Case Brief: Cheng vs Donini

Serafin Cheng

vs

Spouses Vittorio and Ma. Helen Donini

GR 167017   June 22, 2009

Facts:

In an oral lease agreement, Cheng agreed to lease his property to Donini, who intended to put up a restaurant thereon. Donini then proceeded to introduce improvements in the premises.

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. Cheng wrote to Donini, demanding payment of the deposit and rentals, and signifying that he had no intention to continue with the agreement should Donini fail to pay. Donini ignored the demand, and continued to occupy the premises, until in April 17, 1991, when their caretaker voluntarily surrendered the property to the petitioner.

Note that 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 5) The award of damages in favor of petitioenr had no basis in fact and law.

SC declared that because there was never an absence of law or judicial rules of procedure, petitioner cannot invoke the concept of equity.

 

Issue:

Rule on the right of Cheng and Donini as to the improvements, the right to be reimbursed for the expenses, and the right to retain the property.

 

Held:

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.”

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.

But respondents cannot be considered possessors or builders in good faith. As early as 1956, in Lopez v. Philippine & Eastern Trading Co., Inc., the Court clarified that a lessee is neither a builder nor a possessor in good faith. “This principle of possessor in good faith naturally cannot apply to a lessee because as such lessee he knows that he is not the owner of the leased property. Neither can he deny the ownership or title of his lessor. Knowing that his occupation of the premises continues only during the life of the lease contract and that he must vacate the property upon termination of the lease or upon the violation by him of any of its terms, he introduces improvements on said property at his own risk in the sense that he cannot recover their value from the lessor, much less retain the premises until such reimbursement.”

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 at the end of the lease. If the lessor refuses to make the reimbursement, the subsidiary right of the lessee to remove the improvements, even though the principal thing suffers damage, arises. Consequently, on petitioner rests the primary option to pay for one-half of the value of the useful improvements. It is only when petitioner as lessor refuses to make the reimbursement that respondents, as lessees, may remove the improvements. Should petitioner 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 insist on their subsidiary right to remove the improvements even though the principal thing suffers damage but without causing any more impairment on the property leased than is necessary.

As regards the ornamental expenses, respondents are not entitled to 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 of the lease.

The fact that petitioner will benefit from the improvements introduced by 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 well as a business strategy. In fact, had respondents only complied with their obligation to pay the deposit/rent, there would have been no dispute to begin with. If they were able to shell out more than a million pesos to improve the property, the measly P34,000 deposit demanded by petitioner was a mere drop in the bucket, so to speak. More importantly, the unequivocal terms of Article 1678 of the Civil Code should be the foremost consideration.

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Case Brief: Dream Village vs Bases Development Authority; WHO OWNS FORT BONIFACIO IN TAGUIG?

This case is lengthy and heavily fact-based.  The author had a hard time distinguishing which information should be removed as most of them looked very important in the discussion of the factual backdrop in relation to the arguments of the parties.  Nonetheless, the case tackles the origin of Fort Bonifacio, Taguig, so he found it to be quite engaging.

 

G.R. No. 192896               July 24, 2013

DREAM VILLAGE NEIGHBORHOOD ASSOCIATION, INC., represented by its Incumbent President, GREG SERIEGO, Petitioner,

vs.

BASES DEVELOPMENT AUTHORITY, Respondent.

Facts:

Dream Village claims to represent more than 2000 families who have been occupying a 78,466-square meter lot in Western Bicutan, Taguig City since 1985 “in the concept of owners continuously, exclusively, and notoriously.”

The lot used to be part of Hacienda de Maricaban, owned by Dolores Casal y Ochoa and registered under OCT 291. Following the purchase of Maricaban by the government of USA, it was converted into the military reservation known as Fort William Mckinley. TCT 192 was issued in the name of USA to cancel OCT 291. USA later transferred 30 has. of Maricaban to Manila Railroad Company, for which TCT 192 was cancelled by TCT 1218 and 1219, the first in the name of Manila Railroad Company, and the second in the name of USA.

TCT 1219 was cancelled and replaced by TCT 1688, and was then replaced by TCT 2288, both in the name of USA. USA formally ceded Fort William Mckinley to the Republic of the Philippines, and it was documented by cancelling TCT 2288 and replacing it with TCT 61524. Pres. Garcia issued Proclamation No. 423, withdrawing from sale or settlement the tracts of land within Fort William Mckinley, now renamed Fort Bonifacio, and reserving them for military purposes.

Pres. Marcos issued Proclamation No. 2476, declaring portions of Fort Bonifacio alienable and disposable, thus allowing the sale to the settlers of home lots in Upper Bicutan, Lower Bicutan, Signal Village, and Western Bicutan.

Pres. C. Aquino issued Proclamation 172, amending Proclamation 2476, by limiting to Lots 1 and 2 in Western Bicutan as open for disposition.

RA 7227 was passed, creating the Bases Conversion and Development Authority (BCDA) to oversee and accelerate the conversion of Clark and Subic military reservations and their extension camps (John Hay Station, Wallace Air Station, O’Donnell Transmitter Station, San Miguel Naval Communications Station and Capas Relay Station) to productive civilian uses. Section 820 of the said law provides that the capital of the BCDA will be provided from sales proceeds or transfers of lots in nine (9) military camps in Metro Manila, including 723 has. of Fort Bonifacio. The law, thus, expressly authorized the President of the Philippines “to sell the above lands, in whole or in part, which are hereby declared alienable and disposable pursuant to the provisions of existing laws and regulations governing sales of government properties,” specifically to raise capital for the BCDA. Titles to the camps were transferred to the BCDA for this purpose,22 and TCT No. 61524 was cancelled on January 3, 1995 by TCT Nos. 23888, 23887, 23886, 22460, 23889, 23890, and 23891, now in the name of the BCDA.23

Excepted from disposition by the BCDA are: a) approximately 148.80 has. reserved for the National Capital Region (NCR) Security Brigade, Philippine Army officers’ housing area, and Philippine National Police jails and support services (presently known as Camp Bagong Diwa); b) approximately 99.91 has. in Villamor Air Base for the Presidential Airlift Wing, one squadron of helicopters for the NCR and respective security units; c) twenty one (21) areas segregated by various presidential proclamations; and d) a proposed 30.15 has. as relocation site for families to be affected by the construction of Circumferential Road 5 and Radial Road 4, provided that the boundaries and technical description of these exempt areas shall be determined by an actual ground survey.

Now charging the BCDA of wrongfully asserting title to Dream Village and unlawfully subjecting its members to summary demolition, resulting in unrest and tensions among the residents, on November 22, 1999, the latter filed a letter-complaint with the COSLAP to seek its assistance in the verification survey of the subject 78,466-sq m property, which they claimed is within Lot 1 of Swo-13-000298 and thus is covered by Proclamation No. 172. They claim that they have been occupying the area for thirty (30) years “in the concept of owners continuously, exclusively and notoriously for several years,” and have built their houses of sturdy materials thereon and introduced paved roads, drainage and recreational and religious facilities. Dream Village, thus, asserts that the lot is not among those transferred to the BCDA under R.A. No. 7227, and therefore patent applications by the occupants should be processed by the Land Management Bureau (LMB).

On August 15, 2000, Dream Village formalized its complaint by filing an Amended Petition in the COSLAP. Among the reliefs it sought were:

  1. DECLARING the subject property as alienable and disposable by virtue of applicable laws;
  2. Declaring the portion of Lot 1 of subdivision Plan SWO-13-000298, situated in the barrio of Western Bicutan, Taguig, Metro Manila, which is presently being occupied by herein petitioner as within the coverage of Proclamation Nos. 2476 and 172 and outside the claim of AFP-RSBS INDUSTRIAL PARK COMPLEX and/or BASES CONVESION DEVELOPMENT AUTHORITY.
  3. ORDERING the Land Management Bureau to process the application of the ASSOCIATION members for the purchase of their respective lots under the provisions of Acts Nos. 274 and 730.

Respondent BCDA in its Answer dated November 23, 2000 questioned the jurisdiction of the COSLAP to hear Dream Village’s complaint, while asserting its title to the subject property pursuant to R.A. No. 7227. It argued that under Executive Order (E.O.) No. 561 which created the COSLAP, its task is merely to coordinate the various government offices and agencies involved in the settlement of land problems or disputes, adding that BCDA does not fall in the enumeration in Section 3 of E.O. No. 561, it being neither a pastureland-lease holder, a timber concessionaire, or a government reservation grantee, but the holder of patrimonial government property which cannot be the subject of a petition for classification, release or subdivision by the occupants of Dream Village.

In its Resolution dated April 28, 2004, the COSLAP narrated that it called a mediation conference on March 22, 2001, during which the parties agreed to have a relocation/verification survey conducted of the subject lot. On April 4, 2001, the COSLAP wrote to the Department of Environment and Natural Resources (DENR)-Community Environment and Natural Resources Office-NCR requesting the survey, which would also include Swo-00-0001302, covering the adjacent AFP-RSBS Industrial Park established by Proclamation No. 1218 on May 8, 1998 as well as the abandoned Circumferential Road 5 (C-5 Road).

On April 1, 2004, the COSLAP received the final report of the verification survey and a blueprint copy of the survey plan from Atty. Rizaldy Barcelo, Regional Technical Director for Lands of DENR. Specifically, Item No. 3 of the DENR report states:

  1. Lot-1, Swo-000298 is inside Proclamation 172. Dream Village Neighborhood Association, Inc. is outside Lot-1, Swo-13-000298 and inside Lot-10, 11 & Portion of Lot 13, Swo-00-0001302 with an actual area of 78,466 square meters. Likewise, the area actually is outside Swo-00-0001302 of BCDA.

COSLAP (Commission on the Settlement of Land Problems) Ruling: On the basis of the DENR’s verification survey report, the COSLAP resolved that Dream Village lies outside of BCDA, and particularly, outside of Swo-00-0001302, and thus directed the LMB of the DENR to process the applications of Dream Village’s members for sales patent, noting that in view of the length of time that they “have been openly, continuously and notoriously occupying the subject property in the concept of an owner, x x x they are qualified to apply for sales patent on their respective occupied lots pursuant to R.A. Nos. 274 and 730 in relation to the provisions of the Public Land Act.”

In its Motion for Reconsideration filed on May 20, 2004, the BCDA questioned the validity of the survey results since it was conducted without its representatives present, at the same time denying that it received a notification of the DENR verification survey. It maintained that there is no basis for the COSLAP’s finding that the members of Dream Village were in open, continuous, and adverse possession in the concept of owner, because not only is the property not among those declared alienable and disposable, but it is a titled patrimonial property of the State. COSLAP denied BCDA’s motion for reconsideration.

CA Ruling: The BCDA argued that the dispute is outside the jurisdiction of the COSLAP because of the land’s history of private ownership and because it is registered under an indefeasible Torrens title; that Proclamation No. 172 covers only Lots 1 and 2 of Swo-13-000298 in Western Bicutan, whereas Dream Village occupies Lots 10, 11 and part of 13 of Swo-00-0001302, which also belongs to the BCDA; that the COSLAP resolution is based on an erroneous DENR report stating that Dream Village is outside of BCDA, because Lots 10, 11, and portion of Lot 13 of Swo-00-0001302 are within the DA; that the COSLAP was not justified in ignoring BCDA’s request to postpone the survey to the succeeding year because the presence of its representatives in such an important verification survey was indispensable for the impartiality of the survey aimed at resolving a highly volatile situation; that the COSLAP is a mere coordinating administrative agency with limited jurisdiction; and, that the present case is not among those enumerated in Section 3 of E.O. No. 56145.

The COSLAP, on the other hand, maintained that Section 3(2)(e) of E.O. No. 561 provides that it may assume jurisdiction and resolve land problems or disputes in “other similar land problems of grave urgency and magnitude,” and the present case is one such problem.

The CA in its Decision dated September 10, 2009 ruled that the COSLAP has no jurisdiction over the complaint because the question of whether Dream Village is within the areas declared as available for disposition in Proclamation No. 172 is beyond its competence to determine, even as the land in dispute has been under a private title since 1906, and presently its title is held by a government agency, the BCDA, in contrast to the case of Bañaga relied upon by Dream Village, where the disputed land was part of the public domain and the disputants were applicants for sales patent thereto.

 

Issue:

Whether or not Dream Village holds title to lots in Fort Bonifacio.

Held:

No.  SC found no merit in Dream Village’s petition. In fact, it is the BCDA that holds title to Fort Bonifacio.

That the BCDA has title to Fort Bonifacio has long been decided with finality. In Samahan ng Masang Pilipino sa Makati, Inc. v. BCDA, it was categorically ruled as follows: “First, it is unequivocal that the Philippine Government, and now the BCDA, has title and ownership over Fort Bonifacio. xxx”

The facts in Samahan ng Masang Pilipino sa Makati are essentially not much different from the controversy below. There, 20,000 families were long-time residents occupying 98 has. of Fort Bonifacio in Makati City, who vainly sought to avert their eviction and the demolition of their houses by the BCDA upon a claim that the land was owned by the USA under TCT No. 2288. The Supreme Court found that TCT No. 2288 had in fact been cancelled by TCT No. 61524 in the name of the Republic, which title was in turn cancelled on January 3, 1995 by TCT Nos. 23888, 23887, 23886, 22460, 23889, 23890, and 23891, all in the name of the BCDA. The Court ruled that the BCDA’s aforesaid titles over Fort Bonifacio are valid, indefeasible and beyond question, since TCT No. 61524 was cancelled in favor of BCDA pursuant to an explicit authority under R.A. No. 7227, the legal basis for BCDA’s takeover and management of the subject lots.

Dream Village sits on the abandoned C-5 Road, which lies outside the area declared in Proclamation Nos. 2476 and 172 as alienable and disposable. xxx However, the survey plan for Western Bicutan, Swo-13-000298, shows that Lots 3, 4, 5 and 6 thereof are inside the area segregated for the Libingan ng mga Bayani under Proclamation No. 208, which then leaves only Lots 1 and 2 of Swo-13-000298 as available for disposition. For this reason, it was necessary to amend Proclamation No. 2476. Thus, in Proclamation No. 172 only Lots 1 and 2 of Swo-13-000298 are declared alienable and disposable.

The DENR verification survey report states that Dream Village is not situated in Lot 1 of Swo-13-000298 but actually occupies Lots 10, 11 and part of 13 of Swo-00-0001302. xxx The area is actually outside SWO-00-0001302 of BCDA.” Inexplicably and gratuitously, the DENR also states that the area is outside of BCDA, completely oblivious that the BCDA holds title over the entire Fort Bonifacio, even as the BCDA asserts that Lots 10, 11 and 13 of SWO-00-0001302 are part of the abandoned right-of-way of C-5 Road. This area is described as lying north of Lot 1 of Swo-13-000298 and of Lots 3, 4, 5 and 6 of Swo-13-000298 (Western Bicutan) inside the Libingan ng mga Bayani, and the boundary line of Lot 1 mentioned as C-5 Road is really the proposed alignment of C-5 Road, which was abandoned when, as constructed, it was made to traverse northward into the Libingan ng mga Bayani. Dream Village has not disputed this assertion.

The mere fact that the original plan for C-5 Road to cross Swo-00-0001302 was abandoned by deviating it northward to traverse the southern part of Libingan ng mga Bayani does not signify abandonment by the government of the bypassed lots, nor that these lots would then become alienable and disposable. They remain under the title of the BCDA, even as it is significant that under Section 8(d) of R.A. No. 7227, a relocation site of 30.5 has. was to be reserved for families affected by the construction of C-5 Road. It is nowhere claimed that Lots 10, 11 and 13 of Swo-00-0001302 are part of the said relocation site. These lots border C-5 Road in the south, making them commercially valuable to BCDA, a farther argument against a claim that the government has abandoned them to Dream Village.

While property of the State or any of its subdivisions patrimonial in character may be the object of prescription, those “intended for some public service or for the development of the national wealth” are considered property of public dominion and therefore not susceptible to acquisition by prescription.

Article 1113 of the Civil Code provides that “property of the State or any of its subdivisions not patrimonial in character shall not be the object of prescription.” Articles 420 and 421 identify what is property of public dominion and what is patrimonial property:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.

Art. 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial property.

 

Issue 2:

Whether the area occupied by Dream Village is susceptible of acquisition by prescription.

Held 2:

No.  The area is not susceptible of acquisition by prescription.

In Heirs of Mario Malabanan v. Republic, it was pointed out that from the moment R.A. No. 7227 was enacted, the subject military lands in Metro Manila became alienable and disposable. However, it was also clarified that the said lands did not thereby become patrimonial, since the BCDA law makes the express reservation that they are to be sold in order to raise funds for the conversion of the former American bases in Clark and Subic. The Court noted that the purpose of the law can be tied to either “public service” or “the development of national wealth” under Article 420(2) of the Civil Code, such that the lands remain property of the public dominion, albeit their status is now alienable and disposable. The Court then explained that it is only upon their sale to a private person or entity as authorized by the BCDA law that they become private property and cease to be property of the public dominion:

For as long as the property belongs to the State, although already classified as alienable or disposable, it remains property of the public dominion if when it is “intended for some public service or for the development of the national wealth.”

Thus, under Article 422 of the Civil Code, public domain lands become patrimonial property only if there is a declaration that these are alienable or disposable, together with an express government manifestation that the property is already patrimonial or no longer retained for public service or the development of national wealth. Only when the property has become patrimonial can the prescriptive period for the acquisition of property of the public dominion begin to run. Also under Section 14(2) of Presidential Decree (P.D.) No. 1529, it is provided that before acquisitive prescription can commence, the property sought to be registered must not only be classified as alienable and disposable, it must also be expressly declared by the State that it is no longer intended for public service or the development of the national wealth, or that the property has been converted into patrimonial. Absent such an express declaration by the State, the land remains to be property of public dominion.

Since the issuance of Proclamation No. 423 in 1957, vast portions of the former Maricaban have been legally disposed to settlers, besides those segregated for public or government use. Proclamation No. 1217 (1973) established the Maharlika Village in Bicutan, Taguig to serve the needs of resident Muslims of Metro Manila; Proclamation No. 2476 (1986), as amended by Proclamation No. 172 (1987), declared more than 400 has. of Maricaban in Upper and Lower Bicutan, Signal Village, and Western Bicutan as alienable and disposable; Proclamation No. 518 (1990) formally exempted from Proclamation No. 423 the Barangays of Cembo, South Cembo, West Rembo, East Rembo, Comembo, Pembo and Pitogo, comprising 314 has., and declared them open for disposition.

The above proclamations notwithstanding, Fort Bonifacio remains property of public dominion of the State, because although declared alienable and disposable, it is reserved for some public service or for the development of the national wealth, in this case, for the conversion of military reservations in the country to productive civilian uses. Needless to say, the acquisitive prescription asserted by Dream Village has not even begun to run.

Ownership of a land registered under a Torrens title cannot be lost by prescription or adverse possession.  It is a settled rule that lands under a Torrens title cannot be acquired by prescription or adverse possession. Section 47 of P.D. No. 1529, the Property Registration Decree, expressly provides that no title to registered land in derogation of the title of the registered owner shall be acquired by prescription or adverse possession. And, although the registered landowner may still lose his right to recover the possession of his registered property by reason of laches, nowhere has Dream Village alleged or proved laches, which has been defined as such neglect or omission to assert a right, taken in conjunction with lapse of time and other circumstances causing prejudice to an adverse party, as will operate as a bar in equity. Put any way, it is a delay in the assertion of a right which works disadvantage to another because of the inequity founded on some change in the condition or relations of the property or parties. It is based on public policy which, for the peace of society, ordains that relief will be denied to a stale demand which otherwise could be a valid claim.

 

Issue 3: 

Whether or not COSLAP has jurisdiction over the case.

Held 3:

No.  The subject property having been expressly reserved for a specific public purpose, the COSLAP cannot exercise jurisdiction over the complaint of the Dream Village settlers.

In fine, it is apparent that the COSLAP acted outside its jurisdiction in taking cognizance of the case. It would have been more prudent if the COSLAP has [sic] just referred the controversy to the proper forum in order to fully thresh out the ramifications of the dispute at bar. As it is, the impugned Resolution is a patent nullity since the tribunal which rendered it lacks jurisdiction. Thus, the pronouncements contained therein are void.

SC added that Fort Bonifacio has been reserved for a declared specific public purpose under R.A. No. 7227, which unfortunately for Dream Village does not encompass the present demands of its members. Indeed, this purpose was the very reason why title to Fort Bonifacio has been transferred to the BCDA, and it is this very purpose which takes the dispute out of the direct jurisdiction of the COSLAP. A review of the history of the COSLAP will readily clarify that its jurisdiction is limited to disputes over public lands not reserved or declared for a public use or purpose.

Administrative agencies, like the COSLAP, are tribunals of limited jurisdiction and, as such, could wield only such as are specifically granted to them by the enabling statutes.

Under the law, E.O. No. 561, the COSLAP has two options in acting on a land dispute or problem lodged before it, namely, (a) refer the matter to the agency having appropriate jurisdiction for settlement/resolution; or (b) assume jurisdiction if the matter is one of those enumerated in paragraph 2(a) to (e) of the law, if such case is critical and explosive in nature, taking into account the large number of the parties involved, the presence or emergence of social tension or unrest, or other similar critical situations requiring immediate action. In resolving whether to assume jurisdiction over a case or to refer the same to the particular agency concerned, the COSLAP has to consider the nature or classification of the land involved, the parties to the case, the nature of the questions raised, and the need for immediate and urgent action thereon to prevent injuries to persons and damage or destruction to property. The law does not vest jurisdiction on the COSLAP over any land dispute or problem.

 

Civil Law: Accession – Builder/Planter/Sower

frompexelIn the Civil Code provisions governing property law, one chapter discusses Accession (Article 440, onwards).  In a nutshell, the owner of the property has the right of accession (right to fruits) to everything produced by the property itself, or those which are incorporated and attached thereto, either naturally or artificially.

The chapter on Accession contains the provision on Builder/Planter/Sower, to wit:

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

Such provision, including the meaty jurisprudence centering on such concept (e.g. Cheng vs. Donini), can be summarised as follows:

Case A:  If both the owner and the builder/planter/sower (hereinafter referred to as “BPS”) are in good faith:  There is no co-ownership.  The owner owns the property (e.g. land), and the BPS owns that which he built or planted (e.g. building).  However, the owner has the following remedies:

  • To appropriate that which was built or planted (e.g. building) as his own, after paying the BPS the amount of indemnity (i.e. expenses) in Articles 546 and 548; or
  • To compel the BPS to pay the price of the land (if B or P), or the rent (if S).

It is very important to note that it is the owner who makes the determination or choice.  If he does not make the decision, the parties remain status quo — BPS remains the owner of that which was built/planted/sowed.  Moreover, the BPS remains the possessor in good faith, and as a possessor in good faith, he has the right to fruits of the property (e.g. rentals in the building).  This is so because of Article 544 of the Civil Code, to wit:

Art. 544. A possessor in good faith is entitled to the fruits received before the possession is legally interrupted.
Natural and industrial fruits are considered received from the time they are gathered or severed.
Civil fruits are deemed to accrue daily and belong to the possessor in good faith in that proportion.

BPS also has the right of retention over that which was built/planted/sowed, and such right remains until the owner reimburses him for the amount of expenses mentioned in Articles 546 and 548, to wit:

Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof. (453a)

Art. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good faith; but he may remove the ornaments with which he has embellished the principal thing if it suffers no injury thereby, and if his successor in the possession does not prefer to refund the amount expended. (454)

A BPS in good faith is someone who possesses the property, believing the property to be his under some mode or title of acquisition.  See Article 712 for the modes of acquiring ownership.

Hence, if a person knows that he is not the owner, he cannot be considered as a BPS in good faith.  This is why a lessee can never be a BPS in good faith.  It bears noting that there are Supreme Court decisions which gave exception to this rule, such as:  a) a mother-in-law tells the spouses to build on her own property; b) an alleged landowner tells the BPS that he owns the land and that the BPS can build on it, when in fact, the land is not his; or, c) tolerance of the landowner to the acts of BPS.

The general remedy for the landowner to avoid the provision of Article 548 is for him to execute an agreement with the BPS not to build on the property.  In this case, the contractual provisions will apply; and the absent of which makes the Civil Code provisions on lease applicable, such as:

Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at 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. (n)

Case B:  If the owner is in bad faith, and the BPS is in good faith:  Apply Article 447.

Art. 454. When the landowner acted in bad faith and the builder, planter or sower proceeded in good faith, the provisions of article 447 shall apply.

Art. 447. The owner of the land who makes thereon, personally or through another, plantings, constructions or works with the materials of another, shall pay their value; and, if he acted in bad faith, he shall also be obliged to the reparation of damages. The owner of the materials shall have the right to remove them only in case he can do so without injury to the work constructed, or without the plantings, constructions or works being destroyed. However, if the landowner acted in bad faith, the owner of the materials may remove them in any event, with a right to be indemnified for damages.

The general rule is that the landowner is liable to pay for the value of improvements or materials used, and that the owner of materials is entitled to reimbursement or the removal of materials if it will not cause any damage to the property.

If the landowner is in bad faith, he shall be held liable for damages, plus the owner of the materials has the right to remove the materials whether or not there will be a damage to the property.

Case C:  The owner is in good faith, and the BPS is in bad faith:  Apply the following articles:

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 the 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.

In essence, the landowner is entitled to damages, plus he may:

  • Appropriate what was built without need of indemnity to the BPS;
  • Demand the demolition of the thing built or restoration of the land at the expense of the BPS;
  • Compel the BPS to pay the land or the sower the proper rent.

Notwithstanding the bad faith on the part of BPS, he still:

  • Is entitled to reimbursement for the necessary expenses of preservation of land; and,
  • Has the right to remove to remove the materials as long as there will be no damage to the land.

Case D:  If both owner and the BPS are in bad faith:  Apply Article 453, to wit:

Art. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith.
It is understood that there is bad faith on the part of the landowner whenever the act was done with his knowledge and without opposition on his part.

This bears semblance with the in pari delicto rule.

Note:  The author appreciates any feedback or constructive criticisms.  He encourages  the readers to correct any mistake that they find in the article above to ensure the veracity and the accuracy of the information.  As the topic is a very important one in the realm of Property law, it is also important to ensure that the dissemination of such information remains correct and without any flaws.

Case Brief: Prudential Bank vs. Panis

PRUDENTIAL BANK, petitioner,
vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First Instance of Zambales and Olongapo City; FERNANDO MAGCALE & TEODULA BALUYUT-MAGCALE, respondents.
G.R. No. L-50008 August 31, 1987

Facts:
Spouses Magcale secured a loan from Prudential Bank. As security, respondent’s spouses executed a real estate mortgage, their residential building as security. Since the respondents was not able to fulfil their obligation, the security was extrajudiciaily foreclosed and was eventually sold in a public auction. Hence this case, to assail the validity of the mortgage and to recover the foreclosed land.
Issue:
Whether or not a real estate mortgage can be instituted on the building of a land belonging to another
Held:
While it is true that a mortgage of land necessarily includes in the absence of  stipulation  of  the  improvements  thereon,  buildings,  still  a  building  in itself may be mortgaged by itself apart from the land on which it is built.  Such a mortgage would still be considered as a REM for the building would still be considered as immovable property even if dealt with separately and apart from the land.  The original mortgage on the building and right to occupancy of the land was  executed  before  the  issuance  of  the  sales  patent  and  before  the government  was  divested  of  title  to  the  land.    Under  the  foregoing,  it  is evident  that  the  mortgage  executed  by  private  respondent  on  his  own building was a valid mortgage.

Case Brief: Leung Yee vs. Frank Strong

LEUNG YEE, plaintiff-appellant,
vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-appellees.
G.R. No. L-11658 February 15, 1918

Facts:
Leung Yee’s company bought cleaning equipment from the defendant machinery company. As payment, it executed a chattel mortgage in favour of the defendant on its building in which the machinery was installed. This mortgage made no reference as to the land from where the property was located. Since the plaintiff’s company, was not able to pay, the building together with the equipment attached to it was foreclosed and the respondent was able to possess the property. Hence, this action by the plaintiff to recover possession of the building.

Issue: Whether or not the building can be classified as a real property, so as to subject it to a real estate mortgage

Held:
The disputed building was considered by the court as Real property.
The mere fact that the parties seem to have dealt with it separately and apart from the land would change its character as real property. Hence, such mortgage would still be a real estate mortgage for the building that served as a security and the executed chattel mortgage and its consequences cannot be said to have any legal effect.

Case Brief: Villaflor vs. CA

VICENTE VILLAFLOR, substituted by his heirs, petitioner,
vs.
COURT OF APPEALS and NASIPIT LUMBER CO., INC., respondents.
G.R. No. 95694 October 9, 1997

Facts:

The Petitioner bought a large tract of land containing one hundred forty (140) hectares to four (4) different owners in 1940. The land was part of the public domain, but the petitioners predecessor in interest over which he acquired the property, have been in open, exclusive and notorious possession of the same for sometime. After acquisition, petitioner asserts exclusive rights thereof for more than fifty (50) years.

In 1946, petitioner entered into a lease agreement with respondent Nasipit Lumber Co.Inc. However, an “Agreement for the Relinquishment of Rights” was entered into by both parties in 1950. The respondent having complied all the requirements agreed upon, assumed ownership and possession of the property since then. Respondent corporation likewise filed a sales application in 1950 over the property to bolster his claim which the Bureau of Land otherwise granted on the same year as proof of an “Order of Award” issued.

In 1974 or twenty four (24) years had passed, when petitioner, questioned and made several collateral and extraneous claims against the respondent. However, the Bureau of Lands dismissed the claim, arguing that petitioner no longer has any substantial rights to question the validity of acquisition of the respondent and the subsequent issuance of free patent by the Bureau of Lands. Unperturbed, petitioner filed a motion for reconsideration at the Ministry of Natural Resources which likewise dismissed the petition.

On July 6, 1978, petitioner filed a complaint in the trial court for “Declaration of Nullity of Contract ( Deed of Relinquishment of Rights), Recovery of Possession (of two parcels of land subject of the contract), and Damages” at about the same time that he appealed the decision of the Minister of Natural Resources to the Office of the President. On January 28, 1983, petitioner died. Petitioner’s heir substituted in his behalf to pursue the claim. The trial court in Butuan City who initially take cognizance of the case ordered the case dismissed, on the grounds that: (1) petitioner admitted the due execution and genuineness of the contract and was estopped from proving its nullity, (2) the verbal lease agreements were unenforceable under Article 1403 (2) (e) of the Civil Code, and (3) his causes of action were barred by extinctive prescription and/or laches.

The heirs appealed to the CA which likewise rendered judgment of dismissal by upholding the lower court’s ruling.

ISSUE:

Whether or not the sale is valid.

HELD:

No. The provision of the law is specific that public lands can only be acquired in the manner provided for therein and not otherwise(Sec. 11, CA. No. 141, as amended). In his sales application, petitioner expressly admitted that said property was public land. This is formidable evidence as it amounts to an admission against interest. The records show that Villaflor had applied for the purchase of lands in question with this Office (Sales Application V-807) on 2 December 1948. There is a condition in the sales application to the effect that he recognizes that the land covered by the same is of public domain and any and all rights he may have with respect thereto by virtue of continuous occupation and cultivation are relinquished to the Government of which Villaflor is very much aware. It also appears that Villaflor had paid for the publication fees appurtenant to the sale of the land. He participated in the public auction where he was declared the successful bidder. He had fully paid the purchase price thereof. It would be a height of absurdity for Villaflor to be buying that which is owned by him if his claim of private ownership thereof is to be believed. The area in dispute is not the private property of the petitioner.

It is a basic assumption of public policy that lands of whatever classification belong to the state. Unless alienated in accordance with law, it retains its rights over the same as dominus. No public land can be acquired by private persons without any grant, express or implied from the government. It is indispensable then that there be showing of title from the state or any other mode of acquisition recognized by law. Such sales applicant manifestly acknowledged that he does not own the land and that the same is a public land under the administration of the Bureau of Lands, to which the application was submitted, all of its acts prior thereof, including its real estate tax declarations, characterized its possessions of the land as that of a “sales applicant”. And consequently, as one who expects to buy it, but has not as yet done so, and is not, therefore, its owner.

The rule on the interpretation of contracts (Article 1371) is used in affirming, not negating, their validity. Article 1373,which is a conjunct of Article 1371, provides that, if the instrument is susceptible of two or more interpretations, the interpretation which will make it valid and effectual should be adopted. In this light, it is not difficult to understand that the legal basis urged by petitioner does not support his allegation that the contracts to sell and the deed of relinquishment are simulated and fictitious. Simulation occurs when an apparent contract is a declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purpose of deception, the appearance of a juridical act which does not exist or is different from that which was really executed. Such an intention is not apparent in the agreements. The intent to sell, on the other hand, is as clear as daylight. The fact, that the agreement to sell (7 December 1948) did not absolutely transfer ownership of the land to private respondent, does not how that the agreement was simulated. Petitioner‟s delivery of the Certificate of Ownership and execution of the deed of absolute sale were suspensive conditions, which gave rise to a corresponding obligation on the part of the private respondent, i.e., the payment of the last installment of the consideration mentioned in the Agreement. Such conditions did not affect the perfection of the contract or prove simulation Nonpayment, at most, gives the vendor only the right to sue for collection. Generally, in a contract of sale, payment of the price is a resolutory condition and the remedy of the seller is to exact fulfillment or, in case of a substantial breach, to rescind the contract under Article 1191 of the Civil Code. However, failure to pay is not even a breach, but merely an event which prevents the vendor‟s obligation to convey title from acquiring binding force.

The requirements for a sales application under the Public Land Act are: (1) the possession of the qualifications required by said Act (under Section 29) and (2) the lack of the disqualifications mentioned therein (under Sections 121, 122,and 123). Section 121 of the Act pertains to acquisitions of public land by a corporation from a grantee: The private respondent, not the petitioner, was the direct grantee of the disputed land. Sections 122 and 123 disqualify corporations, which are not authorized by their charter, from acquiring public land; the records do not show that private respondent was not so authorized under its charter.

Case Brief: Tanchoco vs. Aquino

G.R. No. L-30670 September 15, 1987

PASTOR TANCHOCO, MACARIO TANCHOCO, AGRIPINA TANCHOCO, INOCENCIA TANCHOCO, LIBERATA TANCHOCO and TRINIDAD TANCHOCO, petitioners,
vs.
HON. FLORENDO P. AQUINO, as Judge of the Court of First Instance of Nueva Ecija, Branch I, VICENTA TECSON VDA. DE LAJOM, JOSE T. LAJOM, RAFAEL VIOLA and THE PROVINCIAL SHERIFF OF NUEVA ECIJA, respondents.

 

Facts:

The petitioners purchased a property subject to an existing notice of lis pendens. Respondents allege that the transfer of title should still be rendered null on the grounds of the pending case where the property is the subject matter. Petitioners on the otherhand alleged that they should still be considered as buyers in good faith and that the sale executed by them should be made valid.

 

Issue:

Whether or not respondents Aquino were buyers on good faith even if they bought a property which was a subject of pending litigation.

 

Held:

One who buys land where there is a pending notice of lis pendens cannot invoke the right of a purchaser in good faith; neither can he have acquired better rights than those of his predecessor in interest.

The said portions of land were respectively declared for taxation purposes in the names of the petitioners, and they have been paying the realty taxes due thereon to the government. The possession of the said property was delivered to the petitioners and they have exercised all the rights of ownership over the same. As such registered owners of the respective portions of lot sold to them, the petitioners have acquired real rights over the said property, and they cannot now be deprived of the said property or their rights therein without due notice to them and without affording them the opportunity to be heard in a proper action or suit brought for the purpose. To deprive them of their said property or their rights therein without the required notice and without affording them the opportunity to be heard as what happened in this case, is a clear violation of the Constitutional guaranty that no person shall be deprived of his property without due process of law.