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Property (accretion)

FIRST DIVISION
G.R. No. 149418*

July 27, 2006

SPOUSES PELAGIO GULLA and PERLITA GULLA, petitioners,


vs.
HEIRS OF ALEJANDRO LABRADOR, represented by ALEX
LABRADOR, respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is a Petition for Review on Certiorari of the
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 52176.
The CA decision affirmed that of the Regional Trial Court (RTC),
Branch 69 of Iba, Zambales in Civil Case No. 1523-I, 2 which in turn
affirmed the ruling of the Municipal Trial Court (MTC) of San Felipe,
Zambales in Civil Case No. 381.3
Angel Labrador, Leonardo Labrador, Fe Labrador Gamboa, Alex
Labrador and Roger Labrador filed a complaint against the spouses
Pelagio and Perlita Gulla in the RTC of Iba, Zambales for
"Cancellation of Tax Declaration and Recovery of Possession with
Damages" (accion publiciana). The complaint involved a 22,590square-meter lot covered by Original Certificate of Title (OCT) No. P13350, and the 562-square-meter lot abutting the titled property. The
case was thereafter forwarded to the MTC of San Felipe, Zambales
pursuant to Republic Act No. 7691.4
The titled property is located in San Felipe, Zambales and identified
as Lot No. 520, Cad. 686-D. According to the Labradors, the property
was declared for taxation purposes under their names (Tax
Declaration No. 010-0469A) and the corresponding taxes were paid
thereon. In 1996, the spouses Gulla occupied a portion of the
property fronting the China Sea, as well as the 562-square-meter lot
within the salvage area. The spouses Gulla then constructed a house
in the occupied property and fenced its perimeter. The Labradors
pointed out that whatever alleged claims the spouses Gulla had on
the property was acquired through a Deed of Waiver of Rights dated
July 23, 1996 executed in their favor by another "squatter" Alfonso
Bactad. To verify the exact location of the portion occupied by the
spouses Gulla, a verification survey of the land was conducted on
August 17, 1990 in the presence of Pelagio Gulla. Geodetic Engineer
Crisostomo A. Magarro prepared a sketch indicating portions
occupied by the spouses Gulla, as well as the following report:
a. Lot A in Green color containing an area of 562 square
meters is the claim of Pelagio Gulla, Sr. which is outside
the titled property of the Hrs. of Alejandro Labrador and is
within the Salvage Zone;
b. Lot B in Violet containing an area of 820 square meters
is the claim of Pelagio Gulla, Sr. and within the titled
property of the Hrs. of Alejandro Labrador and obviously
within the Salvage Zone;
c. Lot C in Red color containing an area of 1,506 square
meters is the claim of Pelagio Gulla, Sr. [and] is also within

the titled property of the Hrs. of Alejandro Labrador, represented


by Alex Labrador and covered by O.C.T. No. P-13350.
The Total area claimed by Pelagio Gulla, Sr. is 2,888 square meters (more
or less). 5 (Underscoring supplied)
For their part, the spouses Gulla claimed that they had been in possession
of the 2,888-square-meter property, Lot A in the sketch of Engr. Magarro,
since 1984 and declared the property for taxation purposes under their
names in Tax Declaration (T.D.) No. 010-0549. On October 8, 1994, they
filed an application for miscellaneous sales patent which was certified as
alienable and disposable land by the barangay captain, former Mayor
Edilberto A. Abille, and Community Environment and Natural Resources
Officer Jaime Centeno. The property was likewise declared for taxation
purposes in their names under T.D. No. 010-0550-R in 1994.
On November 3, 1998, the MTC rendered judgment in favor of the
Labradors, ordering the spouses Gulla to vacate that portion of the
property covered by OCT No. P-13350 (Lots B and C in the sketch of
Engr. Magarro), and the 562-square-meter lot within the salvage zone (Lot
A). The fallo of the decision reads:
WHEREFORE, by preponderance of evidences, it is hereby
ordered upon the defendants to VACATE the portion including
the 565 salvage zone actually occupied by them immediately
and to pay P1,000.00 as monthly rental from July 1996, until
they vacate the premises and P10,000.00 as actual damages
and attorney's fee of P20,000.00.
SO ORDERED.6
According to the MTC, the Labradors were able to establish ownership
over the subject property, as evidenced by the title under their name (OCT
No. P-13350). For their part, the defendant-spouses failed to overcome
the evidence of the plaintiffs, and not being the riparian owners of Lot A
which is within the salvage zone, they have no right to possess the same. 7
On appeal, the RTC rendered judgment on March 23, 1999 affirming the
appealed decision. It ratiocinated that, as correctly observed by the court
a quo, Lot A is beyond the perimeter of the property covered by OCT No.
P-13350 and is within the salvage zone that abutted the property of
plaintiffs. Applying Article 440 of the New Civil Code, the RTC declared
that the Labradors had the right to possess the land, it being inseparably
attached to the titled property as an accessory. It further held that
"economic convenience is better attained in a state of single ownership
than in co-ownership," and that "natural justice demands that the owner of
the principal or more important thing should also own the accessory." 8
This prompted the spouses Gulla to file a petition for review before the CA
where they alleged the following:
xxxx
2. THE LOWER COURT ERRED IN RELYING ON THE
SURVEY WHICH WAS UNILATERALLY CONDUCTED BY THE
RESPONDENTS.

Property (accretion)

3. THE LOWER COURT ERRED IN HOLDING THAT THE


LAND OCCUPIED BY PETITIONERS IS WITHIN THE LOT
COVERED BY ORIGINAL CERTIFICATE OF TITLE NO. P13350.
4. THE LOWER COURT ERRED IN EJECTING THE
PETITIONERS EVEN FROM THE ALLEGED SALVAGE
ZONE.
5. THE LOWER COURT ERRED IN AWARDING
MONTHLY RENTAL, ACTUAL DAMAGES AND
ATTORNEY'S FEES.9
The spouses Gulla insisted that the trial court erred in relying on the
survey report of Engr. Magarro. In contrast, their evidence showed
that Lot A, with an area of 562 square meters, is alienable and
disposable, and is covered by a 1936 tax declaration under the name
of Alfonso Bactad. Since the property is located within the salvage
zone, it is res nullius, hence, could not have been acquired by the
Labradors through accession under Article 440 of the New Civil
Code. They also insisted that the trial court had no jurisdiction to
declare them entitled to the possession of Lot A since the Republic of
the Philippines was not a party to the case. The spouses Gulla
concluded that they cannot be held liable for monthly rentals, actual
damages and attorney's fees, since the claimed title over the subject
property is fraudulent.
On December 11, 2000, the CA rendered judgment affirming the
assailed decision. Applying Article 440 of the New Civil Code, the
appellate court declared that although Lot A is outside the titled
property of the Labradors, by analogy, as the owners of the adjoining
property, the latter have the "priority to use it." Stated differently, the
Labradors, although not the owners of the property within the salvage
zone, have the right to use it more than the spouses Gulla.
This prompted the aggrieved spouses to file a motion for
reconsideration, which the appellate court denied, hence, the present
petition.
The sole issue in this case is whether or not petitioners are entitled to
the possession of Lot A which is located at the foreshore of San
Felipe, Zambales as indicated in the report10 of Engr. Magarro.
Petitioners point out that Lot A is not covered by any certificate of
title. The free patent issued to respondents, as well as the tax
declaration covering the property, refers only to "Lot 520," a totally
different lot from what they are occupying, or Lot A. Moreover, the
lower courts erred in ruling that the salvage zone is incorporated in
the title of respondents, since the zone is res nullius and cannot be
the subject of the commerce of man, part of the public domain and
intended for public use; so long as this is so, it cannot be
appropriated by any person except through express authorization
granted in due form by a competent authority.11 Petitioners insist that
the adjudication of the salvage zone is best determined at an
appropriate forum. Petitioners further allege that respondents are
claiming possession over Lot A by virtue of a fraudulently acquired
patent, the validity of which is still the subject of a pending civil case
between Alfonso Bactad and herein respondents.

Petitioners reiterate that they occupied the subject land openly,


notoriously, and in the concept of owners for many years since 1986.
Respondents' contention, that they occupied the land clandestinely, is
negated by the very location/nature of the property, i.e., that it is situated
in the coastal area which is very much exposed. Considering the size of
the alleged property of respondents, about 2.2 hectares, it is impossible to
"secretly" occupy the said area. It is thus more credible to state that
respondents were not actually working on or were never in possession of
the contested property. According to respondents, the lower courts should
have taken judicial notice of the alarming number of "smart individuals"
who, after having obtained title by means of connections, would suddenly
file cases in courts knowing that rulings will be issued in their favor on the
basis of alleged titles.12
The petition is meritorious.
In ruling for respondents, the CA ratiocinated, thus:
The ownership of property gives the right by accession to everything
which is produced thereby, or which is incorporated or attached thereto,
either naturally or artificially (Article 440, Civil Code). Accession is the
right of an owner of a thing to the products of said thing as well as to
whatever is inseparably attached thereto as an accessory (Sanchez
Roman, Vol. II, p. 89).
In the case at bar, it is undisputed that the area of 562 square meters is
outside the titled property of the respondents and is within the salvage
zone adjacent to respondents' property. However, while it is true that the
salvage zone cannot be the subject of commerce, the adjoining owner
thereof, the respondents in this case, has the priority to use it. Otherwise
stated, herein respondents [do] not own the salvage zone but as an
adjacent owner, he has the right to use it more than the petitioners
applying the basic rule as stated above.
Moreover, the law provides the different modes of acquiring ownership,
namely: (a) occupation; (b) intellectual creation; (c) law; (d) donation; (e)
succession; (f) tradition, as a consequence of certain contracts; and (g)
prescription. It will be noted that accession is not one of those listed
therein. It is therefore safe to conclude that accession is not a mode of
acquiring ownership. The reason is simple: accession presupposes a
previously existing ownership by the owner over the principal. This is not
necessarily so in the other modes of acquiring ownership. Therefore,
fundamentally and in the last analysis, accession is a right implicitly
included in ownership, without which it will have no basis or existence. (p.
179, Paras, Vol. II, Thirteenth Edition (1994), Civil Code). In general, the
right to accession is automatic (ipso jure), requiring no prior act on the
part of the owner of the principal (Villanueva v. Claustro, 23 Phil. 54).
In the light of the foregoing, the lower court therefore is correct in ejecting
the petitioners even if the portion occupied by them is in the salvage
zone.13
The trial court, the RTC and the CA were one in ruling that the 562square-meter property, Lot A, is part of the public domain, hence, beyond
the commerce of men and not capable of registration. In fact, the land is
within the salvage zone fronting the China Sea as well as the property
covered by OCT No. P-13350 in the name of respondents. The provision
relied upon is Article 440 of the New Civil Code, which states that "[t]he

Property (accretion)

ownership of property gives the right by accession to everything


which is produced thereby, or which is incorporated or attached
thereto, either naturally or artificially." The provision, however, does
not apply in this case, considering that Lot A is a foreshore land
adjacent to the sea which is alternately covered and left dry by the
ordinary flow of the tides. Such property belongs to the public domain
and is not available for private ownership until formally declared by
the government to be no longer needed for public use. 14
Respondents thus have no possessory right over the property unless
upon application, the government, through the then Bureau of Lands,
had granted them a permit.15
There is no question that no such permit was issued or granted in
favor of respondents. This being the case, respondents have no
cause of action to cause petitioners' eviction from the subject
property. The real party-in-interest to file a complaint against
petitioners for recovery of possession of the subject property and
cause petitioner's eviction therefrom is the Republic of the
Philippines, through the Office of the Solicitor General. Consequently,
petitioners cannot be required to pay any rentals to respondents for
their possession of the property.
IN LIGHT OF ALL THE FOREGOING, the petition is partially
GRANTED. The Decision of the Court of Appeals CA-G.R. SP No.
52176 is AFFIRMED WITH THE MODIFICATION that the complaint
of respondents is DISMISSED insofar as Lot A with an area of 562
square meters is concerned. The Municipal Trial Court of San Felipe,
Zambales, is ORDERED to dismiss the complaint of the plaintiffs in
Civil Case No. 381 insofar as Lot A with an area of 562 square
meters is concerned without prejudice to the right of the Republic of
the Philippines to take such appropriate action for the recovery of
said lot from petitioners.
Let a copy of this decision be served on the Office of the Solicitor
General for appropriate action.
SO ORDERED.
G.R. No. L-4314

November 21, 1908

LORENZA QUISON, ET AL., plaintiffs-appellees,


vs.
HIGINA SALUD, defendant-appellant.
V. Ilustre, for appellant.
Santiago D. Reyes, for appellees.

WILLARD, J.:
Upon the merits of this case the only question is one of fact, namely,
is the boundary line between the land formerly owned by Fidel Salud,
the father of the defendant, and land owned by Claro Quison, father
and uncle of the plaintiffs, the estero or River Nagsaulay, or is it, as
found by the court below, a straight line of mango and bamboo trees
to the south of the above-mentioned estero? The land in controversy
is situated between this line of trees and the estero.

That Claro Quison owned land to the north of the estero, is undisputed,
but the defendant claims that he [Quison] never owned any land south of
the estero. A large amount of evidence, principally parol, was introduced
upon this question, and after an examination thereof, we are satisfied that
it clearly preponderates in favor of the decision of the court below, and
that it was proven at the trial that the land in question belongs to the heirs
of Quison.
The defendant relied to a great extent upon the record of an action
brought by Claro Quison in 1887 against one Perdeguera. Quison alleged
in his complaint in that action that the defendant therein had in unlawfully
possessed himself of a portion of his, the then plaintiff's land. The land
there in question was in the extreme northern part of the land of Quison,
and therefore entirely north of the Estero Nagsaulay. Judgment was
rendered in that action in favor of the plaintiff, and the gobernadorcillo of
the two of San Juan de Bocboc was ordered to restore the plaintiff to the
possession of the land detained by Perdeguera. In executing this
judgment the officers of the law apparently gave Quison possession of the
land which he had described in his complaint in that action, which
description was as follows: "On the east, the sea; on the south, land of
Fidel Salud; on the west, lands of Juan de Chaves and Camilo Perez; and
on the north with the arroyo called Amoyongan." Fidel Salud was cited to
appear, and did appear when possession was given to Quison. It will be
noticed that, while the land of Quison is described as being bounded on
the south by the property of Salud, nothing is said about the Estero
Nagsaulay, nor does that estero appear upon the plan which accompanied
the complaint in that action an which the officers had before them when
possession was restored. The minute of the proceeding concerning the
restitution was signed by Salud.
The importance of these documents for the defendant's case lies in the
fact that in them the land described as being in the barrio of Subuquin. We
think the evidence establishes that the land here in controversy is in the
barrio of Bataan, and that the dividing line between the barrios of Bataan
and Subuquin was the River Nagsaulay, Bataan being to the south of the
river and Subuquin to the north, and the argument of the defendant is that,
according to these documents, the entire property owned by Claro Quison
was situated in Subuquin, and therefore was north of the Estero
Nagsaulay.
Even giving the document all the weight which the defendant claims it is
entitled to, it would then be merely evidence upon the question of fact as
to whether Quison did or did not own lands to the south of the River
Nagsaulay, and as such evidence we think it can not overcome the
evidence of the many witnesses presented by the plaintiffs who swore that
as a matter of fact, they had occupied and cultivated lands belonging to
Claro Quison situated to the south of this river. It may be, perhaps, that, in
view of the fact that the land in controversy in that action commenced in
1887 was a small parcel which itself was in the barrio of Subuquin, in
describing the land in question the then plaintiff did not have in mind so
much where all of his land lay as where the particular tract then in
controversy lay.
The defendant also claims that Fidel Salud was given judicial possession
of the property here in controversy in 1895. No written documents were
presented to prove this possession, but admitting that proceedings
relating to judicial possession were then taken in accordance with the
provisions of title 13 of the Spanish Law of Civil Procedure, such
proceedings could in no way prejudice the plaintiffs according to the

Property (accretion)

express provisions of article 2016. The law did not require for such
proceedings the citation of the adjoining proprietors, nor was there
any evidence that they were in fact cited in this proceeding, and,
according to the testimony of Gregorio de Villa, any possession
which Fidel Salud obtained in 1895 was lost in 1901, when Quison
again took possession of the premises and held them until the
reconcentration when the defendant, in 1903, by reason of such
reconcentration again possessed herself of the property.
We hold that the finding of the court below in favor of the plaintiffs as
to the true boundary line between the respective properties is
sustained by the evidence.
Some questions of procedure remain to be considered.
This action was first brought against Fidel Salud and Gregorio de
Villa, the father and husband, respectively, of the defendant Higina
Salud. They answered, alleging that the property in question had
been conveyed to Higina Salud in 1895, and that she was the only
owner thereof.
Upon the presentation of this answer, the plaintiffs asked leave to
present a supplementary complaint against Higina Salud. The court,
in disposing of that motion, ordered the dismissal of the action so far
as the defendant Fidel Salud and Gregorio de Villa were concerned,
with costs against the plaintiffs, and permitted the plaintiffs to present
a complaint against Higina Salud. The plaintiffs excepted to this order
and insisted that the two defendants above-named should be
included in this case, but the court refused to vacate his order of
dismissal. The plaintiffs then presented a complaint against Higina
Salud as the only defendant. She made a motion that the complaint
be stricken out, but it does not appear that the court ever made any
ruling thereon. She afterwards answered then complaint and the trial
was had upon the pleadings then in the case, namely, on the
complaint against Higina Salud and her answer.
Higina Salud was the only one who appealed from the judgment and
she now alleges in her brief that the court erred in dismissing the
case as to the other defendants. This dismissal only prejudiced the
plaintiffs and they have not appealed. The complaint against Higina
Salud was improperly called by the plaintiffs as supplementary
complaint. But the name given to it was of no importance. At the time
it was presented she was the only defendant. It perhaps was error to
permit the filing of that new complaint against Higina Salud in this
action and perhaps the complaint should have constituted a new
case, but the fact that it was placed among the papers in this case
and that the trial and judgment were had and rendered therein, if it
were error, was an error which in no way prejudiced the substantial
rights of the defendant Higina Salud upon the merits, and is therefore
no ground for reversal. (Sec. 503, Code of the Civil Procedure.)
Claro Quison died in 1902. It was proven at the trial that the present
plaintiffs are the next of kin and heirs, but it is said by the appellant
that they are not entitled to maintain this action because there is no
evidence that any proceedings have been taken in court for the
settlement of the estate of Claro Quison, and that, without such
settlement, the heirs can not maintain this action. There is nothing in
this point. As well by the Civil Code as by the Code of Procedure, the
title to property owned by a person who dies intestate passes at once
to his heirs. Such transmission is, under the present law, subject to

the claims of the administration and the property may be taken from the
claims of the purpose of paying debts and expenses, but this does not
prevent the immediate passage of the title, upon the death of the intestate,
from himself to his heirs. Without some showing that a judicial
administrator had been appointed in proceedings to settle the estate of
Claro Quison, the right of the plaintiffs to maintain this action is
established.
The court below gave the plaintiffs P900 as damages. While the
defendant has assigned this part of the judgment as error in her brief, it
has not been argued therein. While it is true that the evidence relating to
the damages is in some respects vague and uncertain, yet, after an
examination of all of it, we are satisfied that it supports the judgment of the
court below, at least to the extent of P900.
The appellant finally claims that the action can not be maintained,
because some of the plaintiffs are married women whose husbands did
not join with them in the action. An examination of the record shows that at
least one of the plaintiffs, Lorenza Quison, was a married woman and that
her husband did not join with her in the action. Section 115 of the Code of
Civil Procedure is as follows:
Married women as a party. When a married women is a party,
her husband must be joined with her, except:
1. When the action concerns her property, in which her husband
can have no interest or right;lawphil.net
2. When the action is between herself and her husband;
3. When, for just cause, she is living separate and apart from
her husband, or by reason of an agreement in writing entered
into between them.
In either of which cases she may sue or be sued alone.
The action was brought not only to recover the possession of the land and
to secure a declaration that the plaintiffs were the owners thereof, but also
to recover the sum of P6,720, damages which the plaintiff have suffered
by the wrongful occupation of the land by the defendant. These damages
consisted of the products of the land which the defendant had received
during the time of such occupation.
Passing the question whether, as to the land itself, it being the separate
property of the wife, the husband of Lorenza Quison could have any
interest or right therein, we think that it is very clear that as to the rents
and profits of the land he does necessarily have such an interest or right.
The most that can be said in favor of the plaintiffs is that these lands were
bienes parafernales. In regard to the rents of such lands, articles 1385
and 1401 of the Civil Code provides as follows:
ART. 1385. The fruits of the paraphernal property form a part of
the assets of the conjugal partnership, and are liable for the
payment of the marriage expenses.
The property itself also be liable, in the case of article 1362,
provided that of the husband and the dowry property should be
insufficient to cover the liabilities referred to therein.

Property (accretion)

ART. 1401. To the conjugal partnership belong:


1. Property acquired for a valuable consideration during the
marriage at the expense of the partnership property,
whether the acquisition is made for the partnership or for
one of the spouses only.
2. That obtained by the industry, salaries or work of the
spouses or either of them.
3. The fruits, income, or interest collected or accrued during
the marriage, coming from the partnership property, or from
that which belongs to either one of the spouses.
We hold, therefore, that the husband of Lorenza Quison was a
necessary party to this action.
The case was submitted for our decision on the 21st of July, 1908. An
examination of the record having disclosed the facts above stated,
the court, on the 22d day of August, made an order permitting the
plaintiffs, on notice to the adverse party, to move the court for
permission to amend the complaint by adding thereto the names of
the husbands of those plaintiffs who were married. In accordance
with such order, the plaintiffs made a motion that the complaint be
amended by adding thereto the names of the husbands of Lorenza
Quison, Maximina Quison, Roberta Quison, and Petra Quison, as
plaintiffs. This motion was argued on the 5th day of October. Plaintiffs
rely upon section 110 of the Code of Civil Procedure, which is in part
as follows:
The court shall, in furtherance of justice, and on such
terms, if any, as may be proper, allow a party to amend any
pleading or proceeding and at any stage of the action, in
either the Court of First Instance or the Supreme Court, by
adding or striking out the name or any party, either plaintiff
or defendant, or by correcting a mistake in the name of a
party, or a mistaken or inadequate allegation or description
in any other respect, so that the actual merits of the
controversy may speedily be determined, without regards
to technicalities, and in the most expeditious and
inexpensive manner.
It will be seen that this case falls directly within the terms of this
section. The amendment consisted in adding the names of certain
parties as the plaintiffs. That amendment is expressly allowed by the
section. The motion was made in the Supreme Court. That is also
expressly allowed by the section, and if it is ever to be given any
effect as applied to the addition of a party to an action, it must cover
this case. The provision, moreover, seems to us a very wise one. If it
were not allowed, the plaintiffs would either fail entirely in the action
or, the present suit would to have be dismissed and they would be
compelled to commence another action for the same cause, joining
their husbands as plaintiffs, which second action would be but a
repetition of the first and would involve both parties, plaintiffs and
defendants, in much additional expense and would cause much
delay, in that way defeating the purpose of the section, which is
expressly stated to be "that the actual merits of the controversy may
speedily be determined without regard to technicalities and in the
most expeditious and inexpensive manner."

For the reasons above stated, the court on the 5th day of October, made
an order stating that on the payment by the plaintiffs of P50 for the benefit
of the defendant, the motion would be granted. These terms were
imposed upon the plaintiffs for the reason that the attention of their
counsel was called to the defect several times in the Court of First
Instance and in this court also by the brief of the appellant and that,
notwithstanding this fact, he took no steps to correct the error. The
plaintiffs have paid into the clerk's office the P50 mentioned in the
resolution of October 5, and it is therefore now ordered that the complaint
in the action be amended by adding thereto as plaintiffs the names of
Santiago Sevilla, husband of Lorenza Quison; Simeon Guerra, husband of
Maximina Quison; Dionisio Bravo, husband of Roberta Quison, and
Vicente Amador, husband of Petra Quison.
The judgment of the court below is affirmed, without costs to either party
in the court. So ordered.
EN BANC
G.R. No. 133879

November 21, 2001

EQUATORIAL REALTY DEVELOPMENT, INC., petitioner,


vs.
MAYFAIR THEATER, INC., respondent.
PANGANIBAN, J.:
General propositions do not decide specific cases. Rather, laws are
interpreted in the context of the peculiar factual situation of each
proceeding. Each case has its own flesh and blood and cannot be ruled
upon on the basis of isolated clinical classroom principles.
While we agree with the general proposition that a contract of sale is valid
until rescinded, it is equally true that ownership of the thing sold is not
acquired by mere agreement, but by tradition or delivery. The peculiar
facts of the present controversy as found by this Court in an earlier
relevant Decision show that delivery was not actually effected; in fact, it
was prevented by a legally effective impediment. Not having been the
owner, petitioner cannot be entitled to the civil fruits of ownership like
rentals of the thing sold. Furthermore, petitioner's bad faith, as again
demonstrated by the specific factual milieu of said Decision, bars the grant
of such benefits. Otherwise, bad faith would be rewarded instead of
punished.
The Case
Filed before this Court is a Petition for Review1 under Rule 45 of the Rules
of Court, challenging the March 11, 1998 Order2 of the Regional Trial
Court of Manila (RTC), Branch 8, in Civil Case No. 97-85141. The
dispositive portion of the assailed Order reads as follows:
"WHEREFORE, the motion to dismiss filed by defendant
Mayfair is hereby GRANTED, and the complaint filed by plaintiff
Equatorial is hereby DISMISSED."3
Also questioned is the May 29, 1998 RTC Order 4 denying petitioner's
Motion for Reconsideration.

Property (accretion)

The Facts
The main factual antecedents of the present Petition are matters of
record, because it arose out of an earlier case decided by this Court
on November 21, 1996, entitled Equatorial Realty Development, Inc.
v. Mayfair Theater, Inc.5 (henceforth referred to as the "mother case"),
docketed as G.R No. 106063.
Carmelo & Bauermann, Inc. ("Camelo" ) used to own a parcel of
land, together with two 2-storey buildings constructed thereon,
located at Claro M. Recto Avenue, Manila, and covered by TCT No.
18529 issued in its name by the Register of Deeds of Manila.
On June 1, 1967, Carmelo entered into a Contract of Lease with
Mayfair Theater Inc. ("Mayfair") for a period of 20 years. The lease
covered a portion of the second floor and mezzanine of a two-storey
building with about 1,610 square meters of floor area, which
respondent used as a movie house known as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second
Contract of Lease with Carmelo for the lease of another portion of the
latter's property namely, a part of the second floor of the twostorey building, with a floor area of about 1,064 square meters; and
two store spaces on the ground floor and the mezzanine, with a
combined floor area of about 300 square meters. In that space,
Mayfair put up another movie house known as Miramar Theater. The
Contract of Lease was likewise for a period of 20 years.
Both leases contained a provision granting Mayfair a right of first
refusal to purchase the subject properties. However, on July 30, 1978
within the 20-year-lease term the subject properties were sold
by Carmelo to Equatorial Realty Development, Inc. ("Equatorial") for
the total sum of P11,300,000, without their first being offered to
Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair
filed a Complaint before the Regional Trial Court of Manila (Branch 7)
for (a) the annulment of the Deed of Absolute Sale between Carmelo
and Equatorial, (b) specific performance, and (c) damages. After trial
on the merits, the lower court rendered a Decision in favor of
Carmelo and Equatorial. This case, entitled "Mayfair" Theater, Inc. v.
Carmelo and Bauermann, Inc., et al.," was docketed as Civil Case
No. 118019.
On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals
(CA) completely reversed and set aside the judgment of the lower
court.
The controversy reached this Court via G.R No. 106063. In this
mother case, it denied the Petition for Review in this wise:
"WHEREFORE, the petition for review of the decision of
the Court of Appeals, dated June 23, 1992, in CA-G.R. CV
No. 32918, is HEREBY DENIED. The Deed of Absolute
Sale between petitioners Equatorial Realty Development,
Inc. and Carmelo & Bauermann, Inc. is hereby deemed
rescinded; Carmelo & Bauermann is ordered to return to
petitioner Equatorial Realty Development the purchase
price. The latter is directed to execute the deeds and

documents necessary to return ownership to Carmelo &


Bauermann of the disputed lots. Carmelo & Bauermann is
ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots
for P11,300,000.00."6
The foregoing Decision of this Court became final and executory on March
17, 1997. On April 25, 1997, Mayfair filed a Motion for Execution, which
the trial court granted.
However, Carmelo could no longer be located. Thus, following the order of
execution of the trial court, Mayfair deposited with the clerk of court a quo
its payment to Carmelo in the sum of P11,300,000 less; P847,000 as
withholding tax. The lower court issued a Deed of Reconveyance in favor
of Carmelo and a Deed of Sale in favor of Mayfair. On the basis of these
documents, the Registry of Deeds of Manila canceled Equatorial's titles
and issued new Certificates of Title7 in the name of Mayfair.
Ruling on Equatorial's Petition for Certiorari and Petition contesting the
foregoing manner of execution, the CA in its Resolution of November 20,
1998, explained that Mayfair had no right to deduct the P847,000 as
withholding tax. Since Carmelo could no longer be located, the appellate
court ordered Mayfair to deposit the said sum with the Office of the Clerk
of Court, Manila, to complete the full amount of P11,300,000 to be turned
over to Equatorial.
Equatorial questioned the legality of the above CA ruling before this Court
in G.R No. 136221 entitled "Equatorial Realty Development, Inc. v.
Mayfair Theater, Inc." In a Decision promulgated on May 12, 2000,8 this
Court directed the trial court to follow strictly the Decision in GR. No.
106063, the mother case. It explained its ruling in these words:
"We agree that Carmelo and Bauermann is obliged to return the
entire amount of eleven million three hundred thousand pesos
(P11,300,000.00) to Equatorial. On the other hand, Mayfair may
not deduct from the purchase price the amount of eight hundred
forty-seven thousand pesos (P847,000.00) as withholding tax.
The duty to withhold taxes due, if any, is imposed on the seller
Carmelo and Bauermann, Inc."9
Meanwhile, on September 18, 1997 barely five months after Mayfair
had submitted its Motion for Execution before the RTC of Manila, Branch
7 Equatorial filed with the Regional Trial Court of Manila, Branch 8, an
action for the collection of a sum of money against Mayfair, claiming
payment of rentals or reasonable compensation for the defendant's use of
the subject premises after its lease contracts had expired. This action was
the progenitor of the present case.
In its Complaint, Equatorial alleged among other things that the Lease
Contract covering the premises occupied by Maxim Theater expired on
May 31, 1987, while the Lease Contract covering the premises occupied
by Miramar Theater lapsed on March 31, 1989.10 Representing itself as
the owner of the subject premises by reason of the Contract of Sale on
July 30, 1978, it claimed rentals arising from Mayfair's occupation thereof.
Ruling of the RTC Manila, Branch 8

Property (accretion)

As earlier stated, the trial court dismissed the Complaint via the
herein assailed Order and denied the Motion for Reconsideration
filed by Equatorial.11
The lower court debunked the claim of petitioner for unpaid back
rentals, holding that the rescission of the Deed of Absolute Sale in
the mother case did not confer on Equatorial any vested or residual
proprietary rights, even in expectancy.
In granting the Motion to Dismiss, the court a quo held that the critical
issue was whether Equatorial was the owner of the subject property
and could thus enjoy the fruits or rentals therefrom. It declared the
rescinded Deed of Absolute Sale as avoid at its inception as though it
did not happen."
The trial court ratiocinated as follows:
"The meaning of rescind in the aforequoted decision is to
set aside. In the case of Ocampo v. Court of Appeals, G.R.
No. 97442, June 30, 1994, the Supreme Court held that, 'to
rescind is to declare a contract void in its inception and to
put an end as though it never were. It is not merely to
terminate it and release parties from further obligations to
each other but to abrogate it from the beginning and
restore parties to relative positions which they would have
occupied had no contract ever been made.'
"Relative to the foregoing definition, the Deed of Absolute
Sale between Equatorial and Carmelo dated July 31, 1978
is void at its inception as though it did not happen.
"The argument of Equatorial that this complaint for back
rentals as 'reasonable compensation for use of the subject
property after expiration of the lease contracts presumes
that the Deed of Absolute Sale dated July 30, 1978 from
whence the fountain of Equatorial's all rights flows is still
valid and existing.
xxx

xxx

xxx

"The subject Deed of Absolute Sale having been rescinded


by the Supreme Court, Equatorial is not the owner and
does not have any right to demand backrentals from the
subject property. . .12
The trial court added: "The Supreme Court in the Equatorial case,
G.R No. 106063, has categorically stated that the Deed of Absolute
Sale dated July 31, 1978 has been rescinded subjecting the present
complaint to res judicata."13
Hence, the present recourse.14

The basis of the dismissal of the Complaint by the Regional Trial


Court not only disregards basic concepts and principles in the
law on contracts and in civil law, especially those on rescission
and its corresponding legal effects, but also ignores the
dispositive portion of the Decision of the Supreme Court in G.R.
No. 106063 entitled 'Equatorial Realty Development, Inc. &
Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc.'
"B.
The Regional Trial Court erred in holding that the Deed of
Absolute Sale in favor of petitioner by Carmelo & Bauermann,
Inc., dated July 31, 1978, over the premises used and occupied
by respondent, having been 'deemed rescinded' by the
Supreme Court in G.R. No. 106063, is 'void at its inception as
though it did not happen.'
"C.
The Regional Trial Court likewise erred in holding that the
aforesaid Deed of Absolute Sale, dated July 31, 1978, having
been 'deemed rescinded' by the Supreme Court in G.R. No.
106063, petitioner 'is not the owner and does not have any right
to demand backrentals from the subject property,' and that the
rescission of the Deed of Absolute Sale by the Supreme Court
does not confer to petitioner 'any vested right nor any residual
proprietary rights even in expectancy.'
"D.
The issue upon which the Regional Trial Court dismissed the
civil case, as stated in its Order of March 11, 1998, was not
raised by respondent in its Motion to Dismiss.
"E.
The sole ground upon which the Regional Trial Court dismissed
Civil Case No. 97-85141 is not one of the grounds of a Motion to
Dismiss under Sec. 1 of Rule 16 of the 1997 Rules of Civil
Procedure."
Basically, the issues can be summarized into two: (1) the substantive
issue of whether Equatorial is entitled to back rentals; and (2) the
procedural issue of whether the court a quo's dismissal of Civil Case No.
97-85141 was based on one of the grounds raised by respondent in its
Motion to Dismiss and covered by Rule 16 of the Rules of Court.
This Court's Ruling
The Petition is not meritorious.

Issues
Petitioner submits, for the consideration of this Court, the following
issues:15
"A

First Issue:
Ownership of Subject Properties
We hold that under the peculiar facts and circumstances of the case at
bar, as found by this Court en banc in its Decision promulgated in 1996 in
the mother case, no right of ownership was transferred from Carmelo to

Property (accretion)

Equatorial in view of a patent failure to deliver the property to the


buyer.
Rental a Civil
Fruit of Ownership
To better understand the peculiarity of the instant case, let us begin
with some basic parameters. Rent is a civil fruit16 that belongs to the
owner of the property producing it17 by right of accession.18
Consequently and ordinarily, the rentals that fell due from the time of
the perfection of the sale to petitioner until its rescission by final
judgment should belong to the owner of the property during that
period.
By a contract of sale, "one of the contracting parties obligates himself
to transfer ownership of and to deliver a determinate thing and the
other to pay therefor a price certain in money or its equivalent." 19
Ownership of the thing sold is a real right,20 which the buyer acquires
only upon delivery of the thing to him "in any of the ways specified in
articles 1497 to 1501, or in any other manner signifying an
agreement that the possession is transferred from the vendor to the
vendee."21 This right is transferred, not merely by contract, but also
by tradition or delivery.22 Non nudis pactis sed traditione dominia
rerum transferantur. And there is said to be delivery if and when the
thing sold "is placed in the control and possession of the vendee." 23
Thus, it has been held that while the execution of a public instrument
of sale is recognized by law as equivalent to the delivery of the thing
sold,24 such constructive or symbolic delivery, being merely
presumptive, is deemed negated by the failure of the vendee to take
actual possession of the land sold.25
Delivery has been described as a composite act, a thing in which
both parties must join and the minds of both parties concur. It is an
act by which one party parts with the title to and the possession of
the property, and the other acquires the right to and the possession
of the same. In its natural sense, delivery means something in
addition to the delivery of property or title; it means transfer of
possession.26 In the Law on Sales, delivery may be either actual or
constructive, but both forms of delivery contemplate "the absolute
giving up of the control and custody of the property on the part of the
vendor, and the assumption of the same by the vendee." 27
Possession Never
Acquired by Petitioner
Let us now apply the foregoing discussion to the present issue. From
the peculiar facts of this case, it is clear that petitioner never took
actual control and possession of the property sold, in view of
respondent's timely objection to the sale and the continued actual
possession of the property. The objection took the form of a court
action impugning the sale which, as we know, was rescinded by a
judgment rendered by this Court in the mother case. It has been held
that the execution of a contract of sale as a form of constructive
delivery is a legal fiction. It holds true only when there is no
impediment that may prevent the passing of the property from the
hands of the vendor into those of the vendee.28 When there is such
impediment, "fiction yields to reality the delivery has not been
effected."29

Hence, respondent's opposition to the transfer of the property by way of


sale to Equatorial was a legally sufficient impediment that effectively
prevented the passing of the property into the latter's hands.
This was the same impediment contemplated in Vda. de Sarmiento v.
Lesaca,30 in which the Court held as follows:
"The question that now arises is: Is there any stipulation in the
sale in question from which we can infer that the vendor did not
intend to deliver outright the possession of the lands to the
vendee? We find none. On the contrary, it can be clearly seen
therein that the vendor intended to place the vendee in actual
possession of the lands immediately as can be inferred from the
stipulation that the vendee 'takes actual possession thereof . . .
with full rights to dispose, enjoy and make use thereof in such
manner and form as would be most advantageous to herself.'
The possession referred to in the contract evidently refers to
actual possession and not merely symbolical inferable from the
mere execution of the document.
"Has the vendor complied with this express commitment? she
did not. As provided in Article 1462, the thing sold shall be
deemed delivered when the vendee is placed in the control and
possession thereof, which situation does not here obtain
because from the execution of the sale up to the present the
vendee was never able to take possession of the lands due to
the insistent refusal of Martin Deloso to surrender them claiming
ownership thereof. And although it is postulated in the same
article that the execution of a public document is equivalent to
delivery, this legal fiction only holds true when there is no
impediment that may prevent the passing of the property from
the hands of the vendor into those of the vendee. x x x." 31
The execution of a public instrument gives rise, therefore, only to a prima
facie presumption of delivery. Such presumption is destroyed when the
instrument itself expresses or implies that delivery was not intended; or
when by other means it is shown that such delivery was not effected,
because a third person was actually in possession of the thing. In the
latter case, the sale cannot be considered consummated.
However, the point may be raised that under Article 1164 of the Civil
Code, Equatorial as buyer acquired a right to the fruits of the thing sold
from the time the obligation to deliver the property to petitioner arose. 32
That time arose upon the perfection of the Contract of Sale on July 30,
1978, from which moment the laws provide that the parties to a sale may
reciprocally demand performance.33 Does this mean that despite the
judgment rescinding the sale, the right to the fruits 34 belonged to, and
remained enforceable by, Equatorial?
Article 1385 of the Civil Code answers this question in the negative,
because "[r]escission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price with
its interest; x x x" Not only the land and building sold, but also the rental
payments paid, if any, had to be returned by the buyer.
Another point. The Decision in the mother case stated that "Equatorial x x
x has received rents" from Mayfair "during all the years that this
controversy has been litigated." The Separate Opinion of Justice Teodoro

Property (accretion)

Padilla in the mother case also said that Equatorial was "deriving
rental income" from the disputed property. Even herein ponente's
Separate Concurring Opinion in the mother case recognized these
rentals. The question now is: Do all these statements concede actual
delivery?
The answer is "No." The fact that Mayfair paid rentals to Equatorial
during the litigation should not be interpreted to mean either actual
delivery or ipso facto recognition of Equatorial's title.
The CA Records of the mother case 35 show that Equatorial as
alleged buyer of the disputed properties and as alleged successor-ininterest of Carmelo's rights as lessor submitted two ejectment
suits against Mayfair. Filed in the Metropolitan Trial Court of Manila,
the first was docketed as Civil Case No. 121570 on July 9, 1987; and
the second, as Civil Case No. 131944 on May 28, 1990. Mayfair
eventually won them both. However, to be able to maintain physical
possession of the premises while awaiting the outcome of the mother
case, it had no choice but to pay the rentals.
The rental payments made by Mayfair should not be construed as a
recognition of Equatorial as the new owner. They were made merely
to avoid imminent eviction. It is in this context that one should
understand the aforequoted factual statements in the ponencia in the
mother case, as well as the Separate Opinion of Mr. Justice Padilla
and the Separate Concurring Opinion of the herein ponente.
At bottom, it may be conceded that, theoretically, a rescissible
contract is valid until rescinded. However, this general principle is not
decisive to the issue of whether Equatorial ever acquired the right to
collect rentals. What is decisive is the civil law rule that ownership is
acquired, not by mere agreement, but by tradition or delivery. Under
the factual environment of this controversy as found by this Court in
the mother case, Equatorial was never put in actual and effective
control or possession of the property because of Mayfair's timely
objection.
As pointed out by Justice Holmes, general propositions do not decide
specific cases. Rather, "laws are interpreted in the context of the
peculiar factual situation of each case. Each case has its own flesh
and blood and cannot be decided on the basis of isolated clinical
classroom principles."36
In short, the sale to Equatorial may have been valid from inception,
but it was judicially rescinded before it could be consummated.
Petitioner never acquired ownership, not because the sale was void,
as erroneously claimed by the trial court, but because the sale was
not consummated by a legally effective delivery of the property sold.
Benefits Precluded by
Petitioner's Bad Faith
Furthermore, assuming for the sake of argument that there was valid
delivery, petitioner is not entitled to any benefits from the "rescinded"
Deed of Absolute Sale because of its bad faith. This being the law of
the mother case decided in 1996, it may no longer be changed
because it has long become final and executory. Petitioner's bad faith
is set forth in the following pertinent portions of the mother case:

"First and foremost is that the petitioners acted in bad faith to


render Paragraph 8 'inutile.'
xxx

xxx

xxx

"Since Equatorial is a buyer in bad faith, this finding renders the


sale to it of the property in question rescissible. We agree with
respondent Appellate Court that the records bear out the fact
that Equatorial was aware of the lease contracts because its
lawyers had, prior to the sale, studied the said contracts. As
such, Equatorial cannot tenably claim to be a purchaser in good
faith, and, therefore, rescission lies.
xxx

xxx

xxx

"As also earlier emphasized, the contract of sale between


Equatorial and Carmelo is characterized by bad faith, since it
was knowingly entered into in violation of the rights of and to the
prejudice of Mayfair. In fact, as correctly observed by the Court
of Appeals, Equatorial admitted that its lawyers had studied the
contract of lease prior to the sale. Equatorial's knowledge of the
stipulations therein should have cautioned it to look further into
the agreement to determine if it involved stipulations that would
prejudice its own interests.
xxx

xxx

xxx

"On the part of Equatorial, it cannot be a buyer in good faith


because it bought the property with notice and full knowledge
that Mayfair had a right to or interest in the property superior to
its own. Carmelo and Equatorial took unconscientious
advantage of Mayfair."37 (Italics supplied)
Thus, petitioner was and still is entitled solely to he return of the purchase
price it paid to Carmelo; no more, no less. This Court has firmly ruled in
the mother case that neither of them is entitled to any consideration of
equity, as both "took unconscientious advantage of Mayfair." 38
In the mother case, this Court categorically denied the payment of
interest, a fruit of ownership. By the same token, rentals, another fruit of
ownership, cannot be granted without mocking this Court's en banc
Decision, which has long become final.
Petitioner's claim of reasonable compensation for respondent's use and
occupation of the subject property from the time the lease expired cannot
be countenanced. If it suffered any loss, petitioner must bear it in silence,
since it had wrought that loss upon itself. Otherwise, bad faith would be
rewarded instead of punished.@lawphil.net
We uphold the trial court's disposition, not for the reason it gave, but for
(a) the patent failure to deliver the property and (b) petitioner's bad faith,
as above discussed.
Second Issue:itc-alf
Ground in Motion to Dismiss

Property (accretion) 10

Procedurally, petitioner claims that the trial court deviated from the
accepted and usual course of judicial proceedings when it dismissed
Civil Case No. 97-85141 on a ground not raised in respondent's
Motion to Dismiss. Worse, it allegedly based its dismissal on a
ground not provided for in a motion to dismiss as enunciated in the
Rules of Court.@lawphil.net
We are not convinced A review of respondent's Motion to Dismiss
Civil Case No. 97-85141 shows that there were two grounds invoked,
as follows:

prior judgment in G.R No. 106063 has already resolved the issue of back
rentals.
On the basis of the evidence presented during the hearing of Mayfair's
Motion to Dismiss, the trial court found that the issue of ownership of the
subject property has been decided by this Court in favor of Mayfair. We
quote the RTC:
"The Supreme Court in the Equatorial case, G.R. No. 106063
has categorically stated that the Deed of Absolute Sale dated
July 31, 1978 has been rescinded subjecting the present
complaint to res judicata."43 (Emphasis in the original)

"(A)
Plaintiff is guilty of forum-shopping.itc-alf
"(B)
Plaintiff's cause of action, if any, is barred by prior
judgment."39
The court a quo ruled, inter alia, that the cause of action of petitioner
plaintiff in the case below) had been barred by a prior judgment of
this Court in G.R No. 106063, the mother case.
Although it erred in its interpretation of the said Decision when it
argued that the rescinded Deed of Absolute Sale was avoid," we
hold, nonetheless, that petitioner's cause of action is indeed barred
by a prior judgment of this Court. As already discussed, our Decision
in G.R No. 106063 shows that petitioner is not entitled to back
rentals, because it never became the owner of the disputed
properties due to a failure of delivery. And even assuming arguendo
that there was a valid delivery, petitioner's bad faith negates its
entitlement to the civil fruits of ownership, like interest and rentals.
Under the doctrine of res judicata or bar by prior judgment, a matter
that has been adjudicated by a court of competent jurisdiction must
be deemed to have been finally and conclusively settled if it arises in
any subsequent litigation between the same parties and for the same
cause.40 Thus, "[a] final judgment on the merits rendered by a court of
competent jurisdiction is conclusive as to the rights of the parties and
their privies and constitutes an absolute bar to subsequent actions
involving the same claim, demand, or cause of action."41 Res judicata
is based on the ground that the "party to be affected, or some other
with whom he is in privity, has litigated the same matter in a former
action in a court of competent jurisdiction, and should not be
permitted to litigate it again.42
It frees the parties from undergoing all over again the rigors of
unnecessary suits and repetitive trials. At the same time, it prevents
the clogging of court dockets. Equally important, it stabilizes rights
and promotes the rule of law.@lawphil.net
We find no need to repeat the foregoing disquisitions on the first
issue to show satisfaction of the elements of res judicata. Suffice it to
say that, clearly, our ruling in the mother case bars petitioner from
claiming back rentals from respondent. Although the court a quo
erred when it declared "void from inception" the Deed of Absolute
Sale between Carmelo and petitioner, our foregoing discussion
supports the grant of the Motion to Dismiss on the ground that our

Hence, the trial court decided the Motion to Dismiss on the basis of res
judicata, even if it erred in interpreting the meaning of "rescinded" as
equivalent to "void" In short, it ruled on the ground raised; namely, bar by
prior judgment. By granting the Motion, it disposed correctly, even if its
legal reason for nullifying the sale was wrong. The correct reasons are
given in this Decision.
WHEREFORE, the Petition is hereby DENIED. Costs against
petitioner.itc-alf
SO ORDERED.
Davide Jr., C.J., Quisumbing, Pardo, Buena, Ynares-Santiago and Carpio,
JJ., concur.
Bellosillo, J., I join the dissent of J. Gutierrez.
Melo, J., concurring opinion.
Puno, J., concur and also join the concurring opinion of J. Melo.
Vitug, J., see dissenting opinion.
Kapunan, J., join the dissenting opinions of Justices Vitug and SandovalGutierrez.
Mendoza, J., concur in this and Melo, J.'s concurring opinion.
De Leon, Jr., J., join the dissenting opinion of Justice J.C. Vitug.
GABOYA V. CUI
38 SCRA 85
FACTS:
Don Mariano sold his three lots prodiviso to his three children. One of his
children, due to lack of funds, wasnt able to purchase part of the land.
This reverted back to the father. As part of the sale, the father reserved for
himself the usufruct of the property. He co-owned the land with his
children then. A building was then constructed in a portion of the land,
wherein rentals was given to the father. Thereafter, the two children who
were co-owners obtained a loan, secured by a mortgage, with authority of
the father, to construct a commercial building. The father alleges that
since he has usufruct over the land, he has usufruct or share in the rentals
earned through the constructed building.
HELD:
The reserved right of vendor on a parcel of land doesnt include rentals
from the buildings subsequently constructed on the vacant lots, but that it

Property (accretion)

did entitle the usufructuary to a reasonable rental for the portion of


the land being occupied by the building.

THIRD DIVISION
G.R. Nos. 154391-92

September 30, 2004

Spouses ISMAEL and TERESITA MACASAET, petitioners,


vs.
Spouses VICENTE and ROSARIO MACASAET, respondents.
DECISION
PANGANIBAN, J.:
The present case involves a dispute between parents and children.
The children were invited by the parents to occupy the latters two
lots, out of parental love and a desire to foster family solidarity.
Unfortunately, an unresolved conflict terminated this situation. Out of
pique, the parents asked them to vacate the premises. Thus, the
children lost their right to remain on the property. They have the right,
however, to be indemnified for the useful improvements that they
constructed thereon in good faith and with the consent of the parents.
In short, Article 448 of the Civil Code applies.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of
Court, assailing the March 22, 2002 Decision2 and the June 26, 2002
Resolution3 of the Court of Appeals (CA) in CA-GR SP Nos. 56205 &
56467. The challenged Decision disposed as follows:
"WHEREFORE, the assailed Decision is AFFIRMED with
the following MODIFICATIONS:

11

The Facts
Petitioners Ismael and Teresita5 Macasaet and Respondents Vicente and
Rosario Macasaet are first-degree relatives. Ismael is the son of
respondents, and Teresita is his wife.6
On December 10, 1997, the parents filed with the Municipal Trial Court in
Cities (MTCC) of Lipa City an ejectment suit against the children. 7
Respondents alleged that they were the owners of two (2) parcels of land
covered by Transfer Certificate of Title (TCT) Nos. T-78521 and T-103141,
situated at Banay-banay, Lipa City; that by way of a verbal lease
agreement, Ismael and Teresita occupied these lots in March 1992 and
used them as their residence and the situs of their construction business;
and that despite repeated demands, petitioners failed to pay the agreed
rental of P500 per week.8
Ismael and Teresita denied the existence of any verbal lease agreement.
They claimed that respondents had invited them to construct their
residence and business on the subject lots in order that they could all live
near one other, employ Marivic (the sister of Ismael), and help in resolving
the problems of the family.9 They added that it was the policy of
respondents to allot the land they owned as an advance grant of
inheritance in favor of their children. Thus, they contended that the lot
covered by TCT No. T-103141 had been allotted to Ismael as advance
inheritance. On the other hand, the lot covered by TCT No. T-78521 was
allegedly given to petitioners as payment for construction materials used
in the renovation of respondents house.10
The MTCC11 ruled in favor of respondents and ordered petitioners to
vacate the premises. It opined that Ismael and Teresita had occupied the
lots, not by virtue of a verbal lease agreement, but by tolerance of Vicente
and Rosario.12 As their stay was by mere tolerance, petitioners were
necessarily bound by an implied promise to vacate the lots upon
demand.13 The MTCC dismissed their contention that one lot had been
allotted as an advance inheritance, on the ground that successional rights
were inchoate. Moreover, it disbelieved petitioners allegation that the
other parcel had been given as payment for construction materials. 14

1. Vicente and Rosario should reimburse Ismael


and Teresita one-half of the value of the useful
improvements introduced in the premises prior to
demand, which is equivalent to P475,000.00. In
case the former refuse to reimburse the said
amount, the latter may remove the
improvements, even though the land may suffer
damage thereby. They shall not, however, cause
any more impairment upon the property leased
than is necessary.

On appeal, the regional trial court15 (RTC) upheld the findings of the
MTCC. However, the RTC allowed respondents to appropriate the building
and other improvements introduced by petitioners, after payment of the
indemnity provided for by Article 448 in relation to Articles 546 and 548 of
the Civil Code.16 It added that respondents could oblige petitioners to
purchase the land, unless its value was considerably more than the
building. In the latter situation, petitioners should pay rent if respondents
would not choose to appropriate the building. 17

2. The award of attorneys fees is DELETED.

Upon denial of their individual Motions for Reconsideration, the parties


filed with the CA separate Petitions for Review, which were later
consolidated.18

3. The records of these consolidated cases are


REMANDED to the Court of origin for further
proceedings to determine the option to be taken
by Vicente and Rosario and to implement the
same with dispatch."4
The assailed Resolution denied petitioners Motion for
Reconsideration.

Ruling of the Court of Appeals


The CA sustained the finding of the two lower courts that Ismael and
Teresita had been occupying the subject lots only by the tolerance of
Vicente and Rosario.19 Thus, possession of the subject lots by petitioners
became illegal upon their receipt of respondents letter to vacate it. 20

Property (accretion) 12

Citing Calubayan v. Pascual,21 the CA further ruled that petitioners


status was analogous to that of a lessee or a tenant whose term of
lease had expired, but whose occupancy continued by tolerance of
the owner.22 Consequently, in ascertaining the right of petitioners to
be reimbursed for the improvements they had introduced on
respondents properties,23 the appellate court applied the Civil Codes
provisions on lease. The CA modified the RTC Decision by declaring
that Article 448 of the Civil Code was inapplicable. The CA opined
that under Article 1678 of the same Code, Ismael and Teresita had
the right to be reimbursed for one half of the value of the
improvements made.24

The Petition is partly meritorious.


First Issue:
Ejectment

Not satisfied with the CAs ruling, petitioners brought this recourse to
this Court.25

Who is entitled to the physical or material possession of the premises? At


the outset, we stress that this is the main issue in ejectment
proceedings.27 In the present case, petitioners failed to justify their right to
retain possession of the subject lots, which respondents own. Since
possession is one of the attributes of ownership,28 respondents clearly are
entitled to physical or material possession.

The Issues

Allegations of the Complaint

Petitioners raise the following issues for our consideration:


"1. a) Whether or not Section 17[,] Rule 70 of the Rules of
Court on Judgment should apply in the rendition of the
decision in this case;
b) Whether or not the Complaint should have
been dismissed;
c) Whether or not damages including attorneys
fees should have been awarded to herein
petitioners;
"2. a) Whether or not the rule on appearance of parties
during the Pretrial should apply on appearance of parties
during Preliminary Conference in an unlawful detainer suit;
b) Whether or not the case of Philippine Pryce
Assurance Corporation vs. Court of Appeals (230
SCRA 164) is applicable to appearance of parties
in an unlawful detainer suit;
"3. Whether or not Article 1678 of the Civil Code should
apply to the case on the matters of improvements, or is it
Article 447 of the Civil Code in relation to the Article 453
and 454 thereof that should apply, if ever to apply the Civil
Code;
"4. Whether or not the [D]ecision of the Court of Appeals is
supported by evidence, appropriate laws, rules and
jurisprudence;
"5. Whether or not Assisting Judge Norberto Mercado of
the MTCC Lipa City should be held accountable in
rendering the MTCC [D]ecision;
"6. Whether or not Atty. Glenn Mendoza and Atty. Andrew
Linatoc of the same [l]aw office should be held accountable
for pursuing the [e]jectment case[.]"26
The Courts Ruling

Petitioners allege that they cannot be ejected from the lots, because
respondents based their Complaint regarding the nonpayment of rentals
on a verbal lease agreement, which the latter failed to prove. 29 Petitioners
contend that the lower courts erred in using another ground (tolerance of
possession) to eject them.
In actions for unlawful detainer, possession that was originally lawful
becomes unlawful upon the expiration or termination of the defendants
right to possess, arising from an express or implied contract. 30 In other
words, the plaintiffs cause of action comes from the expiration or
termination of the defendants right to continue possession. 31 The case
resulting therefrom must be filed within one year from the date of the last
demand.
To show a cause of action in an unlawful detainer, an allegation that the
defendant is illegally withholding possession from the plaintiff is sufficient.
The complaint may lie even if it does not employ the terminology of the
law, provided the said pleading is couched in a language adequately
stating that the withholding of possession or the refusal to vacate has
become unlawful.32 It is equally settled that the jurisdiction of the court, as
well as the nature of the action, is determined from the averments of the
complaint.33
In the present case, the Complaint alleged that despite demands,
petitioners "refused to pay the accrued rentals and [to] vacate the leased
premises."34 It prayed that judgment be rendered "[o]rdering [petitioners]
and all those claiming rights under them to vacate the properties x x x and
remove the structures x x x constructed thereon." 35 Effectively then,
respondents averred that petitioners original lawful occupation of the
subject lots had become unlawful.
The MTCC found sufficient cause to eject petitioners. While it disbelieved
the existence of a verbal lease agreement, it nevertheless concluded that
petitioners occupation of the subject lots was by mere tolerance of
respondents. Basing its conclusion on the fact that the parties were close
relatives, the MTCC ruled thus:
"x x x [T]he parties herein are first degree relatives. Because of
this relationship, this Court takes judicial notice of the love, care,
concern and protection imbued upon the parents towards their
[children], i.e., in the instant case, the love, care, concern and
protection of the [respondents] to the [petitioners]. With this in
mind, this Court is inclined to believe the position of the

Property (accretion) 13

[petitioners] that there was no such verbal lease agreement


between the parties herein that took place in 1992. x x x.
"From the allegations of the [petitioners], this Court is
convinced that their stay and occupancy of the subject
premises was by mere tolerance of the [respondents], and
not by virtue of a verbal lease agreement between them." 36
Having found a cause of action for unlawful detainer, the MTCC (as
well as the RTC and the CA) did not err in ordering the ejectment of
petitioners as prayed for by respondents. There was no violation of
Section 17 of Rule 7037 of the Rules of Court. As earlier explained,
unlawful detainer was sufficiently alleged in the Complaint and duly
proven during the trial. Significantly, the issue of whether there was
enough ground to eject petitioners was raised during the preliminary
conference.38
Not Merely Tolerated
Possession
Petitioners dispute the lower courts finding that they occupied the
subject lots on the basis of mere tolerance. They argue that their
occupation was not under such condition, since respondents had
invited, offered and persuaded them to use those properties. 39
This Court has consistently held that those who occupy the land of
another at the latters tolerance or permission, without any contract
between them, are necessarily bound by an implied promise that the
occupants will vacate the property upon demand.40 A summary action
for ejectment is the proper remedy to enforce this implied obligation. 41
The unlawful deprivation or withholding of possession is to be
counted from the date of the demand to vacate. 42
Toleration is defined as "the act or practice of permitting or enduring
something not wholly approved of."43 Sarona v. Villegas44 described
what tolerated acts means, in this language:
"Professor Arturo M. Tolentino states that acts merely
tolerated are those which by reason of neighborliness or
familiarity, the owner of property allows his neighbor or
another person to do on the property; they are generally
those particular services or benefits which ones property
can give to another without material injury or prejudice to
the owner, who permits them out of friendship or courtesy.
x x x. And, Tolentino continues, even though this is
continued for a long time, no right will be acquired by
prescription." x x x. Further expounding on the concept,
Tolentino writes: There is tacit consent of the possessor to
the acts which are merely tolerated. Thus, not every case
of knowledge and silence on the part of the possessor can
be considered mere tolerance. By virtue of tolerance that is
considered as an authorization, permission or license, acts
of possession are realized or performed. The question
reduces itself to the existence or non-existence of the
permission."45
We hold that the facts of the present case rule out the finding of
possession by mere tolerance. Petitioners were able to establish that

respondents had invited them to occupy the subject lots in order that they
could all live near one other and help in resolving family problems. 46 By
occupying those lots, petitioners demonstrated their acceptance of the
invitation. Hence, there was a meeting of minds, and an agreement
regarding possession of the lots impliedly arose between the parties.
The occupancy of the subject lots by petitioners was not merely
"something not wholly approved of" by respondents. Neither did it arise
from what Tolentino refers to as "neighborliness or familiarity." In point of
fact, their possession was upon the invitation of and with the complete
approval of respondents, who desired that their children would occupy the
premises. It arose from familial love and a desire for family solidarity,
which are basic Filipino traits.
Right to Use the Lots Terminated
That Ismael and Teresita had a right to occupy the lots is therefore clear.
The issue is the duration of possession. In the absence of a stipulation on
this point, Article 1197 of the Civil Code allows the courts to fix the
duration or the period.
"Article 1197. If the obligation does not fix a period, but from its
nature and the circumstances it can be inferred that a period
was intended, the courts may fix the duration thereof.
"The courts shall also fix the duration of the period when it
depends upon the will of the debtor.
"In every case the courts shall determine such period as may
under the circumstances have been probably contemplated by
the parties. Once fixed by the courts, the period cannot be
changed by them."
Article 1197, however, applies to a situation in which the parties intended
a period. Such qualification cannot be inferred from the facts of the
present case.
To repeat, when Vicente and Rosario invited their children to use the lots,
they did so out of parental love and a desire for solidarity expected from
Filipino parents. No period was intended by the parties. Their mere failure
to fix the duration of their agreement does not necessarily justify or
authorize the courts to do so.47
Based on respondents reasons for gratuitously allowing petitioners to use
the lots, it can be safely concluded that the agreement subsisted as long
as the parents and the children mutually benefited from the arrangement.
Effectively, there is a resolutory condition in such an agreement. 48 Thus,
when a change in the condition existing between the parties occurs -- like
a change of ownership, necessity, death of either party or unresolved
conflict or animosity -- the agreement may be deemed terminated. Having
been based on parental love, the agreement would end upon the
dissipation of the affection.
When persistent conflict and animosity overtook the love and solidarity
between the parents and the children, the purpose of the agreement
ceased.49 Thus, petitioners no longer had any cause for continued
possession of the lots. Their right to use the properties became untenable.
It ceased upon their receipt of the notice to vacate. And because they

Property (accretion) 14

refused to heed the demand, ejectment was the proper remedy


against them. Their possession, which was originally lawful, became
unlawful when the reason therefor -- love and solidarity -- ceased to
exist between them.
No Right to Retain
Possession
Petitioners have not given this Court adequate reasons to reverse
the lower courts dismissal of their contention that Lots T-78521 and
T-103141, respectively, were allegedly allotted to them as part of their
inheritance and given in consideration for past debts.
The right of petitioners to inherit from their parents is merely inchoate
and is vested only upon the latters demise. Indisputably, rights of
succession are transmitted only from the moment of death of the
decedent.50 Assuming that there was an "allotment" of inheritance,
ownership nonetheless remained with respondents. Moreover, an
intention to confer title to certain persons in the future is not
inconsistent with the owners taking back possession in the meantime
for any reason deemed sufficient.51 Other than their self-serving
testimonies and their affidavits, petitioners offered no credible
evidence to support their outlandish claim of inheritance "allocation."
We also agree with the lower courts that petitioners failed to prove
the allegation that, through a dation in payment, Lot T-78521 had
been transferred to the latter as payment for respondents debts. 52
The evidence presented by petitioners related only to the alleged
indebtedness of the parents arising from the latters purported
purchases and advances.53 There was no sufficient proof that
respondents had entered into a contract of dation to settle the
alleged debt. Petitioners even stated that there was a disagreement
in the accounting of the purported debt,54 a fact that disproves a
meeting of the minds with the parents.
Petitioners also admitted that a portion of the alleged debt is the
subject matter of a collection case against respondents (Civil Case
No. 0594-96).55 Thus, the formers allegation that the indebtedness
has been paid through a dation cannot be given credence,
inconsistent as it is with their action to recover the same debt.
Despite their protestations, petitioners recognized the right of the
parents to recover the premises when they admitted in their Position
Paper filed with the MTCC that respondents had a title to the lots.
"The [respondents] want to get their property because the
title is theirs, the [petitioners] do not object but what is due
the [petitioners] including the reparation for the tarnish of
their dignity and honor must be given the [petitioners] for
the benefits of their children before the premises will be
turned over."56
As a rule, the right of ownership carries with it the right of
possession.
Second Issue:
Appearance at the Preliminary Conference

Section 8 of Rule 70 of the Rules of Court requires the appearance of the


plaintiff and the defendant during the preliminary conference. On the basis
of this provision, petitioners claim that the MTCC should have dismissed
the case upon the failure of respondents to attend the conference.
However, petitioners do not dispute that an attorney-in-fact with a written
authorization from respondents appeared during the preliminary
conference.57 The issue then is whether the rules on ejectment allow a
representative to substitute for a partys personal appearance.
Unless inconsistent with Rule 70, the provisions of Rule 18 on pretrial
applies to the preliminary conference.58 Under Section 4 of this Rule, the
nonappearance of a party may be excused by the showing of a valid
cause; or by the appearance of a representative, who has been fully
authorized in writing to enter into an amicable settlement, to submit to
alternative modes of dispute resolution, and to enter into stipulations or
admissions of facts and of documents.59
Section 4 of Rule 18 may supplement Section 8 of Rule 70. Thus, the
spirit behind the exception to personal appearance under the rules on
pretrial is applicable to the preliminary conference. If there are valid
reasons or if a representative has a "special authority," a partys
appearance may be waived. As petitioners are challenging only the
applicability of the rules on pretrial to the rule on preliminary conference,
the written authorization from respondents can indeed be readily
considered as a "special authorization."
Third Issue:
Rights of a Builder in Good Faith
As applied to the present case, accession refers to the right of the owner
to everything that is incorporated or attached to the property. 60 Accession
industrial -- building, planting and sowing on an immovable -- is governed
by Articles 445 to 456 of the Civil Code.
Articles 447 and 1678 of the
Civil Code Inapplicable
To buttress their claim of reimbursement for the improvements introduced
on the property, petitioners cite Article 447.61 They allege that the CA erred
in applying Article 1678, since they had no lease agreement with
respondents.
We clarify. Article 447 is not applicable, because it relates to the rules that
apply when the owner of the property uses the materials of another. It
does not refer to the instance when a possessor builds on the property of
another, which is the factual milieu here.
In view of the unique factual setting of the instant case, the contention of
petitioners regarding the inapplicability of Article 1678 deserves attention.
The CA applied the provisions on lease, because it found their possession
by mere tolerance comparable with that of a lessee, per the
pronouncement in Calubayan v. Pascual,62 from which we quote:
"x x x. It has been held that a person who occupies the land of
another at the latters tolerance or permission, without any
contract between them, is necessarily bound by an implied

Property (accretion) 15

promise that he will vacate upon demand, failing which a


summary action for ejectment is the proper remedy against
them. The status of defendant is analogous to that of a
lessee or tenant whose term of lease has expired but
whose occupancy continued by tolerance of the owner. In
such a case, the unlawful deprivation or withholding of
possession is to be counted from the date of the demand to
vacate."63 (Emphasis in the original.)
As explained earlier, Ismael and Teresitas possession of the two lots
was not by mere tolerance, a circumstance that negates the
applicability of Calubayan.
Article 448 Applicable
On the other hand, when a person builds in good faith on the land of
another, the applicable provision is Article 448, which reads: 64
"Article 448. The owner of the land on which anything has
been built, sown or planted in good faith, shall have the
right to appropriate as his own the works, sowing or
planting, after payment of the indemnity provided for in
Articles 546 and 548, or to oblige the one who built or
planted to pay the price of the land, and the one who
sowed, the proper rent. However, the builder or planter
cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such
case, he shall pay reasonable rent, if the owner of the land
does not choose to appropriate the building or trees after
proper indemnity. The parties shall agree upon the terms of
the lease and in case of disagreement, the court shall fix
the terms thereof."
This Court has ruled that this provision covers only cases in which
the builders, sowers or planters believe themselves to be owners of
the land or, at least, to have a claim of title thereto. 65 It does not apply
when the interest is merely that of a holder, such as a mere tenant,
agent or usufructuary.66 From these pronouncements, good faith is
identified by the belief that the land is owned; or that -- by some title
-- one has the right to build, plant, or sow thereon. 67
However, in some special cases, this Court has used Article 448 by
recognizing good faith beyond this limited definition. Thus, in Del
Campo v. Abesia,68 this provision was applied to one whose house -despite having been built at the time he was still co-owner -overlapped with the land of another. 69 This article was also applied to
cases wherein a builder had constructed improvements with the
consent of the owner. The Court ruled that the law deemed the
builder to be in good faith.70 In Sarmiento v. Agana,71 the builders
were found to be in good faith despite their reliance on the consent of
another, whom they had mistakenly believed to be the owner of the
land.72
Based on the aforecited special cases, Article 448 applies to the
present factual milieu. The established facts of this case show that
respondents fully consented to the improvements introduced by
petitioners. In fact, because the children occupied the lots upon their
invitation, the parents certainly knew and approved of the
construction of the improvements introduced thereon.73 Thus,

petitioners may be deemed to have been in good faith when they built the
structures on those lots.
The instant case is factually similar to Javier v. Javier. 74 In that case, this
Court deemed the son to be in good faith for building the improvement
(the house) with the knowledge and consent of his father, to whom
belonged the land upon which it was built. Thus, Article 448 75 was applied.
Rule on Useful Expenses
The structures built by petitioners were "useful" improvements, because
they augmented the value or income of the bare lots. 76 Thus, the
indemnity to be paid by respondents under Article 448 is provided for by
Article 546, which we quote:
"Art. 546. Necessary expenses shall be refunded to every
possessor; but only the possessor in good faith may retain the
thing until he has been reimbursed therefor.
"Useful expenses shall be refunded only to the possessor in
good faith with the same right of retention, the person who has
defeated him in the possession having the option of refunding
the amount of the expenses or of paying the increase in value
which the thing may have acquired by reason thereof."
Consequently, respondents have the right to appropriate -- as their own -the building and other improvements on the subject lots, but only after (1)
refunding the expenses of petitioners or (2) paying the increase in value
acquired by the properties by reason thereof. They have the option to
oblige petitioners to pay the price of the land, unless its value is
considerably more than that of the structures -- in which case, petitioners
shall pay reasonable rent.
In accordance with Depra v. Dumlao,77 this case must be remanded to the
trial court to determine matters necessary for the proper application of
Article 448 in relation to Article 546. Such matters include the option that
respondents would take and the amount of indemnity that they would pay,
should they decide to appropriate the improvements on the lots. We
disagree with the CAs computation of useful expenses, which were based
only on petitioners bare allegations in their Answer. 78
Ruling on Improvement Justified
While, ordinarily, the jurisdiction of the MTCC on ejectment proceedings is
limited to the issue of physical or material possession of the property in
question, this Court finds it necessary to abbreviate the issue on the
improvements in relation to Article 448. First, the determination of the
parties right to those improvements is intimately connected with the
MTCC proceedings in the light of the ejectment of petitioners. Second,
there is no dispute that while they constructed the improvements,
respondents owned the land. Third, both parties raised no objection when
the RTC and the CA ruled accordingly on this matter.
Equitable considerations compel us to settle this point immediately, pro
hoc vice, to avoid needless delay. Both parties have already been heard
on this issue; to dillydally or equivocate would not serve the cause of
substantial justice.

Property (accretion) 16

Other Issues Raised


] G.R. No. 163429

March 3, 2006

Given the foregoing rulings, it is no longer necessary to address


petitioners allegation that the MTCC judge and respondents lawyers
should be respectively held personally accountable for the Decision
and for filing the case.79 The insinuation of petitioners that the
lawyers manipulated the issuance of a false barangay certification is
unavailing.80 Their contention that respondents did not attend the
barangay conciliation proceedings was based solely on hearsay,
which has little or no probative value.81

JOHNNY JOSEFA, Petitioner,


vs.
LOURDES SAN BUENAVENTURA, represented by Attorneys-in-Fact,
TERESITA SAN BUENAVENTURA and/or RAUL SAN
BUENAVENTURA, Respondents.

WHEREFORE, the assailed Decision and Resolution of the Court of


Appeals are AFFIRMED with the following MODIFICATIONS:

CALLEJO, SR., J.:

1. The portion requiring Spouses Vicente and Rosario


Macasaet to reimburse one half of the value of the useful
improvements, amounting to P475,000, and the right of
Spouses Ismael and Rosita Macasaet to remove those
improvements (if the former refuses to reimburse) is
DELETED.
2. The case is REMANDED to the court of origin for further
proceedings to determine the facts essential to the proper
application of Articles 448 and 546 of the Civil Code,
specifically to the following matters:
a. Spouses Vicente and Rosario Macasaets
option to appropriate -- as their own -- the
improvements on the lots, after paying the
indemnity, as provided under Article 546 in
relation to Article 448 of the Civil Code; or in
requiring Spouses Ismael and Rosita Macasaet
to pay for the value of the lots, unless it is
considerably more than that of the
improvements, in which case petitioners shall
pay reasonable rent based upon the terms
provided under the Civil Code
b. The value of the useful expenses incurred by
Spouses Ismael and Rosita Macasaet in the
construction of the improvements on the lots
c. The increase in value acquired by the lots by
reason of the useful improvements
d. Spouses Vicente and Rosario Macasaets
choice of type of indemnity to be paid (whether b
or c)
e. Whether the value of the lots is considerably
more than that of the improvements built thereon
No pronouncement as to costs.
SO ORDERED.

DECISION

Before us is a Petition for Review on Certiorari for the reversal of the


Court of Appeals (CA) Decision1 in CA-G.R. SP No. 69546.
The antecedent facts are as follows:
Lourdes San Buenaventura is the owner of a 364-square meter parcel of
land in Pasig City, covered by Transfer Certificate of Title No. PT-76848. 2
On July 15, 1990, Johnny Josefa entered into a Contract of Lease 3 with
San Buenaventura over the said parcel of land. The parties agreed, inter
alia, that
1. The period covered by this lease agreement is from August 1, 1990 to
July 31, 1995, or a period of five (5) years, renewable upon agreement of
the parties.4
Upon the expiry of the contract, San Buenaventura wrote Josefa informing
him that the lease would no longer be extended but that he may continue
with the lease at a rental rate of P30,000.00 a month.5 Josefa was told to
vacate the property and pay any arrearages if he opted not to lease the
property after the expiration of the lease contract. However, Josefa
refused to vacate the premises. He continued to occupy the property and
paid a monthly rental of P15,400.00 which San Buenaventura received.
However, the latter subsequently made demands for Josefa to vacate the
property in a Letter dated June 3, 1998.6 Josefa still refused to leave the
premises.7
This prompted San Buenaventura to file a complaint for unlawful detainer
against Josefa which was, however, dismissed due to the plaintiffs failure
to secure a certification from the lupon ng barangay. 8 San Buenaventura
refiled the Complaint9 on July 9, 1998 with the Metropolitan Trial Court
(MeTC) of Pasig City. The complaint, docketed as Civil Case No. 6798,
was raffled to Branch 69. It contained the following prayer:
WHEREFORE, premises considered, plaintiff respectfully prays that this
Honorable Court, after due hearing, lender [sic] judgment, in favor of
plaintiff and against defendant, ordering the latter:
1. To vacate the premises and to deliver the peaceful
possession thereof to plaintiff;
2. To pay plaintiff the amount equivalent to the deficit on monthly
rentals from August 1, 1995 up to the time that defendant
actually surrenders possession of the property at the rate of PhP
30,000.00 per month;

Property (accretion) 17

3. To pay plaintiff the amount of PhP 100,000.00 as and by


way of moral damages;
4. To pay plaintiff the amount of PhP 100,000.00 as and by
way of exemplary damages;

Josefa appealed the decision to the Regional Trial Court (RTC). On June
27, 2001, the RTC rendered its Decision15 reversing and setting aside the
ruling of the MeTC and dismissing San Buenaventuras complaint. The
decretal portion of the decision reads:

5. To pay plaintiff the amount of PhP 50,000.00 and PhP


1,500.00/per appearance as and by way of attorneys fees;
and

WHEREFORE, premises considered, the questioned Decision is


REVERSED and SET ASIDE, and the Complaint in Civil Case No. 6798
hereby DISMISSED.16

6. To pay costs of suit and expenses of litigations.

The RTC held that the inclusion of the renewal clause in the contract
showed the intent on the part of both parties to extend the lease without
any condition or requirement of mutual agreement. It declared that the
phrase was merely a useless addition "for the convenience of any party
who may wish, in bad faith, to back out of the extension of the lease."
According to the RTC, "the only time that phrase may come into play is
when both parties mutually decline to extend the lease, but when only one
party insists on the extension while the other refuses, the latter party is
bound by the term."17

Other reliefs just and equitable under the premises are likewise
prayed for.10
In his Answer,11 Josefa averred that San Buenaventura had no cause
of action against him because, under the contract, she (San
Buenaventura) was obliged to renew the lease. Josefa pointed out
that because of this commitment to renew the contract, he had made
renovations and improvements on the land. Josefa also set up
attorneys fees as counterclaim against San Buenaventura. He
likewise prayed that should the lease contract not be renewed, San
Buenaventura be ordered to reimburse to him the cost of the
improvements in the amount of not less than P3 million.
On July 15, 1999, the MeTC rendered its Decision,12 the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered
ordering herein defendant and all persons claiming rights under him
to vacate the subject leased premises located as (sic) A. Mabini St.,
Capasigan, Pasig City and surrender possession thereof to the
plaintiff; ordering defendant to pay P10,000.00 as and for attorneys
fees, the same being deemed just and equitable, and to pay the
costs of suit.
The claim for moral and exemplary damages is denied, the same not
being recoverable in an ejectment suit. Moreover, for lack of basis,
the claim for deficit in monthly rentals from August 1, 1995 is likewise
denied. Defendant is, therefore, directed to continue to pay
reasonable compensation for his continued use and occupation of
the subject premises at the old rate of P15,000.00 a month from the
time of the institution of this complaint until defendant and all
person[s] claiming rights under him shall have completely vacated
the premises.
Defendants counterclaim is dismissed for want of basis.
SO ORDERED.13
The MeTC declared that the phrase "renewable upon agreement of
the parties" in the lease contract implied mutuality, i.e., both parties
consent to the renewal of the lease. Thus, San Buenaventuras
demand for Josefa to vacate the premises after the expiration of the
lease necessarily negates the idea of her consent to such renewal.
The court also held that the clause does not and cannot constitute a
commitment or a promise on the part of San Buenaventura to renew
the lease.14

This time, San Buenaventura appealed to the CA via a Petition for Review
under Rule 42 of the Revised Rules of Court, where she alleged the
following:
5.1 Petitioner respectfully submits that the REGIONAL TRIAL
COURT erred in finding that the phrase "renewable upon
agreement of the parties" is an outright intent of the parties to
renew the contract upon its expiration.
5.2 Petitioner respectfully submits that the REGIONAL TRIAL
COURT erred in finding that the phrase "renewable upon
agreement of the parties" does not mean that there has to be
mutual consent before the lease contract may be extended.
5.3 Petitioner respectfully submits that the REGIONAL TRIAL
COURT erred in finding that the phrase "renewable upon
agreement of the parties" is indeed renewable and without any
condition or requirement of mutual agreement notwithstanding
the phrase upon agreement of the parties which the Court found
as a useless addition for the convenience of any party who may
wish, in bad faith, to back out of the extension.
5.4 Petitioner respectfully submits that the REGIONAL TRIAL
COURT erred in finding that the act of sending defendant a
demand to vacate, signifying her lack of intention to renew the
lease is in violation of the terms and conditions of the lease
contract.
5.5 Petitioner submits that the Regional Trial Court erred in not
ordering respondent to pay PHP 30,000.00 monthly rental.
5.6 Petitioner respectfully submits that the REGIONAL TRIAL
COURT erred in dismissing the ejectment Complaint.18
San Buenaventura argued that the RTC failed to apply the ruling of this
Court in Fernandez v. Court of Appeals,19 where a similar clause in the
lease contract of the parties was construed.

Property (accretion) 18

On November 22, 2002, the CA granted the petition and reversed the
decision of the RTC. The fallo of the decision reads:
IN VIEW OF ALL THE FOREGOING, the challenged RTC Decision is
hereby REVERSED and SET ASIDE, reinstating in the process the
earlier judgment of the MTC in Civil Case No. 6798, with a
modification that herein respondent Josefa is ordered to pay
petitioner San Buenaventura rentals in the sum of P30,000.00 a
month from the first demand therefor until he vacates the leased
premises. In all other respect[s], the MTC Decision stands. No cost.
SO ORDERED.20
The appellate court declared that, after the expiration of the five-year
period in the lease contract, the owner of the property had the right
not only to terminate the lease but to demand a new rental rate. It
held that it was unfair for the lessee to refuse to pay the demanded
increased rate and still remain in possession of the property. The CA
also ruled that Josefa could not claim to be a builder in good faith
since he knew that he was only a lessee, whose rights relative to the
improvements he introduced on the property are governed by Article
1678 of the New Civil Code.

It bears stressing that after the subject lease contract expired on July 15,
1995, petitioner was already unlawfully withholding possession of the
leased premises from respondent as to entitle the latter to file her
complaint for ejectment against petitioner as defendant. 26 Since the lease
contract was executed for a determinate time, such contract ceased on
the day fixed without need of further demand.27 A notice to vacate
constitutes an express act on the part of the lessor that he no longer
consents to the continued occupation by the lessee of the property. 28
Hence, respondent, as plaintiff in the trial court, had a cause of action for
ejectment against petitioner who was the defendant below.
It is true that petitioner and respondent agreed that the subject lease
contract was "renewable upon agreement." The Court notes, however,
that the effect of petitioners intransigent refusal to pay the P30,000.00
monthly rental proposed by respondent was the failure of the parties to
agree on the renewal of the contract. The clause "renewable upon
agreement of the parties" in the lease contract is clear and admits of no
other interpretation: the contract is renewable only upon agreement of the
parties. If no such agreement is forged, petitioner has no other option
except to vacate the property.

Josefa (now petitioner) filed the instant petition against San


Buenaventura (respondent) and raises the following issues for
resolution: (a) whether the lease contract between petitioner and
respondent contained a "renewal clause," and as such, they had
agreed to extend the period of the lease after July 31, 1995; (b)
whether petitioner is entitled to reimbursement for his improvements
on the leased premises; and (c) whether petitioner is obliged to pay
P30,000.00 a month by way of reasonable compensation for his
continued occupancy of the property.

Even petitioner himself admits that under the subject clause, the lease
contract would not be automatically renewed upon its expiration on July
31, 1995. Respondent, as the owner of the property whose title is
recognized in the lease contract, was not obliged to agree to renew the
lease contract, much less negotiate with petitioner for such renewal if she
opts not to renew the agreement. Since the renewal of the contract
contemplates the death of the old contract, it is necessary that a new one
be executed by the parties.29 A contract can only be renewed upon the
mutual agreement of the parties or at the will of both of them. After all, as
the Court ruled in Buce v. Court of Appeals:30

On the first issue, petitioner recalls that his predecessor had leased
the property way back in 1939, and that said lease had always been
renewed. Petitioner insists that when his lease contract with
respondent was executed on July 15, 1990, a commitment was made
to renew it upon its expiration on July 31, 1995, which was why the
clause "renewable upon agreement of the parties" was incorporated
in the lease contract. He posits that respondent could not unilaterally
cancel the lease contract without affording him an opportunity to
negotiate for its renewal. While the clause could not be construed to
mean that the lease contract would be automatically renewed after its
expiry, the provision negates the right of respondent to terminate the
lease until after negotiations for its renewal should prove to be
unsuccessful. However, he also maintains that respondent had the
obligation to renew the lease contract without modifying any of its
terms and conditions. He posits that the ruling of this Court in
Fernandez v. Court of Appeals21 is not controlling in this case.

In the case at bar, it was not specifically indicated who may exercise the
option to renew, neither was it stated that the option was given for the
benefit of herein petitioner. Thus, pursuant to the Fernandez ruling and
Article 1196 of the Civil Code, the period of the lease contract is deemed
to have been set for the benefit of both parties. Renewal of the contract
may be had only upon their mutual agreement or at the will of both of
them. Since the private respondents were not amenable to a renewal,
they cannot be compelled to execute a new contract when the old contract
terminated on 1 June 1994. It is the owner-lessors prerogative to
terminate the lease at its expiration. The continuance, effectivity and
fulfillment of a contract of lease cannot be made to depend exclusively
upon the free and uncontrolled choice of the lessee between continuing
the payment of the rentals or not, completely depriving the owner of any
say in the matter. Mutuality does not obtain in such a contract of lease and
no equality exists between the lessor and the lessee since the life of the
contract would be dictated solely by the lessee.31

Respondent, for her part, avers that a similar issue was raised and
resolved by this Court in the following cases: Fernandez v. Court of
Appeals,22 Heirs of Amando Dalisay v. Court of Appeals,23 Buce v.
Court of Appeals,24 and LL and Company Development and AgroIndustrial Corporation v. Huang Chao Chun.25 Respondent asserts
that the rulings of this Court in said cases should apply.

In Fernandez v. Court of Appeals,32 the Court ruled that the stipulation of


the parties in their lease contract "to be renewable" at the option of both
parties stresses that the faculty to renew was given not to the lessee
alone nor to the lessor by himself but to the two simultaneously; hence,
both must agree to renew if a new contract is to come about.

The contention of petitioner has no merit.

Petitioners contention that respondents had verbally agreed to extend the


lease indefinitely is inadmissible to qualify the terms of the written contract
under the parole evidence rule, and unenforceable under the statute of
frauds.33

Property (accretion) 19

On the second issue, petitioner avers that the CA erred in denying


his claim for compensation of one-half of the value of the
improvements he had introduced in the property amounting to
P3,000,000.00. Citing Article 1678 of the New Civil Code, 34 he avers
that while he may not be a possessor in good faith being a lessee, he
is a builder in good faith since his possession as lessee is lawful; as
such, he is entitled to recover one-half of the value of his useful
improvements. Petitioner insists that the CA erred in applying Article
52635 of the New Civil Code.

SEC. 17. Judgment. If after trial the court finds that the allegations of the
complaint are true, it shall render judgment in favor of the plaintiff for the
restitution of the premises, the sum justly due as arrears of rent or as
reasonable compensation for the use and occupation of the premises,
attorneys fees and costs. If it finds that said allegations are not true, it
shall render judgment for the defendant to recover his costs. If a
counterclaim is established, the court shall render judgment for the sum
found in arrears from either party and award costs as justice requires.
(Emphasis added)

The Court is not persuaded.


The issue of whether a lessee may be considered a builder in good
faith was resolved by the Court in Geminiano v. Court of Appeals. 36
The Court stressed that the private respondents therein, being mere
lessees, knew that their occupation of the premises would continue
only for the life of the lease, and as such, could not be considered as
possessors nor builders in good faith.
The Court went on to explain:
In a plethora of cases, this Court has held that Article 448 of the Civil
Code, in relation to Article 546 of the same Code, which allows full
reimbursement of useful improvements and retention of the premises
until reimbursement is made, applies only to a possessor in good
faith, i.e., one who builds on land with the belief that he is the owner
thereof. It does not apply where ones only interest is that of a lessee
under a rental contract; otherwise, it would always be in the power of
the tenant to "improve" his landlord out of his property. 37
In this case, there is no question that petitioner was initially a lawful
possessor because his entry into the property is by virtue of a lease
contract with respondent. However, as a mere lessee whose
possession after the expiration of the contract is at the sufferance of
the owner of the property, he cannot claim to be a builder in good
faith. Under Article 1678 of the New Civil Code, petitioner is entitled
to one-half of the value of the improvements only if respondent, as
the owner, decides to appropriate the improvements. Since
respondent refused to appropriate the improvements, petitioner
cannot compel her to reimburse to him one-half their value. 38 The
sole right of petitioner under Article 1678 is to remove the
improvements without causing any more damage upon the property
leased than is necessary.39
On the third issue, petitioner avers that the CA erred in ordering him
to pay P30,000.00 monthly rental for the renewal of the lease
contract. He maintains that the amount has no factual basis and is
exorbitant.
The submission of petitioner has no merit. In the first place, the CA
awarded the P30,000.00 monthly rentals not for the renewal of the
lease contract, but as compensation for petitioners continued
occupancy of the property after the lease expired. However, we
agree with petitioners contention that the increase of the award to
P30,000.00 has no factual basis, considering that the appellate court
failed to state its basis for doubling the amount adjudged by the trial
court. It simply increased the award in the dispositive portion of its
decision. Rule 70, Section 17 of the 1997 Rules of Civil Procedure
reads:

In Asian Transmission Corporation v. Canlubang Sugar Estates, 40 the


Court ruled that the reasonable compensation contemplated under said
Rule partakes of the nature of actual damages. While the trial court may
fix the reasonable amount of rent, it must base its action on the evidence
adduced by the parties. The Court also ruled that "fair rental value is
defined as the amount at which a willing lessee would pay and a willing
lessor would receive for the use of a certain property, neither being under
compulsion and both parties having a reasonable knowledge of all facts,
such as the extent, character and utility of the property, sales and holding
prices of similar land and the highest and best use of the property." The
Court further held that the rental value refers to "the value as ascertained
by proof of what the property would rent or by evidence of other facts from
which the fair rental value may be determined."41
In D.O. Plaza Management Corporation v. Co-Owners Heirs of Andres
Atega,42 the Court ruled that the following factors may be considered in
determining the reasonableness of the rental charged: (a) the prevailing
rates in the vicinity; (b) location of the property; (c) use of the property; (d)
inflation rate; and (e) the testimony of one of the private respondents. 43
In the present case, there is no evidence on record to justify the increase
of the award to P30,000.00. Respondents bare proposal to increase the
monthly rental to P30,000.00 after July 31, 1995 cannot be the factual
basis for such increase in the compensation due to petitioner for
respondents occupancy on the property after the lease contract expired.
Thus, aside from unilaterally and perfunctorily increasing such rentals, the
appellate court also ignored the trial courts award of P15,000.00 which
was based on the evidence on record. As this Court emphasized in Asian
Transmission Corporation v. Canlubang Sugar Estates:44
But the court made no ratiocination as to how it arrived at the amount of
P15,000,000 with reference to the evidence that the respondent adduced,
if any, to prove the said claim, vis--vis the evidence adduced by the
petitioner. The court made a conclusion without any factual basis. What is
so worrisome is that under their MOA, the parties fixed the annual rental
of the property for the period of July 1, 1991 to June 30, 1992 at
P3,373,352.80; and for the period of July 1, 1992 to June 30, 1993 at the
said amount plus 8% or in the amount of P3,642,187.50. But in its
decision, the MTC increased the amount by no less than 500% for the
period of July 1, 1993 onwards. The trial court did not bother to explain or
elucidate how and for what reason the rental value of the property was
increased by 500% from P3,642,187.50 to P15,000,000 annually.
The CA decision is likewise as nebulous. It affirmed the decision of the
RTC, which affirmed on appeal the decision of the MTC, fixing the
reasonable compensation at P15,000,000 simply because the petitioner
offered no controverting evidence as to the fair rental value of the leased
property

Property (accretion) 20

With respect to the rental fixed by the trial court, suffice it to say that
petitioner failed to present controverting evidence as to the fair rental
value of the leased premises. The burden of proof to show that the
rental demanded is unconscionable or exorbitant rests upon the
lessee. The trial court had the authority to fix the reasonable value for
the continued use and occupancy of the premises after termination of
the lease contract.
It must be underscored that the respondent was the plaintiff in the
MTC. It had the burden to adduce evidence to prove the fair rental
value or reasonable compensation for the leased property. If the
respondent failed to discharge its burden, the petitioner was not
obligated to adduce controverting evidence. The burden of evidence
would be shifted to the petitioner only if the respondent, as plaintiff,
would be able to adduce preponderant evidence to prove its claim. 45
The Court holds that the trial courts award of P15,000.00 as
reasonable compensation for petitioners occupancy of the property
after the expiration of the lease should be maintained.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The decision of the Court of Appeals is AFFIRMED WITH
MODIFICATION. The award of P30,000.00 a month, by way of
reasonable compensation for petitioner Johnny Josefas occupancy
of the property from July 31, 1995, is DELETED, and the award of
P15,000.00 a month made by the MeTC of Pasig City, Branch 69, is
REINSTATED. No costs.
SO ORDERED.