G.R. No.

79688

February 1, 1996

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 3 be constructed on the Lot. However, the MTCC found that petitioner had already rescinded its contract with Kee over Lot 8 for the latter's failure to pay the installments due, and that Kee had not contested the rescission. The rescission was effected in 1979, before the complaint was instituted. The MTCC concluded that Kee no longer had any right over the lot subject of the contract between him and petitioner. Consequently, Kee must pay reasonable rentals for the use of Lot 9, and, furthermore, he cannot claim reimbursement for the improvements he introduced on said lot. The MTCC thus disposed: IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered as follows: 1. Defendant Wilson Kee is ordered to vacate the premises of Lot 9, covered by TCT No. 106367 and to remove all structures and improvements he introduced thereon; 2. Defendant Wilson Kee is ordered to pay to the plaintiff rentals at the rate of P15.00 a day computed from the time this suit was filed on March 12, 1981 until he actually vacates the premises. This amount shall bear interests (sic) at the rate of 12 per cent (sic) per annum. 3. Third-Party Defendant C.T. Torres Enterprises, Inc. and Pleasantville Subdivision are ordered to pay the plaintiff jointly and severally the sum of P3,000.00 as attorney's 4 fees and P700.00 as cost and litigation expenses. 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 5 directly participated in the delivery of Lot 9 to Kee . It found Kee a builder in bad faith. It further ruled that even assuming arguendo that Kee was acting in good faith, he was, nonetheless, guilty of unlawfully usurping the possessory right of Jardinico over Lot 9 from the time he was served with notice to vacate said lot, and thus was liable for rental. The RTC thus disposed: WHEREFORE, the decision appealed from is affirmed with respect to the order against the defendant to vacate the premises of Lot No. 9 covered by Transfer Certificate of Title No. T-106367 of the land records of Bacolod City; the removal of all structures and improvements introduced thereon at his expense and the payment to plaintiff (sic) the sum of Fifteen (P15.00) Pesos a day as reasonable

PLEASANTVILLE DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, WILSON KEE, C.T. TORRES ENTERPRISES, INC. and ELDRED JARDINICO,respondents. DECISION PANGANIBAN, J.: Is a lot buyer who constructs improvements on the wrong property erroneously delivered by the owner's agent, a builder in good faith? This is the main issue resolved in this petition for review 1 2 on certiorari to reverse the Decision of the Court of Appeals in CAG.R. 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 Kee's taking actual possession of Lot 8. After the preparation of the lot plan and a copy thereof given to Kee, CTTEI through its employee, Zenaida Octaviano, accompanied Kee's wife, Donabelle Kee, to inspect Lot 8. Unfortunately, the parcel of land pointed by Octaviano was Lot 9. Thereafter, Kee proceeded to construct his residence, a store, an auto repair shop and other improvements on the lot. After discovering that Lot 9 was occupied by Kee, Jardinico confronted him. The parties tried to reach an amicable settlement, but failed. On January 30, 1981, Jardinico's lawyer wrote Kee, demanding that the latter remove all improvements and vacate Lot 9. When Kee refused to vacate Lot 9, Jardinico filed with the Municipal Trial Court in Cities, Branch 3, Bacolod City (MTCC), a complaint for ejectment with damages against Kee.

rental to be computed from January 30, 1981, the date of the demand, and not from the date of the filing of the complaint, until he had vacated (sic) the premises, with interest thereon at 12% per annum. This Court further renders judgment against the defendant to pay the plaintiff the sum of Three Thousand (P3,000.00) Pesos as attorney's fees, plus costs of litigation. The third-party complaint against Third-Party Defendants Pleasantville Development Corporation and C.T. Torres Enterprises, Inc. is dismissed. The order against Third-Party Defendants to pay attorney's fees to plaintiff and costs of 6 litigation is reversed. 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 attorney's fees, as well as litigation expenses. 4. The award of rentals to Jardinico is dispensed with. Furthermore, the case is REMANDED to the court of origin for the determination of the actual value of the

improvements and the property (Lot 9), as well as for further proceedings in conformity with Article 448 of the 7 New Civil Code. Petitioner then filed the instant petition against Kee, Jardinico and CTTEI. The Issues The petition submitted the following grounds to justify a review of the respondent Court's Decision, as follows: 1. The Court of Appeals has decided the case in a way probably not in accord with law or the the (sic) applicable decisions of the Supreme Court on third-party complaints, by ordering third-party defendants to pay the demolition expenses and/or price of the land; 2. The Court of Appeals has so far departed from the accepted course of judicial proceedings, by granting to private respondent-Kee the rights of a builder in good faith in excess of what the law provides, thus enriching private respondent Kee at the expense of the petitioner; 3. In the light of the subsequent events or circumstances which changed the rights of the parties, it becomes imperative to set aside or at least modify the judgment of the Court of Appeals to harmonize with justice and the facts; 4. Private respondent-Kee in accordance with the findings of facts of the lower court is clearly a builder in bad faith, having violated several provisions of the contract to sell on installments; 5. The decision of the Court of Appeals, holding the principal, Pleasantville Development Corporation (liable) for the acts made by the agent in excess of its authority is clearly in violation of the provision of the law; 6. The award of attorney's fees is clearly without basis and is equivalent to putting a premium in (sic) court litigation. From these grounds, the issues could be re-stated as follows: (1) Was Kee a builder in good faith? (2) What is the liability, if any, of petitioner and its agent, C.T. Torres Enterprises, Inc.? and (3) Is the award of attorney's fees proper? The First Issue: Good Faith Petitioner contends that the Court of Appeals erred in reversing the RTC's ruling that Kee was a builder in bad faith. Petitioner fails to persuade this Court to abandon the findings and conclusions of the Court of Appeals that Kee was a builder in good faith. We agree with the following observation of the Court of Appeals:

The roots of the controversy can be traced directly to the errors committed by CTTEI, when it pointed the wrong property to Wilson Kee and his wife. It is highly improbable that a purchaser of a lot would knowingly and willingly build his residence on a lot owned by another, deliberately exposing himself and his family to the risk of being ejected from the land and losing all improvements thereon, not to mention the social humiliation that would follow. Under the circumstances, Kee had acted in the manner of a prudent man in ascertaining the identity of his property. Lot 8 is covered by Transfer Certificate of Title No. T69561, while Lot 9 is identified in Transfer Certificate of Title No. T-106367. Hence, under the Torrens system of land registration, Kee is presumed to have knowledge of the metes and bounds of the property with which he is dealing. . . . xxx xxx xxx

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: 13. The Vendee hereby declares that prior to the execution of his contract he/she has personally examined or inspected the property made subject-matter hereof, as to its location, contours, as well as the natural condition of the lots and from the date hereof whatever consequential change therein made due to erosion, the said Vendee shall bear the expenses of the necessary fillings, when the same 11 is so desired by him/her. The subject matter of this provision of the contract is the change of the location, contour and condition of the lot due to erosion. It merely provides that the vendee, having examined the property prior to the execution of the contract, agrees to shoulder the expenses resulting from such change. We do not agree with the interpretation of petitioner that Kee contracted away his right to recover damages resulting from petitioner's negligence. Such waiver would be contrary to public policy and cannot be allowed. "Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by 12 law." The Second Issue: Petitioner's Liability Kee filed a third-party complaint against petitioner and CTTEI, which was dismissed by the RTC after ruling that there was no evidence from which fault or negligence on the part of petitioner and CTTEI can be inferred. The Court of Appeals disagreed and found CTTEI negligent for the erroneous delivery of the lot by Octaviano, its employee. Petitioner does not dispute the fact that CTTEI was its agent. But it contends that the erroneous delivery of Lot 9 to Kee was an act which was clearly outside the scope of its authority, and consequently, CTTEI I 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 13 Kee" . Petitioner's contention is without merit.

But as Kee is a layman not versed in the technical description of his property, he had to find a way to ascertain that what was described in TCT No. 69561 matched Lot 8. Thus, he went to the subdivision developer's agent and applied and paid for the relocation of the lot, as well as for the production of a lot plan by CTTEI's geodetic engineer. Upon Kee's receipt of the map, his wife went to the subdivision site accompanied by CTTEI's employee, Octaviano, who authoritatively declared that the land she was pointing to was indeed Lot 8. Having full faith and confidence in the reputation of CTTEI, and because of the company's positive identification of the property, Kee saw no reason to suspect that there had been a misdelivery. The steps Kee had taken to protect his interests were reasonable. There was no need for him to have acted ex-abundantia cautela, such as being present during the geodetic engineer's relocation survey or hiring an independent geodetic engineer to countercheck for errors, for the final delivery of subdivision lots to their owners is part of the regular course of everyday business of CTTEI. Because of CTTEI's blunder, what Kee had hoped to forestall did in fact transpire. Kee's efforts all went to 8 naught. Good faith consists in the belief of the builder that the land he is 9 building on is his and his ignorance of any defect or flaw in his title . And as good faith is presumed, petitioner has the burden of proving 10 bad faith on the part of Kee . At the time he built improvements on Lot 8, Kee believed that said lot was what he bought from petitioner. He was not aware that the lot delivered to him was not Lot 8. Thus, Kee's good faith. Petitioner failed to prove otherwise. To demonstrate Kee's bad faith, petitioner points to Kee's violation of paragraphs 22 and 26 of the Contract of Sale on Installment. We disagree. Such violations have no bearing whatsoever on whether Kee was a builder in good faith, that is, on his state of mind at the time he built the improvements on Lot 9. These alleged violations may give rise to petitioner's cause of action against Kee under the said contract (contractual breach), but may not be bases to negate the presumption that Kee was a builder in good faith.

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 14 caused to third persons . On the other hand, the agent who 15 exceeds his authority is personally liable for the damage CTTEI was acting within its authority as the sole real estate representative of petitioner when it made the delivery to Kee. In acting within its scope of authority, it was, however, negligent. It is

this negligence that is the basis of petitioner's liability, as principal of CTTEI, per Articles 1909 and 1910 of the Civil Code. Pending resolution of the case before the Court of Appeals, Jardinico and Kee on July 24, 1987 entered into a deed of sale, wherein the former sold Lot 9 to Kee. Jardinico and Kee did not inform the Court of Appeals of such deal. The deed of sale contained the following provision: 1. That Civil Case No. 3815 entitled "Jardinico vs. Kee" which is now pending appeal with the Court of Appeals, regardless of the outcome of the decision shall be mutually disregarded and shall not be pursued by the parties herein and shall be considered dismissed and without effect 16 whatso-ever; 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 17 Enterprises; Inc." Obviously, the deed of sale can have no effect on the liability of petitioner. As we have earlier stated, petitioner's liability is grounded on the negligence of its agent. On the other hand, what the deed of sale regulates are the reciprocal rights of Kee and Jardinico; it stressed that they had reached an agreement independent of the outcome of the case. Petitioner further assails the following holding of the Court of Appeals: 2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are solidarily liable under the following circumstances: a. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove these structures, the third-party defendants shall answer for all demolition expenses and the value of the improvements thus destroyed or rendered useless; b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for the amount representing the value of Lot 9 that Kee 18 should pay to Jardinico.

Petitioner' s liability lies in the negligence of its agent CTTEI. For such negligence, the petitioner should be held liable for damages. Now, the extent and/or amount of damages to be awarded is a factual issue which should be determined after evidence is adduced. However, there is no showing that such evidence was actually presented in the trial court; hence no damages could flow be awarded. The rights of Kee and Jardinico vis-a-vis each other, as builder in good faith and owner in good faith, respectively, are regulated by law (i.e., Arts. 448, 546 and 548 of the Civil Code). It was error for the Court of Appeals to make a "slight modification" in the application of such law, on the ground of "equity". At any rate, as it stands now, Kee and Jardinico have amicably settled through their deed of sale their rights and obligations with regards to Lot 9. Thus, we delete items 2 (a) and (b) of the dispositive portion of the Court of Appeals' Decision [as reproduced above] holding petitioner and CTTEI solidarily liable. The Third Issue: Attorney's Fees The MTCC awarded Jardinico attorney's fees and costs in the amount of P3,000.00 and P700.00, respectively, as prayed for in his complaint. The RTC deleted the award, consistent with its ruling that petitioner was without fault or negligence. The Court of Appeals, however, reinstated the award of attorney's fees after ruling that petitioner was liable for its agent's negligence.

The award of attorney's fees lies within the discretion of the court 19 and depends upon the circumstances of each case . We shall not interfere with the discretion of the Court of Appeals. Jardinico was compelled to litigate for the protection of his interests and for the recovery of damages sustained as a result of the negligence of 20 petitioner's agent . 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;

Petitioner contends that if the above holding would be carried out, Kee would be unjustly enriched at its expense. In other words, Kee would be able to own the lot, as buyer, without having to pay anything on it, because the aforequoted portion of respondent Court's Decision would require petitioner and CTTEI jointly and solidarily to "answer" or reimburse Kee therefor. We agree with petitioner.

(2) Petitioner Pleasantville Development Corporation and respondent C.T. Torres Enterprises, Inc. are declared solidarily liable for damages due to negligence; however, since the amount and/or extent of such damages was not proven during the trial, the same cannot now be quantified and awarded; (3) Petitioner Pleasantville Development Corporation and respondent C.T. Torres Enterprises, Inc. are ordered to

pay in solidum the amount of P3,000.00 to Jardinico as attorney's fees, as well as litigation expenses; and (4) The award of rentals to Jardinico is dispensed with. SO ORDERED. Navasa, C.J., Davide, Francisco, J., took no part. Jr. and Melo, JJ., concur.

Donation dated March 9, 1932, he donated the subdivided lots to his daughters, namely: Isabel, Salud, Catalina, and Felicidad, all surnamed Lozada. The Deed of Donation was registered with the office of the Register of Deeds of Manila on March 15, 1932. Under the said Deed of Donation, the lots were adjudicated to Dalmacio's daughters in the following manner: a. Lot No. 12-A in favor of Isabel Lozada, married to G.R. No. 152319 Isaac Limense; b. Lot No. 12-B in favor of Catalina Lozada, married to Sotero Natividad; Present: c. Lot No. 12-C in favor of Catalina Lozada, married to Sotero Natividad; Isabel Lozada, married to Isaac Limense; and * Salud Lozada, married to Francisco Ramos, in equal parts; QUISUMBING, J., d. Lot No. CARPIO, J., Chairperson, 12-D in favor of Salud Lozada, married to Francisco Ramos; and CHICO-NAZARIO, e. Lot No. 12-E in favor of Isabel Lozada, married to PERALTA, and ** Isaac Limense, and Felicidad Lozada, married to Galicano ABAD, JJ. Centeno. By virtue of the Deed of Donation executed by Dalmacio Lozada, OCT No. 7036, which was registered in his name, was Promulgated: cancelled and, in lieu thereof, Transfer Certificates of Title (TCTs) bearing Nos. 40041, 40042, 40043, 40044, and 40045 were issued in favor of the donees, except TCT No. 40044, which remained in his October 28, 2009 name. These new TCTs were annotated at the back of OCT No. 7036.
[5]

[4]

HEIRS OF THE LATE JOAQUIN LIMENSE, namely: CONCESA LIMENSE, Surviving Spouse; and DANILO and JOSELITO, both surnamed Limense, children, Petitioners, - versus -

RITA VDA. DE RAMOS, RESTITUTO RAMOS, VIRGILIO DIAZ, IRENEO RAMOS, BENJAMIN RAMOS, WALDYTRUDES RAMOSBASILIO, TRINIDAD RAMOS-BRAVO, PAZ RAMOS-PASCUA, FELICISIMA RAMOS-REYES, and JACINTA RAMOS, Respondents. X-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X

TCT No. 40043, which covered Lot No. 12-C, was issued in the DECISION PERALTA, J., This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set aside the Decision of the Court of Appeals dated December 20, 2001 in CA-G.R. CV No. 33589 affirming in toto the Decision of the Regional Trial Court of Manila, Branch 15, dated September 21, 1990 in Civil Case No. 83-16128. The antecedent facts are as follows: Dalmacio Lozada was the registered owner of a parcel of land identified as Lot No. 12, Block No. 1074 of the cadastral survey of the City of Manila covered by Original Certificate of Title (OCT) No. 7036 issued at the City of Manila on June 14, 1927, containing an area of 873.80 square meters, more or less, located in Beata Street, Pandacan, Manila. Dalmacio Lozada subdivided his property into five (5) lots, namely: Lot Nos. 12-A, 12-B, 12-C, 12-D and 12-E. Through a Deed of
[3] [2] [1]

name of its co-owners Catalina Lozada, married to Sotero Natividad; Isabel Lozada, married to Isaac Limense; and Salud Lozada, married to Francisco Ramos. It covered an area of 68.60 square meters, more or less, was bounded on the northeast by Lot No. 12-A, on the southwest by Calle Beata, and on the northwest by Lot No. 12-D of the subdivision plan. In 1932, respondents' predecessor-in-interest constructed their residential building on Lot No. 12-D, adjacent to Lot No. 12-C. On May 16, 1969, TCT No. 96886 was issued in the name of Joaquin Limense covering the very same area of Lot No. 12-C. On October 1, 1981, Joaquin Limense secured a building permit for the construction of a hollow block fence on the boundary line between his aforesaid property and the adjacent parcel of land located at 2759 Beata Street, Pandacan, Manila, designated as Lot No. 12-D, which was being occupied by respondents. The fence, however, could not be constructed because a substantial portion of respondents' residential building in Lot No. 12-D encroached upon portions of Joaquin Limense's property in Lot No. 12-C.
[6]

Joaquin Limense demanded the removal of the encroached area; however, respondent ignored both oral and written demands. The parties failed to amicably settle the differences between them despite referral to the barangay. Thus, on March 9, 1983, Joaquin Limense, duly represented by his Attorney-in-Fact, Teofista L. Reyes, instituted a Complaint against respondents before the Regional Trial Court (RTC) of Manila, Branch 15, for removal of obstruction and damages. Joaquin Limense prayed that the RTC issue an order directing respondents, jointly and severally, to remove the portion which illegally encroached upon his property on Lot No. 12-C and, likewise, prayed for the payment of damages, attorneys fees and costs of suit. Respondents, on the other hand, averred in their Answer that they were the surviving heirs of Francisco Ramos, who, during his lifetime, was married to Salud Lozada, one of the daughters of Dalmacio Lozada, the original owner of Lot No. 12. After subdividing the said lot, Dalmacio Lozada donated Lot No. 12-C in favor of his daughters Catalina, married to Sotero Natividad; Isabel, married to Isaac Limense; and Salud, married to Francisco Ramos. Being the surviving heirs of Francisco Ramos, respondents later became coowners of Lot No. 12-C. Lot No. 12-C has served as right of way or common alley of all the heirs of Dalmacio Lozada since 1932 up to the present. As a common alley, it could not be closed or fenced by Joaquin Limense without causing damage and prejudice to respondents. After Decision
[10] [9] [8] [7]

knew that said lot could serve no other purpose than as an alley. That is why even after he acquired it in 1969, the lot continued to be used by defendants and occupants of the other adjoining lots as an alley. The existence of the easement of right of way was therefore known to plaintiff who must respect the same in spite of the fact that his transfer certificate of title does not mention the lot of defendants as among those listed therein as entitled to such right of way. It is an established principle that actual notice or knowledge is as binding as [11] registration.

Aggrieved by said decision, Joaquin Limense filed a notice of appeal. The records of the case were transmitted to the Court of Appeals (CA). During the pendency of the appeal with the CA, Joaquin Limense died in 1999.
[12]

The CA, Seventh Division, in CA-G.R. CV No. 33589, in its Decision

[13]

dated December 20, 2001 dismissed the appeal and

affirmed in toto the decision of the RTC. Frustrated by this turn of events, petitioners, as surviving heirs of Joaquin Limense, elevated the case to this Court via a Petition for Review on Certiorari 1.
[14]

raising the following issues:

DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION, IN HOLDING, LIKE THE TRIAL COURT DID, THAT RESPONDENTS' LOT 12-D HAS AN EASEMENT OF RIGHT OF WAY OVER JOAQUIN LIMENSE'S LOT 12-C? DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION, IN FAILING TO HOLD, LIKE THE TRIAL COURT DID, THAT THE PROTRUDING PORTIONS OF RESPONDENTS' HOUSE ON LOT 12-D EXTENDING INTO JOAQUIN LIMENSE'S LOT 12-C CONSTITUTE A NUISANCE AND, AS SUCH, SHOULD BE REMOVED?

trial

on

the

merits,

the

RTC

rendered

a 2.

dated September 21, 1990 dismissing the complaint of

Joaquin Limense. It ruled that an apparent easement of right of way existed in favor of respondents. Pertinent portions of the decision read as follows: The Court finds that an apparent easement of right of way exists in favor of the defendants under Article 624 of the Civil Code. It cannot be denied that there is an alley which shows its existence. It is admitted that this alley was established by the original owner of Lot 12 and that in dividing his property, the alley established by him continued to be used actively and passively as such. Even when the division of the property occurred, the non-existence of the easement was not expressed in the corresponding titles nor were the apparent sign of the alley made to disappear before the issuance of said titles. The Court also finds that when plaintiff acquired the lot (12-C) which forms the alley, he

Petitioners aver that the CA erred in ruling that since Lot No. 12-C was covered by two TCT's, i.e., TCT Nos. 40043 and 96886, and there was no evidence on record to show how Joaquin Limense was able to secure another title over an already titled property, then one of these titles must be of dubious origin. According to the CA, TCT No. 96886, issued in the name of Joaquin Limense, was spurious because the Lozada sisters never disposed of the said property covered by TCT No. 40043. The CA further ruled that a co-ownership existed over Lot No. 12-C between petitioners and respondents.

Petitioners countered that TCT No. 96886, being the only and best legitimate proof of ownership over Lot No. 12-C, must prevail over TCT No. 40043.

1969 and respondents never instituted any direct proceeding or action to assail Joaquin Limense's title. Additionally, an examination of TCT No. 40043 would

Respondents allege that it was possible that TCT No. 96886, in the name of Joaquin Limense, was obtained thru fraud, misrepresentation or falsification of documents because the donees of said property could not possibly execute any valid transfer of title to Joaquin Limense, as they were already dead prior to the issuance of TCT No. 96886 in 1969. Respondents further allege that petitioners failed to produce proof substantiating the issuance of TCT No. 96886 in the name of Joaquin Limense.

readily

show

that
[18]

there

is

an

annotation

that
[19]

it

has

beenCANCELLED.

A reading of TCT No. 96886 would also reveal and not TCT

that said title is a transfer from TCT No. 48866

40043. Thus, it is possible that there was a series of transfers effected from TCT No. 40043 prior to the issuance of TCT No. 96886. Hence, respondents' position that the issuance of TCT No. 96886 in the name of Joaquin Limense is impossible, because the registered owners of TCT No. 40043 were already dead prior to 1969 and could not have transferred the property to Joaquin Limense, cannot be taken as proof that TCT No. 96886 was obtained

Apparently, respondents are questioning the legality of TCT No. 96886, an issue that this Court cannot pass upon in the present case. It is a rule that the validity of a torrens title cannot be assailed collaterally.
[15]

through fraud, misrepresentation or falsification of documents. Findings of fact of the CA, although generally deemed conclusive, may admit review by this Court if the CA failed to notice certain relevant facts that, if properly considered, would justify a different conclusion, and if the judgment of the CA is premised on a misapprehension of facts. observation Isabel and that
[20]

Section

48

of

Presidential

Decree

(PD)

No.

1529 provides that: [a] certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law.

As with the present case, the CA's is of dubious and origin, as an

TCT No. 96886 is

TCT No.40043 does not appear to have been disposed of by Catalina, Salud Lozada, improper constitutes indirect attack on TCT No. 96886. As we see it, TCT No. 96886, at present, is the best proof of Joaquin Limenses ownership over Lot No. 12-C. Thus, the CA erred in ruling that respondents and petitioners co-owned Lot No. 12-C, as said lot is now registered exclusively in the name of Joaquin Limense. Due to the foregoing, Joaquin Limense, as the registered owner

In the case at bar, the action filed before the RTC against respondents was an action for removal of obstruction and damages. Respondents raised the defense that Joaquin Limense's title could have been obtained through fraud and misrepresentation in the trial proceedings before the RTC. Such defense is in the nature of a collateral attack, which is not allowed by law. Further, it has been held that a certificate of title, once registered, should not thereafter be impugned, altered, changed, modified, enlarged or diminished, except in a direct proceeding permitted by law. Otherwise, the reliance on registered titles would be lost. The title became indefeasible and incontrovertible after the lapse of one year from the time of its registration and issuance. Section 32 of PD 1529 provides that upon the expiration of said period of one year, the decree of registration and the certificate of title shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or other persons responsible for the fraud.
[16]

of Lot 12-C, and his successors-in-interest, may enclose or fence his land or tenements by means of walls, ditches, live or dead hedges, or by any other means without detriment to servitudes constituted thereon.
[21]

However, although the owner of the property has the right to enclose or fence his property, he must respect servitudes constituted thereon. The question now is whether respondents are entitled to an easement of right of way. Petitioners contend that respondents are not entitled to an easement of right of way over Lot No. 12-C, because their Lot No. 12-D is not duly annotated at the back of TCT No. 96886 which would entitle them to enjoy the easement, unlike Lot Nos. 12-A-1, 12-A-2, 12-A-3, 12-A-4, 12-A-5, and 12-A-6. Respondents, on the other hand, allege that they are entitled to an easement of right of

It has, therefore, become an ancient rule that the

issue on the validity of title, i.e., whether or not it was fraudulently issued, can only be raised in an action expressly instituted for that purpose.
[17]

In the present case, TCT No. 96886 was registered in

way over Lot No. 12-C, which has been continuously used as an alley by the heirs of Dalmacio Lozada, the residents in the area and the public in general from 1932 up to the present. Since petitioners are fully aware of the long existence of the said alley or easement of right of way, they are bound to respect the same. As defined, an easement is a real right on another's property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person or tenement.
[22]

A: Q:

Lozada namely Salud Lozada, Catalina Lozada and Isabel Lozada, is that right? Yes, sir. And after the said property was adjudicated to his said children the latter constructed their houses on their lots. Yes, sir. As a matter of fact, the herein defendants have constructed their houses on the premises alloted to them since the year 1932? Yes, sir, they were able to construct their house fronting Beata Street. And that house they have constructed on their lot in 1932 is still existing today? Yes, sir and they still used the alley in question and they are supposed to use Beata Street but they are not using Beata Street. They are using the alley? Yes, sir, they are using the alley and they do not pass through Beata Street.

A: Q:

A:

Easements may be continuous or discontinuous, apparent or non-apparent.

Q: A:

Continuous easements are those the use of which is or may be incessant, without the intervention of any act of man. Discontinuous easements are those which are used at intervals and depend upon the acts of man. Apparent easements are those which are made known and are continually kept in view by external signs that reveal the use and enjoyment of the same. Non-apparent easements are those which show no external indication of their existence.
[23]

Q: A:

In the present case, the easement of right of way is discontinuous and apparent. It is discontinuous, as the use depends upon the acts of respondents and other persons passing through the property. Being an alley that shows a permanent path going to and from Beata Street, the same is apparent.

Q: And they have been using the alley since 1932 up to the present? A: Yes, sir they have been using the alley since that time. That was their mistake and they should be using Beata Street because they are fronting Beata Strret. Q: As a matter of fact, it is not only herein defendants who have been using that alley since 1932 up to the present? Yes, sir they are using the alley up to now. As a matter of fact, in this picture marked as Exh. C-1 the alley is very apparent. This is the alley? Yes, sir.

A: Being a discontinuous and apparent easement, the same can be acquired only by virtue of a title.
[24]

Q:

In the case at bar, TCT No. 96886, issued in the name of Joaquin Limense, does not contain any annotation that Lot No. 12-D was given an easement of right of way over Lot No. 12-C. However, Joaquin Limense and his successors-in-interests are fully aware that Lot No. 12-C has been continuously used and utilized as an alley by respondents and residents in the area for a long period of time. Joaquin Limense's Attorney-in-Fact, Teofista L. Reyes, testified that respondents and several other residents in the area have been using the alley to reach Beata Street since 1932. Thus: Atty. Manuel B. Tomacruz: Q: Mrs. Witness, by virtue of that Deed of Donation you claim that titles were issued to the children of Dalmacio

A:

Q: And there are houses on either side of this alley? A: Yes, sir. Q: As a matter of fact, all the residents on either side of the alley are passing through this alley? Yes, sir, because the others have permit to use this alley and they are now allowed to use the alley but the Ramos's family are now [not] allowed [25] to use this alley.

A:

In Mendoza v. Rosel,

[26]

this Court held that:

Petitioners claim that inasmuch as their transfer certificates of title do not mention any

lien or encumbrance on their lots, they are purchasers in good faith and for value, and as such have a right to demand from respondents some payment for the use of the alley. However, the Court of Appeals found, as a fact, that when respondents acquired the two lots which form the alley, they knew that said lots could serve no other purpose than as an alley. The existence of the easement of right of way was therefore known to petitioners who must respect the same, in spite of the fact that their transfer certificates of title do not mention any burden or easement. It is an established principle that actual notice or knowledge is as binding as registration. Every buyer of a registered land who takes a certificate of title for value and in good faith shall hold the same free of all encumbrances except those noted on said certificate. It has been held, however, that where the party has knowledge of a prior existing interest that was unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him.
[27]

house on Lot No. 12-D encroach upon Lot No. 12-C. Geodetic Engineer Jose Agres, Jr. testified on the encroachment of respondents' house on Lot No. 12-C, which he surveyed.
[29]

In order

to settle the rights of the parties relative to the encroachment, We should determine whether respondents were builders in good faith. Good faith is an intangible and abstract quality with no technical meaning or statutory definition; and it encompasses, among other things, an honest belief, the absence of malice and the absence of a design to defraud or to seek an unconscionable advantage. An individuals personal good faith is a concept of his own mind and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. The essence of good faith lies in an honest belief in the validity of ones right, ignorance of a superior claim, and absence of intention to overreach another. Applied to possession, one is considered in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.
[30]

In the case at bar, Lot No. 12-C has been used as an alley ever since it was donated by Dalmacio Lozada to his heirs. It is undisputed that prior to and after the registration of TCT No. 96886, Lot No. 12-C has served as a right of way in favor of respondents and the public in general. We quote from the RTC's decision: x x x It cannot be denied that there is an alley which shows its existence. It is admitted that this alley was established by the original owner of Lot 12 and that in dividing his property the alley established by him continued to be used actively and passively as such. Even when the division of the property occurred, the nonexistence of the easement was not expressed in the corresponding titles nor were the apparent sign of the alley made to disappear before the issuance of said titles. The Court also finds that when plaintiff acquired the lot (12-C) which forms the alley, he knew that said lot could serve no other purpose than as an alley. That is why even after he acquired it in 1969 the lot continued to be used by defendants and occupants of the other [28] adjoining lots as an alley. x x x Good faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof. matter of record that
[32] [31]

It is a

respondents'

predecessor-in-interest

constructed their residential building on Lot No. 12-D, adjacent to Lot No. 12-C, in 1932. Respondents' predecessor-in-interest owned the 1/3 portion of Lot No. 12-C at the time the property was donated to them by Dalmacio Lozada in 1932. The Deed of Donation executed by the late Dalmacio Lozada, dated March 9, 1932, specifically provides that: I hereby grant, cede and donate in favor of Catalina Lozada married to Sotero Natividad, Isabel Lozada married to Isaac Simense and Salud Lozada married to Francisco Ramos, all Filipinos, of legal age, the parcel of [33] land known as Lot No. 12-C, in equal parts.

The portions of Lot No. 12-D, particularly the overhang, covering 1 meter in width and 17 meters in length; the stairs; and the concrete structures are all within the 1/3 share alloted to them by their donor Dalmacio Lozada and, hence, there was absence of a showing that respondents acted in bad faith when they built portions of their house on Lot No. 12-C. Using the above parameters, we are convinced that respondents' predecessors-in-interest acted in good faith when they built portions of their house on Lot 12-C. Respondents being builders in good faith, we shall now discuss the respective rights of

Thus, petitioners are bound by the easement of right of way over Lot No. 12-C, even though no registration of the servitude has been made on TCT No. 96886. However, respondents right to have access to the property of petitioners does not include the right to continually encroach upon the latters property. It is not disputed that portions of respondents'

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

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, but the encroachment was in good faith, then the provisions of Article 448 should apply to determine the respective rights of the parties. In this case, the co-ownership was terminated due to the transfer of the title of the whole property in favor of Joaquin Limense. Under the foregoing provision, petitioners have the right to appropriate said portion of the house of respondents upon payment of indemnity to respondents, as provided for in Article 546 of the Civil Code. Otherwise, petitioners may oblige respondents 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 respondents built thereon, then the latter cannot be obliged to buy the land. Respondents shall then pay the reasonable rent to petitioners upon such terms and conditions that they may agree. In case of disagreement, the trial court shall fix the terms thereof. Of course, respondents may demolish or remove the said portion of their house, at their own expense, if they so decide.
[36]

The choice belongs to the owner of the land, a rule that accords with the principle of accession that the accessory follows the principal and not the other way around.
[37]

Even as the option

lies with the landowner, the grant to him, nevertheless, is preclusive. He must choose one. He cannot, for instance, compel the owner of the building to instead remove it from the land.
[38]

In Spouses Del Campo v. Abesia,

[34]

this provision was applied

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 two options: (1) to appropriate the building by paying the indemnity required by law, or (2) to sell the land to the builder.
[39]

to one whose house, despite having been built at the time he was still co-owner, overlapped with the land of another. In that case, this Court ruled: 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 the land that exclusively belongs to another but of which he is a coowner. 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 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. [35] xxx

The raison detre for this provision has been enunciated, thus: Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise either option. 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 [40] ownership of the accessory thing. In accordance with Depra v. Dumlao,
[41]

Associate Justice

this case must be ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

remanded to the trial court to determine matters necessary for the proper application of Article 448 in relation to Article 546. Such matters include the option that petitioners would take and the amount of indemnity that they would pay, should they decide to appropriate the improvements on the lots. Anent the second issue, although it may seem that the portions encroaching upon respondents' house can be considered a nuisance, because it hinders petitioners' use of their property, it cannot simply be removed at respondents' expense, as prayed for by petitioner. This is because respondents built the subject encroachment in good faith, and the law affords them certain rights as discussed above. WHEREFORE, the petition is DENIED, the Decision of the Court of Appeals dated December 20, 2001 in CA-G.R. CV No. 33589 is AFFIRMED with the following MODIFICATIONS: 1. No co-ownership exists over Lot No. 12-C, covered by

ANTONI O T. CARPIO Associat e Justice Third Division, Chairperson

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

TCT No. 96886, between petitioners and respondents. 2. The case is REMANDED to the Regional Trial Court, REYNATO S. PUNO Chief Justice

Branch 15, Manila, for further proceedings without further delay to determine the facts essential to the proper application of Articles 448 and 546 of the Civil Code.

SO ORDERED.

DIOSDADO M. PERALTA Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING Associate Justice

ANTONIO T. CARPIO Associate Justice Chairperson

MINITA V. CHICO-NAZARIO Associate Justice

ROBERTO A. ABAD

Designated to sit as an additional member in lieu of Associate Justice Antonio Eduardo B. Nachura per Special Order No. 755 dated October 12, 2009. ** Designated to sit as an additional member in lieu of Associate Justice Presbitero J. Velasco, Jr. per Special Order No. 753 dated October 12, 2009. [1] Penned by Associate Justice Rebecca de Guia-Salvador, with Associate Justices Eugenio S. Labitoria and Teodoro P. Regino, concurring; rollo, pp. 29-35. [2] Id. at 52-55. [3] Records, p. 231. [4] Id. at 14-19. [5] Id. at 231. [6] Id. at 183. [7] Id. at 1-5. [8] Id. at 10-13. [9] In their answer, respondents referred to Francisco Ramos as Francisco Ramos, Sr. [10] Records, pp. 311-314. [11] Id. at 314. [12] Rollo, p. 27. [13] Id. at 29-35. [14] Id. at 9-25. [15] Vda. de Gualberto v. Go, G.R. No. 139843, July 21, 2005, 463 SCRA 671, 677.

[16]

Seville v. National Development Company, 403 Phil. 843, 859 (2001). [17] Tanenglian v. Lorenzo, G.R. No. 173415, March 28, 2008, 550 SCRA 348, 380. [18] Records, p. 239. [19] Id. at 183. [20] Fuentes v. Court of Appeals, 335 Phil. 1163, 1168 (1997). [21] New Civil Code, Art. 430. [22] Quimen v. Court of Appeals, 326 Phil. 969, 976 (1996), citing 3 Sanchez Roman 472. [23] New Civil Code, Art. 615. [24] New Civil Code, Art. 622. [25] TSN, May 9, 1990, pp. 13-15. [26] 74 Phil. 84 (1943). (Emphasis supplied). [27] Private Development Corporation of the Philippines v. Court of Appeals, G.R. No. 136897, November 22, 2005, 475 SCRA 591, 607. [28] Rollo, p. 55. [29] TSN, May 21, 1986. [30] Elvira T. Arangote v. Spouses Martin and Lourdes S. Maglunob, and Romeo Salido, G.R No. 178906, February 18, 2009; Heirs of Marcelino Cabal v. Cabal, G.R. No. 153625, July 31, 2006, 497 SCRA 301, 315-316. [31] New Civil Code, Art. 527; Ballatan v. Court of Appeals, 363 Phil. 408, 419 (1999). [32] Direct Examination of Ms. Rita Vda. de Ramos by Atty. Meneses, TSN, October 12, 1987, p. 11. Q: How about the land which was donated to the defendants therein, namely Lot No. 12-D, what happened to this land? A: That is where our house is located. Q: When did you construct your house on that land? A: Sometime in 1932. Q: And that house is still existing today? A: Yes, sir. [33] Records, p. 228. (Emphasis supplied.) [34] No. L-49219, April 15, 1988, 160 SCRA 379. [35] Spouses Del Campo v. Abesia, supra, at 382-383. [36] Id. at 383. [37] Ochoa v. Apeta, G.R. No. 146259, September 13, 2007, 533 SCRA 235, 241. [38] Philippine National Bank v. De Jesus, 458 Phil. 454, 459 (2003). [39] Tecnogas Philippines Manufacturing Corp. v. Court of Appeals, 335 Phil. 471, 482 (1997). [40] Rosales v. Castelltort, G.R No. 157044, October 5, 2005, 472 SCRA 144, 161.
[41]

The present case involves a dispute between parents and children. The children were invited by the parents to occupy the latters two lots, out of parental love and a desire to foster family solidarity. Unfortunately, an unresolved conflict terminated this situation. Out of pique, the parents asked them to vacate the premises. Thus, the children lost their right to remain on the property. They have the right, however, to be indemnified for the useful improvements that they constructed thereon in good faith and with the consent of the parents. In short, Article 448 of the Civil Code applies.

The Case
[1]

Before us is a Petition for Review under Rule 45 of the Rules [2] of Court, assailing the March 22, 2002 Decision and the June 26, [3] 2002 Resolution of the Court of Appeals (CA) in CA-GR SP Nos. 56205 & 56467. The challenged Decision disposed as follows: WHEREFORE, the assailed Decision is AFFIRMED with the following MODIFICATIONS: 1. Vicente and Rosario should reimburse Ismael and Teresita one-half of the value of the useful improvements introduced in the premises prior to demand, which is equivalent to P475,000.00. In case the former refuse to reimburse the said amount, the latter may remove the improvements, even though the land may suffer damage thereby. They shall not, however, cause any more impairment upon the property leased than is necessary. 2. The award of attorneys fees is DELETED.

3. The records of these consolidated cases are REMANDED to the Court of origin for further proceedings to determine the option to be taken by Vicente and Rosario and to implement the same with [4] dispatch. The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts
[5]

[G.R. Nos. 154391-92. September 30, 2004]

Petitioners Ismael and Teresita Macasaet and Respondents Vicente and Rosario Macasaet are first-degree relatives. Ismael is [6] the son of respondents, and Teresita is his wife. On December 10, 1997, the parents filed with the Municipal Trial Court in Cities (MTCC) of Lipa City an ejectment suit against the [7] children. Respondents alleged that they were the owners of two (2) parcels of land covered by Transfer Certificate of Title (TCT) Nos. T78521 and T-103141, situated at Banay-banay, Lipa City; that by way of a verbal lease agreement, Ismael and Teresita occupied these lots in March 1992 and used them as their residence and the situs of their construction business; and that despite repeated demands, [8] petitioners failed to pay the agreed rental of P500 per week.

Spouses ISMAEL and TERESITA MACASAET, petitioners, vs. Spouses VICENTE and ROSARIO MACASAET,respondents. DECISION PANGANIBAN, J.:

Ismael and Teresita denied the existence of any verbal lease agreement. They claimed that respondents had invited them to construct their residence and business on the subject lots in order that they could all live near one other, employ Marivic (the sister of [9] Ismael), and help in resolving the problems of the family. They added that it was the policy of respondents to allot the land they owned as an advance grant of inheritance in favor of their children. Thus, they contended that the lot covered by TCT No. T-103141 had been allotted to Ismael as advance inheritance. On the other hand, the lot covered by TCT No. T-78521 was allegedly given to petitioners as payment for construction materials used in the [10] renovation of respondents house. The MTCC ruled in favor of respondents and ordered petitioners to vacate the premises. It opined that Ismael and Teresita had occupied the lots, not by virtue of a verbal lease [12] agreement, but by tolerance of Vicente and Rosario. As their stay was by mere tolerance, petitioners were necessarily bound by an [13] implied promise to vacate the lots upon demand. The MTCC dismissed their contention that one lot had been allotted as an advance inheritance, on the ground that successional rights were inchoate. Moreover, it disbelieved petitioners allegation that the other parcel had been given as payment for construction [14] materials. On appeal, the regional trial court (RTC) upheld the findings of the MTCC. However, the RTC allowed respondents to appropriate the building and other improvements introduced by petitioners, after payment of the indemnity provided for by Article 448 in [16] relation to Articles 546 and 548 of the Civil Code. It added that respondents could oblige petitioners to purchase the land, unless its value was considerably more than the building. In the latter situation, petitioners should pay rent if respondents would not [17] choose to appropriate the building. Upon denial of their individual Motions for Reconsideration, the parties filed with the CA separate Petitions for Review, which [18] were later consolidated.
[15] [11]

Petitioners raise the following issues for our consideration: 1. a) Whether or not Section 17[,] Rule 70 of the Rules of Court on Judgment should apply in the rendition of the decision in this case; b) Whether or not the Complaint should have been dismissed; c) Whether or not damages including attorneys fees should have been awarded to herein petitioners; 2. a) Whether or not the rule on appearance of parties during the Pretrial should apply on appearance of parties during Preliminary Conference in an unlawful detainer suit; b) Whether or not the case of Philippine Pryce Assurance Corporation vs. Court of Appeals (230 SCRA 164) is applicable to appearance of parties in an unlawful detainer suit; 3. Whether or not Article 1678 of the Civil Code should apply to the case on the matters of improvements, or is it Article 447 of the Civil Code in relation to the Article 453 and 454 thereof that should apply, if ever to apply the Civil Code; 4. Whether or not the [D]ecision of the Court of Appeals is supported by evidence, appropriate laws, rules and jurisprudence; 5. Whether or not Assisting Judge Norberto Mercado of the MTCC Lipa City should be held accountable in rendering the MTCC [D]ecision; 6. Whether or not Atty. Glenn Mendoza and Atty. Andrew Linatoc of the same [l]aw office should be held accountable for pursuing the [26] *e+jectment case*.+

Ruling of the Court of Appeals

The Courts Ruling

The CA sustained the finding of the two lower courts that Ismael and Teresita had been occupying the subject lots only by the [19] tolerance of Vicente and Rosario. Thus, possession of the subject lots by petitioners became illegal upon their receipt of respondents [20] letter to vacate it. Citing Calubayan v. Pascual, the CA further ruled that petitioners status was analogous to that of a lessee or a tenant whose term of lease had expired, but whose occupancy continued [22] by tolerance of the owner. Consequently, in ascertaining the right of petitioners to be reimbursed for the improvements they had [23] introduced on respondents properties, the appellate court applied the Civil Codes provisions on lease. The CA modified the RTC Decision by declaring that Article 448 of the Civil Code was inapplicable. The CA opined that under Article 1678 of the same Code, Ismael and Teresita had the right to be reimbursed for one [24] half of the value of the improvements made. Not satisfied with the CAs ruling, petitioners brought this [25] recourse to this Court.
[21]

The Petition is partly meritorious.

First Issue: Ejectment

Who is entitled to the physical or material possession of the premises? At the outset, we stress that this is the main issue in [27] ejectment proceedings. In the present case, petitioners failed to justify their right to retain possession of the subject lots, which respondents own. Since possession is one of the attributes of [28] ownership, respondents clearly are entitled to physical or material possession.

Allegations of the Complaint

The Issues

Petitioners allege that they cannot be ejected from the lots, because respondents based their Complaint regarding the nonpayment of rentals on a verbal lease agreement, which the latter

failed to prove. Petitioners contend that the lower courts erred in using another ground (tolerance of possession) to eject them. In actions for unlawful detainer, possession that was originally lawful becomes unlawful upon the expiration or termination of the defendants right to possess, arising from an express or implied [30] contract. In other words, the plaintiffs cause of action comes from the expiration or termination of the defendants right to [31] continue possession. The case resulting therefrom must be filed within one year from the date of the last demand. To show a cause of action in an unlawful detainer, an allegation that the defendant is illegally withholding possession from the plaintiff is sufficient. The complaint may lie even if it does not employ the terminology of the law, provided the said pleading is couched in a language adequately stating that the withholding of [32] possession or the refusal to vacate has become unlawful. It is equally settled that the jurisdiction of the court, as well as the nature of the action, is determined from the averments of the [33] complaint. In the present case, the Complaint alleged that despite demands, petitioners refused to pay the accrued rentals and *to+ [34] vacate the leased premises. It prayed that judgment be rendered *o+rdering [petitioners] and all those claiming rights under them to vacate the properties x x x and remove the structures x x x [35] constructed thereon. Effectively then, respondents averred that petitioners original lawful occupation of the subject lots had become unlawful. The MTCC found sufficient cause to eject petitioners. While it disbelieved the existence of a verbal lease agreement, it nevertheless concluded that petitioners occupation of the subject lots was by mere tolerance of respondents. Basing its conclusion on the fact that the parties were close relatives, the MTCC ruled thus: x x x *T+he parties herein are first degree relatives. Because of this relationship, this Court takes judicial notice of the love, care, concern and protection imbued upon the parents towards their [children], i.e., in the instant case, the love, care, concern and protection of the [respondents] to the [petitioners]. With this in mind, this Court is inclined to believe the position of the [petitioners] that there was no such verbal lease agreement between the parties herein that took place in 1992. x x x. From the allegations of the *petitioners+, this Court is convinced that their stay and occupancy of the subject premises was by mere tolerance of the [respondents], and not by virtue of a verbal lease [36] agreement between them. Having found a cause of action for unlawful detainer, the MTCC (as well as the RTC and the CA) did not err in ordering the ejectment of petitioners as prayed for by respondents. There was [37] no violation of Section 17 of Rule 70 of the Rules of Court. As earlier explained, unlawful detainer was sufficiently alleged in the Complaint and duly proven during the trial. Significantly, the issue of whether there was enough ground to eject petitioners was raised [38] during the preliminary conference.

[29]

Petitioners dispute the lower courts finding that they occupied the subject lots on the basis of mere tolerance. They argue that their occupation was not under such condition, since respondents had invited, offered and persuaded them to use those [39] properties. This Court has consistently held that those who occupy the land of another at the latters tolerance or permission, without any contract between them, are necessarily bound by an implied promise that the occupants will vacate the property upon [40] demand. A summary action for ejectment is the proper remedy to [41] enforce this implied obligation. The unlawful deprivation or withholding of possession is to be counted from the date of the [42] demand to vacate. Toleration is defined as the act or practice of permitting or [43] enduring something not wholly approved of. Sarona v. [44] Villegas described what tolerated acts means, in this language: Professor Arturo M. Tolentino states that acts merely tolerated are those which by reason of neighborliness or familiarity, the owner of property allows his neighbor or another person to do on the property; they are generally those particular services or benefits which ones property can give to another without material injury or prejudice to the owner, who permits them out of friendship or courtesy. x x x. And, Tolentino continues, even though this is continued for a long time, no right will be acquired by prescription. x x x. Further expounding on the concept, Tolentino writes: There is tacit consent of the possessor to the acts which are merely tolerated. Thus, not every case of knowledge and silence on the part of the possessor can be considered mere tolerance. By virtue of tolerance that is considered as an authorization, permission or license, acts of possession are realized or performed. The question reduces itself to the existence or non-existence of the [45] permission. We hold that the facts of the present case rule out the finding of possession by mere tolerance. Petitioners were able to establish that respondents had invited them to occupy the subject lots in order that they could all live near one other and help in resolving [46] family problems. By occupying those lots, petitioners demonstrated their acceptance of the invitation. Hence, there was a meeting of minds, and an agreement regarding possession of the lots impliedly arose between the parties. The occupancy of the subject lots by petitioners was not merely something not wholly approved of by respondents. Neither did it arise from what Tolentino refers to as neighborliness or familiarity. In point of fact, their possession was upon the invitation of and with the complete approval of respondents, who desired that their children would occupy the premises. It arose from familial love and a desire for family solidarity, which are basic Filipino traits.

Right to Use the Lots Terminated

Not Merely Tolerated Possession

That Ismael and Teresita had a right to occupy the lots is therefore clear. The issue is the duration of possession. In the absence of a stipulation on this point, Article 1197 of the Civil Code allows the courts to fix the duration or the period.

Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. Article 1197, however, applies to a situation in which the parties intended a period. Such qualification cannot be inferred from the facts of the present case. To repeat, when Vicente and Rosario invited their children to use the lots, they did so out of parental love and a desire for solidarity expected from Filipino parents. No period was intended by the parties. Their mere failure to fix the duration of their agreement does not necessarily justify or authorize the courts to do [47] so. Based on respondents reasons for gratuitously allowing petitioners to use the lots, it can be safely concluded that the agreement subsisted as long as the parents and the children mutually benefited from the arrangement. Effectively, there is a [48] resolutory condition in such an agreement. Thus, when a change in the condition existing between the parties occurs -- like a change of ownership, necessity, death of either party or unresolved conflict or animosity -- the agreement may be deemed terminated. Having been based on parental love, the agreement would end upon the dissipation of the affection. When persistent conflict and animosity overtook the love and solidarity between the parents and the children, the purpose of the [49] agreement ceased. Thus, petitioners no longer had any cause for continued possession of the lots. Their right to use the properties became untenable. It ceased upon their receipt of the notice to vacate. And because they refused to heed the demand, ejectment was the proper remedy against them. Their possession, which was originally lawful, became unlawful when the reason therefor -- love and solidarity -- ceased to exist between them.

We also agree with the lower courts that petitioners failed to prove the allegation that, through a dation in payment, Lot T-78521 had been transferred to the latter as payment for respondents [52] debts. The evidence presented by petitioners related only to the alleged indebtedness of the parents arising from the latters [53] purported purchases and advances. There was no sufficient proof that respondents had entered into a contract of dation to settle the alleged debt. Petitioners even stated that there was a disagreement [54] in the accounting of the purported debt, a fact that disproves a meeting of the minds with the parents. Petitioners also admitted that a portion of the alleged debt is the subject matter of a collection case against respondents (Civil [55] Case No. 0594-96). Thus, the formers allegation that the indebtedness has been paid through a dation cannot be given credence, inconsistent as it is with their action to recover the same debt. Despite their protestations, petitioners recognized the right of the parents to recover the premises when they admitted in their Position Paper filed with the MTCC that respondents had a title to the lots. The *respondents+ want to get their property because the title is theirs, the [petitioners] do not object but what is due the [petitioners] including the reparation for the tarnish of their dignity and honor must be given the [petitioners] for the benefits of their [56] children before the premises will be turned over. As a rule, the right of ownership carries with it the right of possession.

Second Issue: Appearance at the Preliminary Conference

No Right to Retain Possession

Section 8 of Rule 70 of the Rules of Court requires the appearance of the plaintiff and the defendant during the preliminary conference. On the basis of this provision, petitioners claim that the MTCC should have dismissed the case upon the failure of respondents to attend the conference. However, petitioners do not dispute that an attorney-in-fact with a written authorization from [57] respondents appeared during the preliminary conference. The issue then is whether the rules on ejectment allow a representative to substitute for a partys personal appearance. Unless inconsistent with Rule 70, the provisions of Rule 18 on [58] pretrial applies to the preliminary conference. Under Section 4 of this Rule, the nonappearance of a party may be excused by the showing of a valid cause; or by the appearance of a representative, who has been fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution, and to enter into stipulations or admissions of facts and of [59] documents. Section 4 of Rule 18 may supplement Section 8 of Rule 70. Thus, the spirit behind the exception to personal appearance under the rules on pretrial is applicable to the preliminary conference. If there are valid reasons or if a representative has a special authority, a partys appearance may be waived. As petitioners are challenging only the applicability of the rules on pretrial to the rule on preliminary conference, the written authorization from respondents can indeed be readily considered as a special authorization.

Petitioners have not given this Court adequate reasons to reverse the lower courts dismissal of their contention that Lots T 78521 and T-103141, respectively, were allegedly allotted to them as part of their inheritance and given in consideration for past debts. The right of petitioners to inherit from their parents is merely inchoate and is vested only upon the latters demise. Indisputably, rights of succession are transmitted only from the moment of death [50] of the decedent. Assuming that there was an allotment of inheritance, ownership nonetheless remained with respondents. Moreover, an intention to confer title to certain persons in the future is not inconsistent with the owners taking back possession in the meantime for any reason deemed [51] sufficient. Other than their self-serving testimonies and their affidavits, petitioners offered no credible evidence to support their outlandish claim of inheritance allocation.

Third Issue: Rights of a Builder in Good Faith

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. This Court has ruled that this provision covers only cases in which the builders, sowers or planters believe themselves to be [65] owners of the land or, at least, to have a claim of title thereto. It does not apply when the interest is merely that of a holder, such as [66] a mere tenant, agent or usufructuary. From these pronouncements, good faith is identified by the belief that the land is owned; or that -- by some title -- one has the right to build, plant, [67] or sow thereon. However, in some special cases, this Court has used Article 448 by recognizing good faith beyond this limited definition. Thus, in Del [68] Campo v. Abesia, this provision was applied to one whose house - despite having been built at the time he was still co-owner -[69] overlapped with the land of another. This article was also applied to cases wherein a builder had constructed improvements with the consent of the owner. The Court ruled that the law deemed the [70] [71] builder to be in good faith. In Sarmiento v. Agana, the builders were found to be in good faith despite their reliance on the consent of another, whom they had mistakenly believed to be the owner of [72] the land. Based on the aforecited special cases, Article 448 applies to the present factual milieu. The established facts of this case show that respondents fully consented to the improvements introduced by petitioners. In fact, because the children occupied the lots upon their invitation, the parents certainly knew and approved of the [73] construction of the improvements introduced thereon. Thus, petitioners may be deemed to have been in good faith when they built the structures on those lots. The instant case is factually similar to Javier v. Javier. In that case, this Court deemed the son to be in good faith for building the improvement (the house) with the knowledge and consent of his father, to whom belonged the land upon which it was built. Thus, [75] Article 448 was applied.
[74]

As applied to the present case, accession refers to the right of the owner to everything that is incorporated or attached to the [60] property. Accession industrial -- building, planting and sowing on an immovable -- is governed by Articles 445 to 456 of the Civil Code.

Articles 447 and 1678 of the Civil Code Inapplicable

To buttress their claim of reimbursement for the improvements introduced on the property, petitioners cite Article [61] 447. They allege that the CA erred in applying Article 1678, since they had no lease agreement with respondents. We clarify. Article 447 is not applicable, because it relates to the rules that apply when the owner of the property uses the materials of another. It does not refer to the instance when a possessor builds on the property of another, which is the factual milieu here. In view of the unique factual setting of the instant case, the contention of petitioners regarding the inapplicability of Article 1678 deserves attention. The CA applied the provisions on lease, because it found their possession by mere tolerance comparable with that of [62] a lessee, per the pronouncement in Calubayan v. Pascual, from which we quote: x x x. It has been held that a person who occupies the land of another at the latters tolerance or permission, without any contract between them, is necessarily bound by an implied promise that he will vacate upon demand, failing which a summary action for ejectment is the proper remedy against them. The status of defendant is analogous to that of a lessee or tenant whose term of lease has expired but whose occupancy continued by tolerance of the owner. In such a case, the unlawful deprivation or withholding of possession is to be counted from the date of the demand to [63] vacate. (Emphasis in the original.) As explained earlier, Ismael and Teresitas possession of the two lots was not by mere tolerance, a circumstance that negates the applicability ofCalubayan.

Rule on Useful Expenses

The structures built by petitioners were useful improvements, because they augmented the value or income of the [76] bare lots. Thus, the indemnity to be paid by respondents under Article 448 is provided for by Article 546, which we quote: 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. Consequently, respondents have the right to appropriate -- as their own -- the building and other improvements on the subject lots, but only after (1) refunding the expenses of petitioners or (2) paying the increase in value acquired by the properties by reason thereof. They have the option to oblige petitioners to pay the price

Article 448 Applicable

On the other hand, when a person builds in good faith on the land of another, the applicable provision is Article 448, which [64] reads: Article 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

of the land, unless its value is considerably more than that of the structures -- in which case, petitioners shall pay reasonable rent. In accordance with Depra v. Dumlao, this case must be remanded to the trial court to determine matters necessary for the proper application of Article 448 in relation to Article 546. Such matters include the option that respondents would take and the amount of indemnity that they would pay, should they decide to appropriate the improvements on the lots. We disagree with the CAs computation of useful expenses, which were based only on [78] petitioners bare allegations in their Answer.
[77]

of the improvements, in which case petitioners shall pay reasonable rent based upon the terms provided under the Civil Code b. The value of the useful expenses incurred by Spouses Ismael and Rosita Macasaet in the construction of the improvements on the lots c. The increase in value acquired by the lots by reason of the useful improvements d. Spouses Vicente and Rosario Macasaets choice of type of indemnity to be paid (whether b or c)

Ruling on Improvement Justified e. Whether the value of the lots is considerably more than that of the improvements built thereon While, ordinarily, the jurisdiction of the MTCC on ejectment proceedings is limited to the issue of physical or material possession of the property in question, this Court finds it necessary to abbreviate the issue on the improvements in relation to Article 448. First, the determination of the parties right to those improvements is intimately connected with the MTCC proceedings in the light of the ejectment of petitioners. Second, there is no dispute that while they constructed the improvements, respondents owned the land. Third, both parties raised no objection when the RTC and the CA ruled accordingly on this matter. Equitable considerations compel us to settle this point immediately, pro hoc vice, to avoid needless delay. Both parties have already been heard on this issue; to dillydally or equivocate would not serve the cause of substantial justice. No pronouncement as to costs. SO ORDERED. Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

[1] [2]

Rollo, pp. 35-76.

Id., pp. 209-229. Ninth Division. Penned by Justice Mariano C. del Castillo, with the concurrence of Justices Ruben T. Reyes (Division chairman) and Renato C. Dacudao (member).
[3] [4]

Id., pp. 264-265. Assailed Decision, p. 20; rollo, p. 228. Also referred to as Rosita in some parts of the records. Id., pp. 2 & 210. Respondents Complaint; rollo, pp. 85-88.

Other Issues Raised

[5] [6]

Given the foregoing rulings, it is no longer necessary to address petitioners allegation that the MTCC judge and respondents lawyers should be respectively held personally [79] accountable for the Decision and for filing the case. The insinuation of petitioners that the lawyers manipulated the issuance [80] of a false barangay certification is unavailing. Their contention that respondents did not attend the barangay conciliation proceedings was based solely on hearsay, which has little or no [81] probative value. WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with the following MODIFICATIONS: 1. The portion requiring Spouses Vicente and Rosario Macasaet to reimburse one half of the value of the useful improvements, amounting to P475,000, and the right of Spouses Ismael and Rosita Macasaet to remove those improvements (if the former refuses to reimburse) is DELETED. 2. The case is REMANDED to the court of origin for further proceedings to determine the facts essential to the proper application of Articles 448 and 546 of the Civil Code, specifically to the following matters: a. Spouses Vicente and Rosario Macasaets option to appropriate -- as their own -- the improvements on the lots, after paying the indemnity, as provided under Article 546 in relation to Article 448 of the Civil Code; or in requiring Spouses Ismael and Rosita Macasaet to pay for the value of the lots, unless it is considerably more than that

[7] [8]

Assailed Decision, pp. 2-3; rollo, pp. 210-211. Respondents Complaint, pp. 1-2; rollo, pp. 85-86.
[9]

Id., pp. 3-4 & 211-212. Petitioners Answer with Compulsory Counterclaim, p. 4; rollo, p. 94.
[10] [11] [12]

Ibid. Presided by Assisting Judge Norberto P. Mercado.

Assailed Decision, pp. 5-6; rollo, pp. 213-214. MTCC Decision dated August 27, 1998, pp. 3-4; rollo, pp. 167-168.
[13] [14] [15] [16] [17] [18] [19] [20] [21]

Ibid. Ibid. Presided by Judge Jane Aurora C. Lantion. RTC Decision dated July 15, 1999, pp. 4-5; rollo, pp. 173-174. Ibid. Assailed Decision, p. 9; rollo, p. 217. Id., pp. 10 & 218. Id., pp. 11 & 219. 128 Phil. 160, September 18, 1967.

[22] [23] [24]

Ibid. Assailed Decision, p. 13; rollo, p. 221.

[43] [44] [45] [46]

Blacks Law Dictionary (8 ed., 1999), p. 1525. 131 Phil. 365, March 27, 1968. Id., pp. 372-373, per Sanchez, J.

th

The CA computed the total value of the improvements at P950,000, which represented the cost of constructing a onestorey structure (P700,000), the equipment necessary for the construction business (P130,000), and the cost of filling materials (P120,000). See Assailed Decision, p. 15; rollo, p. 223.
[25]

MTCC Decision, dated August 27, 1998, p. 3 (rollo, p. 167); RTC Decision, dated July 15, 1999, p. 2 (rollo, p. 171).
[47]

This case was deemed submitted for resolution on May 13, 2003, upon this Courts receipt of respondents Memorandum signed by Atty. Glenn P. Mendoza. Petitioners Memorandum, signed by Atty. Ismael H. Macasaet, was filed on April 14, 2003.
[26] [27]

Id., p. 198. The term may in Article 1197 connotes discretion on the part of the courts to exercise this power.
[48]

In an obligation with a resolutory condition, the extinguishment of the right acquired depends upon the occurrence of the event that constitutes the condition (Article 1181 of the Civil Code).
[49]

Petitioners Memorandum, p. 15; rollo, p. 432.

Rivera v. Rivera, 405 SCRA 466, 471, July 8, 2003; BalanonAnicete v. Balanon, 402 SCRA 514, 518, April 30, 2003; De Luna v. Court of Appeals, 212 SCRA 276, 278, August 6, 1992.
[28] [29] [30]

Co v. Militar, GR No. 149912, January 29, 2004. Petitioners Memorandum, p. 16; rollo, p. 433.

The records do not disclose the exact date when the conflict between petitioners and respondents arose. It can be readily assumed to have transpired not later than June 6, 1996, the date of petitioners demand letter, which became the subject of Civil Case No. 0594-96 (Demand Letter; rollo, p. 145). At any rate, an animosity between the parties was confirmed by respondents demand letter dated August 13, 1997, asking petitioners to vacate the subject lots (rollo, p. 89), and the subsequent filing of this case.
[50] [51] [52]

Varona v. Court of Appeals, GR No. 124148, May 20, 2004; Sarmiento v. Court of Appeals, 320 Phil. 146, 153, November 16, 1995; Sumulong v. Court of Appeals, 232 SCRA 372, May 10, 1994.
[31]

Art. 777 of the Civil Code. Caiza v. Court of Appeals, supra, p. 1118.

Sarmiento v. Court of Appeals, supra; Sumulong v. Court of Appeals, supra.

[32]

Varona v. Court of Appeals, supra; Caiza v. Court of Appeals, 335 Phil. 1107, 1115, February 24, 1997; Sumulong v. Court of Appeals, supra, p. 386.
[33]

Petitioners Memorandum, pp. 43-44; rollo, pp. 460-461. In a dation in payment, property is alienated to the creditor in satisfaction of a debt. Such contract is governed by the law on sales. Art. 1245 of the Civil Code.
[53] [54]

Ibid.

Lopez v. David, GR No. 152145, March 30, 2004; Arcal v. Court of Appeals, 348 Phil. 813, 823, January 26, 1998; Hilario v. Court of Appeals, 329 Phil. 202, 210, August 7, 1996; Sarmiento v. Court of Appeals, supra; Sumulong v. Court of Appeals, supra, p. 385.
[34] [35] [36] [37]

Respondents Complaint, p. 2; rollo, p. 86. Id., pp. 3 & 87. MTCC Decision dated August 27, 1998, pp. 3-4; rollo, pp. 167-168.

In the Affidavits submitted with their Position Paper, petitioners alleged that the execution of the Deed of Assignment did not occur, because their father had refused to agree to the accounting of the materials supplied. Petitioners Memorandum, pp. 45-46; rollo, pp. 462-463.
[55]

Petitioners Memorandum, p. 44; rollo, p. 461. The recovery of P235,908, which forms a significant part of respondents alleged P391,338 debt, is the subject matter of Civil Case No. 059496.
[56] [57]

Section 17. Judgment. If after the trial the court finds that the allegations of the complaint are true, it shall render judgment in favor of the plaintiff for the restitution of the premises, the sum justly due as arrears of rent or as reasonable compensation for the use and occupation of the premises, attorneys fees and costs. If it finds that said allegations are not true, it shall render judgment for the defendant to recover his costs. If a counterclaim is established, the court shall render judgment for the sum found in arrears from either party and award costs as justice requires.
[38]

Petitioners Position Paper, p. 3; rollo, p. 111.

MTCC Order on the Preliminary Conference dated July 30, 1998; rollo, p. 108.
[39] [40]

Petitioners Memorandum, p. 31; rollo, p. 448. Petitioner challenges the applicability of Philippine Pryce Assurance Corp. v. Court of Appeals (230 SCRA 164, 170, February 21, 1994 per Nocon, J.), in which this Court reiterated the rule that where a party may not himself be present at the pre-trial, and another person substitutes for him, or his lawyer undertakes to appear not only as an attorney but in substitution of the clients person, it is imperative for that representative or the lawyer to have special authority to enter into agreements which otherwise only the client has the capacity to make.
[58] [59]

Petitioners Memorandum, p. 22; rollo, p. 439.

8 of Rule 70 of the Rules of Court.

Rivera v. Rivera, 405 SCRA 466, 471, July 8, 2003; Pengson v. Ocampo Jr., 412 Phil. 860, 866, June 29, 2001; Arcal v. Court of Appeals, supra, p. 825; Refugia v.Court of Appeals, 327 Phil. 982, 1010, July 5, 1996; Dakudao v. Consolacion, 207 Phil. 750, 756, June 24, 1983.
[41] [42]

Ibid.

Lopez v. David, supra; Arcal v. Court of Appeals, supra, p. 825; Villaluz v. Court of Appeals, 344 Phil. 77, 89, September 5, 1997.

This rule on substitution of a party through a special authority can be traced to jurisprudential pronouncements. See Home Insurance Co. v. United States Lines Co., 129 Phil. 106, 109, November 15, 1967, in which this Court held that attorneys needed a special authority to compromise litigation. See also Development Bank of the Phils. v. Court of Appeals, 169 SCRA 409, 413, January 26, 1989, in which we noted that a special authority is imperative to make substantive agreements that, otherwise, only the client has capacity to make.

[60] [61] [62] [63] [64]

Jose C. Vitug, Civil Law Annotated (2003), Vol. II, p. 23. Petitioners Memorandum, pp. 33-37; rollo, pp. 450-454. Supra. Id., p. 163, per Angeles, J.

[79] [80] [81]

Petitioners Memorandum, pp. 49-51; rollo, pp. 466-468. Id., pp. 51 & 468.

See Depra v. Dumlao, 136 SCRA 475, 481, May 16, 1985, in which this Court explained the philosophy behind this provision.
[65]

Pada-Kilario v. Court of Appeals, 379 Phil. 515, 530, January 19, 2000; Chua v. Court of Appeals, 361 Phil. 308, 318, January 21, 1999; Balucanag v. Francisco, 207 Phil. 433, 438; Floreza v. Evangelista, 96 SCRA 130, 136, February 21, 1980; Quemuel v. Olaes, 111 Phil. 797, April 29, 1961; Alburo v. Villanueva, 7 Phil. 277, 280, January 2, 1907.
[66]

This contention was based on information from an alleged barangay councilor of Banay-banay that no conciliation had transpired on October 14, 1997, the scheduled date. Petitioner Teresita Macasaets Affidavit; rollo, p. 77. In a letter dated October 14, 1997, addressed to the barangay captain, it appears that petitioners waived their presence at the conciliation proceedings. Rollo, p. 103.

Chua v. Court of Appeals, supra; Balucanag v. Francisco, supra; Quemuel v. Olaes, supra; Alburo v. Villanueva, supra. See also th Edgardo L. Paras, Civil Code of the Philippines Annotated (14 ed., 1999), Vol. 2, p. 212. In Pecson v. Court of Appeals (314 Phil. 313, 322 per Davide, J.), this Court also ruled that 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.
[67]

G.R. No. L-57348 May 16, 1985 FRANCISCO DEPRA, plaintiff-appellee, vs. AGUSTIN DUMLAO, defendant-appellant. Roberto D. Dineros for plaintiff-appellee. Veil D. Hechanova for defendant-appellant.

Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines (1992), Vol. 2, p. 111.
[68] [69]

160 SCRA 379, 383, April 15, 1988. MELENCIO-HERRERA, J.: This is an appeal from the Order of the former Court of First Instance of Iloilo to the then Court of Appeals, which the latter certified to this instance as involving pure questions of law Plaintiff-appellee, Francisco Depra, is the owner of a parcel of land registered under Transfer Certificate of Title No. T3087, known as Lot No. 685, situated in the municipality of Dumangas, Iloilo, with an area of approximately 8,870 square meters. Agustin Dumlao, defendant-appellant, owns an adjoining lot, designated as Lot No. 683, with an approximate area of 231 sq. ms. Sometime in 1972, when DUMLAO constructed his house on his lot, the kitchen thereof had encroached on an area of thirty four (34) square meters of DEPRA's property, After the encroachment was discovered in a relocation survey of DEPRA's lot made on November 2,1972, his mother, Beatriz Depra after writing a demand letter asking DUMLAO to move back from his encroachment, filed an action for Unlawful Detainer on February 6,1973 against DUMLAO in the Municipal Court of of Dumangas, docketed as Civil Case No 1, Said complaint was later amended to include DEPRA as a party plain. plaintiff. After trial, the Municipal Court found that DUMLAO was a builder in good faith, and applying Article 448 of the Civil Code, rendered judgment on September 29, 1973, the dispositive portion of which reads: Ordering that a forced lease is created between the parties with the plaintiffs, as lessors, and the defendants as lessees, over the disputed portion with an area of thirty four (34) square meters, the rent to be paid is five (P5.00) pesos a month, payable by the lessee to the lessors within the

Id., pp. 382-383. Article 448 does not apply where a co-owner builds, plants, or sows on land owned in common, since such coowner does not do so on land that he or she does not own. See also Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines (1992), Vol. 2, p. 117.
[70]

De Guzman v. Fuente, 55 Phil. 501, 503, December 29, 1930; Aringo v. Arena, 14 Phil. 263, 268-269; Javier v. Javier, 7 Phil. 261, 267, January 2, 1907. [Cited in Edgardo L. Paras, Civil Code of the th Philippines Annotated (14 ed., 1999), Vol. 2, p. 211]; See also Boyer-Roxas v. Court of Appeals, 211 SCRA 470, 488, July 15, 1992.
[71] [72] [73]

129 SCRA 122, April 30, 1984. Id., p. 125.

The RTC observed that petitioners had merely been invited by the parents (respondents) to transfer to the premises. Considering that the parties were living near one other, it was readily assumed that respondents had known of the structures built and had not opposed their construction. RTC Decision dated July 15, 1999, p. 4; rollo, p. 173.
[74] [75] [76] [77]

Supra, note 70. Then Art. 361 of the Civil Code. Cabangis v. Court of Appeals, 200 SCRA 414, 420, August 9, 1991.

Supra. Also cited in National Housing Authority v. Grace Baptist Church, GR No. 156437, March 1, 2004; and Technogas Philippines Manufacturing v. Court of Appeals, 335 Phil. 471, 485, February 10, 1997.
[78]

Assailed Decision, p. 15; rollo, p. 223. This Court also notes that petitioners merely submitted a list of expenses with their corresponding costs, without showing any proof (e.g., actual receipts) that these costs had been incurred. Petitioners Position Paper, p. 15, rollo, p. 123; Itemized List of Materials, rollo, p. 588.

first five (5) days of the month the rent is due; and the lease shall commence on the day that this decision shall have become final. From the foregoing judgment, neither party appeal so that, ff it were a valid judgment, it would have ordinarily lapsed into finality, but even then, DEPRA did not accept payment of rentals so that DUMLAO deposited such rentals with the Municipal Court. On July 15,1974, DEPRA filed a Complaint for Quieting of Title against DUMLAO before the then Court of First Instance of Iloilo, Branch IV (Trial Court), involving the very same 34 square meters, which was the bone of contention in the Municipal Court. DUMLAO, in his Answer, admitted the encroachment but alleged, in the main, that the present suit is barred by res judicata by virtue of the Decision of the Municipal Court, which had become final and executory. After the case had been set for pre-trial, the parties submitted a Joint Motion for Judgment based on the Stipulation of Facts attached thereto. Premised thereon, the Trial Court on October 31, 1974, issued the assailed Order, decreeing: WHEREFORE, the Court finds and so holds that the thirty four (34) square meters subject of this litigation is part and parcel of Lot 685 of the Cadastral Survey of Dumangas of which the plaintiff is owner as evidenced by Transfer Certificate of Title No. 3087 and such plaintiff is entitled to possess the same. Without pronouncement as to costs. SO ORDERED. Rebutting the argument of res judicata relied upon by DUMLAO, DEPRA claims that the Decision of the Municipal Court was null and void ab initio because its jurisdiction is limited to the sole issue of possession, whereas decisions affecting lease, which is an encumbrance on real property, may only be rendered by Courts of First Instance. Addressing out selves to the issue of validity of the Decision of the Municipal Court, we hold the same to be null and void. The judgment in a detainer case is effective in respect of possession only 1 (Sec. 7, Rule 70, Rules of Court). The Municipal Court over-stepped its bounds when it imposed upon the parties a situation of "forced lease", which like "forced co-ownership" is not favored in law. Furthermore, a lease is an interest in real property, jurisdiction over which belongs to Courts of First Instance (now Regional Trial Courts) 2 (Sec. 44(b), Judiciary Act of 1948; Sec. 19 (2) Batas Pambansa Blg. 3 129). Since the Municipal Court, acted without jurisdiction, its Decision was null and void and cannot operate as res judicata to the subject complaint for Queting of Title. Besides, even if the Decision were valid, the rule on res judicata would not apply due to difference in cause of action. In the Municipal Court, the cause of action was the deprivation of possession, while in the action to quiet title, the cause of action was based on ownership. Furthermore, Sec. 7, Rule 70 of the Rules of Court explicitly provides that judgment in a detainer case "shall not bar an action between the same parties 4 respecting title to the land. "

Conceded in the Stipulation of Facts between the parties is that DUMLAO was a builder in good faith. Thus, 8. That the subject matter in the unlawful detainer case, Civil Case No. 1, before the Municipal Court of Dumangas, Iloilo involves the same subject matter in the present case, the Thirty-four (34) square meters portion of land and built thereon in good faith is a portion of defendant's kitchen and has been in the possession of the defendant since 1952 continuously up to the present; ... (Emphasis ours) Consistent with the principle that our Court system, like any other, must be a dispute resolving mechanism, we accord legal effect to the agreement of the parties, within the context of their mutual concession and stipulation. They have, thereby, chosen a legal formula to resolve their dispute to appeal ply to DUMLAO the rights of a "builder in good faith" and to DEPRA those of a "landowner in good faith" as prescribed in Article 448. Hence, we shall refrain from further examining whether the factual situations of DUMLAO and DEPRA conform to the juridical positions respectively defined by law, for a "builder in good faith" under Article 448, a "possessor in good faith" under Article 526 and a "landowner in good faith' under Article 448. In regards to builders in good faith, Article 448 of the Civil Code provides: ART. 448. The owner of the land on which anything has been built sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof (Paragraphing supplied) Pursuant to the foregoing provision, DEPRA has the option either to pay for the encroaching part of DUMLAO's kitchen, or to sell the encroached 34 square meters of his lot to DUMLAO. He cannot refuse to pay for the encroaching part of the building, and to sell the 5 encroached part of his land, as he had manifested before the Municipal Court. But that manifestation is not binding because it was made in a void proceeding.

However, the good faith of DUMLAO is part of the Stipulation of Facts in the Court of First Instance. It was thus error for the Trial Court to have ruled that DEPRA is "entitled to possession," without more, of the disputed portion implying thereby that he is entitled to have the kitchen removed. He is entitled to such removal only when, after having chosen to sell his encroached land, DUMLAO fails to pay 6 for the same. In this case, DUMLAO had expressed his willingness to pay for the land, but DEPRA refused to sell. The owner of the building erected in good faith on a land owned by another, is entitled to retain the possession of the land until he is paid the value of his building, under article 453 (now Article 546). The owner of the land, upon the other hand, has the option, under article 361 (now Article 448), either to pay for the building or to sell his land to the owner of the building. But he cannot as respondents here did refuse both to pay for the building and to sell the land and compel the owner of the building to remove it from the land where it erected. He is entitled to such remotion only when, after having chosen to sell his land. the other party fails to pay for the same (italics ours). We hold, therefore, that the order of Judge Natividad compelling defendants-petitioners to remove their buildings from the land belonging to plaintiffs-respondents only because the latter chose neither to pay for such buildings nor to sell the land, is null and void, for it amends substantially the judgment sought to be executed and is. furthermore, offensive to articles 361 (now Article 448) and 453 (now Article 546) of the Civil Code. (Ignacio vs. Hilario, 76 Phil. 605, 608[1946]). A word anent the philosophy behind Article 448 of the Civil rode. The original provision was found in Article 361 of the Spanish Civil Code; which provided: ART. 361. The owner of land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the work, sowing or planting, after the payment of the indemnity stated in Articles 453 and 454, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. As will be seen, the Article favors the owner of the land, by giving him one of the two options mentioned in the Article. Some commentators have questioned the preference in favor of the owner of the land, but Manresa's opinion is that the Article is just and fair. . . . es justa la facultad que el codigo da al dueno del suelo en el articulo 361, en el caso de edificacion o plantacion? Algunos comentaristas la conceptuan injusta, y como un extraordinario privilegio en favor de la propiedad territorial. Entienden que impone el Codigo una pena al

poseedor de buena fe y como advierte uno de los comentaristas aludidos 'no se ve claro el por que de tal pena . . . al obligar al que obro de buena fe a quedarse con el edificio o plantacion, previo el pago del terreno que ocupa, porque si bien es verdad que cuando edifico o planto demostro con este hecho, que queria para si el edificio o plantio tambien lo es que el que edifico o planto de buena fe lo hizo en la erronea inteligencia de creerse dueno del terreno Posible es que, de saber lo contrario, y de tener noticia de que habia que comprar y pagar el terreno, no se hubiera decidido a plantar ni a edificar. La ley obligandole a hacerlo fuerza su voluntad, y la fuerza por un hecho inocente de que no debe ser responsable'. Asi podra suceder pero la realidad es que con ese hecho voluntario, aunque sea inocente, se ha enriquecido torticeramente con perjuicio de otro a quien es justo indemnizarle, En nuestra opinion, el Codigo ha resuelto el conflicto de la manera mas justa y equitativa y respetando en lo possible el principio que para la 7 accesion se establece en el art. 358. Our own Code Commission must have taken account of the objections to Article 361 of the Spanish Civil Code. Hence, the Commission provided a modification thereof, and Article 448 of our Code has been made to provide: ART. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. Additional benefits were extended to the builder but the landowner retained his options. The fairness of the rules in Article 448 has also been explained as follows: Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced 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 for the proper rent. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing. (3 Manresa 213; Bernardo vs. Bataclan, 37 Off. Gaz. 1382; Co Tao vs. Chan Chico, G.R. No. 49167, April 30, 1949; Article applied: see Cabral, et al vs. Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs. Velasco, [C.A.] 8 52 Off. Gaz. 2050). WHEREFORE, the judgment of the trial Court is hereby set aside, and this case is hereby ordered remanded to the Regional Trial Court of Iloilo for further proceedings consistent with Articles 448 and 546 of the Civil Code, as follows: 1. The trial Court shall determine a) the present fair price of DEPRA's 34 square meter area of land; b) the amount of the expenses spent by DUMLAO for the building of the kitchen; c) the increase in value ("plus value") which the said area of 34 square meters may have acquired by reason thereof, and d) whether the value of said area of land is considerably more than that of the kitchen built thereon. 2. After said amounts shall have been determined by competent evidence, the Regional, Trial Court shall render judgment, as follows: a) The trial Court shall grant DEPRA a period of fifteen (15) days within which to exercise his option under the law (Article 448, Civil Code), whether to appropriate the kitchen as his own by paying to DUMLAO either the amount of tile expenses spent by DUMLAO f or the building of the kitchen, or the increase in value ("plus value") which the said area of 34 square meters may have acquired by reason thereof, or to oblige DUMLAO to pay the price of said area. The amounts to be respectively paid by DUMLAO and DEPRA, in accordance with the option thus exercised by written notice of the other party and to the Court, shall be paid by the obligor within fifteen (15) days from such notice of the option by tendering the amount to the Court in favor of the party entitled to receive it; b) The trial Court shall further order that if DEPRA exercises the option to oblige DUMLAO to pay the price of the land but the latter rejects such purchase because, as found by the trial Court, the value of the land is considerably more than that of the kitchen, DUMLAO shall give written notice of such rejection to DEPRA and to the Court within fifteen (15) days from notice of

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

BRIONES, Petitioners, Footnotes 1 "Rule 70 Forcible Entry and Detainer "Sec. 7. Judgment conclusive only on possession; not conclusive in actions involving title or ownership. The judgment rendered in an action for forcible entry or detainer shall be effective with respect to the possession only and in no wise bind the title or affect the ownership of the land or building. Such judgment shall not bar an action between the same parties respecting title to the land or building, nor shall it be held conclusive of the facts therein found in a case between the same parties upon a different cause of action not involving possession." 2 "Sec. 44. Original jurisdiction. ... (b) In all civil actions which involve the title to, or possession of real property, or any interest therein, or the legality of any tax, impose or assessment, except actions of forcible entry into and detainer on lands or buildings, original jurisdiction of which is conferred by this Act upon city and municipal courts; " 3 "Sec. 19. Jurisdiction in civil ease ... (2) In all civil actions which involve the title to, or possession of, real property, or any interest therein, except actions for forcible entry into and unlawful detainer of lands or buildings, original jurisdiction over which is conferred upon Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts; 4 Supra. 5 Ignacio vs. Hilario, 76 Phil. 605 (1946). 6 Ibid. 7 3 Manresa, 7th Ed., pp. 300-301. 8 II Tolentino, Civil Code of the Philippines, 1963 ed., p. 97. * Mr. Justice Hugo E. Gutierrez, Jr. took no part, having been one of the two members of a Court of Appeals' Division of Five Justices who dissented from the majority opinion certifying this case to this Court. Sometime in 1984, after obtaining the necessary building permit and the approval of Vergon, petitioners constructed a house on Lot No. 2-R which they thought was Lot No. 2-S. After being informed of the mix up by Vergons manager, respondent-spouses immediately demanded petitioners to demolish the house and vacate the property. Petitioners, however, refused to heed their demand. Thus, respondent-spouses filed an action to recover ownership and possession of the said parcel of land with the RTC of Makati City.
[3]

Present: CARPIO MORALES, J., Chairperson, BRION, BERSAMIN, * ABAD, and VILLARAMA, JR., JJ.

- versus -

JOSE MACABAGDAL, FE D. MACABAGDAL and VERGON Promulgated: REALTY INVESTMENTS CORPORATION, August 3, 2010 Respondents. x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION VILLARAMA, JR., J.:

On appeal under Rule 45 of the 1997 Rules of Civil Procedure, as amended, is the Decision
[2] [1]

dated December 11, 2000

of the Court of Appeals (CA) in CA-G.R. CV No. 48109 which affirmed the September 29, 1993 Decision of the Regional Trial Court (RTC) of Makati City, Branch 135, ordering petitioners Luciano and Nelly Briones to remove the improvements they have made on the disputed property or to pay respondent-spouses Jose and Fe Macabagdal the prevailing price of the land as compensation.

The undisputed factual antecedents of the case are as follows:

Respondent-spouses purchased from Vergon Realty Investments Corporation (Vergon) Lot No. 2-R, a 325-square-meter land located in Vergonville Subdivision No. 10 at Las Pias City, Metro Manila and covered by Transfer Certificate of Title No. 62181 of the Registry of Deeds of Pasay City. On the other hand, petitioners are the owners of Lot No. 2-S, which is adjacent to Lot No. 2-R.

Petitioners insisted that the lot on which they constructed their house was the lot which was consistently pointed to them as LUCIANO BRIONES and NELLY G.R. No. 150666

theirs by Vergons agents over the seven (7)-year period they were paying for the lot. They interposed the defense of being buyers in good faith and impleaded Vergon as third-party defendant claiming that because of the warranty against eviction, they were entitled to indemnity from Vergon in case the suit is decided against them.
[4]

of counterclaim, which is also proven by the latter with a mere preponderance of evidence, and are hereby ordered to pay the sum of P20,000.00 as compensatory damage; and attorneys fees in the sum of P10,000.00 [5] SO ORDERED.

On appeal, the CA affirmed the RTCs finding that the lot The RTC ruled in favor of respondent-spouses and found that petitioners house was undoubtedly built on Lot No. 2-R. The dispositive portion of the trial courts decision reads as follows: PREMISES CONSIDERED, let judgment be rendered declaring, to wit: 1. That plaintiffs are the owners of Lot No. 2-R of subdivision plan (LRC) Psd-147392 at Vergonville Subdivision, No. 10, Las Pias, Metro Manila covered by TCT No. 62181 of the Registry of Deeds of Pasay City on which defendants have constructed their house; 2. Defendants, jointly and severally, are ordered to demolish their house and vacate the premises and return the possession of the portion of Lot No. 2-R as above-described to plaintiffs within thirty (30) days from receipt of this decision, or in the alternative, plaintiffs should be compensated by defendants, jointly and severally, by the payment of the prevailing price of the lot involved as Lot No. 2-R with an area of 325 square meters which should not be less than P1,500.00 per square meter, in consideration of the fact that prices of real estate properties in the area concerned have increased rapidly; 3. Defendants, jointly and severally, pay to plaintiffs for moral damages with plaintiffs plans and dreams of building their own house on their own lot being severely shattered and frustrated due to defendants incursion as interlopers of Lot No. 2-R in the sum of P50,000.00; 4. Defendants, jointly and severally, to pay plaintiffs in the amount of P30,000.00 as attorneys fees; and, 5. to pay the costs of the proceedings. Defendants counterclaim against plaintiffs is dismissed for lack of merit and with no cause of action. Defendants third-party complaint against third-party defendant Vergonville Realty and Investments Corporation is likewise ordered dismissed for lack of cause of action and evidently without merit. On the other hand, defendants, jointly and severally, are liable for the litigation expenses incurred by Vergonville Realty by way upon which petitioners built their house was not the one (1) which Vergon sold to them. Based on the documentary evidence, such as the titles of the two (2) lots, the contracts to sell, and the survey report made by the geodetic engineer, petitioners house was built on the lot of the respondent-spouses. There was no basis to presume that the error was Vergons fault. Also the warranty against eviction under Article 1548 of the Civil Code was not applicable as there was no deprivation of property: the lot on which petitioners built their house was not the lot sold to them by Vergon, which remained vacant and ready for occupation. The CA further ruled that petitioners cannot use the defense of allegedly being a purchaser in good faith for wrongful occupation of land.
[8] [7] [6]

Aggrieved, petitioners filed a motion for reconsideration, but it was denied by the appellate court. review on certiorari. Petitioners raise the following assignment of errors: I. THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE CONTRARY TO LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT IN AFFIRMING THE DECISION OF THE TRIAL COURT ORDERING PETITIONERS TO DEMOLISH THEIR ONLY HOUSE AND VACATE THE LOT AND TO PAY MORAL AND COMPENSATORY DAMAGES AS WELL AS ATTORNEYS FEE IN THE TOTAL AMOUNT OF PS[P] 110,000; AND II. THE COURT OF APPEALS SANCTIONED THE DEPARTURE OF THE LOWER COURT FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF [10] THE POWER OF SUPERVISION.
[9]

Hence, this petition for

In the main, it is petitioners position that they must not bear the damage alone. Petitioners insist that they relied with full faith and confidence in the reputation of Vergons agents when they pointed the wrong property to them. Even the President of Vergon, Felix Gonzales, consented to the construction of the house when he signed the building permit. faith.
[12] [11]

Also, petitioners are builders in good

The petition is partly meritorious.

can compel the landowner to make a choice between appropriating the building by paying the proper indemnity or obliging the builder to pay the price of the land. The choice belongs to the owner of the land, a rule that accords with the principle of accession, i.e., that the accessory follows the principal and not the other way
[16]

At the outset, we note that petitioners raise factual issues, which are beyond the scope of a petition for review on certiorariunder Rule 45 of the Rules. Well settled is the rule that the jurisdiction of this Court in cases brought to it from the CA via a petition for review on certiorari under Rule 45 is limited to the review of errors of law. The Court is not bound to weigh all over again the evidence adduced by the parties, particularly where the findings of both the trial court and the appellate court coincide. The resolution of factual issues is a function of the trial court whose findings on these matters are, as a general rule, binding on this Court, more so where these have been affirmed by the CA.
[13]

around. However, even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. He must choose one. He cannot, for instance, compel the owner of the building to remove the building from the land without first exercising either option. It is only if the owner chooses to sell his land, and the builder or planter fails to purchase it where its value is not more than the value of the improvements, that the owner may remove the improvements from the land. The owner is entitled to such remotion only when, after having chosen to sell his land, the other party fails to pay for the same.
[17]

We

note that the CA and RTC did not overlook or fail to appreciate any material circumstance which, when properly considered, would have altered the result of the case. Indeed, it is beyond cavil that petitioners mistakenly constructed their house on Lot No. 2-R which they thought was Lot No. 2-S.

Moreover, petitioners have the right to be indemnified for the necessary and useful expenses they may have made on the subject property. Articles 546 and 548 of the Civil Code provide,

However, the conclusiveness of the factual findings notwithstanding, we find that the trial court nonetheless erred in outrightly ordering petitioners to vacate the subject property or to pay respondent spouses the prevailing price of the land as compensation. Article 527
[14]

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. ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good faith; but he may remove the ornaments with which he has embellished the principal thing if it suffers no injury thereby, and if his successor in the possession does not prefer to refund the amount expended.

of the Civil Code presumes good faith,

and since no proof exists to show that the mistake was done by petitioners in bad faith, the latter should be presumed to have built the house in good faith. When a person builds in good faith on the land of another, Article 448 of the Civil Code governs. Said article 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. (Emphasis ours.)

Consequently, the respondent-spouses have the option to appropriate the house on the subject land after payment to petitioners of the appropriate indemnity or to oblige petitioners to pay the price of the land, unless its value is considerably more than the value of the structures, in which case petitioners shall pay reasonable rent.
[18]

In accordance with Depra v. Dumlao,

this case must be

remanded to the RTC which shall conduct the appropriate The above-cited article covers cases in which the builders, sowers or planters believe themselves to be owners of the land or, at least, to have a claim of title thereto.
[15]

proceedings to assess the respective values of the improvement and of the land, as well as the amounts of reasonable rentals and indemnity, fix the terms of the lease if the parties so agree, and to

The builder in good faith

determine other matters necessary for the proper application of Article 448, in relation to Articles 546 and 548, of the Civil Code.

following, the body of the trial courts decision was devoid of any statement regarding attorneys fees. In Scott Consultants &
[22]

Resource Development Corporation, Inc. v. Court of Appeals, As to the liability of Vergon, petitioners failed to present sufficient evidence to show negligence on Vergons part. Petitioners claim is obviously one (1) for tort, governed by Article 2176 of the Civil Code, which provides: ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. (Emphasis ours.)

we

reiterated that attorneys fees are not to be awarded every time a party wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil Codedemands factual, legal, and equitable justification; its basis cannot be left to speculation or conjecture. Where granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorneys fees.

WHEREFORE, the Decision dated December 11, 2000 of the Court of Appeals in CA-G.R. CV No. 48109 is AFFIRMEDWITH MODIFICATION. The award of moral damages in favor of respondent-spouses Jose and Fe Macabagdal and the award of compensatory damages and attorneys fees to respondent Vergon Realty Investments Corporation are DELETED. The case isREMANDED to the Regional Trial Court of Makati City, Branch 135, for further proceedings consistent with the proper application of Articles 448, 546 and 548 of the Civil Code, as follows:

Under this provision, it is the plaintiff who has to prove by a preponderance of evidence: (1) the damages suffered by the plaintiff; (2) the fault or negligence of the defendant or some other person for whose act he must respond; and (3) the connection of cause and effect between the fault or negligence and the damages incurred.
[19]

This the petitioners failed to do. The President of

Vergon signed the building permit as a precondition for its approval by the local government, but it did not guarantee that petitioners were constructing the structure within the metes and bounds of petitioners lot. The signature of the President of Vergon on the building permit merely proved that petitioners were authorized to make constructions within the subdivision project of Vergon. And while petitioners acted in good faith in building their house on Lot No. 2-R, petitioners did not show by what authority the agents or employees of Vergon were acting when they pointed to the lot where the construction was made nor was petitioners claim on this matter corroborated by sufficient evidence. 2. After said amounts shall have been determined by competent a. The trial court shall grant the respondent-spouses a period of fifteen (15) days within which to exercise their option under Article 448 of the Civil Code, whether to appropriate the house as their own by paying to petitioners either the amount of the expenses spent by petitioners for the building of the house, or the increase in value (plus value) which the said lot may have acquired by reason thereof, or to oblige petitioners to pay the price of said land. The amounts to be respectively paid by the respondentspouses and petitioners, 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 evidence, the Regional Trial Court shall render judgment, as follows: One (1) last note on the award of damages. Considering that petitioners acted in good faith in building their house on the subject property of the respondent-spouses, there is no basis for the award of moral damages to respondent-spouses. Likewise, the Court deletes the award to Vergon of compensatory damages and attorneys fees for the litigation expenses Vergon had incurred as such amounts were not specifically prayed for in its Answer to petitioners third-party complaint. Under Article 2208
[20]

1.

The trial court shall determine: a. b. c. d. the present fair price of the respondent-spouses lot; the amount of the expenses spent by petitioners for the building of their house; the increase in value (plus value) which the said lot may have acquired by reason thereof; and whether the value of said land is considerably more than that of the house built thereon.

of the Civil

Code, attorneys fees and expenses of litigation are recoverable only in the concept of actual damages, not as moral damages nor judicial costs. Hence, such must be specifically prayed foras was not done in this caseand may not be deemed incorporated within a general prayer for such other relief and remedy as this court may deem just and equitable.
[21]

It must also be noted that aside from the

by tendering the amount to the Court in favor of the party entitled to receive it; b. The trial court shall further order that if the respondent-spouses exercises the option to oblige petitioners 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 house, petitioners shall give written notice of such rejection to the respondent-spouses and to the Court within fifteen (15) days from notice of the respondent-spouses option to sell the land. In that event, the parties shall be given a period of fifteen (15) days from such notice of rejection within which to agree upon the terms of the lease, and give the Court formal written notice of such agreement and its provisos. If no agreement is reached by the parties, the trial court, within fifteen (15) days from and after the termination of the said period fixed for negotiation, shall then fix the terms of the lease, 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 petitioners have occupied the subject area. The rental thus fixed shall be increased by ten percent (10%) for the second year of the forced lease. Petitioners shall not make any further constructions or improvements on the house. Upon expiration of the two (2)-year period, or upon default by petitioners in the payment of rentals for two (2) consecutive months, the respondent-spouses shall be entitled to terminate the forced lease, to recover their land, and to have the house removed by petitioners or at the latters expense. The rentals herein provided shall be tendered by petitioners to the Court for payment to the respondent-spouses, and such tender shall constitute evidence of whether or not compliance was made within the period fixed by the Court. c. In any event, petitioners shall pay the respondentspouses reasonable compensation for the occupancy of the respondent-spouses land for the period counted from the year petitioners occupied the subject area, up to the commencement date of the forced lease referred to in the preceding paragraph; d. The periods to be fixed by the trial court in its Decision shall be inextendible, and upon failure of the WE CONCUR:

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.

CONCHITA CARPIO MORALES Associate Justice Chairperson

ARTURO D. BRION Associate Justice

ROBERTO A. ABAD Associate Justice

ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

CONCHITA CARPIO MORALES Associate Justice Chairperson, Third Division

CERTIFICATION Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA Chief Justice