Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

L-18452 May 31, 1965

AUGUSTO COSIO and EATRI! COSIO "E RAMA, petitioners, vs. C#ERIE PALILEO, respondent. Recto Law Office for petitioners. Bengzon, Villegas, Bengzon and Zarraga for respondent. REGALA, J.: This is an action to recover the possession of a house. It was filed followin our decision in Palileo v. Cosio, !" #.$. %"&", in which 'e ruled that the house in (uestion had not been sold out but had )erel* been iven as securit* for a debt, the pacto de retro sale between the parties bein in realit* a loan with an e(uitable )ort a e. In a sense, therefore, this case is a se(uel to Palileo v. Cosio. The parties are here this ti)e to liti ate on the issue of possession and its effects. The house in this case, a two+stor* buildin , was for)erl* owned b* ,elicisi)a -da. de Bar.a. It is located at /! 0for)erl* %1 Antipolo 2treet, Pasa* Cit*, on a lot belon in to the 3ospicio de 2an 4uan de 5ios. #n #ctober 6, "7!8, this house and the leasehold ri ht to the lot were bou ht b* respondent Cherie Palileo who paid part of the purchase price and )ort a ed the house to secure the pa*)ent of the balance. It appears that respondent Palileo defaulted in her obli ation, because of which the )ort a e was foreclosed and the house was advertised for sale. ,ortunatel* for her, however, respondent Palileo was able to raise )one* on 5ece)ber "&, "7!" before the house could be sold at public auction. #n this date, respondent Palileo received fro) petitioner Beatri. Cosio de Ra)a the su) of P"/,888 in consideration of which she si ned a docu)ent entitled 9Conditional 2ale of Residential Buildin ,9 purportin to conve* to petitioner Cosio de Ra)a the house in (uestion. :nder this docu)ent, the ri ht to repurchase the house within one *ear was reserved

to respondent Palileo. #n the sa)e da*, the parties entered into an a ree)ent whereb* respondent Palileo re)ained in possession of the house as tenant, pa*in petitioner Cosio de Ra)a a )onthl* rental of P/!8. Petitioner Cosio de Ra)a subse(uentl* insured the house a ainst fire with the Associated Insurance ; 2uret* Co., Inc. #n #ctober /!, "7!/, fire bro<e out in the house and partl* destro*ed the sa)e. ,or the loss, petitioner Cosio de Ra)a was paid P"=,"8> b* the insurance co)pan*. At the instance of his sister, petitioner Cosio de Ra)a, the other petitioner Au usto Cosio entered the pre)ises and be an the repair of the house. 2oon after an action was filed b* respondent Palileo a ainst Cosio de Ra)a for the refor)ation of the deed of pacto de retro sale into a loan with an e(uitable )ort a e. This case was filed in the Court of ,irst Instance of Ri.al on 5ece)ber 6, "7!/. #ne wee< after 05ece)ber ""1, respondent Palileo filed another action in the Municipal Court of Pasa* Cit*, this ti)e see<in the e?ect)ent of petitioner Cosio who, it was alle ed, had entered and occupied the house without the <nowled e and consent of respondent Palileo. 4ust the sa)e, however, repair wor< went on and althou h at ti)es interrupted it was finall* co)pleted in "7!= at a cost of P"/,888. Meanwhile the e?ect)ent suit was dis)issed b* the Municipal Court. Respondent Palileo appealed to the Court of ,irst Instance of Pasi , but the case was a ain dis)issed, this ti)e for failure of respondent Palileo to prosecute. The dis)issal of the case was subse(uentl* )ade 9without pre?udice.9 In the other case, respondent Palileo was successful. Both the lower court and this Court declared the transaction of the parties to be a loan with an e(uitable )ort a e and not a conditional sale. It was found that the a)ount of P"/,888, which purported to be the price, was in fact a loan@ that the a)ount of P/!8 paid ever* )onth as rent was in realit* interest@ and that the house alle edl* sold was intended to be a securit* for the loan. Accordin l*, this Court directed petitioner Cosio de Ra)a to return to respondent Palileo the su) of P&"8 which she had collected as interest in eAcess of that allowed b* law. This Court li<ewise ruled that petitioner Cosio de Ra)a could <eep the proceeds of the fire insurance but that her clai) a ainst respondent Palileo under the loan was to be dee)ed assi ned to the insurance co)pan*.

As earlier stated, this suit was instituted to recover the possession of the house as a conse(uence of our decision that it had not reall* been sold but had )erel* been iven as securit* for a loan. It was ori inall* brou ht a ainst petitioner Cosio who as<ed that the action be dis)issed on the round that it was barred b* the ?ud )ent of the Municipal Court which dis)issed the e?ect)ent case a ainst hi). The court denied the )otion to dis)iss. And so petitioner Cosio filed his answer. 3e was later ?oined b* petitioner Cosio de Ra)a who was allowed to intervene in the action. Thereafter, the lower court rendered ?ud )ent findin petitioner Cosio de Ra)a to be a possessor in ood faith with a ri ht to retain possession until rei)bursed for her eApenses in repairin the house. The dispositive portion of its decision readsB IN -IE' #, T3E ,#RE$#IN$, the Court hereb* renders ?ud )ent declarin plaintiff Palileo as the lawful owner of the house No. /! Antipolo 2treet, Pasa* Cit* and entitled to the possession thereof upon her pa*in to intervenor defendant Beatri. Cosio de Ra)a the su) of T'EC-E T3#:2AN5 0P"/,888.881 PE2#2 with interest at the le al rate fro) 5ece)ber //, "76% which is the date of the filin of intervenor+defendantDs counterclai) until paid. There is no ?ud )ent for costs. Not satisfied, respondent Palileo appealed to the Court of Appeals and succeeded in havin the lower court decision )odified. The appellate court ruled that E b* virtue of the pacto de retro sale intervenor+appellee 0Beatri. Cosio de Ra)a1 beca)e the te)porar* owner of the house and as such she was entitled to the possession thereof fro) the date of such conditional sale althou h appellant 0Cherie Palileo1 was its actuall* occupant as intervenor appelleeDs tenant. ... 3owever, when appellant instituted the e?ect)ent case a ainst appellee 0Au usto Cosio1 and intervenor+appellee 0Cosio de Ra)a1 as earl* as 5ece)ber "7!/, when the latter had ?ust started to reconstruct the house, and she li<ewise co))enced the action a ainst intervenor+appellee in the sa)e )onth of 5ece)ber, "7!/, to have the deed of pacto de retro sale declared as one of loan with e(uitable )ort a e, said appellee and intervenor+appelleeDs title to the house suffered fro) a flaw. ,ro) that ti)e both appellee and intervenor+appellee ceased to

be considered possessors in ood faith. 0Art. !/&, new Civil Code@ Tacas v. Tobon != Phil. =!%@ Cope., Inc. v. Phil. Eastern Tradin Co., Inc., !/ #ff. $a.. "6!/1 And if the* chose to continue reconstructin the house even after the* were appraised of a flaw on their title the* did so as builders in bad faith. Accordin l*, it rendered ?ud )ent as followsB '3ERE,#RE, with the )odification that appellant 0Cherie Palileo1 is hereb* declared the lawful owner of the house <nown as No. /! Antipolo 2treet, Pasa* Cit*, and entitled to the possession thereof, without rei)bursin intervenor+appellee 0Beatri. Cosio de Ra)a1 the su) of P"/,888 alle edl* spent for the reconstruction of the sa)e, and appellee 0Au usto Cosio1 and intervenor+appellee 0Cosio de Ra)a1 are hereb* ordered to pa* appellant a )onthl* rental of P=88 durin the ti)e the* actuall* occupied the house ?ust )entioned as possessors in bad faith, the decision appealed fro) is hereb* affir)ed in all other respects. 'ithout an* pronounce)ent as to costs.
1wph 1.!"t

Petitioners Cosio and Cosio de Ra)a have appealed to this Court b* certiorari, citin Article !/% of the Civil Code which states as followsB 3e is dee)ed a possessor in ood faith who is not aware that there eAists in his title or )ode of ac(uisition an* flaw which invalidates it. 3e is dee)ed a possessor in bad faith who possesses in an* case contrar* to the fore oin . Mista<e upon a doubtful or difficult (uestion of law )a* be the basis of ood faith. The* contend that the* were not onl* possessors in ood faith fro) the be innin but that the* continue to be such even after this CourtDs declaration that their transaction was a loan with a )ort a e and not a sale with a ri ht of repurchase, because, as a )atter of fact, this Court did not invalidate, but )erel* refor)ed, the supposed deed of sale. Petitioners li<ewise aver that neither can the e?ect)ent suit be considered to be notice of an* defect or flaw in their )ode of ac(uisition because that case after all was dis)issed.

'e believe that both the petitioners and the Court of Appeals are in error in sa*in that the for)er had a ri ht to the possession of the house under the deed of pacto de retro sale. Petitioners did not have such a ri ht at an* ti)e and the* <new this. In refor)in instru)ents, courts do not )a<e another contract for the parties 02ee Civil Code, Arts. "=!7+"=%7 and the Report of the Code Co))ission, p. !%1. The* )erel* in(uire into the intention of the parties and, havin found it, refor) the written instru)ent 0not the contract1 in order that it )a* eApress the real intention of the parties 02ee #d., Arts. "=%! and "%8/1. This is what was done in the earlier case between the parties. In holdin that the docu)ent entitled 9Conditional 2ale of Residential Buildin 9 was in fact a )ort a e, this Court saidB 9This docu)ent did not eApress the true intention of the parties which was )erel* to place said propert* 0the house1 as securit* for the pa*)ent of the loan.9 0Palileo v. Cosio, !" #.$. %"&" at %"&61 If that was the intention of the parties 0to confor) to which their written instru)ent was refor)ed1 then petitioner Cosio de Ra)a <new fro) the be innin that she was not entitled to the possession of the house because she was a )ere )ort a ee. ,or the sa)e reason, she could not have been )ista<en as to the true nature of their a ree)ent. 3ence, in biddin her brother, petitioner Cosio, to enter the pre)ises and )a<e repairs and in later occup*in the house herself, petitioner Cosio de Ra)a did so with this <nowled e. As possessors in bad faith, petitioners are ?ointl* liable for the pa*)ent of rental, the reasonable value of which, as found b* the appellate court is P=88 a )onth. 0Art. !67. 2ee Cer)a v. 5e la Cru., > Phil. !&"1 This findin is supported b* the evidence and we find no reason to disturb it. But even as we hold petitioner Cosio de Ra)a to be a possessor in bad faith we nevertheless believe that she is entitled to be rei)bursed for her eApenses in restorin the house to its ori inal condition after it had been partl* da)a ed b* fire, because such eApenses are necessar* 0An eles v. Co.ada, !6 Phil. "&61 and, under Article !6%, are to be refunded even to possessors in bad faith. As alread* stated, petitioner Cosio de Ra)a spent P"/,888 for the repair wor<.

The error of the appellate court lies in its failure to appreciate the distinction that while petitioner Cosio de Ra)a is a possessor in bad faith, she is not a builder in bad faith. Thus in describin petitioners as 9builders in bad faith9 and, conse(uentl*, in holdin that the* have no ri ht to be rei)bursed, the court obviousl* applied Article 667 which states that 9he who builds, plants or sows in bad faith on the land of another loses what is built, planted or sown witho$t right to inde%nit&.9 But article 667 is a rule of accession and we are not here concerned with accession. There is here no reason for the application of the principle accesio cedit principali, such as is conte)plated in cases of accession contin$a of which article 667 is a rule. ,or what petitioners did in this case was not to build a new house on the land of another. Rather, what the* did was )erel* to )a<e repairs on a house that had been partl* destro*ed b* fire and we are as<ed whether the* have a ri ht to be refunded for what the* spent in repairs. The land on which the house is built is not even owned b* respondent Palileo, that land bein the propert* of the 3ospicio de 2an 4uan de 5ios. This case co)es under article !6% which, as we have alread* indicated, provides for the refund of necessar* eApenses 9to ever* possessor.9 And now we co)e to the last point in petitionersD assi n)ent of errors. It is contended that the present action is barred b* the ?ud )ent of the Municipal Court which dis)issed the e?ect)ent case filed b* respondent Palileo a ainst petitioner Cosio. It is said that althou h that e?ect)ent was vacated when it was appealed to the Court of ,irst Instance, the subse(uent dis)issal of the case was e(uivalent to the withdrawal of the appeal and therefore to a revival of the ?ud )ent of the Municipal Court. That ?ud )ent, to repeat, dis)issed the e?ect)ent case a ainst petitioner Cosio. 'e note that this point, thou h raised in the Court of ,irst Instance, was not properl* assi ned as error in the Court of Appeals. It was there ta<en up onl* in the 9preli)inar* re)ar<s9 in the brief. Althou h petitioners were appellees in the Court of Appeals, the* should have assi ned this alle ed error if onl* to )aintain the decision of the lower court. Apart fro) this consideration, we believe that this action is not barred b* the prior ?ud )ent in the e?ect)ent case. The pertinent provisions of the Rules of Court stateB

'ffect of appeals. E A perfected appeal shall operate to vacate the ?ud )ent of the ?ustice of the peace or the )unicipal court, and the action when dul* doc<eted in the Court of ,irst Instance, shall stand for trial de novo upon its )erits in accordance with the re ular procedure in that court, as thou h the sa)e had never been tried before and had been ori inall* there co))enced. If the appeal is withdrawn, or dis)issed for failure to prosecute, the ?ud )ent shall be dee)ed revived and shall forthwith be re)anded to the ?ustice of the peace or )unicipal court for eAecution. 0Rule 68, see. 7, Rules of Court.1 The followin co))ent answers s(uarel* petitionersD ar u)entsB The case shall stand in the Court of ,irst Instance as thou h the sa)e 9had been ori inall* there co))enced.9 Thus, if an action is filed in an inferior court, and the plaintiff fails to appear and the case is dis)issed, )a* the plaintiff file another co)plaint for the sa)e causeF The 2upre)e Court held that, since the appeal had the effect of vacatin the ?ud )ent of the inferior court and, therefore, the case, when dis)issed, was in the Court of ,irst Instance as if the sa)e 9had been ori inall* there co))enced9 and since dis)issals, on the round afore)entioned, of cases co)in within the ori inal ?urisdiction of the Court of ,irst Instance, are without pre?udice, the conclusion is that plaintiff )a* file a new co)plaint for the sa)e cause. 0Marco v. 3ashi) 68 Phil. !7/1 This rulin , however, is affected to a certain eAtent b* Rule ">, section =, which provides that the dis)issal of a case on the round of plaintiffDs failure to appear at the trial, is a final ad?udication upon the )erits unless the court otherwise provides.9 0/ Moran, Co))ents on the Rules of Court, =66+=6! G"7%= ed.H1 3ere the dis)issal of the e?ect)ent case for failure of respondent Palileo to prosecute was eApressl* )ade to bewitho$t pre($dice. That ?ud )ent, therefore, cannot be a bar to the filin of another action li<e the present. '3ERE,#RE, with the )odification that petitioner Cosio de Ra)a should be rei)bursed her necessar* eApenses in the a)ount of P"/,888 b* respondent Palileo, the ?ud )ent of the Court of Appeals is affir)ed in all other respects, without pronounce)ents as to, cost.