Republic of the PhilippinesSUPREME COURTManila

SECOND DIVISION

G.R. No. 190106 January 15, 2014MAGDALENA T. VILLASI, Petitioner, vs.FILOMENO GARCIA, substituted by his heirs, namely, ERMELINDA H. GARCIA, LIZA GARCIA-GONZALEZ, THERESA GARCIA-TIANGSON, MARIVIC H. GARCIA, MARLENE GARCIA-MOMIN, GERARDO H. GARCIA, GIDEON H. GARCIA and GENEROSO H. GARCIA, and ERMELINDA H. GARCIA, Respondents.

D E C I S I O NPEREZ, J.:

This is a Petition for Review on Certiorari1 filed pursuant to Rule 45 of the Revised Rules of Court, assailing the 19 May 2009 Decision2 rendered by the Sixth Division of the Court of Appeals in CA-G.R. SP No. 92587. The appellate court affirmed the Order3 of the Regional Trial Court R TC) of Quezon City, Branch 77, directing the Deputy Sheriff to suspend the conduct of the execution sale of the buildings levied upon by him.

The Facts

Sometime in 1990, petitioner Magdalena T Villasi (Villasi) engaged the services of respondent Fil-Garcia Construction, Inc. (FGCI) to construct a seven-storey condominium building located at Aurora Boulevard corner N. Domingo Street, Cubao, Quezon City. For failure of Villasi to fully pay the contract price despite several demands, FGCI initiated a suit for collection of sum of money before the RTC of Quezon City, Branch 77. In its action docketed as Civil Case No. Q-91-8187, FGCI prayed, among others, for the payment of the amount of P2, 865,000.00, representing the unpaid accomplishment billings. Served with summons, Villasi filed an answer specifically denying the material allegations of the complaint. Contending that FGCI has no cause of action against her, Villasi averred that she delivered the total amount of P7,490,325.10 to FGCI but the latter accomplished only 28% of the project. After the pre-trial conference was terminated without the parties having reached an amicable settlement, trial on the merits ensued.

Finding that FGCI was able to preponderantly establish by evidence its right to the unpaid accomplishment billings, the RTC rendered a Decision4 dated 26 June 1996 in FGCIs favor. While the trial court brushed aside the allegation of Villasi that an excess payment was made, it upheld the claim of FGCI to the unpaid amount of the contract price and, thus, disposed:

WHEREFORE, judgment is hereby rendered:

1. Ordering [Villasi] to pay [FGCI] the sum of P2,865,000.00 as actual damages and unpaid accomplishment billings;2. Ordering [Villasi] to pay [FGCI] the amount of P500,000.00 representing the value of unused building materials;3. Ordering [Villasi] to pay [FGCI] the amount of P100,000.00, as moral damages and P100,000.00 as attorneys fees.5

Elevated on appeal and docketed as CA-GR CV No. 54750, the Court of Appeals reversed the disquisition of the RTC in its Decision6 dated 20 November 2000. The appellate court ruled that an overpayment was made by Villasi and thereby directed FGCI to return the amount that was paid in excess, viz:WHEREFORE, premises considered, the present appeal is hereby GRANTED and the appealed decision in Civil Case No. Q-91-8187 is hereby REVERSED and SET ASIDE and judgment is hereby rendered ordering the [FGCI] to return to [Villasi] the sum of P1,244,543.33 as overpayment under their contract, and the further sum of P425,004.00 representing unpaid construction materials obtained by it from [Villasi]. [FGCI] is likewise hereby declared liable for the payment of liquidated damages in the sum equivalent to 1/10 of 1% of the contract price for each day of delay computed from March 6, 1991.

No pronouncement as to costs.7

Unrelenting, FGCI filed a Petition for Review on Certiorari before this Court, docketed as G.R. No. 147960, asseverating that the appellate court erred in rendering the 20 November 2000 Decision. This Court, however, in a Resolution dated 1 October 2001, denied the appeal for being filed out of time. The said resolution became final and executory on 27 November 2001, as evidenced by the Entry of Judgment8 made herein.

To enforce her right as prevailing party, Villasi filed a Motion for Execution of the 20 November 2000 Court of Appeals Decision, which was favorably acted upon by the RTC.9 A Writ of Execution was issued on 28 April 2004, commanding the Sheriff to execute and make effective the 20 November 2000 Decision of the Court of Appeals.

To satisfy the judgment, the sheriff levied on a building located at No. 140 Kalayaan Avenue, Quezon City, covered by Tax Declaration No. D-021-01458, and built in the lots registered under Transfer Certificates of Title (TCT) Nos. 379193 and 379194. While the building was declared for taxation purposes in the name of FGCI, the lots in which it was erected were registered in the names of the Spouses Filomeno Garcia and Ermelinda Halili-Garcia (Spouses Garcia). After the mandatory posting and publication of notice of sale on execution of real property were complied with, a public auction was scheduled on 25 January 2006.

To forestall the sale on execution, the Spouses Garcia filed an Affidavit of Third Party Claim10 and a Motion to Set Aside Notice of Sale on Execution,11 claiming that they are the lawful owners of the property which was erroneously levied upon by the sheriff. To persuade the court a quo to grant their motion, the Spouses Garcia argued that the building covered by the levy was mistakenly assessed by the City Assessor in the name of FGCI. The motion was opposed by Villasi who insisted that its ownership belongs to FGCI and not to the Spouses Garcia as shown by the tax declaration.

After weighing the arguments of the opposing parties, the RTC issued on 24 February 2005 an Order12 directing the Sheriff to hold in abeyance the conduct of the sale on execution, to wit:WHEREFORE, premises considered, the Court hereby orders Deputy Sheriff Angel Doroni to suspend or hold in abeyance the conduct of the sale on execution of the buildings levied upon by him, until further orders from the Court.13

The motion for reconsideration of Villasi was denied by the trial court in its 11 October 2005 Order.14Arguing that the RTC gravely abused its discretion in ordering the suspension of the sale on execution, Villasi timely filed a Petition for Certiorari before the Court of Appeals. In a Decision15 dated 19 May 2009, the appellate court dismissed the petition. In a Resolution16 dated 28 October 2009, the Court of Appeals refused to reconsider its decision.

Villasi is now before this Court via this instant Petition for Review on Certiorari assailing the adverse Court of Appeals Decision and Resolution and raising the following issues:

The Issues

I.WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN UPHOLDING THE DECISION OF THE TRIAL COURT TO SUSPEND AND HOLD IN ABEYANCE THE SALE ON EXECUTION OF THE BUILDINGS LEVIED UPON ON THE BASIS OF RESPONDENTS AFFIDAVIT OF THIRD-PARTY CLAIM;

II.WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT HELD THAT THERE IS NO REASON TO PIERCE THE VEIL OF [FGCIS] CORPORATE FICTION IN THE CASE AT BAR; [AND]

III.WHETHER OR NOT THE BRANCH SHERIFF OF THE REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH 77 SHOULD BE DIRECTED TO FILE THE APPROPRIATE NOTICE OF LEVY WITH THE REGISTER OF DEEDS OF QUEZON CITY.17

The Courts Ruling

It is a basic principle of law that money judgments are enforceable only against the property incontrovertibly belonging to the judgment debtor, and if the property belonging to any third person is mistakenly levied upon to answer for another mans indebtedness, such person has all the right to challenge the levy through any of the remedies provided for under the Rules of Court. Section 16,18 Rule 39 specifically provides that a third person may avail himself of the remedies of either terceria, to determine whether the sheriff has rightly or wrongly taken hold of the property not belonging to the judgment debtor or obligor, or an independent "separate action" to vindicate his claim of ownership and/or possession over the foreclosed property. However, the person other than the judgment debtor who claims ownership or right over levied properties is not precluded from taking other legal remedies to prosecute his claim.19

Indeed, the power of the court in executing judgments extends only to properties unquestionably belonging to the judgment debtor alone. An execution can be issued only against a party and not against one who did not have his day in court. The duty of the sheriff is to levy the property of the judgment debtor not that of a third person. For, as the saying goes, one man's goods shall not be sold for another man's debts.20

Claiming that the sheriff mistakenly levied the building that lawfully belongs to them, the Spouses Garcia availed themselves of the remedy of terceria under Section 16, Rule 39 of the Revised Rules of Court. To fortify their position, the Spouses Garcia asserted that as the owners of the land, they would be deemed under the law as owners of the building standing thereon. The Spouses Garcia also asserted that the construction of the building was financed thru a loan obtained from Metrobank in their personal capacities, and they merely contracted FGCI to construct the building. Finally, the Spouses Garcia argued that the tax declaration, based on an erroneous assessment by the City Assessor, cannot be made as basis of ownership.

For her part, Villasi insists that the levy effected by the sheriff was proper since the subject property belongs to the judgment debtor and not to third persons. To dispute the ownership of the Spouses Garcia, Villasi pointed out that the levied property was declared for tax purposes in the name of FGCI. A Certification issued by the Office of the City Engineering of Quezon City likewise showed that the building permit of the subject property was likewise issued in the name of FGCI. We grant the petition.

The right of a third-party claimant to file a terceria is founded on his title or right of possession.1avvphi1 Corollary thereto, before the court can exercise its supervisory power to direct the release of the property mistakenly levied and the restoration thereof to its rightful owner, the claimant must first unmistakably establish his ownership or right of possession thereon. In Spouses Sy v. Hon. Discaya,21 we declared that for a third-party claim or a terceria to prosper, the claimant must first sufficiently establish his right on the property:

[A] third person whose property was seized by a sheriff to answer for the obligation of the judgment debtor may invoke the supervisory power of the court which authorized such execution. Upon due application by the third person and after summary hearing, the court may command that the property be released from the mistaken levy and restored to the rightful owner or possessor. What said court can do in these instances, however, is limited to a determination of whether the sheriff has acted rightly or wrongly in the performance of his duties in the execution of judgment, more specifically, if he has indeed taken hold of property not belonging to the judgment debtor. The court does not and cannot pass upon the question of title to the property, with any character of finality. It can treat of the matter only insofar as may be necessary to decide if the sheriff has acted correctly or not. It can require the sheriff to restore the property to the claimant's possession if warranted by the evidence. However, if the claimant's proofs do not persuade the court of the validity of his title or right of possession thereto, the claim will be denied.22 (Emphasis and underscoring supplied).

Our perusal of the record shows that, as the party asserting their title, the Spouses Garcia failed to prove that they have a bona fide title to the building in question. Aside from their postulation that as title holders of the land, the law presumes them to be owners of the improvements built thereon, the Spouses Garcia were unable to adduce credible evidence to prove their ownership of the property. In contrast, Villasi was able to satisfactorily establish the ownership of FGCI thru the pieces of evidence she appended to her opposition. Worthy to note is the fact that the building in litigation was declared for taxation purposes in the name of FGCI and not in the Spouses Garcias. While it is true that tax receipts and tax declarations are not incontrovertible evidence of ownership, they constitute credible proof of claim of title over the property.23 In Buduhan v. Pakurao,24 we underscored the significance of a tax declaration as proof that a holder has claim of title, and, we gave weight to the demonstrable interest of the claimant holding a tax receipt:

Although tax declarations or realty tax payment of property are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in the concept of owner for no one in his right mind would be paying taxes for a property that is not in his actual or at least constructive possession. They constitute at least proof that the holder has a claim of title over the property. The voluntary declaration of a piece of property for taxation purposes manifests not only ones sincere and honest desire to obtain title to the property and announces his adverse claim against the State and all other interested parties, but also the intention to contribute needed revenues to the Government. Such an act strengthens ones bona fide claim of acquisition of ownership.25

It likewise failed to escape our attention that FGCI is in actual possession of the building and as the payment of taxes coupled with actual possession of the land covered by tax declaration strongly supports a claim of ownership.26 Quite significantly, all the court processes in an earlier collection suit between FGCI and Villasi were served, thru the formers representative Filomeno Garcia, at No. 140 Kalayaan Avenue, Quezon City, where the subject property is located. This circumstance is consistent with the tax declaration in the name of FGCI.

The explanation proffered by the Spouses Garcia, that the City Assessor merely committed an error when it declared the property for taxation purposes in the name of FGCI, appears to be suspect in the absence of any prompt and serious effort on their part to have it rectified before the onset of the instant controversy. The correction of entry belatedly sought by the Spouses Garcia is indicative of its intention to put the property beyond the reach of the judgment creditor. Every prevailing party to a suit enjoys the corollary right to the fruits of the judgment and, thus, court rules provide a procedure to ensure that every favorable judgment is fully satisfied.27 It is almost trite to say that execution is the fruit and end of the suit. Hailing it as the "life of the law," ratio legis est anima,28 this Court has zealously guarded against any attempt to thwart the rigid rule and deny the prevailing litigant his right to savour the fruit of his victory.29 A judgment, if left unexecuted, would be nothing but an empty triumph for the prevailing party.30While it is a hornbook doctrine that the accessory follows the principal,31 that is, the ownership of the property gives the right by accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially,32 such rule is not without exception. In cases where there is a clear and convincing evidence to prove that the principal and the accessory are not owned by one and the same person or entity, the presumption shall not be applied and the actual ownership shall be upheld. In a number of cases, we recognized the separate ownership of the land from the building and brushed aside the rule that accessory follows the principal.

In Carbonilla v. Abiera,33 we denied the claim of petitioner that, as the owner of the land, he is likewise the owner of the building erected thereon, for his failure to present evidence to buttress his position:

To set the record straight, while petitioner may have proven his ownership of the land, as there can be no other piece of evidence more worthy of credence than a Torrens certificate of title, he failed to present any evidence to substantiate his claim of ownership or right to the possession of the building. Like the CA, we cannot accept the Deed of Extrajudicial Settlement of Estate (Residential Building) with Waiver and Quitclaim of Ownership executed by the Garcianos as proof that petitioner acquired ownership of the building. There is no showing that the Garcianos were the owners of the building or that they had any proprietary right over it. Ranged against respondents proof of possession of the building since 1977, petitioners evidence pales in comparison and leaves us totally unconvinced.34

In Caltex (Phil.) Inc. v. Felias,35 we ruled that while the building is a conjugal property and therefore liable for the debts of the conjugal partnership, the lot on which the building was constructed is a paraphernal property and could not be the subject of levy and sale:

x x x. In other words, when the lot was donated to Felisa by her parents, as owners of the land on which the building was constructed, the lot became her paraphernal property. The donation transmitted to her the rights of a landowner over a building constructed on it. Therefore, at the time of the levy and sale of the sheriff, Lot No. 107 did not belong to the conjugal partnership, but it was paraphernal property of Felisa. As such, it was not answerable for the obligations of her husband which resulted in the judgment against him in favor of Caltex.36

The rule on accession is not an iron-clad dictum. On instances where this Court was confronted with cases requiring judicial determination of the ownership of the building separate from the lot, it never hesitated to disregard such rule. The case at bar is of similar import. When there are factual and evidentiary evidence to prove that the building and the lot on which it stands are owned by different persons, they shall be treated separately. As such, the building or the lot, as the case may be, can be made liable to answer for the obligation of its respective owner.

Finally, the issue regarding the piercing of the veil of corporate fiction is irrelevant in this case. The Spouses Garcia are trying to protect FGCI from liability by asserting that they, not FGCI, own the levied property. The Spouses Garcia are asserting their separation from FGCI. FGCI, the judgment debtor, is the proven owner of the building. Piercing FGCIs corporate veil will not protect FGCI from its judgment debt. Piercing will result in the identification of the Spouses Garcia as FGCI itself and will make them liable for FGCIs judgment debt.

WHEREFORE, premises considered, the petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 92587 are hereby REVERSED and SET ASIDE. The Deputy Sheriff is hereby directed to proceed with the conduct of the sale on execution of the levied building.

SO ORDERED.

Footnotes18Sec. 16. Proceedings where property claimed by third person. - If the property levied on is claimed by any person other than the judgment obligor or his agent, and such person makes an affidavit of his title thereto or right to the possession thereof, stating the grounds of such right or title, and serves the same upon the officer making the levy and a copy thereof upon the judgment obligee, the officer shall not be bound to keep the property, unless such judgment obligee, on demand of the officer, files a bond approved by the court to indemnify the third-party claimant in a sum not less than the value of the property levied on. In case of disagreement as to such value, the same shall be determined by the court issuing the writ of execution. No claim for damages for the taking or keeping of the property may be enforced against the bond unless the action therefor is filed within one hundred twenty (120) days from the date of the filing of the bond.The officer shall not be liable for damages for the taking or keeping of the property, to any third-party claimant if such bond is filed. Nothing herein contained shall prevent such claimant or any third person from vindicating his claim to the property in a separate action, or prevent the judgment obligee from claiming damages in the same or a separate action against a third-party claimant who filed a frivolous or plainly spurious claim.

When the writ of execution is issued in favor of the Republic of the Philippines, or any officer duly representing it, the filing of such bond shall not be required, and in case the sheriff or levying officer is sued for damages as a result of the levy, he shall be represented by the Solicitor General and if held liable therefor, the actual damages adjudged by the court shall be paid by the National Treasurer out of such funds as may be appropriated for the purpose.

32 New Civil Code, Art. 440. The ownership of property gives the right by accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially.

Republic of the PhilippinesSUPREME COURTManilaSECOND DIVISION

G.R. No. 176791 November 14, 2012

COMMUNITIES CAGAYAN, INC., Petitioner, vs.SPOUSES ARSENIO (Deceased) and ANGELES NANOL AND ANYBODY CLAIMING RIGHTS UNDER THEM, Respondents.

D E C I S I O NDEL CASTILLO, J.:

LAWS fill the gap in a contract.

This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the December 29. 2006 Decision2 and the February 12, 2007 Order3 of the Regional Trial Court (RTC), Cagayan De Oro City, Branch 18, in Civil Case No. 2005-158.

Factual Antecedents

Sometimes in 1994, respondent-spouses Arsenio and Angeles Nanol entered into a Contract to Sell4 with petitioner Communities Cagayan, Inc.,5 whereby the latter agreed to sell to respondent-spouses a house and Lots 17 and 196 located at Block 16, Camella Homes Subdivision, Cagayan de Oro City, 7 for the price of P368,000.00.8 Respondent-spouses, however, did not avail of petitioners inhouse financing due to its high interest rates.9 Instead, they obtained a loan from Capitol Development Bank, a sister company of petitioner, using the property as collateral.10 To facilitate the loan, a simulated sale over the property was executed by petitioner in favor of respondent-spouses.11 Accordingly, titles were transferred in the names of respondent-spouses under Transfer Certificates of Title (TCT) Nos. 105202 and 105203, and submitted to Capitol Development Bank for loan processing.12 Unfortunately, the bank collapsed and closed before it could release the loan.13

Thus, on November 30, 1997, respondent-spouses entered into another Contract to Sell14 with petitioner over the same property for the same price of P368,000.00.15 This time, respondent-spouses availed of petitioners in-house financing16thus, undertaking to pay the loan over four years, from 1997 to 2001.17

Sometime in 2000, respondent Arsenio demolished the original house and constructed a three-story house allegedly valued at P3.5 million, more or less.18

In July 2001, respondent Arsenio died, leaving his wife, herein respondent Angeles, to pay for the monthly amortizations.19

On September 10, 2003, petitioner sent respondent-spouses a notarizedNotice of Delinquency and Cancellation of Contract to Sell20 due to the latters failure to pay the monthly amortizations.

In December 2003, petitioner filed before Branch 3 of the Municipal Trial Court in Cities of Cagayan de Oro City, an action for unlawful detainer, docketed as C3-Dec-2160, against respondent-spouses.21 When the case was referred for mediation, respondent Angeles offered to pay P220,000.00 to settle the case but petitioner refused to accept the payment.22 The case was later withdrawn and consequently dismissed because the judge found out that the titles were already registered under the names of respondent-spouses.23Unfazed by the unfortunate turn of events, petitioner, on July 27, 2005, filed before Branch 18 of the RTC, Cagayan de Oro City, a Complaint for Cancellation of Title, Recovery of Possession, Reconveyance and Damages,24 docketed as Civil Case No. 2005-158, against respondent-spouses and all persons claiming rights under them. Petitioner alleged that the transfer of the titles in the names of respondent-spouses was made only in compliance with the requirements of Capitol Development Bank and that respondent-spouses failed to pay their monthly amortizations beginning January 2000.25 Thus, petitioner prayed that TCT Nos. T-105202 and T-105203 be cancelled, and that respondent Angeles be ordered to vacate the subject property and to pay petitioner reasonable monthly rentals from January 2000 plus damages.26

In her Answer,27 respondent Angeles averred that the Deed of Absolute Sale is valid, and that petitioner is not the proper party to file the complaint because petitioner is different from Masterplan Properties, Inc.28 She also prayed for damages by way of compulsory counterclaim.29

In its Reply,30 petitioner attached a copy of its Certificate of Filing of Amended Articles of Incorporation31 showing that Masterplan Properties, Inc. and petitioner are one and the same. As to the compulsory counterclaim for damages, petitioner denied the same on the ground of "lack of knowledge sufficient to form a belief as to the truth or falsity of such allegation."32Respondent Angeles then moved for summary judgment and prayed that petitioner be ordered to return the owners duplicate copies of the TCTs.33

Pursuant to Administrative Order No. 59-2005, the case was referred for mediation.34 But since the parties failed to arrive at an amicable settlement, the case was set for preliminary conference on February 23, 2006.35

On July 7, 2006, the parties agreed to submit the case for decision based on the pleadings and exhibits presented during the preliminary conference.36

Ruling of the Regional Trial Court

On December 29, 2006, the RTC rendered judgment declaring the Deed of Absolute Sale invalid for lack of consideration.37 Thus, it disposed of the case in this wise:

WHEREFORE, the Court hereby declares the Deed of Absolute Sale VOID. Accordingly, Transfer Certificates of Title Nos. 105202 and 105203 in the names of the [respondents], Arsenio (deceased) and Angeles Nanol, are ordered CANCELLED. The [respondents] and any person claiming rights under them are directed to turn-over the possession of the house and lot to [petitioner], Communities Cagayan, Inc., subject to the latters payment of their total monthly installments and the value of the new house minus the cost of the original house.

SO ORDERED.38

Not satisfied, petitioner moved for reconsideration of the Decision but the Motion39 was denied in an Order40 dated February 12, 2007.

Issue

Instead of appealing the Decision to the Court of Appeals (CA), petitioner opted to file the instant petition directly with this Court on a pure question of law, to wit:

WHETHER X X X THE ACTION OF THE RTC BRANCH 18 X X X IN ORDERING THE RECOVERY OF POSSESSION BY PETITIONER subject to the latters payment of their total monthly installments and the value of the new house minus the cost of the original house IS CONTRARY TO LAW AND JURISPRUDENCE X X X.41

Petitioners Arguments

Petitioner seeks to delete from the dispositive portion the order requiring petitioner to reimburse respondent-spouses the total monthly installments they had paid and the value of the new house minus the cost of the original house.42 Petitioner claims that there is no legal basis for the RTC to require petitioner to reimburse the cost of the new house because respondent-spouses were in bad faith when they renovated and improved the house, which was not yet their own.43 Petitioner further contends that instead of ordering mutual restitution by the parties, the RTC should have applied Republic Act No. 6552, otherwise known as the Maceda Law,44 and that instead of awarding respondent-spouses a refund of all their monthly amortization payments, the RTC should have ordered them to pay petitioner monthly rentals.45

Respondent Angeles Arguments

Instead of answering the legal issue raised by petitioner, respondent Angeles asks for a review of the Decision of the RTC by interposing additional issues.46 She maintains that the Deed of Absolute Sale is valid.47 Thus, the RTC erred in cancelling TCT Nos. 105202 and 105203.

Our Ruling

The petition is partly meritorious.

At the outset, we must make it clear that the issues raised by respondent Angeles may not be entertained. For failing to file an appeal, she is bound by the Decision of the RTC. Well entrenched is the rule that "a party who does not appeal from a judgment can no longer seek modification or reversal of the same. He may oppose the appeal of the other party only on grounds consistent with the judgment."48 For this reason, respondent Angeles may no longer question the propriety and correctness of the annulment of the Deed of Absolute Sale, the cancellation of TCT Nos. 105202 and 105203, and the order to vacate the property.

Hence, the only issue that must be resolved in this case is whether the RTC erred in ordering petitioner to reimburse respondent-spouses the "total monthly installments and the value of the new house minus the cost of the original house."49 Otherwise stated, the issues for our resolution are:

1) Whether petitioner is obliged to refund to respondent-spouses all the monthly installments paid; and

2) Whether petitioner is obliged to reimburse respondent-spouses the value of the new house minus the cost of the original house.

Respondent-spouses are entitled to the cash surrender value of the payments on the property equivalent to 50% of the total payments made.

Considering that this case stemmed from a Contract to Sell executed by the petitioner and the respondent-spouses, we agree with petitioner that the Maceda Law, which governs sales of real estate on installment, should be applied.

Sections 3, 4, and 5 of the Maceda Law provide for the rights of a defaulting buyer, to wit:

Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.

(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty percent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made. (Emphasis supplied.)

Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due.If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

Section 5. Under Sections 3 and 4, the buyer shall have the right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act.

In this connection, we deem it necessary to point out that, under the Maceda Law, the actual cancellation of a contract to sell takes place after 30 days from receipt by the buyer of the notarized notice of cancellation,50 and upon full payment of the cash surrender value to the buyer.51 In other words, before a contract to sell can be validly and effectively cancelled, the seller has (1) to send a notarized notice of cancellation to the buyer and (2) to refund the cash surrender value.52 Until and unless the seller complies with these twin mandatory requirements, the contract to sell between the parties remains valid and subsisting.53 Thus, the buyer has the right to continue occupying the property subject of the contract to sell,54 and may "still reinstate the contract by updating the account during the grace period and before the actual cancellation"55 of the contract.

In this case, petitioner complied only with the first condition by sending a notarized notice of cancellation to the respondent-spouses. It failed, however, to refund the cash surrender value to the respondent-spouses. Thus, the Contract to Sell remains valid and subsisting and supposedly, respondent-spouses have the right to continue occupying the subject property. Unfortunately, we cannot reverse the Decision of the RTC directing respondent-spouses to vacate and turnover possession of the subject property to petitioner because respondent-spouses never appealed the order. The RTC Decision as to respondent-spouses is therefore considered final.

In addition, in view of respondent-spouses failure to appeal, they can no longer reinstate the contract by updating the account. Allowing them to do so would be unfair to the other party and is offensive to the rules of fair play, justice, and due process. Thus, based on the factual milieu of the instant case, the most that we can do is to order the return of the cash surrender value. Since respondent-spouses paid at least two years of installment,56 they are entitled to receive the cash surrender value of the payments they had made which, under Section 3(b) of the Maceda Law, is equivalent to 50% of the total payments made.

Respondent-spouses are entitled to reimbursement of the improvements made on the property.

Petitioner posits that Article 448 of the Civil Code does not apply and that respondent-spouses are not entitled to reimbursement of the value of the improvements made on the property because they were builders in bad faith. At the outset, we emphasize that the issue of whether respondent-spouses are builders in good faith or bad faith is a factual question, which is beyond the scope of a petition filed under Rule 45 of the Rules of Court.57 In fact, petitioner is deemed to have waived all factual issues since it appealed the case directly to this Court,58 instead of elevating the matter to the CA. It has likewise not escaped our attention that after their failed preliminary conference, the parties agreed to submit the case for resolution based on the pleadings and exhibits presented. No trial was conducted. Thus, it is too late for petitioner to raise at this stage of the proceedings the factual issue of whether respondent-spouses are builders in bad faith. Hence, in view of the special circumstances obtaining in this case, we are constrained to rely on the presumption of good faith on the part of the respondent-spouses which the petitioner failed to rebut. Thus, respondent-spouses being presumed builders in good faith, we now rule on the applicability of Article 448 of the Civil Code.

As a general rule, Article 448 on builders in good faith does not apply where there is a contractual relation between the parties,59 such as in the instant case. We went over the records of this case and we note that the parties failed to attach a copy of the Contract to Sell. As such, we are constrained to apply Article 448 of the Civil Code, which provides viz:

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.

Article 448 of the Civil Code applies when the builder believes that he is the owner of the land or that by some title he has the right to build thereon,60 or that, at least, he has a claim of title thereto.61 Concededly, this is not present in the instant case. The subject property is covered by a Contract to Sell hence ownership still remains with petitioner being the seller. Nevertheless, there were already instances where this Court applied Article 448 even if the builders do not have a claim of title over the property. Thus:

This Court has ruled that this provision covers only cases in which the builders, sowers or planters believe themselves to be owners of the land or, at least, to have a claim of title thereto. It does not apply when the interest is merely that of a holder, such as a mere tenant, agent or usufructuary. From these pronouncements, good faith is identified by the belief that the land is owned; or that by some title one has the right to build, plant, or sow thereon.

However, in some special cases, this Court has used Article 448 by recognizing good faith beyond this limited definition. Thus, in Del Campo v. Abesia, this provision was applied to one whose house despite having been built at the time he was still co-owner overlapped with the land of another. This article was also applied to cases wherein a builder had constructed improvements with the consent of the owner. The Court ruled that the law deemed the builder to be in good faith. In Sarmiento v. Agana, the builders were found to be in good faith despite their reliance on the consent of another, whom they had mistakenly believed to be the owner of the land.62

The Court likewise applied Article 448 in Spouses Macasaet v. Spouses Macasaet63 notwithstanding the fact that the builders therein knew they were not the owners of the land. In said case, the parents who owned the land allowed their son and his wife to build their residence and business thereon. As found by this Court, their occupation was not by mere tolerance but "upon the invitation of and with the complete approval of (their parents), who desired that their children would occupy the premises. It arose from familial love and a desire for family solidarity x x x."64 Soon after, conflict between the parties arose. The parents demanded their son and his wife to vacate the premises. The Court thus ruled that as owners of the property, the parents have the right to possession over it. However, they must reimburse their son and his wife for the improvements they had introduced on the property because they were considered builders in good faith even if they knew for a fact that they did not own the property, thus:

Based on the aforecited special cases, Article 448 applies to the present factual milieu. The established facts of this case show that respondents fully consented to the improvements introduced by petitioners. In fact, because the children occupied the lots upon their invitation, the parents certainly knew and approved of the construction of the improvements introduced thereon. Thus, petitioners may be deemed to have been in good faith when they built the structures on those lots.

The instant case is factually similar to Javier v. Javier. In that case, this Court deemed the son to be in good faith for building the improvement (the house) with the knowledge and consent of his father, to whom belonged the land upon which it was built. Thus, Article 448 was applied.65In fine, the Court applied Article 448 by construing good faith beyond its limited definition. We find no reason not to apply the Courts ruling in Spouses Macasaet v. Spouses Macasaet in this case. We thus hold that Article 448 is also applicable to the instant case. First, good faith is presumed on the part of the respondent-spouses. Second, petitioner failed to rebut this presumption. Third, no evidence was presented to show that petitioner opposed or objected to the improvements introduced by the respondent-spouses. Consequently, we can validly presume that petitioner consented to the improvements being constructed. This presumption is bolstered by the fact that as the subdivision developer, petitioner must have given the respondent-spouses permits to commence and undertake the construction. Under Article 453 of the Civil Code, "it is understood that there is bad faith on the part of the landowner whenever the act was done with his knowledge and without opposition on his part."

In view of the foregoing, we find no error on the part of the RTC in requiring petitioner to pay respondent-spouses the value of the new house minus the cost of the old house based on Article 448 of the Civil Code, subject to succeeding discussions.

Petitioner has two options under Article 448 and pursuant to the ruling in Tuatis v. Escol.66

In Tuatis, we ruled that the seller (the owner of the land) has two options under Article 448: (1) he may appropriate the improvements for himself after reimbursing the buyer (the builder in good faith) the necessary and useful expenses under Articles 54667 and 54868 of the Civil Code; or (2) he may sell the land to the buyer, unless its value is considerably more than that of the improvements, in which case, the buyer shall pay reasonable rent.69 Quoted below are the pertinent portions of our ruling in that case:

Taking into consideration the provisions of the Deed of Sale by Installment and Article 448 of the Civil Code, Visminda has the following options:Under the first option, Visminda may appropriate for herself the building on the subject property after indemnifying Tuatis for the necessary and useful expenses the latter incurred for said building, as provided in Article 546 of the Civil Code.

It is worthy to mention that in Pecson v. Court of Appeals, the Court pronounced that the amount to be refunded to the builder under Article 546 of the Civil Code should be the current market value of the improvement, thus:

x x x xUntil Visminda appropriately indemnifies Tuatis for the building constructed by the latter, Tuatis may retain possession of the building and the subject property.

Under the second option, Visminda may choose not to appropriate the building and, instead, oblige Tuatis to pay the present or current fair value of the land. The P10,000.00 price of the subject property, as stated in the Deed of Sale on Installment executed in November 1989, shall no longer apply, since Visminda will be obliging Tuatis to pay for the price of the land in the exercise of Vismindas rights under Article 448 of the Civil Code, and not under the said Deed. Tuatis obligation will then be statutory, and not contractual, arising only when Visminda has chosen her option under Article 448 of the Civil Code.

Still under the second option, if the present or current value of the land, the subject property herein, turns out to be considerably more than that of the building built thereon, Tuatis cannot be obliged to pay for the subject property, but she must pay Visminda reasonable rent for the same. Visminda and Tuatis must agree on the terms of the lease; otherwise, the court will fix the terms.Necessarily, the RTC should conduct additional proceedings before ordering the execution of the judgment in Civil Case No. S-618. Initially, the RTC should determine which of the aforementioned options Visminda will choose. Subsequently, the RTC should ascertain: (a) under the first option, the amount of indemnification Visminda must pay Tuatis; or (b) under the second option, the value of the subject property vis--vis that of the building, and depending thereon, the price of, or the reasonable rent for, the subject property, which Tuatis must pay Visminda.

The Court highlights that the options under Article 448 are available to Visminda, as the owner of the subject property. There is no basis for Tuatis demand that, since the value of the building she constructed is considerably higher than the subject property, she may choose between buying the subject property from Visminda and selling the building to Visminda for P502,073.00. Again, the choice of options is for Visminda, not Tuatis, to make. And, depending on Vismindas choice, Tuatis rights as a builder under Article 448 are limited to the following: (a) under the first option, a right to retain the building and subject property until Visminda pays proper indemnity; and (b) under the second option, a right not to be obliged to pay for the price of the subject property, if it is considerably higher than the value of the building, in which case, she can only be obliged to pay reasonable rent for the same.

The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord with the principle of accession, i.e., that the accessory follows the principal and not the other way around. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. The landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land.

The raison detre for this provision has been enunciated thus: Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing.

Vismindas Motion for Issuance of Writ of Execution cannot be deemed as an expression of her choice to recover possession of the subject property under the first option, since the options under Article 448 of the Civil Code and their respective consequences were also not clearly presented to her by the 19 April 1999 Decision of the RTC. She must then be given the opportunity to make a choice between the options available to her after being duly informed herein of her rights and obligations under both.70 (Emphasis supplied.)

In conformity with the foregoing pronouncement, we hold that petitioner, as landowner, has two options. It may appropriate the new house by reimbursing respondent Angeles the current market value thereof minus the cost of the old house. Under this option, respondent Angeles would have "a right of retention which negates the obligation to pay rent."71 In the alternative, petitioner may sell the lots to respondent Angeles at a price equivalent to the current fair value thereof. However, if the value of the lots is considerably more than the value of the improvement, respondent Angeles cannot be compelled to purchase the lots. She can only be obliged to pay petitioner reasonable rent.

In view of the foregoing disquisition and in accordance with Depra v. Dumlao72 and Technogas Philippines Manufacturing Corporation v. Court of Appeals,73 we find it necessary to remand this case to the court of origin for the purpose of determining matters necessary for the proper application of Article 448, in relation to Articles 546 and 548 of the Civil Code.

WHEREFORE, the petition is hereby PARTIALLY GRANTED. The assailed Decision dated December 29, 2006 and the Order dated February 12, 2007 of the Regional Trial Court, Cagayan de Oro City, Branch 18, in Civil Case No. 2005-158 are hereby AFFIRMED with MODIFICATION that petitioner Communities Cagayan, Inc. is hereby ordered to RETURN the cash surrender value of the payments made by respondent-spouses on the properties, which is equivalent to 50% of the total payments made, in ccordance with Section 3(b) of Republic Act No. 6552, otherwise known as the Maceda Law.

The case is hereby REMANDED to the Regional Trial Court, Cagayan de Oro City, Branch 18, for further proceedings consistent with the proper application of Articles 448, 546 and 548 of the Civil Code, as follows:

1. The trial court shall determine:

a) the present or current fair value of the lots;b) the current market value of the new house;c) the cost of the old house; andd) whether the value of the lots is considerably more than the current market value of the new house minus the cost of the old house.

2. After said amounts shall have been determined by competent evidence, the trial court shall render judgment as follows:

a) Petitioner shall be granted a period of 15 days within which to exercise its option under the law (Article 448, Civil Code), whether to appropriate the new house by paying to respondent Angeles the current market value of the new house minus the cost of the old house, or to oblige respondent Angeles to pay the price of the lots. The amounts to be respectively paid by the parties, in accordance with the option thus exercised by written notice to the other party and to the court, shall be paid by the obligor within 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 petitioner exercises the option to oblige respondent Angeles to pay the price of the lots but the latter rejects such purchase because, as found by the trial court, the value of the lots is considerably more than the value of the new house minus the cost of the old house, respondent Angeles shall give written notice of such rejection to petitioner and to the trial court within 15 days from notice of petitioners option to sell the land. In that event, the parties shall be given a period of 15 days from such notice of rejection within which to agree upon the terms of the lease, and give the trial court formal written notice of the agreement and its provisos. If no agreement is reached by the parties, the trial court, within 15 days from and after the termination of the said period fixed for negotiation, shall then fix the period and terms of the lease, including the monthly rental, which shall be payable within the first five days of each calendar month. Respondent Angeles shall not make any further constructions or improvements on the building. Upon expiration of the period, or upon default by respondent Angeles in the payment of rentals for two consecutive months, petitioner shall be entitled to terminate the forced lease, to recover its land, and to have the new house removed by respondent Angeles or at the latters expense.

c) In any event, respondent Angeles shall pay petitioner reasonable compensation for the occupancy of the property for the period counted from the time the Decision dated December 29, 2006 became final as to respondent Angeles or 15 days after she received a copy of the said Decision up to the date petitioner serves notice of its option to appropriate the encroaching structures, otherwise up to the actual transfer of ownership to respondent Angeles 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 nonextendible, 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.

SO ORDERED.

Footnotes50 An action for annulment of contract is a kindred concept of rescission by notarial act (Pagtalunan v. Dela Cruz Vda. de Manzano, G.R. No. 147695, September 13, 2007, 533 SCRA

67 ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof.

68 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.

Republic of the PhilippinesSUPREME COURTManilaTHIRD DIVISION

G.R. No. 150666 August 3, 2010

LUCIANO BRIONES and NELLY BRIONES, Petitioners, vs.JOSE MACABAGDAL, FE D. MACABAGDAL and VERGON REALTY INVESTMENTS CORPORATION, Respondents.

D E C I S I O NVILLARAMA, JR., J.:

On appeal under Rule 45 of the 1997 Rules of Civil Procedure, as amended, is the Decision1 dated December 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 48109 which affirmed the September 29, 1993 Decision2 of the Regional Trial Court (RTC) of Makati City, Branch 135, ordering petitioners Luciano and Nelly Briones to remove the improvements they have made on the disputed property or to pay respondent-spouses Jose and Fe Macabagdal the prevailing price of the land as compensation.

The undisputed factual antecedents of the case are as follows:

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

Sometime in 1984, after obtaining the necessary building permit and the approval of Vergon, petitioners constructed a house on Lot No. 2-R which they thought was Lot No. 2-S. After being informed of the mix up by Vergons manager, respondent-spouses immediately demanded petitioners to demolish the house and vacate the property. Petitioners, however, refused to heed their demand. Thus, respondent-spouses filed an action to recover ownership and possession of the said parcel of land with the RTC of Makati City.3

Petitioners insisted that the lot on which they constructed their house was the lot which was consistently pointed to them as theirs by Vergons agents over the seven (7)-year period they were paying for the lot. They interposed the defense of being buyers in good faith and impleaded Vergon as third-party defendant claiming that because of the warranty against eviction, they were entitled to indemnity from Vergon in case the suit is decided against them.4The RTC ruled in favor of respondent-spouses and found that petitioners house was undoubtedly built on Lot No. 2-R. The dispositive portion of the trial courts decision reads as follows:

PREMISES CONSIDERED, let judgment be rendered declaring, to wit:

1. That plaintiffs are the owners of Lot No. 2-R of subdivision plan (LRC) Psd-147392 at Vergonville Subdivision, No. 10, Las Pias, Metro Manila covered by TCT No. 62181 of the Registry of Deeds of Pasay City on which defendants have constructed their house;

2. Defendants, jointly and severally, are ordered to demolish their house and vacate the premises and return the possession of the portion of Lot No. 2-R as above-described to plaintiffs within thirty (30) days from receipt of this decision, or in the alternative, plaintiffs should be compensated by defendants, jointly and severally, by the payment of the prevailing price of the lot involved as Lot No. 2-R with an area of 325 square meters which should not be less than P1,500.00 per square meter, in consideration of the fact that prices of real estate properties in the area concerned have increased rapidly;

3. Defendants, jointly and severally, pay to plaintiffs for moral damages with plaintiffs plans and dreams of building their own house on their own lot being severely shattered and frustrated due to defendants incursion as interlopers of Lot No. 2-R in the sum of P50,000.00;

4. Defendants, jointly and severally, to pay plaintiffs in the amount of P30,000.00 as attorneys fees; and,

5. to pay the costs of the proceedings.

Defendants counterclaim against plaintiffs is dismissed for lack of merit and with no cause of action.

Defendants third-party complaint against third-party defendant Vergonville Realty and Investments Corporation is likewise ordered dismissed for lack of cause of action and evidently without merit.

On the other hand, defendants, jointly and severally, are liable for the litigation expenses incurred by Vergonville Realty by way of counterclaim, which is also proven by the latter with a mere preponderance of evidence, and are hereby ordered to pay the sum of P20,000.00 as compensatory damage; and attorneys fees in the sum of P10,000.00

SO ORDERED.5

On appeal, the CA affirmed the RTCs finding that the lot upon which petitioners built their house was not the one (1) which Vergon sold to them. Based on the documentary evidence, such as the titles of the two (2) lots, the contracts to sell, and the survey report made by the geodetic engineer, petitioners house was built on the lot of the respondent-spouses.6 There was no basis to presume that the error was Vergons fault. Also the warranty against eviction under Article 1548 of the Civil Code was not applicable as there was no deprivation of property: the lot on which petitioners built their house was not the lot sold to them by Vergon, which remained vacant and ready for occupation.7 The CA further ruled that petitioners cannot use the defense of allegedly being a purchaser in good faith for wrongful occupation of land.8

Aggrieved, petitioners filed a motion for reconsideration, but it was denied by the appellate court.9 Hence, this petition for review on certiorari.

Petitioners raise the following assignment of errors:

I.THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE CONTRARY TO LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT IN AFFIRMING THE DECISION OF THE TRIAL COURT ORDERING PETITIONERS TO DEMOLISH THEIR ONLY HOUSE AND VACATE THE LOT AND TO PAY MORAL AND COMPENSATORY DAMAGES AS WELL AS ATTORNEYS FEE IN THE TOTAL AMOUNT OF PS[P] 110,000; AND

II.THE COURT OF APPEALS SANCTIONED THE DEPARTURE OF THE LOWER COURT FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE POWER OF SUPERVISION.10

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

The petition is partly meritorious.

At the outset, we note that petitioners raise factual issues, which are beyond the scope of a petition for review on certiorari under Rule 45 of the Rules. Well settled is the rule that the jurisdiction of this Court in cases brought to it from the CA via a petition for review on certiorari under Rule 45 is limited to the review of errors of law. The Court is not bound to weigh all over again the evidence adduced by the parties, particularly where the findings of both the trial court and the appellate court coincide. The resolution of factual issues is a function of the trial court whose findings on these matters are, as a general rule, binding on this Court, more so where these have been affirmed by the CA.13 We note that the CA and RTC did not overlook or fail to appreciate any material circumstance which, when properly considered, would have altered the result of the case. Indeed, it is beyond cavil that petitioners mistakenly constructed their house on Lot No. 2-R which they thought was Lot No. 2-S.

However, the conclusiveness of the factual findings notwithstanding, we find that the trial court nonetheless erred in outrightly ordering petitioners to vacate the subject property or to pay respondent spouses the prevailing price of the land as compensation. Article 52714 of the Civil Code presumes good faith, and since no proof exists to show that the mistake was done by petitioners in bad faith, the latter should be presumed to have built the house in good faith.

When a person builds in good faith on the land of another, Article 448 of the Civil Code governs. Said article provides,

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

The above-cited article covers cases in which the builders, sowers or planters believe themselves to be owners of the land or, at least, to have a claim of title thereto.15 The builder in good faith can compel the landowner to make a choice between appropriating the building by paying the proper indemnity or obliging the builder to pay the price of the land. The choice belongs to the owner of the land, a rule that accords with the principle of accession, i.e., that the accessory follows the principal and not the other way around. However, even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. He must choose one.16 He cannot, for instance, compel the owner of the building to remove the building from the land without first exercising either option. It is only if the owner chooses to sell his land, and the builder or planter fails to purchase it where its value is not more than the value of the improvements, that the owner may remove the improvements from the land. The owner is entitled to such remotion only when, after having chosen to sell his land, the other party fails to pay for the same.17

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

ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor.Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof.

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

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

In accordance with Depra v. Dumlao,18 this case must be remanded to the RTC which shall conduct the appropriate proceedings to assess the respective values of the improvement and of the land, as well as the amounts of reasonable rentals and indemnity, fix the terms of the lease if the parties so agree, and to determine other matters necessary for the proper application of Article 448, in relation to Articles 546 and 548, of the Civil Code.

As to the liability of Vergon, petitioners failed to present sufficient evidence to show negligence on Vergons part. Petitioners claim is obviously one (1) for tort, governed by Article 2176 of the Civil Code, which provides:

ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. (Emphasis ours.)

Under this provision, it is the plaintiff who has to prove by a preponderance of evidence: (1) the damages suffered by the plaintiff; (2) the fault or negligence of the defendant or some other person for whose act he must respond; and (3) the connection of cause and effect between the fault or negligence and the damages incurred.19 This the petitioners failed to do. The President of Vergon signed the building permit as a precondition for its approval by the local government, but it did not guarantee that petitioners were constructing the structure within the metes and bounds of petitioners lot. The signature of the President of Vergon on the building permit merely proved that petitioners were authorized to make constructions within the subdivision project of Vergon. And while petitioners acted in good faith in building their house on Lot No. 2-R, petitioners did not show by what authority the agents or employees of Vergon were acting when they pointed to the lot where the construction was made nor was petitioners claim on this matter corroborated by sufficient evidence.

One (1) last note on the award of damages. Considering that petitioners acted in good faith in building their house on the subject property of the respondent-spouses, there is no basis for the award of moral damages to respondent-spouses. Likewise, the Court deletes the award to Vergon of compensatory damages and attorneys fees for the litigation expenses Vergon had incurred as such amounts were not specifically prayed for in its Answer to petitioners third-party complaint. Under Article 220820 of the Civil Code, attorneys fees and expenses of litigation are recoverable only in the concept of actual damages, not as moral damages nor judicial costs. Hence, such must be specifically prayed foras was not done in this caseand may not be deemed incorporated within a general prayer for "such other relief and remedy as this court may deem just and equitable."21 It must also be noted that aside from the following, the body of the trial courts decision was devoid of any statement regarding attorneys fees. In Scott Consultants & Resource Development Corporation, Inc. v. Court of Appeals,22 we reiterated that attorneys fees are not to be awarded every time a party wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil Code demands factual, legal, and equitable justification; its basis cannot be left to speculation or conjecture. Where granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorneys fees.

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

1. The trial court shall determine:

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

2. After said amounts shall have been determined by competent evidence, the Regional Trial Court shall render judgment, as follows:

a. The trial court shall grant the respondent-spouses a period of fifteen (15) days within which to exercise their option under Article 448 of the Civil Code, whether to appropriate the house as their own by paying to petitioners either the amount of the expenses spent by petitioners for the building of the house, or the increase in value ("plus value") which the said lot may have acquired by reason thereof, or to oblige petitioners to pay the price of said land. The amounts to be respectively paid by the respondent-spouses and petitioners, in accordance with the option thus exercised by written notice of the other party and to the Court, shall be paid by the obligor within fifteen (15) days from such notice of the option by tendering the amount to the Court in favor of the party entitled to receive it;

b. The trial court shall further order that if the respondent-spouses exercises the option to oblige petitioners to pay the price of the land but the latter rejects such purchase because, as found by the trial court, the value of the land is considerably more than that of the house, petitioners shall give written notice of such rejection to the respondent-spouses and to the Court within fifteen (15) days from notice of the respondent-spouses option to sell the land. In that event, the parties shall be given a period of fifteen (15) days from such notice of rejection within which to agree upon the terms of the lease, and give the Court formal written notice of such agreement and its provisos. If no agreement is reached by the parties, the trial court, within fifteen (15) days from and after the termination of the said period fixed for negotiation, shall then fix the terms of the lease, payable within the first five (5) days of each calendar month. The period for the forced lease shall not be more than two (2) years, counted from the finality of the judgment, considering the long period of time since petitioners have occupied the subject area. The rental thus fixed shall be increased by ten percent (10%) for the second year of the forced lease. Petitioners shall not make any further constructions or improvements on the house. Upon expiration of the two (2)-year period, or upon default by petitioners in the payment of rentals for two (2) consecutive months, the respondent-spouses shall be entitled to terminate the forced lease, to recover their land, and to have the house removed by petitioners or at the latters expense. The rentals herein provided shall be tendered by petitioners to the Court for payment to the respondent-spouses, and such tender shall constitute evidence of whether or not compliance was made within the period fixed by the Court.

c. In any event, petitioners shall pay the respondent-spouses reasonable compensation for the occupancy of the respondent-spouses land for the period counted from the year petitioners occupied the subject area, up to the commencement date of the forced lease referred to in the preceding paragraph;

d. The periods to be fixed by the trial court in its Decision shall be inextendible, and upon failure of the 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.

20 Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;(2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;(3) In criminal cases of malicious prosecution against the plaintiff;(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim;(6) In actions for legal support;(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;(8) In actions for indemnity under workmens compensation and employers liability laws;(9) In a separate civil action to recover civil liability arising from a crime;(10) When at least double judicial costs are awarded;(11) In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation should be recovered.

In all cases, the attorneys fees and expenses of litigation must be reasonable.

Republic of the PhilippinesSUPREME COURTManilaTHIRD DIVISION

G.R. No. 152319 October 28, 2009

HEIRS OF THE LATE JOAQUIN LIMENSE, namely: CONCESA LIMENSE, Surviving Spouse; and DANILO and JOSELITO, both surnamed Limense, children, Petitioners, vs.RITA VDA. DE RAMOS, RESTITUTO RAMOS, VIRGILIO DIAZ, IRENEO RAMOS, BENJAMIN RAMOS, WALDYTRUDES RAMOS-BASILIO, TRINIDAD RAMOS-BRAVO, PAZ RAMOS-PASCUA, FELICISIMA RAMOS-REYES, and JACINTA RAMOS, Respondents.

D E C I S I O NPERALTA, J.,

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set aside the Decision1 of the Court of Appeals dated December 20, 2001 in CA-G.R. CV No. 33589 affirming in toto the Decision2 of the Regional Trial Court of Manila, Branch 15, dated September 21, 1990 in Civil Case No. 83-16128.

The antecedent facts are as follows:

Dalmacio Lozada was the registered owner of a parcel of land identified as Lot No. 12, Block No. 1074 of the cadastral survey of the City of Manila covered by Original Certificate of Title (OCT) No. 7036 issued at the City of Manila on June 14, 1927,3 containing an area of 873.80 square meters, more or less, located in Beata Street, Pandacan, Manila.

Dalmacio Lozada subdivided his property into five (5) lots, namely: Lot Nos. 12-A, 12-B, 12-C, 12-D and 12-E. Through a Deed of Donation dated March 9, 1932,4 he donated the subdivided lots to his daughters, namely: Isabel, Salud, Catalina, and Felicidad, all surnamed Lozada. The Deed of Donation was registered with the office of the Register of Deeds of Manila on March 15, 1932.

Under the said Deed of Donation, the lots were adjudicated to Dalmacio's daughters in the following manner:

a. Lot No. 12-A in favor of Isabel Lozada, married to Isaac Limense;b. Lot No. 12-B in favor of Catalina Lozada, married to Sotero Natividad; c. Lot No. 12-C in favor of Catalina Lozada, married to Sotero Natividad; Isabel Lozada, married to Isaac Limense; and Salud Lozada, married to Francisco Ramos, in equal parts;d. Lot No. 12-D in favor of Salud Lozada, married to Francisco Ramos; ande. Lot No. 12-E in favor of Isabel Lozada, married to Isaac Limense, and Felicidad Lozada, married to Galicano Centeno. By virtue of the Deed of Donation executed by Dalmacio Lozada, OCT No. 7036, which was registered in his name, was cancelled and, in lieu thereof, Transfer Certificates of Title (TCTs) bearing Nos. 40041, 40042, 40043, 40044, and 40045 were issued in favor of the donees, except TCT No. 40044, which remained in his name. These new TCTs were annotated at the back of OCT No. 7036.5

TCT No. 40043, which covered Lot No. 12-C, was issued in the name of its co-owners Catalina Lozada, married to Sotero Natividad; Isabel Lozada, married to Isaac Limense; and Salud Lozada, married to Francisco Ramos. It covered an area of 68.60 square meters, more or less, was bounded on the northeast by Lot No. 12-A, on the southwest by Calle Beata, and on the northwest by Lot No. 12-D of the subdivision plan. In 1932, respondents' predecessor-in-interest constructed their residential building on Lot No. 12-D, adjacent to Lot No. 12-C.

On May 16, 1969, TCT No. 968866 was issued in the name of Joaquin Limense covering the very same area of Lot No. 12-C.

On October 1, 1981, Joaquin Limense secured a building permit for the construction of a hollow block fence on the boundary line between his aforesaid property and the adjacent parcel of land located at 2759 Beata Street, Pandacan, Manila, designated as Lot No. 12-D, which was being occupied by respondents. The fence, however, could not be constructed because a substantial portion of respondents' residential building in Lot No. 12-D encroached upon portions of Joaquin Limense's property in Lot No. 12-C.

Joaquin Limense demanded the removal of the encroached area; however, respondent ignored both oral and written demands. The parties failed to amicably settle the differences between them despite referral to the barangay. Thus, on March 9, 1983, Joaquin Limense, duly represented by his Attorney-in-Fact, Teofista L. Reyes, instituted a Complaint7 against respondents before the Regional Trial Court (RTC) of Manila, Branch 15, for removal of obstruction and damages.

Joaquin Limense prayed that the RTC issue an order directing respondents, jointly and severally, to remove the portion which illegally encroached upon his property on Lot No. 12-C and, likewise, prayed for the payment of damages, attorneys fees and costs of suit.

Respondents, on the other hand, averred in their Answer8 that they were the surviving heirs of Francisco Ramos,9 who, during his lifetime, was married to Salud Lozada, one of the daughters of Dalmacio Lozada, the original owner of Lot No. 12. After subdividing the said lot, Dalmacio Lozada donated Lot No. 12-C in favor of his daughters Catalina, married to Sotero Natividad; Isabel, married to Isaac Limense; and Salud, married to Francisco Ramos. Being the surviving heirs of Francisco Ramos, respondents later became co-owners of Lot No. 12-C. Lot No. 12-C has served as right of way or common alley of all the heirs of Dalmacio Lozada since 1932 up to the present. As a common alley, it could not be closed or fenced by Joaquin Limense without causing damage and prejudice to respondents.

After trial on the merits, the RTC rendered a Decision10 dated September 21, 1990 dismissing the complaint of Joaquin Limense. It ruled that an apparent easement of right of way existed in favor of respondents. Pertinent portions of the decision read as follows:

The Court finds that an apparent easement of right of way exists in favor of the defendants under Article 624 of the Civil Code. It cannot be denied that there is an alley which shows its existence. It is admitted that this alley was established by the original owner of Lot 12 and that in dividing his property, the alley established by him continued to be used actively and passively as such. Even when the division of the property occurred, the non-existence of the easement was not expressed in the corresponding titles nor were the apparent sign of the alley made to disappear before the issuance of said titles.

The Court also finds that when plaintiff acquired the lot (12-C) which forms the alley, he knew that said lot could serve no other purpose than as an alley. That is why even after he acquired it in 1969, the lot continued to be used by defendants and occupants of the other adjoining lots as an alley. The existence of the easement of right of way was therefore known to plaintiff who must respect the same in spite of the fact that his transfer certificate of title does not mention the lot of defendants as among those listed therein as entitled to such right of way. It is an established principle that actual notice or knowledge is as binding as registration.11 Aggrieved by said decision, Joaquin Limense filed a notice of appeal. The records of the case were transmitted to the Court of Appeals (CA). During the pendency of the appeal with the CA, Joaquin Limense died in 1999.12

The CA, Seventh Division, in CA-G.R. CV No. 33589, in its Decision13 dated December 20, 2001 dismissed the appeal and affirmed in toto the decision of the RTC.

Frustrated by this turn of events, petitioners, as surviving heirs of Joaquin Limense, elevated the case to this Court via a Petition for Review on Certiorari14 raising the following issues:

1. DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION, IN HOLDING, LIKE THE TRIAL COURT DID, THAT RESPONDENTS' LOT 12-D HAS AN EASEMENT OF RIGHT OF WAY OVER JOAQUIN LIMENSE'S LOT 12-C?

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

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

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

Apparently, respondents are questioning the legality of TCT No. 96886, an issue that this Court cannot pass upon in the present case. It is a rule that the validity of a torrens title cannot be assailed collaterally.15 Section 48 of Presidential Decree (PD) No. 1529 provides that:

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

In the case at bar, the action filed before the RTC against respondents was an action for removal of obstruction and damages. Respondents raised the defense that Joaquin Limense's title could have been obtained through fraud and misrepresentation in the trial proceedings before the RTC. Such defense is in the nature of a collateral attack, which is not allowed by law.Further, it has been held that a certificate of title, once registered, should not thereafter be impugned, altered, changed, modified, enlarged or diminished, except in a direct proceeding permitted by law. Otherwise, the reliance on registered titles would be lost. The title became indefeasible and incontrovertible after the lapse of one year from the time of its registration and issuance. Section 32 of PD 1529 provides that "upon the expiration of said period of one year, the decree of registration and the certificate of title shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or other persons responsible for the fraud."16 It has, therefore, become an ancient rule that the issue on the validity of title, i.e., whether or not it was fraudulently issued, can only be raised in an action expressly instituted for that purpose.17 In the present case, TCT No. 96886 was registered in 1969 and respondents never instituted any direct proceeding or action to assail Joaquin Limense's title.

Additionally, an examination of TCT No. 40043 would readily show that there is an annotation that it has been "CANCELLED."18 A reading of TCT No. 96886 would also reveal that said title is a transfer from TCT No. 4886619 and not TCT 40043. Thus, it is possible that there was a series of transfers effected from TCT No. 40043 prior to the issuance of TCT No. 96886. Hence, respondents' position that the issuance of TCT No. 96886 in the name of Joaquin Limense is impossible, because the registered owners of TCT No. 40043 were already dead prior to 1969 and could not have transferred the property to Joaquin Limense, cannot be taken as proof that TCT No. 96886 was obtained through fraud, misrepresentation or falsification of documents.

Findings of fact of the CA, although generally deemed conclusive, may admit review by this Court if the CA failed to notice certain relevant facts that, if properly considered, would justify a different conclusion, and if the judgment of the CA is premised on a misapprehension of facts.20 As with the present case, the CA's observation that TCT No. 96886 is of dubious origin, as TCT No. 40043 does not appear to have been disposed of by Catalina, Isabel and Salud Lozada, is improper and constitutes an indirect attack on TCT No. 96886. As we see it, TCT No. 96886, at present, is the best proof of Joaquin Limenses ownership over Lot No. 12-C. Thus, the CA erred in ruling that respondents and petitioners co-owned Lot No. 12-C, as said lot is now registered exclusively in the name of Joaquin Limense.

Due to the foregoing, Joaquin Limense, as the registered owner of Lot 12-C, and his successors-in-interest, may enclose or fence his land or tenements by means of walls, ditches, live or dead hedges, or by any other means without detriment to servitudes constituted thereon.21

However, although the owner of the property has the right to enclose or fence his property, he must respect servitudes constituted thereon. The question now is whether respondents are entitled to an easement of right of way.

Petitioners contend that respondents are not entitled to an easement of right of way over Lot No. 12-C, because their Lot No. 12-D is not duly annotated at the back of TCT No. 96886 which would entitle them to enjoy the easement, unlike Lot Nos. 12-A-1, 12-A-2, 12-A-3, 12-A-4, 12-A-5, and 12-A-6. Respondents, on the other hand, allege that they are entitled to an easement of right of way over Lot No. 12-C, which has been continuously used as an alley by the heirs of Dalmacio Lozada, the residents in the area and the public in general from 1932 up to the present. Since petitioners are fully aware of the long existence of the said alley or easement of right of way, they are bound to respect the same.

As defined, an easement is a real right on another's property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person or tenement.22

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

Continuous easements are those the use of which is or may be incessant, without the intervention of any act o