THE BACHRACH MOTOR CO., INC.

, plaintiff-appellee,
vs.
TALISAY-SILAY MILLING CO., ET AL., defendants-appellees.
THE PHILIPPINE NATIONAL BANK, intervenor-appellant.
ROMUALDEZ, J.:
This proceeding originated in a complaint filed by the Bachrach
Motor Co., Inc., against the Talisay-Silay Milling Co., Inc., for the
delivery of the amount P13,850 or promissory notes or other
instruments or credit for that sum payable on June 30, 1930, as
bonus in favor of Mariano Lacson Ledesma; the complaint further
prays that the sugar central be ordered to render an accounting of
the amounts it owes Mariano Lacson Ledesma by way of bonus,
dividends, or otherwise, and to pay the plaintiff a sum sufficient to
satisfy the judgment mentioned in the complaint, and that the sale
made by said Mariano Lacson Ledesma be declared null and void.
The Philippine National Bank filed a third party claim alleging a
preferential right to receive any amount which Mariano Lacson
Ledesma might be entitled to from the Talisay-Silay Milling Co. as
bonus, because that would be civil fruits of the land mortgaged to
said bank by said debtor for the benefit of the central referred to, and
by virtue of a deed of assignment, and praying that said central be
ordered to delivered directly to the intervening bank said sum on
account of the latter's credit against the aforesaid Mariano Lacson
Ledesma.
The corporation Talisay-Silay Milling Co., Inc., answered the
complaint stating that of Mariano Lacson Ledesma's credit, P7,500
belonged to Cesar Ledesma because he had purchased it, and
praying that it be absolved from the complaint and that the proper
party be named so that the remainder might be delivered.
Cesar Ledesma, in turn, claiming to be the owner by purchase in
good faith an for a reconsideration of the P7,500 which is a part of

the credit referred to above, answered praying that he be absolved

from the complaint.
The plaintiff Bachrach Motor Co., Inc., answered the third party claim
alleging that its credit against Mariano Lacson Ledesma was prior
and preferential to that of the intervening bank, and praying that the
latter's complaint be dismissed.
At the trial all the parties agreed to recognize and respect the sale
made in favor of Cesar Ledesma of the P7,500 part of the credit in
question, for which reason the trial court dismissed the complaint
and cross-complaint against Cesar Ledesma authorizing the
defendant central to deliver to him the aforementioned sum of
P7,500. And upon conclusion of the hearing, the court held that the
Bachrach Motor Co., Inc., had a preferred right to receive the amount
of P11,076.02 which was Mariano Lacson Ledesma's bonus, and it
ordered the defendant central to deliver said sum to the plaintiff.
The Philippine National Bank appeals, assigning the following
alleged errors as committed by the trial court:
1. In holding that the bonus which the Talisay-Silay Milling
Co., Inc., bound itself to pay the planters who had
mortgaged their land to the Philippine National Bank to
secure the payment of the debt of said central to said bank is
not civil fruits of said land.
2. In not holding that said bonus became subject to the
mortgage executed by the defendant Mariano Lacson
Ledesma to the Philippine National Bank to secure the
payment of his personal debt to said bank when it fell due.
3. In holding that the assignment (Exhibit 9, P.N.B.) of said
bonus made on March 7, 1930, by Mariano Lacson Ledesma
to the Philippine National Bank to be applied to the payment
of his debt to said Philippine National Bank is fraudulent.

4. In holding that the Bachrach Motor Co. Inc., in civil case

No. 31597 of the Court of First Instance of Manila levied a
valid attachment upon the bonus in question.
5. In admitting and considering the supplementary complaint
filed by the Bachrach Motor Co., Inc., alleging as a cause of
action the attachment of the bonus in question which said
Bachrach Motor Co., Inc., in civil case No. 31821 of the
Court of First Instance of Manila levied after the filing of the
original complaint in this case, and after Mariano Lacson
Ledesma in this case had been declared in default.
6. In holding that the Bachrach Motor Co., Inc., has a
preferential right to receive from the Talisay-Silay Milling Co.,
Inc., the amount of P11,076.02 which is in the possession of
said corporation as the bonus to be paid to Mariano Lacson
Ledesma, and in ordering the Talisay-Silay Milling Co., Inc.,
to deliver said amount to the Bachrach Motor Co., Inc.
7. In not holding that the Philippine National Bank has a
preferential right to receive from the Talisay-Silay Milling Co.,
Inc., the amount of P11,076.02 held by said corporation as
Mariano Lacson Ledesma's bonus, and in not ordering said
Talisay-Silay Milling Co., Inc., to deliver said amount to the
Philippine National Bank.
8. In not holding that the amended complaint and the
supplementary complaint of the Bachrach Motor Co., Inc., do
not state facts sufficient to constitute a cause of action in
favor of the Bachrach Motor Co., Inc., and against the
Talisay-Silay Milling Co., Inc., or against the Philippine
National Bank.
The appellant bank bases its preferential right upon the contention
that the bonus in question is civil fruits of the lands which the owners
had mortgaged for the benefit of the central giving the bonus, and
that, as civil fruits of said land, said bonus was assigned by Mariano

Lacson Ledesma on March 7, 1930, by virtue of the document

Exhibit 9 of said intervening institution, which admitted in its brief that
"if the bonus in question is not civil fruits or rent which became
subject to the mortgage in favor of the Philippine National Bank when
Mariano Lacson Ledesma's personal obligation fell due, the
assignment of March 7, 1930 (Exhibit 9, P.N.B.), is null and void, not
because it is fraudulent, for there was no intent of fraud in executing
the deed, but that the cause or consideration of the assignment was
erroneous, for it was based upon the proposition that the bonus was
civil fruits of the land mortgaged to the Philippine National Bank." (P.
31.)
The fundamental question, then, submitted to our consideration is
whether or not the bonus in question is civil fruits.
This is how the bonus came to be granted: On December 22, 1923,
the Talisay-Silay Milling Co., Inc., was indebted to the Philippine
National Bank. To secure the payment of its debt, it succeeded in
inducing its planters, among whom was Mariano Lacson Ledesma,
to mortgage their land to the creditor bank. And in order to
compensate those planters for the risk they were running with their
property under the mortgage, the aforesaid central, by a resolution
passed on that same date, i.e., December 22, 1923, undertook to
credit the owners of the plantation thus mortgaged every year with a
sum equal to two per centum of the debt secured according to yearly
balance, the payment of the bonus being made at once, or in part
from time to time, as soon as the central became free of its
obligations to the aforesaid bank, and of those contracted by virtue of
the contract of supervision, and had funds which might be so used,
or as soon as it obtained from said bank authority to make such
payment. (Exhibits 5, 6; P.N.B.)
Article 355 of the Civil Code considers three things as civil fruits:
First, the rents of buildings; second, the proceeds from leases of
lands; and, third, the income from perpetual or life annuities, or other
similar sources of revenue. It may be noted that according to the
context of the law, the phrase "u otras analogas" refers only to rent

or income, for the adjectives "otras" and "analogas" agree with the
noun "rentas," as do also the other
adjectives"perpetuas" and "vitalicias." That is why we say that by
"civil fruits" the Civil Code understands one of three and only three
things, to wit: the rent of a building, the rent of land, and certain kinds
of income.
As the bonus in question is not rent of a building or of land, the only
meaning of "civil fruits" left to be examined is that of "income."
Assuming that in broad juridical sense of the word "income" it might
be said that the bonus in question is "income" under article 355 of
the Civil Code, it is obvious to inquire whether it is derived from the
land mortgaged by Mariano Lacson Ledesma to the appellant bank
for the benefit of the central; for it is not obtained from that land but
from something else, it is not civil fruits of that land, and the bank's
contention is untenable.
It is to be noted that the said bonus bears no immediate, but only a
remote accidental relation to the land mentioned, having been
granted as compensation for the risk of having subjected one's land
to a lien in favor of the bank, for the benefit of the entity granting said
bonus. If this bonus be income or civil fruits of anything, it is income
arising from said risk, or, if one chooses, from Mariano Lacson
Ledesma's generosity in facing the danger for the protection of the
central, but certainly it is not civil fruits or income from the mortgaged
property, which, as far as this case is concerned, has nothing to do
with it. Hence, the amount of the bonus, according to the resolution
of the central granting it, is not based upon the value, importance or
any other circumstance of the mortgaged property, but upon the total
value of the debt thereby secured, according to the annual balance,
which is something quite distinct from and independent of the
property referred to.
Finding no merit in this appeal, the judgment appealed from is
affirmed, without express finding as to costs. So ordered.

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO &

BAUERMANN, INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.
Before us is a petition for review of the decision 1 of the Court of
Appeals 2 involving questions in the resolution of which the
respondent appellate court analyzed and interpreted particular
provisions of our laws on contracts and sales. In its assailed
decision, the respondent court reversed the trial court 3 which, in
dismissing the complaint for specific performance with damages and
annulment of contract, 4found the option clause in the lease contracts
entered into by private respondent Mayfair Theater, Inc. (hereafter,
Mayfair) and petitioner Carmelo & Bauermann, Inc. (hereafter,
Carmelo) to be impossible of performance and unsupported by a
consideration and the subsequent sale of the subject property to
petitioner Equatorial Realty Development, Inc. (hereafter, Equatorial)
to have been made without any breach of or prejudice to, the said
lease contracts. 5
We reproduce below the facts as narrated by the respondent
court, which narration, we note, is almost verbatim the basis
of the statement of facts as rendered by the petitioners in
their pleadings:
Carmelo owned a parcel of land, together with two 2storey buildings constructed thereon located at Claro
M Recto Avenue, Manila, and covered by TCT No.
18529 issued in its name by the Register of Deeds
of Manila.
On June 1, 1967 Carmelo entered into a contract of
lease with Mayfair for the latter's lease of a portion of
Carmelo's property particularly described, to wit:
A PORTION OF THE SECOND
FLOOR of the two-storey building,

situated at C.M. Recto Avenue,

Manila, with a floor area of 1,610
square meters.
THE SECOND FLOOR AND
MEZZANINE of the two-storey
building, situated at C.M. Recto
Avenue, Manila, with a floor area of
150 square meters.
for use by Mayfair as a motion picture theater and
for a term of twenty (20) years. Mayfair thereafter
constructed on the leased property a movie house
known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair entered
into a second contract of lease with Carmelo for the
lease of another portion of Carmelo's property, to wit:
A PORTION OF THE SECOND
FLOOR of the two-storey building,
situated at C.M. Recto Avenue,
Manila, with a floor area of 1,064
square meters.
THE TWO (2) STORE SPACES AT
THE GROUND FLOOR and
MEZZANINE of the two-storey
building situated at C.M. Recto
Avenue, Manila, with a floor area of
300 square meters and bearing
street numbers 1871 and 1875,
for similar use as a movie theater and for a similar
term of twenty (20) years. Mayfair put up another
movie house known as "Miramar Theatre" on this
leased property.

Both contracts of lease provides (sic) identically

worded paragraph 8, which reads:
That if the LESSOR should desire to
sell the leased premises, the
LESSEE shall be given 30-days
exclusive option to purchase the
same.
In the event, however, that the
leased premises is sold to someone
other than the LESSEE, the
LESSOR is bound and obligated, as
it hereby binds and obligates itself,
to stipulate in the Deed of Sale
hereof that the purchaser shall
recognize this lease and be bound
by all the terms and conditions
thereof.
Sometime in August 1974, Mr. Henry Pascal of
Carmelo informed Mr. Henry Yang, President of
Mayfair, through a telephone conversation that
Carmelo was desirous of selling the entire Claro M.
Recto property. Mr. Pascal told Mr. Yang that a
certain Jose Araneta was offering to buy the whole
property for US Dollars 1,200,000, and Mr. Pascal
asked Mr. Yang if the latter was willing to buy the
property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know
of his decision. On August 23, 1974, Mayfair replied
through a letter stating as follows:
It appears that on August 19, 1974
your Mr. Henry Pascal informed our
client's Mr. Henry Yang through the

telephone that your company

desires to sell your abovementioned C.M. Recto Avenue
property.
Under your company's two lease
contracts with our client, it is
uniformly provided:
8. That if the LESSOR should desire
to sell the leased premises the
LESSEE shall be given 30-days
exclusive option to purchase the
same. In the event, however, that
the leased premises is sold to
someone other than the LESSEE,
the LESSOR is bound and
obligated, as it is (sic) herebinds
(sic) and obligates itself, to stipulate
in the Deed of Sale thereof that the
purchaser shall recognize this lease
and be bound by all the terms and
conditions hereof (sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter
to Carmelo purporting to express interest in
acquiring not only the leased premises but "the
entire building and other improvements if the price is
reasonable. However, both Carmelo and Equatorial
questioned the authenticity of the second letter.
Four years later, on July 30, 1978, Carmelo sold its
entire C.M. Recto Avenue land and building, which
included the leased premises housing the "Maxim"
and "Miramar" theatres, to Equatorial by virtue of a

Deed of Absolute Sale, for the total sum of

P11,300,000.00.
In September 1978, Mayfair instituted the action a
quo for specific performance and annulment of the
sale of the leased premises to Equatorial. In its
Answer, Carmelo alleged as special and affirmative
defense (a) that it had informed Mayfair of its desire
to sell the entire C.M. Recto Avenue property and
offered the same to Mayfair, but the latter answered
that it was interested only in buying the areas under
lease, which was impossible since the property was
not a condominium; and (b) that the option to
purchase invoked by Mayfair is null and void for lack
of consideration. Equatorial, in its Answer, pleaded
as special and affirmative defense that the option is
void for lack of consideration (sic) and is
unenforceable by reason of its impossibility of
performance because the leased premises could not
be sold separately from the other portions of the land
and building. It counterclaimed for cancellation of the
contracts of lease, and for increase of rentals in view
of alleged supervening extraordinary devaluation of
the currency. Equatorial likewise cross-claimed
against co-defendant Carmelo for indemnification in
respect of Mayfair's claims.
During the pre-trial conference held on January 23,
1979, the parties stipulated on the following:
1. That there was a deed of sale of
the contested premises by the
defendant Carmelo . . . in favor of
defendant Equatorial . . .;
2. That in both contracts of lease
there appear (sic) the stipulation

granting the plaintiff exclusive option

to purchase the leased premises
should the lessor desire to sell the
same (admitted subject to the
contention that the stipulation is null
and void);
3. That the two buildings erected on
this land are not of the condominium
plan;
4. That the amounts stipulated and
mentioned in paragraphs 3 (a) and
(b) of the contracts of lease
constitute the consideration for the
plaintiff's occupancy of the leased
premises, subject of the same
contracts of lease, Exhibits A and B;
xxx xxx xxx
6. That there was no consideration
specified in the option to buy
embodied in the contract;
7. That Carmelo & Bauermann
owned the land and the two
buildings erected thereon;
8. That the leased premises
constitute only the portions actually
occupied by the theaters; and
9. That what was sold by Carmelo &
Bauermann to defendant Equatorial

Realty is the land and the two

buildings erected thereon.
xxx xxx xxx
After assessing the evidence, the court a
quo rendered the appealed decision, the decretal
portion of which reads as follows:
WHEREFORE, judgment is hereby
rendered:
(1) Dismissing the complaint with
costs against the plaintiff;
(2) Ordering plaintiff to pay
defendant Carmelo & Bauermann
P40,000.00 by way of attorney's
fees on its counterclaim;
(3) Ordering plaintiff to pay
defendant Equatorial Realty
P35,000.00 per month as
reasonable compensation for the
use of areas not covered by the
contract (sic) of lease from July 31,
1979 until plaintiff vacates said area
(sic) plus legal interest from July 31,
1978; P70,000 00 per month as
reasonable compensation for the
use of the premises covered by the
contracts (sic) of lease dated (June
1, 1967 from June 1, 1987 until
plaintiff vacates the premises plus
legal interest from June 1, 1987;
P55,000.00 per month as
reasonable compensation for the

use of the premises covered by the

contract of lease dated March 31,
1969 from March 30, 1989 until
plaintiff vacates the premises plus
legal interest from March 30, 1989;
and P40,000.00 as attorney's fees;
(4) Dismissing defendant
Equatorial's crossclaim against
defendant Carmelo & Bauermann.
The contracts of lease dated June 1,
1967 and March 31, 1969 are
declared expired and all persons
claiming rights under these
contracts are directed to vacate the
premises. 6
The trial court adjudged the identically worded paragraph 8
found in both aforecited lease contracts to be an option
clause which however cannot be deemed to be binding on
Carmelo because of lack of distinct consideration therefor.

Contracts without cause or with

unlawful cause, produce no effect
whatever. The cause is unlawful if it
is contrary to law, morals, good
custom, public order or public policy.
Contracts therefore without consideration produce
no effect whatsoever. Article 1324 provides:
When the offeror has allowed the
offeree a certain period to accept,
the offer may be withdrawn at any
time before acceptance by
communicating such withdrawal,
except when the option is founded
upon consideration, as something
paid or promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a
determine thing for a price certain is
reciprocally demandable.

The court a quo ratiocinated:

Significantly, during the pre-trial, it was admitted by
the parties that the option in the contract of lease is
not supported by a separate consideration. Without
a consideration, the option is therefore not binding
on defendant Carmelo & Bauermann to sell the C.M.
Recto property to the former. The option invoked by
the plaintiff appears in the contracts of lease . . . in
effect there is no option, on the ground that there is
no consideration. Article 1352 of the Civil Code,
provides:

An accepted unilateral promise to

buy or to sell a determine thing for a
price certain is binding upon the
promissor if the promise is
supported by a consideration
distinct from the price.
The plaintiff cannot compel defendant Carmelo to
comply with the promise unless the former
establishes the existence of a distinct consideration.
In other words, the promisee has the burden of
proving the consideration. The consideration cannot
be presumed as in Article 1354:

Although the cause is not stated in

the contract, it is presumed that it
exists and is lawful unless the
debtor proves the contrary.
where consideration is legally presumed to exists.
Article 1354 applies to contracts in general, whereas
when it comes to an option it is governed particularly
and more specifically by Article 1479 whereby the
promisee has the burden of proving the existence of
consideration distinct from the price. Thus, in the
case of Sanchez vs. Rigor, 45 SCRA 368, 372-373,
the Court said:
(1) Article 1354 applies to contracts
in general, whereas the second
paragraph of Article 1479 refers to
sales in particular, and, more
specifically, to an accepted
unilateral promise to buy or to sell.
In other words, Article 1479 is
controlling in the case at bar.
(2) In order that said unilateral
promise may be binding upon the
promissor, Article 1479 requires the
concurrence of a condition, namely,
that the promise be supported by a
consideration distinct from the price.
Accordingly, the promisee cannot
compel the promissor to comply with
the promise, unless the former
establishes the existence of said
distinct consideration. In other
words, the promisee has the burden
of proving such consideration.

Plaintiff herein has not even alleged

the existence thereof in his
complaint. 7
It follows that plaintiff cannot compel defendant
Carmelo & Bauermann to sell the C.M. Recto
property to the former.
Mayfair taking exception to the decision of the trial court, the
battleground shifted to the respondent Court of Appeals.
Respondent appellate court reversed the court a quo and
rendered judgment:
1. Reversing and setting aside the appealed
Decision;
2. Directing the plaintiff-appellant Mayfair Theater
Inc. to pay and return to Equatorial the amount of
P11,300,000.00 within fifteen (15) days from notice
of this Decision, and ordering Equatorial Realty
Development, Inc. to accept such payment;
3. Upon payment of the sum of P11,300,000,
directing Equatorial Realty Development, Inc. to
execute the deeds and documents necessary for the
issuance and transfer of ownership to Mayfair of the
lot registered under TCT Nos. 17350, 118612,
60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be
unable to pay the amount as adjudged, declaring the
Deed of Absolute Sale between the defendantsappellants Carmelo & Bauermann, Inc. and
Equatorial Realty Development, Inc. as valid and
binding upon all the parties. 8

Rereading the law on the matter of sales and option

contracts, respondent Court of Appeals differentiated
between Article 1324 and Article 1479 of the Civil Code,
analyzed their application to the facts of this case, and
concluded that since paragraph 8 of the two lease contracts
does not state a fixed price for the purchase of the leased
premises, which is an essential element for a contract of sale
to be perfected, what paragraph 8 is, must be a right of first
refusal and not an option contract. It explicated:
Firstly, the court a quo misapplied the provisions of
Articles 1324 and 1479, second paragraph, of the
Civil Code.
Article 1324 speaks of an "offer" made by an offeror
which the offeree may or may not accept within a
certain period. Under this article, the offer may be
withdrawn by the offeror before the expiration of the
period and while the offeree has not yet accepted
the offer. However, the offer cannot be withdrawn by
the offeror within the period if a consideration has
been promised or given by the offeree in exchange
for the privilege of being given that period within
which to accept the offer. The consideration is
distinct from the price which is part of the offer. The
contract that arises is known as option. In the case
of Beaumont vs. Prieto, 41 Phil. 670, the Supreme
court, citing Bouvier, defined an option as follows: "A
contract by virtue of which A, in consideration of the
payment of a certain sum to B, acquires the privilege
of buying from or selling to B, certain securities or
properties within a limited time at a specified price,"
(pp. 686-7).
Article 1479, second paragraph, on the other hand,
contemplates of an "accepted unilateral promise to
buy or to sell a determinate thing for a price within

(which) is binding upon the promisee if the promise

is supported by a consideration distinct from the
price." That "unilateral promise to buy or to sell a
determinate thing for a price certain" is called an
offer. An "offer", in laws, is a proposal to enter into a
contract (Rosenstock vs. Burke, 46 Phil. 217). To
constitute a legal offer, the proposal must be certain
as to the object, the price and other essential terms
of the contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that
the provision granting Mayfair "30-days exclusive
option to purchase" the leased premises is NOT AN
OPTION in the context of Arts. 1324 and 1479,
second paragraph, of the Civil Code. Although the
provision is certain as to the object (the sale of the
leased premises) the price for which the object is to
be sold is not stated in the provision Otherwise
stated, the questioned stipulation is not by itself, an
"option" or the "offer to sell" because the clause
does not specify the price for the subject property.
Although the provision giving Mayfair "30-days
exclusive option to purchase" cannot be legally
categorized as an option, it is, nevertheless, a valid
and binding stipulation. What the trial court failed to
appreciate was the intention of the parties behind
the questioned proviso.
xxx xxx xxx
The provision in question is not of the pro-forma type
customarily found in a contract of lease. Even
appellees have recognized that the stipulation was
incorporated in the two Contracts of Lease at the
initiative and behest of Mayfair. Evidently, the
stipulation was intended to benefit and protect

Mayfair in its rights as lessee in case Carmelo

should decide, during the term of the lease, to sell
the leased property. This intention of the parties is
achieved in two ways in accordance with the
stipulation. The first is by giving Mayfair "30-days
exclusive option to purchase" the leased property.
The second is, in case Mayfair would opt not to
purchase the leased property, "that the purchaser
(the new owner of the leased property) shall
recognize the lease and be bound by all the terms
and conditions thereof."
In other words, paragraph 8 of the two Contracts of
lease, particularly the stipulation giving Mayfair "30days exclusive option to purchase the (leased
premises)," was meant to provide Mayfair the
opportunity to purchase and acquire the leased
property in the event that Carmelo should decide to
dispose of the property. In order to realize this
intention, the implicit obligation of Carmelo once it
had decided to sell the leased property, was not only
to notify Mayfair of such decision to sell the property,
but, more importantly, to make an offer to sell the
leased premises to Mayfair, giving the latter a fair
and reasonable opportunity to accept or reject the
offer, before offering to sell or selling the leased
property to third parties. The right vested in Mayfair
is analogous to the right of first refusal, which means
that Carmelo should have offered the sale of the
leased premises to Mayfair before offering it to other
parties, or, if Carmelo should receive any offer from
third parties to purchase the leased premises, then
Carmelo must first give Mayfair the opportunity to
match that offer.
In fact, Mr. Pascal understood the provision as giving
Mayfair a right of first refusal when he made the

telephone call to Mr. Yang in 1974. Mr. Pascal thus

testified:
Q Can you tell this
Honorable Court
how you made the
offer to Mr. Henry
Yang by telephone?
A I have an offer
from another party
to buy the property
and having the offer
we decided to make
an offer to Henry
Yang on a firstrefusal basis. (TSN
November 8, 1983,
p. 12.).
and on cross-examination:
Q When you called
Mr. Yang on August
1974 can you
remember exactly
what you have told
him in connection
with that matter, Mr.
Pascal?
A More or less, I
told him that I
received an offer
from another party
to buy the property
and I was offering

him first choice of

the enter property.
(TSN, November
29, 1983, p. 18).
We rule, therefore, that the foregoing interpretation
best renders effectual the intention of the parties. 9
Besides the ruling that paragraph 8 vests in Mayfair the right
of first refusal as to which the requirement of distinct
consideration indispensable in an option contract, has no
application, respondent appellate court also addressed the
claim of Carmelo and Equatorial that assuming
arguendo that the option is valid and effective, it is
impossible of performance because it covered only the
leased premises and not the entire Claro M. Recto property,
while Carmelo's offer to sell pertained to the entire property
in question. The Court of Appeals ruled as to this issue in
this wise:
We are not persuaded by the contentions of the
defendants-appellees. It is to be noted that the Deed
of Absolute Sale between Carmelo and Equatorial
covering the whole Claro M. Recto property, made
reference to four titles: TCT Nos. 17350, 118612,
60936 and 52571. Based on the information
submitted by Mayfair in its appellant's Brief (pp. 5
and 46) which has not been controverted by the
appellees, and which We, therefore, take judicial
notice of the two theaters stand on the parcels of
land covered by TCT No. 17350 with an area of
622.10 sq. m and TCT No. 118612 with an area of
2,100.10 sq. m. The existence of four separate
parcels of land covering the whole Recto property
demonstrates the legal and physical possibility that
each parcel of land, together with the buildings and

improvements thereof, could have been sold

independently of the other parcels.
At the time both parties executed the contracts, they
were aware of the physical and structural conditions
of the buildings on which the theaters were to be
constructed in relation to the remainder of the whole
Recto property. The peculiar language of the
stipulation would tend to limit Mayfair's right under
paragraph 8 of the Contract of Lease to the
acquisition of the leased areas only. Indeed, what is
being contemplated by the questioned stipulation is
a departure from the customary situation wherein the
buildings and improvements are included in and
form part of the sale of the subjacent land. Although
this situation is not common, especially considering
the non-condominium nature of the buildings, the
sale would be valid and capable of being performed.
A sale limited to the leased premises only, if
hypothetically assumed, would have brought into
operation the provisions of co-ownership under
which Mayfair would have become the exclusive
owner of the leased premises and at the same time
a co-owner with Carmelo of the subjacent land in
proportion to Mayfair's interest over the premises
sold to it. 10
Carmelo and Equatorial now comes before us questioning
the correctness and legal basis for the decision of
respondent Court of Appeals on the basis of the following
assigned errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN
CONCLUDING THAT THE OPTION CLAUSE IN
THE CONTRACTS OF LEASE IS ACTUALLY A

RIGHT OF FIRST REFUSAL PROVISO. IN DOING

SO THE COURT OF APPEALS DISREGARDED
THE CONTRACTS OF LEASE WHICH CLEARLY
AND UNEQUIVOCALLY PROVIDE FOR AN
OPTION, AND THE ADMISSION OF THE PARTIES
OF SUCH OPTION IN THEIR STIPULATION OF
FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST
REFUSAL, THE COURT OF APPEALS ERRED IN
DIRECTING EQUATORIAL TO EXECUTE A DEED
OF SALE EIGHTEEN (18) YEARS AFTER
MAYFAIR FAILED TO EXERCISE ITS OPTION (OR,
EVEN ITS RIGHT OF FIRST REFUSAL ASSUMING
IT WAS ONE) WHEN THE CONTRACTS LIMITED
THE EXERCISE OF SUCH OPTION TO 30 DAYS
FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED
WHEN IT DIRECTED IMPLEMENTATION OF ITS
DECISION EVEN BEFORE ITS FINALITY, AND
WHEN IT GRANTED MAYFAIR A RELIEF THAT
WAS NOT EVEN PRAYED FOR IN THE
COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN
INTERNAL RULES IN THE ASSIGNMENT OF
APPEALED CASES WHEN IT ALLOWED THE
SAME DIVISION XII, PARTICULARLY JUSTICE
MANUEL HERRERA, TO RESOLVE ALL THE
MOTIONS IN THE "COMPLETION PROCESS" AND

TO STILL RESOLVE THE MERITS OF THE CASE

IN THE "DECISION STAGE". 11

We shall first dispose of the fourth assigned error respecting

alleged irregularities in the raffle of this case in the Court of
Appeals. Suffice it to say that in our Resolution, 12 dated
December 9, 1992, we already took note of this matter and
set out the proper applicable procedure to be the following:
On September 20, 1992, counsel for petitioner
Equatorial Realty Development, Inc. wrote a lettercomplaint to this Court alleging certain irregularities
and infractions committed by certain lawyers, and
Justices of the Court of Appeals and of this Court in
connection with case CA-G.R. CV No. 32918 (now
G.R. No. 106063). This partakes of the nature of an
administrative complaint for misconduct against
members of the judiciary. While the letter-complaint
arose as an incident in case CA-G.R. CV No. 32918
(now G.R. No. 106063), the disposition thereof
should be separate and independent from Case
G.R. No. 106063. However, for purposes of
receiving the requisite pleadings necessary in
disposing of the administrative complaint, this
Division shall continue to have control of the case.
Upon completion thereof, the same shall be referred
to the Court En Banc for proper disposition. 13
This court having ruled the procedural irregularities raised in
the fourth assigned error of Carmelo and Equatorial, to be an
independent and separate subject for an administrative
complaint based on misconduct by the lawyers and justices
implicated therein, it is the correct, prudent and consistent
course of action not to pre-empt the administrative
proceedings to be undertaken respecting the said

irregularities. Certainly, a discussion thereupon by us in this

case would entail a finding on the merits as to the real nature
of the questioned procedures and the true intentions and
motives of the players therein.
In essence, our task is two-fold: (1) to define the true nature,
scope and efficacy of paragraph 8 stipulated in the two
contracts of lease between Carmelo and Mayfair in the face
of conflicting findings by the trial court and the Court of
Appeals; and (2) to determine the rights and obligations of
Carmelo and Mayfair, as well as Equatorial, in the aftermath
of the sale by Carmelo of the entire Claro M. Recto property
to Equatorial.
Both contracts of lease in question provide the identically
worded paragraph 8, which reads:
That if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30-days
exclusive option to purchase the same.
In the event, however, that the leased premises is
sold to someone other than the LESSEE, the
LESSOR is bound and obligated, as it hereby binds
and obligates itself, to stipulate in the Deed of Sale
thereof that the purchaser shall recognize this lease
and be bound by all the terms and conditions
thereof. 14
We agree with the respondent Court of Appeals that the
aforecited contractual stipulation provides for a right of first
refusal in favor of Mayfair. It is not an option clause or an
option contract. It is a contract of a right of first refusal.
As early as 1916, in the case of Beaumont
vs. Prieto, 15 unequivocal was our characterization of an
option contract as one necessarily involving the choice

granted to another for a distinct and separate consideration

as to whether or not to purchase a determinate thing at a
predetermined fixed price.
It is unquestionable that, by means of the document
Exhibit E, to wit, the letter of December 4, 1911,
quoted at the beginning of this decision, the
defendant Valdes granted to the plaintiff Borck the
right to purchase the Nagtajan Hacienda belonging
to Benito Legarda, during the period of three months
and for its assessed valuation, a grant which
necessarily implied the offer or obligation on the part
of the defendant Valdes to sell to Borck the said
hacienda during the period and for the price
mentioned . . . There was, therefore, a meeting of
minds on the part of the one and the other, with
regard to the stipulations made in the said
document. But it is not shown that there was any
cause or consideration for that agreement, and this
omission is a bar which precludes our holding that
the stipulations contained in Exhibit E is a contract of
option, for, . . . there can be no contract without the
requisite, among others, of the cause for the
obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier
defines an option as a contract, in the following
language:
A contract by virtue of which A, in
consideration of the payment of a
certain sum to B, acquires the
privilege of buying from, or selling to
B, certain securities or properties
within a limited time at a specified
price. (Story vs. Salamon, 71 N.Y.,
420.)

From vol. 6, page 5001, of the work "Words and

Phrases," citing the case of Ide vs. Leiser (24 Pac.,
695; 10 Mont., 5; 24 Am. St. Rep., 17) the following
quotation has been taken:
An agreement in writing to give a
person the option to purchase lands
within a given time at a named
price is neither a sale nor an
agreement to sell. It is simply a
contract by which the owner of
property agrees with another person
that he shall have the right to buy
his property at a fixed price within a
certain time. He does not sell his
land; he does not then agree to sell
it; but he does sell something; that
is, the right or privilege to buy at the
election or option of the other party.
The second party gets in praesenti,
not lands, nor an agreement that he
shall have lands, but he does get
something of value; that is, the right
to call for and receive lands if he
elects. The owner parts with his
right to sell his lands, except to the
second party, for a limited period.
The second party receives this right,
or, rather, from his point of view, he
receives the right to elect to buy.
But the two definitions above cited refer to the
contract of option, or, what amounts to the same
thing, to the case where there was cause or
consideration for the obligation, the subject of the
agreement made by the parties; while in the case at

bar there was no such cause or

consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is that the
deed of option or the option clause in a contract, in order to
be valid and enforceable, must, among other things, indicate
the definite price at which the person granting the option, is
willing to sell.
Notably, in one case we held that the lessee loses his right to buy the
leased property for a named price per square meter upon failure to
make the purchase within the time specified; 17 in one other case we
freed the landowner from her promise to sell her land if the
prospective buyer could raise P4,500.00 in three weeks because
such option was not supported by a distinct consideration; 18 in the
same vein in yet one other case, we also invalidated an instrument
entitled, "Option to Purchase" a parcel of land for the sum of
P1,510.00 because of lack of consideration; 19 and as an exception to
the doctrine enumerated in the two preceding cases, in another
case, we ruled that the option to buy the leased premises for
P12,000.00 as stipulated in the lease contract, is not without
consideration for in reciprocal contracts, like lease, the obligation or
promise of each party is the consideration for that of the other. 20 In
all these cases, the selling price of the object thereof is always
predetermined and specified in the option clause in the contract or in
the separate deed of option. We elucidated, thus, in the very recent
case of Ang Yu Asuncion vs. Court of Appeals 21 that:
. . . In sales, particularly, to which the topic for
discussion about the case at bench belongs, the
contract is perfected when a person, called the
seller, obligates himself, for a price certain, to deliver
and to transfer ownership of a thing or right to
another, called the buyer, over which the latter
agrees. Article 1458 of the Civil Code provides:

Art. 1458. By the contract of sale

one of the contracting parties
obligates himself to transfer the
ownership of and to deliver a
determinate thing, and the other to
pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute
or conditional.
When the sale is not absolute but conditional, such
as in a "Contract to Sell" where invariably the
ownership of the thing sold in retained until the
fulfillment of a positive suspensive condition
(normally, the full payment of the purchase price),
the breach of the condition will prevent the obligation
to convey title from acquiring an obligatory force. . . .
An unconditional mutual promise to buy and sell, as
long as the object is made determinate and the price
is fixed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted.
An accepted unilateral promise which specifies the
thing to be sold and the price to be paid, when
coupled with a valuable consideration distinct and
separate from the price, is what may properly be
termed a perfected contract of option. This contract
is legally binding, and in sales, it conforms with the
second paragraph of Article 1479 of the Civil
Code, viz:
Art. 1479. . . .
An accepted unilateral promise to
buy or to sell a determinate thing for

a price certain is binding upon the

promisor if the promise is supported
by a consideration distinct from the
price. (1451a).
Observe, however, that the option is not the contract
of sale itself. The optionee has the right, but not the
obligation, to buy. Once the option is exercised
timely, i.e., the offer is accepted before a breach of
the option, a bilateral promise to sell and to buy
ensues and both parties are then reciprocally bound
to comply with their respective undertakings.
Let us elucidate a little. A negotiation is formally
initiated by an offer. An imperfect promise
(policitacion) is merely an offer. Public
advertisements or solicitations and the like are
ordinarily construed as mere invitations to make
offers or only as proposals. These relations, until a
contract is perfected, are not considered binding
commitments. Thus, at any time prior to the
perfection of the contract, either negotiating party
may stop the negotiation. The offer, at this stage,
may be withdrawn; the withdrawal is effective
immediately after its manifestation, such as by its
mailing and not necessarily when the offeree learns
of the withdrawal (Laudico vs. Arias, 43 Phil. 270).
Where a period is given to the offeree within which
to accept the offer, the following rules generally
govern:
(1) If the period is not itself founded upon or
supported by a consideration, the offeror is still free
and has the right to withdraw the offer before its
acceptance, or if an acceptance has been made,
before the offeror's coming to know of such fact, by
communicating that withdrawal to the offeree (see

Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs.
Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art.
1479, modifying the previous decision in South
Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see
also Art. 1319, Civil Code; Rural Bank of Paraaque,
Inc. vs. Remolado, 135 SCRA 409; Sanchez vs.
Rigos, 45 SCRA 368). The right to withdraw,
however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage
claim under Article 19 of the Civil Code which
ordains that "every person must, in the exercise of
his rights and in the performance of his duties, act
with justice, give everyone his due, and observe
honesty and good faith."
(2) If the period has a separate consideration, a
contract of "option" deemed perfected, and it would
be a breach of that contract to withdraw the offer
during the agreed period. The option, however, is an
independent contract by itself; and it is to be
distinguished from the projected main agreement
(subject matter of the option) which is obviously yet
to be concluded. If, in fact, the optioner-offeror
withdraws the offer before its acceptance (exercise
of the option) by the optionee-offeree, the latter may
not sue for specific performance on the proposed
contract ("object" of the option) since it has failed to
reach its own stage of perfection. The optionerofferor, however, renders himself liable for damages
for breach of the opinion. . .
In the light of the foregoing disquisition and in view of the
wording of the questioned provision in the two lease
contracts involved in the instant case, we so hold that no
option to purchase in contemplation of the second paragraph

of Article 1479 of the Civil Code, has been granted to Mayfair

under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said
paragraph 8 grants the right of first refusal to Mayfair and is
not an option contract. It also correctly reasoned that as
such, the requirement of a separate consideration for the
option, has no applicability in the instant case.
There is nothing in the identical Paragraphs "8" of the June
1, 1967 and March 31, 1969 contracts which would bring
them into the ambit of the usual offer or option requiring an
independent consideration.
An option is a contract granting a privilege to buy or sell
within an agreed time and at a determined price. It is a
separate and distinct contract from that which the parties
may enter into upon the consummation of the option. It must
be supported by consideration. 22 In the instant case, the
right of first refusal is an integral part of the contracts of
lease. The consideration is built into the reciprocal
obligations of the parties.
To rule that a contractual stipulation such as that found in
paragraph 8 of the contracts is governed by Article 1324 on
withdrawal of the offer or Article 1479 on promise to buy and
sell would render in effectual or "inutile" the provisions on
right of first refusal so commonly inserted in leases of real
estate nowadays. The Court of Appeals is correct in stating
that Paragraph 8 was incorporated into the contracts of
lease for the benefit of Mayfair which wanted to be assured
that it shall be given the first crack or the first option to buy
the property at the price which Carmelo is willing to accept. It
is not also correct to say that there is no consideration in an
agreement of right of first refusal. The stipulation is part and
parcel of the entire contract of lease. The consideration for
the lease includes the consideration for the right of first

refusal. Thus, Mayfair is in effect stating that it consents to

lease the premises and to pay the price agreed upon
provided the lessor also consents that, should it sell the
leased property, then, Mayfair shall be given the right to
match the offered purchase price and to buy the property at
that price. As stated in Vda. De Quirino vs. Palarca, 23 in
reciprocal contract, the obligation or promise of each party is
the consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining
the true nature of the aforecited paragraph 8 to be that of a
contractual grant of the right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations
and liabilities of Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an
amplification of the precedent in Ang Yu Asuncion vs. Court
of Appeals. 24
First and foremost is that the petitioners acted in bad faith to
render Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two
lease contracts, was that Mayfair will have the right of first
refusal in the event Carmelo sells the leased premises. It is
undisputed that Carmelo did recognize this right of Mayfair,
for it informed the latter of its intention to sell the said
property in 1974. There was an exchange of letters
evidencing the offer and counter-offers made by both parties.
Carmelo, however, did not pursue the exercise to its logical
end. While it initially recognized Mayfair's right of first refusal,
Carmelo violated such right when without affording its
negotiations with Mayfair the full process to ripen to at least
an interface of a definite offer and a possible corresponding
acceptance within the "30-day exclusive option" time granted
Mayfair, Carmelo abandoned negotiations, kept a low profile

for some time, and then sold, without prior notice to Mayfair,
the entire Claro M Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders
the sale to it of the property in question rescissible. We
agree with respondent Appellate Court that the records bear
out the fact that Equatorial was aware of the lease contracts
because its lawyers had, prior to the sale, studied the said
contracts. As such, Equatorial cannot tenably claim to be a
purchaser in good faith, and, therefore, rescission lies.
. . . Contract of Sale was not voidable but
rescissible. Under Article 1380 to 1381(3) of the Civil
Code, a contract otherwise valid may nonetheless
be subsequently rescinded by reason of injury to
third persons, like creditors. The status of creditors
could be validly accorded the Bonnevies for they had
substantial interests that were prejudiced by the sale
of the subject property to the petitioner without
recognizing their right of first priority under the
Contract of Lease.
According to Tolentino, rescission is a remedy
granted by law to the contracting parties and even to
third persons, to secure reparation for damages
caused to them by a contract, even if this should be
valid, by means of the restoration of things to their
condition at the moment prior to the celebration of
said contract. It is a relief allowed for the protection
of one of the contracting parties and even third
persons from all injury and damage the contract may
cause, or to protect some incompatible and preferent
right created by the contract. Rescission implies a
contract which, even if initially valid, produces a
lesion or pecuniary damage to someone that justifies
its invalidation for reasons of equity.

It is true that the acquisition by a third person of the

property subject of the contract is an obstacle to the
action for its rescission where it is shown that such
third person is in lawful possession of the subject of
the contract and that he did not act in bad faith.
However, this rule is not applicable in the case
before us because the petitioner is not considered a
third party in relation to the Contract of Sale nor may
its possession of the subject property be regarded
as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee
in the Contract of Sale. Moreover, the petitioner
cannot be deemed a purchaser in good faith for the
record shows that it categorically admitted it was
aware of the lease in favor of the Bonnevies, who
were actually occupying the subject property at the
time it was sold to it. Although the Contract of Lease
was not annotated on the transfer certificate of title
in the name of the late Jose Reynoso and Africa
Reynoso, the petitioner cannot deny actual
knowledge of such lease which was equivalent to
and indeed more binding than presumed notice by
registration.
A purchaser in good faith and for value is one who
buys the property of another without notice that
some other person has a right to or interest in such
property and pays a full and fair price for the same at
the time of such purchase or before he has notice of
the claim or interest of some other person in the
property. Good faith connotes an honest intention to
abstain from taking unconscientious advantage of
another. Tested by these principles, the petitioner
cannot tenably claim to be a buyer in good faith as it
had notice of the lease of the property by the
Bonnevies and such knowledge should have

cautioned it to look deeper into the agreement to

determine if it involved stipulations that would
prejudice its own interests.
The petitioner insists that it was not aware of the
right of first priority granted by the Contract of Lease.
Assuming this to be true, we nevertheless agree with
the observation of the respondent court that:
If Guzman-Bocaling failed to inquire
about the terms of the Lease
Contract, which includes Par. 20 on
priority right given to the Bonnevies,
it had only itself to blame. Having
known that the property it was
buying was under lease, it
behooved it as a prudent person to
have required Reynoso or the
broker to show to it the Contract of
Lease in which Par. 20 is
contained. 25
Petitioners assert the alleged impossibility of performance
because the entire property is indivisible property. It was
petitioner Carmelo which fixed the limits of the property it
was leasing out. Common sense and fairness dictate that
instead of nullifying the agreement on that basis, the
stipulation should be given effect by including the indivisible
appurtenances in the sale of the dominant portion under the
right of first refusal. A valid and legal contract where the
ascendant or the more important of the two parties is the
landowner should be given effect, if possible, instead of
being nullified on a selfish pretext posited by the owner.
Following the arguments of petitioners and the participation
of the owner in the attempt to strip Mayfair of its rights, the
right of first refusal should include not only the property
specified in the contracts of lease but also the appurtenant

portions sold to Equatorial which are claimed by petitioners

to be indivisible. Carmelo acted in bad faith when it sold the
entire property to Equatorial without informing Mayfair, a
clear violation of Mayfair's rights. While there was a series of
exchanges of letters evidencing the offer and counter-offers
between the parties, Carmelo abandoned the negotiations
without giving Mayfair full opportunity to negotiate within the
30-day period.
Accordingly, even as it recognizes the right of first refusal,
this Court should also order that Mayfair be authorized to
exercise its right of first refusal under the contract to include
the entirety of the indivisible property. The boundaries of the
property sold should be the boundaries of the offer under the
right of first refusal. As to the remedy to enforce Mayfair's
right, the Court disagrees to a certain extent with the
concluding part of the dissenting opinion of Justice Vitug.
The doctrine enunciated in Ang Yu Asuncion vs.Court of
Appeals should be modified, if not amplified under the
peculiar facts of this case.
As also earlier emphasized, the contract of sale between
Equatorial and Carmelo is characterized by bad faith, since it
was knowingly entered into in violation of the rights of and to
the prejudice of Mayfair. In fact, as correctly observed by the
Court of Appeals, Equatorial admitted that its lawyers had
studied the contract of lease prior to the sale. Equatorial's
knowledge of the stipulations therein should have cautioned
it to look further into the agreement to determine if it involved
stipulations that would prejudice its own interests.
Since Mayfair has a right of first refusal, it can exercise the
right only if the fraudulent sale is first set aside or rescinded.
All of these matters are now before us and so there should
be no piecemeal determination of this case and leave
festering sores to deteriorate into endless litigation. The facts
of the case and considerations of justice and equity require

that we order rescission here and now. Rescission is a relief

allowed for the protection of one of the contracting parties
and even third persons from all injury and damage the
contract may cause or to protect some incompatible and
preferred right by the contract. 26 The sale of the subject real
property by Carmelo to Equatorial should now be rescinded
considering that Mayfair, which had substantial interest over
the subject property, was prejudiced by the sale of the
subject property to Equatorial without Carmelo conferring to
Mayfair every opportunity to negotiate within the 30-day
stipulated period. 27
This Court has always been against multiplicity of suits
where all remedies according to the facts and the law can be
included. Since Carmelo sold the property for
P11,300,000.00 to Equatorial, the price at which Mayfair
could have purchased the property is, therefore, fixed. It can
neither be more nor less. There is no dispute over it. The
damages which Mayfair suffered are in terms of actual injury
and lost opportunities. The fairest solution would be to allow
Mayfair to exercise its right of first refusal at the price which it
was entitled to accept or reject which is P11,300,000.00.
This is clear from the records.
To follow an alternative solution that Carmelo and Mayfair
may resume negotiations for the sale to the latter of the
disputed property would be unjust and unkind to Mayfair
because it is once more compelled to litigate to enforce its
right. It is not proper to give it an empty or vacuous victory in
this case. From the viewpoint of Carmelo, it is like asking a
fish if it would accept the choice of being thrown back into
the river. Why should Carmelo be rewarded for and allowed
to profit from, its wrongdoing? Prices of real estate have
skyrocketed. After having sold the property for
P11,300,000.00, why should it be given another chance to
sell it at an increased price?

Under the Ang Yu Asuncion vs. Court of Appeals decision,

the Court stated that there was nothing to execute because a
contract over the right of first refusal belongs to a class of
preparatory juridical relations governed not by the law on
contracts but by the codal provisions on human relations.
This may apply here if the contract is limited to the buying
and selling of the real property. However, the obligation of
Carmelo to first offer the property to Mayfair is embodied in a
contract. It is Paragraph 8 on the right of first refusal which
created the obligation. It should be enforced according to the
law on contracts instead of the panoramic and indefinite rule
on human relations. The latter remedy encourages
multiplicity of suits. There is something to execute and that is
for Carmelo to comply with its obligation to the property
under the right of the first refusal according to the terms at
which they should have been offered then to Mayfair, at the
price when that offer should have been made. Also, Mayfair
has to accept the offer. This juridical relation is not
amorphous nor is it merely preparatory. Paragraphs 8 of the
two leases can be executed according to their terms.
On the question of interest payments on the principal
amount of P11,300,000.00, it must be borne in mind that
both Carmelo and Equatorial acted in bad faith. Carmelo
knowingly and deliberately broke a contract entered into with
Mayfair. It sold the property to Equatorial with purpose and
intend to withhold any notice or knowledge of the sale
coming to the attention of Mayfair. All the circumstances
point to a calculated and contrived plan of non-compliance
with the agreement of first refusal.
On the part of Equatorial, it cannot be a buyer in good faith
because it bought the property with notice and full
knowledge that Mayfair had a right to or interest in the
property superior to its own. Carmelo and Equatorial took
unconscientious advantage of Mayfair.

Neither may Carmelo and Equatorial avail of considerations

based on equity which might warrant the grant of interests.
The vendor received as payment from the vendee what, at
the time, was a full and fair price for the property. It has used
the P11,300,000.00 all these years earning income or
interest from the amount. Equatorial, on the other hand, has
received rents and otherwise profited from the use of the
property turned over to it by Carmelo. In fact, during all the
years that this controversy was being litigated, Mayfair paid
rentals regularly to the buyer who had an inferior right to
purchase the property. Mayfair is under no obligation to pay
any interests arising from this judgment to either Carmelo or
Equatorial.
WHEREFORE, the petition for review of the decision of the
Court of Appeals, dated June 23, 1992, in CA-G.R. CV No.
32918, is HEREBY DENIED. The Deed of Absolute Sale
between petitioners Equatorial Realty Development, Inc. and
Carmelo & Bauermann, Inc. is hereby deemed rescinded;
petitioner Carmelo & Bauermann is ordered to return to
petitioner Equatorial Realty Development the purchase price.
The latter is directed to execute the deeds and documents
necessary to return ownership to Carmelo and Bauermann
of the disputed lots. Carmelo & Bauermann is ordered to
allow Mayfair Theater, Inc. to buy the aforesaid lots for
P11,300,000.00.
SO ORDERED.
DAMIAN IGNACIO, FRANCISCO IGNACIO and LUIS
IGNACIO, petitioners,
vs.
ELIAS HILARIO and his wife DIONISIA DRES, and FELIPE
NATIVIDAD, Judge of First Instance of Pangasinan, respondents.
This is a petition for certiorari arising from a case in the Court of First
Instance of Pangasinan between the herein respondents Elias Hilario

and his wife Dionisia Dres as plaintiffs, and the herein petitioners
Damian, Francisco and Luis, surnamed Ignacio, as defendants,
concerning the ownership of a parcel of land, partly rice-land and
partly residential. After the trial of the case, the lower court, presided
over by Hon. Alfonso Felix, rendered judgment holding plaintiffs as
the legal owners of the whole property but conceding to defendants
the ownership of the houses and granaries built by them on the
residential portion with the rights of a possessor in good faith, in
accordance with article 361 of the Civil Code. The dispositive part of
the decision, hub of this controversy, follows:
Wherefore, judgment is hereby rendered declaring:
(1) That the plaintiffs are the owners of the whole property
described in transfer certificate of title No. 12872 (Exhibit A)
issued in their name, and entitled to the possession of the
same;
(2) That the defendants are entitled to hold the position of
the residential lot until after they are paid the actual market
value of their houses and granaries erected thereon, unless
the plaintiffs prefer to sell them said residential lot, in which
case defendants shall pay the plaintiffs the proportionate
value of said residential lot taking as a basis the price paid
for the whole land according to Exhibit B; and
(3) That upon defendant's failure to purchase the residential
lot in question, said defendants shall remove their houses
and granaries after this decision becomes final and within
the period of sixty (60) days from the date that the court is
informed in writing of the attitude of the parties in this
respect.
No pronouncement is made as to damages and costs.
Once this decision becomes final, the plaintiffs and
defendants may appear again before this court for the

purpose of determining their respective rights under article

361 of the Civil Code, if they cannot come to an extra-judicial
settlement with regard to said rights.
Subsequently, in a motion filed in the same Court of First Instance
but now presided over by the herein respondent Judge Hon. Felipe
Natividad, the plaintiffs prayed for an order of execution alleging that
since they chose neither to pay defendants for the buildings nor to
sell to them the residential lot, said defendants should be ordered to
remove the structure at their own expense and to restore plaintiffs in
the possession of said lot. Defendants objected to this motion which,
after hearing, was granted by Judge Natividad. Hence, this petition
by defendants praying for (a) a restraint and annulment of the order
of execution issued by Judge Natividad; (b) an order to compel
plaintiffs to pay them the sum of P2,000 for the buildings, or sell to
them the residential lot for P45; or (c), a rehearing of the case for a
determination of the rights of the parties upon failure of extra-judicial
settlement.
The judgment rendered by Judge Felix is founded on articles 361
and 453 of the Civil Code which are as follows:
ART. 361. The owner of land on which anything has been
built, sown or planted in good faith, shall have the right to
appropriate as his own the work, sowing or planting, after the
payment of the indemnity stated in articles 453 and 454, or
to oblige the one who built or planted to pay the price of the
land, and the one who sowed, the proper rent.
ART. 453. Necessary expenses shall be refunded to every
possessor; but only the possessor in good faith may retain
the thing until such expenses are made good to him.
Useful expenses shall be refunded to the possessor in good
faith with the same right of retention, the person who has
defeated him in the possession having the option of
refunding the amount of the expenses or paying the increase

in value which the thing may have acquired in consequence

thereof.
The owner of the building erected in good faith on a land owned by
another, is entitled to retain the possession of the land until he is paid
the value of his building, under article 453. The owner of the land,
upon the other hand, has the option, under article 361, either to pay
for the building or to sell his land to the owner of the building. But he
cannot, as respondents here did, refuse both to pay for the building
and to sell the land and compel the owner of the building to remove it
from the land where it is erected. He is entitled to such remotion only
when, after having chosen to sell his land, the other party fails to pay
for the same. But this is not the case before us.
We hold, therefore, that the order of Judge Natividad compelling
defendants-petitioners to remove their buildings from the land
belonging to plaintiffs-respondents only because the latter chose
neither to pay for such buildings not to sell the land, is null and void,
for it amends substantially the judgment sought to be executed and
is, furthermore, offensive to articles 361 and 453 of the Civil Code.
There is, however, in the decision of Judge Felix a question of
procedure which calls for the clarification, to avoid uncertainty and
delay in the disposition of cases. In that decision, the rights of both
parties are well defined under articles 361 and 453 of the Civil Code,
but it fails to determine the value of the buildings and of the lot where
they are erected as well as the periods of time within which the
option may be exercised and payment should be made, these
particulars having been left for determination apparently after the
judgment has become final. This procedure is erroneous, for after the
judgment has become final, no additions can be made thereto and
nothing can be done therewith except its execution. And execution
cannot be had, the sheriff being ignorant as to how, for how much,
and within what time may the option be exercised, and certainly no
authority is vested in him to settle these matters which involve
exercise of judicial discretion. Thus the judgment rendered by Judge
Felix has never become final, it having left matters to be settled for

its completion in a subsequent proceeding, matters which remained

unsettled up to the time the petition is filed in the instant case.
For all the foregoing, the writ of execution issued by Judge Natividad
is hereby set aside and the lower court ordered to hold a hearing in
the principal case wherein it must determine the prices of the
buildings and of the residential lot where they are erected, as well as
the period of time within which the plaintiffs-respondents may
exercise their option either to pay for the buildings or to sell their
land, and, in the last instance, the period of time within which the
defendants-petitioners may pay for the land, all these periods to be
counted from the date the judgment becomes executory or
unappealable. After such hearing, the court shall render a final
judgment according to the evidence presented by the parties.
The costs shall be paid by plaintiffs-respondents.
FLORENCIO IGNAO, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT, JUAN IGNAO,
substituted by his Legal Heirs, and ISIDRO IGNAO, respondents.
In this petition for review by certiorari, petitioner seeks the reversal of
the decision of the Intermediate Appellate Court (now Court of
Appeals) affirming in toto the decision of the Court of First Instance
of Cavite, ordering petitioner Florencio Ignao to sell to private
respondents Juan and Isidro Ignao, that part of his property where
private respondents had built a portion of their houses.
The antecedent facts are as follows:
Petitioner Florencio Ignao and his uncles private respondents Juan
Ignao and Isidro Ignao were co-owners of a parcel of land with an
area of 534 square meters situated in Barrio Tabon, Municipality of
Kawit, Cavite. Pursuant to an action for partition filed by petitioner
docketed as Civil Case No. N-1681, the then Court of First Instance
of Cavite in a decision dated February 6, 1975 directed the partition
of the aforesaid land, alloting 133.5 square meters or 2/8 thereof to

private respondents Juan and Isidro, and giving the remaining

portion with a total area of 266.5 square meters to petitioner
Florencio. However, no actual partition was ever effected. 1
On July 17, 1978, petitioner instituted a complaint for recovery of
possession of real property against private respondents Juan and
Isidro before the Court of First Instance of Cavite, docketed as Civil
Case No. 2662. In his complaint petitioner alleged that the area
occupied by the two (2) houses built by private respondents
exceeded the 133.5 square meters previously alloted to them by the
trial court in Civil Case No. N-1681.
Consequently, the lower court conducted an ocular inspection. It was
found that the houses of Juan and Isidro actually encroached upon a
portion of the land belonging to Florencio. Upon agreement of the
parties, the trial court ordered a licensed geodetic engineer to
conduct a survey to determine the exact area occupied by the
houses of private respondents. The survey subsequently disclosed
that the house of Juan occupied 42 square meters while that of Isidro
occupied 59 square meters of Florencio's land or a total of 101
square meters.
In its decision, the trial court (thru Judge Luis L. Victor) ruled that
although private respondents occupied a portion of Florencio's
property, they should be considered builders in good faith. The trial
court took into account the decision of the Court of First Instance of
Cavite in the action for partition 2 and quoted:
. . . . Hence, it is the well-considered opinion of the Court
that although it turned out that the defendants had, before
partition, been in possession of more than what rightfully
belongs to them, their possession of what is in excess of
their rightful share can at worst be possession in good faith
which exempts them from being condemned to pay
damages by reason thereof. 3
Furthermore, the trial court stated that pursuant to Article 448 of the
Civil Code, the owner of the land (Florencio) should have the choice
to either appropriate that part of the house standing on his land after

payment of indemnity or oblige the builders in good faith (Juan and

Isidro) to pay the price of the land. However, the trial court observed
that based on the facts of the case, it would be useless and
unsuitable for Florencio to exercise the first option since this would
render the entire houses of Juan and Isidro worthless. The trial court
then applied the ruling in the similar case of Grana vs. Court of
Appeals, 4 where the Supreme Court had advanced a more
"workable solution". Thus, it ordered Florencio to sell to Juan and
Isidro those portions of his land respectively occupied by the latter.
The dispositive portion of said decision reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the
defendants and
(a) Ordering the plaintiff Florencio Ignao to sell to the
defendants Juan and Isidro Ignao that portion of his property
with an area of 101 square meters at P40.00 per square
meter, on which part the defendants had built their houses;
and
(b) Ordering the said plaintiff to execute the necessary deed
of conveyance to the defendants in accordance with
paragraph (a) hereof.
Without pronouncement as to costs.

Petitioner Florencio Ignao appealed to the Intermediate Appellate

Court. On August 27, 1985, the Appellate Court, Second Civil Cases
Division, promulgated a decision, 6 affirming the decision of the trial
court.
Hence the instant petition for review which attributes to the Appellate
Court the following errors:
1. That the respondent Court has considered private
respondents builders in good faith on the land on question,
thus applying Art. 448 of the Civil Code, although the land in
question is still owned by the parties in co-ownership, hence,

the applicable provision is Art. 486 of the Civil Code, which

was not applied.
2. That, granting for the sake of argument that Art. 448 . . . is
applicable, the respondent Court has adjudged the working
solution suggested in Grana and Torralba vs. CA. (109 Phil.
260), which is just an opinion by way of passing, and not the
judgment rendered therein, which is in accordance with the
said provision of the Civil Code, wherein the owner of the
land to buy (sic) the portion of the building within 30 days
from the judgment or sell the land occupied by the building.
3. That, granting that private respondents could buy the
portion of the land occupied by their houses, the price fixed
by the court is unrealistic and pre-war price. 7
The records of the case reveal that the disputed land with an area of
534 square meters was originally owned by Baltazar Ignao who
married twice. In his first marriage, he had four children, namely
Justo (the father of petitioner Florencio), Leon and private
respondents Juan and Isidro. In his second marriage, Baltazar had
also four children but the latter waived their rights over the
controverted land in favor of Justo. Thus, Justo owned 4/8 of the land
which was waived by his half-brothers and sisters plus his 1/8 share
or a total of 5/8. Thereafter, Justo acquired the 1/8 share of Leon for
P500.00 which he later sold to his son Florencio for the same
amount. When Justo died, Florencio inherited the 5/8 share of his
father Justo plus his 1/8 share of the land which he bought or a total
of 6/8 (representing 400.5 square meters). Private respondents,
Juan and Isidro, on the other hand, had 1/8 share (66.75 square
meters) each of the land or a total of 133.5 square meters.
Before the decision in the partition case was promulgated, Florencio
sold 134 square meters of his share to a certain Victa for P5,000.00
on January 27, 1975. When the decision was handed down on
February 6,1975, the lower court alloted 2/8 of the land to private
respondents Juan and Isidro, or a total of 133.5 square meters.

It should be noted that prior to partition, all the co-owners hold the
property in common dominion but at the same time each is an owner
of a share which is abstract and undetermined until partition is
effected. As cited in Eusebio vs. Intermediate Appellate Court, 8 "an
undivided estate is co-ownership by the heirs."
As co-owners, the parties may have unequal shares in the common
property, quantitatively speaking. But in a qualitative sense, each coowner has the same right as any one of the other co-owners. Every
co-owner is therefore the owner of the whole, and over the whole he
exercises the right of dominion, but he is at the same time the owner
of a portion which is truly abstract, because until division is effected
such portion is not concretely determined. 9
Petitioner Florencio, in his first assignment of error, asseverates that
the court a quo erred in applying Article 448 of the Civil Code, since
this article contemplates a situation wherein the land belongs to one
person and the thing built, sown or planted belongs to another. In the
instant case, the land in dispute used to be owned in common by the
contending parties.
Article 448 provides:
Art. 448. The owner of the land on which anything has been
built, sown or planted in good faith, shall have the right to
appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in articles 546 and
548, or to oblige the one who built or planted to pay the price
of the land, and the one who sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the building
or trees. In such case, he shall pay reasonable rent, if the
owner of the land does not choose to appropriate the
building or trees after proper indemnity. The parties shall
agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof.
Whether or not the provisions of Article 448 should apply to a builder
in good faith on a property held in common has been resolved in the

affirmative in the case of Spouses del Campo vs. Abesia, 10 wherein

the Court ruled that:
The court a quo correctly held that Article 448 of the Civil
Code cannot apply where a co-owner builds, plants or sows
on the land owned in common for then he did not build, plant
or sow upon land that exclusively belongs to another but of
which he is a co-owner. The co-owner is not a third person
under the circumstances, and the situation is governed by
the rules of co-ownership.
However, when, as in this case, the ownership is terminated
by the partition and it appears that the home of defendants
overlaps or occupies a portion of 5 square meters of the land
pertaining to plaintiffs which the defendants obviously built in
good faith, then the provisions of Article 448 of the new Civil
Code should apply. Manresa and Navarro Amandi agree that
the said provision of the Civil Code may apply even when
there is a co-ownership if good faith has been established. 11
In other words, when the co-ownership is terminated by a partition
and it appears that the house of an erstwhile co-owner has
encroached upon a portion pertaining to another co-owner which
was however made in good faith, then the provisions of Article 448
should apply to determine the respective rights of the parties.
Petitioner's second assigned error is however well taken. Both the
trial court and the Appellate Court erred when they peremptorily
adopted the "workable solution" in the case of Grana vs. Court of
appeals, 12 and ordered the owner of the land, petitioner Florencio, to
sell to private respondents, Juan and Isidro, the part of the land they
intruded upon, thereby depriving petitioner of his right to choose.
Such ruling contravened the explicit provisions of Article 448 to the
effect that "(t)he owner of the land . . . shall have the right to
appropriate . . .or to oblige the one who built . . . to pay the price of
the land . . . ." The law is clear and unambiguous when it confers the
right of choice upon the landowner and not upon the builder and the
courts.

Thus, in Quemuel vs. Olaes, 13 the Court categorically ruled that the
right to appropriate the works or improvements or to oblige the
builder to pay the price of the land belongs to the landowner.
As to the third assignment of error, the question on the price to be
paid on the land need not be discussed as this would be premature
inasmuch as petitioner Florencio has yet to exercise his option as the
owner of the land.
WHEREFORE, the decision appealed from is hereby MODIFIED as
follows: Petitioner Florencio Ignao is directed within thirty (30) days
from entry of judgment to exercise his option to either appropriate as
his own the portions of the houses of Juan and Isidro Ignao
occupying his land upon payment of indemnity in accordance with
Articles 546 and 548 of the Civil Code, or sell to private respondents
the 101 square meters occupied by them at such price as may be
agreed upon. Should the value of the land exceed the value of the
portions of the houses that private respondents have erected
thereon, private respondents may choose not to buy the land but
they must pay reasonable rent for the use of the portion of
petitioner's land as may be agreed upon by the parties. In case of
disagreement, the rate of rental and other terms of the lease shall be
determined by the trial court. Otherwise, private respondents may
remove or demolish at their own expense the said portions of their
houses encroaching upon petitioner's land. 14 No costs.
SO ORDERED.
FILIPINAS COLLEGES, INC., plaintiff-appellee,
vs.
MARIA GARCIA TIMBANG, ET AL., defendants.
-----------------------------G.R. No. L-12813

September 29, 1959

MARIA GARCIA TIMBANG, ET AL., plaintiffs.

MARIA GARICA TIMBANG, plaintiff-appellant,

vs.
MARIA GERVACIO BLAS, defendant-appellee.
De Guzman and Fernandez for appellee Filipinas Colleges, Inc.
San Huan, Africa and Benedicto for appellant Maria Garcia Timbang.
Nicanor S. Sison for appellee Maria Gervacio Blas.
BARRERA, J.:
This is an appeal taken from an order of the Court of First Instance of
Manila dated May 10, 1957 (a) declaring the Sheriff's certificate of
sale covering a school building sold at public auction null and void
unless within 15 days from notice of said order the successful
bidders, defendants-appellants spouses Maria Garcia Timbang and
Marcelino Timbang, shall pay to, appellee Maria Gervacio Blas
directly or through the Sheriff of Manila the sum of P5,750.00 that the
spouses Timbang had bid for the building at the Sheriff's sale; (b)
declaring the other appellee Filipinas Colleges, Inc. owner of
24,500/3,285,934 undivided interest in Lot No. 2-a covered by
certificate of tile No 45970, on which the building sold in the auction
sale is situated; and (c) ordering the sale in public auction of the said
undivided interest of the Filipinas Colleges, Inc., in lot No. 2-a
aforementioned to satisfy the unpaid portion of the judgment in favor
of appellee Blas and against Filipinas Colleges, Inc. in the amount of
P8,200.00 minus the sum of P5,750.00 mentioned in (a) above.
The order appealed from is the result of three motions filed in the
court a quo in the course of the execution of a final judgment of the
Court of Appeals rendered in 2 cases appealed to it in which the
spouses Timbang, the Filipinas Colleges, Inc., and Maria Gervacio
Blas were the parties. IN that judgment of the Court of Appeals, the
respective rights of the litigants have been adjudicated as
follows:1wphl.nt
(1) Filipinas Colleges, Inc. was declared to have acquired
the rights of the spouses Timbang in and to lot No. 2-a
mentioned above and in consideration thereof, Filipinas

Colleges, Inc., was ordered to pay the spouses Timbang the

amount of P15,807.90 plus such other amounts which said
spouses might have paid or had to pay after February, 1953,
to Hoskins and Co. Inc., agent of the Urban Estates, Inc.,
original vendor of the lot. Filipinas Colleges, Inc. original
vendor of the total amount with the court within 90 days after
the decision shall have become final.
(2) Maria Gervacio Blas was declared to be a builder in good
faith of the school building constructed on the lot in question
and entitled to be paid the amount of P19,000.00 for the
same. Filipinas Colleges, Inc., purchaser of the said building
was ordered to deliver to Blas stock certificate (Exh. C) for
108 shares of Filipinas Colleges, Inc. with a par value of
P10,800.00 and to pay Blas the sum of P8,200.00 of the
house.
(3) In case Filipinas Colleges, Inc. failed to deposit the value
of the land, which after liquidation was fixed at P32,859.34,
within the 90-day period set by the court, Filipinas Colleges
would lose all its rights to the land and the spouses Timbang
would then become the owners thereof. In that eventuality,
the Timbangs would make known to the court their option
under Art. 448 of the Civil Code whether they would
appropriate the building in question, in which even they
would have to pay Filipinas Colleges, Inc. the sum of
P19,000.00, or would compel the latter to acquire the land
and pay the price thereof.
Filipinas Colleges, Inc. having failed to pay or deposit the sum of
P32,859.34 within the time prescribed, the spouses Timbang, in
compliance with the judgment of the Court of Appeals, on September
28, 1956, made known to the court their decision that they had
chosen not of appropriate the building but to compel Filipinas
Colleges, Inc., for the payment of the sum of P32,859,34. The motion
having been granted, a writ of execution was issued on January 8,
1957.

On January 16, 1957, appellee Blas in turn filed a motion for

execution of her judgment of P8,200.00 representing the unpaid
portion of the price of the house sold to Filipinas Colleges, Inc. Over
the object of the Timbangs, the court grated the motion and the
corresponding writ of execution was issued on January 30, 1957,
date of the granting of the motion for execution, Blas through
counsel, sent a letter to the Sheriff of Manila advising him of her
preferential claim or lien on the house to satisfy the unpaid balance
of the purchase price thereof under Article 2242 of the Civil Code,
and to withhold from the proceed of the auction sale the sum of
P8,200.00. Levy having been made on the house in virtue of the
writs of execution, the Sheriff of Manila on March 5, 1957, sold the
building in public auction in favor of the spouses Timbang, as the
highest bidders, in the amount of P5,750.00. Personal properties of
Filipinas Colleges, Inc. were also auctioned for P245.00 in favor of
the spouses Timbang.
As a result of these actuation, three motion were subsequently filed
before the lower court:
(1) By appellee Blas, praying that the Sheriff of Manila and/or
the Timbang spouses be ordered to pay and deliver to her
the sum of P5,750.00 representing the proceeds of the
auction sale of the building of Filipinas Colleges, Inc. over
which she has a lien of P8,200.00 for the unpaid balance of
the purchase price thereof;.
(2) Also by the appellee Bals, praying that there being still
two unsatisfied executions, one for the sum of P32,859.34 in
favor the land involved, Lot No. 2-a, be sold at public
auction; and (3) By Filipinas Colleges, Inc. praying that
because its properties, the house and some personal
properties, have been auctioned for P5,750.00 and P245.00
respectively in favor of the Timbang spouses who applied
the proceeds to the partial payment of the sum of
P32,859.34 value of the land, Lot No. 2-a, it (Filipinas
Colleges, Inc.) be declared part owner of said lot to the

extent of the total amount realized from the execution sale of

its properties.1wphl.nt
The Timbang spouses presented their opposition to each and all of
these motion. After due hearing the lower court rendered its
resolution in the manner indicated at the beginning of this decision,
from which the Timbangs alone have appealed.
In assailing the order of the court a quo directing the appellants to
pay appellee Blas the amount of their bid (P5,750.00) made at the
public auction, appellants' counsel has presented a novel, albeit
ingenious, argument. It is contended that because the builder in
good faith has failed to pay the price of the land after the owners
thereof exercised their option under Article 448 of the Civil Code, the
builder lost his right of retention provided in Article 546 and by
operation of Article 445, the appellants as owners of the land
automatically became the owners ipso facto, the execution sale of
the house in their favor was superfluous. Consequently, they are not
bound to make good their bid of P5,750.00 as that would be to make
goods to pay for their own property. By the same token, Blas claim
for preference on account of the unpaid balance of the purchase
price of the house does not apply because preference applies only
with respect to the property of the debtor, and the Timbangs, owners
of the house, are not the debtors of Blas.
This Court cannot accept this oversimplification of appellants'
position. Article 448 and 546 of the Civil Code defining the right of
the parties in case a person in good faith builds, sows or plants on
the land of another, respectively provides:
ART. 448. The owner of the land on which anything has been
built, sown or plated in good faith shall have the right to
appropriate as his own the works, sowing or planting, after
payment of the indemnify provided for in article 546 and 548,
or to obligate 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.

or remedy left to the parties in such eventuality where the builder

fails to pay the value of the land? While the Code is silent on this
Court in the cases of Miranda vs. Fadullon, et al., 97 Phil., 801; 51
Off. Gaz., [12] 6226; Ignacio vs. Hilario, 76 Phil., 605 and the cited
case of Bernardo vs. Bataclan, supra.
In the first case, this Court has said:

ART. 546. Necessary expenses shall be refunded to every

possessor; but only the possessor in good faith may retain
the thing until he has reimbursed therefor.
Useful expenses shall be refunded only to the possessor in
good faith with the same right of retention the person who
has defeated him in the possession having to option of
refunding the amount of expenses or of paying the case in
value which thing may have acquired by reason thereof.
Under the terms of these article, it is true that the owner of the land
has the right to choose between appropriating the building by
reimbursing the builder of the value thereof or compelling the builder
in good faith to pay for his land. Even this second right cannot be
exercised if the value of the land is considerably more than that of
the building. In addition to the right of the builder to be paid the value
of his improvement, Article 546 gives him the corollary right of
retention of the property until he is indemnified by the owner of the
land. There is nothing in the language of these two article, 448 and
546, which would justify the conclusion of appellants that, upon the
failure of the builder to pay the value of the land, when such is
demanded by the land-owner, the latter becomes automatically the
owner of the improvement under Article 445. The case of
Bernardo vs. Bataclan, 66 Phil., 590 cited by appellants is no
authority for this conclusion. Although it is true it was declared
therein that in the event of the failure of the builder to pay the land
after the owner thereof has chosen this alternative, the builder's right
of retention provided in Article 546 is lost, nevertheless there was
nothing said that as a consequence thereof, the builder loses entirely
all rights over his own building. The question is; what is the recourse

A builder in good faith not be required to pay rentals. he has

right to retain the land on which he has built in good faith
until he is reimbursed the expenses incurred by
him. Possibly he might be made to pay rental only when the
owner of the land chooses not to appropriate the
improvement and requires the builder in good faith to pay for
the land but that the builder is unwilling or unable to pay the
land, and then they decide to leave things as they are and
assume the relation of lessor and lessee, and should they
disagree as to the amount of rental then they can go to the
court to fix that amount. (Emphasis supplied)
Should the parties not agree to leave things as they are and to
assume the relation of lessor and lessee, another remedy is
suggested in the case of Ignacio vs. Hilario, supra, wherein the court
has ruled that the owner of the land in entitled to have the
improvement removed when after having chosen to sell his land to
the other party, i.e., the builder in good faith fails to pay for the same.
A further remedy is indicated in the case of Bernardo vs. Bataclan,
supra, where this Court approved the sale of the land and the
improvement in a public auction applying the proceeds thereof first to
the payment of the value of the land and the excess, if any, to be
delivered to the owner of the house in payment thereof.
The appellants herein, owners o the land, instead of electing any of
the alternative above indicated chose to seek recovery of the value
of their land by asking for a writ of execution; levying on the house of
the builder; and selling the same in public auction. Sand because

they are the highest bidder in their own auction sale, they now claim
they acquired title to the building without necessity of paying in cash
on account of their bid. In other words, they in effect pretend to retain
their land and acquire the house without paying a cent therefor.
This contention is without merit. This Court has already held
in Matias vs. The Provincial Sheriff of Nueva Ecija(74 Phil., 326) that
while it is the inveriable practice, dictated by common sense, that
where the successful bidder is the execution creditor himself, he
need not pay down the amount of the bid if it does not exceed the
amount of his judgement, nevertheless, when their is a claim by a
third-party, to the proceeds of the sale superior to his judgment
credit, the execution creditor, as successful bidder, must pay in cash
the amount of his bid as a condition precedent to the issuance to him
of the certificate of sale. In the instant case, the Court of Appeals has
already adjudged that appellee Blas is entitled to the payment of the
unpaid balance of the purchase price of the school building. Blas is
actually a lien on the school building are concerned. The order of the
lower court directing the Timbang spouses, as successful bidders, to
pay in cash the amount of their bid in the sum of P5,750.00 is
therefore correct.
With respect to the order of the court declaring appellee Filipinas
Colleges, Inc. part owner of the land to the extent of the value of its
personal properties sold at public auction in favor of the Timbang,
this Court Likewise finds the same as justified, for such amount
represents, in effect, a partial payment of the value of the land. If this
resulted in the continuation of the so-called involuntary partnership
questioned by the difference between P8,200.00 the unpaid
balance of the purchase price of the building and the sum of
P5,750.00 amount to be paid by the Timbangs, the order of the
court directing the sale of such undivided interest of the Filipinas
Colleges, Inc. is likewise justified to satisfy the claim of the appellee
Blas.
Considering that the appellant spouses Marcelino Timbang and
Maria Garcia Timbang may not voluntarily pay the sum of P5,750.00

as ordered, thereby further delaying the final termination of this case,

the first part of the dispositive portion of the order appealed from is
modified in the sense that upon failure of the Timbang spouses to
pay to the Sheriff or to Manila Gervacio Blas said sum of P5,750.00
within fifteen (15) days from notice of the final judgment, an order of
execution shall issue in favor of Maria Gervasio Blas to be levied
upon all properties of the Timbang spouses not exempt from
execution for the satisfaction of the said amount.
In all other respects, the appealed order of the court a quo is hereby
affirmed, with costs against the appellants.
It is so ordered.
MANOTOK REALTY, INC., petitioner,
vs.
THE HONORABLE JOSE H. TECSON, Judge of the Court of First
Instance of Manila and NILO MADLANGAWA, respondents.
Ceferino V. Argueza for petitioner.
Magtanggol C. Gunigundo for respondents.

GUTIERREZ, JR., J.:

In a complaint filed by the petitioner for recovery of possession and
damages against the private respondent, the then Court of First
Instance of Manila rendered judgment, the dispositive portion of
which provides inter alia:
WHEREFORE, judgment is hereby rendered:
xxx xxx xxx

xxx xxx xxx

(c) In Civil Case No. 72872, declaring the defendant
Nilo Madlangawa as a builder or possessor in good
faith; ordering the plaintiff to recognize the right of
said defendant to remain in Lot No. 345, Block 1, of
the Clara Tambunting Subdivision until after he shall
have been reimbursed by the plaintiff the sum of
P7,500.00, without pronouncement as to costs. (p.
24, Rollo)
Not satisfied with the trial court's decision, the petitioner appealed to
the Court of Appeals and upon affirmance by the latter of the
decision below, the petitioner elevated its case to this Court.
On July 13, 1977, we issued a resolution dated July 11, 1977
denying the petitioner's petition for lack of merit. Hence, on August 5,
1977, the petitioner filed with the trial court, presided over by
respondent Judge Jose H. Tecson, a motion for the approval of
petitioner's exercise of option and for satisfaction of judgment,
praying that the court issue an order: a) approving the exercise of
petitioner's option to appropriate the improvements introduced by the
private respondent on the property; b) thereafter, private respondent
be ordered to deliver possession of the property in question to the
petitioner.
On October 7, 1977, the respondent judge issued the disputed order,
to wit:
Acting on the motion for approval of plaintiffs
exercise of option and for satisfaction of judgment
filed by the plaintiff, and the opposition thereto
interposed by the defendant, both through counsels,
and after a judicious review of all the facts and
circumstances obtaining in this case, in the light of
statutory provisions (Art. 6, New Civil Code) and
jurisprudential doctrines (Vide, Benares v. Capitol

Subdivision, Inc., L-7330 (Nov. 29, 1960), and

considering further the definitive ruling of our
Supreme Tribunal in the case of Jose C. Cristobal v.
Alejandro Melchor, G.R. No. L-43203 promulgated
on July 29, 1977, wherein the Court says:
"This Court, applying the principle of equity, need
not be bound to a rigid application of the law but
rather its action should conform to the conditions or
exigencies of a given problem or situation in order to
grant relief that it will serve the ends of justice."
xxx xxx xxx
the Court is of the considered view that under the peculiar
circumstances which supervened after the institution of this case,
like, for instance, the introduction of certain major repairs of and
other substantial improvements on the controverted property, the
instant motion of the plaintiff is not well-taken and therefore not
legally proper and tenable.
WHEREFORE, and for lack of merit, the instant
motion for approval of the plaintiff's fai-rn of option
and for satisfaction of judgment should be, as
hereby it is, denied. (pp. 45-46, Rollo)
After a denial of its motion for reconsideration, the petitioner filed the
present petition for mandamus alleging that the respondent judge
committed grave abuse of discretion in denying his motion to
exercise option and for execution of judgment on the grounds that
under Articles 448 and 546 of the Civil Code, the exercise of option
belongs to the owner of the property, who is the petitioner herein,
and that upon finality of judgment, the prevailing party is entitled, as
a matter of right, to its execution which is only a ministerial act on the
part of the respondent judge.

On April 15, 1978, the private respondent filed his comment on the
petition alleging that the same has already become moot and
academic for two reasons: first, fire gutted not only the house of the
private respondent but the majority of the houses in Tambunting
Estate; and second, as a result of the said fire, the then First Lady
and Metro Manila Governor Imelda R. Marcos has placed the
disputed area under her Zonal Improvement Project, thereby
allowing the victims of the fire to put up new structures on the
premises, so that the willingness and readiness of the petitioner to
exercise the alleged option can no longer be exercised since the
subject-matter thereof has been extinguished by the fire.
Furthermore, the President of the Philippines has already issued a
Presidential Decree for the expropriation of certain estates in Metro
Manila including the Tambunting Estate. Therefore, the beneficient
and humanitarian purpose of the Zonal Improvement Project and the
expropriation proceeding would be defeated if petitioner is allowed to
exercise an option which would result in the ejectment of the private
respondent.
On December 28, 1980, Presidential Decree (P.D.) No. 1669 was
issued providing for the expropriation of the Tambunting Estate.
However, this decree was challenged before this Court in G.R. No,
55166 entitled The "Elisa R. Manotok, et al. v. National Housing
Authority, et al." Hence, we decided to hold the decision on this
petition pending the resolution of the above entitled case.
On May 21, 1987, the Court rendered a decision in the Elisa
Manotok case (Manotok v. National Housing Authority, 150 SCRA 89)
ruling that P.D. 1669 is unconstitutional for being violative of the due
process clause. Thus, since the present petition has not been
rendered moot and academic by the decision in said case, we will
now decide on its merits.
As stated earlier, the petitioner argues that since the judgment of the
trial court has already become final, it is entitled to the execution of
the same and that moreover, since the house of the private
respondent was gutted by fire, the execution of the decision would

now involve the delivery of possession of the disputed area by the

private respondent to the petitioner.
We find merit in these arguments.
When the decision of the trial court became final and executory, it
became incumbent upon the respondent judge to issue the
necessary writ for the execution of the same. There is, therefore, no
basis for the respondent judge to deny the petitioner's motion to avail
of its option to approriate the improvements made on its property.
In the case of Duenas v. Mandi (151 SCRA 530, 545), we said:
xxx xxx xxx
...Likewise settled is the rule that after a judgment
has become final, no additions can be made thereto,
and nothing can be done therewith except its
execution, otherwise there would be no end to legal
processes. (Fabular v. Court of Appeals, 11 9 SCRA
329)
Neither can the respondent judge deny the issuance of a writ of
execution because the private respondent was adjudged a builder in
good faith or on the ground of "peculiar circumstances which
supervened after the institution of this case, like, for instance, the
introduction of certain major repairs of and other substantial
improvements..." because the option given by law either to retain the
premises and pay for the improvements thereon or to sell the said
premises to the builder in good faith belongs to the owner of the
property. As we have in Quemel v. Olaes (1 SCRA 1159,1163):
xxx xxx xxx
...The plaintiffs claim that their second cause of
action is based on Article 448 in connection with Art.

546, of the new Civil Code. A cursory reading of

these provisions, however, will show that they are
not applicable to plaintiff's case. Under Article 448,
the right to appropriate the works or improvements
or to oblige the one who built or planted to pay the
price of the land' belongs to the owner of the land.
The only right given to the builder in good faith is the
right to reimbursement for the improvements; the
builder, cannot compel the owner of the land to sell
such land to the former. ...

xxx xxx xxx

...Although the bad faith of one party neutralizes that
of the other and hence as between themselves their
rights would be as if both of them had acted in good
faith at the time of the transaction, this legal fiction of
Yap's good faith ceased when the complaint against
him was filed, and consequently the court's
declaration of liability for the rents thereafter is
correct and proper . A possessor in good faith is
entitled to the fruits only so long as his possession is
not legally interrupted, and such interruption takes
place upon service of judicial summons (Arts. 544
and 1123, Civil Code).

Again, in the recent case of Paz Mercado, et al. v. Hon. Court of

Appeals, et al., (G.R. No. L- 44001, June 10, 1988), we said:
... To be deemed a builder in good faith, it is
essential that a person assert title to the land on
which he builds; i.e., that he be a possessor in
concept of owner (Art. 525, Civil Code; Lopez, Inc. v.
Phil. Eastern Trading Co., Inc., 98 Phil. 348) and that
he be unaware 'that there exists in his title or mode
of acquisition any flaw which invalidates it.' (Art. 526,
Civil Code; Granados v. Monton, 86 Phil. 42; Arriola
v. Gomez de la Serna, 14 Phil. 627; See also
Manotok Realty, Inc. v. C.A., 134 SCRA 329, citing
Caram v. Laureta, 103 SCRA 7) It is such a builder
in good faith who is given the 1ight to retain the
thing, even as against the real owner, until he has
been reimbursed in full not only for the necessary
expenses but also for useful expenses. (Art. 546,
Civil Code; Policarpio v. CA., 129 SCRA 51;
Sarmiento v. Agana, 129 SCRA 1221; cf, Queto v.
C.A., 122 SCRA 206) ...
Furthermore, the private respondent's good faith ceased after the
filing of the complaint below by the petitioner. In the case
of Mindanao Academy, Inc. v. Yap (13 SCRA 190,196), we ruled:

Thus, the repairs and improvements introduced by the said

respondents after the complaint was filed cannot be considered to
have been built in good faith, much less, justify the denial of the
petitioner's fai-rn of option.
Since the improvements have been gutted by fire, and therefore, the
basis for private respondent's right to retain the premises has already
been extinguished without the fault of the petitioner, there is no other
recourse for the private respondent but to vacate the premises and
deliver the same to herein petitioner.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is
GRANTED and the respondent judge is hereby ordered to
immediately issue a writ of execution ordering the private respondent
to vacate the disputed premises and deliver possession of the same
to the petitioner.
SO ORDERED.
VICENTE STO. DOMINGO BERNARDO, Plaintiff-Appellant,
vs. CATALINO BATACLAN,Defendant-Appellant.
TORIBIO TEODORO, purchaser-appellee.

This is an appeal taken by both the plaintiff and the

defendant from the order of September 26, 1935,
hereinabove referred to, of the Court of First Instance of
Cavite in Civil Case No.
2428.chanroblesvirtualawlibrary chanrobles virtual law
library
There is no controversy as to the facts. By a contract of sale
executed from Pastor Samonte and others ownership of a
parcel of land of about 90 hectares situated in sitio
Balayunan, Silang, Cavite. To secure possession of the land
from the vendors the said plaintiff, on July 20, 1929,
instituted Civil Case No. 1935 in the Court of First Instance
of Cavite. The trial court found for the plaintiff in a decision
which was affirmed by this Supreme Court on appeal (G.R.
No. 33017). 1 When plaintiff entered upon the premises,
however, he found the defendant herein, Catalino Bataclan,
who appears to have been authorized by former owners, as
far back as 1922, to clear the land and make improvements
thereon. As Bataclan was not a party in Case No. 1935,
plaintiff, on June 11, 1931, instituted against him, in the
Court of First Instance of Cavite, Civil Case No. 2428. In this
case, plaintiff was declared owner but the defendant was
held to be a possessor in good faith, entitled to
reimbursement in the total sum of P1,642, for work done
and improvements made. The dispositive part of the
decision reads:
Por las consideraciones expuestas, se declara al
demandante Vicente Santo Domingo Bernardo dueo con
derecho a la posesion del terreno que se describe en la
demanda, y al demandado Catalino Bataclan con derecho a
que del demandante le pague la suma de P1,642 por gastos
utiles hechos de buena fe en el terreno, y por el cerco y
ponos de coco y abaca existentes en el mismo, y con

derecho, ademas a retener la posesion del terreno hasta

que se le pague dicha cantidad. Al demandante puede optar,
en el plazo de treinta dias, a partir de la fecha en que fuere
notificado de la presente, por pagar esa suma al
demandado, haciendo asi suyos el cerco y todas las
plantaciones existentes en el terreno, u obligar al
demandado a pagarle el precio terreno, a razon de
trescientos pesos la hectarea. En el caso de que el
demandante optara por que el demandado le pagara el
precio del terreno, el demandado efectuara el pago en el
plazo convenientes por las partes o que sera fijado por el
Juzgado. Sin costas.
Both parties appealed to this court (G. R. No. 37319). 2 The
decision appealed from was modified by allowing the
defendant to recover compensation amounting to P2,212
and by reducing the price at which the plaintiff could require
the defendant to purchase the land in question from P300 to
P200 per hectare. Plaintiff was given by this court 30 days
from the date when the decision became final within which
to exercise his option, either to sell the land to the
defendant or to buy the improvements from him. On
January 9, 1934, the plaintiff manifested to the lower court
his desire "to require the defendant to pay him the value of
the land at the rate of P200 per hectare or a total price of
P18,000 for the whole tract of land." The defendant
informed the lower court that he was unable to pay the land
and, on January 24, 1934, an order was issued giving the
plaintiff 30 days within which to pay the defendant the sum
of P2,212 stating that, in the event of failure to make such
payment, the land would be ordered sold at public auction
" Para hacer pago al demandante de la suma de P2,212 y el
remanente despues de deducidos los gastos legales de la
venta en publica subasta sera entregado al demandante."
On February 21, 1934, plaintiff moved to reconsider the

foregoing order so that he would have preference over the

defendant in the order of payment. The motion was denied
on March 1, 1934 but on March 16 following the court
below, motu proprio modified its order of January 24, " en
el sentido de que el demandante tiene derecho preferente
al importe del terreno no se vendiere en publica subasta, a
razon de P200 por hectares y el remanente, si acaso lo
hubiere se entregara al demandado en pago de la cantidad
de P2,212 por la limpieza del terreno y las mejoras
introducidas en el mismo por el citado demandado." On
April 24, 1934, the court below, at the instance of the
plaintiff and without objection on the part of the defendant,
ordered the sale of the land in question at public auction.
The land was sold on April 5, 1935 to Toribio Teodoro, the
highest bidder, for P8,000. In the certificate of sale issued to
said purchaser on the very day of sale, it was stated that
the period of redemption of the land sold was to expire on
April 5, 1936. Upon petition of Toribio Teodoro the court
below ordered the provincial sheriff to issue another
certificate not qualified by any equity of redemption. This
was complied with by the sheriff on July 30, 1935. On
September 18, 1935, Teodoro moved that he be placed in
possession of the land purchased by him. The motion was
granted by order of September 26, 1935, the dispositive
part of which is as follows:
Por tanto, se ordena al Sheriff Provincial de Cavite ponga a
Toribio Teodoro en posesion del terreno comprado por el en
subasta publica y por el cual se le expidio certificado de
venta definitiva, reservando al demandado su derecho de
ejercitar una accion ordinaria para reclamar del demandante
la cantidad de P2,212 a que tiene derecho por la limpieza y
mejoras del terreno y cuya suma, en justicia y equidad,
debe ser descontada y deducida de la suma de P8,000 que
ya ha recibido el demandante.

The Civil Code confirms certain time-honored principles of

the law of property. One of these is the principle of
accession whereby the owner of property acquires not only
that which it produces but that which is united to it either
naturally or artificially. (Art. 353.) Whatever is built, planted
or sown on the land of another, and the improvements or
repairs made thereon, belong to the owner of the land (art.
358). Where, however, the planter, builder, or sower has
acted in good faith, a conflict of rights arises between the
owners and it becomes necessary to protect the owner of
the improvements without causing injustice to the owner of
the land. In view of the impracticability of creating what
Manresa calls a state of "forced coownership" (vol. 3, 4th
ed., p. 213), the law has provided a just and equitable
solution by giving the owner of the land the option to
acquire the improvements after payment of the proper
indemnity or to oblige the builder or planter to pay for the
land and the sower to pay the proper rent (art. 361). It is
the owner of the land who is allowed to exercise the option
because his right is older and because, by the principle of
accession, he is entitled to the ownership of the accessory
thing (3 Manresa, 4th ed., p. 213). In the case before us,
the plaintiff, as owner of the land, chose to require the
defendant, as owner of the improvements, to pay for the
land.chanroblesvirtualawlibrary chanrobles virtual law
library
The defendant states that he is a possessor in good faith
and that the amount of P2,212 to which he is entitled has
not yet been paid to him. Therefore, he says, he has a right
to retain the land in accordance with the provisions of article
453 of the Civil Code. We do not doubt the validity of the
premises stated. " Considera la ley tan saarada y legitima la
deuda, que, hasta que sea pagada, no consiente que la
cosa se restituya all vencedor." (4 Manresa, 4th ed, p.,

304.) We find, however, that the defendant has lost his right
of retention. In obedience to the decision of this court in
G.R. No. 37319, the plaintiff expressed his desire to require
the defendant to pay for the value of the land. The said
defendant could have become owner of both land and
improvements and continued in possession thereof. But he
said he could not pay and the land was sold at public
auction to Toribio Teodoro. The law, as we have already
said, requires no more than that the owner of the land
should choose between indemnifying the owner of the
improvements or requiring the latter to pay for the land.
When he failed to pay for the land, the defendant herein lost
his right of retention.chanroblesvirtualawlibrary chanrobles
virtual law library
The sale at public auction having been asked by the plaintiff
himself (p. 22, bill of exceptions) and the purchase price of
P8,000 received by him from Toribio Teodoro, we find no
reason to justify a rapture of the situation thus created
between them, the defendant-appellant not being entitled,
after all, to recover from the plaintiff the sum of
P2,212.chanroblesvirtualawlibrary chanrobles virtual law
library
The judgment of the lower court is accordingly modified by
eliminating therefrom the reservation made in favor of the
defendant-appellant to recover from the plaintiff the sum of
P2,212. In all the respects, the same is affirmed, without
pronouncement regarding costs. So
ordered.chanroblesvirtualawlibrary chanrobles virtual law
library
Heirs of Durano v UY

Petitioners seek the reversal of the decision of the First Division

of the Court of Appeals dated November 14, 1997 in CA-G.R. CV
No. 27220, entitled Heirs of Ramon Durano, Sr., et. al. versus
Spouses Angeles Supelveda Uy, et. al., and the resolution of the
Court of Appeals dated October 29, 1998 which denied petitioners
motion for reconsideration.
The antecedents of this case may be traced as far back as
August 1970; it involves a 128-hectare parcel of land located in the
barrios of Dunga and Cahumayhumayan, Danao City. On December
27, 1973, the late Congressman Ramon Durano, Sr., together with
his son Ramon Durano III, and the latters wife, Elizabeth Hotchkiss
Durano (petitioners in the herein case), instituted an action for
damages against spouses Angeles Supelveda Uy and Emigdio Bing
Sing Uy, spouses Faustino Alatan and Valeriana Garro, spouses
Rufino Lavador and Aurelia Mata, Silvestre Ramos, Hermogenes
Tito, Teotimo Gonzales, Primitiva Garro, Julian Garro, Ismael Garro,
Bienvenido Castro, Glicerio Barriga, Beatriz Calzada, Andrea Mata
de Batulan, Teofista Alcala, Filemon Lavador, Candelario Lumantao,
Gavino Quimbo, Justino Tito, Marcelino Gonzales, Salvador Dayday,
Venancia Repaso, Leodegario Gonzales, Jose de la Calzada,
Restituta Gonzales, and Cosme Ramos (herein respondents [1])
before Branch XVII of the then Court of First Instance of Cebu,
Danao City.
In that case, docketed as Civil Case No. DC-56, petitioners
accused respondents of officiating a hate campaign against them by
lodging complaints in the Police Department of Danao City in August
1970, over petitioners so-called invasion of respondents alleged
properties in Cahumayhumayan, Danao City. This was followed by
another complaint sent by respondents to the President of the
Philippines in February 1971, which depicted petitioners as
oppressors, landgrabbers and usurpers of respondents alleged
rights. Upon the direction of the President, the Department of Justice
through City Fiscal Jesus Navarro and the Philippine Constabulary of
Cebu
simultaneously
conducted
investigations
on
the
matter. Respondents complaints were dismissed as baseless, and

they appealed the same to the Secretary of Justice, who called for
another investigation to be jointly conducted by the Special
Prosecutor and the Office of the City Fiscal of Danao City. During the
course of said joint investigation, respondents Hermogenes Tito and
Salvador Dayday again lodged a complaint with the Office of the
President, airing the same charges of landgrabbing. The
investigations on this new complaint, jointly conducted by the
3rd Philippine Constabulary Zone and the Citizens Legal Assistance
Office resulted in the finding that (petitioners) should not be held
answerable therefor.[2]
Petitioners further alleged in their complaint before the CFI that
during the course of the above investigations, respondents kept
spreading false rumors and damaging tales which put petitioners into
public contempt and ridicule.[3]
In their Answer, respondents lodged their affirmative defenses,
demanded the return of their respective properties, and made
counterclaims
for
actual,
moral
and
exemplary
damages.Respondents stated that sometime in the early part of
August 1970 and months thereafter they received mimeographed
notices dated August 2, 1970 and signed by the late Ramon Durano,
Sr., informing them that the lands which they are tilling and residing
in, formerly owned by the Cebu Portland Cement Company
(hereafter, Cepoc), had been purchased by Durano & Co., Inc. The
notices also declared that the lands were needed by Durano & Co.
for planting to sugar and for roads or residences, and directed
respondents to immediately turn over the said lands to the
representatives of the company. Simultaneously, tall bamboo poles
with pennants at the tops thereof were planted in some areas of the
lands and metal sheets bearing the initials RMD were nailed to
posts.
As early as the first week of August 1970, and even before
many of the respondents received notices to vacate, men who
identified themselves as employees of Durano & Co. proceeded to
bulldoze the lands occupied by various respondents, destroying in

their wake the plantings and improvements made by the respondents

therein. On some occasions, respondents alleged, these men fired
shots in the air, purportedly acting upon the instructions of petitioner
Ramon Durano III and/or Ramon Durano, Jr. On at least one
instance, petitioners Ramon Durano III and Elizabeth Hotchkiss
Durano were seen on the site of the bulldozing operations.
On September 15, 1970, Durano & Co. sold the disputed
property to petitioner Ramon Durano III, who procured the
registration of these lands in his name under TCT No. T-103 and
TCT No. T-104.
Respondents contended that the display of force and the known
power and prestige of petitioners and their family restrained them
from directly resisting this wanton depredation upon their
property. During that time, the mayor of Danao City was Mrs. Beatriz
Durano, wife of Ramon Durano, Sr. and mother of petitioner Ramon
Durano III. Finding no relief from the local police, who respondents
said merely laughed at them for daring to complain against the
Duranos, they organized themselves and sent a letter to then
President Ferdinand Marcos reporting dispossession of their
properties and seeking a determination of the ownership of the
land. This notwithstanding, the bulldozing operations continued until
the City Fiscal was requested by the Department of Justice to
conduct an investigation on the matter. When, on July 27, 1971, the
City Fiscal announced that he would be unable to conduct a
preliminary investigation, respondents urged the Department of
Justice to conduct the preliminary investigation. This was granted,
and the investigations which spanned the period March 1972 to April
1973 led to the conclusion that respondents complaint was
untenable.[4]
In their counterclaim, respondents alleged that petitioners acts
deprived most of them of their independent source of income and
have made destitutes of some of them. Also, petitioners have done
serious violence to respondents spirit, as citizens and human beings,
to the extent that one of them had been widowed by the emotional

shock that the damage and dispossession has caused. [5] Thus, in
addition to the dismissal of the complaint, respondents demanded
actual damages for the cost of the improvements they made on the
land, together with the damage arising from the dispossession itself;
moral damages for the anguish they underwent as a result of the
high-handed display of power by petitioners in depriving them of their
possession and property; as well as exemplary damages, attorneys
fees and expenses of litigation.
Respondents respective counterclaims --- referring to the
improvements destroyed, their values, and the approximate areas of
the properties they owned and occupied --- are as follows:
a) TEOFISTA ALCALA - Tax Declaration No. 00223; .2400
ha.; bulldozed on August, 10, 1970. Improvements
destroyed consist of 47 trees, 10 bundles beatilis
firewood and 2 sacks of cassava, all valued at
P5,437.00. (Exh. B, including submarkings)
b) FAUSTINO ALATAN and VALERIANA GARRO - Tax
Declaration No. 30758; .2480 ha.; Tax Declaration No.
32974; .8944 ha.; Tax Declaration No. 38908; .8000 ha.;
Bulldozed on September 9, 1970; Improvements
destroyed consist of 682 trees, a cornfield with one
cavan per harvest 3 times a year, valued at
P71,770.00; Bulldozed on March 13, 1971; 753 trees,
1,000 bundles beatilis firewood every year, valued at
P29,100.00; Cut down in the later part of March, 1971 22 trees, 1,000 bundles beatilis firewood every year, 6
cavans corn harvest per year, valued at P1,940.00 or a
total value of P102,810.00. (Exh. C, including
submarkings)
c) ANDREA MATA DE BATULAN - Tax Declaration No.
33033; .4259 has.; bulldozed on September 11,
1970. Improvements destroyed consist of 512 trees and

15 sacks cassava all valued at P79,425.00. (Exh. D,

including submarkings)
d)

GLICERIO BARRIGA - Tax Declaration No.

32290; .4000 ha.; bulldozed on September 10,
1990. Improvements destroyed consist of 354 trees,
cassava field if planted with corn good for one liter, 30
cavans harvest a year of corn, and one resthouse, all
valued at P35,500.00. (Exh. E, including submarkings)

e) BEATRIZ CALZADA - Tax Declaration No. 03449; .900

ha.; Bulldozed on June 16, 1971. Improvements
destroyed consist of 2,864 trees, 1,600 bundles of
beatilis firewood, 12 kerosene cans cassava every year
and 48 cavans harvest a year of corn all valued at
P34,800.00. (Exh. F, including submarkings)
f) BIENVENIDO CASTRO - Tax Declaration No. 04883; .
6000
ha.;
bulldozed
on
September
10,
1970. Improvements destroyed consist of 170 trees, 10
sacks cassava every year, 500 bundles beatilis firewood
every year, 60 cavans corn harvest per year, all valued
at (5,550.00. (Exh. G, including submarkings)
g) ISMAEL GARRO - Tax Declaration No. 7185; 2
has. Bulldozed
in
August,
1970. Improvements
destroyed consist of 6 coconut trees valued at
P1,800.00. Bulldozed on February 3, 1971 improvements destroyed consist of 607 trees, a corn
field of 5 cavans produce per harvest thrice a year, all
valued at P67,890.00. (Exh. H, including submarkings)
h) JULIAN GARRO - Tax Declaration No. 28653; 1 ha.;
Bulldozed
in
the
latter
week
of
August,
1970. Improvements destroyed consist of 365 trees, 1
bamboo grove, 1 tisa, 1,000 bundles of beatilis

firewood, 24 cavans harvest a year of corn, all valued at

P46,060.00. (Exh. I, including submarkings)
i) PRIMITIVA GARRO - Tax Declaration No. 28651; .3000
ha.; Bulldozed on September 7, 1970. Improvements
destroyed consist of 183 trees, 10 pineapples, a
cassava field, area if planted with corn good for liter,
sweet potato, area if planted with corn good for liter all
valued at P10,410.00. (Exh. J, including submarkings)
j) TEOTIMO GONZALES - Tax Declaration No. 38159; .
8644 ha.; Tax Declaration No. 38158; .8000 ha.;
Bulldozed on September 10, 1970 - improvements
destroyed consist of 460 trees valued at P20,000.00.
Bulldozed on December 10, 1970 - Improvements
destroyed consist of 254 trees valued at P65,600.00 - or
a total value of P85,600.00. (Exh. K, including
submarkings)
k) LEODEGARIO GONZALES - Tax Declaration No.
36884; Bulldozed on February 24, 1971. Improvements
destroyed consist of 946 trees, 40 ubi, 15 cavans
harvest a year of corn, all valued at P72,270.00. (Exh.
L, including submarkings)
l) FILEMON LAVADOR - Tax Declaration No. 14036; 1 ha.;
Bulldozed on February 5, 1971. Improvements
destroyed consist of 675 trees and 9 cavans harvest a
year of corn all valued at P63,935.00.(Exh. M, including
submarkings)
m) CANDELARIO LUMANTAO - Tax Declaration No.
18791; 1.660 ha. Bulldozed on the second week of
August, 1970 - Improvements destroyed consist of
1,377 trees, a cornfield with 3 cavans per harvest thrice
a year and a copra dryer all valued at
P193,960.00. Bulldozed on February 26, 1971 -

Improvements destroyed consist of 44 trees, one pig

pen and the fence thereof and the chicken roost all
valued at P12,650.00. Tax Declaration No. 33159; 3.500
has. Bulldozed in the last week of March, 1971 Improvements destroyed consist of 13 trees valued at
P1,550.00. Bulldozed in the latter part consist of 6
Bamboo groves and Ipil-Ipil trees valued at P700.00
with total value of P208,860.00. (Exh. N, including
submarkings)
n) AURELIA MATA - Tax Declaration No. 38071; .3333
ha.; Bulldozed sometime in the first week of March,
1971 - Improvements destroyed consist of 344 trees
and 45 cavans corn harvest per year valued at
P30,965.00. (Exh. Q, including submarkings)
o) GAVINO QUIMBO - Tax Declaration No. 33231; 2.0978
has.; Tax Declaration No. 24377; .4960 ha. (.2480
ha. Belonging to your defendant) Bulldozed on
September 12, 1970 - Improvements destroyed consist
of 200 coconut trees and 500 banana fruit trees valued
at P68,500.00. Bulldozed on consist of 59 trees, 20
sacks cassava and 60 cavans harvest a year of corn
valued at P9,660.00 or a total value of
P78,160.00. (Exh. R, including submarkings)
p) SILVESTRE RAMOS - Tax Declaration No. 24288;
1.5568 has.; Bulldozed on February 23, 1971.
- Improvements destroyed consist of 737 trees, a
cornfield with 3 cavans per harvest 3 times a year and
50 bundles of beatilis firewood, all valued at
P118,170.00. (Exh. S, including submarkings)
q) MARCELINO GONZALES - Tax Declaration No.
34057; .4049 ha. Bulldozed on March 20, 1972 Improvements destroyed consist of 5 coconut trees and
9 cavans harvest a year of corn valued at

P1,860.00. Bulldozed on July 4, 1972 - destroying 19

coconut trees valued at P5,700.00 or a total value of
P7,560.00. (Exh. U, including submarkings)
r) JUSTINO TITO -Tax Declaration No. 38072; .2000
has.; Bulldozed on February 25, 1971 - Improvements
destroyed consist of 338 trees and 5 kamongay all
valued at P29,650.00. (Exh. T, including submarkings)
s) EMIGDIO BING SING UY and ANGELES SEPULVEDA
UY - Transfer Certificate of Title No. T-35 (Register of
Deeds of Danao City); 140.4395 has.; Area bulldozed20.000 has. Bulldozed on August 5, 6 and 7, 1970 destroying 565 coconut trees, 2-1/2 yrs. old, 65,422
banana groves with 3,600 mango trees, 3 years old,
grafted and about to bear fruit valued at
P212,260.00. Bulldozed on November 24, 1970 and on
February 16, 1971 - destroying 8,520 madri-cacao trees
and 24 cylindrical cement posts boundaries valued at
P18,540.00. Bulldozed on November 24, 1970 destroying 90 coconut trees, 3 years old cornfield at 40
cavans per harvest and at 3 harvests a year (120
cavans) valued at P31,800.00. Bulldozed on February
16, 1971 - destroying 25,727 trees and sugarcane field
value
P856,725.00
or
a
total
value
of
P1,123,825.00. (Exh. V, including submarkings)
t)

SALVADOR DAYDAY - Tax Declaration No.

(unnumbered) dated September 14, 1967; 4.000
has. Bulldozed on May 6, 1971 - destroying 576 trees, 9
cavans yearly of corn, 30 kerosene cans of cassava
yearly valued at P4,795.00. Bulldozed from March 26,
1973 to the first week of April, 1973 - destroying 108
trees and cornland, 6 cavans harvest per year valued at
P53,900.00 or a total value of P58,695.00. (Exh. A,
including submarkings)

u) VENANCIA REPASO - Tax Declaration No. 18867;

1.1667 has. Bulldozed on April 15, 1971 Improvements destroyed were 775 trees, 500 abaca,
about to be reaped, and being reaped 3 times a year 2
bamboo groves all valued at P47,700.00. (Exh. O,
including submarkings)
v) HERMOGENES TITO - Tax Declaration No. 38009; over
one (1) ha. Bulldozed in the latter part of September,
1970 - destroying 1 coconut tree, 18 sacks of corn per
year valued at P1,020.00.Bulldozed on March 15, 1973
- destroying 2 coconut trees, 5 buri trees, 1 bamboo
grove valued at P1,400.00. Bulldozed on March 26,
1974 - destroying 3 coconut trees valued at P1,500.00
with a total value of P3,920.00. (Exh. P, including
submarkings).[6]
On April 22, 1975, petitioners moved to dismiss their complaint
with the trial court. The trial court granted the motion to dismiss,
without prejudice to respondents right to proceed with their
counterclaim.
Hence, the trial proceeded only on the counterclaim.
On September 23, 1980, this Court issued a resolution in
Administrative Matter No. 6290 changing the venue of trial in Civil
Case No. DC-56 to the Regional Trial Court of Cebu City.The change
was mainly in line with the transfer of Judge Bernardo Ll. Salas, who
presided over the case in Danao City, to Cebu City.
The parties agreed to dispense with pre-trial, and for the
evidence-in-chief to be submitted by way of affidavits together with a
schedule of documentary exhibits, subject to additional direct
examination, cross examination and presentation of rebuttal
evidence by the parties.

The trial court and later, the Court of Appeals, took note of the
following portions of affidavits submitted by petitioners:

Durano Sugar Mills. Owner of the properties, subject of the complaint, was
Cepoc.

xxx City Fiscal Jesus Navarro said that in August, 1967, he issued
subpoenas to several tenants in Cahumayhumayan upon representation by
Cepoc, the latter protesting failure by the tenants to continue giving Cepoc
its share of the corn produce. He learned from the tenants that the reason
why they were reluctant and as a matter of fact some defaulted in giving
Cepoc its share, was that Uy Bing Sepulveda made similar demands to them
for his share in the produce, and that they did not know to whom the shares
should be given.

The persons who eventually tilled the Cepoc properties were merely
allowed to do cultivation if planted to corn, and for Cepoc to be given a
share, which condition was complied with by all including the
counterclaimants. He even possessed one parcel which he planted to
coconuts, jackfruit trees and other plants. (Exh. 51, Records, pp. 383-384)

xxx xxx xxx

Jesus Capitan said that he is familiar with the place Cahumayhumayan and
that the properties in said locality were acquired by Durano and Company
and Ramon Durano III, but formerly owned by Cepoc.
When the properties of Ramonito Durano were cultivated, the owners of the
plants requested him that they be given something for their effort even if the
properties do not belong to them but to Cepoc, and that he was directed by
Ramonito Durano to do a listing of the improvements as well as the
owners. After he made a listing, this was given to Ramonito who directed
Benedicto Ramos to do payment.
When he was preparing the list, they did not object to the removal of the
plants because the counterclaimants understood that the lands did not
belong to them, but later and because of politics a complaint was filed, and
finally that when he was doing the listing, the improvements were even
pointed to him by the counterclaimants themselves. (Exh. 48, Records, p.
385-386).
xxx xxx xxx
Ruperto Rom said that he had an occasion to work at Cepoc from 1947 to
1950 together with Benedicto and Tomas Ramos, the latter a capataz of the

xxx xxx xxx

Co-defendant Ramon Durano III said that he agreed with the dismissal of
the complaint because his fathers wish was reconciliation with the
defendants following the death of Pedro Sepulveda, father of Angeles
Sepulveda Uy, but inspite of the dismissal of the complaint, the defendants
still prosecuted their counterclaim.
The disputed properties were owned formerly by Cepoc, and then of the
latter selling the properties to Durano and Company and then by the latter to
him as of September 15, 1970. As a matter of fact, TCT T-103 and T-104
were issued to him and that from that time on, he paid the taxes.
At the time he purchased the properties, they were not occupied by the
defendants. The first time he learned about the alleged bulldozing of the
improvements was when the defendants filed the complaint of land
grabbing against their family with the Office of the President and the
attendant publicity. Precisely his family filed the complaint against
them. (Exh. 57, Records, pp. 723-730)
xxx xxx xxx
Congressman Ramon Durano said he is familiar with the properties, being
owned originally by Cepoc. Thereafter they were purchased by Durano and
Company and then sold to Ramon Durano III, the latter now the owner. He
filed a motion to dismiss the case against Angeles Sepulveda et al. as a
gesture of respect to the deceased Pedro Sepulveda, father of Angeles

Sepulveda, and as a Christian, said Pedro Sepulveda being the former

Mayor of Danao, if only to stop all misunderstanding between their
families.
xxx xxx xxx
He was the one who did the discovery of the properties that belonged to
Cepoc, which happened when he was doing mining work near
Cahumayhumayan and without his knowledge extended his operation
within the area belonging to Cepoc. After Cepoc learned of the substantial
coal deposits, the property was claimed by Cepoc and then a survey was
made to relocate the muniments. Eventually he desisted doing mining work
and limited himself within the confines of his property that was adjacent to
Cepocs property. All the claimants except Sepulveda Uy were occupants of
the Cepoc properties. Durano and Company purchased the property
adjacent to Cepoc, developed the area, mined the coal and had the surveyed
area planted with sugar cane, and finally the notices to the occupants
because of their intention to plant sugar cane and other crops (T.S. N.
December 4, 1985, pp. 31-32, 44-54, RTC Decision, pp. 16-19, Records, pp.
842-845).[7]
Petitioners also presented Court Commissioner, Engineer
Leonidas Gicain, who was directed by the trial court to conduct a
field survey of the disputed property. Gicain conducted surveys on
the areas subjected to bulldozing, including those outside the Cepoc
properties. The survey --- which was based on TCT No. T-103 and
TCT No. T-104, titled in the name of Ramon Durano III, and TCT No.
35, in the name of respondent Emigdio Bing Sing Uy --- was paid for
by petitioners.[8]

On March 8, 1990, the RTC issued a decision upholding

respondents counterclaim. The dispositive portion of said decision
reads:
THE FOREGOING CONSIDERED, judgment is hereby rendered in favor
of the counter claimants and against the plaintiffs directing the latter to pay
the former:
a) With respect to Salvador Dayday P 14,400.00
b) With respect to Teofista Alcala 4,400.00
c) With respect to Faustino Alatan 118,400.00
d) With respect to Andrea Mata de Batulan 115,050.00
e) With respect to Glicerio Barriga 35,500.00
f) With respect to Beatriz Galzada 70,300.00
g) With respect to Bienvenido Castro 5,000.00
h) With respect to Ismael Garro 66,060.00
i) With respect to Julian Garro 48,600.00
j) With respect to Primitiva Garro 13,000.00
k) With respect to Teotimo Gonzales 63,200.00

Respondents, for their part, also presented their affidavits and

supporting documentary evidence, including tax declarations
covering such portions of the property as they formerly inhabited and
cultivated.

l) With respect to Leodegario Gonzales 85,300.00

m) With respect to Filemon Lavador 70,860.00
n) With respect to Venancia Repaso 101,700.00

o) With respect to Candelario Lumantao 192,550.00

p) With respect to Hermogenes Tito 1,200.00
q) With respect to Aurelia Mata 28,560.00
r) With respect to Gavino Quimbo 81,500.00
s) With respect to Silvestre Ramos 101,700.00
t) With respect to Justino Tito 27,800.00
u) With respect to Marcelino Gonzales 2,360.00
v) With respect to Angeles Supelveda 902,840.00
P120,000.00 should be the figure in terms of litigation expenses and a
separate amount of P100,000.00 as attorneys fees.
Return of the properties to Venancia Repaso, Hermogenes Tito and
Marcelino Gonzales is hereby directed.
With respect to counter claimant Angeles Sepulveda Uy, return of the
property to her should be with respect to the areas outside of the Cepoc
property, as mentioned in the sketch, Exhibit 56-A.
Finally with costs against the plaintiffs.
SO ORDERED. [9]
The RTC found that the case preponderated in favor of
respondents, who all possessed their respective portions of the
property covered by TCT Nos. T-103 and T-104 thinking that they
were the absolute owners thereof. A number of these respondents
alleged that they inherited these properties from their parents, who in
turn inherited them from their own parents.Some others came into

the properties by purchase from the former occupants thereof. They

and their predecessors were responsible for the plantings and
improvements on the property.They were the ones who sought for
the properties to be tax-declared in their respective names, and they
continually paid the taxes thereto. Respondents maintained that they
were unaware of anyone claiming adverse possession or ownership
of these lands until the bulldozing operations in 1970.
As for Venancia Repaso, Hermogenes Tito and Marcelino
Gonzales, the Court found that the properties they laid claim to were
not part of the land that was purchased by Durano & Co. from
Cepoc. Thus, it found the bulldozing of these lands by petitioners
totally unjustified and ordered not only the total reimbursement of
useful and necessary expenses on the properties but also the return
of these properties to Repaso, Tito and Gonzales, respectively. As
for all the other respondents, the RTC found their possession of the
properties to be in the concept of owner and adjudged them to be
builders in good faith. Considering that petitioners in the instant case
appropriated the improvements on the areas overran by the
bulldozers, the RTC ruled that (t)he right of retention to the
improvements necessarily should be secured (in favor of
respondents) until reimbursed not only of the necessary but also
useful expenses.[10]
On the matter of litigation expenses and attorneys fees, the
RTC observed that the trial period alone consisted of forty (40) trial
dates spread over a period of sixteen (16) years. At the time,
respondents were represented by counsel based in Manila, and the
trial court took into consideration the travel, accommodation and
miscellaneous expenses of their lawyer that respondents must have
shouldered during the trial of the case.
Dissatisfied, petitioners appealed the RTC decision to the Court
of Appeals, which, in turn, affirmed the said decision and ordered the
return of the property to all the respondents-claimants, in effect
modifying the RTC decision which allowed return only in favor of
respondents Repaso, Tito and Gonzales.

In its decision, the Court of Appeals upheld the factual findings

and conclusions of the RTC, including the awards for actual
damages, attorneys fees and litigation expenses, and found
additionally that the issuance of TCT Nos. T-103 and T-104 in the
name of Ramon Durano III was attended by fraud. Evaluating the
evidence before it, the Court of Appeals observed that the alleged
reconstituted titles of Cepoc over the property, namely, TCT No. (RT38) (T-14457) -4 and TCT No. (RT-39) (T-14456) -3 (Exhibits 19 and
20 of this case), which were claimed to be the derivative titles of TCT
Nos. T-103 and T-104, were not submitted in evidence before the
RTC. Thus, in an Order dated June 15, 1988, the RTC ordered
Exhibits 19 and 20 deleted from petitioners Offer of Exhibits. The
Court of Appeals further noted that even among the exhibits
subsequently produced by petitioners before the RTC, said Exhibits
19 and 20 were still not submitted.[11] Moreover, Cepoc had no
registered title over the disputed property as indicated in TCT Nos. T103 and T-104. Thus:
TRANSFER CERTIFICATE OF TITLE
NO. - 103 xxx xxx
IT IS FURTHER CERTIFIED that said land was originally registered on
the N.A. day of N.A., in the year nineteen hundred and N.A. in Registration
Book No. N.A. page N.A. of the Office of the Register of Deeds of N.A., as
Original Certificate of Title No. N.A., pursuant to a N.A. patent granted by
the President of the Philippines, on the N.A. day of N.A., in the year
nineteen hundred and N.A., under Act No.N.A.
This certificate is a transfer from Transfer Certificate of Title No. (RT-39)
(T-14456) -3 which is cancelled by virtue hereof in so far as the above
described land is concerned.
xxx xxx

TRANSFER CERTIFICATE OF TITLE

NO. T - 104 xxx xxx
IT IS FURTHER CERTIFIED that said land was originally registered on
the N.A. day of N.A., in the year nineteen hundred and N.A. in Registration
Book No. N.A. page N.A. of the Office of the Register of Deeds of N.A., as
Original Certificate of Title No. N.A., pursuant to a N.A. patent granted by
the President of the Philippines, on the N.A. day of N.A., in the year
nineteen hundred and N.A., under Act No.N.A.
This certificate is a transfer from Transfer Certificate of Title No. (RT-38)
(T-14457) -4 which is cancelled by virtue hereof in so far as the above
described land is concerned.[12]
From the foregoing, the Court of Appeals concluded that the
issuance of the TCT Nos. T-103 and T-104 in favor of petitioner
Ramon Durano III was attended by fraud; hence, petitioners could
not invoke the principle of indefeasibility of title. Additionally, the
Court of Appeals found that the alleged Deed of Absolute Sale,
undated, between Cepoc Industries, Inc. and Durano & Co. was not
notarized and thus, unregistrable.
The Court of Appeals went on to state that while, on the one
hand, no valid issuance of title may be imputed in favor of petitioners
from the private Deed of Sale and the alleged reconstituted titles of
Cepoc that were not presented in evidence, respondents, in contrast
--- who although admittedly had no registered titles in their names --were able to demonstrate possession that was public, continuous
and adverse --- or possession in the concept of owner, and which
was much prior (one or two generations back for many of
respondents) to the claim of ownership of petitioners.

Thus, the Court of Appeals ordered the return of the properties

covered by TCT Nos. T-103 and T-104 to all respondents who made
respective claims thereto. Corollarily, it declared that petitioners were
possessors in bad faith, and were not entitled to reimbursement for
useful expenses incurred in the conversion of the property into
sugarcane lands. It also gave no merit to petitioners allegation that
the actual damages awarded by the trial court were excessive, or to
petitioners argument that they should not have been held personally
liable for any damages imputable to Durano & Co.
Following is the dispositive portion of the decision of the Court
of Appeals:
WHEREFORE, the appealed decision of the lower court in Civil Case No.
DC-56 is hereby AFFIRMED with MODIFICATION ordering the return of
the respective subject properties to all the defendants-appellees, without
indemnity to the plaintiffs-appellants as regards whatever improvements
made therein by the latter. In all other respects, said decision in affirmed.
Costs against plaintiffs-appellants.
SO ORDERED.[13]
On October 29, 1998, the Court of Appeals denied petitioners
motion for reconsideration for lack of merit. Hence, this petition.
Petitioners assign the following errors from the CA decision:
1. The Court of Appeals erred in granting relief to the
respondents who did not appeal the decision of the
lower court.
2. The Court of Appeals erred in collaterally attacking the
validity of the title of petitioner Ramon Durano III.

3. The respondents should not have been adjudged

builders in good faith.
4. The petitioners should not be held personally liable for
damages because of the doctrine of separate corporate
personality.
5. It was an error to hold that the respondents had proved
the existence of improvements on the land by
preponderance of evidence, and in awarding excessive
damages therefor.
6. It was error to direct the return of the properties to
respondents Venancia Repaso, Hermogenes Tito and
Marcelino Gonzales.
7. The award of litigation expenses and attorneys fees was
erroneous.
8. The petitioners are not possessors in bad faith.
On their first assignment of error, petitioners contend that before
the Court of Appeals, they only questioned that portion of the RTC
decision which directed the return of the properties to respondents
Repaso, Tito and Gonzales. They argued that the return of the
properties to all the other respondents by the Court of Appeals was
erroneous because it was not among the errors assigned or argued
by petitioners on appeal. Besides, since respondents themselves did
not appeal from the RTC decision on the issue of return of the
physical possession of the property, it is understood that judgment as
to them has already become final by operation of law. To support its
argument, petitioners cited the cases of Madrideo vs. Court of
Appeals[14]and Medida vs. Court of Appeals[15], which held that
whenever an appeal is taken in a civil case an appellee who has not
himself appealed cannot obtain from the appellate court any
affirmative relief other than the ones granted in the decision of the
court below.

Rule 51 of the New Rules of Civil Procedure provides:

Sec. 8. Questions that may be decided. --- No error which does not
affect the jurisdiction over the subject matter or the validity of the
judgment appealed from or the proceedings therein will be considered
unless stated in the assignment of errors, or closely related to or
dependent on an assigned error and properly argued in the brief, save
as the court may pass upon plain errors and clerical errors.
We find untenable petitioners argument that since no party
(whether petitioners or respondents) appealed for the return of the
properties to respondents other than Repaso, Tito and Gonzales,
that portion of the RTC decision that awards damages to such other
respondents is final and may no longer be altered by the Court of
Appeals. A reading of the provisions of Section 8, Rule 51,
aforecited, indicates that the Court of Appeals is not limited to
reviewing only those errors assigned by appellant, but also those
that are closely related to or dependent on an assigned error. [16] In
other words, the Court of Appeals is imbued with sufficient discretion
to review matters, not otherwise assigned as errors on appeal, if it
finds that their consideration is necessary in arriving at a complete
and just resolution of the case. In this case, the Court of Appeals
ordered the return of the properties to respondents merely as a legal
consequence of the finding that respondents had a better right of
possession than petitioners over the disputed properties, the former
being possessors in the concept of owner. Thus, it held --Plaintiffs-appellants have to return possession of the subject property, not
only to defendants-appellees Venancia Repaso, Hermogenes Tito and
Marcelino Gonzales but to all other defendants-appellees herein, by virtue
of the latters priority in time of declaring the corresponding portions of the
subject properties in their name and/or their predecessors-in-interest
coupled with actual possession of the same property through their
predecessors-in-interest in the concept of an owner. Plaintiffs-appellants
who had never produced in court a valid basis by which they are claiming
possession or ownership over the said property cannot have a better right
over the subject properties than defendants-appellees.[17]

Moreover,
petitioners
reliance
on
the Madrideo and Medida cases is misplaced. In the Madrideo case,
the predecessors-in-interest of the Llorente Group sold the disputed
property to the Alcala Group, who in turn sold the same to the
spouses Maturgo. The RTC adjudged the spouses Maturgo
purchasers in good faith, such that they could retain their title to the
property, but held that the Lllorente Group was unlawfully divested of
its ownership of the property by the Alcala Group. The Alcala Group
appealed this decision to the Court of Appeals, who denied the
appeal and ordered the reinstatement in the records of the Registry
of Deeds of the Original Certificates of Title of the predecessors-ininterest of the Llorente Group. In setting aside the decision of the
Court of Appeals, this Court held that no relief may be afforded in
favor of the Llorente Group to the prejudice of the spouses Maturgo,
who --- the Court carefully emphasized --- were third parties to the
appeal, being neither appellants nor appellees before the Court of
Appeals, and whose title to the disputed property was confirmed by
the RTC. The application of the ruling in Madrideo to the instant case
bears no justification because it is clear that petitioners, in appealing
the RTC decision, impleaded all the herein respondents.
Meanwhile, in the Medida case, petitioners (who were the
appellees before the Court of Appeals) sought the reversal of a
finding of the RTC before the Supreme Court. The Court explained
that since petitioners failed to appeal from the RTC decision, they --as appellees before the Court of Appeals --- could only argue for the
purpose of sustaining the judgment in their favor, and could not ask
for any affirmative relief other than that granted by the court
below. The factual milieu in Medida is different from that of the
instant case, where the return of the properties to respondents was
not an affirmative relief sought by respondents but an independent
determination of the Court of Appeals proceeding from its findings
that respondents were long-standing possessors in the concept of
owner while petitioners were builders in bad faith. Certainly, under
such circumstances, the Court of Appeals is not precluded from
modifying the decision of the RTC in order to accord complete relief
to respondents.

Moving now to the other errors assigned in the petition, the

return of the properties to respondents Repaso, Tito and Gonzales
was premised upon the factual finding that these lands were outside
the properties claimed by petitioners under TCT Nos. T-103 and T104. Such factual finding of the RTC, sustained by the Court of
Appeals, is now final and binding upon this Court.
In respect of the properties supposedly covered by TCT Nos. T103 and T-104, the Court of Appeals basically affirmed the findings of
the RTC that respondents have shown prior and actual possession
thereof in the concept of owner, whereas petitioners failed to
substantiate a valid and legitimate acquisition of the property --considering that the alleged titles of Cepoc from which TCT Nos. T103 and T-104 were supposed to have derived title were not
produced, and the deed of sale between Cepoc and Durano & Co.
was unregistrable.
The records clearly bear out respondents prior and actual
possession; more exactly, the records indicate that respondents
possession has ripened into ownership by acquisitive prescription.
Ordinary acquisitive prescription, in the case of immovable
property, requires possession of the thing in good faith and with just
title,[18] for a period of ten years.[19] A possessor is deemed to be in
good faith when he is not aware of any flaw in his title or mode of
acquisition of the property.[20] On the other hand, there is just title
when the adverse claimant came into possession of the property
through one of the modes for acquiring ownership recognized by law,
but the grantor was not the owner or could not transmit any right.
[21]
The claimant by prescription may compute the ten-year period by
tacking his possession to that of his grantor or predecessor-ininterest.[22]
The evidence shows that respondents successfully complied
with all the requirements for acquisitive prescription to set in. The
properties were conveyed to respondents by purchase or
inheritance, and in each case the respondents were in actual,

continuous, open and adverse possession of the properties. They

exercised rights of ownership over the lands, including the regular
payment of taxes and introduction of plantings and
improvements. They were unaware of anyone claiming to be the
owner of these lands other than themselves until the notices of
demolition in 1970 --- and at the time each of them had already
completed the ten-year prescriptive period either by their own
possession or by obtaining from the possession of their
predecessors-in-interest. Contrary to the allegation of petitioners that
the claims of all twenty-two (22) respondents were lumped together
and indiscriminately sustained, the lower courts (especially the RTC)
took careful consideration of the claims individually, taking note of the
respective modes and dates of acquisition. Whether respondents
predecessors-in-interest in fact had title to convey is irrelevant under
the concept of just title and for purposes of prescription.
Thus, respondents counterclaim for reconveyance and
damages before the RTC was premised upon a claim of ownership
as indicated by the following allegations:
(Y)our defendants are owners and occupants of different parcels of
land located in Barrio Cahumayhumayan, your defendants having
occupied these parcels of land for various periods by themselves or
through their predecessors-in-interest, some for over fifty years, and
some with titles issued under the Land Registration Act; xxxxx [23]
Respondents claim of ownership by acquisitive prescription (in
respect of the properties covered by TCT Nos. T-103 and T-104)
having been duly alleged and proven, the Court deems it only proper
that such claim be categorically upheld. Thus, the decision of the
Court of Appeals insofar as it merely declares those respondents
possessors in the concept of owner is modified to reflect the
evidence on record which indicates that such possession had been
converted to ownership by ordinary prescription.
Turning now to petitioners claim to ownership and title, it is
uncontested that their claim hinges largely on TCT Nos. T-103 and T-

104, issued in the name of petitioner Ramon Durano III.However, the

validity of these certificates of title was put to serious doubt by the
following: (1) the certificates reveal the lack of registered title of
Cepoc to the properties;[24] (2) the alleged reconstituted titles of
Cepoc were not produced in evidence; and (3) the deed of sale
between Cepoc and Durano & Co. was unnotarized and thus,
unregistrable.
It is true that fraud in the issuance of a certificate of title may be
raised only in an action expressly instituted for that purpose, [25] and
not collaterally as in the instant case which is an action for
reconveyance and damages. While we cannot sustain the Court of
Appeals finding of fraud because of this jurisdictional impediment, we
observe that the above-enumerated circumstances indicate none too
clearly the weakness of petitioners evidence on their claim of
ownership. For instance, the non-production of the alleged
reconstituted titles of Cepoc despite demand therefor gives rise to a
presumption (unrebutted by petitioners) that such evidence, if
produced, would be adverse to petitioners.[26] Also, the
unregistrability of the deed of sale is a serious defect that should
affect the validity of the certificates of title. Notarization of the deed of
sale is essential to its registrability,[27] and the action of the Register
of Deeds in allowing the registration of the unacknowledged deed of
sale was unauthorized and did not render validity to the registration
of the document.[28]
Furthermore, a purchaser of a parcel of land cannot close his
eyes to facts which should put a reasonable man upon his guard,
such as when the property subject of the purchase is in the
possession of persons other than the seller.[29] A buyer who could not
have failed to know or discover that the land sold to him was in the
adverse possession of another is a buyer in bad faith. [30] In the herein
case, respondents were in open possession and occupancy of the
properties when Durano & Co. supposedly purchased the same from
Cepoc. Petitioners made no attempt to investigate the nature of
respondents possession before they ordered demolition in August
1970.

In the same manner, the purchase of the property by petitioner

Ramon Durano III from Durano & Co. could not be said to have been
in good faith. It is not disputed that Durano III acquired the property
with full knowledge of respondents occupancy thereon. There even
appears to be undue haste in the conveyance of the property to
Durano III, as the bulldozing operations by Durano & Co. were still
underway when the deed of sale to Durano III was executed on
September 15, 1970. There is not even an indication that Durano &
Co. attempted to transfer registration of the property in its name
before it conveyed the same to Durano III.
In the light of these circumstances, petitioners could not
justifiably invoke the defense of indefeasibility of title to defeat
respondents claim of ownership by prescription. The rule on
indefeasibility of title, i.e., that Torrens titles can be attacked for fraud
only within one year from the date of issuance of the decree of
registration, does not altogether deprive an aggrieved party of a
remedy at law. As clarified by the Court in Javier vs. Court of
Appeals[31] --The decree (of registration) becomes incontrovertible and can no
longer be reviewed after one (1) year from the date of the decree so
that the only remedy of the landowner whose property has been
wrongfully or erroneously registered in anothers name is to bring an
ordinary action in court for reconveyance, which is an action in
personam and is always available as long as the property has not
passed to an innocent third party for value. If the property has passed
into the hands of an innocent purchaser for value, the remedy is an
action for damages.
In the instant case, respondents action for reconveyance will
prosper, it being clear that the property, wrongfully registered in the
name of petitioner Durano III, has not passed to an innocent
purchaser for value.

Since petitioners knew fully well the defect in their titles, they
were correctly held by the Court of Appeals to be builders in bad
faith.
The Civil Code provides:
Art. 449. He who builds, plants or sows in bad faith on the land of
another, loses what is built, planted or sown without right of
indemnity.
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.
Art. 451. In the cases of the two preceding articles, the landowner is
entitled to damages from the builder, planter or sower.
Based on these provisions, the owner of the land has three
alternative rights: (1) to appropriate what has been built without any
obligation to pay indemnity therefor, or (2) to demand that the builder
remove what he had built, or (3) to compel the builder to pay the
value of the land.[32] In any case, the landowner is entitled to
damages under Article 451, abovecited.
We sustain the return of the properties to respondents and the
payment of indemnity as being in accord with the reliefs under the
Civil Code.
On petitioners fifth assignment of error that respondents had not
proved the existence of improvements on the property by
preponderance of evidence, and that the damages awarded by the
lower courts were excessive and not actually proved, the Court notes
that the issue is essentially factual. Petitioners, however, invoke

Article 2199 of the Civil Code which requires actual damages to be

duly proved. Passing upon this matter, the Court of Appeals cited
with approval the decision of the RTC which stated:
The counter claimants made a detail of the improvements that were
damaged. Then the query, how accurate were the listings, supposedly
representing damaged improvements. The Court notes, some of the counter
claimants improvements in the tax declarations did not tally with the listings
as mentioned in their individual affidavits. Also, others did not submit tax
declarations supporting identity of the properties they possessed. The
disparity with respect to the former and absence of tax declarations with
respect to the latter, should not be a justification for defeating right of
reimbursement. As a matter of fact, no controverting evidence was
presented by the plaintiffs that the improvements being mentioned
individually in the affidavits did not reflect the actual improvements that
were overran by the bulldozing operation. Aside from that, the City
Assessor, or any member of his staff, were not presented as witnesses. Had
they been presented by the plaintiffs, the least that can be expected is that
they would have enlightened the Court the extent of their individual
holdings being developed in terms of existing improvements. This, the
plaintiffs defaulted. It might be true that there were tax declarations, then
presented as supporting documents by the counter claimants, but then
mentioning improvements but in variance with the listings in the individual
affidavits. This disparity similarly cannot be accepted as a basis for the
setting aside of the listing of improvements being adverted to by the counter
claimants in their affidavits. This Court is not foreclosing the possibility that
the tax declarations on record were either table computations by the
Assessor or his deputy, or tax declarations whose entries were merely
copied from the old tax declarations during the period of revision. (RTC
Decision, p. 36, Records, p. 862)[33]
The right of the owner of the land to recover damages from a
builder in bad faith is clearly provided for in Article 451 of the Civil
Code. Although said Article 451 does not elaborate on the basis for
damages, the Court perceives that it should reasonably correspond
with the value of the properties lost or destroyed as a result of the
occupation in bad faith, as well as the fruits (natural, industrial or

civil) from those properties that the owner of the land reasonably
expected to obtain. We sustain the view of the lower courts that the
disparity between respondents affidavits and their tax declarations on
the amount of damages claimed should not preclude or defeat
respondents right to damages, which is guaranteed by Article
451.Moreover, under Article 2224 of the Civil Code:
Temperate or moderate damages, which are more than nominal but
less than compensatory damages, may be recovered when the court
finds that some pecuniary loss has been suffered but its amount
cannot, from the nature of the case, be proved with certainty.
We also uphold the award of litigation expenses and attorneys
fees, it being clear that petitioners acts compelled respondents to
litigate and incur expenses to regain rightful possession and
ownership over the disputed property.[34]
The last issue presented for our resolution is whether petitioners
could justifiably invoke the doctrine of separate corporate personality
to evade liability for damages. The Court of Appeals applied the wellrecognized principle of piercing the corporate veil, i.e., the law will
regard the act of the corporation as the act of its individual
stockholders when it is shown that the corporation was used merely
as an alter ego by those persons in the commission of fraud or other
illegal acts.
The test in determining the applicability of the doctrine of
piercing the veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but
complete domination, not only of finances but of policy
and business practice in respect to the transaction
attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or
existence of its own;

2. Such control must have been used by the defendant to

commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and
unjust acts in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained
of.
The absence of any one of these elements prevents piercing the corporate
veil. In applying the instrumentality or alter ego doctrine, the courts are
concerned with reality and not form, with how the corporation operated and
the individual defendants relationship to that operation.[35]
The question of whether a corporation is a mere alter ego is
purely one of fact.[36] The Court sees no reason to reverse the finding
of the Court of Appeals. The facts show that shortly after the
purported sale by Cepco to Durano & Co., the latter sold the property
to petitioner Ramon Durano III, who immediately procured the
registration of the property in his name.Obviously, Durano & Co. was
used by petitioners merely as an instrumentality to appropriate the
disputed property for themselves.
WHEREFORE, the instant petition is DENIED. The decision of
the Court of Appeals is MODIFIED to declare respondents with
claims to the properties covered by Transfer Certificate of Title Nos.
T-103 and T-104 owners by acquisitive prescription to the extent of
their respective claims. In all other respects, the decision of the Court
of Appeals is AFFIRMED. Costs against petitioners.
SO ORDERED.
This is a petition for review on certiorari of the decision of the Court
of Appeals dated March 25, 1996 in CA-G.R. CV No. 32472 entitled "Eden
Ballatan, et. al., plaintiffs-appellees v. Gonzalo Go and Winston Go,
appellants and third-party plaintiffs-appellants v. Li Ching Yao, et.al., thirdparty defendants."[1]

The instant case arose from a dispute over forty-two (42) square
meters of residential land belonging to petitioners. The parties herein are
owners of adjacent lots located at Block No. 3, Poinsettia Street, Araneta
University Village, Malabon, Metro Manila. Lot No. 24, 414 square meters
in area, is registered in the name of petitioners Eden Ballatan and spouses
Betty Martinez and Chong Chy Ling. [2] Lots Nos. 25 and 26, with an area
of 415 and 313 square meters respectively, are registered in the name of
respondent Gonzalo Go, Sr.[3] On Lot No. 25, respondent Winston Go, son
of Gonzalo Go, Sr., constructed his house. Adjacent to Lot No. 26 is Lot
No. 27, 417 square meters in area, and is registered in the name of
respondent Li Ching Yao.[4]
In 1985, petitioner Ballatan constructed her house on Lot No.
24. During the construction, she noticed that the concrete fence and side
pathway of the adjoining house of respondent Winston Go encroached on
the entire length of the eastern side of her property.[5] Her building
contractor informed her that the area of her lot was actually less than that
described in the title. Forthwith, Ballatan informed respondent Go of this
discrepancy and his encroachment on her property. Respondent Go,
however, claimed that his house, including its fence and pathway, were built
within the parameters of his father's lot; and that this lot was surveyed by
Engineer Jose Quedding, the authorized surveyor of the Araneta Institute of
Agriculture (AIA), the owner-developer of the subdivision project.
Petitioner Ballatan called the attention of the AIA to the discrepancy of
the land area in her title and the actual land area received from them. The
AIA authorized another survey of the land by Engineer Jose N. Quedding.
In a report dated February 28, 1985, Engineer Quedding found that the
lot area of petitioner Ballatan was less by a few meters and that of
respondent Li Ching Yao, which was three lots away, increased by two (2)
meters. Engineer Quedding declared that he made a verification survey of
Lots Nos. 25 and 26 of respondents Go in 1983 and allegedly found the
boundaries to have been in their proper position.He, however, could not
explain the reduction in Ballatan's area since he was not present at the time
respondents Go constructed their boundary walls.[6]

On June 2, 1985, Engineer Quedding made a third relocation survey

upon request of the parties. He found that Lot No. 24 lost approximately 25
square meters on its eastern boundary, that Lot No. 25, although found to
have encroached on Lot No. 24, did not lose nor gain any area; that Lot No.
26 lost some three (3) square meters which, however, were gained by Lot
No. 27 on its western boundary.[7] In short, Lots Nos. 25, 26 and 27 moved
westward to the eastern boundary of Lot No. 24.
On the basis of this survey, on June 10, 1985, petitioner Ballatan made
a written demand on respondents Go to remove and dismantle their
improvements on Lot No. 24. Respondents Go refused. The parties,
including Li Ching Yao, however, met several times to reach an agreement
on the matter.
Failing to agree amicably, petitioner Ballatan brought the issue before
the barangay. Respondents Go did not appear. Thus, on April 1, 1986,
petitioner Ballatan instituted against respondents Go Civil Case No. 772MN for recovery of possession before the Regional Trial Court, Malabon,
Branch 169. The Go's filed their "Answer with Third-Party Complaint"
impleading as third-party defendants respondents Li Ching Yao, the AIA
and Engineer Quedding.
On August 23, 1990, the trial court decided in favor of petitioners. It
ordered the Go's to vacate the subject portion of Lot No. 24, demolish their
improvements and pay petitioner Ballatan actual damages, attorney's fees
and the costs of the suit. It dismissed the third-party complaint against: (1)
AIA after finding that the lots sold to the parties were in accordance with
the technical description and verification plan covered by their respective
titles; (2) Jose N. Quedding, there being no privity of relation between him
and respondents Go and his erroneous survey having been made at the
instance of AIA, not the parties; and (3) Li Ching Yao for failure to prove
that he committed any wrong in the subject encroachment. [8] The court
made the following disposition:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
against the defendants, ordering the latter:

1. To demolish and remove all improvements existing and encroaching on

plaintiff's lot;
2. To clear, vacate and deliver possession of the encroached area to the
plaintiffs;
3. To pay plaintiffs jointly and severally the following:
a) P7,800.00 for the expenses paid to the surveyors;

"WHEREFORE, premises considered, the decision appealed from is hereby

AFFIRMED insofar as the dismissal of the third-party complaint against
Araneta Institute of Agriculture is concerned but modified in all other
aspects as follows:
1) Defendants-appellants are hereby ordered to pay plaintiffs-appellees the
reasonable value of the forty-two (42) square meters of their lot at the time
of its taking;

b) P5,000.00 for plaintiffs' transportation;

2) Third-party defendant Li Ching Yao is hereby ordered to pay defendantsappellants the reasonable value of the thirty-seven (37) square meters of the
latter's lot at the time of its taking; and

4. To pay plaintiffs, jointly and severally, attorney's fees equivalent to 25%

of the current market value of the subject matter in litigation at the time of
execution; and

3) Third-party defendant Jose N. Quedding is hereby ordered to pay to

defendants-appellants the amount of P5,000.00. as attorney's fees.

5. To pay the costs of suit.

The third-party complaint filed by third-party plaintiff Gonzalo Go and
Winston Go against third-party defendants Araneta Institute of Agriculture,
Jose N. Quedding and Li Ching Yao is hereby DISMISSED, without
pronouncement as to costs.
SO ORDERED."
Respondents Go appealed. On March 25, 1996, the Court of Appeals
modified the decision of the trial court. It affirmed the dismissal of the
third-party complaint against the AIA but reinstated the complaint against
Li Ching Yao and Jose Quedding. Instead of ordering respondents Go to
demolish their improvements on the subject land, the appellate court
ordered them to pay petitioner Ballatan, and respondent Li Ching Yao to
pay respondents Go, a reasonable amount for that portion of the lot which
they encroached, the value to be fixed at the time of taking. It also ordered
Jose Quedding to pay respondents Go attorney's fees of P5,000.00 for his
erroneous survey. The dispositive portion of the decision reads:

LET THE RECORD of the case be remanded to the Regional Trial Court of
Malabon for further proceedings and reception of evidence for the
determination of the reasonable value of Lots Nos. 24 and 26.
SO ORDERED."[9]
Hence, this petition. Petitioners allege that:
"RESPONDENT COURT OF APPEALS ERRED ON QUESTIONS OF
LAW AND GRAVELY ABUSED ITS DISCRETION AMOUNTING TO
LACK OF JURISDICTION WHEN:
1. IT APPLIED EQUITY OR EQUITABLE SOLUTIONS TO THE
INSTANT CASE IN UTTER DISREGARD AND IN VIOLATION OR
GROSS IGNORANCE OF EXISTING LAWS AND JURISPRUDENCE
VESTING BASIC PROPERTY RIGHTS TO HEREIN PETITIONERS.
RESPONDENT COURT HAS NO POWER TO APPLY/USE EQUITY IN
THE PRESENCE OF EXISTING LAWS TO THE CONTRARY.

2. UNDER THE GUISE OF APPLYING EQUITY BUT IN EFFECT A

VERY APPARENT PARTIALITY AND FAVOR TO RESPONDENTS GO,
IT ORDERED PAYMENT OF THE ENCROACHED AREA AT THE
VALUE AT THE TIME OF ITS TAKING AND NOT THE VALUE AT
THE TIME OF PAYMENT, THEREBY ENRICHING THE GO'S BUT
DEPRIVING PETITIONERS OF THE FRUITS OR INCREASE IN
VALUE OF THEIR PROPERTY TO WHICH THEY ARE ENTITLED
UNDER THE LAW AS THE REGISTERED OWNERS WITH TORRENS
TITLE IN THEIR NAMES.
3. WHEN IT DID NOT DISMISS THE THIRD-PARTY COMPLAINT
DUE TO NON-PAYMENT OF ANY FILING OR DOCKET FEE.
4. WHEN IT DENIED PETITIONERS THE RECOVERY OF THE
NECESSARY EXPENSES IN PROTECTING THEIR RIGHTS IN THIS
CASE."[10]
Petitioners question the admission by respondent Court of Appeals of
the third-party complaint by respondents Go against the AIA, Jose
Quedding and Li Ching Yao. Petitioners claim that the third-party complaint
should not have been considered by the Court of Appeals for lack of
jurisdiction due to third-party plaintiffs' failure to pay the docket and filing
fees before the trial court.
The third-party complaint in the instant case arose from the complaint
of petitioners against respondents Go. The complaint filed was for accion
publiciana, i.e., the recovery of possession of real property which is a real
action. The rule in this jurisdiction is that when an action is filed in court,
the complaint must be accompanied by the payment of the requisite docket
and filing fees.[11] In real actions, the docket and filing fees are based on the
value of the property and the amount of damages claimed, if any. [12] If the
complaint is filed but the fees are not paid at the time of filing, the court
acquires jurisdiction upon full payment of the fees within a reasonable time
as the court may grant, barring prescription.[13] Where the fees prescribed for
the real action have been paid but the fees of certain related damages are
not, the court, although having jurisdiction over the real action, may not
have acquired jurisdiction over the accompanying claim for damages.

[14]

Accordingly, the court may expunge those claims for damages, or allow,
on motion, a reasonable time for amendment of the complaint so as to
allege the precise amount of damages and accept payment of the requisite
legal fees.[15] If there are unspecified claims, the determination of which
may arise after the filing of the complaint or similar pleading, the additional
filing fee thereon shall constitute a lien on the judgment award. [16] The same
rule also applies to third-party claims and other similar pleadings. [17]
In the case at bar, the third-party complaint filed by respondents Go
was incorporated in their answer to the complaint. The third-party
complaint sought the same remedy as the principal complaint but added a
prayer for attorney's fees and costs without specifying their amounts, thus:
"ON THE THIRD PARTY COMPLAINT
1. That summons be issued against Third-Party Defendants Araneta Institute
of Agriculture, Jose N. Quedding and Li Ching Yao;
2. That after hearing, they be sentenced to indemnify the Third-Party
Plaintiffs for whatever is adjudged against the latter in favor of the
Plaintiffs;
3. That Third-Party Defendants be ordered to pay attorney's fees as may be
proved during trial;
4. That Third-Party Defendants be ordered to pay the costs.
Other just and equitable reliefs are also prayed for."[18]
The Answer with Third-Party Complaint was admitted by the trial
court without the requisite payment of filing fees, particularly on the Go's
prayer for damages.[19] The trial court did not award the Go's any
damages. It dismissed the third-party complaint. The Court of Appeals,
however, granted the third-party complaint in part by ordering third-party
defendant Jose N. Quedding to pay the Go's the sum ofP5,000.00 as
attorney's fees.

Contrary to petitioners' claim, the Court of Appeals did not err in

awarding damages despite the Go's failure to specify the amount prayed for
and pay the corresponding additional filing fees thereon. The claim for
attorney's fees refers to damages arising after the filing of the complaint
against the Go's. The additional filing fee on this claim is deemed to
constitute a lien on the judgment award.[20]
The Court of Appeals found that the subject portion is actually fortytwo (42) square meters in area, not forty-five (45), as initially found by the
trial court; that this forty-two (42) square meter portion is on the entire
eastern side of Lot No. 24 belonging to petitioners; that on this said portion
is found the concrete fence and pathway that extends from respondent
Winston Go's house on adjacent Lot No. 25; that inclusive of the subject
portion, respondents Go did not gain nor lose any portion of Lots Nos. 25
and 26; that instead, Lot No. 27, on which respondent Li Ching Yao built
his house, encroached on the land of respondents Go, gaining in the process
thirty-seven (37) square meters of the latter's land.[21]
We hold that the Court of Appeals correctly dismissed the third-party
complaint against AIA. The claim that the discrepancy in the lot areas was
due to AIA's fault was not proved. The appellate court, however, found that
it was the erroneous survey by Engineer Quedding that triggered these
discrepancies. And it was this survey that respondent Winston Go relied
upon in constructing his house on his father's land. He built his house in the
belief that it was entirely within the parameters of his father's land. In short,
respondents Go had no knowledge that they encroached on petitioners'
lot. They are deemed builders in good faith[22] until the time petitioner
Ballatan informed them of their encroachment on her property.[23]
Respondent Li Ching Yao built his house on his lot before any of the
other parties did.[24] He constructed his house in 1982, respondents Go in
1983, and petitioners in 1985.[25] There is no evidence, much less, any
allegation that respondent Li Ching Yao was aware that when he built his
house he knew that a portion thereof encroached on respondents Go's
adjoining land. Good faith is always presumed, and upon him who alleges
bad faith on the part of a possessor rests the burden of proof.[26]

All the parties are presumed to have acted in good faith. Their rights
must, therefore, be determined in accordance with the appropriate
provisions of the Civil Code on property.
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,[27] or to oblige the one who built or planted to pay the
price of the land, and the one who sowed the proper rent. However, the
builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall
pay reasonable rent, if the owner of the land does not choose to appropriate
the building or trees after proper indemnity. The parties shall agree upon the
terms of the lease and in case of disagreement, the court shall fix the terms
thereof."
The 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
building, planting or sowing, after payment to the builder, planter or sower
of the necessary and useful expenses, and in the proper case, expenses for
pure luxury or mere pleasure. The owner of the land may also oblige the
builder, planter or sower to purchase and pay the price of the land. If the
owner chooses to sell his land, the builder, planter or sower must purchase
the land, otherwise the owner may remove the improvements thereon. The
builder, planter or sower, however, is not obliged to purchase the land if its
value is considerably more than the building, planting or sowing. In such
case, the builder, planter or sower must pay rent to the owner of the land. If
the parties cannot come to terms over the conditions of the lease, the court
must fix the terms thereof. The right to choose between appropriating the
improvement or selling the land on which the improvement stands to the
builder, planter or sower, is given to the owner of the land.[28]
Article 448 has been applied to improvements or portions of
improvements built by mistaken belief on land belonging to the adjoining

owner.[29] The facts of the instant case are similar to those inCabral v.
Ibanez,[30] to wit:
"[P]laintiffs Geronima Zabala and her husband Justino Bernardo,
constructed their house in the belief that it was entirely within the area of
their own land without knowing at that time that part of their house was
occupying a 14-square meter portion of the adjoining lot belonging to the
defendants, and that the defendants Bernardo M. Cabral and Mamerta M.
Cabral were likewise unaware of the fact that a portion of plaintiff's house
was extending and occupying a portion of their lot with an area of 14 square
meters. The parties came to know of the fact that part of the plaintiff's house
was occupying part of defendant's land when the construction of plaintiff's
house was about to be finished, after a relocation of the monuments of the
two properties had been made by the U.S. Army through the Bureau of
Lands, according to their 'Stipulation of Facts,' dated August 17, 1951.
On the basis of these facts, we held that:
"The Court, therefore, concludes that the plaintiffs are builders in good faith
and the relative rights of the defendant Mamerta Cabral as owner of the land
and of the plaintiffs as owners of the building is governed by Article 361 of
the Civil Code (Co Tao v. Joaquin Chan Chico, 46 Off. Gaz.5514). Article
361 of the old Civil Code has been reproduced with an additional provision
in Article 448 of the new Civil Code, approved June 18, 1949."[31]
Similarly, in Grana and Torralba v. Court of Appeals,[32] we held that:
"Although without any legal and valid claim over the land in question,
petitioners, however, were found by the Court of Appeals to have
constructed a portion of their house thereon in good faith. Under Article 361
of the old Civil Code (Article 448 of the new), the owner of the land on
which anything has been built in good faith shall have the right to
appropriate as his own the building, after payment to the builder of
necessary or useful expenses, and in the proper case, expenses for pure
luxury or mere pleasure, or to oblige the builder to pay the price of the
land. Respondents, as owners of the land, have therefore the choice of
either appropriating the portion of petitioners' house which is on their

land upon payment of the proper indemnity to petitioners, or selling to

petitioners that part of their land on which stands the improvement. It
may here be pointed out that it would be impractical for respondents to
choose to exercise the first alternative, i.e., buy that portion of the house
standing on their land, for in that event the whole building might be
rendered useless. The more workable solution, it would seem, is for
respondents to sell to petitioners that part of their land on which was
constructed a portion of the latter's house. If petitioners are unwilling
or unable to buy, then they must vacate the land and must pay rentals
until they do so. Of course, respondents cannot oblige petitioners to buy
the land if its value is considerably more than that of the
aforementioned portion of the house. If such be the case, then
petitioners must pay reasonable rent. The parties must come to an
agreement as to the conditions of the lease, and should they fail to do so,
then the court shall fix the same."[33]
In light of these rulings, petitioners, as owners of Lot No. 24, may
choose to purchase the improvement made by respondents Go on their land,
or sell to respondents Go the subject portion. If buying the improvement is
impractical as it may render the Go's house useless, then petitioners may
sell to respondents Go that portion of Lot No. 24 on which their
improvement stands. If the Go's are unwilling or unable to buy the lot, then
they must vacate the land and, until they vacate, they must pay rent to
petitioners. Petitioners, however, cannot compel respondents Go to buy the
land if its value is considerably more than the portion of their house
constructed thereon. If the value of the land is much more than the Go's
improvement, then respondents Go must pay reasonable rent. If they do not
agree on the terms of the lease, then they may go to court to fix the same.
In the event that petitioners elect to sell to respondents Go the subject
portion of their lot, the price must be fixed at the prevailing market value at
the time of payment. The Court of Appeals erred in fixing the price at the
time of taking, which is the time the improvements were built on the
land. The time of taking is determinative of just compensation in
expropriation proceedings. The instant case is not for expropriation. It is not
a taking by the state of private property for a public purpose upon payment
of just compensation. This is a case of an owner who has been paying real

estate taxes on his land but has been deprived of the use of a portion of this
land for years. It is but fair and just to fix compensation at the time of
payment.[34]
Article 448 and the same conditions abovestated also apply to
respondents Go as owners and possessors of their land and respondent Li
Ching Yao as builder of the improvement that encroached on thirty-seven
(37) square meters of respondents Go's land.
IN VIEW WHEREOF, the decision of respondent Court of Appeals
is modified as follows:
(1) Petitioners are ordered to exercise within thirty (30) days from
finality of this decision their option to either buy the portion of respondents
Go's improvement on their Lot No. 24, or sell to said respondents the
portion of their land on which the improvement stands. If petitioners elect to
sell the land or buy the improvement, the purchase price must be at the
prevailing market price at the time of payment. If buying the improvement
will render respondents Go's house useless, then petitioners should sell the
encroached portion of their land to respondents Go. If petitioners choose to
sell the land but respondents Go are unwilling or unable to buy, then the
latter must vacate the subject portion and pay reasonable rent from the time
petitioners made their choice up to the time they actually vacate the
premises. But if the value of the land is considerably more than the value of
the improvement, then respondents Go may elect to lease the land, in which
case the parties shall agree upon the terms of the lease.Should they fail to
agree on said terms, the court of origin is directed to fix the terms of the
lease.
From the moment petitioners shall have exercised their option,
respondents Go shall pay reasonable monthly rent up to the time the parties
agree on the terms of the lease or until the court fixes such terms.

(2) Respondents Go are likewise directed to exercise their rights as

owners of Lots Nos. 25 and 26, vis-a-vis respondent Li Ching Yao as
builder of the improvement that encroached on thirty seven (37) square
meters of respondents Go's land in accordance with paragraph one
abovementioned.
(3) The Decision of the Court of Appeals ordering Engineer Quedding,
as third-party defendant, to pay attorney's fees of P5,000.00 to respondents
Go is affirmed. The additional filing fee on the damages constitutes a lien
on this award.
(4) The Decision of the Court of Appeals dismissing the third-party
complaint against Araneta Institute of Agriculture is affirmed.
SO ORDERED.
SPOUSES DEL CAMPO V. ABESIA 160 SCRA 379
Facts:
This case involves a parcel of land, situated at the corner of
F. Flores and Cavan Streets, Cebu City. An action for partition
was filed by plaintiffs in the CFI of Cebu. Plaintiffs and
defendants are co-owners pro indiviso of this lot in the
proportion of and 1/3 share each, respectively. The trial
court appointed a commissioner in accordance with the
agreement of the parties. ,the Id commissioner conducted a
survey, prepared a sketch plan and submitted a report to
the trial court on May 29, 1976, recommending that the
property be divided into two lots: Lot 1161-A with an area of
30 square meters for plaintiffs and Lot No. 1161-B with an
area of 15 square meters for the defendants. The houses of
plaintiffs and defendants were surveyed and shown on the
sketch plan. The house of defendants occupied the portion
with an area of 5 square meters of Lot 1161-A of plaintiffs.
The parties manifested their conformity to the report and
asked the trial court to finally settle and adjudicate who

among the parties should take possession of the 5 square

meters of the land in question.
Issue: Whether or Not Article 448 of the Civil Code is
applicable to a builder in good faith when the property
involved is owned in common.
Held: When the co-ownership is terminated by the partition
and it appears that the house of defendants overlaps or
occupies a portion of 5 square meters of the land pertaining
to plaintiffs which the defendants obviously built in good
faith, then the provisions of Article 448 of the new Civil Code
should apply. Manresa and Navarro Amandi agree that the
said provision of the Civil Code may apply even when there
was co-ownership if good faith has been established.
Applying the aforesaid provision of the Civil Code, the
plaintiffs have the right to appropriate said portion of the
house of defendants upon payment of indemnity to
defendants as provided for in Article 546 of the Civil Code.
Otherwise, the plaintiffs may oblige the defendants to pay
the price of the land occupied by their house. However, if
the price asked for is considerably much more than the
value of the portion of the house of defendants built
thereon, then the latter cannot be obliged to buy the land.
The defendants shall then pay the reasonable rent to the
plaintiff upon such terms and conditions that they may
agree. In case of disagreement, the trial court shall fix the
terms thereof. Of course, defendants may demolish or
remove the said portion of their house, at their own
expense, if they so decide.
Article 448 of the New Civil Code provides as follows:
Art. 448. The owner of the land on which anything has been
built, sown, or planted in good faith, shall have the right to
appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in articles 546 and
548, or to oblige the one who built or planted to pay the
price of the land, and the one who sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the

land if its value is considerably more than that of the

building or trees. In such case, he shall pay reasonable rent,
if the owner of the land does not choose to appropriate the
building or trees after proper indemnity. The parties shall
agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof.
PACIFIC FARMS, INC., plaintiff-appellee,
vs.
SIMPLICIO G. ESGUERRA, ET AL., defendants,
CARRIED LUMBER COMPANY, defendant-appellant.
Primicias, Del Castillo, Macaraeg and T. P. Regino for defendantappellant.
Araneta and Araneta for plaintiff-appellee.
CASTRO, J.:
Before us for review, on appeal by the defendant Carried Lumber
Company (hereinafter referred to as the Company), is the decision,
dated May 30, 1962, of the Court of First Instance of Pangasinan in
civil case D-1317, annulling the levy and certificate of sale covering
six buildings owned by the plaintiff Pacific Farms, Inc., executed by
the defendant deputy provincial sheriff Simplicio G. Esguerra in favor
of the Company to satisfy a money judgment against the Insular
Farms, Inc., the plaintiff's predecessor-in-interest over the said
buildings.
The environmental setting is uncontroverted.
On several occasions from October 1, 1956 to March 2, 1957 the
Company sold and delivered lumber and construction materials to
the Insular Farms, Inc. which the latter used in the construction of the
aforementioned six buildings at its compound in Bolinao,
Pangasinan, of the total procurement price of P15,000, the sum of
P4,710.18 has not been paid by Insular Farms, Inc. Consequently,
on October 17, 1958 the Company instituted civil case D-775 with
the Court of First Instance of Pangasinan to recover the said unpaid
balance from the Insular Farms, Inc. On August 23, 1961 the trial

court rendered judgment sustaining the Company's claim. The

judgment debtor did not appeal; so on December 19, 1961 the
corresponding writ of execution was issued. On January 16, 1962
the defendant sheriff levied upon the six buildings. On January 30,
1962 the Pacific Farms, Inc. filed a third-party claim, subscribed by
its corporate president, asserting ownership over the levied buildings
which it had acquired from the Insular Farms, Inc. by virtue of a deed
of absolute sale executed on March 21, 1958, about seven months
before the Company filed the above-mentioned action (civil case D775). Shielded by an indemnity bond of P7,120 put up by the
Company and the Cosmopolitan Insurance Company, Inc., the sheriff
proceeded with the announced public auction on February 12, 1962
and sold the levied buildings to the Company for P6,110.78.
Asserting absolute and exclusive ownership of the buildings in
question, the Pacific Farms, Inc. filed a complaint on May 14, 1962
against the Company and the sheriff with the court a quo, praying
that judgment be rendered, (a) declaring null and void the levy and
judicial sale of the six buildings, and (b) adjudging the defendants
jointly and severally liable to the plaintiff in the sum of P2,000 by way
of actual damages and for such amount as the court may deem
proper and just to impose by way of exemplary damages and for
costs of the suit.
After due trial, the court a quo on May 30, 1963 rendered judgment
annulling the levy of January 16, 1962 and the certificate of sale of
February 12, 1962. The court, however, denied the plaintiff's claim
for actual and exemplary damages on the ground that it was not
"prepared to find that there was gross negligence or bad faith on the
part of any of the defendants."
Hence this appeal, imputing errors which, according to the
appellant's formulation, are the following:

1. The lower court erred in holding that the credit of the

defendant-appellant, Carried Lumber Company, against the
Insular Farms, Inc., consisting of the value of lumber and
construction materials used in the buildings which were later
acquired by the Pacific Farms, Inc., the appellee, was not a
statutory lien on those buildings; .
2. The lower court, likewise, erred in holding that the doctrine
laid down in De Barretto, et al. vs. Villanueva, et al. (G.R.
No. L-14938, December 29, 1962) is applicable to the facts
of this case as found by said court; and .
3. The lower court erred, finally, in declaring that the sale at
public auction conducted by the defendant deputy provincial
sheriff of Pangasinan, covering the six buildings described in
the certificate of sale dated February 12, 1962, was null and
void.
1. In ruling against the appellant below, the trial court relied mainly
on the resolution (on the motion for reconsideration) promulgated on
December 29, 1962 by this Court in De Barretto, et al. vs.
Villanueva, et al., L-14938 (6 SCRA 928). The said case, however, is
inapplicable because it concerned not one but two or more preferred
creditors who, pursuant to articles 2242 and 2249 of the Civil Code,
must necessarily be convened and the nature and extent of their
respective claims ascertained. Thus, we held that before there can
be a pro rata payment of credits entitled to preference as to the
same specific real property, there must first be some proceeding
where the claims of all the preferred creditors may be bindingly
adjudicated, such as insolvency, the settlement of a decedent's
estate under Rule 87 of the Rules of Court, or liquidation
proceedings of similar import.
But the case before us does not involve a question of preference of
credits, and is not one where two or more creditors have separate
and distinct claims against the same debtor who has insufficient
property. Indeed, it is a matter of necessity and logic that the
question of preference should arise only where the debtor cannot
pay his debts in full. For, if debtor A is able in full to pay all his three

creditors, B, C, and D, how can the need arise for determining which
of the three creditors shall be paid first or whether they shall be paid
out of the proceeds of a specific property?
2. It is undenied and undeniable that the appellant furnished lumber
and construction materials to the Insular Farms, Inc. (the appellee's
predecessor-in-interest) which the latter used in the construction of
the six buildings. Likewise unchallenged is the lower court's factual
finding that out of the total procurement price of P15,000, the amount
of P4,710.18 remains outstanding and unpaid by the Insular Farms,
Inc. The appellant is therefore an unpaid furnisher of materials.
Whether there exists a materialman's lien over the six buildings in
favor of the appellant, is a question we do not here decide. To our
mind the application by analogy of the rules of accession would
suffice for a just adjudication.
Article 447 of the Civil Code1 provides:
The owner of the land who makes thereon personally or
through another, plantings, constructions or works with the
materials of another, shall pay their value; and, if he acted in
bad faith, he shall also be obliged to the reparation of
damages. The owner of the materials shall have the right to
remove them only in case he can do so without injury to the
work constructed, or without the plantings, constructions or
works being destroyed. However, if the landowner acted in
bad faith, the owner of the materials may remove them in
any event with a right to be indemnified for damages.
The abovequoted legal provision contemplates a principal and an
accessory, the land being considered the principal, and the plantings,
constructions or works, the accessory. The owner of the land who in
good faith whether personally or through another makes
constructions or works thereon, using materials belonging to
somebody else, becomes the owner of the said materials with the
obligation however of praying for their value.2The owner of the
materials, on the other hand, is entitled to remove them, provided no

substantial injury is caused to the landowner. Otherwise, he has the

right to reimbursement for the value of his materials.
Although it does not appear from the records of this case that the
land upon which the six buildings were built is owned by the
appellee, nevertheless, that the appellee claims that it owns the six
buildings constructed out of the lumber and construction materials
furnished by the appellant, is indubitable. Therefore, applying article
447 by analogy, we perforce consider the buildings as the principal
and the lumber and construction materials that went into their
construction as the accessory. Thus the appellee, if it does own the
six buildings, must bear the obligation to pay for the value of the said
materials; the appellant which apparently has no desire to remove
the materials, and, even if it were minded to do so, cannot remove
them without necessarily damaging the buildings has the
corresponding right to recover the value of the unpaid lumber and
construction materials.
Well-established in jurisprudence is the rule that compensation
should be borne by the person who has been benefited by the
accession.3 No doubt, the appellee benefited from the accession,
i.e., from the lumber and materials that went into the construction of
the six buildings. It should therefore shoulder the compensation due
to the appellant as unpaid furnisher of materials.
Of course, the character of a buyer in good faith and for value, if
really possessed by the appellee, could possibly exonerate it from
making compensation.
But the appellee's stance that it is an innocent purchaser for value
and in good faith is open to grave doubt because of certain facts of
substantial import (evident from the records) that cannot escape
notice.
In the deed of absolute sale, exhibit 1, the Insular Farms, Inc.
(vendor) was represented in the contract by its president, J. Antonio
Araneta. The latter was a director of the appellee (Pacific Farms,
Inc.) and was the counsel who signed the complaint filed by the
appellee in the court below. J. Antonio Araneta was, therefore, not

only the president of the Insular Farms, Inc. but also a director and
counsel of the appellee.
During the trial of civil case D-775 the Insular Farms, Inc. was
represented by Attorney Amado Santiago, Jr. of the law firm of J.
Antonio Araneta. The latter was one of the counsels of the Pacific
Farms, Inc. The appellee cannot claim ignorance of the pendency of
civil case D-775 because the Insular Farms, Inc. was defended by
the same lawyer from the same law firm that commenced the
present action. J. Antonio Araneta, as counsel for the Pacific Farms,
Inc., cannot close his eyes to facts of which he as president of the
Insular Farms, Inc. had actual knowledge. Significantly, exhibit 1
(supra) itself shows that the Insular Farms, Inc. and the Pacific
Farms, Inc. were housed in adjacent rooms (nos. 304 and 303,
respectively), of the same building, the Insular Life Building, as early
as March 21, 1958.
It is reasonable therefore to conclude that the appellee, through its
director and counsel, J. Antonio Araneta, knew about the unpaid
balance of the purchase price of the lumber and construction
materials supplied or furnished by the appellant to the Insular Farms,
Inc.
Parenthetically, it is likewise worth our attention that despite the
appellee's knowledge of the suit instituted by the appellant against
the Insular Farms, Inc. (the appellee's predecessor-in-interest) for
the recovery of the unpaid balance of the purchase price of the
lumber and materials used in the construction of its six buildings, it
merely folded its arms in disinterest and waited, so to speak. Not
until a decision was rendered therein in favor of the appellant, a writ
of execution issued, and the six buildings levied upon by the sheriff,
did it file a third-party claim over the levied buildings. In the face of
the knowledge that its predecessor-in-interest had not fully paid for
the lumber and construction materials used in the six buildings it had
purchased, its natural and expected reaction should have been to
intervene in the suit filed by the appellant against the Insular Farms,
Inc. and hold the latter to account for breach of the warranties
deemed included in the deed of absolute sale conveying said
building to it.

Curiously enough, although the six buildings in question were

supposedly sold by the Insular Farms to the appellee on March 21,
1958, as evidenced by the deed of absolute sale (exhibit 1), about
seven months before the appellant filed civil case D-775, the Insular
Farms, Inc. never moved to implead the appellee therein as a
necessary party-defendant, and remained completely and strangely
silent about the sale. It is not amiss to surmise that it is entirely
possible that the Insular Farms, Inc. and the appellee chose to
remain silent in the hope that the appellant's claim against the Insular
Farms, Inc. in civil case D-775 would be dismissed or non-suited.
Moreover, the appellee was in a better position to protect its interest.
It knew that the Insular Farms, Inc., its predecessor-in-interest, was a
mere lessee of the premises on which the buildings were located.
This should have placed it on guard and compelled it to ascertain the
circumstances surrounding the construction of the said buildings on
the premises.
On the other hand, the appellant was not as advantageously situated
as the appellee. There being no separate registry of property for
buildings and no procedure provided by law for registering or
annotating the claim of an unpaid furnisher of materials, it was
helpless to prevent the sale of the property built from lumber and
construction materials it furnished. But certainly, because it has a
right, pursuant to article 447, supra, to reimbursement for the value
of its unpaid materials, the appellant could pursue any remedy
available to it under the law in order to enforce the said right. Thus,
the appellant acted correctly in bringing an action (D-775) against the
Insular Farms, Inc. and enforcing its right of reimbursement through
the execution of the final judgment it obtained in the said case
against the six buildings in the possession of the appellee who now
stands to benefit therefrom. It follows, as a necessary corollary, that
the sale at public auction conducted by the defendant sheriff of the
six buildings described in the certificate of sale dated February 12,
1962, exhibit 7, was valid and effective.
ACCORDINGLY, the judgment a quo is reversed, and the complaint
is hereby dismissed.

In view, however, of the equities clearly attendant in this case, it is

the sense of this Court that the plaintiff-appellee Pacific Farms, Inc.
should be, as it is hereby, granted a period of thirty (30) days from
the date this judgment becomes final, within which it may exercise
the option of redeeming the six buildings, by paying to the defendantappellant Carried Lumber Company the sum of P4,710.18, with legal
interest from September 23, 1961 (the date the judgment in civil case
D-775 became final), until the said amount shall have been fully paid.

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

No pronouncement as to costs.
PEDRO P. PECSON, petitioner,
vs.
COURT OF APPEALS, SPOUSES JUAN NUGUID and ERLINDA
NUGUID, respondents.

DAVIDE, JR., J.:

This petition for review on certiorari seeks to set aside the
decision 1 of the Court of Appeals in CA-G.R. SP No. 32679 affirming
in part the order 2 of the Regional Trial Court (RTC) of Quezon City,
Branch 101, in Civil Case No. Q-41470.
The factual and procedural antecedents of this case as gathered
from the record are as follows:
Petitioner Pedro P. Pecson was the owner of a commercial lot
located in Kamias Street, Quezon City, on which he built a four-door
two-storey apartment building. For his failure to pay realty taxes
amounting to twelve thousand pesos (P12,000.00), the lot was sold
at public auction by the city Treasurer of Quezon City to Mamerto
Nepomuceno who in turn sold it on 12 October 1983 to the private
respondents, the spouses Juan Nuguid and Erlinda Tan-Nuguid, for
one hundred three thousand pesos (P103,000.00).

Both parties then appealed the decision to the Court of Appeals. The
case was docketed as CA-G.R. CV No. 2931. In its decision of 30
April 1992, 4 the Court of Appeals affirmed in toto the assailed
decision. It also agreed with the trial court that the apartment building
was not included in the auction sale of the commercial lot. Thus:
Indeed, examining the record we are fully convinced
that it was only the land without the apartment
building which was sold at the auction sale, for
plaintiff's failure to pay the taxes due thereon. Thus,
in the Certificate of Sale of Delinquent Property To
Purchaser (Exh. K, p. 352, Record) the property
subject of the auction sale at which Mamerto
Nepomuceno was the purchaser is referred to as Lot
No. 21-A, Block No. K-34, at Kamias, Barangay
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
On November 1993, the private respondents filed with the trial court
a motion for delivery of possession of the lot and the apartment
building, citing article 546 of the Civil Code. 7 Acting thereon, the trial
court issued on 15 November 1993 the challenged order 8 which
reads as follows:
Submitted for resolution before this Court is an
uncontroverted [sic] for the Delivery of Possession
filed by defendants Erlinda Tan, Juan Nuguid, et al.
considering that despite personal service of the
Order for plaintiff to file within five (5) days his
opposition to said motion, he did not file any.
In support of defendant's motion, movant cites the
law in point as Article 546 of the Civil Code . . .
Movant agrees to comply with the provisions of the
law considering that plaintiff is a builder in good faith
and he has in fact, opted to pay the cost of the
construction spent by plaintiff. From the complaint
itself the plaintiff stated that the construction cost of
the apartment is much more than the lot, which
apartment he constructed at a cost of P53,000.00 in
1965 (par. 8 complaint). This amount of P53,000.00
is what the movant is supposed to pay under the law
before a writ of possession placing him in
possession of both the lot and apartment would be
issued.

However, the complaint alleges in paragraph 9 that

three doors of the apartment are being leased. This
is further confirmed by the affidavit of the movant
presented in support of the motion that said three
doors are being leased at a rental of P7,000.00 a
month each. The movant further alleges in his said
affidavit that the present commercial value of the lot
is P10,000.00 per square meter or P2,500,000.00
and the reasonable rental value of said lot is no less
than P21,000.00 per month.
The decision having become final as per Entry of
Judgment dated June 23, 1993 and from this date
on, being the uncontested owner of the property, the
rents should be paid to him instead of the plaintiff
collecting them. From June 23, 1993, the rents
collected by plaintiff amounting to more than
P53,000.00 from tenants should be offset from the
rents due to the lot which according to movant's
affidavit is more than P21,000.00 a month.
WHEREFORE, finding merit in the Motion, the Court
hereby grants the following prayer that:
1. The movant shall reimburse
plaintiff the construction cost of
P53,000.00.
2. The payment of P53,000.00 as
reimbursement for the construction
cost, movant Juan Nuguid is hereby
entitled to immediate issuance of a
writ of possession over the Lot and
improvements thereon.
3. The movant having been
declared as the uncontested owner
of the Lot in question as per Entry of
Judgment of the Supreme Court

dated June 23, 1993, the plaintiff

should pay rent to the movant of no
less than P21,000.00 per month
from said date as this is the very
same amount paid monthly by the
tenants occupying the lot.
4. The amount of P53,000.00 due
from the movant is hereby offset
against the amount of rents
collected by the plaintiff from June
23, 1993, to September 23, 1993.
SO ORDERED.
The petitioner moved for the reconsideration of the order but it was
not acted upon by the trial court. Instead, on 18 November 1993, it
issued a writ of possession directing the deputy sheriff "to place said
movant Juan Nuguid in possession of subject property located at No.
79 Kamias Road, Quezon City, with all the improvements thereon
and to eject therefrom all occupants therein, their agents, assignees,
heirs and representatives." 9
The petitioner then filed with the Court of Appeals a special civil
action for certiorari and prohibition assailing the order of 15
November 1993, which was docketed as CA-G.R. SP No.
32679. 10 In its decision of 7 June 1994, the Court of Appeals
affirmed in part the order of the trial court citing Article 448 of the Civil
Code. In disposing of the issues, it stated:
As earlier pointed out, private respondent opted to
appropriate the improvement introduced by
petitioner on the subject lot, giving rise to the right of
petitioner to be reimbursed of the cost of
constructing said apartment building, in accordance
with Article 546 of the . . . Civil Code, and of the right
to retain the improvements until he is reimbursed of
the cost of the improvements, because, basically,
the right to retain the improvement while the

corresponding indemnity is not paid implies the

tenancy or possession in fact of the land on which
they are built . . . [2 TOLENTINO, CIVIL CODE OF
THE PHILIPPINES (1992) p. 112]. With the facts
extant and the settled principle as guides, we agree
with petitioner that respondent judge erred in
ordering that "the movant having been declared as
the uncontested owner of the lot in question as per
Entry of Judgment of the Supreme Court dated June
23, 1993, the plaintiff should pay rent to the movant
of no less than P21,000 per month from said date as
this is the very same amount paid monthly by the
tenants occupying the lot.
We, however, agree with the finding of respondent
judge that the amount of P53,000.00 earlier admitted
as the cost of constructing the apartment building
can be offset from the amount of rents collected by
petitioner from June 23, 1993 up to September 23,
1993 which was fixed at P7,000.00 per month for
each of the three doors. Our underlying reason is
that during the period of retention, petitioner as such
possessor and receiving the fruits from the property,
is obliged to account for such fruits, so that the
amount thereof may be deducted from the amount of
indemnity to be paid to him by the owner of the land,
in line with Mendoza vs. De Guzman, 52 Phil. 164 . .
..
The Court of Appeals then ruled as follows:
WHEREFORE, while it appears that private
respondents have not yet indemnified petitioner with
the cost of the improvements, since Annex I shows
that the Deputy Sheriff has enforced the Writ of
Possession and the premises have been turned over
to the possession of private respondents, the quest
of petitioner that he be restored in possession of the
premises is rendered moot and academic, although
it is but fair and just that private respondents pay

petitioner the construction cost of P53,000.00; and

that petitioner be ordered to account for any and all
fruits of the improvements received by him starting
on June 23, 1993, with the amount of P53,000.00 to
be offset therefrom.
IT IS SO ORDERED. 11
Aggrieved by the Court of Appeals' decision, the petitioner filed the
instant petition.
The parties agree that the petitioner was a builder in good faith of the
apartment building on the theory that he constructed it at the time
when he was still the owner of the lot, and that the key issue in this
case is the application of Articles 448 and 456 of the Civil Code.
The trial court and the Court of Appeals, as well as the parties,
concerned themselves with the application of Articles 448 and 546 of
the Civil Code. These articles read as follows:
Art. 448. The owner of the land on which anything
has been built, sown or planted in good faith, shall
have the right to appropriate as his own the works,
sowing or planting, after payment of the indemnity
provided for in articles 546 and 548, or to oblige the
one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However,
the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the
building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not
choose to appropriate the building or trees after
proper indemnity. The parties shall agree upon the
terms of the lease and in case of disagreement, the
court shall fix the terms thereof. (361a)
xxx xxx xxx

Art. 546. Necessary expenses shall be refunded to

every possessor; but only the possessor in good
faith may retain the thing until he has been
reimbursed therefor.
Useful expenses shall be refunded only to the
possessor in good faith with the same right of
retention, the person who has defeated him in the
possession having the option of refunding the
amount of the expenses or of paying the increase in
value which the thing may have acquired by reason
thereof. (453a)
By its clear language, Article 448 refers to a land whose ownership is
claimed by two or more parties, one of whom has built some works,
or sown or planted something. The building, sowing or planting may
have been made in good faith or in bad faith. The rule on good faith
laid down in Article 526 of the Civil Code shall be applied in
determining whether a builder, sower or planter had acted in good
faith. 12
Article 448 does not apply to a case where the owner of the land is
the builder, sower, or planter who then later loses ownership of the
land by sale or donation. This Court said so in Coleongco
vs. Regalado: 13
Article 361 of the old Civil Code is not applicable in
this case, for Regalado constructed the house on his
own land before he sold said land to Coleongco.
Article 361 applies only in cases where a person
constructs a building on the land of another in good
or in bad faith, as the case may be. It does not apply
to a case where a person constructs a building on
his own land, for then there can be no question as to
good or bad faith on the part of the builder.
Elsewise stated, where the true owner himself is the builder of works
on his own land, the issue of good faith or bad faith is entirely
irrelevant.

Thus in strict point of law, Article 448 is not apposite to the case at
bar. Nevertheless, we believe that the provision therein on indemnity
may be applied by analogy considering that the primary intent of
Article 448 is to avoid a state of forced co-ownership and that the
parties, including the two courts below, in the main agree that Articles
448 and 546 of the Civil Code are applicable and indemnity for the
improvements may be paid although they differ as to the basis of the
indemnity.
Article 546 does not specifically state how the value of the useful
improvements should be determined. The respondent court and the
private respondents espouse the belief that the cost of construction
of the apartment building in 1965, and not its current market value, is
sufficient reimbursement for necessary and useful improvements
made by the petitioner. This position is, however, not in consonance
with previous rulings of this Court in similar cases. In Javier
vs. Concepcion, Jr., 14 this Court pegged the value of the useful
improvements consisting of various fruits, bamboos, a house and
camarin made of strong material based on the market value of the
said improvements. In Sarmiento vs. Agana, 15 despite the finding
that the useful improvement, a residential house, was built in 1967 at
a cost of between eight thousand pesos (P8,000.00) to ten thousand
pesos(P10,000.00), the landowner was ordered to reimburse the
builder in the amount of forty thousand pesos (P40,000.00), the
value of the house at the time of the trial. In the same way, the
landowner was required to pay the "present value" of the house, a
useful improvement, in the case ofDe Guzman vs. De la
Fuente, 16 cited by the petitioner.
The objective of Article 546 of the Civil Code is to administer justice
between the parties involved. In this regard, this Court had long ago
stated in Rivera vs. Roman Catholic Archbishop of Manila 17 that the
said provision was formulated in trying to adjust the rights of the
owner and possessor in good faith of a piece of land, to administer
complete justice to both of them in such a way as neither one nor the
other may enrich himself of that which does not belong to him.
Guided by this precept, it is therefore the current market value of the
improvements which should be made the basis of reimbursement. A
contrary ruling would unjustly enrich the private respondents who
would otherwise be allowed to acquire a highly valued income-

yielding four-unit apartment building for a measly amount.

Consequently, the parties should therefore be allowed to adduce
evidence on the present market value of the apartment building upon
which the trial court should base its finding as to the amount of
reimbursement to be paid by the landowner.
The trial court also erred in ordering the petitioner to pay monthly
rentals equal to the aggregate rentals paid by the lessees of the
apartment building. Since the private respondents have opted to
appropriate the apartment building, the petitioner is thus entitled to
the possession and enjoyment of the apartment building, until he is
paid the proper indemnity, as well as of the portion of the lot where
the building has been constructed. This is so because the right to
retain the improvements while the corresponding indemnity is not
paid implies the tenancy or possession in fact of the land on which it
is built, planted or sown. 18 The petitioner not having been so paid, he
was entitled to retain ownership of the building and, necessarily, the
income therefrom.
It follows, too, that the Court of Appeals erred not only in upholding
the trial court's determination of the indemnity, but also in ordering
the petitioner to account for the rentals of the apartment building
from 23 June 1993 to 23 September 1993.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP
No. 32679 and the Order of 15 November 1993 of the Regional Trial
Court, Branch 101, Quezon City in Civil Case No. Q-41470 are
hereby SET ASIDE.
The case is hereby remanded to the trial court for it to determine the
current market value of the apartment building on the lot. For this
purpose, the parties shall be allowed to adduce evidence on the
current market value of the apartment building. The value so
determined shall be forthwith paid by the private respondents to the
petitioner otherwise the petitioner shall be restored to the possession
of the apartment building until payment of the required indemnity.
No costs.

SO ORDERED.
TECHNOGAS v CA
The parties in this case are owners of adjoining lots in
Paraaque, Metro Manila. It was discovered in a survey that a portion
of a building of petitioner, which was presumably constructed by its
predecessor-in-interest, encroached on a portion of the lot owned by
private respondent. What are the rights and obligations of the
parties? Is petitioner considered a builder in bad faith because, as
held by respondent Court, he is presumed to know the metes and
bounds of his property as described in his certificate of title? Does
petitioner succeed into the good faith or bad faith of his predecessorin-interest which presumably constructed the building?
These are the questions raised in the petition for review of the
Decision[1] dated August 28, 1992, in CA-G.R. CV No. 28293 of
respondent Court[2] where the disposition reads:[3]
WHEREFORE, premises considered, the Decision of the Regional Trial
Court is hereby reversed and set aside and another one entered 1. Dismissing the complaint for lack of cause of action;
2. Ordering Tecnogas to pay the sum of P2,000.00 per month as reasonable
rental from October 4, 1979 until appellee vacates the land;
3. To remove the structures and surrounding walls on the encroached area;
4. Ordering appellee to pay the value of the land occupied by the two-storey
building;
5. Ordering appellee to pay the sum of P20,000.00 for and as attorneys fees;
6. Costs against appellee.

Acting on the motions for reconsideration of both petitioner and

private respondent, respondent Court ordered the deletion of
paragraph 4 of the dispositive portion in an Amended Decision dated
February 9, 1993, as follows:[4]
WHEREFORE, premises considered, our decision of August 28, 1992 is
hereby modified deleting paragraph 4 of the dispositive portion of our
decision which reads:
4. Ordering appellee to pay the value of the land occupied by the two-storey
building.
The motion for reconsideration of appellee is hereby DENIED for lack of
merit.
The foregoing Amended Decision is also challenged in the
instant petition.
The Facts
The facts are not disputed. Respondent Court merely
reproduced the factual findings of the trial court, as follows: [5]
That plaintiff (herein petitioner) which is a corporation duly organized and
existing under and by virtue of Philippine laws is the registered owner of a
parcel of land situated in Barrio San Dionisio, Paraaque, Metro Manila
known as Lot 4331-A (should be 4531-A) of Lot 4531 of the Cadastral
Survey of Paraaque, Metro Manila, covered by Transfer Certificate of Title
No. 409316 of the Registry of Deeds of the Province of Rizal; that said land
was purchased by plaintiff from Pariz Industries, Inc. in 1970, together with
all the buildings and improvements including the wall existing thereon; that
the defendant (herein private respondent) is the registered owner of a parcel
of land known as Lot No. 4531-B of Lot 4531 of the Cadastral Survey of
Paraaque, LRC (GLRO) Rec. No. 19645 covered by Transfer Certificate of
Title No. 279838, of the Registry of Deeds for the Province of Rizal; that
said land which adjoins plaintiffs land was purchased by defendant from a

certain Enrile Antonio also in 1970; that in 1971, defendant purchased

another lot also adjoining plaintiffs land from a certain Miguel Rodriguez
and the same was registered in defendants name under Transfer Certificate
of Title No. 31390, of the Registry of Deeds for the Province of Rizal; that
portions of the buildings and wall bought by plaintiff together with the land
from Pariz Industries are occupying a portion of defendants adjoining land;
that upon learning of the encroachment or occupation by its buildings and
wall of a portion of defendants land, plaintiff offered to buy from defendant
that particular portion of defendants land occupied by portions of its
buildings and wall with an area of 770 square meters, more or less, but
defendant, however, refused the offer. In 1973, the parties entered into a
private agreement before a certain Col. Rosales in Malacaang, wherein
plaintiff agreed to demolish the wall at the back portion of its land thus
giving to defendant possession of a portion of his land previously enclosed
by plaintiffs wall; that defendant later filed a complaint before the office of
Municipal Engineer of Paraaque, Metro Manila as well as before the Office
of the Provincial Fiscal of Rizal against plaintiff in connection with the
encroachment or occupation by plaintiffs buildings and walls of a portion of
its land but said complaint did not prosper; that defendant dug or caused to
be dug a canal along plaintiffs wall, a portion of which collapsed in June,
1980, and led to the filing by plaintiff of the supplemental complaint in the
above-entitled case and a separate criminal complaint for malicious
mischief against defendant and his wife which ultimately resulted into the
conviction in court of defendants wife for the crime of malicious mischief;
that while trial of the case was in progress, plaintiff filed in Court a formal
proposal for settlement of the case but said proposal, however, was ignored
by defendant.
After trial on the merits, the Regional Trial Court [6] of Pasay City,
Branch 117, in Civil Case No. PQ-7631-P, rendered a decision dated
December 4, 1989 in favor of petitioner who was the plaintiff
therein. The dispositive portion reads:[7]
WHEREFORE, judgment is hereby rendered in favor of plaintiff and
against defendant and ordering the latter to sell to plaintiff that portion of
land owned by him and occupied by portions of plaintiffs buildings and wall
at the price of P2,000.00 per square meter and to pay the former:

1. The sum of P44,000.00 to compensate for the losses in materials and

properties incurred by plaintiff through thievery as a result of the
destruction of its wall;
2. The sum of P7,500.00 as and by way of attorneys fees; and
3. The costs of this suit.
Appeal was duly interposed with respondent Court, which as
previously stated, reversed and set aside the decision of the
Regional Trial Court and rendered the assailed Decision and
Amended Decision. Hence, this recourse under Rule 45 of the Rules
of Court.
The Issues
The petition raises the following issues:[8]
(A)
Whether or not the respondent Court of Appeals erred in holding the
petitioner a builder in bad faith because it is presumed to know the
metes and bounds of his property.
(B)
Whether or not the respondent Court of Appeals erred when it used the
amicable settlement between the petitioner and the private respondent,
where both parties agreed to the demolition of the rear portion of the
fence, as estoppel amounting to recognition by petitioner of
respondents right over his property including the portions of the land
where the other structures and the building stand, which were not
included in the settlement.
(C)

Whether or not the respondent Court of Appeals erred in ordering the

removal of the structures and surrounding walls on the encroached area and
in withdrawing its earlier ruling in its August 28, 1992 decision for the
petitioner to pay for the value of the land occupied by the building, only
because the private respondent has manifested its choice to demolish it
despite the absence of compulsory sale where the builder fails to pay for the
land, and which choice private respondent deliberately deleted from its
September 1, 1980 answer to the supple-mental complaint in the Regional
Trial Court.
In its Memorandum, petitioner poses the following issues:
A
The time when to determine the good faith of the builder under Article 448
of the New Civil Code, is reckoned during the period when it was actually
being built; and in a case where no evidence was presented nor introduced
as to the good faith or bad faith of the builder at that time, as in this case, he
must be presumed to be a builder in good faith, since bad faith cannot be
presumed.[9]
B.
In a specific boundary overlap situation which involves a builder in good
faith, as in this case, it is now well settled that the lot owner, who builds on
the adjacent lot is not charged with constructive notice of the technical
metes and bounds contained in their torrens titles to determine the exact and
precise extent of his boundary perimeter.[10]

D.
Quite contrary to respondent Uys reasoning, petitioner Tecnogas continues
to be a builder in good faith, even if it subsequently built/repaired the
walls/other permanent structures thereon while the case a quowas pending
and even while respondent sent the petitioner many letters/filed cases
thereon.[12]
D. (E.)
The amicable settlement between the parties should be interpreted as a
contract and enforced only in accordance with its explicit terms,
and not over and beyond that agreed upon; because the courts do nothave
the power to create a contract nor expand its scope.[13]
E. (F.)
As a general rule, although the landowner has the option to choose between:
(1) buying the building built in good faith, or (2) selling the portion of his
land on which stands the building under Article 448 of the Civil Code;
the first option is not absolute, because an exception thereto, once it would
be impractical for the landowner to choose to exercise the first alternative,
i.e. buy that portion of the house standing on his land, for the whole
building might be rendered useless. The workable solution is for him to
select the second alternative, namely, to sell to the builder that part of his
land on which was constructed a portion of the house.[14]
Private respondent, on the other hand, argues that the petition
is suffering from the following flaws:[15]

C.
The respondent courts citation of the twin cases of Tuason & Co. v.
Lumanlan and Tuason & Co. v. Macalindong is not the judicial authority for
a boundary dispute situation between adjacent torrens titled lot owners, as
the facts of the present case do not fall within nor square with the involved
principle of a dissimilar case.[11]

1. It did not give the exact citations of cases decided by the Honorable
Supreme Court that allegedly contradicts the ruling of the Hon.
Court of Appeals based on the doctrine laid down in Tuason vs.
Lumanlan case citing also Tuason vs. Macalindong case (Supra).

2. Assuming that the doctrine in the alleged Co Tao vs. Chico case is
contradictory to the doctrine in Tuason vs. Lumanlan and Tuason
vs. Macalindong, the two cases being more current, the same
should prevail.
Further, private respondent contends that the following unmistakably point
to the bad faith of petitioner: (1) private respondents purchase of the two
lots, was ahead of the purchase by petitioner of the building and lot from
Pariz Industries; (2) the declaration of the General Manager of Tecnogas
that the sale between petitioner and Pariz Industries was not registered
because of some problems with China Banking Corporation; and (3) the
Deed of Sale in favor of petitioner was registered in its name only in the
month of May 1973.[16]
The Courts Ruling
The petition should be granted.
Good Faith or Bad Faith
Respondent Court, citing the cases of J. M. Tuason & Co., Inc.
vs. Vda. de Lumanlan[17] and J. M. Tuason & Co., Inc. vs.
Macalindong,[18] ruled that petitioner cannot be considered in good
faith because as a land owner, it is presumed to know the metes and
bounds of his own property, specially if the same are reflected in a
properly issued certificate of title. One who erroneously builds on the
adjoining lot should be considered a builder in (b)ad (f)aith, there
being presumptive knowledge of the Torrens title, the area, and the
extent of the boundaries.[19]
We disagree with respondent Court. The two cases it relied
upon do not support its main pronouncement that a registered owner
of land has presumptive knowledge of the metes and bounds of its
own land, and is therefore in bad faith if he mistakenly builds on an
adjoining land. Aside from the fact that those cases had factual
moorings radically different from those obtaining here, there is
nothing in those cases which would suggest, however remotely, that

bad faith is imputable to a registered owner of land when a part of his

building encroaches upon a neighbors land, simply because he is
supposedly presumed to know the boundaries of his land as
described in his certificate of title. No such doctrinal statement could
have been made in those cases because such issue was not before
the Supreme Court. Quite the contrary, we have rejected such a
theory in Co Tao vs. Chico,[20] where we held that unless one is
versed in the science of surveying, no one can determine the precise
extent or location of his property by merely examining his paper title.
There is no question that when petitioner purchased the land
from Pariz Industries, the buildings and other structures were already
in existence. The record is not clear as to who actually built those
structures, but it may well be assumed that petitioners predecessorin-interest, Pariz Industries, did so. Article 527 of the Civil Code
presumes good faith, and since no proof exists to show that the
encroachment over a narrow, needle-shaped portion of private
respondents land was done in bad faith by the builder of the
encroaching structures, the latter should be presumed to have built
them in good faith.[21] It is presumed that possession continues to be
enjoyed in the same character in which it was acquired, until the
contrary is proved.[22] Good faith consists in the belief of the builder
that the land he is building on is his, and his ignorance of any defect
or flaw in his title.[23] Hence, such good faith, by law, passed on to
Parizs successor, petitioner in this case. Further, (w)here one derives
title to property from another, the act, declaration, or omission of the
latter, while holding the title, in relation to the property, is evidence
against the former.[24] And possession acquired in good faith does not
lose this character except in case and from the moment facts exist
which show that the possessor is not unaware that he possesses the
thing improperly or wrongfully.[25] The good faith ceases from the
moment defects in the title are made known to the possessor, by
extraneous evidence or by suit for recovery of the property by the
true owner.[26]
Recall that the encroachment in the present case was caused
by a very slight deviation of the erected wall (as fence) which was

supposed to run in a straight line from point 9 to point 1 of petitioners

lot. It was an error which, in the context of the attendant facts, was
consistent with good faith. Consequently, the builder, if sued by the
aggrieved landowner for recovery of possession, could have invoked
the provisions of Art. 448 of the Civil Code, which reads:
The owner of the land on which anything has been built, sown or planted in
good faith, shall have the right to appropriate as his own the works, sowing
or planting, after payment of the indemnity provided for in articles 546 and
548, or to oblige the one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However, the builder or planter
cannot be obliged to buy the land if its value is considerably more than that
of the building or trees. In such case, he shall pay reasonable rent, if the
owner of the land does not choose to appropriate the building or trees after
proper indemnity. The parties shall agree upon the terms of the lease and in
case of disagreement, the court shall fix the terms thereof.
The obvious benefit to the builder under this article is that, instead of
being outrightly ejected from the land, he can compel the landowner
to make a choice between the two options: (1) to appropriate the
building by paying the indemnity required by law, or (2) sell the land
to the builder. The landowner cannot refuse to exercise either option
and compel instead the owner of the building to remove it from the
land.[27]
The question, however, is whether the same benefit can be
invoked by petitioner who, as earlier stated, is not the builder of the
offending structures but possesses them as buyer.

already stated, taken together with the disputable presumptions of

the law on evidence. These presumptions state, under Section 3 (a)
of Rule 131 of the Rules of Court, that the person is innocent of a
crime or wrong; and under Section 3 (ff) of Rule 131, that the law has
been obeyed. In fact, private respondent Eduardo Uy himself was
unaware of such intrusion into his property until after 1971 when he
hired a surveyor, following his purchase of another adjoining lot, to
survey all his newly acquired lots. Upon being apprised of the
encroachment, petitioner immediately offered to buy the area
occupied by its building -- a species of conduct consistent with good
faith.
In the second place, upon delivery of the property by Pariz
Industries, as seller, to the petitioner, as buyer, the latter acquired
ownership of the property. Consequently and as earlier discussed,
petitioner is deemed to have stepped into the shoes of the seller in
regard to all rights of ownership over the immovable sold, including
the right to compel the private respondent to exercise either of the
two options provided under Article 448 of the Civil Code.
Estoppel
Respondent Court ruled that the amicable settlement entered
into between petitioner and private respondent estops the former
from questioning the private respondents right over the disputed
property. It held that by undertaking to demolish the fence under said
settlement, petitioner recognized private respondents right over the
property, and cannot later on compel private respondent to sell to it
the land since private respondent is under no obligation to sell. [28]

We answer such question in the affirmative.

In the first place, there is no sufficient showing that petitioner
was aware of the encroachment at the time it acquired the property
from Pariz Industries. We agree with the trial court that various
factors in evidence adequately show petitioners lack of awareness
thereof. In any case, contrary proof has not overthrown the
presumption of good faith under Article 527 of the Civil Code, as

We do not agree. Petitioner cannot be held in estoppel for

entering into the amicable settlement, the pertinent portions of which
read:[29]
That the parties hereto have agreed that the rear portion of the fence that
separates the property of the complainant and respondent shall be

demolished up to the back of the building housing the machineries which

demolision (sic) shall be undertaken by the complainant at anytime.
That the fence which serve(s) as a wall housing the electroplating
machineries shall not be demolished in the mean time which portion shall
be subject to negotiation by herein parties.
From the foregoing, it is clear that petitioner agreed only to the
demolition of a portion of the wall separating the adjoining properties
of the parties -- i.e. up to the back of the building housing the
machineries. But that portion of the fence which served as the wall
housing the electroplating machineries was not to be
demolished. Rather, it was to be subject to negotiation by herein
parties. The settlement may have recognized the ownership of
private respondent but such admission cannot be equated with bad
faith. Petitioner was only trying to avoid a litigation, one reason for
entering into an amicable settlement.
As was ruled in Osmea vs. Commission on Audit,[30]
A compromise is a bilateral act or transaction that is expressly
acknowledged as a juridical agreement by the Civil Code and is therein
dealt with in some detail. `A compromise, declares Article 2208 of said
Code, `is a contract whereby the parties, by making reciprocal concessions,
avoid a litigation or put an end to one already commenced.
xxx xxx xxx
The Civil Code not only defines and authorizes compromises, it in fact
encourages them in civil actions. Art. 2029 states that `The Court shall
endeavor to persuade the litigants in a civil case to agree upon some fair
compromise. x x x.
In the context of the established facts, we hold that petitioner
did not lose its rights under Article 448 of the Civil Code on the basis
merely of the fact that some years after acquiring the property in

good faith, it learned about -- and aptly recognized -- the right of

private respondent to a portion of the land occupied by its
building. The supervening awareness of the encroachment by
petitioner does not militate against its right to claim the status of a
builder in good faith. In fact, a judicious reading of said Article 448
will readily show that the landowners exercise of his option can only
take place after the builder shall have come to know of the intrusion
-- in short, when both parties shall have become aware of it. Only
then will the occasion for exercising the option arise, for it is only
then that both parties will have been aware that a problem exists in
regard to their property rights.
Options of Private Respondent
What then is the applicable provision in this case which private
respondent may invoke as his remedy: Article 448 or Article 450[31] of
the Civil Code?
In view of the good faith of both petitioner and private
respondent, their rights and obligations are to be governed by Art.
448. The essential fairness of this codal provision has been pointed
out by Mme. Justice Ameurfina Melencio-Herrera, citing Manresa
and applicable precedents, in the case of Depra vs. Dumlao, [32] to wit:
Where the builder, planter or sower has acted in good faith, a conflict of
rights arises between the owners, and it becomes necessary to protect the
owner of the improvements without causing injustice to the owner of the
land. In view of the impracticality of creating a state of forced coownership, the law has provided a just solution by giving the owner of the
land the option to acquire the improvements after payment of the proper
indemnity, or to oblige the builder or planter to pay for the land and the
sower to pay the proper rent. It is the owner of the land who is authorized to
exercise the option, because his right is older, and because, by the principle
of accession, he is entitled to the ownership of the accessory thing. (3
Manresa 213; Bernardo vs. Bataclan, 37 Off. Gaz. 1382; Co Tao vs. Chan
Chico, G. R. No. 49167, April 30, 1949; Article applied; see Cabral, et al.

vs. Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs. Velasco, [C.A.] 52 Off. Gaz.
2050).
The private respondents insistence on the removal of the
encroaching structures as the proper remedy, which respondent
Court sustained in its assailed Decisions, is thus legally flawed. This
is not one of the remedies bestowed upon him by law. It would be
available only if and when he chooses to compel the petitioner to buy
the land at a reasonable price but the latter fails to pay such price.
[33]
This has not taken place. Hence, his options are limited to: (1)
appropriating the encroaching portion of petitioners building after
payment of proper indemnity, or (2) obliging the latter to buy the lot
occupied by the structure. He cannot exercise a remedy of his own
liking.
Neither is petitioners prayer that private respondent be ordered
to sell the land[34] the proper remedy. While that was dubbed as the
more workable solution in Grana and Torralba vs. The Court of
Appeals, et al.,[35] it was not the relief granted in that case as the
landowners were directed to exercise within 30 days from this
decision their option to either buy the portion of the petitioners house
on their land or sell to said petitioners the portion of their land on
which it stands.[36] Moreover, in Grana and Torralba, the area
involved was only 87 square meters while this case involves 520
square meters[37]. In line with the case of Depra vs. Dumlao,[38] this
case will have to be remanded to the trial court for further
proceedings to fully implement the mandate of Art. 448. It is a rule of
procedure for the Supreme Court to strive to settle the entire
controversy in a single proceeding leaving no root or branch to bear
the seeds of future litigation.[39]
Petitioner, however, must also pay the rent for the property
occupied by its building as prescribed by respondent Court from
October 4, 1979, but only up to the date private respondent serves
notice of its option upon petitioner and the trial court; that is, if such
option is for private respondent to appropriate the encroaching
structure. In such event, petitioner would have a right of retention

which negates the obligation to pay rent. [40] The rent should however
continue if the option chosen is compulsory sale, but only up to the
actual transfer of ownership.
The award of attorneys fees by respondent Court against
petitioner is unwarranted since the action appears to have been filed
in good faith. Besides, there should be no penalty on the right to
litigate.[41]
WHEREFORE, premises considered, the petition is hereby
GRANTED and the assailed Decision and the Amended Decision are
REVERSED and SET ASIDE. In accordance with the case of
Depra vs. Dumlao,[42] this case is REMANDED to the Regional Trial
Court of Pasay City, Branch 117, for further proceedings consistent
with Articles 448 and 546 [43] of the Civil Code, as follows:
The trial court shall determine:
a) the present fair price of private respondents 520 square-meter area of
land;
b) the increase in value (plus value) which the said area of 520
square meters may have acquired by reason of the
existence of the portion of the building on the area;
c) the fair market value of the encroaching portion of the building; and
d) whether the value of said area of land is considerably more
than the fair market value of the portion of the building
thereon.
2. After said amounts shall have been determined by competent evidence,
the regional trial court shall render judgment as follows:
a) The private respondent shall be granted a period of
fifteen (15) days within which to exercise his option

under the law (Article 448, Civil Code), whether to

appropriate the portion of the building as his own by
paying to petitioner its fair market value, or to oblige
petitioner to pay the price of said area. The amounts to
be respectively paid by petitioner and private
respondent, in accordance with the option thus
exercised by written notice of the other party and to the
court, shall be paid by the obligor within fifteen (15)
days from such notice of the option by tendering the
amount to the trial court in favor of the party entitled to
receive it;

make any further constructions or improvements on the

building. Upon expiration of the two-year period, or
upon default by petitioner in the payment of rentals for
two (2) consecutive months, private respondent shall be
entitled to terminate the forced lease, to recover his
land, and to have the portion of the building removed by
petitioner or at 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.

b) If private respondent exercises the option to oblige

petitioner to pay the price of the land but the latter
rejects such purchase because, as found by the trial
court, the value of the land is considerably more than
that of the portion of the building, petitioner shall give
written notice of such rejection to private respondent
and to the trial court within fifteen (15) days from notice
of private respondents option to sell the land. In that
event, the parties shall be given a period of fifteen (15)
days from such notice of rejection within which to agree
upon the terms of the lease, and give the trial court
formal written notice of the agreement and
its provisos. If no agreement is reached by the parties,
the trial court, within fifteen (15) days from and after the
termination of the said period fixed for negotiation, shall
then fix the terms of the lease provided that the monthly
rental to be fixed by the Court shall not be less than two
thousand pesos (P2,000.00) per month, payable within
the first five (5) days of each calendar month. The
period for the forced lease shall not be more than two
(2) years, counted from the finality of the judgment,
considering the long period of time since 1970 that
petitioner has occupied the subject area. The rental
thus fixed shall be increased by ten percent (10%) for
the second year of the forced lease. Petitioner shall not

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.
No costs.
SO ORDERED.

PLEASANTVILLE DEVT CORP v CA

Is a lot buyer who constructs improvements on the wrong
property erroneously delivered by the owners agent, a builder in
good faith? This is the main issue resolved in this petition for review
on certiorari to reverse the Decision [1] of the Court of Appeals [2] in CAG.R. SP No. 11040, promulgated on August 20, 1987.
By resolution dated November 13, 1995, the First Division of
this Court resolved to transfer this case (along with several others) to
the Third Division. After due deliberation and consultation, the Court
assigned the writing of this Decision to the undersigned ponente.
The Facts
The facts, as found by respondent Court, are as follows:
Edith Robillo purchased from petitioner a parcel of land
designated as Lot 9, Phase II and located at Taculing Road,
Pleasantville Subdivision, Bacolod City. In 1975, respondent Eldred
Jardinico bought the rights to the lot from Robillo. At that time, Lot 9
was vacant.
Upon completing all payments, Jardinico secured from the
Register of Deeds of Bacolod City on December 19, 1978 Transfer
Certificate of Title No. 106367 in his name. It was then that he
discovered that improvements had been introduced on Lot 9 by
respondent Wilson Kee, who had taken possession thereof.
It appears that on March 26, 1974, Kee bought on
installment Lot 8 of the same subdivision from C.T. Torres
Enterprises, Inc. (CTTEI), the exclusive real estate agent of
petitioner. Under the Contract to Sell on Installment, Kee could
possess the lot even before the completion of all installment
payments. On January 20, 1975, Kee paid CTTEI the relocation fee
of P50.00 and another P50.00 on January 27, 1975, for the

preparation of the lot plan. These amounts were paid prior to Kees
taking actual possession of Lot 8. After the preparation of the lot plan
and a copy thereof given to Kee, CTTEI through its employee,
Zenaida Octaviano, accompanied Kees wife, Donabelle Kee, to
inspect Lot 8. Unfortunately, the parcel of land pointed by Octaviano
was Lot 9. Thereafter, Kee proceeded to construct his residence, a
store, an auto repair shop and other improvements on the lot.
After discovering that Lot 9 was occupied by Kee, Jardinico
confronted him. The parties tried to reach an amicable settlement,
but failed.
On January 30, 1981, Jardinicos lawyer wrote Kee, demanding
that the latter remove all improvements and vacate Lot 9. When Kee
refused to vacate Lot 9, Jardinico filed with the Municipal Trial Court
in Cities, Branch 3, Bacolod City (MTCC), a complaint for ejectment
with damages against Kee.
Kee, in turn, filed a third-party complaint against petitioner and
CTTEI.
The MTCC held that the erroneous delivery of Lot 9 to Kee was
attributable to CTTEI. It further ruled that petitioner and CTTEI could
not successfully invoke as a defense the failure of Kee to give notice
of his intention to begin construction required under paragraph 22 of
the Contract to Sell on Installment and his having built a sari-sari
store without. the prior approval of petitioner required under
paragraph 26 of said contract, saying that the purpose of these
requirements was merely to regulate the type of improvements to be
constructed on the lot[3].
However, the MTCC found that petitioner had already rescinded
its contract with Kee over Lot 8 for the latters failure to pay the
installments due, and that Kee had not contested the rescission. The
rescission was effected in 1979, before the complaint was
instituted. The MTCC concluded that Kee no longer had any right
over the lot subject of the contract between him and

petitioner. Consequently, Kee must pay reasonable rentals for the

use of Lot 9, and, furthermore, he cannot claim reimbursement for
the improvements he introduced on said lot.
The MTCC thus disposed:
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered as
follows:
1. Defendant Wilson Kee is ordered to vacate tithe premises of Lot 9,
covered by TCT No. 106367 and to remove all structures and improvements
he introduced thereon;
2. Defendant Wilson Kee is ordered to pay to the plaintiff rentals at the rate
of P 15.00 a day computed from the time this suit was filed on March 12,
1981 until he actually vacates the premises. This amount shall bear interests
(sic) at the rate of 12 per cent (sic) per annum.
3. Third-Party Defendant CT. Torres Enterprises, Inc. and Pleasantville
Subdivision are ordered to pay the plaintiff jointly and severally the sum of
P3,000.00 as attorneys fees and P700.00 as cost and litigation expenses. [4]
On appeal, the Regional Trial Court, Branch 48, Bacolod City
(RTC) ruled that petitioner and CTTEI were not at fault or were not
negligent, there being no preponderant evidence to show that they
directly participated in the delivery of Lot 9 to Kee.[5] It found Kee a
builder in bad faith. It further ruled that even assuming arguendo that
Kee was acting in good faith, he was, nonetheless, guilty of
unlawfully usurping the possessory right of Jardinico over Lot 9 from
the time he was served with notice to vacate said lot, and thus was
liable for rental.
The RTC thus disposed:
WHEREFORE, the decision appealed from is affirmed with respect to the
order against the defendant to vacate the premises of Lot No. 9 covered by

Transfer Certificate of Title No. T-106367 of the land records of Bacolod

City; the removal of all structures and improvements introduced thereon at
his expense and the payment to plaintiff (sic) the sum of Fifteen (P 15.00)
Pesos a day as reasonable rental to be computed from January 30, 1981, the
date of the demand, and not from the date of the filing of the complaint,
until he had vacated (sic) the premises, with interest thereon at 12% per
annum. This Court further renders judgment against the defendant to pay
the plaintiff the sum of Three Thousand (P3,000.00) Pesos as attorneys fees,
plus costs of litigation.
The third-party complaint against Third-Party Defendants Pleasantville
Development Corporation and C.T. Torres Enterprises, Inc. is
dismissed. The order against Third-Party Defendants to pay attorneys fees
to plaintiff and costs of litigation is reversed.[6]
Following the denial of his motion for reconsideration
on October 20, 1986, Kee appealed directly to the Supreme Court,
which referred the matter to the Court of Appeals.
The appellate court ruled that Kee was a builder in good faith,
as he was unaware of the mix-up when he began construction of the
improvements on Lot 8. It further ruled that the erroneous delivery
was due to the negligence of CTTEI, and that such wrong delivery
was likewise imputable to its principal, petitioner herein. The
appellate court also ruled that the award of rentals was without basis.
Thus, the Court of Appeals disposed:
WHEREFORE, the petition is GRANTED, the appealed decision is
REVERSED, and judgment is rendered as follows:
1. Wilson Kee is declared a builder in good faith with
respect to the improvements he introduced on Lot 9,
and is entitled to the rights granted him under Articles
448, 546 and 548 of the New Civil Code.

2. Third-party defendants C.T. Torres Enterprises, Inc. and

Pleasantville Development Corporation are solidarily
liable under the following circumstances:
a. If Eldred Jardinico decides to appropriate the improvements
and, thereafter, remove these structures, the third-party
defendants shall answer for all demolition expenses and the
value of the improvements thus destroyed or rendered
useless;
b. If Jardinico prefers that Kee buy the land, the third-party
defendants shall answer for the amount representing the
value of Lot 9 that Kee should pay to Jardinico.
3. Third-party defendants C.T. Torres Enterprises, Inc. and
Pleasantville Development Corporation are ordered to
pay in solidum the amount of P3,000.00 to Jardinico as
attorneys fees, as well as litigation expenses.

on third-party complaints, by ordering third-party defendants to pay the

demolition expenses and/or price of the land;
2. The Court of Appeals has so far departed from the accepted course of
judicial proceedings, by granting to private respondent-Kee the rights of a
builder in good faith in excess of what the law provides, thus enriching
private respondent Kee at the expense of the petitioner;
3. In the light of the subsequent events or circumstances which changed the
rights of the parties, it becomes imperative to set aside or at least modify the
judgment of the Court of Appeals to harmonize with justice and the facts;
4. Private respondent-Kee in accordance with the findings of facts of the
lower court is clearly a builder in bad faith, having violated several
provisions of the contract to sell on installments;
5. The decision of the Court of Appeals, holding the principal, Pleasantville
Development Corporation (liable) for the acts made by the agent in excess
of its authority is clearly in violation of the provision of the law;

4. The award of rentals to Jardinico is dispensed with.

Furthermore, the case is REMANDED to the court of origin for the
determination of the actual value of the improvements and the property
(Lot 9), as well as for further proceedings in conformity with Article 448 of
the New Civil Code.[7]
Petitioner then filed the instant petition against Kee, Jardinico
and CTTEI.
The Issues
The petition submitted the following grounds to justify a review
of the respondent Courts Decision, as follows:
1. The Court of Appeals has decided the case in a way probably not in
accord with law or the the (sic) applicable decisions of the Supreme Court

6. The award of attorneys fees is clearly without basis and is equivalent to

putting a premium in (sic) court litigation.
From these grounds, the issues could be re-stated as follows:
(1) Was Kee a builder in good faith?
(2) What is the liability, if any, of petitioner and its agent, C.T. Torres
Enterprises, Inc.? and
(3) Is the award of attorneys fees proper?
The First Issue: Good Faith
Petitioner contends that the Court of Appeals erred in reversing
the RTCs ruling that Kee was a builder in bad faith.

Petitioner fails to persuade this Court to abandon the findings

and conclusions of the Court of Appeals that Kee was a builder in
good faith. We agree with the following observation of the Court of
Appeals:
The roots of the controversy can be traced directly to the errors committed
by CTTEI, when it pointed the wrong property to Wilson Kee and his
wife. It is highly improbable that a purchaser of a lot would knowingly and
willingly build his residence on a lot owned by another, deliberately
exposing himself and his family to the risk of being ejected from the land
and losing all improvements thereon, not to mention the social humiliation
that would follow.
Under the circumstances, Kee had acted in the manner of a prudent man in
ascertaining the identity of his property. Lot 8 is covered by Transfer
Certificate of Title No. T-69561, while Lot 9 is identified in Transfer
Certificate of Title No. T-106367. Hence, under the Torrens system of land
registration, Kee is presumed to have knowledge of the metes and bounds of
the property with which he is dealing. x x x
xxx xxx xxx
But as Kee is a layman not versed in the technical description of his
property, he had to find a way to ascertain that what was described in TCT
No. 69561 matched Lot 8. Thus, he went to the subdivision developers
agent and applied and paid for the relocation of the lot, as well as for the
production of a lot plan by CTTEIs geodetic engineer. Upon Kees receipt of
the map, his wife went to the subdivision site accompanied by CTTEIs
employee, Octaviano, who authoritatively declared that the land she was
pointing to was indeed Lot 8. Having full faith and confidence in the
reputation of CTTEI, and because of the companys positive identification of
the property, Kee saw no reason to suspect that there had been a
misdelivery. The steps Kee had taken to protect his interests were
reasonable. There was no need for him to have acted ex-abundantia
cautela, such as being present during the geodetic engineers relocation
survey or hiring an independent geodetic engineer to countercheck for
errors, for the final delivery of subdivision lots to their owners is part of the

regular course of everyday business of CTTEI. Because of CTTEIs blunder,

what Kee had hoped to forestall did in fact transpire. Kees efforts all went
to naught.[8]
Good faith consists in the belief of the builder that the land he is
building on is his and his ignorance of any defect or flaw in his title.
[9]
And as good faith is presumed, petitioner has the burden of
proving bad faith on the part of Kee.[10]
At the time he built improvements on Lot 8, Kee believed that
said lot was what he bought from petitioner. He was not aware that
the lot delivered to him was not Lot 8. Thus, Kees good faith.
Petitioner failed to prove otherwise.
To demonstrate Kees bad faith, petitioner points to Kees
violation of paragraphs 22 and 26 of the Contract of Sale on
Installment.
We disagree. Such violations have no bearing whatsoever on
whether Kee was a builder in good faith, that is, on his state of mind
at the time he built the improvements on Lot 9. These alleged
violations may give rise to petitioners cause of action against Kee
under the said contract (contractual breach), but may not be bases to
negate the presumption that Kee was a builder in good faith.
Petitioner also points out that, as found by the trial court, the
Contract of Sale on Installment covering Lot 8 between it and Kee
was rescinded long before the present action was instituted. This has
no relevance on the liability of petitioner, as such fact does not
negate the negligence of its agent in pointing out the wrong lot to
Kee. Such circumstance is relevant only as it gives Jardinico a cause
of action for unlawful detainer against Kee.
Petitioner next contends that Kee cannot claim that another lot
was erroneously pointed out to him because the latter agreed to the
following provision in the Contract of Sale on Installment, to wit:

Petitioners contention is without merit.

13. The Vendee hereby declares that prior to the execution of his contract
he/she has personally examined or inspected the property made subjectmatter hereof, as to its location, contours, as well as the natural condition of
the lots and from the date hereof whatever consequential change therein
made due to erosion, the said Vendee shall bear the expenses of the
necessary fillings, when the same is so desired by him/her.[11]

The rule is that the principal is responsible for the acts of the
agent, done within the scope of his authority, and should bear the
damage caused to third persons. [14] On the other hand, the agent
who exceeds his authority is personally liable for the damage. [15]

The subject matter of this provision of the contract is the change

of the location, contour and condition of the lot due to erosion. It
merely provides that the vendee, having examined the property prior
to the execution of the contract, agrees to shoulder the expenses
resulting from such change.

CTTEI was acting within its authority as the sole real estate
representative of petitioner when it made the delivery to Kee. In
acting within its scope of authority, it was, however, negligent. It is
this negligence that is the basis of petitioners liability, as principal of
CTTEI, per Articles 1909 and 1910 of the Civil Code.

We do not agree with the interpretation of petitioner that Kee

contracted away his right to recover damages resulting from
petitioners negligence. Such waiver would be contrary to public
policy and cannot be allowed. Rights may be waived, unless the
waiver is contrary to law, public order, public policy, morals, or good
customs, or prejudicial to a third person with a right recognized by
law.[12]

Pending resolution of the case before the Court of Appeals,

Jardinico and Kee on July 24, 1987 entered into a deed of sale,
wherein the former sold Lot 9 to Kee. Jardinico and Kee did not
inform the Court of Appeals of such deal.

The Second Issue: Petitioners Liability

Kee filed a third-party complaint against petitioner and CTTEI,
which was dismissed by the RTC after ruling that there was no
evidence from which fault or negligence on the part of petitioner and
CTTEI can be inferred. The Court of Appeals disagreed and found
CTTEI negligent for the erroneous delivery of the lot by Octaviano,
its employee.
Petitioner does not dispute the fact that CTTEI was its
agent. But it contends that the erroneous delivery of Lot 9 to Kee
was an act which was clearly outside the scope of its authority, and
consequently, CTTEI alone should be liable. It asserts that while
[CTTEI] was authorized to sell the lot belonging to the herein
petitioner, it was never authorized to deliver the wrong lot to Kee. [13]

The deed of sale contained the following provision:

1. That Civil Case No. 3815 entitled Jardinico vs. Kee which is now
pending appeal with the Court of Appeals, regardless of the outcome of the
decision shall be mutually disregarded and shall not be pursued by the
parties herein and shall be considered dismissed and without effect
whatsoever;[16]
Kee asserts though that the terms and conditions in said deed
of sale are strictly for the parties thereto and that (t)here is no waiver
made by either of the parties in said deed of whatever favorable
judgment or award the honorable respondent Court of Appeals may
make in their favor against herein petitioner Pleasantville
Development Corporation and/or private respondent C.T. Torres
Enterprises, Inc.[17]
Obviously, the deed of sale can have no effect on the liability of
petitioner. As we have earlier stated, petitioners liability is grounded

on the negligence of its agent. On the other hand, what the deed of
sale regulates are the reciprocal rights of Kee and Jardinico; it
stressed that they had reached an agreement independent of the
outcome of the case.
Petitioner further assails the following holding of the Court of
Appeals:
2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville
Development Corporation are solidarily liable under the following
circumstances:
a. If Eldred Jardinico decides to appropriate the improvements
and, thereafter, remove these structures, the third-party
defendants shall answer for all demolition expenses and the
value of the improvements thus destroyed or rendered
useless;
b. If Jardinico prefers that Kee buy the land, the third-party
defendants shall answer for the amount representing the
value of Lot 9 that Kee should pay to Jardinico.[18]
Petitioner contends that if the above holding would be carried
out, Kee would be unjustly enriched at its expense. In other words,
Kee would be -able to own the lot, as buyer, without having to pay
anything on it, because the aforequoted portion of respondent Courts
Decision would require petitioner and CTTEI jointly and solidarily to
answer or reimburse Kee there for.
We agree with petitioner.

Petitioners liability lies in the negligence of its agent CTTEI. For

such negligence, the petitioner should be held liable for
damages. Now, the extent and/or amount of damages to be awarded
is a factual issue which should be determined after evidence is
adduced. However, there is no showing that such evidence was
actually presented in the trial court; hence no damages could now be
awarded.
The rights of Kee and Jardinico vis-a-vis each other, as builder
in good faith and owner in good faith, respectively, are regulated by
law (i.e., Arts. 448, 546 and 548 of the Civil Code). It was error for
the Court of Appeals to make a slight modification in the application
of such law, on the ground of equity. At any rate, as it stands now,
Kee and Jardinico have amicably settled through their deed of sale
their rights and obligations with regards to Lot 9. Thus, we delete
items 2 (a) and (b) of the dispositive portion of the Court of Appeals
Decision [as reproduced above] holding petitioner and CTTEI
solidarily liable.
The Third Issue: Attorneys Fees
The MTCC awarded Jardinico attorneys fees and costs in the
amount of P3,000.00 and P700.00, respectively, as prayed for in his
complaint. The RTC deleted the award, consistent with its ruling that
petitioner was without fault or negligence. The Court of Appeals,
however, reinstated the award of attorneys fees after ruling that
petitioner was liable for its agents negligence.
The award of attorneys fees lies within the discretion of the
court and depends upon the circumstances of each case. [19] We shall
not interfere with the discretion of the Court of Appeals. Jardinico
was compelled to litigate for the protection of his interests and for the
recovery of damages sustained as a result of the negligence of
petitioners agent.[20]
In sum, we rule that Kee is a builder in good faith. The
disposition of the Court of Appeals that Kee is entitled to the rights

granted him under Articles 448, 546 and 548 of the New Civil Code is
deleted, in view of the deed of sale entered into by Kee and
Jardinico, which deed now governs the rights of Jardinico and Kee
as to each other. There is also no further need, as ruled by the
appellate Court, to remand the case to the court of origin for
determination of the actual value of the improvements and the
property (Lot 9), as well as for further proceedings in conformity with
Article 448 of the New Civil Code.
WHEREFORE, the petition is partially GRANTED. The Decision
of the Court of Appeals is hereby MODIFIED as follows:
(1) Wilson Kee is declared a builder in good faith;
(2) Petitioner Pleasantville Development Corporation and
respondent C.T. Tones Enterprises, Inc. are declared
solidarily liable for damages due to negligence;
however, since the amount and/or extent of such
damages was not proven during the trial, the same
cannot now be quantified and awarded;
(3) Petitioner Pleasantville Develpment Corporation and
respondent C.T. Torres Enterprises, Inc. are ordered
to pay in solidum the amount of P3,000.00 to
Jardinico as attorneys fees, as well as litigation
expenses; and
(4) The award of rentals to Jardinico is dispensed with.
SO ORDERED.
GEMINIANO VS CA
This petition for review on certiorari has its origins in Civil Case
No. 9214 of Branch 3 of the Municipal Trial Court in Cities (MTCC) in
Dagupan City for unlawful detainer and damages.The petitioners ask

the Court to set aside the decision of the Court of Appeals affirming
the decision of Branch 40 of the Regional Trial Court (RTC) of
Dagupan City, which, in turn, reversed the MTCC; ordered the
petitioners to reimburse the private respondents the value of the
house in question and other improvements; and allowed the latter to
retain the premises until reimbursement was made.
It appears that Lot No. 3765-B-1 containing an area of 314
square meters was originally owned by the petitioners' mother,
Paulina Amado vda. de Geminiano. On a 12-square-meter portion of
that lot stood the petitioners' unfinished bungalow, which the
petitioners sold in November 1978 to the private respondents for the
sum of P6,000.00, with an alleged promise to sell to the latter that
portion of the lot occupied by the house. Subsequently, the
petitioners' mother executed a contract of lease over a 126 squaremeter portion of the lot, including that portion on which the house
stood, in favor of the private respondents for P40.00 per month for a
period of seven years commencing on 15 November 1978. [1] The
private respondents then introduced additional improvements and
registered the house in their names. After the expiration of the lease
contract in November 1985, however, the petitioners' mother refused
to accept the monthly rentals.
It turned out that the lot in question was the subject of a suit,
which resulted in its acquisition by one Maria Lee in 1972. In 1982,
Lee sold the lot to Lily Salcedo, who in turn sold it in 1984 to the
spouses Agustin and Ester Dionisio.
On 14 February 1992, the Dionisio spouses executed a Deed of
Quitclaim over the said property in favor of the petitioners. [2] As such,
the lot was registered in the latter's names.[3]
On 9 February 1993, the petitioners sent, via registered mail, a
letter addressed to private respondent Mary Nicolas demanding that
she vacate the premises and pay the rentals in arrears within twenty
days from notice.[4]

Upon failure of the private respondents to heed the demand, the

petitioners filed with the MTCC of Dagupan City a complaint for
unlawful detainer and damages.
During the pre-trial conference, the parties agreed to confine the
issues to: (1) whether there was an implied renewal of the lease
which expired in November 1985; (2) whether the lessees were
builders in good faith and entitled to reimbursement of the value of
the house and improvements; and (3) the value of the house.
The parties then submitted their respective position papers and
the case was heard under the Rule on Summary Procedure.
On the first issue, the court held that since the petitioners'
mother was no longer the owner of the lot in question at the time the
lease contract was executed in 1978, in view of its acquisition by
Maria Lee as early as 1972, there was no lease to speak of, much
less, a renewal thereof. And even if the lease legally existed, its
implied renewal was not for the period stipulated in the original
contract, but only on a month-to-month basis pursuant to Article 1687
of the Civil Code. The refusal of the petitioners' mother to accept the
rentals starting January 1986 was then a clear indication of her
desire to terminate the monthly lease. As regards the petitioners'
alleged failed promise to sell to the private respondents the lot
occupied by the house, the court held that such should be litigated in
a proper case before the proper forum, not an ejectment case where
the only issue was physical possession of the property.

The court resolved the second issue in the negative, holding

that Articles 448 and 546 of the Civil Code, which allow possessors
in good faith to recover the value of improvements and retain the
premises until reimbursed, did not apply to lessees like the private
respondents, because the latter knew that their occupation of the
premises would continue only during the life of the lease. Besides,
the rights of the private respondents were specifically governed by
Article 1678, which allows reimbursement of up to one-half of the
value of the useful improvements, or removal of the improvements
should the lessor refuse to reimburse.
On the third issue, the court deemed as conclusive the private
respondents' allegation that the value of the house and
improvements was P180,000.00, there being no controverting
evidence presented.
The trial court thus ordered the private respondents to vacate
the premises, pay the petitioners P40.00 a month as reasonable
compensation for their stay thereon from the filing of the complaint
on 14 April 1993 until they vacated, and to pay the sum of P1,000.00
as attorney's fees, plus costs.[5]
On appeal by the private respondents, the RTC of Dagupan City
reversed the trial court's decision and rendered a new judgment: (1)
ordering the petitioners to reimburse the private respondents for the
value of the house and improvements in the amount of P180,000.00
and to pay the latter P10,000.00 as attorney's fees and P2,000.00 as
litigation expenses; and (2) allowing the private respondents to
remain in possession of the premises until they were fully reimbursed
for the value of the house. [6] It ruled that since the private
respondents were assured by the petitioners that the lot they leased
would eventually be sold to them, they could be considered builders
in good faith, and as such, were entitled to reimbursement of the
value of the house and improvements with the right of retention until
reimbursement had been made.

On appeal, this time by the petitioners, the Court of Appeals

affirmed the decision of the RTC [7] and denied[8] the petitioners'
motion for reconsideration. Hence, the present petition.
The Court is confronted with the issue of which provision of law
governs the case at bench: Article 448 or Article 1678 of the Civil
Code? The said articles read as follows:
Art. 448. The owner of the land on which anything has been built, sown or
planted in good faith, shall have the right to appropriate as his own the
works, sowing or planting, after payment of the indemnity provided for in
articles 546 and 548, or to oblige the one who built or planted to pay the
price of the land, and the one who sowed, the proper rent. However, the
builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall
pay reasonable rent, if the owner of the land does not choose to appropriate
the building or trees after proper indemnity. The parties shall agree upon the
terms of the lease and in case of disagreement, the court shall fix the terms
thereof.
xxx xxx xxx
Art. 1678. If the lessee makes, in good faith, useful improvements which
are suitable to the use for which the lease is intended, without altering the
form or substance of the property leased, the lessor upon the termination of
the lease shall pay the lessee one-half of the value of the improvements at
that time. Should the lessor refuse to reimburse said amount, the lessee may
remove the improvements, even though the principal thing may suffer
damage thereby. He shall not, however, cause any more impairment upon
the property leased than is necessary.
With regard to ornamental expenses, the lessee shall not be entitled to any
reimbursement, but he may remove the ornamental objects, provided no
damage is caused to the principal thing, and the lessor does not choose to
retain them by paying their value at the time the lease is extinguished.

The crux of the said issue then is whether the private

respondents are builders in good faith or mere lessees.
The private respondents claim they are builders in good faith,
hence, Article 448 of the Civil Code should apply. They rely on the
lack of title of the petitioners' mother at the time of the execution of
the contract of lease, as well as the alleged assurance made by the
petitioners that the lot on which the house stood would be sold to
them.
It has been said that while the right to let property is an incident
of title and possession, a person may be a lessor and occupy the
position of a landlord to the tenant although he is not the owner of
the premises let.[9] After all, ownership of the property is not being
transferred,[10] only the temporary use and enjoyment thereof.[11]
In this case, both parties admit that the land in question was
originally owned by the petitioners' mother. The land was allegedly
acquired later by one Maria Lee by virtue of an extrajudicial
foreclosure of mortgage. Lee, however, never sought a writ of
possession in order that she gain possession of the property in
question.[12] The petitioners' mother therefore remained in possession
of the lot.
It is undisputed that the private respondents came into
possession of a 126 square-meter portion of the said lot by virtue of
a contract of lease executed by the petitioners' mother in their
favor. The juridical relation between the petitioners' mother as lessor,
and the private respondents as lessees, is therefore wellestablished, and carries with it a recognition of the lessor's title.
[13]
The private respondents, as lessees who had undisturbed
possession for the entire term under the lease, are then estopped to
deny their landlord's title, or to assert a better title not only in
themselves, but also in some third person while they remain in
possession of the leased premises and until they surrender
possession to the landlord.[14] This estoppel applies even though the
lessor had no title at the time the relation of lessor and lessee was

created,[15] and may be asserted not only by the original lessor, but
also by those who succeed to his title.[16]
Being mere lessees, the private respondents knew that their
occupation of the premises would continue only for the life of the
lease. Plainly, they cannot be considered as possessors nor builders
in good faith.[17]
In a plethora of cases,[18] this Court has held that Article 448 of
the Civil Code, in relation to Article 546 of the same Code, which
allows full reimbursement of useful improvements and retention of
the premises until reimbursement is made, applies only to a
possessor in good faith, i.e., one who builds on land with the belief
that he is the owner thereof. It does not apply where one's only
interest is that of a lessee under a rental contract; otherwise, it would
always be in the power of the tenant to "improve" his landlord out of
his property.
Anent the alleged promise of the petitioners to sell the lot
occupied by the private respondents' house, the same was not
substantiated by convincing evidence. Neither the deed of sale over
the house nor the contract of lease contained an option in favor of
the respondent spouses to purchase the said lot. And even if the
petitioners indeed promised to sell, it would not make the private
respondents possessors or builders in good faith so as to be covered
by the provisions of Article 448 of the Civil Code. The latter cannot
raise the mere expectancy of ownership of the aforementioned lot
because the alleged promise to sell was not fulfilled nor its existence
even proven. The first thing that the private respondents should have
done was to reduce the alleged promise into writing, because under
Article 1403 of the Civil Code, an agreement for the sale of real
property or an interest therein is unenforceable, unless some note or
memorandum thereof be produced. Not having taken any steps in
order that the alleged promise to sell may be enforced, the private
respondents cannot bank on that promise and profess any claim nor
color of title over the lot in question.

There is no need to apply by analogy the provisions of Article

448 on indemnity as was done in Pecson vs. Court of Appeals,
[19]
because the situation sought to be avoided and which would
justify the application of that provision, is not present in this
case. Suffice it to say, "a state of forced co-ownership" would not be
created between the petitioners and the private respondents. For, as
correctly pointed out by the petitioners, the rights of the private
respondents as lessees are governed by Article 1678 of the Civil
Code which allows reimbursement to the extent of one-half of the
value of the useful improvements.
It must be stressed, however, that the right to indemnity under
Article 1678 of the Civil Code arises only if the lessor opts to
appropriate the improvements. Since the petitioners refused to
exercise that option,[20] the private respondents cannot compel them
to reimburse the one-half value of the house and
improvements. Neither can they retain the premises until
reimbursement is made. The private respondents' sole right then is
to remove the improvements without causing any more impairment
upon the property leased than is necessary.[21]
WHEREFORE, judgment is hereby rendered GRANTING the
instant petition; REVERSING and SETTING ASIDE the decision of
the Court of Appeals of 27 January 1995 in CA-G.R. SP No. 34337;
and REINSTATING the decision of Branch 3 of the Municipal Trial
Court in Cities of Dagupan City in Civil Case No. 9214 entitled
"Federico Geminiano, et al. vs. Dominador Nicolas, et al."
Costs against the private respondents.
SO ORDERED.
EULOGIO AGUSTIN, HEIRS OF BALDOMERO LANGCAY,
ARTURO BALISI & JUAN LANGCAY, petitioners,
vs.
INTERMEDIATE APPELLATE COURT, MARIA MELAD, TIMOTEO
MELAD, PABLO BINAYUG & GERONIMA UBINA, respondents.

Antonio N. Laggui for petitioners.

Pedro R. Perez, Jr. for private respondents.

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
defendant-petitioner 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.) Binayug's Homestead Application
No. W-79055 over this land was approved in 1959 (Exh. B-Binayug).
Binayug's 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

Tuguegarao Cadastre on its eastern bank among which was
defendant-petitioner Eulogio Agustin's Lot 8457 (Exh. E-Melad),
depositing the alluvium as accretion on the land possessed by Pablo
Binayug on the western bank.
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.
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.
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:
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 Geronima 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.)
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 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).
On November 29, 1983, the Intermediate Appellate Court rendered a
decision affirming in toto the judgment of the trial court, with costs
against the defendants-appellants.

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:
. . . Cagayan River did move year by year from 1919
to 1968 or for a period of 49 years. Within this
period, the alluvium (sic) deposited 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 . . . . (p.
27, Rollo.)
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
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).itc-asl
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 463 of the New Civil Code
apply to this situation.
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.
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.
CUREG v IAC
This petition under Rule 45 of the Rules of Court, seeks the reversal
of the decision of the Intermediate Appellate Court (now Court of
Appeals) dated October 15,1985 in AC-G.R. CV No. 03852
entitled "Domingo Apostol, et al., Plaintiffs-Appellees, v. Leonida
Cureg, et al., Defendants-Appellants", which affirmed the decision of
the Regional Trial Court of Isabela, Branch XXII declaring private
respondent Domingo Apostol the absolute owner of a parcel of land,
situated in Barangay Casibarag-Cajel, Cabagan, Isabela, more
particularly described as follows:
... containing an area of 5.5000 hectares, and
bounded, on the north, by Cagayan River; on the
east, by Domingo Guingab; on the south, by Antonio
Carniyan; and on the west, by Sabina Mola, with an
assessed value of P3,520. (par. 9 of complaint, p. 4,
Record; Emphasis supplied)
On November 5, 1982, private respondents Domingo Apostol,
Soledad Gerardo, Rosa Gerardo, Nieves Gerardo, Flordeliza
Gerardo and Lilia Maquinad, filed a complaint for quieting of title and
damages with preliminary injunction against herein petitioners
Leonida, Romeo, Pepito, Hernando, Manuel, Antonio and Elpidio, all
surnamed Carniyan with the Regional Trial Court of Isabela and
docketed as Civil Case No. Br. 111-373. A temporary restraining
order was issued by the trial court on November 12, 1982.

The complaint alleged that private respondents, except Domingo

Apostol, are the legal and/or the forced heirs of the late Domingo
Gerardo, who died in February 1944, the latter being the only issue
of the late Francisco Gerardo, who died before the outbreak of the
second world war; that since time immemorial and/or before July 26,
1894, the late Francisco Gerardo, together with his predecessors-ininterest have been in actual, open, peaceful and continuous
possession, under a bona fide claim of ownership and adverse to all
other claimants, of a parcel of land (referred to as their
"motherland"), situated in Casibarag-Cajel, Cabagan, Isabela, more
particularly described as follows:
... containing an area of 2.5000 hectares, more or
less, and bounded on the North, by Cagayan
River; on the East, by Domingo Guingab (formerly
Rosa Cureg); on the south by Antonio Carniyan;and
on the West by Sabina Mola, ... (p. 2, Record)
that said land was declared for taxation purposes under Tax
Declaration No. 08-3023 in the name of Francisco Gerardo, which
cancels Tax Declaration No. C-9669, also in the name of Francisco
Gerardo; that upon the death of Francisco Gerardo, the ownership
and possession of the "motherland" was succeeded by his only
issue, Domingo Gerardo who, together with three (3) legal or forced
heirs, namely Soledad Gerardo, one of private respondents herein,
Primo Gerardo and Salud Gerardo, both deceased, have also been
in actual, open, peaceful and continuous possession of the same;
that Primo Gerardo is survived by herein respondents, Rosa, Nieves
and Flordeliza, all surnamed Gerardo and Salud Gerardo is survived
by respondent Lilia Maquinad; that in 1979, respondents Soledad
Gerardo, Rosa Gerardo, Nieves Gerardo, Flordeliza Gerardo and
Lilia Maquinad verbally sold the "motherland" to co-respondent
Domingo Apostol; that on September 10, 1982, the verbal sale and
conveyance was reduced into writing by the vendors who executed
an "Extra-Judicial Partition with Voluntary Reconveyance (Exhibit
"Q", p. 206, Rollo); that about the time of the execution of the ExtraJudicial Partition, their "motherland" already showed/manifested

signs of accretion of about three (3) hectares on the north caused by

the northward movement of the Cagayan River; that Domingo
Apostol declared the motherland and its accretion for tax purposes
under Tax Declaration No. 08-13281 on September 15, 1982.

on the north by Cagayan River and not by the land of Francisco

Gerardo as claimed by private respondents; that the "subject land" is
an accretion to their registered land and that petitioners have been in
possession and cultivation of the "accretion" for many years now.

The complaint also stated that sometime about the last week of
September and/or the first week of October 1982, when private
respondents were about to cultivate their "motherland" together with
its accretion, they were prevented and threatened by defendants
(petitioners herein) from continuing to do so. Named defendants in
said case are herein petitioners Leonida Cureg and Romeo, Pepito,
Hernando, Manuel, Antonio and Elpidio, all surnamed Carniyan,
surviving spouse and children, respectively, of Antonio Carniyan.
Further, the complaint stated that Antonio Carniyan was the owner of
a piece of land situated in Casibarag-Cajel, Cabagan, Isabela and
more particularly described as follows:

The application for the issuance of a writ of preliminary injunction

was denied on July 28,1983 (pp. 244-250,Rollo) on the ground that
the defendants were in actual possession of the land in litigation prior
to September 1982. In a decision rendered on July 6, 1984, the trial
court held that respondent Domingo Apostol, thru his predecessorsin-interest had already acquired an imperfect title to the subject land
and accordingly, rendered judgment: 1. declaring Domingo Apostol
its absolute owner; 2. ordering the issuance of a writ of preliminary
injunction against herein petitioners; 3. ordering that the writ be
made permanent; and 4. ordering herein petitioners to pay private
respondents a reasonable attorney's fee of P5,000.00, litigation
expenses of P1,500.00 and costs (pp. 143-145, Rollo).

... containing an area of 2,790 sq. m., more or less

bounded on the north by Domingo Gerardo; on the
East, by Domingo Guingab; on the south, by Pelagio
Camayo; and on the west by Marcos Cureg,
declared for taxation purposes under Tax
Declaration No. 13131, with an assessed value of
P70.00. (P. 5, Record)
that deceased Antonio Carniyan revised on November 28, 1968 his
Tax Declaration No. 13131 dated July 24, 1961 to conform with the
correct area and boundaries of his Original Certificate of Title No. P19093 issued on November 25, 1968; that the area under the new
Tax Declaration No.15663 was increased from 2,790 square meters
to 4,584 square meters and the boundary on the north became
Cagayan River, purposely eliminating completely the original
boundary on the north which is Domingo Gerardo.
Petitioners' answer alleged that the "motherland" claimed by private
respondents is non-existent; that Antonio Carniyan, petitioners'
predecessor-in-interest, was the owner of a piece of land bounded

On July 17, 1984, petitioners appealed to the then Intermediate

Appellate Court which affirmed the decision of the trial court on
October 15, 1985. Petitioners' Motion for Reconsideration was
denied on January 8, 1986. Hence, this petition for review on the
following assigned errors:
A. It erred in ruling that the subject land or
"accretion" (which is bounded on the north by the
Cagayan River) belongs to the private respondents
and not to the petitioners when the petitioners
"Original Certificate of " Title No. 19093 states
clearly that the petitioners' land is bounded on its
north by the Cagayan River.
B. It erred in construing the tax declarations against
the interest of the herein petitioners who are only the
heirs of the late Antonio Carniyan since the late
Francisco (supposed predecessor of the
respondents) could not have executed the recently

acquired tax declarations (Exhibits "A" to "A-2") as

he died long before World War II and since the late
Antonio Carniyan could no longer stand up to
explain his side.
C. Contrary to the evidence and the finding of the
Regional Trial Court, it wrongly ruled that petitioners
have never been in possession of the land (p. 7 of
Annex "A", ibid.).
D. It erred in awarding the accretion of 3.5 hectares
to the private respondents who incredibly claimed
that the accretion occurred only in 1982 and is a "gift
from the Lord. (pp. 24-25, Rollo)
This petition is impressed with merit.
The object of the controversy in this case is the alleged "motherland"
of private respondents together with the accretion of about 3.5
hectares, the totality of which is referred to in this decision as the
"subject land."
In this case, petitioners claimed to be riparian owners who are
entitled to the "subject land" which is an accretion to the registered
land while private respondents claimed to be entitled to the 3.5
hectares accretion attached to their "motherland."
It should be noted that the herein private respondents' claim of
ownership of their alleged two and a half (2 & ) hectare
"motherland" is anchored mainly on four (4) tax declarations
(Exhibits "A", "A-1", "A-2" and "B", pp. 191, 192, 193, 194, Rollo).
This Court has repeatedly held that the declaration of ownership for
purposes of assessment on the payment of the tax is not sufficient
evidence to prove ownership. (Evangelista v. Tabayuyong, 7 Phil.
607; Elumbaring v. Elumbaring, 12 Phil. 384; cited in Camo v. Riosa
Bayco, 29 Phil. 437, 444). For their part, petitioners relied on the
indefeasibility and incontrovertibility of their Original Certificate of

Title No. P-19093, dated November 25, 1968 (Exhibit "3", p.

189, Rollo) issued in the name of Antonio Carniyan (petitioners'
predecessor-in-interest) pursuant to Free Patent No. 399431 dated
May 21, 1968, clearly showing that the boundary of petitioners' land
on the north is Cagayan River and not the "motherland" claimed by
respondents. The said registered land was bought by the late
Antonio Carniyan from his father-in-law, Marcos Cureg, on October
5, 1956, as evidenced by an Absolute Deed of Sale (Exhibit "8", p.
195, Rollo) which states that the land is bounded on the north by
Cagayan River.
In the case of Ferrer-Lopez v. Court of Appeals, G.R. No. 50420,
May 29, 1987, 150 SCRA 393,401-402, We ruled that as against an
array of proofs consisting of tax declarations and/or tax receipts
which are not conclusive evidence of ownership nor proof of the area
covered therein, an original certificate of title indicates true and legal
ownership by the registered owners over the disputed premises.
Petitioners' OCT No.P-19093 should be accorded greater weight as
against the tax declarations (Exhibit "A', dated 1979; Exhibit "A-1 "
undated and Exhibit "A2" dated 1967, pp. 191, 192, 193, Rollo)
offered by private respondents in support of their claim, which
declarations are all in the name of private respondents' predecessorin-interest, Francisco Gerardo, and appear to have been subscribed
by him after the last war, when it was established during the trial that
Francisco Gerardo died long before the outbreak of the last war.
Anent Tax Declaration No. 13131, in the name of Antonio Carniyan
(Exhibit "C", p. 203, Rollo), which the appellate court considered as
an admission by him that his land is bounded on the north by the
land of Domingo Gerardo and that he (Carniyan) is now estopped
from claiming otherwise, We hold that said tax declaration, being of
an earlier date cannot defeat an original certificate of title which is of
a later date. Since petitioner's original certificate of title clearly stated
that subject land is bounded on the north by the Cagayan River,
private respondents" claim over their "motherland," allegedly existing
between petitioners" land and the Cagayan River, is deemed barred
and nullified with the issuance of the original certificate of title.

It is an elemental rule that a decree of registration bars all claims and

rights which arose or may have existed prior to the decree of
registration (Ferrer-Lopez v. CA, supra., p. 404). By the issuance of
the decree, the land is bound and title thereto quieted, subject only to
exceptions stated in Section 39, Act 496 (now Sec. 44 of PD No.
1529). Moreover, the tax declarations of the late Antonio Camiyan
subsequent to the issuance of OCT P-19093 (Exhibit "D", p.
204, Rollo) already states that its northern boundary is Cagayan
River. In effect, he has repudiated any previous acknowledgment by
him, granting that he caused the accomplishment of the tax
declarations in his name before the issuance of OCT No. P- 19093,
of the existence of Francisco Gerardo's land.
Finally, the trial court concluded that petitioners have never been in
possession of the "subject land" but the evidence on record proves
otherwise. First, the trial court on page 11 of its Decision (p.
121, Rollo), stated the reason for denying private respondents'
petition for the issuance of a preliminary injunction, that is, "... the
defendants (petitioners herein) were in actual possession of the land
in litigation prior to September, 1982" (p. 121, Rollo). Second,
witness for private respondents, Esteban Guingab, boundary owner
on the east of the land in question and whose own land is bounded
on the north of Cagayan River, on cross-examination, revealed that
when his property was only more than one (1) hectare in 1958, (now
more than 4 hectares) his boundary on the west is the land of
Antonio Carniyan (T.S.N., 5 May 1983, pp. 19-20). Third, witness
Rogelio C. Albano, a geodetic engineer, on direct examination stated
that in 1974, the late Antonio Carniyan requested him to survey the
land covered by his title and the accretion attached to it, but he did
not pursue the same because he learned from the Office of the
Director of the Bureau of Lands that the same accretion is the
subject of an application for homestead patent of one Democrata
Aguila, (T.S.N., May 18, 1984, pp. 12-13) contrary to the statement of
the trial court and the appellate court that Albano "made three
attempts to survey the land but he did not continue to survey
because persons other than defendants were in possession of the
land," which statement appears only to be a conclusion (p. 7, Rollo).

Fourth, We note Exhibit "20" (p. 273, Rollo) for petitioners which is
an order by the Director of Lands dated August 14,1980 in
connection with the Homestead Application of Democrata Aguila of
an accretion situated in Catabayungan, Cabagan, Isabela. Aguila's
application was disapproved because in an investigation conducted
by the Bureau of Lands of the area applied for which is an accretion,
the same was found to be occupied and cultivated by, among others,
Antonio Carniyan, who claimed it as an accretion to his land. It is
worthy to note that none of the private respondents nor their
predecessors-in-interest appeared as one of those found occupying
and cultivating said accretion.
On the other hand, the allegation of private respondents that they
were in possession of the "motherland" through their predecessorsin-interest had not been proved by substantial evidence. The
assailed decision of the respondent court, which affirmed the
decision of the trial court, stated that since the "motherland" exists, it
is alsopresumed that private respondents were in possession of the
"subject land" through their predecessors- in-interest since prior to
July 26, 1894. The trial court relied on the testimony of Soledad
Gerardo, one of the private respondents in this case, an interested
and biased witness, regarding their possession of the "motherland."
From her testimony on pedigree, the trial court presumed that the
source of the property, the late Francisco Gerardo, was in
possession of the same since prior to July 26, 1894 (pp. 137140, Rollo).
The foregoing considerations indubitably show that the alleged
"motherland" claimed by private respondents is nonexistent. The
"subject land" is an alluvial deposit left by the northward movement
of the Cagayan River and pursuant to Article 457 of the New Civil
Code:
To the owners of land adjoining the banks of river
belong the accretion which they gradually receive
from the effects of the current of the waters.

However, it should be noted that the area covered by OCT No. P19093 is only four thousand five hundred eighty four (4,584) square
meters. The accretion attached to said land is approximately five and
a half (5.5) hectares. The increase in the area of petitioners'land,
being an accretion left by the change of course or the northward
movement of the Cagayan River does not automatically become
registered land just because the lot which receives such accretion is
covered by a Torrens title. (See Grande v. Court of Appeals, L-17652,
June 30, 1962). As such, it must also be placed under the operation
of the Torrens System. ACCORDINGLY, the petition is hereby
GRANTED. The decision appealed from is REVERSED and SET
ASIDE and judgment is hereby rendered DISMISSING Civil Case
No. Br. III-373 for quieting of title and damages.
Costs against private respondents.

The antecedent facts in the instant case are as follows: The spouses
Ricardo Y. Ladrido and Leonor P. Ladrido were the owners of Lot No.
7511 of the Cadastral Survey of Pototan situated in barangay
Cawayan, Pototan, Iloilo. This lot contained an area of 154,267
square meters and was registered in the names of the spouses
under Transfer Certificate of Title No. T-21940 of the Register of
Deeds of Iloilo.
Spouses Rosendo H. Te and Ana Te were also the registered owners
of a parcel of land described in their title as Lot No. 7340 of the
Cadastral Survey of Pototan.
On September 6, 1973, Rosendo H. Te, with the conformity of Ana
Te, sold this lot to Angelica F. Viajar and Celso F. Viajar for P5,000. A
Torrens title was later issued in the names of Angelica F. Viajar and
Celso F. Viajar.

SO ORDERED.
ANGELICA VIAJAR and CELSO VIAJAR, plaintiffs-appellants,
vs.
COURT OF APPEALS, LEONOR P. LADRIDO, LOURDES
LADRIDO IGNACIO, EUGENIO P. LADRIDO and L P.
LADRIDO, defendants-appellees.
Ramon A. Gonzales for petitioner.
Miraflores Law Offices for respondents.
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision of the Court
of Appeals dated December 29, 1986, in CA-G.R. CV No. 69942
entitled, "ANGELICA VIAJAR, et. al., Plaintiffs-Appellants, versus
LEONOR LADRIDO, et. al., Defendants-Appellees," affirming the
decision of the Court of First Instance (now Regional Trial Court) of
Iloilo dated December 10, 1981.

Later, Angelica F. Viajar had Lot No. 7340 relocated and found out
that the property was in the possession of Ricardo Y. Ladrido.
Consequently, she demanded its return but Ladrido refused.
On February 15, 1974, Angelica F. Viajar and Celso F. Viajar
instituted a civil action for recovery of possession and damages
against Ricardo Y. Ladrido. This case was docketed as Civil Case
No. 9660 of the Court of First Instance of Iloilo. Summoned to plead,
defendant Ladrido filed his answer with a counterclaim. Plaintiffs filed
their reply to the answer.
Subsequently, the complaint was amended to implead Rosendo H.
Te as another defendant. Plaintiffs sought the annulment of the deed
of sale and the restitution of the purchase price with interest in the
event the possession of defendant Ladrido is sustained. Defendant
Te filed his answer to the amended complaint and he counter
claimed for damages. Plaintiffs answered the counterclaim.
During the pendency of the case, plaintiff Celso F. Viajar sold his
rights over Lot No. 7340 to his mother and co-plaintiff, Angelica F.

Viajar. For this reason, plaintiff Angelica F. Viajar now appears to be

the sole registered owner of this lot.
On May 25, 1978, defendant Ladrido died. He was substituted in the
civil action by his wife, Leonor P. Ladrido, and children, namely:
Lourdes Ladrido-Ignacio, Eugenio P. Ladrido and Manuel P. Ladrido,
as parties defendants.
The facts admitted by the parties during the pre-trial show that the
piece of real property which used to be Lot No. 7340 of the Cadastral
Survey of Pototan was located in barangay Guibuanogan Pototan,
Iloilo; that it consisted of 20,089 square meters; that at the time of
the cadastral survey in 1926, Lot No. 7511 and Lot No. 7340 were
separated by the Suague River; that the area of 11,819 square
meters of what was Lot No. 7340 has been in the possession of the
defendants; that the area of 14,036 square meters, which was
formerly the river bed of the Suague River per cadastral survey of
1926, has also been in the possession of the defendants; and that
the plaintiffs have never been in actual physical possession of Lot
No. 7340.
After trial on the merits, a second amended complaint which included
damages was admitted.

3. Damages (pp. 12-13, Rollo).

On December 10, 1981, the trial court rendered its decision, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor
of the defendants and against the plaintiffs:
1. Dismissing the complaint of
plaintiffs Angelica F. Viajar and
Celso F. Viajar with costs against
them;
2. Declaring defendants Leonor P.
Ladrido, Lourdes Ladrido-Ignacio,
Eugenio P. Ladrido and Manuel P.
Ladrido as owner of the parcel of
land indicated as Lots A and B in the
sketch plan (Exhs. 'C' as well as '4,'
'4-B' and '4-C') situated in
barangays Cawayan and
Guibuanogan Pototan, Iloilo, and
containing an area of 25,855 square
meters, more or less; and

The plaintiffs raised the following issues to be resolved:

1. Whether the change in the course
of the Suague River was sudden as
claimed by the plaintiffs or gradual
as contended by the defendants;
2. Assuming arguendo it was
gradual, whether or not the plaintiffs
are still entitled to Lot "B' appearing
in Exhibit "4" and to one-half () of
Lot "A," also indicated in Exhibit "4;"
and

3. Pronouncing that as owners of

the land described in the preceding
paragraph, the defendants are
entitled to the possession thereof.
Defendants' claim for moral damages and attorney's
fees are dismissed.
SO ORDERED (p. 36, Rollo).

Not satisfied with the decision, the plaintiffs appealed to the Court of
Appeals and assigned the following errors:
I.
THE LOWER COURT ERRED IN NOT HOLDING
THAT PLAINTIFFS ARE ENTITLED TO LOT B
APPEARING IN EXHIBIT "4" AND TO ONE-HALF
() OF LOT A IN THE SAID EXHIBIT "4."
II
THE LOWER COURT ERRED IN NOT AWARDING
DAMAGES TO PLAINTIFFS (p. 42, Rollo).
As earlier stated, the Court of Appeals affirmed the decision of the
court a quo. Plaintiffs (the petitioners herein) now come to Us
claiming that the Court of Appeals palpably erred in affirming the
decision of the trial court on the ground that the change in the course
of the Suague River was gradual and not sudden.
In the decision appealed from, the Court of Appeals held:
This appeal is not impressed with merit.
Article 457 of the New Civil Code provides that:
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.
The presumption is that the change in the course of
the river was gradual and caused by accretion and
erosion (Martinez Canas vs. Tuason, 5 Phil. 668;

Payatas Estate Improvement Co. vs. Tuason, 53

Phil. 55; C.H. Hodges vs. Garcia, 109 Phil. 133). In
the case at bar, the lower court correctly found that
the evidence introduced by the plaintiff to show that
the change in the course of the Suague River was
sudden or that it occurred through avulsion is not
clear and convincing.
Contrariwise, the lower court found that:
... the defendants have sufficiently established that
for many years after 1926 a gradual accretion on the
eastern side of Lot No. 7511 took place by action of
the current of the Suague River so that in 1979 an
alluvial deposit of 29,912 square meters (2.9912
hectares), more or less, had been added to Lot No.
7511. (Exhs. '1' as well as Exhs. 'C' and '4'). Apropos
it should be observed that the accretion consisted of
Lot A with an area of 14,036 square meters; Lot B,
11,819 square meters; and Lot C, 4,057 square
meters. (Exhs. '4-B,' '4-C' and '4-D'). Only Lot C is
not involved in this litigation. (See Pre-trial
Order, supra)
The established facts indicate that the eastern
boundary of Lot No. 7511 was the Suague River
based on the cadastral plan. For a period of more
than 40 years (before 1940 to 1980) the Suague
River overflowed its banks yearly and the property of
the defendant gradually received deposits of soil
from the effects of the current of the river. The
consequent increase in the area of Lot No. 7511 due
to alluvion or accretion was possessed by the
defendants whose tenants plowed and planted the
same with coin and tobacco.

The quondam river bed had been filled by accretion

through the years. The land is already plain and
there is no indication on the ground of any
abandoned river bed. The river bed is definitely no
longer discernible now.
What used to be the old river bed (Lot A) is in level
with Lot No. 7511. So are the two other areas to the
East. (Lots B and C) Lots A, B and C are still being
cultivated.
Under the law, accretion which the banks or rivers
may gradually receive from the effects of the current
of the waters becomes the property of the owners of
the lands adjoining the banks. (Art. 366, Old Civil
Code; Art. 457, New Civil Code which took effect on
August 30, 1950 [Lara v. Del Rosario, 94 Phil. 778].
Therefore, the accretion to Lot No. 7511 which
consists of Lots A and B (see Exhs. 'C' and '4')
belongs to the defendants (pp. 34-35, Record on
Appeal).
We find no cogent reason to disturb the foregoing
finding and conclusion of the lower court.
The second assignment of error is a mere offshoot
of the first assignment of error and does not warrant
further discussion (pp. 4244, Rollo).
The petition is without merit.
The petitioners contend that the first issue raised during the trial of
the case on the merits in the Court of First Instance, that is, "whether
the change in the course of the Suague River was sudden as
claimed by the plaintiffs or gradual as contended by the defendants,"
was abandoned and never raised by them in their appeal to the
Court of Appeals. Hence, the Court of Appeals, in holding that the

appeal is without merit, because of the change of the Suague River

was gradual and not sudden, disposed of the appeal on an issue that
was never raised and, accordingly, its decision is void. In support of
its contention, petitioners cite the following authorities:
It is a well-known principle in procedure that courts
of justice have no jurisdiction or power to decide a
question not in issue (Lim Toco vs. Go Fay, 80 Phil.
166).
A judgment going outside the issues and purporting
to adjudicate something upon which the parties were
not heard, is not merely irregular, but extra-judicial
and invalid ( Salvante vs. Cruz, 88 Phil. 236-244;
Lazo vs. Republic Surety & Insurance Co., Inc., 31
SCRA 329, 334).
The pivotal issue in the petitioners' appeal was whether the change
in the course of the Suague River was gradual or sudden because
the trial court below resolved the same in its decision thus subjecting
the same to review by respondent appellate court. By simply
abandoning this issue, the petitioners cannot hope that the
affirmance of the decision wherein this issue was resolved makes the
decision of the Court of Appeals void. In effect, the petitioners are
expounding a new procedural theory that to render a questioned
decision void, all that has to be done is to simply abandon on appeal
the pivotal issue as resolved by the lower court and when its decision
is affirmed on appeal, attack the decision of the appellate court as
void on the principle that a court of justice has no jurisdiction or
power to decide the question not in issue. This is not correct. Even
the authorities cited by the petitioners, more specifically the Salvante
and Lazo cases, supra, do not support their contention. They were
heard in the trial court and they cannot complain that the proceeding
below was irregular and hence, invalid.
The trial court found that the change in the course of the Suague
River was gradual and this finding was affirmed by the respondent

Court of Appeals. We do not find any valid reason to disturb this

finding of fact.
Article 457 of the New Civil Code (reproduced from Article 366 of the
Old), the law applied by the courts a quoprovides:
Art. 457. To the owners of the lands adjoining the
banks of rivers belong the accretion which they
gradually receive from the effects of the current of
the waters.
Petitioners contend that this article must be read together with
Sections 45 an 46 of Act No. 496 which provides:
SEC. 45. 1 The obtaining of a decree of registration
and the entry of a certificate of title shall be regarded
as an agreement running with the land, and binding
upon the applicant and all successors in title that the
land shall be and always remain registered land, and
subject to the provisions of this Act and all Acts
amendatory thereof.
SEC. 46. 2 No title to registered land in derogation to
that of the registered owner shall be acquired by
prescription or adverse possession.
As a result, petitioners contend, Article 457 of the New Civil Code
must be construed to limit the accretion mentioned therein as
accretion of unregistered land to the riparian owner, and should not
extend to registered land. Thus, the lot in question having remained
the registered land of the petitioners, then the private respondents
cannot acquire title there in derogation to that of the petitioners, by
accretion, for that will defeat the indefeasibility of a Torrens Title.
The rule that registration under the Torrens System does not protect
the riparian owner against the diminution of the area of his registered

land through gradual changes in the course of an adjoining stream is

well settled. InPayatas Estate Improvement Co. vs. Tuason, 53 Phil.
55, We ruled:
The controversy in the present cases seems to be
due to the erroneous conception that Art. 366 of the
Civil Code does not apply to Torrens registered land.
That article provides that "any accretions which the
banks of rivers may gradually receive from the
effects of the current belong to the owners of the
estates bordering thereon." Accretions of that
character are natural incidents to land bordering on
running streams and are not affected by the
registration laws. It follows that registration does not
protect the riparian owner against diminution of the
area of his land through gradual changes in the
course of the adjoining stream.
In C.N. Hodges vs. Garcia, 109 Phil. 133, We also ruled:
It clearly appearing that the land in question has
become part of defendant's estate as a result of
accretion, it follows that said land now belongs to
him. The fact that the accretion to his land used to
pertain to plaintiffs estate, which is covered by a
Torrens Certificate of Title, cannot preclude him
(defendant) from being the owner thereof.
Registration does not protect the riparian owner
against the diminution of the area of his land through
gradual changes in the course of the adjoining
stream. Accretions which the banks of rivers may
gradually receive from the effect of the current
become the property of the owners of the banks (Art.
366 of the Old Civil Code; Art. 457 of the New). Such
accretions are natural incidents to land bordering on
running streams and the provisions of the Civil Code

in that respect are not affected by the Registration

Act.
We find no valid reason to review and abandon the aforecited
rulings.
As the private respondents are the owners of the premises in
question, no damages are recoverable from them.
ACCORDINGLY, the petition is DISMISSED for lack of merit without
pronouncement as to costs.
SO ORDERED.
VDA DE NAZARENO v CA
Petitioners Desamparado Vda. de Nazareno and Leticia
Nazareno Tapia challenge the decision of the Court of Appeals which
affirmed the dismissal of petitioners' complaint by the Regional Trial
Court of Misamis Oriental, Branch 22. The complaint was for
annulment of the verification, report and recommendation, decision
and order of the Bureau of Lands regarding a parcel of public land.
The only issue involved in this petition is whether or not
petitioners exhausted administrative remedies before having
recourse to the courts.
The subject of this controversy is a parcel of land situated in
Telegrapo, Puntod, Cagayan de Oro City. Said land was formed as a
result of sawdust dumped into the dried-up Balacanas Creek and
along the banks of the Cagayan river.
Sometime in 1979, private respondents Jose Salasalan and Leo
Rabaya leased the subject lots on which their houses stood from one
Antonio Nazareno, petitioners' predecessor-in-interest. In the latter
part of 1982, private respondents allegedly stopped paying

rentals. As a result, Antonio Nazareno and petitioners filed a case for

ejectment with the Municipal Trial Court of Cagayan de Oro City,
Branch 4. A decision was rendered against private respondents,
which decision was affirmed by the Regional Trial Court of Misamis
Oriental, Branch 20.
The case was remanded to the municipal trial court for
execution of judgment after the same became final and
executory. Private respondents filed a case for annulment of
judgment before the Regional Trial Court of Misamis Oriental, Branch
24 which dismissed the same. Antonio Nazareno and petitioners
again moved for execution of judgment but private respondents filed
another case for certiorari with prayer for restraining order and/or writ
of preliminary injunction with the Regional Trial Court of Misamis
Oriental, Branch 25 which was likewise dismissed. The decision of
the lower court was finally enforced with the private respondents
being ejected from portions of the subject lots they occupied.
Before he died, Antonio Nazareno caused the approval by the
Bureau of Lands of the survey plan designated as Plan Csd-10600571 with a view to perfecting his title over the accretion area being
claimed by him. Before the approved survey plan could be released
to the applicant, however, it was protested by private respondents
before the Bureau of Lands.
In compliance with the order of respondent District Land Officer
Alberto M. Gillera, respondent Land Investigator Avelino G. Labis
conducted an investigation and rendered a report to the Regional
Director recommending that Survey Plan No. MSI-10-06-000571-D
(equivalent to Lot No. 36302, Cad. 237) in the name of Antonio
Nazareno, be cancelled and that private respondents be directed to
file appropriate public land applications.
Based on said report, respondent Regional Director of the
Bureau of Lands Roberto Hilario rendered a decision ordering the
amendment of the survey plan in the name of Antonio Nazareno by
segregating therefrom the areas occupied by the private respondents

who, if qualified, may file public land applications covering their

respective portions.
Antonio Nazareno filed a motion for reconsideration with
respondent Rolleo Ignacio, Undersecretary of the Department of
Natural Resources and Officer-in-Charge of the Bureau of Lands
who denied the motion. Respondent Director of Lands Abelardo
Palad then ordered him to vacate the portions adjudicated to private
respondents and remove whatever improvements they have
introduced thereon. He also ordered that private respondents be
placed in possession thereof.
Upon the denial of the late Antonio Nazareno's motion for
reconsideration, petitioners Desamparado Vda. de Nazareno and
Leticia Tapia Nazareno, filed a case before the RTC, Branch 22 for
annulment of the following: order of investigation by respondent
Gillera, report and recommendation by respondent Labis, decision by
respondent Hilario, order by respondent Ignacio affirming the
decision of respondent Hilario and order of execution by respondent
Palad. The RTC dismissed the complaint for failure to exhaust
administrative remedies which resulted in the finality of the
administrative decision of the Bureau of Lands.
On appeal, the Court of Appeals affirmed the decision of the
RTC dismissing the complaint. Applying Section 4 of C.A. No. 141,
as amended, it contended that the approval of the survey plan
belongs exclusively to the Director of Lands. Hence, factual findings
made by the Metropolitan Trial Court respecting the subject land
cannot be held to be controlling as the preparation and approval of
said survey plans belong to the Director of Lands and the same shall
be conclusive when approved by the Secretary of Agriculture and
Natural Resources.[1]
Furthermore, the appellate court contended that the motion for
reconsideration filed by Antonio Nazareno cannot be considered as
an appeal to the Office of the Secretary of Agriculture and Natural
Resources, as mandated by C.A. No. 141 inasmuch as the same

had been acted upon by respondent Undersecretary Ignacio in his

capacity as Officer-in-Charge of the Bureau of Lands and not as
Undersecretary acting for the Secretary of Agriculture and Natural
Resources. For the failure of Antonio Nazareno to appeal to the
Secretary of Agriculture and Natural Resources, the present case
does not fall within the exception to the doctrine of exhaustion of
administrative remedies. It also held that there was no showing of
oppressiveness in the manner in which the orders were issued and
executed.
Hence, this petition.
Petitioners assign the following errors:
I. PUBLIC RESPONDENT COURT OF APPEALS IN A
WHIMSICAL,
ARBITRARY
AND
CAPRICIOUS
MANNER AFFIRMED THE DECISION OF THE
LOWER COURT WHICH IS CONTRARY TO THE
PREVAILING FACTS AND THE LAW ON THE
MATTER;
II. PUBLIC RESPONDENT COURT OF APPEALS IN A
WHIMSICAL,
ARBITRARY
AND
CAPRICIOUS
MANNER AFFIRMED THE DECISION OF THE
LOWER COURT DISMISSING THE ORIGINAL CASE
WHICH FAILED TO CONSIDER THAT THE
EXECUTION ORDER OF PUBLIC RESPONDENT
ABELARDO G. PALAD, JR., DIRECTOR OF LANDS,
MANILA, PRACTICALLY CHANGED THE DECISION
OF PUBLIC RESPONDENT ROBERTO HILARIO,
REGIONAL DIRECTOR, BUREAU OF LANDS,
REGION 10, THUS MAKING THE CASE PROPER
SUBJECT FOR ANNULMENT WELL WITHIN THE
JURISDICTION OF THE LOWER COURT.
The resolution of the above issues, however, hinges on the
question of whether or not the subject land is public land. Petitioners

claim that the subject land is private land being an accretion to his
titled property, applying Article 457 of the Civil Code which provides:
"To the owners of lands adjoining the banks of rivers belong the accretion
which they gradually receive from the effects of the current of the waters."
In the case of Meneses v. CA,[2] this Court held that accretion,
as a mode of acquiring property under Art. 457 of the Civil Code,
requires the concurrence of these requisites: (1) that the deposition
of soil or sediment be gradual and imperceptible; (2) that it be the
result of the action of the waters of the river (or sea); and (3) that the
land where accretion takes place is adjacent to the banks or rivers
(or the sea coast). These are called the rules on alluvion which if
present in a case, give to the owners of lands adjoining the banks of
rivers or streams any accretion gradually received from the effects of
the current of waters.
For petitioners to insist on the application of these rules on
alluvion to their case, the above-mentioned requisites must be
present. However, they admit that the accretion was formed by the
dumping of boulders, soil and other filling materials on portions of the
Balacanas Creek and the Cagayan River bounding their land. [3] It
cannot be claimed, therefore, that the accumulation of such
boulders, soil and other filling materials was gradual and
imperceptible, resulting from the action of the waters or the current of
the Balacanas Creek and the Cagayan River. In Hilario v. City of
Manila,[4] this Court held that the word "current" indicates the
participation of the body of water in the ebb and flow of waters due to
high and low tide. Petitioners' submission not having met the first and
second requirements of the rules on alluvion, they cannot claim the
rights of a riparian owner.
In any case, this court agrees with private respondents that
petitioners are estopped from denying the public character of the
subject land, as well as the jurisdiction of the Bureau of Lands when
the late Antonio Nazareno filed his Miscellaneous Sales Application
MSA (G-6) 571.[5] The mere filing of said Application constituted an

admission that the land being applied for was public land, having
been the subject of Survey Plan No. MSI-10-06-000571-D
(Equivalent to Lot No. 36302, Cad-237) which was conducted as a
consequence of Antonio Nazareno's Miscellaneous Sales Application
wherein said land was described as an orchard. Said description by
Antonio Nazareno was, however, controverted by respondent Labis
in his investigation report to respondent Hilario based on the findings
of his ocular inspection that said land actually covers a dry portion of
Balacanas Creek and a swampy portion of Cagayan River. The
investigation report also states that except for the swampy portion
which is fully planted to nipa palms, the whole area is fully occupied
by a part of a big concrete bodega of petitioners and several
residential houses made of light materials, including those of private
respondents which were erected by themselves sometime in the
early part of 1978.[6]
Furthermore, the Bureau of Lands classified the subject land as
an accretion area which was formed by deposits of sawdust in the
Balacanas Creek and the Cagayan river, in accordance with the
ocular inspection conducted by the Bureau of Lands. [7] This Court
has often enough held that findings of administrative agencies which
have acquired expertise because their jurisdiction is confined to
specific matters are generally accorded not only respect but even
finality.[8] Again, when said factual findings are affirmed by the Court
of Appeals, the same are conclusive on the parties and not
reviewable by this Court.[9]
It is this Court's irresistible conclusion, therefore, that the
accretion was man-made or artificial. In Republic v. CA,[10] this Court
ruled that the requirement that the deposit should be due to the effect
of the current of the river is indispensable. This excludes from Art.
457 of the Civil Code all deposits caused by human
intervention. Putting it differently, alluvion must be the exclusive work
of nature. Thus, in Tiongco v. Director of Lands, et al., [11] where the
land was not formed solely by the natural effect of the water current
of the river bordering said land but is also the consequence of the

direct and deliberate intervention of man, it was deemed a manmade accretion and, as such, part of the public domain.
In the case at bar, the subject land was the direct result of the
dumping of sawdust by the Sun Valley Lumber Co. consequent to its
sawmill operations.[12] Even if this Court were to take into
consideration petitioners' submission that the accretion site was the
result of the late Antonio Nazareno's labor consisting in the dumping
of boulders, soil and other filling materials into the Balacanas Creek
and Cagayan River bounding his land, [13] the same would still be part
of the public domain.
Having determined that the subject land is public land, a
fortiori, the Bureau of Lands, as well as the Office of the Secretary of
Agriculture and Natural Resources have Jurisdiction over the same
in accordance with the Public Land Law. Accordingly, the court a
quo dismissed petitioners' complaint for non-exhaustion of
administrative remedies which ruling the Court of Appeals affirmed.
However, this Court agrees with petitioners that administrative
remedies have been exhausted. Petitioners could not have intended
to appeal to respondent Ignacio as an Officer-in-Charge of the
Bureau of Lands. The decision being appealed from was the
decision of respondent Hilario who was the Regional Director of The
Bureau of Lands. Said decision was made "for and by authority of
the Director of Lands."[14] It would be incongruous to appeal the
decision of the Regional Director of the Bureau of Lands acting for
the Director of the Bureau of Lands to an Officer-In-Charge of the
Bureau of Lands.
In any case, respondent Rolleo Ignacio's official designation
was "Undersecretary of the Department of Agriculture and Natural
Resources." He was only an "Officer-In-Charge" of the Bureau of
Lands. When he acted on the late Antonio Nazareno's motion for
reconsideration by affirming or adopting respondent's Hilario's
decision, he was acting on said motion as an Undersecretary on
behalf of the Secretary of the Department. In the case of Hamoy v.

Secretary of Agriculture and Natural Resources, [15] This Court held

that the Undersecretary of Agriculture and Natural Resources may
modify, adopt, or set aside the orders or decisions of the Director of
Lands with respect to questions involving public lands under the
administration and control of the Bureau of Lands and the
Department of Agriculture and Natural Resources. He cannot
therefore, be said to have acted beyond the bounds of his jurisdiction
under Sections 3, 4 and 5 of Commonwealth Act No. 141. [16]
As borne out by the administrative findings, the controverted
land is public land, being an artificial accretion of sawdust. As such,
the Director of Lands has jurisdiction, authority and control over the
same, as mandated under Sections 3 and 4 of the Public Land Law
(C.A. No. 141) which states, thus:
"Sec. 3. The Secretary of Agriculture and Natural Resources shall be the
exclusive officer charged with carrying out the provisions of this Act
through the Director of Lands who shall act under his immediate control.
Sec. 4. Subject to said control, the Director of Lands shall have direct
executive control of the survey, classification, lease, sale or any other form
of concession or disposition and management of the lands of the public
domain, and his decisions as to questions of fact shall be conclusive when
approved by the Secretary of Agriculture and Natural Resources."
In connection with the second issue, petitioners ascribe whim,
arbitrariness or capriciousness in the execution order of public
respondent Abelardo G. Palad, the Director of Lands. This Court
finds otherwise since said decision was based on the conclusive
finding that the subject land was public land. Thus, this Court agrees
with the Court of Appeals that the Director of Lands acted within his
rights when he issued the assailed execution order, as mandated by
the aforecited provisions.
Petitioners' allegation that respondent Palad's execution order
directing them to vacate the subject land practically changed
respondent Hilario's decision is baseless. It is incorrect for petitioners

to assume that respondent Palad awarded portions of the subject

land to private respondents Salasalans and Rayabas as they had not
yet been issued patents or titles over the subject land. The execution
order merely directed the segregation of petitioners' titled lot from the
subject land which was actually being occupied by private
respondents before they were ejected from it. Based on the finding
that private respondents were actually in possession or were actually
occupying the subject land instead of petitioners, respondent Palad,
being the Director of Lands and in the exercise of this administrative
discretion, directed petitioners to vacate the subject land on the
ground that private respondents have a preferential right, being the
occupants thereof.
While private respondents may not have filed their application
over the land occupied by them, they nevertheless filed their protest
or opposition to petitioners' Miscellaneous Sales Application, the
same being preparatory to the filing of an application as they were in
fact directed to do so. In any case, respondent Palad's execution
order merely implements respondent Hilario's order. It should be
noted that petitioners' own application still has to be given due
course.[17]
As Director of lands, respondent Palad is authorized to exercise
executive control over any form of concession, disposition and
management of the lands of the public domain. [18] He may issue
decisions and orders as he may see fit under the circumstances as
long as they are based on the findings of fact.
In the case of Calibo v. Ballesteros,[19] this Court held that
where, in the disposition of public lands, the Director of Lands bases
his decision on the evidence thus presented, he clearly acts within
his jurisdiction, and if he errs in appraising the evidence, the error is
one of judgment, but not an act or grave abuse of discretion
annullable by certiorari. Thus, except for the issue of non-exhaustion
of administrative remedies, this Court finds no reversible error nor
grave abuse of discretion in the decision of the Court of Appeals.

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.
HEIRS OF EMILIANO NAVARRO, petitioner, vs. INTERMEDIATE
APPELLATE COURT AND HEIRS OF SINFOROSO PASCUAL,
respondents.
Unique is the legal question visited upon the claim of an
applicant in a Land Registration case by oppositors thereto, the
Government and a Government lessee, involving as it does
ownership of land formed by alluvium.
The applicant owns the property immediately adjoining the land
sought to be registered. His registered property is bounded on the
east by the Talisay River, on the west by the Bulacan River, and on
the north by the Manila Bay. The Talisay River and the Bulacan River
flow down towards the Manila Bay and act as boundaries of the
applicant's registered land on the east and on the west.
The land sought to be registered was formed at the northern tip
of the applicant's land. Applicant's registered property is bounded on
the north by the Manila Bay.
The issue: May the land sought to be registered be deemed an
accretion in the sense that it naturally accrues in favor of the riparian
owner or should the land be considered as foreshore land?
Before us is a petition for review of: (1) the decision [1] and (2)
two subsequent resolutions[2] of the Intermediate Appellate
Court[3] (now the Court of Appeals) in Land Registration Case No. N84,[4] the application over which was filed by private respondents'
predecessor-in-interest, Sinforoso Pascual, now deceased, before
the Court of First Instance[5] (now the Regional Trial Court) of
Balanga, Bataan.
There is no dispute as to the following facts:

On October 3, 1946, Sinforoso Pascual, now deceased, filed an application

for foreshore lease covering a tract of foreshore land in Sibocon, Balanga,
Bataan, having an area of approximately seventeen (17) hectares. This
application was denied on January 15, 1953. So was his motion for
reconsideration.
Subsequently, petitioners' predecessor-in-interest, also now deceased,
Emiliano Navarro, filed a fishpond application with the Bureau of Fisheries
covering twenty five (25) hectares of foreshore land also in Sibocon,
Balanga, Bataan. Initially, such application was denied by the Director of
Fisheries on the ground that the property formed part of the public
domain. Upon motion for reconsideration, the Director of Fisheries, on May
27, 1988, gave due course to his application but only to the extent of seven
(7) hectares of the property as may be certified by the Bureau of Forestry as
suitable for fishpond purposes.
The Municipal Council of Balanga, Bataan, had opposed Emiliano
Navarro's application. Aggrieved by the decision of the Director of
Fisheries, it appealed to the Secretary of Natural Resources who, however,
affirmed the grant. The then Executive Secretary, acting in behalf of the
President of the Philippines, similarly affirmed the grant.
On the other hand, sometime in the early part of 1960, Sinforoso Pascual
filed an application to register and confirm his title to a parcel of land,
situated in Sibocon, Balanga, Bataan, described in Plan Psu-175181 and
said to have an area of 146,611 square meters. Pascual claimed that this land
is an accretion to his property, situated in Barrio Puerto Rivas, Balanga,
Bataan, and covered by Original Certificate of Title No. 6830. It is bounded
on the eastern side by the Talisay River, on the western side by the Bulacan
River, and on the northern side by the Manila Bay. The Talisay River as
well as the Bulacan River flow downstream and meet at the Manila Bay
thereby depositing sand and silt on Pascual's property resulting in an
accretion thereon. Sinforoso Pascual claimed the accretion as the riparian
owner.
On March 25, 1960, the Director of Lands, represented by the Assistant
Solicitor General, filed an opposition thereto stating that neither Pascual nor

his predecessors-in-interest possessed sufficient title to the subject property,

the same being a portion of the public domain and, therefore, it belongs to
the Republic of the Philippines. The Director of Forestry, through the
Provincial Fiscal, similarly opposed Pascual's application for the same
reason as that advanced by the Director of Lands. Later on, however, the
Director of Lands withdrew his opposition. The Director of Forestry
become the sole oppositor.
On June 2, 1960, the court a quo issued an order of general default
excepting the Director of Lands and the Director of Forestry.
Upon motion of Emiliano Navarro, however, the order of general default
was lifted and, on February 13, 1961, Navarro thereupon filed an opposition
to Pascual's application. Navarro claimed that the land sought to be
registered has always been part of the public domain, it being a part of the
foreshore of Manila Bay; that he was a lessee and in possession of a part of
the subject property by virtue of a fishpond permit issued by the Bureau of
Fisheries and confirmed by the Office of the President; and that he had
already converted the area covered by the lease into a fishpond.
During the pendency of the land registration case, that is, on November 6,
1960, Sinforoso Pascual filed a complaint for ejectment against Emiliano
Navarro, one Marcelo Lopez and their privies, alleged by Pascual to have
unlawfully claimed and possessed, through stealth, force and strategy, a
portion of the subject property covered by Plan Psu-175181. The defendants
in the case were alleged to have built a provisional dike thereon: thus they
have thereby deprived Pascual of the premises sought to be registered. This,
notwithstanding repeated demands for defendants to vacate the property.
The case was decided adversely against Pascual. Thus, Pascual appealed to
the Court of First Instance (now Regional Trial Court) of Balanga, Bataan,
the appeal having been docketed as Civil Case No. 2873. Because of the
similarity of the parties and the subject matter, the appealed case for
ejectment was consolidated with the land registration case and was jointly
tried by the court a quo.

During the pendency of the trial of the consolidated cases, Emiliano

Navarro died on November 1, 1961 and was substituted by his heirs, the
herein petitioners.
Subsequently, on August 26, 1962, Pascual died and was substituted by his
heirs, the herein private respondents.
On November 10, 1975, the court a quo rendered judgment finding the
subject property to be foreshore land and, being a part of the public domain,
it cannot be the subject of land registration proceedings.
The decision's dispositive portion reads:
"WHEREFORE, judgment is rendered:
(1) Dismissing plaintiff [private respondent] Sinforoso Pascual's complaint
for ejectment in Civil Case No. 2873;
(2) Denying the application of Sinforoso Pascual for land registration over
the land in question; and
(3) Directing said Sinforoso Pascual, through his heirs, as plaintiff in Civil
Case No. 2873 and as applicant in Land Registration Case No. N-84 to pay
costs in both instances."[6]
The heirs of Pascual appealed and, before the respondent
appellate court, assigned the following errors:
"1. The lower court erred in not finding the land in question as an accretion
by the action of the Talisay and Bulacan Rivers to the land admittedly
owned by applicants-appellants [private respondents].
2. The lower court erred in holding that the land in question is foreshore
land.

3. The lower court erred in not ordering the registration of the and is
controversy in favor of applicants-appellants [private respondents].
4. The lower court erred in not finding that the applicants-appellants
[private respondents] are entitled to eject the oppositor-appellee
[petitioners]."[7]
On appeal, the respondent court reversed the findings of the
court a quo and granted the petition for registration of the subject
property but excluding therefrom fifty (50) meters from corner 2
towards corner 1; and fifty meters (50) meters from corner 5 towards
corner 6 of the Psu-175181.
The respondent appellate court explained the reversal in this
wise:
"The paramount issue to be resolved in this appeal as set forth by the parties
in their respective briefs is whether or not the land sought to be registered is
accretion or foreshore land, or, whether or not said land was formed by the
action of the two rivers of Talisay and Bulacan or by the action of the
Manila Bay. If formed by the action of the Talisay and Bulacan rivers, the
subject land is accretion but if formed by the action of the Manila Bay then
it is foreshore land.
xxx
It is undisputed that applicants-appellants [private respondents] owned the
land immediately adjoining the land sought to be registered. Their property
which is covered by OCT No. 6830 is bounded on the east by the Talisay
River, on the west by the Bulacan River, and on the north by the Manila
Bay. The Talisay and Bulacan rivers come from inland flowing downstream
towards the Manila Bay. In other words, between the Talisay River and the
Bulacan River is the property of applicants with both rivers acting as the
boundary to said land and the flow of both rivers meeting and emptying into
the Manila Bay.The subject land was formed at the tip or apex of appellants'
[private respondents'] land adding thereto the land now sought to be
registered.

This makes this case quite unique because while it is undisputed that the
subject land is immediately attached to appellants' [private respondents']
land and forms the tip thereof, at the same time, said land immediately faces
the Manila Bay which is part of the sea. We can understand therefore the
confusion this case might have caused the lower court, faced as it was with
the uneasy problem of deciding whether or not the subject land was formed
by the action of the two rivers or by the action of the sea. Since the subject
land is found at the shore of the Manila Bay facing appellants' [private
respondents'] land, it would be quite easy to conclude that it is foreshore
and therefore part of the patrimonial property of the State as the lower court
did in fact rule x x x .
xxx
It is however undisputed that appellants' [private respondents'] land lies
between these two rivers and it is precisely appellants' [private respondents']
land which acts as a barricade preventing these two rivers to meet. Thus,
since the flow of the two rivers is downwards to the Manila Bay the
sediments of sand and silt are deposited at their mouths.
It is, therefore, difficult to see how the Manila Bay could have been the
cause of the deposit thereat for in the natural course of things, the waves of
the sea eat the land on the shore, as they suge [sic] inland. It would not
therefore add anything to the land but instead subtract from it due to the
action of the waves and the wind. It is then more logical to believe that the
two rivers flowing towards the bay emptied their cargo of sand, silt and clay
at their mouths, thus causing appellants' [private respondents'] land to
accumulate therein.
However, our distinguished colleage [sic], Mr. Justice Serrano, do [sic] not
seem to accept this theory and stated that the subject land arose only when x
x x Pascual planted 'palapat' and 'bakawan' trees thereat to serve as a
boundary or strainer. But we do not see how this act of planting trees by
Pascual would explain how the land mass came into being. Much less will it
prove that the same came from the sea.Following Mr. Justice Serrano's
argument that it were the few trees that acted as strainers or blocks, then the
land that grew would have stopped at the place where the said trees were

planted. But this is not so because the land mass went far beyond the
boundary, or where the trees were planted.
On the other hand, the picture-exhibits of appellants' [private respondents']
clearly show that the land that accumulated beyond the so-called boundary,
as well as the entire area being applied for is dry land, above sea level, and
bearing innumerable trees x x x. The existence of vegetation on the land
could only confirm that the soil thereat came from inland rather than from
the sea, for what could the sea bring to the shore but sand, pebbles, stones,
rocks and corrals? On the other hand, the two rivers would be bringing soil
on their downward flow which they brought along from the eroded
mountains, the lands along their path, and dumped them all on the northern
portion of appellants' [private respondents'] land.
In view of the foregoing, we have to deviate from the lower court's
finding. While it is true that the subject land is found at the shore of the
Manila Bay fronting appellants' [private respondents'] land, said land is not
foreshore but an accretion from the action of the Talisay and Bulacan
rivers. In fact, this is exactly what the Bureau of Lands found out, as shown
in the following report of the Acting Provincial Officer, Jesus M. Orozco, to
wit:
'Upon ocular inspection of the land subject of this registration made on June
11, 1960, it was found out that the said land is x x x sandwitched [sic] by
two big rivers x x x These two rivers bring down considerable amount of
soil and sediments during floods every year thus raising the soil of the land
adjoining the private property of the applicant [private respondents]. About
four-fifth [sic] of the area applied for is now dry land whereon are planted
palapat trees thickly growing thereon. It is the natural action of these two
rivers that has caused the formation of said land x x x subject of this
registration case.It has been formed, therefore, by accretion. And having
been formed by accretion, the said land may be considered the private
property of the riparian owner who is the applicant herein [private
respondents'] x x x .
In view of the above, the opposition hereto filed by the government should
be withdrawn, except for the portion recommended by the land investigator

in his report dated May 2, 1960, to be excluded and considered foreshore. x

x x'

dated November 29, 1978 of the respondent appellate court and of

the aforecited resolution dated November 21, 1980.

Because of this report, no less than the Solicitor General representing the
Bureau of Lands withdrew his opposition dated March 25, 1960, and
limited 'the same to the northern portion of the land applied for,
compromising a strip 50 meters wide along the Manila Bay, which should
be declared public land as part of the foreshore' x x x.[8]

Thereafter, the Solicitor General, in behalf of the Director of

Forestry, filed a petition for review entitled, "The Director of Forestry
vs. the Court of Appeals."[10] We, however, denied the same in a
minute resolution dated July 20, 1981, such petition having been
prematurely filed at a time when the Court of Appeals was yet to
resolve petitioners' pending motion to set aside the resolution dated
November 21, 1980.

Pursuant to the aforecited decision, the respondent appellate court

ordered the issuance of the corresponding decree of registration in
the name of private respondents and the reversion to private
respondents of the possession of the portion of the subject property
included in Navarro's fishpond permit.
On December 20, 1978, petitioners filed a motion for
reconsideration of the aforecited decision. The Director of Forestry
also moved for the reconsideration of the same decision. Both
motions were opposed by private respondents on January 27, 1979.
On November 21, 1980, respondent appellate court
promulgated a resolution denying the motion for reconsideration filed
by the Director of Forestry. It, however, modified its decision, to
read, viz:
"(3). Ordering private oppositors Heirs of Emiliano Navarro to vacate that
portion included in their fishpond permit covered by Plan Psu-175181 and
hand over possession of said portion to applicants-appellants, if the said
portion is not within the strip of land fifty (50) meters wide along Manila
Bay on the northern portion of the land subject of the registration
proceedings and which area is more particularly referred to as fifty (50)
meters from corner 2 towards corner 1; and fifty (50) meters from corner 5
towards corner 6 of Plan Psu-175181. x x x[9]
On December 15, 1980, we granted the Solicitor General,
acting as counsel for the Director of Forestry, an extension of time
within which to file in this court, a petition for review of the decision

On October 9, 1981, respondent appellate court denied

petitioners' motion for reconsideration of the decision dated
November 29, 1978.
On October 17, 1981, respondent appellate court made an entry
of judgment stating that the decision dated November 29, 1978 had
become final and executory as against herein petitioners as
oppositors in L.R.C. Case No. N-84 and Civil Case No. 2873 of the
Court of First Instance (now the Regional Trial Court) of Balanga,
Bataan.
On October 26, 1981, a second motion for reconsideration of
the decision dated November 29, 1978 was filed by petitioners' new
counsel.
On March 26, 1982, respondent appellate court issued a
resolution granting petitioners' request for leave to file a second
motion for reconsideration.
On July 13, 1984, after hearing, respondent appellate court
denied petitioners' second motion for reconsideration on the ground
that the same was filed out of time, citing Rule 52, Section 1 of the
Rules of Court which provides that a motion for reconsideration shall
be made ex-parte and filed within fifteen (15) days from the notice of
the final order or judgment.

Hence this petition where the respondent appellate court is

imputed to have palpably erred in appreciating the facts of the case
and to have gravely misapplied statutory and case law relating to
accretion, specifically, Article 457 of the Civil Code.
We find merit in the petition.
The disputed property was brought forth by both the withdrawal
of the waters of Manila Bay and the accretion formed on the exposed
foreshore land by the action of the sea which brought soil and sand
sediments in turn trapped by the palapat and bakawan trees planted
thereon by petitioner Sulpicio Pascual in 1948.
Anchoring their claim of ownership on Article 457 of the Civil
Code, private respondents vigorously argue that the disputed 14hectare land is an accretion caused by the joint action of the Talisay
and Bulacan Rivers which run their course on the eastern and
western boundaries, respectively, of private respondents' own tract of
land.
Accretion as a mode of acquiring property under said Article
457, requires the concurrence of the following requisites: (1) that the
accumulation of soil or sediment be gradual and imperceptible; (2)
that it be the result of the action of the waters of the river; and (3)
that the land where the accretion takes place is adjacent to the bank
of the river.[11] Accretion is the process whereby the soil is deposited,
while alluvium is the soil deposited on the estate fronting the river
bank;[12] the owner of such estate is called the riparian owner.
Riparian owners are, strictly speaking, distinct from littoral owners,
the latter being owners of lands bordering the shore of the sea or
lake or other tidal waters. [13] The alluvium, by mandate of Article 457
of the Civil Code, is automatically owned by the riparian owner from
the moment the soil deposit can be seen [14] but is not automatically
registered property, hence, subject to acquisition through prescription
by third persons.[15]

Private respondents' claim of ownership over the disputed

property under the principle of accretion, is misplaced.
First, the title of private respondents' own tract of land reveals
its northeastern boundary to be Manila Bay. Private respondents'
land, therefore, used to adjoin, border or front the Manila Bay and
not any of the two rivers whose torrential action, private respondents
insist, is to account for the accretion on their land. In fact, one of the
private respondents, Sulpicio Pascual, testified in open court that the
waves of Manila Bay used to hit the disputed land being part of the
bay's foreshore but, after he had planted palapat and bakawan trees
thereon in 1948, the land began to rise.[16]
Moreover, there is no dispute as to the location of: (a) the
disputed land; (b) private respondents' own tract of land; (c) the
Manila Bay; and, (d) the Talisay and Bulacan Rivers. Private
respondents' own land lies between the Talisay and Bulacan Rivers;
in front of their land on the northern side lies now the disputed land
where before 1948, there lay the Manila Bay. If the accretion were to
be attributed to the action of either or both of the Talisay and Bulacan
Rivers, the alluvium should have been deposited on either or both of
the eastern and western boundaries of private respondents' own
tract of land, not on the northern portion thereof which is adjacent to
the Manila Bay. Clearly lacking, thus, is the third requisite of
accretion, which is, that the alluvium is deposited on the portion of
claimant's land which is adjacent to the river bank.
Second, there is no dispute as to the fact that private
respondents' own tract of land adjoins the Manila Bay. Manila Bay is
obviously not a river, and jurisprudence is already settled as to what
kind of body of water the Manila Bay is. It is to be remembered that
we held that:
"Appellant next contends that x x x Manila Bay cannot be considered as a
sea. We find said contention untenable. A bay is part of the sea, being a
mere indentation of the same:

'Bay. An opening into the land where the water is shut in on all sides except
at the entrance; an inlet of the sea; an arm of the sea, distinct from a river, a
bending or curbing of the shore of the sea or of a lake.' 7 C.J. 10131014."[17]
The disputed land, thus, is an accretion not on a river bank but
on a sea bank, or on what used to be the foreshore of Manila Bay
which adjoined private respindents' own tract of land on the northern
side. As such, the applicable law is not Article 457 of the Civil Code
but Article 4 of the Spanish Law of Waters of 1866.
The process by which the disputed land was formed, is not
difficult to discern from the facts of the case. As the trial court
correctly observed:
"A perusal of the survey plan x x x of the land subject matter of these cases
shows that on the eastern side, the property is bounded by Talisay River, on
the western side by Bulacan River, on the southern side by Lot 1436 and on
the northern side by Manila Bay. It is not correct to state that the Talisay and
Bulacan Rivers meet a certain portion because the two rivers both flow
towards Manila Bay. The Talisay River is straight while the Bulacan River
is a little bit meandering and there is no portion where the two rivers meet
before they end up at Manila Bay. The land which is adjacent to the
property belonging to Pascual cannot be considered an accretion [caused by
the action of the two rivers].
Applicant Pascual x x x has not presented proofs to convince the Court that
the land he has applied for registration is the result of the settling down on
his registered land of soil, earth or other deposits so as to be rightfully be
considered as an accretion [caused by the action of the two rivers]. Said Art.
457 finds no applicability where the accretion must have been caused by
action of the bay."[18]
The conclusion formed by the trial court on the basis of the
foregoing observation is that the disputed land is part of the
foreshore of Manila Bay and therefore, part of the public domain.The
respondent appellate court, however, perceived the fact that

petitioners' own land lies between the Talisay and Bulacan Rivers, to
be basis to conclude that the disputed land must be an accretion
formed by the action of the two rivers because private respondents'
own land acted as a barricade preventing the two rivers to meet and
that the current of the two rivers carried sediments of sand and silt
downwards to the Manila Bay which accumulated somehow to a 14hectare land. These conclusions, however, are fatally incongruous in
the light of the one undisputed critical fact: the accretion was
deposited, not on either the eastern or western portion of private
respondents' land where a river each runs, but on the northern
portion of petitioners' land which adjoins the Manila Bay. Worse,
such conclusions are further eroded of their practical logic and
consonance with natural experience in the light of Sulpicio Pascual's
admission as to having planted palapat and bakawan trees on the
northern boundary of their own land. In amplification of this, plainly
more reasonable and valid are Justice Mariano Serrano's
observations in his dissenting opinion when he stated that:
"As appellants' (titled) land x x x acts as a barricade that prevents the two
rivers to meet, and considering the wide expanse of the boundary between
said land and the Manila Bay, measuring some 593.00 meters x x x it is
believed rather farfetched for the land in question to have been formed
through 'sediments of sand and salt [sic] . . . deposited at their [rivers']
mouths.' Moreover, if 'since the flow of the two rivers is downwards to the
Manila Bay the sediments of sand and silt are deposited at their mouths,'
why then would the alleged cargo of sand, silt and clay accumulate at the
northern portion of appellants' titled land facing Manila Bay instead of
merely at the mouths and banks of these two rivers? That being the case, the
accretion formed at said portion of appellants' titled [land] was not caused
by the current of the two rivers but by the action of the sea (Manila Bay)
into which the rivers empty.
The conclusion x x x is not supported by any reference to the evidence
which, on the contrary, shows that the disputed land was formed by the
action of the sea. Thus, no less than Sulpicio Pascual, one of the heirs of the
original applicant, testified on cross-examination that the land in dispute

was part of the shore and it was only in 1948 that he noticed that the land
was beginning to get higher after he had planted trees thereon in 1948. x x x
x x x it is established that before 1948 sea water from the Manila Bay at
high tide could reach as far as the dike of appellants' fishpond within their
titled property, which dike now separates this titled property from the land
in question. Even in 1948 when appellants had already
planted palapat and bakawan trees in the land involved, inasmuch as these
trees were yet small, the waves of the sea could still reach the dike. This
must be so because in x x x the survey plan of the titled property approved
in 1918, said titled land was bounded on the north by Manila Bay. So
Manila Bay was adjacent to it on the north. It was only after the planting of
the aforesaid trees in 1948 that the land in question began to rise or to get
higher in elevation.
The trees planted by appellants in 1948 became a sort of strainer of the sea
water and at the same time a kind of block to the strained sediments from
being carried back to the sea by the very waves that brought them to the
former shore at the end of the dike, which must have caused the shoreline to
recede and dry up eventually raising the former shore leading to the
formation of the land in question."[19]
In other words, the combined and interactive effect of the planting of
palapat and bakawan trees, the withdrawal of the waters of Manila
Bay eventually resulting in the drying up of its former foreshore, and
the regular torrential action of the waters of Manila Bay, is the
formation of the disputed land on the northern boundary of private
respondents' own tract of land.
The disputed property is an accretion on a sea bank, Manila Bay being an
inlet or an arm of the sea; as such, the disputed property is, under Article 4
of the Spanish Law of Waters of 1866, part of the public domain.
At the outset, there is a need to distinguish between Manila Bay
and Laguna de Bay.

While we held in the case of Ignacio v. Director of Lands and

Valeriano[20] that Manila Bay is considered a sea for purposes of
determining which law on accretion is to be applied in multifarious
situations, we have ruled differently insofar as accretions on lands
adjoining the Laguna de Bay are concerned.
In the cases of Government of the P.I v. Colegio de San Jose,
Republic
v.
Court
of
Appeals,[22] Republic
v.
[23]
Alagad , and Meneses v. Court of Appeals,[24] we categorically ruled
that Laguna de Bay is a lake the accretion on which, by the mandate
of Article 84 of the Spanish Law of Waters of 1866, belongs to the
owner of the land contiguous thereto.
[21]

The instant controversy, however, brings a situation calling for

the application of Article 4 of the Spanish Law of Waters of 1866, the
disputed land being an accretion on the foreshore of Manila Bay
which is, for all legal purposes, considered a sea.
Article 4 of the Spanish Law of Waters of August 3, 1866
provides as follows:
"Lands added to the shores by accretions and alluvial deposits caused by the
action of the sea, form part of the public domain. When they are no longer
washed by the waters of the sea and are not necessary for purposes of public
utility, or for the establishment of special industries, or for the coast-guard
service, the Government shall declare them to be the property of the owners
of the estates adjacent thereto and as increment thereof."
In the light of the aforecited vintage but still valid law,
unequivocal is the public nature of the disputed land in this
controversy, the same being an accretion on a sea bank which, for all
legal purposes, the foreshore of Manila Bay is. As part of the public
domain, the herein disputed land is intended for public uses, and "so
long as the land in litigation belongs to the national domain and is
reserved for public uses, it is not capable of being appropriated by
any private person, except through express authorization granted in
due form by a competent authority." [25]Only the executive and

possibly the legislative departments have the right and the power to
make the declaration that the lands so gained by action of the sea is
no longer necessary for purposes of public utility or for the cause of
establishment of special industries or for coast guard services.
[26]
Petitioners utterly fail to show that either the executive or
legislative department has already declared the disputed land as
qualified, under Article 4 of the Spanish Law of Waters of 1866, to be
the property of private respondents as owners of the estates
adjacent thereto.
WHEREFORE, the instant Petition for Review is hereby
GRANTED.
The decision of the Intermediate Appellate Court (now Court of
Appeals) in CA G.R. No. 59044-R dated November 29, 1978 is

hereby REVERSED and SET ASIDE. The resolution dated

November 21, 1980 and March 28, 1982, respectively, promulgated
by the Intermediate Appellate Court are likewise REVERSED and
SET ASIDE.
The decision of the Court of First Instance (now the Regional
Trial Court), Branch 1, Balanga, Bataan, is hereby ORDERED
REINSTATED.
Costs against private respondents.
SO ORDERED.