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  • 8/11/2019 Property Case Assignments -July 5, 2014

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    [G.R. NO. 146259 : September 13, 2007]FLORENTINO, TROADIO and PEDRO, all surnamed OCHOA,Petitioners, v.MAURO APETA and

    APOLONIA ALMAZAN,Respondents.

    DECISION

    SANDOVAL-GUTIERREZ,J.:

    Challenged in this Petition for Review on Certiorariunder Rule 45 of the 1997 Rules of Civil Procedure, asamended, are the Decision[1]dated September 8, 2000 and Resolution[2]dated November 20, 2000 of theCourt of Appeals in CA G.R. CV No. 56109.

    The facts are:Since 1910, the above-named petitioners and their predecessors-in-interest have been occupying Lot No.

    1580 consisting of 886 square meters situated in Malaban, Bian,Laguna. The lot is covered by TransferCertificate of Title (TCT) No. T-40624 of the Registry of Deeds of that province. They built their houses andapartment building thereon.

    Sometime in May 10, 1982, Mauro Apeta and Apolonia Almazan, respondents, found that they are thetrue owners of Lot No. 1580 being occupied by petitioners.

    On January 22, 1988, respondents filed with the Regional Trial Court (RTC), Branch 24, Bian, Laguna

    a complaint for recovery of possession and damages against petitioners, docketed as Civil Case No. B-2777. Respondents alleged in the main that they are the lawful owners of Lot No. 1580 covered by Certificate ofTitle No. RT-599 (10731) issued by the Registry of Deeds of Laguna.

    In their answer to the complaint, petitioners specifically denied the allegations in the complaint,contending that they are the owners of Lot No. 1580 as shown by TCT No. T-40624 issued by the Registry ofDeeds of Laguna.

    During the proceedings before the RTC, upon agreement of the parties, the trial judge commissionedEngr. Romulo Unciano of the Bureau of Lands of Region IV to conduct a resurvey of the disputedproperty. The result of the resurvey (approved by the Bureau of Lands) shows that Lot No. 1580, occupied bypetitioners, was registered in the name of Margarita Almada, respondents predecessor-in-interest; and thatthe lot covered by TCT No. T-40624 is not Lot No. 1580, but Lot No. 1581 registered in the name of ServillanoOchoa, petitioners predecessor-in-interest. This lot has been occupied by Isidro Jasmin.

    On March 24, 1995, the trial court rendered a Decision in favor of respondents, thus:WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and againstthe defendants as follows:

    1. Declaring plaintiffs as the true and lawful owners of Lot 1580 of the Bian Estate Subdivisioncovered by Transfer Certificate of Title No. RT-599 (10731) and declaring the defendants without right

    whatsoever to continue in possession thereof.2. Ordering the defendants and all those acting in their behalf to deliver peacefully the physical

    possession of Lot 1580 to the plaintiffs and to remove their houses and apartment building thereon.3. Ordering the defendants to pay, jointly and severally to plaintiffs the amount of P30,000 as and for

    attorneys fees and litigation expenses.SO ORDERED.[3]

    On appeal, the Court of Appeals, in its Decision dated September 8, 2000, affirmed the judgment of theRTC.

    Petitioners filed a motion for reconsideration, but it was denied by the appellate court in itsResolution[4]dated November 20, 2000.

    Hence, the instant petition.Petitioners contend that Lot No. 1580 belongs to them and that respondents action is barred by

    prescription.Petitioners contention lacks merit.On petitioners claim that they are the owners of LotNo. 1580, it is a well-established principle that in an

    appeal viaa petition for review on certiorari, only questions of law may be raised. Here, the issue posed bypetitioners requires us to weigh anew the evidence submitted by the parties already passed upon by the Courtof Appeals. It is basic that this Court is not a trier of facts. Thus, it may not review the findings of the Court of

    Appeals except, among others: (a) when its factual findings and those of the trial court are contradictory; (b)

    when its inference is manifestly mistaken or absurd; (c) when its judgment is premised on its misapprehensionof the facts; and (d) when it failed to resolve relevant facts which, if properly considered, would justify amodification or reversal of the decision of the appellate court.[5] The issue raised by petitioners that they arethe actual owners of Lot No. 1580 is factual in nature and requires a review of the pieces of evidence presented

    by the parties. Thus, we can no longer pass upon and evaluate the lower courts finding that based on theevidence presented before them, specifically the result of the resurvey conducted by Engr. Romulo Unciano,respondents are the true and lawful owners ofLot 1580.

    Anent petitioners second contention that respondents action has been barred by prescription, suffice itto state that no title to registered land in derogation to that of the registered owner shall be acquired byprescription or adverse possession.[6] Neither can prescription be allowed against the hereditary successors of

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    the registered owner, because they step into the shoes of the decedent and are merely the continuation of thepersonality of their predecessor-in-interest.[7]

    Verily, the Court of Appeals did not err when it ruled that respondents are the true and lawful owners ofLot No. 1580. Hence, they should now be placed in possession thereof.

    Parenthetically, considering that petitioners and their predecessors-in-interest have built their housesand apartment building on Lot No. 1580, should respondents be allowed to take possession of thoseimprovements? In order to settle this matter, we should determine whether petitioners were builders in goodfaith.

    Good faith is an intangible and abstract quality with no technical meaning or statutory definition, and it

    encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraudor to seek an unconscionable advantage. It implies honesty of intention, and freedom from knowledge ofcircumstances which ought to put the holder upon inquiry.[8] The essence of good faith lies in an honest beliefin the validity of ones right, ignorance of a superior claim and absence of intention to overreachanother.[9]Applied to possession, one is considered in good faith if he is not aware that there exists in his titleor mode of acquisition any flaw which invalidates it.[10]

    Using the above parameters, we are convinced that petitioners and their predecessors-in-interest were ingood faith when they built their houses and apartment building on Lot No. 1580 since they were convinced it

    was covered by their TCT No. T-40624.The following provisions of the Civil Code are relevant:

    Article 448. The owner of the land on which anything has been built, sown or planted in good faith,shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity

    provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, andthe 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 theowner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shallagree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.

    Article 546. Necessary expenses shall be refunded to every possessor; but only the possessor in goodfaith 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 expensesor of paying the increase in value which the thing may have acquired by reason thereof.

    Article 548. Expense for pure luxury or mere pleasure shall not be refunded to the possessor in goodfaith; but he may remove the ornaments with which he has embellished the principal thing if it suffers no

    injury thereby, and if his successors in the possession do not prefer to refund the amount expended.

    Under the foregoing provisions, the landowner can make a choice - either by appropriating the buildingby paying the proper indemnity or obliging the builder to pay the price of the land. The choice belongs to theowner of the land, a rule that accords with the principle of accession that the accessory follows the principaland not the other way around. He must choose only one.

    Following the above provisions, respondents, as owners of Lot No. 1580, may choose betweenappropriating as their own the houses and apartment building constructed thereon by petitioners and theirpredecessors-in-interest by paying the proper indemnity or value; or obliging petitioners to pay the price of LotNo. 1580 which is not more than that of the improvements.

    WHEREFORE, we DENY the petition. The assailed Decision and Resolution of the Court of Appealsin CA G.R. CV No. 56109 are AFFIRMED with MODIFICATION in the sense that respondents have theoption to pay for the houses and apartment building constructed by petitioners and their predecessors-in-interest on Lot No. 1580; or to oblige petitioners to pay the price of the lot in an amount not more than the

    value of the said improvements.

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    [G.R. NO. 177703 - January 28, 2008]VILMA G. ARRIOLA and ANTHONY RONALD G. ARRIOLA,Petitioners, v.JOHN NABOR C.ARRIOLA,Respondent.D E C I S I O N

    AUSTRIA-MARTINEZ,J.:Before this Court is a Petition for Review on Certiorariunder Rule 45 of the Rules of Court, assailing theNovember 30, 2006 Decision1and April 30, 2007 Resolution2of the Court of Appeals in CA-G.R. SP No.93570.The relevant facts are culled from the records.

    John Nabor C. Arriola (respondent) filed Special Civil Action No. 03-0010 with the Regional Trial Court,Branch 254, Las Pias City (RTC) against Vilma G. Arriola and Anthony Ronald G. Arriola (petitioners) for

    judicial partition of the properties of decedent Fidel Arriola (the decedent Fidel). Respondent is the son ofdecedent Fidel with his first wife Victoria C. Calabia, while petitioner Anthony is the son of decedent Fidel withhis second wife, petitioner Vilma.On February 16, 2004, the RTC rendered a Decision, the dispositive portion of which reads:

    WHEREFORE, premises considered, judgment is hereby rendered:1. Ordering the partition of the parcel of land covered by Transfer Certificate of Title No. 383714 (84191) left bythe decedent Fidel S. Arriola by and among his heirs John Nabor C. Arriola, Vilma G. Arriola and AnthonyRonald G. Arriola in equal shares of one-third (1/3) each without prejudice to the rights of creditors ormortgagees thereon, if any;2. Attorney's fees in the amount of TEN THOUSAND (P10,000.00) PESOS is hereby awarded to be reimbursed

    by the defendants to the plaintiff;3. Costs against the defendants.SO ORDERED.3The decision became final on March 15, 2004.4

    As the parties failed to agree on how to partition among them the land covered by TCT No. 383714 (subjectland), respondent sought its sale through public auction, and petitioners acceded to it.5Accordingly, the RTCordered the public auction of the subject land.6The public auction sale was scheduled on May 31, 2003 but ithad to be reset when petitioners refused to include in the auction the house (subject house) standing on thesubject land.7This prompted respondent to file with the RTC an Urgent Manifestation and Motion forContempt of Court,8praying that petitioners be declared in contempt.The RTC denied the motion in an Order9dated August 30, 2005, for the reason that petitioners were justifiedin refusing to have the subject house included in the auction, thus:

    The defendants [petitioners] are correct in holding that the house or improvement erected on the propertyshould not be included in the auction sale.A cursory reading of the aforementioned Decision and of the evidence adduced during the ex-parte hearingclearly show that nothing was mentioned about the house existing on the land subject matter of the case. Infact, even plaintiff's [respondent's] initiatory Complaint likewise did not mention anything about the house.Undoubtedly therefore, the Court did not include the house in its adjudication of the subject land because it

    was plaintiff himself who failed to allege the same. It is a well-settled rule that the court can not give a relief tothat which is not alleged and prayed for in the complaint.To hold, as plaintiff argued, that the house is considered accessory to the land on which it is built is in effect toadd to plaintiff's [a] right which has never been considered or passed upon during the trial on the merits.In the absence of any other declaration, obvious or otherwise, only the land should be partitioned inaccordance to[sic] the aforementioned Decision as the house can not be said to have been necessarilyadjudicated therein. Thus, plaintiff can not be declared as a co-owner of the same house without evidencethereof and due hearing thereon.The Decision of the Court having attained its finality, as correctly pointed out, judgment must stand even at therisk that it might be erroneous.

    WHEREFORE, the Urgent Manifestation and Motion for Contempt of Court filed by plaintiff is herebyDENIED for lack of merit.SO ORDERED.10The RTC, in its Order dated January 3, 2006, denied respondent's Motion for Reconsideration.11Respondent filed with the CA a Petition for Certiorari12where he sought to have the RTC Orders set aside, andprayed that he be allowed to proceed with the auction of the subject land including the subject house.In its November 30, 2006 Decision, the CA granted the Petition for Certiorari, to wit:

    WHEREFORE, the petition is GRANTED. The assailed orders dated August 30, 2005 and January 3, 2006issued by the RTC, in Civil Case No. SCA 03-0010, are REVERSED and SET ASIDE, and the sheriff is

    ordered to proceed with the public auction sale of the subject lot covered by TCT No. 383714,including the house constructed thereon.SO ORDERED.13(Emphasis supplied.)Petitioners filed a motion for reconsideration but the CA denied the same in its Resolution14of April 30, 2007.Hence, the present petition on the sole ground that the CA erred in holding that the RTC committed graveabuse of discretion in denying the motion for contempt of court.The assailed CA Decision and Resolution must be modified for reasons other than those advanced bypetitioners.The contempt proceeding initiated by respondent was one for indirect contempt. Section 4, Rule 71 of the Rulesof Court prescribes the procedure for the institution of proceedings for indirect contempt, viz:

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    Sec. 4.How proceedings commenced. - Proceedings for indirect contempt may be initiated motu propriobythe court against which the contempt was committed by an order or any other formal charge requiring therespondent to show cause why he should not be punished for contempt.

    In all other cases, charges for indirect contempt shall be commenced by a verified petitionwith supporting particulars and certified true copies of documents or papers involvedtherein, and upon full compliance with the requirements for filing initiatory pleadings forcivil actions in the court concerned. If the contempt charges arose out of or are related to a principalaction pending in the court, the petition for contempt shall allege that fact but said petition shall be docketed,heard and decided separately, unless the court in its discretion orders the consolidation of the contempt charge

    and the principal action for joint hearing and decision. (Emphases supplied.)Under the aforecited second paragraph of the Rules, the requirements for initiating an indirect contemptproceeding are a) that it be initiated by way of a verified petition and b) that it should fully comply with therequirements for filing initiatory pleadings for civil actions. InRegalado v. Go,15we held:

    As explained by Justice Florenz Regalado, the filing of a verified petition that has complied with therequirements for the filing of initiatory pleading, is mandatoryx x x:This new provision clarifies with a regularity norm the proper procedure for commencing contemptproceedings. While such proceeding has been classified as special civil action under the former Rules, theheterogenous practice tolerated by the courts, has been for any party to file a motion without paying any docketor lawful fees therefore and without complying with the requirements for initiatory pleadings, which is nowrequired in the second paragraph of this amended section.x x x

    Henceforth, except for indirect contempt proceedings initiated motu propio by order of or a formal charge bythe offended court, all charges shall be commenced by a verified petition with full compliance with therequirements therefore and shall be disposed in accordance with the second paragraph of this section.x x x

    Even if the contempt proceedings stemmed from the main case over which the court alreadyacquired jurisdiction, the rules direct that the petition for contempt be treated independentlyof the principal action. Consequently, the necessary prerequisites for the filing of initiatory

    pleadings, such as the filing of a verified petition, attachment of a certification on non-forumshopping, and the payment of the necessary docket fees, must be faithfully observed.x x xThe provisions of the Rules are worded in very clear and categorical language. In case where the indirectcontempt charge is not initiated by the courts, the filing of a verified petition which fulfills the requirements on

    initiatory pleadings is a prerequisite. Beyond question now is the mandatory requirement of a verified petitionin initiating an indirect contempt proceeding. Truly, prior to the amendment of the 1997 Rules of CivilProcedure, mere motion without complying with the requirements for initiatory pleadings was tolerated by thecourts. At the onset of the 1997 Revised Rules of Civil Procedure, however, such practice can no longer becountenanced.16(Emphasis ours.)The RTC erred in taking jurisdiction over the indirect contempt proceeding initiated by respondent. The latterdid not comply with any of the mandatory requirements of Section 4, Rule 71. He filed a mere UrgentManifestation and Motion for Contempt of Court, and not a verified petition. He likewise did not conform withthe requirements for the filing of initiatory pleadings such as the submission of a certification against forumshopping and the payment of docket fees. Thus, his unverified motion should have been dismissed outright bythe RTC.It is noted though that, while at first the RTC overlooked the infirmities in respondent's unverified motion forcontempt, in the end, it dismissed the motion, albeit on substantive grounds. The trouble is that, in the CAdecision assailed herein, the appellate court committed the same oversight by delving into the merits ofrespondent's unverified motion and granting the relief sought therein. Thus, strictly speaking, the properdisposition of the present petition ought to be the reversal of the CA decision and the dismissal of respondent'sunverified motion for contempt filed in the RTC for being in contravention of Section 4, Rule 71.However, such simplistic disposition will not put an end to the dispute between the parties. A seed of litigationhas already been sown that will likely sprout into another case between them at a later time. We refer to thequestion of whether the subject house should be included in the public auction of the subject land. Until thisquestion is finally resolved, there will be no end to litigation between the parties. We must therefore deal with itsquarely, here and now.The RTC and the CA differed in their views on whether the public auction should include the subject house.The RTC excluded the subject house because respondent never alleged its existence in his complaint forpartition or established his co-ownership thereof.17On the other hand, citing Articles 440,1844519and 44620of

    the Civil Code, the CA held that as the deceased owned the subject land, he also owned the subject house whichis a mere accessory to the land. Both properties form part of the estate of the deceased and are held in co-ownership by his heirs, the parties herein. Hence, the CA concludes that any decision in the action for partitionof said estate should cover not just the subject land but also the subject house.21The CA further pointed outthat petitioners themselves implicitly recognized the inclusion of the subject house in the partition of thesubject land when they proposed in their letter of August 5, 2004, the following swapping-arrangement:Sir:Thank you very much for accommodating us even if we are only poor and simple people. We are very muchpleased with the decision of Presiding Judge Manuel B. Fernandez, Jr., RTC Br. 254, Las Pias, on the sharingof one-third (1/3) each of a land covered by Transfer Certificate of Title No. 383714 (84191) in Las Pias City.

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    However, to preserve the sanctity of our house which is our residence for more than twenty (20) years, we wishto request that the 1/3 share of John Nabor C. Arriola be paid by the defendants depending on the choice of theplaintiff between item (1) or item (2), detailed as follows:(1) Swap with a 500-square meters [sic] lot located at Baras Rizal x x x.(2) Cash of P205,700.00 x x x.x x x x.22

    We agree that the subject house is covered by the judgment of partition for reasons postulated by the CA. Wequalify, however, that this ruling does not necessarily countenance the immediate and actual partition of thesubject house by way of public auction in view of the suspensive proscription imposed under Article 159 of The

    Family Code which will be discussed forthwith.It is true that the existence of the subject house was not specifically alleged in the complaint for partition. Suchomission notwithstanding, the subject house is deemed part of the judgment of partition for two compellingreasons.First, as correctly held by the CA, under the provisions of the Civil Code, the subject house is deemed part ofthe subject land. The Court quotes with approval the ruling of the CA, to wit:The RTC, in the assailed Order dated August 30, 2005 ratiocinated that since the house constructed on thesubject lot was not alleged in the complaint and its ownership was not passed upon during the trial on themerits, the court cannot include the house in its adjudication of the subject lot. The court further stated that itcannot give a relief to[sic] which is not alleged and prayed for in the complaint.

    We are not persuaded.To follow the foregoing reasoning of the RTC will in effect render meaningless the pertinent rule on accession.

    In general, the right to accession is automatic (ipso jure), requiring no prior act on the part ofthe owner or the principal. So that even if the improvements including the house were notalleged in the complaint for partition, they are deemed included in the lot on which they stand,following the principle of accession. Consequently, the lot subject of judicial partition in thiscase includes the house which is permanently attached thereto, otherwise, it would be absurdto divide the principal, i.e., the lot, without dividing the house which is permanently attachedthereto.23(Emphasis supplied)cralawlibrarySecond, respondent has repeatedly claimed that the subject house was built by the deceased.24Petitionersnever controverted such claim. There is then no dispute that the subject house is part of the estate of thedeceased; as such, it is owned in common by the latter's heirs, the parties herein,25any one of whom, under

    Article 49426of the Civil Code, may, at any time, demand the partition of the subject house.27Therefore,respondent's recourse to the partition of the subject house cannot be hindered, least of all by the mere technical

    omission of said common property from the complaint for partition.That said notwithstanding, we must emphasize that, while we treat the subject house as partof the co-ownership of the parties, we stop short of authorizing its actual partition by publicauction at this time. It bears emphasis that an action for partition involves two phases: first, the declarationof the existence of a state of co-ownership; and second, the actual termination of that state of co-ownershipthrough the segregation of the common property.28What is settled thus far is only the fact that the subjecthouse is under the co-ownership of the parties, and therefore susceptible of partition among them.

    Whether the subject house should be sold at public auction as ordered by the RTC is an entirely differentmatter, depending on the exact nature of the subject house.Respondent claims that the subject house was built by decedent Fidel on his exclusive property.29Petitionersadd that said house has been their residence for 20 years.30Taken together, these averments on record establishthat the subject house is a family home within the contemplation of the provisions of The Family Code,particularly:

    Article 152. The family home, constituted jointly by the husband and the wife or by an unmarried head of afamily, is the dwelling house where they and their family reside, and the land on which it is situated.

    Article 153. The family home is deemed constituted on a house and lotfrom the time it is occupied as afamily residence. From the time of its constitution and so long as any of its beneficiaries actually residestherein, the family home continues to be such and is exempt from execution, forced sale or attachment exceptas hereinafter provided and to the extent of the value allowed by law. (Emphasis supplied.)One significant innovation introduced by The Family Code is the automatic constitution of the family homefrom the time of its occupation as a family residence, without need anymore for the judicial or extrajudicialprocesses provided under the defunct Articles 224 to 251 of the Civil Code and Rule 106 of the Rules of Court.Furthermore, Articles 152 and 153 specifically extend the scope of the family home not just to the dwellingstructure in which the family resides but also to the lot on which it stands. Thus, applying these concepts, thesubject house as well as the specific portion of the subject land on which it stands are deemed constituted as a

    family home by the deceased and petitioner Vilma from the moment they began occupying the same as a familyresidence 20 years back.31It being settled that the subject house (and the subject lot on which it stands) is the family home of thedeceased and his heirs, the same is shielded from immediate partition under Article 159 of The FamilyCode, viz:

    Article 159. The family home shall continue despite the death of one or both spouses or of the unmarried headof the familyfor a period of ten yearsor for as long as there is a minor beneficiary, and the heirs cannot

    partition the same unless the court finds compelling reasons therefor. This rule shall applyregardless of whoever owns the property or constituted the family home.(Emphasis supplied.)The purpose of Article 159 is to avert the disintegration of the family unit following the death of its head. Tothis end, it preserves the family home as the physical symbol of family love, security and unity by imposing the

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    following restrictions on its partition: first, that the heirs cannot extra-judicially partition it for a period of 10years from the death of one or both spouses or of the unmarried head of the family, or for a longer period, ifthere is still a minor beneficiary residing therein; and second, that the heirs cannot judicially partition it duringthe aforesaid periods unless the court finds compelling reasons therefor. No compelling reason has beenalleged by the parties; nor has the RTC found any compelling reason to order the partition of the family home,either by physical segregation or assignment to any of the heirs or through auction sale as suggested by theparties.More importantly, Article 159 imposes the proscription against the immediate partition of the family homeregardless of its ownership. This signifies that even if the family home has passed by succession to the co-

    ownership of the heirs, or has been willed to any one of them, this fact alone cannot transform the family homeinto an ordinary property, much less dispel the protection cast upon it by the law. The rights of the individualco-owner or owner of the family home cannot subjugate the rights granted under Article 159 to the

    beneficiaries of the family home.Set against the foregoing rules, the family home - - consisting of the subject house and lot on which it stands - -cannot be partitioned at this time, even if it has passed to the co-ownership of his heirs, the parties herein.Decedent Fidel died on March 10, 2003.32Thus, for 10 years from said date or until March 10, 2013, or for alonger period, if there is still a minor beneficiary residing therein, the family home he constituted cannot bepartitioned, much less when no compelling reason exists for the court to otherwise set aside the restriction andorder the partition of the property.The Court ruled inHonrado v. Court of Appeals33that a claim for exception from execution or forced saleunder Article 153 should be set up and proved to the Sheriff before the sale of the property at public auction.

    Herein petitioners timely objected to the inclusion of the subject house although for a different reason.To recapitulate, the evidence of record sustain the CA ruling that the subject house is part of the judgment ofco-ownership and partition. The same evidence also establishes that the subject house and the portion of thesubject land on which it is standing have been constituted as the family home of decedent Fidel and his heirs.Consequently, its actual and immediate partition cannot be sanctioned until the lapse of a period of 10 yearsfrom the death of Fidel Arriola, or until March 10, 2013.It bears emphasis, however, that in the meantime, there is no obstacle to the immediate public auction of theportion of the subject land covered by TCT No. 383714, which falls outsidethe specific area of the familyhome.

    WHEREFORE, the petition is PARTLY GRANTEDand the November 30, 2006 Decision and April 30,2007 Resolution of the Court of Appeals are MODIFIEDin that the house standing on the land covered byTransfer Certificate of Title No. 383714 isDECLAREDpart of the co-ownership of the parties John Nabor C.

    Arriola, Vilma G. Arriola and Anthony Ronald G. Arriola butEXEMPTEDfrom partition by public auctionwithin the period provided for in Article 159 of the Family Code.No costs.

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    SULO SA NAYON, INC. and/orPHILIPPINE VILLAGE HOTEL, INC. and JOSE MARCEL E. PANLILIO

    Vs. Nayong Pilipino

    D E C I S I O NPUNO, C.J.:

    On appeal are the Court of Appeals (CAs) October 4, 2005 Decision[1]in CA-G.R. SP No. 74631 andDecember 22, 2005 Resolution,[2]reversing the November 29, 2002 Decision[3]of the Regional Trial Court(RTC) of Pasay City in Civil Case No. 02-0133. The RTC modified the Decision[4]of the Metropolitan Trial

    Court (MeTC) ofPasay City which ruled against petitioners and ordered them to vacate the premises and paytheir arrears. The RTC declared petitioners as builders in good faith and upheld their right to indemnity.

    The facts are as follows:Respondent Nayong Pilipino Foundation, a government-owned and controlled corporation, is the

    owner of a parcel of land in Pasay City, known as the Nayong Pilipino Complex. Petitioner Philippine VillageHotel, Inc. (PVHI), formerly called Sulo sa Nayon, Inc., is a domestic corporation duly organized and existingunder Philippine laws. Petitioner Jose Marcel E. Panlilio is its Senior Executive Vice President.

    On June 1, 1975, respondent leased a portion of the Nayong Pilipino Complex, consisting of 36,289square meters, to petitioner Sulo sa Nayon, Inc. for the construction and operation of a hotel building, to beknown as the Philippine Village Hotel. The lease was for an initial period of 21 years, or until May 1996. It isrenewable for a period of 25 years under the same terms and conditions upon due notice in writing torespondent of the intention to renew at least 6 months before its expiration. Thus, on March 7, 1995,

    petitioners sent respondent a letter notifying the latter of their intention to renew the contract for another 25years. On July 4, 1995, the parties executed a Voluntary Addendum to the Lease Agreement. The addendumwas signed by petitioner Jose Marcel E. Panlilio in his official capacity as Senior Executive Vice President of thePVHI and by Chairman Alberto A. Lim of the Nayong Pilipino Foundation. They agreed to the renewal of thecontract for another 25 years, or until 2021. Under the new agreement, petitioner PVHI was bound to pay themonthly rental on a per square meter basis at the rate of P20.00 per square meter, which shall be subject to anincrease of 20% at the end of every 3-year period. At the time of the renewal of the lease contract, the monthlyrental amounted to P725,780.00.

    Beginning January 2001, petitioners defaulted in the payment of their monthly rental. Respondentrepeatedly demanded petitioners to pay the arrears and vacate the premises. The last demand letter was senton March 26, 2001.

    On September 5, 2001, respondent filed a complaint for unlawful detainer before the MeTC of Pasay

    City. The complaint was docketed as Civil Case No. 708-01. Respondent computed the arrears of petitioners inthe amount of twenty-six million one hundred eighty-three thousand two hundred twenty-five pesos andfourteen centavos (P26,183,225.14), as of July 31, 2001.

    On February 26, 2002, the MeTC rendered its decision in favor of respondent. It ruled, thus:. . . . The court is convinced by the evidence that indeed, defendants defaulted in the payment of their

    rentals. It is basic that the lessee is obliged to pay the price of the lease according to the terms stipulated (Art.1657, Civil Code). Upon the failure of the lessee to pay the stipulated rentals, the lessor may eject (sic)and treatthe lease as rescinded and sue to eject the lessee (C. Vda[.] De Pamintuan v. Tiglao, 53 Phil. 1). For non-payment of rentals, the lessor may rescind the lease, recover the back rentals and recover possession of theleased premises. . .

    x x x. . . . Improvements made by a lessee such as the defendants herein on leased premises are not valid

    reasons for their retention thereof. The Supreme Court has occasion to address a similar issue in which it ruledthat: The fact that petitioners allegedly made repairs on the premises in question is not a reason for them toretain the possession of the premises. There is no provision of law which grants the lessee a right of retentionover the leased premises on that ground. Article 448 of the Civil Code, in relation to Article 546, which

    provides for full reimbursement of useful improvements and retention of the premises until reimbursement ismade, applies only to a possessor in good faith, i.e., one who builds on a land in the belief that he is the ownerthereof. This right of retention does not apply to a mere lessee, like the petitioners, otherwise, it wouldalways be in his power to improve his landlord out of the latters property (Jose L. Chua and Co Sio Eng v s.Court of Appeals and Ramon Ibarra, G.R. No. 109840, January 21, 1999).

    Although the Contract of Lease stipulates that the building and all the improvements in the leasedpremises belong to the defendants herein, such will not defeat the right of the plaintiff to its property as thedefendants failed to pay their rentals in violation of the terms of the contract. At most, defendants can onlyinvoke [their] right under Article 1678 of the New Civil Code which grants them the right to be reimbursed one-

    half of the value of the building upon the termination of the lease, or, in the alternative, to remove theimprovements if the lessor refuses to make reimbursement.

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    The dispositive portion of the decision reads as follows:WHEREFORE, premises considered, judgment is hereby rendered in favor of Nayong Pilipino

    Foundation, and against the defendant Philippine Village Hotel, Inc[.], and all persons claiming rights under it,ordering the latter to:

    1. VACATE the subject premises and surrender possession thereof to plaintiff;2. PAY plaintiff its rental arrearages in the sum of TWENTY SIX MILLION ONE HUNDRED EIGHTY

    THREE THOUSAND TWO HUNDRED TWENTY FIVE PESOS AND 14/100 (P26,183,225.14) incurred as ofJuly 31, 2001;

    3. PAY plaintiff the sum of SEVEN HUNDRED TWENTY FIVE THOUSAND SEVEN HUNDRED EIGHTY

    PESOS (P725,780.00) per month starting from August 2001 and every month thereafter by way of reasonablecompensation for the use and occupation of the premises;

    4. PAY plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00) by way of attorneys fees[; and]5. PAY the costs of suit.

    The complaint against defendant Jose Marcel E. Panlilio is hereby dismissed for lack of cause ofaction. The said defendants counterclaim however is likewise dismissed as the complaint does not appear to

    be frivolous or maliciously instituted.SO ORDERED.[5]Petitioners appealed to the RTC which modified the ruling of the MeTC. It held that:. . . it is clear and undisputed that appellants-lessees were expressly required to construct a first-class

    hotel with complete facilities. The appellants were also unequivocally declared in the Lease Agreement as theowner of the improvements so constructed. They were even explicitly allowed to use the improvements and

    building as security or collateral on loans and credit accommodations that the Lessee may secure for thepurpose of financing the construction of the building and other improvements (Section 2; pars. A to B,Lease Agreement). Moreover, a time frame was setforth (sic)with respect to the duration of the lease initiallyfor 21 years and renewable for another 25 years in order to enable the appellants-lessees to recoup their hugemoney investments relative to the construction and maintenance of the improvements.

    x x xConsidering therefore, the elements of permanency of the construction and substantial value of the

    improvements as well as the undispute[d] ownership over the land improvements, these, immensely engenderthe application of Art. 448 of the Civil Code. The only remaining and most crucial issue to be resolved is

    whether or not the appellants as builders have acted in good faith in order for Art. 448 in relation to Art. 546 ofthe Civil Code may apply with respect to their rights over improvements.

    x x x

    . . . it is undeniable that the improvement of the hotel building of appellants (sic) PVHI was constructedwith the written consent and knowledge of appellee. In fact, it was precisely the primary purpose for whichthey entered into an agreement. Thus, it could not be denied that appellants were builders in good faith.

    Accordingly, and pursuant to Article 448 in relation to Art. 546 of the Civil Code, plaintiff-appellee hasthe sole option or choice, either to appropriate the building, upon payment of proper indemnity consonant to

    Art. 546 or compel the appellants to purchase the land whereon the building was erected. Until such time thatplaintiff-appellee has elected an option or choice, it has no right of removal ordemolition against appellantsunless after having selected a compulsory sale, appellants fail to pay for the land (Ignacio vs. Hilario; 76 Phil.605). This, however, is without prejudice from the parties agreeing to adjust their rights in some other way asthey may mutually deem fit and proper.

    The dispositive portion of the decision of the RTC reads as follows:WHEREFORE, and in view of the foregoing, judgment is hereby rendered modifying the decision of

    [the] MTC, Branch 45 of Pasay City rendered on February 26, 2002 as follows:1. Ordering plaintiff-appellee to submit within thirty (30) days from receipt of a copy of this decision a written

    manifestation of the option or choice it selected, i.e., to appropriate the improvements upon payment of properindemnity or compulsory sale of the land whereon the hotel building of PVHI and related improvements orfacilities were erected;

    2. Directing the plaintiff-appellee to desist and/or refrain from doing acts in the furtherance or exercise of itsrights and demolition against appellants unless and after having selected the option of compulsory sale andappellants failed to pay [and] purchase the land within a reasonable time or at such time as this court willdirect;

    3. Ordering defendants-appellants to pay plaintiff-appellee [their] arrears in rent incurred as of July 31, 2001 inthe amount of P26,183,225.14;

    4. Ordering defendants-appellants to pay to plaintiff-appellee the unpaid monthly rentals for the use andoccupation of the premises pending this appeal from July to November 2002 only at P725,780.00 per month;

    5. The fourth and fifth directives in the dispositive portion of the trial courts decision including that the lastparagraph thereof JME Panlilios complaint is hereby affirmed;

    6. The parties are directed to adjust their respective rights in the interest of justice as they may deem fit andproper if necessary.

    SO ORDERED.[6]Respondent appealed to the CA which held that the RTC erroneously applied the rules on accession, as

    found in Articles 448 and 546 of the Civil Code when it held that petitioners were builders in good faith and,thus, have the right to indemnity. The CA held:

    By and large, respondents are admittedly mere lessees of the subject premises and as such, cannotvalidly claim that they are builders in good faith in order to solicit the application of Articles 448 and 546 of theCivil Code in their favor. As it is, it is glaring error on the part of the RTC to apply the aforesaid legal provisions

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    on the supposition that the improvements, which are of substantial value, had been introduced on the leasedpremises with the permission of the petitioner. To grant the respondents the right of retention andreimbursement as builders in good faith merely because of the valuable and substantial improvements thatthey introduced to the leased premises plainly contravenes the law and settled jurisprudential doctrines and

    would, as stated, allow the lessee to easily improve the lessor out of its property.. . . . Introduction of valuable improvements on the leased premises does not strip the petitioner of its

    right to avail of recourses under the law and the lease contract itself in case of breach thereof. Neither does itdeprive the petitioner of its right under Article 1678 to exercise its option to acquire the improvements or to letthe respondents remove the same.

    Petitioners Motion for Reconsideration was denied.Hence, this appeal.[7]Petitioners assign the following errors:

    ITHE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN NOT

    HOLDING THAT PETITIONERS WERE BUILDERS IN GOOD FAITH OVER THE SUBSTANTIAL ANDVALUABLE IMPROVEMENTS WHICH THEY HAD INTRODUCED ON THE SUBJECT PROPERTY, THUSCOMPELLING THE APPLICATION OF ARTICLE 448 OF THE CIVIL CODE IN RELATION TO ARTICLE 546OF THE SAME CODE, INSTEAD OF ARTICLE 1678 OF THE CIVIL CODE.II

    THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS REVERSIBLE ERROR WHEN ITDISREGARDED THE FACT THAT THE LEASE CONTRACT GOVERNS THE RELATIONSHIP OF THE

    PARTIES AND CONSEQUENTLY THE PARTIES MAY BE CONSIDERED TO HAVE IMPLIEDLY WAIVEDTHE APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE TO THE INSTANT CASE.III

    ASSUMINGARGUENDOTHAT THE PETITIONERS ARE NOT BUILDERS IN GOOD FAITH, THEHONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR WHEN ITOVERLOOKED THE FACT THAT RESPONDENT ALSO ACTED IN BAD FAITH WHEN IT DID NOT HONOR

    AND INSTEAD BREACHED THE LEASE CONTRACT BETWEEN THE PARTIES, THUS BOTH PARTIESACTED AS IF THEY ARE IN GOOD FAITH.IV

    TO SANCTION THE APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE INSTEAD OF ARTICLE448 OF THE CIVIL CODE IN RELATION TO ARTICLE 546 OF THE SAME CODE WOULD NOT ONLY

    WREAK HAVOC AND CAUSE SUBSTANTIAL INJURY TO THE RIGHTS AND INTERESTS OF PETITIONER

    PHILIPPINE VILLAGE HOTEL, INC. WHILE RESPONDENT NAYONG PILIPINO FOUNDATION, INCOMPARISON THERETO, WOULD SUFFER ONLY SLIGHT OR INCONSEQUENTIAL INJURY OR LOSS,BUT ALSO WOULD CONSTITUTE UNJUST ENRICHMENT ON THE PART OF RESPONDENT AT GREATEXPENSE AND GRAVE PREJUDICE OF PETITIONERS.

    VTHE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN NOT

    HOLDING THAT THE COURTS A QUO DID NOT ACQUIRE JURISDICTION OVER THE UNLAWFULDETAINER CASE FOR NON-COMPLIANCE WITH JURISDICTIONAL REQUIREMENTS DUE TO THE

    ABSENCE OF A NOTICE TO VACATE UPON PETITIONERS.[8]First, we settle the issue of jurisdiction. Petitioners argue that the MeTC did not acquire jurisdiction to

    hear and decide the ejectment case because they never received any demand from respondent to pay rentalsand vacate the premises, since such demand is a jurisdictional requisite. We reiterate the ruling of the MeTC,RTC and CA. Contrary to the claim of petitioners, documentary evidence proved that a demand letter datedMarch 26, 2001 was sent by respondent through registered mail to petitioners, requesting them to pay therental arrears or else it will be constrained to file the appropriate legal action and possess the leased premises.

    Further, petitioners argument that the demand letter is inadequate because it contained no demandto vacate the leased premises does not persuade. We have ruled that:

    . . . . The word vacate is not a talismanic word that must be employed in all notices. The alternativesin this case are clear cut. The tenants must pay rentals which are fixed and which became payable in the past,failing which they must move out. There can be no other interpretation of the notice given to them. Hence,

    when the petitioners demanded that either he pays P18,000 in five days or a case of ejectment would be filedagainst him, he was placed on notice to move out if he does not pay. There was, in effect, a notice or demand to

    vacate.[9]

    In the case at bar, the language of the demand letter is plain and simple: respondent demanded

    payment of the rental arrears amounting to P26,183,225.14 within ten days from receipt by petitioners, orrespondent will be constrained to file an appropriate legal action against petitioners to recover the saidamount. The demand letter further stated that respondent will possess the leased premises in case ofpetitioners failure to pay the rental arrears within ten days. Thus, it is clear that the demand letter is intendedas a notice to petitioners to pay the rental arrears, and a notice to vacate the premises in case of failure ofpetitioners to perform their obligation to pay.

    Second, we resolve the main issue of whether the rules on accession, as found in Articles 448 and 546 ofthe Civil Code, apply to the instant case.

    Article 448 and Article 546 provide: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

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    provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, andthe 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 theowner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shallagree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.

    Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faithmay 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.We uphold the ruling of the CA.The late Senator Arturo M. Tolentino, a leading expert in Civil Law, explains:This article [Article 448] is manifestly intended to apply only to a case where one builds, plants, or sows

    on land in which he believes himself to have a claim of title,[10]and not to lands where the only interest of thebuilder, planter or sower is that of a holder, such as a tenant.[11]

    In the case at bar, petitioners have no adverse claim or title to the land. In fact, as lessees, theyrecognize that the respondent is the owner of the land. What petitioners insist is that because of theimprovements, which are of substantial value, that they have introduced on the leased premises with thepermission of respondent, they should be considered builders in good faith who have the right to retainpossession of the property until reimbursement by respondent.

    We affirm the ruling of the CA that introduction of valuable improvements on the leased premises does

    not give the petitioners the right of retention and reimbursement which rightfully belongs to a builder in goodfaith. Otherwise, such a situation would allow the lessee to easily improve the lessor out of its property. Wereiterate the doctrine that a lessee is neither a builder in good faith nor in bad faith [12]that would call for theapplication of Articles 448 and 546 of the Civil Code. His rights are governed by Article 1678 of the Civil Code,

    which reads: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 thetermination of the lease shall pay the lessee one-half of the value of the improvements at that time. Should thelessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principalthing may suffer damage thereby. He shall not, however, cause any more impairment upon the property leasedthan 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 notchoose to retain them by paying their value at the time the lease is extinguished.

    Under Article 1678, the lessor has the option of paying one-half of the value of the improvements which thelessee made in good faith, which are suitable for the use for which the lease is intended, and which have notaltered the form and substance of the land. On the other hand, the lessee may remove the improvementsshould the lessor refuse to reimburse.

    Petitioners argue that to apply Article 1678 to their case would result to sheer injustice, as it wouldamount to giving away the hotel and its other structures at virtually bargain prices. They allege that the valueof the hotel and its appurtenant facilities amounts to more than two billion pesos, while the monetary claim ofrespondent against them only amounts to a little more than twenty six-million pesos. Thus, they contend thatit is the lease contract that governs the relationship of the parties, and consequently, the parties may beconsidered to have impliedly waived the application of Article 1678.

    We cannot sustain this line of argument by petitioners. Basic is the doctrine that laws are deemedincorporated in each and every contract. Existing laws always form part of any contract. Further, the leasecontract in the case at bar shows no special kind of agreement between the parties as to how to proceed in casesof default or breach of the contract. Petitioners maintain that the lease contract contains a default provision

    which does not give respondent the right to appropriate the improvements nor evict petitioners in cases ofcancellation or termination of the contract due to default or breach of its terms. They cite paragraph 10 of thelease contract, which provides that:

    10. DEFAULT. - . . . Default shall automatically take place upon the failure of the LESSEE to pay orperform its obligation during the time fixed herein for such obligations without necessity of demand, or, if notime is fixed, after 90 days from the receipt of notice or demand from the LESSOR. . .

    In case of cancellation or termination of this contract due to the default or breach of its terms, theLESSEE will pay all reasonable attorneys fees, costs and expenses of litigation that may be incurred by the

    LESSOR in enforcing its rights under this contract or any of its provisions, as well as all unpaid rents, fees,charges, taxes, assessment and others which the LESSOR may be entitled to.

    Petitioners assert that respondent committed a breach of the lease contract when it filed the ejectmentsuit against them. However, we find nothing in the above quoted provision that prohibits respondent toproceed the way it did in enforcing its rights as lessor. It can rightfully file for ejectment to evict petitioners, asit did before the court a quo.

    IN VIEW WHEREOF, petitioners appeal isDENIED. The October 4, 2005 Decision of the Court ofAppeals in CA-G.R. SP No. 74631 and its December 22, 2005 Resolution areAFFIRMED. Costs againstpetitioners.

    SO ORDERED.

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    [G.R. NO. 167680 : November 30, 2006]SAMUEL PARILLA, CHINITA PARILLA and DEODATO PARILLA,Petitioners, v.DR. PROSPEROPILAR,Respondent.D E C I S I O NCARPIO MORALES,J.:

    Assailed via Petition for Review on Certiorariis the Court of Appeals Decision1of January 19, 2005 reversing

    that of the Regional Trial Court (RTC) of Vigan City, Branch 202which affirmed the Decision3of February 3,2003 of the Municipal Trial Court (MTC) of Bantay, Ilocos Sur.Petitioner-spouses Samuel and Chinita Parilla and their co-petitioner-son Deodato Parilla, as dealers4ofPilipinas Shell Petroleum Corporation (Pilipinas Shell), have been in possession of a parcel of land (theproperty) located at the poblacion of Bantay, Ilocos Sur which was leased to it by respondent Dr. Prospero Pilarunder a 10-year Lease Agreement5entered into in 1990.

    When the lease contract between Pilipinas Shell and respondent expired in 2000, petitioners remained inpossession of the property on which they built improvements consisting of a billiard hall and a restaurant,maintained a sari-saristore managed by Leonardo Dagdag, Josefina Dagdag and Edwin Pugal, and allowedFlor Pelayo, Freddie Bringas and Edwin Pugal to use a portion thereof as parking lot .6Despite demands to vacate, petitioners7and the other occupants8remained in the property.Hence, respondent who has been residing in the United States,9through his attorney-in-fact Marivic Paz Padre,

    filed on February 4, 2002 a complaint for ejectment before the Bantay MTC with prayer for the issuance of awrit of preliminary injunction with damages10against petitioners and the other occupants of the property.After trial, the MTC, by Decision of February 3, 2003, ordered herein petitioners and their co-defendants andall persons claiming rights under them to vacate the property and to pay the plaintiff-herein respondent theamount of P50,000.00 as reasonable compensation for the use of the property and P10,000.00 as attorney'sfees and to pay the cost of suit. And it ordered the plaintiff-herein respondent to reimburse defendantsSamuelParilla, Chinita Parilla and Deodato Parilla the amount of Two Million Pesos (P2,000,000.00) representing the

    value of the improvements introduced on the property.Respondent appealed to the RTC of Vigan City that portion of the trial court's decision ordering him toreimburse petitioners the amount of Two Million Pesos. The RTC affirmed the MTC Decision, however .11On respondent's Petition for Review, the Court of Appeals set aside the questioned order for respondent toreimburse petitioners Two Million Pesos.12In setting aside the questioned order, the appellate court, applying

    Article 546 of the New Civil Code which provides:ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith mayretain 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, theperson who has defeated him in the possession having the option of refunding the amount of the expenses or ofpaying the increase in value which the thing may have acquired by reason thereof[,]held that "[herein petitioners]' tolerated occupancy . . . could not be interpreted to mean . . . that they are

    builders or possessors in good faith"13and that for one to be a builder in good faith, it is assumed that he claimstitle to the property which is not the case of petitioners.Hence, the present petition which faults the appellate court to have erredI. . . WHEN IT SET ASIDE THE DECISIONS OF THE TRIAL COURTS WHICH ORDERED THERESPONDENT TO REIMBURSE PETITIONERS THE AMOUNT OF TWO MILLION (P2,000,000.00) PESOSFOR THE SUBSTANTIAL IMPROVEMENTS INTRODUCED BY THEM ON THE SUBJECT PREMISES.II. . . IN NOT HOLDING THAT PETITIONERS ARE BUILDERS IN GOOD FAITH OF THE SUBSTANTIALIMPROVEMENTS THEY HAD INTRODUCED ON THE PREMISES, HENCE, THEY ARE ENTITLED TOREIMBURSEMENT OF SUCH IMPROVEMENTS.III. . . IN NOT HOLDING THAT THE BUILDING WHICH PETITIONERS ERECTED ON THE PREMISES WAS

    WORTH, AND THAT THE PETITIONERS ACTUALLY SPENT, THE AMOUNT OF TWO MILLION(P2,000,000.00) PESOS.IV. . . IN NOT HOLDING THAT PETITIONERS HAVE THE RIGHT OF RETENTION OF THE PREMISESUNTIL THEY ARE REIMBURSED OF THE SAID AMOUNT ADJUDGED IN THEIR FAVOR BY THE COURTS

    A QUO.14Petitioners, proffering that neither respondent nor his agents or representatives performed any act to preventthem from introducing the improvements,15contend that the appellate court should have applied Article 453 ofthe New Civil Code which provides that "[i]f 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 andthe other shall be the same as though both had acted in good faith."16Petitioners thus conclude that being builders in good faith, until they are reimbursed of the Two Million Peso-

    value of the improvements they had introduced on the property, they have the right of retention or occupancythereof pursuant to Article 448, in relation to Article 546, of the New Civil Code,17otherwise, respondent would

    be unjustly enriched at their expense.The petition fails in light of the following discussions.

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    The evidence shows that in 1960, a lease contract over the property was forged between Shell Company of thePhilippines Limited and respondent's predecessors-in-interest. In 1990, the lease contract was renewed byPilipinas Shell and respondent.Petitioners, being dealers of Pilipinas Shell's petroleum products, were allowed to occupy the property.Petitioners are thus considered agents18of Pilipinas Shell. The factual milieu of the instant case calls then forthe application of the provisions on lease under the New Civil Code.The right of the lessor upon the termination of a lease contract with respect to useful improvements introducedon the leased property by a lessee is covered by Article 1678 which reads:

    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 thetermination of the lease shall pay the lessee one-half of the value of the improvements at thattime. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, eventhough the principal thing may suffer damage thereby. He shall not, however, cause any more impairmentupon the property leased than is necessary.x x x x (Emphasis supplied)cralawlibraryThe foregoing provision is a modification of the old Code under which the lessee had no right at all to bereimbursed for the improvements introduced on the leased property, he being entitled merely to the rights of ausufructuary - right of removal and set-off, but not of reimbursement.19The modification introduced in the above-quoted paragraph of Article 1678 on partial reimbursement wasintended to prevent unjust enrichment of the lessor which now has to pay one-half of the value of theimprovements at the time the lease terminates because the lessee has already enjoyed the same, whereas the

    lessor could enjoy them indefinitely thereafter.20As the law on lease under the New Civil Code has specific rules concerning useful improvements introduced bya lessee on the property leased, it is erroneous on the part of petitioners to urge this Court to apply Article 448,in relation to Article 546, regarding their claim for reimbursement and to invoke the right of retention beforereimbursement is made. Article 448 and Article 546 read:

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

    ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith mayretain 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, theperson who has defeated him in the possession having the option of refunding the amount of the expenses or ofpaying the increase in value which the thing may have acquired by reason thereof.Jurisprudence is replete with cases21which categorically declare that Article 448 covers only cases in which the

    builders, sowers or planters believe themselves to be owners of the land or, at least, have a claim of titlethereto, but not when the interest is merelythat of a holder, such as a mere tenant, agent or usufructuary. A tenant cannot be said to be a builder in goodfaith as he has no pretension to be owner.22In a plethora of cases,23this Court has held that Articles 448 of the Civil Code, in relation to Article 546 of thesame Code, which allows full reimbursement of useful improvements and retention of the premises untilreimbursement is made, applies only to a possessor in good faith, i.e.,one who builds on land with the beliefthat he is the owner thereof. It does not apply where one's only interest is that of a lessee under a rentalcontract; otherwise, it would always be in the power of the tenant to "improve" his landlord out of hisproperty.24(Underscoring supplied)cralawlibrary

    Sia v. Court of Appeals,25which cites Cabangis v. Court of Appeals,26exhaustively explains the applicability ofArticle 1678 on disputes relating to useful improvements introduced by a lessee on leased premises, viz:x x x xSecond. Petitioner stubbornly insists that he may not be ejected from private respondent's land because he hasthe right, under Articles 448 and 546 of the New Civil Code, to retain possession of the leased premises until heis paid the full fair market value of the building constructed thereon by his parents. Petitioner is wrong, ofcourse. The Regional Trial Court and the Court of Appeals correctly held that it is Article 1678 of the New CivilCode that governs petitioner's right vis-a-vis the improvements built by his parents on private respondent'sland.

    In the 1991 case of Cabangis v. Court of Appealswhere the subject of the lease contract was also a parcel ofland and the lessee's father constructed a family residential house thereon, and the lessee subsequentlydemanded indemnity for the improvements built on the lessor's land based on Articles 448 and 546 of the NewCivil Code, we pointed out that reliance on said legal provisions was misplaced."The reliance by the respondent Court of Appeals on Articles 448 and 546 of the Civil Code of the Philippines ismisplaced. These provisions have no application to a contract of lease which is the subject matter of thiscontroversy. Instead, Article 1678 of the Civil Code applies. . . .x x x xOn the other hand, Article 448 governs the right of accession while Article 546 pertains to effects of possession.The very language of these two provisions clearly manifest their inapplicability to lease contracts. . . .x x x x

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