G.R. No.

L-33422 May 30, 1983

ROSENDO BALUCANAG, petitioner,
vs.
HON. JUDGE ALBERTO J. FRANCISCO and RICHARD STOHNER, respondents.

ESCOLIN, J.:

This petition for review of the decision of the Court of First Instance of Manila in Civil Case No. 67503
calls for a determination of the respective rights of the lessor and the lessee over the improvements
introduced by the latter in the leased premises.

Cecilia dela Cruz Charvet was the owner of a 177.50 square meter lot located in Zamora Street,
Pandacan, Manila, covered by Transfer Certificate of Title No. 25664. On August 31, 1952, Mrs.
Charvet leased said lot to respondent Richard Stohner for a period of five [5] years at the monthly
rental of 2140.00, payable in advance within the first ten [10] days of each month. The lease
contract 1 provided, among others, that:

IV. The lessee may erect such buildings upon and make such improvements to the
leased land as he shag see fit. All such buildings and improvements shall remain the
property of the lessee and he may remove them at any nine, it being agreed,
however, that should he not remove the said buildings and improvements within a
period of two months after the expiration of this Agreement, the Lessor may remove
the said buildings and improvements or cause them to be removed at the expense of
the Lessee.

During the existence of the lease, Stohner made fillings on the land and constructed a house thereon,
said improvements being allegedly valued at P35,000.00.

On March 8, 1966, Mrs. Charvet sold the said lot to petitioner Rosendo Balucanag. 2

For Stohner's failure to pay the rents, Balucanag, thru counsel, wrote Stohner a letter demanding that
he vacate the premises. 3 In reply thereto, Stohner, also thru counsel, claimed that he was a builder in
good faith of the residential house erected in the land. He offered the following proposals for a
possible compromise, to wit:

[a] Mr. Stohner will purchase the said lot from your client with the interest of 12% per
annum on the value, or

[b] Your client Mr. Rosendo Balucanag will reimburse our client in the total amount of
P35,000.00 for the improvements and construction he has made on the lot in
question.

As no agreement was reached, Balucanag instituted in the City Court of Manila an ejectment suit
against Stohner and, after due trial, the court rendered a decision, the decretal portion of which reads
as follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered,

ordering the defendant to pay the plaintiff the sum of P360.00 as back rentals from
December, 1965 to August 1966 at the rate of P40.00 a month and to vacate the
premises. The defendant is further ordered to pay the sum of P100.00 as Attomey's
fees which is considered reasonable within the premises.

On appeal, the Court of First Instance of Manila, Branch IX, presided by respondent Judge Alberto J.
Francisco, after conducting a trial de novo, rendered a decision, setting aside the judgment of the city
court and dismissing the petitioner's complaint. Respondent judge held that Stohner was a builder in
good faith because he had constructed the residential house with the consent of the original lessor,
Mrs. Charvet, and also because the latter, after the expiration of the lease contract on August 31,
1957, had neither sought Stohner's ejectment from the premises, nor the removal of his house
therefrom. Invoking Articles 448 and 546 of the Civil Code. 4 respondent judge concluded that
Stohner, being a builder in good faith, cannot be ejected until he is reimbursed of the value of the
improvements.

Frustrated in his effort to have the decision reconsidered, Balucanag filed the instant petition for
review.

We find the petition impressed with merit. Paragraph IV of the lease contract entered into by Stohner
with Mrs. Charvet specifically provides that "... such buildings and improvements shan remain the
property of the lessee and he may remove them at any time, it being agreed, however, that should he
not remove the said buildings and improvements within a period of two months after the expiration of
this Agreement, the Lessor may remove the said buildings and improvements or cause them to be
removed at the expense of the Lessee." Respondent Stohner does not assail the validity of this
stipulation, Neither has he advanced any reason why he should not be bound by it.

But even in the absence of said stipulation, respondent Stohner cannot be considered a builder in
good faith. Article 448 of the Civil Code, relied upon by respondent judge, applies only to a case
where one builds on land in the belief that he is the owner thereof and it does not apply where one's
only interest in the land is that of a lessee under a rental contract. In the case at bar, there is no
dispute that the relation between Balucanag and Stohner is that of lessor and lessee, the former being
the successor in interest of the original owner of the lot. As we ruled in Lopez, Inc. vs. Phil. and
Eastern Trading Co., Inc., 5 "... the principle of possessor in good faith refers only to a party who
occupies or possess property in the belief that he is the owner thereof and said good faith ends only
when he discovers a flaw in his title so as to reasonably advise or inform him that after all he may not
be the legal owner of said property. It cannot apply to a lessee because as such lessee he knows that
he is not the owner of he leased premises. Neither can he deny the ownership or title of his lessor. ...
A lessee who introduces improvements in the leased premises, does so at his own risk in the sense
that he cannot recover their value from the lessor, much less retain the premises until such
reimbursement. ..."

The law applicable to the case at bar is Article 1678 of the Civil Code, which We quote:

Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable
to the use for which the lease is intended, without altering the form or substance of
the property leased, the lessor upon the termination of the lease shall pay the lessee
one-half of the value of the improvements at the time. Should the lessor refuse to
reimburse said amount, the lessee may remove the improvements, even though the
principal thing may suffer damage thereby. He shall not, however, cause any more
impairment upon the property leased than is necessary. ...

This article gives the lessor the option to appropriate the useful improvements by paying one-half of
their value, 6 And the lessee cannot compel the lessor to appropriate the improvements and make
reimbursement, for the lessee's right under the law is to remove the improvements even if the leased
premises may suffer damage thereby. But he shall not cause any more damage upon the property
than is necessary.

One last point. It appears that while the lease contract entered into by Stohner and Mrs. Charvet had
expired on August 31, 1957, he nevertheless continued in possession of the premises with the
acquiescence of Mrs. Charvet and later, of Balucanag. An implied new lease or tacita
reconduccion was thus created between the parties, the period of which is established by Article 1687
of the Civil Code thus:

Art. 1687. If the period for the lease has not been fixed, it is understood to be from
year to year, if the rent agreed upon is annual; from month to month, if it is monthly:
from week to week, if the rent is weekly: and from day to day, if the rent is to be paid
daily. ...
Under the above article, the duration of the new lease must be deemed from month to month, the
agreed rental in the instant case being payable on a monthly basis. The lessor may thus terminate the
lease after each month with due notice upon the lessee. After such notice, the lessee's right to
continue in possession ceases and his possession becomes one of detainer. Furthermore, Stohner's
failure to pay the stipulated rentals entities petitioner to recover possession of the premises.

WHEREFORE, the decision in Civil Case No. 67503 is hereby set aside, with costs against
respondent Stohner. The latter is ordered to vacate the premises in question and to pay Rogelio
Balucanag the rentals due from March 1969 up to the time he surrenders the premises, at the rate of
P40.00 a month.

SO ORDERED.

Makasiar (Chairman), Aquino, Concepcion, Jr., and Guerrero, JJ., concur.

De Castro, J., took no part.

 Separate Opinions

ABAD SANTOS, J.,  concurring and dissenting:

I concur in setting aside the decision in Civil Case No. 67503 of the defunct Court of First Instance of
Manila; and in ordering the respondent Stohner to pay the costs, to vacate the premises in question,
and to pav the petitioner the rentals due from March 1969 to the time he surrenders the premises at
the rate of P40.00 monthly. However, I cannot give my assent to that portion of the judgment with
respect to the house constructed by Stohner.

Stohner as a lessee is not a builder in good faith. This is elementary in property law.

Article 1678 of the Civil Code concerning improvements made by the lessee on the leased premises
applies only in the absence of stipulation on the matter between the lessor and the lessee. In the
instant case theres such a stipulation. A copy of the Lease Agreement which is found on page 13 of
the Rollo reads:

IV. The lessee may erect such buildings upor and make such improvements to the
leased land as he shall see fit. AR such buildings and improvements shall remain the
property of the lessee and he may remove them at any nine, it being agreed,
however, that should he not remove the 96d buildings and improvements within a
period of two months after the expiration of this Agreement, the Lessor may remove
the said buildings and improvements or cause them to be removed at the expense of
the Lessee.

The above-quoted stipulation has the force of law between the parties (Art. 1159, Civil Code) and
supersedes Art. 1678 of the Civil Code. Accordingly, the judgment with respect to the house which
was constructed by Stohner should be in line with the contract of lease.

 
G.R. No. L-19570             April 27, 1967

JOSE V. HILARIO, JR., plaintiff-appellant,

vs.
THE CITY OF MANILA, defendant-appellee,
DIRECTOR OF PUBLIC WORKS, CITY ENGINEER OF MANILA, FERNANDO BUSUEGO and
EUGENIO SESE, defendants-appellants,
MAXIMO CALALANG, intervenor;
DIRECTOR OF MINES, intervenor.

Maximo Calalang for plaintiff and appellant.

Gregorio Ejercito and Leandro L. Arguelles for defendant-appellee City of Manila.
Office of the Solicitor General for other defendants and appellants.

BENGZON, J.P., J.:

Dr. Jose Hilario was the registered owner of a large tract of land — around 49 hectares in area —
located at Barrio Guinayang, in San Mateo, Rizal. 1 Upon his death, this property was inherited by his
son, herein plaintiff-appellant Jose Hilario, Jr., to whom a new certificate of title 2 was issued.

During the lifetime of plaintiff's father, the Hilario estate was bounded on the western side by the San
Mateo River.3 To prevent its entry into the land, a bamboo and lumber post dike or ditch was
constructed on the northwestern side. This was further fortified by a stonewall built on the northern
side. For years, these safeguards served their purpose. However, in 1937, a great and extraordinary
flood occurred which inundated the entire place including the neighboring barrios and municipalities.
The river destroyed the dike on the northwest, left its original bed and meandered into the Hilario
estate, segregating from the rest thereof a lenticular place of land. The disputed area is on the eastern
side of this lenticular strip which now stands between the old riverbed site and the new course. 4

In 1945 the U.S. Army opened a sand and gravel plant within the premises 5 and started scraping,
excavating and extracting soil, gravel and sand from the nearby areas the River. The operations
eventually extended northward into this strip of land. Consequently, a claim for damages was filed
with the U.S. War Department by Luis Hilario, the then administrator of Dr. Hilario's estate. The U.S.
Army paid.6 In 1947, the plant was turned over to herein defendants-appellants and appellee who took
over its operations and continued the extractions and excavations of gravel and sand from the strip of
land along an area near the River.

On October 22, 1949, plaintiff filed his complaint7 for injunction and damages against the defendants
City Engineer of Manila, District Engineer of Rizal, the Director of Public Works, and Engr. Busuego,
the Engineer-in-charge of the plant. It was prayed that the latter be restrained from excavating,
bulldozing and extracting gravel, sand and soil from his property and that they solidarily pay to him
P5,000.00 as damages. Defendants' answer alleged, in affirmative defense, that the extractions were
made from the riverbed while counterclaiming with a prayer for injunction against plaintiff—who, it was
claimed, was preventing them from their operations.

Subsequently, the Bureau of Mines and Atty. Maximo Calalang were respectively allowed to join the
litigation as intervenors. The former complained that the disputed area was within the bed of the river
so that plaintiff should not only be enjoined from making extractions therefrom but should also be
ordered to pay the fees and penalties for the materials taken by him. On the other hand, the latter
claimed that he was authorized by plaintiff to extract materials from the disputed area but this
notwithstanding, the Provincial Treasurer of Rizal collected from him a sand and gravel fee which
would be an illegal exaction if the disputed area turns out to be of private ownership. Answers to the
two complaints in intervention were duly filed by the affected parties.

On March 14, 1954, defendants filed a petition for injunction against plaintiff and intervenor Calalang
in the same case, alleging that the latter have fenced off the disputed area in contravention of an
agreement8 had between the latter and the Director of Public Works wherein he defendants were
allowed to continue their operations but subject to the final outcome of the pending suit. It was prayed
that plaintiff and intervenor Calalang be ordered to remove the fence and allow defendants' men to
continue their operations unhampered. Opposition to this petition was filed by the other side, with a
prayer for counter injunction. On March 23, 1954, the lower court issued an order maintaining the
status quo and allowing the defendants to continue their extractions from the disputed area provided a
receipt9 in plaintiff's favor be issued for all the materials taken.

On May 13, 1954, plaintiff amended his complaint. Impleaded as additional defendants were the City
of Manila,10 the Provincial Treasurer of Rizal,11 and Engr. Eugenio Sese, the new Engineer-in-charge
of the plant. Plaintiff also converted his claim to one purely for damages directed against the City of
Manila and the Director of Public Works, solidarily, in the amount of P1,000,000.00, as the cost of
materials taken since 1949, as well as those to be extracted therefrom until defendants stop their
operations.

Came the separate amended answers of the several defendants. Manila City denied ownership of the
plant and claimed that the City Engineer, acted merely as a deputy of the Public Works Director. The
other defendants12 put up, as special defense, the agreement between plaintiff and the Public Works
Director, and asserted a P1.2 million counterclaim for damages against plaintiff. The rest 13 renewed
the same defense; that the disputed area was part of the public domain, since it was situated on the
riverbanks.

On November 3, 1954, the defendant City Engineer of Manila filed a petition to delimit the area of
excavation and asked the lower court to authorize his men to extend their operations west of the
camachile tree in the disputed area. This met vigorous opposition from plaintiff and intervenor
Calalang. On May 27, 1955, the petition was denied.

Finally, on December 21, 1956, the lower court rendered its decision on the merits. The dispositive
portion provided:14

WHEREFORE, judgment is hereby rendered against the defendants City of Manila and the
Director of Public Works, to pay solidarily the herein plaintiff the sum of P376,989.60, as the
cost of gravel and sand extracted from plaintiff's land, plus costs. Judgment is likewise hereby
rendered against the defendant Provincial Treasurer of Rizal, ordering him to reimburse to
intervenor Maximo Calalang the amount of P236.80 representing gravel fees illegally
collected. Finally, defendants herein are perpetually enjoined from extracting any sand or
gravel from plaintiff's property which is two-fifths northern portion of the disputed area.

It is so ordered.

None of the parties litigants seemed satisfied with this decision and they all sought a reconsideration
of the same. On August 30, 1957, the lower court resolved the motions to reconsider with an order,
the dispositive portion of which provided:15

WHEREFORE, the court hereby denies the motion for reconsideration filed by plaintiff and
intervenor Calalang; dismisses the complaint with respect to defendant City of Manila; holds
that the northern two-fifths portion of the area in controversy belongs to the plaintiff with right
to the immediate possession thereof and hereby enjoins the defendants and intervenor
Bureau of Mines to vacate the same and to stop from extracting gravel thereon. The Court
however hereby dismisses the case against the defendant Bureau of Public Works and its
agents and employees insofar as the claim for money is concerned without prejudice to
plaintiffs taking such action as he may deem proper to enforce said claim against the proper
party in accordance with law.

It is so ordered.

Still unsatisfied, plaintiff and intervenor Calalang filed a second motion for reconsideration. The lower
court stood firm on its ruling of August 30, 1957.16
Hence, this appeal.17 The defendants Director of Public Works, City Engineer of Manila, and Engrs.
Busuego and Sese have also appealed from the declaration made by the lower court that the northern
two-fifths of the disputed area belongs to plaintiff Hilario.

The parties herein have presented before this Court mixed questions of law and fact for resolution and
adjudication. Foremost among them is this legal query; when a river, leaving its old bed, changes its
original course and opens a new one through private property, would the new riverbanks lining said
course be of public ownership also?18

The defendants answer in the affirmative. They claim that under the Law of Waters of August 3, 1866,
the riverbanks are, by definition, considered part of the riverbed which is always of public ownership.
On the other hand, plaintiff would have the question resolved in the negative. He maintains that not all
riverbanks are of public ownership because: (1) Art. 372 of the old Civil Code, which governs this
particular case, speaks only of the new bed; nothing is said about the new banks; (2) Art. 73 of the
Law of Waters which defines the phrase "banks of a river" cannot be applied in the case at bar in
conjunction with the other articles cited by defendants since that article applies only to banks
of natural  riverbeds and the present, River is not in its natural bed; and (3) if all banks were of public
ownership, then Art. 553 of the old Civil Code and the second sentence, first paragraph of Art. 73 of
the Law of Waters can never have any application.

Since the change in the course of the River took place in 1937, long before the present Civil Code
took effect,19 the question before Us should be determined in accordance with the provisions of the
old Civil Code and those of the Law of Waters of August 3, 1866.

We agree with defendants that under the cited laws, all riverbanks are of public ownership —
including those formed when a river leaves its old bed and opens a new course through a private
estate. Art. 339 of the old Civil Code is very clear. Without any qualifications, it provides:

Property of public ownership is —

1. That devoted to public use, such as  roads, canals, rivers, torrents, ports and bridges
constructed by the State, riverbanks, shores, roadsteads, and that of a similar character;
(Emphasis supplied)

Moreover, as correctly contended by defendants, the riverbank is part of the riverbed. Art. 73 of the
Law of Waters which defines the phrase "banks of a river" provides:

By the phrase "banks of a river" is understood those lateral strips or zones of its bed which
are washed by the stream only during such high floods as do not cause inundations. ...
(Emphasis supplied)

The use the of words "of its bed [de sus alveos]" clearly indicates the intent of the law to
consider the banks — for all legal purposes — as part of the riverbed. The lower court also
ruled — correctly — that the banks of the River are paint of its bed. 20 Since undeniably all
beds of rivers are of public ownership,21 it follows that the banks, which form part of them, are
also of public ownership.

Plaintiff's contention that Arts. 70 and 73 of the Law of Waters cannot apply because Art. 312 of the
old Civil Code mentions only the new bed but omits the banks, and that said articles only apply
to natural  — meaning original — bed and banks is untenable. Art. 70, which defines beds of rivers
and creeks, provides:

The natural bed or channel of a creek or river is the ground covered by its waters during the
highest [ordinary] floods.22 (Emphasis supplied)

Art. 372 of the old Civil Code which provides that —

 Whenever a navigable or floatable river changes its course from natural causes and opens
a new bed  through a private estate, the new bed  shall be of public ownership, but the owner
of the estate shall recover it in the event that the waters leave it dry again either naturally or
as the result of any work legally authorized for this purpose. (Emphasis supplied)

did not have to mention the banks because it was unnecessary. The nature of the banks
always follows that of the bed and the running waters of the river. A river is a compound
concept consisting of three elements: (1) the running waters, (2) the bed and (3) the banks.
23 All these constitute the river. American authorities are in accord with this view:

'River' consists of water, a bed and banks.24

A "river" consists of water, a bed and banks, these several parts constituting the river, the
whole river. It is a compound idea; it cannot exist without all its paints. Evaporate the water,
and you have a dry hollow. If you could sink the bed, instead of a river, you would have a
fathomless gulf. Remove the banks, and you have a boundless flood. 25

Since a river is but one compound concept, it should have only one nature, i.e., it should either be
totally public or completely private. And since rivers are of public ownership, 26 it is implicit that all the
three component elements be of the same nature also. As Manresa commented:

Realmente no puede imaginarse un rio sin alveo y sin ribera; de suerte que al decir el Codigo
Civil que los rios son de dominio publico, parece que debe ir implicito el dominio publico de
anquellos tres elementos que integran el rio.27

However, to dispel all possible doubts, the law expressly makes all three elements public. Thus,
riverbanks and beds are public under Arts. 339 and 407, respectively, of the Code, while the flowing
waters are declared so under Art. 33, par. 2 of the Law of Waters of 1866.

Articles 70, 72 and 73 of the Law of Waters speak of natural beds and their banks. Plaintiff now
equates the term "natural" with the word "original" so that a change in the course of a river would
render those articles inapplicable. However, the premise is incorrect. Diccionario De La Real
Academia Española  defines the word "natural" as follows:

NATURAL — perteneciente a la naturaleza o conforme a la calidad o propriedad de las

cosas; nativo, originario de un pueblo o nacion; hecho con verdad, ni artificio, mezcla ni
composicion alguna; ingenuo y sin doblez en su modo de proceder; diceze tambien de las
cosas que imitar a la naturaleza con propiedad; regular y que comunmente sucede, y por
eso, facilmente creible; que se produce por solas las fuerzas de la naturaleza, como
contrapuesto a sobre natural y milagroso, (Emphasis supplied)

"Natural" is not made synonymous to "original" or "prior condition". On the contrary, even if a river
should leave its original bed so long as it is due to the force of nature, the new course would still fall
within the scope of the definition provided above. Hence, the law must have used the word "natural"
only because it is in keeping with the ordinary nature and concept of a river always to have a bed and
banks.

Plaintiff's third point is not lightly to be taken. Indeed, it would seem possible to acquire private
ownership of banks under Art. 553 of the old Civil Code which provides:

Las riberas de los rios, aun cuando sean de dominio privado, estan sujetas en toda su
extension y en sus margenes, en una zona de tres metros, a la servidumbre de uso publico
en interes general de la navegacion, la flotacion, la pesca y el salvamento. (Emphasis
supplied) .

And plaintiff is not without jurisprudential backing for in Commonwealth vs. Gungun,28 it was
said that the private ownership of the banks was not prohibited. His point is then neatly
 brought home with the proposition that it is precisely when a river changes its course and
opens a new bed through a private estate that there can be private ownership of the banks.

A study of the history of Art. 553 will however reveal that it was never intended to authorize the private
acquisition of riverbanks. That could not have been legally possible in view of the legislative policy
clearly enunciated in Art. 339 of the Code that all riverbanks were of public ownership. The article
merely recognized and preserved the vested rights of riparian owners who, because of prior law or
custom, were able to acquire ownership over the banks. This was possible under the Siete
Partidas  which was promulgated in 1834 yet.29 Under Law 6, Title 28, Partidas 3, the banks of rivers
belonged to the riparian owners, following the Roman Law rule.30 In other words, they were privately
owned then. But subsequent legislation radically changed this rule. By the Law of Waters of August 3,
1866, riverbanks became of public ownership, albeit impliedly only because considered part of the
bed — which was public — by statutory definition.31 But this law, while expressly repealing all prior
inconsistent laws, left undisturbed all vested rights then existing. 32 So privately owned banks then
continued to be so under the new law, but they were subjected by the latter to an easement for public
use. As Art. 73 provides:

Se entienden por riberas de un rio las fajas o zonis laterales de sus alveos que solamente sor
bañadas por las aguas en las crecidas que no causan inundacion. El dominio privado de las
riberas esta suieto a la survidumbre de tres metros de zona para uso publico, en el interest
general de la navegacion, la flotacion, la pesca y el salvamento. ... (Emphasis
supplied).1äwphï1.ñët

This was perhaps the reconciliation effected between the private ownership of the banks, on the one
hand, and the policy of the law on the other hand, to devote all banks to public use. 33 The easement
would preserve the private ownership of the banks and still effectuate the policy of the law. So, the
easement in Art. 73 only recognized and preserved existing privately owned banks; it did not
authorize future private appropriation of riverbanks.

The foregoing observation is confirmed by the still subsequent Law of Waters of June 13, 1879, which
was principally based on the Law of August 3, 1865. 34 Art. 36 of the new law, which was a substantial
reenactment of Art. 73 of the Law of Waters of August 3, 1866, reads:

Las riberas, aun cuando sean de dominio privado en virtud de antigue ley o de costumbre,
estan sujetas en toda su extension las margenes en una zona de tres metros, a la
servidumbre de uso publico en interes general de la navegacion, la flotacion la pesca y el
salvamento. ... (Emphasis supplied)

The new law also affirmed the public ownership of rivers and their beds, and the treatment of the
banks as part of the bed.35 But nowhere in the law was there any provision authorizing the private
appropriation of the banks. What it merely did was to recognize the fact that at that time there were
privately owned banks pursuant to the Siete Partidas, and to encumber these with an easement for
public use.

However, the public nature of riverbanks still obtained only by implication. But with the promulgation of
the Civil Code of 1889, this fact was finally made explicit in Art. 339 thereof. Riverbanks were
declared as public property since they were destined for public use. And the first paragraph of Art. 36
of the Law of Waters of 1879 was substantially reenacted in Art. 553 of the Code. 36 Hence, this article
must also be understood not as authorizing the private acquisition of riverbanks but only as
recognizing the vested titles of riparian owners who already owned the banks.

The authority, then, for the private ownership of the banks is neither the old Civil Code nor the Law of
Waters of 1866 but the Siete Partidas. Unfortunately, plaintiff cannot invoke it. Law 6, Title 28, Partida
3, which provides for private ownership of banks, ceased to be of force in this jurisdiction as of 1871
yet when the Law of Waters of August 3, 1866, took effect. 37 Since the change in the course of the
River took place in 1937, the new banks which were formed could not have been subjected to the
provisions of the Siete Partidas which had already been superseded by then.
Coming to the factual issues: both parties assail the conclusion made by the lower court that only the
northern two-fifths of the disputed area remained as plaintiff's private property. This conclusion was
apparently based on the findings that the portion where rice and corn were found 38 in the ocular
inspection of June 15, 1951, was on the northern two-fifths of the disputed area; that this cannot be a
part of the bed because of the existence of vegetation which could not have grown underwater, and
that this portion is man-made. However, there is no evidentiary basis for these findings. The area
indicated by Nos. 1 and 2 in Exh. D-1 where no excavations had been made, appears to be more on
the south-western one-fourth of the disputed area. The American cases 39 cited by the lower court
cannot apply here. Our Law of Waters, in defining "beds" and considers the latter is part of the former.
Those cited cases did not involve a similar statutory provision. That plants can and do grow on the
banks which otherwise could not have grown in the bed which is constantly subjected to the flow of
the waters proves the distinction between "beds" and "banks" in the physical order. However, We are
dealing with the legal order where legal definitions prevail. And apart from these considerations, We
also note the considerable difficulty which would attend the execution of the ruling of the lower court.
The latter failed to indicate fixed markers from which an exact delimitation of the boundaries of the
portion could be made. This flaw is conducive to future litigations.

Plaintiff's theory is that the disputed area, although covered at times by flood waters, cannot be
considered as within the banks of the River because: (1) such floods are only accidental, and (2) even
if they are regular, the flooding of the area is due to the excavations and extractions made by
defendants which have caused the widening of the channel. 40 Defendants claim, however, that the
area is always covered by the normal yearly floods and that the widening of the channel is due to
natural causes.

There is a gravel pit41 located along the west side of the River. This is about 500 meters long. 42 A
greater part of this pit occupies a portion of the strip of land that was sliced by the River from the rest
of the Hilario estate. As shown in Exhs. D and D-1, this strip of land is that western segment of the
Hilario estate bounded on the west by the same lines connecting stakes 23 through 27, which form
part of the western boundary of the estate, and on the east, bounded by the western waterline of the
River.

Now, the disputed area, generally speaking,43 is only that part of the gravel pit which is within the strip
of land. Its northern tip is that point where the so-called "secondary bank" line intersects the west
River waterline up north; its southern boundary is along the line connecting stakes 23 and 24. From
these two ends, the disputed area measures approximately 250 meters long. The eastern boundary is
the western River waterline at low tide and the western boundary is the "secondary bank" line, a line
passing near stake 24 and running almost parallel to the line connecting stakes 25 and 26. Around the
later part of 1949, the disputed area was about 150 to 160 meters wide. 44 This increased to about 175
to 180 meters by the later part of 1950. And by January, 1953, the distance from the "secondary
bank" line to the west waterline was about 230 meters. 45

This increasing width of the disputed area could be attributed to the gradual movement of the River to
the east. Since it entered into the Hilario estate, the River has not stayed put. 46 Vicente Vicente,
plaintiff's witness declared47 that after the River changed its course in 1937, the distance between the
old and the new river sites was about 100 meters. Exh. D-2 shows that in 1943, the south end of the
River was about 5 meters southeast of stake 24.48 Honorato Sta. Maria, another witness for plaintiff,
indicated the flow of this course with a blue line in Exh. D-1. 49 This blue line is about 100 meters from
the line connecting stakes 25 and 26, which was also the east boundary of the old River. 50 Around
1945 to 1949, the River was about 193 meters 51 east of this line. This measurement is based on the
testimonies of two defense witnesses52 and stated that during that period, the River passed along the
Excavated Area and the New Accretion Area53 sites, as shown in Exh. 54. By the later part of 1949 up
to November 1950, the west waterline was from 248 to 270 meters 54 east of the aforesaid boundary
line. And finally in January, 1953, based on the scale in Exh. 3-Calalang, the west waterline was from
300 to 305 meters away already. Hence, from 100 meters in 1937, the River had moved to 305
meters eastward  in 1953.

There are two questions to be resolved here. First, where on the strip of land are the lateral borders of
the western riverbank? And second, where have defendants made their extractions?
Anent the first question, the key is supplied by Art. 73 of the Law of Waters which defines the limits of
banks of rivers —

By the phrase "banks of a river" is understood those lateral strips or zones of its bed which
are washed by the stream only during such high floods as do not cause in inundations. ...
(Emphasis supplied)

The farthest extremity of the bank on the west side would, therefore, be that lateral line or
strip which is reached by the waters during those high floods that do not cause inundations. In
other words, the extent reached by the waters when the River is at high tide.

However, there is a difference between the topography of the two sides immediately adjoining the
River. The line indicated as "primary bank"55 in Exh. 3-Calalang, which is on the east, is about 3
meters high and has a steep grade right at the edge where it drops almost vertically to the
watercourse level. The precipice here, which is near the east waterline, is very easily detectible. But
the opposite side has no such steep activity. In fact, it is almost flat with the bed of the River,
especially near the water edge, where it is about 30 to 50 cms. high only. But it gradually slopes up to
a height of about 2 to 2-½ meters along the line indicated as "secondary bank", which is quite far from
the waterline. This "bank" line is about 1-½ meters higher than the level of the gravel pit and there are
erosions here. This is about 175 meters west from the November 1950 waterline, and about 100
meters west from the camachile tree.56

During the dry season, the waterlevel of the River is quite low — about knee-deep only. However,
during the rainy season, the River generally becomes swollen, and the waterlevel rises, reaching up
to the neck.57 However, considering the peculiar characteristics of the two sides banking the river, the
rise in the waterlevel would not have the same effect on the two sides. Thus, on the east, the water
would rise vertically, until the top of the "primary bank" is reached, but on the west, there would be a
low-angled inclined rise, the water covering more ground until the "secondary bank" line is reached. In
other words, while the water expansion on the east is vertical, that on the west is more or less lateral,
or horizontal.

The evidence also shows that there are two types of floods in the area during the rainy season. 58 One
is the so-called "ordinary" flood, when the river is swollen but the flowing water is kept within the
confines, of the "primary" and "secondary" banks. This occurs annually, about three to four times
during the period. Then there is the "extraordinary" flood, when the waters overflow beyond the said
banks, and even inundate the surrounding areas. However, this flood does not happen regularly.
From 1947 to 1955, there were only three such floods. 59 Now, considering that the "ordinary" flood
easily cover the west side — since any vertical rise of the waterlevel on the east would necessarily be
accompanied by a lateral water expansion on the west — the "inundations" which the law mentions
must be those caused by the "extraordinary" floods which reach and overflow beyond both "primary"
and "secondary" banks. And since the "primary" bank is higher than the "secondary" bank, it is only
when the former is reached and overflowed that there can be an inundation of the banks — the two
banks. The question therefore, may be stated thus: up to what extent on the west side do the highest
flood waters reach when the "primary" bank is not overflowed?

Defendants have presented several witnesses who testified on the extent reached by the ordinary
flood waters. David Ross, a bulldozer operator at the plant since 1945, testified 60 that from 1945 to
1949, when the River was still passing along the site where the camachile tree is located, the annual
flood waters reached up to the "secondary bank" line. These floods usually took from 3 to 5 days to
recede, during which time their work was suspended. Corroboration is supplied by Macario Suiza, a
crane operator in the plant since 1945, and by Fidel Villafuerte, a plant employee since 1946. Suiza
stated61 that from 1947 to 1949, the area enclosed within the blue lines and marked as Exh. 54-B —
which includes the New Accretion Area was always covered by water when it rained hard and they
had to stop work temporarily. The western extremity of this area reaches up to the "secondary bank"
line. Villafuerte stated62 that in the ordinary floods when the water was just 50 cm. below the top of the
"primary bank", the waters would go beyond the camachile tree by as much as 100 meters westward
and just about reach the "secondary bank" line. Further corroboration is supplied by plaintiff's own
evidence. Exh. 1-Calalang states that from 1947 to 1949, based on the casual observations made by
geologist David Cruz, the area between the "primary" and "secondary" banks were always covered by
the non-inundating ordinary floods.

From 1950 to 1952, We have the testimony of Ross who stated 63 that there were still floods but they
were not as big anymore, except one flood in 1952, since the River had already moved to the east.
Engr. Ricardo Pacheco, who made a survey of the disputed area in November 1952, and who
conducted actual observations of the extent of the water reach when the river was swollen,
testified64 that the non-inundating flood regularly reached up to the blue zigzag line along the disputed
area, as shown in Exh. I-City Engineer Manila. This blue line, at the point where it intersects line
BB,65 is about 140 meters west of the waterline and about 20 meters west of the camachile tree. His
testimony was based on three floods66 which he and his men actually recorded. Corroboration is again
supplied by Exh. 1-Calalang. According to Cruz' report, the floods in 1950 and 1951 barely covered
the disputed area. During the normal days of the rainy season, the waters of the swollen river did not
reach the higher portions of the gravel pit which used to be submerged. One cause for this was the
lesser amount of rainfall from 1949 to 1951. But two floods occurred from October 16 to 28, 1952,
which overflowed the whole area and inundated the banks. From 1953 to 1955, when the River was
farther away to the east, the flood waters still covered the west side. 67 Testifying on the extent
reached by the water during the rainy season in 1954, Ross stated 68 that it reached up to the
camachile tree only. The last and latest data comes from Engr. Magbayani Leaño, the Engineer-in-
charge of the plant from August 1954. He testified 69 that as of December 1955, when the disputed
area was underwater, the water reach was about 20 meters or less to the east from the camachile
tree.

From all the foregoing, it can be safely concluded: (1) that from 1945 to 1949, the west bank of the
River extended westward up to the "secondary bank" line; (2) that from 1950 to 1952, this bank had
moved, with the River, to the east its lateral borders running along a line just 20 meters west of the
camachile tree; and (3) that from 1953 to 1955, the extremities of the west bank further receded
eastward beyond the camachile tree, until they lay just about 20 meters east of said tree.

To counteract the testimonies of the defense witnesses, plaintiff presented two rebuttal
witnesses70 who told a somewhat different story. However, their testimonies are not convincing
enough to offset the dovetailing testimonies of the defense witnesses who were much better qualified
and acquainted with the actual situs of the floods. And said defense witnesses were corroborated by
plaintiffs' own evidence which contradicts the aforesaid rebuttal witnesses.

However, plaintiff maintains that the floods which cover the area in question are merely accidental and
hence, under Art. 77 of the Law of Waters,71 and following the ruling in Government vs. Colegio de
San Jose,72 he is deemed not to have lost the inundated area. This is untenable. Plaintiff's own
evidence73 shows that the river floods with annual regularity during the rainy season. These floods can
hardly be called "accidental." The Colegio de San Jose case is not exactly in point. What was mainly
considered there was Art. 74 of the Law of Waters relating to lakes, ponds and pools. In the case at
bar, none of these is involved.

Also untenable is plaintiff's contention that the regular flooding of the disputed area was due to the
continuous extraction of materials by defendants which had lowered the level of said area and caused
the consequent widening of the channel and the river itself. The excavations and extractions of
materials, even from the American period, have been made only on the strip of land west of the
River.74 Under the "following-the-nature-of-things" argument advanced by plaintiff, the River should
have moved westward, where the level of the ground had been lowered. But the movement has been
in the opposite direction instead. Therefore, it cannot be attributed to defendants' operation.
Moreover, plaintiff's own evidence indicates that the movement eastward was all due to natural
causes. Thus, Exh. 1-Calalang shows that the movement eastward of the channel by as much as 31
meters, from 1950 to 1953, was due to two typhoons which caused the erosion of the east bank and
the depositing of materials on the west side which increased its level from as much as .93 to 2 meters.

Plaintiff's assertion that the defendants also caused the unnatural widening of the River is unfounded.
Reliance is made on the finding by the lower court that in 1943, the River was only 60 meters wide as
shown in Exh. D-2, whereas in 1950, it was already 140 meters wide as shown in Exh. D. However,
Exh. D-2 only shows the width of the River near the southwestern boundary of the Hilario estate. It
does not indicate how wide it was in the other parts, especially up north. And Eligio Lorenzo, plaintiff's
own witness, admitted75 on cross-examination that the width of the new river was not uniform. This is
confirmed by Exhs. D and D-1 which show that the new river was wider by as much as 50% up north
than it was down south. The 140-meter distance in Exh. D was at the widest part up north whereas
down south, near the mouth of the Bulobok River, it was only 70 meters wide. Lastly, the scale in Exh.
3-Calalang will show that in January 1953, the River, near the same point also, was less than 50
meters wide.

The only remaining question now is to determine if the defendants have really confined their
operations within the banks of the River as alleged by them. To resolve this, We have to find out from
what precise portion in the disputed area the defendants have extracted gravel and sand since they
did not extract indiscriminately from within the entire area. None of the parties' briefs were very helpful
but the evidence on record discloses that defendants made their extractions only within specified
areas during definite periods.

From 1947 to the early part of 1949, the defendants conducted their operations only in the New
Accretion Area along a narrow longitudinal zone contiguous to the watercourse then. This zone,
marked as Exh. 2-City Engineer Manila, is about one (1) km. long and extends northward up to pt.
50.35 in Exh. 54. However, no extractions nor excavations were undertaken west of this zone, i.e.,
above the "temporary bank" line.76 These facts are corroborated by plaintiff's witnesses. That the
extractions were near the river then finds support in Vicente's testimony 77 while Leon Angeles and
Mrs. Salud Hilario confirm the fact that defendants have not gone westward beyond the "temporary
bank" line.78 This line is located east of the "secondary bank" line, the lateral extremity of the west
bank then.

In the later part of 1949, plaintiff prohibited the defendants from extracting along the New Accretion
Area and constructed a fence across the same. This forced the defendants to go below southeast of
— the "Excavated Area" and the New Accretion Area sites in Exh. 54. 79 Engr. Busuego, testifying80 in
1952, indicated their are of extraction as that enclosed within the red dotted line in Exh. D-1 which lies
on the south end of the strip of land. Only a small portion of the southeastern boundary of the
disputed area is included. The ocular inspection conducted on June 15, 1951, confirms this. 81 Exh. 4-
Calalang shows the total amount of materials taken from within the area from 1949 to 1951. 82 Thus,
from 1950 up to 1953, although the defendants were able to continue their operations because of the
agreement between the plaintiff and the Director of Public Works, 83 they were confined only to the
southeastern portion of the disputed area. On the other hand, the lateral extremities of the west bank
then ran along a line about 20 meters west of the camachile tree in the New Accretion Area.

From 1954 to 1955, defendants' area of operation was still farther near of the New Accretion Area.
They were working within a confined area along the west waterline, the northern and western
boundaries of which were 20 meters away east from the camachile tree. 84 Ross indicated85 this zone
in Exh. 54 as that portion on the southern end of the disputed area between the blue lines going
through the words "Marikina River Bed" and the red zigzag line indicating the watercourse then. Engr.
Leaño even stated, 86 that they got about 80% of the materials from the river itself and only 20% from
the dry bed. The sand and gravel covered by Exhs. LL to LL-55 were all taken from here. The
foregoing facts are not only corroborated by Mrs. Hilario 87 but even admitted by the plaintiff in his
opposition88 to defendants' petition to extend their area of operation west of the camachile tree. And
because their petition was denied, defendants could not, and have not, 89 gone beyond the lateral line
about 20 meters east from said tree, which has already been established as the lateral extremity of
the west bank during the period.

It appears sufficiently established, therefore, that defendants have not gone beyond the receding
western extremities of the west riverbank. They have confined their extraction of gravel and sand only
from within the banks of the river which constitute part of the public domain — wherein they had the
right to operate. Plaintiff has not presented sufficient evidence that defendants have gone beyond the
limits of the west bank, as previously established, and have invaded his private estate. He cannot,
therefore, recover from them.

As a parting argument, plaintiff contends that to declare the entire disputed area as part of the
riverbanks would be tantamount to converting about half of his estate to public ownership without just
compensation. He even adds that defendants have already exhausted the supply in that area and
have unjustly profited at his expense. These arguments, however, do not detract from the above
conclusions.

First of all, We are not declaring that the entire channel, i.e., all that space between the "secondary
bank" line and the "primary bank" line, has permanently become part of the riverbed. What We are
only holding is that at the time the defendants made their extractions, the excavations were within the
confines of the riverbanks then. The "secondary bank" line was the western limit of the west bank
around 1945 to 1949 only. By 1955, this had greatly receded to the line just 20 meters east of the
camachile tree in the New Accretion Area. All that space to the west of said receding line 90 would still
be part of plaintiff's property — and also whatever portion adjoining the river is, at present, no longer
reached by the non-inundating ordinary floods.

Secondly, it is not correct to say that plaintiff would be deprived of his property without any
compensation at all. Under Art. 370 of the old Civil Code, the abandoned bed of the old river belongs
to the riparian owners either fully or in part with the other riparian owners. And had the change
occurred under the Civil Code of the Philippines, plaintiff would even be entitled to all of the old bed in
proportion to the area he has lost.91

And, lastly, defendants cannot be accused of unjustly profiting at plaintiff's expense. They were not
responsible for the shifting of the River. It was due to natural causes for which no one can be blamed.
And defendants were extracting from public property then, under proper authorization. The
government, through the defendants, may have been enriched by chance, but not unjustly.

Considering the conclusions We have thus reached, the other questions involved in the remaining
assignments of errors — particularly those apropos the doctrine of state immunity from suit and the
liability of defendant City of Manila — are rendered moot.

Wherefore, the decision and orders appealed from are hereby set aside and another judgment is
hereby entered as follows:

(1) Defendants City of Manila and the Director of Public Works and his agents and employees
are hereby absolved from liability to plaintiff since they did not extract materials from plaintiff's
property but from the public domain.

(2) All that portion within the strip of land in question, starting from the line running parallel to
the western waterline of the river and twenty meters east from the camachile tree in the New
Accretion Area measured along line AA in Exhs. 3-Calalang, 13 and 54, and going to the west
up to the western boundaries of the Hilario estate, is hereby declared as not part of the public
domain and confirmed as part of plaintiff's private property. No costs. So ordered.
G.R. No. L-61647 October 12, 1984

REPUBLIC OF THE PHILIPPINES (DIRECTOR OF LANDS), petitioner,

vs.
THE HON. COURT OF APPEALS, BENJAMIN TANCINCO, AZUCENA TANCINCO REYES,
MARINA TANCINCO IMPERIAL and MARIO C. TANCINCO, respondents.

The Solicitor General for petitioner.

Martin B. Laurea for respondents.

GUTIERREZ, JR., J.:

This is a petition for certiorari to set aside the decision of the respondent Court of Appeals (now
Intermediate Appellate Court) affirming the decision of the Court of First Instance of Bulacan, Fifth
Judicial District, Branch VIII, which found that Lots 1 and 2 of Plan Psu-131892 are accretion to the
land covered by Transfer Certificate of Title No. 89709 and ordered their registration in the names of
the private respondents.

Respondents Benjamin Tancinco, Azucena Tancinco Reyes, Marina (should be "Maria") Tancinco
Imperial and Mario C. Tancinco are registered owners of a parcel of land covered by Transfer
Certificate of Title No. T-89709 situated at Barrio Ubihan, Meycauayan, Bulacan bordering on the
Meycauayan and Bocaue rivers.

On June 24, 1973, the private respondents filed an application for the registration of three lots
adjacent to their fishpond property and particularly described as follows: têñ.£îhqwâ£

Lot 1-Psu-131892
(Maria C. Tancinco)

A parcel of land (lot 1 as shown on plan Psu-131892), situated in the Barrio of

Ubihan, Municipality of Meycauayan, Province of Bulacan. Bounded on the NE.,
along line 1-2, by Lot 3 of plan Psu-131892; on the SE., along lines 2-3-4, by
Meycauayan River; on the S.W., along fines 4-5-6-7-8-9, by Bocaue River; on the
NE., along line 9-10, by property of Joaquina Santiago; on the E., NE., and NW.,
along lines 10-11-12-1, by property of Mariano Tancinco (Lot 2, Psu-111877). ...
containing an area of THIRTY THREE THOUSAND NINE HUNDRED THIRTY
SEVEN (33,937) SQUARE METERS. ...

Lot 2-Psu-131892
(Maria C. Tancinco)

A parcel of land (Lot 2 as shown on plan Psu-131892), situated in the Barrio of

Ubihan, Municipality of Meycauayan, Province of Bulacan. Bounded on the E., along
line 1-2, by property of Rafael Singson; on the S., along line 2-3, by Meycauayan
River; on the SW., along line 3-4, by Lot 3 of plan Psu-131892; and on the N., along
line 4-1, by property of Mariano Tancinco (Lot 1, Psu-111877). ... containing an area
of FIVE THOUSAND FOUR HUNDRED FIFTY THREE (5,453) SQUARE
METERS. ...

Lot 3-Psu-131892
(Maria C. Tancinco)

A parcel of land (Lot 3 as shown on plan Psu-131892), situated in the Barrio of

Ubihan, Municipality of Meycauayan, Province of Bulacan. Bounded on the NE.,
 along line 1-2, by property of Mariano Tancinco (Lot 1, Psu-111877); and along line
2-3, by Lot 2 of plan Psu-131892; on the S., along line 3-4, by Meycauayan River, on
the SW., along line 4-5, by Lot 1 of plan Psu-131892; and along line 5-6 by property
of Mariano Tancinco (Lot 2, Psu-111877), and on the NW., along line 6-1, by property
of Joaquina Santiago. ... containing an area of ONE THOUSAND NINE HUNDRED
EIGHTY FIVE (1,985) SQUARE METERS. ...

On April 5, 1974, Assistant Provincial Fiscal Amando C. Vicente, in representation of the Bureau of
Lands filed a written opposition to the application for registration.

On March 6, 1975, the private respondents filed a partial withdrawal of the application for registration
with respect to Lot 3 of Plan Psu-131892 in line with the recommendation of the Commissioner
appointed by the Court.

On March 7, 1975, Lot 3 was ordered withdrawn from the application and trial proceeded only with
respect to Lots 1 and 2 covered by Plan Psu-131892.

On June 26, 1976, the lower court rendered a decision granting the application on the finding that the
lands in question are accretions to the private respondents' fishponds covered by Transfer Certificate
of Title No. 89709. The dispositive portion of the decision reads: têñ.£îhqwâ£

WHEREFORE, it appearing that Lots 1 & 2 of plan Psu-131892 (Exh. H) are

accretions to the land covered by Transfer Certificate of Title No. 89709 of the
Register of Deeds of Bulacan, they belong to the owner of said property. The Court,
therefore, orders the registration of lots 1 & 2 situated in the barrio of Ubihan,
municipality of Meycauayan, province of Bulacan, and more particularly described in
plan Psu-131892 (Exh. H) and their accompanying technical descriptions (Exhs. E, E-
1) in favor of Benjamin Tancinco, married to Alma Fernandez and residing at 3662
Heatherdown, Toledo, Ohio 43614 U.S.A.; Azucena Tancinco Reyes, married to Alex
Reyes, Jr., residing at 4th St., New Manila, Quezon City; Marina Tancinco Imperial,
married to Juan Imperial, residing at Pasay Road, Dasmariñas Village, Makati, Rizal;
and Mario C. Tancinco, married to Leticia Regidor, residing at 1616 Cypress St.,
Dasmariñas Village, Makati, Rizal, all of legal age, all Filipino citizens.

On July 30, 1976, the petitioner Republic appealed to the respondent Court of Appeals.

On August, 19, 1982, the respondent Court rendered a decision affirming in toto the decision of the
lower court. The dispositive portion of the decision reads: têñ.£îhqwâ£

DAHIL DITO, ang hatol na iniakyat ay sinasangayunan at pinagtitibay sa kanyang

kabuuan nang walang bayad.

The rule that the findings of fact of the trial court and the Court of Appeals are binding upon this Court
admits of certain exceptions. Thus in Carolina Industries Inc. v. CMS Stock Brokerage, Inc. (97 SCRA
734) we held that this Court retains the power to review and rectify the findings of fact of said courts
when (1) the conclusion is a finding grounded entirely on speculations, surmises and conjectures; (2)
when the inference made is manifestly mistaken, absurd, and impossible; (3) where there is grave
abuse of discretion, (4) when the judgment is based on a misapprehension of facts; and (5) when the
court, in making its findings, went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee.

There are facts and circumstances in the record which render untenable the findings of the trial court
and the Court of Appeals that the lands in question are accretions to the private respondents'
fishponds.

The petitioner submits that there is no accretion to speak of under Article 457 of the New Civil Code
because what actually happened is that the private respondents simply transferred their dikes further
down the river bed of the Meycauayan River, and thus, if there is any accretion to speak of, it is man-
made and artificial and not the result of the gradual and imperceptible sedimentation by the waters of
the river.

On the other hand, the private respondents rely on the testimony of Mrs. Virginia Acuña to the effect
that: têñ.£îhqwâ£

xxx xxx xxx

... when witness first saw the land, namely, Lots 1 & 2, they were already dry almost
at the level of the Pilapil of the property of Dr. Tancinco, and that from the boundaries
of the lots, for about two (2) arms length the land was still dry up to the edge of the
river; that sometime in 1951, a new Pilapil was established on the boundaries of Lots
1 & 2 and soil from the old Pilapil was transferred to the new Pilapil and this was done
sometime in 1951; that the new lots were then converted into fishpond, and water in
this fishpond was two (2) meters deep on the side of the Pilapil facing the
fishpond ... .

The private respondents submit that the foregoing evidence establishes the fact of accretion without
human intervention because the transfer of the dike occurred after the accretion was complete.

We agree with the petitioner.

Article 457 of the New Civil Code provides: têñ.£îhqwâ£

To the owners of lands adjoining the banks of rivers belong the accretion which they
gradually receive from the effects of the current of the waters.

The above-quoted article requires the concurrence of three requisites before an accretion covered by
this particular provision is said to have taken place. They are (1) that the deposit be gradual and
imperceptible; (2) that it be made through the effects of the current of the water; and (3) that the land
where accretion takes place is adjacent to the banks of rivers.

The requirement that the deposit should be due to the effect of the current of the river is
indispensable. This excludes from Art. 457 of the New Civil Code all deposits caused by human
intervention. Alluvion must be the exclusive work of nature. In the instant case, there is no evidence
whatsoever to prove that the addition to the said property was made gradually through the effects of
the current of the Meycauayan and Bocaue rivers. We agree with the observation of the Solicitor
General that it is preposterous to believe that almost four (4) hectares of land came into being
because of the effects of the Meycauayan and Bocaue rivers. The lone witness of the private
respondents who happens to be their overseer and whose husband was first cousin of their father
noticed the four hectare accretion to the twelve hectare fishpond only in 1939. The respondents claim
that at this point in time, accretion had already taken place. If so, their witness was incompetent to
testify to a gradual and imperceptible increase to their land in the years before 1939. However, the
witness testified that in that year, she observed an increase in the area of the original fishpond which
is now the land in question. If she was telling the truth, the accretion was sudden. However, there is
evidence that the alleged alluvial deposits were artificial and man-made and not the exclusive result of
the current of the Meycauayan and Bocaue rivers. The alleged alluvial deposits came into being not
because of the sole effect of the current of the rivers but as a result of the transfer of the dike towards
the river and encroaching upon it. The land sought to be registered is not even dry land cast
imperceptibly and gradually by the river's current on the fishpond adjoining it. It is under two meters of
water. The private respondents' own evidence shows that the water in the fishpond is two meters
deep on the side of the pilapil facing the fishpond and only one meter deep on the side of the pilapil
facing the river

The reason behind the law giving the riparian owner the right to any land or alluvion deposited by a
river is to compensate him for the danger of loss that he suffers because of the location of his land. If
estates bordering on rivers are exposed to floods and other evils produced by the destructive force of
the waters and if by virtue of lawful provisions, said estates are subject to incumbrances and various
kinds of easements, it is proper that the risk or danger which may prejudice the owners thereof should
be compensated by the right of accretion. (Cortes v. City of Manila, 10 Phil. 567). Hence, the riparian
owner does not acquire the additions to his land caused by special works expressly intended or
designed to bring about accretion. When the private respondents transferred their dikes towards the
river bed, the dikes were meant for reclamation purposes and not to protect their property from the
destructive force of the waters of the river.

We agree with the submission of the Solicitor General that the testimony of the private respondents'
lone witness to the effect that as early as 1939 there already existed such alleged alluvial deposits,
deserves no merit. It should be noted that the lots in question were not included in the survey of their
adjacent property conducted on May 10, 1940 and in the Cadastral Survey of the entire Municipality of
Meycauayan conducted between the years 1958 to 1960. The alleged accretion was declared for
taxation purposes only in 1972 or 33 years after it had supposedly permanently formed. The only valid
conclusion therefore is that the said areas could not have been there in 1939. They existed only after
the private respondents transferred their dikes towards the bed of the Meycauayan river in 1951.
What private respondents claim as accretion is really an encroachment of a portion of the
Meycauayan river by reclamation.

The lower court cannot validly order the registration of Lots 1 & 2 in the names of the private
respondents. These lots were portions of the bed of the Meycauayan river and are therefore classified
as property of the public domain under Article 420 paragraph 1 and Article 502, paragraph 1 of the
Civil Code of the Philippines. They are not open to registration under the Land Registration Act. The
adjudication of the lands in question as private property in the names of the private respondents is null
and void.

WHEREFORE, the instant petition is GRANTED. The decision appealed from is hereby REVERSED
and SET ASIDE. The private respondents are ordered to move back the dikes of their fishponds to
their original location and return the disputed property to the river to which it belongs.

SO ORDERED.1äwphï1.ñët
G.R. No. 134329           January 19, 2000

VERONA PADA-KILARIO and RICARDO KILARIO, petitioners,

vs.
COURT OF APPEALS and SILVERIO PADA, respondents.

DE LEON, JR., J.:

The victory1 of petitioner spouses Ricardo and Verona Kilario in the Municipal Circuit Trial Court 2 in an
ejectment suit3 filed against them by private respondent Silverio Pada, was foiled by its reversal 4 by
the Regional Trial Court5 on appeal. They elevated their cause6 to respondent Court of Appeals7 which,
however, promulgated a Decision8 on May 20, 1998, affirming the Decision of the Regional Trial
Court.

The following facts are undisputed:

One Jacinto Pada had six (6) children, namely, Marciano, Ananias, Amador, Higino, Valentina and
Ruperta. He died intestate. His estate included a parcel of land of residential and coconut land located
at Poblacion, Matalom, Leyte, denominated as Cadastral Lot No. 5581 with an area of 1,301.92
square meters. It is the northern portion of Cadastral Lot No. 5581 which is the subject of the instant
controversy.

During the lifetime of Jacinto Pada, his half-brother, Feliciano Pada, obtained permission from him to
build a house on the northern portion of Cadastral Lot No. 5581. When Feliciano died, his son, Pastor,
continued living in the house together with his eight children. Petitioner Verona Pada-Kilario, one of
Pastor's children, has been living in that house since 1960.

Sometime in May, 1951, the heirs of Jacinto Pada entered into an extra-judicial partition of his estate.
For this purpose, they executed a private document which they, however, never registered in the
Office of the Registrar of Deeds of Leyte.

At the execution of the extra-judicial partition, Ananias was himself present while his other brothers
were represented by their children. Their sisters, Valentina and Ruperta, both died without any issue.
Marciano was represented by his daughter, Maria; Amador was represented by his daughter,
Concordia; and Higina was represented by his son, Silverio who is the private respondent in this case.
It was to both Ananias and Marciano, represented by his daughter, Maria, that Cadastral Lot No. 5581
was allocated during the said partition. When Ananias died, his daughter, Juanita, succeeded to his
right as co-owner of said property.

On June 14, 1978, Juanita Pada sold to Engr. Ernesto Paderes, the right of his father, Ananias, as co-
owner of Cadastral Lot No. 5881.

On November 17, 1993, it was the turn of Maria Pada to sell the co-ownership right of his father,
Marciano. Private respondent, who is the first cousin of Maria, was the buyer.

Thereafter, private respondent demanded that petitioner spouses vacate the northern portion of
Cadastral Lot No. 5581 so his family can utilize the said area. They went through a series of meetings
with the barangay officials concerned for the purpose of amicable settlement, but all earnest efforts
toward that end, failed.

On June 26, 1995, private respondent filed in the Municipal Circuit Trial Court of Matalom, Leyte, a
complaint for ejectment with prayer for damages against petitioner spouses.

On July 24, 1995, the heirs of Amador Pada, namely, Esperanza Pada-Pavo, Concordia Pada-
Bartolome, and Angelito Pada, executed a Deed of Donation 9 transferring to petitioner Verona Pada-
Kilario, their respective shares as co-owners of Cadastral Lot No. 5581.
On February 12, 1996, petitioner spouses filed their Answer averring that the northern portion of
Cadastral Lot No. 5581 had already been donated to them by the heirs of Amador Pada. They
contended that the extra-judicial partition of the estate of Jacinto Pada executed in 1951 was invalid
and ineffectual since no special power of attorney was executed by either Marciano, Amador or Higino
in favor of their respective children who represented them in the extra-judicial partition. Moreover, it
was effectuated only through a private document that was never registered in the office of the
Registrar of Deeds of Leyte.

The Municipal Circuit Trial Court rendered judgment in favor of petitioner spouses. It made the
following findings:

After a careful study of the evidence submitted by both parties, the court finds that the
evidence adduced by plaintiff failed to establish his ownership over . . . Cadastral Lot No.
5581 . . . while defendants has [sic] successfully proved by preponderance of evidence that
said property is still under a community of ownership among the heirs of the late Jacinto Pada
who died intestate. If there was some truth that Marciano Pada and Ananias Pada has [sic]
been adjudicated jointly of [sic] the above-described residential property . . . as their share of
the inheritance on the basis of the alleged extra judicial settlement, how come that since
1951, the date of partition, the share of the late Marciano Pada was not transferred in the
name of his heirs, one of them Maria Pada-Pavo and still remain [sic] in the name of Jacinto
Pada up to the present while the part pertaining to the share of Ananias Pada was easily
transferred in the name of his heirs . . ..

The alleged extra judicial settlement was made in private writing and the genuineness and
due execution of said document was assailed as doubtful and it appears that most of the heirs
were not participants and signatories of said settlement, and there was lack of special power
of attorney to [sic] those who claimed to have represented their co-heirs in the participation
[sic] and signing of the said extra judicial statement.

Defendants were already occupying the northern portion of the above-described property long
before the sale of said property on November 17, 1993 was executed between Maria Pada-
Pavo, as vendor and the plaintiff, as vendee. They are in possession of said portion of the
above-described property since the year 1960 with the consent of some of the heirs of Jacinto
Pada and up to the [sic] present some of the heirs of Jacinto Pada has [sic] donated . . . their
share of [sic] the above-described property to them, virtually converting defendants' standing
as co-owners of the land under controversy. Thus, defendants as co-owners became the
undivided owners of the whole estate . . . . As co-owners of . . . Cadastral Lot No. 5581 . . .
their possession in the northern portion is being [sic] lawful.10

From the foregoing decision, private respondent appealed to the Regional Trial Court. On November
6, 1997, it rendered a judgment of reversal. It held:

. . . [T]he said conveyances executed by Juanita Pada and Maria Pada Pavo were never
questioned or assailed by their co-heirs for more than 40 years, thereby lending credence on
[sic] the fact that the two vendors were indeed legal and lawful owners of properties ceded or
sold. . . . At any rate, granting that the co-heirs of Juanita Pada and Maria Pada Pavo have
some interests on the very lot assigned to Marciano and Ananias, nevertheless, said interests
had long been sadly lost by prescription, if not laches or estoppel.

It is true that an action for partition does not prescribe, as a general rule, but this doctrine of
imprescriptibility cannot be invoked when one of the heirs possessed the property as an
owner and for a period sufficient to acquire it by prescription because from the moment one of
the co-heirs claim [sic] that he is the absolute owner and denies the rest their share of the
community property, the question then involved is no longer one for partition but of ownership.
. . . Since [sic] 1951 up to 1993 covers a period of 42 long years. Clearly, whatever right some
of the co-heirs may have, was long extinguished by laches, estoppel or prescription.

xxx     xxx     xxx
 . . . [T]he deed of donation executed by the Heirs of Amador Pada, a brother of Marciano
Pada, took place only during the inception of the case or after the lapse of more than 40 years
reckoned from the time the extrajudicial partition was made in 1951. Therefore, said donation
is illegal and invalid [sic] the donors, among others, were absolutely bereft of any right in
donating the very property in question.11

The dispositive portion of the decision of the Regional Trial Court reads as follows:

WHEREFORE, a judgment is hereby rendered, reversing the judgment earlier promulgated

by the Municipal Circuit Trial Court of Matalom, Leyte, [sic] consequently, defendants-
appellees are hereby ordered:

1. To vacate the premises in issue and return peaceful possession to the appellant, being the
lawful possessor in concept of owner;

2. To remove their house at their expense unless appellant exercises the option of acquiring
the same, in which case the pertinent provisions of the New Civil Code has to be applied;

3. Ordering the defendants-appellees to pay monthly rental for their occupancy and use of the
portion of the land in question in the sum of P100.00 commencing on June 26, 1995 when the
case was filed and until the termination of the present case;

4. Ordering the defendants to pay to the appellant the sum of P5,000.00 as moral damages
and the further sum of P5,000.00 as attorney's fees;

5. Taxing defendants to pay the costs of suit.12

Petitioners filed in the Court of Appeals a petition for review of the foregoing decision of the Regional
Trial Court.

On May 20, 1998, respondent Court of Appeals rendered judgment dismissing said petition. It
explained:

Well-settled is the rule that in an ejectment suit, the only issue is possession de facto or
physical or material possession and not de jure. Hence, even if the question of ownership is
raised in the pleadings, the court may pass upon such issue but only to determine the
question of possession, specially if the former is inseparably linked with the latter. It cannot
dispose with finality the issue of ownership, such issue being inutile in an ejectment suit
except to throw light on the question of possession . . . .

Private respondent Silverio Pada anchors his claim to the portion of the land possessed by
petitioners on the Deed of Sale executed in his favor by vendor Maria Pada-Pavo, a daughter
of Marciano, son of Jacinto Pada who was the registered owner of the subject lot. The right of
vendee Maria Pada to sell the property was derived from the extra-judicial partition executed
in May 1951 among the heirs of Jacinto Pada, which was written in a Bisayan dialect signed
by the heirs, wherein the subject land was adjudicated to Marciano, Maria Pavo's father, and
Ananias Pada. Although the authenticity and genuineness of the extra-judicial partition is now
being questioned by the heirs of Amador Pada, no action was ever previously filed in court to
question the validity of such partition.1âwphi1.nêt

Notably,  petitioners in their petition admitted  among the antecedent facts that Maria Pavo is
one of the co-owners of the property originally owned by Jacinto Pada . . . and that the
disputed lot was adjudicated to Marciano (father of Maria Pavo) and Ananias, and upon the
death of Marciano and Ananias, their heirs took possession of said lot, i.e. Maria Pavo the
vendor for Marciano's share and Juanita for Ananias' share . . . . Moreover, petitioners do not
dispute the findings of the respondent court that during the cadastral survey of Matalom,
Leyte, the share of Maria Pada Pavo was denominated as Lot No. 5581, while the share of
Juanita Pada was denominated as Lot No. 6047, and that both Maria Pada Pavo and Juanita
 were in possession of their respective hereditary shares. Further, petitioners in their Answer
admitted that they have been occupying a portion of Lot No. 5581, now in dispute without
paying any rental owing to the liberality of the plaintiff . . . . Petitioners cannot now impugn the
aforestated extrajudicial partition executed by the heirs in 1951. As owner and possessor of
the disputed property, Maria Pada, and her vendee, private respondent, is entitled to
possession. A voluntary division of the estate of the deceased by the heirs among themselves
is conclusive and confers upon said heirs exclusive ownership of the respective portions
assigned to them . . ..

The equally belated donation of a portion of the property in dispute made by the heirs of
Amador Pada, namely, Concordia, Esperanza and Angelito, in favor of petitioner Verona
Pada is a futile attempt to confer upon the latter the status of co-owner, since the donors had
no interest nor right to transfer. . . . This gesture appears to be a mere afterthought to help
petitioners to prolong their stay in the premises. Furthermore, the respondent court correctly
pointed out that the equitable principle of laches and estoppel come into play due to the
donors' failure to assert their claims and alleged ownership for more than forty (40) years . . . .
Accordingly, private respondent was subrogated to the rights of the vendor over Lot No. 5581
which include [sic] the portion occupied by petitioners.13

Petitioner spouses filed a Motion for Reconsideration of the foregoing decision.

On June 16, 1998, respondent Court of Appeals issued a Resolution denying said motion.

Hence this petition raising the following issues:

I.

WHETHER THE COURT OF APPEALS ERRED IN NOT RULING THAT PETITIONERS, AS

CO-OWNERS, CANNOT BE EJECTED FROM THE PREMISES CONSIDERING THAT THE
HEIRS OF JACINTO PADA DONATED TO THEM THEIR UNDIVIDED INTEREST IN THE
PROPERTY IN DISPUTE.

II.

WHETHER THE COURT OF APPEALS ERRED IN NOT RULING THAT WHAT MARIA
PADA SOLD WAS HER UNDIVIDED SHARE IN THE PROPERTY IN DISPUTE.

III.

WHETHER OR NOT THE PETITIONERS ARE BUILDERS IN GOOD FAITH. 14

There is no merit to the instant petition.

First. We hold that the extrajudicial partition of the estate of Jacinto Pada among his heirs made in
1951 is valid, albeit executed in an unregistered private document. No law requires partition among
heirs to be in writing and be registered in order to be valid. 15 The requirement in Sec. 1, Rule 74 of the
Revised Rules of Court that a partition be put in a public document and registered, has for its purpose
the protection of creditors and the heirs themselves against tardy claims. 16 The object of registration is
to serve as constructive notice to others. It follows then that the intrinsic validity of partition not
executed with the prescribed formalities is not undermined when no creditors are involved. 17 Without
creditors to take into consideration, it is competent for the heirs of an estate to enter into an
agreement for distribution thereof in a manner and upon a plan different from those provided by the
rules from which, in the first place, nothing can be inferred that a writing or other formality is essential
for the partition to be valid.18 The partition of inherited property need not be embodied in a public
document so as to be effective as regards the heirs that participated therein. 19 The requirement of
Article 1358 of the Civil Code that acts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property, must appear in a public
instrument, is only for convenience, non-compliance with which does not affect the validity or
enforceability of the acts of the parties as among themselves. 20 And neither does the Statute of Frauds
under Article 1403 of the New Civil Code apply because partition among heirs is not legally deemed a
conveyance of real property, considering that it involves not a transfer of property from one to the
other but rather, a confirmation or ratification of title or right of property that an heir is renouncing in
favor of another heir who accepts and receives the inheritance. 21 The 1951 extrajudicial partition of
Jacinto Pada's estate being legal and effective as among his heirs, Juanita and Maria Pada validly
transferred their ownership rights over Cadastral Lot No. 5581 to Engr. Paderes and private
respondent, respectively.22

Second. The extrajudicial partition which the heirs of Jacinto Pada executed voluntarily and
spontaneously in 1951 has produced a legal status.23 When they discussed and agreed on the division
of the estate Jacinto Pada, it is presumed that they did so in furtherance of their mutual interests. As
such, their division is conclusive, unless and until it is shown that there were debts existing against the
estate which had not been paid.24 No showing, however, has been made of any unpaid charges
against the estate of Jacinto Pada. Thus, there is no reason why the heirs should not be bound by
their voluntary acts.

The belated act of Concordia, Esperanza and Angelito, who are the heirs of Amador Pada, of
donating the subject property to petitioners after forty four (44) years of never having disputed the
validity of the 1951 extrajudicial partition that allocated the subject property to Marciano and Ananias,
produced no legal effect. In the said partition, what was allocated to Amador Pada was not the subject
property which was a parcel of residential land in Sto. Nino, Matalom, Leyte, but rather, one-half of a
parcel of coconut land in the interior of Sto. Nino St., Sabang, Matalom, Leyte and one-half of a parcel
of rice land in Itum, Sta. Fe, Matalom, Leyte. The donation made by his heirs to petitioners of the
subject property, thus, is void for they were not the owners thereof. At any rate it is too late in the day
for the heirs of Amador Pada to repudiate the legal effects of the 1951 extrajudicial partition as
prescription and laches have equally set in.

Third. Petitioners are estopped from impugning the extrajudicial partition executed by the heirs of
Jacinto Pada after explicitly admitting in their Answer that they had been occupying the subject
property since 1960 without ever paying any rental as they only relied on the liberality and tolerance of
the Pada family.25 Their admissions are evidence of a high order and bind them insofar as the
character of their possession of the subject property is concerned.

Considering that petitioners were in possession of the subject property by sheer tolerance of its
owners, they knew that their occupation of the premises may be terminated any time. Persons who
occupy the land of another at the latter's tolerance or permission, without any contract between them,
is necessarily bound by an implied promise that they will vacate the same upon demand, failing in
which a summary action for ejectment is the proper remedy against them. 26 Thus, they cannot be
considered possessors nor builders in good faith. It is well-settled that both Article 448 27 and Article
54628 of the New Civil Code which allow full reimbursement of useful improvements and retention of
the premises until reimbursement is made, apply only to a possessor in good faith, i.e., one who
builds on land with the belief that he is the owner thereof. 29 Verily, persons whose occupation of a
realty is by sheer tolerance of its owners are not possessors in good faith. Neither did the promise of
Concordia, Esperanza and Angelito Pada that they were going to donate the premises to petitioners
convert them into builders in good faith for at the time the improvements were built on the premises,
such promise was not yet fulfilled, i.e., it was a mere expectancy of ownership that may or may not be
realized.30 More importantly, even as that promise was fulfilled, the donation is void for Concordia,
Esperanza and Angelito Pada were not the owners of Cadastral Lot No. 5581. As such, petitioners
cannot be said to be entitled to the value of the improvements that they built on the said lot.

WHEREFORE, the petition for review is HEREBY DENIED.

Costs against petitioners.

SO ORDERED.
G.R. No. L-25359             September 28, 1968

ARADA LUMUNGO, JUHURI DAWA, ET AL., petitioners,

vs.
ASAAD USMAN, JOSE ANGELES and DOMINGA USMAN, ET AL., respondents.

Dominador Sobreviñas for petitioners.

Marciano Almario for respondents.

CONCEPCION, C.J.:

Review on certiorari of a decision of the Court of Appeals, on appeal from a decision of the Court of
First Instance of Sulu in Civil Cases Nos. 155 and 156 of said court, both instituted by plaintiffs herein,
Arada Lumungo (deceased), substituted by her heirs, Juhuri Dawa, Kayajuja, Sadatul, Sarapatul,
Jaramatul, Alma, Kalukasa and Vicente, all surnamed Juhuri to recover the possession of lot No. 871
of the Siasi Cadastre, in the first case, and in the second, of lots Nos. 892, 893, 894 and 1121 of the
same cadastre. The defendants in case No. 155 are Asaad Usman, Akmadul and Hada, whereas
those in case No. 156 are Asaad Usman, Fatima Angeles, Hadjaratul Julkanain, Inkiran and Sitti
Haridja, who were subsequently joined by Dominga Usman and Jose Angeles, as defendants-
intervenors.

After a joint trial of the two (2) cases, the Court of First Instance of Sulu rendered a decision, the
dispositive part of which reads as follows:

WHEREFORE, judgment is hereby rendered declaring plaintiffs to have a better right to the
possession of Lots Nos. 892, 893, 894, 1121 and 871, Siasi and Lapak Cadastral Survey,
located at Lapak, Siasi, Sulu and described in Transfer Certificates of Title Nos. T-419, T-422,
T-420 and T-421 and Original Certificate of Title No. 8023. The defendants are ordered to
vacate said lots in favor of the plaintiffs if they have not already done so.

On the other hand, the plaintiffs are ordered to reimburse to the defendant-intervenor, JOSE
ANGELES, the sum of P4,500.00 representing the value of the 3,000 coconut trees
introduced by him and his predecessors in interest on Lots 892, 893 and 894. Should plaintiffs
fail to do so within ninety (90) days from the date this decision becomes final, the three lots
shall be ordered sold at public auction, the proceeds of which shall be applied to the
P4,500.00 herein adjudged to Jose Angeles, and the balance to be delivered to the plaintiffs.

Both parties appealed from this decision to the Court of Appeals, but, later, the defendants withdrew
their appeal, which, accordingly, was dismissed. Thus the only question left for determination by the
Court of Appeals was plaintiffs' appeal from the trial court's decision, insofar as it sentenced them to
pay P4,500.00 to intervenor Jose Angeles. After appropriate proceedings, the Court of Appeals
reduced this amount to P2,500.00 and affirmed the decision of the Court of First Instance in all other
respects, with costs against defendants-intervenors. The case is now before us upon petition for
review on certiorari filed by the plaintiffs.

The pertinent facts are set forth in the decision of the trial court, which were adopted in that of the
Court of Appeals, from which we quote:

It ... appears that, having allegedly collaborated with the enemy during the Japanese
Occupation of Sulu, Datu Idiris Amilhussin was arrested and detained when the American
Liberation Forces came to Sulu in the year 1945. On March 1, 1946, Datu Idiris was
prosecuted for Treason before the People's Court, docketed as Criminal Case No. 1334 in
said Court. Justice of the Peace Asaad Usman of Siasi and his wife Dominga Usman,
became interested in Lots Nos. 892, 893, 894, 1121 and 871. Jamasali Usman, brother of
Atty. Asaad Usman, also became interested in Lot No. 1226(?). Datu Idiris was desperately in
 need of money to pay his attorney's fees and the premium on his bailbond. He sent his wife to
Jamasali for money. Jamasali proposed to buy Lot No. 1227(?). Upon the execution of
a Pacto de Retro sale (Exhibit "DDD"), Jamasali gave Datu Idiris partial payments of the
P3,000.00 mentioned in the document. Sometime in the year 1946, Atty. Usman visited Datu
Idiris in the Provincial jail and promised to help him in his case and to secure his bailbond for
his temporary liberty. But Atty. Usman asked Datu Idiris to sell to his wife, Dominga Miranda
Usman, the five lots in question. Datu Idiris agreed.

Through the help of Atty. Usman, the bailbond of Datu Idiris was perfected. Consequently, on
January 11, 1947, he was released from the Provincial Jail. True to his word, on March 14,
1947, Datu Idiris executed an agreement with Dominga Usman (Exhibit "33"). He also caused
Datu Amirul Amilhussin, brother of Datu Idiris, to sign a similar document, being one of the co-
owners of said lots (Exh. "34"). Upon execution of the agreement, Dominga Usman paid Datu
Idiris P300.00; subsequently, Atty. Usman paid him P500.00 and P10.00. Thus, Datu Idiris
received all in all from the spouses, P810.00 in consideration of the tenor stated in the
document, Exhibit "33". In the meantime, Atty. Usman took possession of the five lots in
question and cultivated the same.

As the whole amount of P3,000.00 mentioned in the sale of Pacto de Retro executed by Datu
Idiris in favor of Jamasali Usman was not fully paid, Datu Idiris upon his being released from
confinement, demanded from Jamasali to complete payment. He also demanded from Atty.
Usman the payment of the balance of the purchase price of the lots described in Exhibit "33".
After Datu Idiris had been repeatedly refused said payments by both Jamasali and Atty.
Usman, he became exasperated. He wrote two complaints, one to the Secretary of Justice,
dated June 15, 1946, and the other, to the President of the Philippines, dated March 8, 1948,
complaining against Justice of the Peace Asaad Usman and Jamasali Usman. After filing
these complaints, Justice of the Peace Usman immediately caused the revocation of the
bailbond of Datu Idiris before the People's Court. On March 31, 1948, he was rearrested and
committed to the Provincial Jail again. A serious misunderstanding developed between Datu
Idiris on one hand and Atty. Usman and Jamasali Usman on the other. Several complaints for
murder were caused to be filed before the Court of Justice of the Peace Usman against Datu
Idiris. In the meantime, Atty. Usman wrote letters of demand upon Datu Idiris asking him to
produce the titles to the above five lots to enable him to have a sufficient deed of sale
conveying the said five lots in favor of his wife. Datu Idiris on the other hand, had been
demanding from Atty. Usman to pay the balance of the purchase price of the land. Despite
those mutual demands, no one complied therewith. On December 10, 1951, Datu Idiris
proposed, thru Atty. Flor, to call off the deal, stated in documents, Exhibits "33" and "34",
promising to return the P810.00 which he received from the spouses. Dominga Usman and
Atty. Usman agreed to call off the deal. Datu Idiris however, never paid the P810.00. Despite
this. Dominga Usman and Atty. Usman never went to Court to file an action to compel Datu
Idiris either to comply with his obligation to execute and deliver a good and sufficient deed
conveying titles to the five lots in question, or to pay back the P810.00. What Dominga
Usman did when Datu Idiris failed to pay her the P810.00 was to sell lots 892, 893 and 894 to
Jose Angeles for P1,000.00. Jose Angeles, upon taking possession of the land, planted same
with coconuts, which, together with those already planted by Dominga Usman, numbered
about 3,000, most of which are now fruit-bearing.

On Feb. 2, 1962, Datu Idiris filed a civil complaint against Atty. Asaad Usman for recovery of
possession of the five lots in question which was docketed as Civil Case No. 87 of this Court. Atty.
Usman, instead of informing the Court that he and his wife had the legal right to possess those lots by
virtue of the agreement had between Datu Idiris and his wife embodied in Exhibit "33", manifested in
open Court on September 26, 1952, that he was not interested in the posession or ownership of the
land, and that he did not buy the land from Datu Idiris. So, on said date, this Court dictated an order
as follows:

"In Open Court, when this case was called for hearing, the defendant Attorney Asaad Usman
manifested that he does not claim ownership nor possession to the two parcels of land
described in paragraph 2 of the complaint of the plaintiff. Thereupon, the plaintiff (moved) the
Court to enter judgment, to which motion the defendant interposed no objection. Such being
 the case, the Court has no alternative but to enter judgment as it is hereby entered in favor of
the plaintiff Datu Idiris Amilhussin, and against the defendant — declaring the plaintiff the
owner and possessor of the two parcels of land above mentioned, and inasmuch as the
defendant is not in possession of the land, the Court finds it unnecessary to enter an order
ejecting the said defendant from the two parcels of land, without prejudice to any claim of any
other third party, without pronouncement as to costs.

On the other hand, the defendant moved for the dismissal of his counterclaim. The Court
orders the dismissal of the same, also without pronouncement as to cost."1awphîl.nèt

Upon the promulgation of the above-quoted judgment, Datu Idiris, who was badly in need of money,
went around, offering to sell the land to another. Spouses Juhuri Dawa and Arada Lumungo being
interested in acquiring those lots, asked Atty. Dominador Sobreviñas to verify if they could buy the
same. Atty. Sobreviñas went to the Office of the Register of Deeds and found no annotation of
encumbrances on the Original Certificates of Title of the five lots. Besides, since the Court had
already adjudged in the above-quoted order that Atty. Usman did not have any claim of possession or
ownership over the land, and that he did not buy the land from Datu Idiris, Atty. Sobreviñas advised
his clients that they may buy the lots. Accordingly, a deed of sale, Exhibits "L" to "L-2", was executed.
Upon presentation of this deed of sale to the Register of Deeds, Original Certificates of Title Nos.
8986, 8123, 8087 and 8122 were cancelled and in lieu thereof, Transfer Certificates of Title Nos. T-
419, T-420, T-422, and T-421 were issued in the names of the plaintiffs. Plaintiffs took possession of
the property, but they were allegedly driven from the land. About three years ago, the defendants left
Lots Nos. 892, 893, 894 and 1121. Plaintiffs took possession thereof. The defendants are still in
possession of Lot No. 871.1

Defendants maintained in the Court of Appeals that the sale made by Datu Idiris Amilhussin to
plaintiffs Arada Lumungo and Juhuri Dawa, on September 30, 1952, is null and void because the lots
thus sold had previously been conveyed by Datu Idiris and Datu Amirul Amilhussin to intervenor
Dominga Usman, wife of defendant Asaad Usman, and because the sale to said plaintiffs was not
approved by the provincial governor of Sulu, as required by the Administrative Code of Mindanao and
Sulu. The Court of Appeals overruled these objections upon the ground that the sale to Dominga
Usman "did not materialize" and was "called off" by mutual agreement of the vendors and the vendee,
and that said lack of approval by the provincial governor is a defense available to the contracting
parties only, not to the defendants herein who are not parties to said transaction. Then the Court of
Appeals went on to say:

Upon the other hand, it is to be noted that when intervenor Dominga Usman who claimed to
have purchased the lots in question from one of the original owners, sold and transferred her
alleged ownership over the same to her co-intervenor Jose Angeles, the latter made the
purchase with the knowledge that the property subject matter of the sale was already in
dispute by and between herein defendants, one of whom is the husband of intervener
Dominga Usman, on the one hand, and herein plaintiffs on the other. Nevertheless, as well
stated by the court a quo, equity should come in to protect the rights of intervenor Jose
Angeles who introduced some improvements on three of the lots subject-matter of the
litigation, namely, lots Nos. 892, 893 and 894.

The Court found for a fact that around 3,000 coconut trees were planted on those lots
aforementioned, some of them already fruit-bearing. It appears from the records that not all,
but a portion, of the 3,000 were planted by intervenor Jose Angeles. The value placed by the
lower court of P1.50 per fruit-bearing coconut tree is reasonable enough, inasmuch as the
lower court was in a better position to make the assessment, it being more closely in contact
with the conditions and circumstances of the locality. We are not prepared to disturb such
finding for lack of evidence to warrant such an action on our part.

IN VIEW OF THE FOREGOING CONSIDERATIONS, with the only modification that the

amount of indemnity should be reduced from P4,500.00 to P2,500.00, the rest of the
judgment appealed from is hereby affirmed with costs against defendants-intervenors. 2
The only issue posed by plaintiffs' petition for review is whether or not Jose Angeles is entitled to
reimbursement for the coconut trees planted by him on the property in litigation. In this connection, it
should be noted that said trees are improvements, not "necessary expenses of preservation," which a
builder, planter or sower in bad faith may recover under Arts. 452 and 546, first paragraph, of the Civil
Code.

Upon the other hand, the Court of Appeals found as a fact that when Dominga Usman sold and
transferred her rights in and to the property in question to Jose Angeles "the latter made the purchase
with the knowledge that the property subject matter of the sale was already in dispute by and between
herein defendants, one of whom is the husband of intervenor Dominga Usman, on the one hand, and
herein plaintiffs on the other." Angeles was, therefore, aware of sufficient facts to induce a reasonably
prudent man to inquire into the status of the title to the property in question, which was an easy matter
for him to ascertain, said property being registered under the Torrens System.  3

Indeed, Jose Angeles is a nephew of defendant Asaad Usman, and the controversy between the
latter and Datu Idiris was a matter of public knowledge, for Usman was a justice of the peace, and
Datu Idiris had filed charges against him, as such, with the Department of Justice and the Office of the
President, to which Usman countered by causing the bail bond of Datu Idiris to be cancelled and his
corresponding reincarceration, as well as the filing of complaints for murder against him. Besides, on
February 2, 1952, or several months prior to the sale to Angeles on September 30, 1952, Datu Idiris
had filed Civil Case No. 87 of the Court of First Instance of Sulu against Asaad Usman to recover the
lots in question, and the latter stated in that case, on September 26, 1952, or four (4) days before the
aforementioned sale, that he was not interested in either the possession or the ownership of said lots
and that he had not bought the same from the former. It may not be amiss to note, also, that at the
time of the alleged sale in his favor, Jose Angeles was a law student; that, in fact, on August 9, 1957,
he entered his appearance as counsel for the defendants, in collaboration with Asaad Usman; and
that the consideration for said sale, involving a land of 46 hectares, was only P1,000.

In short, the foregoing facts, and the above-quoted findings of both the trial court and the Court of
Appeals, leave no room for doubt that Jose Angeles was a purchaser and a builder in bad faith.  4 The
provision applicable to this case is, accordingly, Article 449 of the Civil Code, which provides that,
"(h)e who builds, plants or sows in bad faith on the land of another, loses what is built, planted or
sown without right to indemnity."

Obviously, the alleged equity in favor of Jose Angeles, on which the lower courts have relied, cannot
prevail over the aforementioned express statutory provision to the contrary,  5 apart from the fact that
he who seeks equity must come with clean hands. 6

WHEREFORE, the decision of the Court of Appeals should be as it is hereby modified by eliminating
therefrom the contested award of P2,500.00 in favor of Jose Angeles, and, thus modified, said
decision is hereby affirmed in all other respects, with the costs. It is so ordered.
G.R. No. L-2017         November 24, 1906

THE MUNICIPALITY OF OAS, plaintiff-appellee,

vs.
BARTOLOME ROA, defendant-appellant.

WILLARD, J.:

The plaintiff brought this action for the recovery of a tract of land in the pueblo of Oas, claiming that it
was a part of the public square of said town. The defendant in his answer alleged that he was the
owner of the property. Judgment was rendered in favor of the plaintiff and the defendant has brought
the case here by bill of exceptions.

As we look at the case, the only question involved is one of fact. Was the property in question a part
of the public square of the town of Oas? The testimony upon this point in favor of the plaintiff
consisted of statements made by witnesses to the effect that this land had always been a part of the
public square, and of certain resolutions adopted by the principalia of the pueblo reciting the same
fact, the most important of these being the minutes of the meeting of the 27th of February, 1892. In
that document it is expressly stated that this land was bought in 1832 by the then parish priest for the
benefit of the pueblo. It recites various proceedings taken thereafter in connection with this ownership,
including among them an order of the corregidor  of Nueva Caceres prohibiting the erection of houses
upon the land by reason of the fact above recited — namely, that the land belonged to the pueblo.
This resolution terminated with an order to the occupant of the building then standing upon the
property that he should not repair it. The defendant signed this resolution.

It further appears that the same building was almost entirely destroyed by a baguio on the 13th and
14th of May, 1893, and that the authorities of the puebo ordered the complete demolition thereof. The
resolution of the 31st of May, 1893, declared that the then owner of the building, Jose Castillo, had no
right to reconstruct it because it was situated upon land which did not belong to him. This resolution
was also signed by the defendant.

The evidence on the part of the defendant tends to show that in 1876 Juana Ricarte and Juana
Riquiza sold the land in question to Juan Roco, and that on the 17th day of December, 1894, Jose
Castillo sold it to the defendant. No deed of conveyance from Juan Roco to Jose Castillo was
presented in evidence, but Castillo, testifying as a witness, said that he had bought the property by
verbal contract from Roco, his father-in-law. The defendant, after his purchase in 1894, procured a
possessory of information which was allowed by an order of the justice of the peace of Oas on the
19th day of January, 1895, and recorded in the Registry of Property on the 28th of March of the same
year.

In this state of the evidence, we can not say that the proof is plainly and manifestly against the
decision of the court below. Unless it is so, the finding of fact made by that court can not be reversed.
(De la Rama vs. De la Rama, 201 U. S., 303.)

The two statements signed by Roa, one in 1892 and the other in 1893, are competent evidence
against him. They are admissions by him to the effect that at that time the pueblo was the owner of
the property in question. They are, of course, not conclusive against him. He was entitled to, and did
present evidence to overcome the effect of these admissions. The evidence does not make out a
case of estoppel against him. (sec. 333, par. 1, Code of Civil Procedure.)

The admissibility of these statements made by Roa do not rest upon section 278 of the Code of Civil
Procedure, which relates to declarations or admissions made by persons not a party to the suit, but it
rests upon the principle that when the defendant in a suit has himself made an admission of any fact
pertinent to issue involved, it can be received against him.

This action was commenced on the 17th of December, 1902. There is no evidence of any adverse
occupation of this land for thirty years, consequently the extraordinary period of prescription does not
apply. The defendant can not rely upon the ordinary period of prescription of ten years because he
was not a holder in good faith. He knew at that time of his purchase in 1894, and had so stated in
writing, that the pueblo was the owner of the property. So that, even if the statute of limitations ran
against a municipality in reference to a public square, it could not avail the defendant in this case.

It appears that Roa has constructed upon the property, and that there now stands thereon, a
substantial building. As early as 1852 this land had been used by the municipality constructed thereon
buildings for the storage of property of the State, quarters for the cuadrilleros, and others of a like
character. It therefore had ceased to be property used by the public and had become a part of
the bienes patrimoniales  of the pueblo. (Civil Code, arts. 341, 344.) To the case are applicable those
provisions of the Civil Code which relate to the construction by one person of a building upon land
belonging to another. Article 364 of the Civil Code is as follows:

Where there has been bad faith, not only on the part of the person who built, sowed, or
planted on another's land, but also on the part of the owner of the latter, the rights of both
shall be the same as if they had acted in good faith.

Bad faith on the part of the owner is understood whenever the act has been executed in his
presence with his knowledge and tolerance and without objection.

The defendant constructed the building in bad faith for, as we have said, he had knowledge of the fact
that his grantor was not the owner thereof. There was a bad faith also on the part of the plaintiff in
accordance with the express provisions of article 364 since it allowed Roa to construct the building
without any opposition on its part and to so occupy it for eight years. The rights of the parties must,
therefore, be determined as if they both had acted in good faith. Their rights in such cases are
governed by article 361 of the Civil Code, which is as follows:

The owner of the land on which the building, sowing, or planting is done in good faith shall
have a right to appropriate as his own the work, sowing, or planting after the indemnity
mentioned in articles 453 and 454, or, to oblige the person who has built or planted, to pay
him the value of the land and to force the person who sowed to pay the proper rent.

The judgment of the court below is so modified as to declare that the plaintiff is the owner of the land
and that it has the option of buying the building thereon, which is the property of the defendant, or of
selling to him the land on which it stands. The plaintiff is entitled to recover the costs of both
instances.1âwphil.net

After the expiration of twenty days let judgment be entered in accordance herewith and at the proper
time thereafter let the record be remanded to the court below for proper action. So ordered.
G.R. No. L-62943 July 14, 1986

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner,

vs.
COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and THE PHILIPPINE
NATIONAL BANK, respondents.

Juan J. Diaz and Cesar T. Basa for respondent PNB.

San Juan, Africa, Gonzales & San Agustin Law Offices for respondent PCIB.

GUTIERREZ, JR., J.:

This petition for review asks us to set aside the October 29, 1982 decision of the respondent Court of
Appeals, now Intermediate Appellate Court which reversed the decision of the Court of First Instance
of Manila, Branch XL, and dismissed the plaintiff's complaint, the third party complaint, as well as the
defendant's counterclaim.

The background facts which led to the filing of the instant petition are summarized in the decision of
the respondent Court of Appeals:

Metropolitan Waterworks and Sewerage System (hereinafter referred to as MWSS) is

a government owned and controlled corporation created under Republic Act No. 6234
as the successor-in- interest of the defunct NWSA. The Philippine National Bank
(PNB for short), on the other hand, is the depository bank of MWSS and its
predecessor-in-interest NWSA. Among the several accounts of NWSA with PNB is
NWSA Account No. 6, otherwise known as Account No. 381-777 and which is
presently allocated No. 010-500281. The authorized signature for said Account No. 6
were those of MWSS treasurer Jose Sanchez, its auditor Pedro Aguilar, and its acting
General Manager Victor L. Recio. Their respective specimen signatures were
submitted by the MWSS to and on file with the PNB. By special arrangement with the
PNB, the MWSS used personalized checks in drawing from this account. These
checks were printed for MWSS by its printer, F. Mesina Enterprises, located at 1775
Rizal Extension, Caloocan City.

During the months of March, April and May 1969, twenty-three (23) checks were
prepared, processed, issued and released by NWSA, all of which were paid and
cleared by PNB and debited by PNB against NWSA Account No. 6, to wit:

Check No. Date Payee Amount Date Paid

By PNB

1. 59546 8-21-69 Deogracias P 3,187.79 4-2-69

Estrella

2. 59548 3-31-69 Natividad 2,848.86 4-23 69

Rosario

3. 59547 3-31-69 Pangilinan 195.00 Unreleased

Enterprises
4. 59549 3-31-69 Natividad 3,239.88 4-23-69

Rosario

5. 59552 4-1-69 Villarama 987.59 5-6-69

& Sons

6. 59554 4-1-69 Gascom 6,057.60 4-16 69

Engineering

7. 59558 4-2-69 The Evening 112.00 Unreleased

News

8. 59544 3-27-69 Progressive 18,391.20 4-18 69

Const.

9. 59564 4-2-69 Ind. Insp. 594.06 4-18 69

Int. Inc.

10. 59568 4-7-69 Roberto 800.00 4-22-69

Marsan

11. 59570 4-7-69 Paz Andres 200.00 4-22-69

12. 59574 4-8-69 Florentino 100,000.00 4-11-69

Santos

13. 59578 4-8-69 Mla. Daily 95.00 Unreleased

Bulletin

14. 59580 4-8-69 Phil. Herald 100.00 5-9-69

15. 59582 4-8-69 Galauran 7,729.09 5-6-69

& Pilar

16. 59581 4-8-69 Manila 110.00 5-12 69

Chronicle

17. 59588 4-8-69 Treago 21,583.00 4-11 69

Tunnel

18. 59587 4-8-69 Delfin 120,000.00 4-11-69

Santiago

19. 59589 4-10-69 Deogracias 1,257.49 4-16 69

Estrella

20. 59594 4-14-69 Philam Ac- 33.03 4-29 69

cident Inc.

21. 59577 4-8-69 Esla 9,429.78 4-29 69

22. 59601 4-16-69 Justino 20,000.00 4-18-69

Torres

23. 59595 4-14-69 Neris Phil. 4,274.00 5-20-69

Inc. --------------------

P 320,636.26

During the same months of March, April and May 1969, twenty-three (23) checks
bearing the same numbers as the aforementioned NWSA checks were likewise paid
and cleared by PNB and debited against NWSA Account No. 6, to wit:

Check Date Payee Amount Date Paid

No. Issued By PNB

1. 59546 3-6-69 Raul Dizon P 84,401.00 3-16-69

2. 59548 3-11-69 Raul Dizon 104,790.00 4-1-69

3. 59547 3-14-69 Arturo Sison 56,903.00 4-11-69

4. 59549 3-20-69 Arturo Sison 48,903.00 4-15-69

5. 59552 3-24-69 Arturo Sison 63,845.00 4-16-69

6. 59544 3-26-69 Arturo Sison 98,450.00 4-17-69

7. 59558 3-28-69 Arturo Sison 114,840.00 4-21-69

8. 59544 3-16-69 Antonio 38,490.00 4-22-69 Mendoza

9. 59564 3-31-69 Arturo Sison 180,900.00 4-23-69

10.59568 4-2-69 Arturo Sison 134,940.00 4- 5-69

11.59570 4-1-69 Arturo Sison 64,550.00 4-28-69

12.59574 4-2-69 Arturo Sison 148,610.00 4-29-69

13.59578 4-10-69 Antonio 93,950.00 4-29-69
Mendoza

14.59580 4-8-69 Arturo Sison 160,000.00 5-2-69

15.59582 4-10-69 Arturo Sison 155,400.00 5-5-69

16.59581 4-8-69 Antonio 176,580.00 5-6-69

Mendoza

17.59588 4-16-69 Arturo Sison 176,000.00 5-8-69

18.59587 4-16-69 Arturo Sison 300,000.00 5-12-69

19.59589 4-18-69 Arturo Sison 122,000.00 5-14-69

20.59594 4-18-69 Arturo Sison 280,000.00 5-15-69

21.59577 4-14-69 Antonio 260,000.00 5-16-69

Mendoza

22.59601 4-18-69 Arturo Sison 400,000.00 5-19-69

23.59595 4-28-69 Arturo Sison 190,800.00 5-21-69

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

P3,457,903.00

The foregoing checks were deposited by the payees Raul Dizon, Arturo Sison and
Antonio Mendoza in their respective current accounts with the Philippine Commercial
and Industrial Bank (PCIB) and Philippine Bank of Commerce (PBC) in the months of
March, April and May 1969. Thru the Central Bank Clearing, these checks were
presented for payment by PBC and PCIB to the defendant PNB, and paid, also in the
months of March, April and May 1969. At the time of their presentation to PNB these
checks bear the standard indorsement which reads 'all prior indorsement and/or lack
of endorsement guaranteed.'

Subsequent investigation however, conducted by the NBI showed that Raul Dizon,
Arturo Sison and Antonio Mendoza were all fictitious persons. The respective
balances in their current account with the PBC and/or PCIB stood as follows: Raul
Dizon P3,455.00 as of April 30, 1969; Antonio Mendoza P18,182.00 as of May 23,
1969; and Arturo Sison Pl,398.92 as of June 30, 1969.

On June 11, 1969, NWSA addressed a letter to PNB requesting the immediate
restoration to its Account No. 6, of the total sum of P3,457,903.00 corresponding to
the total amount of these twenty-three (23) checks claimed by NWSA to be forged
and/or spurious checks. "In view of the refusal of PNB to credit back to Account No. 6
the said total sum of P3,457,903.00 MWSS filed the instant complaint on November
10, 1972 before the Court of First Instance of Manila and docketed thereat as Civil
Case No. 88950.

In its answer, PNB contended among others, that the checks in question were regular
on its face in all respects, including the genuineness of the signatures of authorized
 NWSA signing officers and there was nothing on its face that could have aroused any
suspicion as to its genuineness and due execution and; that NWSA was guilty of
negligence which was the proximate cause of the loss.

PNB also filed a third party complaint against the negotiating banks PBC and PCIB
on the ground that they failed to ascertain the Identity of the payees and their title to
the checks which were deposited in the respective new accounts of the payees with
them.

xxx xxx xxx

On February 6, 1976, the Court of First Instance of Manila rendered judgment in favor of the MWSS.
The dispositive portion of the decision reads:

WHEREFORE, on the COMPLAINT by a clear preponderance of evidence and in

accordance with Section 23 of the Negotiable Instruments Law, the Court hereby
renders judgment in favor of the plaintiff Metropolitan Waterworks and Sewerage
System (MWSS) by ordering the defendant Philippine National Bank (PNB) to restore
the total sum of THREE MILLION FOUR HUNDRED FIFTY SEVEN THOUSAND
NINE HUNDRED THREE PESOS (P3,457,903.00) to plaintiff's Account No. 6,
otherwise known as Account No. 010-50030-3, with legal interest thereon computed
from the date of the filing of the complaint and until as restored in the said Account
No. 6.

On the THIRD PARTY COMPLAINT, the Court, for lack of evidence, hereby renders
judgment in favor of the third party defendants Philippine Bank of Commerce (PBC)
and Philippine Commercial and Industrial Bank (PCIB) by dismissing the Third Party
Complaint.

The counterclaims of the third party defendants are likewise dismissed for lack of
evidence.

No pronouncement as to costs.

As earlier stated, the respondent court reversed the decision of the Court of First Instance of Manila
and rendered judgment in favor of the respondent Philippine National Bank.

A motion for reconsideration filed by the petitioner MWSS was denied by the respondent court in a
resolution dated January 3, 1983.

The petitioner now raises the following assignments of errors for the grant of this petition:

I. IN NOT HOLDING THAT AS THE SIGNATURES ON THE CHECKS WERE

FORGED, THE DRAWEE BANK WAS LIABLE FOR THE LOSS UNDER SECTION
23 OF THE NEGOTIABLE INSTRUMENTS LAW.

II. IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE OF PNB IN

ACCEPTING THE SPURIOUS CHECKS DESPITE THE OBVIOUS IRREGULARITY
OF TWO SETS OF CHECKS BEARING IdENTICAL NUMBER BEING ENCASHED
WITHIN DAYS OF EACH OTHER.

III. IN NOT HOLDING THAT THE SIGNATURES OF THE DRAWEE MWSS BEING
CLEARLY FORGED, AND THE CHECKS SPURIOUS, SAME ARE INOPERATIVE
AS AGAINST THE ALLEGED DRAWEE.

The appellate court applied Section 24 of the Negotiable Instruments Law which provides:
 Every negotiable instrument is deemed prima facie to have been issued for valuable
consideration and every person whose signature appears thereon to have become a
party thereto for value.

The petitioner submits that the above provision does not apply to the facts of the instant case because
the questioned checks were not those of the MWSS and neither were they drawn by its authorized
signatories. The petitioner states that granting that Section 24 of the Negotiable Instruments Law is
applicable, the same creates only a prima facie presumption which was overcome by the following
documents, to wit: (1) the NBI Report of November 2, 1970; (2) the NBI Report of November 21,
1974; (3) the NBI Chemistry Report No. C-74891; (4) the Memorandum of Mr. Juan Dino, 3rd
Assistant Auditor of the respondent drawee bank addressed to the Chief Auditor of the petitioner; (5)
the admission of the respondent bank's counsel in open court that the National Bureau of
Investigation found the signature on the twenty-three (23) checks in question to be forgeries; and (6)
the admission of the respondent bank's witness, Mr. Faustino Mesina, Jr. that the checks in question
were not printed by his printing press. The petitioner contends that since the signatures of the checks
were forgeries, the respondent drawee bank must bear the loss under the rulings of this Court.

A bank is bound to know the signatures of its customers; and if it pays a forged check
it must be considered as making the payment out of its obligation funds, and cannot
ordinarily charge the amount so paid to the account of the depositor whose name was
forged.

xxx xxx xxx

The signatures to the checks being forged, under Section 23 of the Negotiable
Instruments Law they are not a charge against plaintiff nor are the checks of any
value to the defendant.

It must therefore be held that the proximate cause of loss was due to the negligence
of the Bank of the Philippine Islands in honoring and cashing the two forged checks.
(San Carlos Milling Co. v. Bank of the P. I., 59 Phil. 59)

It is admitted that the Philippine National Bank cashed the check upon a forged
signature, and placed the money to the credit of Maasim, who was the forger. That
the Philippine National Bank then endorsed the chock and forwarded it to the
Shanghai Bank by whom it was paid. The Philippine National Bank had no license or
authority to pay the money to Maasim or anyone else upon a forged signature. It was
its legal duty to know that Malicor's endorsement was genuine before cashing the
check. Its remedy is against Maasim to whom it paid the money. (Great Eastern Life
Ins. Co. v. Hongkong & Shanghai Bank, 43 Phil. 678).

We have carefully reviewed the documents cited by the petitioner. There is no express and
categorical finding in these documents that the twenty-three (23) questioned checks were indeed
signed by persons other than the authorized MWSS signatories. On the contrary, the findings of the
National Bureau of Investigation in its Report dated November 2, 1970 show that the MWSS fraud
was an "inside job" and that the petitioner's delay in the reconciliation of bank statements and the
laxity and loose records control in the printing of its personalized checks facilitated the fraud.
Likewise, the questioned Documents Report No. 159-1074 dated November 21, 1974 of the National
Bureau of Investigation does not declare or prove that the signatures appearing on the questioned
checks are forgeries. The report merely mentions the alleged differences in the type face,
checkwriting, and printing characteristics appearing in the standard or submitted models and the
questioned typewritings. The NBI Chemistry Report No. C-74-891 merely describes the inks and pens
used in writing the alleged forged signatures.

It is clear that these three (3) NBI Reports relied upon by the petitioner are inadequate to sustain its
allegations of forgery. These reports did not touch on the inherent qualities of the signatures which are
indispensable in the determination of the existence of forgery. There must be conclusive findings that
there is a variance in the inherent characteristics of the signatures and that they were written by two
or more different persons.

Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court, et al, 139 SCRA 238). It
must be established by clear, positive, and convincing evidence. This was not done in the present
case.

The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine Islands, et al. (59 Phil. 59)
and Great Eastern Life Ins., Co. v. Hongkong and Shanghai Bank (43 Phil. 678) relied upon by the
petitioner are inapplicable in this case because the forgeries in those cases were either clearly
established or admitted while in the instant case, the allegations of forgery were not clearly
established during trial.

Considering the absence of sufficient security in the printing of the checks coupled with the very close
similarities between the genuine signatures and the alleged forgeries, the twenty-three (23) checks in
question could have been presented to the petitioner's signatories without their knowing that they
were bogus checks. Indeed, the cashier of the petitioner whose signatures were allegedly forged was
unable to ten the difference between the allegedly forged signature and his own genuine signature.
On the other hand, the MWSS officials admitted that these checks could easily be passed on as
genuine.

The memorandum of Mr. A. T. Tolentino, no, Assistant Chief Accountant of the drawee Philippine
National Bank to Mr. E. Villatuya, Executive Vice-President of the petitioner dated June 9, 1969 cites
an instance where even the concerned NWSA officials could not ten the differences between the
genuine checks and the alleged forged checks.

At about 12:00 o'clock on June 6, 1969, VP Maramag requested me to see him in his
office at the Cashier's Dept. where Messrs. Jose M. Sanchez, treasurer of NAWASA
and Romeo Oliva of the same office were present. Upon my arrival I observed the
NAWASA officials questioning the issue of the NAWASA checks appearing in their
own list, xerox copy attached.

For verification purposes, therefore, the checks were taken from our file. To
everybody there present namely VIP Maramag, the two abovementioned NAWASA
officials, AVP, Buhain, Asst. Cashier Castelo, Asst. Cashier Tejada and Messrs. A.
Lopez and L. Lechuga, both C/A bookkeepers, no one was able to point out any
difference on the signatures of the NAWASA officials appearing on the checks
compared to their official signatures on file. In fact 3 checks, one of those under
question, were presented to the NAWASA treasurer for verification but he could not
point out which was his genuine signature. After intent comparison, he pointed on the
questioned check as bearing his correct signature.

xxx xxx xxx

Moreover, the petitioner is barred from setting up the defense of forgery under Section 23 of the
Negotiable Instruments Law which provides that:

SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the signature is forged or

made without authority of the person whose signature it purports to be, it is wholly
inoperative, and no right to retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party thereto can be acquired through or under
such signature unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.

because it was guilty of negligence not only before the questioned checks were negotiated but even
after the same had already been negotiated. (See Republic v. Equitable Banking Corporation, 10
SCRA 8) The records show that at the time the twenty-three (23) checks were prepared, negotiated,
and encashed, the petitioner was using its own personalized checks, instead of the official PNB
Commercial blank checks. In the exercise of this special privilege, however, the petitioner failed to
provide the needed security measures. That there was gross negligence in the printing of its
personalized checks is shown by the following uncontroverted facts, to wit:

(1) The petitioner failed to give its printer, Mesina Enterprises, specific instructions relative to the
safekeeping and disposition of excess forms, check vouchers, and safety papers;

(2) The petitioner failed to retrieve from its printer all spoiled check forms;

(3) The petitioner failed to provide any control regarding the paper used in the printing of said checks;

(4) The petitioner failed to furnish the respondent drawee bank with samples of typewriting, cheek
writing, and print used by its printer in the printing of its checks and of the inks and pens used in
signing the same; and

(5) The petitioner failed to send a representative to the printing office during the printing of said
checks.

This gross negligence of the petitioner is very evident from the sworn statement dated June 19, 1969
of Faustino Mesina, Jr., the owner of the printing press which printed the petitioner's personalized
checks:

xxx xxx xxx

7. Q: Do you have any business transaction with the National

Waterworks and Sewerage Authority (NAWASA)?

A: Yes, sir. I have a contract with the NAWASA in printing NAWASA

Forms such as NAWASA Check

xxx xxx xxx

15. Q: Were you given any ingtruction by the NAWASA in connection

with the printing of these check vouchers?

A: There is none, sir. No instruction whatsoever was given to me.

16. Q: Were you not advised as to what kind of paper would be used
in the check vouchers?

A: Only as per sample, sir.

xxx xxx xxx

20. Q: Where did you buy this Hammermill Safety check paper?

A: From Tan Chiong, a paper dealer with store located at Juan Luna,
Binondo, Manila. (In front of the Metropolitan Bank).

xxx xxx xxx

24. Q: Were all these check vouchers printed by you submitted to

NAWASA?

A: Not all, sir. Because we have to make reservations or allowances

for spoilage.
 25. Q: Out of these vouchers printed by you, how many were spoiled
and how many were the excess printed check vouchers?

A: Approximately four hundred (400) sheets, sir. I cannot determine

the proportion of the excess and spoiled because the final act of
perforating these check vouchers has not yet been done and
spoilage can only be determined after this final act of printing.

26. Q: What did you do with these excess check vouchers?

A: I keep it under lock and key in my firing cabinet.

xxx xxx xxx

28. Q: Were you not instructed by the NAWASA authorities to bum

these excess check vouchers?

A: No, sir. I was not instructed.

29. Q: What do you intend to do with these excess printed check

vouchers?

A: I intend to use them for future orders from the

xxx xxx xxx

32. Q: In the process of printing the check vouchers ordered by the

NAWASA, how many sheets were actually spoiled?

A: I cannot approximate, sir. But there are spoilage in the process of

printing and perforating.

33. Q: What did you do with these spoilages?

A: Spoiled printed materials are usually thrown out, in the garbage

can.

34. Q: Was there any representative of the NAWASA to supervise

the printing or watch the printing of these check vouchers?

A: None, sir.

xxx xxx xxx

39. Q: During the period of printing after the days work, what
measures do you undertake to safeguard the mold and other
paraphernalia used in the printing of these particular orders of
NAWASA?

A: Inasmuch as I have an employee who sleeps in the printing shop

and at the same time do the guarding, we just leave the mold
attached to the machine and the other finished or unfinished work
check vouchers are left in the rack so that the work could be
continued the following day.

The National Bureau of Investigation Report dated November 2, 1970 is even more explicit. Thus—
 xxx xxx xxx

60. We observed also that there is some laxity and loose control in
the printing of NAWASA cheeks. We gathered from MESINA
ENTERPRISES, the printing firm that undertook the printing of the
check vouchers of NAWASA that NAWASA had no representative at
the printing press during the process of the printing and no particular
security measure instructions adopted to safeguard the interest of the
government in connection with printing of this accountable form.

Another factor which facilitated the fraudulent encashment of the twenty-three (23) checks in question
was the failure of the petitioner to reconcile the bank statements with its own records.

It is accepted banking procedure for the depository bank to furnish its depositors bank statements and
debt and credit memos through the mail. The records show that the petitioner requested the
respondent drawee bank to discontinue the practice of mailing the bank statements, but instead to
deliver the same to a certain Mr. Emiliano Zaporteza. For reasons known only to Mr. Zaporteza
however, he was unreasonably delayed in taking prompt deliveries of the said bank statements and
credit and debit memos. As a consequence, Mr. Zaporteza failed to reconcile the bank statements
with the petitioner's records. If Mr. Zaporteza had not been remiss in his duty of taking the bank
statements and reconciling them with the petitioner's records, the fraudulent encashments of the first
checks should have been discovered, and further frauds prevented. This negligence was, therefore,
the proximate cause of the failure to discover the fraud. Thus,

When a person opens a checking account with a bank, he is given blank checks
which he may fill out and use whenever he wishes. Each time he issues a check, he
should also fill out the check stub to which the check is usually attached. This stub, if
properly kept, will contain the number of the check, the date of its issue, the name of
the payee and the amount thereof. The drawer would therefore have a complete
record of the checks he issues. It is the custom of banks to send to its depositors a
monthly statement of the status of their accounts, together with all the cancelled
checks which have been cashed by their respective holders. If the depositor has filled
out his check stubs properly, a comparison between them and the cancelled checks
will reveal any forged check not taken from his checkbook. It is the duty of a depositor
to carefully examine the bank's statement, his cancelled checks, his check stubs and
other pertinent records within a reasonable time, and to report any errors without
unreasonable delay. If his negligence should cause the bank to honor a forged check
or prevent it from recovering the amount it may have already paid on such check, he
cannot later complain should the bank refuse to recredit his account with the amount
of such check. (First Nat. Bank of Richmond v. Richmond Electric Co., 106 Va. 347,
56 SE 152, 7 LRA, NS 744 [1907]. See also Leather Manufacturers' Bank v. Morgan,
117 US 96, 6 S. Ct. 657 [1886]; Deer Island Fish and Oyster Co. v. First Nat. Bank of
Biloxi, 166 Miss. 162, 146 So. 116 [1933]). Campos and Campos, Notes and
Selected Cases on Negotiable Instruments Law, 1971, pp. 267-268).

This failure of the petitioner to reconcile the bank statements with its cancelled checks was noted by
the National Bureau of Investigation in its report dated November 2, 1970:

58. One factor which facilitate this fraud was the delay in the reconciliation of bank
(PNB) statements with the NAWASA bank accounts. x x x. Had the NAWASA
representative come to the PNB early for the statements and had the bank been
advised promptly of the reported bogus check, the negotiation of practically all of the
remaining checks on May, 1969, totalling P2,224,736.00 could have been prevented.

The records likewise show that the petitioner failed to provide appropriate security measures over its
own records thereby laying confidential records open to unauthorized persons. The petitioner's own
Fact Finding Committee, in its report submitted to their General manager underscored this laxity of
records control. It observed that the "office of Mr. Ongtengco (Cashier No. VI of the Treasury
Department at the NAWASA) is quite open to any person known to him or his staff members and that
the check writer is merely on top of his table."

When confronted with this report at the Anti-Fraud Action Section of the National Bureau of
Investigation. Mr. Ongtengco could only state that:

A. Generally my order is not to allow anybody to enter my office. Only

authorized persons are allowed to enter my office. There are some
cases, however, where some persons enter my office because they
are following up their checks. Maybe, these persons may have been
authorized by Mr. Pantig. Most of the people entering my office are
changing checks as allowed by the Resolution of the Board of
Directors of the NAWASA and the Treasurer. The check writer was
never placed on my table. There is a place for the check write which
is also under lock and key.

Q. Is Mr. Pantig authorized to allow unauthorized persons to enter

your office?

A. No, sir.

Q. Why are you tolerating Mr. Pantig admitting unauthorized persons

in your office?

A. I do not want to embarrass Mr. Pantig. Most of the people

following up checks are employees of the NAWASA.

Q. Was the authority given by the Board of Directors and the

approval by the Treasurer for employees, and other persons to
encash their checks carry with it their authority to enter your office?

A. No, sir.

xxx xxx xxx

Q. From the answers that you have given to us we observed that

actually there is laxity and poor control on your part with regards to
the preparations of check payments inasmuch as you allow
unauthorized persons to follow up their vouchers inside your office
which may leakout confidential informations or your books of
account. After being apprised of all the shortcomings in your office,
as head of the Cashiers' Office of the Treasury Department what
remedial measures do you intend to undertake?

A. Time and again the Treasurer has been calling our attention not to
allow interested persons to hand carry their voucher checks and we
are trying our best and if I can do it to follow the instructions to the
letter, I will do it but unfortunately the persons who are allowed to
enter my office are my co-employees and persons who have
connections with our higher ups and I can not possibly antagonize
them. Rest assured that even though that everybody will get hurt, I
win do my best not to allow unauthorized persons to enter my office.

xxx xxx xxx

 Q. Is it not possible inasmuch as your office is in charge of the
posting of check payments in your books that leakage of payments to
the banks came from your office?

A. I am not aware of it but it only takes us a couple of minutes to

process the checks. And there are cases wherein every information
about the checks may be obtained from the Accounting Department,
Auditing Department, or the Office of the General Manager.

Relying on the foregoing statement of Mr. Ongtengco, the National Bureau of Investigation concluded
in its Report dated November 2, 1970 that the fraudulent encashment of the twenty-three (23)cheeks
in question was an "inside job". Thus-

We have all the reasons to believe that this fraudulent act was an inside job or one
pulled with inside connivance at NAWASA. As pointed earlier in this report, the serial
numbers of these checks in question conform with the numbers in current use of
NAWASA, aside from the fact that these fraudulent checks were found to be of the
same kind and design as that of NAWASA's own checks. While knowledge as to such
facts may be obtained through the possession of a NAWASA check of current issue,
an outsider without information from the inside can not possibly pinpoint which of
NAWASA's various accounts has sufficient balance to cover all these fraudulent
checks. None of these checks, it should be noted, was dishonored for insufficiency of
funds. . .

Even if the twenty-three (23) checks in question are considered forgeries, considering the petitioner's
gross negligence, it is barred from setting up the defense of forgery under Section 23 of the
Negotiable Instruments Law.

Nonetheless, the petitioner claims that it was the negligence of the respondent Philippine National
Bank that was the proximate cause of the loss. The petitioner relies on our ruling in Philippine
National Bank v. Court of Appeals (25 SCRA 693) that.

Thus, by not returning the cheek to the PCIB, by thereby indicating that the PNB had
found nothing wrong with the check and would honor the same, and by actually
paying its amount to the PCIB, the PNB induced the latter, not only to believe that the
check was genuine and good in every respect, but, also, to pay its amount to Augusto
Lim. In other words, the PNB was the primary or proximate cause of the loss, and,
hence, may not recover from the PCIB.

The argument has no merit. The records show that the respondent drawee bank, had taken the
necessary measures in the detection of forged checks and the prevention of their fraudulent
encashment. In fact, long before the encashment of the twenty-three (23) checks in question, the
respondent Bank had issued constant reminders to all Current Account Bookkeepers informing them
of the activities of forgery syndicates. The Memorandum of the Assistant Vice-President and Chief
Accountant of the Philippine National Bank dated February 17, 1966 reads in part:

SUBJECT: ACTIVITIES OF FORGERY SYNDICATE

From reliable information we have gathered that personalized checks of current

account depositors are now the target of the forgery syndicate. To protect the interest
of the bank, you are hereby enjoined to be more careful in examining said checks
especially those coming from the clearing, mails and window transactions. As a
reminder please be guided with the following:

1. Signatures of drawers should be properly scrutinized and compared with those we

have on file.
 2. The serial numbers of the checks should be compared with the serial numbers
registered with the Cashier's Dept.

3. The texture of the paper used and the printing of the checks should be compared
with the sample we have on file with the Cashier's Dept.

4. Checks bearing several indorsements should be given a special attention.

5. Alteration in amount both in figures and words should be carefully examined even if
signed by the drawer.

6. Checks issued in substantial amounts particularly by depositors who do not usually

issue checks in big amounts should be brought to the attention of the drawer by
telephone or any fastest means of communication for purposes of confirmation.

and your attention is also invited to keep abreast of previous circulars and memo
instructions issued to bookkeepers.

We cannot fault the respondent drawee Bank for not having detected the fraudulent encashment of
the checks because the printing of the petitioner's personalized checks was not done under the
supervision and control of the Bank. There is no evidence on record indicating that because of this
private printing the petitioner furnished the respondent Bank with samples of checks, pens, and inks
or took other precautionary measures with the PNB to safeguard its interests.

Under the circumstances, therefore, the petitioner was in a better position to detect and prevent the
fraudulent encashment of its checks.

WHEREFORE, the petition for review on certiorari is hereby DISMISSED for lack of merit. The
decision of the respondent Court of Appeals dated October 29, 1982 is AFFIRMED. No
pronouncement as to costs.

SO ORDERED.
 [G.R. No. L-12812. September 29, 1959.]

FILIPINAS COLLEGES, INC., Plaintiff-Appellee, v. MARIA GARCIA TIMBANG, ET

AL., Defendants.

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

MARIA GARCIA TIMBANG, ET AL., plaintiffs. MARIA GARCIA TIMBANG, Plaintiff-Appellant, v.

MARIA GERVACIO BLAS, Defendant-Appellee.

De Guzman & Fernandez for appellee Filipinas Colleges, Inc.

San Juan, Africa & Benedicto for appellant Maria Garcia Timbang.

Nicanor S. Sison for appellee Maria Gervacio Blas.

SYLLABUS

1. ACCESSION; RIGHTS OF LANDOWNER AND BUILDER; FAILURE OF BUILDER IN GOOD

FAITH TO PAY VALUE OF LAND WHEN SUCH IS DEMANDED BY THE LANDOWNER. — Under
the terms of Articles 448 and 546 of the Civil Code, it is true that the owner of the land has the right to
choose between appropriating the building by reimbursing the builder of the value thereof or
compelling the builder in good faith to pay for his land. Even this second right cannot be exercised if
the value of the land is considerably more than that of the building. In addition to the right of the
builder to be paid the value of his improvement, Article 546 gives him the corollary right of retention of
the property until he is indemnified by the owner of the land. There is nothing in the language of these
two articles which would justify the conclusion that, upon the failure of the builder to pay the value of
the land, when such is demanded by the landowner, the latter becomes automatically the owner of the
improvement under Article 445 of the Civl Code.

2. ID.; ID.; ID.; REMEDY OF PARTIES. — Where, as in the present case, the builder in good faith
fails to pay the value of the land when such is demanded by the landowner, the parties may resort to
the following remedies: (1) The parties may decide to leave things as they are and assume the
retention of lessor and lessee, and should they disagree as to the amount of rental, then they can go
to the court to fix that amount (Miranda v. Fadullon, Et Al., 51 Off. Gazz., 6226; (2) Should the parties
not agree to assume the relation of lessor and lessee, the owner of the land is entitled to have the
improvement removed (Ignacio v. Hilario, 76 Phil., 605); and (3) The land and the improvement may
be sold at public auction, applying the proceeds thereof first to the payment of the value of the land
and the excess, if any to be delivered to the owner of the improvement in payment thereof (Bernardo
v. Bataclan, 66 Phil., 590)

3. ID.; ID.; ID.; EXECUTION SALE; WHERE PURCHASER IS THE JUDGMENT CREDITOR; CASH
PAYMENT OF BID, WHEN REQUIRED. — Appellants, owners of the land, instead of electing any of
the alternatives above indicated, chose to seek recovery of the value of their land by asking for a writ
of execution; levying on the house of the builder; selling the same in public auction. And because they
are the highest bidder, they now claim they acquired title to the building without necessity of paying in
cash on account of their bid. Held: While it is the invariable that where the successful bidder is the
execution creditor himself, he need not pay down the amount of the bid if it does not exceed the
amount of his judgment, nevertheless, when there is a claim by a third-party, to the proceeds of the
sale superior to his judgment credit, the execution creditor, as successful bidder, must pay in cash the
amount of his bid as a condition precedent to the issuance to him of the certificate of sale. In the
instant case, the Court of Appeals has already adjudged that appellee is entitled to the payment of the
unpaid balance of the purchase price of the school building. Appellee’s claim is, therefore not a mere
preferred credit, but is actually a lien on the school building as specifically provided in Article 2242 of
the new Civil Code. As such, it is superior to the claim of the appellants, insofar as the proceeds of the
sale of said school building are concerned. The order of the lower court directing the appellants, as
successful bidders, to pay in cash the amount of their bid is, therefore, correct.
 DECISION

BARRERA, J.:

This is an appeal taken from an order of the Court of First Instance of Manila dated May 10, 1957 (a)
declaring the Sheriff’s certificate of sale covering a school building sold at public auction null and void
unless within 15 days from notice of said order the successful bidders, defendants-appellants spouses
Maria Garcia Timbang and Marcelino Timbang, shall pay to appellee Maria Gervacio Blas directly or
through the Sheriff of Manila the sum of P5,750.00 that the spouses Timbang had bid for the building
at the Sheriff’s sale; (b) declaring the other appellee Filipinas Colleges, Inc. owner of
24,500/3,285,934 undivided interest in Lot No. 2-a covered by certificate of title No. 45970, on which
the building sold in the auction sale is situated; and (c) ordering the sale in public auction of the said
undivided interest of the Filipinas Colleges, Inc. in lot No. 2-a aforementioned to satisfy the unpaid
portion of the judgment in favor of appellee Blas and against Filipinas Colleges, Inc. in the amount of
P8,200.00 minus the sum of P5,750.00 mentioned in (a) above.

The order appealed from is the result of three motions filed in the court a quo in the course of the
execution of a final judgment of the Court of Appeals rendered in 2 cases appealed to it in which the
spouses Timbang, the Filipinas Colleges, Inc. and Maria Gervacio Blas were the parties. In that
judgment of the Court of Appeals, the respective rights of the litigants have been adjudicated as
follows:chanrob1es virtual 1aw library

(1) Filipinas Colleges, Inc. was declared to have acquired the rights of the spouses Timbang in and to
lot No. 2-a mentioned above and in consideration thereof, Filipinas Colleges, Inc. was ordered to pay
the spouses Timbang the amount of P15,807.90 plus such other amounts which said spouses might
have paid or had to pay after February, 1953, to Hoskins & Co., Inc., agent of the Urban Estates, Inc.,
original vendor of the lot. Filipinas Colleges, Inc. was required to deposit the total amount with the
court within 90 days after the decision shall have become final.

(2) Maria Gervacio Blas was declared to be a builder in good faith of the school building constructed
on the lot in question and entitled to be paid the amount of P19,000.00 for the same. Filipinas
Colleges, Inc., purchaser of the said building was ordered to deliver to Blas stock certificate (Exh. C)
for 108 shares of Filipinas Colleges, Inc. with a par value of P10,800.00 and to pay Blas the sum of
P8,200.00 representing the unpaid balance of the purchase price of the house.

(3) In case Filipinas Colleges, Inc. failed to deposit the value of the land, which after liquidation was
fixed at P32,859.34, within the 90-day period set by the court, Filipinas Colleges would lose all its
rights to the land and the spouses Timbang would then become the owners thereof. In that
eventuality, the Timbangs would make known to the court their option under Art. 448 of the Civil Code
whether they would appropriate the building in question, in which even they would have to pay
Filipinas Colleges, Inc. the sum of P19,000.00, or would compel the latter to acquire the land and pay
the price thereof.

Filipinas Colleges, Inc. having failed to pay or deposit the sum of P32,859.34 within the time
prescribed, the spouses Timbang, in compliance with the judgment of the Court of Appeals, on
September 28, 1956, made known to the court their decision that they had chosen not to appropriate
the building but to compel Filipinas Colleges, Inc., to acquire the land and pay them to value thereof.
Consequently, on December 29, 1956, the Timbang spouses asked for an order of execution against
Filipinas Colleges, Inc. for the payment of the sum of P32,859.34. The motion having been granted, a
writ of execution was issued on January 8, 1957.

On January 16, 1957, appellee Blas in turn filed a motion for execution of her judgment of P8,200.00
representing the unpaid portion of the price of the house sold to Filipinas Colleges, Inc. Over the
objection of the Timbangs, the court granted the motion and the corresponding writ of execution was
issued on January 30, 1957. Even before the actual issuance of this writ, or on January 19, 1957,
date of the granting of the motion for execution, Blas through counsel, sent a letter to the Sheriff of
Manila advising him of her preferential claim or lien on the house to satisfy the unpaid balance of the
purchase price thereof under Article 2242 of the Civil Code, and to withhold from the proceed of the
auction sale the sum of P8,200.00. Levy having been made on the house in virtue of the writs of
execution, the Sheriff of Manila on March 5, 1957, sold the building in public auction in favor of the
spouses Timbang, as the highest bidders, in the amount of P5,750.00. Personal properties of Filipinas
Colleges, Inc. were also auctioned for P245.00 in favor of the spouses Timbang.

As a result of these actuations, three motions were subsequently filed before the lower
court:chanrob1es virtual 1aw library

(1) By appellee Blas, praying that the Sheriff of Manila and/or the Timbang spouses be ordered to pay
and deliver to her the sum of P5,750.00 representing the proceeds of the auction sale of the building
of Filipinas Colleges, Inc. over which she has a lien of P8,200.00 for the unpaid balance of the
purchase price thereof;

(2) Also by the appellee Blas, praying that there being still two unsatisfied executions, one for the sum
of P32,859.34 in favor of the Timbang spouses, and another, for the sum of P8,200.00 in her favor,
the land involved, Lot No. 2-a, be sold at public auction; and

(3) By Filipinas Colleges, Inc., praying that because its properties, the house and some personal
properties, have been auctioned for P5,750.00 and P245.00 respectively in favor of the Timbang
spouses who applied the proceeds to the partial payment of the sum of P32,859.34, value of the land,
Lot No. 2-a, it (Filipinas Colleges, Inc.) be declared part owner of said lot to the extent of the total
amount realized from the execution sales of its properties.

The Timbang spouses presented their opposition to each and all of these motions. After due hearing
the lower court rendered its resolution in the manner indicated at the beginning of this decision, from
which the Timbangs alone have appealed.

In assailing the order of the Court a quo directing the appellants to pay appellee Blas the amount of
their bid (P5,750.00) made at the public auction, appellants’ counsel has presented a novel, albeit
ingenious, argument. It is contended that because the builder in good faith has failed to pay the price
of the land after the owners thereof exercised their option under Article 448 of the Civil Code, the
builder lost his right of retention provided in Article 546 and by operation of Article 445, the appellants
as owners of the land automatically became the owners of the building. And since they are the owners
ipso facto, the execution sale of the house in their favor was superflous. Consequently, they are not
bound to make good their bid of P5,750.00 as that would be to compel them to pay for their own
property. By the same token, Blas’ claim for preference on account of the unpaid balance of the
purchase price of the house does not apply because preference applies only with respect to the
property of the debtor, and the Timbangs, owners of the house, are not the debtors of Blas.

This Court cannot accept this oversimplification of appellants’ position. Articles 448 and 546 of the
Civil Code, defining the rights of the parties in case a person in good faith builds, sows or plants on
the land of another, respectively provides:chanrob1es virtual 1aw library

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

ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good
faith may retain the thing until he has 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.
Under the terms of these articles, it is that the owner of the land has the right to choose between
appropriating the building by reimbursing the builder of the value thereof or compelling the builder in
good faith to pay for his land. Even this second right cannot be exercised if the value of the land is
considerably more than that of the building. In addition to the right of the builder to be paid the value
of his improvement, Article 546 gives him the corollary right of retention of the property until he is
indemnified by the owner of the land. There is nothing in the language of these two articles, 448 and
546, which would justify the conclusion of appellants that, upon the failure of the builder to pay the
value of the land, when such is demanded by the land-owner, the latter becomes automatically the
owner of the improvement under Article 445. The case of Bernardo v. Bataclan, 66 Phil., 590 cited by
appellants is no authority for this conclusion. Although it is true it was declared therein that in the
event of the failure of the builder to pay the land, after the owner thereof has chosen this alternative,
the builder’s right of retention provided in Article 546 is lost, nevertheless there was nothing said that
as a consequence thereof, the builder loses entirely all rights over his own building. The question is:
what is the recourse or remedy left to the parties in such eventuality where the builder fails to pay the
value of the land? While the Code is silent on this point, guidance may be derived from the decisions
of this Court in the cases of Miranda v. Fadullon, Et Al., 97 Phil., 801; 51 Off. Gaz., [12] 6226; Ignacio
v. Hilario, 76 Phil., 605 and the cited case of Bernardo v. Bataclan, supra.

In the first case, this Court has said:jgc:chanrobles.com.ph

"A builder in good faith may not be required to pay rentals. He has a right to retain the land on which
he has built in good faith until he is reimbursed the expenses incurred by him. Possibly he might be
made to pay rental only when the owner of the land chooses not to appropriate the improvement and
requires the builder in good faith to pay for the land but that the builder is unwilling or unable to pay
the land, and then they decide to leave things as they are and assume the relation of lessor and
lessee, and should they disagree as to the amount of rental then they can go to the court to fix that
amount." (Emphasis supplied).

Should the parties not agree to leave things as they are and to assume the relation of lessor and
lessee, another remedy is suggested in the case of Ignacio v. Hilario, supra, wherein the court has
ruled that the owner of the land is entitled to have the improvement removed when after having
chosen to sell his land to the other party, i.e., the builder in good faith fails to pay for the same.

A further remedy is indicated in the case of Bernardo v. Bataclan, supra, where this Court approved
the sale of the land and the improvement in a public auction applying the proceeds thereof first to the
payment of the value of the land and the excess, if any, to be delivered to the owner of the house in
payment thereof.

The appellants herein, owners of the land, instead of electing any of the alternatives above indicated
chose to seek recovery of the value of their land by asking for a writ of execution; levying on the
house of the builder; and selling the same in public auction. And because they are the highest bidder
in their own auction sale, they now claim they acquired title to the building without necessity of paying
in cash on account of their bid. In other words, they in effect pretend to retain their land and acquire
the house without paying a cent therefor.

This contention is without merit. This Court has already held in Matias v. The Provincial Sheriff of
Nueva Ecija (74 Phil., 326) that while it is the invariable practice, dictated by common sense, that
where the successful bidder is the execution creditor himself, he need not pay down the amount of the
bid if it does not exceed the amount of his judgment, nevertheless, when there is a claim by a third-
party, to the proceeds of the sale superior to his judgment credit, the execution creditor, as successful
bidder, must pay in cash the amount of his bid as a condition precedent to the issuance to him of the
certificate of sale. In the instant case, the Court of Appeals has already adjudged that appellee Blas is
entitled to the payment of the unpaid balance of the purchase price of the school building. Blas’ claim
is therefore not a mere preferred credit, but is actually a lien on the school building as specifically
provided in Article 2242 of the new Civil Code. As such, it is superior to the claim of the Timbangs
insofar as the proceeds of the sale of said school building are concerned. The order of the lower court
directing the Timbang spouses, as successful bidders, to pay in cash the amount of their bid in the
sum of P5,750.00 is therefore correct.
With respect to the order of the court declaring appellee Filipinas Colleges, Inc. part owner of the land
to the extent of the value of its personal properties sold at public auction in favor of the Timbangs, this
Court likewise finds the same as justified, for such amount represents, in effect, a partial payment of
the value of the land. If this resulted in the continuation of the so-called involuntary partnership
questioned by the appellants, it was due to their own action. As appellee Blas still has an unsatisfied
judgment representing the difference between P8,200.00 - the unpaid balance of the purchase price
of the building and the sum of P5,750.00 - amount to be paid by the Timbangs, the order of the court
directing the sale of such undivided interest of the Filipinas Colleges, Inc. is likewise justified to satisfy
the claim of the appellee Blas.

Considering that the appellant spouses Marcelino Timbang and Maria Garcia Timbang may not
voluntarily pay the sum of P5,750.00 as ordered, thereby further delaying the final termination of this
case, the first part of the dispositive portion of the order appealed from is modified in the sense that
upon failure of the Timbang spouses to pay to the sheriff or to Maria Gervacio Blas said sum of
P5,750.00 within fifteen (15) days from notice of the final judgment, an order of execution shall issue
in favor of Maria Gervacio Blas to be levied upon all properties of the Timbang spouses not exempt
from execution for the satisfaction of the said amount.

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

It is so ordered.
 G.R. No. L-44606             November 28, 1938

VICENTE STO. DOMINGO BERNARDO, Plaintiff-Appellant, vs. CATALINO

BATACLAN, Defendant-Appellant.
TORIBIO TEODORO, purchaser-appellee.

Pedro de Leon for plaintiff-appellant.

Angel H. Mojica and Francisco Lavides for defendant appellant.
Jose Y. Garde for appellee.

LAUREL, J.: 

This is an appeal taken by both the plaintiff and the defendant from the order of September 26, 1935,
hereinabove referred to, of the Court of First Instance of Cavite in Civil Case No. 2428.

There is no controversy as to the facts. By a contract of sale executed from Pastor Samonte and
others ownership of a parcel of land of about 90 hectares situated in sitio Balayunan, Silang, Cavite.
To secure possession of the land from the vendors the said plaintiff, on July 20, 1929, instituted Civil
Case No. 1935 in the Court of First Instance of Cavite. The trial court found for the plaintiff in a
decision which was affirmed by this Supreme Court on appeal (G.R. No. 33017). 1 When plaintiff
entered upon the premises, however, he found the defendant herein, Catalino Bataclan, who appears
to have been authorized by former owners, as far back as 1922, to clear the land and make
improvements thereon. As Bataclan was not a party in Case No. 1935, plaintiff, on June 11, 1931,
instituted against him, in the Court of First Instance of Cavite, Civil Case No. 2428. In this case,
plaintiff was declared owner but the defendant was held to be a possessor in good faith, entitled to
reimbursement in the total sum of P1,642, for work done and improvements made. The dispositive
part of the decision reads:

Por las consideraciones expuestas, se declara al demandante Vicente Santo Domingo Bernardo
dueño con derecho a la posesion del terreno que se describe en la demanda, y al demandado
Catalino Bataclan con derecho a que del demandante le pague la suma de P1,642 por gastos utiles
hechos de buena fe en el terreno, y por el cerco y ponos de coco y abaca existentes en el mismo, y
con derecho, ademas a retener la posesion del terreno hasta que se le pague dicha cantidad. Al
demandante puede optar, en el plazo de treinta dias, a partir de la fecha en que fuere notificado de la
presente, por pagar esa suma al demandado, haciendo asi suyos el cerco y todas las plantaciones
existentes en el terreno, u obligar al demandado a pagarle el precio terreno, a razon de trescientos
pesos la hectarea. En el caso de que el demandante optara por que el demandado le pagara el
precio del terreno, el demandado efectuara el pago en el plazo convenientes por las partes o que
sera fijado por el Juzgado. Sin costas.

Both parties appealed to this court (G. R. No. 37319). 2 The decision appealed from was modified by
allowing the defendant to recover compensation amounting to P2,212 and by reducing the price at
which the plaintiff could require the defendant to purchase the land in question from P300 to P200 per
hectare. Plaintiff was given by this court 30 days from the date when the decision became final within
which to exercise his option, either to sell the land to the defendant or to buy the improvements from
him. On January 9, 1934, the plaintiff manifested to the lower court his desire "to require the
defendant to pay him the value of the land at the rate of P200 per hectare or a total price of P18,000
for the whole tract of land." The defendant informed the lower court that he was unable to pay the land
and, on January 24, 1934, an order was issued giving the plaintiff 30 days within which to pay the
defendant the sum of P2,212 stating that, in the event of failure to make such payment, the land
would be ordered sold at public auction " Para hacer pago al demandante de la suma de P2,212 y el
remanente despues de deducidos los gastos legales de la venta en publica subasta sera entregado
al demandante." On February 21, 1934, plaintiff moved to reconsider the foregoing order so that he
would have preference over the defendant in the order of payment. The motion was denied on March
1, 1934 but on March 16 following the court below, motu proprio modified its order of January 24, " en
el sentido de que el demandante tiene derecho preferente al importe del terreno no se vendiere en
publica subasta, a razon de P200 por hectares y el remanente, si acaso lo hubiere se entregara al
demandado en pago de la cantidad de P2,212 por la limpieza del terreno y las mejoras introducidas
en el mismo por el citado demandado." On April 24, 1934, the court below, at the instance of the
plaintiff and without objection on the part of the defendant, ordered the sale of the land in question at
public auction. The land was sold on April 5, 1935 to Toribio Teodoro, the highest bidder, for P8,000.
In the certificate of sale issued to said purchaser on the very day of sale, it was stated that the period
of redemption of the land sold was to expire on April 5, 1936. Upon petition of Toribio Teodoro the
court below ordered the provincial sheriff to issue another certificate not qualified by any equity of
redemption. This was complied with by the sheriff on July 30, 1935. On September 18, 1935, Teodoro
moved that he be placed in possession of the land purchased by him. The motion was granted by
order of September 26, 1935, the dispositive part of which is as follows:

Por tanto, se ordena al Sheriff Provincial de Cavite ponga a Toribio Teodoro en posesion del terreno
comprado por el en subasta publica y por el cual se le expidio certificado de venta definitiva,
reservando al demandado su derecho de ejercitar una accion ordinaria para reclamar del
demandante la cantidad de P2,212 a que tiene derecho por la limpieza y mejoras del terreno y cuya
suma, en justicia y equidad, debe ser descontada y deducida de la suma de P8,000 que ya ha
recibido el demandante.

The Civil Code confirms certain time-honored principles of the law of property. One of these is the
principle of accession whereby the owner of property acquires not only that which it produces but that
which is united to it either naturally or artificially. (Art. 353.) Whatever is built, planted or sown on the
land of another, and the improvements or repairs made thereon, belong to the owner of the land (art.
358). Where, however, the planter, builder, or sower has acted in good faith, a conflict of rights arises
between the owners and it becomes necessary to protect the owner of the improvements without
causing injustice to the owner of the land. In view of the impracticability of creating what Manresa calls
a state of "forced coownership" (vol. 3, 4th ed., p. 213), the law has provided a just and equitable
solution by giving the owner of the land the option to acquire the improvements after payment of the
proper indemnity or to oblige the builder or planter to pay for the land and the sower to pay the proper
rent (art. 361). It is the owner of the land who is allowed to exercise the option because his right is
older and because, by the principle of accession, he is entitled to the ownership of the accessory thing
(3 Manresa, 4th ed., p. 213). In the case before us, the plaintiff, as owner of the land, chose to require
the defendant, as owner of the improvements, to pay for the land.

The defendant states that he is a possessor in good faith and that the amount of P2,212 to which he
is entitled has not yet been paid to him. Therefore, he says, he has a right to retain the land in
accordance with the provisions of article 453 of the Civil Code. We do not doubt the validity of the
premises stated. " Considera la ley tan saarada y legitima la deuda, que, hasta que sea pagada, no
consiente que la cosa se restituya all vencedor." (4 Manresa, 4th ed, p., 304.) We find, however, that
the defendant has lost his right of retention. In obedience to the decision of this court in G.R. No.
37319, the plaintiff expressed his desire to require the defendant to pay for the value of the land. The
said defendant could have become owner of both land and improvements and continued in
possession thereof. But he said he could not pay and the land was sold at public auction to Toribio
Teodoro. The law, as we have already said, requires no more than that the owner of the land should
choose between indemnifying the owner of the improvements or requiring the latter to pay for the
land. When he failed to pay for the land, the defendant herein lost his right of retention.

The sale at public auction having been asked by the plaintiff himself (p. 22, bill of exceptions) and the
purchase price of P8,000 received by him from Toribio Teodoro, we find no reason to justify a rapture
of the situation thus created between them, the defendant-appellant not being entitled, after all, to
recover from the plaintiff the sum of P2,212. The judgment of the lower court is accordingly modified
by eliminating therefrom the reservation made in favor of the defendant-appellant to recover from the
plaintiff the sum of P2,212. In all the respects, the same is affirmed, without pronouncement regarding
costs. So ordered.

[G.R. No. L-8220. October 29, 1955.]

SALVACION MIRANDA, Plaintiff-Appellants, v. ESTEBAN FADULLON and spouses DIONISIO

SEGARRA and CLEMENCIA N. DE SEGARRA, Defendants-Appellees.

Lopez, Duterte, Guillamac, Rubillos, Montecillo & Bernardo for Appellees.

Gaudencio R. Juezan for Appellant.

SYLLABUS

1. POSSESSION; IMPROVEMENTS INTRODUCED IN GOOD FAITH; BUILDER MAY NOT BE

REQUIRED TO PAY RENTAL; WHEN PAYMENT OF RENTAL MAY BE ORDERED. — A builder in
good faith may not be required to pay rentals. He has a right to retain the land on which he has built in
good faith until he is reimbursed the expenses incurred by him. Possibly he might be required to pay
rental only when the owner of the land choose not to appropriate the improvement and requires the
builder in good faith to pay for the land. But in case the builder is unwilling or unable to buy the land,
and the landowner and he decide to leave things as they are and assumes the relation of lessor and
lessee, then they might go to the court to fix the amount of the rental if they cannot agree on it.

2. ID.; INDICATIONS SHOWING IMPROVEMENTS WHERE MADE IN BAD FAITH. — The very fact
that the Court of Appeals sentenced the defendants to pay rentals is an indication, even proof, that
they were considered possessors and builders in bad faith, or at least that they were not possessors
and builders in good faith.

DECISION

MONTEMAYOR, J.:

The present appeal was first taken to the Court of Appeals. Later by resolution of the said court it was
certified to us under section 17, paragraph 6 of the Judiciary Act of 1948, as amended, the said
Tribunal being of the opinion that the case involved only questions of law. The facts as may be
gathered from the pleadings filed by the parties may be briefly stated as follows. In the year 1939 one
Lucio Tio was the owner of a parcel of land, lot 1589-J of the Banilad Estate, Cebu, under Transfer
Certificate of Title No. 10548. On December 9, 1939, a power of attorney in favor of one Esteban
Fadullon executed by Lucio Tio was registered in the land records of Cebu City and annotated at the
back of the transfer certificate of title. On the same date the deed of mortgage in favor of the Cebu
Mutual Building and Loan Association was also annotated on the same certificate of title. In the year
1946, on the strength of the said power of attorney Fadullon sold the property to the spouses Dionisio
Segarra and Clemencia N. de Segarra with right to repurchase within the short period of 30 days.
Upon failure of Fadullon to make the repurchase within this period, the Segarras about ten days after
the expiration of the period filed a sworn petition for the consolidation of their ownership and
registered said petition in the office of the Register of Deeds on May 15, 1946. Apprised of the sale of
his property, Lucio Tio on June 4, 1946, filed a complaint in the Court of First Instance of Cebu, Civil
Case No. 181 to annul the sale. Service of summons was made upon the Segarras on June 10, 1946.
After hearing the trial court rendered judgment annulling the sale. The Segarras appealed to the Court
of Appeals under CA-G. R. No. 6550-R and the said Tribunal affirmed the appealed decision and
further required the Segarras to pay plaintiff the reasonable rentals on the property from the filing of
the action until said property shall have been returned to plaintiff. Upon the decision becoming final
the corresponding writ of execution was issued directing the Sheriff to put plaintiff Tio in possession of
the lot. It turned out however that during the possession of the property by the Segarras they had
introduced improvements thereon consisting of a building of three rooms and a storage room, and one
artesian well, with tower and water tank and a cement flooring covering about one-third of the lot
which according to the Segarras cost them P5,300. They then filed a motion with the trial court
claiming that they were possessors in good faith of the lot in question, and that they had introduced
the improvements aforementioned in good faith and asked the court to order the plaintiff to pay for the
said improvements valued at P5,300 or to allow them to buy the land should the plaintiff decide not to
pay for the improvements. On August 28, 195, the trial court issued the following
order:jgc:chanrobles.com.ph

"The attorney for the plaintiff has been accordingly served with copy of defendant’s motion of July 31,
1952, filed through counsel.

"As prayed for, without opposition, the plaintiff is hereby ordered to either pay the defendant spouses,
Dionisio Segarra and Clemencia N. Segarra (possessors in good faith) the sum of P5,300, value of
the building erected on the land in question, or otherwise allow said defendants to purchase the
aforementioned lot."cralaw virtua1aw library

The plaintiff filed a motion for reconsideration claiming that the Segarras were possessors and
builders in bad faith and so were not entitled to reimbursement for the value of the improvements; that
the reason he (plaintiff) did not file an opposition to the motion of the defendants asking for
reimbursement was that he thought that the trial court was sufficiently informed and impressed with
the bad faith with which defendants bought the land and introduced improvements thereon and that it
would consequently deny their motion; and in support of his motion for reconsideration plaintiff quoted
portions of the decision of the trial court and the Court of Appeals. Upon the denial of his motion for
reconsideration, he took the present appeal.

After a careful review of the record we agree with the plaintiff- appellant. The trial court in its decision
declaring the sale of the land to the defendants null and void and commenting on the alleged good
faith of defendants in buying the property said the following:jgc:chanrobles.com.ph

"There are two circumstances which seem to stubbornly belie the professed good faith on the part of
the Segarras in buying this property; namely the circumstances of the power-of-attorney appearing on
the back of the title as of five or six years previous and the other circumstances of the comparatively
limited period of one month granted vendor Fadullon to redeem the property. Above all these, is the
further circumstance that the said property had already been mortgaged in favor of the Cebu Mutual
Building and Loan Association by virtue of that power-of-attorney.

"While the evidence did not disclose a collusion or conspiracy between Fadullon and the Segarras,
yet, considering the short period of one month within which to redeem and the surrounding
circumstances, the possibility of such collusion lingers.

"Obviously there was in this transaction a prevailing intention of railroading the property into a new
ownership as may be proven by the fact that said purchasers filed a sworn petition for consolidating
their ownership barely ten days after the expiration of thirty days, that is, on April 13, 1946, and
registered with the office of Register of Deeds for Cebu twelve days thereafter, or on May 15,
1946."cralaw virtua1aw library

The Court of Appeals in its decision affirming that of the trial court said:jgc:chanrobles.com.ph

"The Segarra spouses maintain that they are purchasers in good faith. We will now examine the
record on this point. The alleged power of attorney executed by the late Lucio Tio in favor of appellant
Fadullon was registered in the land record of the Register of Deeds of Cebu City and annotated at the
back of Transfer Certificate of Title No. 10548 on December 29, 1939. On the same date, the deed of
mortgage in favor of the Cebu Mutual Building and Loan Association was annotated in the said
Torrens title (Exhibits 1 and 1-B). This encumbrance alone should have been sufficient to put the
Segarra spouses upon an inquiry as to the authority of Fadullon to sell to them the same property six
years later. For instance, the Segerras could have asked themselves this question: Did not the
mortgage of P400 serve the purpose for which the power of attorney was executed?

"The Segarras did not require Fadullon to produce his power of attorney. While it is true that said
power of attorney is annotated at the back of the Torrens title of Tio, it was still incumbent upon the
Segarras to ascertain the scope and authority of Fadullon under said power of attorney. Fadullon
executed the sale with the right to repurchase within the extraordinary short period of 30 days. This
circumstance, again, should have placed the Segarras on their guards, knowing, as they did, that they
were dealing with an agent under a power of attorney executed before the war. These unusual
circumstances would seem to engender in our minds the possibility of collusion between the
appellants, to hasten the registration of the title of the Segarras to the land in dispute . . .

". . . the transfer of dominion on the property in question to the Segarras was null and void and of no
effect. The new Certificate of Torrens Title No. 392 on the property now in the name of the Segarras is
hereby ordered cancelled and that a new one issued in the name of Lucio Tio and his wife Salvacion
Miranda; ordering the Segarras to return the possession of said property to plaintiff;

"The defendants Segarras are furthermore required to pay plaintiff the reasonable rentals on the
property from the filing of this action until such time as the said property shall have been returned to
plaintiff . . ."cralaw virtua1aw library

Although neither the trial court nor the Court of Appeals did expressly say and in so many words that
the defendants-appellees were possessors in bad faith, from a reading of their decisions particularly
those we have just quoted, one can logically infer that was the conclusion of the two courts, or to say
it more mildly, that the defendants were not possessors in good faith. Moreover, the very fact that the
Court of Appeals sentenced the defendants to pay rentals is an indication, even proof that defendants
were considered possessors and builders in bad faith, or at least that they were not possessors and
builders in good faith. A builder in good faith may not be required to pay rentals. He has a right to
retain the land on which he has built in good faith until he is reimbursed the expenses incurred by him.
Possibly he might be required to pay rental only when the owner of the land chooses not to
appropriate the improvement and requires the builder in good faith to pay for the land, but that the
builder is unwilling or unable to buy the land, and then they decide to leave things as they are and
assume the relation of lessor and lessee, and should they disagree as to the amount of the rental then
they can go to the court to fix that amount. Furthermore, plaintiff-appellant in her brief (page 7) says
without denial or refutation on the part of defendants-appellees that they (defendants) applied for a
building permit to construct the improvements in question on December 4, 1946 and the permit was
granted on January 11, 1947, all this about seven months after they received the summons on June
10, 1946, meaning to say that the improvements were introduced long after their alleged good faith as
possessors had ended.

In view of the foregoing, the appealed order of August 28, 1952 and the order of October 15, 1952,
denying plaintiff’s motion for reconsideration are set aside. With costs against appellees.
G.R. No. L-175             April 30, 1946

DAMIAN IGNACIO, FRANCISCO IGNACIO and LUIS IGNACIO, petitioners,

vs.
ELIAS HILARIO and his wife DIONISIA DRES, and FELIPE NATIVIDAD, Judge of First Instance
of Pangasinan, respondents.

Leoncio R. Esliza for petitioners.

Mauricio M. Monta for respondents.

MORAN, C.J.:

This is a petition for certiorari arising from a case in the Court of First Instance of Pangasinan between
the herein respondents Elias Hilario and his wife Dionisia Dres as plaintiffs, and the herein petitioners
Damian, Francisco and Luis, surnamed Ignacio, as defendants, concerning the ownership of a parcel
of land, partly rice-land and partly residential. After the trial of the case, the lower court, presided over
by Hon. Alfonso Felix, rendered judgment holding plaintiffs as the legal owners of the whole property
but conceding to defendants the ownership of the houses and granaries built by them on the
residential portion with the rights of a possessor in good faith, in accordance with article 361 of the
Civil Code. The dispositive part of the decision, hub of this controversy, follows:

Wherefore, judgment is hereby rendered declaring:

(1) That the plaintiffs are the owners of the whole property described in transfer certificate of
title No. 12872 (Exhibit A) issued in their name, and entitled to the possession of the same;

(2) That the defendants are entitled to hold the position of the residential lot until after they are
paid the actual market value of their houses and granaries erected thereon, unless the
plaintiffs prefer to sell them said residential lot, in which case defendants shall pay the
plaintiffs the proportionate value of said residential lot taking as a basis the price paid for the
whole land according to Exhibit B; and

(3) That upon defendant's failure to purchase the residential lot in question, said defendants
shall remove their houses and granaries after this decision becomes final and within the
period of sixty (60) days from the date that the court is informed in writing of the attitude of the
parties in this respect.

No pronouncement is made as to damages and costs.

Once this decision becomes final, the plaintiffs and defendants may appear again before this
court for the purpose of determining their respective rights under article 361 of the Civil Code,
if they cannot come to an extra-judicial settlement with regard to said rights.

Subsequently, in a motion filed in the same Court of First Instance but now presided over by the
herein respondent Judge Hon. Felipe Natividad, the plaintiffs prayed for an order of execution alleging
that since they chose neither to pay defendants for the buildings nor to sell to them the residential lot,
said defendants should be ordered to remove the structure at their own expense and to restore
plaintiffs in the possession of said lot. Defendants objected to this motion which, after hearing, was
granted by Judge Natividad. Hence, this petition by defendants praying for (a) a restraint and
annulment of the order of execution issued by Judge Natividad; (b) an order to compel plaintiffs to pay
them the sum of P2,000 for the buildings, or sell to them the residential lot for P45; or (c), a rehearing
of the case for a determination of the rights of the parties upon failure of extra-judicial settlement.

The judgment rendered by Judge Felix is founded on articles 361 and 453 of the Civil Code which are
as follows:
 ART. 361. The owner of land on which anything has been built, sown or planted in good faith,
shall have the right to appropriate as his own the work, sowing or planting, after the payment
of the indemnity stated in articles 453 and 454, or to oblige the one who built or planted to pay
the price of the land, and the one who sowed, the proper rent.

ART. 453. Necessary expenses shall be refunded to every possessor; but only the possessor
in good faith may retain the thing until such expenses are made good to him.

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

The owner of the building erected in good faith on a land owned by another, is entitled to retain the
possession of the land until he is paid the value of his building, under article 453. The owner of the
land, upon the other hand, has the option, under article 361, either to pay for the building or to sell his
land to the owner of the building. But he cannot, as respondents here did, refuse both to pay for the
building and to sell the land and compel the owner of the building to remove it from the land where it is
erected. He is entitled to such remotion only when, after having chosen to sell his land, the other party
fails to pay for the same. But this is not the case before us.

We hold, therefore, that the order of Judge Natividad compelling defendants-petitioners to remove
their buildings from the land belonging to plaintiffs-respondents only because the latter chose neither
to pay for such buildings not to sell the land, is null and void, for it amends substantially the judgment
sought to be executed and is, furthermore, offensive to articles 361 and 453 of the Civil Code.

There is, however, in the decision of Judge Felix a question of procedure which calls for the
clarification, to avoid uncertainty and delay in the disposition of cases. In that decision, the rights of
both parties are well defined under articles 361 and 453 of the Civil Code, but it fails to determine the
value of the buildings and of the lot where they are erected as well as the periods of time within which
the option may be exercised and payment should be made, these particulars having been left for
determination apparently after the judgment has become final. This procedure is erroneous, for after
the judgment has become final, no additions can be made thereto and nothing can be done therewith
except its execution. And execution cannot be had, the sheriff being ignorant as to how, for how
much, and within what time may the option be exercised, and certainly no authority is vested in him to
settle these matters which involve exercise of judicial discretion. Thus the judgment rendered by
Judge Felix has never become final, it having left matters to be settled for its completion in a
subsequent proceeding, matters which remained unsettled up to the time the petition is filed in the
instant case.

For all the foregoing, the writ of execution issued by Judge Natividad is hereby set aside and the
lower court ordered to hold a hearing in the principal case wherein it must determine the prices of the
buildings and of the residential lot where they are erected, as well as the period of time within which
the plaintiffs-respondents may exercise their option either to pay for the buildings or to sell their land,
and, in the last instance, the period of time within which the defendants-petitioners may pay for the
land, all these periods to be counted from the date the judgment becomes executory or unappealable.
After such hearing, the court shall render a final judgment according to the evidence presented by the
parties.

The costs shall be paid by plaintiffs-respondents.