THIRD DIVISION

ERMINDA F. FLORENTINO,

G.R. No. 172384

Petitioner,
Present:
YNARES-SANTIAGO,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,

- versus -

NACHURA, and
REYES, JJ.

SUPERVALUE, INC.,
Respondent.

Promulgated:

September 12, 2007

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DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised
Rules of Court, filed by petitioner Erminda F. Florentino, seeking to reverse and set aside the
Decision,1[1] dated 10 October 2003 and the Resolution,2[2] dated 19 April 2006 of the Court of
Appeals in CA-G.R. CV No. 73853.

The appellate court, in its assailed Decision and

Resolution, modified the Decision dated 30 April 2001 of the Regional Trial Court (RTC) of
Makati, Branch 57, in Civil Case No. 00-1015, finding the respondent Supervalue, Inc., liable
for the sum of P192,000.00, representing the security deposits made by the petitioner upon the
commencement of their Contract of Lease. The dispositive portion of the assailed appellate
courts Decision thus reads:

WHEREFORE, premises considered, the appeal is PARTLY GRANTED. The April 30,
2001 Decision of the Regional Trial Court of Makati, Branch 57 is therefore MODIFIED to wit:
(a) the portion ordering the [herein respondent] to pay the amount of P192,000.00 representing
the security deposits and P50,000.00 as attorneys fees in favor of the
[herein petitioner] as
well as giving [respondent] the option to reimburse [petitioner] of the value of the
improvements introduced by the [petitioner] on the leased [premises] should [respondent] choose
to appropriate itself or require the [petitioner] to remove the improvements, is hereby
1[1] Penned by Associate Justice Elvi John S. Asuncion with Associate Justices Godardo A. Jacinto and Lucas
P. Bersamin, concurring. Rollo, pp. 8-17.

2[2] Id. at 9.

REVERSED and SET ASIDE; and (b) the portion ordering the return to [petitioner] the
properties seized by [respondent] after the former settled her obligation with the latter is however
MAINTAINED.3[3]

The factual and procedural antecedents of the instant petition are as follows:

Petitioner is doing business under the business name Empanada Royale, a sole
proprietorship engaged in the retail of empanada with outlets in different malls and business
establishments within Metro Manila.4[4]

Respondent, on the other hand, is a domestic corporation engaged in the business of

leasing stalls and commercial store spaces located inside SM Malls found all throughout the
country.5[5]

On 8 March 1999, petitioner and respondent executed three Contracts of Lease

containing similar terms and conditions over the cart-type stalls at SM North Edsa and SM
Southmall and a store space at SM Megamall. The term of each contract is for a period of four
months and may be renewed upon agreement of the parties.6[6]

3[3] Id. at 16-17.

4[4] Records, p. 1.
5[5] Id.
6[6] Id. at 55-56.

Upon the expiration of the original Contracts of Lease, the parties agreed to renew the
same by extending their terms until 31 March 2000.7[7]

Before the expiration of said Contracts of Lease, or on 4 February 2000, petitioner

received two letters from the respondent, both dated 14 January 2000, transmitted through
facsimile transmissions.8[8]

In the first letter, petitioner was charged with violating Section 8 of the Contracts of
Lease by not opening on 16 December 1999 and 26 December 1999.9[9]

Respondent also charged petitioner with selling a new variety of empanada called miniembutido and of increasing the price of her merchandise from P20.00 to P22.00, without the
prior approval of the respondent.10[10]

Respondent observed that petitioner was frequently closing earlier than the usual mall
hours, either because of non-delivery or delay in the delivery of stocks to her outlets, again in
violation of the terms of the contract. A stern warning was thus given to petitioner to refrain
from committing similar infractions in the future in order to avoid the termination of the lease
contract.11[11]

7[7] Id. at 58.

8[8] Id.
9[9] Id.
10[10] Id.

In the second letter, respondent informed the petitioner that it will no longer renew the
Contracts of Lease for the three outlets, upon their expiration on 31 March 2000.12[12]

In a letter-reply dated 11 February 2000, petitioner explained that the mini-embutido is

not a new variety of empanada but had similar fillings, taste and ingredients as those of pork
empanada; only, its size was reduced in order to make it more affordable to the buyers.13[13]

Such explanation notwithstanding, respondent still refused to renew its Contracts of

Lease with the petitioner. To the contrary, respondent took possession of the store space in SM
Megamall and confiscated the equipment and personal belongings of the petitioner found
therein after the expiration of the lease contract.14[14]

In a letter dated 8 May 2000, petitioner demanded that the respondent release the
equipment and personal belongings it seized from the SM Megamall store space and return the
security deposits, in the sum of P192,000.00, turned over by the petitioner upon signing of the
Contracts of Lease. On 15 June 2000, petitioner sent respondent another letter reiterating her
previous demands, but the latter failed or refused to comply therewith. 15[15]
11[11] Id.
12[12] Id. at 13.
13[13] Rollo, p. 39.
14[14] Id.
15[15] Id. at 14-15.

On 17 August 2000, an action for Specific Performance, Sum of Money and Damages
was filed by the petitioner against the respondent before the RTC of Makati, Branch 57.16[16]

In her Complaint docketed as Civil Case No. 00-1015, petitioner alleged that the
respondent made verbal representations that the Contracts of Lease will be renewed from time
to time and, through the said representations, the petitioner was induced to introduce
improvements upon the store space at SM Megamall in the sum of P200,000.00, only to find
out a year later that the respondent will no longer renew her lease contracts for all three
outlets.17[17]

In addition, petitioner alleged that the respondent, without justifiable cause and without
previous demand, refused to return the security deposits in the amount of P192,000.00.18[18]

Further, petitioner claimed that the respondent seized her equipment and personal
belongings found inside the store space in SM Megamall after the lease contract for the said
outlet expired and despite repeated written demands from the petitioner, respondent
continuously refused to return the seized items.19[19]

16[16] Records, pp. 1-5.

17[17] Id.
18[18] Id.
19[19] Id.

Petitioner thus prayed for the award of actual damages in the sum of P472,000.00,
representing the sum of security deposits, cost of improvements and the value of the personal
properties seized. Petitioner also asked for the award of P300,000.00 as moral damages;
P50,000.00 as exemplary damages; and P80,000.00 as attorneys fees and expenses of
litigation.20[20]

For its part, respondent countered that petitioner committed several violations of the
terms of their Contracts of Lease by not opening from 16 December 1999 to 26 December
1999, and by introducing a new variety of empanada without the prior consent of the
respondent, as mandated by the provision of Section 2 of the Contract of Lease. Respondent
also alleged that petitioner infringed the lease contract by frequently closing earlier than the
agreed closing hours.

Respondent finally averred that petitioner is liable for the amount

P106,474.09, representing the penalty for selling a new variety of empanada, electricity and
water bills, and rental adjustment, among other charges incidental to the lease agreements.
Respondent claimed that the seizure of petitioners personal belongings and equipment was in
the exercise of its retaining lien, considering that the petitioner failed to settle the said
obligations up to the time the complaint was filed.21[21]

Considering that petitioner already committed several breaches of contract, the

respondent thus opted not to renew its Contracts of Lease with her anymore. The security
deposits were made in order to ensure faithful compliance with the terms of their lease
agreements; and since petitioner committed several infractions thereof, respondent was justified
in forfeiting the security deposits in the latters favor.

20[20] Id.
21[21] Id. at 20-28.

On 30 April 2001, the RTC rendered a Judgment 22[22] in favor of the petitioner and
found that the physical takeover by the respondent of the leased premises and the seizure of
petitioners equipment and personal belongings without prior notice were illegal. The decretal
part of the RTC Judgment reads:

WHEREFORE, premises duly considered, judgment is hereby rendered ordering the

[herein respondent] to pay [herein petitioner] the amount of P192,000.00 representing the
security deposits made by the [petitioner] and P50,000.00 as and for attorneys fees.
The [respondent] is likewise ordered to return to the [petitioner] the various properties
seized by the former after settling her account with the [respondent].
Lastly, the [respondent] may choose either to reimburse the [petitioner] one half (1/2) of
the value of the improvements introduced by the plaintiff at SM Megamall should [respondent]
choose to appropriate the improvements to itself or require the [petitioner] to remove the
improvements, even though the principal thing may suffer damage thereby. [Petitioner] shall
not, however, cause anymore impairment upon the said leased premises than is necessary.
The other damages claimed by the plaintiff are denied for lack of merit.

Aggrieved, the respondent appealed the adverse RTC Judgment to the Court of Appeals.

In a Decision23[23] dated 10 October 2003, the Court of Appeals modified the RTC
Judgment and found that the respondent was justified in forfeiting the security deposits and was
not liable to reimburse the petitioner for the value of the improvements introduced in the leased
premises and to pay for attorneys fees. In modifying the findings of the lower court, the
appellate court declared that in view of the breaches of contract committed by the petitioner, the
respondent is justified in forfeiting the security deposits. Moreover, since the petitioner did not
obtain the consent of the respondent before she introduced improvements on the SM Megamall
store space, the respondent has therefore no obligation to reimburse the petitioner for the
22[22] Rollo, pp. 38-43.
23[23] Id. at 8-17.

amount expended in connection with the said improvements. 24[24] The Court of Appeals,
however, maintained the order of the trial court for respondent to return to petitioner her
properties after she has settled her obligations to the respondent. The appellate court denied
petitioners Motion for Reconsideration in a Resolution25[25] dated 19 April 2006.

Hence, this instant Petition for Review on Certiorari26[26] filed by the petitioner assailing
the Court of Appeals Decision. For the resolution of this Court are the following issues:

I.

Whether or not the respondent is liable to return the security deposits to the petitions.

II.

Whether or not the respondent is liable to reimburse the petitioner for the sum of the

improvements she introduced in the leased premises.

III.

Whether or not the respondent is liable for attorneys fees.27[27]

The appellate court, in finding that the respondent is authorized to forfeit the security
deposits, relied on the provisions of Sections 5 and 18 of the Contract of Lease, to wit:

24[24] Id.
25[25] Id. at 19.
26[26] Id. at 22-37.
27[27] Id. at 27-28.

Section 5. DEPOSIT. The LESSEE shall make a cash deposit in the sum of SIXTY
THOUSAND PESOS (P60,000.00) equivalent to three (3) months rent as security for the
full and faithful performance to each and every term, provision, covenant and condition of
this lease and not as a pre-payment of rent. If at any time during the term of this lease the rent
is increased[,] the LESSEE on demand shall make an additional deposit equal to the increase in
rent. The LESSOR shall not be required to keep the deposit separate from its general funds and
the deposit shall not be entitled to interest. The deposit shall remain intact during the entire term
and shall not be applied as payment for any monetary obligations of the LESSEE under this
contract. If the LESSEE shall faithfully perform every provision of this lease[,] the deposit shall
be refunded to the LESSEE upon the expiration of this Lease and upon satisfaction of all
monetary obligation to the LESSOR.
xxxx

Section 18. TERMINATION. Any breach, non-performance or non-observance of

the terms and conditions herein provided shall constitute default which shall be sufficient
ground to terminate this lease, its extension or renewal. In which event, the LESSOR shall
demand that LESSEE immediately vacate the premises, and LESSOR shall forfeit in its favor
the deposit tendered without prejudice to any such other appropriate action as may be
legally authorized.28[28]

Since it was already established by the trial court that the petitioner was guilty of
committing several breaches of contract, the Court of Appeals decreed that she cannot therefore
rightfully demand the return of the security deposits for the same are deemed forfeited by
reason of evident contractual violations.

It is undisputed that the above-quoted provision found in all Contracts of Lease is in the
nature of a penal clause to ensure petitioners faithful compliance with the terms and conditions
of the said contracts.

28[28] Records, pp. 9-10.

A penal clause is an accessory undertaking to assume greater liability in case of breach.

It is attached to an obligation in order to insure performance and has a double function: (1) to
provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the
threat of greater responsibility in the event of breach. 29[29] The obligor would then be bound to
pay the stipulated indemnity without the necessity of proof of the existence and the measure of
damages caused by the breach.30[30] Article 1226 of the Civil Code states:

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity
for damages and the payment of interests in case of noncompliance, if there is no stipulation to
the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is
guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code.

As a general rule, courts are not at liberty to ignore the freedoms of the parties to agree
on such terms and conditions as they see fit as long as they are not contrary to law, morals, good
customs, public order or public policy. Nevertheless, courts may equitably reduce a stipulated
penalty in the contracts in two instances: (1) if the principal obligation has been partly or
irregularly complied with; and (2) even if there has been no compliance if the penalty is
iniquitous or unconscionable in accordance with Article 1229 of the Civil Code which clearly
provides:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been no performance,
the penalty may also be reduced by the courts if it is iniquitous or unconscionable.31[31]
29[29] Filinvest Land, Inc. v. Court of Appeals, G.R. No. 138980, 20 September 2005, 470 SCRA 260, 269.
30[30] Ligutan v. Court of Appeals, 427 Phil. 42, 51 (2002).
31[31] Filinvest Land, Inc. v. Court of Appeals, supra note 29 at 269-270.

In ascertaining whether the penalty is unconscionable or not, this court set out the
following standard in Ligutan v. Court of Appeals,32[32] to wit:

The question of whether a penalty is reasonable or iniquitous can be partly subjective and
partly objective. Its resolution would depend on such factor as, but not necessarily confined to,
the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and
its consequences, the supervening realities, the standing and relationship of the parties, and the
like, the application of which, by and large, is addressed to the sound discretion of the court. xxx.

In the instant case, the forfeiture of the entire amount of the security deposits in the sum
of P192,000.00 was excessive and unconscionable considering that the gravity of the breaches
committed by the petitioner is not of such degree that the respondent was unduly prejudiced
thereby. It is but equitable therefore to reduce the penalty of the petitioner to 50% of the total
amount of security deposits.

It is in the exercise of its sound discretion that this court tempered the penalty for the
breaches committed by the petitioner to 50% of the amount of the security deposits. The
forfeiture of the entire sum of P192,000.00 is clearly a usurious and iniquitous penalty for the
transgressions committed by the petitioner. The respondent is therefore under the obligation to
return the 50% of P192,000.00 to the petitioner.

Turning now to the liability of the respondent to reimburse the petitioner for one-half of
the expenses incurred for the improvements on the leased store space at SM Megamall, the
following provision in the Contracts of Lease will enlighten us in resolving this issue:

32[32] Supra note 30 at 52.

Section 11. ALTERATIONS, ADDITIONS, IMPROVEMENTS, ETC. The LESSEE

shall not make any alterations, additions, or improvements without the prior written consent of
LESSOR; and all alterations, additions or improvements made on the leased premises, except
movable or fixtures put in at LESSEEs expense and which are removable, without defacing the
buildings or damaging its floorings, shall become LESSORs property without
compensation/reimbursement but the LESSOR reserves the right to require the removal of the
said alterations, additions or improvements upon expiration of the lease.

The foregoing provision in the Contract of Lease mandates that before the petitioner can
introduce any improvement on the leased premises, she should first obtain respondents consent.
In the case at bar, it was not shown that petitioner previously secured the consent of the
respondent before she made the improvements on the leased space in SM Megamall. It was not
even alleged by the petitioner that she obtained such consent or she at least attempted to secure
the same. On the other hand, the petitioner asserted that respondent allegedly misrepresented to
her that it would renew the terms of the contracts from time to time after their expirations, and
that the petitioner was so induced thereby that she expended the sum of P200,000.00 for the
improvement of the store space leased.

This argument was squarely addressed by this court in Fernandez v. Court of Appeals,33
[33] thus:

The Court ruled that the stipulation of the parties in their lease contract to be renewable at the
option of both parties stresses that the faculty to renew was given not to the lessee alone nor to
the lessor by himself but to the two simultaneously; hence, both must agree to renew if a new
contract is to come about.
Petitioners contention that respondents had verbally agreed to extend the lease
indefinitely is inadmissible to qualify the terms of the written contract under the parole evidence
rule, and unenforceable under the statute of frauds.34[34]

33[33] G.R. No. L-80231, 18 October 1988, 166 SCRA 577, 587-588.
34[34]Josefa v. San Buenaventura, G.R. No. 163429, 3 March 2006, 484 SCRA 49, 60.

Moreover, it is consonant with human experience that lessees, before occupying the
leased premises, especially store spaces located inside malls and big commercial
establishments, would renovate the place and introduce improvements thereon according to the
needs and nature of their business and in harmony with their trademark designs as part of their
marketing ploy to attract customers. Certainly, no inducement or misrepresentation from the
lessor is necessary for this purpose, for it is not only a matter of necessity that a lessee should
re-design its place of business but a business strategy as well.

In ruling that the respondent is liable to reimburse petitioner one half of the amount of
improvements made on the leased store space should it choose to appropriate the same, the RTC
relied on the provision of Article 1678 of the Civil Code which provides:
Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to
the use for which the lease is intended, without altering the form or substance of the property
leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value of
the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may
remove the improvements, even though the principal thing may suffer damage thereby. He shall
not, however, cause any more impairment upon the property leased than is necessary.

While it is true that under the above-quoted provision of the Civil Code, the lessor is
under the obligation to pay the lessee one-half of the value of the improvements made should
the lessor choose to appropriate the improvements, Article 1678 however should be read
together with Article 448 and Article 546 of the same statute, which provide:

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

xxxx
Art. 546. Necessary expenses shall be refunded to every possessor; but only possessor in
good faith may retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the same right
of retention, the person who has defeated him in the possession having the option of refunding
the amount of the expenses or of paying the increase in value which the thing may have acquired
by reason thereof.

Thus, to be entitled to reimbursement for improvements introduced on the property, the

petitioner must be considered a builder in good faith. Further, Articles 448 and 546 of the Civil
Code, which allow full reimbursement of useful improvements and retention of the premises
until reimbursement is made, apply only to a possessor in good faith, i.e., one who builds on
land with the belief that he is the owner thereof. A builder in good faith is one who is unaware
of any flaw in his title to the land at the time he builds on it. 35[35] In this case, the petitioner
cannot claim that she was not aware of any flaw in her title or was under the belief that she is
the owner of the subject premises for it is a settled fact that she is merely a lessee thereof.

In Geminiano v. Court of Appeals,36[36] this Court was emphatic in declaring that lessees
are not possessors or builders in good faith, thus:

Being mere lessees, the private respondents knew that their occupation of the
premises would continue only for the life of the lease. Plainly, they cannot be considered as
possessors nor builders in good faith.
In a plethora of cases, this Court has held that Article 448 of the Civil Code, in relation to
Article 546 of the same Code, which allows full reimbursement of useful improvements and
retention of the premises until reimbursement is made, applies only to a possessor in good faith,
i.e., one who builds on land with the belief that he is the owner thereof. It does not apply where
35[35] Lopez v. Sarabia, G.R. No. 140357, 24 September 2004, 439 SCRA 35, 49.
36[36] 328 Phil. 682, 689-690 (1996).

one's only interest is that of a lessee under a rental contract; otherwise, it would always be
in the power of the tenant to "improve" his landlord out of his property.

Since petitioners interest in the store space is merely that of the lessee under the lease
contract, she cannot therefore be considered a builder in good faith. Consequently, respondent
may appropriate the improvements introduced on the leased premises without any obligation to
reimburse the petitioner for the sum expended.

Anent the claim for attorneys fees, we resolve to likewise deny the award of the same.
Attorneys fees may be awarded when a party is compelled to litigate or to incur expenses to
protect its interest by reason of unjustified act of the other.37[37]

In the instant petition, it was not shown that the respondent unjustifiably refused to grant
the demands of the petitioner so as to compel the latter to initiate legal action to enforce her
right. As we have found herein, there is basis for respondents refusal to return to petitioner the
security deposits and to reimburse the costs of the improvements in the leased premises. The
award of attorneys fees is therefore not proper in the instant case.

WHEREFORE, premises considered, the instant Petition is PARTLY GRANTED. The

Court of Appeals Decision dated 10 October 2003 in CA-G.R. CV No. 73853 is hereby
AFFIRMED with the MODIFICATION that the respondent may forfeit only 50% of the total
37[37] Philippine Air Lines, Inc. v. Court of Appeals, 193 Phil. 560, 580 (1981).

amount of the security deposits in the sum of P192,000.00, and must return the remaining 50%
to the petitioner. No costs.

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

LEONILA SARMINETO, petitioner,
vs.
HON. ENRIQUE A. AGANA, District Judge, Court of First Instance of Rizal, Seventh Judicial
District, Branch XXVIII, Pasay City, and SPOUSES ERNESTO VALENTINO and REBECCA
LORENZO-VALENTINO, respondents.
MELENCIO-HERRERA, J.:+.wph!1
This Petition for certiorari questions a March 29, 1979 Decision rendered by the then Court of First
Instance of Pasay City. The Decision was one made on memoranda, pursuant to the provisions of RA
6031, and it modified, on October 17, 1977, a judgment of the then Municipal Court of Paranaque,
Rizal, in an Ejectment suit instituted by herein petitioner Leonila SARMIENTO against private
respondents, the spouses ERNESTO Valentino and Rebecca Lorenzo. For the facts, therefore, we
have to look to the evidence presented by the parties at the original level.
It appears that while ERNESTO was still courting his wife, the latter's mother had told him the couple
could build a RESIDENTIAL HOUSE on a lot of 145 sq. ms., being Lot D of a subdivision in
Paranaque (the LAND, for short). In 1967, ERNESTO did construct a RESIDENTIAL HOUSE on the
LAND at a cost of P8,000.00 to P10,000.00. It was probably assumed that the wife's mother was the
owner of the LAND and that, eventually, it would somehow be transferred to the spouses.
It subsequently turned out that the LAND had been titled in the name of Mr. & Mrs. Jose C. Santo, Jr.
who, on September 7 , 1974, sold the same to petitioner SARMIENTO. The following January 6,
1975, SARMIENTO asked ERNESTO and wife to vacate and, on April 21, 1975, filed an Ejectment
suit against them. In the evidentiary hearings before the Municipal Court, SARMIENTO submitted the
deed of sale of the LAND in her favor, which showed the price to be P15,000.00. On the other hand,
ERNESTO testified that the then cost of the RESIDENTIAL HOUSE would be from P30,000.00 to
P40,000.00. The figures were not questioned by SARMIENTO.
The Municipal Court found that private respondents had built the RESIDENTIAL HOUSE in good
faith, and, disregarding the testimony of ERNESTO, that it had a value of P20,000.00. It then ordered
ERNESTO and wife to vacate the LAND after SARMIENTO has paid them the mentioned sum of
P20,000.00.
The Ejectment suit was elevated to the Court of First Instance of Pasay where, after the submission
of memoranda, said Court rendered a modifying Decision under Article 448 of the Civil Code.

SARMIENTO was required, within 60 days, to exercise the option to reimburse ERNESTO and wife
the sum of 40,000.00 as the value of the RESIDENTIAL HOUSE, or the option to allow them to
purchase the LAND for P25,000.00. SARMIENTO did not exercise any of the two options within the
indicated period, and ERNESTO was then allowed to deposit the sum of P25,000.00 with the Court
as the purchase price for the LAND. This is the hub of the controversy. SARMIENTO then instituted
the instant certiorari proceedings.
We agree that ERNESTO and wife were builders in good faith in view of the peculiar circumstances
under which they had constructed the RESIDENTIAL HOUSE. As far as they knew, the LAND was
owned by ERNESTO's mother-in-law who, having stated they could build on the property, could
reasonably be expected to later on give them the LAND.
In regards to builders in good faith, Article 448 of the Code provides:t.hqw
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.t.hqw
The owner of the building erected in good faith on a land owned by another, is entitled to retain the
possession of the land until he is paid the value of his building, under article 453 (now Article 546). The

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

WHEREFORE, the Petition for Certiorari is hereby ordered dismissed, without pronouncement as to
costs.
SO ORDERED.1wph1.t

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

FRANCISCO DEPRA, plaintiff-appellee,
vs.
AGUSTIN DUMLAO, defendant-appellant.
MELENCIO-HERRERA, J.:
This is an appeal from the Order of the former Court of First Instance of Iloilo to the then Court of
Appeals, which the latter certified to this instance as involving pure questions of law
Plaintiff-appellee, Francisco Depra, is the owner of a parcel of land registered under Transfer
Certificate of Title No. T3087, known as Lot No. 685, situated in the municipality of Dumangas, Iloilo,
with an area of approximately 8,870 square meters. Agustin Dumlao, defendant-appellant, owns an
adjoining lot, designated as Lot No. 683, with an approximate area of 231 sq. ms.
Sometime in 1972, when DUMLAO constructed his house on his lot, the kitchen thereof had
encroached on an area of thirty four (34) square meters of DEPRA's property, After the encroachment
was discovered in a relocation survey of DEPRA's lot made on November 2,1972, his mother, Beatriz
Depra after writing a demand letter asking DUMLAO to move back from his encroachment, filed an
action for Unlawful Detainer on February 6,1973 against DUMLAO in the Municipal Court of of
Dumangas, docketed as Civil Case No 1, Said complaint was later amended to include DEPRA as a
party plain. plaintiff.

After trial, the Municipal Court found that DUMLAO was a builder in good faith, and applying Article
448 of the Civil Code, rendered judgment on September 29, 1973, the dispositive portion of which
reads:
Ordering that a forced lease is created between the parties with the plaintiffs, as lessors, and the
defendants as lessees, over the disputed portion with an area of thirty four (34) square meters, the rent to
be paid is five (P5.00) pesos a month, payable by the lessee to the lessors within the first five (5) days of
the month the rent is due; and the lease shall commence on the day that this decision shall have become
final.

From the foregoing judgment, neither party appeal so that, ff it were a valid judgment, it would have
ordinarily lapsed into finality, but even then, DEPRA did not accept payment of rentals so that
DUMLAO deposited such rentals with the Municipal Court.
On July 15,1974, DEPRA filed a Complaint for Quieting of Title against DUMLAO before the then
Court of First Instance of Iloilo, Branch IV (Trial Court), involving the very same 34 square meters,
which was the bone of contention in the Municipal Court. DUMLAO, in his Answer, admitted the
encroachment but alleged, in the main, that the present suit is barred by res judicata by virtue of the
Decision of the Municipal Court, which had become final and executory.
After the case had been set for pre-trial, the parties submitted a Joint Motion for Judgment based on
the Stipulation of Facts attached thereto. Premised thereon, the Trial Court on October 31, 1974,
issued the assailed Order, decreeing:
WHEREFORE, the Court finds and so holds that the thirty four (34) square meters subject of this litigation
is part and parcel of Lot 685 of the Cadastral Survey of Dumangas of which the plaintiff is owner as
evidenced by Transfer Certificate of Title No. 3087 and such plaintiff is entitled to possess the same.
Without pronouncement as to costs.
SO ORDERED.

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

Court explicitly provides that judgment in a detainer case "shall not bar an action between the same
parties respecting title to the land. " 4
Conceded in the Stipulation of Facts between the parties is that DUMLAO was a builder in good faith.
Thus,
8. That the subject matter in the unlawful detainer case, Civil Case No. 1, before the Municipal Court of
Dumangas, Iloilo involves the same subject matter in the present case, the Thirty-four (34) square meters
portion of land and built thereon in good faith is a portion of defendant's kitchen and has been in the
possession of the defendant since 1952 continuously up to the present; ... (Emphasis ours)

Consistent with the principle that our Court system, like any other, must be a dispute resolving
mechanism, we accord legal effect to the agreement of the parties, within the context of their mutual
concession and stipulation. They have, thereby, chosen a legal formula to resolve their dispute to
appeal ply to DUMLAO the rights of a "builder in good faith" and to DEPRA those of a "landowner in
good faith" as prescribed in Article 448. Hence, we shall refrain from further examining whether the
factual situations of DUMLAO and DEPRA conform to the juridical positions respectively defined by
law, for a "builder in good faith" under Article 448, a "possessor in good faith" under Article 526 and a
"landowner in good faith' under Article 448.
In regards to builders in good faith, Article 448 of the Civil Code provides:
ART. 448. The owner of the land on which anything has been built sown or planted in good faith,
shall have the right
to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in
articles 546 and 548, or
to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper
rent.
However, the builder or planter cannot be obliged to buy the land if its value is considerably more than
that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not
choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms
of the lease and in case of disagreement, the court shall fix the terms thereof (Paragraphing supplied)

Pursuant to the foregoing provision, DEPRA has the option either to pay for the encroaching part of
DUMLAO's kitchen, or to sell the encroached 34 square meters of his lot to DUMLAO. He cannot
refuse to pay for the encroaching part of the building, and to sell the encroached part of his land, 5 as
he had manifested before the Municipal Court. But that manifestation is not binding because it was
made in a void proceeding.
However, the good faith of DUMLAO is part of the Stipulation of Facts in the Court of First Instance. It
was thus error for the Trial Court to have ruled that DEPRA is "entitled to possession," without more,
of the disputed portion implying thereby that he is entitled to have the kitchen removed. He is entitled
to such removal only when, after having chosen to sell his encroached land, DUMLAO fails to pay for
the same. 6 In this case, DUMLAO had expressed his willingness to pay for the land, but DEPRA
refused to sell.

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

A word anent the philosophy behind Article 448 of the Civil rode.
The original provision was found in Article 361 of the Spanish Civil Code; which provided:
ART. 361. The owner of land on which anything has been built, sown or planted in good faith, shall have
the right to appropriate as his own the work, sowing or planting, after the payment of the indemnity stated
in Articles 453 and 454, or to oblige the one who built or planted to pay the price of the land, and the one
who sowed, the proper rent.

As will be seen, the Article favors the owner of the land, by giving him one of the two options
mentioned in the Article. Some commentators have questioned the preference in favor of the owner of
the land, but Manresa's opinion is that the Article is just and fair.
. . . es justa la facultad que el codigo da al dueno del suelo en el articulo 361, en el caso de edificacion o
plantacion? Algunos comentaristas la conceptuan injusta, y como un extraordinario privilegio en favor de
la propiedad territorial. Entienden que impone el Codigo una pena al poseedor de buena fe y como
advierte uno de los comentaristas aludidos 'no se ve claro el por que de tal pena . . . al obligar al que
obro de buena fe a quedarse con el edificio o plantacion, previo el pago del terreno que ocupa, porque si
bien es verdad que cuando edifico o planto demostro con este hecho, que queria para si el edificio o
plantio tambien lo es que el que edifico o planto de buena fe lo hizo en la erronea inteligencia de creerse
dueno del terreno Posible es que, de saber lo contrario, y de tener noticia de que habia que comprar y
pagar el terreno, no se hubiera decidido a plantar ni a edificar. La ley obligandole a hacerlo fuerza su
voluntad, y la fuerza por un hecho inocente de que no debe ser responsable'. Asi podra suceder pero la
realidad es que con ese hecho voluntario, aunque sea inocente, se ha enriquecido torticeramente con
perjuicio de otro a quien es justo indemnizarle,
En nuestra opinion, el Codigo ha resuelto el conflicto de la manera mas justa y equitativa y respetando en
lo possible el principio que para la accesion se establece en el art. 358. 7

Our own Code Commission must have taken account of the objections to Article 361 of the Spanish
Civil Code. Hence, the Commission provided a modification thereof, and Article 448 of our Code has
been made to provide:
ART. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall
have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity
provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the building or trees. In such case, he shall pay

reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper
indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court
shall fix the terms thereof.

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

WHEREFORE, the judgment of the trial Court is hereby set aside, and this case is hereby ordered
remanded to the Regional Trial Court of Iloilo for further proceedings consistent with Articles 448 and
546 of the Civil Code, as follows:
1. The trial Court shall determine
a) the present fair price of DEPRA's 34 square meter area of land;
b) the amount of the expenses spent by DUMLAO for the building of the kitchen;
c) the increase in value ("plus value") which the said area of 34 square meters may
have acquired by reason thereof, and
d) whether the value of said area of land is considerably more than that of the kitchen
built thereon.
2. After said amounts shall have been determined by competent evidence, the Regional, Trial Court
shall render judgment, as follows:
a) The trial Court shall grant DEPRA a period of fifteen (15) days within which to
exercise his option under the law (Article 448, Civil Code), whether to appropriate the
kitchen as his own by paying to DUMLAO either the amount of tile expenses spent by
DUMLAO f or the building of the kitchen, or the increase in value ("plus value") which
the said area of 34 square meters may have acquired by reason thereof, or to oblige
DUMLAO to pay the price of said area. The amounts to be respectively paid by
DUMLAO and DEPRA, in accordance with the option thus exercised by written notice of
the other party and to the Court, shall be paid by the obligor within fifteen (15) days from
such notice of the option by tendering the amount to the Court in favor of the party
entitled to receive it;

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

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, Ordo;ez, Yap, Sicat & Associates and Salvador, Ulgado & Carbon for petitioner.
Jose A. Cusi for private respondents.

ANTONIO, J.:1wph1.t
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.
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, PLS45, located at Barrio Cabuluan, Calauag, Quezon.
I
The factual background of the case, as found by respondent Court, is as follows:t.hqw
... 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 Zamora 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:t.hqw
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. 5785B 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 again 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.
Not satisfied with such denial, petitioner filed a petitioner 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:t.hqw
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

Acting upon the foregoing motion, respondent Judge issued an Order, dated September 23, 1970,
stating, among others, the following: t.hqw
The records further disclosed that from March 1967 to December 31, 1968, piaintiff Bartolome Ortiz
collected tolls on a portion of the propertv in question wherein he has not introduced anv improvement
particularlv 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
ln virtue of he 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 be
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 its findings that said tolls belong to the defendant, considering that the same
were collected on a portion of the land 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 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 be 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, part in,
the following:t.hqw
But should there be found any amount collectible after accounting and deducting the amount of
P3,632.00, 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 above-metioned 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:t.hqw
(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. Saod Order states, in part:t.hqw
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, l970 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 publlic 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, unaffectcd 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 he
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 full 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.
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 petitioiier'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 with the
judgment of the trial court, private respondent Quirino Comintan prayed for the dissolution of the Writ
of Injunction.
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 Reconsideration' dated
January 29, 1971' and 'Supplemental Motion for Reconsideration and Manifestation,'" contending that
the tender of deposit mentioned in the Suplemental 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 controvery isafter 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
Comintanwhether 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.
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 obtainitig compensation for the debt. The right of retention in this case is analogous to a
contract of antichresis and it cati 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 depositary, 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 tor extraordinary
repairs (Article 594).
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 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 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 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 efforts 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 owner 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 prorated 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 Injunction, dated January 29,
1971, is hereby dissolved. Without special pronouncement as to costs.

lawphil

Republic of the Philippines

SUPREME COURT
Manila
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 respondents.

GUTIERREZ, JR., J.:+.wph!1

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: t.hqw
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 fines 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: t.hqw
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 affirming in toto the decision of the lower court.
The dispositive portion of the decision reads: t.hqw
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: t.
hqw
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: t.hqw
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.
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.
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.

lawphil

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.

CRUZ, J.:
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 P33,902 sq.m., to streamline the Tripa de Gallina creek.
This lot was later acquired by Felix Baes, who registered it in his name under TCT 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.
In exchange for Lot 2958-B, which was 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 2956-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. T14405; (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 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 notable 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 land 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 power 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.

G.R. No. 144208

September 11, 2007

EFREN TANDOG, FELIX TANDOG, FELIPE TANDOG, JOSEFINO TANDOG, HELEN TANDOG,
CATALINA TANDOG, ROMEO TANDOG, DOMINGO TANDOG, CATALINA SANTOS, MARIA
BAUTISTA CATANYAG, ARTEMIO CATANYAG, ANGELES CATANYAG, APOLONIA CATANYAG,
ADORACION CATANYAG, ARCELY CATANYAG, and AMPARO CATANYAG, all represented by
EFREN TANDOG, petitioners,
vs.

RENATO MACAPAGAL, SPOUSES ALFONSO and MARINA CALDERON, and the LANDS
MANAGEMENT BUREAU, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure, as amended,
assailing the Decision1 dated July 31, 2000 of the Court of Appeals in CA-G.R. CV No. 57812.
The facts as found by the Court of Appeals are:
The subject of the controversy is a land consisting of 147,991 square meters situated at Sitio Inarawan,
Barangay Inuman, San Isidro, Antipolo City.
The above-named petitioners claim that they and their predecessors-in-interest have been in actual, open,
continuous, exclusive, and notorious possession of the land since time immemorial. They trace their rights to
Casimiro Policarpio, unmarried, who died in 1945. He was survived by his nephews and nieces, now deceased,
except Maria Bautista Catanyag. She and Casimiros grand nieces and grand nephews (herein petitioners) have
continued possessing and cultivating the land.
When petitioners decided to apply for the judicial registration of the property, they found that portions of the
land have been occupied by spouses Alfonso and Marina Calderon and Renato Macapagal, respondents.
According to petitioners, spouses Calderon used falsified documents to justify their possession of 20,116 square
meters of the land which they sold to the government. For his part, Renato Macapagal applied for and was
granted Free Patent No. 045802-1165 which led to the issuance to him of Original Certificate of Title (OCT)
No. P-665 over an area of 18,787 square meters. Because of these incidents, petitioners filed with the Regional
Trial Court, Bracnh 73, Antipolo City a complaint for quieting of title, docketed as Civil Case No. 92-2418.
Respondent Marina Calderon, in her answer, specifically denied petitioners allegations in their complaint. She
alleged that she and her husband bought their property in 1958 and, since then, have been in possession of the
same. They planted trees and crops thereon. Also, they have been paying the corresponding realty taxes. She
does not know petitioners who are all strangers in the place.
Before the hearing of the case, or on July 20, 1993, petitioners and Macapagal entered into a Compromise
Agreement.2 Petitioners acknowledged therein his ownership of the portions of the land consisting of 18,787
square meters covered by OCT No. P-665. This agreement was approved by the trial court.
After petitioners had presented their evidence, spouses Calderon filed a demurrer to evidence. In an Order dated
March 20, 1995, the trial court granted their motion and dismissed the complaint.
On appeal by petitioners, the Court of Appeals rendered a Decision dated July 31, 2000 affirming the Order of
the trial court dismissing their complaint. The appellate court held:
Under Article 476 of the Civil Code, a claimant must show that there is an instrument, record, claim,
encumbrance or proceeding which constitutes or casts a cloud, doubt, question or shadow upon the
owners title to or interest in real property. The ground or reason for filing a complaint for quieting of
title must therefore be "an instrument, record, claim, encumbrance or proceeding." Under the maxim
"expresio unius est exclusio alterius," these grounds are exclusive so that other reasons outside of the
purview of these reasons may not be considered valid for the same action. (Titong v. CA, G.R. No.
111141, March 6, 1998)

The appellants had nothing to show for this. The most that they did was to mark a DEED OF
ABSOLUTE SALE OF REAL PROPERTY & OR RIGHTS OR INTERESTS THEREIN as Exh. "D"
and a SPECIAL POWER OF ATTORNEY as Exh. "E", which allegedly are the falsified documents used
by the appellees as basis for their claim over the subject lot. x x x
xxx
Under Section 34 of Rule 132 of the Rules of Court, it is clear that for the evidence to be considered, the
same must be formally offered. Corollarily, the mere fact that a particular document is identified and
marked as an exhibit does not mean that it has already been offered as part of the evidence of a party.
(Vda de Oate v. CA, G.R. 116149, Nov. 23, 1995) Any evidence which a party desires to submit for the
consideration of the court must formally be offered by him, otherwise it is excluded and rejected. x x x
It does not help either that the testimonies presented are on the whole hearsay and unreliable as to the
existence and right of the amorphous Casimero Policarpio and the hereditary link between him and the
appellants.
Hence, this present petition.
Petitioners contend that the allegations of spouses Calderon that they purchased their property and Macapagals
claim that he applied for a Free Patent are judicial admissions which they (petitioners) consider as cloud upon
their interest in the disputed property.
The petition must fail.
Article 476 of the Civil Code provides:
Art. 476. Whenever there is a cloud on title to real property or any interest therein, by reason of any
instrument, record, claim, encumbrance or proceeding which is apparently valid or effective but is in
truth and in fact invalid, ineffective, voidable, or unenforceable, and may be prejudicial to said title, an
action may be brought to remove such cloud or to quiet the title.
An action may also be brought to prevent a cloud from being cast upon title to real property or any
interest therein.
As a general rule, a cloud which may be removed by suit to quiet title is not created by mere verbal or parol
assertion of ownership of or an interest in property. This rule is subject to qualification, where there is a written
or factual basis for the asserted right. Thus, a claim of right based on acquisitive prescription or adverse
possession has been held to constitute a removable cloud on title.3
While petitioners alleged that respondents claim of adverse possession is a cloud on their (petitioners) interest
in the land, however, such allegation has not been proved. The alleged falsified documents relied upon by
respondents to justify their possession were merely marked as exhibits but were never formally offered in
evidence by petitioners. We have consistently ruled that documents which may have been marked as exhibits
during the hearing, but which were not formally offered in evidence, cannot be considered as evidence, nor can
they be given any evidentiary value.4
It is important that petitioners must first establish their legal or equitable title to, or interest in the real property
which is the subject matter of the action.5 Petitioners failed to do so. Parenthetically, they did not present any
evidence to prove that Casimiro Policarpio "existed" and that he is their predecessor-in-interest. Their
testimonies can not be considered declarations about pedigree. In order that pedigree may be proved by acts or
declarations of relatives under Section 39 of the Revised Rules of Evidence, it is necessary that (a) the actor or

declarant is dead or unable to testify; (b) the act or declaration is made by a person related to the subject by birth
or marriage; (c) the relationship between the declarant or the actor and the subject is shown by evidence other
than such act or declaration; and (d) the act or declaration was made ante litem motam, or prior to the
controversy.6
Records show that petitioners failed to establish by evidence any or all the above requisites.
WHEREFORE, we DENY the petition and AFFIRM the assailed Decision of the Court of Appeals in CAG.R. CV No. 57812. Costs against petitioners.

INOCENCIO Y. LUCASAN for

himself and as the Judicial
Administrator of the Intestate
Estate of the late JULIANITA
SORBITO LUCASAN,

G.R. No. 176929

Present:

Petitioner,
YNARES-SANTIAGO, J.,
- versus -

Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,

PHILIPPINE DEPOSIT
INSURANCE CORPORATION
(PDIC) as receiver and
liquidator of the defunct
PACIFIC BANKING
CORPORATION,

NACHURA, and
REYES, JJ.

Promulgated:

Respondent.
July 4, 2008

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

DECISION

NACHURA, J.:

On appeal is the March 23, 2006 Decision 38[1] of the Court of Appeals
(CA) in CA-G.R. CV No. 81518, affirming the July 24, 2003 Order 39[2] of the
Regional Trial Court (RTC) of Bacolod City, Branch 43, granting respondents
motion to dismiss, as well as its subsequent Resolution 40[3] denying
petitioners motion for reconsideration.

38
39
40

The factual antecedents are as follows.

Petitioner Inocencio Y. Lucasan (Lucasan) and his wife Julianita Sorbito

(now deceased) were the owners of Lot Nos. 1500-A and 229-E situated in
Bacolod City, respectively covered by TCT Nos. T-68115 and T-13816.

On August 3, 1972, Pacific Banking Corporation (PBC) extended a

P5,000.00 loan to Lucasan, with Carlos Benares as his co-maker. Lucasan
and Benares failed to pay the loan when it became due and demandable.
Consequently, PBC filed a collection case with the RTC of Bacolod City,
docketed as Civil Case No. 12188.

On April 30, 1979, the RTC rendered a decision ordering Lucasan and
Benares to jointly and severally pay PBC P7,199.99 with interest at 14% per
annum computed from February 7, 1979, until the full payment of the
obligation. Lucasan failed to pay the monetary award; thus, to satisfy the
judgment, the RTC issued a writ of execution directing the sheriff to effect a
levy on the properties owned by Lucasan and sell the same at public
auction.

In compliance with the writ, the City Sheriff of Bacolod issued a Notice
of Embargo on January 8, 1981, which was annotated on Lucasans TCT Nos.
T-68115

and

T-13816

as

Entry

No.

110107.

Annotated

as

prior

encumbrances on the same titles were the mortgages in favor of Philippine

National Bank (PNB) and Republic Planters Bank (RPB) executed to secure
Lucasans loans with the banks.

On May 13, 1981, the lots were sold at public auction and were
awarded to PBC as the highest bidder. A certificate of sale was executed in
its favor and was registered and annotated on TCT Nos. T- 68115 and T13816 as Entry No. 112552 on June 5, 1981. Neither PNB nor RPB, the
mortgagees, assailed the auction sale.

Lucasan, as well as the mortgagee banks, PNB and RPB, did not
redeem the properties within the redemption period. Nevertheless, PBC did
not file a petition for consolidation of ownership.

In January 1997, Lucasan, through counsel, wrote a letter to the

Philippine Deposit Insurance Corporation (PDIC), PBCs receiver and
liquidator seeking the cancellation of the certificate of sale and offering to
pay PBCs claim against Lucasan.41[4]

Not long thereafter, Lucasan paid his loans with the PNB and RPB.
Consequently, the mortgagee banks executed their respective releases of
mortgage, resulting in the cancellation of the prior encumbrances in favor of
PNB and RPB.

41

On

August

13,

2001,

PDIC

denied

Lucasans

request

for

the

cancellation of the certificate of sale stating:

Please be informed that based on our records, TCT Nos. T-68115 and T-13816
have already become part of the acquired assets of Pacific Banking Corporation by
virtue of a Certificate of Sale dated May 13, 1981 executed by the City Sheriff of
Bacolod. Subsequently, this document was registered on the titles on June 5, 1981
so that the last day of the redemption period was June 5, 1982.

With regard to your request, we regret to inform you that reacquisition of the
subject properties have to be through sale following PDICs policy on disposal.
Accordingly, these properties can be disposed through public bidding using the
latest appraised value in the total amount of P2,900,300.00 as of March 29, 2000 as
a minimum bid. If you are still interested to acquire the properties, please get in
touch with our Asset Management Group x x x. 42[5]

Lucasan then filed a petition denominated as declaratory relief with the

RTC of Bacolod City docketed as Civil Case No. 02-11874. 43[6]

He sought

confirmation of his rights provided in the second paragraph of Section 1,

Rule 63 of the Rules of Court in relation to Section 75 of Presidential Decree
(P.D.) No. 1529. Lucasan also pleaded for the lifting and/or cancellation of
the notice of embargo and the certificate of sale annotated on TCT Nos. T68115 and T-13816, and offered to pay P100,000.00 or such amount as may
be determined by the RTC, as consideration for the cancellation.

PDIC moved to dismiss the complaint for lack of cause of action. It

averred that an action to quiet title under Section 1 of Rule 63 may only be
42
43

brought when there is a cloud on, or to prevent a cloud from being cast
upon, the title to real property. It asseverated that a cloud on the title is an
outstanding instrument record, claim, encumbrance or proceeding which is
actually invalid or inoperative, but which may nevertheless impair or affect
injuriously the title to property. PDIC claimed that the notice of embargo
was issued pursuant to a writ of execution in Civil Case No. 12188, while the
certificate of sale was executed as a result of a public bidding. Thus, their
annotations on the titles were valid, operative or effective. PDIC asserted
that Lucasans petition is nothing but a disguised attempt to compel PDIC to
resell the properties at a reduced price of P100,000.00. Accordingly, it
prayed for the dismissal of the petition. 44[7]

Lucasan opposed the motion.45[8]

He countered that the subject

properties were still in his possession, and neither PBC nor PDIC instituted
an action for consolidation of ownership. Since the certificate of title was
still in his name, he contended that he could pursue all legal and equitable
remedies, including those provided for in Section 1, Rule 63 of the Rules of
Court to reacquire the properties.

He also claimed that PDICs policy of

disposing the subject properties through public bidding at the appraised

value of P2,900,300.00 was unjust, capricious and arbitrary, considering
that the judgment debt amounted only to P7,199.99 with interest at 14%
per annum. Lucasan urged the RTC to apply the liberal construction of the
redemption laws stressed in Cometa v. Court of Appeals.46[9]

44
45
46

In its Order47[10] dated July 24, 2003, the RTC granted PDICs motion to
dismiss, thus:

The clouds contemplated by the provision of law under Article 476 of the Civil
Code is one where the instrument, record, claim, encumbrance or proceeding is
apparently valid or effective on its face that nothing appears to be wrong, but in
reality, is null and void. Hence, the petition filed by [Lucasan] pursuant to the said
article is equivalent to questioning the validity of the subsequent annotation of
Entry No. 110107 and Entry No. 112522 in TCT Nos. T-13816 and T-68115.

Records disclose that Entry No. 110107 which is a Notice of Embargo was
issued by virtue of a valid judgment rendered in Civil Case No. 12188 entitled
Pacific Banking Corporation vs. [Inocencio] Lucasan, et al., whereby the Court
found [Lucasan] liable in favor of [PBC] the sum of P7,199.99 with 14% interest per
annum to be computed from February 7, 1979 until fully paid.

As mandated in Sec. 12, Rule 39 of the Revised Rules of Court, such levy on
execution create a lien in favor of [PBC] over the right, title and interest of [Lucasan]
over the two (2) subject parcels of land covered by TCT Nos. T-13816 and T-68115,
subject to liens and encumbrances then existing. The fact that [Lucasan] has
redeemed the mortgage properties from the first mortgages (sic), PNB and PNB (sic)
Republic Bank, does not vest him any title free from the lien of [PBC].

While the law requires that the judgment debtor, [Lucasan] must be served
with a notice of levy and even if not served therewith, the defect is cured by service
on him of the notice of sale prior to the sale, nowhere in the petition which alleges
that [Lusasan] refutes the validity of the execution sale. Thus, he is deemed to
have received and recognized the same.

As support for his thesis, [Lucasan] cites the case of Balanga vs. Ca., et al.
(supra). However this Court is unable to agree that it is applicable to the present
case. As correctly argued by [PDIC], in that case the proceedings under execution
suffered infirmity from the very start as the levy and sale made by the sheriff of the
land of petitioner Balanga included the house erected on the land [and] constituted
as a family home which, under the law, exempt from execution. In the case at bar,
no objection was interposed by [Lucasan] as a valid levy has been made pursuant to

47

Sec. 7, Rule 57 of the Revised Rules of Court, as a consequence of which, the sale
made pursuant to Sec. 11 of the same rule is also valid and effective. 48[11]

The dispositive portion of the RTC Order reads:

WHEREFORE, finding the claim of any cloud over the titles of [Lucasan] to be
bereft of basis in fact and in law, the Motion to Dismiss filed by [PDIC] is granted.
Accordingly, this is hereby ordered DISMISSED.

SO ORDERED.49[12]

Lucasan filed a motion for reconsideration, but the RTC denied it on October
20, 2003.50[13]

On appeal, the CA affirmed in toto the RTC ruling. It declared that

Lucasan already lost his right to redeem the properties when he failed to
exercise it within the prescribed period. The effect of such failure was to
vest in PBC absolute ownership over the subject properties. 51[14]

48
49
50
51

The CA disposed, thus:

WHEREFORE, in view of all the foregoing premises, the appeal is hereby

DENIED. Accordingly, the assailed Order of the Regional Trial Court of Bacolod City,
Branch 43 dated 24 July 2003 dismissing [Lucasans] Petition for Declaratory Relief
and the subsequent Order of the same Court dated 20 October 2003 denying
[Lucasans] motion for reconsideration from the Order of Denial (sic) are hereby
affirmed in toto. No costs.

SO ORDERED.52[15]

Lucasan sought a reconsideration of the CA Decision, but the same was

denied on February 7, 2007.53[16]

Before us, Lucasan impugns the CA Decision on the following grounds:

1- THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN

AFFIRMING THE ORDER OF DISMISSAL OF THE PETITIONERS PETITION IN THE
REGIONAL TRIAL COURT WHEN IT DISREGARDED THE CLEAR PROVISION OF
SECTION 75 OF PRESIDENTIAL DECREE NO. 1529 AND PUT TO NAUGHT THE
APPLICABLE JURISPRUDENCE IN ZACARIAS COMETA x x x AND THE CASES CITED
THEREIN, INSPITE (sic) OF THE CLEAR AND OUTSTANDING SIMILARITY OF FACTS
WITH THE CASE UNDER CONSIDERATION.

2- THE COURT OF APPEALS ALSO ERRED AND GRAVELY ABUSED ITS

DISCRETION WHEN IT FAILED TO CONSIDER THAT THE NOTICE OF EMBARGO AND
CERTIFICATE OF SALE ISSUED BY THE CITY SHERIFF WERE ONLY LEVY ON THE
52
53

INTEREST OF THE PETITIONER ON THE TWO (2) SUBJECT LOTS, AS DECREED IN

QUEZON BEARING & PARTS CORPORATION, x x x, WHICH IS LIKEWISE APPLICABLE
TO THE CASE AT BAR.54[17]

Lucasan posits that he has sufficient cause of action against PDIC;

thus, he chides the RTC for dismissing his complaint, and the CA for
affirming the dismissal. In support of his thesis, he cites Section 75 of
Presidential

Decree

(PD)

No.

1529,

or

the

Property

Registration

Decree55[18] and Cometa v. Court of Appeals.56[19]

As gleaned from the averments of the complaint, Lucasans action was one for quieting
of title under Rule 63 of the Rules of Court. Essentially, he sought the cancellation of the notice
of embargo and the certificate of sale annotated on TCT Nos. T-68115 and T-13816 claiming
that the said annotations beclouded the validity and efficacy of his title. The RTC, however,
dismissed his complaint for lack of cause of action which was affirmed by the CA in its assailed
Decision. Thus, the key issue for our consideration is whether the dismissal of Lucasans
complaint was proper.

Quieting of title is a common law remedy for the removal of any cloud of doubt or
uncertainty with respect to real property. The Civil Code authorizes the said remedy in the
following language:

54
55
56

ART. 476. Whenever there is a cloud on title to real property or any interest therein, by
reason of any instrument, record, claim, encumbrance or proceeding which is apparently valid or
effective but is in truth and in fact invalid, ineffective, voidable, or unenforceable, and may be
prejudicial to said title, an action may be brought to remove such cloud or to quiet the title.

An action may also be brought to prevent a cloud from being cast upon title to real
property or any interest therein.

ART. 477. The plaintiff must have legal or equitable title to, or interest in the real
property which is the subject-matter of the action. He need not be in possession of said property.

To avail of the remedy of quieting of title, two (2) indispensable

requisites must concur, namely: (1) the plaintiff or complainant has a legal
or an equitable title to or interest in the real property subject of the action;
and (2) the deed, claim, encumbrance or proceeding claimed to be casting a
cloud on his title must be shown to be in fact invalid or inoperative despite
its prima facie appearance of validity or legal efficacy. 57[20]

Stated

differently, the plaintiff must show that he has a legal or at least an

equitable title over the real property in dispute, and that some deed or
proceeding beclouds its validity or efficacy.

Unfortunately, the foregoing requisites are wanting in this case.

Admittedly, the subject parcels of land were levied upon by virtue of a

writ of execution issued in Civil Case No. 12188. On May 13, 1981, a public
57

auction of the subject parcels of land was held and the lots were awarded to
PBC as the highest bidder. A certificate of sale in favor of PBC was issued on
the same day, and was registered and annotated on TCT Nos. T-68115 and
T-13816 as Entry No. 112552 on June 5, 1981.

Under the 1964 Rules of Court, which were in effect at that time, the
judgment debtor or redemptioner had the right to redeem the property from
PBC within twelve (12) months from the registration of the certificate of
sale.58[21]

With the expiration of the twelve-month period of redemption

and no redemption having been made, as in this case, the judgment debtor
or the redemptioner lost whatever right he had over the land in question. 59
[22]

Lucasan admitted that he failed to redeem the properties within the

redemption period, on account of his then limited financial situation. 60[23] It
was only in January 1997 or fifteen (15) years later that he manifested his
desire to reacquire the properties. Clearly thus, he had lost whatever right
he had over Lot Nos. 1500-A and 229-E.

The payment of loans made by Lucasan to PNB and RPB in 1997

cannot, in any way, operate to restore whatever rights he had over the
subject properties. Such payment only extinguished his loan obligations to
58
59
60

the mortgagee banks and the liens which Lucasan claimed were subsisting
at the time of the registration of the notice of embargo and certificate of
sale.

Neither can Lucasan capitalize on PBCs failure to file a petition for

consolidation of ownership after the expiration of the redemption period. As
we explained in Calacala v. Republic:61[24]

[P]etitioners' predecessors-in-interest lost whatever right they had over [the] land in
question from the very moment they failed to redeem it during the 1-year period of
redemption. Certainly, the Republic's failure to execute the acts referred to by the
petitioners within ten (10) years from the registration of the Certificate of Sale
cannot, in any way, operate to restore whatever rights petitioners' predecessors-ininterest had over the same. For sure, petitioners have yet to cite any provision of
law or rule of jurisprudence, and we are not aware of any, to the effect that the
failure of a buyer in a foreclosure sale to secure a Certificate of Final Sale, execute
an Affidavit of Consolidation of Ownership and obtain a writ of possession over the
property thus acquired, within ten (10) years from the registration of the Certificate
of Sale will operate to bring ownership back to him whose property has been
previously foreclosed and sold.

xxxx

Moreover, with the rule that the expiration of the 1-year redemption period
forecloses the obligor's right to redeem and that the sale thereby becomes
absolute, the issuance thereafter of a final deed of sale is at best a mere formality
and mere confirmation of the title that is already vested in the purchaser. As this
Court has said in Manuel vs. Philippine National Bank, et al.:

Note must be taken of the fact that under the Rules of Court the
expiration of that one-year period forecloses the owner's right to
redeem, thus making the sheriff's sale absolute. The issuance
thereafter of a final deed of sale becomes a mere formality, an
61

act merely confirmatory of the title that is already in the

purchaser and constituting official evidence of that fact.
(Emphasis supplied.)

Certainly, Lucasan no longer possess any legal or equitable title to or

interest over the subject parcels of land; hence, he cannot validly maintain
an action for quieting of title.

Furthermore, Lucasan failed to demonstrate that the notice of embargo

and the certificate of sale are invalid or inoperative. In fact, he never put in
issue the validity of the levy on execution and of the certificate of sale duly
registered on June 5, 1981. It is clear, therefore, that the second requisite
for an action to quiet title is, likewise, absent.

Concededly, Lucasan can pursue all the legal and equitable remedies
to impeach or annul the execution sale prior to the issuance of a new
certificate of title in favor of PBC. Unfortunately, the remedy he had chosen
cannot prosper because he failed to satisfy the requisites provided for by
law for an action to quiet title. Hence, the RTC rightfully dismissed Lucasans
complaint.

Lucasan tries to find solace in our ruling in Cometa v. Court of Appeals.

Sadly for him, that case is not on all fours with his case, for it was not for
quieting of title but a petition for issuance of a writ of possession and

cancellation of lis pendens.

Likewise, in Cometa the registered owner

assailed the validity of the levy and sale, which Lucasan failed to do.

Undoubtedly, Lucasans right to redeem the subject properties had

elapsed on June 5, 1982. His offer to redeem the same in 1997 or long after
the expiration of the redemption period is not really one for redemption but
for repurchase.

Thus, PBC and PDIC, its receiver and liquidator, are no

longer bound by the bid price. It is entirely within their discretion to set a
higher price. As we explained in De Robles v. Court of Appeals:62[25]

The right to redeem becomes functus officio on the date of its expiry, and its
exercise after the period is not really one of redemption but a repurchase.
Distinction must be made because redemption is by force of law; the purchaser at
public auction is bound to accept redemption. Repurchase however of foreclosed
property, after redemption period, imposes no such obligation. After expiry, the
purchaser may or may not re-sell the property but no law will compel him to do so.
And, he is not bound by the bid price; it is entirely within his discretion to set a
higher price, for after all, the property already belongs to him as owner.

Accordingly, the condition imposed by the PDIC for the re-acquisition of the
property cannot be considered unjust or unreasonable.

Verily, in several cases,63[26] this Court allowed redemption even after

the lapse of the redemption period. But in those cases a valid tender was
made by the original owners within the redemption period. Even in Cometa,
62
63

the redemption was allowed beyond the redemption period because a valid
tender of payment was made within the redemption period. The same is
not true in the case before us.

In fine, we find that the RTC correctly dismissed Lucasans complaint

for quieting of title.

Thus, the CA committed no reversible error in

sustaining the RTC.

WHEREFORE, the petition is DENIED. The Decision and Resolution of the

Court of Appeals in CA-G.R. CV No. 81518, are AFFIRMED. Costs against
the petitioner.