
[G.R. No. 108065. July 6, 1993.]
SPOUSES FELIX BAES AND RAFAELA BAES, petitioners, vs. THE COURT OF APPEALS AND REPUBLIC OF THE
PHILIPPINES, respondents.
Lorenzo F. Miravite for petitioners. The Solicitor General for respondents.
SYLLABUS
1. CIVIL LAW; PROPERTY; RIGHT OF ACCESSION; UNDER ARTICLE 461 OF THE CIVIL CODE THE RIPARIAN OWNER IS
ENTITLED TO COMPENSATION FOR THE DAMAGE TO OR LOSS OF HIS PROPERTY DUE TO NATURAL CAUSES OR, FOR
MORE REASON, DUE TO ARTIFICIAL MEANS. If the riparian owner is entitled to compensation for the damage to or loss of
his property due to natural causes, there is all the more reason to compensate him when the change in the course of the river
is effected through artificial means. The loss to the petitioners of the land covered by the canal was the result of a deliberate
act on the part of the government when it sought to improve the flow of the Tripa de Gallina creek. It was therefore obligated
to compensate the Baeses for their loss.
2. ID.; PETITIONERS, HAVING ALREADY BEEN COMPENSATED, CANNOT NOW CLAIM ADDITIONAL COMPENSATION;
REASON. We find, however, that the petitioners have already been so compensated. Felix Baes was given Lot 3271-A in
exchange for the affected Lot 2958-B through the Deed of Exchange of Real Property dated June 20, 1970. This was a fair
exchange because the two lots were of the same area and value and the agreement was freely entered into by the parties. The
petitioners cannot now claim additional compensation because, as correctly observed by the Solicitor General, . . . to allow
petitioners to acquire ownership of the dried-up portion of the creek would be a clear case of double compensation and
unjust enrichment at the expense of the state. The exchange of lots between the petitioners and the Republic was the result
of voluntary negotiations. If these had failed, the government could still have taken Lot 2958-B under the power of eminent
domain, upon payment of just compensation, as the land was needed for a public purpose.
DECISION
CRUZ, J p:
This is an appeal by way of certiorari from the decision of the respondent Court of Appeals which affirmed in toto the ruling
of the trial court in Civil Case No. 0460-P, the dispositive portion of which read thus:
WHEREFORE, judgment is hereby rendered declaring null and void TCT Nos. 14405, 29592, 29593, 29594, 29595, and TCT
No. 29593's derivative titles TCT Nos. 124725, 124726, 124727 and 124729, and ordering the Register of Deeds for Pasay
City to cancel them and issue new ones in their stead in the name of the plaintiff after segregating from TCT No. 29593 452
sq. m., the actual area of Lot 2958-C (covered by cancelled TCT No. 11043) belonging to defendant Felix Baes. The
counterclaim is hereby dismissed.
Let a copy of this Decision be furnished the Register of Deeds for Pasay City.
SO ORDERED.
The controversy began in 1962, when the government dug a canal on a private parcel of land, identified as Lot 2958 and
covering an area of 33,902 sq.m., to streamline the Tripa de Gallina creek.
This lot was later acquired by Felix Baes, who registered it in his name under TCTl No. 10990 and then had it subdivided into
three lots, namely: (a) Lot 2958-A, with an area of 28,889 sq.m.; (b) Lot 2958-B, with an area of 3,588 sq.m.; and (c) Lot
2958-C, with an area of 452 sq.m., covered by TCT Nos. 11041, 11042 and 11043, respectively.
I n exchange for Lot 2958-B, w hich w as totally occupied by the canal, the government gave Baes a lot with exactly the same
area as Lot 2958-B through a Deed of Exchange of Real Property dated June 20, 1970. 1 The property, which was near but
not contiguous to Lot 2958-C, was denominated as Lot 3271-A and later registered in the name of Felix Baes under TCT No.
24300. The soil displaced by the canal was used to fill up the old bed of the creek.
Meanwhile, Baes had Lot 2958-C and a portion of Lot 2958-A designated as Lot 1, Blk. 4, resurveyed and subdivided. On
January 12, 1968, he submitted a petition for the approval of his resurvey and subdivision plans, claiming that after the said

lots were plotted by a competent surveyor, it was found that there were errors in respect of their bearings and distances.
The resurvey-subdivision plan was approved by the Court of First Instance of Pasay City in an order dated January 15, 1968.
2
As a result, the old TCTs covering the said lots were canceled and new ones were issued, to wit: (a) Lot 1-A, Blk. 4, with 672
sq.m., under TCT No. T-14404; (b) Lot 1- B, with 826 sq.m., representing the increase in area after the resurvey, under TCT
No. T-14405; (c) Lot 2958-C-1, with 452 sq.m., under TCT No. T-14406; and (d) Lot 2958-C-2, with 2,770 sq.m. representing
the increase after resurvey, under TCT No. T-14407.
Lots 2958-C-1 and 2958-C-2 were later consolidated and this time further subdivided into four (4) lots, namely, Lot 1, with
an area of 147 sq.m.; Lot 2, with an area of 950 sq.m.; Lot 3, with an area of 257 sq.m.; and Lot 4, with an area of 1,868 sq.m.,
which were respectively issued TCT Nos. 29592, 29593, 29594, and 29595.
In 1978, the Republic of the Philippines discovered that Lot 1-B (with TCT No. 14405 and an area of 826 sq.m.), on which the
petitioners had erected an apartment building, covered Lot 3611 of the Pasay Cadastre, which is a filled-up portion of the
Tripa de Gallina creek. Moreover, Lot 2958-C (covered by TCT Nos. 29592 to 29595, with an increased area of 2,770 sq.m.
after resurvey and subdivision) had been unlawfully enlarged.
On November 17, 1982, it filed a petition for cancellation of TCT Nos. 14405 and 29592 to 29595. 3
Baes did not object in his answer to the cancellation of TCT Nos. 29592, 29594 and 29595 and was not able to prove during
the trial that the government utilized a portion of Lot 2 under TCT No. 29593. The trial court therefore decreed (correctly)
that the original Lot 2958-C (with an area of 452 sq.m.) be reverted to its status before the resurvey-subdivision of Lot 2958-
C.
The only remaining dispute relates to Lot 1-B (TCT No. 14405), which the petitioners, relying on Article 461 of the Civil Code,
are claiming as their own. The government rejects this claim and avers that the petitioners had already been fully
compensated for it on June 20, 1970 when they agreed to exchange their Lot 2958- B with Lot 3271-A belonging to the
government.
Article 461 of the Civil Code states:
River beds which are abandoned through the natural change in the course of the waters ipso facto belong to the owners
whose lands are occupied by the new course in proportion to the area lost. However, the owners of the lands adjoining the
old bed shall have the right to acquire the same by paying the value thereof, which value shall not exceed the value of the
area occupied by the new bed. (Emphasis supplied)
A portion of the Tripa de Gallina creek was diverted to a man-made canal which totally occupied Lot 2958-B (with an area of
3,588 sq.m.) belonging to Felix Baes. Thus, the petitioners claim that they became the owners of the old bed (which was
eventually filled up by soil excavated from Lot 2958-B) by virtue of Article 461.
The petitioners rely heavily on Dr. Arturo M. Tolentino's interpretation of this Article, to wit:
This article (461) refers to a natural change in the course of a stream. If the change of the course is due to works constructed
by concessioners authorized by the government, the concession may grant the abandoned river bed to the concessioners. If
there is no such grant, then, by analogy, the abandoned river bed will belong to the owners of the land covered by
the waters, as provided in this article, without prejudice to a superior right of third persons with sufficient title. (Citing 3
Manresa 251-252; 2 Navarro Amandi 100-101; 3 Sanchez Roman 148)
We agree.
If the riparian owner is entitled to compensation for the damage to or loss of his property due to natural causes, there is all
the more reason to compensate him when the change in the course of the river is effected through artificial means. The loss
to the petitioners of the land covered by the canal was the result of a deliberate act on the part of the government when it
sought to improve the flow of the Tripa de Gallina creek. It was therefore obligated to compensate the Baeses for their loss.
We find, however, that the petitioners have already been so compensated. Felix Baes was given Lot 3271-A in exchange for
the affected Lot 2958-B through the Deed of Exchange of Real Property dated June 20, 1970. This was a fair exchange

because the two lots were of the same area and value and the agreement was freely entered into by the parties. The
petitioners cannot now claim additional compensation because, as correctly observed by the Solicitor General,
. . . to allow petitioners to acquire ownership of the dried-up portion of the creek would be a clear case of double
compensation and unjust enrichment at the expense of the state.
The exchange of lots between the petitioners and the Republic was the result of voluntary negotiations. If these had failed,
the government could still have taken Lot 2958-B under the pow er of eminent domain, upon payment of just compensation,
as the land was needed for a public purpose.
WHEREFORE, the petition is DENIED, with costs against the petitioners. It is so ordered.
Grio-Aquino, Bellosillo and Quiason, JJ., concur.

THIRD DIVISION
[G.R. No. 92161. March 18, 1991.]
SIMPLICIO MACUTAY, EUSTAQUIO MABBORANG, PATRICIO MABBORANG and FULGENCIO MORA, petitioners, vs.
GUILLERMO MANALO and COURT OF APPEALS, respondents.
Josefin De Alban Law Office for petitioners.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE TRIAL COURT, GENERALLY UPHELD ON APPEAL; REASON.
The findings of facts of the trial court are entitled to great respect, and that they carry even more weight when affirmed by
the Court of Appeals. This is in recognition of the peculiar advantage on the part of the trial court of being able to observe
first-hand the deportment of the witnesses while testifying. Jurisprudence is likewise settled that the Court of Appeals is the
final arbiter of questions of fact. But whether a conclusion drawn from such findings of facts is correct, is a question of law
cognizable by this Court.
2. CIVIL LAW; LAW ON WAGES; DOCTRINE LAID DOWN IN GOVERNMENT VS. COLEGIO DE SAN JOSE, NOT APPLICABLE TO
OWNERSHIP OF RIVER BED; CASE AT BAR. The Court is unable to agree with the Court of Appeals that Government of the
Philippine Islands vs. Colegio de San Jose is applicable to the present case. That case involved Laguna de Bay; since Laguna de
Bay is a lake, the Court applied the legal provisions governing the ownership and use of lakes and their beds and shores, in
order to determine the character and ownership of the disputed property. Specifically, the Court applied the definition of the
natural bed or basin of lakes found in Article 74 of the Law of Waters of 3 August 1866. Upon the other hand; what is
involved in the instant case is the eastern bed of the Cagayan River. We believe and so hold that Article 70 of the Law of
Waters of 3 August 1866 is the law applicable to the case at bar: "Art. 70. The natural bed or channel of a creek or river is the
ground covered by its waters during the highest floods".
2. ID.; ID.; NATURAL BED OR CHANNEL OF A CREEK OR RIVER, DEFINED. Article 70 defines the natural bed or channel of
a creek or river as the ground covered by its waters during the highest floods.
3. ID.; OWNERSHIP; RIVER BED, NOT SUBJECT TO PRIVATE OWNERSHIP; CASE AT BAR. The conclusion of this Court that
the depressed portion is a river bed
BINALAY, DOMINGO BAUA,
PONCIANO ROSALES,
GANNABAN, GREGORIO
NICANOR ARGONZA, TEODORO
FLORENTINO

ROSALES,
rests upon evidence of record. Firstly, respondent Manalo admitted in open court that the entire area he bought from
Gregorio Taguba was included in Lot 307. If the 1.80 hectares purchased from Gregorio Taguba was included in Lot 307, then
the Cagayan River referred to as the western boundary in the Deed of Sale transferring the land from Gregorio Taguba to
respondent Manalo as well as the Deed of Sale signed by Faustina Taccad, must refer to the dried up bed (during the dry
months) or the eastern branch of the river (during the rainy months). In the Sketch Plan attached to the records of the case,
Lot 307 is separated from the western branch of the Cagayan River by a large tract of land which includes not only Lot 821
but also what this Court characterizes as the eastern branch of the Cagayan River. Secondly, the pictures identified by
respondent Manalo during his direct examination depict the depressed portion as a river bed. The pictures, marked as
Exhibits "W" to "W-4", were taken in July 1973 or at a time when the eastern bed becomes visible. Thus, Exhibit "W-2" which
according to respondent Manalo was taken facing the east and Exhibit "W-3" which was taken facing the west both show that
the visible, dried up portion has a markedly lower elevation than Lot 307 and Lot 821. It has dike-like slopes on both sides
connecting it to Lot 307 and Lot 821 that are vertical upward and very prominent. This topographic feature is compatible
with the fact that a huge volume of water passes through the eastern bed regularly during the rainy season. In addition,
petitioner Ponciano Gannaban testified that one had to go down what he called a "cliff" from the surveyed portion of the land
of respondent Manalo to the depressed portion. The cliff, as related by petitioner Gannaban, has a height of eight (8) meters.
The records do not show when the Cagayan River began to carve its eastern channel on the surface of the earth. However,
Exhibit "E" for the prosecution which was the Declaration of Real Property standing in the name of Faustina Taccad indicates
that the eastern bed already existed even before the sale to respondent Manalo. The words "old bed" enclosed in parentheses
perhaps written to make legitimate the claim of private ownership over the submerged portion is an implied admission
of the existence of the river bed. In the Declaration of Real Property made by respondent Manalo, the depressed portion
assumed the name Rio Muerte de Cagayan. Indeed, the steep dike-like slopes on either side of the eastern bed could have
been formed only after a prolonged period of time.
4. ID.; ID.; RIVER; PARTS. Although Article 420 speaks only of rivers and banks, "rivers" is a composite term which
includes: (1) the running waters, (2) the bed, and (3) the banks.
5. ID.; ID.; WHENEVER A RIVER, CHANGING ITS COURSE BY NATURAL CAUSES, OPENS A NEW BED THROUGH A PRIVATE
ESTATE, THIS BED SHALL BECOME OF PUBLIC DOMINION; CASE AT BAR. The claim of ownership of respondent Manalo
over the submerged portion is bereft of basis even if it were alleged and proved that the Cagayan River first began to
encroach on his property after the purchase from Gregorio Taguba and Faustina Taccad. Article 462 of the Civil Code would
then apply divesting, by operation of law, respondent Manalo of private ownership over the new river bed. The intrusion of
the eastern branch of the Cagayan River into his landholding obviously prejudiced respondent Manalo but this is a common
occurrence since estates bordering on rivers are exposed to floods and other evils
produced by the destructive force of the waters. That loss is compensated by, inter alia, the right of accretion acknowledged
by Article 457 of the Civil Code. It so happened that instead of increasing the size of Lot 307, the eastern branch of the
Cagayan River had carved a channel on it.
6. ID.; ID.; ACCRETION; REQUISITES . Accretion as a mode of acquiring property under Article 457 of the Civil Code
requires the concurrence of three (3) requisites: (a) that the deposition of soil or sediment be gradual and imperceptible; (b)
that it be the result of the action of the waters of the river (or sea); and (c) that the land where accretion takes place is
adjacent to the banks of rivers (or the sea coast).
7. ID.; ID.; ID.; ID.; NOT MET IN CASE AT BAR. After examining the records of the case, the Court considers that there was
no evidence to prove that Lot 821 is an increment to Lot 307 and the bed of the eastern branch of the river. The Court notes
that the parcels of land bought by respondent Manalo border on the eastern branch of the Cagayan River. Any accretion
formed by this eastern branch which respondent Manalo may claim must be deposited on or attached to Lot 307. As it is, the
claimed accretion (Lot 821) lies on the bank of the river not adjacent to Lot 307 but directly opposite Lot 307 across the
river. Assuming (arguendo only) that the Cagayan River referred to in the Deeds of Sale transferring ownership of the land to
respondent Manalo is the western branch, the decision of the Court of Appeals and of the trial court are bare of factual
findings to the effect that the land purchased by respondent Manalo received alluvium from the action of the river in a slow
and gradual manner. On the contrary, the decision of the lower court made mention of several floods that caused the land to
reappear making it susceptible to cultivation. A sudden and forceful action like that of flooding is hardly the alluvial process
contemplated under Article 457 of the Civil Code. It is the slow and hardly perceptible accumulation of soil deposits that the
law grants to the riparian owner. Besides, it is important to note that Lot 821 has an area of 11.91 hectares. Lot 821 is the
northern portion of the strip of land having a total area of 22.72 hectares. We find it difficult to suppose that such a sizable
area as Lot 821 resulted from slow accretion to another lot of almost equal size. The total landholding purchased by
respondent Manalo is 10.45 hectares (8.65 hectares from Faustina Taccad and 1.80 hectares from Gregorio Taguba in 1959

and 1964, respectively), in fact even smaller than Lot 821 which he claims by way of accretion. The cadastral survey showing
that Lot 821 has an area of 11.91 hectares was conducted in 1969. If respondent Manalo's contention were accepted, it
would mean that in a span of only ten (10) years, he had more than doubled his landholding by what the Court of Appeals
and the trial court considered as accretion. As already noted, there are steep vertical dike-like slopes separating the
depressed portion or river bed and Lot 821 and Lot 307. This topography of the land, among other things, precludes a
reasonable conclusion that Lot 821 is an increment to the depressed portion by reason of the slow and constant action of the
waters of either the western or the eastern branches of the Cagayan River.
8. ID.; ID.; QUIETING OF TITLE; PLAINTIFF MUST HAVE AT LEAST EQUITABLE TITLE OR INTEREST IN THE REAL
PROPERTY SUBJECT OF THE ACTION; CASE AT
BAR. We turn finally to the issue of ownership of Lot 821. Respondent Manalo's claim over Lot 821 rests on accretion
coupled with alleged prior possession. He alleged that the parcels of land he bought separately from Gregorio Taguba and
Faustina Taccad were formerly owned by Judge Juan Taccad who was in possession thereof through his (Judge Taccad's)
tenants. When ownership was transferred to him, respondent Manalo took over the cultivation of the property and had it
declared for taxation purposes in his name. When petitioners forcibly entered into his property, he twice instituted the
appropriate action before the Municipal Trial C o u r t o f Tu m a u i n i , I s a b e l a . A g a i n s t r e s p o n d e n t M a n a l o ' s
a l l e g a t i o n o f p r i o r possession, petitioners presented tax declarations standing in their respective names. They
claimed lawful, peaceful and adverse possession of Lot 821 since 1955. Under Article 477 of the Civil Code, the plaintiff in an
action for quieting of title must at least have equitable title to or interest in the real property which is the subject matter of
the action. The evidence of record on this point is less than satisfactory and the Court feels compelled to refrain from
determining the ownership and possession of Lot 821, adjudging neither petitioners nor respondent Manalo as owner(s)
thereof.
DECISION
FELICIANO, J p:
The late Judge Taccad originally owned a parcel of land situated in Tumauini, Isabela having an estimated area of twenty
(20) hectares. The western portion of this land bordering on the Cagayan River has an elevation lower than that of the
eastern portion which borders on the national road. Through the years, the western portion would periodically go under the
waters of the Cagayan River as those waters swelled with the coming of the rains. The submerged portion, however, would
re- appear during the dry season from January to August. It would remain under water for the rest of the year, that is, from
September to December during the rainy season.
The ownership of the landholding eventually moved from one person to another. On 9 May 1959, respondent Guillermo
Manalo acquired 8.65 hectares thereof from Faustina Taccad, daughter of Judge Juan Taccad. The land sold was described in
the Deed of Absolute Sale 1 as follows:
". . . a parcel of agricultural land in Balug, Tumauini, Isabela, containing an area of 8.6500 hectares, more or less; bounded on
the North by Francisco Forto; on the East by National Road; on South by Julian Tumolva; and on the West by Cagayan River;
declared for taxation under Tax Declaration No. 12681 in the name of Faustina Taccad, and assessed at P750.00. . . ."
Later in 1964, respondent Manalo purchased another 1.80 hectares from Gregorio
Taguba who had earlier acquired the same from Judge Juan Taccad. The second purchase brought the total acquisition of
respondent Manalo to 10.45 hectares. The second piece of property was more particularly described as follows:
". . . a piece of agricultural land consisting of tobacco land, and containing an area of 18,000 square meters, more or less,
bounded on the North by Balug Creek; on the South, by Faustina Taccad (now Guillermo R. Manalo); on the East, by a
Provincial Road; and on the West, by Cagayan River assessed at P440.00, as Tax Declaration No. 3152. . . ." 2
During the cadastral survey conducted at Balug, Tumauini, Isabela on 21 October 1969, the two (2) parcels of land belonging
to respondent Manalo were surveyed and consolidated into one lot, designated as Lot No. 307, Pls-964. Lot 307 which
contains 4.6489 hectares includes: (a) the whole of the 1.80 hectares acquired from Gregorio Taguba; and (b) 2.8489
hectares out of the 8.65 hectares purchased from Faustina Taccad. As the survey was conducted on a rainy month, a portion
of the land bought from Faustina Taccad then under water was left unsurveyed and was not included in Lot 307.prLL
The Sketch Plan 3 submitted during the trial of this case and which was identified by respondent Manalo shows that the
Cagayan River running from south to north, forks at a certain point to form two (2) branches the western and the eastern

branches and then unites at the other end, further north, to form a narrow strip of land. The eastern branch of the river
cuts through the land of respondent Manalo and is inundated with water only during the rainy season. The bed of the eastern
branch is the submerged or the unsurveyed portion of the land belonging to respondent Manalo. For about eight (8) months
of the year when the level of water at the point where the Cagayan River forks is at its ordinary depth, river water does not
flow into the eastern branch. While this condition persists, the eastern bed is dry and is susceptible to cultivation.
Considering that water flowed through the eastern branch of the Cagayan River when the cadastral survey was conducted,
the elongated strip of land formed by the western and the eastern branches of the Cagayan River looked very much like an
island. This strip of land was surveyed on 12 December 1969. 4 It was found to have a total area of 22.7209 hectares and was
designated as Lot 821 and Lot 822. The area of Lot 822 is 10.8122 hectares while Lot 821 has an area of 11.9087 hectares.
Lot 821 is located directly opposite Lot 307 and is separated from the latter only by the eastern branch of the Cagayan River
during the rainy season and, during the dry season, by the exposed, dry river bed, being a portion of the land bought from
Faustina Taccad. Respondent Manalo claims that Lot 821 also belongs to him by way of accretion to the submerged portion
of the property to which it is adjacent.
Petitioners who are in possession of Lot 821, upon the other hand, insist that they own Lot 821. They occupy the outer edges
of Lot 821 along the river banks, i.e., the fertile portions on which they plant tobacco and other agricultural products. They
also cultivate the western strip of the unsurveyed portion during summer. 5 This situation compelled respondent Manalo to
file a case for forcible entry against petitioners on 20 May 1969. The case was dismissed by the Municipal Court of
Tumauini, Isabela for failure of both parties to appear. On 15 December 1972, respondent Manalo again filed a case for
forcible entry against petitioners. The latter case was similarly dismissed for lack of jurisdiction by the Municipal Court of
Tumauini, Isabela.
On 24 July 1974, respondent Manalo filed a complaint 6 before the then Court of First Instance of Isabela, Branch 3 for
quieting of title, possession and damages against petitioners. He alleged ownership of the two (2) parcels of land he bought
separately from Faustina Taccad and Gregorio Taguba for which reason he prayed that judgment be entered ordering
petitioners to vacate the western strip of the unsurveyed portion. Respondent Manalo likewise prayed that judgment be
entered declaring him as owner of Lot 821 on which he had laid his claim during the survey.
Petitioners filed their answer denying the material allegations of the complaint: The case was then set for trial for failure of
the parties to reach an amicable agreement or to enter into a stipulation of facts. 7 On 10 November 1982, the trial court
rendered a decision with the following dispositive portion:
"WHEREFORE, in the light of the foregoing premises, the Court renders judgment against the defendants and in favor of the
plaintiff and orders:
1. That plaintiff, Guillermo Manalo, is declared the lawful owner of the land in question, Lot No. 821, Pls-964 of Tumauini
Cadastre, and which is more particularly described in paragraph 2-b of the Complaint;
2. That the defendants are hereby ordered to vacate the premises of the land in question, Lot No. 821, Pls-964 of Tumauini
Cadastre, and which is more particularly described in paragraph 2-b of the Complaint;
3. That the defendants are being restrained from entering the premises of the land in question, Lot No. 821, Pls-964 of
Tumauini Cadastre, and which is more particularly described in paragraph 2-b of the Complaint; and
4. That there is no pronouncement as to attorney s fees and costs.
SO ORDERED." 8 Petitioners appealed to the Court of Appeals which, however, affirmed the decision of the trial court. They
filed a motion for reconsideration, without success.
While petitioners insist that Lot 821 is part of an island surrounded by the two (2) branches of the Cagayan River, the Court
of Appeals found otherwise. The Court of Appeals concurred with the finding of the trial court that Lot 821 cannot be
considered separate and distinct from Lot 307 since the eastern branch of the Cagayan River substantially dries up for the
most part of the year such that when this happens, Lot 821 becomes physically (i.e., by land) connected with the dried up bed
owned by respondent Manalo. Both courts below in effect rejected the assertion of petitioners that the depression on the
earth's surface which separates Lot 307 and Lot 821 is, during part of the year, the bed of the eastern branch of the Cagayan
River.
It is a familiar rule that the findings of facts of the trial court are entitled to great respect, and that they carry even more

weight when affirmed by the Court of Appeals. 9 This is in recognition of the peculiar advantage on the part of the trial court
of being able to observe first-hand the deportment of the witnesses while testifying. Jurisprudence is likewise settled that the
Court of Appeals is the final arbiter of questions of fact. 11
In the instant case, the conclusion reached by both courts below apparently collides with their findings that periodically at
the onset of and during the rainy season, river water flows through the eastern bed of the Cagayan River. The trial court held:
"The Court believes that the land in controversy is of the nature and character of alluvion (Accretion), for it appears that
during the dry season, the body of water separating the same land in controversy (Lot No. 821, Pls-964) and the two (2)
parcels of land which the plaintiff purchased from Gregorio Taguba and Justina Taccad Cayaba becomes a marshy land and is
only six (6) inches deep and twelve (12) meters in width at its widest in the northern tip (Exhs. 'W', 'W-1', 'W-2', 'W-3' and
'W-4'). It has been held by our Supreme Court that 'the owner of the riparian land which receives the gradual deposits of
alluvion, does not have to make an express act of possession. The law does not require it, and the deposit created by the
current of the water becomes manifest' (Roxas vs. Tuazon, 6 Phil. 408)." 12
The Court of Appeals adhered substantially to the conclusion reached by the trial court, thus:prcd
"As found by the trial court, the disputed property is not an island in the strict sense of the word since the eastern portion of
the said property claimed by appellants to be part of the Cagayan River dries up during summer. Admittedly, it is the action
of the heavy rains which comes during rainy season especially from September to November which increases the water level
of the Cagayan river. As the river becomes swollen due to heavy rains, the lower portion of the said strip of land located at its
southernmost point would be inundated with water. This is where the water of the Cagayan river gains its entry.
Consequently, if the water level is high the whole strip of land would be under water."
In Government of the Philippine Islands vs. Colegio de San Jose, it was held that
'According to the foregoing definition of the words "ordinary" and "extra- ordinary," the highest depth of the waters of
Laguna de Bay during the dry season is the ordinary one, and the highest depth they attain during the extra-ordinary one
(sic); inasmuch as the former is the one which is regular,
common, natural, which occurs always or most of the time during the year, while the latter is uncommon, transcends the
general rule, order and measure, and goes beyond that which is the ordinary depth. If according to the definition given by
Article 74 of the Law of Waters quoted above, the natural bed or basin of the lakes is the ground covered by their waters
when at their highest ordinary depth, the natural bed or basin of Laguna de Bay is the ground covered by its waters when at
their highest depth during the dry season, that is up to the northeastern boundary of the two parcels of land in question.'
We find the foregoing ruling to be analogous to the case at bar. The highest ordinary level of the waters of the Cagayan River
is that attained during the dry season which is confined only on the west side of Lot [821] and Lot [822]. This is the natural
Cagayan river itself The small residual of water between Lot [821] and 307 is part of the small stream already in existence
when the whole of the late Judge Juan Taccad's property was still susceptible to cultivation and uneroded." 13
The Court is unable to agree with the Court of Appeals that Government of the Philippine Islands vs. Colegio de San Jose 14 is
applicable to the present case. That case involved Laguna de Bay; since Laguna de Bay is a lake, the Court applied the legal
provisions governing the ownership and use of lakes and their beds and shores, in order to determine the character and
ownership of the disputed property. Specifically, the Court applied the definition of the natural bed or basin of lakes found in
Article 74 of the Law of Waters of 3 August 1866. Upon the other hand; what is involved in the instant case is the eastern bed
of the Cagayan River.
We believe and so hold that Article 70 of the Law of Waters of 3 August 1866 is the law applicable to the case at bar:
"Art. 70. The natural bed or channel of a creek or river is the ground covered by its waters during the highest floods".
(Emphasis supplied)
We note that Article 70 defines the natural bed or channel of a creek or river as the ground covered by its waters during the
highest floods. The highest floods in the eastern branch of the Cagayan River occur with the annual coming of the rains as the
river waters in their onward course cover the entire depressed portion. Though the eastern bed substantially dries up for the
most part of the year (i.e., from January to August), we cannot ignore the periodical swelling of the waters (i.e., from
September to December) causing the eastern bed to be covered with flowing river waters.

The conclusion of this Court that the depressed portion is a river bed rests upon evidence of record. Firstly, respondent
Manalo admitted in open court that the entire area he bought from Gregorio Taguba was included in Lot 307. 15 If the 1.80
hectares purchased from Gregorio Taguba was included in Lot 307, then the Cagayan River referred to as the western
boundary in the Deed of Sale transferring the land from Gregorio Taguba to respondent Manalo as well as the Deed of Sale
signed by Faustina Taccad, must refer to the dried up bed (during the dry months)
or the eastern branch of the river (during the rainy months). In the Sketch Plan attached to the records of the case, Lot 307 is
separated from the western branch of the Cagayan River by a large tract of land which includes not only Lot 821 but also
what this Court characterizes as the eastern branch of the Cagayan River.Cdpr
Secondly, the pictures identified by respondent Manalo during his direct examination depict the depressed portion as a river
bed. The pictures, marked as Exhibits "W" to "W-4", were taken in July 1973 or at a time when the eastern bed becomes
visible. 16 Thus, Exhibit "W-2" which according to respondent Manalo was taken facing the east and Exhibit "W-3" which
was taken facing the west both show that the visible, dried up portion has a markedly lower elevation than Lot 307 and Lot
821. It has dike-like slopes on both sides connecting it to Lot 307 and Lot 821 that are vertical upward and very prominent.
This topographic feature is compatible with the fact that a huge volume of water passes through the eastern bed regularly
during the rainy season. In addition, petitioner Ponciano Gannaban testified that one had to go down what he called a "cliff"
from the surveyed portion of the land of respondent Manalo to the depressed portion. The cliff, as related by petitioner
Gannaban, has a height of eight (8) meters. 17
The records do not show when the Cagayan River began to carve its eastern channel on the surface of the earth. However,
Exhibit "E" 18 for the prosecution which was the Declaration of Real Property standing in the name of Faustina Taccad
indicates that the eastern bed already existed even before the sale to respondent Manalo. The words "old bed" enclosed in
parentheses perhaps written to make legitimate the claim of private ownership over the submerged portion is an
implied admission of the existence of the river bed. In the Declaration of Real Property made by respondent Manalo, the
depressed portion assumed the name Rio Muerte de Cagayan. Indeed, the steep dike-like slopes on either side of the eastern
bed could have been formed only after a prolonged period of time.
Now, then, pursuant to Article 420 of the Civil Code, respondent Manalo did not acquire private ownership of the bed of the
eastern branch of the river even if it was included in the deeds of absolute sale executed by Gregorio Taguba and Faustina
Taccad in his favor. These vendors could not have validly sold land that constituted property of public dominion. Article 420
of the Civil Code states:
"The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State,banks,
shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service or for the
development of the national wealth." (Emphasis supplied).
Although Article 420 speaks only of rivers and banks, "rivers" is a composite term which includes: (1) the running waters,
(2) the bed, and (3) the banks. 19 Manresa, in commenting upon Article 339 of the Spanish Civil Code of 1889 from which
Article 420 of the Philippine Civil Code was taken, stressed the public ownership of river beds:
"La naturaleza especial de los rios, en punto a su disfrute general, hace que sea necesario considerar en su relacion de
dominio algo mas que sus aguas corrientes. En efecto, en todo rio es preciso distinguir: 1. esta agua corriente; 2. el alveo o
cauce, y 3. las riberas. Ahora bien: son estas dos ultimas cosas siempre de dominio publico, como las aguas?
"Realmente, no puede imaginarse un rio sin alveo y sin ribera; de suerte que al decir el Codigo civil que los rios son de
dominio publico, parece que debe ir implicito el dominio publico de aquellos tres elementos que integran el rio. Por otra
parte, en cuanto a los alveos o cauces tenemos la declaracion del art. 407, num. 1, donde dice: son de dominio publico . . . los
rios y sus cauces naturales; declaracion que concuerda con lo que dispone el art. 34 de la ley de [Aguas], segun el cual, son de
dominio publico: 1. los alveos o cauces de los arroyos que no se hallen comprendidos en el ert. 33, y 2. los alveos o cauces
naturales de los rios en la extension que cubran sus aguas en las mayores crecidas ordinarias." 20 (Emphasis supplied).
The claim of ownership of respondent Manalo over the submerged portion is bereft of basis even if it were alleged and
proved that the Cagayan River first began to encroach on his property after the purchase from Gregorio Taguba and Faustina
Taccad. Article 462 of the Civil Code would then apply divesting, by operation of law, respondent Manalo of private

ownership over the new river bed. The intrusion of the eastern branch of the Cagayan River into his landholding obviously
prejudiced respondent Manalo but this is a common occurrence since estates bordering on rivers are exposed to floods and
other evils produced by the destructive force of the waters. That loss is compensated by, inter alia, the right of accretion
acknowledged by Article 457 of the Civil Code. 21 It so happened that instead of increasing the size of Lot 307, the eastern
branch of the Cagayan River had carved a channel on it.
We turn next to the issue of accretion. After examining the records of the case, the Court considers that there was no
evidence to prove that Lot 821 is an increment to Lot 307 and the bed of the eastern branch of the river. Accretion as a mode
of acquiring property under Article 457 of the Civil Code requires the concurrence of three (3) requisites: (a) that the
deposition of soil or sediment be gradual and imperceptible; (b) that it be the result of the action of the waters of the river
(or sea); and (c) that the land where accretion takes place is adjacent to the banks of rivers (or the sea coast). 22 The Court
notes that the parcels of land bought by respondent Manalo border on the eastern branch of the Cagayan River. Any
accretion formed by this eastern branch which respondent Manalo may claim must be deposited on or attached to Lot 307.
As it is, the claimed accretion (Lot 821) lies on the bank of the river not adjacent to Lot 307 but directly opposite Lot 307
across the river.
Assuming (arguendo only) that the Cagayan River referred to in the Deeds of Sale transferring ownership of the land to
respondent Manalo is the western branch, the decision of the Court of Appeals and of the trial court are bare of factual
findings to
the effect that the land purchased by respondent Manalo received alluvium from the action of the river in a slow and gradual
manner. On the contrary, the decision of the lower court made mention of several floods that caused the land to reappear
making it susceptible to cultivation. A sudden and forceful action like that of flooding is hardly the alluvial process
contemplated under Article 457 of the Civil Code. It is the slow and hardly perceptible accumulation of soil deposits that the
law grants to the riparian owner.
Besides, it is important to note that Lot 821 has an area of 11.91 hectares. Lot 821 is the northern portion of the strip of land
having a total area of 22.72 hectares. We find it difficult to suppose that such a sizable area as Lot 821 resulted from slow
accretion to another lot of almost equal size. The total landholding purchased by respondent Manalo is 10.45 hectares (8.65
hectares from Faustina Taccad and 1.80 hectares from Gregorio Taguba in 1959 and 1964, respectively), in fact even smaller
than Lot 821 which he claims by way of accretion. The cadastral survey showing that Lot 821 has an area of 11.91 hectares
was conducted in 1969. If respondent Manalo's contention were accepted, it would mean that in a span of only ten (10)
years, he had more than doubled his landholding by what the Court of Appeals and the trial court considered as accretion. As
already noted, there are steep vertical dike-like slopes separating the depressed portion or river bed and Lot 821 and Lot
307. This topography of the land, among other things, precludes a reasonable conclusion that Lot 821 is an increment to the
depressed portion by reason of the slow and constant action of the waters of either the western or the eastern branches of
the Cagayan River.
We turn finally to the issue of ownership of Lot 821. Respondent Manalo's claim over Lot 821 rests on accretion coupled with
alleged prior possession. He alleged that the parcels of land he bought separately from Gregorio Taguba and Faustina Taccad
were formerly owned by Judge Juan Taccad who was in possession thereof through his (Judge Taccad's) tenants. When
ownership was transferred to him, respondent Manalo took over the cultivation of the property and had it declared for
taxation purposes in his name. When petitioners forcibly entered into his property, he twice instituted the appropriate
action before the Municipal Trial Court of Tumauini, Isabela. Against respondent Manalo's allegation of prior possession,
petitioners presented tax declarations standing in their respective names. They claimed lawful, peaceful and adverse
possession of Lot 821 since 1955.cdll
If respondent Manalo had proved prior possession, it was limited physically to Lot 307 and the depressed portion or the
eastern river bed. The testimony of Dominga Malana who was a tenant for Justina Taccad did not indicate that she was also
cultivating Lot 821. In fact, the complaints for forcible entry lodged before the Municipal Trial Court of Tumauini, Isabela
pertained only to Lot 307 and the depressed portion or river bed and not to Lot 821. In the same manner, the tax
declarations presented by petitioners conflict with those of respondent Manalo. Under Article 477 of the Civil Code, the
plaintiff in an action for quieting of title must at least have equitable title to or interest in the real property which is the
subject matter of the action. The evidence of record on this point is less than satisfactory and the Court feels compelled to
refrain from determining the ownership and possession of Lot 821, adjudging neither petitioners nor respondent Manalo as
owner(s) thereof.
WHEREFORE, the Decision and Resolution of the Court of Appeals in C.A.-G.R. CV No. 04892 are hereby SET ASIDE.
Respondent Manalo is hereby declared the owner o f Lot 307. The regularly submerged portion or the eastern bed of the

Cagayan River is hereby DECLARED to be property of public dominion. The ownership of Lot 821 shall be determined in an
appropriate action that may be instituted by the interested parties inter se. No pronouncement as to costs.
SO ORDERED. Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.
EN BANC
[G.R. No. L-11005. October 31, 1957.]
SIARI VALLEY ESTATES, INC. , petitioner, vs. FILEMON LUCASAN and Hon. W. M. ORTEGA, Judge of the Court of First
Instance of Zamboanga del Norte, respondents.
Orendain & Sarmiento for petitioner. Hon. Wenceslao M. Ortega in his own behalf. Barrios, Barrios & Lucasan for
respondents.
SYLLABUS
1. PLEADING AND PRACTICE; JUDGMENT; DISTINGUISHED FROM OPINION. The final judgment as rendered is the
judgment of the court, irrespective of all seemingly contrary statements in the decision. The judgment must be distinguished
from the opinion, the former prevails over the latter.
2. ID.; ID.; CONFIRMATORY DECISION, CONSTRUED. In construing confirmatory decisions of appellate courts the practice
is to regard the whole of the appealed judgment to have been upheld even if several points thereof have not been discussed
or touched upon in such confirmatory decision.
DECISION
BENGZON, J p:
This is an offshoot of our decision in G.R. No. L-7046, Siari Valley Estate Inc. vs. Filemon Lucasan, 1 wherein we affirmed, on
appeal, the judgment of Hon. Patricio Ceniza, of the Zamboanga court of first instance in its Civil Case No. 134. The dispositive
part of such affirmed judgment read as follows:
Valley Estate all the cattle that may be found in the cattle ranch
". . . judgment is hereby rendered, adjudicating to the Siari of Filemon Lucasan specially the 321 heads that had been
entrusted to his care as receiver or trustee of this Court and ordering the defendant to deliver to the plaintiff all said cattle or
their value amounting to P40,000 to pay damages to the Siari Valley Estate for the 400 heads of cattle that he sold since 1946
up to the date of the trial at the rate of P100 per head or P40,000 plus interest at the rate of 6 per cent from the date of the
trial of this case in January, 1951 and to pay the cost of the proceeding. In addition, the defendant is hereby ordered to allow
the Siari Valley Estate to round up all the buffaloes that may be found in his cattle ranch after the Siari Valley Estate shall
have
posted a bond in the amount of P5,000 to answer for whatever damages the operation may cause to him.
With regard to the contempt proceedings, Filemon Lucasan is hereby found guilty of the charges and he is hereby sentenced
to pay a fine of P500 pursuant to section 6 Rule 64 of the Rules of Court or suffer subsidiary imprisonment in case of
insolvency at the rate of one day for every P2.50 that he fails to pay.
With regard to the three causes of action the counter-claim of the defendant, all of them are hereby dismissed for lack of
merit.
Upon petition by the intervenors, the intervention had been dismissed in a previous order of this Court, without prejudice to
the filing of an independent action. (Italics ours.)
After our decision had become final, the expediente was returned to the court below for execution. Thereupon a dispute
arose whether we had affirmed also that part of Judge Ceniza's judgment underlined in the above quotation (concerning
buffaloes). Lucasan pointed out that, in quoting the dispositive paragraphs of the appealed judgment, our decision had
omitted the underlined portion. Therefore, he argued, the affirmance of the judgment did not include the directive about buff
aloes. As the respondent judge sustained Lucasan's contention, this petition for mandamus and other auxiliary remedies was

promptly filed.
Knowing the extent and scope of our decision in said appealed case, we issued a preliminary injunction designed to protest
petitioner's interests. And now, after the parties have been heard, we turn to the principal question, which is: did we uphold
the right given to plaintiff by the court below "to round up the buffaloes"? The answer must be: we did. In the concluding
part of our decision we found the appealed judgment to be substantially in accordance with the facts and the law; and then
we adjudged: "Therefore it is hereby affirmed with cost against appellant."
Ordinarily the affirmed judgment is that contained in its dispositive part; in the said Siari Valley appealed case, the above-
quoted four paragraphs.
It is true that in the opening statements our decision quoted the dispositive part of the appealed judgment as follows:
"Premises considered, judgment is hereby rendered, adjudicating to the Siari Valley Estate all the cattle that may be found in
the cattle ranch of Filemon Lucasan, specially the 321 heads that had been entrusted to his care as receiver or trustee of this
Court and ordering the defendant to deliver to the plaintiff all said cattle or their value amounting to P40,000, to pay
damages to the Siari Valley Estate for the 400 heads of cattle that he sold since 1946 up to the date of the trial at the rate of
P100 per head or P40,000 plus interest at the rate of 6 per cent from the date of the trial of this case in January, 1951 and to
pay the costs of the proceeding.
With regard to the contempt proceedings, Filemon Lucasan is hereby found guilty of the charges and he is hereby sentenced
to pay a fine of P500 pursuant to section 6, Rule 64, of the Rules of Court or suffer subsidiary imprisonment in case of
insolvency at the rate of one day for every P2.50
that he fails to pay."
thereby omitting the portion regarding buffaloes. But observe that we used elliptical signs, i.e. several *'s which indicated the
omission of some portion or portions. This did not evince any intention to "modify" the judgment by eliminating the omitted
portion. 2 The judgment, we decreed in concluding, "is hereby affirmed". We did not say, it is hereby modified. Neither did
we say, "the quoted portion of the judgment is hereby affirmed".
For that matter, would respondents maintain likewise that the last two paragraphs of the dispositive part of the appealed
judgment (regarding the counterclaim and the intervenors) were not equally affirmed, because they were not quoted?
We explained in Contreras vs. Felix, 78 Phil., 570, 44 Off. Gaz., 4306 that "the final judgment as rendered is the judgment o f
the court, irrespective of all seemingly contrary statements in the decision", and that the judgment must be distinguished
from the opinion. Our decree was one affirming the appealed judgment. If any statement in the opinion preceding the decree
seemingly excluded a portion (which we deny), it must be overlooked, because the judgment or the decree prevails over the
opinion.
In construing confirmatory decisions of appellate courts the practice is to regard the whole of the appealed judgment to have
been upheld 3 even if several points thereof have not been discussed "or touched upon in such confirmatory decision." 4
The truth is, as may be verified from our decision itself, our statement omitted the portion concerning buffaloes because it
was immaterial for the purpose of the appeal. It was not a point necessary to understand or decide the questions then before
us. 5 Indeed the whole decision made no reference to the subject of buffaloes, even as appellant's brief (Lucasan) failed to
debate such aspect of the appealed judgment.
The argument is advanced that in as much as the plaintiff "never claimed the buffaloes in its amended complaint (and) the
(lower court could not have granted that which was not prayed", therefore the Supreme Court most probably had excluded
the matter (of buff aloes) from its confirmatory order. Such reasoning has no valid foundation, because Lucasan was not in
default, there was a trial, and under the circumstances the plaintiff could be granted any relief that was supported by the
evidence "although not specified in his pleadings." 6
The other argument addressed to the proposition that this Court shouldn't have, and couldn't have affirmed that phase of the
judgment is too late, if not impertinent. The affirmance without modification of the judgment is final. And the parties should
realize that the matter of buffaloes was not such plain error (supposing it was error) as to call for special consideration by
this Court even if ignored 7 by appellant's counsel in his brief.

All the foregoing shows the respondent judge's mistake in declining to permit Siari Valley Inc. to round up its buffaloes
roaming on Lucasan's ranch. But the latter's resistance to such rounding-up, founded on a rather technical plea, despite his
knowledge that he had complained of such buffaloes grazing on his
land (R.A. in L-7046 p. 140), was not a mere mistake but a rather sharp practice transcending the limits of good faith.
However overruling petitioner's contention Lucasan will not be declared to have committed contempt of court
considering on the one hand that his ground of objection appeared to be not so flimsy 8 as to make his conduct a "willful
disregard or disobedience" 9 or a "clear and contumacious refusal to obey" 10 and on the other hand remembering that the
power to punish for contempt should be conservatively exercised. 11
Wherefore, the petition for mandamus is granted, the respondent judge, and whoever may be acting in his place, is hereby
ordered to enforce, and the other respondent Filemon Lucasan is ordered to obey, the aforementioned judgment in full of
Judge Ceniza which was totally affirmed by this Court on appeal. Costs of this proceeding shall be paid by respondent
Lucasan. So ordered.
Paras, C.J., Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.
EN BANC
[G.R. No. L-5416. July 26, 1954.] ALFREDO MONTELIBANO, ET AL., plaintiffs-appellants, vs. THE
BACOLOD-MURCIA MILLING CO., defendants-appellants. San Juan, Africa, Yiguez & Benedicto and Abundio Z. Arrieta for
plaintiffs- appellants. Vicente Hilado and Nolan & Manoloto for defendants-appellants.
SYLLABUS
1. COMMUNITY PROPERTY; PARTIAL SALE; BALANCE TO BE PRORATED AMONG OWNERS ACCORDING TO ORIGINAL
AMOUNT OWNED BY EACH. In a sale of a mass of sugar stored together and belonging to different owners, where it can
not be determined whose sugar was withdrawn and whose was not, the mass remaining must pertain to the original owners
in the proportion of the original amounts owned by each of them.
DECISION
LABRADOR, J p:
Parties plaintiffs and defendant appeal from a judgment of the Court of F i r s t I n s t a n ce o f N e g r o s O cci d e n t a l d i s m
i s s i n g p l a i n t i ff ' s co m p l a i n t f o r t h e recovery of P4,712,501.89, representing the value of sugar alleged to belong
to them and existing in defendant's warehouse at the time of the liberation, and ordering plaintiff Alfredo Montelibano to pay
defendant the sum of P35,163.06, plus legal interest thereon from April, 1945, until fully paid. Plaintiffs appeal from the
judgment of dismissal, and defendant from the judgment in so far as it fixes at P35,163.06 as the amount defendant is
entitled to recover from plaintiff Alfredo Montelibano.
Plaintiffs are sugar planters, members of the Bacolod-Murcia Planters' Association, Inc., or assignees of sugar planters. The
former have contracts with the defendant corporation, hereinafter known as the Central, for the delivery of their sugar cane
to the sugar mill of the defendant for milling and processing into sugar. In accordance with the contracts, which the planters
had signed with the defendant, the sugar processed from the sugar cane delivered by each planter was to be divided between
the planter and the Central in the following
proportion, namely, 60% for the planter and 40% for the Central. The Central was to furnish the planter, from time to time as
the milling progressed, with information as to the share of sugar that the planter was entitled to receive, furnishing the
planter with quedans or warehouses receipts therefor. After the milling, and for a period of 90 days, the Central was to keep
the sugar in its warehouse free of charge; thereafter the planter was to pay five centavos per picul per month for storage,.
aside from such expenses of conservation and repacking as may be incurred in relation to the sugar upon presentation of his
warehouse receipt (Exhibit KK).
At the time of the occupation of Negros Occidental by the Japanese forces on May 21, 1942, there were on deposit at the
Central's warehouse 664,091.22 piculs of sugar, of which 128,452.24 belonged to the plaintiffs, 284,425.81 to the defendant
Central, and the balance to planters not parties to the action (Exhibits C, C-l, C- 2, and C-3. On February 10, 1943 (18th year
of Showa February 10), the Japanese Military Administration, Visayan Branch, designated Fidel Henares, president of the

Sugar Planters' Association, with the following authority:

. . . hereby authorized to sell and dispose of all sugar to the Mitsui Bussan Kaisha, the authorized purchaser of the Philippine
Military Administration, and in addition granting the following powers:
To contract, deliver, to receive payments, to pay various accounts to the members of the Planters' Association; and to open
accounts, to contract overdraft accounts with the Bank of Taiwan, and perform such other powers as may be necessary in the
premises. (Exhibit RH, Annex A, Annex A-1, Exhibit 19)
Thereafter the J apanese Military Administration issued a regulation governing purchases of sugar by the Military
Administration (Exhibit JJ) by virtue of which, upon purchase of sugar by the Military Administration, any claim of the
Philippine National Bank or of any other enemy corporation thereto shall be automatically cancelled, and the sugar thus
purchased deposited as new "Regenesis a/c" in the name of the vendee, the Bank of Taiwan, Ltd. Planters or owners of the
sugar were authorized, if they chose, to borrow funds from the B a n k o f Ta i w a n , L t d . A c c o r d i n g t o r e g u l a t i o n s
i s s u e d b y t h e E x e c u t i v e Commission under the Military Administration, the checks in payment of the sugar
purchased shall be Bank of Taiwan checks which, however, were to be deposited with said bank and set-off against the
mortgages on old crop loans of the planters as Farmer Rehabilitation Funds. New crop loans could be granted within the
limits of the proceeds of their sugar sold (Exhibit 23).
As early as February 24, 1943, the Mitsui Bussan Kaisha, Ltd., notified the president of the Planters' Association that it was
buying all the sugar of the planters, whether they could be located or not (Exhibit II). Warehouse orders for release of sugar
he had sold were issued at the request of the president of the Planter's Association on the following dates and for the
following amounts:
February 17, 1943 22,724.09 piculs (Exhibit 62) March 6, 1943 275,580.35 piculs (Exhibit 22) March 27, 1943 575.84 piculs
(Exhibit 63) April 20, 1943 14,105.92 piculs (Exhibit 54)
May 17, 1943 22,698.31 piculs (Exhibit 65 C) May 18, 1943 6,240.92 piculs (Exhibit 6 B)
As for the share of the Central in the sugar, Exhibit E shows that as early as April 21, 1943, as much as a total of 272,601
piculs had been sold to the Mitsui Bussan Kaisha, and by the end of December, 1943, a full total of 272,801.07 piculs. There
was, however, still a balance of 12,153.05 piculs as of December, 1943 (Exhibit 1, p. 3).
From the time of Mitsui Bussan Kaisha made purchases, it began withdrawing sugar from the Central in sacks. Withdrawals
were made during the years 1943 and 1944 (Exhibit 72, 73, 74), but without indication as to whose sugar each withdrawal
was being made. As the sugar belonging to the planters and that of the Central were mixed up, and there being nothing to
show what the vendee was withdrawing, it could not be determined whose sugar had been actually sold or withdrawn. It is a
fact admitted by both parties, however, that at the time of the liberation, notwithstanding the sales and withdrawals, there
were around 150,000 piculs of sugar in the warehouse of the Central. This sugar was impounded by the U. S. Enemy Property
Custodian, but upon representation of the parties the same was finally released. And upon resolution of the majority of the
planters, it was agreed that 60 per cent thereof would be provisionally assigned to them, to be prorated among them
according to the sugar they had on deposit in the Central prior to the military occupation, irrespective of whether they had
been paid their sugar or not during the occupation, and the balance of 40 per cent to be assigned to the Central to be
disposed by it, but the proceed were to be kept by it in trust subject to the results of this litigation. The share of the
defendant in this distribution was 93,663.60 piculs (Exhibit H) and that of the plaintiffs 35,405.35 piculs.
After liberation (around March to June, 1945) and before the proration above set forth, plaintiff Alfredo Montelibano
withdrew from the warehouse some 12,789 piculs. Of these around 5,115.60 piculs were the share of the defendant Central.
Montelibano received a bill of P45,273.06 for the value of this sugar, and he proposed to pay the said amount in installments.
A first payment of P10,000 was made. The amount of the bill was based on a basic price of P8.85 per picul. The balance of the
price has not yet been paid by plaintiff Alfredo Montelibano.
The present action of plaintiff s is predicated on the claim that the defendant has already been fully paid for its share of the
sugar in the warehouse, as it had sold during the period from April, 1943, to March, 1945, some 284,601 piculs, in excess of
around P175.19 piculs of its own share. and had received the total price of this amount (P2,410,790.03), so that the sugar
remaining at the time of the liberation pertained and belonged exclusively to plaintiffs and the other planters It is contended
that of the 129,452.24 piculs that plaintiffs owned at the time of the military occupation, only 35,405. 35 piculs had actually
been taken advantage of by them (that which they received by the proration), so that the remaining 94,046.89 piculs should
be charged against the balance of the sugar and which was adjudicated to the Central as its share in the proration, the value
of which was P4,712,501.89. Moral justification for this claim of the

plaintiffs is sought for in the fact that the defendant Central had actually sold its share and received in full the price therefor,
which is not the case with the plaintiffs, who have not been paid for, or credited with, the value of their own. The defense is
that all the sugar that plaintiffs had in the Central's warehouse at the time of the military occupation was ordered by the
Japanese Military Administration to be sold by and through the president, which it did itself appoint, in the same manner
that the defendant was obliged to sell its own sugar to the buyer of the Military Administration, and that all the sugar that
plaintiffs had in the warehouse had, therefore, been sold and delivered through said president of the plaintiffs, so that the
latter had no more sugar in the warehouse at the time of the liberation. The defendant presented a counterclaim against
plaintiff Alfredo Montelibano for the value of the 5,115.60 piculs of the defendant which he appropriated and which they
claim to be valued at P248,337. The right of the defendant to said sugar is denied, and instead plaintiff Montelibano demands
the return of the P10,000 which he claims was erroneously paid to defendant.
The trial court found that the sugar remaining in the central's warehouse at the time of the liberation w as already purchased
by the Military Administration, but it could not withdraw the same by reason of the advent of the liberation; that as the sugar
of the parties were all mixed up, none of the owners could claim exclusive ownership of those remaining in the warehouse,
and their rights thereto should be governed by the provision of Article 381 of the Spanish Civil Code. This, the court said, the
parties had already accepted and carried out by the proration. The court also held that the taking of the sugar belonging to
both plaintiffs and defendant was an act of confiscation by the Japanese Military Government, which was legal and valid in
accordance with the ruling in the case of Hodges vs. Lacson, 46 Official Gazette (No. 3) 1148, from which no recourse may be
had by the parties against the Japanese Government or against the defendant. The plaintiffs' action was, therefore, dismissed
and the defendant absolved therefrom.
As to the counterclaim, the court found the same to be justified, and it sentenced Montelibano to pay for its value, which the
court, however, fixed at P8.80 per picul only. It, therefore, rendered judgment against Montelibano, ordering him to pay
defendant the balance of its value, i.e., P35,163.06.
Plaintiffs have appealed from the judgment dismissing their action, while defendant has also appealed from the amount
adjudged on its counterclaim, asserting that the price of the sugar taken by Montelibano should have been fixed at
P256,291.56 at the rate of P50.10 per picul.
Plaintiffs-appellants rely on the following legal propositions: that the purchase of plaintiffs' sugar during the Japanese
Military Occupation was neither an act of confiscation nor of requisition, but a voluntary sale, but as there was no consent of
the plaintiffs thereto or consideration paid for the sugar, none of plaintiff s' sugar should be considered as sold; that, on the
other hand, defendant's sale of its sugar was validly made and it had received in full the value thereof, hence the sugar
remaining in the Central's warehouse at the time
of the liberation should belong to plaintiffs, to the exclusion of the Central.
In our opinion, the determination of the nature or validity of the act of the J a p a n e s e M i l i t a r y A d m i n i s t r a t i o n i n
p u r ch a s i n g p l a i n t i ff s ' s u g a r f r o m t h e president of the planters, whom it appointed without the planters or
owners consent, is absolutely immaterial; whether the act of purchase was an act of confiscation of enemy property by the
military occupant, or one of requisition, or one of voluntary sale, is beside the fundamental issue, which we find to be: Who
are the legal owners of the sugar existing in the Central's warehouse at the time of the liberation? Irrespective of the legality
or illegality of the purchase of plaintiffs' sugar (by the Japanese Military Administration, for which defendant may not
certainly be made responsible, the fact remains that in consequence thereof of warehouse orders for the release of plaintiffs'
sugar were issued and sugar actually taken from the warehouse. Also by the sale of defendants sugar, release were
authorized to the purchaser and withdrawals made. But evidently the delivery of all the sugar sold by both was not
completed, as some 150,000 piculs remained thereafter. As to this sugar (remaining), we hold that title thereto remained in
the original owners, because ownership of personal property sold is not transferred until actual delivery non nudis pactis,
sed traditione dominia rerum transferuntur. (Fidelity and Deposit Co. vs. Wilson, 8 Phil., 51; Crusado vs. Bustos, 34 Phil., 17.)
It also follows that as the sugar of the plaintiffs and of the other planters and of the Central were stored together in one
single mass, without separation or identification, and as it appears that the Mitsui Bussan Kaisha made withdrawals of sugar
from the Central's warehouse without express statement as to whose sugar was being withdrawn, whether the planters' or
the Central's, it is absolutely impossible, physically or legally, to determine whose sugar it was that remained after the
withdrawals. There is no legal basis for plaintiffs' proposition that as the taking of their sugar was without their consent, and
that of the defendant's with its consent, all that remained is theirs. The only legal solution is, as the mass of sugar in the
warehouse was owned in common, and as it is not possible to determine whose sugar was withdrawn and whose was not,
the mass remaining must pertain to the original owners in the proportion of the original amounts owned by each of them.
This is the solution expressly indicated by the law (article 381, Spanish Civil Code), and the one most consistent with justice
and equity.

ART. 381. If, by the will of their owners, two things of identical or dissimilar nature are mixed, or if the mixture occurs
accidentally, and in the latter case the things can not be separated without injury each owner shall acquire a right in the
mixture proportionate to the part belonging to him, according to the value of the things mixed or commingled. (Spanish Civil
Code)
The 778 cavans and 38 kilos of palay belonging to the plaintiff Urbano Santos, having been mixed with 1,026 cavans and 9
kilos of palay belonging to the defendant Pablo Tiongson in Jose C. Bernabe's warehouse; the sheriff having found only 924
cavans and 31 1/2 kilos of palay in said warehouse at the time of the attachment thereof; and there being no means of
separating from 924 cavans and 31 1/2 kilos of palay belonging to Urbano Santos and
those belonging to Pablo Tiongson, the following rule prescribed in article 381 of the Civil Code for cases of this nature, is
applicable.
ART. 381. If, by the will of their owners, two things of identical or dissimilar nature are mixed or if the mixture occurs
accidentally, if in the latter case the things can not be separated without injury, each owner shall acquire a right in the
mixture proportionate to the part belonging to him according to the value of the things mixed or commingled.
The number of kilos in a cavan not having been determined, we will take the proportion only of the 924 cavans of palay
which were attached and sold, thereby giving Urbano Santos, who deposited 778 cavans, 398.49 thereof, and Pablo Tiongson,
who deposited 1,026 cavans, 525.51, or the value thereof at the rate of P3 per cavan. (Santos vs. Bernabe, 54 Phil., 19, 22).
Lastly, article 393 of the Civil Code, referring to common owner- ship, provides that the share of the participants in the
benefits, as well as in the charges, shall be proportionate to their respective interests.
This being the rule, it is obvious that whenever an undivided property gains an increase in its area, all the co-owners shall be
entitled to participate in the benefits to be proportionate to their shares; if it suffers diminution they shall have to share, too,
the charges in accordance with their interests. (Tarnate vs. Tarnate, 46 Off. Gaz. (No. 9) 4397, 4403-4404)
If goods of the same kind owned by various persons are so mixed with the mutual consent of the owners that the portions or
shares of the various owners in the mixture are indistinguishable, the owners become tenants in common of the mixture,
each having an interest in common in proportion to his respective shares. This is the rule of the civil law. The doctrine finds
its most frequent application where several owners deposit grain in a warehouse although it of course exists wherever the
goods of two or more parties are indistinguishably mingled by common consent, as where quantities of oil belonging to
different persons are stored in a tank. In such cases, in the event of partial loss, there will be prorated distribution of the loss.
Where such a confusion arises it seldom causes inconvenience, embarrassment, or dispute, for the separation of the
intermingled goods into the aliquot shares of the owners is merely a matter of measuring, weighing, counting, or selecting,
and in all such cases it is certain that he is entitled to receive back a like quantity. Since they are tenants in common,
however, the co-owners are subject to stand their pro rata share of any loss which may accrue to the general property from
diminution, decay, or other causes. (11 Am. Jur. 532-533.)
There can be no doubt that, where the volume of grain, stored in an elevator, or of oil stored in a tank, is made up of
contributions from different owners, and becomes "common stock." its partial destruction by fire, resulting from lightning or
other fortuitous cause must necessitate a pro rata distribution of the loss. . . . (Jennings-Heywood Oil Syndicatevs. Houssiere-
Latrelle Oil Co., et al., Ann. Cas. 1913 E. 679, 690.)
With respect to defendant's counterclaim, we agree with the trial court that the evidence submitted shows that P8.85 is the
fair price of the sugar taken
by plaintiff Alfredo Montelibano. Defendant's own original bill fixed this as a price for said sugar (Exhibit 49), and sales made
to third persons at the time the sugar was withdrawn were at prices fluctuating around this sum. We find no reason,
therefore, for disturbing the judgment in relation thereto.
For the foregoing considerations, the judgment appealed from is hereby affirmed, both in so far as it dismisses the complaint
and in so far as it awards the sum of P35,163.06 on defendant's counterclaim against plaintiff Alfredo Montelibano, with
costs against the plaintiffs-appellants.
Paras, C.J., Pablo, Bengzon, Montemayor, Reyes, A., Jugo andBautista Angelo, JJ., concur.