Civil Law Review-1st Batch

[No. 40411.
August 7, 1935]
DAVAO SAW MILL Co., INC., plaintiff and appellant, vs. APRONIANO G.
CASTILLO and DAVAO LIGHT & POWER Co., INC., def endants and
appellees.
1. PROPERTY; MACHINERY AS PERSONAL PROPERTY; CIVIL CODE,
ARTICLE 334, PARAGRAPHS 1 and 5, CONSTRUED.A lessee placed
machinery in a building erected on land belonging to another, with the
understanding that the machinery was not included in the improvements which
would pass to the lessor on the expiration or abandonment of the land leased. The
lessee also treated the machinery as personal property by executing chattel
mortgages in f favor of third persons. The machinery was levied upon by the sheriff
as personalty pursuant to a writ of execution obtained without any protest being
registered. Held: That the machinery must be classified as personal property.
2. ID.; ID.; ID.Machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant, but not
when so placed by a tenant, a usufructuary, or any person having only a temporary
right, unless such person acted as the agent of the owner.
710
710
PHILIPPINE REPORTS ANNOTATED
Davao Saw Mill Co. vs. Castillo
APPEAL from a judgment of the Court of First Instance of Davao. Hilario, J.
The facts are stated in the opinion of the court.
Arsenio Suazo & Jose L. Palma Gil and Pablo Lorenzo & Delfin Joven for
appellant.
J. W. Ferrier for appellees.
MALCOLM, J.:
The issue in this case, as announced in the opening sentence of the decision in the
trial court and as set forth by counsel for the parties on appeal, involves the
determination of the nature of the properties described in the complaint. The trial
judge found that those properties were personal in nature, and as a consequence
absolved the defendants from the complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the
Government of the Philippine Islands. It has operated a sawmill in the sitio of Maa,
barrio of Tigatu, municipality of Davao, Province of Davao. However, the land upon
which the business was conducted belonged to another person. On the land the
sawmill company erected a building which housed the machinery used by it. Some
of the implements thus used were clearly personal property, the conflict concerning
machines which were placed' and mounted on f oundations of cement. In the
contract of lease between the sawmill company and the owner of the land there
appeared the following provision:
"That on the expiration of the period agreed upon, all the improvements and
buildings introduced and erected by the party of the second part shall pass to the
exclusive ownership of the party of the first part without any obligation on its part to
pay any amount for said improvements and buildings; also, in the event the party of
the second part should leave or abandon the land leased before the time herein
stipulated, the improvements and buildings shall likewise pass to the ownership of
the party of the first part as
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VOL. 61, AUGUST 7, 1935
711
though the time agreed upon had expired: Provided, however, That the machineries
and accessories are not included in the improvements which will pass to the party of
the first part on the expiration or abandonment of the land leased."
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and
the Davao Saw Mill Co., Inc., was the defendant, a judgment was rendered in favor
of the plaintiff in that action against the def endant in that action; a writ of execution
issued thereon, and the properties now in question were levied upon as personalty by
the sheriff. No third party claim was filed for such properties at the time of the sales
thereof as is borne out by the record made by the plaintiff herein. Indeed the bidder,
which was the plaintiff in that action, and the defendant herein having consummated
the sale, proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its favor by the sheriff
of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw
Mill Co., Inc., has on a number of occasions treated the machinery as personal
property by executing chattel mortgages in favor of third persons. One of such
persons is the appellee by assignment from the original mortgagees.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the
Code, real property consists of
"1. Land, buildings, roads and constructions of all kinds adhering to the soil;
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"5. Machinery, liquid containers, instruments or implements intended by the owner
of any building or land for use in connection with any industry or trade being carried
on therein and which are expressly adapted to meet the requirements of such trade or
industry."
Appellant emphasizes the first paragraph, and appellees the last mentioned
paragraph. We entertain no doubt that
712
712
the trial judge and the appellees are right in their appreciation of the legal doctrines
flowing from the facts.
In the first place, it must again be pointed out that the appellant should have
registered its protest before or at the time of the sale of this property. It must further
be pointed out that while not conclusive, the characterization of the property as

chattels by the appellant is indicative of intention and impresses upon the property
the character determined by the parties. In this connection the decision of this court
in the case of Standard Oil Co. of New York vs. Jaramillo ([1923], 44 Phil., 630),
whether obiter dicta or not, furnishes the key to such a situation.
It is, however, not necessary to spend overly much time in the resolution of this
appeal on side issues. It is machinery which is involved; moreover, machinery not
intended by the owner of any building or land for use in connection therewith, but
intended by a lessee for use in a building erected on the land by the latter to be
returned to the lessee on the expiration or abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United
States Supreme Court, it was held that machinery which is movable in its nature
only becomes immobilized when placed in a plant by the owner of the property or
plant, but not when so placed by a tenant, a usufructuary, or any person having only
a temporary right, unless such person acted as the agent of the owner. In the opinion
written by Chief Justice White, whose knowledge of the Civil Law is well known, it
was in part said:
"To determine this question involves fixing the nature and character of the property
from the point of view of the rights of Valdes and its nature and character from the
point of view of Nevers & Callaghan as a judgment creditor of the Altagracia
Company and the rights derived by them from the execution levied on the
machinery placed by the corporation in the plant. Following the Code Napoleon, the
Porto Rican Code treats as immovable (real) property,
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VOL. 61, AUGUST 7, 1935
713
not only land and buildings, but also attributes immovability in some cases to
property of a movable nature, that is, personal property, because of the destination to
which it is applied. 'Things,' says section 334 of the Porto Rican Code, 'may be
immovable either by their own nature or by their destination or the object to which
they are applicable.' Numerous illustrations are given in the fifth subdivision of
section 335, which is as follows: 'Machinery, vessels, instruments or implements
intended by the owner of the tenements for the industry or works that they may carry
on in any building or upon any land and which tend directly to meet the needs of the
said industry or works.' (See also Code Nap., articles 516, 518 et seq. to and
inclusive of article 534, recapitulating the things which, though in themselves
movable, may be immobilized.) So far as the subject-matter with which we are
dealingmachinery placed in the plantit is plain, both under the provisions of the
Porto Rican Law and of the Code Napoleon, that machinery which is movable in its
nature only becomes immobilized when placed in a plant by the owner of the
property or plant. Such result would not be accomplished, therefore, by the placing
of machinery in a plant by a tenant or a usufructuary or any person having only a
temporary right. (Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit. 2, p. 12, Section
164; Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-Herman ed. Code
Napoleon under articles 522 et seq.) The distinction rests, as pointed out by
Demolombe, upon the fact that one only having a temporary right to the possession
or enjoyment of property is not presumed by the law to have applied movable
property belonging to him so as to deprive him of it by causing it by an act of
immobilization to become the property of another. It follows that abstractly speaking
the machinery put by the Altagracia Company in the plant belonging to Sanchez did
not lose its character of movable property and become immovable by destination.
But in the concrete immobilization took place because of the express provisions of
714
714
Government of the Philippine Islands vs. Conde
the lease under which the Altagracia held, since the lease in substance required the
putting in of improved machinery, deprived the tenant of any right to charge against
the lessor the cost of such machinery, and it was expressly stipulated that the
machinery so put in should become a part of the plant belonging to the owner
without compensation to the lessee. Under such conditions the tenant in putting in
the machinery was acting but as the agent of the owner in compliance with the
obligations resting upon him, and the immobilization of the machinery which
resulted arose in legal effect from the act of the owner in giving by contract a
permanent destination to the machinery.
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"The machinery levied upon by Nevers & Callaghan, that is, that which was placed
in the plant by the Altagracia Company, being, as regards Nevers & Callaghan,
movable property, it follows that they had the right to levy on it under the execution
upon the judgment in their favor, and the exercise of that right did not in a legal
sense conflict with the claim of Valdes, since as to him the property was a part of the
realty which, as the result of his obligations under the lease, he could not, for the
purpose of collecting his debt, proceed separately against." (Valdes vs. Central
Altagracia [1912], 225 U. S., 58.)
Finding no reversible error in the record, the judgment appealed from will be
affirmed, the costs of this instance to be paid by the appellant.
Villa-Real, Imperial, Butte, and Goddard, JJ., concur.
Judgment affirmed.
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G.R. No. 169211.
March 6, 2013.*
STAR TWO (SPV-AMC), INC.,1 petitioner, vs. PAPER CITY

CORPORATION OF THE PHILIPPINES, respondent.
Civil Law; Contracts; Then till now the pronouncement has been that if the language
used is as clear as day and readily understandable by any ordinary reader, there is no
need for construction.It has been explained by the Supreme Court in Norton
Resources and Development Corporation v. All Asia Bank Corporation, 605 SCRA
370 (2009) in reiteration of the ruling in Benguet Corporation v.
insurers of the property mortgaged, or in virtue of expropriation for public use, with
the declarations, amplifications and limitations established by law, whether the
estate remains in the possession of the mortgagor, or it passes into the hands of a
third person.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Siguion Reyna, Montecillo and Ongsiako for petitioner.
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Y.F. Busmente & Associates Law Offices for respondent.
* SECOND DIVISION.
PEREZ,
1 Motion to Change the Caption to Star-Two (SPY-AMC) v. Paper City Corporation
filed by RCBC was noted by the Clerk of Court Second Division through an Internal
Resolution dated 11 August 2010.
J.:
For review before this Court is a Petition for Review on Certiorari filed by Rizal
Commercial Banking Corporation now substituted by Star Two (SPV-AMC), Inc.
by virtue of
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VOL. 692, MARCH 6, 2013
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439
SUPREME COURT REPORTS ANNOTATED
Star Two (SPV-AMC), Inc. vs. Paper City Corporation of the Philippines
Cabildo, 563 SCRA 25 (2008), that: x x x A courts purpose in examining a contract
is to interpret the intent of the contracting parties, as objectively manifested by them.
The process of interpreting a contract requires the court to make a preliminary
inquiry as to whether the contract before it is ambiguous. A contract provision is
ambiguous if it is susceptible of two reasonable alternative interpretations. Where
the written terms of the contract are not ambiguous and can only be read one way,
the court will interpret the contract as a matter of law. x x x Then till now the
pronouncement has been that if the language used is as clear as day and readily
understandable by any ordinary reader, there is no need for construction.
Same; Mortgages; Law and jurisprudence provide and guide that even if not
expressly so stated, the mortgage extends to the improvements.Law and
jurisprudence provide and guide that even if not expressly so stated, the mortgage
extends to the improvements. Article 2127 of the Civil Code provides: Art. 2127.
The mortgage extends to the natural accessions, to the improvements, growing
fruits, and the rents or income not yet received when the obligation becomes due,
and to the amount of the indemnity granted or owing to the proprietor from the
Republic Act No. 91822 otherwise known as the Special Purpose Vehicle Act of
2002, assailing the 8 March 2005 Decision and 8 August 2005 Resolution of the
Special Fourth Division of the Court of Appeals (CA) in CA-G.R. SP No. 82022
upholding the 15 August 2003 and 1 December 2003 Orders of the Valenzuela
Regional Trial Court (RTC) ruling that the subject machineries and equipments of
Paper City Corporation (Paper City) are movable properties by agreement of the
parties and cannot be considered as included in the extrajudicial foreclosure sale of
the mortgaged land and building of Paper City.3
The facts as we gathered from the records are:
Rizal Commercial Banking Corporation (RCBC), Metropolitan Bank and Trust Co.
(Metrobank) and Union Bank of the Philippines (Union Bank) are banking
corporations duly organized and existing under the laws of the Philippines.

On the other hand, respondent Paper City is a domestic corporation engaged in the
manufacture of paper products particularly cartons, newsprint and clay-coated
paper.4
From 1990-1991, Paper City applied for and was granted the following loans and
credit accommodations in peso and dollar denominations by RCBC: P10,000,000.00
on 8 January 1990,5 P14,000,000.00 on 19 July 1990,6 P10,000,000.00 on 28 June
1991,7 and P16,615,000.00 on 28 November 1991.8 The
_______________
2 An Act Granting Tax Exemptions and Fee Privileges to Special Purpose Vehicles
which Acquire or Invest in Non-Performing Assets, Setting the Regulatory
Framework Therefor, and for Other Purposes. By virtue of this law, RCBC sold the
subject loan account to Star-Two (SPY-AMC); hence the latter became subrogated
to the rights of RCBC. Rollo, p. 177.
Abad over the merchandise and stocks-in-trade covered by the continuing chattel
mortgages.9
On 26 August 1992, RCBC, Metrobank and Union Bank (creditor banks with RCBC
instituted as the trustee bank) entered into a Mortgage Trust Indenture (MTI) with
Paper City. In the said MTI, Paper City acquired an additional loan of One Hundred
Seventy Million Pesos (P170,000,000.00) from the creditor banks in addition to the
previous loan from RCBC amounting to P110,000,000.00 thereby increasing the
entire loan to a total of P280,000,000.00. The old loan of P110,000,000.00 was
partly secured by various parcels of land covered by TCT Nos. T-157743, V-13515,
V-1184, V-1485, V-13518 and V-13516 situated in Valenzuela City pursuant to five
(5) Deeds of Real Estate Mortgage dated 8 January 1990, 27 February 1990, 19 July
1990, 20 February 1992 and 12 March 1992.10 The new loan obligation of
P170,000,000.00 would be secured by the same five (5) Deeds of Real Estate
Mortgage and additional real and personal properties described in an annex to MTI,
Annex B.11 Annex B of the said MTI covered the machineries and equipments
of Paper City.12
3 Petition for Review on Certiorari. Id., at pp. 4-55.

4 Complaint of Paper City. CA Rollo, p. 56-57.
The MTI was later amended on 20 November 1992 to increase the contributions of
the RCBC and Union Bank to P80,000,000.00 and P70,000,000.00, respectively. As
a conse-
5 Id., at pp. 278-281.

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6 Id., at pp. 290-292.
9 Id., at pp. 345-346.
7 Id., at pp. 302-303.
10 MTI. Id., at pp. 110-111.
8 Id., at pp. 315-316.
11 Id., at p. 113.
441
12 Granting Clause. Id., at p. 112.
VOL. 692, MARCH 6, 2013
442
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loans were secured by four (4) Deeds of Continuing Chattel Mortgages on its
machineries and equipments found inside its paper plants.
On 25 August 1992, a unilateral Cancellation of Deed of Continuing Chattel
Mortgage on Inventory of Merchandise/Stocks-in-Trade was executed by RCBC
through its Branch Operation Head Joey P. Singh and Asst. Vice President Anita O.
quence, they executed a Deed of Amendment to MTI13 but still included as part of
the mortgaged properties by way of a first mortgage the various machineries and
equipments located in and bolted to and/or forming part of buildings generally
described as:
Annex A
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A.
Office Building
13 Id., at pp. 113-116.
Building 1, 2, 3, 4, and 5
14 Id., at pp. 150-152.
Boiler House
443
Workers Quarter/Restroom
VOL. 692, MARCH 6, 2013
Canteen
443
Guardhouse, Parking Shed, Elevated Guard
Post and other amenities
B.
Pollution Tank Nos. 1 and 2.

Reserve Water Tank and Swimming Pool
Finally, a Third Supplemental Indenture to the 26 August 1992 MTI was executed
on 24 January 1995 to increase the existing loan obligation of P408,900,000.00 to
P555,000,000.00 with an additional security composed of a newly constructed twostorey building and other improvements, machineries and equipments located in the
existing plant site.15
Waste Water Treatment Tank

Elevated Concrete Water Tank
And other Improvements listed in Annex A
C.
Power Plants Nos. 1 and 2

Fabrication Building
Various Fuel, Water Tanks and Pumps
Transformers
Annex B
D.
Material Handling Equipment

Paper Plant No. 3
A Second Supplemental Indenture to the 26 August 1992 MTI was executed on 7

June 1994 to increase the amount of the loan from P280,000,000.00 to
P408,900,000.00 secured against the existing properties composed of land, building,
machineries and equipments and inventories described in Annexes A and B.14
Paper City was able to comply with its loan obligations until July 1997. But
economic crisis ensued which made it difficult for Paper City to meet the terms of
its obligations leading to payment defaults.16 Consequently, RCBC filed a Petition
for Extrajudicial Foreclosure Under Act No. 3135 Against the Real Estate Mortgage
executed by Paper City on 21 October 1998.17 This petition was for the
extrajudicial foreclosure of eight (8) parcels of land including all improvements
thereon enumerated as TCT Nos. V-9763, V-13515, V-13516, V-13518, V-1484, V1485, V-6662 and V-6663 included in the MTI dated 26 August 1992, Supplemental
MTI dated 20 November 1992, Second Supplemental Indenture on the MTI dated 7
June 1994 and Third Supplemental Indenture on the MTI dated 24 January 1995.18
Paper City then had an outstanding obligation with the creditor banks adding up to
Nine Hundred One Million Eight Hundred One Thousand Four Hundred EightyFour and 10/100 Pesos (P901,801,484.10), inclusive of interest and penalty
charges.19
A Certificate of Sale was executed on 8 February 1999 certifying that the eight (8)
parcels of land with improvements thereon were sold on 27 November 1998 in the
amount of Seven Hundred Two Million Three Hundred Fifty-One Thousand Seven
Hundred Ninety-Six Pesos and 28/100
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15 Id., at pp. 218-220.
16 Complaint. Id., at p. 58.
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17 Id., at pp. 238-247.
20 Id., at pp. 248-250.
18 Id.
21 Id., at pp. 56-67.
19 Id., at p. 245.
22 Id., at pp. 531-533.
444
23 Id., at pp. 93-95.
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VOL. 692, MARCH 6, 2013

445
(P702,351,796.28) in favor of the creditor banks RCBC, Union Bank and Metrobank
as the highest bidders.20
This foreclosure sale prompted Paper City to file a Complaint21 docketed as Civil
Case No. 164-V-99 on 15 June 1999 against the creditor banks alleging that the
extrajudicial sale of the properties and plants was null and void due to lack of prior
notice and attendance of gross and evident bad faith on the part of the creditor
banks. In the alternative, it prayed that in case the sale is declared valid, to render
the whole obligation of Paper City as fully paid and extinguished. Also prayed for
was the return of P5,000,000.00 as excessive penalty and the payment of damages
and attorneys fees.
In the meantime, Paper City and Union Bank entered into a Compromise Agreement
which was later approved by the trial court on 19 November 2001. It was agreed that
the share of Union Bank in the proceeds of the foreclosure shall be up to 34.23% of
the price and the remaining possible liabilities of Paper City shall be condoned by
the bank. Paper City likewise waived all its claim and counter charges against Union
Bank and agreed to turn-over its proportionate share over the property within 120
days from the date of agreement.22
On the other hand, the negotiations between the other creditor banks and Paper City
remained pending. During the interim, Paper City filed with the trial court a
Manifestation with Motion to Remove and/or Dispose Machinery on 18 December
2002 reasoning that the [machineries] located inside the foreclosed land and
building were deteriorating. It posited that since the machineries were not included
in the foreclosure of the real estate mortgage, it is appropriate that it be removed
from the building and sold to a third party.23
Acting on the said motion, the trial court, on 28 February 2003 issued an Order
denying the prayer and ruled that the machineries and equipments were included in
the annexes and form part of the MTI dated 26 August 1992 as well as its
subsequent amendments. Further, the machineries and equipments are covered by
the Certificate of Sale issued as a consequence of foreclosure, the certificate stating
that the properties described therein with improvements thereon were sold to
creditor banks [to the defendants] at public auction.24
Paper City filed its Motion for Reconsideration25 on 4 April 2003 which was
favorably granted by the trial court in its Order dated 15 August 2003. The court
justified the reversal of its order on the finding that the disputed machineries and
equipments are chattels by agreement of the parties through their inclusion in the
four (4) Deeds of Chattel Mortgage dated 28 January 1990, 19 July 1990, 28 June
1991 and 28 November 1991. It further ruled that the deed of cancellation executed
by RCBC on 25 August 1992 was not valid because it was done unilaterally and
without the consent of Paper City and the cancellation only refers to the
merchandise/stocks-in-trade and not to machineries and equipments.26
RCBC in turn filed its Motion for Reconsideration to persuade the court to reverse
its 15 August 2003 Order. However, the same was denied by the trial court through
its 1 December 2003 Order reiterating the finding and conclusion of the previous
Order.27

Aggrieved, RCBC filed with the CA a Petition for Certiorari under Rule 65 to annul
the Orders dated 15 August 2003 and 1 December 2003 of the trial court,28 for the
reasons that:
delay of ten (10) years in assailing that the disputed machineries and equipments
were personal amounted to estoppel and ratification of the characterization that the
same were real properties.31
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24 Id., at pp. 269-270.
IV. The removal of the subject machineries or equipment is not among the reliefs
prayed for by the [Paper City] in its June 11, 1999 Complaint. The [Paper City]
sought the removal of the subject machineries and equipment only
25 Id., at pp. 271-277.
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26 Id., at pp. 53-54.
29 Id., at p. 11.
27 Id., at p. 55.
30 Id., at pp. 22-23.
28 Id., at pp. 2-52.
31 Id., at pp. 24-25.
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VOL. 692, MARCH 6, 2013
447
I. [Paper City] gave its conformity to consider the subject machineries and
equipment as real properties when the president and Executive Vice President of
Paper City signed the Mortgage Trust Indenture as well as its subsequent
amendments and all pages of the annexes thereto which itemized all properties that
were mortgaged.29
when it filed its December 18, 2002 Manifestation with Motion to Remove and/or
Dispose of Machinery.32
II. Under Section 8 of Act No. 1508, otherwise known as The Chattel Mortgage
Law the consent of the mortgagor (Paper City) is not required in order to cancel a
chattel mortgage. Thus the Cancellation of Deed of Continuing Chattel Mortgage
on Inventory of Merchandise/Stocks-in-Trade dated August 25, 1992 is valid and
binding on the [Paper City] even assuming that it was executed unilaterally by
petitioner RCBC.30
III. The four (4) Deeds of Chattel Mortgage that were attached as Annexes A to
D to the December 18, 2003 Manifestation with Motion to Remove and/or
Dispose of Machinery were executed from January 8, 1990 until November 28,
1991. On the other hand, the Cancellation of Deed of Continuing Chattel
Mortgage was executed on August 25, 1992 while the MTI and the subsequent
supplemental amendments thereto were executed from August 26, 1992 until
January 24, 1995. It is of the contention of RCBC that [Paper Citys] unreasonable
V. [Paper City] did not specify in its various motions filed with the respondent
judge the subject machineries and equipment that are allegedly excluded from the
extrajudicial foreclosure sale.33
VI. The machineries and equipments mentioned in the four (4) Deeds of Chattel
Mortgage that were attached on the Manifestation with Motion to Remove and/or
Dispose of Machinery are the same machineries and equipments included in the
MTI and supplemental amendments, hence, are treated by agreement of the parties
as real properties.34
In its Comment,35 Paper City refuted the claim of RCBC that it gave its consent to
consider the machineries and equipments as real properties. It alleged that the
disputed properties remained within the purview of the existing chattel mortgages
which in fact were acknowledged by RCBC in the MTI particularly in Section 11.07
which reads:

Section 11.07. This INDENTURE in respect of the MORTGAGE
OBLIGATIONS in the additional amount not exceeding TWO HUNDRED
TWENTY MILLION SIX HUNDRED FIFTEEN THOUSAND PESOS
(P220,615,000.00) shall be registered with the Register of Deeds of Valenzuela,
Metro Manila, apportioned based on the corresponding loanable value of the
MORTGAGED PROPERTIES, viz.:
a.
Real Estate Mortgage P206,815,000.00
b.
Chattel Mortgage P13,800,000.0036
On 8 March 2005, the CA affirmed41 the challenged orders of the trial court. The
dispositive portion reads:
WHEREFORE, finding no grave abuse of discretion committed by public
respondent, the instant petition is hereby DISMISSED for lack of merit. The assailed
Orders dated 15 August and 2 December 2003, issued by Hon. Judge Floro P. Alejo
are hereby AFFIRMED. No costs at this instance.42
The CA relied on the plain language of the MTIs:
_______________
Undoubtedly, nowhere from any of the MTIs executed by the parties can [w]e find
the alleged express agreement adverted to by petitioner. There is no provision in
any of the parties MTI, which
32 Id., at p. 26.
_______________
33 Id., at p. 27.
37 Id., at pp. 500-501.
34 Id., at pp. 27-28.
38 Id., at pp. 527-530.
35 Id., at pp. 497-503.
39 Id., at p. 527.
36 Id., at p. 499.
40 Id., at p. 528.
448
448
41 Penned by Associate Justice Perlita J. Tria-Tirona with Associate Justices Delilah

Vidallon-Magtolis and Jose C. Reyes, Jr. concurring. Rollo, pp. 57-71.
42 Id., at p. 71.

449
VOL. 692, MARCH 6, 2013
Paper City argued further that the subject machineries and equipments were not
included in the foreclosure of the mortgage on real properties particularly the eight
(8) parcels of land. Further, the Certificate of Sale of the Foreclosed Property
referred only to lands and improvements without any specification and made no
mention of the inclusion of the subject properties.37
In its Reply,38 RCBC admitted that there was indeed a provision in the MTI
mentioning a chattel mortgage in the amount of P13,800,000.00. However, it
justified that its inclusion in the MTI was merely for the purpose of ascertaining the
amount of the loan to be extended to Paper City.39 It reiterated its position that the
machineries and equipments were no longer treated as chattels but already as real
properties following the MTI.40
449
expressly states to the effect that the parties shall treat the equipments and
machineries as real property. On the contrary, the plain and unambiguous language
of the aforecited MTIs, which described the same as personal properties, contradicts
petitioners claims.43
It was also ruled that the subject machineries and equipments were not included in
the extrajudicial foreclosure sale. The claim of inclusion was contradicted by the

very caption of the petition itself, Petition for Extrajudicial Foreclosure of Real
Estate Mortgage Under Act No. 3135 As Amended. It opined further that this
inclusion was further stressed in the Certificate of Sale which enumerated only the
mortgaged real properties bought by RCBC without the subject properties.44
By contracts, all uncontested in this case, machineries and equipments are included
in the mortgage in favor of RCBC, in the foreclosure of the mortgage and in the
consequent sale on foreclosure also in favor of petitioner.
RCBC sought reconsideration but its motion was denied in the CAs Resolution
dated 8 August 2005.
The mortgage contracts are the original MTI of 26 August 1992 and its amendments
and supplements on 20 November 1992, 7 June 1994, and 24 January 1995. The
clear agreements between RCBC and Paper City follow:
RCBC before this Court reiterated all the issues presented before the appellate court:
The original MTI dated 26 August 1992 states that:
1. Whether the unreasonable delay of ten (10) years in assailing that the disputed
machineries and equipments were personal properties amounted to estoppel on the
part of Paper City;
MORTGAGE TRUST INDENTURE
2. Whether the Cancellation of Deed of Continuing Mortgage dated 25 August

1992 is valid despite the fact that it was executed without the consent of the
mortgagor Paper City;
This MORTGAGE TRUST INDENTURE, executed on this day of August 26, 1992,
by and between:
PAPER CITY CORPORATION OF THE PHILIPPINES, x x x hereinafter referred
to as the MORTGAGOR);
3. Whether the subsequent contracts of the parties such as Mortgage Trust

Indenture dated 26 August 1992 as well as the subsequent supplementary
amendments dated 20 November 1992, 7 June 1992, and 24 January 1995 included
in its coverage of mortgaged properties the subject machineries and equipment; and
-and-
_______________
xxxx
43 Id., at p. 68.
WHEREAS, against the same mortgaged properties and additional real and personal
properties more particularly described in ANNEX B hereof, the MORTGAGOR
desires to increase their borrowings to TWO HUNDRED EIGHTY MILLION
PESOS (P280,000,000.00) or an increase of ONE HUNDRED SEVENTY
MILLION PESOS (P170,000,000.00) xxx from various banks/
financial institutions;
44 Id., at p. 69.
450
RIZAL COMMERCIAL BANKING CORPORATION, x x x (hereinafter referred

to as the TRUSTEE).
450
x x x x451
VOL. 692, MARCH 6, 2013
451
4. Whether the subject machineries and equipments were included in the
extrajudicial foreclosure dated 21 October 1998 which in turn were sold to the
creditor banks as evidenced by the Certificate of Sale dated 8 February 1999.
GRANTING CLAUSE
We grant the petition.

NOW, THEREFORE, this INDENTURE witnesseth:

THAT the MORTGAGOR in consideration of the premises and of the acceptance by
the TRUSTEE of the trust hereby created, and in order to secure the payment of the
MORTGAGE OBLIGATIONS which shall be incurred by the MORTGAGOR
pursuant to the terms hereof xxx hereby states that with the execution of this
INDENTURE it will assign, transfer and convey as it has hereby ASSIGNED,
TRANSFERRED and CONVEYED by way of a registered first mortgage unto
[RCBC] x x x the various parcels of land covered by several Transfer Certificates of
Title issued by the Registry of Deeds, including the buildings and existing
improvements thereon, as well as of the machinery and equipment more particularly
described and listed that is to say, the real and personal properties listed in Annexes
A and B hereof of which the MORTGAGOR is the lawful and registered
owner.45 (Emphasis and underlining ours)
The Deed of Amendment to MTI dated 20 November 1992 expressly provides:
NOW, THEREFORE, premises considered, the parties considered have amended
and by these presents do further amend the Mortgage Trust Indenture dated August
26, 1992 including the Real Estate Mortgage as follows:
xxxx
2. The Mortgage Trust Indenture and the Real Estate Mortgage are hereby
amended to include as part of the Mortgage Properties, by way of a first mortgage
and for pari-passu and pro-rata benefit of the existing and new creditors, various
machineries and equipment owned by the [Paper City], located in and bolted to and
forming part of the following, generally describes as x x x more particularly
described and listed in Annexes A and B which are attached and made integral
parts of this Amendment. The machineries and equipment listed in Annexes A and
B form part of the improvements
A Second Supplemental Indenture to the 26 August 1992 MTI executed on 7 June

1994 to increase the amount of loan from P280,000,000.00 to P408,900,000.00 also
contains a similar provision in this regard:
WHEREAS, the [Paper City] desires to increase its borrowings to be secured by the
INDENTURE from PESOS: TWO HUNDRED EIGHTY MILLION
(P280,000,000.00) to PESOS: FOUR HUNDRED EIGHT MILLION NINE
HUNDRED THOUSAND (P408,900,000.00) or an increase of PESOS: ONE
HUNDRED TWENTY EIGHT MILLION NINE HUNDRED THOUSAND
(P128,900,000.00) x x x which represents additional loan/s granted to the [Paper
City] to be secured against the existing properties composed of land, building,
machineries and equipment and inventories more particularly described in Annexes
A and B of the INDENTURE x x x.47 (Emphasis and underlining ours)
Finally, a Third Supplemental Indenture to the 26 August 1992 MTI executed on 24
January 1995 contains a similar provision:
WHEREAS, in order to secure NEW/ADDITIONAL LOAN OBLIGATION under
the Indenture, there shall be added to the collateral pool subject of the Indenture
properties of the [Paper City] composed of newly constructed two (2)-storey
building, other land improvements and machinery and equipment all of which are
located at the existing Plant Site in Valenzuela, Metro Manila and more particularly
described in Annex A hereof x x x.48 (Emphasis and underlining ours)
_______________
46 Id., at pp. 113-115.
47 Id., at p. 151.
_______________
48 Id., at pp. 218-220.
45 CA Rollo, pp. 110-112.
453
452
VOL. 692, MARCH 6, 2013
452
453
listed above and located on the parcels of land subject of the Mortgage Trust
Indenture and the Real Estate Mortgage.46 (Emphasis and underlining ours)
Repeatedly, the parties stipulated that the properties mortgaged by Paper City to
RCBC are various parcels of land including the buildings and existing
improvements thereon as well as the machineries and equipments, which as stated in

the granting clause of the original mortgage, are more particularly described and
listed that is to say, the real and personal properties listed in Annexes A and B x
x x of which the [Paper City] is the lawful and registered owner. Significantly,
Annexes A and B are itemized listings of the buildings, machineries and
equipments typed single spaced in twenty-seven pages of the document made part of
the records.
As held in Gateway Electronics Corp. v. Land Bank of the Philippines,49 the rule in
this jurisdiction is that the contracting parties may establish any agreement, term,
and condition they may deem advisable, provided they are not contrary to law,
morals or public policy. The right to enter into lawful contracts constitutes one of
the liberties guaranteed by the Constitution.
It has been explained by the Supreme Court in Norton Resources and Development
Corporation v. All Asia Bank Corporation50 in reiteration of the ruling in Benguet
Corporation v. Cabildo51 that:
x x x A courts purpose in examining a contract is to interpret the intent of the
contracting parties, as objectively manifested by them. The process of interpreting a
contract requires the court to make a preliminary inquiry as to whether the contract
before it is ambiguous. A contract provision is ambiguous if it is susceptible of two
reasonable alternative interpretations. Where the written terms of the contract are not
ambiguous and can only be read one way, the court will interpret the contract as a
matter of law. x x x
Then till now the pronouncement has been that if the language used is as clear as
day and readily understandable by any ordinary reader, there is no need for
construction.52
The case at bar is covered by the rule.
The plain language and literal interpretation of the MTIs must be applied. The
petitioner, other creditor banks and Paper City intended from the very first execution
of the indentures that the machineries and equipments enumerated in Annexes A
and B are included. Obviously, with the continued increase in the amount of the
loan, totaling hundreds of millions of pesos, Paper City had to offer all valuable
properties acceptable to the creditor banks.
The plain and obvious inclusion in the mortgage of the machineries and equipments
of Paper City escaped the attention of the CA which, instead, turned to another
plain language of the MTI that described the same as personal properties. It was
error for the CA to deduce from the description exclusion from the mortgage.
_______________
1. The MTIs did not describe the equipments and machineries as personal
property. Had the CA looked into Annexes A and B which were referred to by
the phrase real and personal properties, it could have easily noted that the captions
describing the listed properties were Buildings, Machineries and Equipments,
Yard and Outside, and Additional Machinery and Equipment. No mention in
any manner was made in the annexes about personal property. Notably, while
personal appeared in the granting clause of the original MTI, the subsequent Deed
of Amendment specifically stated that:
49 455 Phil. 196, 210; 407 SCRA 454, 462 (2003).
_______________
50 G.R. No. 162523, 25 November 2009, 605 SCRA 370.
52 Insular Investment and Trust Corporation v. Capital One Equities Corp. (now
known as Capital One Holdings Corp.) and Planters Development Bank, G.R. No.
183308, 25 April 2012, 671 SCRA 112, 126.
51 G.R. No. 151402, 22 August 2008, 563 SCRA 25, 37 citing Abad v. Goldloop
Properties, Inc., G.R. No. 168108, 13 April 2007, 521 SCRA 131, 143.
455
454
VOL. 692, MARCH 6, 2013
454
455
x x x The machineries and equipment listed in Annexes A and B form part of
the improvements listed above and located on the parcels of land subject of the
Mortgage Trust Indenture and the Real Estate Mortgage.
The word personal was deleted in the corresponding granting clauses in the Deed
of Amendment and in the First, Second and Third Supplemental Indentures.
2. Law and jurisprudence provide and guide that even if not expressly so stated,
the mortgage extends to the improvements.
Article 2127 of the Civil Code provides:
Art. 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation
becomes due, and to the amount of the indemnity granted or owing to the proprietor
from the insurers of the property mortgaged, or in virtue of expropriation for public
use, with the declarations, amplifications and limitations established by law, whether
the estate remains in the possession of the mortgagor, or it passes into the hands of a
third person. (Underlining ours)
possession of the person who mortgaged it, as well as when it passes into the hands
of a third person.54
The case of Cu Unjieng e Hijos v. Mabalacat Sugar Co.55 relied on this provision.
The issue was whether the machineries and accessories were included in the
mortgage and the subsequent sale during public auction. This was answered in the
affirmative by the Court when it ruled that the machineries were integral parts of
said sugar central hence included following the principle of law that the accessory
follows the principal.
Further, in the case of Manahan v. Hon. Cruz,56 this Court denied the prayer of
Manahan to nullify the order of the trial court including the building in question in
the writ of possession following the public auction of the parcels of land mortgaged
to the bank. It upheld the inclusion by relying on the principles laid upon in Bischoff
v. Pomar and Cia. General de Tabacos57 and Cu Unjieng e Hijos v. Mabalacat
Sugar Co.58
In the early case of Bischoff v. Pomar and Cia. General de Tabacos,53 the Court
ruled that even if the machinery in question was not included in the mortgage
expressly, Article 111 of the [old] Mortgage Law provides that chattels permanently
located in a building, either useful or ornamental, or for the service of some industry
even though they were placed there after the creation of the mortgage shall be
considered as mortgaged with the estate, provided they belong to the owner of said
estate. The provision of the old Civil Code was cited. Thus:
In Spouses Paderes v. Court of Appeals,59 we reiterated once more the Cu Unjieng

e Hijos ruling and approved the inclusion of machineries and accessories installed at
the time the mortgage, as well as all the buildings, machinery and accessories
belonging to the mortgagor, installed after the constitution thereof.
Article 1877 provides that a mortgage includes the natural accessions,

improvements, growing fruits, and rents not collected when the obligation is due,
and the amount of the indemnities granted or
_______________
_______________
55 58 Phil 439, 443 (1933).
53 12 Phil. 690, 699 (1909).
56 158 Phil. 799, 803-804; 61 SCRA 137, 140 (1974).
456
57 Supra note 53.
456
58 Supra note 55.
3. Contrary to the finding of the CA, the Extrajudicial Foreclosure of Mortgage

includes the machineries and equip-
54 Id., at p. 698.
59 502 Phil. 76, 96; 463 SCRA 504, 524 (2005).

457
VOL. 692, MARCH 6, 2013
due the owner by the underwriters of the property mortgaged or by virtue of the
exercise of eminent domain by reason of public utility, with the declarations,
amplifications, and limitations established by law, in case the estate continues in the
457
ments of respondent. While captioned as a Petition for Extra-Judicial Foreclosure
of Real Estate Mortgage Under Act No. 3135 As Amended, the averments state
that the petition is based on x x x the Mortgage Trust Indenture, the Deed of
Amendment to the Mortgage Trust Indenture, the Second Supplemental Indenture to
the Mortgage Trust Indenture, and the Third Supplemental Indenture to the
Mortgage Trust Indenture (hereinafter collectively referred to as the Indenture) duly
notarized and entered as x x x.60 Noting that herein respondent has an outstanding
obligation in the total amount of Nine Hundred One Million Eight Hundred One
Thousand Four Hundred Eighty Four and 10/100 Pesos (P901,801,484.10), the
petition for foreclosure prayed that a foreclosure proceedings x x x on the aforesaid
real properties, including all improvements thereon covered by the real estate
mortgage be undertaken and the appropriate auction sale be conducted x x x.61
Considering that the Indenture which is the instrument of the mortgage that was
foreclosed exactly states through the Deed of Amendment that the machineries and
equipments listed in Annexes A and B form part of the improvements listed and
located on the parcels of land subject of the mortgage, such machineries and
equipments are surely part of the foreclosure of the real estate properties, including
all improvements thereon as prayed for in the petition.
The real estate mortgage over the machineries and equipments is even in full accord
with the classification of such properties by the Civil Code of the Philippines as
immovable property. Thus:
Article 415.
(1)
The following are immovable property:
Land, buildings, roads and constructions of all kinds adhered to the soil;
xxxx
(5) Machinery, receptacles, instruments or implements intended by the owner of
the tenement for an industry or works which may be carried on in a building or on a
piece of land, and which tend directly to meet the needs of the said industry or
works;
WHEREFORE, the petition is GRANTED. Accordingly, the Decision and
Resolution of the Court of Appeals dated 8 March 2005 and 8 August 2005
upholding the 15 August 2003 and 1 December 2003 Orders of the Valenzuela
Regional Trial Court are hereby REVERSED and SET ASIDE and the original
Order of the trial court dated 28 February 2003 denying the motion of respondent to
remove or dispose of machinery is hereby REINSTATED.
SO ORDERED.
Indeed, the lower courts ought to have noticed the fact that the chattel mortgages
adverted to were dated 8 January 1990, 19 July 1990, 28 June 1991 and 28
November 1991. The real estate mortgages which specifically included the
machineries and equipments were subsequent to the chattel mortgages dated 26
August 1992, 20 November 1992, 7 June 1994 and 24 January 1995. Without doubt,
the real estate mortgages superseded the earlier chattel mortgages.
Sereno (C.J.),** Carpio (Chairperson), Del Castillo and Perlas-Bernabe, JJ., concur.
Petition granted, judgment and resolution reversed and set aside.
_______________
Notes.The court may not, in the guise of interpretation, enlarge the scope of a
statute and include therein situations not provided nor intended by the lawmakers.
(Kida vs. Senate of the Philippines, 667 SCRA 200 [2012])
60 CA Rollo, p. 238.
_______________
61 Id., at pp. 245-246. (Underlining supplied)
** Designated additional member per Raffle dated 14 January 2013.
458
459
458
VOL. 692, MARCH 6, 2013
459

FELS Energy, Inc. vs. Province of Batangas
G.R. No. 168557. February 16, 2007.*
FELS ENERGY, INC., petitioner, vs. THE PROVINCE OF BATANGAS and
THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS,
respondents.
G.R. No. 170628. February 16, 2007.*
NATIONAL POWER CORPORATION, petitioner, vs. LOCAL BOARD OF
ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his
capacity as the Assessor of the
_______________
particular assessment shall be the notice of assessment; it is this last action which
gives the owner of the property the right to appeal to the LBAA. The procedure
likewise does not permit the property owner the remedy of filing a motion for
reconsideration before the local assessor.
Same; Same; Same; Same; The taxpayers failure to question the assessment in the
Local Board of Assessment Appeals (LBAA) renders the assessment of the local
assessor final, executory and demandable.If the taxpayer fails to appeal in due
course, the right of the local government to collect the taxes due with respect to the
taxpayers property becomes absolute upon the expiration of the period to appeal. It
also bears stressing that the taxpayers failure to question the assessment in the
LBAA renders the assessment of the local assessor final, executory and demandable,
thus, precluding the taxpayer from questioning the correctness of the assessment, or
from
* THIRD DIVISION.
188
187
188
VOL. 516, FEBRUARY 16, 2007
187
Province of Batangas, and the PROVINCE OF BATANGAS represented by its
Provincial Assessor, respondents.
Taxation; Real Property Tax Code; Appeals; Assessments; The remedy of appeal to
the Local Board of Assessment Appeals (LBAA) is available from an adverse ruling
or action of the provincial, city or municipal assessor in the assessment of the
property.Instead of appealing to the Board of Assessment Appeals (as stated in
the notice), NPC opted to file a motion for reconsideration of the Provincial
Assessors decision, a remedy not sanctioned by law. The remedy of appeal to the
LBAA is available from an adverse ruling or action of the provincial, city or
municipal assessor in the assessment of the property. It follows then that the
determination made by the respondent Provincial Assessor with regard to the
taxability of the subject real properties falls within its power to assess properties for
taxation purposes subject to appeal before the LBAA.
Same; Same; Same; Same; Under Section 226 of R.A. No. 7160, the last action of
the local assessor on a particular assessment shall be the notice of assessment.We
fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and
CA-G.R. SP No. 67491. The two divisions of the appellate court cited the case of
Callanta v. Office of the Ombudsman, 285 SCRA 648 (1998), where we ruled that
under Section 226 of R.A. No 7160, the last action of the local assessor on a
invoking any defense that would reopen the question of its liability on the merits.
Same; Same; Same; Same; Taxation is the rule and exemption is the exception.
Time and again, the Supreme Court has stated that taxation is the rule and
exemption is the exception. The law does not look with favor on tax exemptions and
the entity that would seek to be thus privileged must justify it by words too plain to
be mistaken and too categorical to be misinterpreted. Thus, applying the rule of
strict construction of laws granting tax exemptions, and the rule that doubts should
be resolved in favor of provincial corporations, we hold that FELS is considered a
taxable entity.
Same; Same; Same; Same; The right of local government units to collect taxes due
must always be upheld to avoid severe tax erosion.It must be pointed out that the
protracted and circuitous litigation has seriously resulted in the local governments
deprivation of revenues. The power to tax is an incident of sovereignty and is
unlimited in its magnitude, acknowledging in its very nature no perimeter so that
security against its abuse is to be found only in the responsibility of the legislature
which imposes the tax on the constituency who are to pay for it. The right of local
government units to collect taxes due must always be upheld to avoid severe tax
erosion. This consideration is consistent with the State policy to guarantee the
autonomy of local governments and the objective of the Local Government Code

that they enjoy genuine and meaningful local autonomy to empower them to achieve
their fullest development as self-reliant communities and make them effective
partners in the attainment of national goals.
PETITIONS for review on certiorari of the decisions and resolutions of the Court of
Appeals.
Remedial Law; Judgments; Res Judicata; Res judicata is founded on two grounds,
namely: (1) public policy and necessity, which makes it to the interest of the State
that there should be an end to litigation and (2) the hardship on the individual of
being vexed twice for the same cause.Res judicata pervades every organized
system of jurisprudence and is founded upon two grounds embodied in various
maxims of common law, namely: (1) public policy and necessity, which makes it to
the interest of the State that there should be an end to litigationrepublicae ut sit
litium; and (2) the hardship on the individual of being vexed twice for the same
causenemo debet bis vexari et eadem causa. A conflicting doctrine would subject
the public peace and quiet to the will and dereliction of indi189
Jimenez, Gonzales, Liwanag, Bello, Valdez, Caluya and Fernandez for FELS
Energy, Inc.
Melchor P. Ridulme for National Power Corporation.
Emmanuel R. Matibag for the Province of Batangas and the Assessors Office of
Batangas.
CALLEJO, SR., J.:
Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No.
170628, which were filed by petitioners

190
189
190

viduals and prefer the regalement of the litigious disposition on the part of suitors to
the preservation of the public tranquility and happiness.
Same; Actions; Forum Shopping; An important factor in determining the existence
of forum shopping is the vexation caused to the courts and the parties-litigants by
the filing of similar cases to claim substantially the same reliefs; Requisites of
Forum Shopping.It must be stressed that an important factor in determining the
existence of forum shopping is the vexation caused to the courts and the partieslitigants by the filing of similar cases to claim substantially the same reliefs. The
rationale against forum shopping is that a party should not be allowed to pursue
simultaneous remedies in two different fora. Filing multiple petitions or complaints
constitutes abuse of court processes, which tends to degrade the administration of
justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of
the heavily burdened dockets of the courts. Thus, there is forum shopping when
there exist: (a) identity of parties, or at least such parties as represent the same
interests in both actions, (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts, and (c) the identity of the two preceding
particulars is such that any judgment rendered in the pending case, regardless of
which party is successful, would amount to res judicata in the other.

FELS Energy, Inc. (FELS) and National Power Corporation (NPC), respectively.
The first is a petition for review on certiorari assailing the August 25, 2004
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its
Resolution2 dated June 20, 2005; the second, also a petition for review on certiorari,
challenges the February 9, 2005 Decision3 and November 23, 2005 Resolution4 of
the CA in CA-G.R. SP No. 67491. Both petitions were dismissed on the ground of
prescription.
The pertinent facts are as follows:
On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over
3x30 MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas.
The contract, denominated as an Energy Conversion Agreement5 (Agreement), was
for a period of five years. Article 10 reads:
10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all
taxes, import duties, fees, charges and other levies imposed by the National
Government of the Republic of the Philippines or any agency or instrumentality

thereof to which POLAR may be or become subject to or in relation to the
performance of their obligations under this agreement (other than (i) taxes imposed
or calculated on the basis of the net income of POLAR and Personal Income Taxes
of its employees and (ii) construction permit fees, environmental permit fees and
other similar fees and charges) and
_______________
1 Penned by Associate Justice Marina L. Buzon, with Associate Justices Mario L.
Guaria III and Santiago Javier Ranada (retired), concurring; Rollo (G.R. No.
168557), pp. 103-116.
2 Penned by Associate Justice Marina L. Buzon, with Associate Justices Mario L.
Guaria III and Santiago Javier Ranada; concurring; id., at pp. 118-120.
3 Penned by Associate Justice Mario L. Guaria III, with Associate Justices Marina
L. Buzon and Santiago Javier Ranada; concurring; Rollo (G.R. No. 170628), pp. 5964.
4 Penned by Associate Justice Mario L. Guaria III, with Associate Justices Marina
L. Buzon and Santiago Javier Ranada; concurring; id., at p. 65.
power and authority to represent it in any conference regarding the real property
assessment of the Provincial Assessor.
In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial
Assessors decision to assess real property taxes on the power barges. However, the
motion was denied on September 22, 1995, and the Provincial Assessor advised
NPC to pay the assessment.8 This prompted NPC to file a petition with the Local
Board of Assessment Appeals (LBAA) for the setting aside of the assessment and
the declaration of the barges as non-taxable items; it also prayed that should LBAA
find the barges to be taxable, the Provincial Assessor be directed to make the
necessary corrections.9
In its Answer to the petition, the Provincial Assessor averred that the barges were
real property for purposes of taxation under Section 199(c) of Republic Act (R.A.)
No. 7160.
Before the case was decided by the LBAA, NPC filed a Manifestation, informing
the LBAA that the Department of
_______________
6 Id., at p. 155.
5 Rollo (G.R. No. 168557), pp. 121-245.

7 Id., at pp. 249-250.
191
8 Id., at pp. 253-255.
9 Rollo (G.R. No. 168557), pp. 256-267.
191
192
192
(b) all real estate taxes and assessments, rates and other charges in respect of the
Power Barges.6
Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS.
The NPC initially opposed the assignment of rights, citing paragraph 17.2 of Article
17 of the Agreement.
On August 7, 1995, FELS received an assessment of real property taxes on the
power barges from Provincial Assessor Lauro C. Andaya of Batangas City. The
assessed tax, which likewise covered those due for 1994, amounted to
P56,184,088.40 per annum. FELS referred the matter to NPC, reminding it of its
obligation under the Agreement to pay all real estate taxes. It then gave NPC the full

Finance (DOF) had rendered an opinion10 dated May 20, 1996, where it is clearly
stated that power barges are not real property subject to real property assessment.
On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The
fallo reads:

WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real
estate tax in the amount of P56,184,088.40, for the year 1994.
strained by the CBAA from enforcing the disputed assessment during the pendency
of the appeal.
SO ORDERED.12
On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint
on the properties of FELS in order not to preempt and render ineffectual, nugatory
and illusory any resolution or judgment which the Board would issue.
The LBAA ruled that the power plant facilities, while they may be classified as
movable or personal property, are nevertheless considered real property for taxation
purposes because they are installed at a specific location with a character of
permanency. The LBAA also pointed out that the owner of the bargesFELS, a
private corporationis the one being taxed, not NPC. A mere agreement making
NPC responsible for the payment of all real estate taxes and assessments will not
justify the exemption of FELS; such a privilege can only be granted to NPC and
cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filed
out of time.
Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment
Appeals (CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of
Levy and Warrant by Distraint13 over the power barges, seeking to collect real
property taxes amounting to P232,602,125.91 as of July 31, 1996. The notice and
warrant was officially served to FELS on November 8, 1996. It then filed a Motion
to Lift Levy dated November 14, 1996, praying that the Provincial Assessor be
further re-
Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the
proceedings before the CBAA. This was approved by the CBAA in an Order16
dated September 22, 1998.
During the pendency of the case, both FELS and NPC filed several motions to admit
bond to guarantee the payment of real property taxes assessed by the Provincial
Assessor (in the event that the judgment be unfavorable to them). The bonds were
duly approved by the CBAA.
On April 6, 2000, the CBAA rendered a Decision17 finding the power barges
exempt from real property tax. The dispositive portion reads:
WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the
Province of Batangas is hereby reversed. Respondent-appellee Provincial Assessor
of the Province of Batangas is hereby ordered to drop subject property under
ARP/Tax Declaration No. 018-00958 from the List of Taxable Properties in the
Assessment Roll. The Provincial Treasurer of Batangas is hereby directed to act
accordingly.
_______________
SO ORDERED.18
10 Id., at pp. 286-288.
11 Id., at pp. 289-294.
Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges
belong to NPC; since they are actually, directly and exclusively used by it, the
power barges are covered
12 Id., at p. 294.
_______________
13 Rollo (G.R. No. 170628), pp. 122-124.
14 Id., at p. 129.
193
15 Rollo (G.R. No. 168557), pp. 364-369.
16 Id., at pp. 370-372.
193
17 Id., at pp. 383-394.
18 Id., at p. 394.
194
194
21 Id., at pp. 430-431.

22 Id., at p. 478.

195
by the exemptions under Section 234(c) of R.A. No. 7160.19 As to the other
jurisdictional issue, the CBAA ruled that prescription did not preclude the NPC from
pursuing its claim for tax exemption in accordance with Section 206 of R.A. No.
7160. The Provincial Assessor filed a motion for reconsideration, which was
opposed by FELS and NPC.
In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001
reversing its earlier decision. The fallo of the resolution reads:
195
Resolution23 dated February 12, 2002, the appellate court directed NPC to re-file its
motion for consolidation with CAG.R. SP No. 67491, since it is the ponente of the
latter petition who should resolve the request for reconsideration.
WHEREFORE, premises considered, it is the resolution of this Board that:

(a) The decision of the Board dated 6 April 2000 is hereby reversed.
(b) The petition of FELS, as well as the intervention of NPC, is dismissed.
(c) The resolution of the Local Board of Assessment Appeals of Batangas is
hereby affirmed,
(d) The real property tax assessment on FELS by the Provincial Assessor of
Batangas is likewise hereby affirmed.
NPC failed to comply with the aforesaid resolution. On August 25, 2004, the
Twelfth Division of the appellate court rendered judgment in CA-G.R. SP No.
67490 denying the petition on the ground of prescription. The decretal portion of the
decision reads:
WHEREFORE, the petition for review is DENIED for lack of merit and the
assailed Resolutions dated July 31, 2001 and October 19, 2001 of the Central Board
of Assessment Appeals are AFFIRMED.
SO ORDERED.21
SO ORDERED.24
FELS and NPC filed separate motions for reconsideration, which were timely
opposed by the Provincial Assessor. The CBAA denied the said motions in a
Resolution22 dated October 19, 2001.
Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R.
SP No. 67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP
No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CAG.R. SP No. 67490 praying for the consolidation of its petition with CA-G.R. SP
No. 67491. In a
_______________
On September 20, 2004, FELS timely filed a motion for reconsideration seeking the
reversal of the appellate courts decision in CA-G.R. SP No. 67490.
Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court,
docketed as G.R. No. 165113, assailing the appellate courts decision in CA-G.R. SP
No. 67490. The petition was, however, denied in this Courts Resolution25 of
November 8, 2004, for NPCs failure to sufficiently show that the CA committed
any reversible error in the challenged decision. NPC filed a motion for
reconsideration, which the Court denied with finality in a Resolution26 dated
January 19, 2005.
19 Otherwise known as the Local Government Code of 1991.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It
held that the right to question the assessment of the Provincial Assessor had already
prescribed upon the failure of FELS to appeal the disputed assessment
20 Rollo (G.R. No. 168557), pp. 425-431.
_______________
23 CA Rollo (CA-G.R. SP No. 67490), p. 422.
Assuming arguendo that the subject power barges are subject to real estate tax,
whether or not it should be NPC which should be made to pay the same under the
law.
24 Rollo (G.R. No. 168557), pp. 49-50.

D.
25 Id., at p. 605.
26 Id., at p. 606.
Assuming arguendo that the subject power barges are real properties, whether or not
the same is subject to depreciation just like any other personal properties.
196
_______________
196
27 Rollo (G.R. No. 170628), p. 65.

28 Rollo (G.R. No. 168557), pp. 23-25.

197
to the LBAA within the period prescribed by law. Since FELS had lost the right to
question the assessment, the right of the Provincial Government to collect the tax
was already absolute.
NPC filed a motion for reconsideration dated March 8, 2005, seeking
reconsideration of the February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491.
The motion was denied in a Resolution27 dated November 23, 2005. The motion for
reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for
lack of merit in a Resolution28 dated June 20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this
Court, raising the following issues:
197
E.
Whether the right of the petitioner to question the patently null and void real
property tax assessment on the petitioners personal properties is imprescriptible.29
On January 13, 2006, NPC filed its own petition for review before this Court (G.R.
No. 170628), indicating the following errors committed by the CA:
A.
I
Whether power barges, which are floating and movable, are personal properties and
therefore, not subject to real property tax.
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE

APPEAL TO THE LBAA WAS FILED OUT OF TIME.
B.
II
Assuming that the subject power barges are real properties, whether they are exempt
from real estate tax under Section 234 of the Local Government Code (LGC).
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE

POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.
C.
III

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE
ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN
ACCORDANCE WITH LAW.30
Considering that the factual antecedents of both cases are similar, the Court ordered
the consolidation of the two cases in a Resolution31 dated March 8, 2006.
In an earlier Resolution dated February 1, 2006, the Court had required the parties to
submit their respective Memoranda within 30 days from notice. Almost a year
passed but the parties had not submitted their respective memoranda. Considering
that taxesthe lifeblood of our economyare involved in the present controversy,
the Court was prompted to dispense with the said pleadings, with the end view of
advancing the interests of justice and avoiding further delay.
provincial, city or municipal assessor in the assessment of his property may, within
sixty (60) days from the date of receipt of the written notice of assessment, appeal to
the Board of Assessment Appeals of the province or city by filing a petition under
oath in the form prescribed for the purpose, together with copies of the tax
declarations and such affidavits or documents submitted in support of the appeal.
We note that the notice of assessment which the Provincial Assessor sent to FELS
on August 7, 1995, contained the following statement:
If you are not satisfied with this assessment, you may, within sixty (60) days from
the date of receipt hereof, appeal to the Board of Assessment Appeals of the
province by filing a petition under oath on the form prescribed for the purpose,
together with copies of ARP/Tax Declaration and such affidavits or documents
submitted in support of the appeal.32
_______________
29 Id., at p. 61.
Instead of appealing to the Board of Assessment Appeals (as stated in the notice),
NPC opted to file a motion for reconsideration of the Provincial Assessors decision,
a remedy not sanctioned by law.
30 Rollo (G.R. No. 170628), pp. 18-19.

_______________
31 Rollo (G.R. No. 168557), p. 637.
32 Id., at p. 246 (Italics supplied).
198
199
198
199
In both petitions, FELS and NPC maintain that the appeal before the LBAA was not
time-barred. FELS argues that when NPC moved to have the assessment
reconsidered on September 7, 1995, the running of the period to file an appeal with
the LBAA was tolled. For its part, NPC posits that the 60-day period for appealing
to the LBAA should be reckoned from its receipt of the denial of its motion for
reconsideration.
Petitioners contentions are bereft of merit.
Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of
1991, provides:
SECTION 226. Local Board of Assessment Appeals.Any owner or person
having legal interest in the property who is not satisfied with the action of the
The remedy of appeal to the LBAA is available from an adverse ruling or action of
the provincial, city or municipal assessor in the assessment of the property. It
follows then that the determination made by the respondent Provincial Assessor with
regard to the taxability of the subject real properties falls within its power to assess
properties for taxation purposes subject to appeal before the LBAA.33
We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490
and CA-G.R. SP No. 67491. The two divisions of the appellate court cited the case
of Callanta v. Office of the Ombudsman,34 where we ruled that under Section 226
of R.A. No 7160,35 the last action of the local assessor on a particular assessment
shall be the notice of assessment; it is this last action which gives the owner of the
property the right to appeal to the LBAA. The procedure likewise does not permit

the property owner the remedy of filing a motion for reconsideration before the local
assessor. The pertinent holding of the Court in Callanta is as follows:
x x x [T]he same Code is equally clear that the aggrieved owners should have
brought their appeals before the LBAA. Unfortunately, despite the advice to this
effect contained in their respective notices of assessment, the owners chose to bring
their requests for a review/readjustment before the city assessor, a remedy not
sanctioned by the law. To allow this procedure would indeed invite corruption in the
system of appraisal and assessment. It conveniently courts a graft-prone situation
where values of real property may be initially set unreasonably high, and then
subsequently reduced upon the request of a property owner. In the latter instance,
allusions of a possible covert, illicit trade-off cannot be avoided, and in fact can
To reiterate, if the taxpayer fails to appeal in due course, the right of the local
government to collect the taxes due with respect to the taxpayers property becomes
absolute upon the expiration of the period to appeal.38 It also bears stressing that the
taxpayers failure to question the assessment in the LBAA renders the assessment of
the local assessor final, executory and demandable, thus, precluding the taxpayer
from questioning the correctness of the assessment, or from invoking any defense
that would reopen the question of its liability on the merits.39
In fine, the LBAA acted correctly when it dismissed the petitioners appeal for
having been filed out of time; the CBAA and the appellate court were likewise
correct in affirming the dismissal. Elementary is the rule that the perfection of an
appeal within the period therefor is both mandatory and ju-
_______________
_______________
33 Systems Plus Computer College of Caloocan City v. Local Government of

Caloocan City, 455 Phil. 956, 962-963; 408 SCRA 494, 498 (2003).
36 Callanta v. Office of the Ombudsman, supra note 34, at pp. 661-662.

37 Rollo (G.R. No. 170628), pp. 62-63.
34 G.R. Nos. 115253-74, January 30, 1998, 285 SCRA 648.

35 Formerly Section 30 of The Real Property Tax Code.
38 Manila Electric Company v. Barlis, G. R. No. 114231, June 29, 2004, 433 SCRA
11, 32.
200
39 Id., at pp. 32-33.
200
201

201
conveniently take place. Such occasion for mischief must be prevented and excised
from our system.36

risdictional, and failure in this regard renders the decision final and executory.40
For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor sends a notice
to the owner or lawful possessor of real property of its revised assessed value, the
former shall no longer have any jurisdiction to entertain any request for a review or
readjustment. The appropriate forum where the aggrieved party may bring his appeal
is the LBAA as provided by law. It follows ineluctably that the 60-day period for
making the appeal to the LBAA runs without interruption. This is what We held in
SP 67490 and reaffirm today in SP 67491.37
In the Comment filed by the Provincial Assessor, it is asserted that the instant
petition is barred by res judicata; that the final and executory judgment in G.R. No.
165113 (where there was a final determination on the issue of prescription),
effectively precludes the claims herein; and that the filing of the instant petition after
an adverse judgment in G.R. No. 165113 constitutes forum shopping.
FELS maintains that the argument of the Provincial Assessor is completely
misplaced since it was not a party to the erroneous petition which the NPC filed in
G.R. No. 165113. It avers that it did not participate in the aforesaid proceeding, and
the Supreme Court never acquired jurisdiction over it. As to the issue of forum

shopping, petitioner claims that no forum shopping could have been committed
since the elements of litis pendentia or res judicata are not present.
We do not agree.
and decided with finality. Litigations must end and terminate sometime and
somewhere. The effective and efficient administration of justice requires that once a
judgment has become final, the prevailing party should not be deprived of the fruits
of the verdict by subsequent suits on the same issues filed by the same parties.
Res judicata pervades every organized system of jurisprudence and is founded upon
two grounds embodied in various maxims of common law, namely: (1) public policy
and necessity, which makes it to the interest of the State that there should be an end
to litigationrepublicae ut sit litium; and (2) the hardship on the individual of being
vexed twice for the same causenemo debet bis vexari et eadem causa. A
conflicting doctrine would subject the public peace and quiet to the will and
dereliction of individuals and prefer the regalement of the litigious disposition on the
part of suitors to the preservation of the public tranquility and happiness.41 As we
ruled
This is in accordance with the doctrine of res judicata which has the following
elements: (1) the former judgment must be final; (2) the court which rendered it had
jurisdiction over the subject matter and the parties; (3) the judgment must be on the
merits; and (4) there must be between the first and the second actions, identity of
parties, subject matter and causes of action. The application of the doctrine of res
judicata does not require absolute identity of parties but merely substantial identity
of parties. There is substantial identity of parties when there is community of interest
or privity of interest between a party in the first and a party in the second case even
if the first case did not implead the latter.43
_______________
To recall, FELS gave NPC the full power and authority to represent it in any
proceeding regarding real property assessment. Therefore, when petitioner NPC
filed its petition for review docketed as G.R. No. 165113, it did so not only on its
40 See Borja Estate v. Ballad, G.R. No. 152550, June 8, 2005, 459 SCRA 657, 668,
670.
_______________
41 Cruz v. Court of Appeals, G.R. No. 164797, February 13, 2006, 482 SCRA 379,
395, citing Heirs of the Late Faustina Adalid v. Court of Appeals, 459 SCRA 27, 41
(2005).
42 G.R. No. 138660, February 5, 2004, 422 SCRA 101.

43 Id., at p. 116.
202
203
202
203
in Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals:42
x x x An existing final judgment or decreerendered upon the merits, without
fraud or collusion, by a court of competent jurisdiction acting upon a matter within
its authorityis conclusive on the rights of the parties and their privies. This ruling
holds in all other actions or suits, in the same or any other judicial tribunal of
concurrent jurisdiction, touching on the points or matters in issue in the first suit.
behalf but also on behalf of FELS. Moreover, the assailed decision in the earlier
petition for review filed in this Court was the decision of the appellate court in CAG.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R.
No. 165116 is binding on petitioner FELS under the principle of privity of interest.
In fine, FELS and NPC are substantially identical parties as to warrant the
application of res judicata. FELSs argument that it is not bound by the erroneous
petition filed by NPC is thus unavailing.
xxx
Courts will simply refuse to reopen what has been decided. They will not allow the
same parties or their privies to litigate anew a question once it has been considered
On the issue of forum shopping, we rule for the Provincial Assessor. Forum
shopping exists when, as a result of an adverse judgment in one forum, a party seeks
another and possibly favorable judgment in another forum other than by appeal or

special civil action or certiorari. There is also forum shopping when a party institutes
two or more actions or proceedings grounded on the same cause, on the gamble that
one or the other court would make a favorable disposition.44
Petitioner FELS alleges that there is no forum shopping since the elements of res
judicata are not present in the cases at bar; however, as already discussed, res
judicata may be properly applied herein. Petitioners engaged in forum shopping
when they filed G.R. Nos. 168557 and 170628 after the petition for review in G.R.
No. 165116. Indeed, petitioners went from one court to another trying to get a
favorable decision from one of the tribunals which allowed them to pursue their
cases.
It must be stressed that an important factor in determining the existence of forum
shopping is the vexation caused to the courts and the parties-litigants by the filing of
similar cases to claim substantially the same reliefs.45 The rationale against forum
shopping is that a party should not be allowed to pur-
Having found that the elements of res judicata and forum shopping are present in the
consolidated cases, a discussion of the other issues is no longer necessary.
Nevertheless, for the peace and contentment of petitioners, we shall shed light on the
merits of the case.
As found by the appellate court, the CBAA and LBAA power barges are real
property and are thus subject to real property tax. This is also the inevitable
conclusion, considering that G.R. No. 165113 was dismissed for failure to
sufficiently show any reversible error. Tax assessments by tax examiners are
presumed correct and made in good faith, with the taxpayer having the burden of
proving otherwise.48 Besides, factual findings of administrative bodies, which have
acquired expertise in their field, are generally binding and conclusive upon the
Court; we will not assume to interfere with the sensible exercise of the judgment of
men especially
_______________
_______________
46 Wee v. Galvez, G.R. No. 147394, August 11, 2004, 436 SCRA 96, 108-109.
44 Municipality of Taguig v. Court of Appeals, G.R. No. 142619, September 13,

2005, 469 SCRA 588, 594-595.
47 Hongkong and Shanghai Banking Corporation Limited v. Catalan, G.R. Nos.

159590 and 159591, October 18, 2004, 440 SCRA 498, 513-514.
45 Foronda v. Guerrero, Adm. Case No. 5469, August 10, 2004, 436 SCRA 9, 23.
48 Commissioner of Internal Revenue v. Hantex Trading Co., Inc., G.R. No.

136975, March 31, 2005, 454 SCRA 301, 329.
204
205
204
205
sue simultaneous remedies in two different fora. Filing multiple petitions or
complaints constitutes abuse of court processes, which tends to degrade the
administration of justice, wreaks havoc upon orderly judicial procedure, and adds to
the congestion of the heavily burdened dockets of the courts.46
Thus, there is forum shopping when there exist: (a) identity of parties, or at least
such parties as represent the same interests in both actions, (b) identity of rights
asserted and relief prayed for, the relief being founded on the same facts, and (c) the
identity of the two preceding particulars is such that any judgment rendered in the
pending case, regardless of which party is successful, would amount to res judicata
in the other.47
trained in appraising property. Where the judicial mind is left in doubt, it is a sound
policy to leave the assessment undisturbed.49 We find no reason to depart from this
rule in this case.
In Consolidated Edison Company of New York, Inc., et al. v. The City of New
York, et al.,50 a power company brought an action to review property tax
assessment. On the citys motion to dismiss, the Supreme Court of New York held
that the barges on which were mounted gas turbine power plants designated to
generate electrical power, the fuel oil barges which supplied fuel oil to the power
plant barges, and the accessory equipment mounted on the barges were subject to
real property taxation.
Moreover, Article 415 (9) of the New Civil Code provides that [d]ocks and
structures which, though floating, are intended by their nature and object to remain
at a fixed place on a river, lake, or coast are considered immovable property. Thus,
power barges are categorized as immovable property by destination, being in the
nature of machinery and other implements intended by the owner for an industry or
work which may be carried on in a building or on a piece of land and which tend
directly to meet the needs of said industry or work.51
Petitioners maintain nevertheless that the power barges are exempt from real estate
tax under Section 234 (c) of R.A. No. 7160 because they are actually, directly and
exclusively used by petitioner NPC, a government-owned and controlled corporation
engaged in the supply, generation, and transmission of electric power.
_______________
49 Cagayan Robina Sugar Milling Co. v. Court of Appeals, 396 Phil. 830, 840; 342
SCRA 663, 672 (2000).
50 80 Misc.2d 1065 (1975).
51 J. Vitug, CIVIL LAW VOLUME II, PROPERTY,OWNERSHIP, AND ITS
MODIFICATIONS, 3-4 (2003).
SECTION 234. Exemptions from Real Property Tax.The following are

exempted from payment of the real property tax:
xxx
(c) All machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned or controlled corporations engaged in
the supply and distribution of water and/or generation and transmission of electric
power; x x x
Indeed, the law states that the machinery must be actually, directly and exclusively
used by the government owned or controlled corporation; nevertheless, petitioner
FELS still cannot find solace in this provision because Section 5.5, Article 5 of the
Agreement provides:
OPERATION. POLAR undertakes that until the end of the Lease Period, subject to
the supply of the necessary Fuel pursuant to Article 6 and to the other provisions
hereof, it will operate the Power Barges to convert such Fuel into electricity in
accordance with Part A of Article 7.53
_______________
52 Rollo (G.R. No. 168557), p. 135.
206
53 Id., at p. 142 (Emphasis supplied).
206
207

207
We affirm the findings of the LBAA and CBAA that the owner of the taxable
properties is petitioner FELS, which in fine, is the entity being taxed by the local
government. As stipulated under Section 2.11, Article 2 of the Agreement:
OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all
the fixtures, fittings, machinery and equipment on the Site used in connection with
the Power Barges which have been supplied by it at its own cost. POLAR shall
operate, manage and maintain the Power Barges for the purpose of converting Fuel
of NAPOCOR into electricity.52
It follows then that FELS cannot escape liability from the payment of realty taxes by
invoking its exemption in Section 234 (c) of R.A. No. 7160, which reads:

It is a basic rule that obligations arising from a contract have the force of law
between the parties. Not being contrary to law, morals, good customs, public order
or public policy, the parties to the contract are bound by its terms and conditions.54
Time and again, the Supreme Court has stated that taxation is the rule and
exemption is the exception.55 The law does not look with favor on tax exemptions
and the entity that would seek to be thus privileged must justify it by words too plain
to be mistaken and too categorical to be misinterpreted.56 Thus, applying the rule of
strict construction of laws granting tax exemptions, and the rule that doubts should

be resolved in favor of provincial corporations, we hold that FELS is considered a
taxable entity.
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that
it shall be responsible for the payment of all real estate taxes and assessments, does
not justify the exemption. The privilege granted to petitioner NPC cannot be
extended to FELS. The covenant is between FELS and NPC and does not bind a
third person not privy thereto, in this case, the Province of Batangas.
It must be pointed out that the protracted and circuitous litigation has seriously
resulted in the local governments deprivation of revenues. The power to tax is an
incident of sovereignty and is unlimited in its magnitude, acknowledging in its very
nature no perimeter so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on the constituency who are
to
_______________
54 L & L Lawrence Footwear, Inc. v. PCI Leasing and Finance Corporation, G.R.
No. 160531, August 30, 2005, 468 SCRA 393, 402.
55 Commissioner of Internal Revenue v. Philippine Long Distance Telephone
Company, G.R. No. 140230, December 15, 2005, 478 SCRA 61, 74.
56 Republic v. City of Kidapawan, G.R. No. 166651, December 9, 2005, 477 SCRA
324, 335, citing Sea-Land Service, Inc. v. Court of Appeals, 357 SCRA 441, 444
(2001).
In conclusion, we reiterate that the power to tax is the most potent instrument to
raise the needed revenues to finance and support myriad activities of the local
government units for the delivery of basic services essential to the promotion of the
general welfare and the enhancement of peace, progress, and prosperity of the
people.60
WHEREFORE, the Petitions are DENIED and the assailed Decisions and
Resolutions AFFIRMED.
SO ORDERED.
Ynares-Santiago (Chairperson), Austria-Martinez and Chico-Nazario, JJ., concur.
Petitions denied, assailed decisions and resolutions affirmed.
Note.Elsewhere stated, taxation is the rule, exemption therefrom is the exception.
(Paseo Realty & Development Corporation vs. Court of Appeals, 440 SCRA 235
[2004])
o0o
_______________
57 Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082,
September 11, 1996, 261 SCRA 667, 679.
58 CONSTITUTION, Section 25, Article II, and Section 2, Article X.
208
59 Republic Act No. 7160, Section 2(a).
208
60 Mactan Cebu International Airport Authority v. Marcos, supra note 57, at p. 690.
209 FELS Energy, Inc. vs. Province of Batangas, 516 SCRA 186, G.R. No. 168557,
G.R. No. 170628 February 16, 2007
242
pay for it.57 The right of local government units to collect taxes due must always be
upheld to avoid severe tax erosion. This consideration is consistent with the State
policy to guarantee the autonomy of local governments58 and the objective of the
Local Government Code that they enjoy genuine and meaningful local autonomy to
empower them to achieve their fullest development as self-reliant communities and
make them effective partners in the attainment of national goals.59

Benitez vs. Court of Appeals

G.R. No. 104828. January 16, 1997.*
SPOUSES RAFAEL BENITEZ AND AVELINA BENITEZ, petitioners, vs.
COURT OF APPEALS, SPOUSES RENATO MACAPAGAL and
ELIZABETH MACAPAGAL, respondents.
Remedial Law; Civil Law; Ejectment; Possession; Prior possession is not always a
condition sine qua non in ejectment.That petitioners occupied the land prior to
private respondents purchase thereof does not negate the latters case for ejectment.
Prior possession is not always a condition sine qua non in ejectment. This is one of
the distinctions between forcible entry and unlawful detainer. In forcible entry, the
plaintiff is deprived of physical possession of his land or building by means of force,
intimidation, threat, strategy or stealth; thus, he must allege and prove prior
possession. But in unlawful detainer, the defendant unlawfully withholds possession
after the expiration or termination of his right thereto under any contract, express or
implied. In such a case, prior physical possession is not required.
Same; Same; Same; Damages; Damages in the context of Section 8, Rule 70 is

limited to rent or fair rental value for the use and occupation of the property.
Petitioners erroneously construed the order of the MeTC to pay private respondents
Nine Hundred Thirty Pesos (P930.00) a month starting July 17, 1989 until they
(petitioners) finally vacate the subject premises as rentals. Technically, such
award is not rental, but damages. Damages are recoverable in ejectment cases under
Section 8, Rule 70 of the Revised Rules of Court. These damages arise from the loss
of the use and occupation of the property, and not the damages which private
respondents may have suffered but which have no direct relation to their loss of
material possession. Damages in the context of Section 8, Rule 70 is limited to
rent or fair rental value for the use and occupation of the property.
Same; Same; Same; Option to sell the land on which another in good faith builds,
plants or sows on, belongs to the landowner.Article 448 of the Civil Code is
unequivocal that the option to sell the land on which another in good faith builds,
plants or sows on, belongs to the landowner.
_______________
PETITION for review on certiorari of a decision of the Court of Appeals.
* THIRD DIVISION.
243
244
VOL. 266, JANUARY 16, 1997
244
243
Same; Same; Same; Same; Possession can also be acquired by the fact that a thing is
subject to the action of ones will or by the proper acts and legal formalities
established for acquiring such right.Possession can also be acquired, not only by
material occupation, but also by the fact that a thing is subject to the action of ones
will or by the proper acts and legal formalities established for acquiring such right.
Possession of land can be acquired upon the execution of the deed of sale thereof by
its vendor. Actual or physical occupation is not always necessary.
Same; Same; Same; The MeTC has jurisdiction over ejectment cases.In the case
before us, considering that private respondents are unlawfully deprived of
possession of the encroached land and that the action for the recovery of possession
thereof was made within the one-year reglementary period, ejectment is the proper
remedy. The MeTC of San Juan had jurisdiction.
Leonides S. Respicio & Associates Law Office for petitioners.

Pedro T. Santos, Jr. for private respondents.
PANGANIBAN, J.:
May possession of a lot encroached upon by a part of anothers house be recovered
in an action for ejectment?
This is the main question raised by the petition for review on certiorari assailing the
Resolution1 of the Court of Appeals, Sixth Division,2 dated March 24, 1992, in CAG.R. SP No. 26853 denying due course to petitioners appeal and affirming the
decision of the Regional Trial Court of Pasig in Civil Case No. 61004, which in turn
affirmed the decision of the Metropolitan Trial Court of San Juan, Metro Manila,
Branch 58.

The Facts
On January 22, 1986, petitioners Rafael and Avelina Benitez purchased a 303square-meter parcel of land with improvement from the Cavite Development Bank,
covered by Transfer Certificate of Title No. 41961 (now, TCT No. 55864).
Subsequently, private respondents Renato and Elizabeth Macapagal bought a 361square-meter lot covered by TCT No. 40155. On September 18, 1986, they filed
Civil Case No. 53835 with the Regional Trial Court of Pasig, Branch 157 against
petitioners for the recovery of possession of an encroached portion of the lot they
purchased. The parties were able to reach a compromise in which private
respondents sold the encroached portion to petitioners at the acquisition cost of One
Thousand Pesos (P1,000.00) per square meter.
1. The amount of P930.00 a month starting July 17, 1989 until they finally vacate
the subject premises;
2. The amount of P5,000.00 for and as attorneys fees; and
3. Cost of suit.
On appeal, the Regional Trial Court of Pasig, Branch 167, affirmed said decision.4
The RTC said:5
The controversy in this case is not an encroachment or overlapping of two (2)
adjacent properties owned by the parties. It is a case where a part of the house of the
defendants is constructed on a portion of the property of the plaintiffs. So that as
new owner of the real property, who has a right to the full enjoyment and possession
of the entire parcel covered by Transfer Certificate of Title No.
_______________
_______________
1 Rollo, pp. 25-27.
3 Rollo, pp. 25-26.
2 Penned by Associate Justice Jose C. Campos, Jr. and concurred in by Associate
Justices Alfredo M. Marigomen and Fortunato A. Vailoces.
4 Penned by Judge Alfredo C. Flores, C.A. Rollo, pp. 10-13.
245
5 CA Rollo, pp. 11-12.
VOL. 266, JANUARY 16, 1997
246
246
245
On July 17, 1989, private respondents purchased still another property, a 285.70
square-meter-lot covered by TCT No. 3249-R, adjacent to that of petitioners. After a
relocation survey was conducted, private respondents discovered that some 46.50
square meters of their property was occupied by petitioners house. Despite verbal
and written demands, petitioners refused to vacate. A last notice to vacate was sent
to petitioners on October 26, 1989.
On January 18, 1990, private respondents filed with the Metropolitan Trial Court of
San Juan, Branch 58, Civil Case No. 61004 for ejectment against petitioners. The
MeTC of San Juan decided in favor of the former, with the following disposition:3
WHEREFORE, finding no reversible error in the decision appealed from, it being

more consistent with the facts and the law applicable, the same is hereby
AFFIRMED in toto. Costs against the defendant-appellants.
WHEREFORE, in view of all the foregoing, judgment is hereby rendered for the
plaintiffs and against the defendants ordering them and all persons claiming rights
under them to vacate and surrender possession of the subject premises to the
plaintiffs as well as to pay the following:
SO ORDERED.
41961, plaintiffs have the right to demand that defendants remove the portion of the
house standing on plaintiffs realty. x x x.
The dispositive portion thereof reads:6
On further appeal, the respondent Court found no merit in petitioners plea. In a

Resolution dated March 24, 1992, the Sixth Division of said Court found the petition

to be a mere rehash of the issues and arguments presented before the lower courts. It
ruled in part that:7
respondents land, and (c) the propriety of a factual review of the CAs finding of
bad faith on the part of petitioners.
3) Petitioners were fully aware that part of their house encroached on their
neighbors property, while respondents became aware of it only after purchasing
said property. Petitioners cannot claim good faith as against the respondents.
4) Since petitioners are not builders in good faith, they cannot demand that
respondents sell the disputed portion; what the law provides is that the builders in
bad faith can be ordered to dismantle said structure at their own expense. In the
interim period that petitioners structure remains, they should pay reasonable rent
until they remove the structure.
In a nutshell, petitioners insist that the MeTC had no jurisdiction over the case at bar
because its real nature is accion publiciana or recovery of possession, not unlawful
detainer. It is not forcible entry because private respondents did not have prior
possession of the contested property as petitioners possessed it ahead of private
respondents. It is not unlawful detainer because petitioners were not the private
respondents tenants nor vendee unlawfully withholding possession thereof. Said
court also has no jurisdiction to impose payment of rentals as there is no lessorlessee relationship between the parties. They pray for a review of the factual finding
of bad faith, insisting that the facts uphold their position. Due to their alleged good
faith, they claim the pre-emptive right to purchase the litigated portion as a matter of
course. Finally, they insist that the award of attorneys fees is unwarranted as private
respondents allegedly had knowledge of the encroachment prior to their acquisition
of said land.
The dispositive portion thereof reads:8

For reasons indicated, We find the appeal without merit and deny it due course,
with costs against the petitioners.
SO ORDERED.
6 CA Rollo, p. 13.
Private respondents counter that petitioners are estopped from questioning the
jurisdiction of the MeTC after they voluntarily participated in the trial on the merits
and lost; that there is no law giving petitioners the option to buy the encroached
property; and that petitioners acted in bad faith because they waived in their deed of
sale the usual sellers warranty as to the absence of any and all liens and
encumbrances on the property, thereby implying they had knowledge of the
encroachment at the time of purchase.
7 Rollo, p. 27.
248
8 Ibid.
248
Hence, this petition.

_______________
247
VOL. 266, JANUARY 16, 1997
The Courts Ruling
247
The Issues
The main issue is whether the possession of the portion of the private respondents
land encroached by petitioners house can be recovered through an action of
ejectment, not accion publiciana. Corollarily, petitioners question (a) the validity of
the imposition of rental for the occupancy of the encroached portion, (b) the denial
of their claimed pre-emptive right to purchase the encroached portion of the private
The petition lacks merit and should be denied.

First Issue: MeTC Has Jurisdiction
The jurisdictional requirements for ejectment, as borne out by the facts, are: after
conducting a relocation survey, private respondents discovered that a portion of their
land was encroached by petitioners house; notices to vacate were sent to petitioners,
the last one being dated October 26, 1989; and private respondents filed the
ejectment suit against petitioners on January 18, 1990 or within one (1) year from
the last demand.

Private respondents cause of action springs from Sec. 1, Rule 70 of the Revised
Rules of Court, which provides:
Sec. 1. Who may institute proceedings, and when.Subject to the provisions of the
next succeeding section, a person deprived of the possession of any land or building
by force, intimidation, threat, strategy, or stealth, or a landlord, vendor, vendee, or
other person against whom the possession of any land or building is unlawfully
withheld after the expiration or termination of the right to hold possession, by virtue
of any contract, express or implied, or the legal representatives or assigns of any
such landlord, vendor, vendee, or other person, may, at any time within one (1) year
after such unlawful deprivation or withholding of possession, bring an action in the
proper inferior court against the person or persons unlawfully withholding or
depriving of possession, or any person or persons claiming under them, for the
restitution of such possession, together with damages and costs. x x x.
That petitioners occupied the land prior to private respondents purchase thereof
does not negate the latters case for ejectment. Prior possession is not always a
condition sine qua non in ejectment.9 This is one of the distinctions between
In the case before us, considering that private respondents are unlawfully deprived
of possession of the encroached land and that the action for the recovery of
possession thereof was made within the one-year reglementary period, ejectment is
the proper remedy.12 The MeTC of San Juan had jurisdiction.
In addition, after voluntarily submitting themselves to its proceedings, petitioners
are estopped from assailing the jurisdiction of the MeTC.13 This Court will not
allow petitioners to attack the jurisdiction of the trial court after receiving a decision
adverse to their position.
_______________
10 Sumulong vs. Court of Appeals, 232 SCRA 372, 382-383, May 10, 1994 and
Javelosa vs. Court of Appeals, G.R. No. 124292, promulgated on December 10,
1996, p. 10.
11 Pharma Industries, Inc. vs. Pajarillaga, op cit.
12 Del Castillo vs. Aguinaldo, 212 SCRA 169, 173-174, August 5, 1992.
_______________
9 Pharma Industries, Inc., vs. Pajarillaga, 100 SCRA 339, 345, October 17, 1980.
13 Tejones vs. Gironello, 159 SCRA 100, 104, March 21, 1988 and Romualdez vs.
Regional Trial Court, Br. 7, Tacloban City, 226 SCRA 408, 414, September 14,
1993.
249
250
VOL. 266, JANUARY 16, 1997
250
249
forcible entry and unlawful detainer. In forcible entry, the plaintiff is deprived of
physical possession of his land or building by means of force, intimidation, threat,
strategy or stealth; thus, he must allege and prove prior possession. But in unlawful
detainer, the defendant unlawfully withholds possession after the expiration or
termination of his right thereto under any contract, express or implied. In such a
case, prior physical possession is not required.10
Possession can also be acquired, not only by material occupation, but also by the
fact that a thing is subject to the action of ones will or by the proper acts and legal
formalities established for acquiring such right.11 Possession of land can be
acquired upon the execution of the deed of sale thereof by its vendor. Actual or
physical occupation is not always necessary.

Second Issue: Compensation For Occupancy
Petitioners erroneously construed the order of the MeTC to pay private respondents
Nine Hundred Thirty Pesos (P930.00) a month starting July 17, 1989 until they
(petitioners) finally vacate the subject premises as rentals. Technically, such
award is not rental, but damages. Damages are recoverable in ejectment cases under
Section 8, Rule 70 of the Revised Rules of Court.14 These damages arise from the
loss of the use and occupation of the property, and not the damages which private
respondents may have suffered but which have no direct relation to their loss of
material possession.15 Damages in the context of Section 8, Rule 70 is limited to
rent or fair rental value for the use and occupation of the property.16
_______________
14 Rule 70, Section 8 provides:
is entitled to the ownership of the accessory thing.19 There can be no pre-emptive

right to buy even as a compromise, as this prerogative belongs solely to
Sec. 8. Immediate execution of judgment. How to stay same.If judgment is

rendered against the defendant, execution shall issue immediately, unless an appeal
has been perfected and the defendant to stay execution files a sufficient bond,
approved by the justice of the peace or municipal court and executed to the plaintiff
to enter the action in the Court of First Instance and to pay the rents, damages, and
costs accruing down to the time of the judgment appealed from, and unless, during
the pendency of the appeal, he deposits with the appellate court the amount of rent
due from time to time under the contract, if any, as found by the judgment of the
justice of the peace or municipal court to exist. In the absence of a contract, he shall
deposit with the court the reasonable value of the use and occupation of the premises
for the preceding month or period at the rate determined by the judgment, on or
before the tenth day of each succeeding month or period. x x x x.
_______________
15 Hualam Construction and Devt. Corp. vs. Court of Appeals, 214 SCRA 612,
624-625, October 16, 1992 and Araos vs. Court of Appeals, 232 SCRA 770, 776,
June 2, 1994.
16 Ibid. and De Guzman vs. Court of Appeals, 195 SCRA 715, 721, April 8, 1991.
18 ART. 450. The owner of the land on which anything has been built, planted or
sown in bad faith may demand the demolition of the work, or that the planting or
sowing be removed, in order to replace things in their former condition at the
expense of the person who built, planted or sowed; or he may compel the builder or
planter to pay the price of the land, and the sower the proper rent.
251
19 Depra vs. Dumlao, supra, p. 483.
VOL. 266, JANUARY 16, 1997
252
17 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.
252
251
There is no question that petitioners benefited from their occupation of a portion of

private respondents property. Such benefit justifies the award of the damages of this
kind. Nemo cum alterius, detrimenti locupletari potest. No one shall enrich himself
at the expense of another.
Third Issue: Option To Sell Belongs To Owner
Article 448 of the Civil Code17 is unequivocal that the option to sell the land on
which another in good faith builds, plants or sows on, belongs to the landowner.
The option is to sell, not to buy, and it is the landowners choice. Not even a
declaration of the builder, planter, or sowers bad faith shifts this option to him per
Article 450 of the Civil Code.18 This advantage in Article 448 is accorded the
landowner because his right is older, and because, by the principle of accession, he
the landowner. No compulsion can be legally forced on him, contrary to what

petitioners asks from this Court. Such an order would certainly be invalid and
illegal. Thus, the lower courts were correct in rejecting the petitioners offer to buy
the encroached land.
Fourth Issue: A Review of Factual Findings Is Unwarranted
Petitioners ask this Court to review the alleged error of the respondent Court in
appreciating bad faith on their part. According to them, this is contradictory to the
fact that private respondents acquired their lot and discovered the encroachment
after petitioners bought their house. After careful deliberation on this issue, this
Court finds this petition for review inadequate as it failed to show convincingly a
reversible error on the part of the respondent Court in this regard. Thus, for very

good reasons, this Court has consistently and emphatically declared that review of
the factual findings of the Court of Appeals is not a function that is normally
undertaken in petitions for review under Rule 45 of the Rules of Court. Such
findings, as a general rule, are binding and conclusive.20 The jurisdiction of this
Court is limited to reviewing errors of law unless there is a showing that the findings
complained of are totally devoid of support in the records or that they are so
glaringly erroneous as to constitute reversible error.21
MeTCs disposition. Petitioners want this Court to declare them in good faith and to
determine their rights under Article 448, Civil Code. However, the mere fact that
they bought their property ahead of the private respondents does not establish this
point. Nor does it prove that petitioners had no knowledge of the encroachment
when they purchased their property. Reliance on the presumption in Article 526 of
the Code is misplaced in view of the declaration of the respondent Court that
petitioners are not builders in good faith.
_______________
What petitioners presented are mere allegations and arguments, without sufficient
evidence to support them. As such, we have no ground to depart from the general
rule against factual review.
20 De la Serna vs. Court of Appeals, 233 SCRA 325, 329, June 21, 1994; Tay Chun
Suy vs. Court of Appeals, 229 SCRA 151, 156, January 7, 1994; First Philippine
International Bank vs. Court of Appeals, 252 SCRA 259, 307-308, January 24,
1996; and Liberty Construction & Development Corp. vs. Court of Appeals, G.R.
No. 106601, promulgated on June 28, 1996, p. 7.
21 Meneses vs. Court of Appeals, 246 SCRA 162, 171, July 14, 1995; The
Municipality of Candijay, Bohol vs. Court of Appeals, 251 SCRA 530, 534,
December 28, 1995; and Taedo vs. Court of Appeals, 252 SCRA 80, 91 January
22, 1996.
In sum, the petition has not shown cogent reasons and sufficient grounds to reverse
the unanimous ruling of the three lower courts. The MeTC, RTC and the Court of
Appeals were all in agreement in sustaining private respondents rights. And we
uphold them.
_______________
22 Rollo, p. 26.
253
254
VOL. 266, JANUARY 16, 1997
254
253
People vs. Briones
Even respondent Court has taken note of the inadequacy of the petition before it, as
it wryly said:22
The Petition for Review is not certainly a manifestation of clarity nor an example
of a well-organized summation of petitioners cause of action. x x x x.
xxx
xxx
xxx
A careful scrutiny of the above issues discloses that they are mere repetitions in a
rehashed form of the same issues with the same supporting arguments raised by
petitioners when they appealed from the decision of the (MeTC) to the RTC. x x x.
This petition is no different. We share the foregoing sentiments of the respondent
Court. In essence, respondent Court merely affirmed the decision of the MeTC. The
Court of Appeals finding of petitioners bad faith did not alter nor affect the
WHEREFORE, the petition is DENIED. The assailed Resolution is hereby

AFFIRMED.
Narvasa (C.J., Chairman), Davide, Jr., Melo and Francisco, JJ., concur.
Petition denied, resolution affirmed.
Note.Ejectment may be effected only through an action for forcible entry or
unlawful detainer. (De la Paz vs. Panis, 245 SCRA 242 [1995])
o0o Benitez vs. Court of Appeals, 266 SCRA 242, G.R. No. 104828
January 16, 1997
VOL. 244, MAY 26, 1995
G.R. No. 115814. May 26, 1995.*

PEDRO P. PECSON, petitioner, vs. COURT OF APPEALS, SPOUSES JUAN
NUGUID and ERLINDA NUGUID, respondents.
Property; Ownership; Builder in Good Faith; Art. 448 of the Civil Code does not
apply to a case where the owner of the land is the builder, sower, or planter who
then later loses ownership of the land by sale or donation.By its clear language,
Article 448 refers to a land whose ownership is claimed by two or more parties, one
of whom has built some works, or sown or planted something. The building, sowing
or planting may have been made in good faith or in bad faith. The rule on good faith
laid down in Article 526 of the Civil Code shall be applied in determining whether a
builder, sower or planter had acted in good faith. Article 448 does not apply to a
case where the owner of the land is the builder, sower, or planter who then later
loses ownership of the land by sale or donation.
Same; Same; Same; The provision of Art. 448 on indemnity may be applied by
analogy to a case where one loses the ownership of the land on which he earlier built
an apartment.Elsewise stated, where the true owner himself is the builder of
works on his own land, the issue of good faith or bad faith is entirely irrelevant.
Thus in strict point of law, Article 448 is not apposite to the case at bar.
Nevertheless, we believe that the provision therein on indemnity may be applied by
analogy considering that the primary intent of Article 448 is to avoid a state of
forced co-ownership and that the parties, including the two courts below, in the main
agree that Articles 448 and 546 of the Civil Code are applicable and indemnity for
the improvements may be paid although they differ as to the basis of the indemnity.
_______________
vs. Roman Catholic Archbishop of Manila that the said provision was formulated in
trying to adjust the rights of the owner and possessor in good faith of a piece of land,
to administer complete justice to both of them in such a way as neither one nor the
other may enrich himself of that which does not belong to him. Guided by this
precept, it is therefore the current market value of the improvements which should
be made the basis of reimbursement. A contrary ruling would unjustly enrich the
private respondents who would otherwise be allowed to acquire a highly valued
incomeyielding four-unit apartment building for a measly amount. Consequently,
the parties should therefore be allowed to adduce evidence on the present market
value of the apartment building upon which the trial court should base its finding as
to the amount of reimbursement to be paid by the landowner.
Same; Same; Same; Same; The right to retain the improvements while the
corresponding indemnity is not paid implies the tenancy or possession in fact of the
land on which it is built, planted or sown and retention of ownership of the
improvements and, necessarily, the income therefrom.The trial court also erred in
ordering the petitioner to pay monthly rentals equal to the aggregate rentals paid by
the lessees of the apartment building. Since the private respondents have opted to
appropriate the apartment building, the petitioner is thus entitled to the possession
and enjoyment of the apartment building, until he is paid the proper indemnity, as
well as of the portion of the lot where the building has been constructed. This is so
because the right to retain the improvements while the corresponding indemnity is
not paid implies the tenancy or possession in fact of the land on which it is built,
planted or sown. The petitioner not having been so paid, he was entitled to retain
ownership of the building and, necessarily, the income therefrom.
PETITION for review on certiorari of a decision of the Court of Appeals.
* FIRST DIVISION.
Barbers, Molina & Tamargo for petitioner.
408
Benjamin C. Reyes for private respondents.
408
409
VOL. 244, MAY 26, 1995

Pecson vs. Court of Appeals
409
Same; Same; Same; Equity; Unjust Enrichment; It is the current market value of the
improvements which should be made the basis of reimbursement to the builder in
good faith.The objective of Article 546 of the Civil Code is to administer justice
between the parties involved. In this regard, this Court had long ago stated in Rivera
DAVIDE, JR., J.:

This petition for review on certiorari seeks to set aside the decision1 of the Court of
Appeals in CA-G.R. SP No. 32679 affirming in part the order2 of the Regional Trial
Court (RTC) of Quezon City, Branch 101, in Civil Case No. Q-41470.
410
The factual and procedural antecedents of this case as gathered from the record are
as follows:
Petitioner Pedro P. Pecson was the owner of a commercial lot located in Kamias
Street, Quezon City, on which he built a fourdoor two-storey apartment building.
For his failure to pay realty taxes amounting to twelve thousand pesos (P12,000.00),
the lot was sold at public auction by the City Treasurer of Quezon City to Mamerto
Nepomuceno who in turn sold it on 12 October 1983 to the private respondents, the
spouses Juan Nuguid and Erlinda Tan-Nuguid, for one hundred three thousand pesos
(P103,000.00).
The petitioner challenged the validity of the auction sale in Civil Case No. Q-41470
before the RTC of Quezon City. In its decision of 8 February 1989, the RTC
dismissed the complaint, but as to the private respondents claim that the sale
included the apartment building, it held that the issue concerning it was not a
subject of the . . . litigation. In resolving the private respondents motion to
reconsider this issue, the trial court held that there was no legal basis for the
contention that the apartment building was included in the sale.3
Both parties then appealed the decision to the Court of Appeals. The case was
docketed as CA-G.R. CV No. 2931. In its decision of 30 April 1992,4 the Court of
Appeals affirmed in toto the assailed decision. It also agreed with the trial court that
the apartment building was not included in the auction sale of the
commercial lot. Thus:

Indeed, examining the record we are fully convinced that it was only the land
without the apartment buildingwhich was sold at the auction sale, for plaintiffs
failure to pay the taxes due thereon . Thus, in the Certificate of Sale of Delinquent
Property To Purchaser (Exh. K, p. 352, Record) the property subject of the auction
sale at which Mamerto Nepomuceno was the purchaser is referred to as Lot No. 21A, Block No. K-34, at Kamias, Barangay Piahan, with an area of 256.3 sq.m., with
no mention whatsoever, of the building thereon. The same description of the subject
property appears in the Final Notice To Exercise The Right of Redemption (over
subject property) dated September 14, 1981 (Exh. L, p. 353, Record) and in the
Final Bill of Sale over the same property dated April 19, 1982 (Exh. P, p. 357,
Record). Needless to say, as it was only the land without any building which
Nepomuceno had acquired at the auction sale, it was also only that land without any
building which he could have legally sold to the Nuguids. Verily, in the Deed of
Absolute Sale of Registered Land executed by Mamerto Nepomuceno in favor of the
Nuguids on October 25, 1983 (Exh. U, p. 366, Record) it clearly appears that the
property subject of the sale for P103,000.00 was only the parcel of land, Lot 21-A,
Blk. K-34 containing an area of 256.3 sq. meters, without any mention of any
improvement, much less any building thereon. (emphases supplied)
The petition to review the said decision was subsequently denied by this Court.5
Entry of judgment was made on 23 June 1993.6
_______________
1 Annex A of Petition; Rollo, 12-21. Per Associate Justice Artemon D. Luna, with
the concurrence of Associate Justices Manuel C. Herrera and Ruben T. Reyes.
On November 1993, the private respondents filed with the trial court a motion for
delivery of possession of the lot and the apartment building, citing Article 546 of the
Civil Code.7 Acting
2 Id., 40-42. Per Judge Pedro T. Santiago.
______________
3 Rollo, 34.
5 Memorandum For Petitioners, 2; Rollo, 70.
4 Annex A of the Petition in CA-G.R. SP No. 32679; Id., 31-39. Per Associate
Justice Lorna S. Lombos-De la Fuente, with the concurrence of Associate Justices
Eduardo R. Bengzon and Quirino D. Abad Santos, Jr.
6 Rollo, 70.
410
ART. 546. Necessary expenses shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until he has been reimbursed therefor.
7 It provides:

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.
411
VOL. 244, MAY 26, 1995
WHEREFORE, finding merit in the Motion, the Court hereby grants the following
prayer that:
1. The movant shall reimburse plaintiff the construction cost of P53,000.00.
2. The payment of P53,000.00 as reimbursement for the construction cost, movant
Juan Nuguid is hereby entitled to immediate issuance of a writ of possession over
the lot and
_______________
411
8 Annex B of Petition; Rollo, 40-42.
412
thereon, the trial court issued on 15 November 1993 the challenged order8 which
reads as follows:
Submitted for resolution before this Court is an uncontroverted [sic] for the Delivery
of Possession filed by defendants Erlinda Tan, Juan Nuguid, et al. considering that
despite personal service of the Order for plaintiff to file within (5) days his
opposition to said motion, he did not file any.
In support of defendants motion, movant cites the law in point as Article 546 of the
Civil Code . . .
Movant agrees to comply with the provisions of the law considering that plaintiff is
a builder in good faith and he has in fact, opted to pay the cost of the construction
spent by plaintiff. From the complaint itself the plaintiff stated that the construction
cost of the apartment is much more than the lot, which apartment he constructed at a
cost of P53,000.00 in 1965 (par. 8 complaint). This amount of P53,000.00 is what
the movant is supposed to pay under the law before a writ of possession placing him
in possession of both the lot and apartment would be issued.
412
improvements thereon.
3. The movant having been declared as the uncontested owner of the lot in
question as per Entry of Judgment of the Supreme Court dated June 23, 1993, the
plaintiff should pay rent to the movant of no less than P21,000.00 per month from
said date as this is the very same amount paid monthly by the tenants occupying the
lot.
4. The amount of P53,000.00 due from the movant is hereby offset against the
amount of rents collected by the plaintiff from June 23, 1993, to September 23,
1993.
SO ORDERED.
However, the complaint alleges in paragraph 9 that three doors of the apartment are
being leased. This is further confirmed by the affidavit of the movant presented in
support of the motion that said three doors are being leased at a rental of P7,000.00 a
month each. The movant further alleges in his said affidavit that the present
commercial value of the lot is P10,000.00 per square meter or P2,500,000.00 and the
reasonable rental value of said lot is no less than P21,000.00 per month. The
decision having become final as per Entry of Judgment dated June 23, 1993 and
from this date on, being the uncontested owner of the property, the rents should be
paid to him instead of the plaintiff collecting them. From June 23, 1993, the rents
collected by plaintiff amounting to more than P53,000.00 from tenants should be
offset from the rents due to the lot which according to movants affidavit is more
than P21,000.00 a month.
The petitioner moved for the reconsideration of the order but it was not acted upon
by the trial court. Instead, on 18 November 1993, it issued a writ of possession
directing the deputy sheriff to place said movant Juan Nuguid in possession of
subject property located at No. 79 Kamias Road, Quezon City, with all the
improvements thereon and to eject therefrom all occupants therein, their agents,
assignees, heirs and representatives.9
The petitioner then filed with the Court of Appeals a special civil action for
certiorari and prohibition assailing the order of 15 November 1993, which was
docketed as CA-G.R. SP No. 32679.10 In its decision of 7 June 1994, the Court of

Appeals affirmed in part the order of the trial court citing Article 448 of the Civil
Code. In disposing of the issues, it stated:
As earlier pointed out, private respondent opted to appropriate the improvement
introduced by petitioner on the subject lot, giving rise to the right of petitioner to be
reimbursed of the cost of constructing said apartment building, in accordance with
Article 546 of the . . . Civil Code, and of the right to retain the improvements until
he is reimbursed of the cost of the improvements, because, basically, the right to
retain the improvement while the corresponding indemnity is not paid implies the
tenancy or possession in fact of the land on which they are built . . . . [2
TOLENTINO, CIVIL CODE OF THE PHILIPPINES. (1992) p. 112]. With the
facts extant and the settled principle as guides, we agree with petitioner that
respondent judge erred in ordering that the movant having been declared as the
uncontested owner of the lot in
_______________
9 Rollo, 17-18.
WHEREFORE, while it appears that private respondents have not yet indemnified
petitioner with the cost of the improvements, since Annex I shows that the Deputy
Sheriff has enforced the Writ of Possession and the premises have been turned over
to the possession of private respondents, the quest of petitioner that he be restored in
possession of the premises is rendered moot and academic, although it is but fair and
just that private respondents pay petitioner the construction cost of P53,000.00; and
that petitioner be ordered to account for any and all fruits of the improvements
received by him starting on June 23, 1993, with the amount of P53,000.00 to be
offset therefrom.
IT IS SO ORDERED.11
Aggrieved by the Court of Appeals decision, the petitioner filed the instant petition.
The parties agree that the petitioner was a builder in good faith of the apartment
building on the theory that he constructed it at the time when he was still the owner
of the lot, and that the key issue in this case is the application of Articles 448 and
546 of the Civil Code.
10 Annex B of Petition; Id., 22-30.

413
The trial court and the Court of Appeals, as well as the parties, concerned
themselves with the application of Articles 448 and 546 of the Civil Code. These
articles read as follows:
VOL. 244, MAY 26, 1995

_______________
413
11 Rollo, 19-21.
414
question as per Entry of Judgment of the Supreme Court dated June 23, 1993, the
plaintiff should pay rent to the movant of no less than P21,000 per month from said
date as this is the very same amount paid monthly by the tenants occupying the lot.
414
We, however, agree with the finding of respondent judge that the amount of
P53,000.00 earlier admitted as the cost of constructing the apartment building can be
offset from the amount of rents collected by petitioner from June 23, 1993 up to
September 23, 1993 which was fixed at P7,000.00 per month for each of the three
doors. Our underlying reason is that during the period of retention, petitioner as such
possessor and receiving the fruits from the property, is obliged to account for such
fruits, so that the amount thereof may be deducted from the amount of indemnity to
be paid to him by the owner of the land, in line with Mendoza vs. De Guzman, 52
Phil. 164 . . . .
The Court of Appeals then ruled as follows:

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

the building or trees after proper indemnity. The parties shall agree upon the terms
of the lease and in case of disagreement, the court shall fix the terms thereof. (361a)
case may be. It does not apply to a case where a person constructs a building on his
own land, for then there can be no question as to good or bad faith on the part of the
builder.
***
ART. 546. Necessary expenses shall be refunded to every possessor; but only the
which the thing may have acquired by reason thereof. (453a)
By its clear language, Article 448 refers to a land whose ownership is claimed by
two or more parties, one of whom has built some works, or sown or planted
something. The building, sowing or planting may have been made in good faith or in
bad faith. The rule on good faith laid down in Article 526 of the Civil Code shall be
applied in determining whether a builder, sower or planter had acted in good faith.12
Article 448 does not apply to a case where the owner of the land is the builder,
sower, or planter who then later loses ownership of the land by sale or donation.
This Court said so in Coleongco vs. Regalado:13
Article 361 of the old Civil Code is not applicable in this case, for Regalado
constructed the house on his own land before he sold said land to Coleongco. Article
361 applies only in cases where a person constructs a building on the land of another
in good or in bad faith, as the
_______________
12 ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code
of the Philippines, vol. II, 1983 ed., 103.
Elsewise stated, where the true owner himself is the builder of works on his own
land, the issue of good faith or bad faith is entirely irrelevant.
Thus in strict point of law, Article 448 is not apposite to the case at bar.
Nevertheless, we believe that the provision therein on indemnity may be applied by
analogy considering that the primary intent of Article 448 is to avoid a state of
forced co-ownership and that the parties, including the two courts below, in the main
agree that Articles 448 and 546 of the Civil Code are applicable and indemnity for
the improvements may be paid although they differ as to the basis of the indemnity.
Article 546 does not specifically state how the value of the useful improvements
should be determined. The respondent court and the private respondents espouse the
belief that the cost of construction of the apartment building in 1965, and not its
current market value, is sufficient reimbursement for necessary and useful
improvements made by the petitioner. This position is, however, not in consonance
with previous rulings of this Court in similar cases. In Javier vs. Concepcion, Jr.,14
this Court pegged the value of the useful improvements consisting of various fruits,
bamboos, a house and camarin made of strong material based on the market value of
the said improvements. In Sarmiento vs. Agana,15 despite the finding that the useful
improvement, a residential house, was built in 1967 at a cost of between eight
thousand pesos (P8,000.00) to ten thousand pesos (P10,000.00), the landowner was
ordered to reimburse the builder in the amount of forty thousand pesos (P40,000.00),
the value of the house at the time of the trial. In the same way, the landowner was
required to pay the present value of the house, a useful improvement, in the case
of De Guzman vs. De la Fuente ,16 cited by the petitioner.
_______________
14 94 SCRA 212 [1979].
13 92 Phil. 387, 395 [1952]. See EDGARDO L. PARAS, Civil Code of the
Philippines Annotated, vol. Two, Eleventh ed. [1984], 192.
15 129 SCRA 122 [1984].
415
16 55 Phil. 501 [1930].
VOL. 244, MAY 26, 1995
416
416
415

417
The objective of Article 546 of the Civil Code is to administer justice between the
parties involved. In this regard, this Court had long ago stated in Rivera vs. Roman
Catholic Archbishop of Manila17 that the said provision was formulated in trying to
adjust the rights of the owner and possessor in good faith of a piece of land, to
administer complete justice to both of them in such a way as neither one nor the
other may enrich himself of that which does not belong to him. Guided by this
precept, it is therefore the current market value of the improvements which should
be made the basis of reimbursement. A contrary ruling would unjustly enrich the
private respondents who would otherwise be allowed to acquire a highly valued
income-yielding four-unit apartment building for a measly amount. Consequently,
the parties should therefore be allowed to adduce evidence on the present market
value of the apartment building upon which the trial court should base its finding as
to the amount of reimbursement to be paid by the landowner.
The trial court also erred in ordering the petitioner to pay monthly rentals equal to
the aggregate rentals paid by the lessees of the apartment building. Since the private
respondents have opted to appropriate the apartment building, the petitioner is thus
entitled to the possession and enjoyment of the apartment building, until he is paid
the proper indemnity, as well as of the portion of the lot where the building has been
constructed. This is so because the right to retain the improvements while the
corresponding indemnity is not paid implies the tenancy or possession in fact of the
land on which it is built, planted or sown.18 The petitioner not having been so paid,
he was entitled to retain ownership of the building and, necessarily, the income
therefrom.
SO ORDERED.
It follows, too, that the Court of Appeals erred not only in upholding the trial courts
determination of the indemnity, but also in ordering the petitioner to account for the
rentals of the apartment building from 23 June 1993 to 23 September 1993.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 32679 and
the Order of 15 November 1993 of the
_______________
Regional Trial Court, Branch 101, Quezon City in Civil Case No. Q-41470 are
hereby SET ASIDE.
The case is hereby remanded to the trial court for it to determine the current market
value of the apartment building on the lot. For this purpose, the parties shall be
allowed to adduce evidence on the current market value of the apartment building.
The value so determined shall be forthwith paid by the private respondents to the
petitioner otherwise the petitioner shall be restored to the possession of the
apartment building until payment of the required indemnity.
No costs.
Padilla (Chairman), Bellosillo and Kapunan, JJ., concur.

Quiason, J., On official leave.
Judgment set aside, case remanded to trial court for determination of current market
value of apartment building.
Notes.The best proof of ownership of a piece of land is the certificate of title.
(Heirs of George Bofill vs. Court of Appeals, 237 SCRA 451 [1994])
Possession is transferred to the vendee by virtue of the notarized deed of
conveyance. (Ong Ching Po vs. Court of Appeals, 239 SCRA 341 [1994])
o0o
418 Pecson vs. Court of Appeals, 244 SCRA 407, G.R. No. 115814 May 26, 1995
17 40 Phil. 717 [1920].

243
18 TOLENTINO, op. cit., 104.
Nuguid vs. Court of Appeals
417
VOL. 244, MAY 26, 1995

G.R. No. 151815. February 23, 2005.*
SPOUSES JUAN NUGUID AND ERLINDA T. NUGUID, petitioners, vs. HON.

COURT OF APPEALS AND PEDRO P. PECSON, respondents.

QUISUMBING, J.:
Civil Law; Property; A builder in good faith cannot be compelled to pay rentals
during the period of retention nor be disturbed in his possession by ordering him to
vacate; The owner of the land is prohibited from offsetting or compensating the
necessary and useful expenses with the fruits received by the builder-possessor in
good faith.While the law aims to concentrate in one person the ownership of the
land and the improvements thereon in view of the impracticability of creating a state
of forced co-ownership, it guards against unjust enrichment insofar as the good-faith
builders improvements are concerned. The right of retention is considered as one of
the measures devised by the law for the protection of builders in good faith. Its
object is to guarantee full and prompt reimbursement as it permits the actual
possessor to remain in possession while he has not been reimbursed (by the person
who defeated him in the case for possession of the property) for those necessary
expenses and useful improvements made by him on the thing possessed.
Accordingly, a builder in good faith cannot be compelled to pay rentals during the
period of retention nor be disturbed in his possession by ordering him to vacate. In
addition, as in this case, the owner of the land is prohibited from offsetting or
compensating the necessary and useful expenses with the fruits received by the
builder-possessor in good faith. Otherwise, the security provided by law would be
impaired. This is so because the right to the expenses and the right to the fruits both
pertain to the possessor, making compensation juridically impossible; and one
cannot be used to reduce the other.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
This is a petition for review on certiorari of the Decision1 dated May 21, 2001, of
the Court of Appeals in CA-G.R. CV No. 64295, which modified the Order dated
July 31, 1998 of the Regional Trial Court (RTC) of Quezon City, Branch 101 in
Civil Case No. Q-41470. The trial court ordered the defendants, among them
petitioner herein Juan Nuguid, to pay respondent herein Pedro P. Pecson, the sum of
P1,344,000 as reimbursement of unrealized income for the period beginning
November 22, 1993 to December 1997. The appellate court, however, reduced the
trial courts award in favor of Pecson from the said P1,344,000 to P280,000. Equally
assailed by the petitioners is the appellate courts Resolution2 dated January 10,
2002, denying the motion for reconsideration.
It may be recalled that relatedly in our Decision dated May 26, 1995, in G.R. No.
115814, entitled Pecson v. Court of Appeals, we set aside the decision of the Court
of Appeals in CA-G.R. SP No. 32679 and the Order dated November 15, 1993, of
the RTC of Quezon City, Branch 101 and remanded the case to the trial court for the
determination of the current market value of the four-door two-storey apartment
building on the 256-square meter commercial lot.
The antecedent facts in this case are as follows:
Pedro P. Pecson owned a commercial lot located at 27 Kamias Road, Quezon City,
on which he built a four-door two-storey apartment building. For failure to pay
realty taxes, the lot was sold at public auction by the City Treasurer of Quezon City
to Mamerto Nepomuceno, who in turn sold it for P103,000 to the spouses Juan and
Erlinda Nuguid.
Benjamin C. Reyes for petitioners.
_______________
Manuel T. Molina for respondent.
1 Rollo, pp. 6-17. Penned by Associate Justice Fermin A. Martin, Jr., with Associate
Justices Portia Alio-Hormachuelos, and Mercedes Gozo-Dadole concurring.
_______________
* FIRST DIVISION.
2 Id., at pp. 19-20. Penned by Associate Justice Mercedes Gozo-Dadole, with

Associate Justices Portia Alio-Hormachuelos, and Rebecca de Guia-Salvador
concurring.
244
245
244
245
246
246
Pecson challenged the validity of the auction sale before the RTC of Quezon City in
Civil Case No. Q-41470. In its Decision,3 dated February 8, 1989, the RTC upheld
the spouses title but declared that the four-door two-storey apartment building was
not included in the auction sale.4 This was affirmed in toto by the Court of Appeals
and thereafter by this Court, in its Decision5 dated May 25, 1993, in G.R. No.
105360 entitled Pecson v. Court of Appeals.
On June 23, 1993, by virtue of the Entry of Judgment of the aforesaid decision in
G.R. No. 105360, the Nuguids became the uncontested owners of the 256-square
meter commercial lot.
As a result, the Nuguid spouses moved for delivery of possession of the lot and the
apartment building.
In its Order6 of November 15, 1993, the trial court, relying upon Article 5467 of the
Civil Code, ruled that the Spouses Nuguid were to reimburse Pecson for his
construction cost of P53,000, following which, the spouses Nuguid were entitled to
immediate issuance of a writ of possession over the lot and improvements. In the
same order the RTC also directed Pecson to pay the same amount of monthly rentals
to the Nuguids as paid by the tenants occupying the apartment units or P21,000 per
month from June 23, 1993, and allowed the offset of the amount of P53,000 due
from the Nuguids against the amount

of rents collected by Pecson from June 23, 1993 to September 23, 1993 from the
tenants of the apartment.8
Pecson duly moved for reconsideration, but on November 8, 1993, the RTC issued a
Writ of Possession,9 directing the deputy sheriff to put the spouses Nuguid in
possession of the subject property with all the improvements thereon and to eject all
the occupants therein.
Aggrieved, Pecson then filed a special civil action for certiorari and prohibition
docketed as CA-G.R. SP No. 32679 with the Court of Appeals.
In its decision of June 7, 1994, the appellate court, relying upon Article 44810 of the
Civil Code, affirmed the order of payment of construction costs but rendered the
issue of possession moot on appeal, thus:
4 Ibid.
WHEREFORE, while it appears that private respondents [spouses Nuguid] have

not yet indemnified petitioner [Pecson] with the cost of the improvements, since
Annex I shows that the Deputy Sheriff has enforced the Writ of Possession and the
premises have been turned over to the possession of private respondents, the quest of
petitioner that he be restored in possession of the premises is rendered moot and
academic, although it is but fair and just that private respondents pay petitioner the
construction cost of P53,000.00; and that petitioner be ordered to account for any
and all fruits of the
5 222 SCRA 580-586.
_______________
6 Records, Vol. 2, pp. 578-580.
8 Records, Vol. 2, p. 580.
7 Art. 546. Necessary expenses shall be refunded to every possessor; but only the
9 Id., at p. 587.
_______________
3 Records, Vol. 1, pp. 501-510.
which the thing may have acquired by reason thereof.
10 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.
not only in upholding the trial courts determination of the indemnity, but also in
ordering Pecson to account
_______________
247
12 Pecson v. Court of Appeals, G.R. No. 115814, 26 May 1995, 244 SCRA 407,
416-417.
248
247
248
improvements received by him starting on June 23, 1993, with the amount of
P53,000.00 to be offset therefrom. IT IS SO ORDERED.11 [Italics supplied.]

Frustrated by this turn of events, Pecson filed a petition for review docketed as G.R.
No. 115814 before this Court.
On May 26, 1995, the Court handed down the decision in G.R. No 115814, to wit:
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 32679 and
the Order of 15 November 1993 of the Regional Trial Court, Branch 101, Quezon
City in Civil Case No. Q-41470 are hereby SET ASIDE.
The case is hereby remanded to the trial court for it to determine the current market
value of the apartment building on the lot. For this purpose, the parties shall be
allowed to adduce evidence on the current market value of the apartment building.
The value so determined shall be forthwith paid by the private respondents [Spouses
Juan and Erlinda Nuguid] to the petitioner [Pedro Pecson] otherwise the petitioner
shall be restored to the possession of the apartment building until payment of the
required indemnity.
No costs.
for the rentals of the apartment building from June 23, 1993 to September 23, 1993.
On the basis of this Courts decision in G.R. No. 115814, Pecson filed a Motion to
Restore Possession and a Motion to Render Accounting, praying respectively for
restoration of his possession over the subject 256-square meter commercial lot and
for the spouses Nuguid to be directed to render an accounting under oath, of the
income derived from the subject four-door apartment from November 22, 1993 until
possession of the same was restored to him.
In an Order13 dated January 26, 1996, the RTC denied the Motion to Restore
Possession to the plaintiff averring that the current market value of the building
should first be determined. Pending the said determination, the resolution of the
Motion for Accounting was likewise held in abeyance.
With the submission of the parties assessment and the reports of the subject realty,
and the reports of the Quezon City Assessor, as well as the members of the duly
constituted assessment committee, the trial court issued the following Order14 dated
October 7, 1997, to wit:
SO ORDERED.12 [Emphasis supplied.]

In so ruling, this Court pointed out that: (1) Article 448 of the Civil Code is not
apposite to the case at bar where the owner of the land is the builder, sower, or
planter who then later lost ownership of the land by sale, but may, however, be
applied by analogy; (2) the current market value of the improvements should be
made as the basis of reimbursement; (3) Pecson was entitled to retain ownership of
the building and, necessarily, the income therefrom; (4) the Court of Appeals erred
On November 21, 1996, the parties manifested that they have arrived at a
compromise agreement that the value of the said improvement/building is
P400,000.00 The Court notes that the plaintiff has already received P300,000.00.
However, when defendant was ready to pay the balance of P100,000.00, the plaintiff
now insists that there should be a rental to be paid by defendants. Whether or not
this should be paid by defendants, incident is hereby scheduled for hearing on
November 12, 1997 at 8:30 a.m.
Meantime, defendants are directed to pay plaintiff the balance of P100,000.00.

SO ORDERED.15
time he was dispossessed, up to the time of said full payment, in December 1997, or
a total of 48 months.
14 Id., at p. 824.
The only question left is the determination of income of the four units of apartments
per month. But as correctly pointed out by plaintiff, the defendants have themselves
submitted their affidavits attesting that the income derived from three of the four
units of the apartment building is P21,000.00 or P7,000.00 each per month, or
P28,000.00 per month for the whole four units. Hence, at P28,000.00 per month,
multiplied by 48 months, plaintiff is entitled to be paid by defendants the amount of
P1,344,000.00.17
15 Ibid.
_______________
249
16 Id., at pp. 832-833.
17 Rollo, pp. 74-75; CA Rollo, pp. 25-26; Records, Vol. 2, pp. 836-837.
_______________
13 Records, Vol. 2, pp. 706-707.
250
249
250
On December 1997, after paying the said P100,000 balance to Pedro Pecson the
spouses Nuguid prayed for the closure and termination of the case, as well as the
cancellation of the notice of lis pendens on the title of the property on the ground
that Pedro Pecsons claim for rentals was devoid of factual and legal bases.16
After conducting a hearing, the lower court issued an Order dated July 31, 1998,
directing the spouses to pay the sum of P1,344,000 as reimbursement of the
unrealized income of Pecson for the period beginning November 22, 1993 up to
December 1997. The sum was based on the computation of P28,000/month rentals
of the four-door apartment, thus:
The Court finds plaintiffs motion valid and meritorious. The decision of the
Supreme Court in the aforesaid case [Pecson vs. Court of Appeals, 244 SCRA 407]
which set aside the Order of this Court of November 15, 1993 has in effect upheld
plaintiffs right of possession of the building for as long as he is not fully paid the
value thereof. It follows, as declared by the Supreme Court in said decision that the
plaintiff is entitled to the income derived therefrom, thus
...
Records show that the plaintiff was dispossessed of the premises on November 22,
1993 and that he was fully paid the value of his building in December 1997.
Therefore, he is entitled to the income thereof beginning on November 22, 1993, the

The Nuguid spouses filed a motion for reconsideration but this was denied for lack
of merit.18
The Nuguid couple then appealed the trial courts ruling to the Court of Appeals,
their action docketed as CA-G.R. CV No. 64295.
In the Court of Appeals, the order appealed from in CA-G.R. CV No. 64295, was
modified. The CA reduced the rentals from P1,344,000 to P280,000 in favor of the
appellee.19 The said amount represents accrued rentals from the determination of
the current market value on January 31, 199720 until its full payment on December
12, 1997.
Hence, petitioners state the sole assignment of error now before us as follows:
THE COURT OF APPEALS ERRED IN HOLDING PETITIONERS LIABLE TO
PAY RENT OVER AND ABOVE THE CURRENT MARKET VALUE OF THE
IMPROVEMENT WHEN SUCH WAS NOT PROVIDED FOR IN THE
DISPOSITIVE PORTION OF THE SUPREME COURTS RULING IN G.R. No.
115814.
Petitioners call our attention to the fact that after reaching an agreed price of
P400,000 for the improvements, they only made a partial payment of P300,000.
Thus, they contend that their failure to pay the full price for the improvements will,
at most, entitle respondent to be restored to possession, but not to collect any rentals.
Petitioners insist that this is the proper interpretation of the dispositive portion of the
decision in G.R. No. 115814, which states in part that [t]he value so determined
shall be forthwith paid by the private respondents [Spouses Juan and Erlinda
Nuguid] to the petitioner [Pedro Pecson] otherwise the petitioner shall be restored to
the possession of the apartment building until payment of the required
indemnity.21
_______________
court for modifying the order of the RTC, thus defeating his right as a builder in
good faith entitled to rental from the period of his dispossession to full payment of
the price of his improvements, which spans from November 22, 1993 to December
1997, or a period of more than four years.
It is not disputed that the construction of the four-door two-storey apartment, subject
of this dispute, was undertaken at the time when Pecson was still the owner of the
lot. When the Nuguids became the uncontested owner of the lot on June 23, 1993,
by virtue of entry of judgment of the Courts decision, dated May 25, 1993, in G.R.
No. 105360, the apartment building was already in existence and occupied by
tenants. In its decision dated May 26, 1995 in G.R. No. 115814, the Court declared
the rights and obligations of the litigants in accordance with Articles 448 and 546 of
the Civil Code. These provisions of the Code are directly applicable to the instant
case.

_______________
19 Rollo, p. 44.
22 Supra, note 12 at p. 416.
252
21 Rollo, p. 37.
252
251

251
Now herein respondent, Pecson, disagrees with herein petitioners contention. He
argues that petitioners are wrong in claiming that inasmuch as his claim for rentals
was not determined in the dispositive portion of the decision in G.R. No. 115814, it
could not be the subject of execution. He points out that in moving for an
accounting, all he asked was that the value of the fruits of the property during the
period he was dispossessed be accounted for, since this Court explicitly recognized
in G.R. No. 115814, he was entitled to the property. He points out that this Court
ruled that [t]he petitioner [Pecson] not having been so paid, he was entitled to
retain ownership of the building and, necessarily, the income therefrom.22 In other
words, says respondent, accounting was necessary. For accordingly, he was entitled
to rental income from the property. This should be given effect. The Court could
have very well specifically included rent (as fruit or income of the property), but
could not have done so at the time the Court pronounced judgment because its value
had yet to be determined, according to him. Additionally, he faults the appellate
Under Article 448, the landowner is given the option, either to appropriate the
improvement as his own upon payment of the proper amount of indemnity or to sell
the land to the possessor in good faith. Relatedly, Article 546 provides that a builder
in good faith is entitled to full reimbursement for all the necessary and useful
expenses incurred; it also gives him right of retention until full reimbursement is
made.
While the law aims to concentrate in one person the ownership of the land and the
improvements thereon in view of the impracticability of creating a state of forced
co-ownership,23 it guards against unjust enrichment insofar as the good-faith
builders improvements are concerned. The right of retention is considered as one of
the measures devised by the law for the protection of builders in good faith. Its
object is to guarantee full and prompt reimbursement as it permits the actual
possessor to remain in possession while he has not been reimbursed (by the person
who defeated him in the case for possession of the property) for those necessary
expenses and useful improvements made by him on the thing possessed.24
Accordingly, a builder in good faith cannot be compelled to pay rentals during the

period of retention25 nor be disturbed in his possession by ordering him to vacate.
In addition, as in this case, the owner of the land is prohibited from offsetting or
compensating the necessary and useful expenses with the fruits received by the
builder-possessor in good faith. Otherwise, the security provided by law would be
impaired. This is so because the right to the expenses and the right to the fruits both
pertain to the possessor, making compensation juridically impossible; and one
cannot be used to reduce the other.26
_______________
23 2 EDGARDO L. PARAS, CIVIL CODE OF THE PHILIPPINES ANNOTATED
205 (1999 ed.) citing 3 Manresa 213 (4th Ed).
Petitioners interpretation of our holding in G.R. No. 115814 has neither factual nor
legal basis. The decision of May 26, 1995, should be construed in connection with
the legal principles which form the basis of the decision, guided by the precept that
judgments are to have a reasonable intendment to do justice and avoid wrong.27
The text of the decision in G.R. No. 115814 expressly exempted Pecson from
liability to pay rentals, for we found that the Court of Appeals erred not only in
upholding the trial courts determination of the indemnity, but also in ordering him
to account for the rentals of the apartment building from June 23, 1993 to September
23, 1993, the period from entry of judgment until Pecsons dispossession. As
pointed out by Pecson, the dispositive portion of our decision in G.R. No. 115814
need not specifically include the income derived from the improvement in order to
entitle him, as a builder in good
24 Ortiz v. Kayanan, No. L-32974, 30 July 1979, 92 SCRA 146, 159.

_______________
25 San Diego v. Hon. Montesa, No. L-17985, 29 September 1962, 116 Phil. 512,
515; 6 SCRA 208, 210.
26 2 ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE
ON THE CIVIL CODE OF THE PHILIPPINES 261 (1983 ed.) citing 4 Manresa
290.
27 See Republic of the Philippines v. Hon. De Los Angeles, G.R. No. L-26112, 4
October 1971, 148-B Phil. 902, 924; 41 SCRA 422, 443.
254
254
253

253
As we earlier held, since petitioners opted to appropriate the improvement for
themselves as early as June 1993, when they applied for a writ of execution despite
knowledge that the auction sale did not include the apartment building, they could
not benefit from the lots improvement, until they reimbursed the improver in full,
based on the current market value of the property.
Despite the Courts recognition of Pecsons right of ownership over the apartment
building, the petitioners still insisted on dispossessing Pecson by filing for a Writ of
Possession to cover both the lot and the building. Clearly, this resulted in a violation
of respondents right of retention. Worse, petitioners took advantage of the situation
to benefit from the highly valued, income-yielding, four-unit apartment building by
collecting rentals thereon, before they paid for the cost of the apartment building. It
was only four years later that they finally paid its full value to the respondent.
faith, to such income. The right of retention, which entitles the builder in good faith
to the possession as well as the income derived therefrom, is already provided for
under Article 546 of the Civil Code.
Given the circumstances of the instant case where the builder in good faith has been
clearly denied his right of retention for almost half a decade, we find that the
increased award of rentals by the RTC was reasonable and equitable. The petitioners
had reaped all the benefits from the improvement introduced by the respondent
during said period, without paying any amount to the latter as reimbursement for his
construction costs and expenses. They should account and pay for such benefits.
We need not belabor now the appellate courts recognition of herein respondents
entitlement to rentals from the date of the determination of the current market value
until its full payment. Respondent is clearly entitled to payment by virtue of his right
of retention over the said improvement.

WHEREFORE, the instant petition is DENIED for lack of merit. The Decision dated
May 21, 2001 of the Court of Appeals in CA-G.R. CV No. 64295 is SET ASIDE
and the Order dated July 31, 1998, of the Regional Trial Court, Branch 101, Quezon
City, in Civil Case No. Q-41470 ordering the herein petitioners, Spouses Juan and
Erlinda Nuguid, to account for the rental income of the four-door two-storey
apartment building from November 1993 until December 1997, in the amount of
P1,344,000, computed on the basis of Twenty-eight Thousand (P28,000.00) pesos
monthly, for a period of 48 months, is hereby REINSTATED. Until fully paid, said
amount of rentals should bear the legal rate of interest set at six percent (6%) per
annum computed from the date of RTC judgment. If any portion thereof shall
thereafter remain unpaid, despite notice of finality of this Courts judgment, said
remaining unpaid amount shall bear the rate of interest set at twelve percent (12%)
per annum computed from the date of said notice. Costs against petitioners.
255
255
Macasaet vs. People
SO ORDERED.
Davide, Jr. (C.J., Chairman), Ynares-Santiago, Carpio and Azcuna, JJ., concur.
Petition denied, judgment set aside.
Note.A lessee is undoubtedly a builder in bad faith if despite the absence of
perfected contract of lease and in utter disregard of the lessors numerous protests,
he continued his construction activities upon the latters land. (Bugatti vs. Court of
Appeals, 343 SCRA 335 [2000])
o0o Nuguid vs. Court of Appeals, 452 SCRA 243, G.R. No. 151815
February 23, 2005
VOL. 54, DECEMBER 18, 1978
243
Vda. de Bacaling vs. Laguna

No. L-26694. December 18, 1973.*
NELITA MORENA VDA. DE BACALING, petitioner, vs. HECTOR
LAGUNA, HON. VALERION ROVIRA, Judge, Court of First Instance and
HON. JUDGE ROSENDA BALTAZAR, Judge, City Court of Iloilo,
respondents.
Settlement of estate; Contracts entered into by administrator binding upon his
successor.It is elementary that the effect of revocation of letters testamentary or of
administration is to terminate the authority of the executor or administrator, but the
acts of the executor or administrator, done in good faith prior to the revocation of the
letters, will be protected, and a similar protection will be extended to rights acquired
under a previous grant of administration.
Leases; Lessees are not possessors in good faith and are not entitled as of right to
reimbursement of expenses to transfer house to another place.The rule is wellsettled that lessees, like petitioner, are not possessors in good faith, because they
knew that their occupancy of the premises continues only during the life of the lease,
and they cannot as a matter of right, recover the value of their improvements from
the lessor, much less retain the premises until they are reimbursed. Their rights are
governed by article 1678 of the Civil Code which allows reimbursement of lessees
up to one-half of the value of their improvements if the lessor so elects.

to justify the issuance of a writ of certiorari. For that purpose the abuse of discretion
must be grave and patent, and it must be shown that it was exercised arbitrarily or
despotically, which is not the case made out by the present petition.
Dilatory tactics; Dilatory tactics of parties subject to courts condemnation.The
present petition smacks of a dilatory tactic and a frivolous attempt resorted to by
petitioner to frustrate the prompt termination of the ejectment case and to prolong
litigation unnecessarily. Such conduct deserves the vigorous condemnation of this
Court.
ORIGINAL PETITION in the Supreme Court. Certiorari with preliminary
injunction.
Nicanor D. Sorongon for petitioner.
Apeles L. Padilla for respondents.
Due process; No denial of due process where guardian ad litem of minor children
duly notified of issuance of demolition order.There is evidence to show that
Acting Fiscal Alfonso Ihemberger, guardian, ad litem of the minor children of the
late Ramon Bacaling, has been duly apprised of the issuance of the assailed special
order to demolish, as shown by the certification of the counsel for petitioner at the
foot of his opposition filed with the CFI of Iloilo and as also shown by the
certification of private respondents counsel at the foot of his opposition likewise
filed with the same Court.
Certiorari; Meaning of grave abuse of discretion.Grave abuse of discretion
means such capricious and arbitrary exercise of judgment as is equivalent, in the
eyes of the law, to lack of jurisdiction. Even mere abuse of discretion is not
sufficient by itself
ESGUERRA, J.:
I. Nature of the Case
The petitioner seeks a writ of certiorari with preliminary injunction to annul an
Order of Hon. Rosendo Baltazar, as Judge of the City Court of Iloilo, dated June 30,
1966, ordering the demolition of the residential house of petitioner.1 Assailed
likewise is an Order, dated August 25, 1966, of Hon. Valerio V. Rovira, as Judge of
the Court of First Instance of Iloilo, stationed at Iloilo City, approving said
demolition.2
II. Facts of the Case
The record of this case discloses the following facts:
_______________
_______________
* FIRST DIVISION.
1 Record, p. 14.
244
2 Id., pp. 26-27.
244
245

9 Record, p. 55; 66.
245
246
246
Private respondent Hector Laguna is the registered owner of a residential land

known as lot No. 3508 situated at La Paz, Iloilo City.3 Many years back, petitioner
and her late husband, Dr. Ramon Bacaling, with the acquiescence of private
respondent Laguna, constructed a residential house on a portion of said lot fronting
Huevana Street, paying a monthly rental of P80.00.4 Unable to pay the lease rental
from July 1959 to September 1961, totalling P2,160.00, an action for ejectment
(Civil Case No. 6823) was filed by private respondent Laguna against petitioner in
her capacity as judicial administratrix of the estate of her late husband, Dr. Bacaling,
in the City Court of Iloilo City.5 The filing of said case spawned various court suits.
Petitioner on July 23, 1962, filed certiorari proceedings in this. Court (G.R. No. L20061) but was dismissed for lack of merit on August 3, 1962.6 With this setback,
petitioner on November 12, 1962, filed with the Court of First Instance of Iloilo a
petition for certiorari with preliminary injunction (Civil Case No. 6162) but the
same was dismissed on December 1, 1962.7 Unsuccessful in her motion for
reconsideration, petitioner went to the Court of Appeals by way of certiorari (CAG.R. No. 31882-R) but her petition was dismissed by that Court on March 7, 1967.8
Suffering from these series of legal reverses, the petitioner entered into a
compromise agreement on July 29, 1964, with private respondent Laguna relative to
Civil Case No. 6823.9 Said agreement inter alia, provides as follows:
1. Defendant (petitioner herein) agreed to vacate the premises and remove x x x
the residential house therefrom x x x before December 31, 1966;
_______________
3 Id., p. 15.
4 Record, p. 15.
5 Id., p. 73.
6 Id., pp. 54-55.

2. For the use and occupation x x x of the said premises x x x from June 1964 to
December 31, 1969, the said defendant will pay plaintiff a monthly rent x x x of
Eighty (P80.00) Pesos per calendar month. x x x;
3. Upon failure of defendant to comply with any x x x provision of the amicable
settlement within x x x fifty (50) days x x x the plaintiff shall be entitled to
immediate execution to restore plaintiff in possession of the premises and to
recover all the unpaid monthly rents from June 1, 1964 until said premises are
vacated by defendant;
4. Defendant waive her right, under Sec. 6, Rule 39, Rules of Court, to bar
enforcement of the execution of the judgment in the case at anytime within one (1)
year from December 31, 1969.
In a decision dated July 30, 1964, the City Court of Iloilo City approved the
amicable settlement and enjoined the parties to comply with its terms. For failure of
the petitioner to satisfy the conditions of the settlement within the 50-day period,
private respondent Laguna moved for execution which the Court granted on July 7,
1965.10 On July 14, 1965, petitioner moved for reconsideration to
quash the writ of execution, but before the Court could resolve the motion, petitioner
on July 19, 1965, served notice of her intention to take the case to the Court of
Appeals.11 Meanwhile on July 23, 1965, respondent Laguna filed an opposition to
the petitioners July 14, 1965, motion, alleging that as judicial administratrix as of
July 29, 1964, she was legally authorized to enter into the amicable settlement which
was the basis of the decision dated July 30, 1964, of the City Court of Iloilo sought
to be executed and, therefore, her act was binding upon the present judicial
administrator, Atty. Roberto Dineros, who replaced petitioner upon her discharge as
such on November 28, 1964.12
Denying the petitioners motion for reconsideration and to quash writ of execution
on September 30, 1965, the City Court
7 Id., pp. 55; 76.

_______________
8 Id., p. 55; 78-80.

10 Id., pp. 81-83; 84.
13 Id., pp. 56-57.
11 Record, p. 56; 85-87.
14 Record, p. 57:91.
12 Id., p. 56; 88-89.
15 Id., p. 58:101:102-106.
247
16 Id., p. 59; 72.
17 Id., p. 2; 14.
247
18 Record, p. 3; 19.
248
however, held in abeyance the enforcement of the alias writ of execution until the
Court of First Instance of Iloilo stamped its imprimatur, considering the pendency of
Special Proceedings No. 1469 and of the fact that the properties involved therein are
in custodia legis.13 Thereafter, on October 25, 1965, private respondent Laguna
moved the Court of First Instance of Iloilo in Special Proceedings No. 1469 for the
approval of the City Courts order of execution which was granted despite
petitioners opposition.14 With the denial of petitioners motion for reconsideration
on December 4, 1965, a petition for certiorari with preliminary injunction was
brought before the Court of Appeals (CA-G.R. No. 36939-R) which dismissed the
same on January 18, 1966.15
248
On April 14, 1966, the respondent City Judge of Iloilo City issued an alias writ of
execution upon representations of private respondent Laguna, copies of which were
served by the sheriff upon the petitioner and Atty. Roberto Dineros in his capacity as
judicial administrator of the estate of the deceased, Dr. Ramon Bacaling, in Special
Proceedings No. 1469.16
On June 30, 1966, a Special Order of Demolition was issued by the respondent City
Judge upon motion of private respondent Laguna and over petitioners opposition,
subject, however, to the approval of the Court of First Instance of Iloilo in Special
Proceedings No. 1469.17 Upon the denial of petitioners motion for reconsideration,
respondent Laguna on July 12, 1966, filed a manifestation in the Court of First
Instance of Iloilo in Special Proceedings No. 1469, praying for the confirmation of
the Order to demolish the house under custodia legis.18
On August 4, 1966, petitioner interposed an opposition alleging:
1. That she was no longer in control of the estate funds when the
_______________

stipulated obligations in the amicable settlement became due and payable;
2. That the residential house to be demolished is worth P35,000.00 for which she
is entitled to reimbursement as a builder in good faith, in addition to reasonable
expenses they may incur in transferring the same to another place; and
3. That the guardian ad litem of the minor children was not notified of the motion
for the issuance of an order of demolition;19
On August 25, 1966, respondent Laguna by way of reply disputed petitioners claim
and supported the legality of the courts ruling.20 On the same date, the probate
court in Special Proceedings No. 1469 approved the order of demolition of the house
in controversy.21 Impugning the said Order as violative of the provisions of Sec. 14,
Rule 39, of the Rules of Court, and of the constitutional mandate on due process,
petitioner moved to reconsider the same but the motion was denied by the Court on
September 26, 1966.22 Frustrated in her effort to set aside the Order of Demolition,
petitioner brought this present action of certiorari with preliminary injunction. Upon
giving due course to the petition, this Court issued a temporary restraining order on
October 21, 1966, to prevent the enforcement of the order of demolition in Special
Proceedings No. 1469 of the Court of First Instance of Iloilo, but when served upon
the respondents, the building in question was already partially demolished.23 Upon
petitioners posting a bond of P1,000.00, this Court on November 10, 1966, issued a
writ of preliminary injunction restraining the herein respondents from proceeding
with the order of demolition, until further orders.24
III Issues of the Case
20 Id., p. 5; 22-25.
before her removal shall have the same validity as if there was no such revocation or
removal. It is elementary that the effect of revocation of letters testamentary or of
administration is to terminate the authority of the executor or administrator, but the
acts of the executor or administrator, done in good faith prior to the revocation of the
letters, will be protected, and a similar protection will be extended to rights acquired
under a previous grant of administration.25
21 Id., p. 5; 26-29.
_______________
22 Record, p. 6; 37.
25 Rebhan v. Mueller, 114 Ill. 343, 2 N.E. 75, 55 Am. Rep. 869, cited in 21 Am. Jur.
465; Francisco, Revised Rules of Court, Vol. V-5, p. 91.
_______________
19 Id., p. 4; 22-23.
23 Id., pp. 41-42.

250
24 Id., pp. 43-44.
250
249

249
The issues raised in the instant petition boil down to the following:
1. Whether or not the acts of the petitioner as judicial administratrix prior to her
discharge or removal are valid and binding upon her successor;
2. Whether or not petitioner is a builder in good faith and, therefore, entitled to
reimbursement, and/or reasonable expenses that may be incurred in transferring the
house to another place;
3. Whether or not due process was denied to the minor children of deceased
Ramon Bacaling, and petitioner in connection with the motion for the issuance of
the order of demolition.
In connection with the petitioners contention that she be considered a builder in

good faith and, therefore, entitled to reimbursement in addition to reasonable
expenses that may be incurred in transferring the house to another place, the same
cannot stand legal scrutiny. The rule is well-settled that lessees, like petitioner, are
not possessors in good faith, because they knew that their occupancy of the premises
continues only during the life of the lease, and they cannot as a matter of right,
recover the value of their improvements from the lessor, much less retain the
premises until they are reimbursed. Their rights are governed by Article 1678 of the
Civil Code which allows reimbursement of lessees up to one-half of the value of
their improvements if the lessor so elects.26
It is next urged by petitioner that there was denial of due process for failure of
private respondent to notify the guardian ad litem of the minor children of the
deceased, Ramon Bacaling, of the motion for execution.
IV. Discussion
Petitioner claims before this Court that since she was no longer the judicial
administratrix of the estate of her late husband, Dr. Ramon Bacaling, and was no
longer in control of estate funds when the stipulated obligations in the amicable
settlement became due and payable, the special order of demolition could not be
enforced.
Such a view is not tenable. Under Section 3, Rule 82 of the Rules of Court,
petitioners lawful acts before the revocation of her letters of administration or
A perusal of the pleadings yields the conclusion that petitioner failed to meet the
burden of demonstrating that there was denial of due process. On the contrary, there
is evidence to show that Acting Fiscal Alfonso Illemberger, guardian ad litem of the
minor children of the late Ramon Bacaling, has been duly apprised of the issuance
of the assailed special order to demolish, as shown by the certification of the counsel
for petitioner at the foot of his opposition dated August 4, 1966,27 filed with the
Court of First Instance of Iloilo, and as also shown by the certification of private
respondents counsel at the foot of his opposition dated September 15, 1966,28
likewise filed with the same Court.

V. Conclusion
_______________
The petitioner is not entitled to the writ of certiorari. In the
_______________
26 Racaza v. Susana Realty, Inc., 18 SCRA 1172, 1177-1178, citing Lopez. Inc. v.
Phil. & Eastern Trading Co., 98 Phil. 348.
29 Abad Santos v. Prov. of Tarlac, 67 Phil. 480; Hamog v. Sec. of Agriculture, G.R.
No. L-13456, Jan. 30, 1960.
30 Tavera Luna, Inc. v. Nable, 72 Phil. 278; Palma & Ignacio v. Q & S Inc., et al.,
17 SCRA 97, at p. 100. To the same effect: Villa-Rey Transit, Inc. v. Bello, 7 SCRA
735; Abig v. Constantino, 2 SCRA 299.
27 Record, pp. 22-27.

31 Record, p. 54.
28 Id., pp. 69-71.
32 Id., p. 55; 58.
251
33 Id., p. 55.
34 Id., pp. 54-55.
251
case at bar, there is absolutely no showing that the respondent courts acted so
arbitrarily, despotically or capriciously as to amount to lack of jurisdiction in
issuing the questioned orders.
Grave abuse of discretion which is a ground for certiorari means such capricious
and arbitrary exercise of judgment as is equivalent, in the eyes of the law, to lack of
jurisdiction.29 Even mere abuse of discretion is not sufficient by itself to justify the
issuance of a writ of certiorari. For that purpose the abuse of discretion must be
grave and patent, and it must be shown that it was exercised arbitrarily or
despotically, which is not the case made out by the present petition.30
There is something more to be said about the nature and apparent purpose of this
case which has its genesis in the case for illegal detainer (Civil Case No. 6823)
brought before the Iloilo City Court. What transpired therein presents a glaring
example of a summary proceeding which was deliberately protracted and made to
suffer undue delay in its disposal. It was originally filed on September 13, 1960;31 it
reached the appellate courts five (5) times, twice before the Court of Appeals32,
Once before the Court of First Instance of Iloilo33, and twice before this Court.34
The present petition smacks of a dilatory tactic and a frivolous attempt resorted to by
petitioner to frustrate the prompt termination of the ejectment case and to prolong
litigation unnecessarily. Such conduct on the part of petitioner and her counsel
deserves the vigorous condemnation of this Court,35 because it evinces a flagrant
misuse of the
35 Uypuanco v. Equitable Bank, 27 SCRA 1272; J.P. Juan & Sons, Inc. v. Lianga
Industries, Inc., 28 SCRA 807; Pajares v. Abad Santos, 30 SCRA 748; Orbe v.
Inting, 37 SCRA 584.
252
252
remedy of certiorari which should only be resorted to in cases of lack of jurisdiction
or grave abuse of discretion by an inferior court. A recourse of this kind unduly
taxes the energy and patience of courts and simply wastes the precious time that they
could well devote to really meritorious cases.
VI. Judgment
IN THE LIGHT OF THE FOREGOING CONSIDERATIONS, the instant petition
should be, as it is hereby, dismissed. The writ of preliminary injunction issued by
this Court on November 10, 1966, is immediately set aside. 36
Treble costs against the petitioner for the reasons above set forth. 37
Makalintal, C.J., Castro, Teehankee, Makasiar and Muoz Palma, JJ., concur.

Petition dismissed.
Notes.The right of the lessee with respect to improvements made on the property
by him is governed by the provisions of articles 579 and 1678 of the Civil Code.
Under article 579 the lessee is entitled to remove the improvements made by him so
far-as it is possible to do so without injury to the property. This means that he may
remove the improvements provided he leaves the property in substantially the same
condition as when he entered upon it, Articles 448 and 546 of the Civil Code, which
define the rights between the owner of a piece of land and builders of improvements
thereon in good faith, are not applicable as between landlord and tenant, since the
Code supplies specific provisions designed to cover their rights. Besides, the tenant
cannot be said to be a
_______________
36 Record, p. 43.
37 Atlas Consolidated Mining & Dev. Corp. v. WCC, 33 SCRA 132.
253
253
Paulo vs. Court of Appeals
builder in good faith as he has no pretension to be an owner. (Rivera vs. Trinidad, 48

Phil. 396; Fojas vs. Velasco, 51 Phil. 520; Lopez, Inc. vs. Phil. & Eastern Trading
Co., Inc., 98 Phil. 348).
o0o Vda. de Bacaling vs. Laguna, 54 SCRA 243, No. L-26694 December
18, 1973

No. L-57348. May 16, 1985.*
FRANCISCO DEPRA, plaintiff-appellee, vs. AGUSTIN DUMLAO, defendantappellant.
Leases; Ejectment; The judgment of a Municipal Court in ejectment cases is
effective in respect of possession only. It has no authority to impose a forced
lease.Addressing ourselves to the issue of validity of the Decision of the
Municipal Court, we hold the same to be null and void. The judgment in a detainer
case is effective in respect of possession only (Sec. 7, Rule 70, Rules of Court). The
Municipal Court overstepped its bounds when it imposed upon the parties a situation
of forced lease, which like forced co-ownership is not favored in law,
Furthermore, a lease is an interest in real property, jurisdiction over which belongs
to Courts of First Instance (now Regional Trial Courts) (Sec. 44(b), Judiciary Act of
1948; Sec. 19 (2) Batas Pambansa Blg. 129). Since the Municipal Court, acted
without jurisdiction, its Decision was null and void and cannot operate as res
judicata to the subject complaint for Quieting of Title.
Same; Same; Judgments; Res judicata does not apply where previous case is an
ejectment case and subsequent case is a petition for quieting 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.
Same; Property; Owner of land on which improvement was built by another in good
faith is entitled to removal of improvement only after landowner has opted to sell the
land and the builder refused to pay for the same.However, the good faith of
DUMLAO is part of the Stipulation of Facts in the Court of First Instance. It was
thus er ror 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,
_______________
*
FIRST DIVISION.
476
476

Depra vs. Dumlao
DUMLAO fails to pay for the same. In this case, DUMLAO had expressed his
willingness to pay for the land, but DEPRA refused to sell.
Same; Same; Where the lands value is considerably more than the improvement,
the landowner cannot compel the builder to buy the land. In such event, a forced
lease is created and the court shall fix the terms thereof in case the parties
disagree thereon.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 DEPRAs 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 latters 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.
APPEAL from the order of the Court of First Instance of Iloilo.
The facts are stated in the opinion of the Court
Roberto D. Dineros for plaintiff-appellee.
Neil D. Hechanova for defendant-appellant.

477
478

Depra vs. Dumlao
VOL. 136, MAY 16, 1985

Depra vs. Dumlao
477
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. T-3087, known as Lot No. 685, situated in the
municipality of Dumangas, Iloilo, with an area of approximately 8,870 square
meters. Agustin Dumlao, defendant-appellant, owns an adjoining lot, designated as
Lot No. 683, with an approximate area of 231 sq. ms.
Sometime in 1972, when DUMLAO constructed his house on his lot, the kitchen
thereof had encroached on an area of thirty four (34) square meters of DEPRAs
property, After the encroachment was discovered in a relocation survey of DEPRAs
lot made on November 2, 1972, his mother, Beatriz Derla, after writing a demand
letter asking DUMLAO to move back from his encroachment, filed an action for
Unlawful Detainer on February 6, 1973 against DUMLAO in the Municipal Court
of of Dumangas, docketed as Civil Case No. I. Said complaint was later amended to
include DEPRA as a party plaintiff.
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.
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:
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.
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.
Addressing ourselves to the issue of validity of the Decision of the Municipal Court,
we hold the same to be null and void. The judgment in a detainer case is effective in
respect of possession only (Sec. 7, Rule 70, Rules of Court).1 The
From the foregoing judgment, neither party appealed so that, if it were a valid
judgment, it would have ordinarily lapsed into finality, but even then, DEPRA did
not accept payment of rentals so that DUMLAO deposited such rentals with
478
_______________
1
Rule 70
Forcible Entry and Detainer

Sec. 7. Judgment conclusive only on possession; not conclusive in actions
involving title or ownership.The judgment rendered in an action for forcible entry
or detainer shall be effective with respect to the possession only and in no wise bind
the title or affect the ownership of the land or building. Such judgment shall not
of forcible entry into and detainer on lands or buildings, original jurisdiction of

which is conferred by this Act upon city and municipal courts;
479
(2) In all civil actions which involve the title to, or possession of, real property, or
any interest therein, except actions for forcible entry into and unlawful detainer of
lands or buildings, original jurisdiction over which is conferred upon Metropolitan
Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts;
VOL. 136, MAY 16, 1985

Depra vs. Dumlao
479
Municipal Court overstepped its bounds when it imposed upon the parties a situation
of forced lease, which like forced co-ownership is not favored in law.
Furthermore, a lease is an interest in real property, jurisdiction over which belongs
to Courts of First Instance (now Regional Trial Courts) (Sec. 44(b), Judiciary Act of
1948;2 Sec. 19 (2) Batas Pambansa Blg. 129).3 Since the Municipal Court, acted
without jurisdiction, its Decision was null and void and cannot operate as res
judicata to the subject complaint for Queting of Title. Besides, even if the Decision
were valid, the rule on res judicata would not apply due to difference in cause of
action. In the Municipal Court, the cause of action was the deprivation of
possession, while in the action to quiet title, the cause of action was based on
ownership. Furthermore, Sec. 7, Rule 70 of the Rules of Court explicitly provides
that judgment in a detainer case shall not bar an action between the same parties
respecting title to the land.4
Conceded In the Stipulation of Facts between the parties is that DUMLAO was a
builder in good faith. Thus,
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)
_______________
bar an action between the same parties respecting title to the land or building, nor
shall it be held conclusive of the facts therein found in a case between the same
parties upon a different cause of action not involving possession.
2
Sec. 44. Original jurisdiction. x x x
(b) In all civil actions which involve the title to, or possession of real property, or
any interest therein, or the legality of any tax, impose or assessment, except actions
Sec. 19. Jurisdiction in civil case.x x x
Supra.
480
480

Depra vs. Dumlao
square meters portion of land and built thereon in good faith is a portion of
defendants kitchen and has been in the possession of the defendant since 1952
continuously up to the present; x x x. (Italics 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 disputeto apply to DUMLAO the rights of a
builder in good faith and to DEPRA those of a landowner in good faith as
prescribed in Article 448. Hence, we shall refrain from further examining whether
the factual situations of DUMLAO and DEPRA conform to the juridical positions
respectively defined 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
only when, after having chosen to sell his land, the other party fails to pay for the
same (italics ours).
to oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent.
We hold, therefore, that the order of Judge Natividad compelling defendantspetitioners to remove their buildings from the land belonging to plaintiffsrespondents 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]).
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 DUMLAOs kitchen, or to sell the encroached 34 square meters
of his lot to DUMLAO. He cannot refuse to pay for the encroaching part of
481
VOL. 136, MAY 16, 1985
Depra vs. Dumlao
481
A word anent the philosophy behind Article 448 of the Civil Code.
The original provision was found in Article 361 of the Spanish Civil Code, which
provided:
_______________
5
Ignacio vs. Hilario, 76 Phil. 605 (1946).
ibid.
482
5
the building, and to sell the encroached part of his land, as he had manifested before
the Municipal Court. But that manifestation is not binding because it was made in a
void proceeding.
482
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.
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.
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

Depra vs. Dumlao
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 Manresas opinion is that the
Article is just and fair.
. . . es justa la facultad que el codigo da al dueo del suelo en el articulo 361, en el
caso de edificacion o plantacion? Algunos coinentaristas 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 veclaroelpor que de tal pena . . . alobligar al que obro
de buena fe a quedarse con el edificio o plantacion, previo el pago del terreno que
ocupa, porque si bien es verdad que cuando edifico o planto demostro con este
hecho, que queria para si el edificio o plantio, tambien lo es que el que edifico o
planto de buena fe lo hizo en la erronea inteligencia de creerse dueo del terreno.
Posible es que, de saber lo contrario, y de tener noticia de que habia que comprar y
pagar el terreno, no se hubiera decidido a plantar ni a 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 posible el principio que para la accesion se establece
en el art. 358.7
Our own Code Commission must have taken account of the objections to Article
361 of the Spanish Civil Code. Hence, the Commission provided a modification
thereof, and Article 448 of our Code has been made to provide:
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:
ART. 448. The owner of the land on which anything has been
1.
1. The trial Court shall determine
1.
a) the present fair price of DEPRAs 84 square meter-area of land;
_______________
7
3 Manresa, 7th Ed., pp. 300-301.

_______________
483
8
VOL. 136, MAY 16, 1985
II Tolentino, Civil Code of the Philippines, 1963 ed., p. 97.
483
Depra vs. Dumlao
484
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.
484

Depra vs. Dumlao
1.
2.
b) the amount of the expenses spent by DUMLAO for the building of the
kitchen;
c) the increase in value (plus value) which the said area of 34 square
meters may have acquired by reason thereof, and

3.
d) whether the value of said area of land is considerably more than that of
the kitchen built thereon.
1.
2. After said amounts shall have been determined by competent evidence,

the Regional Trial Court shall render judgment, as follows:
1.
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 the expenses spent by DUMLAO for the building of
the kitchen, or the increase in value (plus value) which the said area of
34 square meters may have acquired by reason thereof, or to oblige
DUMLAO to pay the price of said area. The amounts to be respectively
paid by DUMLAO and DEPRA, in accordance with the option thus
exercised by written notice of the other party and to the Court, shall be
paid by the obligor within fifteen (15) days from such notice of the option
by tendering the amount to the Court in favor of the party entitled to
receive it;
b) The trial Court shall further order that if DEPRA exercises the option to
oblige DUMLAO to pay the price of the land but the latter rejects such
purchase because, as found by the trial Court, the value of the land is
considerably more than that of the kitchen, DUMLAO shall give written
notice of such rejection to DEPRA and to the Court within fifteen (15)
days from notice of DEPRAs 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
2.
485
3.
No costs.
486
486

Depra vs. Dumlao
SO ORDERED.
VOL. 136, MAY 16, 1985
485
Depra vs. Dumlao

1.
2.
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 latters 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 DEPRAs land for the period counted from 1952, the year DUMLAO
occupied the subject area, up to the commencement date of the forced
lease referred to in the preceding paragraph;
d) The periods to be fixed by the trial Court in its Decision shall be
inextendible, and upon failure of the party obliged to tender to the trial
Court the amount due to the obligee, the party entitled to such payment
shall be entitled to an order of execution for the enforcement of payment
of the amount due and for compliance with such other acts as may be
required by the prestation due the obligee.
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
Teehankee, Actg. C.J., Plana, Relova De la Fuente and Alampay, JJ., concur.
Gutierrez, Jr.,** J., took no part.
Judgment set aside and case remanded to Regional Trial Court for further
proceedings.
Notes.Article 448, New Civil Code, is manifestly intended to apply only to a case
where one builds, plants, or sows on land in which he believes himself to have a
claim of title, and not to lands where the only interest of the builder, planter or
dower is that of a holder, such as a tenant. (Alburo vs. Villanueva, 7 Phil. 277; De

Laureano vs. Adil, 72 SCRA 148; Eloreza vs. Evangelista, 96 SCRA 130.) The rule
stated in Article 526, that a possessor in good faith is one who has no knowledge of
any flaw or defect in his title or mode of acquisition, should be applied in
determining whether the builder, planter, or sower acts in good faith. Good faith
consists in the belief of the builder, planter or sower that the land is his, or that by
some title he has a right to build, plant or sow thereon. Good faith is presumed,
under Article 527, and he who alleges bad faith has the burden of proving such bad
faith, (3 Manreza 209.)
No costs.
o0o
Note.Article 448 of the Civil Code does not apply to a case where the owner of
the land is the builder, sower or
_______________
25
**
Mr. Justice Hugo E. Gutierrez, Jr. took no part, having been one of the two
members of a Court of Appeals Division of Five Justices who dissented from the
majority opinion certifying this case to this Court.
SO ORDERED.
Narvasa (C.J., Chairman), Davide, Jr., Melo and Francisco, JJ., concur.
Petition granted, judgment reversed and set aside. Case remanded to court a quo for
further proceedings.
25
487
Carlos vs. Court of Appeals

VOL. 136, MAY 22, 1985
United States of America vs. Ruiz
487
petitioner in the payment of rentals for two (2) consecutive months, private
respondent shall be entitled to terminate the forced lease, to recover his land, and to
have the portion of the building removed by petitioner or at latters expense. The
rentals herein provided shall be tendered by petitioner to the trial court for payment
to private respondent, and such tender shall constitute evidence of whether or not
compliance was made within the period fixed by the said court.
c) In any event, petitioner shall pay private respondent an amount computed at
two thousand pesos (P2,000.00) per month as reasonable compensation for the
occupancy of private respondents land for the period counted from October 4, 1979,
up to the date private respondent serves notice of its option to appropriate the
encroaching structures, otherwise up to the actual transfer of ownership to petitioner
or, in case a forced lease has to be imposed, up to the commencement date of the
forced lease referred to in the preceding paragraph;
d) The periods to be fixed by the trial court in its decision shall be non-extendible,
and upon failure of the party obliged to tender to the trial court the amount due to
the obligee, the party entitled to such payment shall be entitled to an order of
execution for the enforcement of payment of the amount due and for compliance
with such other acts as may be required by the prestation due the obligee.
planter who then later loses ownership of the land by sale or donation. (Pecson vs.
Court of Appeals, 244 SCRA 407 [1995])
o0o Tecnogas Philippines Manufacturing Corp. vs. Court of Appeals, 268
SCRA 5, G.R. No. 108894 February 10, 1997
218
Agustin vs. Intermediate Appellate Court

G.R. Nos. 66075-76. July 5, 1990.*
EULOGIO AGUSTIN, HEIRS OF BALDOMERO LANGCAY, ARTURO
BALISI & JUAN LANGCAY, petitioners, vs. INTERMEDIATE APPELLATE
COURT, MARIA MELAD, TIMOTEO MELAD, PABLO BINAYUG &
GERONIMA UBINA, respondents.
Civil Law; Property; Accretion; Evidence; Findings of the Court of Appeals that
there had been accretion to the lots of the private respondents is a finding of fact
which is conclusive on the Supreme Court.The finding of the Court of Appeals
that there had been accretions to the lots of the private respondents who did not lose
the ownership of such accretions even after they were separated from the principal
lots by the sudden change of course of the river, is a finding of fact which is
conclusive on this Court.
Same; Same; Same; Essential requisites before accretion benefits a riparian
owner.Accretion benefits a riparian owner when the following requisites are
present: (1) that the deposit be gradual and imperceptible; (2) that it resulted from
the effects of the current of the water; and (3) that the land where accretion takes
place is adjacent to the bank of a river.
Same; Same; Same; Accretions belong to the riparian owners upon whose lands the
alluvial deposits were made, reason.These accretions belong to riparian owners
upon whose lands the alluvial deposits were made (Roxas vs. Tuason, 9 Phil. 408;
Director of Lands vs. Rizal, 87 Phil. 806). The reason for this principle is because, if
lands bordering on streams are exposed to floods and other damage due to the
destructive force of the waters, and if by virtue of law they are subject to
encumbrances and various kinds of easements, it is only just that such risks or
dangers as may prejudice the owners thereof should in some way be compensated by
the right of accretion.
PETITION to review the decision of the then Intermediate Appellate Court.
Antonio N. Laggui for petitioners.
VOL. 187, JULY 5, 1990

219
GRIO-AQUINO, J.:
The Cagayan River separates the towns of Solana on the west and Tuguegarao on
the east in the province of Cagayan. According to the unrebutted testimony of
Romeo Rigor, Geodetic Engineer of the Bureau of Lands, in 1919 the lands east of
the river were covered by the Tuguegarao Cadastre. In 1925, Original Certificate of
Title No. 5472 was issued for land east of the Cagayan River owned by defendantpetitioner Eulogio Agustin (Exh. 2-Agustin).
As the years went by, the Cagayan River moved gradually eastward, depositing silt
on the western bank. The shifting of the river and the siltation continued until 1968.
In 1950, all lands west of the river were included in the Solana Cadastre. Among
these occupying lands covered by the Solana Cadastre were plaintiffs-private
respondents, namely, Pablo Binayug, who has been in possession of Lots 3349,
7876, 7877, 7878, 7879, 7875, 7881, 7882, 7883, 7884, 7885, 7891 and 7892, and
Maria Melad, who owns Lot 3351 (Exh. 3-Binayug; Exh. B-Melad). Pablo Binayug
began his possession in 1947. An area of eight (8) hectares was planted to tobacco
and corn while 12 hectares were overgrown with talahib (Exh. C-1 Binayug.)
Binayugs Homestead Application No. W-79055 over this land was approved in
1959 (Exh. B-Binayug). Binayugs possession was recognized in the decision in
Civil Case No. 101 (Exh. F-Binayug). On the other hand, as a result of Civil Case
No. 343-T, Macario Melad, the predecessor-in-interest of Maria Melad and Timoteo
Melad, was issued Original Certificate of Title No. P-5026 for Lot 3351 of Cad. 293
on June 1, 1956.
Through the years, the Cagayan River eroded lands of the Tuguerarao Cadastre on
its eastern bank among which was defendant-petitioner Eulogio Agustins Lot 8457
(Exh. E-Melad), depositing the alluvium as accretion on the land possessed by Pablo
Binayug on the western bank.
Pedro R. Perez, Jr. for private respondents.

_______________
* FIRST DIVISION.
However, in 1968, after a big flood, the Cagayan River changed its course, returned
to its 1919 bed, and, in the process, cut across the lands of Maria Melad, Timoteo
Melad, and the spouses Pablo Binayug and Geronima Ubina whose lands were
transferred on the eastern, or Tuguegarao, side of the river. To cultivate those lots
they had to cross the river.
219
220
Only defendant-petitioner Eulogio Agustin appealed in Civil Case No. 343-T, while
in Civil Case No. 344-T, only defendants-petitioners Eulogio Agustin, Baldomero
Cagurangan (substituted by his heir), Arturo Balisi and Juan Langcay appealed. But
upon motion of plaintiffs-private respondents, the trial court ordered the execution
pending appeal of the judgment in
221
In April, 1969, while the private respondents and their tenants were planting corn on
their lots located on the eastern side of the Cagayan River, the petitioners,
accompanied by the mayor and some policemen of Tuguegarao, claimed the same
lands as their own and drove away the private respondents from the premises.
VOL. 187, JULY 5, 1990
On April 21, 1970, private respondents Maria Melad and Timoteo Melad filed a
complaint (Civil Case No. 343-T) to recover Lot No. 3351 with an area of 5 hectares
and its 6.6-hectare accretion. On April 24, 1970, private respondent Pablo Binayug
filed a separate complaint (Civil Case No. 344-T) to recover his lots and their
accretions.
On June 16, 1975, the trial court rendered a decision, the dispositive portion of
which reads:
On November 29, 1983, the Intermediate Appellate Court rendered a decision

affirming in toto the judgment of the trial court, with costs against the defendantsappellants.
220
221
Civil Case No. 344-T against Cagurangan, Balisi and Langcay on the ground that
their appeal was dilatory as they had not presented evidence at the trial (Order dated
August 15, 1975).
WHEREFORE, premises considered, judgment is hereby made:

In Civil Case No. 343-T, commanding Eulogio Agustin, Gregorio Tuliao, Jacinto
Buquel and Octavio Bancud, or anybody acting as their representative[s] or agents
to vacate Lot No. 3351 of Solana Cadastre together with its accretion consisting of
portions of Lots 9463, 9462 and 9461 of Tuguegarao Cadastre and for these
defendants to restore ownership in favor of Maria Melad and Timoteo Melad who
are the only interested heirs of Macario Melad.
In Civil Case No. 344-T, commanding defendants Justo Adduru, Andres Pastor,
Teofilo Tagacay, Vicente Camilan, Nicanor Mora, Baldomero Cagurangan,
Domingo Quilang, Cesar Cabalza, Elias Macababbad, Titong Macababbad, Arturo
Balisi, Jose Allabun, Eulogio Agustin, Banong Aquino, Junior Cambri and Juan
Langoay, or any of their agents or representatives to vacate the Lots 3349, 7876,
7877, 7878, 7879, 7875, 7881, 7882, 7883, 7884, 7885, 7891 and 7892, together
with its accretion and to restore possession to plaintiffs Pablo Binayug and
Geronimo Ubina. Without pronouncement as to damages which were not properly
proven and to costs.
SO ORDERED. (As amended by the order dated August 15, 1975.) (pp. 24-25,
Rollo.)
In their petition for review of that decision, the petitioners allege that the Court of
Appeals erred:
1. in declaring that the land in question had become part of private respondents
estate as a result of accretion;
2. in declaring that the accretion to private respondents estate which used to
pertain to petitioners estate cannot preclude the private respondents from being the
owners thereof; and
3. in declaring that the ownership of private respondents over the accretion is not
affected by the sudden and abrupt change in the course of the Cagayan River when it
reverted to its old bed.
The petition is unmeritorious and must be denied.
The finding of the Court of Appeals that there had been accretions to the lots of the
private respondents who did not lose the ownership of such accretions even after
they were separated from the principal lots by the sudden change of course of the
river, is a finding of fact which is conclusive on this Court. That finding is supported
by Art. 457 of the New Civil Code which provides:
Art. 457. To the owners of lands adjoining the banks of rivers belong the accretion
which they gradually receive from the effects of the current of the waters. (366)
Accretion benefits a riparian owner when the following requisites are present: (1)
that the deposit be gradual and imperceptible; (2) that it resulted from the effects of
the current of the water; and (3) that the land where accretion takes place is adjacent
to the bank of a river (Republic vs. CA, 132 SCRA 514).
All these requisites of accretion are present in this case for, as the trial court found:
subject to encumbrances and various kinds of easements, it is only just that such
risks or dangers as may prejudice the owners thereof should in some way be
compensated by the right of accretion (Cortes vs. City of Manila, 10 Phil. 567).
The private respondents ownership of the accretion to their lands was not lost upon
the sudden and abrupt change of the course of the Cagayan River in 1968 or 1969
when it reverted to its old 1919 bed, and separated or transferred said accretions to
the other side (or eastern bank) of the river. Articles 459 and
x x x Cagayan River did move year by year from 1919 to 1968 or f or a period of
49 years. Within this period, the alluviun (sic) deposited
223
222
VOL. 187, JULY 5, 1990
222
223
463 of the New Civil Code apply to this situation.
on the other side has become greater in area than the original lands of the plaintiffs
in both cases. Still the addition in every year is imperceptible in nature, one could
not discern it but can be measured after the lapse of a certain time. The testimonial
evidence in these cases that said Cagayan River moved eastward year by year is
overwhelming as against the denial of defendant Eulogio Agustin alone. Cesar
Caronan, one time mayor of Solana, Cagayan, said so. Arturo Taguian said so.
Timoteo Melad said so. Francisco Ubina said so. Geodetic Engineer Rigor impliedly
said so when he testified that when Solana Cadastre was executed in 1950 it
overlapped portions of Tuguegarao Cadastre executed in 1919. This could not have
happened if that part of Tuguegarao Cadastre was not eroded by the overflow of the
Cagayan River. These testimonies cannot be destroyed by the denials of Vicente
Cauilan, Marcelo Agustin and Eulogio Agustin alone. x x x. (p. 27, Rollo.)
Art. 459. Whenever the current of a river, creek or torrent segregates from an estate
on its bank a known portion of land and transfers it to another estate, the owner of
the land to which the segregated portion belonged retains the ownership of it,
provided that he removes the same within two years.
The appellate court confirmed that the accretion on the western bank of the Cagayan
River had been going on from 1919 up to 1968 or for a period of 49 years. It was
gradual and imperceptible. Only when Lot No. 3351, with an original area of 5
hectares described in the free patent that was issued to Macario Melad in June 1956,
was resurveyed in 1968 did it become known that 6.6 hectares had been added to it.
Lot No. 3351, covered by a homestead patent issued in June, 1950 to Pablo Binayug,
grew from its original area of 18 hectares, by an additional 50 hectares through
alluvium as the Cagayan River gradually moved to the east. These accretions belong
to riparian owners upon whose lands the alluvial deposits were made (Roxas vs.
Tuason, 9 Phil. 408; Director of Lands vs. Rizal, 87 Phil. 806). The reason for this
principle is because, if lands bordering on streams are exposed to floods and other
damage due to the destructive force of the waters, and if by virtue of law they are
Art. 463. Whenever the current of a river divides itself into branches, leaving a
piece of land or part thereof isolated, the owner of the land retains his ownership. He
also retains it if a portion of land is separated from the estate by the current.
(Emphasis supplied).
In the case at bar, the sudden change of course of the Cagayan River as a result of a
strong typhoon in 1968 caused a portion of the lands of the private respondents to be
separated from the estate by the current. The private respondents have retained the
ownership of the portion that was transferred by avulsion to the other side of the
river.
WHEREFORE, the petition is denied for lack of merit. The decision of the
Intermediate Appellate Court, now Court of Appeals, is hereby affirmed. Costs
against the petitioners.
SO ORDERED.
Narvasa (Actg. C.J.), Cruz, Gancayco and Medialdea, JJ., concur.
Petition denied. Decision affirmed.

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[No. 40411.

STAR TWO (SPV-AMC), INC.,1 petitioner, vs. PAPER CITY

3 Petition for Review on Certiorari. Id., at pp. 4-55.

5 Id., at pp. 278-281.

13 Id., at pp. 113-116.

14 Id., at pp. 150-152.

VOL. 692, MARCH 6, 2013

Pollution Tank Nos. 1 and 2.

Waste Water Treatment Tank

Power Plants Nos. 1 and 2

Material Handling Equipment

A Second Supplemental Indenture to the 26 August 1992 MTI was executed on 7

16 Complaint. Id., at p. 58.

17 Id., at pp. 238-247.

20 Id., at pp. 248-250.

21 Id., at pp. 56-67.

22 Id., at pp. 531-533.

23 Id., at pp. 93-95.

SUPREME COURT REPORTS ANNOTATED

25 Id., at pp. 271-277.

26 Id., at pp. 53-54.

30 Id., at pp. 22-23.

28 Id., at pp. 2-52.

31 Id., at pp. 24-25.

VOL. 692, MARCH 6, 2013

SUPREME COURT REPORTS ANNOTATED

Real Estate Mortgage P206,815,000.00

Chattel Mortgage P13,800,000.0036

41 Penned by Associate Justice Perlita J. Tria-Tirona with Associate Justices Delilah

SUPREME COURT REPORTS ANNOTATED

The original MTI dated 26 August 1992 states that:

MORTGAGE TRUST INDENTURE

2. Whether the Cancellation of Deed of Continuing Mortgage dated 25 August

3. Whether the subsequent contracts of the parties such as Mortgage Trust

RIZAL COMMERCIAL BANKING CORPORATION, x x x (hereinafter referred

VOL. 692, MARCH 6, 2013

We grant the petition.

A Second Supplemental Indenture to the 26 August 1992 MTI executed on 7 June

49 455 Phil. 196, 210; 407 SCRA 454, 462 (2003).

50 G.R. No. 162523, 25 November 2009, 605 SCRA 370.

In Spouses Paderes v. Court of Appeals,59 we reiterated once more the Cu Unjieng

Article 1877 provides that a mortgage includes the natural accessions,

55 58 Phil 439, 443 (1933).

53 12 Phil. 690, 699 (1909).

56 158 Phil. 799, 803-804; 61 SCRA 137, 140 (1974).

57 Supra note 53.

58 Supra note 55.

3. Contrary to the finding of the CA, the Extrajudicial Foreclosure of Mortgage

59 502 Phil. 76, 96; 463 SCRA 504, 524 (2005).

The following are immovable property:

61 Id., at pp. 245-246. (Underlining supplied)

** Designated additional member per Raffle dated 14 January 2013.

VOL. 692, MARCH 6, 2013

SUPREME COURT REPORTS ANNOTATED

VOL. 516, FEBRUARY 16, 2007

FELS Energy, Inc. vs. Province of Batangas

FELS Energy, Inc. vs. Province of Batangas

5 Rollo (G.R. No. 168557), pp. 121-245.

FELS Energy, Inc. vs. Province of Batangas

SUPREME COURT REPORTS ANNOTATED

FELS Energy, Inc. vs. Province of Batangas

17 Id., at pp. 383-394.

FELS Energy, Inc. vs. Province of Batangas

21 Id., at pp. 430-431.