Property Law - Cases

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 77266 July 19, 1989
ARTHUR PAJUNAR and INVENCIA PAJUNAR, petitioners,

vs.
HON. COURT OF APPEALS, MAURO ELUNA and TEOFILA ELUNA, respondents.
PARAS, J.:
This is a petition for review on certiorari seeking to set aside the decision of the Second
Division of the Court of Appeals ** in C.A. G.R. No. SP. 02247 (UDK 7544), entitled "Arthur
& Invencia Pajunar v. Hon. Pedro Gabaton, Judge, RTC, Branch XLI, Negros Oriental,
Mauro Eluna and Teofila Eluna" for Recovery of Personal Property with Writ of Replevin
which affirmed the Order of the aforenamed Regional Trial Court of Negros
Oriental *** which reads:
This is a case of Recovery of Personal Property with a Writ of Replevin filed

by one Arthur and Invencia Pajunar as plaintiffs, against one Mauro and
Teofila Eluna as defendants, tried and decided by the Municipal Court of
Siaton.
The decision is in favor of the defendants and against the plaintiffs apparently
based primarily on the preponderance of evidence and prescription.
Upon close reading of the exhaustive memorandum submitted by each of the

parties in this case and a close perusal of all the evidences on record and
checking them against the decision itself appealed, this court is of the opinion
and so holds that the grounds upon which this decision is based are well
taken, so that there is nothing that this court can add neither can deduct for
the same conforms to the thinking of this court.
WHEREFORE, premises considered, the appealed decision of the above-

entitled case rendered by the Municipal Court of Siaton is hereby affirmed.
(Rollo, p. 9)
The facts of the case as found by public respondent Court of Appeals are as follows:
Sometime in 1969, respondent Mauro Eluna bartered his three-year old male cow for one
year old female carabao then in the possession of Aurelio Enopia. The female carabao,
which is the one in question, bore the brand "ART" in her front and hind legs at the time she
was acquired by Mauro. Although the animal was branded, said respondent did not or could
not register the transfer to him.
In March, 1980, petitioner Arthur Pajunar learned that the disputed carabao was in the
possession of respondent Eluna. Claiming that he was the original owner of the carabao
which got lost in 1974, petitioner demanded her return. He demanded also the delivery to
him of the two offsprings of the carabao which were five years and eight months old at the
time they were registered in 1980. When Eluna refused to do so despite repeated demands,
petitioner went to court to recover possession (Rollo, pp. 10-11).
From the adverse order of the Regional Trial Court, plaintiff appealed to public respondent
Court of Appeals.
In its decision dated October 30, 1986, the Court of Appeals affirmed the decision of the
lower court, with appellate tribunal declaring:
Consequently, since respondent Eluna had possessed the carabao since

1969, that is, for more than ten (10) years, he acquired ownership by
prescription under Article 1132 of the Civil Code.
ART. 1132. The ownership of movables prescribes through uninterrupted

possession for four years in good faith.
The ownership of personal property also prescribes through uninterrupted

possession for eight years, without need of any other condition.
With regard to the right of the owner to recover personal property lost or of
which he has been illegally deprived, as well as with respect to movables
acquired in a public sale, fair or market, or from a merchant's store, the
provisions of articles 559 and 1505 of this Code shall be observed. (1955a).
On March 23, 1987, the Court resolved, after considering the pleadings filed by both
respondent and petitioner, to give due course to the petition.
The three assignments of error raised by the petitioner (Rollo, p. 4) in this case, may be
reduced to one main issue:
Whether or not the findings of the lower court which were affirmed by the
Court of Appeals are supported by substantial evidence.
Petitioner contends that private respondent Eluna has failed to establish his ownership of the
mestisa carabao found in his possession. Since the female carabao bears the brand "ART"
on the fore and hind legs of the animal as branded by petitioners before it got lost (Rollo, p.
4), failure of defendant Mauro Eluna to register in his name the said carabao, constitutes a
flaw in his ownership as required by law (Rollo, pp. 10-11).
Private respondents claim that the female carabao has been in their possession for more
than ten (10) years as the subject carabao was acquired by the defendants now respondents
through barter from one Aurelio Enopia in 1969. The incident was discovered by the plaintiffs
only in March, 1980. Hence respondents acquired ownership of said carabao by prescription
under Article 1132 of the Civil Code (Rollo, p. 12) as found by public respondent Court of
Appeals.
The trial court's findings of facts carry great weight for having the advantage of having
examined the deportment and demeanor of the witnesses. The only exception to the rule is
when the trial court plainly overlooked certain facts and circumstances of weight and
influence which, if considered, will materially alter the result of the case (People v. Ramos,
153 SCRA 276 [1987]; People v. Camay, 152 SCRA 401 [1987]).
A careful examination of the records shows that there are circumstances of substance and
value which were overlooked and which affect the result of the case.
This can be gleaned from the decision of the Court of Appeals, when it stated:
In issuing the foregoing order, the respondent Judge apparently relied on the
findings of fact and conclusions of law made by the Municipal Court of Siaton,
Negros Oriental. Unfortunately, the decision of the Municipal Court was
wanting in many respects particularly in its findings. It failed, for instance, to
make a determination of certain factual matters which could have helped in
the faster disposition of the case. Instead of general statements explaining
why he was adopting the decision of the Municipal Court, it would have been
better if the respondent Judge had made his own finding and analysis of the
evidence on record. This was called for because the respondent Judge was
acting in the exercise of the appellate jurisdiction of his court. (Emphasis
supplied) (Rollo, p. 10)
Well-settled is the rule that findings of facts of the Appellate Court are generally binding on
this Court (People v. Atanacio, 128 SCRA 22 [1984] Aguirre v. People, 155 SCRA 337
[1987]; Cue Bie v. Intermediate Appellate Court, 154 SCRA 599 [1987]). However, there are
exceptions to the general rule that findings of facts of the Court of Appeals are binding upon
the Supreme Court as when the Court of Appeals clearly misconstrued and misapplied the
law, drawn from incorrect conclusions of fact established by evidence and otherwise at
certain conclusions which are based on misapprehension of facts and pure conjectures, and
made inferences which are manifestly mistaken and absurd (Chase v. Buencamino, Jr., 136
SCRA 365 [1985]; Baliwag Transit, Inc. v. CA, 147 SCRA 82 [1987]; International Harvester,
Inc. v. Joson & CA, 149 SCRA 641 [1987]; Maclan v. Santos, 156 SCRA 542 [1987];
Mendoza v. CA, 156 SCRA 597 [1987]).
From the records it is clear that although the animal was branded "ART" in her front and hind
legs at the time she was acquired by respondent Mauro, said respondent did not or could not
register the transfer to him in accordance with Section 529 of the Revised Administrative
Code (Rollo, p. 11).
Section 529 of the Revised Administrative Code provides:
Registration necessary to validity of transfer. No transfer shall be valid unless

the same is registered and a certificate of transfer obtained as herein
provided, but the large cattle under two years of age may be registered and
branded gratis for the purpose of effecting a valid transfer, if the registration
and transfer are made at the same time.
The records show that respondents did not comply with this requirement (Petition, p. 2;
Rollo, p. 3). Respondents are not possessors in good faith, as a possessor in good faith is
one not aware that there exists in his title or mode of acquisition any flaw which invalidates it.
Furthermore, failure of a party to exercise precaution to acquaint himself with the defects in
the title of his vendor precludes him claiming possession in good faith (Caram v. Laureta,
103 SCRA [1981] cited in Manotok Realty, Inc. v. Court of Appeals, 134 SCRA 325 [1985]).
This duty to make a closer inquiry into the certificate of registration of the female carabao
which was the subject of the barter, defendant Mauro Eluna should have performed but did
not. Thus, his being in bad faith, in acquiring the carabao from his vendor, Aurelio Enopia.
Thus, as has been stressed by this Court:

A purchaser cannot close his eyes to facts which should put a reasonable
man upon his guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor. His mere refusal to
believe that such defect exists, or his willful closing of the eyes to the
possibility of the existence of a defect in his vendor's title will not make him an
innocent purchaser for value, if it afterwards develops that the title was in fact
defective and it appears that he had such notice of the defect would have led
to its discovery had he acted with the measure of precaution which may
reasonably be required of a prudent man in a like situation. (Leung Lee v.
Strong, 37 Phil. 644, see also Emos v. Zusuarregui, 53 Phil. 197, cited in
Francisco v. Court of Appeals, 153 SCRA 330).
It is clear from the foregoing that possession in good faith for four (4) years is not applicable,
neither can possession in bad faith of eight (8) years benefit respondents, for when the
owner of a movable has lost or has been illegally deprived of his property he can recover the
same without need to reimburse the possessor, as provided in Art. 559 of the Civil Code
which states:
Art. 559. The possession of movable property acquired in good faith is

equivalent to a title. Nevertheless, one who has lost any movable or has been
unlawfully deprived thereof, may recover it from the person in possession of
the same.
If the possessor of a movable lost or of which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner cannot
obtain its return without reimbursing the price paid therefor. (464a)
Neither can Art. 716 of the Civil Code apply, for this article evidently refers to a possessor in
good faith. Art. 716 say:
The owner of a swarm of bees shall have a right to pursue them to another's
land, indemnifying the possessor of the latter for the damage. If the owner
has not pursued the swarm, or ceases to do so within two consecutive days,
the possessor of the land may occupy or retain the same. The owner of
domesticated animals may also claim them within twenty days to be counted
from their occupation by another person. This period having expired, they
shall pertain to him who has caught and kept them. (612a)
PREMISES CONSIDERED, the decision of the Court of Appeals in CA-G.R. SP No. 02247
is REVERSED and SET ASIDE and petitioners Arthur Pajunar and Invencia Pajunar are
declared the owners of the carabaos in question.
SO ORDERED.
Melencio-Herrera, (Chairperson), Padilla, Sarmiento and Regalado, JJ., concur.
Footnotes
** Penned by Justice Ricardo L. Pronove, Jr., concurred in by Justices

Crisolito Pascual and Luis A. Javellana.
*** Rendered by Hon. Pedro Gabaton, Judge, RTC Branch XLI, Negros
Oriental.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-50264 October 21, 1991
IGNACIO WONG, petitioner,

vs.
HON. LUCAS D. CARPIO, as Presiding Judge, Court of First Instance of Davao del
Sur, Branch V and MANUEL MERCADO, respondents.
Rodolfo B. Quiachon for petitioner.
Jose M. Ilagan for private respondent.
BIDIN, J.:p
This is a petition for review on certiorari, certified to this Court by the Court of Appeals as it
involves purely question of law, seeking the annulment of the September 29, 1978 decision
of the then Court of First Instance **of Davao del Sur, Branch V, in Civil Case No. 1258
which reversed the February 20, 1978 decision of the Municipal Court of Sta.
Maria, *** Davao del Sur in an action for Forcible Entry (Civil Case No. 13) ordering the
dismissal of the complaint as well as the counterclaim.
The undisputed facts of this case, as found by both the trial court and the then Court of First
Instance of Davao del Sur, are as follows:
On the basis of the admission of parties in their respective pleadings, the oral
testimonies of all witnesses for both plaintiff and defendants and the
documentary evidence offered and admitted this Court finds that plaintiff
Manuel Mercado acquired his rights to possess the land in litigation,
particularly lot 3 (LRC) Pcs-295, (situated at Colonga, Sta. Maria, Davao del
Sur) and which is particularly described and embraced in Transfer Certificate
of title No. (T-4244) T-972 from William Giger by virtue of a deed of sale with
right to repurchase which was executed in 1972 for a consideration of
P3,500.00 (testimony of plaintiff, T.S.N., p. 3, hearing of January 7, 1977).
Then, in 1973, William Giger again asked an additional amount of P2,500.00
from plaintiff and so he required William Giger to sign a new deed of Pacto de
Retro Sale (Exhibit "A") on November 5,1973 at Davao City before Notary
Public Gregorio C. Batiller (T.S.N., p. 5, hearing of January 7, 1977). In 1972,
plaintiff began harvesting only the coconut fruits and he paid the taxes on the
land (Exhibits B to E) for Mr. Giger. He went periodically to the land to make
copra but he never placed any person on the land in litigation to watch it.
Neither did he reside on the land as he is a businessman and storekeeper by
occupation and resides at Lower Sta. Maria, Davao del Sur while the land in
litigation is at Colongan, Sta. Maria. Neither did he put any sign or hut to show
that he is in actual possession (p. 8, T.S.N., p. 7, hearing of January 14,
1978). He knew defendants' laborers were in the land in suit as early as
August, 1976 and that they have a hut there but he did not do anything to
stop them. Instead plaintiff was happy that there were people and a hut on the
land in suit (p. 14, T.S.N., hearing of January 14, 1978).
Before July, 1976, defendant Ignacio Wong went to the land in litigation to
find out if there were other people residing there or claiming it besides the
owner and he found none. So, in July, 1976, defendant Ignacio Wong bought
the parcel of land in litigation from William Giger and his wife Cecilia
Valenzuela (Exhibit 5). After the execution of Exhibit 5, defendant Ignacio
Wong asked for the delivery of the title to him and so he has in his possession
TCT No. (T-4244) T-974 (Exhibit 6) in the name of William Giger. Mr. Wong
declared the land in suit for taxation purposes in his name (Exhibit 7). He tried
to register the pacto de retro sale with the Register of Deeds by paying the
registration fee (Exhibit 8) but due to some technicalities, the pacto de
retro sale could not be registered. The defendant Wong placed laborers on
the land in suit, built a small farm house after making some clearings and
fenced the boundaries. He also placed signboards (T.S.N., pp. 14-15, hearing
of September 15, 1977). On September 27, 1976, plaintiff Manuel Mercado
again went to the land in suit to make copras. That was the time the matter
was brought to the attention of the police of Sta. Maria, Davao del Sur and the
incident entered in the police blotter (Exhibit 11). Then on November 18,
1976, defendant Wong ordered the hooking of the coconuts from the land in
litigation and nobody disturbed him. But on November 29, 1976, defendant
received a copy of plaintiff's complaint for forcible entry with summons to
answer which is the case now before the Court. During the pendency of this
instant complaint for forcible entry, spouses William Giger and Cecilia
Valenzuela filed a case for reformation of instrument with the Court of First
Instance of Digos, Davao del Sur against plaintiff Mercado (Exhibit 4). The
case pertains to Exhibit "A" of plaintiff. (pp. 1-3, CA Decision, pp. 82-
84,Rollo).
On the basis of the aforestated undisputed facts, the Municipal Court of Sta. Maria, Davao
del Sur in its February 20, 1978 Decision found that herein petitioner (defendant Ignacio
Wong) had prior, actual and continuous physical possession of the disputed property and
dismissed both the complaint and the counter-claim.
On appeal, the then Court of First Instance of Davao del Sur, in its September 29, 1978
Decision drew a completely different conclusion from the same set of facts and ruled in favor
of herein private respondent (plaintiff Manuel Mercado). The decretal portion of the said
decision, reads:
WHEREFORE, the Court finds the plaintiff to have taken possession of the
property earlier in point of time and defendant is an intruder and must, as he
is hereby ordered to return, the possession of the land in question for the
plaintiff, paying a monthly rental of P400.00 from August, 1976, till the
property is returned with costs against the defendant. Judgment is reversed.
Petitioner filed the instant petition with the Court of Appeals. But the Court of Appeals, in its
March 1, 1979 Resolution **** found that the only issue is a pure question of law — the
correctness of the conclusion drawn from the undisputed facts and certified the case to this
Court.
In its April 4, 1979 Resolution, the Second Division of this Court docketed the case in this
Court and considered it submitted for decision.
Petitioner alleged two (2) errors committed by respondent judge, to wit:
A) THE CONCLUSION DRAWN BY RESPONDENT JUDGE THAT PETITIONER IS AN

INTRUDER IS WITHOUT FACTUAL AND LEGAL BASIS FOR PURPOSES OF A
FORCIBLE ENTRY.
B) THE CONCLUSION DRAWN BY RESPONDENT JUDGE THAT PETITIONER MUST

PAY A MONTHLY RENTAL OF P400.00 FROM AUGUST, 1976 TILL THE PROPERTY IS
RETURNED HAS NO LEGAL AND FACTUAL BASIS.
The petition is without merit.
Petitioner, in claiming that the private respondent has not established prior possession,
argues that private respondent's periodic visit to the lot to gather coconuts may have
been consented to and allowed or tolerated by the owner thereof for the purposes of paying
an obligation that may be due to the person gathering said nuts and that a person who
enters a property to gather coconut fruits and convert the same to copras may only be a
hired laborer who enters the premises every harvest season to comply with the contract of
labor with the true owner of the property.
The argument is untenable.
It should be stressed that "possession is acquired by the material occupation of a thing or

the exercise of a right, or by the fact that it is subject to the action of our will, or by the proper
acts and legal formalities for acquiring such right." (Art. 531, Civil Code; Rizal Cement Co.,
Inc. vs. Villareal, 135 SCRA 15 [1985]); and that the execution of a sale thru a public
instrument shall be equivalent to the delivery of the thing, unless there is stipulation to the
contrary . . . . If, however, notwithstanding the execution of the instrument, the purchaser
cannot have the enjoyment and material tenancy of the thing and make use of it herself,
because such tenancy and enjoyment are opposed by another, then delivery has not been
effected. (Paras, Civil Code of the Philippines, Vol. II, 1989 Ed., p. 400).
Applying the above pronouncements on the instant case, it is clear that possession passed
from vendor William Giger to private respondent Manuel Mercado by virtue of the first sale a
retro (Exhibit A), and accordingly, the later sale a retro (Exhibit 5) in favor of petitioner failed
to pass the possession of the property because there is an impediment — the possession
exercised by private respondent. Possession as a fact cannot be recognized at the same
time in two different personalities except in the cases of co-possession. Should a question
arise regarding the fact of possession, the present possessor shall be preferred; if there are
two possessions, the one longer in possession, if the dates of possession are the same, the
one who presents a title; and if these conditions are equal, the thing shall be placed in
judicial deposit pending determination of its possession or ownership through proper
proceedings (Art. 538, Civil Code).
As to petitioner's query that "Is the entry of petitioner to the property characterized by force,
intimidation, threat, strategy, or stealth in order to show that private respondent has had
possession so that the case is within the jurisdiction of the inferior court?" (p. 15, Petition; p.
16, Rollo). The same is answered in the affirmative.
The act of entering the property and excluding the lawful possessor therefrom necessarily
implies the exertion of force over the property, and this is all that is necessary. Under the
rule, entering upon the premises by strategy or stealth is equally as obnoxious as entering
by force. The foundation of the action is really the forcible exclusion of the original possessor
by a person who has entered without right. The words "by force, intimidation, threat,
strategy, or stealth" include every situation or condition under which one person can
wrongfully enter upon real property and exclude another who has had prior possession
therefrom. If a trespasser enters upon land in open daylight, under the very eyes of person
already clothed with lawful possession, but without the consent of the latter, and there plants
himself and excludes such prior possessor from the property, the action of forcible entry and
detainer can unquestionably be maintained, even though no force is used by the trespasser
other than such as is necessarily implied from the mere acts of planting himself on the
ground and excluding the other party. (Tolentino, Civil Code of the Philippines, Vol. II, 1983
Ed., pp. 243-244; Drilon vs. Gaurana, 149 SCRA 342 [1987]).
Anent the award of rentals in favor of private respondent, the same is in order. Petitioner's
argument that there is no legal or factual basis for the payment of monthly rentals because
bad faith on the part of petitioner was never proved deserves no merit.
It should be noted that possession acquired in good faith does not lose this character except
in the case and from the moment facts exist which show that the possessor is not unaware
that he possesses the thing improperly or wrongfully. (Art. 528, Civil Code).
Possession in good faith ceases from the moment defects in the title are made known to the
possessors, by extraneous evidence or by suit for recovery of the property by the true
owner. Whatever may be the cause or the fact from which it can be deduced that the
possessor has knowledge of the defects of his title or mode of acquisition, it must be
considered sufficient to show bad faith. (Tolentino, Civil Code of the Philippines, Vol. II, p.
226). Such interruption takes place upon service of summons (Manotok Realty vs. Judge
Tecson, 164 SCRA 587 [1988] citing Mindanao Academy, Inc. v. Yap (13 SCRA 190 [1965]).
In the latter case, this Court held:
. . . Although the bad faith of one party neutralizes that of the other and hence
as between themselves their rights would be as if both of them had acted in
good faith at the time of the transaction, this legal fiction of Yap's good faith
ceased when the complaint against him was filed, and consequently the
court's declaration of liability for the rents thereafter is correct and proper. A
possessor in good faith is entitled to the fruits only so long as his possession
is not legally interrupted, and such interruption takes place upon service of
judicial summons (Arts. 544 and 1123, Civil Code).
A perusal of the records of the case shows that petitioner received private respondent's
complaint for forcible entry with summons on November 29, 1976 (Rollo, p. 46). His good
faith therefore ceased on November 29,1976. Accordingly, the computation of the payment
of monthly rental should start from December, 1976, instead of August, 1976.
WHEREFORE, with the modification that the computation of the monthly rental should start
from December, 1976 instead of August, 1976, the September 29, 1978 decision of
respondent judge is Affirmed in all other respects, with costs against petitioner.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Davide, Jr., JJ., concur.
# Footnotes
* Presided by Hon. Judge Lucas D. Carpio.
** Presided by Actg. Judge Rosalinda L. Montejo.
*** Penned by then Justice Hugo Gutierrez and concurred in by Justices

Lourdes San Diego and Serafin Cuevas.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 98467 July 10, 1992
NATIONAL DEVELOPMENT CO. and AMERICAN EXPRESS BANK, LTD., petitioners,

vs.
HON. COURT OF APPEALS, HON. IGNACIO M. CAPULONG, VICENTE T. TAN, VICTAN
AND COMPANY, INC., TRANSWORLD INVESTMENT CORP., FIRST INTERNATIONAL
INVESTMENT CO., INC., FAR EAST PETROLEUM AND MINERAL CORP., and
PHILCONTRUST INTERNATIONAL CORP., respondents.
DAVIDE, JR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to set
aside the 11 April 1991 Resolution 1 of a Division of Five of the Court of Appeals which
reconsidered and nullified the 30 April 1990 Decision 2 of the former Sixth Division thereof in
C.A.-G.R, SP No. 18865 3 directing the Regional Trial Court (Branch 134, Makati) of the
National Capital Judicial Region to dismiss private respondents' complaint in Civil Case No.
15707.
The antecedents in this case are not disputed.
On 13 January 1987, private respondents filed a complaint in Civil Case No. 15707 against
the Central Bank of the Philippines (CB), the National Development Company (NDC) and the
American Express Bank, Ltd. (AMEX) for the reconveyance of shares of stock in the
International Corporate Bank (Interbank), with damages and a prayer for the issuance of a
restraining order. 4 They alleged, inter alia, that:
(a) as of June 1974, plaintiffs (the herein private respondents) were the
owners of some 359,615 shares of stock, with a par value of P100.00 per
share, which constitute 75% of the outstanding shares, and controlling
interest in Continental Bank, later named Interbank;
(b) on 15 and 16 June 1974, plaintiff Vicente T. Tan and other key officials of
Continental Bank were arrested by military agents on the strength of Arrest
Search and Seizure Orders (ASSOs) issued by then Defense Secretary Juan
Ponce Enrile based on charges filed before the PC Criminal Investigation
Service and alleging, among others, illegal transactions committed in the
Continental Bank;
(c) on 17 June 1974 and several days thereafter, a composite team of PC-
CIS-NISA agents under orders from General Fabian Ver raided the
Continental Bank offices in Binondo, Manila, seized books, securities records
and other vital credit documents and sealed the bank's security vault, the
office of the bank's Vice President and the room of the Chief Accountant;
(d) the series of raids conducted by the military agents triggered a bank "run"
on Continental Bank causing chaos and confusion on its banking operations;
(e) defendant CB issued an order forbidding the Continental Bank from doing
business effective at the beginning of office hours on 24 June 1974, and
designating the Director of the Department of Commercial and Savings Banks
as statutory receiver, thereafter, it ordered a special examination of
Continental Bank's financial condition as of 24 June 1974;
(f) in a final report, dated 12 August 1974, on the special examination

conducted, the Supervising Bank Examiner of the CB reported that the
"Continental Bank is in an insolvent position in view of which, its continuance
in business under the present conditions, may no longer be safe to its
creditors and depositing public" but added that "the Bank may be allowed to
reorganize under an entirely new management provided there is an infusion
of fresh funds to the Bank as well as the conversion and/or restructuring of
certain liabilities into equity and/or long-term liabilities (sic);
(g) while still under military custody and detention, Vicente T. Tan, on his own
behalf and on behalf of his affiliate companies, was pressured into signing
three (3) agreements dated 2 February 1977, 12 May 1977 and 5 July 1977
under which he transferred and conveyed by way of assignment their
aforesaid 359,615 shares of stock, including other assets, interests and
properties in Continental Bank, to three (3) Corporations, alleged fronts for
Herminio Disini, namely Executive Consultants, Inc., Orobel Property
Management, Inc. and Antolum International Trading Corporation, in
consideration of the latter's assumption of certain specified liabilities and
obligations of Tan and his group of companies;
(h) unknown to Vicente T. Tan, whose facilities of verification were severely

restricted by his detention, the combined paid-up capital of the three (3)
aforementioned assignee-corporations at the time of the assignment was only
P2.5.-Million, which made them inherently incapable of performing the
obligations they had assumed;
(i) by reason of the fraudulent acquisition by the Disini corporation of the
359,615 shares, a constructive trust has been constituted on said shares in
favor of plaintiffs;
(j) the execution of the aforementioned agreements paved the way for the
reopening of the Continental Bank on 19 September 1977 under a new name,
the International Corporate Bank (Interbank), and under the management of
the Herdis Group, which became the owner of the bank's controlling stock;
this also paved the way for the release from military custody, on 27 December
1977, of Vicente T. Tan and other officers of the Continental Bank and the
subsequent dismissal of the criminal cases filed against them;
(k) Interbank's new management totally ignored the existing rules and
regulations of the CB by milking the deposits with said Interbank dry through
huge borrowings by the Disini Group of companies, thereby pushing said
Bank to the brink of total collapse; had it not been for the huge infusion of
funds by the CB in the form of emergency loans and advances, Interbank
would have completely collapsed;
(l) since the CB is prohibited from acquiring shares of any kind and
participating in the ownership or management of any enterprise, either directly
or indirectly, it assigned the emergency loans and advances extended to the
Interbank to the National Development Company (NDC) as a result of which
the latter executed the corresponding promissory note payable in 25 years,
without interest, in favor of said CB; the said loans and advances were then
converted into equity thereby enabling the NDC to acquire 99% of Interbank's
outstanding shares of stock from the Disini group, including the 359,615
shares earlier mentioned, and the corresponding stock/cash dividends
earned;
(m) defendant American Express Bank, Ltd. (AMEX) acquired from defendant
NDC 40% of the outstanding shares of stock of Interbank, but before the
acquisition by AMEX of the said interest, "it was placed on notice of the
infirmities of the transfer of the shares of plaintiffs in Continental Bank to the
former owners of Interbank" and despite said notice AMEX proceeded to
convert, with the CB's approval, its exposures to the Philippine Government
into equity in Interbank;
(n) defendants CB, NDC and AMEX, having actual or constructive notice of
the fraudulent acquisition by the aforesaid Disini corporations of the 359,615
shares of stock of plaintiffs, are obligated under the principle of constructive
trust to reconvey to plaintiffs the latter's original controlling shareholdings in
the Continental Bank including the stock/cash dividends earned;
(o) in view of the CB's arbitrariness, Tan had been subjected to physical
suffering, mental anguish, besmirched reputation and social humiliation and
said bank is therefore liable for moral damages; plaintiffs were likewise
compelled to engage the services of counsel for a stipulated fee.
The amounts of moral damages and attorney's fees sought were not specified; however, in
their prayer, they asked the Court that the CB be ordered to pay them moral damages and
attorney's fees in such amount as may be proved during the trial.
On 19 January 1987, the trial court, per Judge Ignacio Capulong, issued a temporary
restraining order prohibiting petitioners AMEX and NDC from disposing of or transferring
their shares of stock in Interbank. 5
On 26 January 1987, NDC and AMEX move to dismiss the complaint alleging that: (a) the
trial court has no jurisdiction over the subject or nature of the action which is intra-corporate
in nature; (b) the complaint states no cause of action against them; (c) there is another
action pending between the same parties for the same cause; and (d) the cause of action, if
any, is barred by prescription. They likewise opposed the private respondents' application for
preliminary injunction. 6 Judge Capulong denied the motion in an order dated 6 February
1987. 7
On 27 February 1987, petitioners' co-defendant in Civil Case No. 15707, the CB, filed its
separate motion to dismiss, but Judge Capulong likewise denied it in his Order dated 15 May
1987. 8 Its motion for reconsideration having been denied, the CB filed with the Court of
Appeals a petition for certiorari which was docketed as C.A.-G.R. SP. No. 12706. 9
On 14 April 1989, the NDC and AMEX filed a supplemental motion to dismiss on the ground
that Tan, et al. had not paid the correct amount of filing fees. The said motion was also
denied by Judge Capulong in the Order dated 8 August 1989. 10
On 29 September 1989, NDC and AMEX filed with the Court of Appeals a petition
for certiorari and prohibition under Rule 65 challenging the adverse orders of the trial court;
they prayed for the dismissal of Civil Case No. 15707 and for the issuance of a restraining
order to enjoin further proceedings therein. The case was docketed as C.A.-G.R. SP No.
18865. 11 As grounds therefore, they alleged that:
(a) A complaint for recovery of property on the ground of duress in the

transaction by which such property had been sold or assigned cannot be
maintained against its present holder for value, where the original
assignments remain valid, no action for the annulment thereof having been
filed against the original assignees.
(b) An action to recover corporate shares of stock by one claiming to be a

stockholder against another stockholder of the same corporation is within the
original and exclusive jurisdiction of the Securities and Exchange Commission
(SEC).
(c) Where the action to annul a contract of assignment based on duress has
prescribed, no further suit to recover the property assigned may be
maintained by the alleged assignor based on the same ground.
(d) The doctrine of constructive trust on which the complaint is based is not
applicable to the case at bar.
xxx xxx xxx
g) Private respondents purposely omitted in the prayer of their complaint

below the value of the Interbank shares of stock sought to be recovered to
evade payment of the correct filing fees, hence the complaint cannot be
deemed filed, and the lower court did not acquire jurisdiction over the suit.
The then former Sixth Division of the Court of Appeals gave the petition due course and
issued a restraining order.
Earlier however, more specifically on 5 April 1989, the respondent Court (First Division)
promulgated its decision in the petition filed by the CB, C.A.-G.R SP No. 12706, granting the
petition and ordering the dismissal of the complaint in Civil Case No. 15707 insofar as the
CB is concerned. 12 Herein private respondents then filed with this Court a petition for review
to set aside the said decision, which was docketed as G.R. No. 90365. 13
On 30 April 1990, the Sixth Division of the respondent Court promulgated its Decision in
C.A.-G.R. SP No. 18865 granting the petition and ordering the dismissal of Civil Case No.
15707. 14 It ruled that: (a) NDC and AMEX are not the original assignees but subsequent
transferees, of the questioned shares of stock; Tan, et al. should have filed the complaint for
annulment of the assignments, which they claimed to have been made under duress,
against the original assignees. Assuming that duress did exist, it merely made the
assignments voidable; without a judgment for annulment on that ground, the assignments
remain valid and binding and may even be ratified under Article 1390 of the Civil Code.
There being no annulment declared by a competent court, NDC's and AMEX's title of
ownership over the shares cannot be collaterally attacked. Besides, Civil Case No. 15707 is
for reconveyance, not annulment; the complaint does not allege any act or omission by NDC
and AMEX in derogation of any legal right belonging to Tan, et al. Hence, the complaint fails
to state a cause of action. (b) The requisites of implied trust, an argument invoked in the
complaint, are not present. The original assignees were not fiduciaries with respect to the
questioned shares of stocks. The shares involved were assigned to them for value; said
assignees did not acquire, misapply or misappropriate the same by mistake or fraud. The
complaint makes no allegation that the shares were obtained by fraud or mistake. (c) The
cause of action, if any, is clearly barred by prescription. If indeed the consent of Tan to the
deeds of assignment was obtained through force or duress at a time when he was under
military detention and custody, such duress ceased when he was eventually released by the
military on 27 December 1977. Pursuant to Article 1391 of the Civil Code, he should have
filed the complaint for annulment within four (4) years from such release. (d) Finally, Civil
Case No. 15707 is an action involving corporate shares of stock between parties who both
claim to be stockholders of the same corporation. Pursuant to Section 5 of P.D. No. 902-A, it
is the Securities and Exchange Commission which has original and exclusive jurisdiction
thereon.
Private respondents herein moved to reconsider said decision. An undated resolution

penned by Justice Nicolas Lapeña, Jr., 15 denied the motion; however, Associate Justice
Emeterio Cui indicated his dissent and submitted a dissenting opinion. 16 Pursuant to Section
11 of the Judiciary Reorganization Act of 1980 and Section 6, Rule I of the Revised Internal
Rules of the Court of Appeals, two (2) Members of the Court, Associate Justices Ricardo J.
Francisco and Alicia V. Sempio Diy, were designated to sit temporarily in a Division of Five.
The two concurred with the dissenting opinion of Justice Cui. Thereafter, the Division of Five
promulgated on 11 April 1991 the challenged resolution which granted the motion for
reconsideration and dismissed the petition. 17 This Division of Five of respondent Court held
that Civil Case No. 15707 states a sufficient cause of action based on a constructive or
implied trust; prescription is a matter of defense that is best resolved by a resort to the
parties' evidence; and, finally, no intra-corporate matters are involved in the case since
private respondents are neither claiming nor enforcing the rights incident to corporate stock
ownership, such as the right to vote at stockholders meetings, elect and remove directors,
adopt and repeal by-laws and other rights under the Corporation Code.
Unable to accept the Resolution, NDC and AMEX filed the herein petition on 14 June 1991.
They aver that the respondent Court erred:
xxx xxx xxx
4.1 . . . in holding, or holding in effect, that a seller claiming to have sold or

assigned property to another "under duress," may bring suit to recover it from
a subsequent purchaser with whom he has no privity, and even though the
original sale or assignment, remains valid.
4.2 . . . in holding that prescription as ground (sic) for dismissal should be

resolved at the trial, even though the determinative facts appear on the face
of the complaint.
4.3 . . . in holding that an action for reconveyance of corporate shares,

between parties claiming to be stockholders of the same corporation, is not a
case within the SEC's jurisdiction.
4.4 . . . in not holding that the trial court in any case acquired no jurisdiction
over the complaint for reconveyance, where plaintiffs failed and refused to
pay the required filing fees therefor.
4.5 . . . in not holding that the trial court has issued an injunction with grave
abuse of discretion amounting to lack of jurisdiction. 18
After private respondents filed their Comment 19 to the petition on 22 August 1991 in
compliance with the Resolution of 3 July 1991, 20 this Court gave due course to the petition
and required the parties to file their respective Memoranda. Private respondents filed their
Memorandum on 24 October
1991. 21 Petitioners AMEX and NDC filed their separate Memoranda on 30 October 1991
and 12 November 1991, respectively. 22
On 22 November 1991, private respondents filed a Reply to petitioners' Memorandum 23 to

which they attached as Annex "A" 24 thereof a certification by the Clerk of Court of the
Regional Trial Court of Makati to the effect that on 7 May 1990, private respondent Tan paid
the additional amount of P183,967.55 for the docketing and other fees.
The petition is impressed with merit.
As to the lack of cause of action and prescription, the fate of the private respondents had
long been sealed.
In the 18 March 1991 decision of this Court entitled "Vicente T. Tan, et al. versus The
Honorable Court of Appeals, et al.," 25 docketed as G.R. No. 90365 and resulting from the
private respondents' petition for review of the respondent Court's decision in C.A.-G.R. SP
No. 12706 granting the CB's petition for certiorari and ordering the dismissal of Civil Case
No. 15707, this Court ruled that: (a) a cause of action for reconveyance of the shares in
question can only exist against the original assignees and (b) private respondents' cause of
action if any, had already prescribed. As to the first, it states:
On the question of cause of action, the Court notes that as the complaint itself
avers, the petitioners' shares in the Continental Bank were assigned to the
firms already above specified (which Herminio Disini allegedly controlled),
and not to the Central Bank. It is therefore fairy obvious that if any claim for
reconveyance may be prosecuted, it should be prosecuted against the Disini
companies. 26
This observation becomes even more appropriate in the case of the petitioners
because they did not have any transaction with either the private respondents or the
Disini companies. NDC and AMEX derived their rights from the CB and the NDC,
respectively. Except for the allegation in paragraph 22 of private respondents'
complaint in Civil Case No. 15707 that petitioners herein, having actual or
constructive notice of the fraudulent acquisition of the shares by the Disini
corporations, are obligated under the principle of constructive trust to reconvey to
them such shares including the corresponding stock/cash dividends earned, there is
nothing therein that even remotely intimates that petitioners had violated any of the
private respondents' right. This is an essential element of a cause of action. 27
This Court cannot divine the reason or cause why private respondents did not implead the
original assignees in Civil Case No. 15707. For supposes of reconveyance of the questioned
shares of stock, they are the indispensable parties. No final determination of the case
between the private respondents and the impleaded agents (CB, NDC and AMEX) can be
had without the said original assignees because the reliefs prayed for against said
impleaded defendants are precisely anchored on the voidability or nullity of the deeds of
assignments flowing from contracts to which these impleaded defendants are not parties.
Joinder of indispensable parties is mandatory and a complaint may be dismissed if an

indispensable party is not impleaded in the complaint. Section 7, Rule 3 of the Rules of
Court provides:
Sec. 7. Compulsory joinder indispensable parties. — Parties in interest

without whom no final determination can be had of an action shall be joined
either as plaintiffs or defendants.
When an indispensable party is not before the court, the action should be
dismissed. 28 Ordinarily, however, a reasonable opportunity to amend the pleading
must be given, and the action should not be dismissed, except when the plaintiff fails
or refuses to include said party, or the latter cannot be sued. 29
As to prescription, this Court, in said G.R. No. 90365, ruled:
The next question is whether or not any action for reconveyance has
nevertheless prescribed, on the bases of provisions governing reconveyance.
The rule anent prescription on recovery of movables (shares of stock in this

case) is expressed in Article 1140 of the Civil Code, which we quote:
Art. 1140. Actions to recover movables shall prescribe eight

years from the time the possession thereof is lost, unless the
possessor had acquired the ownership by prescription for a
less period, according to Article 1132, and without prejudice to
the provisions of articles 559, 1505, and 1133.
As it provides, Article 1140 is subject to the provisions of Articles 1132 and

1133 of the Code, governing acquisitive prescription, in relation to Articles
559 and 1505 thereof. Under Article 1132:
Art. 1132. The ownership of movables prescribes through

uninterrupted possession for four years in good faith.
The ownership of personal property also prescribes through
uninterrupted possession for eight years, without need of any
other condition.
With regard to the right of the owner to recover personal

property lost or of which he had been illegally deprived, as well
as, with respect to movables acquired in a public sale, fair, or
market, or from a merchant's store the provisions of articles
559 and 1505 of this Code shall be observed.
acquisitive prescription sets in after uninterrupted possession of four years,

provided there is good faith, and upon the lapse of eight years, if bad faith is
present. Where, however, the thing was acquired through a crime, the
offender can not acquire ownership by prescription under Article 1133, which
we quote:
Art. 1133. Movables possessed through a crime can never be

acquired through prescription by the offender.
Please note that under the above Article, the benefits of prescription are
denied to the offender; nonetheless, if the thing has meanwhile passed to a
subsequent holder, prescription begins to run (four or eight years, depending
on the existence of good faith). 30
For purposes of extinctive prescription vis-a-vis movables, we therefore

understand the periods to be:
1. Four years, if the possessor is in good faith;
2. Eight years in all other cases, except where the loss was
due to a crime in which case, the offender can not acquire the
movable by prescription, and an action to recover it from him is
imprescriptible.
It is evident, for purposes of the complaint in question, that the petitioners had
at most eight years within which to pursue a reconveyance, reckoned from
the loss of the shares in 1977, when the petitioner Vicente Tan executed the
various agreements in which he conveyed the same in favor of the Executive
Consultants, Inc., Orobel Property Management, Inc., and Antolum Trading
Corporation.
We are hard put to say, in this regard, that the petitioners' action is after all,
imprescriptible pursuant to the provisions of Article 1133 of the Civil Code,
governing actions to recover loss by means of a crime. For one thing, the
complaint was not brought upon this theory. For another, there is nothing
there that suggests that the loss of the shares was indeed made possible by a
criminal act, other than simple bad faith and probably abuse of right:
xxx xxx xxx
Since the complaint was filed on January 13, 1987, ten years more or less
after the petitioners transferred the shares in question, it is clear that the
petitioners have come to court too late.
We cannot accept the petitioners' contention that the period during which
authoritarian rule was in force had interrupted prescription and that the same
began to run only on February 25, 1986, when the Aquino government took
power. It is true that under Article 1154:
Art. 1154. The period during which the obligee was prevented
by a fortuitous event from enforcing his right is not reckoned
against him.
fortuitous event have the effect of tolling the period of prescription. However,
we can not say, as a universal rule, that the period from September 21, 1972
through February 25, 1986 involves a force majeure. Plainly, we can not box
in the "dictatorial" period within the term without distinction, and without, by
necessity, suspending all liabilities, however demandable, incurred during that
period, including perhaps those ordered by this Court to be paid. While this
Court is cognizant of acts of the last regime, especially political acts, that
might have indeed precluded the enforcement of liability against that regime
and/or its minions, the Court is not inclined to make quite a sweeping
pronouncement, considering especially the unsettling effects such a
pronouncement is likely to bring about. It is our opinion that claims should be
taken on a case-to-case basis. This selective rule is compelled, among
others, by the fact that not all those imprisoned or detained by past
dictatorship were true political oppositionists, or, for that matter, innocent of
any crime or wrongdoing. Indeed, not a few of them were manipulators and
scoundrels.
The petitioner Vicente Tan claims that from June, 1974 through December,
1977, he was under detention; that sometime in August, 1977, the Central
Bank lodged six criminal cases against him, along with several others, with
Military Commission No. 5 in connection with alleged violation of the Central
Bank Act, falsification of documents, and estafa, that while in detention, he
was made to execute various agreements in which he conveyed the shares of
stock in question; and that "[u]nder the foregoing factual setting . . . it would
be foolhardy on the part of petitioners to institute . . . [any] action for
reconveyance . . ."
The records show, however, that although under detention, Vicente Tan:
1. Commenced, in July, 1976, Civil Case No. 103359 of (sic) the defunct
Court of First Instance of Manila, "to mandatorily enjoin the Central Bank as
receiver of Continental Bank, to takeover from "NISA" the control and
management and assets of Vicente Tan and his affiliate corporations;"
2. Was ably represented by competent counsel, Atty. Norberto Quisumbing,

throughout;
3. Filed with this Court a petition to stop the trial of the criminal cases pending
against him with the Military Commission No. 5 and succeeded in obtaining a
temporary restraining order.
On top of those facts abovementioned, he:

1. Asked the Court of First Instance to order the Central Bank "to proceed to
rehabilitate Continental Bank by extending to it such emergency loans and
advances as may be needed for its rehabilitation . . ."
2. Wrote, on July 15, 1977, the Central Bank expressing his approval in the
reopening and rehabilitation of Continental Bank.
We are, therefore, convinced, from Vicente Tan's very behavior, that

detention was not an impediment to a judicial challenge, and the fact of the
matter was that he was successful in obtaining judicial assistance. Under
these circumstances, we can not declare detention, or authoritarian rule for
that matter, as a fortuitous event insofar as he was concerned, that
interrupted prescription.
To be sure, there is nothing in the petition which would remotely suggest,

assuming that Vicente Tan could not have freely and intelligently acted during
the period of martial rule, that his co-petitioners Victan & Company, Inc.,
Transworld Investment Corporation, First International Investment Company,
Inc., Far East Petroleum & Minerals Corporation, and Philcontrust
International Corporation, could not have similarly acted during the martial law
regime and shortly thereafter. As far as they are therefore concerned, the
Court has even better reason to invoke prescription because none of them
acted and none now claims that it could not have acted. 31
Private respondents' motion to reconsider the above decision, especially insofar as it

dismissed Civil Case No. 15707, was denied with FINALITY in the resolution of this Court of
8 May 1991. 32
The foregoing disquisitions render unnecessary further action on the remaining assigned
errors in this petition.
WHEREFORE, the petition is GRANTED. The Resolution of respondent Court in C.A.-G.R.

SP No. 18865 promulgated on 11 April 1991 is hereby REVERSED and SET ASIDE while its
Decision therein, promulgated on 30 April 1990, is REINSTATED.
Costs against the private respondents.
SO ORDERED.
Bidin and Romero, JJ. concur.
Feliciano, J., took no part.
Separate Opinions
GUTIERREZ, JR., J.: dissenting:
I find the situation in this case basically unfair and arbitrary. A remedy in law should not be
denied.
Respondent Vicente Tan was arrested on June 15,1974 on the basis of a martial law Arrest,
Search and Seizure Order (ASSO). While under military detention, he insists that he was
forced to transfer 359,615 shares of stock in a commercial bank to three corporations owned
by Herminio Disini. Unknown to Tan, the paid-up capital of the buyers was only P2.5 million.
The buyers were unable to pay the consideration for the forced sale. Eventually, the bank
was sold to petitioners National Development Co. (NDC) and American Express Bank Ltd.
(AMEX).
The only issue before us is whether or not the efforts of Mr. Tan to recover his lost properties
should be summarily dismissed. Instead of ordering the trial court to dismiss the complaint,
will justice not be served if the respondents are given due process and the parties are
allowed to introduce their respective evidence and a decision on the merits is rendered?
The doctrine of constructive or implied trust raised by the respondents to justify a remand to
the trial court deserves more than mere passing attention. If NDC and AMEX had notice of
the infirmities attendant to the sale which never materialized for want of consideration, then
they become constructive trustees of the disputed shares and, at the very least, should
justify in court their alleged valid ownership of the shares acquired by them. There being a
wrongful dispossession of valuable properties, the transferee to whom the dispossessor
turned over the properties has to prove its alleged good faith in the face of allegations that it
was not a bona fide buyer. I believe there is a valid cause of action based on constructive or
implied trust which the trial court may examine for purposes of granting legal and equitable
relief.
The issue of prescription is likewise a matter which should be threshed out in court instead
of being arbitrarily assumed to the prejudice of the victim of the forced sale.
The respondents point out:

2. Eight years in all other cases, except where the loss was due to a crime in
which case, the offender can not acquire the movable by prescription, and an
action to recover it from him imprescriptible.
Consultants Inc., Orobel Property Management, Inc., and Antolun
International Trading Corporation. But there were several supervening events
in the nature of force majeure that interrupted this.
Apart from the above exposition of the substantive requirements on

prescription, herein respondents submit that this issue is a matter of defense
which could be better appreciated in a hearing on the merits. After all
prescription is not a mere mathematical computation of a finite period. It
involves situations and events that will clearly establish whether a particular
plaint is time-barred. In this particular case there are abundant allegations
spread out in the complaint recounting events that could only show that
private respondents could not have filed the action for recovery, considering
that the highest official of the land was respondent Vicente Tan's mortal
enemy. Citing the dissenting opinion of Justice Edgardo L. Paras in G.R. No.
90365 the correct period is five (5) years with certain exclusions in the nature
of force majeure. Thus, he opined,
The correct period is five years under Art. 1149 of the Civil
Code and not four years under Art. 1146 of the same Code.
And from this period of five years must be excluded the period
during which the action could not be brought because of a
force majeure (Art. 1154 of the Civil Code), as exemplified by
the dictatorial regime which ruled the Philippines during the
past administration. The period of prescription therefore should
be counted from Feb. 25, 1986 when the present
administration of President Corazon Aquino took over the
control of the government. The action having been brought on
Jan. 31, 1987, it is clear that counted from Feb. 25, 1986, less
than a year had elapsed, and therefore the action has not yet
prescribed.
Indeed, if viewed even in another view point and considering that the suit filed
with the regional trial court for reconveyance was based on constructive trust
as earlier discussed, said action prescribes in ten years counted from the
release of respondent Vicente Tan from detention. Thus, the present
complaint dated December 27, 1977 has not prescribed. (Respondents;
Memorandum, pp. 9. 11)
Under the circumstances of this case, presentation of evidence, and not an automatic
computation of number of years, months, and days, is necessary.
The precedents cited by the respondents show that in constructive trust, the courts reserve
the freedom to apply a remedy to whatever knavery human ingenuity can invent.
Constructive trust is used whenever necessary to satisfy the demands of justice; its
application is limited only by the inventiveness of men who find new ways to enrich
themselves unjustly by grasping what should not belong to them.
I, therefore, vote to have the issues of constructive trust and prescription threshed out in the
trial court rather than summarily deny the respondents any remedy to recover what they
claim to have been wrongly taken from them.
Separate Opinions
GUTIERREZ, JR., J.: dissenting:
I find the situation in this case basically unfair and arbitrary. A remedy in law should not be
denied.
Respondent Vicente Tan was arrested on June 15,1974 on the basis of a martial law Arrest,
Search and Seizure Order (ASSO). While under military detention, he insists that he was
forced to transfer 359,615 shares of stock in a commercial bank to three corporations owned
by Herminio Disini. Unknown to Tan, the paid-up capital of the buyers was only P2.5 million.
The buyers were unable to pay the consideration for the forced sale. Eventually, the bank
was sold to petitioners National Development Co. (NDC) and American Express Bank Ltd.
(AMEX).
The only issue before us is whether or not the efforts of Mr. Tan to recover his lost properties
should be summarily dismissed. Instead of ordering the trial court to dismiss the complaint,
will justice not be served if the respondents are given due process and the parties are
allowed to introduce their respective evidence and a decision on the merits is rendered?
The doctrine of constructive or implied trust raised by the respondents to justify a remand to
the trial court deserves more than mere passing attention. If NDC and AMEX had notice of
the infirmities attendant to the sale which never materialized for want of consideration, then
they become constructive trustees of the disputed shares and, at the very least, should
justify in court their alleged valid ownership of the shares acquired by them. There being a
wrongful dispossession of valuable properties, the transferee to whom the dispossessor
turned over the properties has to prove its alleged good faith in the face of allegations that it
was not a bona fide buyer. I believe there is a valid cause of action based on constructive or
implied trust which the trial court may examine for purposes of granting legal and equitable
relief.
The issue of prescription is likewise a matter which should be threshed out in court instead
of being arbitrarily assumed to the prejudice of the victim of the forced sale.
The respondents point out:

2. Eight years in all other cases, except where the loss was due to a crime in
which case, the offender can not acquire the movable by prescription, and an
action to recover it from him imprescriptible.
Consultants Inc., Orobel Property Management, Inc., and Antolun
International Trading Corporation. But there were several supervening events
in the nature of force majeure that interrupted this.
Apart from the above exposition of the substantive requirements on

prescription, herein respondents submit that this issue is a matter of defense
which could be better appreciated in a hearing on the merits. After all
prescription is not a mere mathematical computation of a finite period. It
involves situations and events that will clearly establish whether a particular
plaint is time-barred. In this particular case there are abundant allegations
spread out in the complaint recounting events that could only show that
private respondents could not have filed the action for recovery, considering
that the highest official of the land was respondent Vicente Tan's mortal
enemy. Citing the dissenting opinion of Justice Edgardo L. Paras in G.R. No.
90365 the correct period is five (5) years with certain exclusions in the nature
of force majeure. Thus, he opined,
The correct period is five years under Art. 1149 of the Civil
Code and not four years under Art. 1146 of the same Code.
And from this period of five years must be excluded the period
during which the action could not be brought because of a
force majeure (Art. 1154 of the Civil Code), as exemplified by
the dictatorial regime which ruled the Philippines during the
past administration. The period of prescription therefore should
be counted from Feb. 25, 1986 when the present
administration of President Corazon Aquino took over the
control of the government. The action having been brought on
Jan. 31, 1987, it is clear that counted from Feb. 25, 1986, less
than a year had elapsed, and therefore the action has not yet
prescribed.
Indeed, if viewed even in another view point and considering that the suit filed
with the regional trial court for reconveyance was based on constructive trust
as earlier discussed, said action prescribes in ten years counted from the
release of respondent Vicente Tan from detention. Thus, the present
complaint dated December 27, 1977 has not prescribed. (Respondents;
Memorandum, pp. 9. 11)
Under the circumstances of this case, presentation of evidence, and not an automatic
computation of number of years, months, and days, is necessary.
The precedents cited by the respondents show that in constructive trust, the courts reserve
the freedom to apply a remedy to whatever knavery human ingenuity can invent.
Constructive trust is used whenever necessary to satisfy the demands of justice; its
application is limited only by the inventiveness of men who find new ways to enrich
themselves unjustly by grasping what should not belong to them.
I, therefore, vote to have the issues of constructive trust and prescription threshed out in the
trial court rather than summarily deny the respondents any remedy to recover what they
claim to have been wrongly taken from them.
Footnotes
1 Per Associate Justice Emeterio C. Cui, concurred in by Associate Justices

Ricardo J. Francisco and Alicia V. Sempio Diy with Associate Justices Jose
C. Campos, Jr. and Nicolas Lapeña, Jr. dissenting;Rollo, 46.51.
2 Per Associate Justice Nicolas P. Lapeña, Jr., concurred in by Associate

Justices Jose C. Campos, Jr. and Emeterio C. Cui.
3 Entitled "National Development Company and American Express Bank, Ltd.

vs. Hon. Ignacio Capulong, et al."
4 Rollo, 68-83.
5 Per Judge Ignacio Capulong, CA decision of 30 April 1990, 3; Rollo, 62.
6 Rollo, 62.
7 Id., 14.
8 CA's Decision dated 30 April 1990, 3; Id., 62.
9 Id.
10 Id.
11 Id., 15.
12 Rollo, 62.
13 AMEX's Manifestation filed on 5 May 1992.
14 Rollo, 60-67.
15 Rollo, 52.
16 Id., 53-58.
17 Annex "A" of Petition; Rollo, 45-51.
18 Petition, 13-14.
19 Rollo, 88-101.
20 Id., 85.
21 Id., 117, et seq.
22 Id., 131, et seq.; 168, et seq.
23 Id., 198, et seq.
24 Id., 201
25 195 SCRA 355 [1991].
26 At pages 369-370.
27 Ma-ao Sugar Central Co. vs. Barrios, 79 Phil. 666 [1947].
28 People vs. Hon. Rodriguez, 106 Phil. 325 [1959].
29 Cortez vs. Avila, 101 Phil. 205 [1957].
30 Citing IV PARAS, Civil Code of the Philippines Annotated, 1985 ed., 30.
31 At pages 364-369.
32 Rollo of G.R. No. 90365, 474.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 165644 February 28, 2006
MANUEL B. ALORIA (represented by his attorney-in-fact, BERNARDINO B.

ALORIA) Petitioner,
vs.
ESTRELLITA B. CLEMENTE, Respondent.
DECISION
CARPIO MORALES, J.:
Petitioner, Manuel Aloria, a resident of the United States since December 1992,1 was the
registered owner of a parcel of land and a two-story residential building built thereon (the
property) under Transfer Certificate of Title (TCT) No. 195684 of the Register of Deeds of
Caloocan City.2
On petitioner’s visit to the Philippines in July 2000, he learned that TCT No. 195684 was
canceled, and in lieu thereof, TCT No. C-342854 in the name of respondent, Estrellita B.
Clemente,3 was issued on the basis of an April 18, 2000 notarized Deed of Absolute Sale (Exhibit
"D")4 purportedly executed by him and respondent.
Petitioner, through his brother-attorney-in-fact Bernardino B. Aloria, thus filed a

Complaint5 against respondent and the Register of Deeds before the Caloocan City Regional
Trial Court (RTC), for annulment of above-said Exh. "D" and TCT No. C-342854, reconveyance,
damages, and costs of the suit. The complaint was docketed as Civil Case No. 19634.
In his complaint, petitioner claimed that Exh. "D" was falsified, the signature appearing thereon
above the typewritten name "ALORIA MANUEL" not being his, and he could not have affixed it
as he was then in the United States.
In her Answer with Counterclaim,6 respondent claimed that she did not have anything to do with
the execution of Exh. "D," and the signature appearing above her printed name thereon is forged;
she bought the property from petitioner’s parents-in-law Bernardino Diego and Melinda Diego via
a March 13, 2000 Deed of Absolute Sale (Exh. "1");7 at the time of the sale, the Diego spouses
were in possession of petitioner’s TCT No. 195684 and a Deed of Absolute Sale dated October
20, 1994 (Exh. "2"; Exh. "J") purportedly executed by petitioner and his wife in favor of the Diego
spouses;8 the Diego spouses, who were in actual possession of the property, represented to her
that they did not cause the transfer of the title of the property in their name because they
intended to resell it; it was Bernardino Diego who brought the documents covering the
conveyance to her of the property to the Registry of Deeds of Caloocan City and caused the
transfer of the title in her name; and after the execution of Exh. "1," she immediately took
possession of the property and introduced substantial improvements thereon amounting to
approximately P800,000.9 By way of counterclaim, she prayed for the grant of moral damages,
attorney’s fees, and other just and equitable reliefs and remedies.10
Branch 131 of the Caloocan RTC found Exh. "D" and Exh. "1" as well as the cancellation of TCT
No. 195684 and the issuance in its stead of TCT No. C-342854 in respondent’s name11 void. And
it found respondent not to be innocent purchaser for value.
Noting, however, that respondent had spent a considerable amount of money in introducing
improvements on the property, the trial court held that on the basis of equity and to prevent
unjust enrichment of petitioner, she should be reimbursed one-half (½) of the amount she spent
for such improvements.12 The trial court thus disposed:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff MANUEL

B. ALORIA and as against defendant ESTRELLITA B. CLEMENTE, declaring the Absolute Deed
of Sale dated April 18, 2000 as well as the Transfer Certificate of Title No. C-342854 as NULL
and VOID and hereby orders the Register of Deeds of Caloocan City to issue a new transfer
certificate of title respecting the subject property in the name of plaintiff MANUEL B. ALORIA, as
the true and lawful owner thereof.
The Court hereby order [sic] defendant ESTRELLITA B. CLEMENTE to pay the following:
1. To pay the plaintiff P100,000.000 as and [sic] for moral damages;
2. To pay the plaintiff P50,000.000 as and [sic] for exemplary damages;
3. To pay the plaintiff P100,000.00 as and [sic] for attorney’s fees; and
4. To pay the plaintiff the cost of the suit.
Finally, the Court hereby orders plaintiff MANUEL B. ALORIA to reimburse to

defendant P400,000.00, representing ½ of the amount spent by the defendant in the renovation
of the subject property.
SO ORDERED.13 (Underscoring in the original)
On appeal to the Court of Appeals, respondent posited in her Appellant’s Brief14 that petitioner
failed to sufficiently prove that he was in the United States at the time of the execution of Exh.
"2"−Deed of Absolute Sale purportedly executed by petitioner and his wife in favor of the Diego
spouses and Exh. "D"−Deed of Sale purportedly executed by petitioner in the respondent’s favor.
Appellee failed to substantiate his claim that he did not sign the two (2) deeds of absolute sale.
Aside from his bare denials, there was nothing in the records that would suggest that appellee
was in the United States at the time the two (2) deeds of sale were executed and hence, could
not have possibly signed the same. The only documents that were presented to support his claim
were the Affidavit executed by the appellee in the United States, stating that he never executed
any absolute deed of sale dated April 18, 2000, and the Affidavit General that purportedly shows
appellee’s genuine signature. These documents, however, does [sic] not prove that appellee was
in the United States at the time of the execution of the two (2) deeds of sale.
As it was, appellee chose not to present his passport or any travel document or certificate of
arrival and departure to and from the United States and the Philippines. Appellee could have
easily presented these documents to support his negative allegation that he did not sign any
deed of sale considering that he was in the United States at the time these deeds were executed.
Respondent further posited that the trial court erred when it failed to consider that petitioner’s
owner’s duplicate certificate of title as well as other documents relative thereto was personally
delivered to her by his parents-in-law who were designated as administrators of the property.
Furthermore, respondent posited that the trial court erred when it failed to consider the
propensity of petitioner’s witnesses to give evasive answers on vital details.15
In any event, respondent contended that even assuming that the transfer of title in her favor is
null and void, she is a builder in good faith and, therefore, entitled to full reimbursement of the
expenses she incurred for the improvements she introduced on the property.16
On the other hand, petitioner argued before the appellate court in his Appellee’s Brief17 that he
had satisfactorily established that he was in the United States in April 2000 and could not
therefore have signed Exh. "D";18respondent was not a buyer in good faith as she bought the
property knowing that it was still registered in his name;19 and "the rentals from the premises
which [respondent] admitted to be at P8,000 per month from December 2000 up to the present
and which she could have collected would be sufficient reimbursement for the alleged cost of
improvement."20
Petitioner thus prayed that the Court of Appeals affirm the trial court’s decision in all aspects
except that which ordered him to reimburse respondent the amount of P400,000 representing ½
of the cost of improvements on the property.21
By the assailed decision of July 26, 2004,22 the Court of Appeals reversed the decision of the trial
court. It held that petitioner failed to overcome by clear, strong, and convincing evidence the
presumption of regularity enjoyed by Exh. "D." The Court of Appeals further held:
[T]his Court finds no ambiguity in the terms and stipulations stated in the questioned document
and the parties are bound by the terms of their written agreements. They cannot vary or alter the
terms as contained in this agreement as they were bound by the parol evidence rule. To be sure,
"when the terms of an agreement had been reduced to writing, it is considered as containing all
the terms agreed upon and there can be, between the parties and their successors-in-interest, no
evidence of such terms other than the contents of the written agreement." (Rule 130, Section 9 of
the Rules of Court)
More. Since a "sale is consensual" x x x, it follows that he who alleges must show its existence
by competent proof. Fortunately, the essential elements which gave life to the contract were
clearly proven by the herein appellant."23 (Underscoring supplied)
Furthermore, the Court of Appeals held that respondent is a purchaser for value and in good
faith;24 the certificate of title issued in respondent’s name grants her a disputable presumption of
ownership and a legal presumption that she possesses the property with a just
title;25 respondent’s argument that petitioner’s owner’s duplicate certificate of title was personally
delivered to her by the Diego spouses is credible;26 and assumingargumendo that respondent
obtained her "decree of registration" through fraud, petitioner should have filed an action within
one year from the date of issuance and entry of the decree of registration following Section 32 of
P.D. 1529.27
His Motion for Reconsideration28 having been denied by Resolution29 of October 13, 2004,
petitioner filed the present Petition for Review30 raising two issues: (1) whether there was a valid
transfer of the property to respondent31 and (2) whether respondent is a purchaser in good faith.32
The petition is impressed with merit.
A disposition of the technical matters raised by respondent before discussing the merits of the
case is in order.
In her Comment,33 respondent urges this Court to dismiss the instant petition on the ground that
it is insufficient in form and substance. She alleges that the petition does not comply with Section
4 of Rule 45 of the Rules of Court as the petition does not contain a statement of material dates,
the matters involved, and the reasons or arguments relied on for its allowance, nor is it
accompanied by a clearly legible duplicate original or a certified true copy of the judgment or final
order or resolution certified by the clerk of court of the court a quo and the requisite number of
plain copies thereof, as well as such material portions of the record as would support the
petition.34
This Court’s statement in Barnes v. Padilla35 that "[t]he emerging trend in the rulings of this Court
is to afford every party litigant the amplest opportunity for the proper and just determination of his
case, free from the constraints of technicalities"36 is instructive.
Although petitioner failed to mention the date he filed his motion for reconsideration of the Court
of Appeals decision and the date when he received the Resolution denying the motion, the
records of the case show that he received a copy of the Court of Appeals decision on July 30,
200437 and filed his Motion for Reconsideration thereof on August 13, 2004.38
Petitioner thus filed his Motion for Reconsideration 14 days after his receipt of notice of the Court
of Appeals decision or within the prescribed 15-day period.39 And he filed the instant petition on
October 29, 2004,40 or 10 days after receiving notice on October 19, 2004 of the Court of
Appeals denial of his motion for reconsideration – again, well within the prescribed 15-day
period.41
As for petitioner’s failure to provide a clearly legible duplicate original or certified true copy of the
judgment or final order or resolution certified by the clerk of court of the court a quo and the
requisite number of plain copies thereof, and such material portions of the record as would
support the petition, this Court, by Resolution of November 17, 2004,42 after considering the
allegations, issues and arguments raised in petitioner’s petition, directed the filing by respondent
of Comment thereon and the submission by petitioner of the duplicate original copies or certified
true copies of the assailed decision and resolution and proof that the attorney-in-fact who signed
the verification and certification against forum shopping was duly authorized to sign the same for
and in behalf of the petitioner, both within five (5) days from notice. Petitioner did comply with this
Resolution.
As for respondent’s invocation of the doctrine that the jurisdiction of this Court in cases brought
before it from the Court of Appeals under Rule 45 of the Revised Rules of Court is limited to
review of pure errors of law,43 the case at bar falls under one of the exceptions thereto — when
the findings of the Court of Appeals are contrary to those of the trial court.44
Finally, the Court of Appeals ruling that petitioner should have filed an action within one year
"from the date of the issuance and entry of the decree of registration" pursuant to Section 32 of
Presidential Decree 152945 is erroneous. The issuance of the title to respondent was not by virtue
of the issuance and entry of a decree of registration. For as the title indicates, it is a transfer, not
an original, certificate of registration.
As petitioner’s complaint shows, his cause of action is not for the reopening and review of a
decree of registration under Section 32 of P.D. 1529. It is one for reconveyance of the property
on the ground that respondent’s transfer certificate of title covering it was obtained by means of a
fictitious deed of sale. Following Lacsamana v. Court of Appeals,46 "the right to file an action for
reconveyance on the ground that the certificate of title was obtained by means of a fictitious deed
of sale is virtually an action for the declaration of its nullity, which action does not prescribe."47
On the merits of the case, this Court finds Exh. "D"–Deed of Absolute Sale – basis of the
cancellation of petitioner’s title and issuance of TCT No. C-342854 to be null and void.
With the naked eye, a comparison of petitioner’s acknowledged genuine signatures (Exh. "A-
1,"48 Exh. "E-1,"49Exh. "F-1,"50 and Exh. "F-2"51 ) with his questioned signatures on Exh. "D"52 and
Exh. "J"/"2"53 reveals glaring differences, thus clearly supporting petitioner’s disclaimer that his
purported signatures on the deeds of absolute sale were forged.
A comparison between the acknowledged genuine signature of Bernardino Diego (Exh. "I-1"54 )
and his alleged signature on the Deed of Absolute Sale in favor of respondent (Exh. "1-b"55 )
reveals stark differences, supporting Bernardino Diego’s disclaimer that his signature on Exh.
"1"–Deed of Absolute Sale he purportedly executed in favor of respondent was forged.
Respondent’s claim then that she purchased the property from the Diego spouses fails.
The reliance by the Court of Appeals on the parol evidence rule is misplaced, because one of the
exceptions to this rule is when a party puts in issue in his pleading the validity of the written
agreement.56
As noted earlier, respondent denied in her Answer having participated in the preparation of Exh.
"D" − basis of the cancellation of petitioner’s title and the issuance in its stead of her title.
Forgery, however, "cannot be presumed; it must be proved by clear, positive and convincing
evidence and whoever alleges it has the burden of proving the same." 57
Other than her bare denial, however, respondent had not presented evidence against the
genuineness of her signature in Exh. "D."58
A comparison between her acknowledged signature59 on Exh. "1" (Exh. "1-d")60 and the signature
appearing above her name in Exh. "D" reveals no marked differences. The presumption that
respondent’s signature in Exh. "D" is genuine, thus stands. Upon the other hand, as reflected
above, petitioner presented clear and convincing evidence that the signature attributed to him in
the same document is forged.
Respondent nevertheless claims that she is an innocent purchaser for value, which has been
described as "one who purchases a titled land by virtue of a deed executed by the registered
owner himself not by a forged deed."61
The burden of proving the status of a purchaser in good faith lies upon one who asserts that
status, and the onuscannot be discharged by mere invocation of the legal presumption of good
faith.62
By respondent’s account, she purchased the property via Exh. "1" from the Diego spouses whom
she claims showed her Exh. "2"−Deed of Sale executed in their favor by petitioner. Given
Bernardino Diego’s denial that his signature in Exh. "1"−Deed of Sale executed by the Diegos in
respondent’s favor is his which, as earlier observed, is starkly different from his acknowledged
genuine signature, respondent’s claim that Bernardino Diego signed Exh. "1" in her presence
fails, as does her witness Ernesto Tanigue’s testimony on the same point.
This Court notes that the purported witnesses to the execution of Exh. "1," Melinda Diego,
Monica Alghandi, and the notary public Atty. Joel Gordola were not presented to affirm their
presence thereat.
As for petitioner’s prayer that the trial court’s decision holding him liable for the amount
of P400,000 representing reimbursement of alleged expenses for improvements incurred by
respondent, he contends that "the rental from the premises which [respondent] admitted to be
at P8,000 per month from December 2000 up to the present and which she could have collected
would be sufficient reimbursement for the alleged cost of improvement."63
Article 549 of the Civil Code provides:
Art. 549. The possessor in bad faith shall reimburse the fruits received and those which the
legitimate possessor could have received, and shall have a right only to the expenses mentioned
in paragraph 1 of Article 546 and in Article 443. The expenses incurred in improvements for pure
luxury or mere pleasure shall not be refunded to the possessor in bad faith; but he may remove
the objects for which such expenses have been incurred, provided that the thing suffers no injury
thereby, and that the lawful possessor does not prefer to retain them by paying the value they
may have at the time he enters into possession.,
while paragraph 1 of Art. 546 and Art. 443 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.
xxxx
Art. 443. He who receives the fruits has the obligation to pay the expenses made by a third
person in their production, gathering, and preservation.
As the evidence on hand does not indicate the amount of reimbursable or refundable expenses
due respondent under Arts. 443 and 546 so that Art. 1278 which reads:
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other.
may be applied, a remand of the case to the trial court for the purpose of determining these
expenses is in order.
WHEREFORE, the petition is GRANTED. The challenged decision and resolution of the Court of
Appeals are hereby REVERSED and SET ASIDE.
The decision of the Regional Trial Court, Branch 131, Caloocan City is AFFIRMED EXCEPT that
portion holding petitioner liable to reimburse respondent in the amount of P400,000 representing
cost of improvements introduced on the subject property.
In accordance with the foregoing disquisitions, let the case be REMANDED to the trial court
which is DIRECTEDto receive evidence, with dispatch, only for the purpose of determining the
amounts due and the rights of the parties under Arts. 549, 443 and 546, par. 1, for the application
of Art. 1278 of the Civil Code, and to thereafter immediately render a complete judgment in the
case.
SO ORDERED.
CONCHITA CARPIO MORALES

Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
ANTONIO T. CARPIO DANTE O. TINGA

Associate Justice Asscociate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman’s Attestation, it
is hereby certified that the conclusions in the above Decision were reached in consultation before
the case was assigned to the writer of the opinion of the Court.
ARTEMIO V. PANGANIBAN
Chief Justice
SUPREME COURT
Manila
THIRD DIVISION
G.R. Nos. 154391-92 September 30, 2004
Spouses ISMAEL and TERESITA MACASAET, petitioners,

vs.
Spouses VICENTE and ROSARIO MACASAET, respondents.
DECISION
PANGANIBAN, J.:
The present case involves a dispute between parents and children. The children were invited by
the parents to occupy the latter’s two lots, out of parental love and a desire to foster family
solidarity. Unfortunately, an unresolved conflict terminated this situation. Out of pique, the
parents asked them to vacate the premises. Thus, the children lost their right to remain on the
property. They have the right, however, to be indemnified for the useful improvements that they
constructed thereon in good faith and with the consent of the parents. In short, Article 448 of the
Civil Code applies.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the March 22,
2002 Decision2and the June 26, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR SP
Nos. 56205 & 56467. The challenged Decision disposed as follows:
"WHEREFORE, the assailed Decision is AFFIRMED with the following

MODIFICATIONS:
‘1. Vicente and Rosario should reimburse Ismael and Teresita one-half of the
value of the useful improvements introduced in the premises prior to demand,
which is equivalent to P475,000.00. In case the former refuse to reimburse the
said amount, the latter may remove the improvements, even though the land may
suffer damage thereby. They shall not, however, cause any more impairment
upon the property leased than is necessary.
‘2. The award of attorney’s fees is DELETED.
‘3. The records of these consolidated cases are REMANDED to the Court of
origin for further proceedings to determine the option to be taken by Vicente and
Rosario and to implement the same with dispatch."4
The assailed Resolution denied petitioners’ Motion for Reconsideration.
The Facts
Petitioners Ismael and Teresita5 Macasaet and Respondents Vicente and Rosario Macasaet are
first-degree relatives. Ismael is the son of respondents, and Teresita is his wife.6
On December 10, 1997, the parents filed with the Municipal Trial Court in Cities (MTCC) of Lipa
City an ejectment suit against the children.7 Respondents alleged that they were the owners of
two (2) parcels of land covered by Transfer Certificate of Title (TCT) Nos. T-78521 and T-
103141, situated at Banay-banay, Lipa City; that by way of a verbal lease agreement, Ismael and
Teresita occupied these lots in March 1992 and used them as their residence and the situs of
their construction business; and that despite repeated demands, petitioners failed to pay the
agreed rental of P500 per week.8
Ismael and Teresita denied the existence of any verbal lease agreement. They claimed that
respondents had invited them to construct their residence and business on the subject lots in
order that they could all live near one other, employ Marivic (the sister of Ismael), and help in
resolving the problems of the family.9 They added that it was the policy of respondents to allot the
land they owned as an advance grant of inheritance in favor of their children. Thus, they
contended that the lot covered by TCT No. T-103141 had been allotted to Ismael as advance
inheritance. On the other hand, the lot covered by TCT No. T-78521 was allegedly given to
petitioners as payment for construction materials used in the renovation of respondents’ house.10
The MTCC11 ruled in favor of respondents and ordered petitioners to vacate the premises. It
opined that Ismael and Teresita had occupied the lots, not by virtue of a verbal lease agreement,
but by tolerance of Vicente and Rosario.12 As their stay was by mere tolerance, petitioners were
necessarily bound by an implied promise to vacate the lots upon demand.13 The MTCC
dismissed their contention that one lot had been allotted as an advance inheritance, on the
ground that successional rights were inchoate. Moreover, it disbelieved petitioners’ allegation
that the other parcel had been given as payment for construction materials.14
On appeal, the regional trial court15 (RTC) upheld the findings of the MTCC. However, the RTC
allowed respondents to appropriate the building and other improvements introduced by
petitioners, after payment of the indemnity provided for by Article 448 in relation to Articles 546
and 548 of the Civil Code.16 It added that respondents could oblige petitioners to purchase the
land, unless its value was considerably more than the building. In the latter situation, petitioners
should pay rent if respondents would not choose to appropriate the building.17
Upon denial of their individual Motions for Reconsideration, the parties filed with the CA separate
Petitions for Review, which were later consolidated.18
Ruling of the Court of Appeals
The CA sustained the finding of the two lower courts that Ismael and Teresita had been
occupying the subject lots only by the tolerance of Vicente and Rosario.19 Thus, possession of
the subject lots by petitioners became illegal upon their receipt of respondents’ letter to vacate
it.20
Citing Calubayan v. Pascual,21 the CA further ruled that petitioners’ status was analogous to that
of a lessee or a tenant whose term of lease had expired, but whose occupancy continued by
tolerance of the owner.22Consequently, in ascertaining the right of petitioners to be reimbursed
for the improvements they had introduced on respondents’ properties,23 the appellate court
applied the Civil Code’s provisions on lease. The CA modified the RTC Decision by declaring
that Article 448 of the Civil Code was inapplicable. The CA opined that under Article 1678 of the
same Code, Ismael and Teresita had the right to be reimbursed for one half of the value of the
improvements made.24
Not satisfied with the CA’s ruling, petitioners brought this recourse to this Court.25
The Issues
Petitioners raise the following issues for our consideration:

"1. a) Whether or not Section 17[,] Rule 70 of the Rules of Court on Judgment should
apply in the rendition of the decision in this case;
b) Whether or not the Complaint should have been dismissed;
c) Whether or not damages including attorney’s fees should have been awarded
to herein petitioners;
"2. a) Whether or not the rule on appearance of parties during the Pretrial should apply
on appearance of parties during Preliminary Conference in an unlawful detainer suit;
b) Whether or not the case of Philippine Pryce Assurance Corporation vs. Court
of Appeals (230 SCRA 164) is applicable to appearance of parties in an unlawful
detainer suit;
"3. Whether or not Article 1678 of the Civil Code should apply to the case on the matters
of improvements, or is it Article 447 of the Civil Code in relation to the Article 453 and 454
thereof that should apply, if ever to apply the Civil Code;
"4. Whether or not the [D]ecision of the Court of Appeals is supported by evidence,
appropriate laws, rules and jurisprudence;
"5. Whether or not Assisting Judge Norberto Mercado of the MTCC Lipa City should be
held accountable in rendering the MTCC [D]ecision;
"6. Whether or not Atty. Glenn Mendoza and Atty. Andrew Linatoc of the same [l]aw
office should be held accountable for pursuing the [e]jectment case[.]"26
The Court’s Ruling
The Petition is partly meritorious.
First Issue:
Ejectment
Who is entitled to the physical or material possession of the premises? At the outset, we stress
that this is the main issue in ejectment proceedings.27 In the present case, petitioners failed to
justify their right to retain possession of the subject lots, which respondents own. Since
possession is one of the attributes of ownership,28respondents clearly are entitled to physical or
material possession.
Allegations of the Complaint
Petitioners allege that they cannot be ejected from the lots, because respondents based their
Complaint regarding the nonpayment of rentals on a verbal lease agreement, which the latter
failed to prove.29 Petitioners contend that the lower courts erred in using another ground
(tolerance of possession) to eject them.
In actions for unlawful detainer, possession that was originally lawful becomes unlawful upon the
expiration or termination of the defendant’s right to possess, arising from an express or implied
contract.30 In other words, the plaintiff’s cause of action comes from the expiration or termination
of the defendant’s right to continue possession.31 The case resulting therefrom must be filed
within one year from the date of the last demand.
To show a cause of action in an unlawful detainer, an allegation that the defendant is illegally
withholding possession from the plaintiff is sufficient. The complaint may lie even if it does not
employ the terminology of the law, provided the said pleading is couched in a language
adequately stating that the withholding of possession or the refusal to vacate has become
unlawful.32 It is equally settled that the jurisdiction of the court, as well as the nature of the action,
is determined from the averments of the complaint.33
In the present case, the Complaint alleged that despite demands, petitioners "refused to pay the
accrued rentals and [to] vacate the leased premises."34 It prayed that judgment be rendered
"[o]rdering [petitioners] and all those claiming rights under them to vacate the properties x x x
and remove the structures x x x constructed thereon."35Effectively then, respondents averred that
petitioners’ original lawful occupation of the subject lots had become unlawful.
The MTCC found sufficient cause to eject petitioners. While it disbelieved the existence of a
verbal lease agreement, it nevertheless concluded that petitioners’ occupation of the subject lots
was by mere tolerance of respondents. Basing its conclusion on the fact that the parties were
close relatives, the MTCC ruled thus:
"x x x [T]he parties herein are first degree relatives. Because of this relationship, this
Court takes judicial notice of the love, care, concern and protection imbued upon the
parents towards their [children], i.e., in the instant case, the love, care, concern and
protection of the [respondents] to the [petitioners]. With this in mind, this Court is inclined
to believe the position of the [petitioners] that there was no such verbal lease agreement
between the parties herein that took place in 1992. x x x.
"From the allegations of the [petitioners], this Court is convinced that their stay and
occupancy of the subject premises was by mere tolerance of the [respondents], and not
by virtue of a verbal lease agreement between them."36
Having found a cause of action for unlawful detainer, the MTCC (as well as the RTC and the CA)
did not err in ordering the ejectment of petitioners as prayed for by respondents. There was no
violation of Section 17 of Rule 7037 of the Rules of Court. As earlier explained, unlawful detainer
was sufficiently alleged in the Complaint and duly proven during the trial. Significantly, the issue
of whether there was enough ground to eject petitioners was raised during the preliminary
conference.38
Not Merely Tolerated
Possession
Petitioners dispute the lower courts’ finding that they occupied the subject lots on the basis of
mere tolerance. They argue that their occupation was not under such condition, since
respondents had invited, offered and persuaded them to use those properties.39
This Court has consistently held that those who occupy the land of another at the latter’s
tolerance or permission, without any contract between them, are necessarily bound by an implied
promise that the occupants will vacate the property upon demand.40 A summary action for
ejectment is the proper remedy to enforce this implied obligation.41 The unlawful deprivation or
withholding of possession is to be counted from the date of the demand to vacate.42
Toleration is defined as "the act or practice of permitting or enduring something not wholly
approved of."43 Sarona v. Villegas44 described what tolerated acts means, in this language:
"Professor Arturo M. Tolentino states that acts merely tolerated are ‘those which by
reason of neighborliness or familiarity, the owner of property allows his neighbor or
another person to do on the property; they are generally those particular services or
benefits which one’s property can give to another without material injury or prejudice to
the owner, who permits them out of friendship or courtesy.’ x x x. And, Tolentino
continues, even though ‘this is continued for a long time, no right will be acquired by
prescription." x x x. Further expounding on the concept, Tolentino writes: ‘There is tacit
consent of the possessor to the acts which are merely tolerated. Thus, not every case of
knowledge and silence on the part of the possessor can be considered mere tolerance.
By virtue of tolerance that is considered as an authorization, permission or license, acts
of possession are realized or performed. The question reduces itself to the existence or
non-existence of the permission."45
We hold that the facts of the present case rule out the finding of possession by mere tolerance.
Petitioners were able to establish that respondents had invited them to occupy the subject lots in
order that they could all live near one other and help in resolving family problems.46 By occupying
those lots, petitioners demonstrated their acceptance of the invitation. Hence, there was a
meeting of minds, and an agreement regarding possession of the lots impliedly arose between
the parties.
The occupancy of the subject lots by petitioners was not merely "something not wholly approved
of" by respondents. Neither did it arise from what Tolentino refers to as "neighborliness or
familiarity." In point of fact, their possession was upon the invitation of and with the complete
approval of respondents, who desired that their children would occupy the premises. It arose
from familial love and a desire for family solidarity, which are basic Filipino traits.
Right to Use the Lots Terminated
That Ismael and Teresita had a right to occupy the lots is therefore clear. The issue is the
duration of possession. In the absence of a stipulation on this point, Article 1197 of the Civil Code
allows the courts to fix the duration or the period.
"Article 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix the
duration thereof.
"The courts shall also fix the duration of the period when it depends upon the will of the
debtor.
"In every case the courts shall determine such period as may under the circumstances
have been probably contemplated by the parties. Once fixed by the courts, the period
cannot be changed by them."
Article 1197, however, applies to a situation in which the parties intended a period. Such
qualification cannot be inferred from the facts of the present case.
To repeat, when Vicente and Rosario invited their children to use the lots, they did so out of
parental love and a desire for solidarity expected from Filipino parents. No period was intended
by the parties. Their mere failure to fix the duration of their agreement does not necessarily justify
or authorize the courts to do so.47
Based on respondents’ reasons for gratuitously allowing petitioners to use the lots, it can be
safely concluded that the agreement subsisted as long as the parents and the children mutually
benefited from the arrangement. Effectively, there is a resolutory condition in such an
agreement.48 Thus, when a change in the condition existing between the parties occurs -- like a
change of ownership, necessity, death of either party or unresolved conflict or animosity -- the
agreement may be deemed terminated. Having been based on parental love, the agreement
would end upon the dissipation of the affection.
When persistent conflict and animosity overtook the love and solidarity between the parents and
the children, the purpose of the agreement ceased.49 Thus, petitioners no longer had any cause
for continued possession of the lots. Their right to use the properties became untenable. It
ceased upon their receipt of the notice to vacate. And because they refused to heed the demand,
ejectment was the proper remedy against them. Their possession, which was originally lawful,
became unlawful when the reason therefor -- love and solidarity -- ceased to exist between them.
No Right to Retain
Possession
Petitioners have not given this Court adequate reasons to reverse the lower courts’ dismissal of
their contention that Lots T-78521 and T-103141, respectively, were allegedly allotted to them as
part of their inheritance and given in consideration for past debts.
The right of petitioners to inherit from their parents is merely inchoate and is vested only upon the
latters’ demise. Indisputably, rights of succession are transmitted only from the moment of death
of the decedent.50 Assuming that there was an "allotment" of inheritance, ownership nonetheless
remained with respondents. Moreover, an intention to confer title to certain persons in the future
is not inconsistent with the owners’ taking back possession in the meantime for any reason
deemed sufficient.51 Other than their self-serving testimonies and their affidavits, petitioners
offered no credible evidence to support their outlandish claim of inheritance "allocation."
We also agree with the lower courts that petitioners failed to prove the allegation that, through a
dation in payment, Lot T-78521 had been transferred to the latter as payment for respondents’
debts.52 The evidence presented by petitioners related only to the alleged indebtedness of the
parents arising from the latter’s purported purchases and advances.53 There was no sufficient
proof that respondents had entered into a contract of dation to settle the alleged debt. Petitioners
even stated that there was a disagreement in the accounting of the purported debt,54 a fact that
disproves a meeting of the minds with the parents.
Petitioners also admitted that a portion of the alleged debt is the subject matter of a collection
case against respondents (Civil Case No. 0594-96).55 Thus, the former’s allegation that the
indebtedness has been paid through a dation cannot be given credence, inconsistent as it is with
their action to recover the same debt.
Despite their protestations, petitioners recognized the right of the parents to recover the premises
when they admitted in their Position Paper filed with the MTCC that respondents had a title to the
lots.
"The [respondents] want to get their property because the title is theirs, the [petitioners]
do not object but what is due the [petitioners] including the reparation for the tarnish of
their dignity and honor must be given the [petitioners] for the benefits of their children
before the premises will be turned over."56
As a rule, the right of ownership carries with it the right of possession.
Second Issue:
Appearance at the Preliminary Conference
Section 8 of Rule 70 of the Rules of Court requires the appearance of the plaintiff and the
defendant during the preliminary conference. On the basis of this provision, petitioners claim that
the MTCC should have dismissed the case upon the failure of respondents to attend the
conference. However, petitioners do not dispute that an attorney-in-fact with a written
authorization from respondents appeared during the preliminary conference.57 The issue then is
whether the rules on ejectment allow a representative to substitute for a party’s personal
appearance.
Unless inconsistent with Rule 70, the provisions of Rule 18 on pretrial applies to the preliminary
conference.58Under Section 4 of this Rule, the nonappearance of a party may be excused by the
showing of a valid cause; or by the appearance of a representative, who has been fully
authorized in writing to enter into an amicable settlement, to submit to alternative modes of
dispute resolution, and to enter into stipulations or admissions of facts and of documents.59
Section 4 of Rule 18 may supplement Section 8 of Rule 70. Thus, the spirit behind the exception
to personal appearance under the rules on pretrial is applicable to the preliminary conference. If
there are valid reasons or if a representative has a "special authority," a party’s appearance may
be waived. As petitioners are challenging only the applicability of the rules on pretrial to the rule
on preliminary conference, the written authorization from respondents can indeed be readily
considered as a "special authorization."
Third Issue:
Rights of a Builder in Good Faith
As applied to the present case, accession refers to the right of the owner to everything that is
incorporated or attached to the property.60 Accession industrial -- building, planting and sowing
on an immovable -- is governed by Articles 445 to 456 of the Civil Code.
Articles 447 and 1678 of the
Civil Code Inapplicable
To buttress their claim of reimbursement for the improvements introduced on the property,
petitioners cite Article 447.61 They allege that the CA erred in applying Article 1678, since they
had no lease agreement with respondents.
We clarify. Article 447 is not applicable, because it relates to the rules that apply when the owner
of the property uses the materials of another. It does not refer to the instance when a possessor
builds on the property of another, which is the factual milieu here.
In view of the unique factual setting of the instant case, the contention of petitioners regarding
the inapplicability of Article 1678 deserves attention. The CA applied the provisions on lease,
because it found their possession by mere tolerance comparable with that of a lessee, per the
pronouncement in Calubayan v. Pascual,62 from which we quote:
"x x x. It has been held that a person who occupies the land of another at the latter’s
tolerance or permission, without any contract between them, is necessarily bound by an
implied promise that he will vacate upon demand, failing which a summary action for
ejectment is the proper remedy against them. The status of defendant is analogous to
that of a lessee or tenant whose term of lease has expired but whose occupancy
continued by tolerance of the owner. In such a case, the unlawful deprivation or
withholding of possession is to be counted from the date of the demand to
vacate."63 (Emphasis in the original.)
As explained earlier, Ismael and Teresita’s possession of the two lots was not by mere tolerance,
a circumstance that negates the applicability of Calubayan.
Article 448 Applicable

On the other hand, when a person builds in good faith on the land of another, the applicable
provision is Article 448, which reads:64
"Article 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."
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.65 It does not apply when the interest is merely that of a holder, such as a mere tenant,
agent or usufructuary.66 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.67
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,68 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.69 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.70 In Sarmiento v. Agana,71 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.72
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.73 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.74 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 44875 was applied.
Rule on Useful Expenses
The structures built by petitioners were "useful" improvements, because they augmented the
value or income of the bare lots.76 Thus, the indemnity to be paid by respondents under Article
448 is provided for by Article 546, which we quote:
"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."
Consequently, respondents have the right to appropriate -- as their own -- the building and other
improvements on the subject lots, but only after (1) refunding the expenses of petitioners or (2)
paying the increase in value acquired by the properties by reason thereof. They have the option
to oblige petitioners to pay the price of the land, unless its value is considerably more than that of
the structures -- in which case, petitioners shall pay reasonable rent.
In accordance with Depra v. Dumlao,77 this case must be remanded to the trial court to determine
matters necessary for the proper application of Article 448 in relation to Article 546. Such matters
include the option that respondents would take and the amount of indemnity that they would pay,
should they decide to appropriate the improvements on the lots. We disagree with the CA’s
computation of useful expenses, which were based only on petitioners’ bare allegations in their
Answer.78
Ruling on Improvement Justified
While, ordinarily, the jurisdiction of the MTCC on ejectment proceedings is limited to the issue of
physical or material possession of the property in question, this Court finds it necessary to
abbreviate the issue on the improvements in relation to Article 448. First, the determination of the
parties’ right to those improvements is intimately connected with the MTCC proceedings in the
light of the ejectment of petitioners. Second, there is no dispute that while they constructed the
improvements, respondents owned the land. Third, both parties raised no objection when the
RTC and the CA ruled accordingly on this matter.
Equitable considerations compel us to settle this point immediately, pro hoc vice, to avoid
needless delay. Both parties have already been heard on this issue; to dillydally or equivocate
would not serve the cause of substantial justice.
Other Issues Raised
Given the foregoing rulings, it is no longer necessary to address petitioners’ allegation that the
MTCC judge and respondents’ lawyers should be respectively held personally accountable for
the Decision and for filing the case.79 The insinuation of petitioners that the lawyers manipulated
the issuance of a false barangay certification is unavailing.80 Their contention that respondents
did not attend the barangay conciliation proceedings was based solely on hearsay, which has
little or no probative value.81
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals

are AFFIRMED with the followingMODIFICATIONS:
1. The portion requiring Spouses Vicente and Rosario Macasaet to reimburse one half of
the value of the useful improvements, amounting to P475,000, and the right of Spouses
Ismael and Rosita Macasaet to remove those improvements (if the former refuses to
reimburse) is DELETED.
2. The case is REMANDED to the court of origin for further proceedings to determine the
facts essential to the proper application of Articles 448 and 546 of the Civil Code,
specifically to the following matters:
a. Spouses Vicente and Rosario Macasaet’s option to appropriate -- as their own

-- the improvements on the lots, after paying the indemnity, as provided under
Article 546 in relation to Article 448 of the Civil Code; or in requiring Spouses
Ismael and Rosita Macasaet to pay for the value of the lots, unless it is
considerably more than that of the improvements, in which case petitioners shall
pay reasonable rent based upon the terms provided under the Civil Code
b. The value of the useful expenses incurred by Spouses Ismael and Rosita
Macasaet in the construction of the improvements on the lots
c. The increase in value acquired by the lots by reason of the useful
improvements
d. Spouses Vicente and Rosario Macasaet’s choice of type of indemnity to be

paid (whether b or c)
e. Whether the value of the lots is considerably more than that of the
improvements built thereon
No pronouncement as to costs.
SO ORDERED.
Sandoval-Gutierrez, Corona, and Carpio Morales, JJ., concur.
Footnotes
1 Rollo, pp. 35-76.
2Id., pp. 209-229. Ninth Division. Penned by Justice Mariano C. del Castillo, with the
concurrence of Justices Ruben T. Reyes (Division chairman) and Renato C. Dacudao
(member).
3 Id., pp. 264-265.
4 Assailed Decision, p. 20; rollo, p. 228.
5 Also referred to as "Rosita" in some parts of the records.
6 Id., pp. 2 & 210.
7 Respondents’ Complaint; rollo, pp. 85-88.
8Assailed Decision, pp. 2-3; rollo, pp. 210-211. Respondents’ Complaint, pp. 1-2; rollo,
pp. 85-86.
9Id., pp. 3-4 & 211-212. Petitioners’ Answer with Compulsory Counterclaim, p. 4; rollo, p.
94.
10 Ibid.
11 Presided by Assisting Judge Norberto P. Mercado.
12Assailed Decision, pp. 5-6; rollo, pp. 213-214. MTCC Decision dated August 27, 1998,
pp. 3-4; rollo, pp. 167-168.
13 Ibid.
14 Ibid.
15 Presided by Judge Jane Aurora C. Lantion.
16 RTC Decision dated July 15, 1999, pp. 4-5; rollo, pp. 173-174.
17 Ibid.
19 Id., pp. 10 & 218.
20 Id., pp. 11 & 219.
21 128 Phil. 160, September 18, 1967.
22 Ibid.
24
The CA computed the total value of the improvements at P950,000, which represented
the cost of constructing a one-storey structure (P700,000), the equipment necessary for
the construction business (P130,000), and the cost of filling materials (P120,000). See
Assailed Decision, p. 15; rollo, p. 223.
25This case was deemed submitted for resolution on May 13, 2003, upon this Court’s
receipt of respondents’ Memorandum signed by Atty. Glenn P. Mendoza. Petitioners’
Memorandum, signed by Atty. Ismael H. Macasaet, was filed on April 14, 2003.
26 Petitioners’ Memorandum, p. 15; rollo, p. 432.
Rivera v. Rivera, 405 SCRA 466, 471, July 8, 2003; Balanon-Anicete v. Balanon, 402
27
SCRA 514, 518, April 30, 2003; De Luna v. Court of Appeals, 212 SCRA 276, 278,
August 6, 1992.
28 Co v. Militar, GR No. 149912, January 29, 2004.
Varona v. Court of Appeals, GR No. 124148, May 20, 2004; Sarmiento v. Court of
30
Appeals, 320 Phil. 146, 153, November 16, 1995; Sumulong v. Court of Appeals, 232
SCRA 372, May 10, 1994.
31 Sarmiento v. Court of Appeals, supra; Sumulong v. Court of Appeals, supra.
32Varona v. Court of Appeals, supra; Cañiza v. Court of Appeals, 335 Phil. 1107, 1115,
February 24, 1997;Sumulong v. Court of Appeals, supra, p. 386.
33
Lopez v. David, GR No. 152145, March 30, 2004; Arcal v. Court of Appeals, 348 Phil.
813, 823, January 26, 1998; Hilario v. Court of Appeals, 329 Phil. 202, 210, August 7,
1996; Sarmiento v. Court of Appeals, supra; Sumulong v. Court of Appeals, supra, p.
385.
34 Respondents’ Complaint, p. 2; rollo, p. 86.
35 Id., pp. 3 & 87.
36 MTCC Decision dated August 27, 1998, pp. 3-4; rollo, pp. 167-168.
37 "Section 17. Judgment. — If after the trial the court finds that the allegations of the
complaint are true, it shall render judgment in favor of the plaintiff for the restitution of the
premises, the sum justly due as arrears of rent or as reasonable compensation for the
use and occupation of the premises, attorney’s fees and costs. If it finds that said
allegations are not true, it shall render judgment for the defendant to recover his costs. If
a counterclaim is established, the court shall render judgment for the sum found in
arrears from either party and award costs as justice requires."
38 MTCC Order on the Preliminary Conference dated July 30, 1998; rollo, p. 108.
40Rivera v. Rivera, 405 SCRA 466, 471, July 8, 2003; Pengson v. Ocampo Jr., 412 Phil.
860, 866, June 29, 2001; Arcal v. Court of Appeals, supra, p. 825; Refugia v. Court of
Appeals, 327 Phil. 982, 1010, July 5, 1996; Dakudao v. Consolacion, 207 Phil. 750, 756,
June 24, 1983.
41 Ibid.
Lopez v. David, supra; Arcal v. Court of Appeals, supra, p. 825; Villaluz v. Court of
42
Appeals, 344 Phil. 77, 89, September 5, 1997.
43 Black’s Law Dictionary (8th ed., 1999), p. 1525.
44 131 Phil. 365, March 27, 1968.
45 Id., pp. 372-373, per Sanchez, J.
46MTCC Decision, dated August 27, 1998, p. 3 (rollo, p. 167); RTC Decision, dated July
15, 1999, p. 2 (rollo, p. 171).
47Id., p. 198. The term "may" in Article 1197 connotes discretion on the part of the courts
to exercise this power.
48
In an obligation with a resolutory condition, the extinguishment of the right acquired
depends upon the occurrence of the event that constitutes the condition (Article 1181 of
the Civil Code).
49The records do not disclose the exact date when the conflict between petitioners and
respondents arose. It can be readily assumed to have transpired not later than June 6,
1996, the date of petitioners’ demand letter, which became the subject of Civil Case No.
0594-96 (Demand Letter; rollo, p. 145). At any rate, an animosity between the parties
was confirmed by respondents’ demand letter dated August 13, 1997, asking petitioners
to vacate the subject lots (rollo, p. 89), and the subsequent filing of this case.
50 Art. 777 of the Civil Code.
51 Cañiza v. Court of Appeals, supra, p. 1118.
52Petitioners’ Memorandum, pp. 43-44; rollo, pp. 460-461. In a dation in payment,

property is alienated to the creditor in satisfaction of a debt. Such contract is governed by
the law on sales. Art. 1245 of the Civil Code.
53 Ibid.
54In the Affidavits submitted with their Position Paper, petitioners alleged that the
execution of the Deed of Assignment did not occur, because their father had refused to
agree to the accounting of the materials supplied. Petitioners’ Memorandum, pp. 45-46;
rollo, pp. 462-463.
55Petitioners’ Memorandum, p. 44; rollo, p. 461. The recovery of P235,908, which forms
a significant part of respondents’ alleged P391,338 debt, is the subject matter of Civil
Case No. 0594-96.
56 Petitioners’ Position Paper, p. 3; rollo, p. 111.
57Petitioners’ Memorandum, p. 31; rollo, p. 448. Petitioner challenges the applicability of

Philippine Pryce Assurance Corp. v. Court of Appeals (230 SCRA 164, 170, February 21,
1994 per Nocon, J.), in which this Court reiterated the rule that "where a party may not
himself be present at the pre-trial, and another person substitutes for him, or his lawyer
undertakes to appear not only as an attorney but in substitution of the client’s person, it is
imperative for that representative or the lawyer to have ‘special authority’ to enter into
agreements which otherwise only the client has the capacity to make."
58 §8 of Rule 70 of the Rules of Court.
59 This rule on substitution of a party through a "special authority" can be traced to

jurisprudential pronouncements. See Home Insurance Co. v. United States Lines Co.,
129 Phil. 106, 109, November 15, 1967, in which this Court held that attorneys needed a
"special authority" to compromise litigation. See also Development Bank of the Phils. v.
Court of Appeals, 169 SCRA 409, 413, January 26, 1989, in which we noted that a
special authority is imperative to make substantive agreements that, otherwise, only the
client has capacity to make.
60 Jose C. Vitug, Civil Law Annotated (2003), Vol. II, p. 23.
61 Petitioners’ Memorandum, pp. 33-37; rollo, pp. 450-454.
62 Supra.
63 Id., p. 163, per Angeles, J.
64See Depra v. Dumlao, 136 SCRA 475, 481, May 16, 1985, in which this Court
explained the philosophy behind this provision.
65Pada-Kilario v. Court of Appeals, 379 Phil. 515, 530, January 19, 2000; Chua v. Court
of Appeals, 361 Phil. 308, 318, January 21, 1999; Balucanag v. Francisco, 207 Phil. 433,
438; Floreza v. Evangelista, 96 SCRA 130, 136, February 21, 1980; Quemuel v. Olaes,
111 Phil. 797, April 29, 1961; Alburo v. Villanueva, 7 Phil. 277, 280, January 2, 1907.
66Chua v. Court of Appeals, supra; Balucanag v. Francisco, supra; Quemuel v. Olaes,

supra; Alburo v. Villanueva, supra. See also Edgardo L. Paras, Civil Code of the
Philippines Annotated (14th ed., 1999), Vol. 2, p. 212. In Pecson v. Court of Appeals (314
Phil. 313, 322 per Davide, J.), this Court also ruled that "Article 448 does not apply to a
case where the owner of the land is the builder, sower, or planter who then later loses
ownership of the land by sale or donation."
Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the

67
Philippines (1992), Vol. 2, p. 111.

68 160 SCRA 379, 383, April 15, 1988.
69Id., pp. 382-383. Article 448 does not apply where a co-owner builds, plants, or sows
on land owned in common, since such co-owner does not do so on land that he or she
does not own. See also Arturo M. Tolentino, Commentaries and Jurisprudence on the
Civil Code of the Philippines (1992), Vol. 2, p. 117.
70De Guzman v. Fuente, 55 Phil. 501, 503, December 29, 1930; Aringo v. Arena, 14 Phil.
263, 268-269; Javier v. Javier, 7 Phil. 261, 267, January 2, 1907. [Cited in Edgardo L.
Paras, Civil Code of the Philippines Annotated (14th ed., 1999), Vol. 2, p. 211]; See also
Boyer-Roxas v. Court of Appeals, 211 SCRA 470, 488, July 15, 1992.
71 129 SCRA 122, April 30, 1984.
72 Id., p. 125.
73The RTC observed that petitioners had merely been invited by the parents
(respondents) to transfer to the premises. Considering that the parties were living near
one other, it was readily assumed that respondents had known of the structures built and
had not opposed their construction. RTC Decision dated July 15, 1999, p. 4; rollo, p. 173.
74 Supra, note 70.
75 Then Art. 361 of the Civil Code.
76 Cabangis v. Court of Appeals, 200 SCRA 414, 420, August 9, 1991.
77Supra. Also cited in National Housing Authority v. Grace Baptist Church, GR No.
156437, March 1, 2004; and Technogas Philippines Manufacturing v. Court of Appeals,
335 Phil. 471, 485, February 10, 1997.
78Assailed Decision, p. 15; rollo, p. 223. This Court also notes that petitioners merely
submitted a list of expenses with their corresponding costs, without showing any proof
(e.g., actual receipts) that these costs had been incurred. Petitioner’s Position Paper, p.
15, rollo, p. 123; Itemized List of Materials, rollo, p. 588.
79 Petitioners’ Memorandum, pp. 49-51; rollo, pp. 466-468.
80 Id., pp. 51 & 468.
81This contention was based on information from an alleged barangay councilor of

Banay-banay that no conciliation had transpired on October 14, 1997, the scheduled
date. Petitioner Teresita Macasaet’s Affidavit; rollo, p. 77. In a letter dated October 14,
1997, addressed to the barangay captain, it appears that petitioners waived their
presence at the conciliation proceedings. Rollo, p. 103.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 153625 July 31, 2006
Heirs of MARCELINO CABAL, represented by VICTORIA CABAL, petitioner,

vs.
Spouses LORENZO CABAL1 and ROSITA CABAL, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure assailing the Decision2 of the Court of Appeals (CA) dated September 27, 2001 in CA-
G.R. SP No. 64729 which affirmed in toto the Decision of the Regional Trial Court, Branch 70,
Iba, Zambales (RTC) dated August 10, 2000 in Civil Case No. RTC-1489-I; and the CA
Resolution3 dated May 22, 2002 which denied the Motion for Reconsideration of Marcelino Cabal
(Marcelino).
The factual background of the case is as follows:
During his lifetime, Marcelo Cabal (Marcelo) was the owner of a 4,234-square meter parcel of
land situated at Barrio Palanginan, Iba, Zambales, described as Lot G and covered by Original
Certificate of Title (OCT) No. 29 of the Registry of Deeds of Zambales.
Sometime in August 1954,4 Marcelo died, survived by his wife Higinia Villanueva (Higinia) and
his children:Marcelino, Daniel, Cecilio, Natividad, Juan, Margarita, Lorenzo, Lauro and
Anacleto.5 It appears that sometime in 1949, five years before he died, Marcelo allowed his son,
Marcelino, to build his house on a portion of Lot G, now the southernmost portion of Lot 1-E of
Transfer Certificate of Title (TCT) No. 43419.6 Since then, Marcelino resided thereon.7 Later,
Marcelino's son also built his house on the disputed property.8
On August 17, 1964, Marcelo's heirs extra-judicially settled among themselves Lot G into
undivided equal shares of 423.40-square meters each and Transfer Certificate of Title (TCT) No.
T-8635 was issued in their names.9
On September 17, 1973, Daniel sold 380 square meters of his 423.40-square meter undivided
share to spouses Oscar Merete and Clarita Ebue.10
On September 12, 1976, the heirs subdivided Lot G into Lot G-1 in favor of Marcelino, resulting
in the issuance of TCT No. T-22656;11 and Lot G-2 in favor of Higinia, Daniel, Natividad, Juan,
Cecilio, Margarita, Lorenzo, Lauro and Anacleto, resulting in the issuance of TCT No. 22657.12
On March 1, 1977, Marcelino mortgaged his share, as described under TCT No. 22656, to the
Rural Bank of San Antonio (Zambales), Inc.13 The mortgage on the property was subsequently
released on December 19, 1983.14
In the interim, based on consolidated subdivision plan (LRC) Pcd-24078, Lot G-2 was further
subdivided and the remaining portion, known as Lot 1 of the subdivision plan, comprising
3387.20 square meters, became subject of TCT No. T-24533 with Higinia, Margarita, Natividad,
Lorenzo, Daniel, Oscar Merete, Cecilio, Carmelita C. Pagar, and Anacleto as co-owners.
On August 3, 1978, the co-owners of Lot 1 executed a Deed of Agreement of Partition with Sale.
Lot 1 was subdivided among the co-owners with Higinia, Margarita, Natividad, Lorenzo, Cecilio,
Carmelita C. Pagar and Anacleto, receiving 423.40 square meters each; Daniel, with 43.4 square
meters; and Oscar Merete, with 380 square meters.15 In the same deed, Lorenzo bought the
shares of Higinia, Margarita, Daniel and Natividad.16Thus, Lorenzo's share in the co-ownership
amounted to 1,737 square meters. Likewise, in the same deed, Cecilio sold his share to a certain
Marcela B. Francia.17
On January 13, 1982, a land survey was conducted on Lot 1 by Geodetic Engineer Dominador L.
Santos and Junior Geodetic Engineer Eufemio A. Abay and based on the survey, they submitted
subdivision survey plan (LRC) Psd-307100, designating the shares of Carmelita C. Pagar,
Marcela B. Francia, spouses Oscar Merete and Clarita Ebue, Anacleto, and Lorenzo as Lots 1-A,
1-B, 1-C, 1-D and 1-E, respectively.18 The subdivision survey plan of Lot 1 was approved by the
Director of the Bureau of Lands on May 7, 1982.19 On June 7, 1990, the co-owners of Lot 1
executed a Subdivision Agreement designating their shares based on the approved subdivision
plan.20 On July 13, 1993, TCT No. 43419 covering Lot 1-E was issued in the name of Lorenzo.21
In the meantime, since the subdivision plan revealed that Marcelino and his son occupied and
built their houses on a 423-square meter area located on the southernmost portion of Lot 1-E
and not the adjacent lot designated as Lot G-1 under TCT No. T-22656,22 the spouses Lorenzo
and Rosita Cabal (respondents) confronted Marcelino on this matter which resulted to an
agreement on March 1, 1989 to a re-survey and swapping of lots for the purpose of
reconstruction of land titles.23 However, the agreed resurvey and swapping of lots did not
materialize24 and efforts to settle the dispute in the barangay level proved futile.25
Hence, on August 10, 1994, respondents filed a complaint for Recovery of Possession with
Damages against Marcelino before the Municipal Trial Court of Iba, Zambales (MTC), docketed
as Civil Case No. 735. They alleged that Marcelino introduced improvements in bad faith on their
land with knowledge that the adjacent lot is titled in his name.26
On August 26, 1994, Marcelino filed his Answer with Counterclaim, contending that respondents
have no cause of action against him because he has been in possession in good faith since 1949
with the respondents' knowledge and acquiescence. He further avers that acquisitive prescription
has set in.27
On January 24, 1997, during the pendency of the trial of the case, Lorenzo died. Following trial
on the merits, the MTC rendered on November 19, 1997 its Decision28 in favor of Marcelino, the
dispositive portion of which reads:
WHEREFORE, on the basis of the foregoing premises as adduced by this Court the
plaintiff or their representatives are hereby directed to relinquish the possession of said
property subject matter of this case and deliver the peaceful possession of the same to
the herein defendant or his authorized representatives, to remove the improvements
made thereon within fifteen (15) days from the receipt of this decision, otherwise, this
Court would remove and/or destroy the same with cost against the plaintiff, further the
plaintiff is hereby ordered to pay the amount of Ten Thousand Pesos (P10,000.00),
Philippine Currency representing moral damages and exemplary damages in the amount
of Five Thousand Pesos (P5,000.00), Philippine Currency, and the amount of Twenty
Thousand Pesos (P20,000.00), Philippine Currency, representing attorney's fees.
SO ORDERED.29
The MTC reasoned that prescription or the length of time by which Marcelino has held or
possessed the property has barred the respondents from filing a claim.
On December 12, 1997, respondents filed a Motion for Reconsideration30 but the MTC denied it
in its Order dated February 5, 1998.31
Dissatisfied, respondents filed an appeal with the RTC Branch 70, Iba, Zambales, docketed as
RTC-1489-I. On August 10, 2000, the RTC rendered its Decision setting aside the Decision of
the MTC.32 The dispositive portion of the Decision states:
WHEREFORE, the appealed Decision of the Municipal Trial Court is hereby REVERSED
and SET ASIDE ordering the defendant Marcelino Cabal and all other persons claiming
interest under him to vacate and deliver peaceful possession of the disputed area of 423
sq. m. within Lot 1-E embraced in TCT No. T-43419 to the plaintiffs-appellants; to remove
all improvements therein introduced by said defendant or by persons under his direction
and authority; to pay the plaintiffs-appellants P10,000.00 and P5,000.00 by way of moral
and exemplary damages, respectively; to pay plaintiff-appellants attorney's fee in the sum
ofP20,000.00 and cost of this suit.
SO ORDERED.33
In reversing the MTC, the RTC held that Marcelino's possession was in the concept of a co-
owner and therefore prescription does not run in his favor; that his possession, which was
tolerated by his co-owners, does not ripen into ownership.
On August 30, 2000, Marcelino filed a Motion for Reconsideration34 but the RTC denied it in its
Order dated May 3, 2001.35
On May 18, 2001, Marcelino filed a petition for review with the CA, docketed as CA-G.R. SP No.
64729.36Marcelino, however, died during the pendency of the case. On September 27, 2001, the
CA rendered its Decision affirming in toto the Decision of the RTC.37
In sustaining the RTC, the CA held that Marcelino may have been in good faith when he started
to occupy the disputed portion in 1949 but his occupation in good faith diminished after Lot G
was surveyed when he was apprised of the fact that the portion he was occupying was not the
same as the portion titled in his name; that from the tenor of the petition for review Marcelino
would like to hold on to both the lot he occupies and Lot G-1, which cannot be allowed since it
will double his inheritance to the detriment of his brother Lorenzo.
On November 13, 2001, Marcelino's counsel filed a Motion for Reconsideration38 but the CA
denied it in its Resolution dated May 22, 2002.39
On June 6, 2002, the heirs of Marcelino (petitioners), represented by his widow, Victoria Cabal,
filed the present petition anchored on the following grounds:
I. CONTRARY TO THE COURT OF APPEALS' FINDINGS AND CONCLUSION,

PETITIONER NEVER INTENDED AND NEITHER DOES HE INTEND TO HOLD ON TO
BOTH THE 423 SQUARE METER WITHIN LOT 1-E WHICH HE IS OCCUPYING AND
LOT 1-G (sic). PETITIONER IS ONLY INTERESTED IN THE DISPUTED PROPERTY,
THAT IS, A PORTION OF LOT 1-E BECAUSE THIS IS WHERE HE INTRODUCED
CONSIDERABLE IMPROVEMENTS IN GOOD FAITH.
II. THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR

WHEN IT RULED THAT THE GOOD FAITH OF PETITIONER ON THE DISPUTED
PROPERTY BEGAN TO DIMINISH AFTER LOT-G WAS SURVEYED.40
Anent the first ground, petitioners contend that since 1949 Marcelino has claimed no other
portion as his inheritance from Marcelo, except the disputed lot; that Marcelino believed in good
faith that the disputed lot is Lot G-1; that Marcelino never intended to hold on to both lots since
he did not introduce any improvement on Lot G-1 and he even agreed to a resurvey, swapping of
lots and reconstruction of title after discovery of the mistake in 1989; that Marcelino wanted the
disputed lot because he has introduced considerable improvements thereon.
On the second ground, petitioners maintain that Marcelino became aware of the flaw in his title
only before the execution of the swapping agreement in March 1, 1989, long after he had
introduced considerable improvements in the disputed lot; that Marcelino should not be faulted
for believing that the disputed lot is his titled property because he is a layman, not versed with
the technical description of properties; that Marcelino should be adjudged a builder in good faith
of all the improvements built on the disputed property immediately prior to the execution of the
swapping agreement and accorded all his rights under the law or, alternatively, the swapping of
lots be ordered since no improvements have been introduced on Lot G-1.
Respondents, on the other hand, submit that Marcelino cannot be adjudged a builder in good
faith since he exhibited blatant and deliberate bad faith in dealing with respondents.
The Court rules in favor of the petitioners.
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it
from the CA is limited to reviewing questions of law which involves no examination of the
probative value of the evidence presented by the litigants or any of them.41 The Supreme Court is
not a trier of facts; it is not its function to analyze or weigh evidence all over again.42 Accordingly,
findings of fact of the appellate court are generally conclusive on the Supreme Court.43
Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be
resolved by this Court, such as: (1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2)when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its
findings the CA went beyond the issues of the case, or its findings are contrary to the admissions
of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8)
when the findings are conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are
not disputed by the respondent; (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record; (11) when the CA manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion.44 The Court finds that exceptions (1), (2), (4)
and (11) apply to the present petition.
It is undisputed that Marcelino built his house on the disputed property in 1949 with the consent
of his father. Marcelino has been in possession of the disputed lot since then with the knowledge
of his co-heirs, such that even before his father died in 1954, when the co-ownership was
created, his inheritance or share in the co-ownership was already particularly designated or
physically segregated. Thus, even before Lot G was subdivided in 1976, Marcelino already
occupied the disputed portion and even then co-ownership did not apply over the disputed lot.
Elementary is the rule that there is no co-ownership where the portion owned is concretely
determined and identifiable, though not technically described,45 or that said portion is still
embraced in one and the same certificate of title does make said portion less determinable or
identifiable, or distinguishable, one from the other, nor that dominion over each portion less
exclusive, in their respective owners.46
Thus, since Marcelino built a house and has been occupying the disputed portion since 1949,
with the consent of his father and knowledge of the co-heirs,47 it would have been just and
equitable to have segregated said portion in his favor and not one adjacent to it. Undoubtedly,
the subdivision survey effected in 1976 spawned the dilemma in the present case. It designated
Lot G-1 as Marcelino's share in the inheritance notwithstanding his possession since 1949 of a
definite portion of Lot G, now the southernmost portion of Lot 1-E.
Marcelino raised the defense of acquisitive prescription, in addition to possession in good faith, in
his Answer to the Complaint in the MTC. Prescription, in general, is a mode of acquiring or losing
ownership and other real rights through the lapse of time in the manner and under conditions laid
down by law, namely, that the possession should be in the concept of an owner, public, peaceful,
uninterrupted and adverse.48 Acquisitive prescription is either ordinary or
extraordinary.49 Ordinary acquisitive prescription requires possession in good faith and with just
title50 for ten years.51 In extraordinary prescription ownership and other real rights over immovable
property are acquired through uninterrupted adverse possession thereof for thirty years, without
need of title or of good faith.52
In the present case, the evidence presented during the trial proceedings in the MTC were sorely
insufficient to prove that acquisitive prescription has set in with regards to the disputed lot. The
tax declaration53 and receipts54presented in evidence factually established only that Marcelino
had been religiously paying realty taxes on Lot G-1. Tax declarations and receipts can only be
the basis of a claim of ownership through prescription when coupled with proof of actual
possession.55 Evidently, Marcelino declared and paid realty taxes on property which he did not
actually possess as he took possession of a lot eventually identified as the southernmost portion
of Lot 1-E of subdivision plan (LRC) Psd-307100.
Furthermore, the Court notes that Marcelino no longer invoked prescription in his pleadings
before the RTC56and CA;57 neither did herein petitioners raise prescription in their petition58 and
memorandum59 before this Court. They only extensively discussed the defense of possession in
good faith. They are thus deemed to have abandoned the defense of prescription.
The Court shall now delve on the applicability of the principle of possession in good faith.
It has been said that good faith is always presumed, and upon him who alleges bad faith on the
part of the possessor rests the burden of proof.60 Good faith is an intangible and abstract quality
with no technical meaning or statutory definition, and it encompasses, among other things, an
honest belief, the absence of malice and the absence of design to defraud or to seek an
unconscionable advantage. An individual's personal good faith is a concept of his own mind and,
therefore, may not conclusively be determined by his protestations alone. It implies honesty of
intention, and freedom from knowledge of circumstances which ought to put the holder upon
inquiry.61The essence of good faith lies in an honest belief in the validity of one's right, ignorance
of a superior claim, and absence of intention to overreach another.62 Applied to possession, one
is considered in good faith if he is not aware that there exists in his title or mode of acquisition
any flaw which invalidates it.63
In the present case, Marcelino's possession of the disputed lot was based on a mistaken belief
that Lot G-1 is the same lot on which he has built his house with the consent of his father. There
is no evidence, other than bare allegation, that Marcelino was aware that he intruded on
respondents' property when he continued to occupy and possess the disputed lot after
partition was effected in 1976.
Moreover, the fact that in 1977 Marcelino mortgaged Lot G-1 subject of TCT No. 22656 is not an
indication of bad faith since there is no concrete evidence that he was aware at that time that the
property covered by the title and the one he was occupying were not the same. There is also no
evidence that he introduced improvements on Lot G-1. In fact, the agreement on March 1, 1989
to a resurvey and swapping of lots for the purpose of reconstructing the land titles is substantial
proof of Marcelino's good faith, sincerity of purpose and lack of intention to hold on to two lots.
Thus, the CA's conclusion that Marcelino intended to hold on to both the disputed lot and Lot G-1
is pure speculation, palpably unsupported by the evidence on record. Marcelino is deemed a
builder in good faith64 at least until the time he was informed by respondents of his encroachment
on their property.65
When a person builds in good faith on the land of another, the applicable provision is Article 448,
which reads:
Article 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 54666 and 548,67 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
case of disagreement, the court shall fix the terms thereof.
Thus, the owner of the land on which anything has been built, sown or planted in good faith shall
have the right to appropriate as his own the building, planting or sowing, after payment to the
builder, planter or sower of the necessary and useful expenses, and in the proper case,
expenses for pure luxury or mere pleasure. The owner of the land may also oblige the builder,
planter or sower to purchase and pay the price of the land. If the owner chooses to sell his land,
the builder, planter or sower must purchase the land, otherwise the owner may remove the
improvements thereon. The builder, planter or sower, however, is not obliged to purchase the
land if its value is considerably more than the building, planting or sowing. In such case, the
builder, planter or sower must pay rent to the owner of the land. If the parties cannot come to
terms over the conditions of the lease, the court must fix the terms thereof. The right to choose
between appropriating the improvement or selling the land on which the improvement stands to
the builder, planter or sower, is given to the owner of the land.68
In accordance with Depra v. Dumlao, 69 this case must be remanded to the trial court to
determine matters necessary for the proper application of Article 448 in relation to Articles 546
and 548. Such matters include the option that respondents would take and the amount of
indemnity that they would pay, should they decide to appropriate the improvements on the lots.
The Court notes that petitioners' alternative prayer that swapping of lots be ordered because no
improvements have been introduced on Lot G-1. This cannot be granted. Respondents and
Marcelino, petitioners' predecessor-in-interest, did not pray for swapping of lots in all their
pleadings below. Both parties also did not allege the existence of a swapping agreement in their
initial pleadings, much less pursue the enforcement of the swapping agreement. They are
deemed to have renounced or abandoned any enforceable right they had under the swapping
agreement and the parties cannot be compelled to a swapping of lots.
WHEREFORE, the instant petition is GRANTED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. SP No. 64729 are REVERSED and SET ASIDE. The case
is REMANDED to the court of origin for further proceedings to determine the facts essential to
the proper application of Article 448 in relation to Articles 546 and 548 of the Civil Code.
No pronouncement as to costs.
SO ORDERED.
Panganiban, C.J., Ynares-Santiago, Callejo, Sr., Chico-Nazario, J.J., concur.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 146259 September 13, 2007
FLORENTINO, TROADIO and PEDRO, all surnamed OCHOA, petitioners,

vs.
MAURO APETA and APOLONIA ALMAZAN, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Challenged in this Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, are the Decision1 dated September 8, 2000 and Resolution2 dated
November 20, 2000 of the Court of Appeals in CA G.R. CV No. 56109.
The facts are:
Since 1910, the above-named petitioners and their predecessors-in-interest have been
occupying Lot No. 1580 consisting of 886 square meters situated in Malaban, Biñan, Laguna.
The lot is covered by Transfer Certificate of Title (TCT) No. T-40624 of the Registry of Deeds of
that province. They built their houses and apartment building thereon.
Sometime in May 10, 1982, Mauro Apeta and Apolonia Almazan, respondents, found that they
are the true owners of Lot No. 1580 being occupied by petitioners.
On January 22, 1988, respondents filed with the Regional Trial Court (RTC), Branch 24, Biñan,
Laguna a complaint for recovery of possession and damages against petitioners, docketed as
Civil Case No. B-2777. Respondents alleged in the main that they are the lawful owners of Lot
No. 1580 covered by Certificate of Title No. RT-599 (10731) issued by the Registry of Deeds of
Laguna.
In their answer to the complaint, petitioners specifically denied the allegations in the complaint,
contending that they are the owners of Lot No. 1580 as shown by TCT No. T-40624 issued by
the Registry of Deeds of Laguna.
During the proceedings before the RTC, upon agreement of the parties, the trial judge
commissioned Engr. Romulo Unciano of the Bureau of Lands of Region IV to conduct a resurvey
of the disputed property. The result of the resurvey (approved by the Bureau of Lands) shows
that Lot No. 1580, occupied by petitioners, was registered in the name of Margarita Almada,
respondents’ predecessor-in-interest; and that the lot covered by TCT No. T-40624 is not Lot No.
1580, but Lot No. 1581 registered in the name of Servillano Ochoa, petitioners’ predecessor-in-
interest. This lot has been occupied by Isidro Jasmin.
On March 24, 1995, the trial court rendered a Decision in favor of respondents, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the

plaintiffs and against the defendants as follows:
1. Declaring plaintiffs as the true and lawful owners of Lot 1580 of the Biñan Estate
Subdivision covered by Transfer Certificate of Title No. RT-599 (10731) and declaring the
defendants without right whatsoever to continue in possession thereof.
2. Ordering the defendants and all those acting in their behalf to deliver peacefully the
physical possession of Lot 1580 to the plaintiffs and to remove their houses and
apartment building thereon.
3. Ordering the defendants to pay, jointly and severally to plaintiffs the amount
of P30,000 as and for attorney’s fees and litigation expenses.
SO ORDERED.3
On appeal, the Court of Appeals, in its Decision dated September 8, 2000, affirmed the judgment
of the RTC.
Petitioners filed a motion for reconsideration, but it was denied by the appellate court in its
Resolution4 dated November 20, 2000.
Hence, the instant petition.
Petitioners contend that Lot No. 1580 belongs to them and that respondents’ action is barred by
prescription.
Petitioners’ contention lacks merit.
On petitioners’ claim that they are the owners of Lot No. 1580, it is a well-established principle
that in an appealvia a petition for review on certiorari, only questions of law may be raised. Here,
the issue posed by petitioners requires us to weigh anew the evidence submitted by the parties
already passed upon by the Court of Appeals. It is basic that this Court is not a trier of facts.
Thus, it may not review the findings of the Court of Appeals except, among others: (a) when its
factual findings and those of the trial court are contradictory; (b) when its inference is manifestly
mistaken or absurd; (c) when its judgment is premised on its misapprehension of the facts; and
(d) when it failed to resolve relevant facts which, if properly considered, would justify a
modification or reversal of the decision of the appellate court.5 The issue raised by petitioners
that they are the actual owners of Lot No. 1580 is factual in nature and requires a review of the
pieces of evidence presented by the parties. Thus, we can no longer pass upon and evaluate the
lower courts’ finding that based on the evidence presented before them, specifically the result of
the resurvey conducted by Engr. Romulo Unciano, respondents are "the true and lawful owners
of Lot 1580."
Anent petitioners’ second contention that respondents’ action has been barred by prescription,
suffice it to state that no title to registered land in derogation to that of the registered owner shall
be acquired by prescription or adverse possession.6 Neither can prescription be allowed against
the hereditary successors of the registered owner, because they step into the shoes of the
decedent and are merely the continuation of the personality of their predecessor-in-interest.7
Verily, the Court of Appeals did not err when it ruled that respondents are the true and lawful
owners of Lot No. 1580. Hence, they "should now be placed in possession thereof."
Parenthetically, considering that petitioners and their predecessors-in-interest have built their
houses and apartment building on Lot No. 1580, should respondents be allowed to take
possession of those improvements? In order to settle this matter, we should determine whether
petitioners were builders in good faith.
Good faith is an intangible and abstract quality with no technical meaning or statutory definition,
and it encompasses, among other things, an honest belief, the absence of malice and the
absence of design to defraud or to seek an unconscionable advantage. It implies honesty of
intention, and freedom from knowledge of circumstances which ought to put the holder upon
inquiry.8 The essence of good faith lies in an honest belief in the validity of one’s right, ignorance
of a superior claim and absence of intention to overreach another.9 Applied to possession, one is
considered in good faith if he is not aware that there exists in his title or mode of acquisition any
flaw which invalidates it.10
Using the above parameters, we are convinced that petitioners and their predecessors-in-interest
were in good faith when they built their houses and apartment building on Lot No. 1580 since
they were convinced it was covered by their TCT No. T-40624.
The following provisions of the Civil Code are relevant:
Article 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
case of disagreement, the court shall fix the terms thereof.
Article 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.
Article 548. Expense 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 successors in the
possession do not prefer to refund the amount expended.
Under the foregoing provisions, the landowner can make a choice - either by 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 that
the accessory follows the principal and not the other way around. He must choose only one.
Following the above provisions, respondents, as owners of Lot No. 1580, may choose between
appropriating as their own the houses and apartment building constructed thereon by petitioners
and their predecessors-in-interest by paying the proper indemnity or value; or obliging petitioners
to pay the price of Lot No. 1580 which is not more than that of the improvements.
WHEREFORE, we DENY the petition. The assailed Decision and Resolution of the Court of
Appeals in CA G.R. CV No. 56109 are AFFIRMED with MODIFICATION in the sense that
respondents have the option to pay for the houses and apartment building constructed by
petitioners and their predecessors-in-interest on Lot No. 1580; or to oblige petitioners to pay the
price of the lot in an amount not more than the value of the said improvements.
SO ORDERED.
Puno, C.J., Chairperson, Corona, Azcuna, Garcia, JJ., concur.
Footnotes
1Penned by Associate Justice Martin S. Villarama and concurred in by Associate Justice

Salome A. Montoya (retired) and Associate Justice Romeo J. Callejo, Sr.(retired member
of the Supreme Court), Rollo, pp. 38-42.
2 Id., p. 44.
3 Id , p. 38.
4 Id., p. 44.
5Fuentes v. Court of Appeals, G.R. No. 109849, February 29, 1997, 268 SCRA 703,
citing Cordial v. Miranda, G.R. No. 135495, December 14, 2000, 348 SCRA
158; Cabataje v. Puduman, G.R. No. 134712, August 13, 2004, 436 SCRA 423.
6Section 47 of P.D. 1529 or the Property Registration Decree; Alcantara-Daus v. De

Leon, G.R. No. 149750, June 16, 2003, 404 SCRA 74, citing Jose v. Court of Appeals,
192 SCRA 735 (1990) and Ferrer-Lopez v. Court of Appeals, 150 SCRA 393 (1987).
7 Bailon-Carilao v. Court of Appeals, No. L-35767, April 15, 1988, 160 SCRA 738.
8Philippine National Bank v. De Jesus, G.R. No. 149295, September 23, 2003, 411
SCRA 557.
9Id., citing Bernardo v. Bernardo, 95 Phil. 202, and Negrete v. CFI of Marinduque, 48
SCRA 113 (1972).
10 Article 526 of the Civil Code.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 151815 February 23, 2005
SPOUSES JUAN NUGUID AND ERLINDA T. NUGUID, petitioners,

vs.
HON. COURT OF APPEALS AND PEDRO P. PECSON, respondents.
DECISION
QUISUMBING, J.:
This is a petition for review on certiorari of the Decision1 dated May 21, 2001, of the Court of
Appeals in CA-G.R. CV No. 64295, which modified the Order dated July 31, 1998 of the Regional
Trial Court (RTC) of Quezon City, Branch 101 in Civil Case No. Q-41470. The trial court ordered
the defendants, among them petitioner herein Juan Nuguid, to pay respondent herein Pedro P.
Pecson, the sum of P1,344,000 as reimbursement of unrealized income for the period beginning
November 22, 1993 to December 1997. The appellate court, however, reduced the trial court’s
award in favor of Pecson from the said P1,344,000 to P280,000. Equally assailed by the
petitioners is the appellate court’s Resolution2 dated January 10, 2002, denying the motion for
reconsideration.
It may be recalled that relatedly in our Decision dated May 26, 1995, in G.R. No. 115814, entitled
Pecson v. Court of Appeals, we set aside the decision of the Court of Appeals in CA-G.R. SP No.
32679 and the Order dated November 15, 1993, of the RTC of Quezon City, Branch 101 and
remanded the case to the trial court for the determination of the current market value of the four-
door two-storey apartment building on the 256-square meter commercial lot.
The antecedent facts in this case are as follows:
Pedro P. Pecson owned a commercial lot located at 27 Kamias Road, Quezon City, on which he
built a four-door two-storey apartment building. For failure to pay realty taxes, the lot was sold at
public auction by the City Treasurer of Quezon City to Mamerto Nepomuceno, who in turn sold it
for P103,000 to the spouses Juan and Erlinda Nuguid.
Pecson challenged the validity of the auction sale before the RTC of Quezon City in Civil Case
No. Q-41470. In its Decision,3 dated February 8, 1989, the RTC upheld the spouses’ title but
declared that the four-door two-storey apartment building was not included in the auction
sale.4 This was affirmed in toto by the Court of Appeals and thereafter by this Court, in its
Decision5 dated May 25, 1993, in G.R. No. 105360 entitled Pecson v. Court of Appeals.
On June 23, 1993, by virtue of the Entry of Judgment of the aforesaid decision in G.R. No.
105360, the Nuguids became the uncontested owners of the 256-square meter commercial lot.
As a result, the Nuguid spouses moved for delivery of possession of the lot and the apartment
building.
In its Order6 of November 15, 1993, the trial court, relying upon Article 5467 of the Civil Code,
ruled that the Spouses Nuguid were to reimburse Pecson for his construction cost of P53,000,
following which, the spouses Nuguid were entitled to immediate issuance of a writ of possession
over the lot and improvements. In the same order the RTC also directed Pecson to pay the same
amount of monthly rentals to the Nuguids as paid by the tenants occupying the apartment units
or P21,000 per month from June 23, 1993, and allowed the offset of the amount of P53,000 due
from the Nuguids against the amount of rents collected by Pecson from June 23, 1993 to
September 23, 1993 from the tenants of the apartment.8
Pecson duly moved for reconsideration, but on November 8, 1993, the RTC issued a Writ of
Possession,9directing the deputy sheriff to put the spouses Nuguid in possession of the subject
property with all the improvements thereon and to eject all the occupants therein.
Aggrieved, Pecson then filed a special civil action for certiorari and prohibition docketed as CA-
G.R. SP No. 32679 with the Court of Appeals.
In its decision of June 7, 1994, the appellate court, relying upon Article 44810 of the Civil Code,
affirmed the order of payment of construction costs but rendered the issue of possession moot
on appeal, thus:
WHEREFORE, while it appears that private respondents [spouses Nuguid] have not yet
indemnified petitioner [Pecson] with the cost of the improvements, since Annex I shows that the
Deputy Sheriff has enforced the Writ of Possession and the premises have been turned over to
the possession of private respondents, the quest of petitioner that he be restored in possession
of the premises is rendered moot and academic, although it is but fair and just that private
respondents pay petitioner the construction cost of P53,000.00; and that petitioner be ordered to
account for any and all fruits of the improvements received by him starting on June 23, 1993,
with the amount of P53,000.00 to be offset therefrom.
IT IS SO ORDERED.11 [Underscoring supplied.]
Frustrated by this turn of events, Pecson filed a petition for review docketed as G.R. No. 115814
before this Court.
On May 26, 1995, the Court handed down the decision in G.R. No 115814, to wit:
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 32679 and the Order of
15 November 1993 of the Regional Trial Court, Branch 101, Quezon City in Civil Case No. Q-
41470 are hereby SET ASIDE.
The case is hereby remanded to the trial court for it to determine the current market value of the
apartment building on the lot. For this purpose, the parties shall be allowed to adduce evidence
on the current market value of the apartment building. The value so determined shall be forthwith
paid by the private respondents [Spouses Juan and Erlinda Nuguid] to the petitioner [Pedro
Pecson] otherwise the petitioner shall be restored to the possession of the apartment building
until payment of the required indemnity.
No costs.
SO ORDERED.12 [Emphasis supplied.]
In so ruling, this Court pointed out that: (1) Article 448 of the Civil Code is not apposite to the
case at bar where the owner of the land is the builder, sower, or planter who then later lost
ownership of the land by sale, but may, however, be applied by analogy; (2) the current market
value of the improvements should be made as the basis of reimbursement; (3) Pecson was
entitled to retain ownership of the building and, necessarily, the income therefrom; (4) the Court
of Appeals erred not only in upholding the trial court’s determination of the indemnity, but also in
ordering Pecson to account for the rentals of the apartment building from June 23, 1993 to
September 23, 1993.
On the basis of this Court’s decision in G.R. No. 115814, Pecson filed a Motion to Restore
Possession and a Motion to Render Accounting, praying respectively for restoration of his
possession over the subject 256-square meter commercial lot and for the spouses Nuguid to be
directed to render an accounting under oath, of the income derived from the subject four-door
apartment from November 22, 1993 until possession of the same was restored to him.
In an Order13 dated January 26, 1996, the RTC denied the Motion to Restore Possession to the
plaintiff averring that the current market value of the building should first be determined. Pending
the said determination, the resolution of the Motion for Accounting was likewise held in
abeyance.
With the submission of the parties’ assessment and the reports of the subject realty, and the
reports of the Quezon City Assessor, as well as the members of the duly constituted assessment
committee, the trial court issued the following Order14 dated October 7, 1997, to wit:
On November 21, 1996, the parties manifested that they have arrived at a compromise
agreement that the value of the said improvement/building is P400,000.00 The Court notes that
the plaintiff has already receivedP300,000.00. However, when defendant was ready to pay the
balance of P100,000.00, the plaintiff now insists that there should be a rental to be paid by
defendants. Whether or not this should be paid by defendants, incident is hereby scheduled for
hearing on November 12, 1997 at 8:30 a.m.
Meantime, defendants are directed to pay plaintiff the balance of P100,000.00.
SO ORDERED.15
On December 1997, after paying the said P100,000 balance to Pedro Pecson the spouses
Nuguid prayed for the closure and termination of the case, as well as the cancellation of the
notice of lis pendens on the title of the property on the ground that Pedro Pecson’s claim for
rentals was devoid of factual and legal bases.16
After conducting a hearing, the lower court issued an Order dated July 31, 1998, directing the
spouses to pay the sum of P1,344,000 as reimbursement of the unrealized income of Pecson for
the period beginning November 22, 1993 up to December 1997. The sum was based on the
computation of P28,000/month rentals of the four-door apartment, thus:
The Court finds plaintiff’s motion valid and meritorious. The decision of the Supreme Court in the
aforesaid case [Pecson vs. Court of Appeals, 244 SCRA 407] which set aside the Order of this
Court of November 15, 1993 has in effect upheld plaintiff’s right of possession of the building for
as long as he is not fully paid the value thereof. It follows, as declared by the Supreme Court in
said decision that the plaintiff is entitled to the income derived therefrom, thus –
...
Records show that the plaintiff was dispossessed of the premises on November 22, 1993 and
that he was fully paid the value of his building in December 1997. Therefore, he is entitled to the
income thereof beginning on November 22, 1993, the time he was dispossessed, up to the time
of said full payment, in December 1997, or a total of 48 months.
The only question left is the determination of income of the four units of apartments per month.
But as correctly pointed out by plaintiff, the defendants have themselves submitted their affidavits
attesting that the income derived from three of the four units of the apartment building is
P21,000.00 or P7,000.00 each per month, or P28,000.00 per month for the whole four units.
Hence, at P28,000.00 per month, multiplied by 48 months, plaintiff is entitled to be paid by
defendants the amount of P1,344,000.00.17
The Nuguid spouses filed a motion for reconsideration but this was denied for lack of merit.18
The Nuguid couple then appealed the trial court’s ruling to the Court of Appeals, their action
docketed as CA-G.R. CV No. 64295.
In the Court of Appeals, the order appealed from in CA-G.R. CV No. 64295, was modified. The
CA reduced the rentals from P1,344,000 to P280,000 in favor of the appellee.19 The said amount
represents accrued rentals from the determination of the current market value on January 31,
199720 until its full payment on December 12, 1997.
Hence, petitioners state the sole assignment of error now before us as follows:
THE COURT OF APPEALS ERRED IN HOLDING PETITIONERS LIABLE TO PAY RENT OVER
AND ABOVE THE CURRENT MARKET VALUE OF THE IMPROVEMENT WHEN SUCH WAS
NOT PROVIDED FOR IN THE DISPOSITIVE PORTION OF THE SUPREME COURT’S RULING
IN G.R. No. 115814.
Petitioners call our attention to the fact that after reaching an agreed price of P400,000 for the
improvements, they only made a partial payment of P300,000. Thus, they contend that their
failure to pay the full price for the improvements will, at most, entitle respondent to be restored to
possession, but not to collect any rentals. Petitioners insist that this is the proper interpretation of
the dispositive portion of the decision in G.R. No. 115814, which states in part that "[t]he value so
determined shall be forthwith paid by the private respondents [Spouses Juan and Erlinda Nuguid]
to the petitioner [Pedro Pecson] otherwise the petitioner shall be restored to the possession of
the apartment building until payment of the required indemnity."21
Now herein respondent, Pecson, disagrees with herein petitioners’ contention. He argues that
petitioners are wrong in claiming that inasmuch as his claim for rentals was not determined in the
dispositive portion of the decision in G.R. No. 115814, it could not be the subject of execution. He
points out that in moving for an accounting, all he asked was that the value of the fruits of the
property during the period he was dispossessed be accounted for, since this Court explicitly
recognized in G.R. No. 115814, he was entitled to the property. He points out that this Court
ruled that "[t]he petitioner [Pecson] not having been so paid, he was entitled to retain ownership
of the building and, necessarily, the income therefrom."22 In other words, says respondent,
accounting was necessary. For accordingly, he was entitled to rental income from the property.
This should be given effect. The Court could have very well specifically included rent (as fruit or
income of the property), but could not have done so at the time the Court pronounced judgment
because its value had yet to be determined, according to him. Additionally, he faults the appellate
court for modifying the order of the RTC, thus defeating his right as a builder in good faith entitled
to rental from the period of his dispossession to full payment of the price of his improvements,
which spans from November 22, 1993 to December 1997, or a period of more than four years.
It is not disputed that the construction of the four-door two-storey apartment, subject of this
dispute, was undertaken at the time when Pecson was still the owner of the lot. When the
Nuguids became the uncontested owner of the lot on June 23, 1993, by virtue of entry of
judgment of the Court’s decision, dated May 25, 1993, in G.R. No. 105360, the apartment
building was already in existence and occupied by tenants. In its decision dated May 26, 1995 in
G.R. No. 115814, the Court declared the rights and obligations of the litigants in accordance with
Articles 448 and 546 of the Civil Code. These provisions of the Code are directly applicable to
the instant case.
Under Article 448, the landowner is given the option, either to appropriate the improvement as
his own upon payment of the proper amount of indemnity or to sell the land to the possessor in
good faith. Relatedly, Article 546 provides that a builder in good faith is entitled to full
reimbursement for all the necessary and useful expenses incurred; it also gives him right of
retention until full reimbursement is made.
While the law aims to concentrate in one person the ownership of the land and the improvements
thereon in view of the impracticability of creating a state of forced co-ownership,23 it guards
against unjust enrichment insofar as the good-faith builder’s improvements are concerned. The
right of retention is considered as one of the measures devised by the law for the protection of
builders in good faith. Its object is to guarantee full and prompt reimbursement as it permits the
actual possessor to remain in possession while he has not been reimbursed (by the person who
defeated him in the case for possession of the property) for those necessary expenses and
useful improvements made by him on the thing possessed.24 Accordingly, a builder in good faith
cannot be compelled to pay rentals during the period of retention25 nor be disturbed in his
possession by ordering him to vacate. In addition, as in this case, the owner of the land is
prohibited from offsetting or compensating the necessary and useful expenses with the fruits
received by the builder-possessor in good faith. Otherwise, the security provided by law would be
impaired. This is so because the right to the expenses and the right to the fruits both pertain to
the possessor, making compensation juridically impossible; and one cannot be used to reduce
the other.26
As we earlier held, since petitioners opted to appropriate the improvement for themselves as
early as June 1993, when they applied for a writ of execution despite knowledge that the auction
sale did not include the apartment building, they could not benefit from the lot’s improvement,
until they reimbursed the improver in full, based on the current market value of the property.
Despite the Court’s recognition of Pecson’s right of ownership over the apartment building, the
petitioners still insisted on dispossessing Pecson by filing for a Writ of Possession to cover both
the lot and the building. Clearly, this resulted in a violation of respondent’s right of retention.
Worse, petitioners took advantage of the situation to benefit from the highly valued, income-
yielding, four-unit apartment building by collecting rentals thereon, before they paid for the cost of
the apartment building. It was only four years later that they finally paid its full value to the
respondent.
Petitioners’ interpretation of our holding in G.R. No. 115814 has neither factual nor legal basis.
The decision of May 26, 1995, should be construed in connection with the legal principles which
form the basis of the decision, guided by the precept that judgments are to have a reasonable
intendment to do justice and avoid wrong.27
The text of the decision in G.R. No. 115814 expressly exempted Pecson from liability to pay
rentals, for we found that the Court of Appeals erred not only in upholding the trial court’s
determination of the indemnity, but also in ordering him to account for the rentals of the
apartment building from June 23, 1993 to September 23, 1993, the period from entry of judgment
until Pecson’s dispossession. As pointed out by Pecson, the dispositive portion of our decision in
G.R. No. 115814 need not specifically include the income derived from the improvement in order
to entitle him, as a builder in good faith, to such income. The right of retention, which entitles the
builder in good faith to the possession as well as the income derived therefrom, is already
provided for under Article 546 of the Civil Code.
Given the circumstances of the instant case where the builder in good faith has been clearly
denied his right of retention for almost half a decade, we find that the increased award of rentals
by the RTC was reasonable and equitable. The petitioners had reaped all the benefits from the
improvement introduced by the respondent during said period, without paying any amount to the
latter as reimbursement for his construction costs and expenses. They should account and pay
for such benefits.
We need not belabor now the appellate court’s recognition of herein respondent’s entitlement to
rentals from the date of the determination of the current market value until its full payment.
Respondent is clearly entitled to payment by virtue of his right of retention over the said
improvement.
WHEREFORE, the instant petition is DENIED for lack of merit. The Decision dated May 21, 2001
of the Court of Appeals in CA-G.R. CV No. 64295 is SET ASIDE and the Order dated July 31,
1998, of the Regional Trial Court, Branch 101, Quezon City, in Civil Case No. Q-41470 ordering
the herein petitioners, Spouses Juan and Erlinda Nuguid, to account for the rental income of the
four-door two-storey apartment building from November 1993 until December 1997, in the
amount of P1,344,000, computed on the basis of Twenty-eight Thousand (P28,000.00) pesos
monthly, for a period of 48 months, is hereby REINSTATED. Until fully paid, said amount of
rentals should bear the legal rate of interest set at six percent (6%) per annum computed from
the date of RTC judgment. If any portion thereof shall thereafter remain unpaid, despite notice of
finality of this Court’s judgment, said remaining unpaid amount shall bear the rate of interest set
at twelve percent (12%) per annum computed from the date of said notice. Costs against
petitioners.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

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Republic of the Philippines

G.R. No. 77266 July 19, 1989

ARTHUR PAJUNAR and INVENCIA PAJUNAR, petitioners,

This is a case of Recovery of Personal Property with a Writ of Replevin filed

Upon close reading of the exhaustive memorandum submitted by each of the

WHEREFORE, premises considered, the appealed decision of the above-

Consequently, since respondent Eluna had possessed the carabao since

ART. 1132. The ownership of movables prescribes through uninterrupted

The ownership of personal property also prescribes through uninterrupted

Section 529 of the Revised Administrative Code provides:

Registration necessary to validity of transfer. No transfer shall be valid unless

Thus, as has been stressed by this Court:

Art. 559. The possession of movable property acquired in good faith is

Melencio-Herrera, (Chairperson), Padilla, Sarmiento and Regalado, JJ., concur.

** Penned by Justice Ricardo L. Pronove, Jr., concurred in by Justices

G.R. No. L-50264 October 21, 1991

IGNACIO WONG, petitioner,

Rodolfo B. Quiachon for petitioner.

Jose M. Ilagan for private respondent.

A) THE CONCLUSION DRAWN BY RESPONDENT JUDGE THAT PETITIONER IS AN

B) THE CONCLUSION DRAWN BY RESPONDENT JUDGE THAT PETITIONER MUST

The petition is without merit.

The argument is untenable.

It should be stressed that "possession is acquired by the material occupation of a thing or

** Presided by Actg. Judge Rosalinda L. Montejo.

*** Penned by then Justice Hugo Gutierrez and concurred in by Justices

Republic of the Philippines

G.R. No. 98467 July 10, 1992

NATIONAL DEVELOPMENT CO. and AMERICAN EXPRESS BANK, LTD., petitioners,

DAVIDE, JR., J.:

The antecedents in this case are not disputed.

(f) in a final report, dated 12 August 1974, on the special examination

(h) unknown to Vicente T. Tan, whose facilities of verification were severely

(a) A complaint for recovery of property on the ground of duress in the

(b) An action to recover corporate shares of stock by one claiming to be a

xxx xxx xxx

g) Private respondents purposely omitted in the prayer of their complaint

Private respondents herein moved to reconsider said decision. An undated resolution

4.1 . . . in holding, or holding in effect, that a seller claiming to have sold or

4.2 . . . in holding that prescription as ground (sic) for dismissal should be

4.3 . . . in holding that an action for reconveyance of corporate shares,

On 22 November 1991, private respondents filed a Reply to petitioners' Memorandum 23 to

The petition is impressed with merit.

Joinder of indispensable parties is mandatory and a complaint may be dismissed if an

Sec. 7. Compulsory joinder indispensable parties. — Parties in interest

As to prescription, this Court, in said G.R. No. 90365, ruled:

The rule anent prescription on recovery of movables (shares of stock in this

Art. 1140. Actions to recover movables shall prescribe eight

As it provides, Article 1140 is subject to the provisions of Articles 1132 and

Art. 1132. The ownership of movables prescribes through

With regard to the right of the owner to recover personal

acquisitive prescription sets in after uninterrupted possession of four years,

Art. 1133. Movables possessed through a crime can never be

For purposes of extinctive prescription vis-a-vis movables, we therefore

1. Four years, if the possessor is in good faith;

xxx xxx xxx

2. Was ably represented by competent counsel, Atty. Norberto Quisumbing,

On top of those facts abovementioned, he:

We are, therefore, convinced, from Vicente Tan's very behavior, that

To be sure, there is nothing in the petition which would remotely suggest,

Private respondents' motion to reconsider the above decision, especially insofar as it

WHEREFORE, the petition is GRANTED. The Resolution of respondent Court in C.A.-G.R.

Costs against the private respondents.