Property-Cases Vol 3

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CASE 1

EN BANC

G.R. No. L-21783 November 29, 1969

PACIFIC FARMS, INC.,Plaintiff-Appellee, vs. SIMPLICIO G. ESGUERRA, ET AL., defendants,CARRIED LUMBER COMPANY,Defendant-Appellant.

CASTRO,J.:

Before us for review, on appeal by the defendant Carried Lumber Company (hereinafter referred to as theCompany), is the decision, dated May 30, 1962, of the Court of First Instance of Pangasinan in civil case D-1317, annulling the levy and certificate of sale covering six buildings owned by the plaintiff Pacific Farms,Inc., executed by the defendant deputy provincial sheriff Simplicio G. Esguerra in favor of the Company tosatisfy a money judgment against the Insular Farms, Inc., the plaintiff's predecessor-in-interest over thesaid buildings.

The environmental setting is uncontroverted.

On several occasions from October 1, 1956 to March 2, 1957 the Company sold and delivered lumber and

construction materials to the Insular Farms, Inc. which the latter used in the construction of theaforementioned six buildings at its compound in Bolinao, Pangasinan, of the total procurement price ofP15,000, the sum of P4,710.18 has not been paid by Insular Farms, Inc. Consequently, on October 17,1958 the Company instituted civil case D-775 with the Court of First Instance of Pangasinan to recover thesaid unpaid balance from the Insular Farms, Inc. On August 23, 1961 the trial court rendered judgmentsustaining the Company's claim. The judgment debtor did not appeal; so on December 19, 1961 thecorresponding writ of execution was issued. On January 16, 1962 the defendant sheriff levied upon the sixbuildings. On January 30, 1962 the Pacific Farms, Inc. filed a third-party claim, subscribed by its corporatepresident, asserting ownership over the levied buildings which it had acquired from the Insular Farms, Incby virtue of a deed of absolute sale executed on March 21, 1958, about seven months before the Companyfiled the above-mentioned action (civil case D-775). Shielded by an indemnity bond of P7,120 put up bythe Company and the Cosmopolitan Insurance Company, Inc., the sheriff proceeded with the announcedpublic auction on February 12, 1962 and sold the levied buildings to the Company for P6,110.78.

Asserting absolute and exclusive ownership of the buildings in question, the Pacific Farms, Inc. filed acomplaint on May 14, 1962 against the Company and the sheriff with the court a quo, praying that

judgment be rendered, (a) declaring null and void the levy and judicial sale of the six buildings, and (b)adjudging the defendants jointly and severally liable to the plaintiff in the sum of P2,000 by way of actuadamages and for such amount as the court may deem proper and just to impose by way of exemplarydamages and for costs of the suit.

After due trial, the court a quo on May 30, 1963 rendered judgment annulling the levy of January 16, 1962and the certificate of sale of February 12, 1962. The court, however, denied the plaintiff's claim for actuaand exemplary damages on the ground that it was not "prepared to find that there was gross negligenceor BAD FAITH on the part of any of the defendants."

Hence this appeal, imputing errors which, according to the appellant's formulation, are the following:

1. The lower court erred in holding that the credit of the defendant-appellant, Carried Lumber Company,against the Insular Farms, Inc., consisting of the value of lumber and construction materials used in thebuildings which were later acquired by the Pacific Farms, Inc., the appellee, was not a statutory lien onthose buildings; .

2. The lower court, likewise, erred in holding that the doctrine laid down in De Barretto, et al. vs.Villanueva, et al. (G.R. No. L-14938, December 29, 1962) is applicable to the facts of this case as found bysaid court; and .

Property Bachelor of Laws II-A 1Volume 3


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3. The lower court erred, finally, in declaring that the sale at public auction conducted by the defendandeputy provincial sheriff of Pangasinan, covering the six buildings described in the certificate of sale datedFebruary 12, 1962, was null and void.

1. In ruling against the appellant below, the trial court relied mainly on the resolution (on the motion forreconsideration) promulgated on December 29, 1962 by this Court in De Barretto, et al. vs. Villanueva, etal., L-14938 (6 SCRA 928). The said case, however, is inapplicable because it concerned not one but two ormore preferred creditors who, pursuant to articles 2242 and 2249 of the Civil Code, must necessarily beconvened and the nature and extent of their respective claims ascertained. Thus, we held that before

there can be a pro rata payment of credits entitled to preference as to the same specific real property,there must first be some proceeding where the claims of all the preferred creditors may be bindinglyadjudicated, such as insolvency, the settlement of a decedent's estate under Rule 87 of the Rules of Court,or liquidation proceedings of similar import.

But the case before us does not involve a question of preference of credits, and is not one where two ormore creditors have separate and distinct claims against the same debtor who has insufficient property.Indeed, it is a matter of necessity and logic that the question of preference should arise only where thedebtor cannot pay his debts in full. For, if debtor A is able in full to pay all his three creditors, B, C, and D,how can the need arise for determining which of the three creditors shall be paid first or whether they shalbe paid out of the proceeds of a specific property?

2. It is undenied and undeniable that the appellant furnished lumber and construction materials to the

Insular Farms, Inc. (the appellee's predecessor-in-interest) which the latter used in the construction of thesix buildings. Likewise unchallenged is the lower court's factual finding that out of the total procurementprice of P15,000, the amount of P4,710.18 remains outstanding and unpaid by the Insular Farms, Inc. Theappellant is therefore an unpaid furnisher of materials.

Whether there exists a materialman's lien over the six buildings in favor of the appellant, is a question wedo not here decide. To our mind the application by analogy of the rules of accession would suffice for a justadjudication.

Article 447 of the Civil Code1 provides:

The owner of the land who makes thereon personally or through another, plantings, constructions or workswith the materials of another, shall pay their value; and, if he acted in BAD FAITH, he shall also be obligedto the reparation of damages. The owner of the materials shall have the right to remove them only in casehe can do so without injury to the work constructed, or without the plantings, constructions or works beingdestroyed. However, if the landowner acted in BAD FAITH, the owner of the materials may remove themin any event with a right to be indemnified for damages.

The abovequoted legal provision contemplates a principal and an accessory, the land being considered theprincipal, and the plantings, constructions or works, the accessory. The owner of the land who in GOODFAITH - whether personally or through another - makes constructions or works thereon, using materialsbelonging to somebody else, becomes the owner of the said materials with the obligation however ofpraying for their value.2 The owner of the materials, on the other hand, is entitled to remove them,provided no substantial injury is caused to the landowner. Otherwise, he has the right to reimbursementfor the value of his materials.

Although it does not appear from the records of this case that the land upon which the six buildings werebuilt is owned by the appellee, nevertheless, that the appellee claims that it owns the six buildingsconstructed out of the lumber and construction materials furnished by the appellant, is indubitable

Therefore, applying article 447 by analogy, we perforce consider the buildings as the principal and thelumber and construction materials that went into their construction as the accessory. Thus the appellee, ifit does own the six buildings, must bear the obligation to pay for the value of the said materials; theappellant - which apparently has no desire to remove the materials, and, even if it were minded to do so,cannot remove them without necessarily damaging the buildings - has the corresponding right to recoverthe value of the unpaid lumber and construction materials.



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Well-established in jurisprudence is the rule that compensation should be borne by the person who hasbeen benefited by the accession.3 No doubt, the appellee benefited from the accession, i.e., from thelumber and materials that went into the construction of the six buildings. It should therefore shoulder thecompensation due to the appellant as unpaid furnisher of materials.

Of course, the character of a buyer in GOOD FAITH and for value, if really possessed by the appellee,could possibly exonerate it from making compensation.

But the appellee's stance that it is an innocent purchaser for value and in GOOD FAITH is open to grave

doubt because of certain facts of substantial import (evident from the records) that cannot escape notice.

In the deed of absolute sale, exhibit 1, the Insular Farms, Inc. (vendor) was represented in the contract byits president, J. Antonio Araneta. The latter was a director of the appellee (Pacific Farms, Inc.) and was thecounsel who signed the complaint filed by the appellee in the court below. J. Antonio Araneta wastherefore, not only the president of the Insular Farms, Inc. but also a director and counsel of the appellee.

During the trial of civil case D-775 the Insular Farms, Inc. was represented by Attorney Amado Santiago, Jrof the law firm of J. Antonio Araneta. The latter was one of the counsels of the Pacific Farms, Inc. Theappellee cannot claim ignorance of the pendency of civil case D-775 because the Insular Farms, Inc. wasdefended by the same lawyer from the same law firm that commenced the present action. J. AntonioAraneta, as counsel for the Pacific Farms, Inc., cannot close his eyes to facts of which he as president ofthe Insular Farms, Inc. had actual knowledge. Significantly, exhibit 1 (supra) itself shows that the Insular

Farms, Inc. and the Pacific Farms, Inc. were housed in adjacent rooms (nos. 304 and 303, respectively), ofthe same building, the Insular Life Building, as early as March 21, 1958.

It is reasonable therefore to conclude that the appellee, through its director and counsel, J. AntonioAraneta, knew about the unpaid balance of the purchase price of the lumber and construction materialssupplied or furnished by the appellant to the Insular Farms, Inc.

Parenthetically, it is likewise worth our attention that despite the appellee's knowledge of the suitinstituted by the appellant against the Insular Farms, Inc. (the appellee's predecessor-in-interest) for therecovery of the unpaid balance of the purchase price of the lumber and materials used in the constructionof its six buildings, it merely folded its arms in disinterest and waited, so to speak. Not until a decision wasrendered therein in favor of the appellant, a writ of execution issued, and the six buildings levied upon bythe sheriff, did it file a third-party claim over the levied buildings. In the face of the knowledge that itspredecessor-in-interest had not fully paid for the lumber and construction materials used in the sixbuildings it had purchased, its natural and expected reaction should have been to intervene in the suitfiled by the appellant against the Insular Farms, Inc. and hold the latter to account for breach of thewarranties deemed included in the deed of absolute sale conveying said building to it.

Curiously enough, although the six buildings in question were supposedly sold by the Insular Farms to theappellee on March 21, 1958, as evidenced by the deed of absolute sale (exhibit 1), about seven monthsbefore the appellant filed civil case D-775, the Insular Farms, Inc. never moved to implead the appelleetherein as a necessary party-defendant, and remained completely and strangely silent about the sale. It isnot amiss to surmise that it is entirely possible that the Insular Farms, Inc. and the appellee chose toremain silent in the hope that the appellant's claim against the Insular Farms, Inc. in civil case D-775 wouldbe dismissed or non-suited.

Moreover, the appellee was in a better position to protect its interest. It knew that the Insular Farms, Inc.,its predecessor-in-interest, was a mere lessee of the premises on which the buildings were located. Thisshould have placed it on guard and compelled it to ascertain the circumstances surrounding theconstruction of the said buildings on the premises.

On the other hand, the appellant was not as advantageously situated as the appellee. There being noseparate registry of property for buildings and no procedure provided by law for registering or annotatingthe claim of an unpaid furnisher of materials, it was helpless to prevent the sale of the property built fromlumber and construction materials it furnished. But certainly, because it has a right, pursuant to article447, supra, to reimbursement for the value of its unpaid materials, the appellant could pursue any remedy



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available to it under the law in order to enforce the said right. Thus, the appellant acted correctly inbringing an action (D-775) against the Insular Farms, Inc. and enforcing its right of reimbursement throughthe execution of the final judgment it obtained in the said case against the six buildings in the possessionof the appellee who now stands to benefit therefrom. It follows, as a necessary corollary, that the sale atpublic auction conducted by the defendant sheriff of the six buildings described in the certificate of saledated February 12, 1962, exhibit 7, was valid and effective.

ACCORDINGLY, the judgment a quo is reversed, and the complaint is hereby dismissed.

In view, however, of the equities clearly attendant in this case, it is the sense of this Court that theplaintiff-appellee Pacific Farms, Inc. should be, as it is hereby, granted a period of thirty (30) days from thedate this judgment becomes final, within which it may exercise the option of redeeming the six buildings,by paying to the defendant-appellant Carried Lumber Company the sum of P4,710.18, with legal interestfrom September 23, 1961 (the date the judgment in civil case D-775 became final), until the said amountshall have been fully paid.

No pronouncement as to costs.

CASE 2

Republic of the Philippines

SUPREME COURTManila

EN BANC

G.R. No. L-35648 February 27, 1987

PERSHING TAN QUETO, Petitioner, vs. COURT OF APPEALS, JUAN POMBUENA and RESTITUTATACALINAR GUANGCO DE POMBUENA, Respondents.

R E S O L U T I O N

PARAS,J.:

This is a Motion for Reconsideration of the decision dated May 16,1983 of this Court * in the above-entitledcase, asking for the reversal of said decision on the following grounds:

1. Decison erred in disregarding the fact that Lot No. 304-B was registered in the name of the husband,Juan Pombuena, as per OCT. No. 0-1160 issued pursuant to the November 22, 1938 Decision (Exhibit 3) ofthe Cadastral Court in Cadastral Case No. 12, G.L.R.O. Cad. Rec. No. 1638, and that petitioner had the rightto relyon said OCT;

2. The Decision erred in misinterpreting the admission in the Answer of petitioner to the complaint in the

unlawful detainer Case No. 448 (City Court of Ozamiz City) as his admission that Lot 304-B is theparaphernal property of the wife, Restituta Tacalinar;

3. The Decision erred in reforming the Contract of Sale (Exh. B) of Lot 304-B from Basilides Tacalinar(mother) to the respondent, Restituta Tacalinar Guangco de Pombuena, from a sale to a conveyance of theshare of the wifeRestituta Tacalinar (daughter) in the future hereditary estate of her parents;

4. The Decision erred in over-looking that the barter agreement is an onerous contract of exchange,whereby private respondents-spouses received valuable consideration, concessions and other benefitstherefor and in concluding that 'the barter agreement has no effect;



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5. The Decision erred in disregarding the fact that petitioner constructed his concrete building on Lot No304-B inGOOD FAITHrelying OCT No. 0-1160, afterthe dismissal of the ejectment case and only aftertheexecution of said barter agreement;

6. The Decision erred in confusing the conclusion of law that petitioner is a builder in BAD FAITH witha finding of fact. The rule is that questions of law are reviewable on appeal or by certiorari. Moreover, therule on finding of fact is subject to well-settled exceptions. (pp. 257-258, Rollo)

It wig be recalled that the undisputed relevant facts indicate:

(1) that Restituta Tacalinar Guanaco de Pombuena (RESTITUTA, for short) received the questioned lot (no304-B), of the Cadastre Survey of the Municipality of Centro, Mizamis Occidental, either as a purporteddonation or by way of purchase on (February 11, 1927) (with P50.00) as the alleged consideration thereof;

(2) that the transaction took place during her mother's lifetime, her father having predeceased themother;

(3) that the donation or sale was consummated while RESTITUTA was already married to her husband JuanPombuena (JUAN, for short);

(4) that on January 22, 1935, JUAN filed for himself and his supposed co-owner RESTITUTA an application

for a Torrens Title over the land;

(5) that under date of November 22, 1938 a decision was promulgated in GLRC No. 1638 (Cadastral CaseNo. 12) pronouncing JUAN ('married to RESTITUTA') as the owner of the land;

(6) that on September 22, 1949 a contract of lease over the lot was entered into between Pershing TanQueto (TAN QUETO, for short, the herein petitioner) and RESTITUTA (with the consent of her husband

JUAN) for a period of ten (10) years;

(7) that on December 27, 1960 RESTITUTA sued TAN QUETO for unlawful detainer (the lease contracthaving expired) before the Municipal Court of Ozamis City;

(8) that as a consequence of the cadastral case, an Original Certificate of Title (Exh. 10) was issued in

JUAN's name ("married to RESTITUTA") on April 22, 1962;

(9) that the unlawful detainer case was won by the spouses in the Municipal Court; but on appeal in theCourt of First Instance, the entire case was DISMISSED because of an understanding (barter) whereby TANQUETO became the owner of the disputed lot, and the spouses RESTITUTA and JUAN in turn became theowners of a parcel of land (with the house constructed thereon) previously owned (that is, before thebarter) by TAN QUETO;

(10) that after the barter agreement dated October 10, 1962 between JUAN and TAN QUETO, the latterconstructed (See p. 257, Rollo, Vol. II) on the disputed land a concrete building, without any objection onthe part of RESTITUTA;

(11) that later, RESTITUTA sued both JUAN and TAN QUETO for reconveyance of the title over theregistered but disputed lot, for annulment of the barter, and for recovery of the land with damages.

The two principal issues are clearly the following:

(1) Is the questioned lotparaphernal or conjugal?

(2) In having constructed the building on the lot, should TAN QUETO be regarded as a builder in GOODFAITH(and hence entitled to reimbursement) or a builder in BAD FAITH(with no right toreimbursement)?



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The finding by both the Court of First Instance and the Court of Appeals that the disputed lot iparaphernal and that TAN QUETO is a builder in BAD FAITH were regarded by Us in Our assailed decisionas findings of facts and thus ordinarily conclusive on Us. Assuming they are factual findings, still if they areerroneous inferences from certain facts, they cannot bind this Court.

A second hard look at the circumstances of the case has constrained Us to rule as follows:

(1) The land is conjugal, not paraphernal. How was ownership transferred, if at all, from her mother toRESTITUTA? The oral donation of the lot cannot be a valid donation interviews because it was not executed

in a public instrument (Art. 749, Civil Code), nor as a valid donation mortis causa for the formalities of awill were not complied with. The allegation that the transfer was a conveyance to RESTITUTA of herhereditary share in the estate of her mother (or parents) cannot be sustained for the contractuatransmission offuture inheritance is generally prohibited.

The fact is ownership was acquired by bothJUAN and RESTITUTA by tradition (delivery) as a consequenceof the contract of sale (See Art. 712, Civil Code) with P50.00 (then a considerable amount) as the cause orconsideration of the transaction. The lot is therefore conjugal, having been acquired by the spousesthru onerous title (the money used being presumably conjugal there being no proof that RESTITUTA hadparaphernal funds of her own). The contention that the sale was fictitious or simulated (and therefore void)is bankrupt. Firstly, there was a valid consideration therefor. Secondly, assuming that there had indeedbeen a simulation, the parties thereto cannot use said simulation to prejudice a stranger to said stratagem(like petitioner herein).

One nagging question has been posed. But did not TAN QUETO admit in his Answer that RESTITUTA wasthe owner of the lot. This is not so. He admitted RESTITUTA was an owner" (not the owner) of the lot, andthis is true, for she was a co-owner (with JUAN, and therefore "an owner. " Surely, there is no admission ofRESTITUTA's exclusive ownership. And yet this is the basis of the trial court's conclusion that the lot wasindeed paraphernal.

(2) Was Tan Queto a possessor and builder in GOOD FAITH or in BAD FAITH?

Even assuming that despite registration of the lot as conjugal, Tan Queto nursed the belief that the lot wasactually RESTITUTA's (making him in BAD FAITH), still RESTITUTA's failure to prohibit him from buildingdespite her knowledge that construction was actually being done, makes her also in BAD FAITH. The netresultant of mutual BAD FAITH would entitle TAN QUETO to the rights of a builder in GOOD FAITH (Art448, Civil Code), ergo, reimbursement should be given him if RESTITUTA decides to appropriate thebuilding for herself (Art. 448, Civil Code).

However, as already previously intimated, TAN QUETO having bartered his own lot and small house withthe questioned lot with JUAN (who has been adverted to by a court decision and by the OCT a conjugaowner) may be said to be the OWNER-POSSESSOR of the lot. Certainly he is not merely a possessoror builder in GOOD FAITH(this phrase presupposes ownership in another); much less is he a buildeinBAD FAITH. He is a builder-possessor jus possidendi because he is the OWNER himself. Please note thatthe Chapter on Possession (jus possesionis, not jus possidendi) in the Civil Code refers to apossessor otherthan the owner. Please note further that the difference between a builder (or possessor) inGOOD FAITH and one in BAD FAITH is that the former is NOT AWARE of the defect or flaw in his title ormode of acquisition while the latter is AWARE of such defect or flaw (Art. 526, Civil Code). But in either

case there is a flaw or defect. In the case of TAN QUETO there is no such flaw or defect because it is hehimself (not somebody else) who is the owner of the property.

WHEREFORE, Our decision promulgated on May 16,1983 is hereby SET ASIDE, and a new one is herebyrendered declaring the questioned lot together with the building thereone, as TAN QUETO's exclusiveproperty. No costs..

SO ORDERED.



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CASE 3

THIRD DIVISION

G.R. No. 79688. February 1, 1996

PLEASANTVILLE DEVELOPMENT CORPORATION, Petitioner, vs.COURT OF APPEALS, WILSON KEE,C.T. TORRES ENTERPRISES, INC. and ELDRED JARDINICO, Respondent.

D E C I S I O N

PANGANIBAN,J.:

Is a lot buyer who constructs improvements on the wrong property erroneously delivered by the ownersagent, a builder in GOOD FAITH? This is the main issue resolved in this petition for review on certiorari toreverse the Decision1 of the Court of Appeals2 in CA-G.R. SP No. 11040, promulgated on August 20, 1987.

By resolution dated November 13, 1995, the First Division of this Court resolved to transfer this case(along with several others) to the Third Division. After due deliberation and consultation, the Courtassigned the writing of this Decision to the undersignedponente.

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 atTaculing Road, Pleasantville Subdivision, Bacolod City. In 1975, respondent Eldred Jardinico bought therights to the lot from Robillo. At that time, Lot 9 was vacant.

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Upon completing all payments, Jardinico secured from the Register of Deeds of Bacolod City on December19, 1978 Transfer Certificate of Title No. 106367 in his name. It was then that he discovered thatimprovements 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.TTorres Enterprises, Inc. (CTTEI), the exclusive real estate agent of petitioner. Under the Contract to Sell onInstallment, Kee could possess the lot even before the completion of all installment payments. On January20, 1975, Kee paid CTTEI the relocation fee of P50.00 and another P50.00 on January 27, 1975, for thepreparation of the lot plan. These amounts were paid prior to Kees taking actual possession of Lot 8. After

the preparation of the lot plan and a copy thereof given to Kee, CTTEI through its employee, ZenaidaOctaviano, accompanied Kees wife, Donabelle Kee, to inspect Lot 8. Unfortunately, the parcel of landpointed by Octaviano was Lot 9. Thereafter, Kee proceeded to construct his residence, a store, an autorepair shop and other improvements on the lot.

After discovering that Lot 9 was occupied by Kee, Jardinico confronted him. The parties tried to reach anamicable settlement, but failed.

On January 30, 1981, Jardinicos lawyer wrote Kee, demanding that the latter remove all improvements andvacate Lot 9. When Kee refused to vacate Lot 9, Jardinico filed with the Municipal Trial Court in Cities,Branch 3, Bacolod City (MTCC), a complaint for ejectment with damages against Kee.

Kee, in turn, filed a third-party complaint against petitioner and CTTEI.

The MTCC held that the erroneous delivery of Lot 9 to Kee was attributable to CTTEI. It further ruled thatpetitioner and CTTEI could not successfully invoke as a defense the failure of Kee to give notice of hisintention to begin construction required under paragraph 22 of the Contract to Sell on Installment and hishaving built a sari-sari store without. the prior approval of petitioner required under paragraph 26 of saidcontract, saying that the purpose of these requirements was merely to regulate the type of improvementsto be constructed on the lot3 .

However, the MTCC found that petitioner had already rescinded its contract with Kee over Lot 8 for thelatters failure to pay the installments due, and that Kee had not contested the rescission. The rescissionwas effected in 1979, before the complaint was instituted. The MTCC concluded that Kee no longer hadany right over the lot subject of the contract between him and petitioner. Consequently, Kee must payreasonable rentals for the use of Lot 9, and, furthermore, he cannot claim reimbursement for theimprovements he introduced on said lot.

The MTCC thus disposed:

"IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered as follows:

1. Defendant Wilson Kee is ordered to vacate tithe premises of Lot 9, covered by TCT No. 106367 and toremove all structures and improvements he introduced thereon;

2. Defendant Wilson Kee is ordered to pay to the plaintiff rentals at the rate of P 15.00 a day computedfrom the time this suit was filed on March 12, 1981 until he actually vacates the premises. This amountshall bear interests (sic) at the rate of 12 per cent (sic) per annum.

3. Third-Party Defendant CT. Torres Enterprises, Inc. and Pleasantville Subdivision are ordered to pay theplaintiff jointly and severally the sum of P3,000.00 as attorneys fees and P700.00 as cost and litigationexpenses."4

On appeal, the Regional Trial Court, Branch 48, Bacolod City (RTC) ruled that petitioner and CTTEI were notat fault or were not negligent, there being no preponderant evidence to show that they directlyparticipated in the delivery of Lot 9 to Kee.5 It found Kee a builder in BAD FAITH. It further ruled thateven assuming arguendo that Kee was acting in GOOD FAITH, he was, nonetheless, guilty of unlawfully

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usurping the possessory right of Jardinico over Lot 9 from the time he was served with notice to vacatesaid 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 tovacate the premises of Lot No. 9 covered by Transfer Certificate of Title No. T-106367 of the land recordsof Bacolod City; the removal of all structures and improvements introduced thereon at his expense and thepayment to plaintiff (sic) the sum of Fifteen (P 15.00) Pesos a day as reasonable rental to be computed

from January 30, 1981, the date of the demand, and not from the date of the filing of the complaint, untilhe 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 asattorneys fees, plus costs of litigation.

"The third-party complaint against Third-Party Defendants Pleasantville Development Corporation and C.TTorres Enterprises, Inc. is dismissed. The order against Third-Party Defendants to pay attorneys fees toplaintiff and costs of litigation is reversed."6

Following the denial of his motion for reconsideration on October 20, 1986, Kee appealed directly to theSupreme 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 wasdue 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 asfollows:

1. Wilson Kee is declared a builder in GOOD FAITH with respect to the improvements he introduced on Lot9, 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 aresolidarily liable under the following circumstances:

a. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove thesestructures, the third-party defendants shall answer for all demolition expenses and the valueof the improvements thus destroyed or rendered useless;

b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for theamount 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 areordered to pay in solidum the amount of P3,000.00 to Jardinico as attorneys 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 theimprovements and the property (Lot 9), as well as for further proceedings in conformity with Article 448 ofthe New Civil Code."7

Petitioner then filed the instant petition against Kee, Jardinico and CTTEI.



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The Issues

The petition submitted the following grounds to justify a review of the respondent Courts Decision, asfollows:

"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 topay 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 grantingto private respondent-Kee the rights of a builder in GOOD FAITH in excess of what the law provides, thusenriching 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, itbecomes 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 inBAD 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 thelaw;

"6. The award of attorneys fees is clearly without basis and is equivalent to putting a premium in (sic)court litigation."

From these grounds, the issues could be re-stated as follows:

(1) Was Kee a builder in GOOD FAITH?

(2) What is the liability, if any, of petitioner and its agent, C.T. Torres Enterprises, Inc.? and

(3) Is the award of attorneys fees proper?

The First Issue: GOOD FAITH

Petitioner contends that the Court of Appeals erred in reversing the RTCs ruling that Kee was a builder inBAD FAITH.

Petitioner fails to persuade this Court to abandon the findings and conclusions of the Court of Appeals thatKee 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 thewrong property to Wilson Kee and his wife. It is highly improbable that a purchaser of a lot wouldknowingly 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 mentionthe social humiliation that would follow.

"Under the circumstances, Kee had acted in the manner of a prudent man in ascertaining the identity ofhis property. Lot 8 is covered by Transfer Certificate of Title No. T-69561, while Lot 9 is identified in

Transfer Certificate of Title No. T-106367. Hence, under the Torrens system of land registration, Kee ispresumed to have knowledge of the metes and bounds of the property with which he is dealing. x x x

xxx xxx xxx



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"But as Kee is a layman not versed in the technical description of his property, he had to find a way toascertain that what was described in TCT No. 69561 matched Lot 8. Thus, he went to the subdivisiondevelopers agent and applied and paid for the relocation of the lot, as well as for the production of a lotplan by CTTEIs geodetic engineer. Upon Kees receipt of the map, his wife went to the subdivision siteaccompanied by CTTEIs employee, Octaviano, who authoritatively declared that the land she was pointingto was indeed Lot 8. Having full faith and confidence in the reputation of CTTEI, and because of thecompanys positive identification of the property, Kee saw no reason to suspect that there had been amisdelivery. The steps Kee had taken to protect his interests were reasonable. There was no need for himto have acted ex-abundantia cautela, such as being present during the geodetic engineers relocationsurvey or hiring an independent geodetic engineer to countercheck for errors, for the final delivery ofsubdivision lots to their owners is part of the regular course of everyday business of CTTEI. Because ofCTTEIs blunder, what Kee had hoped to forestall did in fact transpire. Kees efforts all went to naught."8

GOOD FAITH consists in the belief of the builder that the land he is building on is his and his ignorance ofany defect or flaw in his title.9And as GOOD FAITH is presumed, petitioner has the burden of provingBAD FAITH on the part of Kee.10

At the time he built improvements on Lot 8, Kee believed that said lot was what he bought from petitionerHe was not aware that the lot delivered to him was not Lot 8. Thus, Kees GOOD FAITH. Petitioner failed toprove otherwise.

To demonstrate Kees BAD FAITH, petitioner points to Kees violation of paragraphs 22 and 26 of the

Contract of Sale on Installment.

We disagree. Such violations have no bearing whatsoever on whether Kee was a builder in GOOD FAITHthat is, on his state of mind at the time he built the improvements on Lot 9. These alleged violations maygive rise to petitioners cause of action against Kee under the said contract (contractual breach), but maynot be bases to negate the presumption that Kee was a builder in GOOD FAITH.

Petitioner also points out that, as found by the trial court, the Contract of Sale on Installment covering Lot8 between it and Kee was rescinded long before the present action was instituted. This has no relevanceon the liability of petitioner, as such fact does not negate the negligence of its agent in pointing out thewrong lot to Kee. Such circumstance is relevant only as it gives Jardinico a cause of action for unlawfudetainer 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 personallyexamined or inspected the property made subject-matter hereof, as to its location, contours, as well as thenatural condition of the lots and from the date hereof whatever consequential change therein made due toerosion, the said Vendee shall bear the expenses of the necessary fillings, when the same is so desired byhim/her."11

The subject matter of this provision of the contract is the change of the location, contour and condition ofthe lot due to erosion. It merely provides that the vendee, having examined the property prior to theexecution 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 recoverdamages resulting from petitioners negligence. Such waiver would be contrary to public policy and cannotbe allowed. "Rights may be waived, unless the waiver is contrary to law, public order, public policy, moralsor good customs, or prejudicial to a third person with a right recognized by law."12

The Second Issue: Petitioners Liability

Kee filed a third-party complaint against petitioner and CTTEI, which was dismissed by the RTC after rulingthat there was no evidence from which fault or negligence on the part of petitioner and CTTEI can be

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inferred. The Court of Appeals disagreed and found CTTEI negligent for the erroneous delivery of the lot byOctaviano, its employee.

Petitioner does not dispute the fact that CTTEI was its agent. But it contends that the erroneous delivery ofLot 9 to Kee was an act which was clearly outside the scope of its authority, and consequently, CTTEI aloneshould be liable. It asserts that "while [CTTEI] was authorized to sell the lot belonging to the hereinpetitioner, it was never authorized to deliver the wrong lot to Kee."13

Petitioners contention is without merit.

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

CTTEI was acting within its authority as the sole real estate representative of petitioner when it made thedelivery to Kee. In acting within its scope of authority, it was, however, negligent. It is this negligence thatis the basis of petitioners 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 intoa deed of sale, wherein the former sold Lot 9 to Kee. Jardinico and Kee did not inform the Court of Appealsof 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 ofAppeals, regardless of the outcome of the decision shall be mutually disregarded and shall not be pursuedby the parties herein and shall be considered dismissed and without effect whatsoever;16

Kee asserts though that the "terms and conditions in said deed of sale are strictly for the parties thereto"and that "(t)here is no waiver made by either of the parties in said deed of whatever favorable judgment oraward the honorable respondent Court of Appeals may make in their favor against herein petitionerPleasantville Development Corporation and/or private respondent C.T. Torres Enterprises, Inc."17

Obviously, the deed of sale can have no effect on the liability of petitioner. As we have earlier stated,

petitioners liability is grounded on the negligence of its agent. On the other hand, what the deed of saleregulates are the reciprocal rights of Kee and Jardinico; it stressed that they had reached an agreementindependent 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 aresolidarily liable under the following circumstances:

"a. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove thesestructures, the third-party defendants shall answer for all demolition expenses and the valueof the improvements thus destroyed or rendered useless;

"b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for theamount representing the value of Lot 9 that Kee should pay to Jardinico."18

Petitioner contends that if the above holding would be carried out, Kee would be unjustly enriched at itsexpense. In other words, Kee would be -able to own the lot, as buyer, without having to pay anything on itbecause the aforequoted portion of respondent Courts Decision would require petitioner and CTTEI jointlyand solidarily to "answer" or reimburse Kee there for.

We agree with petitioner.

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Petitioners liability lies in the negligence of its agent CTTEI. For such negligence, the petitioner should beheld liable for damages. Now, the extent and/or amount of damages to be awarded is a factual issue whichshould be determined after evidence is adduced. However, there is no showing that such evidence wasactually presented in the trial court; hence no damages could now be awarded.

The rights of Kee and Jardinico vis-a-vis each other, as builder in GOOD FAITH and owner in GOODFAITH, respectively, are regulated by law(i.e., Arts. 448, 546 and 548 of the Civil Code). It was error forthe 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 dispositiveportion of the Court of Appeals Decision [as reproduced above] holding petitioner and CTTEI solidarilyliable.

The Third Issue: Attorneys Fees

The MTCC awarded Jardinico attorneys fees and costs in the amount of P3,000.00 and P700.00respectively, as prayed for in his complaint. The RTC deleted the award, consistent with its ruling thatpetitioner was without fault or negligence. The Court of Appeals, however, reinstated the award ofattorneys fees after ruling that petitioner was liable for its agents negligence.

The award of attorneys fees lies within the discretion of the court and depends upon the circumstances ofeach case.19 We shall not interfere with the discretion of the Court of Appeals. Jardinico was compelled to

litigate for the protection of his interests and for the recovery of damages sustained as a result of thenegligence of petitioners agent.20

In sum, we rule that Kee is a builder in GOOD FAITH. The disposition of the Court of Appeals that Kee "isentitled to the rights granted him under Articles 448, 546 and 548 of the New Civil Code" is deleted, inview of the deed of sale entered into by Kee and Jardinico, which deed now governs the rights of Jardinicoand Kee as to each other. There is also no further need, as ruled by the appellate Court, to remand thecase 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 MODIFIEDas follows:

(1) Wilson Kee is declared a builder in GOOD FAITH;

(2) Petitioner Pleasantville Development Corporation and respondent C.T. Tones Enterprises, Inc. aredeclared solidarily liable for damages due to negligence; however, since the amount and/orextent of such damages was not proven during the trial, the same cannot now be quantified andawarded;

(3) Petitioner Pleasantville Develpment Corporation and respondent C.T. Torres Enterprises, Inc. areordered to pay in solidum the amount of P3,000.00 to Jardinico as attorneys fees, as well aslitigation expenses; and

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

SO ORDERED.



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CASE 4

EN BANC

G.R. No. L-23509 June 23, 1966

NATY BALTAZAR, ET AL., plaintiffs and appellees, vs. SILVINA CARIDAD, ET AL., defendants andappellants.

REYES, J.B.L.,J.:

Appeal against an order, issued by the Court of First Instance of Ilocos Norte, in its Cadastral Case No. 54,CLRO Cad. Case No. 1222, compelling respondents Silvina Caridad and Eduarda Caridad to remove theirrespective houses built on the southern portion of Lot No. 8864 within thirty days from receipt of saidorder. Respondents originally interposed the present appeal to the Court of Appeals, where it wasdocketed as its CA-G.R. No. 31289-R. The appellate court, however, certified the appeal to this Court forraising only questions of law.

The facts are not in dispute, and are as follows:

In the cadastral proceeding above stated, the trial court rendered decision, dated January 23, 1941,

awarding said Lot No. 8864 of the Laoag (Ilocos Norte) cadastre to the spouses Julio Baltazar andConstancia Valencia as their conjugal partnership property. Said decision having become final, thecorresponding decree was issued on July 12, 1941, and pursuant thereto, said lot was registered in thenames of applicant spouses under Original Certificate of Title No. O-1445, which was later transcribed, onNovember 5, 1959, in the off ice of the Register of Deeds of Ilocos Norte.

In the meanwhile, Julio Baltazar, the registered owner of said Lot No. 8854, died. On December 6, 1961, hissurviving wife and children, as petitioners, filed a motion, in the cadastral case, praying for writ ofpossession against respondents Silvina Caridad and her daughter, Eduarda Caridad, who had been inpossession of the southern portion of said Lot No. 8864 since 1939, while the cadastral case involving saidlot was pending before the trial court, and before the decision was rendered and the corresponding decreeissued in 1941.

No writ having theretofore been issued in petitioners' favor, the trial court issued an order, on December11, 1961, granting petitioners' motion, and overruled respondents' opposition but directed the sheriff notto remove or destroy the permanent improvements on the lot without an express command. On January 21962, the order having become final, the sheriff enforced the writ and placed petitioners in possession ofthe southern portion of the lot.

On January 23, 1962, petitioners presented a motion to compel respondents Eduarda Caridad and hermother, Silvina Caridad, to remove their respective houses which they built in 1958 and 1959respectively, in the southern portion of the disputed lot, and, in the event of their failure to do so, to orderthe sheriff to demolish the same. Respondents again opposed said motion.

On March 20, 1962, the trial court, after due hearing, granted petitioners' motion, ordering respondents to

remove their respective houses from the southern portion of said lot No. 8864 within thirty days fromreceipt of said order. Not satisfied, respondents appealed.

Respondents-appellants question the power or jurisdiction of the trial court, sitting as a cadastral court, toorder the removal of their respective houses which were built in the disputed lot long after the issuance ofthe final decree of registration. They insist that they are builders in GOOD FAITH of the houses inquestion, and, as such, they are accorded rights under Article 448 of the new Civil Code, which rightscause a conflict to arise between petitioners, as registered owners, on the one hand, and respondents, asbuilders in GOOD FAITH, on the other; that this conflict is a new matter which the cadastral court couldnot have possibly passed upon in 1941 when it rendered its decision awarding the disputed lot to JulioBaltazar, to predecessor-in-interest of petitioners. Respondents also insist that the determination or



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settlement of this controversy is cognizable only by a court exercising general jurisdiction, and that theonly remedy available to petitioners is to file an ordinary action for ejectment or recovery of possessionagainst them. Respondents further urged that this remedy is rendered unnecessary in view of thependency of an action for reconveyance over the disputed portion of said Lot No. 8864, which respondentsfiled against petitioners in the same court and docketed (but after the writ of possession had been asked)as its Civil Case No. 3451, and wherein the respective rights, interests and title of the parties willultimately be ventilated.

The above contentions of respondents are without merit. It is to be noted that respondents do not dispute

that during the pendency of the cadastral proceeding, rendition of the judgment awarding said Lot No8864, and consequent issuance of the final decree of registration of the same in favor of Julio Baltazar, thelate Andres Caridad, his surviving spouse, respondent Silvina Caridad, and their children, one of whom isrespondent Eduarda Caridad, were in possession of the southern portion of undisputed lot; and thatrespondent Eduarda Caridad claims right and title thereto as a mere heir and successor-in-interest of saidAndres Caridad. Neither do respondents dispute the propriety and validity of the order of the cadastralcourt, granting the writ of possession in favor of petitioners as well as its enforcement. Under thesecircumstances, we hold that the order, dated March 20, 1962, of the cadastral court, granting petitionersmotion to compel respondents to remove their respective houses from the disputed lot, is valid andenforceable against respondents. In the case ofMarcelo vs. Mencias, etc., et al., L-15609, April 29, 196058 O.G. 3349, this Court had already upheld the jurisdiction or authority of the court of first instancesitting as a land registration court, to order, as a consequence of the writ of possession issued by it, thedemolition of improvements introduced by the successor-in-interest of a defeated oppositor in the land

registration case. Thus, in the foregoing cited case, Mr. Justice Jesus G. Barrera, speaking for the Courtopined:

It is contended that respondent Judge erred in denying the petition for demolition. To this we agree.Section 13, Rule 39 of the old Rules of Court, provides:

"SEC. 13. How execution for the delivery or restitution of property enforced- the officer must enforce anexecution for the delivery or restitution of property by placing the plaintiff in possession of such property,and by levying as hereinafter provided upon so much of the property of the judgment debtor as will satisfythe amount of the costs, damages, rents, and profits included in the execution. However, the officer shallnot destroy, demolish or remove the improvements made by the defendant or his agent on the property,except by special order of the court, which order may only issue upon petition of the plaintiff after duehearing and upon the defendant's failure to remove the improvements within a reasonable time to be fixed

by the court."

Respondent Judge is of the view that the above-quoted provision of the Rules of Court applies only toordinary actions involving the delivery or restitution of property, and not to proceedings under the landregistration law which, according to him, is silent on the point. The view is not correct, for the reason thatthe provisions of the Rules of Court are applicable to land registration cases in a suppletory character (Rule132). Put differently, if the writ of possession issued in a land registration proceeding implies the deliveryof possession of the land to the successful litigant therein (Demorar vs. Ibaez, 51 O.G.) 2872; PasayEstates Company vs. Del Rosario, et al., 11 Phil. 391; Manlapas vs. Llorente, 48 Phil. 298), a writ ofdemolition must, likewise, issue, especially considering that the latter writ is but a complement of theformer which without said writ of demolition would be ineffective.

Apparently, respondent Judge, in refusing to issue the writ of demolition to petitioner, was of the belief that

the latter has another remedy, namely, by resorting to ordinary civil actions in the regular courts, such asthat of forcible entry and detainer, or the recovery of possession, in which instances, said courts wouldthen be competent to issue said writ. Such a situation, in our opinion, could not have been intended by thelaw. To require a successful litigant in a land registration case to institute another action for the purpose ofobtaining possession of the land adjudged to him, would be a cumbersome process. It would fosterunnecessary and expensive litigations and result in multiplicity of suits, which our judicial system abhors.In this connection, this Court on one occasion, said:

"But this construction of the law entirely defeats its purpose. It would compel a successful litigant in theCourt of Land Registration to commence other actions in other courts for the purpose of securing fruits of



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his victory. The evident purpose of the law was to prevent that very thing; ... (Pasay Estates Co. vs. DelRosario, et al., supra).

Furthermore, Section 6, Rule 124, of the Rules of Court states that -

"When by law jurisdiction is conferred on a court or judicial officer, all auxiliary writs, processes and othermeans necessary to carry it into effect may be employed by such court or officer and if the procedure tobe followed in the exercise of such jurisdiction is not specifically pointed out by these rules, any suitableprocess or mode of proceeding may be adopted which appears most conformable to the spirit of said

rules."

As already stated, provisions of the Rules of Court are applicable to land registration cases in a suppletorycharacter. Pursuant to the provision just quoted, respondent Judge has the power to issue all auxiliarywrits, including the writ of demolition sought by petitioner, processes and other means necessary to carryinto effect the jurisdiction conferred upon it by law in land registration cases to issue a writ of possessionto the successful litigant, the petitioner herein.

Lastly, in the case ofShoiji vs. Harvey, 43 Phil. 333, we pointed out that "Independent of any statutoryprovision, ... every court has inherent power to do all things reasonably necessary for the administration of

justice within the scope of its jurisdiction." In line with this doctrine, it may be stated that respondentJudge, in the instant case, has the inherent power to issue the writ of demolition demanded by petitioner.Needless to say, its issuance is reasonably necessary to do justice to petitioner who is being deprived of

the possession of the lots in question, by reason of the continued refusal of respondent ClementePagsisihan to remove his house thereon and restore possession of the premises to petitioner.

We believe the above-quoted ruling aptly answers the arguments of respondents-appellants, the samehaving practically identical sets of facts obtaining in the case at bar.

Appellants can not be regarded as builders in GOOD FAITH because they are bound by the 1941 decreeof registration that obligated their parents and predecessors-in-interest. GOOD FAITH must rest on acolorable right in the builder, beyond a mere stubborn belief in one's title despite judicial adjudication. Thefact that in 1959 appellants demolished and replaced their old house with new and bigger ones can notenervate the rights of the registered owners. Otherwise, the rights of the latter to enjoy full possession oftheir registered property could be indefinitely defeated by an unsuccessful opponent through the simplesubterfuge of replacing his old house with a new one from time to time.

Wherefore, the appealed order should be, as it is hereby affirmed. With costs against respondents-appellants.



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CASE 5

THIRD DIVISION

[ G.R. No. 120303. July 24, 1996

FEDERICO GEMINIANO, MARIA GEMINIANO, ERNESTO GEMINIANO, ASUNCION GEMINIANOLARRY GEMINIANO, and MARLYN GEMINIANO, Petitioners, vs.COURT OF APPEALS, DOMINADORNICOLAS, and MARY A. NICOLAS, Respondents.

D E C I S I ON

DAVIDE, JR.,J.:

This petition for review on certiorari has its origins in Civil Case No. 9214 of Branch 3 of the Municipal TriaCourt in Cities (MTCC) in Dagupan City for unlawful detainer and damages. The petitioners ask the Court toset aside the decision of the Court of Appeals affirming the decision of Branch 40 of the Regional TrialCourt (RTC) of Dagupan City, which, in turn, reversed the MTCC; ordered the petitioners to reimburse theprivate respondents the value of the house in question and other improvements; and allowed the latter toretain the premises until reimbursement was made.

It appears that Lot No. 3765-B-1 containing an area of 314 square meters was originally owned by thepetitioners' mother, Paulina Amado vda. de Geminiano. On a 12-square-meter portion of that lot stood thepetitioners' unfinished bungalow, which the petitioners sold in November 1978 to the private respondentsfor the sum of P6,000.00, with an alleged promise to sell to the latter that portion of the lot occupied bythe house. Subsequently, the petitioners' mother executed a contract of lease over a 126 square-meterportion of the lot, including that portion on which the house stood, in favor of the private respondents for

P40.00 per month for a period of seven years commencing on 15 November 1978.

1

The privatrespondents then introduced additional improvements and registered the house in their names. After theexpiration of the lease contract in November 1985, however, the petitioners' mother refused to accept themonthly rentals.

It turned out that the lot in question was the subject of a suit, which resulted in its acquisition by one MariaLee in 1972. In 1982, Lee sold the lot to Lily Salcedo, who in turn sold it in 1984 to the spouses Agustin andEster Dionisio.

On 14 February 1992, the Dionisio spouses executed a Deed of Quitclaim over the said property in favor ofthe petitioners.2 As such, the lot was registered in the latter's names.3

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On 9 February 1993, the petitioners sent, via registered mail, a letter addressed to private respondentMary Nicolas demanding that she vacate the premises and pay the rentals in arrears within twenty daysfrom notice.4

Upon failure of the private respondents to heed the demand, the petitioners filed with the MTCC ofDagupan City a complaint for unlawful detainer and damages.

During the pre-trial conference, the parties agreed to confine the issues to: (1) whether there was animplied renewal of the lease which expired in November 1985; (2) whether the lessees were builders in

GOOD FAITH and entitled to reimbursement of the value of the house and improvements; and (3) thevalue of the house.

The parties then submitted their respective position papers and the case was heard under the Rule onSummary Procedure.

On the first issue, the court held that since the petitioners' mother was no longer the owner of the lot inquestion at the time the lease contract was executed in 1978, in view of its acquisition by Maria Lee asearly as 1972, there was no lease to speak of, much less, a renewal thereof. And even if the lease legallyexisted, its implied renewal was not for the period stipulated in the original contract, but only on a month-to-month basis pursuant to Article 1687 of the Civil Code. The refusal of the petitioners' mother to acceptthe rentals starting January 1986 was then a clear indication of her desire to terminate the monthly leaseAs regards the petitioners' alleged failed promise to sell to the private respondents the lot occupied by the

house, the court held that such should be litigated in a proper case before the proper forum, not anejectment case where the only issue was physical possession of the property.

The court resolved the second issue in the negative, holding that Articles 448 and 546 of the Civil Code,which allow possessors in GOOD FAITH to recover the value of improvements and retain the premisesuntil reimbursed, did not apply to lessees like the private respondents, because the latter knew that theiroccupation of the premises would continue only during the life of the lease. Besides, the rights of theprivate respondents were specifically governed by Article 1678, which allows reimbursement of up to one-half of the value of the useful improvements, or removal of the improvements should the lessor refuse toreimburse.

On the third issue, the court deemed as conclusive the private respondents' allegation that the value ofthe house and improvements was P180,000.00, there being no controverting evidence presented.

The trial court thus ordered the private respondents to vacate the premises, pay the petitioners P40.00 amonth as reasonable compensation for their stay thereon from the filing of the complaint on 14 April 1993until they vacated, and to pay the sum of P1,000.00 as attorney's fees, plus costs.5

On appeal by the private respondents, the RTC of Dagupan City reversed the trial court's decision andrendered a new judgment: (1) ordering the petitioners to reimburse the private respondents for the valueof the house and improvements in the amount of P180,000.00 and to pay the latter P10,000.00 asattorney's fees and P2,000.00 as litigation expenses; and (2) allowing the private respondents to remain inpossession of the premises until they were fully reimbursed for the value of the house.6 It ruled that sincethe private respondents were assured by the petitioners that the lot they leased would eventually be soldto them, they could be considered builders in GOOD FAITH, and as such, were entitled to reimbursement

of the value of the house and improvements with the right of retention until reimbursement had beenmade.

On appeal, this time by the petitioners, the Court of Appeals affirmed the decision of the RTC7 anddenied8 the petitioners' motion for reconsideration. Hence, the present petition.

The Court is confronted with the issue of which provision of law governs the case at bench: Article 448 orArticle 1678 of the Civil Code? The said articles read as follows:

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Art. 448. The owner of the land on which anything has been built, sown or planted in GOOD FAITH, shalhave the right to appropriate as his own the works, sowing or planting, after payment of the indemnityprovided 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 landif its value is considerably more than that of the building or trees. In such case, he shall pay reasonablerent, 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 theterms thereof.

xxx xxx xxx

Art. 1678. If the lessee makes, in GOOD FAITH, useful improvements which are suitable to the use forwhich the lease is intended, without altering the form or substance of the property leased, the lessor uponthe termination of the lease shall pay the lessee one-half of the value of the improvements at that time.Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, eventhough the principal thing may suffer damage thereby. He shall not, however, cause any more impairmentupon the property leased than is necessary.

With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he mayremove the ornamental objects, provided no damage is caused to the principal thing, and the lessor doesnot choose to retain them by paying their value at the time the lease is extinguished.

The crux of the said issue then is whether the private respondents are builders in GOOD FAITH or merelessees.

The private respondents claim they are builders in GOOD FAITH, hence, Article 448 of the Civil Codeshould apply. They rely on the lack of title of the petitioners' mother at the time of the execution of thecontract of lease, as well as the alleged assurance made by the petitioners that the lot on which the housestood would be sold to them.

It has been said that while the right to let property is an incident of title and possession, a person may be alessor and occupy the position of a landlord to the tenant although he is not the owner of the premiseslet.9 After all, ownership of the property is not being transferred,10 only the temporary use and enjoymentthereof.11

In this case, both parties admit that the land in question was originally owned by the petitioners' motherThe land was allegedly acquired later by one Maria Lee by virtue of an extrajudicial foreclosure omortgage. Lee, however, never sought a writ of possession in order that she gain possession of theproperty in question.12 The petitioners' mother therefore remained in possession of the lot.

It is undisputed that the private respondents came into possession of a 126 square-meter portion of thesaid lot by virtue of a contract of lease executed by the petitioners' mother in their favor. The juridicarelation between the petitioners' mother as lessor, and the private respondents as lessees, is thereforewell-established, and carries with it a recognition of the lessor's title.13 The private respondents, as lesseeswho had undisturbed possession for the entire term under the lease, are then estopped to deny theirlandlord's title, or to assert a better title not only in themselves, but also in some third person while theyremain in possession of the leased premises and until they surrender possession to the landlord.14 This

estoppel applies even though the lessor had no title at the time the relation of lessor and lessee wascreated,15 and may be asserted not only by the original lessor, but also by those who succeed to histitle.16

Being mere lessees, the private respondents knew that their occupation of the premises would continueonly for the life of the lease. Plainly, they cannot be considered as possessors nor builders in GOODFAITH.17

In a plethora of cases,18 this Court has held that Article 448 of the Civil Code, in relation to Article 546 ofthe same Code, which allows full reimbursement of useful improvements and retention of the premisesuntil reimbursement is made, applies only to a possessor in GOOD FAITH, i.e., one who builds on landProperty Bachelor of Laws II-A 19Volume 3
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with the belief that he is the owner thereof. It does not apply where one's only interest is that of a lesseeunder a rental contract; otherwise, it would always be in the power of the tenant to "improve" his landlordout of his property.

Anent the alleged promise of the petitioners to sell the lot occupied by the private respondents' house, thesame was not substantiated by convincing evidence. Neither the deed of sale over the house nor thecontract of lease contained an option in favor of the respondent spouses to purchase the said lot. Andeven if the petitioners indeed promised to sell, it would not make the private respondents possessors orbuilders in GOOD FAITH so as to be covered by the provisions of Article 448 of the Civil Code. The latter

cannot raise the mere expectancy of ownership of the aforementioned lot because the alleged promise tosell was not fulfilled nor its existence even proven. The first thing that the private respondents should havedone was to reduce the alleged promise into writing, because under Article 1403 of the Civil Code, anagreement for the sale of real property or an interest therein is unenforceable, unless some note ormemorandum thereof be produced. Not having taken any steps in order that the alleged promise to sellmay be enforced, the private respondents cannot bank on that promise and profess any claim nor color oftitle over the lot in question.

There is no need to apply by analogy the provisions of Article 448 on indemnity as was done in Pecson vs.Court of Appeals,19 because the situation sought to be avoided and which would justify the application ofthat provision, is not present in this case. Suffice it to say, "a state of forced co-ownership" would not becreated between the petitioners and the private respondents. For, as correctly pointed out by thepetitioners, the rights of the private respondents as lessees are governed by Article 1678 of the Civil Code

which allows reimbursement to the extent of one-half of the value of the useful improvements.

It must be stressed, however, that the right to indemnity under Article 1678 of the Civil Code arises only ifthe lessor opts to appropriate the improvements. Since the petitioners refused to exercise thatoption,20 the private respondents cannot compel them to reimburse the one-half value of the house andimprovements. Neither can they retain the premises until reimbursement is made. The privaterespondents' sole right then is to remove the improvements without causing any more impairment uponthe property leased than is necessary.21

WHEREFORE, judgment is hereby rendered GRANTING the instant petition; REVERSING and SETTING ASIDEthe decision of the Court of Appeals of 27 January 1995 in CA-G.R. SP No. 34337; and REINSTATING thedecision of Branch 3 of the Municipal Trial Court in Cities of Dagupan City in Civil Case No. 9214 entitled"Federico Geminiano, et al. vs. Dominador Nicolas, et al."

Costs against the private respondents.

SO ORDERED.

CASE 6

THIRD DIVISION

G.R. No. 142131. December 11, 2002]

SPOUSES DARIO LACAP and MATILDE LACAP, Petitioners, vs. JOUVET ONG LEE, represented byReynaldo de los Santos, respondent.

D E C I S I O N

CORONA,J.:

Before us is a petition for review of the decision[1 dated February 28, 2000 of the Court oAppeals[2 affirming the decision[3 of the Regional Trial Court (RTC, for brevity) of Davao City, Branch 11Property Bachelor of Laws II-A 20Volume 3
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WHEREFORE, the Motion for Reconsideration of Plaintiff-Appellee is hereby granted to leave the premisestherein even if the property may suffer damage. But they shall not cause more damage than what isnecessary. They shall likewise remove the ornamental improvements introduced therein.

SO ORDERED.[9

On August 23, 1999, the said court denied the petitioner spouses motion for reconsideration.

Petitioner spouses appealed the decision of the RTC to the Court of Appeals. According to them, the

courts a quo committed serious errors of fact and law in entertaining the complaint for unlawful detainerdespite the lack of jurisdiction considering that the issue recovery of the right to possess was the subjectmatter of an accion publiciana which was properly cognizable by the Regional Trial Courts.[10 On February28, 2000, the appellate court rendered a decision, the dispositive portion of which reads:

WHEREFORE, for lack of merit, the instant petition is DISMISSED

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