A) MERCADO VS CA GR No.

L-44001 June 10, 1988

B) BALLATAN VS MARTINEZ GR No. 125683 March 2,
1999
C) SARMIENTO V AGANA GR No. L-57288 April 30, 1984
D) TECHNOGAS V CA GR No. 108894 February 10,1997
E) DEPRA V DUMLAO GR No. L-57348, May 6, 1985
F) VIRGILIO V PATRICIA GR No. 134651, September 18,
2000
G) GUZMAN et al. VS FUENTE et al., GR 32433,
December 29, 1930
H) ALBURU V VILLANUEVA GR. No. 3003. January 2,
1907
I) TUASON V. LUMANLAN GR. No. L-23497 April 26,
1968
J) PLEASANTVILLE V CA GR. NO. 79688 February 1,
1996

A) MERCADO VS CA
G.R. No. L-44001 June 10, 1988
PAZ MERCADO, CAROLINA S. CHICO, LUCIANA
CABRERA,
JOAQUIN
IGNACIO,
ELMER
FLORES,
AVELINA
C.
NUCOM,
et
al., petitioners,
vs.
HON. COURT OF APPEALS, HON. BENIGNO PUNO,
LOLITA C. BULAONG, FLORENTINO AGULTO, SEVERINO
SALAYSAY, SUSANA BERNARDINO, et al., respondents.

Facts:
The private respondents Bulaong Group, had for many years
been individual lessees of stalls in the public market of
Baliuag, Bulacan; from 1956 to 1972. The market was
destroyed by fire on February 17, 1956; the members of the
Bulaong Group constructed new stalls therein at their
expense; and they thereafter paid rentals thereon to the
Municipality of Baliuag.
In 1972, the members of the group sub-leased their
individual stalls to other persons, referred to as theMercado
Group. After the Mercado Group had been in possession of
the market stalls for some months, as sub-lessees of the
Bulaong Group, the municipal officials of Baliuag cancelled
the long standing leases of the Bulaong Group and declared
the persons comprising the Mercado Group as the rightful
lessees of the stalls in question, in substitution of the
former.
The members of the Bulaong Group sued. They filed several
individual complaints with the Court of First Instance seeking

recovery of their stalls from the Mercado Group as well as

damages. 1 Their theory was anchored on their claimed
ownership of the stalls constructed by them at their own
expense, and their resulting right, as such owners, to sublease the stalls, and necessarily, to recover them from any
person withholding possession thereof from them.
On October 24,1975, respondent Judge rendered a summary
judgment in all the cases. 3 It rejected the claim of the
Municipality of Baliuag that it had automatically acquired
ownership of the new stalls constructed after the old stalls
had been razed by fire, declaring the members of the
Bulaong Group to bebuilders in good faith, entitled to retain
possession of the stalls respectively put up by them until
and unless indemnified for the value thereof. The decision
also declared that the Bulaong and Mercado Groups had
executed the sub-letting agreements with full awareness
that they were thereby violating Ordinance No. 14; they
were thus in pari delicto, and hence had no cause of action
one against the other and no right to recover whatever had
been given or demand performance of anything undertaken.
The judgment therefore decreed (1) the annulment of the
leases between the Municipality and the individuals
comprising the Mercado Group (the defendants who had
taken over the original leases of the Bulaong Group); and (2)
the payment to the individual members of the Bulaong
Group (the plaintiffs) of the stated, adjudicated value of the
stalls, with interest IF

The members of the Mercado Group are now before this

Court on an appeal by certiorari, this time timely taken,
assailing the above rulings of the Court of Appeals. Their
appeal must fail for lack of merit. No error can be ascribed
to the judgment of the Court of Appeals which is hereby
affirmed in toto.
Held: It was held that to be deemed a builder in good faith,
it is essential that a person assert title to the land on which
he builds; i.e., that he be a possessor in concept of owner,
and that he be unaware that there exists in his title or mode
of acquisition any flaw which invalidates it.
Lessees cannot be considered builders in good faith (taken
from Haystacks, by Berne Guerrero)
The members of the Bulaong group were admittedly lessees
of space in the public market; they therefore could not, and
in truth never did make the claim, that they were owners of
any part of the land occupied by the market so that in
respect of any new structure put up by them thereon, they
could be deemed builders in good faith (in accordance with
Article 526 of the Civil Code). To be deemed a builder in
good faith, it is essential that a person assert title to the
land on which he builds; i.e., that he be a possessor in
concept of owner, and that he be unaware that there exists
in his title or mode of acquisition any flaw which invalidates
it. It is such a builder in good faith who is given the right to
retain the thing, even as against the real owner, until he has
been reimbursed in full not only for the necessary expenses
but also for useful expenses. On the other hand, unlike the
builder in good faith, a lessee who makes in good faith
useful improvements which are suitable to the use for which
the lease is intended, without altering the form or substance
of the property leased, can only claim payment of one-half

of the value of the improvements or, should the lessor

refuse
to
reimburse
said
amount,
remove
the
improvements, even though the principal thing may suffer
damage thereby.

B) BALLATAN VS MARTINEZ
G.R. No. 125683 March 2, 1999
EDEN BALLATAN and SPS. BETTY MARTINEZ and
CHONG
CHY
LING, petitioners,
vs.
COURT OF APPEALS, GONZALO GO, WINSTON GO, LI
CHING YAO, ARANETA INSTITUTE OF AGRICULTURE
and JOSE N. QUEDDING, respondents.

C) SARMIENTO V AGANA
G.R. No. L-57288 April 30, 1984
LEONILA SARMINETO, petitioner,
vs.
HON. ENRIQUE A. AGANA, District Judge, Court of
First Instance of Rizal, Seventh Judicial District,
Branch XXVIII, Pasay City, and SPOUSES ERNESTO
VALENTINO and REBECCA LORENZOVALENTINO,respondents.
This Petition for certiorari questions a March 29, 1979
Decision rendered by the then Court of First Instance of
Pasay City. The Decision was one made on memoranda,
pursuant to the provisions of RA 6031, and it modified, on
October 17, 1977, a judgment of the then Municipal Court of
Paranaque, Rizal, in an Ejectment suit instituted by herein
petitioner Leonila SARMIENTO against private respondents,
the spouses ERNESTO Valentino and Rebecca Lorenzo. For
the facts, therefore, we have to look to the evidence
presented by the parties at the original level.
It appears that while ERNESTO was still courting his wife, the
latter's mother had told him the couple could build a
RESIDENTIAL HOUSE on a lot of 145 sq. ms., being Lot D of a
subdivision in Paranaque (the LAND, for short). In 1967,
ERNESTO did construct a RESIDENTIAL HOUSE on the LAND
at a cost of P8,000.00 to P10,000.00. It was probably
assumed that the wife's mother was the owner of the LAND
and that, eventually, it would somehow be transferred to the
spouses.
It subsequently turned out that the LAND had been titled in
the name of Mr. & Mrs. Jose C. Santo, Jr. who, on September

7 , 1974, sold the same to petitioner SARMIENTO. The

following January 6, 1975, SARMIENTO asked ERNESTO and
wife to vacate and, on April 21, 1975, filed an Ejectment suit
against them. In the evidentiary hearings before the
Municipal Court, SARMIENTO submitted the deed of sale of
the LAND in her favor, which showed the price to be
P15,000.00. On the other hand, ERNESTO testified that the
then cost of the RESIDENTIAL HOUSE would be from
P30,000.00 to P40,000.00. The figures were not questioned
by SARMIENTO.
The Municipal Court found that private respondents had
built the RESIDENTIAL HOUSE in good faith, and,
disregarding the testimony of ERNESTO, that it had a value
of P20,000.00. It then ordered ERNESTO and wife to vacate
the LAND after SARMIENTO has paid them the mentioned
sum of P20,000.00.
The Ejectment suit was elevated to the Court of First
Instance of Pasay where, after the submission of
memoranda, said Court rendered a modifying Decision
under Article 448 of the Civil Code. SARMIENTO was
required, within 60 days, to exercise the option to reimburse
ERNESTO and wife the sum of 40,000.00 as the value of the
RESIDENTIAL HOUSE, or the option to allow them to
purchase the LAND for P25,000.00. SARMIENTO did not
exercise any of the two options within the indicated period,
and ERNESTO was then allowed to deposit the sum of
P25,000.00 with the Court as the purchase price for the
LAND. This is the hub of the controversy. SARMIENTO then
instituted the instant certiorari proceedings.
We agree that ERNESTO and wife were builders in good faith
in view of the peculiar circumstances under which they had
constructed the RESIDENTIAL HOUSE. As far as they knew,

the LAND was owned by ERNESTO's mother-in-law who,

having stated they could build on the property, could
reasonably be expected to later on give them the LAND.
In regards to builders in good faith, Article 448 of the Code
provides:t.hqw
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)
The value of the LAND, purchased for P15,000.00 on
September 7, 1974, could not have been very much more

than that amount during the following January when

ERNESTO and wife were asked to vacate. However,
ERNESTO and wife have not questioned the P25,000.00
valuation determined by the Court of First Instance.
In regards to the valuation of the RESIDENTIAL HOUSE, the
only evidence presented was the testimony of ERNESTO that
its worth at the time of the trial should be from P30,000.00
to P40,000.00. The Municipal Court chose to assess its value
at P20,000.00, or below the minimum testified by ERNESTO,
while the Court of First Instance chose the maximum of
P40,000.00. In the latter case, it cannot be said that the
Court of First Instance had abused its discretion.
The challenged decision of respondent Court, based on
valuations of P25,000.00 for the LAND and P40,000.00 for
the RESIDENTIAL HOUSE, cannot be viewed as not
supported by the evidence. The provision for the exercise by
petitioner SARMIENTO of either the option to indemnify
private respondents in the amount of P40,000.00, or the
option to allow private respondents to purchase the LAND at
P25,000.00, in our opinion, was a correct decision.t.
hqw
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 is erected. He is entitled to such remotion
only when, after having chosen to sell his
land, the other party fails to pay for the same.
(Emphasis 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]).
WHEREFORE, the Petition for Certiorari is hereby ordered
dismissed, without pronouncement as to costs.
SO ORDERED.1wph1.t
Teehankee (Chairman), Plana, Relova, Gutierrez, Jr. and De
la Fuente, JJ., concur.

D) TECHNOGAS V CA
G.R. No. 108894 February 10, 1997
TECNOGAS
PHILIPPINES
MANUFACTURING
CORPORATION, petitioner,
vs.
COURT OF APPEALS (FORMER SPECIAL SEVENTEENTH
DIVISION) and EDUARDO UY, respondents.
PANGANIBAN, J.:
The parties in this case are owners of adjoining lots in
Paraaque, Metro Manila. It was discovered in a survey, that
a portion of a building of petitioner, which was presumably
constructed by its predecessor-in-interest, encroached on a
portion of the lot owned by private respondent. What are the
rights and obligations of the parties? Is petitioner considered
a builder in bad faith because, as held by respondent Court,
he is "presumed to know the metes and bounds of his
property as described in his certificate of title"? Does
petitioner succeed into the good faith or bad faith of his
predecessor-in-interest which presumably constructed the
building?
These are the questions raised in the petition for review of
the Decision 1 dated August 28, 1992, in CA-G.R. CV No.
28293 of respondent Court 2 where the disposition reads: 3
WHEREFORE,
premises
considered,
the
Decision of the Regional Trial Court is hereby
reversed and set aside and another one
entered

1. Dismissing the complaint for lack of cause

of action;
2. Ordering Tecnogas to pay the sum of
P2,000.00 per month as reasonable rental
from October 4, 1979 until appellee vacates
the land;
3. To remove the structures and surrounding
walls on the encroached area;
4. Ordering appellee to pay the value of the
land occupied by the two-storey building;
5. Ordering appellee to pay the sum of
P20,000.00 for and as attorney's fees;
6. Costs against appellee.
Acting on the motions for reconsideration of both petitioner
and private respondent, respondent Court ordered the
deletion
of
paragraph
4
of
the dispositive portion in an Amended Decision dated
February 9, 1993, as follows: 4
WHEREFORE,
premises
considered,
our
decision of August 28, 1992 is hereby
modified deleting paragraph 4 of the
dispositive portion of our decision which
reads:
4. Ordering appellee to pay the
value of the land occupied by
the two-storey building.

The motion for reconsideration of appellee is

hereby DENIED for lack of merit.
The foregoing Amended Decision is also challenged in the
instant petition.
The Facts
The facts are not disputed. Respondent Court merely
reproduced the factual findings of the trial court, as follows: 5
That plaintiff (herein petitioner) which is a
corporation duly organized and existing under
and by virtue of Philippine laws is the
registered owner of a parcel of land situated
in Barrio San Dionisio, Paraaque, Metro
Manila known as Lot 4331-A (should be 4531A) of Lot 4531 of the Cadastral Survey of
Paraaque, Metro Manila, covered by Transfer
Certificate of Title No. 409316 of the Registry
of Deeds of the Province of Rizal; that said
land was purchased by plaintiff from Pariz
Industries, Inc. in 1970, together with all the
buildings and improvements including the
wall existing thereon; that the defendant
(herein private respondent) is the registered
owner of a parcel of land known as Lot No.
4531-B of Lot 4531 of the Cadastral Survey of
Paraaque, LRC (GLRO) Rec. No. 19645
covered by Transfer Certificate of Title No.
279838, of the Registry of Deeds for the
Province of Rizal; that said land which adjoins
plaintiff's land was purchased by defendant
from a certain Enrile Antonio also in 1970;

that in 1971, defendant purchased another lot

also adjoining plaintiffs land from a certain
Miguel Rodriguez and the same was
registered in defendant's name under Transfer
Certificate of Title No. 31390, of the Registry
of Deeds for the Province of Rizal; that
portions of the buildings and wall bought by
plaintiff together with the land from Pariz
Industries are occupying a portion of
defendant's adjoining land; that upon learning
of the encroachment or occupation by its
buildings and wall of a portion of defendant's
land, plaintiff offered to buy from defendant
that particular portion of defendant's land
occupied by portions of its buildings and wall
with an area of 770 square meters, more or
less, but defendant, however, refused the
offer. In 1973, the parties entered into a
private agreement before a certain Col.
Rosales in Malacaang, wherein plaintiff
agreed to demolish the wall at the back
portion of its land thus giving to defendant
possession of a portion of his land previously
enclosed by plaintiff's wall; that defendant
later filed a complaint before the office of
Municipal Engineer of Paraaque, Metro
Manila as well as before the Office of the
Provincial Fiscal of Rizal against plaintiff in
connection with the encroachment or
occupation by plaintiff's buildings and walls of
a portion of its land but said complaint did not
prosper; that defendant dug or caused to be
dug a canal along plaintiff's wall, a portion of
which collapsed in June, 1980, and led to the
filing by plaintiff of the supplemental

complaint in the above-entitled case and a

separate criminal complaint for malicious
mischief against defendant and his wife which
ultimately resulted into the conviction in court
of defendant's wife for the crime of malicious
mischief; that while trial of the case was in
progress, plaintiff filed in Court a formal
proposal for settlement of the case but said
proposal, however, was ignored by defendant.
After trial on the merits, the Regional Trial Court 6 of Pasay
City, Branch 117, in Civil Case No. PQ-7631-P, rendered a
decision dated December 4, 1989 in favor of petitioner who
was the plaintiff therein. The dispositive portion
reads: 7
WHEREFORE, judgment is hereby rendered in
favor of plaintiff and against defendant and
ordering the latter to sell to plaintiff that
portion of land owned by him and occupied by
portions of plaintiff's buildings and wall at the
price of P2,000.00 per square meter and to
pay the former:
1. The sum of P44,000.00 to
compensate for the losses in
materials
and
properties
incurred by plaintiff through
thievery as a result of the
destruction of its wall;
2. The sum of P7,500.00 as and
by way of attorney's fees; and

3. The costs of this suit.

Appeal was duly interposed with respondent Court, which as
previously stated, reversed and set aside the decision of the
Regional Trial Court and rendered the assailed Decision and
Amended Decision. Hence, this recourse under Rule 45 of
the Rules of Court.
The Issues
The petition raises the following issues: 8
(A)
Whether or not the respondent Court of
Appeals erred in holding the petitioner a
builder in bad faith because it is "presumed to
know the metes and bounds of his property."
(B)
Whether or not the respondent Court of
Appeals erred when it used the amicable
settlement between the petitioner and the
private respondent, where both parties
agreed to the demolition of the rear portion of
the fence, as estoppel amounting to
recognition by petitioner of respondent's right
over his property including the portions of the
land where the other structures and the
building stand, which were not included in the
settlement.
(C)

Whether or not the respondent Court of

Appeals erred in ordering the removal of the
"structures and surrounding walls on the
encroached area" and in withdrawing its
earlier ruling in its August 28, 1992 decision
for the petitioner "to pay for the value of the
land
occupied"
by
the
building, only
because the
private
respondent
has
"manifested its choice to demolish" it despite
the absence of compulsory sale where the
builder fails to pay for the land, and which
"choice" private respondent deliberately
deleted from its September 1, 1980 answer to
the supplemental complaint in the Regional
Trial Court.
In its Memorandum, petitioner poses the following issues:
A.
The time when to determine the good faith of
the builder under Article 448 of the New Civil
Code, is reckoned during the period when it
was actually being built; and in a case
where no evidence
was
presented nor introduced as to the good faith
or bad faith of the builder at that time, as in
this case, he must be presumed to be a
"builder
in
good
faith,"
since
"bad
faith cannot be presumed." 9
B.

In a specific "boundary overlap situation"

which involves a builder in good faith, as in
this case, it is now well settled that the lot
owner, who builds on the adjacent lot
is not charged with "constructive notice" of
the technical metes and bounds contained in
their torrens titles to determine the exact and
precise extent of his boundary perimeter. 10
C.
The respondent court's citation of the twin
cases
of Tuason
&
Co. v. Lumanlan and Tuason
&
Co. v.Macalindong is not the
"judicial
authority" for a boundary dispute situation
between adjacent torrens titled lot owners, as
the facts of the present case do not fall
within nor square with the involved principle
of a dissimilar case. 11
D.
Quite contrary to respondent Uy's reasoning,
petitioner Tecnogas continues to be a builder
in good faith, even if it subsequently
built/repaired the walls/other permanent
structures thereon while the case a quo was
pending and even while respondent sent the
petitioner many letters/filed cases thereon. 12
D.(E.)

The amicable settlement between the parties

should be interpreted as a contract and
enforced only in accordance with its explicit
terms, and not over and beyond that agreed
upon; because the courts do not have the
power to create a contract nor expand its
scope. 13
E.(F.)
As a general rule, although the landowner has
the option to choose between: (1) "buying the
building built in good faith", or (2) "selling the
portion of his land on which stands the
building" under Article 448 of the Civil Code;
the first option is not absolute, because
an exception thereto, once it would be
impractical for the landowner to choose to
exercise the first alternative, i.e. buy that
portion of the house standing on his land, for
the whole building might be rendered useless.
The workable solution is for him to select the
second alternative, namely, to sell to the
builder that part of his land on which was
constructed a portion of the house. 14

down in Tuason vs.Lumanlan case citing

also Tuason vs. Macalindong case (Supra).
2. Assuming that the doctrine in the
alleged Co Tao vs. Chico case is contradictory
to
the
doctrine
inTuason
vs. Lumanlan and Tuason
vs. Macalindong,
the two cases being more current, the same
should prevail.
Further, private respondent contends that the following
"unmistakably" point to the bad faith of petitioner: (1)
private respondent's purchase of the two lots, "was ahead of
the purchase by petitioner of the building and lot from Pariz
Industries"; (2) the declaration of the General Manager of
Tecnogas that the sale between petitioner and Pariz
Industries "was not registered" because of some problems
with China Banking Corporation; and (3) the Deed of Sale in
favor of petitioner was registered in its name only in "the
month of May 1973." 16
The Court's Ru1ing
The petition should be granted.
Good Faith or Bad Faith

Private respondent, on the other hand, argues that the

petition is "suffering from the following flaws: 15
1. It did not give the exact citations of cases
decided by the Honorable Supreme Court that
allegedly contradicts the ruling of the Hon.
Court of Appeals based on the doctrine laid

Respondent Court, citing the cases of J.M. Tuason &

Co., Inc. vs. Vda. de
Lumanlan 17 and J.M. Tuason
&
18
Co., Inc.vs. Macalindong, ruled that petitioner "cannot be
considered in good faith" because as a land owner, it is
"presumed to know the metes and bounds of his own
property, specially if the same are reflected in a properly
issued certificate of title. One who erroneously builds on the

adjoining lot should be considered a builder in (b)ad (f)aith,

there being presumptive knowledge of the Torrens title, the
area, and the extent of the boundaries." 19
We disagree with respondent Court. The two cases it relied
upon do not support its main pronouncement that a
registered owner of land has presumptive knowledge of the
metes and bounds of its own land, and is therefore in bad
faith if he mistakenly builds on an adjoining land. Aside from
the fact that those cases had factual moorings radically
different from those obtaining here, there is nothing in those
cases which would suggest, however remotely, that bad
faith is imputable to a registered owner of land when a part
of his building encroaches upon a neighbor's land, simply
because he is supposedly presumed to know the boundaries
of his land as described in his certificate of title. No such
doctrinal statement could have been made in those cases
because such issue was not before the Supreme Court.
Quite the contrary, we have rejected such a theory in Co
Tao vs. Chico, 20 where we held that unless one is versed in
the science of surveying, "no one can determine the precise
extent or location of his property by merely examining his
paper title."
There is no question that when petitioner purchased the
land from Pariz Industries, the buildings and other structures
were already in existence. The record is not clear as to who
actually built those structures, but it may well be assumed
that petitioner's predecessor-in-interest, Pariz Industries, did
so. Article 527 of the Civil Code presumes good faith, and
since no proof exists to show that the encroachment over a
narrow, needle-shaped portion of private respondent's land
was done in bad faith by the builder of the encroaching
structures, the latter should be presumed to have built them
in good faith. 21 It is presumed that possession continues to

be enjoyed in the same character in which it was acquired,

until the contrary is proved. 22 Good faith consists in the
belief of the builder that the land he is building on is his, and
his ignorance of any defect or flaw in his title. 23 Hence, such
good faith, by law, passed on to Pariz's successor, petitioner
in this case. Further, "(w)here one derives title to property
from another, the act, declaration, or omission of the latter,
while holding the title, in relation to the property, is
evidence against the former." 24And possession acquired in
good faith does not lose this character except in case and
from the moment facts exist which show that the possessor
is not unaware that he possesses the thing improperly or
wrongfully. 25 The good faith ceases from the moment
defects in the title are made known to the possessor, by
extraneous evidence or by suit for recovery of the property
by the true owner. 26
Recall that the encroachment in the present case was
caused by a very slight deviation of the erected wall (as
fence) which was supposed to run in a straight line from
point 9 to point 1 of petitioner's lot. It was an error which, in
the context of the attendant facts, was consistent with good
faith. Consequently, the builder, if sued by the aggrieved
landowner for recovery of possession, could have invoked
the provisions of Art. 448 of the Civil Code, which reads:
The owner of the land on which anything has
been built, sown or planted in good faith, shall
have the right to appropriate as his own the
works, sowing or planting, after payment of
the indemnity provided for in articles 546 and
548, or to oblige the one who built or planted
to pay the price of the land, and the one who
sowed, the proper rent. However, the builder
or planter cannot be obliged to buy the land if

its value is considerably more than that of the

building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does
not choose to appropriate the building or
trees after proper indemnity. The parties shall
agree upon the terms of the lease and in case
of disagreement, the court shall fix the terms
thereof.
The obvious benefit to the builder under this article is
that, instead of being outrightly ejected from the
land, he can compel the landowner to make a choice
between the two options: (1) to appropriate the
building by paying the indemnity required by law, or
(2) sell the land to the builder. The landowner cannot
refuse to exercise either option and compel instead
the owner of the building to remove it from the
land. 27
The question, however, is whether the same benefit can be
invoked by petitioner who, as earlier stated, is not the
builder of the offending structures but possesses them as
buyer.
We answer such question in the affirmative.
In the first place, there is no sufficient showing that
petitioner was aware of the encroachment at the time it
acquired the property from Pariz Industries. We agree with
the trial court that various factors in evidence adequately
show petitioner's lack of awareness thereof. In any case,
contrary proof has not overthrown the presumption of good
faith under Article 527 of the Civil Code, as already stated,
taken together with the disputable presumptions of the law

on evidence. These presumptions state, under Section 3 (a)

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

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

entering into the amicable settlement, the pertinent
portions of which read: 29
That the parties hereto have agreed that the
rear portion of the fence that separates the
property of the complainant and respondent
shall be demolished up to the back of the
building housing the machineries which
demolision (sic) shall be undertaken by the
complainant at anytime.
That the fence which serve(s) as a wall
housing the electroplating machineries shall
not be demolished in the mean time which
portion shall be subject to negotiation by
herein parties.
From the foregoing, it is clear that petitioner agreed only to
the demolition of a portion of the wall separating the
adjoining properties of the parties i.e. "up to the back of
the building housing the machineries." But that portion of
the fence which served as the wall housing the
electroplating machineries was not to be demolished.
Rather, it was to "be subject to negotiation by herein
parties." The settlement may have recognized the
ownership of private respondent but such admission cannot
be equated with bad faith. Petitioner was only trying to
avoid a litigation, one reason for entering into an amicable
settlement.
As was ruled in Osmea vs. Commission on Audit,

30

A compromise is a bilateral act or transaction

that is expressly acknowledged as a juridical
agreement by the Civil Code and is therein
dealt with in some detail. "A compromise,"
declares Article 2208 of said Code, "is a
contract whereby the parties, by making
reciprocal concessions, avoid a litigation or
put an end to one already commenced."
xxx xxx xxx
The Civil Code not only defines and authorizes
compromises, it in fact encourages them in
civil actions. Art. 2029 states that "The Court
shall endeavor to persuade the litigants in a
civil case to agree upon some fair
compromise." . . .
In the context of the established facts, we hold that
petitioner did not lose its rights under Article 448 of the Civil
Code on the basis merely of the fact that some years after
acquiring the property in good faith, it learned about and
aptly recognized the right of private respondent to a
portion of the land occupied by its building. The supervening
awareness of the encroachment by petitioner does not
militate against its right to claim the status of a builder in
good faith. In fact, a judicious reading of said Article 448 will
readily show that the landowner's exercise of his option can
only take place after the builder shall have come to know of
the intrusion in short, when both parties shall have
become aware of it. Only then will the occasion for
exercising the option arise, for it is only then that both
parties will have been aware that a problem exists in regard
to their property rights.

Options of Private Respondent

What then is the applicable provision in this case which
private respondent may invoke as his remedy: Article 448 or
Article 450 31 of the Civil Code?
In view of the good faith of both petitioner and private
respondent, their rights and obligations are to be governed
by Art. 448. The essential fairness of this codal provision has
been pointed out by Mme. Justice Ameurfina MelencioHerrera, citing Manresa and applicable precedents, in the
case of Depra vs. Dumlao, 32 to wit:
Where the builder, planter or sower has acted
in good faith, a conflict of rights arises
between the owners, and it becomes
necessary to protect the owner of the
improvements without causing injustice to the
owner of the land. In view of the impracticality
of creating a state of forced co-ownership, the
law has provided a just solution by giving the
owner of the land the option to acquire the
improvements after payment of the proper
indemnity, or to oblige the builder or planter
to pay for the land and the sower to pay the
proper rent. It is the owner of the land who is
authorized to exercise the option, because his
right is older, and because, by the principle of
accession, he is entitled to the ownership of
the accessory thing. (3 Manresa 213;
Bernardo vs. Bataclan, 37 Off. Gaz. 1382; Co
Tao vs. Chan Chico, G.R. No. 49167, April 30,
1949; Article applied; see Cabral, et al. vs.
Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs.
Velasco, [C.A.] 52 Off. Gaz. 2050).

The private respondent's insistence on the removal of the

encroaching structures as the proper remedy, which
respondent Court sustained in its assailed Decisions, is thus
legally flawed. This is not one of the remedies bestowed
upon him by law. It would be available only if and when he
chooses to compel the petitioner to buy the land at a
reasonable price but the latter fails to pay such price. 33 This
has not taken place. Hence, his options are limited to: (1)
appropriating the encroaching portion of petitioner's
building after payment of proper indemnity, or (2) obliging
the latter to buy the lot occupied by the structure. He
cannot exercise a remedy of his own liking.
Neither is petitioner's prayer that private respondent be
ordered to sell the land 34 the proper remedy. While that was
dubbed as the "more workable solution" in Grana and
Torralba vs. The Court of Appeals, et al., 35 it was not the
relief granted in that case as the landowners were directed
to exercise "within 30 days from this decision their option to
either buy the portion of the petitioners' house on their land
or sell to said petitioners the portion of their land on which it
stands." 36Moreover, in Grana and Torralba, the area
involved was only 87 square meters while this case involves
520 square meters37. In line with the case of Depra
vs. Dumlao, 38 this case will have to be remanded to the trial
court for further proceedings to fully implement the
mandate of Art. 448. It is a rule of procedure for the
Supreme Court to strive to settle the entire controversy in a
single proceeding leaving no root or branch to bear the
seeds
of
future
litigation. 39
Petitioner, however, must also pay the rent for the property
occupied by its building as prescribed by respondent Court
from October 4, 1979, but only up to the date private

respondent serves notice of its option upon petitioner and

the trial court; that is, if such option is for private
respondent to appropriate the encroaching structure. In
such event, petitioner would have a right of retention which
negates the obligation to pay rent. 40 The rent should
however continue if the option chosen is compulsory sale,
but only up to the actual transfer of ownership.
The award of attorney's fees by respondent Court against
petitioner is unwarranted since the action appears to have
been filed in good faith. Besides, there should be no penalty
on the right to litigate. 41
WHEREFORE, premises considered, the petition is hereby
GRANTED and the assailed Decision and the Amended
Decision are REVERSED and SET ASIDE. In accordance with
the case of Depra vs. Dumlao, 42 this case is REMANDED to
the Regional Trial Court of Pasay City, Branch 117, for
further proceedings consistent with Articles 448 and
546 43 of the Civil Code, as follows:
The trial court shall determine:
a) the present fair price of private
respondent's 520 square-meter area of land;
b) the increase in value ("plus value") which
the said area of 520 square meters may have
acquired by reason of the existence of the
portion of the building on the area;
c) the fair market value of the encroaching
portion of the building; and

d) whether the value of said area of land is

considerably more than the fair market value
of the portion of the building thereon.
2. After said amounts shall have been determined by
competent evidence, the regional trial court shall render
judgment as follows:
a) The private respondent shall be granted a
period of fifteen (15) days within which to
exercise his option under the law (Article 448,
Civil
Code), whether to
appropriate
the
portion of the building as his own by paying to
petitioner its fair market value, or to oblige
petitioner to pay the price of said area. The
amounts to be respectively paid by petitioner
and private respondent, in accordance with
the option thus exercised by written notice of
the other party and to the court, shall be paid
by the obligor within fifteen (15) days from
such notice of the option by tendering the
amount to the trial court in favor of the party
entitled to receive it;
b) If private respondent exercises the option
to oblige petitioner to pay the price of the
land but the latter rejects such purchase
because, as found by the trial court, the value
of the land is considerably more than that of
the portion of the building, petitioner shall
give written notice of such rejection to private
respondent and to the trial court within fifteen
(15) days from notice of private respondent'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 trial court formal written notice
of the agreement and its provisos. If no
agreement is reached by the parties, the trial
court, within fifteen (15) days from and after
the termination of the said period fixed for
negotiation, shall then fix the terms of the
lease provided that the monthly rental to be
fixed by the Court shall not be less than two
thousand pesos (P2,000.00) per month,
payable within the first five (5) days of each
calendar month. The period for the forced
lease shall not be more than two (2) years,
counted from the finality of the judgment,
considering the long period of time since 1970
that petitioner has occupied the subject area.
The rental thus fixed shall be increased by ten
percent (10%) for the second year of the
forced lease. Petitioner shall not make any
further constructions or improvements on the
building. Upon expiration of the two-year
period, or upon default by petitioner in the
payment of rentals for two (2) consecutive
months, private respondent shall be entitled
to terminate the forced lease, to recover his
land, and to have the portion of the building
removed by petitioner or at latter's expense.
The rentals herein provided shall be tendered
by petitioner to the trial court for payment to
private respondent, and such tender shall
constitute evidence of whether or not
compliance was made within the period fixed
by the said court.

c) In any event, petitioner shall pay private

respondent an amount computed at two
thousand pesos (P2,000.00) per month as
reasonable compensation for the occupancy
of private respondent's land for the period
counted from October 4, 1979, up to the date
private respondent serves notice of its option
to appropriate the encroaching structures,
otherwise up to the actual transfer of
ownership to petitioner or, in case a forced
lease has to be imposed, up to the
commencement date of the forced lease
referred to in the preceding paragraph;
d) The periods to be fixed by the trial court in
its decision shall be non-extendible, and upon
failure of the party obliged to tender to the
trial court the amount due to the obligee, the
party entitled to such payment shall be
entitled to an order of execution for the
enforcement of payment of the amount due
and for compliance with such other acts as
may be required by the prestation due the
obligee.
No costs.
SO ORDERED

E) DEPRA VS DUMLAO
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.

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 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
submitted
Stipulation
Trial Court
decreeing:

case had been set for pre-trial, the parties

a Joint Motion for Judgment based on the
of Facts attached thereto. Premised thereon, the
on October 31, 1974, issued the assailed Order,

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.

upon the parties a situation of "forced lease", which like

"forced co-ownership" is not favored in law. Furthermore, a
lease is an interest in real property, jurisdiction over which
belongs to Courts of First Instance (now Regional Trial
Courts) (Sec. 44(b), Judiciary Act of 1948; 2 Sec. 19 (2) Batas
Pambansa Blg. 129). 3 Since the Municipal Court, acted
without jurisdiction, its Decision was null and void and
cannot operate as res judicata to the subject complaint for
Queting of Title. Besides, even if the Decision were valid, the
rule on res judicata would not apply due to difference in
cause of action. In the Municipal Court, the cause of action
was the deprivation of possession, while in the action to
quiet title, the cause of action was based on ownership.
Furthermore, Sec. 7, Rule 70 of the Rules of Court explicitly
provides that judgment in a detainer case "shall not bar an
action between the same parties respecting title to the land.
"4
Conceded in the Stipulation of Facts between the parties is
that DUMLAO was a builder in good faith. Thus,

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 (Sec. 7, Rule 70, Rules of Court). 1 The
Municipal Court over-stepped its bounds when it imposed

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 encroached part of his
land, 5 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 for the
same. 6 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 accesion se establece en el art. 358. 7
Our own Code Commission must have taken account of the
objections to Article 361 of the Spanish Civil Code. Hence,
the Commission provided a modification thereof, and Article
448 of our Code has been made to provide:
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.

Where the builder, planter or sower has acted

in good faith, a conflict of rights arises
between the owners, and it becomes
necessary to protect the owner of the
improvements without causing injustice to the
owner of the land. In view of the
impracticability of creating a state of forced
co-ownership, the law has provided a just
solution by giving the owner of the land the
option to acquire the improvements after
payment of the proper indemnity, or to oblige
the builder or planter to pay for the land and
the sower to pay for the proper rent. It is the
owner of the land who is authorized to
exercise the option, because his right is older,
and because, by the principle of accession, he
is entitled to the ownership of the accessory
thing. (3 Manresa 213; Bernardo vs. Bataclan,
37 Off. Gaz. 1382; Co Tao vs. Chan Chico, G.R.
No. 49167, April 30, 1949; Article applied: see
Cabral, et al vs. Ibanez [S.C.] 52 Off. Gaz. 217;
Marfori vs. Velasco, [C.A.] 52 Off. Gaz. 2050). 8
WHEREFORE, the judgment of the trial Court is hereby set
aside, and this case is hereby ordered remanded to the
Regional Trial Court of Iloilo for further proceedings
consistent with Articles 448 and 546 of the Civil Code, as
follows:
1. The trial Court shall determine

The fairness of the rules in Article 448 has also been

explained as follows:

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.

F) VIRGILIO VS PATRICIA
SPOUSES VIRGILIO and JOSIE JIMENEZ, petitioners,
vs. PATRICIA, INC., respondent.
DECISION
BELLOSILLO, J.:
The Joint Decision of the Court of Appeals [1] (dismissing
the petition for review filed by spouses Virgilio and Josie
Jimenez in CA-G.R. SP No. 43185 and giving due course to
the petition for review filed by Patricia, Inc., in CA-G.R. SP
No. 43179), in effect reversing the decision of the Regional
Trial Court and reinstating that of the Metropolitan Trial
Court, is assailed in the instant petition.
Petitioners Virgilio and Josie Jimenez, spouses, are
sublessees of a lot and buildinglocated at 2853 Juan Luna
Street, Tondo, Manila, owned by respondent Patricia Inc.
(PATRICIA for brevity), a domestic corporation duly
organized and existing under Philippine laws. The Jimenez
spouses subleased the property in 1980 from a certain
Purisima Salazar who had been leasing the property from
PATRICIA since 1970.
Sometime in 1995 Purisima Salazar abandoned the
property thus incurring back rentals dating back to January
1992. Hence, by reason of her non-payment of the monthly
rentals, her contract of lease with PATRICIA was terminated.
On 29 March 1995 PATRICIA sent a letter to the Jimenez
spouses informing them of the termination of the lease and
demanding that they vacate the premises within fifteen (15)

days from notice since they had no existing lease contract

with it.[2] But the spouses refused to leave.
Thus, on 5 May 1995 PATRICIA filed a complaint [3] for
unlawful detainer against the Jimenez spouses alleging,
among others, that the lessee Purisima Salazar subleased
the premises to the Jimenezes; that Purisima Salazar no
longer occupied the premises; that this notwithstanding, the
Jimenez spouses continued to occupy the premises without
any contract with PATRICIA, its owner, hence, their stay was
merely being tolerated by the latter; and, that despite
demands made upon them, they refused to vacate the
premises thereby unlawfully and illegally withholding the
property to the damage and prejudice of PATRICIA.
In their Answer, the Jimenez spouses claimed that they
occupied the premises as sublessees of Purisima Salazar
with the knowledge of PATRICIA; that the building originally
found on the lot was owned by Purisima Salazar which she
sold to them in 1984 with notice and without any objection
from PATRICIA; that, when the building was gutted by fire in
1987
they
constructed
a
new house on the lot worth P1,500,000.00
with
the
knowledge and without any objection from PATRICIA; and,
that PATRICIA never collected any rental for the land but
they nevertheless voluntarily paid the amount of P23,537.25
as rent corresponding to the period of September 1979 to
31 December 1991.[4]
The MeTC ruled in favor of PATRICIA and ordered the
Jimenez spouses to vacate the premises, to pay PATRICIA
the sum of P3,000.00 a month as reasonable rental and/or
compensation for the use of the premises beginning April
1995 until they finally vacated thepremises, and to pay

PATRICIA the sum of P5,000.00 as reasonable attorney's

fees, plus costs of suit.[5]
The Jimenez spouses appealed the MeTC decision to the
RTC.[6] On 2 January 1997 the RTC modified the decision in
favor of the spouses holding that an implied new lease
contract existed between the Jimenez spouses and PATRICIA
in view of the latter's acceptance of rentals from the
former. Thus the RTC extended the term of the lease
between the parties for a period of one (1) year from date of
decision, and ordered PATRICIA to reimburse the Jimenez
spouses the expenses incurred in the construction of the
house built on the property and/or for the Jimenez spouses
to remove the improvements thereon.[7]
On 20 January 1997 PATRICIA filed a Motion for
Clarificatory Judgment and later added a Supplement to the
Motion for Clarificatory Judgment.
On 27 January 1997 PATRICIA, without waiting for the
resolution of its Motion for Clarificatory Judgment as well as
its supplement thereto, filed a Petition for Review of the RTC
decision with the Court of Appeals, docketed as CA-G.R. SP
No. 43179.
On 13 February 1997 the Jimenez spouses filed their
own Petition for Review, docketed as CA-G.R. SP No.
43185. Subsequently, this petition was consolidated with
PATRICIA's Petition for Review since it involved the same
parties, facts, and issues.
The Court of Appeals in due course rendered a Joint
Decision dismissing the Petition for Review filed by the
Jimenez spouses while giving due course to the petition of

PATRICIA. The Court of Appeals held that there was no

implied renewal of the lease contract between the parties
since, to begin with, there was no lease contract between
them; hence, the Jimenez spouses could not have tendered
payment of rentals to PATRICIA. Instead, it declared the
status of the Jimenez spouses as being analogous to that of
a lessee or tenant whose lease has expired but whose
occupancy has been continued by mere tolerance of the
owner, and hence, bound by an implied promise that he
would
vacate
the
premises
upon demand. Thus, the appellate court reversed and set
aside the decision of the RTC and reinstated the decision of
the MeTC which, among others, ordered the Jimenez
spouses to vacate the premises.
Petitioners now assail the jurisdiction of the MeTC
contending that the failure of the complaint to allege the
character of the sublease or entry of the Jimenez spouses
into the property, whether legal or illegal, automatically
classified
it
into
an accion
publiciana
or
reinvindicatoria cognizable by the RTC and not by the MeTC;
[8]
thus, the action should have been dismissed.
The rule is settled that a question of jurisdiction may be
raised at any time, even on appeal, provided that its
application does not result in a mockery of the tenets of fair
play. In the instant case, the jurisdictional issue was raised
by petitioners for the first time only in the instant Petition
for Review. However, it should be noted that they did so
only after an adverse decision was rendered by the Court of
Appeals. Despite several opportunities in the RTC, which
ruled in their favor, and in the Court of Appeals, petitioners
never advanced the question of jurisdiction of the
MeTC. Additionally, petitioners participated actively in the
proceedings before the MeTC[9] and invoked its jurisdiction

with the filing of their answer, in seeking affirmative relief

from it, in subsequently filing a notice of appeal before the
RTC, and later, a Petition for Review with the Court of
Appeals. Upon these premises, petitioners cannot now be
allowed belatedly to adopt an inconsistent posture by
attacking the jurisdiction of the court to which they had
submitted themselves voluntarily. Laches now bars them
from doing so.

Purisima Salazar with respondent was terminated the

contract of sublease of petitioners with the former also
necessarily ended and petitioners cannot insist on staying
on the premises. Petitioners can invoke no right superior to
that of their sublessor.[12]

The fact that the complaint failed to state that

respondent was in prior possession of the property before it
was unlawfully withheld by petitioner spouses is of no
moment. Prior physical possession is indispensable only in
actions for forcible entry but not in unlawful detainer. [11]

It is not correct to say that petitioners could not have

occupied the property by tolerance of respondent as their
entry into the premises was inceptively illegal, the sublease
being entered into without the consent of the owner.
[13]
Petitioners argue that tolerance is only available in cases
where entry was lawful from the start and cannot be
asserted where entry was illegal from the start. It appears
however that respondent did not expressly and equivocally
prohibit the subleasing of the property. Although the
attached contracts of lease state that the lessee cannot
sublease the property, none of those contracts pertain to
the contract of lease between Purisima Salazar and
respondent PATRICIA.[14] In any event, the fact that PATRICIA
sent a letter to the Jimenez spouses informing them of the
termination of the lease of Purisima Salazar shows that they
recognize and acknowledge their stay in the premises as
sublessees of Salazar. However, after the termination of the
contract oflease of Purisima Salazar with PATRICIA, any right
of the Jimenez spouses to stay in the premises, although
previously recognized, then and there ended. After the
termination of the contract of lease of Salazar the continued
stay of the Jimenez spouses thereat was merely by tolerance
of PATRICIA and it became unlawful after they ignored the
lessor's demand to leave.

Petitioner spouses, as mere sublessees of Purisima

Salazar, derive their right from the sublessor whose
termination of contract with the lessor necessarily also ends
the sublease contract. Thus, when the contract of lease of

The status of petitioner spouses is akin to that of a

lessee or a tenant whose term of lease has expired but
whose occupancy has continued by tolerance of the
owner. A person who occupies the land of another at the

Be that as it may, we find no error in the MeTC

assuming jurisdiction over the subject matter. A complaint
for unlawful detainer is sufficient if it alleges that the
withholding of possession or the refusal to vacate is unlawful
without necessarily employing the terminology of the law.
[10]
As correctly found by the appellate court, to which we
agree, the allegations in the complaint sufficiently
established a cause of action for unlawful detainer.The
complaint clearly stated how entry was effected and how
and when dispossession started - petitioners were able to
enter the subject premises as sublessees of Purisima Salazar
who, despite the termination of her lease with respondent,
continued to occupy the subject premises without any
contract with it; thus, their stay was by tolerance of
respondent.

latter's forbearance 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 him. [15]The
present action being for unlawful detainer, it is well within
the exclusive original jurisdiction of the metropolitan trial
courts.
Petitioners contend that respondent has no cause of
action against them since, as proved by Transfer Certificate
of Title No. T-44247, the property is in the name of the City
of Manila and not of respondent PATRICIA.
Records however show that this issue has not been
raised in the proceedings below, hence, will not be ruled
upon by this Court. Any issue raised for the first time on
appeal and not timely raised in the proceedings in the lower
court is barred by estoppel. Moreover, being mere
sublessees of the property in question, petitioners cannot in
an
action
involving
possession
of
the
leased
premises controvert the title of PATRICIA, or assert any right
adverse to its title. It is the Manila City Government, not the
Jimenez spouses, that is the proper party to dispute the
ownership of PATRICIA.
Petitioners argue that the Petition for Review of
respondent should have been dismissed for being premature
in view of the pendency of its Motion for Clarificatory
Judgment and Supplement to the Motion for Clarificatory
Judgment which remained unresolved by the RTC. They
assert that because of the pendency of its motion, there was
no final judgment or decision that could properly be the
subject of a petition for review before the Court of Appeals.

We do not agree. The Petition for Review filed by

respondent with the Court of Appeals was not prematurely
filed. It should be borne in mind that a Motion for
Clarificatory Judgment not being in the character of a
motion for reconsideration does not toll the reglementary
period for filing a petition for review with the Court of
Appeals. Its filing will not bar the judgment from attaining
finality, nor will its resolution amend the decision to be
reviewed. Thus, when respondent filed a Petition for
Review before the Court of Appeals, there was already a
final judgment that could properly be the subject of a
petition for review.
Moreover, under the Rules on Summary Procedure, the
decision of the RTC in civil cases governed by this Rule,
including forcible entry and unlawful detainer, is
immediately executory without prejudice to a further appeal
that may be taken therefrom. The judgment of the RTC
being final and executory the filing of the Petition for
Review was proper.
As to the house built by petitioners on the property, this
Court has previously ruled that lessees, much less,
sublessees, are not possessors or builders in good
faith[16] over rented land because they know that their
occupancy of the premises continues only during the life of
the lease, or sublease as the case may be; and, they
cannot as a matter of right recover the value of their
improvements from the lessor, much less retain the
premises until they are reimbursed.[17] Instead, their rights
are governed by Art. 1678 of the Civil Code which allows
reimbursement of lessees up to one-half (1/2) of the value of
their improvements if the lessor so elects:

Art. 1678. If the lessee makes, in good faith, useful

improvements which are suitable to the use for which the
lease is intended, without altering the form or substance of
the property leased, the lessor upon the termination of the
lease shall pay the lessee one-half of the value of the
improvements at that time. Should the lessor refuse to
reimburse said amount, the lessee may remove the
improvements, even though the principal thing may suffer
damage thereby. He shall not, however, cause any more
impairment upon the property leased than is necessary xxx
(New Civil Code).
Thus, applying the above rule, petitioners cannot
recover full reimbursement of the value spent for the
construction of the house, but is limited only to one-half ( 1/2)
of its value at the election of the lessor. However, as
PATRICIA has manifested its lack of intention to do so, the
Jimenez spouses have no recourse but to remove the house
at their own expense.
WHEREFORE, the assailed Joint Decision of the Court of
Appeals reversing and setting aside the decision of the
Regional
Trial Court and reinstating the decision of theMetropolitan Tri
al Court is AFFIRMED, with the MODIFICATION that petitioner
spouses Virgilio and Josie Jimenez should also remove the
house they have constructed on the lot at their own
expense. Thus, petitioner spouses and all persons claiming
title under them are ordered: (a) to vacate the premises
described in the complaint located at 2853 Juan Luna Street,
Tondo, Manila; (b) to remove at their own expense within
sixty (60) days from finality of this Decision the house they
have constructed thereon; (c) to pay respondent Patricia,
Inc., the sum of P3,000.00 a month as reasonable
rental/compensation for the use of the premises beginning

April 1995 until they finally vacate the premises; and, (d) to
pay respondent Patricia, Inc., the sum of P5,000.00 as
attorney's fees, plus costs of suit.
SO ORDERED

G) GUZMAN ET AL VS FUENTE ET AL
G.R. No. L-32433

December 29, 1930

FRANCISCO DE GUZMAN, ET. AL., plaintiffs-appellants,

vs.
CRISANTO DE LA FUENTE, ET AL., defendants-appellants.
Mariano Sta. Romana for plaintiffs-appellants.
Hermogenes Concepcion for defendants-appellants.

Both plaintiffs and defendants appealed from this judgment,

and the former made the following assignments of error:
1. In not ordering and compelling the defendants to
pay damages for their illegal occupation of the land
now in question to the plaintiffs.
2. In denying our motion for new trial.
The following assignments of error were made by the
defendants:
1. In ordering the defendant to vacate the premises.

ROMUALDEZ, J.:
The dispositive part of the lower court's judgment reads as
follows:
Wherefore, the court hereby orders the defendants to
vacate the premises set forth in the complaint,
restoring them to the plaintiffs herein. For lack of
evidence, no judgment can be rendered against the
defendants Crisanto de la Fuente and Agapita
Payumo to pay the plaintiffs the sum of P697.50
claimed by the latter as damages, from October 1,
1926, to January 15, 1928, nor against the
aforementioned defendants and Taw Pe Chan to pay
the plaintiffs jointly and severally damages in the
amount of P120 per month from January 15, 1928,
until they vacate the premises. The counterclaim and
the cross-complaint filed by the defendants are
hereby dismissed as against the plaintiffs. Without
costs.

2. In absolving plaintiff Francisco de Guzman from

the counterclaim and the cross-complaint.
3. In not holding the defendants to be the owners of
the land in question.
4. In not sentencing plaintiff Francisco de Guzman
to .convey the land in question to the defendants,
plaintiffs in the cross-complaint.
5. In not cancelling the original certificate of title No.
1921 (Exhibit A) with respect to the land in question,
and in not ordering the issuance of another
certificate of title in the name of the defendants.
6. In not sentencing the plaintiff to indemnify the
defendants for the value of said land, that is, P4 a
square meter.

7. in holding that the defendants' possession in good

faith became a possession in bad faith upon receipt
of the letter of notification (Exhibit C) from the
plaintiff's lawyer, Mr. Mariano Santa Romana.
8. In not sentencing the plaintiff, defendant in the
cross-complaint, to indemnify the defendants,
plaintiffs
in
the
cross-complaint,
for
the
improvements made by the latter in good faith,
worth P15,000.
Plaintiff Francisco de Guzman and defendant De la Fuente,
being close friends and compadres, the former having been
the recipient of considerable attention and favors from the
latter, agreed verbally that the said defendant should
occupy, in addition to a house he intended to build, the land
here in question, belonging to the plaintiffs.
In 1912 said defendant De la Fuente built his house upon
said land, which house was repaired in 1928. The court
below has appraised the house, after the repairs, at P7,504,
which finding is supported by the record.
The plaintiffs contend in this instance that said defendant
occupies their land by mere tolerance, having been required
to pay rent at the rate of P45 a month from October 1,.1926,
to December 31, 1927, and at P120 a month from January 1,
1928, when the house was repaired, and from which date
the house, besides being occupied by said defendant,
yielded him a monthly rented of P40. But the defendant
claims that the land belongs to him.
The evidence does not support this claim of the defendant
De La Fuente. The record shows that the owners of the land

were Francisco de Guzman and his deceased wife, and it

now belongs to said Francisco de Guzman and his children,
the plaintiffs herein.
Defendant De la Fuente's possession of the land
commenced and continues in good faith, inasmuch as, on
the one hand, the extra-judicial notice given by the
defendant about November, 1927 did not by itself destroy
said good faith, and will continue to exist as long as there is
no final judgment to the contrary, which to date has not
been redered; and, on the other hand, the necessity for the
repairs
of
the
house
has
been
sufficiently
proved.lawphi1>net
We find not merits in the assignments of error made by
either party, incompatible with the conclusions just stated.
This is therefore a case where on party is the owner of the
land, and the other is the owner, in good faith, of the
building thereon, provided for in article 361 of the Civil
Code; and the present value of the house, as stated, is
P7,504.
The evidence does not justify the award of damages claimed
by either the defendants or the plaintiffs.
Wherefore, the judgment appealed from is modified, and it
is held that the land in question belongs not to the
defendant De la Fuente, but to the plaintiffs, who are
entitled to acquire said defendant's house built thereon, by
paying its owner the sum of P7,504, or to compel him to pay
them the price of the land agreed upon by the interested
parties; and in default thereof, the price as fixed by the
competent court; and should the plaintiff choose to acquire

the house, the defendant shall have be the right to retain

the same until the above-mentioned amount is satisfied.
The remainder of the judgment appealed from is hereby
affirmed in so far as it is not incompatible with this decision.
Without express pronouncement of costs. So ordered.

H) ALBURU VS VILLANUEVA
G.R. No. 3003

January 2, 1907

LORENZA ALBURO, plaintiff-appellee,

vs.
CATALINA VILLANUEVA, defendant-appellant.
Ledesma, Sumulong & Quintos for appellant.
Hipolito Magsalin for appellee.
CARSON, J.:
In this case no motion for a new trial was filed on the ground
that the findings of fact of the trial judge were manifestly
contrary to the weight of the evidence, and the facts found
must be accepted as set out in the opinion of the lower
court.
It appears that the plaintiff is the owner, by inheritance from
her grandfather, of a certain lot of land in the city of Manila,
which, by written contract, was rented on the 23d of
January, 1892, to one Antonio Susano Goenco, for a term of
six years, with the privilege of renewal for a second term of
six years; that the defendant, who is the wife of the said
Goenco, came into possession by virtue of this rental
contract; that the defendant had her husband expended a
considerable sum of money filling in and leveling the lot and
that they built a house of hard materials thereon; and that
the rental contract, while it expressly permitted the tenant
to build upon the lot, is silent as to the disposition of the
house at the expiration of the rental term and makes no
express provision as to improvements to be made upon the
land by way of leveling or otherwise.

The defendant having refused to surrender the lot in

question of the expiration of the rental term, this action was
brought to recover possession thereof and judgment was
rendered for the plaintiff, reserving to the defendant the
right to remove the house from the lot.
Counsel for the defendant contends that she is entitled to a
renewal of the rental contract for a third term of six years;
or if this be denied, to be reimbursed for expenditures in
filling in and leveling the lot, and to have the benefits of the
provisions of article 361 of the Civil Code, wherein it is
provided that
The owner of the land on which building, sowing, or
planting is done in good faith shall have a right to
appropriate as his own work, sowing, or planting,
having previously paid the indemnity mentioned in
articles four hundred and fifty-three and four hundred
and fifty-four, or to oblige the person who has built or
planted to pay him the value of the land.
It is said that this rental contract should be construed in
accordance with the provisions of articles 1281, 1282, 1288,
and 1289 of the Civil Code so as to give the defendant the
right to renew the contract for a third term of six years, and
so on indefinitely so long as she faithfully paid the rent, but
we are of the opinion that there is no room for interpretation
in accordance with the provisions of these articles since the
contract expressly provides for a term of a definite number
of years, with a privilege of renewal for a second term of
definite number of years. This is a very usual form of rental
contract and its terms are so clear and explicit that they do
not justify an attempt to read into it any alleged intention of
the parties other than that which appears upon its face.

In support of her claim for reimbursement for expenses in

filling in and leveling the lot, defendant relies on the
provisions of paragraph 2 of article 1554 of the Civil Code,
wherein it is provided that the landlord is obliged "during the
lease to make all necessary repairs in order to preserve the
thing rented in condition to serve for the purpose to which it
was destined." But, as Manresa points out, this article is
strictly limited in its effect to repairs necessary to preserve
the thing rented in a condition suitable to the use agreed
upon ( para el uso pactado). A repair implies the putting of
something back into the condition in which it was originally
and not an improvement in the condition thereof by adding
something new thereto, unless the new thing be in
substitution of something formerly in existence and is added
to preserve the original status of the subject-matter of the
repairs; the filling in of a vacant lot can not be regarded as a
repair as the word is used in this article; and even though it
could be so considered, the remedy of the tenant under the
provisions of article 1556, when the landlord fails to make
necessary repairs, is by demand for the annulment of the
contract and indemnity by way of damages or without
demanding annulment of the contract by demand for
damages for negligence on the part of the landlord; and the
tenant is not authorized to make such repairs at the
expense of the landlord, except when it is a matter of the
most urgent necessity (reparacion urgentisima) "where the
slightest delay would involve grave damages," when the
tenant may take the absolutely necessary means to avoid
the loss, at the cost of the owner, doing only that which is
required by the force of circumstances and no more, but this
on the ground that "he had acted by virtue of the social duty
of mutual aid and assistance." (Manresa, vol. 10, p. 473.)
It has been suggested that the claim of the defendant for
compensation for the filling in and leveling of the lot may be

based upon article 453 of the Civil Code which provides that
"necessary expenditures will be repaid to all persons in
possession (los gastos necesarios se abonan a todo
poseedor)." It may be doubted, however, whether the
"possessor" referred to in this provision can be said to
include one who stands in relation of tenant to his landlord,
for the above-cited article 1554 of the Civil Code, and the
chapter wherein it occurs, seem to provide for such cases;
and in any event we do not think that the filling in and
improvement of a lot can be brought under the head of
necessary expenses (gastos necesarios) as used in this
connection. Manresa in his commentaries upon this article
says that gastos necesarios are no others than those made
for the preservation of the thing upon which they have been
expended.
The contention that the defendant is entitled to the benefits
of the provisions of article 361 of the Civil Code can not be
maintained because the right to indemnification secured in
that article is manifestly intended to apply only to a case
where one builds or sows or plants an land in which he
believes himself to have a claim of title and not to lands
wherein one's only interest is that of tenant under a rental
contract; otherwise it would always be in the power of the
tenant to improve his landlord out of his property. The right
of a tenant in regard to improvements (mejoras) is expressly
provided for in article 1573 read in connection with article
487, wherein it is provided that the tenant may make such
improvements, either useful or convenient, as he considers
advantageous, provided he does not alter the form and
substance of the thing rented, but that he will have no right
for indemnification therefor, though he can take away such
improvements if it is possible to do so without injury or
damage to the thing rented.

The trial court authorized the removal of the house,

apparently relying on the provisions of this article, but since
no objection was made by the plaintiff in the court below,
we are not authorized to review his action in this connection.
The judgment appealed from is affirmed, with the costs of
this instance against the appellant. After the expiration of
twenty days let judgment be entered in accordance
herewith and ten days thereafter let the record in this case
be remanded to the court of its origin for execution.
Arellano, C.J. Torres, Willard and Tracey, JJ., concur

I)

TUASON VS LUMANLAN

G.R. No. L-23497

April 26, 1968

J.M. TUASON and CO., INC., petitioner,

vs.
ESTRELLA VDA. DE LUMANLAN and the COURT OF
APPEALS (FIFTH DIVISION), respondents.
Tuason and Sison for petitioner.
Jose Chuico and Wilfredo E. Dizon for respondents.
REYES, J.B.L., Actg. C.J.:
J. M. Tuason & Co., Inc. petitioned for a review
by certiorari of the decision issued by the Court of Appeals
(Fifth Division) in its case CA-G.R. No. 27259-R, reversing the
judgment rendered by the Court of First Instance of Rizal
(Civil Case No. Q-4243) that ordered defendant (now
respondent) Estrella Vda. de Lumanlan to vacate the lot
occupied by her in Sta. Mesa Heights Subdivision, barrio
Tatalon, Quezon City, and to remove therefrom the house
and other structures constructed thereon, paying P240.00 a
month until restoration of the premises to plaintiff.
The facts are stated in the decision of the Court of Appeals
(accepted by both parties) in this wise:1wph1.t
. . . That in the complaint filed in this case by
plaintiff, J. M. Tuason & Co., Inc., hereinafter called
Tuason, on 30 April, 1969, the basis is that it being
the registered owner of the property known as Santa

Mesa Heights Subdivision, situated at Barrio North

Tatalon, Quezon City, herein defendant sometime in
April, 1949 unlawfully entered into possession of 800
square meters, and therein constructed his house so
that plaintiff prayed for ejectment and damages for
the occupancy; and defendant in her answer set
forthaffirmative defense that on 12 March, 1949, she
had bought the property she was occupying from one
Pedro Deudor, and that in a compromise agreement
between Pedro and Tuason on 16 March 1953,
approved by the Court of First Instance of Quezon
City, she was one of the buyers therein recognized,
so that she asked that her rights be recognized and
the complaint dismissed; but on the basis of the
evidence presented by both parties in the trial, Lower
Court sustained plaintiff, holding that Tuason being
the registered owner, and the question being purely
one of possession, therefore, defendant's said
evidence was "completely immaterial". . . . (Page 2 of
Decision, Annex "A" of Petition.)
Upon the facts thus stated, the Fifth Division of the Court of
Appeals held that, pursuant to this Supreme Court's ruling
in Evangelista vs. Deudor, L-12826, September 10, 1959,
the Compromise Agreement (Exh. 2) between the petitioner
Tuason & Co. and the Deudors constituted a valid defense
against the possessory action filed by Tuason & Co.; that
under paragraph 7 of said Compromise Agreement,
petitioner bound and committed itself to sell to respondent
Lumanlan the lot occupied by her at a reasonable price; that
said respondent had a right to compel petitioner to accept
payment for the lot in question; and that the compromise
agreement legalized the possession of respondent.

These pronouncements are assailed by the petitioner in this

appeal as legally incorrect and contrary to the decisions of
this Court.
The terms of the compromise agreement between the heirs
of Telesforo Deudor and J. M. Tuason & Co. have been taken
cognizance of in many decisions of this Court (Evangelista
vs. Deudor, jam. cit; Deudor vs. J. M. Tuason & Co., L-18768,
May 30, 1961, and L-20105, Oct. 31, 1963; J. M. Tuason vs.
Jaramillo, et al., L-18932-34, Sept. 30, 1963; J. M. Tuason vs.
Macalindong, L-15398, Dec. 29, 1962 and others). The
Deudors had therein recognized the registered title of
Tuason & Co. over the lands claimed by them, and received
payment of certain sums of money; but as the Deudors had,
prior to the compromise, sold their possessory rights to
various persons, paragraph seventh of the compromise
agreement (case Q-135 of the court of origin) provided:

"B" herein with the annotation "continue" shall buy

the lots respectively occupied by them and shall sign
contracts, but the sums already paid by them to the
DEUDORS amounting to P134,922.84 (subject to
verification by the Court) shall be credited to the
buyers and shall be deducted from the sums to be
paid to the DEUDORS by the OWNERS. The DEUDORS
also advise the OWNERS that, the buyers listed in
Annex "C" herein with the annotation "Refund" have
decided not to continue with their former contracts or
purchases with the DEUDORS and the sums already
paid by them to the DEUDORS TOTALLING
P101,182.42 (subject to verification by the Court)
shall be refunded to them by the OWNERS and
deducted from the sums that may be due to the
DEUDORS from the OWNERS (J.M. Tuason & Co., Inc.
vs. Jaramillo, L-18932, Sept. 30, 1963);

That the sales of the possessory rights claimed by

the DEUDORS, are described in the lists submitted by
them to the OWNERS which are attached hereto
marked Annexes "B" and "C" and made part hereof.
Whatever amounts may have been collected by the
DEUDORS on account thereof, shall be deducted
from the total sum of P1,201,063.00 to be paid to
them. It shall be the joint and solidary obligation of
the DEUDORS to make the buyer of the lots
purportedly sold by them to recognize the title of the
OWNERS over the property purportedly bought by
them, and to make them sign, whenever possible,
new contracts of purchase for said property at the
current paces and terms specified by the OWNERS in
their sales of lots in their subdivision known at "Sta.
Mesa Heights Subdivision." The DEUDORS HEREBY
advised the OWNERS that the buyer listed in Annex

Careful analysis of this paragraph of the compromise

agreement will show that while the same created "a sort of
contractual relation" between the J. M. Tuason & Co., Inc.,
and the Deudor vendees (as ruled by this Court in
Evangelista vs. Deudor, ante), the same in no way obligated
Tuason & Co. to sell to those buyers the lots occupied by
them at the price stipulated with the Deudors, but at "the
current prices and terms specified by the OWNERS (Tuason)
in their sales of lots in their subdivision known as 'Sta. Mesa
Heights Subdivision'". This is what is expressly provided.
Further, the paragraph plainly imports that these buyers of
the Deudors must "recognize the title of the OWNERS
(Tuason) over the property purportedly bought by them"
from the Deudors, and "sign, whenever possible, new
contracts of purchase for said property"; and, if and when
they do so, "the sums paid by them to the Deudors . . . shall
be credited to the buyers." All that Tuason & Co. agreed to,

therefore, was to grant the Deudor buyers preferential right

to purchase "at current prices and terms" the lots occupied
by them, upon their recognizing the title of Tuason & Co.,
Inc., and signing new contracts therefor; and to credit them
for the amounts they had paid to the Deudors.

predecessors twenty years after its issuance (Tiburcio vs.

PHHC, L-13429, Oct. 31, 1959; Tuason & Co. vs. Bolaos, 95
Phil. 107; Tuason & Co. vs. Santiago, 99 Phil. 622-623;
Tuason & Co. vs. Macalindong, supra; Tuason & Co. vs.
Jaramillo, L-16827, Jan. 31, 1963).

Nowhere in her answer did the respondent Estrella Vda. de

Lumanlan claim that she had signed a new contract with J.
M. Tuason & Co., Inc. for the purchase of the lot occupied.
What is worse, instead of recognizing the title of the owners
(Tuason & Co.) as required by the aforementioned
compromise agreement, she charged in paragraph 6 of her
special defense (Rec. on Appeal, p. 10) that "Pedro Deudor
and his co-owners and the plaintiff herein . . . conspired
together and helped each other . . . by entering into a
supposed Compromise" whereby "Pedro Deudor and his coowners renounced, ceded, waived and quitclaimed all their
rights, title and interest in the property including the land
sold to herein defendant, in favor of the plaintiff J. M. Tuason
& Co., Inc., in consideration of the sum of P1,201,063.00,
without the knowledge and consent, and much less the
intervention of the herein defendant." In other words, the
respondent Lumanlan in her answer repudiated and assailed
the compromise between the Deudors and J. M. Tuason &
Co. How then can she now claim to take advantage and
derive rights from that compromise?

It is thus apparent that no legal basis exists for the

pronouncement in the appealed decision that Tuason & Co.
had committed itself to sell to Lumanlan the lot occupied by
her at a reasonable price, or that the compromise
agreement legalized the possession of the respondent, since
the latter does not rely on the compromise but, on the
contrary, she assails it.

Without the compromise agreement, Lumanlan must justify

her possession on the basis of a pretended superiority of the
Deudors' old Spanish informacion posesoria over Tuason's
Certificate of Title No. 1267, traceable back to the original
Certificate of Title No. 735 of Rizal, issued under the
Registration Act No. 496. But, as ruled by this Court in
previous cases, Lumanlan is by now barred from assailing
the decree of registration in favor of Tuason & Co., Inc.'s

Since there has been no contract between petitioner Tuason

& Co. and respondent Lumanlan for the sale of the lot
occupied by the latter, and by paragraph 7 of the
Compromise Agreement (assuming that respondentappellee still has the right to invoke the same, and seek
refuge thereunder), Tuason & Co. did not consider itself
bound by the sales made by the Deudors, but demanded

The Court of Appeals ruled that the price to be paid by

Lumanlan to Tuason & Co., Inc., is governed by Article 1474
of the new Civil Code of the Philippines, which provides that:
Where the price cannot be determined in accordance
with the preceding articles, or in any other manner,
the contract is inefficacious. However, if the thing or
any part thereof has been delivered to and
appropriated by the buyer, he must pay a reasonable
price therefor. What is a reasonable price is a
question of fact dependent on the circumstances of
each particular case.

that the Deudor buyers should sign new contracts with it at

current prices specified for the sales of lots in "Sta. Mesa
Heights Subdivision" (ante) the aforequoted Article 1474 can
have no bearing on the case, Lumanlan not being a buyer
from Tuason & Co.
As to Lumanlan's allegation in her counterclaim that she
should be deemed a builder in good faith, a similar
contention has been rejected in Tuason & Co. vs.
Macalindong, L-15398, December 29, 1962, where we ruled
that there being a presumptive knowledge of the Torrens
titles issued to Tuason & Co. and its predecessors-in-interest
since 1914, the buyer from the Deudors (or from their
transferees) can not, in good conscience, say now that she
believed her vendor had rights of ownership over the lot
purchased. The reason given by the Court is that
Had he investigated before buying and before
building his house on the questioned lot, he would
have been informed that the land is registered under
the Torrens system in the name of J. M. Tuason & Co.,
Inc., If he failed to make the necessary inquiry,
appellant is now bound conclusively by appellee's
Torrens title (Sec. 51, Act 496; Emas vs. Zuzuarregui,
35
Phil.
144)
(Tuason
&
Co.,
Inc.
vs.
Macalindong, ante).

Lumanlan had chosen to ignore the Torrens title of Tuason &

Co., Inc. and relied instead upon the Deudors' claim of
ownership, perhaps because such course appeared to her as
more advantageous; hence, she has only herself to blame
for the consequences now that the Deudors' claim has been
abandoned by the Deudors themselves, and can not pretend
good faith. The Court of First Instance, therefore, did not err
in holding that she was not a rightful possessor and
sentencing her to vacate.
Respondent could have asked that she recover or be
credited with the amounts paid by her to the Deudors, but
as no claim to such credit was ever advanced by her in the
trial Court, no pronouncement can be made thereon in this
appeal. Equity demands, however, that her right to claim
such return, or to have the amount offset against the sums
she was sentenced to pay, should be, as it is, reserved.
WHEREFORE, the decision of the Court of Appeals is
reversed and that of the Court of First Instance reinstated.
Costs against respondent, Estrella Vda. de Lumanlan.

J) PLEASANTVILLE VS CA

Pleasantville Subdivision, Bacolod City. In 1975, respondent

Eldred Jardinico bought the rights to the lot from Robillo. At
that time, Lot 9 was vacant.

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

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.

DECISION
PANGANIBAN, J.:
Is a lot buyer who constructs improvements on the
wrong property erroneously delivered by the owners agent,
a builder in good faith? This is the main issue resolved in
this petition for review on certiorari to reverse the
Decision[1] of the Court of Appeals[2] in 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 Court assigned 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 at Taculing Road,

It appears that on March 26, 1974, Kee bought on

installment Lot 8 of the same subdivision from C.T. Torres
Enterprises, Inc. (CTTEI), the exclusive real estate agent of
petitioner. Under the Contract to Sell on Installment, Kee
could possess the lot even before the completion of all
installment payments. On January 20, 1975, Kee paid CTTEI
the relocation fee of P50.00 and another P50.00 on January
27, 1975, for the preparation of the lot plan. These amounts
were paid prior to Kees taking actual possession
of Lot 8. After the preparation of the lot plan and a copy
thereof given to Kee, CTTEI through its employee, Zenaida
Octaviano, accompanied Kees wife, Donabelle Kee, to
inspect Lot 8. Unfortunately, the parcel of land pointed by
Octaviano was Lot 9. Thereafter, Kee proceeded to construct
his residence, a store, an auto repair shop and other
improvements on the lot.
After discovering that Lot 9 was occupied by Kee,
Jardinico confronted him. The parties tried to reach an
amicable settlement, but failed.

On January 30, 1981, Jardinicos lawyer wrote Kee,

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

IN VIEW OF ALL THE FOREGOING, judgment is hereby

rendered as follows:

Kee, in turn, filed a third-party complaint against

petitioner and CTTEI.

2. Defendant Wilson Kee is ordered to pay to the plaintiff

rentals at the rate of P 15.00 a day computed from the time
this suit was filed on March 12, 1981 until he actually
vacates the premises.This amount shall bear interests (sic)
at the rate of 12 per cent (sic) per annum.

The MTCC held that the erroneous delivery of Lot 9 to

Kee was attributable to CTTEI. It further ruled that petitioner
and CTTEI could not successfully invoke as a defense the
failure of Kee to give notice of his intention to begin
construction required under paragraph 22 of the Contract to
Sell on Installment and his having built a sari-sari store
without. the prior approval of petitioner required under
paragraph 26 of said contract, saying that the purpose of
these requirements was merely to regulate the type of
improvements to be constructed on the lot[3].
However, the MTCC found that petitioner had already
rescinded its contract with Kee over Lot 8 for the latters
failure to pay the installments due, and that Kee had not
contested the rescission. The rescission was effected in
1979, before the complaint was instituted.The MTCC
concluded that Kee no longer had any right over the lot
subject
of
the
contract
between
him
and
petitioner. Consequently, Kee must pay reasonable rentals
for the use ofLot 9, and, furthermore, he cannot claim
reimbursement for the improvements he introduced on said
lot.
The MTCC thus disposed:

1. Defendant Wilson Kee is ordered to vacate tithe premises

of Lot 9, covered by TCT No. 106367 and to remove all
structures and improvements he introduced thereon;

3. Third-Party Defendant CT. Torres Enterprises, Inc. and

Pleasantville Subdivision are ordered to pay the plaintiff
jointly and severally the sum of P3,000.00 as attorneys fees
and P700.00 as cost and litigation expenses.[4]
On appeal, the Regional Trial Court, Branch 48, Bacolod
City (RTC) ruled that petitioner and CTTEI were not at fault
or were not negligent, there being no preponderant
evidence to show that they directly participated in the
delivery of Lot 9 to Kee.[5] It found Kee a builder in bad faith.
It further ruled that even assuming arguendo that Kee was
acting in good faith, he was, nonetheless, guilty of
unlawfully usurping the possessory right of Jardinico
over Lot 9 from the time he was served with notice to
vacate said lot, and thus was liable for rental.
The RTC thus disposed:
WHEREFORE, the decision appealed from is affirmed with
respect to the order against the defendant to vacate the
premises of Lot No. 9 covered by Transfer Certificate of Title

No. T-106367 of the land records of Bacolod City; the

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

1. Wilson Kee is declared a builder in good faith with

respect to the improvements he introduced
on Lot 9, and is entitled to the rights granted him
under Articles 448, 546 and 548 of the New Civil
Code.
2. Third-party defendants C.T. Torres Enterprises,
Inc. and Pleasantville Development Corporation
are solidarily liable under the following
circumstances:
a. If Eldred Jardinico decides to appropriate the
improvements and, thereafter, remove these
structures, the third-party defendants shall
answer for all demolition expenses and the
value of the improvements thus destroyed or
rendered useless;
b. If Jardinico prefers that Kee buy the land, the
third-party defendants shall answer for the
amount representing the value of Lot 9 that
Kee should pay to Jardinico.
3. Third-party defendants C.T. Torres Enterprises,
Inc. and Pleasantville Development Corporation
are ordered to pay in solidum the amount of
P3,000.00 to Jardinico as attorneys fees, as well
as litigation expenses.
4. The award of rentals to Jardinico is dispensed
with.
Furthermore, the case is REMANDED to the court of origin
for the determination of the actual value of the

improvements and the property (Lot 9), as well as for further

proceedings in conformity with Article 448 of the New Civil
Code.[7]
Petitioner then filed the instant petition against Kee,
Jardinico and CTTEI.

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 attorneys fees is clearly without basis and is
equivalent to putting a premium in (sic) court litigation.

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

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

follows:
(1) Was Kee a builder in good faith?

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;

(2) What is the liability, if any, of petitioner and its agent,

C.T. Torres Enterprises, Inc.? and
(3) Is the award of attorneys fees proper?
The First Issue: Good Faith
Petitioner contends that the Court of Appeals erred in
reversing the RTCs ruling that Kee was a builder in bad faith.
Petitioner fails to persuade this Court to abandon the
findings and conclusions of the Court of Appeals that Kee
was a builder in good faith. We agree with the following
observation of the Court of Appeals:
The roots of the controversy can be traced directly to the
errors committed by CTTEI, when it pointed the wrong
property to Wilson Kee and his wife. It is highly improbable
that a purchaser of a lot would knowingly and willingly build
his residence on a lot owned by another, deliberately
exposing himself and his family to the risk of being ejected

from the land and losing all improvements thereon, not to

mention the social humiliation that would follow.

forestall did in fact transpire. Kees efforts all went to naught.

Under the circumstances, Kee had acted in the manner of a

prudent man in ascertaining the identity of his
property. Lot 8 is covered by Transfer Certificate of Title No.
T-69561, while Lot 9 is identified in Transfer Certificate of
Title No. T-106367. Hence, under the Torrens system of land
registration, Kee is presumed to have knowledge of the
metes and bounds of the property with which he is dealing.
xxx

Good faith consists in the belief of the builder that the

land he is building on is his and his ignorance of any defect
or flaw in his title.[9] And as good faith is presumed,
petitioner has the burden of proving bad faith on the part of
Kee.[10]

xxx xxx xxx

But as Kee is a layman not versed in the technical
description of his property, he had to find a way to ascertain
that
what
was
described
in
TCT
No.
69561
matched Lot 8. Thus, he went to the subdivision developers
agent and applied and paid for the relocation of the lot, as
well as for the production of a lot plan by CTTEIs geodetic
engineer. Upon Kees receipt of the map, his wife went to the
subdivision site accompanied by CTTEIs employee,
Octaviano, who authoritatively declared that the land she
was pointing to was indeed Lot 8. Having full faith and
confidence in the reputation of CTTEI, and because of the
companys positive identification of the property, Kee saw no
reason to suspect that there had been a misdelivery. The
steps Kee had taken to protect his interests were
reasonable. There was no need for him to have acted exabundantia cautela, such as being present during the
geodetic engineers relocation survey or hiring an
independent geodetic engineer to countercheck for errors,
for the final delivery of subdivision lots to their owners is
part of the regular course of everyday business of
CTTEI. Because of CTTEIs blunder, what Kee had hoped to

[8]

At the time he built improvements on Lot 8, Kee

believed that said lot was what he bought from
petitioner. He was not aware that the lot delivered to him
was not Lot 8. Thus, Kees good faith. Petitioner failed to
prove otherwise.
To demonstrate Kees bad faith, petitioner points to Kees
violation of paragraphs 22 and 26 of the Contract of Sale on
Installment.
We disagree. Such violations have no bearing
whatsoever on whether Kee was a builder in good faith, that
is, on his state of mind at the time he built the
improvements onLot 9. These alleged violations may give
rise to petitioners cause of action against Kee under the said
contract (contractual breach), but may not be bases to
negate the presumption that Kee was a builder in good faith.
Petitioner also points out that, as found by the trial
court, the Contract of Sale on Installment covering Lot 8
between it and Kee was rescinded long before the present
action was instituted. This has no relevance on the liability
of petitioner, as such fact does not negate the negligence of
its agent in pointing out the wrong lot to Kee. Such

circumstance is relevant only as it gives Jardinico a cause of

action for unlawful detainer against Kee.
Petitioner next contends that Kee cannot claim that
another lot was erroneously pointed out to him because the
latter agreed to the following provision in the Contract of
Sale on Installment, to wit:
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 is so
desired by him/her.[11]
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 petitioners negligence. Such waiver would be
contrary to public policy and cannot be allowed. Rights may
be waived, unless the waiver is contrary to law, public order,
public policy, morals, or good customs, or prejudicial to a
third person with a right recognized by law.[12]
The Second Issue: Petitioners Liability

Kee filed a third-party complaint against petitioner and

CTTEI, which was dismissed by the RTC after ruling that
there was no evidence from which fault or negligence on the
part of petitioner and CTTEI can be inferred. The Court of
Appeals disagreed and found CTTEI negligent for the
erroneous delivery of the lot by Octaviano, its employee.
Petitioner does not dispute the fact that CTTEI was its
agent. But it contends that the erroneous delivery of Lot 9 to
Kee was an act which was clearly outside the scope of its
authority, and consequently, CTTEI alone should be liable. It
asserts that while [CTTEI] was authorized to sell the lot
belonging to the herein petitioner, it was never authorized
to deliver the wrong lot to Kee.[13]
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 his authority is
personally liable for the damage.[15]
CTTEI was acting within its authority as the sole real
estate representative of petitioner when it made the
delivery to Kee. In acting within its scope of authority, it
was, however, negligent. It is this negligence that is the
basis of petitioners liability, as principal of CTTEI, per
Articles 1909 and 1910 of the Civil Code.
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 whatsoever;[16]
Kee asserts though that the terms and conditions in said
deed of sale are strictly for the parties thereto and that
(t)here is no waiver made by either of the parties in said
deed of whatever favorable judgment or award the
honorable respondent Court of Appeals may make in their
favor against herein petitioner Pleasantville Development
Corporation and/or private respondent C.T. Torres
Enterprises, Inc.[17]
Obviously, the deed of sale can have no effect on the
liability of petitioner. As we have earlier stated, petitioners
liability is grounded on the negligence of its agent. On the
other hand, what the deed of sale regulates are the
reciprocal rights of Kee and Jardinico; it stressed that they
had reached an agreement independent of the outcome of
the case.
Petitioner further assails the following holding of the
Court of Appeals:
2. Third-party defendants C.T. Torres Enterprises, Inc. and
Pleasantville Development Corporation are solidarily liable
under the following circumstances:
a. If Eldred Jardinico decides to appropriate the
improvements and, thereafter, remove these

structures, the third-party defendants shall

answer for all demolition expenses and the
value of the improvements thus destroyed or
rendered useless;
b. If Jardinico prefers that Kee buy the land, the
third-party defendants shall answer for the
amount representing the value of Lot 9 that
Kee should pay to Jardinico.[18]
Petitioner contends that if the above holding would be
carried out, Kee would be unjustly enriched at its expense.
In other words, Kee would be -able to own the lot, as buyer,
without having to pay anything on it, because the
aforequoted portion of respondent Courts Decision would
require petitioner and CTTEI jointly and solidarily to answer
or reimburse Kee there for.
We agree with petitioner.
Petitioners liability lies in the negligence of its agent
CTTEI. For such negligence, the petitioner should be held
liable for damages. Now, the extent and/or amount of
damages to be awarded is a factual issue which should be
determined after evidence is adduced.However, there is no
showing that such evidence was actually presented in the
trial court; hence no damages could now be awarded.
The rights of Kee and Jardinico vis-a-vis each other, as
builder in good faith and owner in good faith, respectively,
are regulated by law (i.e., Arts. 448, 546 and 548 of the Civil
Code). It was error for the Court of Appeals to make a slight
modification in the application of such law, on the ground of
equity. At any rate, as it stands now, Kee and Jardinico have

amicably settled through their deed of sale their rights and

obligations with regards to Lot 9.Thus, we delete items 2 (a)
and (b) of the dispositive portion of the Court of Appeals
Decision [as reproduced above] holding petitioner and CTTEI
solidarily liable.
The Third Issue: Attorneys Fees
The MTCC awarded Jardinico attorneys fees and costs in
the amount of P3,000.00 and P700.00, respectively, as
prayed for in his complaint. The RTC deleted the award,
consistent with its ruling that petitioner was without fault or
negligence. The Court of Appeals, however, reinstated the
award of attorneys fees after ruling that petitioner was liable
for its agents negligence.
The award of attorneys fees lies within the discretion of
the court and depends upon the circumstances of each
case.[19] We shall not interfere with the discretion of the
Court of Appeals. Jardinico was compelled to litigate for the
protection of his interests and for the recovery of damages
sustained as a result of the negligence of petitioners agent.
[20]

In sum, we rule that Kee is a builder in good faith. The

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

SO ORDERED.