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 LORENZO-VALENTINO,respondents. G.R. No. L-57288

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 HOUSEona 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.hqwART. 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.hqwThe 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 landand 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

G.R. No. L-49219 April 15, 1988

SPOUSES CONCEPCION FERNANDEZ DEL CAMPO and ESTANISLAO DEL CANTO,plaintiffs-appellees,vs.BERNARDA FERNANDEZ ABESIA,defendant-appellant.

Geronimo Creer, Jr. for plaintiffs-appellees.

Benedicto G. Cobarde for defendant, defendant-appellant

GANCAYCO,J.:In this appeal from the decision of the Court of First Instance (CFI) of Cebu, certified to this Court by the Court of Appeals on account of the question of law involved, the sole issue is the applicability of the provisions of Article 448 of the Civil Code relating to a builder in good faith when the property involved is owned in common.

This case involves a parcel of land, Lot No. 1161 of the Cadastral Survey of Cebu, with an area of only about 45 square meters, situated at the corner of F. Flores and Cavan Streets, Cebu City covered by TCT No. 61850. An action for partition was filed by plaintiffs in the CFI of Cebu. Plaintiffs and defendants are co-ownerspro indivisoof this lot in the proportion of and 1/3 share each, respectively. The trial court appointed a commissioner in accordance with the agreement of the parties. ,the Id commissioner conducted a survey, prepared a sketch plan and submitted a report to the trial court on May 29, 1976, recommending that the property be divided into two lots: Lot 1161-A with an area of 30 square meters for plaintiffs and Lot No. 1161-B with an area of 15 square meters for the defendants. The houses of plaintiffs and defendants were surveyed and shown on the sketch plan. The house of defendants occupied the portion with an area of 5 square meters of Lot 1161-A of plaintiffs. The parties manifested their conformity to the report and asked the trial court to finally settle and adjudicate who among the parties should take possession of the 5 square meters of the land in question.

In solving the issue the trial court held as follows:

The Court believed that the plaintiffs cannot be obliged to pay for the value of the portion of the defendants' house which has encroached an area of five (5) sq. meters of the land alloted to them. The defendants cannot also be obliged to pay for the price of the said five (5) square meters. The rights of a builder in good faith under Article 448 of the New Civil Code does (sic) not apply to a case where one co-owner has built, planted or sown on the land owned in common. "Manresa agreeing with Sanchez Roman, says that as a general rule this article is not applicable because the matter should be governed more by the provisions on co-ownership than on accession. Planiol and Ripert are also of the opinion that this article is not applicable to a co-owner who constructs, plants or sows on the community property, even if the land where the construction, planting or sowing is made is a third person under the circumstances, and the situation is governed by the rules of co-ownership. Our Court of Appeals has held that this article cannot be invoked by one co-owner against another who builds, plants or sows upon their land, since the latter does not do so on land not belonging to him. (C.A.), O.G. Supp., Aug. 30, 194, p. 126). In the light of the foregoing authorities and considering that the defendants have expressed their conformity to the partition that was made by the commissioner as shown in the sketch plan attached to the commissioner's report, said defendants have no other alternative except to remove and demolish part of their house that has encroached an area of five (5) sq. meters of the land allotted to the plaintiffs.

WHEREFORE, judgment is hereby rendered assigning Lot 1161-A with an area of thirty (30) sq. meters to the plaintiffs spouses Concepcion Fernandez Abesia, Lourdes Fernandez Rodil, Genaro Fernandez and Dominga A. Fernandez, in the respective metes and bounds as shown in the subdivision sketch plan attached to the Commissioner's Report dated may 29, 1976 prepared by the Commissioner, Geodetic Engineer Espiritu Bunagan. Further, the defendants are hereby ordered at their expense to remove and demolish part of their house which has encroached an area of five (5) square meters from Lot 1161-A of the plaintiffs; within sixty (60) days from date hereof and to deliver the possession of the same to the plaintiffs. For the Commissioner's fee of P400.00, the defendants are ordered to pay, jointly and severally, the sum of P133.33 and the balance thereof to be paid by the plaintiffs. The costs of suit shall be paid by the plaintiffs and the defendants in the proportion of two-thirds (2/3) and one-third (1/3) shares respectively. A certified copy of this judgment shall be recorded in the office of the Register of Deeds of the City of Cebu and the expense of such recording shall be taxed as a part of the costs of the action.

Hence, this appeal interposed by the defendants with the following assignments of errors:

I

THE TRIAL COURT ERRED IN NOT APPLYING THE RIGHTS OF A BUILDER IN GOOD FAITH UNDER ART. 448 OF THE NEW CIVIL CODE TO DEFENDANTS-APPELLANTS WITH RESPECT TO THAT PART OF THEIR HOUSE OCCUPYING A PROTION OF THE LOT ASSIGNED TO PLAINTIFFS-APPELLEES.

II

THE TRIAL COURT ERRED IN ORDERING DEFENDANTS-APPELLANTS TO REMOVE AND DEMOLISH AT THEIR EXPENSE, THAT PART OF THEIR HOUSE WHICH HAS ENCROACHED ON AN AREA OF FIVE SQUARE METERS OF LOT 1161-A OF PLAINTIFFS-APPELLEES.

Article 448 of the New Civil Code provides as follows:

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.

The courta quocorrectly 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.1However, when, as in this case, the co-ownership is terminated by the partition and it appears that the house of defendants overlaps or occupies a portion of 5 square meters of the land pertaining to plaintiffs which the defendants obviously built in good faith, then the provisions of Article 448 of the new Civil Code should apply. Manresa and Navarro Amandi agree that the said provision of the Civil Code may apply even when there was co-ownership if good faith has been established.2Applying the aforesaid provision of the Civil Code, the plaintiffs have the right to appropriate said portion of the house of defendants upon payment of indemnity to defendants as provided for in Article 546 of the Civil Code. Otherwise, the plaintiffs may oblige the defendants to pay the price of the land occupied by their house. However, if the price asked for is considerably much more than the value of the portion of the house of defendants built thereon, then the latter cannot be obliged to buy the land. The defendants shall then pay the reasonable rent to the plaintiff upon such terms and conditions that they may agree. In case of disagreement, the trial court shall fix the terms thereof. Of course, defendants may demolish or remove the said portion of their house, at their own expense, if they so decide.

WHEREFORE, the decision appealed from is hereby MODIFIED by ordering plaintiff to indemnify defendants for the value of the Id portion of the house of defendants in accordance with Article 546 of the Civil Code, if plaintiffs elect to appropriate the same. Otherwise, the defendants shall pay the value of the 5 square meters of land occupied by their house at such price as may be agreed upon with plaintiffs and if its value exceeds the portion of the house that defendants built thereon, the defendants may choose not to buy the land but defendants must pay a reasonable rental for the use of the portion of the land of plaintiffs As may be agreed upon between the parties. In case of disagreement, the rate of rental shall be determined by the trial court. Otherwise, defendants may remove or demolish at their own expense the said portion of their house. No costs.

SO ORDERED.

G.R. No. 72876 January 18, 1991FLORENCIO 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.:In this petition for review bycertiorari, petitioner seeks the reversal of the decision of the Intermediate Appellate Court (now Court of Appeals) affirmingin totothe 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 petitioner 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.1On 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 partition2and 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.3Furthermore, 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 ofGrana vs. Court of Appeals,4where 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.5Petitioner Florencio Ignao appealed to the Intermediate Appellate Court. On August 27, 1985, the Appellate Court, Second Civil Cases Division, promulgated a decision,6affirming 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.7The 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 inEusebio 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.9Petitioner Florencio, in his first assignment of error, asseverates that the courta quoerred 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 ofSpouses del Campo vs. Abesia,10wherein the Court ruled that:

The courta quocorrectly 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.11In 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 ofGrana vs. Court of appeals,12and 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, inQuemuel vs. Olaes,13the 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.14No costs.

SO ORDERED

[G.R. No. 108894.February 10, 1997]

TECNOGAS PHILIPPINES MANUFACTURING CORPORATION,petitioner, vs.COURT OF APPEALS (FORMER SPECIAL SEVENTEENTH DIVISION) and EDUARDO UY,respondents.

D E C I S I O N

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 ofP2,000.00 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 ofP20,000.00 forand as attorneys 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 4531-A) 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 plaintiffs 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 defendants 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 defendants adjoining land; that upon learning of the encroachment or occupation by its buildings and wall of a portion of defendants land, plaintiff offered to buy from defendant that particular portion of defendants 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 plaintiffs 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 plaintiffs 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 plaintiffs 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 defendants 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 plaintiffs buildings and wall at the price ofP2,000.00 per square meter and to pay the former:

1.The sum ofP44,000.00 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 ofP7,500.00 as and by way of attorneys 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 respondents 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 becausethe 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 supple-mental 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 reckonedduringthe period when it was actually being built; and in a case wherenoevidence was presentednorintroduced as to the good faith or bad faith of the builder at that time, as in this case, he must bepresumedto be a builder in good faith, since bad faithcannotbe 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 isnotcharged 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 courts citation of the twin cases ofTuason & Co. v. LumanlanandTuason & Co. v. Macalindongisnotthe judicial authority for a boundary dispute situation between adjacent torrens titled lot owners, as the facts of the present case donotfall withinnorsquare with the involved principle of a dissimilar case.[11]D.

Quite contrary to respondent Uys 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 casea quowas 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, andnotover and beyond that agreed upon; because the courts donothave the power to create a contractnorexpand its scope.[13]E. (F.)

As ageneral rule, although the landowner has the option to choose between: (1)buyingthe building built in good faith, or (2)sellingthe portion of his land on which stands the building under Article 448 of the Civil Code; thefirstoption is not absolute, because anexceptionthereto, 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]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 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 in Tuason 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 respondents 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 Courts Ruling

The petition should be granted.

Good Faith or Bad Faith

Respondent Court, citing the cases ofJ. M. Tuason & Co., Inc. vs. Vda. de Lumanlan[17]and J. M. Tuason & Co., Inc. vs. Macalindong,[18]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 neighbors 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 petitioners 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 respondents 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 Parizs 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.[24]And 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 petitioners 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 petitioners 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.

EstoppelRespondent Court ruled that the amicable settlement entered into between petitioner and private respondent estops the former from questioning the private respondents right over the disputed property.It held that by undertaking to demolish the fence under said settlement, petitioner recognized private respondents 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.

xxxxxxxxx

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.x x x.

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 landowners 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:Article448orArticle450[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 Melencio-Herrera, 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 respondents 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 petitioners 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 petitioners 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.[36]Moreover, in Grana and Torralba, the area involved was only 87 square meters while this case involves 520 square meters[37].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 attorneys 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 GRANTEDand the assailed Decision and the Amended Decision are REVERSED and SET ASIDE.In accordance with the case of Depravs. Dumlao,[42]this case is REMANDEDto 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 respondents 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),whetherto appropriate the portion of the building as his own by paying to petitioner its fair market value,orto 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 respondents 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 itsprovisos.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 latters 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 respondents 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.

G.R. No. 78447 August 17, 1989

RESTITUTO CALMA,petitioner,vs.THE HON. COURT OF APPEALS (FIFTH DIVISION) and PLEASANTVILLE DEVELOPMENT CORPORATION,respondents.

Restituto S. Calma and Carlos S. Ayeng for petitioner.

William N. Mirano & Associates for respondents.

CORTES,J.:Petitioner Restituto Calma, through this Petition for Review oncertiorari,seeks to set aside the decision of the Court of Appeals in CA-G.R. SP. No. 10684 dated 26 February 1987 declaring null and void an order of the Human Settlements Regulatory Commission (hereinafter referred to as the COMMISSION) dated 30 September 1986 calling for the issuance of a writ of execution to enforce its decision of 22 May 1985.

The antecedents of this case are as follows:

Sometime in August 1975, the spouses Restituto and Pilar Calma purchased a lot in respondent Pleasantville Development Corporation's (hereinafter referred to as PLEASANTVILLE) subdivision in Bacolod City, known as City Heights Phase II. In 1976, they built a house on said lot and established residence therein. Fabian and Nenita Ong also purchased from PLEASANTVILLE a lot fronting that of the Calma spouses sometime in the years 1979-1980, and constructed their own buildings where they resided and conducted their business. On 25 April 1981, petitioner Calma wrote the president of the Association of Residents of City Heights, Inc. (ARCHI) complaining that the compound of the Ongs was being utilized as a lumber yard and that a "loathsome noise and nervous developing sound" emanating therefrom disturbed him and his family and caused them and their son to suffer nervous tension and illness [Rollo, p. 58]. The president of the association, in his reply, stated that the association's board had referred the matter to Fabian Ong who had already taken immediate action on petitioner's complaint, i.e., by ordering the transfer of the lumber cutting machine and by instructing his laborers not to do any carpentry or foundry works in the early morning or afternoon and in the evening. Finding the measures taken by the association and Fabian Ong unsatisfactory, petitioner on 17 June 1981 wrote and asked PLEASANTVILLE, as its duty and obligation, to abate the nuisance emanating from the compound of the Ong family. Failing to get an answer, the Calma spouses filed a complaint for damages against the Ong spouses and PLEASANTVILLE on 28 July 1981 before the Court of First Instance of Negros Occidental docketed as Civil Case No. 16113, alleginginter aliathat were it not for PLEASANTVILLE's act of selling the lot to the Ongs and its failure to exercise its right to cause the demolition of the alleged illegal constructions, the nuisance could not have existed and petitioner and his family would not have sustained damage. Thus, the complaint prayed for actual, moral and exemplary damages and attomey's fees and expenses of litigation.

Petitioner also filed with the National Housing Authority (NHA), on 31 August 1981, a complaint for "Violation of the Provisions, Rules and Regulations of the Subdivision and Condominium Buyers Protective Decree under Presidential Decree No. 957," claiminginter aliathat were it not for the negligent acts of PLEASANTVILLE in selling the parcel of land to the spouses Fabian and Nenita Ong and its refusal to exercise its right to cause the demolition of the structures built by the Ongs in violation of the contractual provision that the land shall be used only for residential purposes, the illness of petitioner and as soon would not have happened. Petitioner prayed that PLEASANTVILLE be ordered to abate the nuisance and/or demolish the offending structures; to refund the amortization payments made on petitioner's lot; and to provide petitioner and his son with medication until their recovery. He also prayed that PLEASANTVILLE be penalized under Sec. 39 of P.D. No. 957 and that its license be revoked.

After the answer to the complaint was filed, the issues joined and the respective position papers submitted, the COMMISSION (which had in the meantime taken over the powers of the NHA,)*rendered its decision in HSRC No. REM-92181-0547 on 22 May 1985 dismissing the complaint of the petitioner for lack of merit, finding that PLEASANTVILLE did not violate Sections 9(b), 19 and 23 of P.D. No. 957, but included a portion holding PLEASANTVILLEresponsible for the abatement of the alleged nuisanceon the ground that it was part of its implied warranty that its subdivision lots would be used solely and primarily for residential purpose.

Thus, the dispositive portion of the COMMISSION's decision read:

In view of the foregoing, the complaint for violation of Sections 9(f) and 23 of P.D. 957 is hereby DISMISSED.Respondent, however is hereby ordered to take appropriate measures for the prevention and abatement of the activities/nuisance complained of so as to ensure complainant's peaceful and pleasant living in the residential subdivision of respondent. In this regard, respondent within 15 days from finality of this decision, shall submit a timetable of the action to be taken in compliance with this directive and thereafter, a periodic status report of the progress of compliance.[Rollo, p. 35; Emphasis supplied.]

On 27 August 1986, respondent COMMISSION issued the order granting the issuance of a writ of execution of its decision. Aggrieved, PLEASANTVILLE filed a petition for prohibition with preliminary injunction with this Court assailing the portion of the COMMISSION's decision ordering it to "take appropriate measures for the prevention and abatement of the nuisance complained of," and its directive requiring PLEASANTVILLE to submit a timetable of the action to be taken and a periodic status report of the progress of its compliance. PLEASANTVILLE asserted that since the COMMISSION had found that it did not violate any provision of P.D. No. 957, the COMMISSION exceeded its jurisdiction when it ordered PLEASANTVILLE to prevent/abate the alleged nuisance complained of.

The Court referred the petition to the Court of Appeals which rendered judgment holding that the COMMISSION "acted capriciously and in excess of its jurisdiction in imposing an obligation upon the petitioner after absolving it of the complaint filed against it" [Rollo, p. 38], the relevant portion of which decision is quoted below:

We find the petition impressed with merit. Presidential Decree No. 957 is a regulatory decree with penal sanctions. While it absolved the petitioner of any penal liability by dismissing the complaint against it because it has not violated the pertinent provisions of Sections 9(f), 19 and 23, P.D. 957, yet it imposed an obligation to perform something that was not proven in the complaint-that is to abate the occurrence of nuisance and to submit a timetable of action and a periodic report of the progress of compliance. The order does not only appear overbearing and/or arbitrary, but it is without any basis in fact. . . .

Thus, the Court of Appeals ruled:

WHEREFORE, in view of the foregoing, We find merit in the petition and the same is hereby GRANTED, It is hereby ORDERED:

1) That order of respondent Commission dated 27 August 1986 for the issuance of a writ of execution is SET ASIDE as null and void;

2) That should any writ relative thereto been (sic) issued, the same is DISSOLVED or CANCELLED;

3) That portion of the dispositive portion of the decision of respondent Commission of May 22, 1985, ordering petitioner respondent to take appropriate measure for the prevention and abatement of activities/nuisance complained of in said case and the submission of timetable of action and periodic report is SET ASIDE as null and void.

No pronouncement as to costs.

SO ORDERED. [Rollo, pp. 38-39.]

Petitioner moved for reconsideration of the decision but the Court of Appeals denied his motion. Hence, petitioner brought the instant petition for review oncertiorariseeking the reversal of the decision of the Court of Appeals and the reinstatement of the COMMISSION'S decision.

1. The power to abate a nuisance, is not one of those enumerated under P.D. No. 957, the Subdivision and Condominium Buyers Protective Decree. However, as pointed out by the Solicitor General before the Court of Appeals, the COMMISSION has been specifically authorized by Executive Order No. 648 dated February 7, 1981 (otherwise known as the "Charter of the Human Settlements Regulatory Commission"), to-

Issue orders after conducting the appropriate investigation for the cessation or closure of any use or activity and to issue orders to vacate or demolish any building or structure that it determines to have violated or failed to comply with any of the laws, presidential decrees, letter of instructions, executive orders and other presidential issuances and directives being implemented by it, either on its own motion or upon complaint of any interested party. [Sec, 5 (p).]**At this point the Court finds it unnecessary to go into whether or not the COMMISSION's order to PLEASANTVILLE to take measures for the prevention and abatement of the nuisance complained of finds solid support in this provision because, as found by the Court of Appeals, the COMMISSION's conclusion that the activities being conducted and the structures in the property of the Ongs constituted a nuisance was not supported by any evidence. The Solicitor General himself, in his comment filed in the Court of Appeals, admits that the decision of the COMMISSION did not make any finding of a nuisance [CA Rollo, p. 93]. Apparently, on the basis of position papers, the COMMISSION assumed the existence of the nuisance, without receiving evidence on the matter, to support its order for the prevention or abatement of the alleged nuisance.

Moreover, the spouses Ong, were not even party to the proceedings before the COMMISSION which culminated in the order for the prevention or abatement of the alleged nuisance. The parties before the COMMISSION were petitioner and PLEASANTVILLE only, although the persons who would be directly affected by a decision favorable to petitioner would be the Ong spouses. Certainly, to declare their property or the activities being conducted therein a nuisance, and to order prevention and abatement, without giving them an opportunity to be heard would be in violation of their basic right to due process.

Thus, we find in this case a complete disregard of the cardinal primary rights in administrative proceedings, which had been hornbook law since the leading case ofAng Tibay v. Court of Industrial Relations, 69 Phil. 635 (1940).lwph1.tConsequently, the COMMISSION gravely abused its discretion amounting to lack or excess of jurisdiction when it ordered PLEASANTVILLE to "take appropriate measure for the prevention/abatement of the nuisance complained of."

2. Petitioner insists that the Ong spouses were not indispensable parties in the case before the COMMISSION, hence no violation of due process was committed, because the action was primarily based on PLEASANTVILLE's violation of its contractual and statutory obligations to petitioner. He advances the view that PLEASANTVILLE breached its warranty that the subdivision shall be exclusively residential.

In testing the validity of this contention, the following provisions of the printed Contract to Sell on Installment [Annex "E" of the Petition] between PLEASANTVILLE and petitioner, which petitioner claims to be uniform for all lot-buyers in the subdivision (but which was not established by evidence in the proceedings before the COMMISSION), are to be considered:

xxx xxx xxx

12. The Vendee agrees to constitute as permanent lien on the property subject-matter of this agreement the following conditions and regulations:

a) That the land shall be used exclusively for commercial residential purposes;xxx xxx xxx

22. That the lot or lots subject-matter of this contract shall be used exclusively for residential purposesand only one single family residential building will be constructed on each lot provided that the VENDEE may construct a separate servant's quarter;

xxx xxx xxx

[Rollo, p. 55; Emphasis supplied.]

These provisions of the contract do not unequivocally express a warranty that the subdivision lots shall be used exclusively for residential purpose. On the contrary, the contract also explicitiy authorizes the use of the lots forcommercial or residential purposes.Because of the confusing language of items 12 and 22 of the printed contract to sell, it is not possible to read from the text alone a warranty that the subdivision shall be purely residential. Other evidence of such warranty, including representations, if any, made by PLEASANTVILLE to petitioner, would be needed to establish its enforceability.

Petitioner also made reference to a "statutory" implied warranty, but failed to cite the provision of law imposing the warranty. It could not be the Civil Code, as the title on sales provides for only two classes of implied warranties: in case of eviction and against hidden defects of or encumbrances upon the thing sold [Arts. 1547; 1548-1560; 1561-1581]. Neither is any warranty imposed by P.D. No. 957.

As the party suing on the basis of breach of warranty, petitioner would have to come up with something better than a bare assertion that there was a breach. He would have to prove first and foremost that there is indeed a warranty that had been breached, then establish how the breach was committed.

3. A final word. There is no denying that in instituting the complaint for damages before the trial court and the complaint for violation of P.D. 957 before the COMMISSION petitioner was motivated by the twin purposes of seeking the abatement of the alleged nuisance and recovering damages for the medical problems purportedly caused by the nuisance. He certainly cannot be faulted for seeking redress in all available venues for the alleged violation of his family home's tranquility, for the defense of one's home and family is a natural instinct. However, redress for petitioner's grievances will have to be tempered by the guiding hand of due process. Thus, the nullification of the assailed portion of the COMMISSION's judgment becomes inevitable if we are to adhere to the basic tenets of law. A wrong cannot be corrected by another wrong.

Hence, no reversible error was committed by the Court of Appeals when it nullified the assailed portion of the COMMISSION's decision, the order granting the writ of execution, and any writ of execution issued pursuant thereto.

But all is not lost for petitioner and his family. As mentioned earlier, there is a pending civil case (Civil Case No. 16113, Regional Trial Court of Negros Occidental), instituted by petitioner, where the alleged breach of warranty, coupled with PLEASANTVILLE's inaction, is the primary basis for the complaint for abatement and damages. Here he can prove the existence of the warranty and show how it was breached. It is also in this case where the determination of whether or not the activities conducted in the property of the Ong spouses or the structures thereat constitute a nuisance will have to be made. Also herein is the proper forum where, following another theory, it could be determined whether the Contract to Sell (assuming that the contract between PLEASANTVILLE and the Ongs is similar) establishes an enforceable obligation in favor of third parties, i.e., other lot-buyers in the subdivision. In said proceeding the factual issues can be fully threshed out and the Ong spouses, the parties who shall be directly affected by any adverse judgment, shall be afforded the opportunity to be heard as they had been impleaded as defendants therein together with PLEASANTVILLE.

WHEREFORE, there being no cogent reasons to reverse the decision of the Court of Appeals, the same is hereby AFFIRMED and the petition DENIED for lack of merit.

G.R. No. L-53466 November 10, 1980

RURAL BANK OF OROQUIETA (MIS. OCC.), INC.,petitioner,vs.COURT OF APPEALS, Eighth Division; JUDGE MELECIO A. GENATO Court of First Instance of Misamis Occidental, Oroquieta Branch I; PROCOPIO SERRANO and MARIA CUEMErespondents.

AQUINO,J.:This case is about the mortgagor's equity of redemption in case of judicial foreclosure of a mortgage in favor of a rural bank.

In Civil Case No. 2988 of the Court of First Instance of Misamis Occidental, Oroquieta City Branch I, entitled "Rural Bank of Oroquieta (Mis. Occ.), Inc. vs. Procopio Serrano and Maria Cueme a case of foreclosure of mortgage, Judge Melecio A. Genato on July 3, 1974 rendered a decision, ordering the defendants to pay plaintiff bank within a period of "not less than ninety (90) days nor more than one hundred (100) days from" the receipt of the decision the loan of P1,500 with twelve percent interestper annumfrom January 16, 1972 plus ten percent of the principal as attorney's fees (p. 29, Rollo).

In case of nonpayment within that period, the trial court, in order to satisfy that obligation, ordered the sheriff to sell at public auction the mortgaged lot, a parcel of coconut land with an area of 2.8 hectares, covered by TCT No. T-1753, located at Sitio Petugo Barrio Bato, Plaridel, Misamis Occidental and assessed at P3,433.86 (p. 29, Rollo).

That judgment became final and executory. The Serrano spouses did not pay their mortgage debt. A writ of execution was issued. On January 13, 1975, the sheriff levied upon the mortgaged lot and advertised its sale at public auction to satisfy the mortgage obligation which, together with the sheriff's fees and costs, amounted to P2,223.60 on January 28, 1975.

At the auction sale held on March 3, 1975, the mortgaged lot was sold to the bank as the only bidder. The sheriff issued a certificate of sale dated March 4, 1975 (p. 34, Rollo).

There being no redemption within the one-year period (sec. 78, General Banking Law), the sheriff issued a final certificate of sale dated April 19, 1976 which was registered on the following day.

On September 20, 1976, the bank sold the lot to Eufemia Mejos. TCT No. 6035 was issued to her (pp. 47-48, Rollo).

On September 8, 1977, Judge Genato issued an order directing the issuance of a writ of possession to the bank. The mortgagors or judgment debtors filed a motion for the reconsideration of that order on the grounds that, because there wasno judicial confirmation of the action sale,they still have an equity of redemption and could still pay the mortgage debt (alleged to be usurious) and that the auction sale was fraudulent and irregular. They averred that the bank rejected their offer to redeem the mortgaged lot and that the issuance of the writ of possession was premature.

Judge Genato granted the motion for reconsideration in his order ofOctober 12, 1977which contains these inconsistent or contradictory directives: "Let the execution of judgment in this case be ordered and subsequently the writ of possession be accordingly issued. The Rural Bank of Oroquieta is hereby ordered to accept payment of the loan with interests." (p. 36, Record.)

On December 23, 1977, the bank filed a manifestation and motion wherein it revealed that the land had already been sold to Eufemia Mejos and, therefore, its acceptance of the redemption tion price amounting to P2,820.60 would not produce any legal effect (pp. 47-48, Rollo).

The bank further disclosed that there is pending in the trial court a case for the annulment of the foreclosure sale of the said lot and the release of the mortgage, docketed as Civil Case No. 3265, which was instituted by the Serrano spouses, as mortgagors, against the bank and the Mejos spouses. The bank prayed that it should not be compelled to accept the proffered redemption price.

The trial court denied the motion. The bank filed a notice of appeal, deposited the appeal bond of P120 and submitted a record on appeal. It specified in its notice of appeal that it was appealing to the Court of Appeals from the trial court's order of October 12, 1977, allowing the redemption.

The Serrano spouses filed a motion to dismiss the appeal on the ground that they had already deposited with the clerk of court the redemption price of P2,830.

The trial court in its order of February 27, 1978 dismissed the appeal on the ground that the order sought to be appealed is interlocutory or not appealable. The bank assailed that order in the Court of Appeals by means of certiorari which was really a mandamus action to compel the trial court to give due course to its appeal.

The Court of Appeals dismissed the petition. It sustained the trial court's position that the order sought to be appealed is interlocutory because the trial court had not yet confirmed the foreclosure sale (Rural Bank of Oroquieta [Mis. Occ.], Inc. vs. Judge Genato, CA-G. R. No. SP-07756, October 26, 1979).

The bank appealed to this Court. The issue is whether the trial court and the Court of Appeals erred in not giving due course to the bank's appeal.

We hold that the trial court and the Court of Appeals acted correctly in refusing to give due course to the bank's appeal not only because the order sought to be appealed is in interlocutory but also because in the present posture of the case it is imperative that the trial court shouldconsolidatethe foreclosure case, Civil Case No. 2988, with the other case, Civil Case No. 3265 filed by the Serrano spouses for the annulment of the foreclosure sale and the subsequent sale of the mortgaged lot to the Mejos spouses. Note that the latter case is also pending in the sala of respondent Judge.

The trial court erred in unreservedly allowing the Serrano spouses to redeem the mortgaged lotwithout taking into ac count the supervening fact that the lot is now registered in the name of Eufemia Mejoswho is not a party in the foreclosure proceeding and who is entitled to be heard. That complication cannot be summarily ignored.

At this stage, a decision cannot be rendered outright on the conflicting rights of the Serrano spouses, the bank and the Mejos spouses with respect to the mortgaged lot. The trial court should first try and resolve the issues arising out of the lack of judicial confirmation of the foreclosure sale and the subsequent sale of the mortgaged lot to a third person after the expiration of the one-year period for exercising the right of redemption. We can only state some guidelines in resolving those issues.

After the execution of a real estate mortgage, the mortgagor has an equity of redemption exercisable within the period stipulated in the mortgage deed. In case of judicial foreclosure, that equity of redemption subsists after the sale and before it is confirmed by the court (Raymundo vs. Sunico, 25 Phil. 365; Benedicto vs. Yulo, 26 Phil. 160; Grimalt vs. Velasquez and Sy Quio 36 Phil. 936; Sun Life Assurance Co. vs. Gonzales Diez, 52 Phil. 271; La Urbana vs. Belando 54 Phil. 930; Villar vs. Javier de Paderanga 97 Phil. 604; Piano vs. Cayanong 117 Phil. 415).

However, in case of a judicial foreclosure of a mortgage in favor of a banking institution, section 78 of the General Banking Law grants the mortgagor a right of redemption which may be exercised within one year from the sale.

Under section 3, Rule 68 of the Rules of Court, it is the confirmation by the court of the auction sale that would divest the Serrano spouses of their rights to the mortgaged lot and that would vest such rights in the bank as purchaser at the auction sale.

The clause "subject to such rights of redemption as may be allowed by law," found in the last part of section 3, has no application to this case because the mortgagor did not exercise his right of redemption under section 78 of the General BanKing Law.

What applies to this case is the settled rule that "a foreclosure sale is not complete until it is confirmed, and before said confirmation, the court retains control of the proceedings by exercising a sound discretion in regard to it, either granting or withholding confirmation as the rights and interests of the parties and the ends of justice may require." (Salazar vs. Tor res, 108 Phil. 209, 214-5).

"In order that a foreclosure sale may be validly confirmed by the court, it is necessary that a hearing be given the interested parties, at which they may have an opportunity to show cause why the sale should not be confirmed." (Raymundo vs. Sunico, 25 Phil. 365).

"The acceptance of a bid at the foreclosure sale confers no title on the purchaser. Until the sale has been validly confirmed by the court, he is nothing more than a preferred bidder. Title vests only when the sale has been validly confirmed by the court." (Raymundo vs. Sunico, 25 Phil. 365).

The confirmation retroacts to the date of the sale (Villar vs. Javier de Paderanga 97 Phil. 604, citing Binalbagan Estate, Inc. vs. Gatuslao, 74 Phil. 128).

A hearing should be held for the confirmation of the sale. The mortgagor should be notified of that hearing. Lack of notice vitiates the confirmation of the sale. The mortgagor may still redeem the mortgaged lot after the rendition of the order confirming the sale which is void for lack of hearing and notice to the mortgagor. Grimalt vs. Velasquez and Sy Quio 36 Phil. 936; Raymundo vs. Sunico, 25 Phil. 365).

Notice and hearing of a motion for confirmation of sale are essential to the validity of the order of confirmation, not only to enable the interested parties to resist the motion but also to inform them of the time when their right of redemption is cut off (Tiglao vs. Botones, 90 Phil. 275, 279).

An order of confirmation, void for lack of notice and hearing, may be set aside anytime (Tiglao vs. Botones,supra).

It is equally settled that after the foreclosure sale but before its confirmation, the court may grant the judgment debtor or mortgagor an opportunity to pay the proceeds of the sale and thus refrain from confirming it (Anderson and De Mesa vs. Reyes and Gutierrez Saenz 54 Phil. 944, citing Grit vs. Velasquez and Sy Quio 36 Phil. 936 and La Urbana vs. Belan do, 54 Phil. 930).

If after the foreclosure sale and before the confirmation thereof, the mortgagee, as purchaser at the auction sale, sold the mortgaged property to another person, that subsequent sale does not render the foreclosure sale more effective.That subsequent sale does not prevent the trial court from granting the mortgagor a period within which to redeem the mortgaged lot by paying the judgment debt and the expenses of the sale and costs(Anderson and De Mesa vs. Reyes and Gutierrez Saenz, 54 Phil. 944).

"Whatever may have been the old rule by all of the modern authorities, it is the policy of the courts to assist rather than to defeat the right of redemption" (De Castro vs. Olondriz and Escudero 50 Phil. 725, 732).

After the confirmation of the sale, made after hearing and with due notice to the mortgagor, the latter cannot redeem anymore the mortgaged lot (unless the mortgagee is a banking institution) (Piano vs. Cayanong 117 Phil. 415).

It is after the confirmation of the sale that the mortgagor loses all interest in the mortgaged property (Clemente vs. H. E. Heacock Co., 106 Phil. 1163; Clemente vs. Court of Appeals, 109 Phil. 798; Clemente vs. H.E. Heacock Co., L-23212, May 18, 1967, 20 SCRA 115).

In the instant case, where the foreclosure sale has not yet been confirmed but the statutory one-year period for redemption tion expired and the mortgaged lot was sold by the mortgagee (as the only bidder at the auction sale) to a third person, the trial court should give the purchaser a chance to be heard before requiring the mortgagee-bank to accept the redemption price tendered by the mortgagors.

WHEREFORE, while we affirm the decision of the Court of Appeals in not giving due course to petitioner's appeal from the trial court's aforementioned order of October 12, 1977, at the same time the said order is reversed and set aside for being premature.

The trial court is directed to consolidate the foreclosure case, Civil Case No. 2988, with Civil Case No. 3265 for the annulment of the foreclosure sale and the sale of the mortgaged lot to Eufemia Mejos and to proceed in accordance with the guidelines laid down in this decision. No costs.

SO ORDERED

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.

D E C I S I O N

PUNO,J.:

This is a petition for review oncertiorariof the decision of the Court of Appeals dated March 25, 1996 in CA-G.R. CV No. 32472 entitled "Eden Ballatan,et. al., plaintiffs-appelleesv. Gonzalo Go and Winston Go, appellants and third-party plaintiffs-appellantsv. 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, 414square 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 isLot 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 informed 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 AIA 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 a fewmeters 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; t