G.R. No.
133110             March 28, 2007 Quezon City Register of Deeds on 11 June 1988 and destroyed many
BARSTOWE PHILIPPINES CORPORATION, Petitioner,  reconstitution of the original copies and owner’s duplicate copies of TCTs
vs.
REPUBLIC OF THE PHILIPPINES, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of
the Rules of Court seeking the reversal and setting aside the
Decision,2 dated 8 August 1997, and Resolution,3 dated 18 March 1998,
of the Court of Appeals in CA-G.R. CV No. 47522, which in turn, reversed
and set aside the Decision,4 dated 22 December 1992, of the Quezon
City Regional Trial Court (RTC), Branch 80 in Civil Case No. Q-92-
11806.
Antecedent Facts
This case involves the conflicting titles to the same parcels of land
(subject lots) of petitioner Barstowe Philippines Corporation (BPC) and
the respondent Republic of the Philippines (Republic). The subject lots
have a total area of 111,447 square meters, and are situated along the
northeastern perimeter boundary of the National Government Center in
Payatas, Quezon City.
BPC traces its titles to the subject lots back to Servando Accibal
(Servando) who was supposedly issued on 24 July 1974, at 3:20 p.m.,
Transfer Certificates of Title (TCTs) No. 200629 and 200630 over the
subject lots. TCTs No. 200629 and 200630 were purportedly signed by
Nestor N. Pena, Deputy Register of Deeds of Quezon City. On 10 June
1988, Servando executed a Deed of Absolute Sale of the subject lots to
his son Antonio Accibal (Antonio), with the concurrence of his other heirs.
Despite his prior sale of the subject lots to Antonio, Servando, by virtue of
a Deed of Conveyance, dated 8 February 1989, transferred/conveyed the
subject lots to BPC in exchange for subscription of 51% of the capital
stock of BPC, such subscription supposedly amounting to
₱6,000,000.00.5 About a year after the death of Servando on 3 October
1989, particularly on 10 October 1990, Antonio executed another Deed of
Conveyance of the subject lots in favor of BPC in exchange for
subscription of 2,450 shares of its capital stock, with an alleged total
value of ₱49,000,000.00.6 Due to the fire that gutted the Office of the
certificates of title kept therein, Antonio sought the administrative
No. 200629 and 200630 with the Land Registration Authority (LRA). On
12 December 1990, the LRA issued TCTs No. RT-23687 and RT-
23688(reconstituting TCTs No. 200629 and 200630, respectively), which
were transmitted to the Quezon City Register of Deeds and signed by
Deputy Register of Deeds Edgardo Castro on 19 February 1991. Also on
19 February 1991, TCTs No. RT-23687 and RT-23688 were cancelled
and in lieu thereof, TCTs No. 30829, 30830, 30831, and 30832 in the
name of BPC were issued. BPC then acquired from the Housing and
Land Use Regulatory Board (HLURB) a permit to develop the subject lots
into a residential subdivision. Subsequently, BPC entered into Joint
Venture Agreements with other corporations for the development of the
subject lots into a subdivision called Parthenon Hills.
Meanwhile, according to the Republic, prior to 14 November 1979, the
subject lots were owned by First Philippine Holdings Corporation (FPHC).
As evidence of its title to the subject lots, FPHC was issued TCT
No. 257672, on an undetermined date, and TCT No. 275201, on 20
January 1981. Pursuant to a Deed of Sale, dated 14 November 1979,
FPHC sold one of the subject lots, covered by TCT No. 257672, to the
Republic for ₱2,757,360.00. Thus, on 22 January 1981, TCT No. 257672
was cancelled and TCT No. 275443 was issued in place thereof in the
name of the Republic. FPHC executed another Deed of Sale on 25
March 1982 in which it sold the remainder of the subject lots, covered by
TCT No. 275201, to the Republic for ₱9,575,920.00. On 31 May 1982,
TCT No. 275201 was cancelled and was replaced by TCT
No. 288417 issued in the name of the Republic. Because of the 11 June
1988 fire which razed the Quezon City Office of the Register of Deeds
and destroyed the original copies of TCTs No. 275443 and 288417, the
Republic applied for administrative reconstitution of the same with the
LRA. It was then that the Republic came to know that another party had
applied for reconstitution of TCTs No. 200629 and 200630 which also
covered the subject lots. This prompted the Republic to file before the
RTC on 26 March 1992 a petition for cancellation of title against Antonio,
Servando, and BPC, docketed as Civil Case No. Q-92-11806.
Civil Case No. Q-92-11806
Counsel for Antonio and the late Servando filed two successive Motions
for extension of time to file the proper pleading, dated 17 June 1992 and
1 July 1992, but despite the grant thereof by the RTC,7 no such
responsive pleading on behalf of Antonio and the late Servando was ever
 filed. Hence, on 31 July 1992, the RTC issued an Order8 declaring
Antonio and the late Servando in default.
In another Order,9 also dated 31 July 1992, the RTC, upon the motion of
BPC, allowed the latter to continue with the development of the subject
lots. It concluded that –
Considering the plight of [BPC] and the possible irreparable damage that
may be caused against the residents in the surrounding developed
subdivision, even as said corporation is possessed of a good title, the
court in the exercise of its discretion grants the motion. More importantly,
consideration of equity demands that the titled owner [BPC] herein must
be able to exercise all its dominical right bloosoming [sic] forth from its
ownership of the land in suit.
WHEREFORE, under cool reflection and prescinding from the foregoing,
the motion is hereby granted. [BPC] is hereby permitted and allowed to
continue with the improvement and development of the controverted
property into a residential subdivision.10
On 12 October 1992, the Republic filed with the Quezon City Register of
Deeds a Notice of Lis Pendens requesting the recording of the pendency
of Civil Case No. Q-92-11806 on TCTs No. 30830, 30831, and 30832, all
in the name of BPC.
While Civil Case No. Q-92-11806 was still pending before the RTC, there
were two intervenors.
Gloria Accibal Rettoriano (Gloria) filed with the RTC a Motion for
Intervention, with a Complaint in Intervention, both dated 1 September
1992. Gloria alleged that she was the only child of Basilia Accibal,
Servando’s sister; the subject lots were inherited by Basilia, Servando,
and their other siblings from their parents Martin and Mauricia Accibal;
upon her mother’s death, Gloria inherited and came into possession of a
portion of the subject lots with an area of about 2.5 hectares; Gloria had
been possessing, cultivating and improving her portion of the subject lots
for the last 30 years; Servando, through fraudulent means, was able to
secure TCTs over all the subject lots, including Gloria’s portion therein;
the inclusion of Gloria’s portion in the TCTs of Servando and, later, in
those of BPC, was done through fraud and gross bad faith; and unless
the TCTs of Servando and BPC are declared null and void, Gloria will be
deprived of her property without due process and just compensation.
BPC opposed Gloria’s intervention in Civil Case No. Q-92-11806
considering that she had already instituted Civil Case No. Q-91-10933
before the RTC, Quezon City, Branch 76, seeking the annulment of TCTs
No. 30830, 30831, and 30832 of BPC based on the very same grounds
she raised in her present Complaint in Intervention; on 11 February 1992,
Gloria entered into a Compromise Agreement with BPC in which she
waived and renounced any and all claims whatsoever which she may
have over the titles of BPC in consideration of the payment by the latter
of ₱2,000,000.00; the RTC, Branch 76, after finding that the said
Compromise Agreement was not contrary to law, morals, good customs,
public order or public policy, approved the same, thus putting an end to
Civil Case No. Q-91-10933;11 Gloria’s cause of action to intervene in Civil
Case No. Q-92-11806 was already barred by prior judgment in Civil Case
No. Q-91-10933 and Gloria’s Complaint in Intervention is tantamount to a
collateral attack against a TCT. In rejecting Gloria’s intervention in Civil
Case No. Q-92-11806, the RTC found as follows –
The motion for intervention must be denied and the complaint in
intervention therein attached must be rejected.
For one thing, herein movant Gloria Accibal Rettoriano, was the plaintiff
in the first case (RTC Br. 76 No. Q-91-10933) and with "eyes wide open"
she entered into a compromise agreement with [BPC], which was the
basis of the 26 February 1992 decision rendered therein and it being
based on a compromise agreement, said decision became immediately
final and executory.
Whether or not the decision rendered in the first case was satisfied is of
no moment in the present case, as herein movant intervenor has all the
remedies to protect her rights therein.
For another, movant intervenor Gloria Accibal Rettoriano, from her
complaint in intervention would ask for the cancellation of the titles issued
to their [sic] relative Servando Accibal and those titles duly issued and
registered in the name of [BPC]. Certainly, this can not be done, as it
constitutes a collateral attack on the questioned titles which the law and
settled jurisprudence do not allow. Perforce, a separate action against
the questioned titles is the remedy available for intervenor Gloria A.
Retoriano [sic].
Accordingly, the Court finds the opposition of [BPC] to be impressed with
merit and the motion for intervention does not inspire confidence.
WHEREFORE, the subject motion for intervention is denied and the
complaint in intervention attached thereto must be rejected.12
Another intervenor in Civil Case No. Q-92-11806 was EL-VI Realty and
Development Corporation (ERDC) which filed with the RTC a Motion for
Leave to Intervene, dated 1 September 1992. Subsequently, it filed an
Answer in Intervention, dated 15 September 1992, in which, it alleged
that it acquired interest in the subject lots after having entered into a Joint
Venture Agreement dated 16 January 1992, with BPC, for the
development of the subject lots into a residential subdivision; the action
initiated by the Republic for the cancellation of the TCTs of BPC was
already barred by laches and estoppel because of the recognition
accorded upon the said TCTs by the instrumentalities of the Republic,
particularly the Register of Deeds and the HLURB, on which the ERDC
relied in all good faith when it entered into the Joint Venture Agreement
with BPC; the Republic is liable to ERDC for moral damages and
attorney’s fees; should the RTC find the TCTs of BPC infirm, rendering
the Joint Venture Agreement between ERDC and BPC of no force and
effect, then BPC should be held liable to ERDC, being an innocent third
party, for reimbursement of all expenses incurred by the latter in the
development of the subject lots; and should the RTC find that the TCTs
of BPC are spurious, then it should be declared in bad faith when it
entered into the Joint Venture Agreement with ERDC, for which it should
be liable for exemplary damages and attorney’s fees. In an Order,13dated
27 October 1992, the RTC granted ERDC’s Motion to Intervene and
admitted its Answer in Intervention.
After all the parties had submitted their respective Pre-Trial Briefs,14 and
upon motion by the BPC,15 the RTC decided the case on 22 December
1992 on summary judgment.16 Although it found both the Republic and
the BPC as buyers in good faith, it held that the titles of BPC should
prevail. It ratiocinated thus –
3. To the third issue, we rule that the title of [BPC] must prevail over that
of the [Republic].
There is no dispute that the titles of the First Philippine Holdings
Corporation, predecessor-in-interest of [Republic] were either issued in
the year 1979 and 1981 (Exh. "A" and "B"). On the other hand, there is
likewise no dispute that the titles of defaulted defendant Servando
Accibal, and predecessor-in-interest of [BPC], were both issued and
registered much earlier on July 24, 1974 (Exhs. "F" and "G", pp. 210-213,
record) and/or a difference of 5 or 6 years in point of time.
MORE, Servando Accibal, the predecessor-in-interest of [BPC] has been
in the actual and peaceful physical possession of the lots in suit before
he sold them to [BPC] on February 08, 1991. Upon registration of the
same on February 19, 1991, [BPC], after having subdivided the land into
four (4) smaller lots was issued on 19 February TCT Nos. 30829, 30830,
30831, and 30832 (Exhs. 1, 2, 3 and 4).
It is true [Republic] acquired the land in suit on November 14, 1979 and
for which TCT Nos. 275443 and 288417 were issued in the years 1979
and 1981, but [Republic] never took assertive steps to take actual
possession of the land sold to it by the First Philippine Holdings
Corporation. It is even of grave doubt that the latter took actual
possession of the land before the land in suit was sold to the [Republic].
So much so, that the area had been occupied by several squatters, one
of them is Servando Accibal who by the way, was able to have the land in
suit titled in his name as early as July 24, 1974, under TCT Nos. 200629
and 200630 of the land records of Quezon City. Further, [Republic] and
its predecessor-in-interest were not able to discover the overlapping of
their titles by the titles of Servando Accibal for a period of eighteen (18)
long years starting from July 24, 1974 to about June 10, 1992 when the
LRA during a reconstitution of the titles of [Republic] was initiated, as
evidenced by a report of reconstituting officer Benjamin A. Flestado of
that office (Exh. "H", pp. 214-258, record).
Simply stated, [Republic] may be guilty of LACHES.
xxxx
Perforce, the claim of [Republic] which was probably
originally VALID became a STALE claim as the years went by. Verily, the
titles of [Republic] must be cancelled and the titles of [BPC] must be
upheld and declared as good and valid titles and [BPC] is entitled to all
the rights bloosoming [sic] fourth from its dominical right of ownership.
More importantly, the predecessor-in-interest of [BPC] had been long in
the actual and physical possession of the lands in suit, while that of the
predecessor-in-interest of [Republic] was not in the actual possession of
the land before the sale to [Republic]. On the other hand, [BPC]
immediately after the sale in its favor took actual, physical and peaceful
possession of the land in suit to the exclusion of all others. It has no
knowledge, actual or constructive that said parcels of land were sold to
the [Republic]. When it registered the sale, there was no inscription in the
Land Registry that the same parcels of land were earlier sold to the
[Republic]. Hence, there was and is – a continuing good faith on the part
of [BPC]. (Article 1544, NCC; Cruz vs Cabana, 129 SCRA 656).
In the same Decision, the RTC found certain irregularities in TCTs No.
200629 and 200630 in the name of Servando and that the said TCTs
should be cancelled, without prejudice to the rights and interests of BPC.
The RTC discussed the matter in this wise –
We shall now dwell on the validity of the titles – TCT Nos. 200629 and
200630, issued in the name of Servando Accibal on July 24, 1974 by the
Register of Deeds of Quezon City. The LRA report dated 10 June 1992
(Exh. H, pp. 214-258, record) is competent proof that indeed said titles
must be cancelled. In short, the LRA found after due investigation that
the said titles of Servando Accibal were issued with certain irregularities.
It recommended the cancellation therefore, of TCT Nos. 200629 and
200630, to which the court concurs, as said report must be accorded due
respect and in the absence of fraud or irregularities that attended the
investigation, which the Court finds none, the same must be persuasive,
if not conclusive. Moreover, herein defendant Servando Accibal because
of his failure to answer, despite extension of time given him, failed to file
his answer. Upon motion of [Republic’s] counsel, he was declared as in
default and since then, he never asked the court to lift and set aside the
default order. There is no way, his title must be cancelled. For one thing,
he was not able to present evidence to controvert the recommendation of
LRA to cancel his titles. For another, Servando Accibal is deemed to
have impliedly admitted the irregularities that attended the issuance of his
aforestated titles.
However, the cancellation of the titles of Servando Accibal, would not
affect the rights and interests of [BPC] as the latter is declared to be a
purchaser in good faith and for value. MORE, under the circumstances of
the case, and even when the titles of Servando Accibal are cancelled, the
titles of [BPC] are still good and indefeasible titles, as it is settled rule that
good titles may be sustained even when the seller has spurious titles.
As for the intervention of ERDC, the RTC addressed the same as follows
–
Finally, we shall next discuss the claim of intervenor EL-VI Realty and
Development Corporation. A close reading from the Joint Venture
Agreement dated January 16, 1992, shows that in case of litigation,
intervenor Realty Corporation shall have the right to suspend all
development activities and the development period of 5 years shall
automatically be suspended until such time as the said case is finally
settled/decided (Exh. "5" and Annex "A" answer in intervention pp. 109-
114). Upon the signing of the said agreement the amount of
₱1,500,000.00 was received by [BPC] as advance payment of the 50-50
sharing basis in the sales proceeds. During the pre-trial conference,
herein intervenor tried to enforce a supplemental agreement dated
October 15, 1992, by filing a motion for a writ of preliminary injunction
with prayer for the issuance of a restraining order. Resolution of the same
was held in abeyance to await the decision to be rendered, after [BPC]
assured intervenor herein that it will abide by and strictly comply with its
commitments arising from the aforesaid agreement, after proper
accounting is made therefore. Herein intervenor admits that another
financier-developer has entered the area due to the delay of the project
caused by the filing of the present case.
MORE, due to the filing of the present case, herein intervenor was
reluctant to further finance the project because of its big exposure
already made. Hence, intervenor’s works and other activities in the area
was suspended in accordance with their Joint Venture Agreement.
Perforce, there is compelling necessity for a proper accounting, more
particularly its substantial exposure to the project, on a quantum meruit
basis, in fairness to all concerned and involved parties in the project,
including but not limited to the present contractor-developer of the area.
Finally, the RTC concluded that –
A FORTIORARI, the environmental setting and factual scenario of the
case, in relation to its legal ambience will show that the great
preponderance of evidence lies in favor of [BPC]. (Section 01, Rule 133,
Revised Rules of Court), and the motion for summary judgment is
granted. The hearing as to damages, including attorney’s fees shall be
scheduled soonest possible.
WHEREFORE, under cool reflection and prescinding from the foregoing,
judgment is rendered as follows:
1. Ordering the Register of Deeds of Quezon City to cancel
Transfer Certificates of Title No. 275443 and 288417 issued in
the name of the [Republic] covering the lots in suit. However,
[Republic] being a purchaser in good faith, and based on
considerations of equity and justice Barstowe Philippine[s]
Corporation is ordered to re-imburse and pay [Republic], the sum
 of ₱12,333,280.00 representing the purchase price from the
vendor, First Philippine Holdings Corporation soonest possible;
2. Ordering the Register of Deeds of Quezon City to officially and
finally cancel from his records, Transfer Certificates of Title Nos.
200629 and 200630 issued in the name of Servando Accibal, on
July 24, 1974, covering the same lots in suit (Exh. "F" and "G",
pp. 210-213, record).
3. Declaring herein defendant Barstowe Philippines Corporation
as the absolute owner in fee simple title over the lots in suit, as
evidenced by Transfer Certificates of Title Nos. 30829, 30830,
30831 and 30832 of the land records of Quezon City, all issued
on February 19, 1991 and the said titles are further more
declared valid, existing and indefeasible titles of [BPC] and as
such is entitled to all the dominical rights bloosoming [sic] forth
from its ownership over the lots in suit.
4. Ordering [BPC] to abide by and strictly comply with the terms
and conditions of the supplemental Agreement entered into by it
with herein intervenor EL-VI Realty and Development Corporation
dated October 15, 1992, after proper accounting is made;
5. Perforce, the Register of Deeds of Quezon City is likewise
ordered to cancel any and all encumbrances annotated on said
titles of defendant corporation including, but not limited to the lis
pendens notice filed by the [Republic], if any;
6. The hearing as to damages, including the claim for attorney’s
fees shall be scheduled soonest.
7. Considering the admissions and agreements of the parties
during the pre-trial conference, which are considered judicial
admissions, this decision acquires the nature of one based on a
compromise agreement. Perforce, the Court declares this
decision to be immediately final and executory.
8. No pronouncement as to costs.
Despite the promulgation of the foregoing Decision by the RTC on 22
December 1992, the proceedings in Q-92-11806 were still far from over;
significant developments still took place thereafter.
ERDC sought the execution of paragraph 4 of the dispositive portion of
the RTC Decision dated 22 December 1992. In an Order,17 dated 13
January 1993, the RTC issued a writ of execution in favor of ERDC, and
a notice of levy on execution was accordingly made on the subject lots. In
a dialogue held between the counsels for BPC and ERDC in the chamber
of the RTC Judge on 26 February 1993, an amicable settlement was
reached whereby BPC agreed to settle the claim of ERDC in the form of
developed subdivision lots in Parthenon Hills, subject to proper
accounting.18BPC offered to ERDC 40 developed subdivision lots in
Parthenon Hills, valued at ₱18,543,000.00, representing 65% of the total
claims (prior to proper accounting) of ERDC, which amounted to
₱28,787,306.32. However, ERDC refused the offer of BPC and
demanded that it be paid the total amount of its claims. It also brought to
the attention of the RTC that, in violation of their Joint Venture
Agreement, BPC contracted another realty developer for the
development of Parthenon Hills. Thus, ERDC opposed the lifting of the
notice of levy on execution on the subject lots for the protection of its
interests. In an Order,19 dated 17 March 1993, the RTC found that BPC
already substantially complied with the terms of its agreement with ERDC
and that the rights and interests of the latter were well-protected and
safeguarded. In the same Order, the RTC lifted and set aside the notice
of levy on execution on the subject lots. However, on 20 April 1993,
ERDC filed a Motion for Contempt20 against BPC and informed the RTC
that BPC, fraudulently, maliciously, and in bad faith, already sold 36 of
the 40 subdivision lots it earlier offered to ERDC by accepting
downpayments thereon of only 30% of the selling price. Upon further
investigation, it discovered that of the four remaining lots, two were
vacant while the other two were reserved. ERDC subsequently filed two
other motions: (1) A Motion,21 dated 29 April 1993, to set for trial the claim
of ERDC for damages. Said motion was granted, and the RTC set the
hearing on 16 September 1993, at 8:30 a.m.,22 but upon the motion of the
counsel for BPC, the hearing was reset to 7 October 1993;23 and (2) A
Motion,24 dated 6 September 1993, for the issuance of a partial writ of
execution for the undisputed amount of ₱18,543,000.00, representing
65% of the total claims of ERDC. Unfortunately, the records no longer
show the succeeding incidents concerning these motions.
In a Motion for Leave to Intervene25 dated 8 March 1993, and the
attached Complaint in Intervention,26 dated 10 March 1993, Kadakilaan
Estate expressed its intent to intervene in Civil Case No. Q-92-11806. It
anchored its claims on the contention that the subject lots were already
registered as private property under the Spanish Mortgage Law since 18
May 1891, and under the Torrens System of Registration since 31
August 1907, by the predecessors-in-interest of Kadakilaan Estate. The
subject lots were supposedly included in a vast track of land covered
by Titulo de la Propiedad de Terrenos No. 01-4 in the name of Doña
Petra Rodriguez, who transferred the same to her son, Don Gonzalo
Yanesa y Rodriguez. Kadakilaan Estate came into ownership and
possession of the vast track of land, including the subject lots, by virtue of
its successive sales from Don Gonzalo Yanesa y Rodriguez to Doña
Lourdez Rodriguez Yanesa, and from the latter to Kadakilaan Estate.
Kadakilaan Estate further alleged that the Original Certificate of Title
(OCT) No. 333, from which the TCTs of both BPC and the Republic were
ultimately derived, was null and void ab initio, and that the TCTs of BPC
and the Republic were spurious and likewise null and void ab initio, and
without any probative value. Kadakilaan Estate prayed for judgment
declaring it the owner of the subject lots; directing the other parties to
respect its ownership, possession, rights and interests over the subject
lots; and ordering the other parties to pay just compensation, damages,
and attorney’s fees. The RTC, in an Order27dated 27 April 1993, denied
the Motion for Leave to Intervene and rejected the Complaint in
Intervention of Kadakilaan Estate for the following reasons –
New intervenor Kadakilaan Estate alleges that the titles of the [Republic]
and [Antonio, Servando, and BPC] are all falsified, spurious in origin and
null and void ab initio, as the property in question were already registered
as private properties of [Kadakilaan Estate’s] predecessors-in-interest,
under Spanish Mortgage law since May 18, 1891, and under the Torrens
System, Act No. 496, as amended, in Titulo dela propriedad de Terrenos
No. 01-4.
If this is clearly so, then [Kadakilaan Estate] is attacking the validity of the
titles of [Republic] and [Antonio, Servando, and BPC] in this case. It is
settled rule that titles registered under the Torrens System cannot be the
subject of a collateral attack. Perforce, the remedy of [Kadakilaan Estate]
is to file a separate action. For, if the intervention is allowed at this late
stage of the proceedings, then it will cause unnecessary delay in the
soonest termination of this case.
MORE, the law and the rules as well as jurisprudence on the matter, will
only allow in the court’s discretion, intervention, before or during the trial.
Certainly NOT after the trial and with more reason intervention may no
longer be allowed after the decision has been rendered as in the present
case.
In the meantime, on 4 January 1993, the Republic filed a Notice of
Appeal28 of the RTC Decision, dated 22 December 1992. The RTC, in an
Order,29 dated 16 February 1993, denied the same. It reasoned that –
Considering these judicial dimensions and acquiescence of the
[Republic] in open court during the hearings held and during the pre-trial
conference, the court in its dispositive portion of the questioned decision,
declared it to be a judgment based on a compromise agreement which by
operation of law becomes immediately executory.
It is unfortunate that despite the above declarations of the court
[Republic] failed to ask for a clarification of the said declarations, by way
of a motion for reconsideration of the decision based on fraud, mistake or
duress mandated by the rules.
The notice of appeal must be denied due course.
xxxx
WHEREFORE, prescinding from the foregoing, the notice of appeal filed
by plaintiff is rejected and denied due course.
From the foregoing RTC Order, the Republic filed with the Court of
Appeals a Petition for Certiorari and Mandamus (with Urgent Prayer for
Temporary Restraining Order and/or Writ of Preliminary Injunction),
docketed as CA-G.R. SP No. 30647. The Republic primarily questioned
the denial of its Notice of Appeal by the RTC in its Order, dated 16
February 1993, on the basis that the RTC Decision of 22 December 1992
constitutes a compromise agreement, and is immediately final and
executory. The Court of Appeals issued a writ of preliminary
injunction30 enjoining the RTC from implementing and enforcing its Order,
dated 16 February 1993, during the pendency of CA-G.R. SP No. 30647
or until otherwise directed by the appellate court. Apparently, from the
denial by the RTC of its Motion for Leave to Intervene and the rejection of
its Complaint in Intervention in Civil Case No. Q-92-11806, the
Kadakilaan Estate again filed a Motion for Leave to Intervene in CA-G.R.
SP No. 30647, which in a Resolution,31 dated 13 September 1993, the
Court of Appeals also denied on the following grounds –
We find the stance of [Republic] and [BPC] well-grounded. Not only is
[Kadakilaan Estate] precluded by estoppel from filing the present motion,
after failing to challenge before this Court or the Supreme Court the trial
court’s denial of subject motion for intervention, on April 27, 1993; it is too
late for [Kadakilaan Estate] to come in at this stage of the present
litigation. Furthermore, as aptly put by the [Republic] the alleged rights
[Kadakilaan Estate] seeks to protect here can be amply protected in an
appropriate action [Kadakilaan Estate] may later bring.
In a Decision,32 dated 29 June 1994, the Court of Appeals granted the
Republic’s Petition for Certiorari and Mandamus, ruling in this wise –
We rule for [Republic]. Respondent Court’s conclusion lost sight of the
nature of a compromise agreement, and the circumstances under which
a judgment based on a compromise may be rendered.
xxxx
Guided by the aforecited law and jurisprudence in point, it can be safely
concluded that neither mere silence or acquiescence by the [Republic] in
open court during the hearing nor [Republic’s] stipulation of facts,
marking of exhibits, alleged admission of Exhibit 6 which contains
[BPC’s] offer of compromise during the pre-trial, be properly considered
as a compromise agreement. Had the parties really intended to enter into
a compromise to end their case, they could have executed and submitted
a compromise agreement for the approval of the trial court. But no such
step was taken.
xxxx
Records readily show that due to lack of an amicable settlement or any
compromise agreement, the respondent judge directed the parties to
present their documentary exhibits so as to facilitate the trial; no longer
for the purpose of settling the case. Evidently, there was no explicit
agreement nor any reciprocal concession between the parties with an
end in view of terminating the litigation. Absence of these essential
elements of a compromise inevitably results in the absence of a valid
compromise agreement. (Merced vs. Roman Catholic Archbishop, L-
24614, August 17, 1967, 20 SCRA 1077). Consequently, the opinion of
respondent Judge that his December 22, 1992 Decision had the nature of
a judgment based on compromise, cannot be upheld.
So also, the doctrine relied on by respondents that a compromise
agreement constitutes the law between the parties and a judgment based
thereon is immediately final, executory and not appealable, is
inapplicable under the premises.
xxxx
WHEREFORE, the petition is GRANTED; the questioned order dated 16
February 1993 is SET ASIDE; and respondent court is hereby ordered to
give due course to [Republic’s] Notice of Appeal in Civil Case No. Q-92-
11806. Costs against [BPC].
This Court, in its Resolution, dated 6 February 1995, issued in G.R. No.
117969, in effect, sustained the afore-mentioned Decision of the Court of
Appeals.
CA-G.R. CV No. 47522
Finally, the Republic was allowed to appeal the RTC Decision, dated 22
December 1992, in Civil Case No. Q-92-11806, to the Court of Appeals,
where it was docketed as CA-G.R. CV No. 47522. In a Decision,33 dated
8 August 1997, the Court of Appeals found in favor of the Republic, and
disposed thus –
WHEREFORE, premises considered, plaintiff-appellant Republic of the
Philippines’ appeal is GRANTED. Except for paragraph 2 of the
dispositive portion of the decision appealed from declaring TCT Nos.
200629 and 200630 in the name of Servando Accibal null and void and
ordering the Register of Deeds of Quezon City to cancel said TCT Nos.
200629 and 200630, the appealed decision is REVERSED and SET
ASIDE and a new one entered:
(a) declaring and affirming the validity of TCT Nos. 288417 and
275443 of the Registry of Deeds of Quezon City in the name of
appellant Republic of the Philippines and that appellant Republic
has indefeasible title to the property covered thereby;
(b) declaring TCT Nos. 30829, 30830, 30831 and 30832 also of
the Registry of Deeds of Quezon City in the name of Barstowe
Philippines Corporation null and void and ordering the Register of
Deeds of Quezon City to cancel said titles;
(c) ordering Barstowe Philippines Corporation to surrender to the
Register of Deeds of Quezon City the owner’s duplicate
certificates of title of TCT Nos. 30829, 30830, 30831 and 30832
for cancellation;
(d) enjoining defendant-appellee Barstowe Philippines
Corporation and intervenor EL-VI Realty Development
Corporation from exercising any act of ownership or possession
of the land in question; and
 (e) remanding the case to the court of origin for further
proceedings for determination of the crossclaim of intervenor EL-
VI Realty and Development Corporation against defendant-
appellee Barstowe Philippines Corporation.
There is no pronouncement as to costs.
The Motion for Reconsideration filed by BPC was denied by the Court of
Appeals in a Resolution,34 dated 18 March 1998.
G.R. No. 133110
Aggrieved, BPC came before this Court via a Petition for Review
on Certiorari35 under Rule 45 of the Rules of Court, dated 28 April 1998,
raising the sole issue of who between BPC and the Republic has a better
title over the subject lots. BPC prays that this Court rule in its favor, and
reverse and set aside the Court of Appeals Decision, dated 8 August
1997, in CA-G.R. CV No. 47522, based on the following grounds –
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ERROR IN NOT CONSIDERING THE GOOD FAITH OF [BPC] THOUGH
IT WAS ADMITTED BY [REPUBLIC] DURING THE PRE-TRIAL
CONFERENCE.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ERROR IN UPHOLDING THE VALIDITY OF THE TITLE OF [REPUBLIC]
OVER THAT OF [BPC.]
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ERROR IN ORDERING [BPC] TO SURRENDER ITS TITLE TO THE
REGISTER OF DEEDS FOR CANCELLATION[.]
THE HONORABLE COURT OF APPEALS ERRED IN ENJOINING [BPC]
FROM EXERCISING ACTS OF OWNERSHIP OVER THE SUBJECT
PARCEL OF LAND[.]
THE HONORABLE COURT OF APPEALES [sic] ERRED IN APPLYING
THE CALALANG CASE (231 SCRA 88) AS IT IS NOT APPLICABLE TO
THE CASE AT BAR[.]
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT
FINDING [REPUBLIC] GUILTY OF ESTOPPEL BY LACHES[.]
After the Republic filed its Comment, dated 29 October 1998, several
parties again sought to intervene in the case.
Winnie U. Nicolas (Nicolas), through her sister and attorney-in-fact, Ditas
Felicitas Nicolas-Agbulos (Nicolas-Agbulos), and Edgardo Q. Abesamis
(Abesamis), filed their respective Petitions for Intervention, dated 22
October 1998 and 9 December 1998, respectively.
Nicolas-Agbulos invokes the provisions of the Rules of Court on the
joinder of indispensable parties and necessary parties for the complete
determination of all possible issues, not only between the parties
themselves but also as regards to other persons who may be affected by
the judgment. Nicolas-Agbulos contends that she was a buyer in good
faith of Lots No. 27 and 28, Block 13, of Parthenon Hills, covered by
TCTs No. 76497 and 76498, respectively, of the Quezon City Register of
Deeds, derived from TCTs No. 30830, 30831, and 30832 in the name of
BPC. Nicolas-Agbulos had already partially paid BPC for Lots No. 27 and
28 in the amount of ₱1,500,000.00, and the balance of ₱800,000.00 was
already deposited in a trust account in the name of BPC with the Far East
Bank and Trust Company (FEBTC). She bought Lots No. 27 and 28 after
relying on the face of the TCTs of BPC which were intact and subsisting
in the records of the Quezon City Register of Deeds, and on the authority
granted to BPC by several government agencies, such as the HLURB,
LRA, and the Register of Deeds, for the subdivision, development, and
sale of the subject lots to private individuals. She only came to know,
through her sister and attorney-in-fact, Nicolas-Agbulos, that the TCTs of
BPC covering the subject lots, which comprised the Parthenon Hills, were
being assailed in Civil Case No. Q-92-11806 pending before the RTC.
Nicolas’ inquiry on the matter was answered by BPC with an assurance
that despite the "bad publicity," Parthenon Hills was an on-going project
and that she should continue paying her installments. Acting cautiously,
Nicolas-Agbulos decided that instead of paying the balance of the
purchase price for Lots No. 27 and 28 directly to BPC, she would open a
trust account with FEBTC in the name of BPC where she would deposit
Nicolas-Agbulos’ succeeding installment payments. Nicolas-Agbulos was
compelled to intervene in the instant case because BPC made no
mention of the fact that it had already sold numerous subdivision lots in
Parthenon Hills to innocent purchasers for value, either through absolute
or installment sales. She thus sought a ruling upholding the title of BPC,
and recognizing and protecting the rights of Nicolas as an innocent
purchaser for value of Lots No. 27 and 28.36
Abesamis seeks to intervene in the present case as an indispensable
party since no complete and conclusive determination can be had
therein, which shall be legally binding and effective on Abesamis, unless
he be allowed to intervene. Abesamis claims to have acquired by
purchase Lot No. 16, Block 4, of Parthenon Hills, for the purchase price
of ₱720,000.00, and evidenced by a Deed of Absolute Sale dated 9 June
1993. BPC processed and secured TCT No. 92270 covering Lot No. 16
in Abesamis’ name. He only learned that the subject lots comprising the
Parthenon Hills, including his Lot No. 16, was mired in controversy, when
he attended an emergency meeting of the Homeowners’ Association of
Parthenon Hills. He asserts that, being a bona fide purchaser and holder
of a legitimate and indefeasible title to Lot No. 16, he had valid and
enforceable rights against both BPC and the Republic.37
A third Petition in Intervention, dated 8 February 1999, was filed by
spouses Jacinto H. Santiago, Jr. and Arlene C. Santiago (spouses
Santiago). The spouses Santiago aver that, doing business as ACS
Trading, they entered into a supply agreement with Proven International
Development Corporation (PIDC), which had a construction contract with
BPC, for the development of Parthenon Hills. The spouses Santiago
agreed to accept lots in Parthenon Hills as payment for the construction
materials they supplied BPC since the latter showed them clean TCTs to
the subject lots, and HLURB licenses and permits to develop Parthenon
Hills. In payment for the construction materials delivered, and financial
assistance and various other professional services rendered by the
spouses Santiago to BPC, the latter initially executed in their favor 15
Deeds of Assignment for 15 subdivision lots in Parthenon Hills. The TCTs
for the 15 subdivision lots were transferred in the name of the spouses
Santiago free from any lien or encumbrance. The spouses Santiago
mortgaged 13 of the subdivision lots with the Planters Development Bank
and sold the remaining two to different buyers. Thereafter, BPC again
executed in favor of the spouses Santigao 71 Deeds of Assignment over
71 subdivision lots in Parthenon Hills. When the spouses Santiago
attempted to transfer the TCTs covering the 71 subdivision lots to their
names, they discovered that the TCTs of BPC already bore the
annotation of the notice of lis pendens. The Quezon City Register of
Deeds cancelled the TCTs of BPC covering the 71 subdivision lots and
issued new ones in the names of the spouses Santiago, still bearing the
annotation of the notice of lis pendens. The spouses Santiago claim that
they were unable to intervene earlier in this case because of the
pendency of the case filed by BPC against them, docketed as Civil Case
No. 93-18231, with the Quezon City RTC, Branch 84, for the annulment
of the last 71 Deeds of Assignment. This case had since been dismissed.
The spouses Santiago invoke that they have sufficient interest in the
present case which would necessarily be affected by the
resolution/decision thereof, and they must necessarily intervene herein to
protect their interest. The spouses Santiago pray for this Court to declare
the assignment to them by BPC of the subdivision lots as valid, and to
direct both BPC and the Republic to recognize and respect their rights
and interest.38
BPC supports the intervention in the case by Nicolas-Agbulos and
Abesamis. It explains that its failure to mention that it has already
practically sold all the subdivision lots in Parthenon Hills was not by
design, but by mere oversight.39 However, BPC opposes the intervention
of the spouses Santiago claiming that the latter are not indispensable
parties to the case; they acquired their TCTs through fraudulent means;
and Civil Case No. 93-18231 which it instituted against the spouses
Santiago was dismissed by the Quezon City RTC, Branch 84, without
prejudice. According to BPC, the supply agreement for construction
materials was between the spouses Santiago and PIDC, so that it could
not be enforced against BPC. This issue, as well as the validity of the 71
Deeds of Assignment over 71 subdivision lots supposedly executed by
BPC in favor of the spouses Santiago, requires the holding of a trial, not
a mere intervention.40
The Republic opposed all efforts of other parties to intervene in the case.
The legal interests of Nicolas-Agbulos, Abesamis, and the spouses
Santiago are totally dependent on the alleged right of ownership of BPC,
and the issues they raised are similar to those raised by BPC. The fact
that Nicolas-Agbulos and Abesamis are purchasers in good faith will not
render their titles valid and indefeasible. The titles of Servando from
whom BPC acquired its titles and from whom, in turn, Nicolas-Agbulos
and Abesamis, derived their titles, were found to be spurious; and the
spring cannot rise higher than its source.41
In the interim, BPC filed its Reply dated 22 January 1999, to the
Comment of the Republic.
This Court, in a Resolution, dated 22 March 1999, granted the motion of
the Republic for the issuance of a temporary restraining order enjoining
BPC from selling the remaining unsold portions of the subject lots and
from allowing buyers to enter and occupy portions thereof.42
Thereafter, BPC,43 the Republic,44 spouses Santiago,45 Abesamis,46 and
Nicolas-Agbulos,47 filed their respective Memoranda.
However, even before the case could be submitted for decision,
Servando’s heirs, namely Virgilio V. Accibal (Virgilio), Virginia A.
Macabudbod (Virginia), and Antonio, filed an Urgent Ex Parte Motion to
Defer Resolution of the same. Soon after, they filed a Petition for New
Trial, dated 23 May 2001.48 Although Servando’s heirs concede that the
period allowed for the filing of a motion to set aside the judgment and
grant a new trial under Rule 37, Section 1 of the Rules of Court, had
already lapsed, on grounds of justice and equity, they still move that this
Court grant their Petition. Servando’s heirs were allegedly prevented from
participating in Civil Case No. Q-92-11806 before the RTC by the
fraudulent misrepresentations of Rev. Father Antonio O. Ipo (Ipo), BPC
President, together with the BPC counsel, who convinced the naïve
Antonio that there was no need to worry about the case filed by the
Republic against them and to hire another counsel as the BPC counsel
shall represent all of them. Unknown to Servando’s heirs, the BPC
counsel neither represented them nor included them in the Answer he
filed on behalf of BPC, thus, Servando’s heirs were declared in default by
the RTC. Because of the extrinsic fraud perpetrated upon them and their
excusable negligence, Servando’s heirs should be granted a new trial,
otherwise, they would be deprived of their constitutional right to due
process of law. According to Servando’s heirs, neither BPC nor the
Republic was a purchaser in good faith who acquired clean titles to the
subject lots. The BPC President Ipo, hoodwinked Antonio into agreeing to
convey the subject lots to BPC in exchange for 51% of its capital stock.
However, despite acquiring titles to the subject lots, BPC failed to transfer
the promised 51% of its capital stock. On the other hand, the TCTs of
FPHC, the Republic’s predecessor-in-interest, were of doubtful origin;
and the Republic’s acquisition of the subject lots from FPHC was
anomalous in the sense that it purchased the said property through
ordinary sale when it could have easily expropriated the same.
Without formally intervening in the case at bar, Sariling Sikap Pabahay
(SSP), through its President, Elias V. Esraita, submitted to this Court a
letter,49 dated 26 August 2002, together with other documents to disprove
the validity of the titles of Servando and his heirs to the subject lots. SSP
is a cooperative formed by the urban poor to help secure for its members
award from the government of titles to the portions of the subject lots
which they are presently occupying. It presented the affidavit of a certain
Edith C. Mantaring,50 who attests that the Accibals are still
misrepresenting themselves as owners of the subject lots and
fraudulently selling portions thereof to unsuspecting buyers.
This Court’s Ruling
Ultimately, this Court is called upon to determine which party now has
superior title to the subject lots: the Republic, BPC, the intervenors
Abesamis, Nicolas-Agbulos, and spouses Santiago, or Servando’s heirs?
BPC, the intervenors Abesamis, Nicolas-Agbulos, spouses Santiago, and
Servando’s heirs derived their title to the subject lots from Servando’s
TCTs No. 200629 and 200630. This Court then is compelled to look into
the validity, authenticity, and existence of these two TCTs.
It is alleged by BPC and Servando’s heirs that Servando was issued
TCTs No. 200629 and 200630 on 24 July 1974. However, there is an
absolute dearth of information and proof as to how Servando acquired
ownership and came into possession of the subject lots.
An investigation conducted by the LRA revealed even more irregularities
which raised serious doubts as to the validity and authenticity of TCTs
No. 200629 and 200630. The LRA Report, dated 10 June 1992,
submitted by Investigator Benjamin A. Flestado (Flestado), found the said
certificates of titles spurious after a very detailed and exhaustive analysis
of the evidence available.
First, it should be noted that despite letters sent by Investigator Flestado
to BPC President Ipo, Servando, and Antonio, requesting copies of
documents to support the issuance of TCTs No. 200629 and 200630,
they failed to file a reply and furnish him with the documents requested. A
certain Atty. Justino Z. Benito (Atty. Benito) appeared before Investigator
Flestado claiming to be the counsel for BPC and promising to contact
Servando’s heirs. Yet, even by the time the LRA Report was finalized on
10 June 1992, Atty. Benito still failed to submit the documents requested.
Instead, he wrote letters insisting that TCTs No. 200629 and 200630 be
returned to the Quezon City Register of Deeds since these certificates
"were detached and transferred to [your LRA central] office for no cogent
reason or purpose;" and his client, BPC, "is a transferee in good faith and
for value, and its titles unchallenged."
Second, although the 109-D forms on which TCTs No. 200629 and
200630 were printed appeared to be genuine, and determined to have
been issued to the Quezon City Register of Deeds on 5 July 1974, the
signature therein of the Quezon City Register of Deeds Atty. Nestor N.
Peña (Atty. Peña) was forged. No less than Atty. Peña himself refuted
that the signatures on TCTs No. 200629 and 200630 were his. In his
sworn statement, he noted –
A. At a glance, I am definitely sure that the signatures appearing here are
not mine. My attention is invited on the loop, on the starting point of the
signature. The loop should be sharp on the last portion of my signature.
The portion going-up starts from a point and is also sharp because that
represents hypen [sic] on letter ‘n’. I notice in these titles my surname is
typed as ‘PENA’ and not ‘PEÑA’. If ever there is no ‘ñ’ in the typewriter, I
used to add hypen [sic] over the letter ‘n’. Besides, my position here is
indicated as Deputy Register of Deeds. I never signed titles as Deputy
Register of Deeds, during my time; and if ever a title was presented
indicating my position as Deputy Register of Deeds, I would erase the
word ‘Deputy’. Moreso, the pen used here was a sign-pen. I never used a
signpen, as shown in the other 5 titles I identified earlier.
His employment records revealed that Atty. Peña was appointed as the
Quezon City Register of Deeds on 27 May 1968, and served as such
until his retirement in August of 1980, so that at the time when he
supposedly signed TCTs No. 200629 and 200630 on 24 July 1974, he
was the Quezon City Register of Deeds, not the Deputy Register of
Deeds.
Third, even the then incumbent Quezon City Register of Deeds Samuel
Cleofe (RD Cleofe) and Deputy Register of Deeds Edgardo Castro (DRD
Castro) believed that TCTs No. 200629 and 200630 were spurious.
According to RD Cleofe, the size of the area covered by the TCTs made
him highly suspicious of the same. In Quezon City, only a few people
own big tracts of land, namely, the Aranetas, Tuazons, etc. Commonly,
ordinary individuals own only 300 to 2,000 square meters of land. Both
RD Cleofe and DRD Castro identified differences in the signatures and
designation of Atty. Peña appearing on the questionable TCTs No.
200629 and 200630 compared to those on five other admittedly authentic
TCTs.51.
Fourth, the National Bureau of Investigation (NBI), upon request of
Investigator Flestado, conducted an examination and issued Questioned
Documents Report No. 636-991, dated 31 March 1992, wherein it noted
significant differences in the handwriting characteristics between the
standard/sample signatures of Atty. Peña and those appearing on TCTs
No. 200629 and 200630, i.e., in the manner of execution,
direction/movement of strokes, and other identifying details. The NBI
concluded that "[t]he questioned and the standard/sample signatures of
‘[N]estor N. Peña’ were NOT WRITTEN by one and the same person."
Finally, Investigator Flestado made inquiries with the Land Management
Bureau (LMB) regarding the consolidation-subdivision plan Pcs-2480 and
plan Psu-32606 of Lots 34 and 40 (the subject lots) as described in TCTs
No. 200629 and 200630. LMB Geodetic Surveys Division Chief Privadi
J.G. Dalire, in a letter, dated 29 November 1991, informed Investigator
Flestado that LMB had no records of Pcs-2480, while the original copy of
Psu-32606 is no longer available as it had been badly damaged. Thus,
there was no record in the LMB that Lots 34 and 40, Psu-32606, were in
fact consolidated and then subdivided into Lots 3, 4, 5, and 6 pursuant to
plan Pcs-2480, as mentioned in TCTs No. 200629 and 200630.
To rebut the foregoing findings of LRA Investigator Flestado, BPC
presented, in support of the authenticity and validity of TCTs No. 200629
and 200630, the LRA Resolution,52 dated 4 November 1991, in Consulta
No. 1957, and NBI Questioned Documents Report No. 585-891,53 dated 2
September 1991. A careful study of the said documents does little to
support the position of BPC.
The LRA Resolution in Consulta No. 1957 merely allowed the registration
of the rescission of a Joint Venture Agreement on TCTs No. 200629 and
200630 despite the initial adverse finding that the said certificates were of
doubtful authenticity. It did not make any categorical finding as to the
authenticity or validity of the TCTs. In fact, the last paragraph of the said
Resolution elucidated that –
This resolution, however, should be understood to be limited to the
issue of registrability of the instrument sought to be registered and
is without prejudice to any action, if warranted, that may be filed in court
assailing the validity or authenticity of the certificate of titles. (Emphasis
supplied.)
The NBI Questioned Documents Report No. 585-891 was even in
accordance with the finding in the LRA Report that the 109-D forms on
which TCTs No. 200629 and 200630 were printed seemed to be genuine.
The NBI concluded that the words "109-D" and the serial numbers printed
on the forms were not altered. The NBI did a very limited examination of
the genuineness of the forms on which TCTs No. 200629 and 200630
were printed, but it did not look into the authenticity of Atty. Peña’s
signature (which was the subject of NBI Questioned Documents Report
No. 636-991, dated 31 March 1992, mentioned in the LRA Report) or the
accuracy of the entries made therein.
The LRA Report, dated 10 June 1992, of Investigator Flestado was
submitted as evidence before the RTC. It must be emphasized that the
LRA Report was extensive and thorough. Its findings are sufficiently
supported by independent and reliable proof. The BPC failed to present
evidence to refute the same. The LRA Report deserves great weight
sufficient to overcome the presumption that TCTs No. 200629 and
200630 were genuine, authentic, and indefeasible.54
It having been established that TCTs No. 200629 and 200630 were
forged and spurious, their reconstitution was also attended with grave
irregularities. Once more, this Court relies on the findings in the LRA
Report, dated 10 June 1992, of Investigator Flestado. Quezon City RD
Cleofe; the unnamed Chief of the LRA Micrographics and Computer
Division; and Records Officer Viterbo Cahilig of the Quezon City Register
of Deeds, all confirmed that there were no records of any applications for
reconstitution of TCTs No. 200629 and 200630 in the name of Servando.
It would seem that an LRA employee, Cartographer Rovil Ruiz (Ruiz),
made it appear that there were applications for reconstitution of TCTs No.
200629 and 200630 filed, and which were included in Folder 1614. When
Folder 1614 was inspected, TCTs No. 200629 and 200630 were not
included in its table of contents; and although the said folder did have 44
missing pages, the missing pages pertain to the supporting documents of
other TCTs, and there was no showing that TCTs No. 200629 and
200630 and the applications for reconstitution thereof were among these
missing pages. Ruiz undertook by himself the computation of the tie-lines
of the subject lots as described in TCTs No. 200629 and 200630, the
plotting, and examination of the titles. The LRA Report thus
recommended that Ruiz be administratively charged for grave
misconduct, it appearing that he was the one who facilitated the
administrative reconstitution of TCTs No. 200629 and 200630.
In contrast, the Republic was able to supply Investigator Flestado with
the documents supporting the transfer of the titles to the subject lots from
FPHC to the Republic, among which were the TCTs of FPHC, the Deeds
of Sale executed by FPHC to the Republic, notice to the real property
owners within 300-meter radius from the area, receipts for payment of
registration fees, and payment order for the documentary stamp tax on
the sales. TCTs No. 275443 and 288417 in the name of the Republic
were included in LRA Folder No. 1976-B, together with other certificates
of title in the name of the Republic. One of the applications filed by the
Republic was docketed as Application for Reconstitution No. 41869. The
Chief of the LRA Micrographics and Computer Division confirmed that the
applications for reconstitution of TCTs No. 275443 and 288417 by the
Republic were recorded in the computerized Administrative
Reconstitution System.
BPC was unable to attack the authenticity and validity of the titles of the
Republic to the subject lots, and could only interpose the defense that it
was a buyer in good faith. Only Servando’s heirs, in their Petition for New
Trial, attempted to raise doubts as to the titles of the Republic to the
subject lots by averring that the transfer thereof from FPHC to the
Republic was highly irregular because the latter could have acquired the
property by expropriation. Such an averment is totally baseless.
Expropriation as the means by which the State can acquire private
property is always the remedy of last resort. Expropriation lies only when
it is made necessary by the opposition of the owner of the property to the
sale or by the lack of any agreement as to the price.55 There being, in the
present case, valid and subsisting contracts between the FPHC, the
previous owner, and the Republic, the buyer, for the purchase of the
subject lots at an agreed price, there was no reason for the expropriation.
In consideration of all the foregoing findings, it is indubitable that TCTs
No. 275443 and 288417 of the Republic covering the subject lots are
authentic and valid, while TCTs No. 200629 and 200630 of Servando
covering the same property are not.
However, BPC maintains that it was a purchaser in good faith, for value
and without any inkling about any flaw from Servando’s titles. It points out
that it purchased the subject lots from Servando on 8 February 1989 and
registered the same on 19 February 1991, way before the titles of
Servando were declared null by the RTC on 22 December 1992. BPC
relies on this Court’s ruling in Tenio-Obsequio v. Court of Appeals,56 to wit
–
Under Section 55 of the Land Registration Act, as amended by Section
53 of Presidential Decree No. 1529, an original owner of registered land
may seek the annulment of a transfer thereof on the ground of fraud.
However, such a remedy is without prejudice to the rights of any innocent
holder for value with a certificate of title.
A purchaser in good faith and for value is one who buys the property of
another, without notice that some other person has a right to or interest in
such property, and pays a full and fair price for the same at the time of
such purchase or before he has notice of the claim or interest of some
other person in the property. In consonance with this accepted legal
definition, petitioner Consorcia Tenio-Obsequio is a purchaser in good
faith. There is no showing whatsoever nor even an allegation that herein
petitioner had any participation, voluntarily or otherwise, in the alleged
forgery.
 xxxx
The main purpose of the Torrens system is to avoid possible conflicts of
title to real estate and to facilitate transactions relative thereto by giving
the public the right to rely upon the face of a Torrens certificate of title
and to dispense with the need of inquiring further, except when the party
concerned has actual knowledge of facts and circumstances that should
impel a reasonable cautious man to make such further inquiry. Where
innocent third persons, relying on the correctness of the certificate of title
thus issued, acquire rights over the property, the court cannot disregard
such rights and order the total cancellation of the certificate. The effect of
such an outright cancellation would be to impair public confidence in the
certificate of title, for everyone dealing with property registered under the
Torrens system would have to inquire in every instance as to whether the
title has been regularly or irregularly issued by the court. Every person
dealing with registered land may safely rely on the correctness of the
certificate of title issued therefor and the law will in no way oblige him to
go beyond the certificate to determine the condition of the property.
xxxx
It has been consistently ruled that a forged deed can legally be the root of
a valid title when an innocent purchaser for value intervenes. A deed of
sale executed by an impostor without the authority of the owner of the
land sold is a nullity, and registration will not validate what otherwise is an
invalid document. However, where the certificate of title was already
transferred from the name of the true owner to the forger and, while it
remained that way, the land was subsequently sold to an innocent
purchaser, the vendee had the right to rely upon what appeared in the
certificate and, in the absence of anything to excite suspicion, was under
no obligation to look beyond the certificate and investigate the title of the
vendor appearing on the face of said certificate.
Now the question is whether BPC qualifies as an innocent purchaser for
value which acquired valid titles to the subject lots, despite the fact that
the titles of its predecessor-in-interest were found to be forged and
spurious.
This Court finds in the negative.
Foremost is the fact that there seem to be two documents by which titles
to the subject lots were transferred from the Accibals to BPC: (1) A Deed
of Conveyance, dated 8 February 1989, executed by Servando in favor of
BPC, transferring to the latter titles to the subject lots in exchange for
51% of its capital stock; and (2) A Deed of Conveyance, dated 10
October 1990, executed by Antonio in favor of BPC, transferring to the
latter the very same property in exchange for 2,450 shares in BPC. It
should be noted that even prior to these Deeds of Conveyance,
Servando already transferred the subject lots by way of a Deed of
Absolute Sale, dated 10 June 1988, in favor of his son Antonio, with the
concurrence of his other heirs. Thus, by the time Servando executed the
Deed of Conveyance over the subject lots in favor of BPC on 8 February
1989, he no longer had any right to the said property, having sold the
same to Antonio. It was probably to rectify this mistake that a second
Deed of Conveyance was executed by Antonio on 10 October 1990.
Comparing all these transfer documents, the LRA Report, dated 10 June
1992, prepared by Investigator Flestado noted that Servando’s Tax
Account Number (TAN) in the Deed of Conveyance, dated 8 February
1989, which he executed over the subject lots in favor of BPC, was
"A2140-M1746-A-1;" while in the Deed of Sale, dated 10 June 1988,
which he executed over the subject lots in favor of Antonio, his TAN was
"4110-241-R." Moreover, despite being executed a year apart, Servando
had the same residence certificate (No. 5901393, issued at Quezon City,
on 6 April 1988) appearing in both documents.
Furthermore, BPC cannot really claim that it was a purchaser in good
faith which relied upon the face of Servando’s titles. It should be recalled
that the Quezon City Register of Deeds caught fire on 11 June 1988.
Presumably, the original copies of TCTs No. 200629 and 200630 were
burnt in the said fire. Servando’s heirs sought the administrative
reconstitution of of TCTs No. 200629 and 200630 only in December
1990. The two Deeds of Conveyance over the subject lots were executed
in favor of BPC by Servando and Antonio on 8 February 1989 and 10
October 1990, respectively, both prior to the administrative reconstitution
of TCTs No. 200629 and 200630. If BPC bought the subject lots after
TCTs No. 200629 and 200630 were destroyed when the Quezon City
Register of Deeds burned down, but before the said certificates were
reconstituted, then on the face of what titles did BPC rely on before
deciding to proceed with the purchase of the subject lots? There was no
showing that there were surviving owner’s duplicate copies of TCTs No.
200629 and 200630, or even if there were, without the original copies of
the said TCTs which were stored in the Quezon City Register of Deeds
and purportedly destroyed in the fire, there would have been no way for
BPC to have verified the owner’s duplicate copies.
In addition, without the original copies and owner’s duplicate copies of
TCTs No. 200629 and 200630, BPC had to rely on the reconstituted
certificates, issued on 12 December 1990, bearing the following
numbers: TCTs No. RT-23687 (for TCT No. 200629) and RT-23688 (for
TCT No. 200630). Under section 7 of Republic Act No.
26,57"Reconstituted titles shall have the same validity and legal effect as
the originals thereof" unless the reconstitution was made
extrajudicially.58 In this case, TCTs No. 200629 and 200630 were
reconstituted administratively, hence, extrajudicially. In contrast to the
judicial reconstitution of a lost certificate of title which is in rem, the
administrative reconstitution is essentially ex-parte and without
notice.59 The reconstituted certificates of title do not share the same
indefeasible character of the original certificates of title for the following
reason –
x x x The nature of a reconstituted Transfer Certificate Of Title of
registered land is similar to that of a second Owner's Duplicate Transfer
Certificate Of Title. Both are issued, after the proper proceedings, on the
representation of the registered owner that the original of the said TCT or
the original of the Owner's Duplicate TCT, respectively, was lost and
could not be located or found despite diligent efforts exerted for that
purpose. Both, therefore, are subsequent copies of the originals thereof.
A cursory examination of these subsequent copies would show that they
are not the originals. Anyone dealing with such copies are put on notice
of such fact and thus warned to be extra-careful. x x x.60
The fact that the TCTs were reconstituted should have alerted BPC and
its officers to conduct an inquiry or investigation as might be necessary to
acquaint themselves with the defects in the titles of Servando.61
What is more, BPC again invokes LRA Resolution, dated 4 November
1991, in Consulta No. 1957, and NBI Questioned Documents Report No.
585-891, dated 2 September 1991 as proof that it did inquire or
investigate into the validity and authenticity of Servando’s titles. But
again, it should be noted that these documents were issued after BPC
already acquired the subject lots from Servando and Antonio.
Lastly, there are serious doubts that BPC acquired the subject lots for
value. The Republic bought the subject lots from FPHC for the combined
price of ₱12,333,280.00. BPC, on the other hand, supposedly acquired
the subject lots from Servando on 8 February 1989 in exchange for 51%
of the capital stock of BPC, with a subscription value of ₱6,000,000.00. In
the LRA Report, dated 10 June 1992, Investigator Flestado pointed out
that in the Articles of Incorporation, dated 16 January 1989, of BPC,
submitted to the Securities and Exchange Commission (SEC) on 20
January 1989, BPC had an authorized capital stock of only
₱1,000,000.00, which was divided into 10,000 shares, with a par value of
₱100.00 each; and the amount of capital stock actually subscribed was
₱250,000.00. Therefore, in 1989, fifty-one percent of the capital stock of
BPC would be 5,100 shares, with an aggregate value of only
₱510,000.00. BPC is not saved by the second Deed of Conveyance,
executed more than a year later by Antonio, again transferring to BPC
the subject lots in exchange for 2,450 shares in the latter, with the
alleged value of ₱49,000.000.00. Unless BPC is able to present proof
that it applied for, and the SEC approved, a substantial increase in its
capital stock, then this Court can only assume that its capital stock
remained the same as the year before, 2,450 shares in BPC, with a par
value of ₱100.00 each, amount only to ₱245,000.00. This Court cannot
find a plausible explanation for the discrepancy in the value of 2,450
shares of BPC between the ₱245,000.00 it has hereby computed and the
₱49,000,000.00 claimed by BPC.
For the above-stated reasons, this Court cannot declare BPC an innocent
purchaser for value, and it acquired no better titles to the subject lots than
its predecessors-in-interest, Servando and Antonio.
At this point, it would seem that the Republic does hold better titles to the
subject lots. Nonetheless, another level of transactions involving the
subject lots was brought by intervenors to the attention of this Court.
From the reconstituted TCTs No. RT-23687 (200629) and RT- 23688
(200630) in the name of Servando, BPC derived and was issued by the
Quezon City Register of Deeds new certificates, TCTs No. 30829, 30830,
30831 and 30832, in its own name. It was able to secure the necessary
licenses and permits from the appropriate government agencies to
subdivide, develop, and sell the subject lots as Parthenon Hills. The
Parthenon Hills project was openly advertised and marketed, and a
substantial portion of the subject lots was already sold by BPC to the
public.
Except for the spouses Santiago, BPC recognizes that the intervenors,
Nicolas-Agbulos and Abesamis, together with other legitimate
homeowners in Parthenon Hills, acquired from BPC titles to their
respective subdivided lots in good faith and for value. Even the Republic
could not refute that the individuals who acquired lots in Parthenon Hills
from BPC were purchasers in good faith and for value. It insists,
however, that these buyers could not acquire better titles to the property
than its predecessors-in-interest – BPC, Servando, and Antonio – since
the spring cannot rise higher than its source. The law must protect and
prefer the lawful holder of registered title over the transferee of a vendor
bereft of any transmissible rights.62
It is true that the general rule is that a forged deed is a nullity and
conveys no title.63 A forged deed may be defined as an instrument which
purports to have been executed by the person or persons whose
signatures appear thereon, but which, in fact, was not executed, and the
signatures thereon had been merely imitated so as to give them the
deceptive appearance of genuineness.64 In the case at bar, it was not any
of the deeds of transfer or conveyance of the subject lots which was
forged, but TCTs No. 200629 and 200630 themselves. The forged TCTs,
nevertheless, just as a forged deed, can make it appear that one had
title, right, or interest to the land, when in truth, he had none, to the
deprivation of the rightful owner. It has been recognized that while a
forged instrument is null and void and of no effect as between the parties,
it may nevertheless be the root of a good title; so that the title of a
registered owner who has taken it bona fide and for value, is not affected
by reason of his claiming through someone, that the registration was void
because it had been procured by the presentation of a forged
instrument.65
The forged TCTs No. 200629 and 200630 were later administratively
reconstituted, and although an investigation would show that their
reconstitution was also attended with irregularities, TCTs No. RT-23687
(200629) and RT-23688 (200630) appear, on either face, to have been
duly approved by the LRA and issued by the Quezon City Register of
Deeds. With the cancellation of the reconstituted TCTs and the issuance
of new ones, TCTs No. 30829, 30830, 30831, and 30832, in the name of
BPC, any trace of forgery or irregularity as to BPC’s titles was eliminated.
TCTs No. 30829, 30830, 30831, and 30832 were clean, at least, until the
annotation therein of the notice of lis pendens of the Republic on 21
October 1992. It is a settled doctrine that one who deals with property
registered under the Torrens system need not go beyond the same, but
only has to rely on the certificates of title. He is charged with notice only
of such burdens and claims as are annotated on the certificates.66 Herein
intervenors, Nicolas-Agbulos and Abesamis, before purchasing
subdivision lots in Parthenon Hills, looked into the TCTs of BPC and
found nothing on the face thereof to raise doubts or suspicions as to their
validity and authenticity. Besides, BPC was the holder of licenses and
permits to subdivide, develop, and sell the subject lots as Parthenon
Hills, issued by the appropriate government agencies, primarily HLURB.
This is definitely a situation which constitutes an exception to the general
rule that estoppel cannot lie against the government. The Republic v.
Court of Appeals,67 provides an illuminating discourse on when such an
exception applies, thus –
Is the immunity of the government from laches and estoppel absolute?
May it still recover the ownership of lots sold in good faith by a private
developer to innocent purchasers for value, notwithstanding its approval
of the subdivision plan and its issuance of separate individual certificates
of title thereto?
xxxx
The general rule is that the State cannot be put in estoppel by the
mistakes or errors of its officials or agents. However, like all general
rules, this is also subject to exceptions, viz:
"Estoppels against the public are little favored. They should not be
invoked except in rare and unusual circumstances, and may not be
invoked where they would operate to defeat the effective operation of a
policy adopted to protect the public. They must be applied with
circumspection and should be applied only in those special cases where
the interests of justice clearly require it. Nevertheless, the government
must not be allowed to deal dishonorably or capriciously with its citizens,
and must not play an ignoble part or do a shabby thing; and subject to
limitations x x x the doctrine of equitable estoppel may be invoked
against public authorities as well as against private individuals."
xxxx
Significantly, the other private respondents – Spouses Santos, Spouses
Calaguian, Dela Fuente and Madaya – bought such "expanded" lots in
good faith, relying on the clean certificates of St. Jude, which had no
notice of any flaw in them either. It is only fair and reasonable to apply
the equitable principle of estoppel by laches against the government to
avoid an injustice to the innocent purchasers for value.
Likewise time-settled is the doctrine that where innocent third persons,
relying on the correctness of the certificate of title, acquire rights over the
property, courts cannot disregard such rights and order the cancellation
of the certificate. Such cancellation would impair public confidence in the
certificate of title, for everyone dealing with property registered under the
Torrens system would have to inquire in every instance whether the title
has been regularly issued or not. This would be contrary to the very
purpose of the law, which is to stabilize land titles. Verily, all persons
dealing with registered land may safely rely on the correctness of the
certificate of title issued therefor, and the law or the courts do not oblige,
them to go behind the certificate in order to investigate again the true
condition of the property. They are only charged with notice of the lions
and encumbrances on the property that are noted on the certificate.
When private respondents-purchasers bought their lots from St. Jude,
they did not have to go behind the titles thereto to verify their contents or
search for hidden defects or inchoate rights that could defeat their rights
to said lots. Although they were bound by liens and encumbrances
annotated on the titles, private respondents purchasers could not have
had notice of defects that only an inquiry beyond the face of the titles
could have satisfied. The rationale for this presumption has been stated
thus:
"The main purpose of the Torrens System is to avoid possible conflicts of
title to real estate and to facilitate transactions, relative thereto by giving
the public the right to rely upon the face of a Torrens Certificate of Title
and to dispense with the need of inquiring further, except when the party
concerned had actual knowledge of facts and circumstances that should
impel a reasonably cautious man to make such further inquiry (Pascua v.
Capuyoc, 77 SCRA 78). Thus, where innocent third persons relying on
the correctness of the certificate thus issued, acquire rights over the
property, the court cannot disregard such rights (Director of Land v.
Abache, et al., 73 Phil. 606)."
In another case, this Court further said:
"The Torrens System was adopted in this country because it was
believed to be the most effective measure to guarantee the integrity of
land titles and to protect their indefeasibility once the claim of ownership
is established and recognized. If a person purchases a piece of land on
the assurance that the seller's title thereto is valid, he should not run the
risk of being told later that his acquisition was ineffectual after all. This
would not only be unfair to him. What is worse is that if this were
permitted, public confidence in the system would be eroded and land
transactions would have to be attended by complicated and not
necessarily conclusive investigations and proof of ownership. The further
consequence would be that land conflicts could be even more abrasive, if
not even violent. The Government, recognizing the worthy purposes of
the Torrens System, should be the first to accept the validity of titles
issued thereunder once the conditions laid down by the law are satisfied.
[Italics supplied.]
Petitioner never presented proof that the private respondents who had
bought their lots from St. Jude were buyers in bad faith. Consequently,
their claim of good faith prevails. A purchaser good faith and for value is
one who buys the property of another without notice that some other
person has a right to or an interest in such property; and who pays a full
and fair price for the same at the time of such purchase or before he or
she has notice of the claims or interest of some other person. Good faith
is the honest intention to abstain from taking any unconscientious
advantage of another.
It also bears to emphasize that the subject lots covered by TCTs No.
30829, 30830, 30831, and 30832 were already subdivided, and new
TCTs were issued in the names of the buyers of each subdivision lot. To
order the cancellation of all these derivative titles and the return of the
subdivision lots to the Republic shall irrefragably be unjust to the innocent
purchasers for value and shall wreak havoc on the Torrens System.
Anyway, the Republic is not without recourse. It can claim damages from
BPC, found herein not to be a buyer of the subject lots in good faith. For
its loss of portions of the subdivision lots to innocent purchasers from
BPC, the Republic may recover from BPC the purchase price it paid to
FPHC corresponding to such subdivision lots, with interest at 6% per
annum from 26 March 1992 (the date when the Republic instituted its
petition for the cancellation of the TCTs of Servando, Antonio, and BPC)
until finality of this Decision, and 12% per annum thereafter until fully
paid.68
Although this Court allowed in the case at bar the intervention of Nicolas-
Agbulos and Abesamis, and recognized their title to their respective
subdivision lots in Parthenon Hills as purchasers in good faith and for
value from BPC, it could not do the same for the spouses Santiago, for
the reason that BPC contested their claim that they had acquired titles to
the subdivision lots in Parthenon Hills in good faith and for value, and
further asserted that the spouses Santiago acquired the said subdivision
lots by fraudulent means. The allegations by the spouses Santiago of
good faith, on one hand, and by BPC of fraud, on the other, in the
acquisition by the spouses Santiago of the subdivision lots in question,
are factual matters, best proven and established before the RTC, which
could receive evidence in support of each party’s position during trial.
Should the RTC find that the spouses Santiago have indeed acquired the
subdivision lots in good faith and for value, then their titles thereto shall,
likewise, be valid and indefeasible even against that of the Republic.
However, in a contrary case, should the RTC find that the spouses
Santiago acquired the subdivision lots by fraud, then titles thereto return
to BPC.
Though estoppel by laches may lie against the Republic when titles to the
subdivision lots are already in the names of the respective innocent
purchasers for value from BPC, it may not be used by BPC to defeat the
titles of the Republic as regards the subdivision lots which remain unsold
and the titles to which are still in the name of BPC. It must be recalled
that BPC is not a purchaser in good faith. Estoppel, being an equitable
principle, may only be invoked by one who comes to court with clean
hands.69
Pertinent provisions of the New Civil Code concerning builders in bad
faith provide that –
ART. 449. He who builds, plants, or sows in bad faith on the land of
another, loses what is built, planted or sown without right to indemnity.
ART. 450. The owner of the land on which anything has been built,
planted or sown in bad faith may demand the demolition of the work, or
that the planting or sowing be removed, in order to replace things in their
former condition at the expense of the person who built, planted or
sowed; or he may compel the builder or planter to pay the price of the
land, and the sower the proper rent.
ART. 451. In cases of the two preceding articles, the landowner is
entitled to damages from the builder, planter or sower.
ART. 452. The builder, planter or sower in bad faith is entitled to
reimbursement for the necessary expenses of preservation of the land.
Hence, as far as the subdivision lots still in the name of BPC are
concerned, the Republic has the option to either (1) recover the said lots
and demand that BPC demolish whatever improvements it has made
therein, to return the lots to their former condition, at the expense of BPC;
or (2) compel BPC to pay the price of the land. The choice can only be
made by the Republic, as the rightful owner of the said subject lots.
Should the Republic choose the first option, BPC is under the obligation
to return the possession of the subdivision lots to the Republic and
surrender its corresponding TCTs for cancellation and issuance of new
ones in the name of the Republic. Should the Republic select the second
option, then BPC shall pay the Republic the purchase price that the latter
had paid to FPHC corresponding to such subdivision lots, with interest at
6% per annum from 26 March 1992 until finality of this Decision, and 12%
per annum thereafter until fully paid. In either option, the Republic may
claim damages from BPC, while BPC cannot seek indemnity from the
Republic for any improvements made on the subdivision lots, except if
these constitute as necessary expenses for the preservation of the land,
for which it shall still be entitled to reimbursement.
As for the Petition for New Trial filed by Servando’s heirs, this Court
dismisses the same for lack of legal basis. Section 1, Rule 37 of the
Rules of Court reads –
SECTION 1. Grounds of and period for filing motion for new trial or
reconsideration. – Within the period for taking an appeal, the aggrieved
party may move the trial court to set aside the judgment or final order and
grant a new trial for one or more of the following causes materially
affecting the substantial rights of the said party:
(a) Fraud, accident, mistake or excusable negligence which
ordinary prudence could not have guarded against and by reason
of which such aggrieved party has probably been impaired in his
rights; or
(b) Newly discovered evidence, which he could not, with
reasonable diligence, have discovered and produced at the trial,
and which if presented would probably alter the result.
Servando’s heirs themselves admit that the period allowed for the filing of
a motion to set aside the judgment and grant a new trial under the afore-
quoted provision had already lapsed, but they still pray that this Court
give due course to their Petition on the grounds of justice and equity.
In Malipol v. Lim Tan,70 this Court ruled that –
It is within the sound discretion of the court to set aside an order of
default and to permit a defendant to file his answer and to be heard on
the merits even after the reglementary period for the filing of the answer
has expired, but it is not error, or an abuse of discretion, on the part of
the court to refuse to set aside its order of default and to refuse to accept
the answer where it finds no justifiable reason for the delay in the filing of
the answer. In the motions for reconsideration of an order of default, the
moving parry has the burden of showing such diligence as would justify
his being excused from not filing the answer within the reglementary
period as provided by the Rules of Court, otherwise these guidelines for
an orderly and expeditious procedure would be rendered meaningless.
Unless it is shown clearly that a party has justifiable reason for the delay,
the court will not ordinarily exercise its discretion in his favor.
In the present case, the late Servando and Antonio were already
declared in default by the RTC on 31 July 1992, after their supposed
counsel failed to file an answer to the Republic’s petition for cancellation
of title. Nothing was heard from Servando’s heirs even after the
promulgation of the RTC Decision on 22 December 1992, and the Court
of Appeals Decision, dated 8 August 1997, until they filed their Petition
for New Trial, dated 23 May 2001, before this Court, or nine years from
the date they were declared in default.
According to Servando’s heirs, due to the extrinsic fraud committed by
the President and counsel of BPC, they were prevented from
participating in the proceedings before the trial court. They allegedly
relied on the assurance of the President and counsel of BPC that the
latter shall also represent them and their interests in the subject lots in
the case.
This allegation of fraud by Servando’s heirs has no leg to stand on. It
should be recalled that the late Servando and Antonio were represented
by a counsel at the beginning of the proceedings before the RTC. Their
counsel even submitted two consecutive motions for extension of time to
file the appropriate pleadings. There was no explanation provided as to
why, despite the grant of said motions, the counsel still failed to file an
answer to the Republic’s petition for cancellation of title. It is also contrary
to common human experience that Servando’s heirs, by the mere
assurance of the President and counsel of BPC, adopted a totally hands-
off attitude in a case where they supposedly have substantial interest.
There is no showing during the nine years when they were not
participating in the court proceedings, that they, at least, inquired into or
followed-up on the status of the case with BPC. Such blind trust in the
President and counsel of BPC is surely difficult to comprehend,
especially if this Court takes into account the contention of Servando’s
heirs that BPC failed to deliver the shares of stock in exchange for the
subject lots. What is apparent to this Court is not the alleged fraud
committed by BPC but, rather, the inexcusable negligence of Servando’s
heirs when it came to protecting their titles, rights, and interests to the
subject lots, if indeed, there were still any.
Worth reproducing herein, is the conclusion71 made by the Court of
Appeals on Servando’s titles –
On the strength of the LRA report, Exhibit H (Record, pp. 214-258), the
court a quo found TCT Nos. 200629 and 200630, in the name of
Servando Accibal and from which the titles of defendant-appellee
Barstowe Philippines Corporation were derived, spurious, and ordered
the Register of Deeds of Quezon City "to officially and finally cancel (said
titles) from his records…" (Par. 2, dispositive portion, Decision, p. 16;
Rollo, p. 71). As explained by the court a quo:
"We shall now dwell on the validity of the titles, – TCT Nos. 200629 and
200630, issued in the name of Servando Accibal on July 24, 2974 by the
Register of Deeds of Quezon City. The LRA Report dated 10 June 1992
(Exh. H, pp. 214-258, record) is competent proof that indeed said titles
must be cancelled. In short, the LRA found after due investigation that
the said titles of Servando Accibal were issued with certain irregularties
(sic). It recommended the cancellation therefore, of TCT Nos. 200629
and 200630, to which the court concurs, as said report must be accorded
due respect and in the absence of fraud or irregularties (sic) that
attended the investigation, which the Court finds none, the same must be
persuasive, if not conclusive. Moreover, herein defendant Servando
Accibal because of his failure to answer, despite extension of time given
him, plaintiff’s counsel, he was declared as in default since then, he
never asked the court to lift and set aside the default order. There is no
way, his title may be cancelled. For one thing, he was not able to present
evidence to controvert the recommendation of the LRA to cancel his
titles. For another, Servando Accibal is deemed to have impliedly
admitted the irregularties (sic) that attended the issuance of his
aforestated titles." (Decision, pp. 14-15; Rollo, pp. 69-70)
This portion of the decision ordering the cancellation of TCT Nos. 200629
and 200630 in the name of Servando Accibal was not appealed nor
assigned as a counter-assigment of error in the brief of Barstowe
Philippines Corporation; hence, is now final.
Thus, the findings of this Court as to the rights of the parties involved in
the present case are summarized as follows –
(1) The certificates of title acquired by Servando over the subject
lots were forged and spurious, and such finding made by both the
RTC and Court of Appeals is already final and binding on
Servando’s heirs;
(2) BPC did not acquire the subject lots in good faith and for
value, and its certificates of title cannot defeat those of the
Republic’s;
(3) As between BPC and the Republic, the latter has better titles
to the subject lots being the purchaser thereof in good faith and
for value from FPHC;
(4) However, considering that the subject lots had already been
subdivided and the certificates of title had been issued for each
subdivision lot, which were derived from the certificates of title of
BPC, it is more practical, convenient, and in consonance with the
stability of the Torrens System that the certificates of title of BPC
and its derivative certificates be maintained, while those of the
Republic’s be cancelled;
(5) Estoppel lies against the Republic for granting BPC
governmental permits and licenses to subdivide, develop, and sell
to the public the subject lots as Parthenon Hills. Relying on the
face of the certificates of title of BPC and the licenses and permits
issued to BPC by government agencies, innocent individuals,
including intervenors Nicolas-Agbulos and Abesamis, purchased
subdivision lots in good faith and for value;
(6) The claims of the intervenor spouses Santiago that they
acquired portions of the subject lots in good faith and for value
still need to be proven during trial before the court a quo. Unlike
the claims of intervenors Nicolas-Agbulos and Abesamis, which
BPC admitted, the claims of the spouses Santiago were opposed
by BPC on the ground of fraud;
(7) Certificates of title over portions of the subject lots, acquired
by purchasers in good faith and for value, from BPC, are valid
and indefeasible, even as against the certificates of title of the
Republic. The Republic, however, is entitled to recover from BPC
the purchase price the Republic paid to FPHC for the said
portions, plus appropriate interests; and
(8) As portions of the subject lots are still unsold and their
corresponding certificates of title remain in the name of BPC, the
Republic may exercise two options: (a) It may recover the said
portions and demand that BPC demolish whatever improvements
it has made therein, so as to return the said portions to their
former condition, at the expense of BPC. In such a case,
certificates of title of BPC over the said portions shall be
cancelled and new ones issued in the name of the Republic; or
(b) It may surrender the said portions to BPC and just compel
BPC to reimburse the Republic for the purchase price the
Republic paid to FPHC for the said portions, plus appropriate
interest.
WHEREFORE, premises considered, the instant Petition is
hereby PARTLY GRANTED. The Decision, dated 8 August 1997, of the
Court of Appeals in CA-G.R. CV No. 47522 is
hereby REVERSED and SET ASIDE and a new one is hereby entered,
as follows:
(1) In view of the finding that the Transfer Certificates of Title No.
200629 and 200630 in the name of Servando Accibal are forged
and spurious, the Quezon City Register of Deeds is ORDERED to
officially and finally cancel the same from his records;
(2) In view of the finding that the respondent Republic of the
Philippines was a purchaser in good faith of the subject lots from
Philippine First Holdings Corporation, but also taking into
consideration the functioning and stability of the Torrens System,
as well as the superior rights of subsequent purchasers in good
faith and for value of portions of the subject lots – subdivided,
developed, and sold as Parthenon Hills – from petitioner
Barstowe Philippines Corporation –
(a) The Quezon City Register of Deeds is ORDERED to
cancel Transfer Certificates of Title No. 275443 and
288417 in the name of respondent Republic of the
Philippines;
(b) The respondent Republic of the Philippines is
ORDERED to respect and recognize the certificates of
title to the subject portions of land in the name of
purchasers of good faith and for value from petitioner
Republic of the Philippines;
(c) Petitioner Barstowe Philippines Corporation is
ORDERED to pay respondent Republic of the Philippines
for the purchase price the latter paid to First Philippine
Holdings Corporation corresponding to the portions of the
 subject lots which are already covered by certificates of
title in the name of purchasers in good faith and for value
from petitioner Barstowe Philippines Corporation, plus
appropriate interest;
(d) The respondent Republic of the Philippines is
ORDERED to choose one of the options available to it as
regards the portions of the subject lots which remain
unsold and covered by certificates of title in the name of
petitioner Barstowe Philippines Corporation, either (i) To
recover the said portions and demand that petitioner
Barstowe Philippines Corporation demolish whatever
improvements it has made therein, so as to return the
said portions to their former condition, at the expense of
the latter, or (ii) To surrender the said portions to
petitioner Barstowe Philippines Corporation and compel
the latter to reimburse the respondent Republic of the
Philippines for the purchase price it had paid to First
Philippine Holdings Corporation for the said portions, plus
appropriate interest. Regardless of the option chosen by
the respondent Republic of the Philippines, it is
ORDERED to reimburse petitioner Barstowe Philippines
Corporation for any necessary expenses incurred by the
latter for the said portions;
(2) In view of the finding that petitioner Barstowe Philippines Corporation
is not a purchaser and builder in good faith, and depending on the option
chosen by respondent Republic of the Philippines concerning the
portions of the subject lots which remain unsold and covered by
certificates of title in the name of petitioner Barstowe Philippines
Corporation, as enumerated in paragraph 2(d) hereof –
(a) In case the respondent Republic of the Philippines chooses
the option under paragraph 2(d)(i) hereof, petitioner Barstowe
Philippines Corporation is ORDERED to demolish whatever
improvements it has made on the said portions, so as to return
the same to their former condition, at its own expense. The
Quezon City Register of Deeds is also ORDERED to cancel the
certificates of title of petitioner Barstowe Philippines Corporation
over the said portions and to issue in lieu thereof certificates of
title in the name of respondent Republic of the Philippines;
(b) In case the respondent Republic of the Philippines chooses
the option under paragraph 2(d)(ii) hereof, petitioner Barstowe
Philippines Corporation is ORDERED to reimburse the petitioner
Republic of the Philippines for the purchase price it had paid to
First Philippine Holdings Corporation for the said portions, plus
appropriate interest;
(c) Petitioner Barstowe Philippines Corporaton is ORDERED to
pay appropriate damages to respondent Republic of the
Philippines as may be determined by the trial court;
(3) In view of the finding that intervenors Winnie U. Nicolas-Agbulos and
Edgardo Q. Abesamis are purchasers in good faith and for value of
portions of the subject lots – subdivided, developed, and sold as
Parthenon Hills – from petitioner Barstowe Philippines Corporation, it
is DECLARED that their certificates of title are valid and indefeasible as
to all parties;
(4) In view of the finding that the Petition for New Trial filed by the heirs of
Servando Accibal, namely, Virgilio V. Accibal, Virginia A. Macabudbud,
and Antonio V. Accibal, lacks merit, the said Petition is DISMISSED; and
(5) The case is REMANDED to the court of origin for determination of the
following –
(a) The validity of the claims, and identification of the purchasers,
in good faith and for value, of portions of the subject lots from
petitioner Barstowe Philippines Corporation, other than
intervenors Winnie U. Nicolas-Agbulos and Edgardo Q.
Abesamis, whose titles are to be declared valid and indefeasible;
(b) The identification of the portions of the subject lots in the
possession and names of purchasers in good faith and for value
and those which remain with petitioner Barstowe Philippines
Corporation;
(c) The computation of the amount of the purchase price which
respondent Republic of the Philippines may recover from
petitioner Barstowe Philippines Corporation in consideration of
the preceding paragraphs hereof;
(d) The types and computation of the damages recoverable by
the parties; and
 (e) The computation and award of the cross-claim of EL-VI Realty
and Development Corporation against petitioner Barstowe
Philippines Corporation.
SO ORDERED.
G.R. No. 149295. September 23, 2003
PHILIPPINE NATIONAL BANK,, Petitioner, v. GENEROSO DE JESUS,
represented by his Attorney-in-Fact, CHRISTIAN DE JESUS, respondent.
DECISION
VITUG, J.:
Petitioner Philippine National Bank disputes the decision handed down by
the Court of Appeals promulgated on 23 March 2001 in CA-G.R. CV No.
56001, entitled Generoso De Jesus, represented by his Attorney-in-Fact,
Christian De Jesus, versus Philippine National Bank. The assailed decision
has affirmed the judgment rendered by the Regional Trial Court, Branch
44, of Mamburao, Occidental Mindoro, declaring respondent Generoso de
Jesus as being the true and lawful owner of the 124-square-meter portion
of the land covered by Transfer Certificate of Title (TCT) No. T-17197 and
ordering petitioner bank to vacate the premises, to deliver possession
thereof to respondent, and to remove the improvement thereon.
It would appear that on 10 June 1995, respondent filed a complaint
against petitioner before the Regional Trial Court of Occidental Mindoro for
recovery of ownership and possession, with damages, over the questioned
property. In his complaint, respondent stated that he had acquired a
parcel of land situated in Mamburao, Occidental Mindoro, with an area of
1,144 square meters covered by TCT No. T-17197, and that on 26 March
1993, he had caused a verification survey of the property and discovered
that the northern portion of the lot was being encroached upon by a
building of petitioner to the extent of 124 square meters. Despite two
letters of demand sent by respondent, petitioner failed and refused to
vacate the area.
Petitioner, in its answer, asserted that when it acquired the lot and the
building sometime in 1981 from then Mayor Bienvenido Ignacio, the
encroachment already was in existence and to remedy the situation, Mayor
Ignacio offered to sell the area in question (which then also belonged to
Ignacio) to petitioner at P100.00 per square meter which offer the latter
claimed to have accepted. The sale, however, did not materialize when,
without the knowledge and consent of petitioner, Mayor Ignacio later
mortgaged the lot to the Development Bank of the Philippines.
The trial court decided the case in favor of respondent declaring him to be
the rightful owner of the disputed 124-square-meter portion of the lot and
ordering petitioner to surrender possession of the property to respondent
and to cause, at its expense, the removal of any improvement thereon.
The Court of Appeals, on appeal, sustained the trial court but it ordered to
be deleted the award to respondent of attorneys fees, as well as moral and
exemplary damages, and litigation expenses.
Petitioner went to this Court, via a petition for review, after the appellate
court had denied the banks motion for reconsideration, here now
contending that -
1. THE COURT OF APPEALS GRAVELY ERRED IN LAW IN ADJUDGING PNB
A BUILDER IN BAD FAITH OVER THE ENCROACHED PROPERTY IN
QUESTION;
2. THE COURT OF APPEALS GRAVELY ERRED IN LAW IN NOT APPLYING IN
FAVOR OF PNB THE PROVISION OF ARTICLE 448 OF THE CIVIL CODE AND
THE RULING IN TECNOGAS PHILIPPINES MANUFACTURING CORP. VS.
COURT OF APPEALS, G.R. No. 108894, February 10, 1997, 268 SCRA 7.1 cräläwvirtualibräry
The Regional Trial Court and the Court of Appeals have both rejected the
idea that petitioner can be considered a builder in good faith. In the
context that such term is used in particular reference to Article 448, et
seq., of the Civil Code, a builder in good faith is one who, not being the
owner of the land, builds on that land believing himself to be its owner and
unaware of any defect in his title or mode of acquisition.
The various provisions of the Civil Code, pertinent to the subject, read:
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 a case, he
shall pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after proper indemnity. The parties shall
agree upon the terms of the lease and in case of disagreement, the court
shall fix the terms thereof.
Article 449. He who builds, plants, or sows in bad faith on the land of
another, loses what is built, planted or sown without right to indemnity.
Article 450. The owner of the land on which anything has been built,
planted or sown in bad faith may demand the demolition of the work, or
that the planting or sowing be removed, in order to replace things in their
former condition at the expense of the person who built, planted or sowed;
or he may compel the builder or planter to pay the price of the land, and
the sower the proper rent.
A builder in good faith can, under the foregoing provisions, compel the
landowner to make a choice between appropriating the building by paying
the proper indemnity or obliging the builder to pay the price of the land.
The choice belongs to the owner of the land, a rule that accords with the
principle of accession, i.e., that the accessory follows the principal and not
the other way around.2 Even as the option lies with the landowner, the
grant to him, nevertheless, is preclusive. He much choose one. He cannot,
for instance, compel the owner of the building to instead remove it from
the land.3 In order, however, that the builder can invoke that accruing
benefit and enjoy his corresponding right to demand that a choice be
made by the landowner, he should be able to prove good faith on his part.
Good faith, here understood, is an intangible and abstract quality with no
technical meaning or statutory definition, and it encompasses, among
other things, an honest belief, the absence of malice and the absence of
design to defraud or to seek an unconscionable advantage. An individuals
personal good faith is a concept of his own mind and, therefore, may not
conclusively be determined by his protestations alone. It implies honesty
of intention, and freedom from knowledge of circumstances which ought to
put the holder upon inquiry.4 The essence of good faith lies in an honest
belief in the validity of ones right, ignorance of a superior claim, and
absence of intention to overreach another.5 Applied to possession, one is
considered in good faith if he is not aware that there exists in his title or
mode of acquisition any flaw which invalidates it.6 cräläwvirtualibräry
Given the findings of both the trial court and the appellate court, it should
be evident enough that petitioner would fall much too short from its claim
of good faith. Evidently, petitioner was quite aware, and indeed advised,
prior to its acquisition of the land and building from Ignacio that a part of
the building sold to it stood on the land not covered by the land conveyed
to it.
Equally significant is the fact that the building, constructed on the land by
Ignacio, has in actuality been part of the property transferred to petitioner.
Article 448, of the Civil Code refers to a piece of land whose ownership is
claimed by two or more parties, one of whom has built some works (or
sown or planted something) and not to a case where the owner of the
land is the builder, sower, or planter who then later loses
ownership of the land by sale or otherwise for, elsewise stated,
where the true owner himself is the builder of works on his own
land, the issue of good faith or bad faith is entirely irrelevant. 7 cräläwvirtualibräry
In fine, petitioner is not in a valid position to invoke the provisions of
Article 448 of the Civil Code. The Court commiserates with petitioner in its
present predicament; upon the other hand, respondent, too, is entitled to
his rights under the law, particularly after having long been deprived of the
enjoyment of his property. Nevertheless, the Court expresses hope that
the parties will still be able to come up with an arrangement that can be
mutually suitable and acceptable to them.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No.
56001 is AFFIRMED. No costs.
SO ORDERED.
SERAFIN CHENG, Petitioner, v. SPOUSES VITTORIO and MA. HELEN
DONINI, Respondents.
DECISION
CORONA, J.:
The subject of this petition is an oral lease agreement that went sour.
Petitioner Serafin Cheng agreed to lease his property located at 479 Shaw
Blvd., Mandaluyong City to respondents, Spouses Vittorio and Ma. Helen
Donini, who intended to put up a restaurant thereon. They agreed to a monthly
rental of P17,000, to commence in December 1990.
Bearing an Interim Grant of Authority executed by petitioner, respondents
proceeded to introduce improvements in the premises. The authority read:
I, Serafin Cheng, of legal age and with office address at Room 310 Federation
Center Building Muelle de Binondo, Manila, owner of the building/structure
located at 479 Shaw Boulevard, Mandaluyong, Metro Manila, pursuant to a
lease agreement now being finalized and to take effect December 1, 1990,
hereby grants VITTORIO DONINI (Prospective Lessee) and all those acting
under his orders to make all the necessary improvements on the prospective
leased premises located at 479 Shaw Blvd., Mandaluyong, Metro Manila, and
for this purpose, to enter said premises and perform, all such works and
activities to make the leased premises operational as a restaurant or similar
purpose.
Manila, 31 October 1990.1
However, before respondents' business could take off and before any final
lease agreement could be drafted and signed, the parties began to have
serious disagreements regarding its terms and conditions. Petitioner thus wrote
respondents on January 28, 1991, demanding payment of the deposit and
rentals, and signifying that he had no intention to continue with the agreement
should respondents fail to pay. Respondents, however, ignoring petitioner's
demand, continued to occupy the premises until April 17, 1991 when their
caretaker voluntarily surrendered the property to petitioner.
Respondents then filed an action for specific performance and damages with a
prayer for the issuance of a writ of preliminary injunction in the Regional Trial
Court (RTC) of Pasig City, Branch 67, docketed as Civil Case No. 60769.
Respondents prayed that petitioner be ordered to execute a written lease
contract for five years, deducting from the deposit and rent the cost of repairs
in the amount of P445,000, or to order petitioner to return their investment in
the amount of P964,000 and compensate for their unearned net income
of P200,000 with interest, plus attorney's fees.2
Petitioner, in his answer, denied respondents' claims and sought the award of
moral and exemplary damages, and attorney's fees.3
After trial, the RTC rendered its decision in favor of petitioner, the dispositive
portion of which provided:
WHEREFORE, in view of all the foregoing, this Court finds the preponderance of
evidence in favor of the [petitioner] and hereby renders judgment as follows:
1. The Complaint is dismissed.
2. On the counterclaim, [respondents] are ordered, jointly and severally, to
pay the [petitioner] P500,000.00 as moral damages; P100,000.00 as
exemplary damages; and P50,000.00 as attorney's fees.
3. [Respondents] are likewise ordered to pay the costs.
SO ORDERED.4
Respondents appealed to the Court of Appeals (CA) which, in its
decision5 dated March 31, 2004, recalled and set aside the RTC decision, and
entered a new one ordering petitioner to pay respondents the amount
of P964,000 representing the latter's expenses incurred for the repairs and
improvements of the premises.6
Petitioner filed a motion for reconsideration on the ground that the award of
reimbursement had no factual and legal bases,7 but this was denied by the CA
in its resolution dated February 21, 2005.8
Hence, this petition for certiorari under Rule 45 of the Rules of Court, with
petitioner arguing that:
THE COURT OF APPEALS DECIDED THIS CASE NOT IN ACCORD WITH LAW
AND WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT. PUT
OTHERWISE:
A. BY ORDERING PETITIONER TO REIMBURSE RESPONDENTS THE FULL VALUE
OF EXPENSES FOR THEIR ALLEGED REPAIRS AND IMPROVEMENTS OF THE
LEASED PREMISES, THE COURT OF APPEALS ERRONEOUSLY CONSIDERED
RESPONDENTS NOT AS MERE LESSEES BUT POSSESSORS IN GOOD FAITH
UNDER ARTICLES 448 AND 546 OF THE CIVIL CODE.
B. THE COURT OF APPEALS DECIDED THIS CASE NOT IN ACCORD WITH
ARTICLE 1678 OF THE CIVIL CODE WHICH GIVES THE LESSOR THE OPTION
TO REIMBURSE THE LESSEE ONE-HALF OF THE VALUE OF USEFUL
IMPROVEMENTS OR, IF HE DOES NOT WANT TO, ALLOW THE LESSEE TO
REMOVE THE IMPROVEMENTS.
C. LIKEWISE, BY ORDERING PETITIONER TO REIMBURSE THE VALUE OF
ORNAMENTAL EXPENSES, THE COURT OF APPEALS CONTRAVENED THE
SECOND PARAGRAPH OF ARTICLE 1678.
D. THE COURT OF APPEALS ERRED IN APPLYING THE PRINCIPLE OF EQUITY IN
FAVOR OF THE RESPONDENTS.
E. THE COURT OF APPEALS ERRED IN NOT AFFIRMING THE DECISION OF THE
TRIAL COURT AWARDING DAMAGES TO PETITIONER.
F. THE COURT OF APPEALS SERIOUSLY ERRED AND/OR GRAVELY ABUSED ITS
DISCRETION IN FIXING THE AMOUNT OF P961,000.009 CONTRARY TO
RESPONDENTS' OWN REPRESENTATION AND EVIDENCE.10
Respondents were required to file their comment on the petition but their
counsel manifested that he could not file one since his clients' whereabouts
were unknown to him.11 Counsel also urged the Court to render a decision on
the basis of the available records and documents.12 Per resolution dated August
30, 2006, copies of the resolutions requiring respondents to file their comment
were sent to their last known address and were deemed served. The order
requiring respondents' counsel to file a comment in their behalf was
reiterated.13
In their comment, respondents argued that they were possessors in good faith,
hence, Articles 448 and 546 of the Civil Code applied and they should be
indemnified for the improvements introduced on the leased premises.
Respondents bewailed the fact that petitioner was going to benefit from these
improvements, the cost of which amounted to P1.409 million, in contrast to
respondents' rental/deposit obligation amounting to only P34,000.
Respondents also contended that petitioner's rescission of the agreement was
in bad faith and they were thus entitled to a refund.14
In settling the appeal before it, the CA made the following findings and
conclusions:
1. there was no agreement that the deposit and rentals accruing to petitioner
would be deducted from the costs of repairs and renovation incurred by
respondents;
2. respondents committed a breach in the terms and conditions of the
agreement when they failed to pay the rentals;
3. there was no valid rescission on the part of petitioner;
4. respondents were entitled to reimbursement for the cost of improvements
under the principle of equity and unjust enrichment; and cralawlibrary
5. the award of damages in favor of petitioner had no basis in fact and law.15
As the correctness of the CA's ruling regarding (1) the lack of agreement on
the deposit and rentals; (2) respondents' breach of the terms of the verbal
agreement and (3) the lack of valid rescission by petitioner was never put in
issue, this decision will be confined only to the issues raised by petitioner, that
is, the award of reimbursement and the deletion of the award of damages. It
need not be stressed that an appellate court will not review errors that are not
assigned before it, save in certain exceptional circumstances and those
affecting jurisdiction over the subject matter as well as plain and clerical
errors, none of which is present in this case.16
Remarkably, in ruling that respondents were entitled to reimbursement, the CA
did not provide any statutory basis therefor and instead applied the principles
of equity and unjust enrichment, stating:
It would be inequitable to allow the defendant-appellee, as owner of the
property to enjoy perpetually the improvements introduced by the plaintiffs-
appellants without reimbursing them for the value of the said improvements.
Well-settled is the rule that no one shall be unjustly enriched or benefitted at
the expense of another.17
Petitioner, however, correctly argued that the principle of equity did not apply
in this case. Equity, which has been aptly described as "justice outside
legality," is applied only in the absence of, and never against, statutory law or
judicial rules of procedure.18 Positive rules prevail over all abstract arguments
based on equity contra legem.19 Neither is the principle of unjust enrichment
applicable since petitioner (who was to benefit from it) had a valid claim.20
The relationship between petitioner and respondents was explicitly governed
by the Civil Code provisions on lease, which clearly provide for the rule on
reimbursement of useful improvements and ornamental expenses after
termination of a lease agreement. Article 1678 states:
If the lessee makes, in good faith, useful improvements which are suitable to
the use for which the lease is intended, without altering the form or substance
of the property leased, the lessor upon the termination of the lease shall pay
the lessee one-half of the value of the improvements at that time. Should the
lessor refuse to reimburse said amount, the lessee may remove the
improvements, even though the principal thing may suffer damage thereby. He
shall not, however, cause any more impairment upon the property leased than
is necessary.
With regard to ornamental expenses, the lessee shall not be entitled to any
reimbursement, but he may remove the ornamental objects, provided no
damage is caused to the principal thing, and the lessor does not choose to
retain them by paying their value at the time the lease is extinguished.
Article 1678 modified the (old) Civil Code provision on reimbursement where
the lessee had no right at all to be reimbursed for the improvements
introduced on the leased property, he being entitled merely to the rights of a
usufructuary - the right of removal and set-off but not to reimbursement.21
Contrary to respondents' position, Articles 448 and 546 of the Civil Code did
not apply. Under these provisions, to be entitled to reimbursement for useful
improvements introduced on the property, respondents must be considered
builders in good faith. Articles 448 and 546, which allow full reimbursement of
useful improvements and retention of the premises until reimbursement is
made, apply only to a possessor in good faith or one who builds on land in the
belief that he is the owner thereof. A builder in good faith is one who is
unaware of any flaw in his title to the land at the time he builds on it.22
But respondents cannot be considered possessors or builders in good faith. As
early as 1956, in Lopez v. Philippine & Eastern Trading Co., Inc.,23 the Court
clarified that a lessee is neither a builder nor a possessor in good faith'
x x x This principle of possessor in good faith naturally cannot apply to a lessee The Court notes that the CA pegged the total value of the improvements made
because as such lessee he knows that he is not the owner of the leased on the leased premises at P964,000, which was apparently based on the
property. Neither can he deny the ownership or title of his lessor. Knowing that allegation in respondents' complaint that it was their total investment
his occupation of the premises continues only during the life of the lease cost.28 The CA lumped together all of respondents' expenses, which was a
contract and that he must vacate the property upon termination of the lease or blatant error. A qualification should have been made as to how much was
upon the violation by him of any of its terms, he introduces improvements spent for useful improvements (or those which were suitable to the use for
on said property at his own risk in the sense that he cannot recover which the lease was intended) and how much was for ornamental expenses.
their value from the lessor, much less retain the premises until such Respondent Vittorio Donini testified that he spent P450,000 for necessary
reimbursement. (Emphasis supplied) cralawlibrary repairs, while P500,000 was spent for adornments.29 The evidence on record,
however, showed respondents' expenses for useful improvements to be as
Being mere lessees, respondents knew that their right to occupy the premises follows:
existed only for the duration of the lease.24Cortez v. Manimbo25 went further to
state that:
Expense Amount
If the rule were otherwise, 'it would always be in the power of the tenant to Electrical P31,893.65 Exh. "F", et seq.30
improve his landlord out of his property. Roofing P14,856.00 Exhibit "O"31
Labor P19,909.75 Exh. "P", et seq.32
These principles have been consistently adhered to and applied by the Court in
many cases.26 Ceiling P65,712.00 Exh. "Q", et seq.33
Labor P38,689.20 Exh. "R", et seq.34
Under Article 1678 of the Civil Code, the lessor has the primary right (or the
first move) to reimburse the lessee for 50% of the value of the improvements Electrical (phase 2) P76,539.10 Exh. "S", et seq.35
at the end of the lease. If the lessor refuses to make the reimbursement, the Door P41,371.75 Exh. "T", et seq.36
subsidiary right of the lessee to remove the improvements, even though the
principal thing suffers damage, arises. Consequently, on petitioner rests the Labor P25,126.00 Exh. "U", et seq.37
primary option to pay for one-half of the value of the useful improvements. It Water P 8,031.00 Exhs. "W" & "W-1"3
is only when petitioner as lessor refuses to make the reimbursement that
respondents, as lessees, may remove the improvements. Should petitioner Gutters P 35,550.05 Exhs. "X" & "X-1"39
refuse to exercise the option of paying for one-half of the value of the
improvements, he cannot be compelled to do so. It then lies on respondents to
Outside Wall P 24,744.00 Exh. "X-2"40
insist on their subsidiary right to remove the improvements even though the Inside Wall P 22,186.10 Exh. "X-3"41
principal thing suffers damage but without causing any more impairment on
the property leased than is necessary.
Electrical (phase 3) P 88,698.30 Exhs. "X-8" to "X-1
Labor P 19,995.00 Exhibit "Y"43
As regards the ornamental expenses, respondents are not entitled to Total P513,301.90
reimbursement. Article 1678 gives respondents the right to remove the
ornaments without damage to the principal thing. But if petitioner appropriates
and retains said ornaments, he shall pay for their value upon the termination Accordingly, the 50% value of the useful improvements to be reimbursed by
of the lease. petitioner, if he chose to do so, should be based on P513,301.90. Since
petitioner did not exercise his option to retain these useful improvements, then
respondents could have removed the same. This was the legal consequence of
The fact that petitioner will benefit from the improvements introduced by
the application of Article 1678 under ordinary circumstances.
respondents is beside the point. In the first place, respondents introduced
these improvements at their own risk as lessees. Respondents were not forced
or obliged to splurge on the leased premises as it was a matter of necessity as The reality on the ground ought to be recognized. For one, as disclosed by
well as a business strategy.27 In fact, had respondents only complied with their respondents' counsel, he no longer knows the exact whereabouts of his clients,
obligation to pay the deposit/rent, there would have been no dispute to begin only that they are now in Europe and he has no communication with them at
with. If they were able to shell out more than a million pesos to improve the all.44 For another, it appears that as soon as respondents vacated the
property, the measly P34,000 deposit demanded by petitioner was a mere premises, petitioner immediately reclaimed the property and barred
"drop in the bucket," so to speak. More importantly, the unequivocal terms of respondents from entering it. Respondents also alleged, and petitioner did not
Article 1678 of the Civil Code should be the foremost consideration. deny, that the property subject of this case had already been leased to another
entity since 1991.45 This is where considerations of equity should come into (1) petitioner Serafin Cheng is ORDERED to pay respondents, spouses Vittorio
play. It is obviously no longer feasible for respondents to remove the and Ma. Helen Donini, the amount of P171,650.95 as indemnity for the useful
improvements from the property, if they still exist. The only equitable improvements; and cralawlibrary

alternative then, given the circumstances, is to order petitioner to pay

respondents one-half of the value of the useful improvements (50% (2) respondents, spouses Vittorio and Ma. Helen Donini, are ORDERED to pay
of P513,301.90) introduced on the property, or P256,650.95. To be off-set petitioner Serafin Cheng the following sums:
against this amount are respondents' unpaid P17,000 monthly rentals for the
period of December 1990 to April 1991,46or P85,000. Petitioner should,
therefore, indemnify respondents the amount of P171,650.95. This is in a) P100,000.00 moral damages;
accord with the law's intent of preventing unjust enrichment of a lessor who
now has to pay one-half of the value of the useful improvements at the end of b) P50,000.00 exemplary damages and
the lease because the lessee has already enjoyed the same, whereas the lessor
can enjoy them indefinitely thereafter.47 c) P25,000.00 attorney's fees.

Respondents are not entitled to reimbursement for the ornamental expenses

under the express provision of Article 1678. Moreover, since they failed to
remove these ornaments despite the opportunity to do so when they vacated
the property, then they were deemed to have waived or abandoned their right
of removal.
Let copies of this decision be furnished respondents, spouses Vittorio and Ma.
Helen Donini, at their last known address, and their counsel of record.
SO ORDERED.

The CA also erred when it deleted the awards of moral and exemplary
damages and attorney's fees.

Petitioner is entitled to moral damages but not in the amount of P500,000

awarded by the RTC, which the Court finds to be excessive. While trial courts
are given discretion to determine` the amount of moral damages, it "should
not be palpably and scandalously excessive."48 Moral damages are not meant
to enrich a person at the expense of the other but are awarded only to allow NATIONAL HOUSING AUTHORITY, petitioner, 
the former to obtain means, diversion or amusements that will serve to vs.
alleviate the moral suffering he has undergone due to the other person's GRACE BAPTIST CHURCH and the COURT OF
culpable action.49 It must always reasonably approximate the extent of injury APPEALS, respondents.
and be proportional to the wrong committed.50 The award of P100,000 as
moral damages is sufficient and reasonable under the circumstances.
DECISION
The award of P100,000 as exemplary damages is likewise excessive.
Exemplary damages are imposed not to enrich one party or impoverish another YNARES-SANTIAGO, J.:
but to serve as a deterrent against or as a negative incentive to curb socially
deleterious actions.51 We think P50,000 is reasonable in this case.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

Finally, Article 2208 of the Civil Code allows recovery of attorney's fees when
exemplary damages are awarded or when the defendant's act or omission has
compelled the plaintiff to litigate with third persons or to incur expenses to
protect his interest.52 Petitioner is entitled to it since exemplary damages were
awarded in this case and respondents' act in filing Civil Case No. 60769
compelled him to litigate. The amount of P25,000 is in accord with prevailing
jurisprudence.53
WHEREFORE, the petition is PARTIALLY GRANTED. The decision dated
March 31, 2004 rendered by the Court of Appeals in CA-G.R. CV No. 54430 is
hereby MODIFIED in that '
This is a petition for review under Rule 45 of the Rules of Court, seeking
to reverse the Decision of the Court of Appeals dated February 26,
2001,1 and its Resolution dated November 8, 2002,2 which modified the
decision of the Regional Trial Court of Quezon City, Branch 90, dated
February 25, 1997.3
On June 13, 1986, respondent Grace Baptist Church (hereinafter, the
Church) wrote a letter to petitioner National Housing Authority (NHA),
manifesting its interest in acquiring Lots 4 and 17 of the General Mariano
Alvarez Resettlement Project in Cavite.4 In its letter-reply dated July 9,
1986, petitioner informed respondent:
 In reference to your request letter dated 13 June 1986, regarding
your application for Lots 4 and 17, Block C-3-CL, we are glad to
inform you that your request was granted and you may now visit
our Project Office at General Mariano Alvarez for processing of
your application to purchase said lots.
We hereby advise you also that prior to approval of such application and
in accordance with our existing policies and guidelines, your other
accounts with us shall be maintained in good standing.5
Respondent entered into possession of the lots and introduced
improvements thereon.6
On February 22, 1991, the NHA’s Board of Directors passed Resolution
No. 2126, approving the sale of the subject lots to respondent Church at
the price of P700.00 per square meter, or a total price of
P430,500.00.7 The Church was duly informed of this Resolution through a
letter sent by the NHA.8
On April 8, 1991, the Church tendered to the NHA a manager’s check in
the amount of P55,350.00, purportedly in full payment of the subject
properties.9 The Church insisted that this was the price quoted to them by
the NHA Field Office, as shown by an unsigned piece of paper with a
handwritten computation scribbled thereon.10 Petitioner NHA returned the
check, stating that the amount was insufficient considering that the price
of the properties have changed. The Church made several demands on
the NHA to accept their tender of payment, but the latter refused. Thus,
the Church instituted a complaint for specific performance and damages
against the NHA with the Regional Trial Court of Quezon City,11 where it
was docketed as Civil Case No. Q-91-9148.
On February 25, 1997, the trial court rendered its decision, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
1. Ordering the defendant to reimburse to the plaintiff the
amount of P4,290.00 representing the overpayment made
for Lots 1, 2, 3, 18, 19 and 20;
2. Declaring that there was no perfected contract of sale
with respect to Lots 4 and 17 and ordering the plaintiff to
return possession of the property to the defendant and to
pay the latter reasonable rental for the use of the property
at P200.00 per month computed from the time it took
possession thereof until finally vacated. Costs against
defendant.
SO ORDERED.12
On appeal, the Court of Appeals, affirmed the trial court’s finding that
there was indeed no contract of sale between the parties. However,
petitioner was ordered to execute the sale of the lots to Grace Baptist
Church at the price of P700.00 per square meter, with 6% interest per
annum from March 1991. The dispositive portion of the Court of Appeals’
decision, dated February 26, 2001, reads:
WHEREFORE, the appealed Decision is hereby AFFIRMED with
the MODIFICATION that defendant-appellee NHA is hereby
ordered to sell to plaintiff-appellant Grace Baptist Church Lots 4
and 17 at the price of P700.00 per square meter, or a total cost
P430,000.00 with 6% interest per annum from March, 1991 until
full payment in cash.
SO ORDERED.13
The appellate court ruled that the NHA’s Resolution No. 2126, which
earlier approved the sale of the subject lots to Grace Baptist Church at
the price of P700.00 per square meter, has not been revoked at any time
and was therefore still in effect. As a result, the NHA was estopped from
fixing a different price for the subject properties. Considering further that
the Church had been occupying the subject lots and even introduced
improvements thereon, the Court of Appeals ruled that, in the interest of
equity, it should be allowed to purchase the subject properties.14
Petitioner NHA filed a Motion for Reconsideration which was denied in a
Resolution dated November 8, 2002. Hence, the instant petition for
review on the sole issue of: Can the NHA be compelled to sell the subject
lots to Grace Baptist Church in the absence of any perfected contract of
sale between the parties?
Petitioner submits that the Court cannot compel it to sell the subject
property to Grace Baptist Church without violating its freedom to
contract.15 Moreover, it contends that equity should be applied only in the
absence of any law governing the relationship between the parties, and
that the law on sales and the law on contracts in general apply to the
present case.16
We find merit in petitioner’s submission.
Petitioner NHA is not estopped from selling the subject lots at a price
equal to their fair market value, even if it failed to expressly revoke
Resolution No. 2126. It is, after all, hornbook law that the principle of
estoppel does not operate against the Government for the act of its
agents,17 or, as in this case, their inaction.
On the application of equity, it appears that the crux of the controversy
involves the characterization of equity in the context of contract law.
Preliminarily, we reiterate that this Court, while aware of its equity
jurisdiction, is first and foremost, a court of law. While equity might tilt on
the side of one party, the same cannot be enforced so as to overrule
positive provisions of law in favor of the other.18 Thus, before we can pass
upon the propriety of an application of equitable principles in the case at
bar, we must first determine whether or not positive provisions of law
govern.
It is a fundamental rule that contracts, once perfected, bind both
contracting parties, and obligations arising therefrom have the force of
law between the parties and should be complied with in good
faith.19 However, it must be understood that contracts are not
the only source of law that govern the rights and obligations between the
parties. More specifically, no contractual stipulation may contradict law,
morals, good customs, public order or public policy.20 Verily, the
mere inexistence of a contract, which would ordinarily serve as the law
between the parties, does not automatically authorize disposing of a
controversy based on equitable principles alone. Notwithstanding the
absence of a perfected contract between the parties, their relationship
may be governed by other existing lawswhich provide for their reciprocal
rights and obligations.
It must be remembered that contracts in which the Government is a party
are subject to the same rules of contract law which govern the validity
and sufficiency of contract between individuals. All the essential elements
and characteristics of a contract in general must be present in order to
create a binding and enforceable Government contract.21
It appearing that there is no dispute that this case involves an
unperfected contract, the Civil Law principles governing contracts should
apply. In Vda. de Urbano v. Government Service Insurance System,22 it
was ruled that a qualified acceptance constitutes a counter-offer as
expressly stated by Article 1319 of the Civil Code. In said case,
petitioners offered to redeem mortgaged property and requested for an
extension of the period of redemption. However, the offer was not
accepted by the GSIS. Instead, it made a counter-offer, which petitioners
did not accept. Petitioners again offer to pay the redemption price on
staggered basis. In deciding said case, it was held that when there is
absolutely no acceptance of an offer or if the offer is expressly rejected,
there is no meeting of the minds. Since petitioners’ offer was denied
twice by GSIS, it was held that there was clearly no meeting of the minds
and, thus, no perfected contract. All that is established was a counter-
offer.23
In the case at bar, the offer of the NHA to sell the subject property, as
embodied in Resolution No. 2126, was similarly not accepted by the
respondent.24 Thus, the alleged contract involved in this case should be
more accurately denominated as inexistent. There being no concurrence
of the offer and acceptance, it did not pass the stage of generation to the
point of perfection.25 As such, it is without force and effect from the very
beginning or from its incipiency, as if it had never been entered into, and
hence, cannot be validated either by lapse of time or ratification.26 Equity
can not give validity to a void contract,27 and this rule should apply with
equal force to inexistent contracts.
We note from the records, however, that the Church, despite knowledge
that its intended contract of sale with the NHA had not been perfected,
proceeded to introduce improvements on the disputed land. On the other
hand, the NHA knowingly granted the Church temporary use of the
subject properties and did not prevent the Church from making
improvements thereon. Thus, the Church and the NHA, who both acted
in bad faith, shall be treated as if they were both in good faith.28 In this
connection, Article 448 of the Civil Code provides:
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 and 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.
Pursuant to our ruling in Depra v. Dumlao,29 there is a need to remand
this case to the trial court, which shall conduct the appropriate
proceedings to assess the respective values of the improvements and of
the land, as well as the amounts of reasonable rentals and indemnity, fix
the terms of the lease if the parties so agree, and to determine other
matters necessary for the proper application of Article 448, in relation to
Articles 546 and 548, of the Civil Code.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The
Court of Appeals’ Decision dated February 26, 2001 and Resolution
dated November 8, 2002 are REVERSED and SET ASIDE. The Decision
of the Regional Trial Court of Quezon City-Branch 90, dated February 25,
1997, is REINSTATED. This case is REMANDED to the Regional Trial
Court of Quezon City, Branch 90, for further proceedings consistent with
Articles 448 and 546 of the Civil Code.
No costs.
SO ORDERED.
G.R. No. 211170
SPOUSES MAXIMO ESPINOZA and WINIFREDA DE
VERA, Petitioners  document with prayer for the nullification of TCT No. 37403 and, on
vs.
SPOUSES ANTONIO MAYANDOC and ERLINDA CAYABYAB
MAYANDOC, Respondents
DECISION
PERALTA, J.:
Before this Court is the Petition for Review on Certiorari under Rule 45,
dated March 21, 2014, of petitioners-spouses Maximo Espinoza and
Winifreda De Vera, that seeks to reverse and set aside the
Decision  dated September 17, 2013 and Resolution dated January 28,
1
2014, both of the Court of Appeals (CA) which, in turn, affirmed with
modifications the Decision  dated February 18, 2011 of the Regional Trial
2
Court (RTC), Branch 42, Dagupan City, in a complaint for useful
expenses under Articles 448  and 546  of the New Civil Code of the
3 4
Philippines.
The facts follow.
A parcel of land located in Dagupan City was originally owned by
Eusebio Espinoza. After the death of Eusebio, the said parcel of land was
divided among his heirs, namely: Pastora Espinoza, Domingo Espinoza
and Pablo Espinoza. Petitioner Maximo is the son of Domingo Espinoza,
who died on November 3, 1965, and Agapita Cayabyab, who died on
August 11, 1963.
Thereafter, on May 25, 1972, Pastora Espinoza executed a Deed of Sale
conveying her share of the same property to respondents and Leopoldo
Espinoza. However, on that same date, a fictitious deed of sale was
executed by petitioner Maximo's father, Domingo Espinoza, conveying
the three-fourth (3/4) share in the estate in favor of respondent Erlinda
Cayabyab Mayandoc's parents; thus, TCT No. 28397 was issued in the
names of the latter.
On July 9, 1977, a fictitious deed of sale was executed by Nemesio
Cayabyab, Candida Cruz, petitioners-spouses Maximo Espinoza and
Winifreda De Vera and Leopoldo Espinoza over the land in favor of
respondents- spouses Antonio and Erlinda Mayandoc; thus, TCT No.
37403 was issued under the names of the latter.
As a result of the foregoing, petitioners filed an action for annulment of
August 16, 1999, the RTC, Branch 40, Dagupan City rendered a Decision
in favor of petitioners and ordering respondents to reconvey the land in
dispute and to pay attorney's fees and the cost of the suit.
Respondents appealed, but the CA, in its Decision dated February 6,
2004, affirmed the RTC with modifications that the award of attorney's
fees and litigation expenses be deleted for lack of factual basis. The said
CA Decision became final and executory on March 8, 2004.
Thus, respondents filed a complaint for reimbursement for useful
expenses, pursuant to Articles 448 and 546 of the New Civil Code,
alleging that the house in question was built on the disputed land in good
faith sometime in 1995 and was finished in 1996. According to
respondents, they then believed themselves to be the owners of the land
with a claim of title thereto and were never prevented by the petitioners in
constructing the house. They added that the new house was built after
the old house belonging to respondent Erlinda Mayandoc's father was
torn down due to termite infestation and would not have reconstructed
the said house had they been aware of the defect in their title. As such,
they claimed that they are entitled to reimbursement of the construction
cost of the house in the amount of ₱800,000.00. They further asserted
that at the time that their house was constructed, they were possessors
in good faith, having lived over the land in question for many years and
that petitioners questioned their ownership and possession only in 1997
when a complaint for nullity of documents was filed by the latter.
Petitioners, in their Answer, argued that respondents can never be
considered as builders in good faith because the latter were aware that
the deeds of sale over the land in question were fictitious and, therefore,
null and void; thus, as builders in bad faith, they lose whatever has been
built over the land without right to indemnity.
Respondents, on January 5, 2011, manifested their option to buy the land
where the house stood, but petitioners expressed that they were not
interested to sell the land or to buy the house in question.
The RTC, on February 18, 2011, rendered its Decision with the following
dispositive portion:
WHEREFORE, judgment is hereby rendered requiring the defendants to
sell the land, where the plaintiffs' house stands, to the latter at a
reasonable price based on the zonal value determined by the Bureau of
Internal Revenue (BIR).
SO ORDERED. 5 and executory on March 8, 2004. They also argue that respondents had
Petitioners appealed to the CA, but the latter, in its Decision dated
September 17, 2013, affirmed the decision of the RTC with modifications.
The dispositive portion of the Decision reads:
WHEREFORE, the Decision dated February 18, 2011 by the Regional
Trial Court, Branch 42 of Dagupan City, in Civil Case No. 2005- 0271-D
is hereby AFFIRMED with MODIFICATIONS.
Let the case be REMANDED to the aforementioned trial court for further
proceedings consistent with the proper application of Articles 448, 546
and 548 of the New Civil Code and to render a complete judgment of the
case.
SO ORDERED. 6
The motion for reconsideration of petitioners were subsequently denied
by the CA in its Resolution dated January 28, 2014.
Hence, the present petition.
Petitioners raise the following issues:
I.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN
RULING THAT THE PETITIONERS WERE NOT ABLE TO PROVE BAD
FAITH ON THE PART OF THE RESPONDENTS.
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED
IN RULING THAT RES JUDJCATA DOES NOT APPLY IN THE INST
ANT CASE.
According to petitioners, whether or not respondents were in bad faith in
introducing improvements on the subject land is already moot, since the
judgment rendered by the RTC of Dagupan City, Branch 40 and affirmed
by the CA, that declared the two Deeds of Definite/ Absolute Sale dated
May 25, 1972 and July 9, 1977 as null and void, had long become final
not successfully shown any right to introduce improvements on the said
land as their claim of laches and acquisitive prescription have been
rejected by the CA on appeal; thus, it follows that the respondents were
builders in bad faith because knowing that the land did not belong to
them and that they had no right to build thereon, they still caused the
house to be erected. They further insist that respondents are deemed
builders in bad faith because their house has been built and
reconstructed into a bigger one after respondent Erlinda's parents forged
a fictitious sale. Finally, they claim that the principle of res judicata in the
mode of "conclusiveness of judgment" applies in this case.
The petition lacks merit.
The findings of facts of the Court of Appeals are conclusive and binding
on this Court  and they carry even more weight when the said court
7 defendants lot owners the option to acquire the conjugal house after
affirms the factual findings of the trial court.  Stated differently, the
8 payment of the proper indemnity or to oblige the builder plaintiffs to pay
findings of the Court of Appeals, by itself, which are supported by
substantial evidence, are almost beyond the power of review by this
Court.  Although this rule is subject to certain exceptions, this Court finds
9 where the accessory (house) follows the principal. x x x. 11
none that is applicable in this case. Nevertheless, the petition still fails
granting that an exception obtains.
To be deemed a builder in good faith, it is essential that a person asserts
title to the land on which he builds, i.e., that he be a possessor in the
concept of owner, and that he be unaware that there exists in his title or
mode of acquisition any flaw which invalidates it.  The RTC, as affirmed
10
by the CA, found respondents to be builders in good faith, thus:
The plaintiffs are builders in good faith. As asserted by plaintiffs and not
rebutted by defendants, the house of plaintiffs was built on the lot owned
by defendants in 1995. The complaint for nullity of documents and
reconveyance was filed in 1997, about two years after the subject
conjugal house was constructed. Defendants-spouses believed that at
the time when they constructed their house on the lot of defendants, they
have a claim of title. Art. 526, New Civil Code, states that a possessor in
good faith is one who has no knowledge of any flaw or defect in his title
or mode of acquisition. This determines whether the builder acted in good
faith or not. Surely, plaintiffs would not have constructed the subject
house which plaintiffs claim to have cost them ₱800,000.00 to build if
they knew that there is a flaw in their claim of title. Nonetheless, Art. 527,
New Civil Code, states clearly that good faith is always presumed, and
upon him who alleges bad faith on the part of the possessor lies the
burden of proof. The records do not show that the burden of proof was
successfully discharged by the defendants.
xxxx
Plaintiffs are in good faith in building their conjugal house in 1995 on the
lot they believed to be their own by purchase. They also have in their
favor the legal presumption of good faith. It is the defendants who had
the burden to prove otherwise. They failed to discharge such burden until
the Regional Trial Court, Br. 40, Dagupan City, promulgated an adverse
ruling in Civil Case No. 97-0187-D. Thus, Art. 448 comes in to protect the
plaintiffs-owners of their improvement without causing injustice to the lot
owner. Art. 448 comes in to protect the plaintiff-owners of their
improvement without causing injustice to the lot owner. Art. 448 provided
a just resolution of the resulting "forced-ownership" by giving the
for the lot. It is the defendants-lot owners who are authorized to exercise
the option as their right is older, and under the principle of accession
The settled rule is bad faith should be established by clear and
convincing evidence since the law always presumes good faith.  In this
12
particular case, petitioners were not able to prove that respondents were
in bad faith in constructing the house on the subject land. Bad faith does
not simply connote bad judgment or negligence.  It imports a dishonest
13
purpose or some moral obliquity and conscious doing of a wrong.  It 14
means breach of a known duty through some motive, interest or ill will
that partakes of the nature of fraud.  For anyone who claims that
15
someone is in bad faith, the former has the duty to prove such. Hence,
petitioners err in their argument that respondents failed to prove that they
are builders in good faith in spite of the findings of the RTC and the CA
that they are.
As such, Article 448  of the Civil Code must be applied. It applies when
16
the builder believes that he is the owner of the land or that by some title
he has the right to build thereon,  or that, at least, he has a claim of title
17
thereto.  In Tuatzs v. Spouses Escol, et al.,  this Court ruled that the
18 19
seller (the owner of the land) has two options under Article 448: (1) he
may appropriate the improvements for himself after reimbursing the
buyer (the builder in good faith) the necessary and useful expenses
under Articles 546  and 548  of the Civil Code; or (2) he may sell the land
20 21
to the buyer, unless its value is considerably more than that of the
improvements, in which case, the buyer shall pay reasonable rent, thus:
The rule that the choice under Article 448 of the Civil Code belongs to the
owner of the land is in accord with the principle of accession, i.e., that the
accessory follows the principal and not the other way around. Even as
the option lies with the landowner, the grant to him, nevertheless, is
preclusive. The landowner cannot refuse to exercise either option and
compel instead the owner of the building to remove it from the land.
The raison d'etre for this provision has been enunciated thus: Where the
builder, planter or sower has acted in good faith, a conflict of rights arises
between the owners, and it becomes necessary to protect the owner of
the improvements without causing injustice to the owner of the land. In
view of the impracticability of creating a state of forced co-ownership, the
law has provided a just solution by giving the owner of the land the option
to acquire the improvements after payment of the proper indemnity, or to
oblige the builder or planter to pay for the land and the sower the proper
rent. He cannot refuse to exercise either option. It is the owner of the land
who is authorized to exercise the option, because his right is older, and
because, by the principle of accession, he is entitled to the ownership of
the accessory thing. 22
The CA, therefore, did not err in its ruling that instead of requiring the
petitioners to sell the land, the R TC must determine the option which the
petitioners would choose.  As aptly ruled by the CA:
1âwphi1
The rule that the right of choice belongs to the owner of the land is in
accordance with the principle of accession. However, even if this right of
choice is exclusive to the land owner, he cannot refuse to exercise either
option and demand, instead for the removal of the building.
Instead of requiring defendants-appellants to sell the land, the court a
quo must determine the option which they would choose. The first option
to appropriate the building upon payment of indemnity or the second
option, to sell the land to the plaintiffs-appellees. Moreover, the court a
quo should also ascertain: (a) under the first option, the amount of
indemnification for the building; or (b) under the second option, the value
of the subject property vis-a-vis that of the building, and depending
thereon, the price of, or the reasonable rent for, the subject prope1iy.
Hence, following the ruling in the recent case of Briones v.
Macabagdal, this case must be remanded to the court a quo for the
conduct of further proceedings to assess the current fair market of the
land and to determine other matters necessary for the proper application
of Article 448, in relation to Articles 546 and 548 of the New Civil Code. 23
Therefore, this Court agrees with the CA that there is a need to remand
the case to the RTC for further proceedings, specifically, in assessing the
current fair market value of the subject land and other matters that are
appropriate in the application of Article 448, in relation to Articles 546 and
548 of the New Civil Code.
As to the issue of res judicata, the CA is correct in its ruling that there is
no identity of subject matter and cause of action between the prior case
of annulment of document and the present case, thus:
In the instant case, res judicata will not apply since there is no identity of
subject matter and cause of action. The first case is for annulment of
document, while the instant case is for reimbursement of useful expenses
as builders in good faith under article 448 in relation to Articles 546 and
548 of the New Civil Code.
Moreover, We are not changing or reversing any findings of the RTC and
by this Court in Our 6 February 2004 decision. The Court is still bound by
this judgment insofar as it found the Deeds of Absolute Sale null and
void, and that defendants-appellants are the rightful owners of the lot in
question.
However, if the court a quo did not take cognizance of the instant case,
plaintiffs-appellees shall lose ownership of the building worth
Php316,400.00 without any compensation. While, the defendant-
appellants not only will recover the land but will also acquire a house
without payment of indemnity. The fairness of the rules enunciated in
Article 448 is explained by the Supreme Court in the case of Depra v.
Dumlao, viz.:
Where the builder, planter or sower has acted in good faith, a conflict of
rights arises between the owners, and it becomes necessary to protect
the owner of the improvements without causing injustice to the owner of
the land. In view of the impracticability of creating a state of forced
ownership, the law has provided a just solution by giving the owner of the
land the option to acquire the improvements after payment of the proper
indemnity, or to oblige the builder or planter to pay for the land and the
sower to pay the proper rent. It is the owner of the land who is authorized
to exercise the option, because his right is older, and because, by the
principle of accession, he is entitled to the ownership of the accessory
thing.
Finally, "the decision of the court a quo should not be viewed as a
denigration of the doctrine of immutability of final judgments, but a
recognition of the equally sacrosanct doctrine that a person should not be
allowed Io profit or enrich himself inequitably at anal her's expense." 24
The well-settled rule is that the principle or rule of res judicata is primarily
one of public policy. It is based on the policy against multiplicity of
suits,  whose primary objective is to avoid unduly burdening the dockets
26
of the courts. In this case, however, such principle is inapplicable.
27
WHEREFORE, the Petition for Review on Certiorari under Rule 45, dated
March 21, 2014, of petitioners-spouses Maximo Espinoza and Winifreda
De Vera, is DENIED. Consequently, the Decision dated September 17,
2013 and Resolution dated January 28, 2014, both of the Court of
Appeals are AFFIRMED.

SO ORDERED.