Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-175 April 30, 1946

DAMIAN IGNACIO, FRANCISCO IGNACIO and LUIS IGNACIO, petitioners,

vs.

ELIAS HILARIO and his wife DIONISIA DRES, and FELIPE NATIVIDAD, Judge of

First Instance of Pangasinan, respondents.

Leoncio R. Esliza for petitioners.

Mauricio M. Monta for respondents.

MORAN, C.J.:

This is a petition for certiorari arising from a case in the Court of First Instance of Pangasinan

between the herein respondents Elias Hilario and his wife Dionisia Dres as plaintiffs, and the

herein petitioners Damian, Francisco and Luis, surnamed Ignacio, as defendants, concerning the

ownership of a parcel of land, partly rice-land and partly residential. After the trial of the case,

the lower court, presided over by Hon. Alfonso Felix, rendered judgment holding plaintiffs as the

legal owners of the whole property but conceding to defendants the ownership of the houses and

granaries built by them on the residential portion with the rights of a possessor in good faith, in

accordance with article 361 of the Civil Code. The dispositive part of the decision, hub of this

controversy, follows:

Wherefore, judgment is hereby rendered declaring:

(1) That the plaintiffs are the owners of the whole property described in transfer

certificate of title No. 12872 (Exhibit A) issued in their name, and entitled to the

possession of the same;

(2) That the defendants are entitled to hold the position of the residential lot until after

they are paid the actual market value of their houses and granaries erected thereon, unless

the plaintiffs prefer to sell them said residential lot, in which case defendants shall pay

the plaintiffs the proportionate value of said residential lot taking as a basis the price paid

for the whole land according to Exhibit B; and

(3) That upon defendant's failure to purchase the residential lot in question, said

defendants shall remove their houses and granaries after this decision becomes final and

within the period of sixty (60) days from the date that the court is informed in writing of

the attitude of the parties in this respect.

No pronouncement is made as to damages and costs.

Once this decision becomes final, the plaintiffs and defendants may appear again before

this court for the purpose of determining their respective rights under article 361 of the

Civil Code, if they cannot come to an extra-judicial settlement with regard to said rights.

Subsequently, in a motion filed in the same Court of First Instance but now presided over by the

herein respondent Judge Hon. Felipe Natividad, the plaintiffs prayed for an order of execution

alleging that since they chose neither to pay defendants for the buildings nor to sell to them the

residential lot, said defendants should be ordered to remove the structure at their own expense

and to restore plaintiffs in the possession of said lot. Defendants objected to this motion which,

after hearing, was granted by Judge Natividad. Hence, this petition by defendants praying for (a)

a restraint and annulment of the order of execution issued by Judge Natividad; (b) an order to

compel plaintiffs to pay them the sum of P2,000 for the buildings, or sell to them the residential

lot for P45; or (c), a rehearing of the case for a determination of the rights of the parties upon

failure of extra-judicial settlement.

The judgment rendered by Judge Felix is founded on articles 361 and 453 of the Civil Code

which are as follows:

ART. 361. The owner of land on which anything has been built, sown or planted in good

faith, shall have the right to appropriate as his own the work, sowing or planting, after the

payment of the indemnity stated in articles 453 and 454, or to oblige the one who built or

planted to pay the price of the land, and the one who sowed, the proper rent.

ART. 453. Necessary expenses shall be refunded to every possessor; but only the

possessor in good faith may retain the thing until such expenses are made good to him.

Useful expenses shall be refunded to the possessor in good faith with the same right of

retention, the person who has defeated him in the possession having the option of

refunding the amount of the expenses or paying the increase in value which the thing may

have acquired in consequence thereof.

The owner of the building erected in good faith on a land owned by another, is entitled to retain

the possession of the land until he is paid the value of his building, under article 453. The owner

of the land, upon the other hand, has the option, under article 361, either to pay for the building

or to sell his land to the owner of the building. But he cannot, as respondents here did, refuse

both to pay for the building and to sell the land and compel the owner of the building to remove

it from the land where it is erected. He is entitled to such remotion only when, after having

chosen to sell his land, the other party fails to pay for the same. But this is not the case before us.

We hold, therefore, that the order of Judge Natividad compelling defendants-petitioners to

remove their buildings from the land belonging to plaintiffs-respondents only because the latter

chose neither to pay for such buildings not to sell the land, is null and void, for it amends

substantially the judgment sought to be executed and is, furthermore, offensive to articles 361

and 453 of the Civil Code.

There is, however, in the decision of Judge Felix a question of procedure which calls for the

clarification, to avoid uncertainty and delay in the disposition of cases. In that decision, the rights

of both parties are well defined under articles 361 and 453 of the Civil Code, but it fails to

determine the value of the buildings and of the lot where they are erected as well as the periods

of time within which the option may be exercised and payment should be made, these particulars

having been left for determination apparently after the judgment has become final. This

procedure is erroneous, for after the judgment has become final, no additions can be made

thereto and nothing can be done therewith except its execution. And execution cannot be had, the

sheriff being ignorant as to how, for how much, and within what time may the option be

exercised, and certainly no authority is vested in him to settle these matters which involve

exercise of judicial discretion. Thus the judgment rendered by Judge Felix has never become

final, it having left matters to be settled for its completion in a subsequent proceeding, matters

which remained unsettled up to the time the petition is filed in the instant case.

For all the foregoing, the writ of execution issued by Judge Natividad is hereby set aside and the

lower court ordered to hold a hearing in the principal case wherein it must determine the prices

of the buildings and of the residential lot where they are erected, as well as the period of time

within which the plaintiffs-respondents may exercise their option either to pay for the buildings

or to sell their land, and, in the last instance, the period of time within which the defendants-

petitioners may pay for the land, all these periods to be counted from the date the judgment

becomes executory or unappealable. After such hearing, the court shall render a final judgment

according to the evidence presented by the parties.

The costs shall be paid by plaintiffs-respondents.

Ozaeta, Paras, Jaranilla, Feria, De Joya, Pablo, Perfecto, Hilado, Bengzon and Briones, JJ.,

concur.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 72876 January 18, 1991

FLORENCIO IGNAO, petitioner, vs.

HON. INTERMEDIATE APPELLATE COURT, JUAN IGNAO, substituted by his Legal Heirs, and ISIDRO IGNAO, respondents.

Dolorfino and Dominguez Law Offices for petitioner.

Ambrosio Padilla, Mempin & Reyes Law Offices for private respondents.

FERNAN, C.J.:p

In this petition for review by certiorari, petitioner seeks the reversal of the decision of the Intermediate Appellate Court (now Court of Appeals) affirming in toto the decision of the Court of First Instance of Cavite, ordering petitioner Florencio Ignao to sell to private respondents Juan

and Isidro Ignao, that part of his property where private respondents had built a portion of their houses.

The antecedent facts are as follows:

Petitioner Florencio Ignao and his uncles private respondents Juan Ignao and Isidro Ignao were co-owners of a parcel of land with an area of 534 square meters situated in Barrio Tabon, Municipality of Kawit, Cavite. Pursuant to an action for partition filed by petit ioner docketed as Civil Case No. N-1681, the then Court of First Instance of Cavite in a decision dated February 6, 1975 directed the partition of the aforesaid land, alloting 133.5 square meters or 2/8 thereof to private respondents Juan and Isidro, and giving the remaining portion with a total area of

266.5 square meters to petitioner Florencio. However, no actual partition was ever effected. 1

On July 17, 1978, petitioner instituted a complaint for recovery of possession of real property against private respondents Juan and Isidro before the Court of First Instance of Cavite, docketed as Civil Case No. 2662. In his complaint petitioner alleged that the area occupied by the two (2) houses built by private respondents exceeded the 133.5 square meters previously alloted to them by the trial court in Civil Case No. N-1681.

Consequently, the lower court conducted an ocular inspection. It was found that the houses of Juan and Isidro actually encroached upon a portion of the land belonging to Florencio. Upon agreement of the parties, the trial court ordered a licensed geodetic engineer to conduct a survey to determine the exact area occupied by the houses of private respondents. The survey subsequently disclosed that the house of Juan occupied 42 square meters while that of Isidro occupied 59 square meters of Florencio's land or a total of 101 square meters.

In its decision, the trial court (thru Judge Luis L. Victor) ruled that although private respondents occupied a portion of Florencio's property, they should be considered builders in good faith. The trial court took into account the decision of the Court of First Instance of Cavite in the action for partition

2 and quoted:

. . . . Hence, it is the well-considered opinion of the Court that although it turned out that the defendants had, before partition, been in possession of more than what rightfully belongs to them, their possession of what is in excess of their rightful share can at worst be possession in good faith which exempts them from being condemned to pay damages by reason thereof.

3

Furthermore, the trial court stated that pursuant to Article 448 of the Civil Code, the owner of the land (Florencio) should have the choice to either appropriate that part of the house standing on his land after payment of indemnity or oblige the builders in good faith (Juan and Isidro) to pay the price of the land. However, the trial court observed that based on the facts of the case, it would be useless and unsuitable for Florencio to exercise the first option since this would render the entire houses of Juan and Isidro worthless. The trial court then applied the ruling in the similar case of Grana vs. Court of Appeals,

4 where

the Supreme Court had advanced a more "workable solution". Thus, it ordered Florencio to sell to Juan and Isidro those portions of his land respectively occupied by the latter. The dispositive portion of said decision reads as follows:

WHEREFORE, judgment is hereby rendered in favor of the defendants and

(a) Ordering the plaintiff Florencio Ignao to sell to the defendants Juan and Isidro Ignao that portion of his property with an area of 101 square meters at P40.00 per square meter, on which part the defendants had built their houses; and

(b) Ordering the said plaintiff to execute the necessary deed of conveyance to the defendants in accordance with paragraph (a) hereof.

Without pronouncement as to costs. 5

Petitioner Florencio Ignao appealed to the Intermediate Appellate Court. On August 27, 1985, the Appellate Court, Second Civil Cases Division, promulgated a decision,

6 affirming the decision of the trial

court.

Hence the instant petition for review which attributes to the Appellate Court the following errors:

1. That the respondent Court has considered private respondents builders in good faith on the land on question, thus applying Art. 448 of the Civil Code, although the land in question is still owned by the parties in co-ownership, hence, the applicable provision is Art. 486 of the Civil Code, which was not applied.

2. That, granting for the sake of argument that Art. 448 . . . is applicable, the respondent Court has adjudged the working solution suggested in Grana and Torralba vs. CA. (109 Phil. 260), which is just an opinion by way of passing, and not the judgment rendered therein, which is in accordance with the said provision of the Civil Code, wherein the owner of the land to buy (sic) the portion of the building within 30 days from the judgment

or sell the land occupied by the building.

3. That, granting that private respondents could buy the portion of the land occupied by their houses, the price fixed by the court is unrealistic and pre-war price.

7

The records of the case reveal that the disputed land with an area of 534 square meters was originally owned by Baltazar Ignao who married twice. In his first marriage, he had four children, namely Justo (the father of petitioner Florencio), Leon and private respondents Juan and Isidro. In his second marriage, Baltazar had also four children but the latter waived their rights over the controverted land in favor of Justo. Thus, Justo owned 4/8 of the land which was waived by his half-brothers and sisters plus his 1/8 share or a total of 5/8. Thereafter, Justo acquired the 1/8 share of Leon for P500.00 which he later sold to his son Florencio for the same amount. When Justo died, Florencio inherited the 5/8 share of his father Justo plus his 1/8 share of the land which he bought or a total of 6/8 (representing 400.5 square meters). Private respondents, Juan and Isidro, on the other hand, had 1/8 share (66.75 square meters) each of the land or a total of 133.5 square meters.

Before the decision in the partition case was promulgated, Florencio sold 134 square meters of his share to a certain Victa for P5,000.00 on January 27, 1975. When the decision was handed down on February 6,1975, the lower court alloted 2/8 of the land to private respondents Juan and Isidro, or a total of 133.5 square meters.

It should be noted that prior to partition, all the co-owners hold the property in common dominion but at the same time each is an owner of a share which is abstract and undetermined until partition is effected. As cited in Eusebio vs. Intermediate Appellate Court,

8 "an undivided estate is co-ownership by the heirs."

As co-owners, the parties may have unequal shares in the common property, quantitatively speaking. But in a qualitative sense, each co-owner has the same right as any one of the other co-owners. Every co-owner is therefore the owner of the whole, and over the whole he exercises the right of dominion, but he is at the same time the owner of a portion which is truly abstract, because until division is effected such portion is not concretely determined.

9

Petitioner Florencio, in his first assignment of error, asseverates that the court a quo erred in applying Article 448 of the Civil Code, since this article contemplates a situation wherein the land belongs to one person and the thing built, sown or planted belongs to another. In the instant case, the land in dispute used to be owned in common by the contending parties.

Article 448 provides:

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

Whether or not the provisions of Article 448 should apply to a builder in good faith on a property held in common has been resolved in the affirmative in the case of Spouses del Campo vs. Abesia,

10 wherein

the Court ruled that:

The court a quo correctly held that Article 448 of the Civil Code cannot apply where a co-owner builds, plants or sows on the land owned in common for then he did not build, plant or sow upon land that exclusively belongs to another but of which he is a co-owner. The co-owner is not a third person under the circumstances, and the situation is governed by the rules of co-ownership.

However, when, as in this case, the ownership is terminated by the partition and it appears that the home of defendants overlaps or occupies a portion of 5 square meters of the land pertaining to plaintiffs which the defendants obviously built in good faith, then the provisions of Article 448 of the new Civil Code should apply. Manresa and Navarro Amandi agree that the said provision of the Civil Code may apply even when there is a co-ownership if good faith has been established.

11

In other words, when the co-ownership is terminated by a partition and it appears that the house of an erstwhile co-owner has encroached upon a portion pertaining to another co-owner which was however made in good faith, then the provisions of Article 448 should apply to determine the respective rights of the parties.

Petitioner's second assigned error is however well taken. Both the trial court and the Appellate Court erred when they peremptorily adopted the "workable solution" in the case of Grana vs. Court of appeals, 12

and ordered the owner of the land, petitioner Florencio, to sell to private respondents, Juan and Isidro, the part of the land they intruded upon, thereby depriving petitioner of his right to choose. Such ruling contravened the explicit provisions of Article 448 to the effect that "(t)he owner of the land . . . shall have the right to appropriate . . .or to oblige the one who built . . . to pay the price of the land . . . ." The law is clear and unambiguous when it confers the right of choice upon the landowner and not upon the builder and the courts.

Thus, in Quemuel vs. Olaes, 13

the Court categorically ruled that the right to appropriate the works or

improvements or to oblige the builder to pay the price of the land belongs to the landowner.

As to the third assignment of error, the question on the price to be paid on the land need not be discussed as this would be premature inasmuch as petitioner Florencio has yet to exercise his option as the owner of the land.

WHEREFORE, the decision appealed from is hereby MODIFIED as follows: Petitioner Florencio Ignao is directed within thirty (30) days from entry of judgment to exercise his option to either appropriate as his own the portions of the houses of Juan and Isidro Ignao occupying his land upon payment of indemnity in accordance with Articles 546 and 548 of the Civil Code, or sell to private respondents the 101 square meters occupied by them at such price as may be agreed upon. Should the value of the land exceed the value of the portions of the houses that private respondents have erected thereon, private respondents may choose not to buy the land but they must pay reasonable rent for the use of the portion of petitioner's land as may be agreed upon by the parties. In case of disagreement, the rate of rental and other terms of the lease shall be determined by the trial court. Otherwise, private respondents may remove or demolish at their own expense the said portions of their houses encroaching upon petitioner's land.

14 No costs.

SO ORDERED.

Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

Footnotes

1 Record on Appeals, p. 5.

2 Civil Case No. N-1681.

3 Record on Appeals, p. 20, emphasis supplied.

4 109 Phil. 260.

5 Rollo, p. 35, Record on Appeal, p. 24.

6 Through Associate Justices Serafin E. Camilon, ponente, Crisolito Pascual, Jose C. Campos, Jr. and Desiderio P. Jurado, concurring.

7 Rollo, pp. 9-10.

8 G.R. No. 72188, September 15, 1986, 144 SCRA 154.

9 Felices vs. Colegado, No. L-23374, September 30, 1970, 35 SCRA 173, 178.

10 No. L-49219, April 18, 1988, 160 SCRA 379.

11 Emphasis supplied.

12 Supra.

13 G.R. No. L-11084, April 29, 1961, 1 SCRA 1159.

14 See Spouses del Campo vs. Abesia, No. L-49219, April 15, 1988, 160 SCRA 379.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-12812 September 29, 1959

FILIPINAS COLLEGES, INC., plaintiff-appellee,

vs.

MARIA GARCIA TIMBANG, ET AL., defendants.

------------------------------

G.R. No. L-12813 September 29, 1959

MARIA GARCIA TIMBANG, ET AL., plaintiffs.

MARIA GARICA TIMBANG, plaintiff-appellant,

vs.

MARIA GERVACIO BLAS, defendant-appellee.

De Guzman and Fernandez for appellee Filipinas Colleges, Inc.

San Huan, Africa and Benedicto for appellant Maria Garcia Timbang.

Nicanor S. Sison for appellee Maria Gervacio Blas.

BARRERA, J.:

This is an appeal taken from an order of the Court of First Instance of Manila dated May 10,

1957 (a) declaring the Sheriff's certificate of sale covering a school building sold at public

auction null and void unless within 15 days from notice of said order the successful bidders,

defendants-appellants spouses Maria Garcia Timbang and Marcelino Timbang, shall pay to,

appellee Maria Gervacio Blas directly or through the Sheriff of Manila the sum of P5,750.00 that

the spouses Timbang had bid for the building at the Sheriff's sale; (b) declaring the other

appellee Filipinas Colleges, Inc. owner of 24,500/3,285,934 undivided interest in Lot No. 2-a

covered by certificate of tile No 45970, on which the building sold in the auction sale is situated;

and (c) ordering the sale in public auction of the said undivided interest of the Filipinas Colleges,

Inc., in lot No. 2-a aforementioned to satisfy the unpaid portion of the judgment in favor of

appellee Blas and against Filipinas Colleges, Inc. in the amount of P8,200.00 minus the sum of

P5,750.00 mentioned in (a) above.

The order appealed from is the result of three motions filed in the court a quo in the course of the

execution of a final judgment of the Court of Appeals rendered in 2 cases appealed to it in which

the spouses Timbang, the Filipinas Colleges, Inc., and Maria Gervacio Blas were the parties. IN

that judgment of the Court of Appeals, the respective rights of the litigants have been adjudicated

as follows:1wphl.nt

(1) Filipinas Colleges, Inc. was declared to have acquired the rights of the spouses

Timbang in and to lot No. 2-a mentioned above and in consideration thereof, Filipinas

Colleges, Inc., was ordered to pay the spouses Timbang the amount of P15,807.90 plus

such other amounts which said spouses might have paid or had to pay after February,

1953, to Hoskins and Co. Inc., agent of the Urban Estates, Inc., original vendor of the lot.

Filipinas Colleges, Inc. original vendor of the total amount with the court within 90 days

after the decision shall have become final.

(2) Maria Gervacio Blas was declared to be a builder in good faith of the school building

constructed on the lot in question and entitled to be paid the amount of P19,000.00 for the

same. Filipinas Colleges, Inc., purchaser of the said building was ordered to deliver to

Blas stock certificate (Exh. C) for 108 shares of Filipinas Colleges, Inc. with a par value

of P10,800.00 and to pay Blas the sum of P8,200.00 of the house.

(3) In case Filipinas Colleges, Inc. failed to deposit the value of the land, which after

liquidation was fixed at P32,859.34, within the 90-day period set by the court, Filipinas

Colleges would lose all its rights to the land and the spouses Timbang would then

become the owners thereof. In that eventuality, the Timbangs would make known to the

court their option under Art. 448 of the Civil Code whether they would appropriate the

building in question, in which even they would have to pay Filipinas Colleges, Inc. the

sum of P19,000.00, or would compel the latter to acquire the land and pay the price

thereof.

Filipinas Colleges, Inc. having failed to pay or deposit the sum of P32,859.34 within the time

prescribed, the spouses Timbang, in compliance with the judgment of the Court of Appeals, on

September 28, 1956, made known to the court their decision that they had chosen not of

appropriate the building but to compel Filipinas Colleges, Inc., for the payment of the sum of

P32,859,34. The motion having been granted, a writ of execution was issued on January 8, 1957.

On January 16, 1957, appellee Blas in turn filed a motion for execution of her judgment of

P8,200.00 representing the unpaid portion of the price of the house sold to Filipinas Colleges,

Inc. Over the object of the Timbangs, the court grated the motion and the corresponding writ of

execution was issued on January 30, 1957, date of the granting of the motion for execution, Blas

through counsel, sent a letter to the Sheriff of Manila advising him of her preferential claim or

lien on the house to satisfy the unpaid balance of the purchase price thereof under Article 2242

of the Civil Code, and to withhold from the proceed of the auction sale the sum of P8,200.00.

Levy having been made on the house in virtue of the writs of execution, the Sheriff of Manila on

March 5, 1957, sold the building in public auction in favor of the spouses Timbang, as the

highest bidders, in the amount of P5,750.00. Personal properties of Filipinas Colleges, Inc. were

also auctioned for P245.00 in favor of the spouses Timbang.

As a result of these actuation, three motion were subsequently filed before the lower court:

(1) By appellee Blas, praying that the Sheriff of Manila and/or the Timbang spouses be

ordered to pay and deliver to her the sum of P5,750.00 representing the proceeds of the

auction sale of the building of Filipinas Colleges, Inc. over which she has a lien of

P8,200.00 for the unpaid balance of the purchase price thereof;.

(2) Also by the appellee Bals, praying that there being still two unsatisfied executions,

one for the sum of P32,859.34 in favor the land involved, Lot No. 2-a, be sold at public

auction; and (3) By Filipinas Colleges, Inc. praying that because its properties, the house

and some personal properties, have been auctioned for P5,750.00 and P245.00

respectively in favor of the Timbang spouses who applied the proceeds to the partial

payment of the sum of P32,859.34 value of the land, Lot No. 2-a, it (Filipinas Colleges,

Inc.) be declared part owner of said lot to the extent of the total amount realized from the

execution sale of its properties.1wphl.nt

The Timbang spouses presented their opposition to each and all of these motion. After due

hearing the lower court rendered its resolution in the manner indicated at the beginning of this

decision, from which the Timbangs alone have appealed.

In assailing the order of the court a quo directing the appellants to pay appellee Blas the amount

of their bid (P5,750.00) made at the public auction, appellants' counsel has presented a novel,

albeit ingenious, argument. It is contended that because the builder in good faith has failed to pay

the price of the land after the owners thereof exercised their option under Article 448 of the Civil

Code, the builder lost his right of retention provided in Article 546 and by operation of Article

445, the appellants as owners of the land automatically became the owners ipso facto, the

execution sale of the house in their favor was superfluous. Consequently, they are not bound to

make good their bid of P5,750.00 as that would be to make goods to pay for their own property.

By the same token, Blas claim for preference on account of the unpaid balance of the purchase

price of the house does not apply because preference applies only with respect to the property of

the debtor, and the Timbangs, owners of the house, are not the debtors of Blas.

This Court cannot accept this oversimplification of appellants' position. Article 448 and 546 of

the Civil Code defining the right of the parties in case a person in good faith builds, sows or

plants on the land of another, respectively provides:

ART. 448. The owner of the land on which anything has been built, sown or plated in

good faith shall have the right to appropriate as his own the works, sowing or planting,

after payment of the indemnify provided for in article 546 and 548, or to obligate the one

who built or planted to pay the price of the land, and the one who sowed, the proper rent.

However, the builder or planter cannot be obliged to buy the land if its value is

considerably more than that of the building or trees. In such case, he shall pay reasonable

rent, if the owner of the land does not choose to appropriate the building or trees after

proper indemnity. The parties shall agree upon the terms of the lease and in case of

disagreement, the court shall fix the terms thereof.

ART. 546. Necessary expenses shall be refunded to every possessor; but only the

possessor in good faith may retain the thing until he has reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right

of retention the person who has defeated him in the possession having to option of

refunding the amount of expenses or of paying the case in value which thing may have

acquired by reason thereof.

Under the terms of these article, it is true that the owner of the land has the right to choose

between appropriating the building by reimbursing the builder of the value thereof or compelling

the builder in good faith to pay for his land. Even this second right cannot be exercised if the

value of the land is considerably more than that of the building. In addition to the right of the

builder to be paid the value of his improvement, Article 546 gives him the corollary right of

retention of the property until he is indemnified by the owner of the land. There is nothing in the

language of these two article, 448 and 546, which would justify the conclusion of appellants that,

upon the failure of the builder to pay the value of the land, when such is demanded by the land-

owner, the latter becomes automatically the owner of the improvement under Article 445. The

case of Bernardo vs. Bataclan, 66 Phil., 590 cited by appellants is no authority for this

conclusion. Although it is true it was declared therein that in the event of the failure of the

builder to pay the land after the owner thereof has chosen this alternative, the builder's right of

retention provided in Article 546 is lost, nevertheless there was nothing said that as a

consequence thereof, the builder loses entirely all rights over his own building. The question is;

what is the recourse or remedy left to the parties in such eventuality where the builder fails to

pay the value of the land? While the Code is silent on this Court in the cases of Miranda vs.

Fadullon, et al., 97 Phil., 801; 51 Off. Gaz., [12] 6226; Ignacio vs. Hilario, 76 Phil., 605 and the

cited case of Bernardo vs. Bataclan, supra.

In the first case, this Court has said:

A builder in good faith not be required to pay rentals. he has right to retain the land on

which he has built in good faith until he is reimbursed the expenses incurred by him.

Possibly he might be made to pay rental only when the owner of the land chooses not to

appropriate the improvement and requires the builder in good faith to pay for the land

but that the builder is unwilling or unable to pay the land, and then they decide to leave

things as they are and assume the relation of lessor and lessee, and should they disagree

as to the amount of rental then they can go to the court to fix that amount. (Emphasis

supplied)

Should the parties not agree to leave things as they are and to assume the relation of lessor and

lessee, another remedy is suggested in the case of Ignacio vs. Hilario, supra, wherein the court

has ruled that the owner of the land in entitled to have the improvement removed when after

having chosen to sell his land to the other party, i.e., the builder in good faith fails to pay for the

same.

A further remedy is indicated in the case of Bernardo vs. Bataclan, supra, where this Court

approved the sale of the land and the improvement in a public auction applying the proceeds

thereof first to the payment of the value of the land and the excess, if any, to be delivered to the

owner of the house in payment thereof.

The appellants herein, owners o the land, instead of electing any of the alternative above

indicated chose to seek recovery of the value of their land by asking for a writ of execution;

levying on the house of the builder; and selling the same in public auction. Sand because they are

the highest bidder in their own auction sale, they now claim they acquired title to the building

without necessity of paying in cash on account of their bid. In other words, they in effect pretend

to retain their land and acquire the house without paying a cent therefor.

This contention is without merit. This Court has already held in Matias vs. The Provincial Sheriff

of Nueva Ecija (74 Phil., 326) that while it is the inveriable practice, dictated by common sense,

that where the successful bidder is the execution creditor himself, he need not pay down the

amount of the bid if it does not exceed the amount of his judgement, nevertheless, when their is a

claim by a third-party, to the proceeds of the sale superior to his judgment credit, the execution

creditor, as successful bidder, must pay in cash the amount of his bid as a condition precedent to

the issuance to him of the certificate of sale. In the instant case, the Court of Appeals has already

adjudged that appellee Blas is entitled to the payment of the unpaid balance of the purchase price

of the school building. Blas is actually a lien on the school building are concerned. The order of

the lower court directing the Timbang spouses, as successful bidders, to pay in cash the amount

of their bid in the sum of P5,750.00 is therefore correct.

With respect to the order of the court declaring appellee Filipinas Colleges, Inc. part owner of the

land to the extent of the value of its personal properties sold at public auction in favor of the

Timbang, this Court Likewise finds the same as justified, for such amount represents, in effect, a

partial payment of the value of the land. If this resulted in the continuation of the so-called

involuntary partnership questioned by the difference between P8,200.00 the unpaid balance of the purchase price of the building and the sum of P5,750.00 amount to be paid by the Timbangs, the order of the court directing the sale of such undivided interest of the Filipinas

Colleges, Inc. is likewise justified to satisfy the claim of the appellee Blas.

Considering that the appellant spouses Marcelino Timbang and Maria Garcia Timbang may not

voluntarily pay the sum of P5,750.00 as ordered, thereby further delaying the final termination of

this case, the first part of the dispositive portion of the order appealed from is modified in the

sense that upon failure of the Timbang spouses to pay to the Sheriff or to Manila Gervacio Blas

said sum of P5,750.00 within fifteen (15) days from notice of the final judgment, an order of

execution shall issue in favor of Maria Gervasio Blas to be levied upon all properties of the

Timbang spouses not exempt from execution for the satisfaction of the said amount.

In all other respects, the appealed order of the court a quo is hereby affirmed, with costs against

the appellants.

It is so ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion and

Endencia, JJ., concur.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. L-47475 August 19, 1988

MANOTOK REALTY, INC., petitioner,

vs. THE HONORABLE JOSE H. TECSON, Judge of the Court of First Instance of Manila and NILO MADLANGAWA, respondents.

Ceferino V. Argueza for petitioner.

Magtanggol C. Gunigundo for respondents.

GUTIERREZ, JR., J.:

In a complaint filed by the petitioner for recovery of possession and damages against the private respondent, the then Court of First Instance

of Manila rendered judgment, the dispositive portion of which provides inter alia:

WHEREFORE, judgment is hereby rendered:

xxx xxx xxx

xxx xxx xxx

(c) In Civil Case No. 72872, declaring the defendant Nilo Madlangawa as a builder or possessor in good faith; ordering the plaintiff to recognize the right of said defendant to remain in Lot No. 345, Block 1, of the Clara Tambunting Subdivision until after he shall have been reimbursed by the plaintiff the sum of P7,500.00, without pronouncement as

to costs. (p. 24, Rollo)

Not satisfied with the trial court's decision, the petitioner appealed to the Court of Appeals and upon affirmance by the lat ter of the decision

below, the petitioner elevated its case to this Court.

On July 13, 1977, we issued a resolution dated July 11, 1977 denying the petitioner's petition for lack of merit. Hence, on August 5, 1977, the petitioner filed with the trial court, presided over by respondent Judge Jose H. Tecson, a motion for the approval of petitioner's exercise of option and for satisfaction of judgment, praying that the court issue an order: a) approving the exercise of petitioner's opt ion to appropriate the improvements introduced by the private respondent on the property; b) thereafter, private respondent be ordered to deliver possession of

the property in question to the petitioner.

On October 7, 1977, the respondent judge issued the disputed order, to wit:

Acting on the motion for approval of plaintiffs exercise of option and for satisfaction of judgment filed by the plaintiff, and the opposition thereto interposed by the defendant, both through counsels, and after a judicious review of all the facts and circumstances obtaining in this case, in the light of statutory provisions (Art. 6, New Civil Code) and jurisprudential doctrines (Vide, Benares v. Capitol Subdivision, Inc., L-7330 (Nov. 29, 1960), and considering further the definitive ruling of our Supreme Tribunal in the case of Jose C. Cristobal v. Alejandro Melchor, G.R. No. L-43203

promulgated on July 29, 1977, wherein the Court says:

"This Court, applying the principle of equity, need not be bound to a rigid application of the law but rather its action should conform to the conditions or exigencies of a given problem or situation in order to grant relief that it will serve the ends of justice."

xxx xxx xxx

the Court is of the considered view that under the peculiar circumstances which supervened after the institution of this case, like, for instance, the introduction of certain major repairs of and other substantial improvements on the controverted property, the instant motion of

the plaintiff is not well-taken and therefore not legally proper and tenable.

WHEREFORE, and for lack of merit, the instant motion for approval of the plaintiff's fai-rn of option and for satisfaction

of judgment should be, as hereby it is, denied. (pp. 45-46, Rollo)

After a denial of its motion for reconsideration, the petitioner filed the present petition for mandamus alleging that the respondent judge committed grave abuse of discretion in denying his motion to exercise option and for execution of judgment on the grounds that under Articles 448 and 546 of the Civil Code, the exercise of option belongs to the owner of the property, who is the petitioner herein, and that upon finality of judgment, the prevailing party is entitled, as a matter of right, to its execution which is only a ministerial act on the part of the

respondent judge.

On April 15, 1978, the private respondent filed his comment on the petition alleging that the same has already become moot and academic for two reasons: first, fire gutted not only the house of the private respondent but the majority of the houses in Tambunting Estate; and second, as a result of the said fire, the then First Lady and Metro Manila Governor Imelda R. Marcos has placed the disputed area under her Zonal Improvement Project, thereby allowing the victims of the fire to put up new structures on the premises, so that the willingness and readiness of the petitioner to exercise the alleged option can no longer be exercised since the subject-matter thereof has been extinguished by the fire. Furthermore, the President of the Philippines has already issued a Presidential Decree for the expropriation of cert ain estates in Metro Manila including the Tambunting Estate. Therefore, the beneficient and humanitarian purpose of the Zonal Improvement Project and the expropriation proceeding would be defeated if petitioner is allowed to exercise an option which would result in the ejectment of the private

respondent.

On December 28, 1980, Presidential Decree (P.D.) No. 1669 was issued providing for the expropriation of the Tambunting Estate. However, this decree was challenged before this Court in G.R. No, 55166 entitled The "Elisa R. Manotok, et al. v. National Housing Authority, et al."

Hence, we decided to hold the decision on this petition pending the resolution of the above entitled case.

On May 21, 1987, the Court rendered a decision in the Elisa Manotok case (Manotok v. National Housing Authority, 150 SCRA 89) ruling that P.D. 1669 is unconstitutional for being violative of the due process clause. Thus, since the present petition has not been rendered moot and

academic by the decision in said case, we will now decide on its merits.

As stated earlier, the petitioner argues that since the judgment of the trial court has already become final, it is entitled to the execution of the same and that moreover, since the house of the private respondent was gutted by fire, the execution of the decision would now involve the delivery of possession of the disputed area by the private respondent to the petitioner.

We find merit in these arguments.

When the decision of the trial court became final and executory, it became incumbent upon the respondent judge to issue the necessary writ for the execution of the same. There is, therefore, no basis for the respondent judge to deny the petitioner's motion to avail of its option to

approriate the improvements made on its property.

In the case of Duenas v. Mandi (151 SCRA 530, 545), we said:

xxx xxx xxx

...Likewise settled is the rule that after a judgment has become final, no additions can be made thereto, and nothing can be done therewith except its execution, otherwise there would be no end to legal processes. (Fabular v. Court of

Appeals, 11 9 SCRA 329)

Neither can the respondent judge deny the issuance of a writ of execution because the private respondent was adjudged a builder in good faith or on the ground of "peculiar circumstances which supervened after the institution of this case, like, for instance, the introduction of certain major repairs of and other substantial improvements..." because the option given by law either to retain the premises and pay for the improvements thereon or to sell the said premises to the builder in good faith belongs to the owner of the property. As we have in Quemel v.

Olaes (1 SCRA 1159,1163):

xxx xxx xxx

...The plaintiffs claim that their second cause of action is based on Article 448 in connection with Art. 546, of the new Civil Code. A cursory reading of these provisions, however, will show that they are not applicable to plaintiff's case. Under Article 448, the right to appropriate the works or improvements or to oblige the one who built or planted to pay the price of the land' belongs to the owner of the land. The only right given to the builder in good faith is the right to reimbursement for the improvements; the builder, cannot compel the owner of the land to sell such land to the former.

...

Again, in the recent case of Paz Mercado, et al. v. Hon. Court of Appeals, et al., (G.R. No. L- 44001, June 10, 1988), we said:

... To be deemed a builder in good faith, it is essential that a person assert title to the land on which he builds; i.e., that he be a possessor in concept of owner (Art. 525, Civil Code; Lopez, Inc. v. Phil. Eastern Trading Co., Inc., 98 Phil. 348) and that he be unaware 'that there exists in his title or mode of acquisition any flaw which invalidates it.' (Art. 526, Civil Code; Granados v. Monton, 86 Phil. 42; Arriola v. Gomez de la Serna, 14 Phil. 627; See also Manotok Realty, Inc. v. C.A., 134 SCRA 329, citing Caram v. Laureta, 103 SCRA 7) It is such a builder in good faith who is given the 1ight to retain the thing, even as against the real owner, until he has been reimbursed in full not only for the necessary expenses but also for useful expenses. (Art. 546, Civil Code; Policarpio v. CA., 129 SCRA 51; Sarmiento v. Agana, 129

SCRA 1221; cf, Queto v. C.A., 122 SCRA 206) ...

Furthermore, the private respondent's good faith ceased after the filing of the complaint below by the petitioner. In the case of Mindanao

Academy, Inc. v. Yap (13 SCRA 190,196), we ruled:

xxx xxx xxx

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

interrupted, and such interruption takes place upon service of judicial summons (Arts. 544 and 1123, Civil Code).

Thus, the repairs and improvements introduced by the said respondents after the complaint was filed cannot be considered to have been built in good faith, much less, justify the denial of the petitioner's fai-rn of option.

Since the improvements have been gutted by fire, and therefore, the basis for private respondent's right to retain the premises has already been extinguished without the fault of the petitioner, there is no other recourse for the private respondent but to vacate the premises and

deliver the same to herein petitioner.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED and the respondent judge is hereby ordered to immediately issue

a writ of execution ordering the private respondent to vacate the disputed premises and deliver possession of the same to the petitioner.

SO ORDERED.

Fernan, C.J., Feliciano, Bidin and Cortos, JJ., concur.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-44606 November 28, 1938

VICENTE STO. DOMINGO BERNARDO, plaintiff-appellant,

vs.

CATALINO BATACLAN, defendant-appellant.

TORIBIO TEODORO, purchaser-appellee.

Pedro de Leon for plaintiff-appellant.

Angel H. Mojica and Francisco Lavides for defendant appellant.

Jose Y. Garde for appellee.

LAUREL, J.:

This is an appeal taken by both the plaintiff and the defendant from the order of September 26,

1935, hereinabove referred to, of the Court of First Instance of Cavite in Civil Case No. 2428.

There is no controversy as to the facts. By a contract of sale executed from Pastor Samonte and

others ownership of a parcel of land of about 90 hectares situated in sitio Balayunan, Silang,

Cavite. To secure possession of the land from the vendors the said plaintiff, on July 20, 1929,

instituted Civil Case No. 1935 in the Court of First Instance of Cavite. The trial court found for

the plaintiff in a decision which was affirmed by this Supreme Court on appeal (G.R. No.

33017). 1 When plaintiff entered upon the premises, however, he found the defendant herein,

Catalino Bataclan, who appears to have been authorized by former owners, as far back as 1922,

to clear the land and make improvements thereon. As Bataclan was not a party in Case No. 1935,

plaintiff, on June 11, 1931, instituted against him, in the Court of First Instance of Cavite, Civil

Case No. 2428. In this case, plaintiff was declared owner but the defendant was held to be a

possessor in good faith, entitled to reimbursement in the total sum of P1,642, for work done and

improvements made. The dispositive part of the decision reads:

Por las consideraciones expuestas, se declara al demandante Vicente Santo Domingo

Bernardo dueo con derecho a la posesion del terreno que se describe en la demanda, y al

demandado Catalino Bataclan con derecho a que del demandante le pague la suma de

P1,642 por gastos utiles hechos de buena fe en el terreno, y por el cerco y ponos de coco

y abaca existentes en el mismo, y con derecho, ademas a retener la posesion del terreno

hasta que se le pague dicha cantidad. Al demandante puede optar, en el plazo de treinta

dias, a partir de la fecha en que fuere notificado de la presente, por pagar esa suma al

demandado, haciendo asi suyos el cerco y todas las plantaciones existentes en el terreno,

u obligar al demandado a pagarle el precio terreno, a razon de trescientos pesos la

hectarea. En el caso de que el demandante optara por que el demandado le pagara el

precio del terreno, el demandado efectuara el pago en el plazo convenientes por las partes

o que sera fijado por el Juzgado. Sin costas.

Both parties appealed to this court (G. R. No. 37319). 2 The decision appealed from was

modified by allowing the defendant to recover compensation amounting to P2,212 and by

reducing the price at which the plaintiff could require the defendant to purchase the land in

question from P300 to P200 per hectare. Plaintiff was given by this court 30 days from the date

when the decision became final within which to exercise his option, either to sell the land to the

defendant or to buy the improvements from him. On January 9, 1934, the plaintiff manifested to

the lower court his desire "to require the defendant to pay him the value of the land at the rate of

P200 per hectare or a total price of P18,000 for the whole tract of land." The defendant informed

the lower court that he was unable to pay the land and, on January 24, 1934, an order was issued

giving the plaintiff 30 days within which to pay the defendant the sum of P2,212 stating that, in

the event of failure to make such payment, the land would be ordered sold at public auction

"Para hacer pago al demandante de la suma de P2,212 y el remanente despues de deducidos los

gastos legales de la venta en publica subasta sera entregado al demandante." On February 21,

1934, plaintiff moved to reconsider the foregoing order so that he would have preference over

the defendant in the order of payment. The motion was denied on March 1, 1934 but on March

16 following the court below, motu proprio modified its order of January 24, "en el sentido de

que el demandante tiene derecho preferente al importe del terreno no se vendiere en publica

subasta, a razon de P200 por hectares y el remanente, si acaso lo hubiere se entregara al

demandado en pago de la cantidad de P2,212 por la limpieza del terreno y las mejoras

introducidas en el mismo por el citado demandado." On April 24, 1934, the court below, at the

instance of the plaintiff and without objection on the part of the defendant, ordered the sale of the

land in question at public auction. The land was sold on April 5, 1935 to Toribio Teodoro, the

highest bidder, for P8,000. In the certificate of sale issued to said purchaser on the very day of

sale, it was stated that the period of redemption of the land sold was to expire on April 5, 1936.

Upon petition of Toribio Teodoro the court below ordered the provincial sheriff to issue another

certificate not qualified by any equity of redemption. This was complied with by the sheriff on

July 30, 1935. On September 18, 1935, Teodoro moved that he be placed in possession of the

land purchased by him. The motion was granted by order of September 26, 1935, the dispositive

part of which is as follows:

Por tanto, se ordena al Sheriff Provincial de Cavite ponga a Toribio Teodoro en posesion

del terreno comprado por el en subasta publica y por el cual se le expidio certificado de

venta definitiva, reservando al demandado su derecho de ejercitar una accion ordinaria

para reclamar del demandante la cantidad de P2,212 a que tiene derecho por la limpieza y

mejoras del terreno y cuya suma, en justicia y equidad, debe ser descontada y deducida

de la suma de P8,000 que ya ha recibido el demandante.

The Civil Code confirms certain time-honored principles of the law of property. One of these is

the principle of accession whereby the owner of property acquires not only that which it

produces but that which is united to it either naturally or artificially. (Art. 353.) Whatever is

built, planted or sown on the land of another, and the improvements or repairs made thereon,

belong to the owner of the land (art. 358). Where, however, the planter, builder, or sower has

acted in good faith, a conflict of rights arises between the owners and it becomes necessary to

protect the owner of the improvements without causing injustice to the owner of the land. In

view of the impracticability of creating what Manresa calls a state of "forced coownership" (vol.

3, 4th ed., p. 213), the law has provided a just and equitable solution by giving the owner of the

land the option to acquire the improvements after payment of the proper indemnity or to oblige

the builder or planter to pay for the land and the sower to pay the proper rent (art. 361). It is the

owner of the land who is allowed to exercise the option because his right is older and because, by

the principle of accession, he is entitled to the ownership of the accessory thing (3 Manresa, 4th

ed., p. 213). In the case before us, the plaintiff, as owner of the land, chose to require the

defendant, as owner of the improvements, to pay for the land.

The defendant states that he is a possessor in good faith and that the amount of P2,212 to which

he is entitled has not yet been paid to him. Therefore, he says, he has a right to retain the land in

accordance with the provisions of article 453 of the Civil Code. We do not doubt the validity of

the premises stated. "Considera la ley tan saarada y legitima la deuda, que, hasta que sea

pagada, no consiente que la cosa se restituya all vencedor." (4 Manresa, 4th ed, p., 304.) We

find, however, that the defendant has lost his right of retention. In obedience to the decision of

this court in G.R. No. 37319, the plaintiff expressed his desire to require the defendant to pay for

the value of the land. The said defendant could have become owner of both land and

improvements and continued in possession thereof. But he said he could not pay and the land

was sold at public auction to Toribio Teodoro. The law, as we have already said, requires no

more than that the owner of the land should choose between indemnifying the owner of the

improvements or requiring the latter to pay for the land. When he failed to pay for the land, the

defendant herein lost his right of retention.

The sale at public auction having been asked by the plaintiff himself (p. 22, bill of exceptions)

and the purchase price of P8,000 received by him from Toribio Teodoro, we find no reason to

justify a rapture of the situation thus created between them, the defendant-appellant not being

entitled, after all, to recover from the plaintiff the sum of P2,212. lawphi1.net

The judgment of the lower court is accordingly modified by eliminating therefrom the

reservation made in favor of the defendant-appellant to recover from the plaintiff the sum of

P2,212. In all the respects, the same is affirmed, without pronouncement regarding costs. So

ordered.

Avancea, C.J., Villa-Real, Imperial and Diaz, JJ., concur.

Footnotes

1 Promulgated December 6, 1930, not reported.

2 Promulgated December 2, 1933 (59 Phil., 903).

epublic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

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.

PUNO, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals dated March 25, 1996 in CA-G.R. CV No. 32472 entitled "Eden Ballatan., et. al., plaintiffs-appellees v. Gonzalo Go and Winston Go, appellants and third-party plaintiffs-appellants v. Li Ching Yao, et.

al., third-party defendants." 1

The instant case arose from a dispute over forty-two (42) square meters of residential land belonging to petitioners. The parties herein are owners of adjacent lots located at Block No. 3, Poinsettia Street, Araneta University Village, Malabon, Metro Manila. Lot No. 24, 414 square meters in area, is registered in the name of petitioners Eden Ballatan and spouses Betty Martinez and Chong Chy Ling.

2 Lots Nos. 25

and 26, with an area of 415 and 313 square meters respectively, are registered in the name of respondent Gonzalo Go, Sr.

3 On Lot No. 25, respondent Winston Go, son of Gonzalo Go, Sr.,

constructed his house. Adjacent to Lot No. 26 is Lot No. 27, 417 square meters in area, and is registered in the name of respondent Li Ching Yao.

4

In 1985, petitioner Ballatan constructed her house on Lot No. 24. During the construction, she noticed that the concrete fence and side pathway of the adjoining house of respondent Winston Go encroached on the entire length of the eastern side of her property.

5 Her building contractor formed her that the area

of her lot was actually less than that described in the title. Forthwith, Ballatan informed respondent Go of this discrepancy and his encroachment on her property. Respondent Go, however, claimed that his house, including its fence and pathway, were built within the parameters of his father's lot; and that this lot was surveyed by Engineer Jose Quedding, the authorized surveyor of the Araneta Institute of Agriculture (AIA), the owner-developer of the subdivision project.

Petitioner Ballatan called the attention of the IAI to the discrepancy of the land area in her title and the actual land area received from them. The AIA authorized another survey of the land by Engineer Jose N. Quedding.

In a report dated February 28, 1985, Engineer Quedding found that the lot area of petitioner Ballatan was less by few meters and that of respondent Li Ching Yao, which was three lots away, increased by two (2) meters. Engineer Quedding declared that he made a verification survey of Lots Nos. 25 and 26 of respondents Go in 1983 and allegedly found the boundaries to have been in their proper position. He, however, could not explain the reduction in Ballatan's area since he was not present at the time respondents Go constructed their boundary walls.

6

On June 2, 1985, Engineer Quedding made a third relocation survey upon request of the parties. He found that Lot No. 24 lost approximately 25 square meters on its eastern boundary that Lot No. 25, although found to have encroached on Lot No. 24, did not lose nor gain any area; that Lot No. 26 lost

some three (3) square meters which, however, were gained by Lot No. 27 on its western boundary. 7 In

short, Lots Nos. 25, 26 and 27 moved westward to the eastern boundary of Lot No. 24.

On the basis of this survey, on June 10, 1985, petitioner Ballatan made a written demand on respondents Go to remove and dismantle their improvements on Lot No. 24. Respondents Go refused. The parties including Li Ching Yao, however, met several times to reach an agreement one matter.

Failing to agree amicably, petitioner Ballatan brought the issue before the barangay. Respondents Go did not appear. Thus, on April 1, 1986, petitioner Ballatan instituted against respondents Go Civil Case No. 772-MN for recovery of possession before the Regional Trial Court, Malabon, Branch 169. The Go' s filed their "Answer with Third-Party Complaint" impleading as third-party defendants respondents Li Ching Yao, the AIA and Engineer Quedding.

On August 23, 1990, the trial court decided in favor of petitioners. It ordered the Go's to vacate the subject portion of Lot No. 24, demolish their improvements and pay petitioner Ballatan actual damages, attorney's fees and the costs of the suit. It dismissed the third-party complaint against: (1) AIA after finding that the lots sold to the parties were in accordance with the technical description a verification plan covered by their respective titles; (2) Jose N. Quedding, there being no privity of relation between him and respondents Go and his erroneous survey having been made at the instance of AIA, not the parties; and (3) Li Ching Yao for failure to prove that he committed any wrong in the subject encroachment.

8 The

court made the following disposition:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, ordering the latter:

1. To demolish and remove all improvements existing and encroaching on plaintiff's lot;

2. To clear, vacate and deliver possession of the encroached area to the plaintiffs;

3. To pay plaintiffs jointly and severally the following:

a) P7,800.00 for the expenses paid to the surveyors;

b) P5,000.00 for plaintiffs' transportation;

4. To pay plaintiffs, jointly and severally, attorney's fees equivalent to 25% of the current market value of the subject matter in litigation at the time of execution; and

5. To pay the costs of suit.

The third-party complaint filed by third-party plaintiff Gonzalo Go and Winston Go against third-party defendants Araneta Institute of Agriculture, Jose N. Quedding and Li Ching Yao is hereby DISMISSED, without pronouncement as to costs.

SO ORDERED.

Respondents Go appealed. On March 25, 1996, the Court of Appeals modified the decision of the trial court. It affirmed the dismissal of the third-party complaint against the AIA but reinstated the complaint against Li Ching Yao and Jose Quedding. Instead of ordering respondents Go to demolish their improvements on the subject land, the appellate court ordered them to pay petitioner Ballatan, and respondent Li Ching Yao to pay respondents Go, a reasonable amount for that portion of the lot which they encroached, the value to be fixed at the time of taking. It also ordered Jose Quedding to pay

respondents Go attorney's fees of P5,000.00 for his erroneous survey. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED insofar as the dismissal of the third-party complaint against Araneta Institute of Agriculture is concerned but modified in all other aspects as follows:

1) Defendants-appellants are hereby ordered to pay plaintiffs-appellees the reasonable value of the forty-two (42) square meters of their lot at the time of its taking;

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

3) Third-party defendant Jose N. Quedding is hereby ordered to pay to defendants-appellants the amount of P5,000.00 as attorney's fees.

LET THE RECORD of the case be remanded to the Regional Trial Court of Malabon for further proceedings and reception of evidence for the determination of the reasonable value of Lots Nos. 24 and 26.

SO ORDERED. 9

Hence, this petition. Petitioners allege that:

RESPONDENT COURT OF APPEALS ERRED ON QUESTIONS OF LAW AND GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN:

1. IT APPLIED EQUITY OR EQUITABLE SOLUTIONS TO THE INSTANT CASE IN UTTER DISREGARD AND IN VIOLATION OR GROSS IGNORANCE OF EXISTING LAWS AND JURISPRUDENCE VESTING BASIC PROPERTY RIGHTS TO HEREIN PETITIONERS. RESPONDENT COURT HAS NO POWER TO APPLY/USE EQUITY IN THE PRESENCE OF EXISTING LAWS TO THE CONTRARY.

2. UNDER THE GUISE OF APPLYING EQUITY BUT IN EFFECT A VERY APPARENT PARTIALITY AND FAVOR TO RESPONDENTS GO, IT ORDERED PAYMENT OF THE ENCROACHED AREA AT THE VALUE AT THE TIME OF ITS TAKING AND NOT THE VALUE AT THE TIME OF PAYMENT, THEREBY ENRICHING THE GO'S BUT DEPRIVING PETITIONERS OF THE FRUITS OR INCREASE IN VALUE OF THEIR PROPERTY TO WHICH THEY ARE ENTITLED UNDER THE LAW AS THE REGISTERED OWNERS WITH TORRENS TITLE IN THEIR NAMES.

3. WHEN IT DID NOT DISMISS THE THIRD-PARTY COMPLAINT DUE TO NON-PAYMENT OF ANY FILING OR DOCKET FEE.

4. WHEN IT DENIED PETITIONERS THE RECOVERY OF THE NECESSARY EXPENSES IN PROTECTING THEIR RIGHTS IN THIS CASE.

10

Petitioners question the admission by respondent Court of Appeals of the third-party complaint by respondents Go against the AIA, Jose Quedding and Li Ching Yao. Petitioners claim that the third-party complaint should not have been considered by the Court of Appeals for lack of jurisdiction due to third-party plaintiffs' failure to pay the docket and filing fees before the trial court.

The third-party complaint in the instant case arose from the complaint of petitioners against respondents Go. The complaint filed was for accion publiciana, i.e., the recovery of possession of real property which is a real action. The rule in this jurisdiction is that when an action is filed in court, the complaint must be accompanied the payment of the requisite docket and filing fees.

11 In real actions, the docket and filing

fees are based on the value of the property and the amount of damages claimed, if any 12

If the complaint is filed but the fees are not paid at the time of filing, the court acquires jurisdiction upon full payment of the fees within a reasonable time as the court may grant, barring prescription.

13 Where the fees prescribed

for the real action have been paid but the fees of certain related damages are not, the court, although having jurisdiction over the real action, may not have acquired jurisdiction over the accompnying claim for damages.

14 Accordingly, the court may expunge those claims for damages, or allow, on motion, a

reasonable time for amendment of the complaint so as to allege the precise amount of damages and accept payment of the requisite legal fee.

15 If there are unspecified claims, the determination of which

may arise after the filing of the complaint or similar pleading, the additional filing fee thereon shall constitute a lien on the judgment award.

16 The same rule also applies to third-party claims and other

similar pleadings. 17

In the case at bar, the third-party complaint filed by respondents Go was incorporated in their answer to the complaint. The third-party complaint sought the same remedy as the principal complaint but added a prayer for attorney's fees and costs without specifying their amounts, thus:

ON THE THIRD PARTY COMPLAINT

1. That summons be issued against Third-Party Defendants Araneta Institute of Agriculture, Jose N. Quedding and Li Ching Yao;

2. That after hearing, they be sentenced to indemnify the Third-Party Plaintiffs for whatever is adjudged against the latter in favor of the Plaintiffs;

3. That Third-Party Defendants be ordered to pay attorney's fees as may be proved during trial;

4. That Third-Party Defendants be ordered to pay the costs.

Other just and equitable reliefs are also prayed for. 18

The Answer with Third-Party Complaint was admitted by the trial court without the requisite payment of filing fees, particularly on the Go's prayer for damages.

19 The trial court did not award the Go's any

damages. It dismissed the third-party complaint. The Court of Appeals, however, granted the third-party complaint in part by ordering third-party defendant Jose N. Quedding to pay the Go's the sum of P5,000.00 as attorney's fees.

Contrary to petitioners' claim, the Court of Appeal did not err in awarding damages despite the Go's failure to specify the amount prayed for and pay the corresponding additional filing fees thereon. The claim for attorney's fees refers to damages arising after the filing of the complaint against the Go's. The additional filing fee on this claim is deemed to constitute a lien on the judgment award.

20

The Court of Appeals found that the subject portion is actually forty-two (42) square meters in area, not forty-five (45), as initially found by the trial court; that this forty-two (42) square meter portion is on the entire eastern side of Lot No. 24 belonging to petitioners; that this said portion is found the concrete fence and pathway that extends from respondent Winston Go's house on adjacent Lot No. 25; that inclusive of the subject portion, respondents Go did not gain nor lose any portion of Lots Nos. 25 and 26; that instead, Lot No. 27, on which respondent Li Ching Yao built his house, encroached on the land of respondents Go, gaining in the process thirty-seven (37) square meters of the latter's land.

21

We hold that the Court of Appeals correctly dismissed the third-party complaint against AIA.. The claim that the discrepancy in the lot areas was due to AIA's fault was not proved. The appellate court, however, found that it was the erroneous survey by Engineer Quedding that triggered these discrepancies. And it was this survey that respondent Winston Go relied upon in constructing his house on his father's land. He built his house in the belief that it was entirely within the parameters of his father's land. In short, respondents Go had no knowledge that they encroached petitioners' lot. They are deemed builders in good faith

22 until the time petitioner Ballatan informed them of their encroachment on her property.

23

Respondent Li Ching Yao built his house on his lot before any of the other parties did. 24

He constructed his house in 1982, respondents Go in 1983, and petitioners in 1985.

25 There is no evidence, much less,

any allegation that respondent Li Ching Yao was aware that when he built his house he knew that a portion thereof encroached on respondents Go's adjoining land. Good faith is always presumed, and upon him who alleges bad faith on the part of a possessor rests the burden of proof.

26

All the parties are presumed to have acted in good faith. Their rights must, therefore, be determined in accordance with the appropriate provisions of the Civil Code on property.

Art. 448 of the Civil Code provides:

Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548,

27 or to oblige the one

who built or planted to pay the price of the land, and the one who sowed the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.

The owner of the land on which anything has been built, sown or planted in good faith shall have the right to appropriate as his own the building, planting or sowing, after payment to the builder, planter or sower of the necessary and useful expenses, and in the proper case, expenses for pure luxury or mere pleasure. The owner of the land may also oblige the builder, planter or sower to purchase and pay the price of the land. If the owner chooses to sell his land, the builder, planter or sower must purchase the land, otherwise the owner may remove the improvements thereon. The builder, planter or sower, however, is not obliged to purchase the land if its value considerably more than the building, planting or sowing. In such case, the builder, planter or sower must pay rent to the owner of the land. If the parties cannot come to terms over the conditions of the lease, the court must fix the terms thereof. The right to choose between appropriating the improvement or selling the land on which the improvement stands to the builder, planter or sower, is given to the owner of the land.

28

Art. 448 has been applied to improvements or portions of improvements built by mistaken belief on land belonging to the adjoining owner.

29 The facts of the instant case are similar to those in Cabral v. Ibanez,

30 to wit:

[P]laintiffs Geronima Zabala and her husband Justino Bernardo, constructed their house in the belief that it was entirely within the area of their own land without knowing at that time that part of their house was occupying a 14-square meter portion of the adjoining lot belonging to the defendants, and that the defendants Bernardo M. Cabral and Mamerta M. Cabral were likewise unaware of the fact that a portion of plaintiff's house was extending and occupying a portion of their lot with an area of 14 square meters. The parties came to know of the fact that part of the plaintiff's house was occupying part of defendant's land when the construction of plaintiff's house was about to be finished, after

a relocation of the monuments of the two properties had been made by the U.S. Army through the Bureau of Lands, according to their "Stipulation of Facts," dated August 17, 1951.

On the basis of these facts, we held that:

The court, therefore, concludes that the plaintiffs are builders in good faith and the relative rights of the defendant Mamerta Cabral as owner of the land and of the plaintiffs as owners of the building is governed by Article 361 of the Civil Code (Co Tao v. Joaquin Chan Chico, 46 Off. Gaz.5514). Article 361 of the old Civil Code has been reproduced with an additional provision in Article 448 of the new Civil Code, approved June 18, 1949. 31

Similarly, in Grana and Torralba v. Court of Appeals, 32

we held that:

Although without any legal and valid claim over the land in question, petitioners, however, were found by the Court of Appeals to have constructed a portion of their house thereon in good faith. Under Article 361 of the old Civil Code (Article 448 of the new), the owner of the land on which anything has been built in good faith shall have the right to appropriate as his own the building, after payment to the builder of necessary or useful expenses, and in the proper case, expenses for pure luxury or mere pleasure, or to oblige the builder to pay the price of the land. Respondents, as owners of the land, have therefore the choice of either appropriating the portion of petitioners' house which is on their land upon payment of the proper indemnity to petitioners, or selling to petitioners that part of their land on which stands the improvement. It may here be pointed out that it would be impractical for respondents to choose to exercise the first alternative, i.e., buy that portion of the house standing on their land, for in that event the whole building might be rendered useless. The more workable solution, it would seem, is for respondents to sell to petitioners that part of their land on which was constructed a portion of the latter's house. If petitioners are unwilling or unable to buy, then they must vacate the land and must pay rentals until they do so. Of course, respondents cannot oblige petitioners to buy the land if its value is considerably more than that of the aforementioned portion of the house. If such be the case, then petitioners must pay reasonable rent. The parties must come to an agreement as to the conditions of the lease, and should they fail to do so, then the court shall fix the same.

33

In light of these rulings, petitioners, as owners of Lot No. 24, may choose to purchase the improvement made by respondents Go on their land, or sell to respondents Go the subject portion. If buying the improvement is impractical as it may render the Go's house useless, then petitioners may sell to respondents Go that portion of Lot No. 24 on which their improvement stands. If the Go's are unwilling or unable to buy the lot, then they must vacate the land and, until they vacate, they must pay rent to petitioners. Petitioners, however, cannot compel respondents Go to buy the land if its value is considerably more than the portion of their house constructed thereon. If the value of the land is much more than the Go's improvement, the respondents Go must pay reasonable rent. If they do not agree on the terms of the lease, then they may go to court to fix the same.

In the event that petitioners elect to sell to respondents Go the subject portion of their lot, the price must be fixed at the prevailing market value at the time of payment. The Court of Appeals erred in fixing the price at the time of taking, which is the time the improvements were built on the land. The time of taking is determinative of just compensation in expropriation proceedings. The instant case is not for expropriation. It is not a taking by the state of private property for a public purpose upon payment of just compensation. This is a case of an owner who has been paying real estate taxes on his land but has been deprived of the use of a portion of this land for years. It is but fair and just to fix compensation at the time of payment.

34

Art. 448 and the same conditions abovestated also apply to respondents Go as owners and possessors of their land and respondent Li Ching Yao as builder of the improvement that encroached on thirty-seven (37) square meters of respondents Go's land.

IN VIEW WHEREOF, the decision of respondent Court of Appeals is modified as follows:

(1) Petitioners are ordered to exercise within thirty (30) days from finality of this decision their option to either buy the portion of respondents Go's improvement on their Lot No. 24, or sell to said respondents the portion of their land on which the improvement stands. If petitioners elect to sell the land or buy the improvement, the purchase price must be at the prevailing market price at the time of payment. If buying the improvement will render respondents Go's house useless, then petitioners should sell the encroached portion of their land to respondents Go. If petitioners choose to sell the land but respondents Go are unwilling or unable to buy, then the latter must vacate the subject portion and pay reasonable rent from the time petitioners made their choice up to the time they actually vacate the premises. But if the value of the land is considerably more than the value of the improvement, then respondents Go may elect to lease the land, in which case the parties shall agree upon the terms, the lease. Should they fail to agree on said terms, the court of origin is directed to fix the terms of the lease.

From the moment petitioners shall have exercised their option, respondents Go shall pay reasonable monthly rent up to the time the parties agree on the terms of the lease or until the court fixes such terms.

(2) Respondents Go are likewise directed to exercise their rights as owners of Lots Nos. 25 and 26, vis-a-vis respondent Li Ching Yao as builder of the improvement that encroached on thirty seven (37) square

meters of respondents Go 's land in accordance with paragraph one abovementioned.

(3) The Decision of the Court of Appeals ordering Engineer Quedding, as third-party defendant, to pay attorney's fees of P5,000.00 to respondents Go is affirmed. The additional filing fee on the damages constitutes a lien on this award.

(4) The Decision of the Court of Appeals dismissing third-party complaint against Araneta Institute of Agriculture is affirmed.

SO ORDERED.

Bellosillo, Mendoza, Quisumbing and Buena, JJ., concur.

Footnotes

1 Penned by Justice Celia Lipana-Reyes and concurred in by Justices Alfredo L. Benipayo and Corona Ibay-Somera.

2 Exhibit "A," Folder of Plaintiffs' Exhibits.

3 Exhibits "1" and "2," Folder of Defendants Go's Exhibits.

4 Exhibit "1," Folder of Defendant Li Ching Yao's Exhibits; Exhibit "4-a" Folder Of Exhibits of Araneta Institute of Agriculture.

5 Exhibit "D," Folder of Plaintiffs' Exhibits.

6 Exhibit "1," Folder of Exhibits Quedding.

7 Exhibit "5," Folder of Defendants Go's Exhibits; Decision of the Court of Appeals, p. 3, Rollo, p.

25.

8 Decision of the trial court, p. 11, Court of Appeals Rollo, p. 86.

9 Rollo, p. 44.

10 Petition, p. 4, Rollo, p. 6.

11 Tacay v. RTC of Tagum, Davao del Norte, 180 SCRA 433, 444 [1989]; Sun Insurance Office, Ltd. (SIOL) v. Asuncion 170 SCRA 274, 285 [1989]; see also Manchester Development

Corporation v. Court Appeals, 149 SCRA 562, 568-569 [1987].

12 Tacay v. RTC of Tagum, Davao del Norte, supra, at 440, 444 a real action may be commenced or prosecuted without an accompanying claim for damages.

13 Id.

14 Original Dev' t. and Construction Corp. v. Court of Appeals, 202 SCRA 753, 760 [1991].

15 Tacay, supra, at 444; Original Dev't. and Construction Corp. v. Court of Appeals, supra; at

760.

16 Original Development Corporation v. Court of Appeals, supra, at 761.

17 Tacay, supra, at 441-442; Sun Insurance Office Ltd. v. Asuncion, 170 SCRA 274, 285 [1989].

18 Answer with Third Party Complaint, p. 7, Records 37.

19 Order dated May 30, 1986, Records, p. 49.

20 In Sun Insurance Office, Ltd. (SIOL) v. Asuncion, supra, at 279, it was held that the Manchester rule and its clarifications are procedural rules and may be applied retroactively to actions pending and undetermined at the time of their passage. the instant case was pending at the time Manchester was promulgated in 1987.

21 Decision of the Court of Appeals, pp. 15-16, Rollo, pp. 37-38.

22 Art. 526, Civil Code provides:

Art. 526. He is deemed a possessor in good faith who is not aware that there exists in his title or mode of acquisition any flaw that invalidates it.

23 Art. 5281 Civil Code provides:

Art. 528. Possession acquired in good faith does not lose this character except in the case and from the moment facts exist which show that the possessor is not unaware that he possesses the thing improperly or wrongfully.

24 Decision of the Court of Appeals, p. 16, Rollo, p. 38.

25 Id., at pp. 16-17, Rollo, pp. 38-39.

26 Art. 527, Civil Code.

27 Art. 546 and 548 provide:

Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase value which the thing may have acquired by reason thereof.

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

28 Grana & Torralba v. Court of Appeals, 109 Phil. 260, 263 [1960]; Acuna v. Furukawa Plantation Co., 93 Phil. 957, 961 [1953]; Aringo v. Arena, 14 Phil. 263, 269 [1909].

29 Grana and Torralba v. Court of Appeals 109 Phil. 260, 263 [1960]; Miranda v. Fadullon, 97 Phil. 801 [1955]; Cabral v. Ibanez, 98 Phil. 140 [1955].

30 98 Phil. 140 [1955].

31 Id., at 142.

32 109 Phil. 260 [1960].

33 Id., at 263-264.

34 See Cabral v. Ibanez, supra, at 143, where this Court gave the owner of the land thirty days to elect either to purchase the improvement or sell the land; and once having elected, the case was reset for admission of evidence on the value of the improvement, or the value of the land. This implies that the price of the land or improvement was fixed definitely not at the time taking; see also Aringo v. Arena, supra, at 270.