TECHNOGAS PHILIPPINES vs.

CA

G.R. No. 108894 February 10, 1997

PANGANIBAN, J.:

FACTS:

 The parties in this case are owners of adjoining lots in Parañaque, Metro Manila. It was discovered in a survey, that a
portion of a building of Technogas, which was presumably constructed by its predecessor-in-interest,
encroached on a portion of the lot owned by private respondent Edward Uy.
 Upon learning of the encroachment or occupation by its buildings and wall of a portion of private respondent’s land, the
petitioner offered to buy from defendant that particular portion of Uy’s land occupied by portions of its
buildings and wall with an area of 770 square meters, more or less, but the latter, however, refused the offer
 The parties entered into a private agreement before a certain Col. Rosales in Malacañang, wherein petitioner
agreed to demolish the wall at the back portion of its land thus giving to the private respondent possession of
a portion of his land previously enclosed by petitioner's wall.
 Uy later filed a complaint before the office of Municipal Engineer of Parañaque, Metro Manila as well as before the Office
of the Provincial Fiscal of Rizal against Technogas in connection with the encroachment or occupation by plaintiff's
buildings and walls of a portion of its land but said complaint did not prosper; so Uy dug or caused to be dug a
canal along Technogas’ wall, a portion of which collapsed in June, 1980, and led to the filing by the petitioner of
the supplemental complaint in the above-entitled case and a separate criminal complaint for malicious
mischief against Uy and his wife which ultimately resulted into the conviction in court Uy's wife for the crime of
malicious mischief;

ISSUE: WON the petitioner is builder in good faith.

HELD: YES.

 We disagree with Respondent Court’s reliance on the cases of J.M. Tuason & Co., Inc. vs. Vda. de Lumanlan and J.M. Tuason
& Co., Inc. vs. Macalindong, in ruling that the petitioner "cannot be considered in good faith" because as a land owner, it is
"presumed to know the metes and bounds of his own property, specially if the same are reflected in a properly issued
certificate of title. One who erroneously builds on the adjoining lot should be considered a builder in (b)ad
(f)aith, there being presumptive knowledge of the Torrens title, the area, and the extent of the boundaries."
There is nothing in those cases which would suggest that bad faith is imputable to a registered owner of land
when a part of his building encroaches upon a neighbor's land, simply because he is supposedly presumed to
know the boundaries of his land as described in his certificate of title,

 Article 527 of the Civil Code presumes good faith, and since no proof exists to show that the encroachment over a
narrow, needle-shaped portion of private respondent's land was done in bad faith by the builder of the encroaching
structures, the latter should be presumed to have built them in good faith. It is presumed that possession continues to be
enjoyed in the same character in which it was acquired, until the contrary is proved.

 Good faith consists in the belief of the builder that the land he is building on is his , and his ignorance of any
defect or flaw in his title. Hence, such good faith, by law, passed on to Pariz's successor, petitioner in this case. The good
faith ceases from the moment defects in the title are made known to the possessor, by extraneous evidence or by
suit for recovery of the property by the true owner.
 Consequently, the builder, if sued by the aggrieved landowner for recovery of possession, could have invoked
the provisions of Art. 448 of the Civil Code, which reads:

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.

The obvious benefit to the builder under this article is that, instead of being outrightly ejected from the land, he can
compel the landowner to make a choice between the two options: (1) to appropriate the building by paying the
indemnity required by law, or (2) sell the land to the builder. The landowner cannot refuse to exercise either
option and compel instead the owner of the building to remove it from the land

 In view of the good faith of both petitioner and private respondent, their rights and obligations are to be
governed by Art. 448. Hence, his options are limited to: (1) appropriating the encroaching portion of
petitioner's building after payment of proper indemnity, or (2) obliging the latter to buy the lot occupied by
the structure. He cannot exercise a remedy of his own liking

G.R. No. 108894. February 10, 1997. *

TECNOGAS PHILIPPINES MANUFACTURING CORPORATION, petitioner, vs. COURT OF

APPEALS (FORMER SPECIAL SEVENTEENTH DIVISION) and EDUARDO UY, respondents.
Civil Law; Property; Unless one is versed in the science of surveying, “no one can determine
the precise extent or location of his property by merely examining his paper title.”—We disagree
with respondent Court. The two cases it relied upon do not support its main pronouncement that
a registered owner of land has presumptive knowledge of the metes and bounds of its own land,
and is therefore in bad faith if he mistakenly builds on an adjoining land. Aside from the fact that
those cases had factual moorings radically different from those obtaining here, there is nothing
in those cases which would suggest, however remotely, that bad faith is imputable to a
registered owner of land when a part of his building encroaches upon a neighbor’s land, simply
because he is supposedly presumed to know the boundaries of his land as described in his
certificate of title. No such doctrinal statement could have been made in those cases because
such issue was not before the Supreme Court. Quite the contrary, we have rejected such a
theory in Co Tao vs. Chico, where we held that unless one is versed in the science of surveying,
“no one can determine the precise extent or location of his property by merely examining his
paper title.”
Same; Same; Good faith consists in the belief of the builder that the land he is building on is
his, and his ignorance of any defect or flaw in his title.—There is no question that when petitioner
purchased the land from Pariz Industries, the buildings and other structures were already in
existence. The record is not clear as to who actually built those structures, but it may well be
assumed that petitioner’s predecessor-in-interest, Pariz Industries, did so. Article 527 of the Civil
Code presumes good faith, and since no proof exists to show that the encroachment over a
narrow, needle-shaped portion of private respondent’s land was done in bad faith by the builder
of the encroaching structures, the latter should be presumed to have built them in good faith. It
is presumed that possession continues to

____________________________

*
THIRD DIVISION.
6
6 SUPREME COURT REPORTS ANNOTATED
Tecnogas Philippines Manufacturing Corp. vs. Court of
Appeals
be enjoyed in the same character in which it was acquired, until the contrary is proved. Good
faith consists in the belief of the builder that the land he is building on is his, and his ignorance of
any defect or flaw in his title. Hence, such good faith, by law, passed on to Pariz’s successor,
petitioner in this case. Further, “(w)here one derives title to property from another, the act,
declaration, or omission of the latter, while holding the title, in relation to the property, is
evidence against the former.” And possession acquired in good faith does not lose this character
except in case and from the moment facts exist which show that the possessor is not unaware
that he possesses the thing improperly or wrongfully. The good faith ceases from the moment
defects in the title are made known to the possessor, by extraneous evidence or by suit for
recovery of the property by the true owner.
Same; Same; Same; The builder, if sued by the aggrieved landowner for recovery of
possession, could have invoked the provisions of Art. 448 of the Civil Code.—Recall that the
encroachment in the present case was caused by a very slight deviation of the erected wall (as
fence) which was supposed to run in a straight line from point 9 to point 1 of petitioner’s lot. It
was an error which, in the context of the attendant facts, was consistent with good faith.
Consequently, the builder, if sued by the aggrieved landowner for recovery of possession, could
have invoke the provisions of Art. 448 of the Civil Code.
Same; Same; Same; Builder can compel landowner to make a choice between the two
options: (1) to appropriate the building by paying the indemnity required by law, or (2) sell the
land to the builder.—The obvious benefit to the builder under this article is that, instead of being
outrightly ejected from the land, he can compel the landowner to make a choice between the
two options: (1) to appropriate the building by paying the indemnity required by law, or (2) sell
the land to the builder. The landowner cannot refuse to exercise either option and compel
instead the owner of the building to remove it from the land.
Same; Same; Same; Petitioner is deemed to have stepped into the shoes of the seller in
regard to all rights of ownership over the immovable sold, including the right to compel the
private respondent to exercise either of the two options provided under Article 448 of the Civil
Code.—Upon delivery of the property by Pariz Industries, as seller, to the petitioner, as buyer, the
latter acquired ownership of
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the property. Consequently and as earlier discussed, petitioner is deemed to have stepped
into the shoes of the seller in regard to all rights of ownership over the immovable sold, including
the right to compel the private respondent to exercise either of the two options provided under
Article 448 of the Civil Code.
Same; Same; Same; The supervening awareness of the encroachment by petitioner does
not militate against its right to claim the status of a builder in good faith.—In the context of the
established facts, we hold that petitioner did not lose its rights under Article 448 of the Civil Code
on the basis merely of the fact that some years after acquiring the property in good faith, it
learned about—and aptly recognized—the right of private respondent to a portion of the land
occupied by its building. The supervening awareness of the encroachment by petitioner does not
militate against its right to claim the status of a builder in good faith. In fact, a judicious reading
of said Article 448 will readily show that the landowner’s exercise of his option can only take
place after the builder shall have come to know of the intrusion—in short, when both parties shall
have become aware of it. Only then will the occasion for exercising the option arise, for it is only
then that both parties will have been aware that a problem exists in regard to their property
rights.
Same; Same; Same; The settlement may have recognized the ownership of private
respondent but such admission cannot be equated with bad faith.—From the foregoing, it is clear
that petitioner agreed only to the demolition of a portion of the wall separating the adjoining
properties of the parties—i.e. “up to the back of the building housing the machineries.” But that
portion of the fence which served as the wall housing the electroplating machineries was not to
be demolished. Rather, it was to “be subject to negotiation by herein parties.” The settlement
may have recognized the ownership of private respondent but such admission cannot be
equated with bad faith. Petitioner was only trying to avoid a litigation, one reason for entering
into an amicable settlement.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

De Jesus, Paguio & Manimtim for petitioner.
8
8 SUPREME COURT REPORTS ANNOTATED
Tecnogas Philippines Manufacturing Corp. vs. Court of
Appeals
M.R. Pamaran Law Offices and Acebes, Del Carmen, Cinco & Cordova for private
respondent.

PANGANIBAN, J.:

The parties in this case are owners of adjoining lots in Parañaque, Metro Manila. It was
discovered in a survey that a portion of a building of petitioner, which was presumably
constructed by its predecessor-in-interest, encroached on a portion of the lot owned by
private respondent. What are the rights and obligations of the parties? Is petitioner
considered a builder in bad faith because, as held by respondent Court, he is “presumed
to know the metes and bounds of his property as described in his certificate of title?”
Does petitioner succeed into the good faith or bad faith of his predecessor-in-interest
which presumably constructed the building?
These are the questions raised in the petition for review of the Decision dated August 1

28, 1992, in CA-G.R. CV No. 28293 of respondent Court where the disposition reads:
2 3

“WHEREFORE, premises considered, the Decision of the Regional Trial Court is hereby reversed
and set aside and another one entered—

1. 1.Dismissing the complaint for lack of cause of action;

2. 2.Ordering Tecnogas to pay the sum of P2,000.00 per month as reasonable rental
from October 4, 1979 until appellee vacates the land;
3. 3.To remove the structures and surrounding walls on the encroached area;
4. 4.Ordering appellee to pay the value of the land occupied by the two-storey
building;
5. 5.Ordering appellee to pay the sum of P20,000.00 for and as attorney’s fees;

____________________________

Rollo, pp. 10-17.

1

Special Seventeenth Division composed of J. Antonio M. Martinez, ponente, and JJ. Serafin V.C. Guingona and
2

Salome A. Montoya, concurring.

Rollo, pp. 16-17.
3

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1. 6.Costs against appellee.”

Acting on the motions for reconsideration of both petitioner and private respondent,
respondent Court ordered the deletion of paragraph 4 of the dispositive portion in an
Amended Decision dated February 9, 1993, as follows: 4

“WHEREFORE, premises considered, our decision of August 28, 1992 is hereby modified deleting
paragraph 4 of the dispositive portion of our decision which reads:

1. ‘4.Ordering appellee to pay the value of the land occupied by the two-storey
building.’

The motion for reconsideration of appellee is hereby DENIED for lack of merit.”
The foregoing Amended Decision is also challenged in the instant petition.
The Facts
The facts are not disputed. Respondent Court merely reproduced the factual findings of
the trial court, as follows: 5

“That plaintiff (herein petitioner) which is a corporation duly organized and existing under and by
virtue of Philippine laws is the registered owner of a parcel of land situated in Barrio San Dionisio,
Parañaque, Metro Manila known as Lot 4331-A (should be 4531-A) of Lot 4531 of the Cadastral
Survey of Parañaque, Metro Manila, covered by Transfer Certificate of Title No. 409316 of the
Registry of Deeds of the Province of Rizal; that said land was purchased by plaintiff from Pariz
Industries, Inc. in 1970, together with all the buildings and improvements including the wall
existing thereon; that the defendant (herein private respondent) is the registered owner of a
parcel of land known as Lot No. 4531-B of Lot 4531 of the Cadastral Survey of Parañaque, LRC
(GLRO) Rec. No. 19645 covered by Transfer Certificate of Title No. 279838, of the Registry of
Deeds for the Province of Rizal; that said land which adjoins plaintiff’s land was purchased by
defendant from a certain Enrile Antonio

____________________________

4
Ibid., pp. 20-21.
5
Ibid., pp. 11-12.
10
10 SUPREME COURT REPORTS ANNOTATED
Tecnogas Philippines Manufacturing Corp. vs. Court of
Appeals
also in 1970; that in 1971, defendant purchased another lot also adjoining plaintiff’s land from a
certain Miguel Rodriguez and the same was registered in defendant’s name under Transfer
Certificate of Title No. 31390, of the Registry of Deeds for the Province of Rizal; that portions of
the buildings and wall bought by plaintiff together with the land from Pariz Industries are
occupying a portion of defendant’s adjoining land; that upon learning of the encroachment or
occupation by its buildings and wall of a portion of defendant’s land, plaintiff offered to buy from
defendant that particular portion of defendant’s land occupied by portions of its buildings and
wall with an area of 770 square meters, more or less, but defendant, however, refused the offer.
In 1973, the parties entered into a private agreement before a certain Col. Rosales in
Malacañang, wherein plaintiff agreed to demolish the wall at the back portion of its land thus
giving to defendant possession of a portion of his land previously enclosed by plaintiff’s wall; that
defendant later filed a complaint before the office of Municipal Engineer of Parañaque, Metro
Manila as well as before the Office of the Provincial Fiscal of Rizal against plaintiff in connection
with the encroachment or occupation by plaintiff’s buildings and walls of a portion of its land but
said complaint did not prosper; that defendant dug or caused to be dug a canal along plaintiff’s
wall, a portion of which collapsed in June, 1980, and led to the filing by plaintiff of the
supplemental complaint in the above-entitled case and a separate criminal complaint for
malicious mischief against defendant and his wife which ultimately resulted into the conviction in
court of defendant’s wife for the crime of malicious mischief; that while trial of the case was in
progress, plaintiff filed in Court a formal proposal for settlement of the case but said proposal,
however, was ignored by defendant.”
After trial on the merits, the Regional Trial Court of Pasay City, Branch 117, in Civil Case
6

No. PQ-7631-P, rendered a decision dated December 4, 1989 in favor of petitioner who
was the plaintiff therein. The dispositive portion reads: 7

“WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant and
ordering the latter to sell to plaintiff that portion of land owned by him and occupied by portions
of plain-

____________________________

6
Presided by Judge Leonardo M. Rivera.
7
Rollo, p. 10.
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Tecnogas Philippines Manufacturing Corp. vs. Court of
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tiff’s buildings and wall at the price of P2,000.00 per square meter and to pay the former:

1. 1.The sum of P44,000.00 to compensate for the losses in materials and properties
incurred by plaintiff through thievery as a result of the destruction of its wall;
2. 2.The sum of P7,500.00 as and by way of attorney’s fees; and
3. 3.The costs of this suit.”

Appeal was duly interposed with respondent Court, which as previously stated, reversed
and set aside the decision of the Regional Trial Court and rendered the assailed Decision
and Amended Decision. Hence, this recourse under Rule 45 of the Rules of Court.
The Issues
The petition raises the following issues: 8
 “(A)

Whether or not the respondent Court of Appeals erred in holding the petitioner a builder in bad
faith because it is ‘presumed to know the metes and bounds of his property.’

(B)

Whether or not the respondent Court of Appeals erred when it usedthe amicable settlement
between the petitioner and the privaterespondent, where both parties agreed to the demolition
of the rearportion of the fence, as estoppel amounting to recognition by petitioner of
respondent’s right over his property including the portionsof the land where the other structures
and the building stand, whichwere not included in the settlement.

(C)

Whether or not the respondent Court of Appeals erred in ordering the removal of the
‘structures and surrounding walls on the encroached area’ and in withdrawing its earlier ruling in
its August 28, 1992 decision for the petitioner ‘to pay for the value of the land

____________________________

8
Ibid., pp. 106-107.
12
12 SUPREME COURT REPORTS ANNOTATED
Tecnogas Philippines Manufacturing Corp. vs. Court of
Appeals
occupied’ by the building, only because the private respondent has ‘manifested its choice to
demolish’ it despite the absence of compulsory sale where the builder fails to pay for the land,
and which ‘choice’ private respondent deliberately deleted from its September 1, 1980 answer to
the supplemental complaint in the Regional Trial Court.”
In its Memorandum, petitioner poses the following issues:

“A.

The time when to determine the good faith of the builder under Article 448 of the New Civil Code,
is reckoned during the period when it was actually being built; and in a case where no evidence
was presented nor introduced as to the good faith or bad faith of the builder at that time, as in
this case, he must be presumed to be a ‘builder in good faith,’ since ‘bad faith cannot be
presumed.’ 9

B.

In a specific ‘boundary overlap situation’ which involves a builder in good faith, as in this case,
it is now well settled that the lot owner, who builds on the adjacent lot is not charged with
‘constructive notice’ of the technical metes and bounds contained in their torrens titles to
determine the exact and precise extent of his boundary perimeter. 10

C.

The respondent court’s citation of the twin cases of Tuason & Co. v. Lumanlan and Tuason &
Co. v. Macalindong is not the ‘judicial authority’ for a boundary dispute situation between
adjacent torrens titled lot owners, as the facts of the present case do not fall within nor square
with the involved principle of a dissimilar case.11

D.

Quite contrary to respondent Uy’s reasoning, petitioner Tecnogas continues to be a builder in

good faith, even if it subsequently

____________________________

9
Ibid., p. 392.
10
Ibid., p. 399.
11
Ibid., p. 402.
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Tecnogas Philippines Manufacturing Corp. vs. Court of
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built/repaired the walls/other permanent structures thereon while the case a quo was pending
and even while respondent sent the petitioner many letters/filed cases thereon. 12

D.(E.)
 The amicable settlement between the parties should be interpreted as a contract and
enforced only in accordance with its explicit terms, and not over and beyond that agreed upon;
because the courts do not have the power to create a contract nor expand its scope. 13

E.(F.)

As a general rule, although the landowner has the option to choose between: (1) ‘buying the
building built in good faith,’ or (2) ‘selling the portion of his land on which stands the building’
under Article 448 of the Civil Code; the first option is not absolute, because an exception thereto,
once it would be impractical for the landowner to choose to exercise the first alternative, i.e. buy
that portion of the house standing on his land, for the whole building might be rendered useless.
The workable solution is for him to select the second alternative, namely, to sell to the builder
that part of his land on which was constructed a portion of the house.” 14

Private respondent, on the other hand, argues that the petition is “suffering from the
following flaws: 15

1. 1.It did not give the exact citations of cases decided by the Honorable Supreme
Court that allegedly contradicts the ruling of the Hon. Court of Appeals based on
the doctrine laid down in Tuason vs. Lumanlan case citing also Tuason vs.
Macalindong case (Supra).
2. 2.Assuming that the doctrine in the alleged Co Tao vs. Chico case is contradictory
to the doctrine in Tuason vs. Lumanlan and Tuason vs. Macalindong, the two cases
being more current, the same should prevail.”

____________________________

Ibid.,
12
p. 410.
Ibid.,
13
p. 416.
Ibid.,
14
p. 423.
Ibid.,
15
p. 247.
14
14 SUPREME COURT REPORTS ANNOTATED
Tecnogas Philippines Manufacturing Corp. vs. Court of
Appeals
Further, private respondent contends that the following “unmistakably” point to the bad
faith of petitioner: (1) private respondent’s purchase of the two lots, “was ahead of the
purchase by petitioner of the building and lot from Pariz Industries”; (2) the declaration
of the General Manager of Tecnogas that the sale between petitioner and Pariz Industries
“was not registered” because of some problems with China Banking Corporation; and (3)
the Deed of Sale in favor of petitioner was registered in its name only in “the month of
May 1973.” 16

The Court’s Ruling

The petition should be granted.
Good Faith or Bad Faith
Respondent Court, citing the cases of J.M. Tuason & Co., Inc. vs. Vda. de
Lumanlan and J.M. Tuason & Co., Inc. vs. Macalindong, ruled that petitioner “cannot be
17 18

considered in good faith” because as a land owner, it is “presumed to know the metes
and bounds of his own property, specially if the same are reflected in a properly issued
certificate of title. One who erroneously builds on the adjoining lot should be considered
a builder in (b)ad (f)aith, there being presumptive knowledge of the Torrens title, the
area, and the extent of the boundaries.” 19

We disagree with respondent Court. The two cases it relied upon do not support its
main pronouncement that a registered owner of land has presumptive knowledge of the
metes and bounds of its own land, and is therefore in bad faith if he mistakenly builds on
an adjoining land. Aside from the fact that those cases had factual moorings radically
different from those obtaining here, there is nothing in those cases which would suggest,
however remotely, that bad faith is imputable
____________________________

Ibid., pp. 253-255.

16

23 SCRA 230, April 26, 1968.

17

6 SCRA 938, December 29, 1962.

18

Rollo, p. 14.
19

15
VOL. 268, FEBRUARY 10, 1997 15
Tecnogas Philippines Manufacturing Corp. vs. Court of
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to a registered owner of land when a part of his building encroaches upon a neighbor’s
land, simply because he is supposedly presumed to know the boundaries of his land as
described in his certificate of title. No such doctrinal statement could have been made in
those cases because such issue was not before the Supreme Court. Quite the contrary,
we have rejected such a theory in Co Tao vs. Chico, where we held that unless one is
20

versed in the science of surveying, “no one can determine the precise extent or location
of his property by merely examining his paper title.”
There is no question that when petitioner purchased the land from Pariz Industries,
the buildings and other structures were already in existence. The record is not clear as to
who actually built those structures, but it may well be assumed that petitioner’s
predecessor-in-interest, Pariz Industries, did so. Article 527 of the Civil Code presumes
good faith, and since no proof exists to show that the encroachment over a narrow,
needle-shaped portion of private respondent’s land was done in bad faith by the builder
of the encroaching structures, the latter should be presumed to have built them in good
faith. It is presumed that possession continues to be enjoyed in the same character in
21

which it was acquired, until the contrary is proved. Good faith consists in the belief of
22

the builder that the land he is building on is his, and his ignorance of any defect or flaw
in his title. Hence, such good faith, by law, passed on to Pariz’s successor, petitioner in
23

this
____________________________

83 Phil. 543 (1949).

20

U.S. vs. Rapiñan, 1 Phil. 294, 296 (1902); City of Manila vs. del Rosario, 5 Phil. 227, 231 (1905); Gabriel, et
21

al. vs. Bartolome, et al., 7 Phil. 699, 706 (1907); Sideco vs. Pascua, 13 Phil. 342, 344 (1909); Arriola vs. Gomez
De la Serna, 14 Phil. 627, 629 (1909); Cea vs. Villanueva, 18 Phil. 538, 542 (1911); Bondad vs. Bondad, 34 Phil.
232, 233 (1916); Serra vs. National Bank, 45 Phil. 907 (1924); Escritor vs. Intermediate Appellate Court, 155
SCRA 577, 583, November 12, 1987.
Article 529 of the Civil Code.
22

Pleasantville Development Corporation vs. Court of Appeals, 253 SCRA 10, 18, February 1, 1996.
23

16
16 SUPREME COURT REPORTS ANNOTATED
Tecnogas Philippines Manufacturing Corp. vs. Court of
Appeals
case. Further, “(w)here one derives title to property from another, the act, declaration, or
omission of the latter, while holding the title, in relation to the property, is evidence
against the former.” And possession acquired in good faith does not lose this character
24

except in case and from the moment facts exist which show that the possessor is not
unaware that he possesses the thing improperly or wrongfully. The good faith ceases 25

from the moment defects in the title are made known to the possessor, by extraneous
evidence or by suit for recovery of the property by the true owner. 26

Recall that the encroachment in the present case was caused by a very slight
deviation of the erected wall (as fence) which was supposed to run in a straight line from
point 9 to point 1 of petitioner’s lot. It was an error which, in the context of the attendant
facts, was consistent with good faith. Consequently, the builder, if sued by the aggrieved
landowner for recovery of possession, could have invoked the provisions of Art. 448 of
the Civil Code, which reads:
“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.”
The obvious benefit to the builder under this article is that, instead of being outrightly
ejected from the land, he can com-
____________________________

Robleza vs. Court of Appeals, 174 SCRA 354, 365, June 28, 1989 citing Section 28, Rule 130, Rules of Court.
24

Article 528 of the Civil Code.

25

Ortiz vs. Kayanan, 92 SCRA 146, 159, July 30, 1979 citing Article 528, Civil Code.
26

17
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pel the landowner to make a choice between the two options: (1) to appropriate the
building by paying the indemnity required by law, or (2) sell the land to the builder. The
landowner cannot refuse to exercise either option and compel instead the owner of the
building to remove it from the land. 27
 The question, however, is whether the same benefit can be invoked by petitioner who,
as earlier stated, is not the builder of the offending structures but possesses them as
buyer.
We answer such question in the affirmative.
In the first place, there is no sufficient showing that petitioner was aware of the
encroachment at the time it acquired the property from Pariz Industries. We agree with
the trial court that various factors in evidence adequately show petitioner’s lack of
awareness thereof. In any case, contrary proof has not overthrown the presumption of
good faith under Article 527 of the Civil Code, as already stated, taken together with the
disputable presumptions of the law on evidence. These presumptions state, under
Section 3(a) of Rule 131 of the Rules of Court, that the person is innocent of a crime or
wrong; and under Section 3(ff) of Rule 131, that the law has been obeyed. In fact, private
respondent Eduardo Uy himself was unaware of such intrusion into his property until
after 1971 when he hired a surveyor, following his purchase of another adjoining lot, to
survey all his newly acquired lots. Upon being apprised of the encroachment, petitioner
immediately offered to buy the area occupied by its building—a species of conduct
consistent with good faith.
In the second place, upon delivery of the property by Pariz Industries, as seller, to the
petitioner, as buyer, the latter acquired ownership of the property. Consequently and as
earlier discussed, petitioner is deemed to have stepped into the shoes of the seller in
regard to all rights of ownership over the immovable sold, including the right to compel
the private respondent to exercise either of the two options provided under Article 448
of the Civil Code.
____________________________

Ignacio vs. Hilario, 76 Phil. 605 (1946); Sarmiento vs. Agana, 129 SCRA 122, April 30, 1984.
27

18
18 SUPREME COURT REPORTS ANNOTATED
Tecnogas Philippines Manufacturing Corp. vs. Court of
Appeals
Estoppel
Respondent Court ruled that the amicable settlement entered into between petitioner
and private respondent estops the former from questioning the private respondent’s
“right” over the disputed property. It held that by undertaking to demolish the fence
under said settlement, petitioner recognized private respondent’s right over the
property, and “cannot later on compel” private respondent “to sell to it the land since”
private respondent “is under no obligation to sell.” We do not agree. Petitioner cannot
28

be held in estoppel for entering into the amicable settlement, the pertinent portions of
which read: 29

“That the parties hereto have agreed that the rear portion of the fence that separates the
property of the complainant and respondent shall be demolished up to the back of the building
housing the machineries which demolision (sic) shall be undertaken by the complainant at
anytime.
That the fence which serve(s) as a wall housing the electroplating machineries shall not be
demolished in the mean time which portion shall be subject to negotiation by herein parties.”
From the foregoing, it is clear that petitioner agreed only to the demolition of a portion of
the wall separating the adjoining properties of the parties—i.e. “up to the back of the
building housing the machineries.” But that portion of the fence which served as the wall
housing the electroplating machineries was not to be demolished. Rather, it was to “be
subject to negotiation by herein parties.” The settlement may have recognized the
ownership of private respondent but such admission cannot be equated with bad faith.
Petitioner was only trying to avoid a litigation, one reason for entering into an amicable
settlement.
As was ruled in Osmeña vs. Commission on Audit, 30

____________________________

Rollo, p. 14.
28

Original Records, p. 179.

29

238 SCRA 463, 470-471, November 29, 1994.

30

19
VOL. 268, FEBRUARY 10, 1997 19
Tecnogas Philippines Manufacturing Corp. vs. Court of
Appeals
“A compromise is a bilateral act or transaction that is expressly acknowledged as a juridical
agreement by the Civil Code and is therein dealt with in some detail. ‘A compromise,’ declares
Article 2208 of said Code, ‘is a contract whereby the parties, by making reciprocal concessions,
avoid a litigation or put an end to one already commenced.’
 xxx xxx xxx
The Civil Code not only defines and authorizes compromises, it in fact encourages them in
civil actions. Art. 2029 states that ‘The Court shall endeavor to persuade the litigants in a civil
case to agree upon some fair compromise.’ x x x.”
In the context of the established facts, we hold that petitioner did not lose its rights
under Article 448 of the Civil Code on the basis merely of the fact that some years after
acquiring the property in good faith, it learned about—and aptly recognized—the right of
private respondent to a portion of the land occupied by its building. The supervening
awareness of the encroachment by petitioner does not militate against its right to claim
the status of a builder in good faith. In fact, a judicious reading of said Article 448 will
readily show that the landowner’s exercise of his option can only take place after the
builder shall have come to know of the intrusion—in short, when both parties shall have
become aware of it. Only then will the occasion for exercising the option arise, for it is
only then that both parties will have been aware that a problem exists in regard to their
property rights.
Options of Private Respondent
What then is the applicable provision in this case which private respondent may invoke
as his remedy: Article 448 or Article 450 of the Civil Code?
31

____________________________

Article 450. The owner of the land on which anything has been built, planted or sown in bad faith may
31

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.
20
20 SUPREME COURT REPORTS ANNOTATED
Tecnogas Philippines Manufacturing Corp. vs. Court of
Appeals
In view of the good faith of both petitioner and private respondent, their rights and
obligations are to be governed by Art. 448. The essential fairness of this codal provision
has been pointed out by Mme. Justice Ameurfina Melencio-Herrera, citing Manresa and
applicable precedents, in the case of Depra vs. Dumlao, to wit: 32

“Where the builder, planter or sower has acted in good faith, a conflict of rights arises between
the owners, and it becomes necessary to protect the owner of the improvements without causing
injustice to the owner of the land. In view of the impracticality of creating a state of forced co-
ownership, the law has provided a just solution by giving the owner of the land the option to
acquire the improvements after payment of the proper indemnity, or to oblige the builder or
planter to pay for the land and the sower to pay the proper rent. It is the owner of the land who
is authorized to exercise the option, because his right is older, and because, by the principle of
accession, he is entitled to the ownership of the accessory thing. (3 Manresa 213; Bernardo vs.
Bataclan, 37 Off. Gaz. 1382; Co Tao vs. Chan Chico, G.R. No. 49167, April 30, 1949; Article
applied; see Cabral, et al. vs. Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs. Velasco, [C.A.] 52 Off.
Gaz. 2050).”
The private respondent’s insistence on the removal of the encroaching structures as the
proper remedy, which respondent Court sustained in its assailed Decisions, is thus
legally flawed. This is not one of the remedies bestowed upon him by law. It would be
available only if and when he chooses to compel the petitioner to buy the land at a
reasonable price but the latter fails to pay such price. This has not taken place.
33

____________________________

32
136 SCRA 475, 483, May 16, 1985.
33
Ignacio vs. Hilario, supra. In Sarmiento vs. Agana 129 SCRA 122, 126, April 30, 1984), it was held that:
“The owner of the building erected in good faith on a land owned by another, is entitled to retain the possession of the land
until he is paid the value of his building, under Article 453 (now Article 546). The owner of the land, upon the other hand, has
the option, under Article 361 (now Article 448), either to pay for the building or to sell his land to the owner of
21
VOL. 268, FEBRUARY 10, 1997 21
Tecnogas Philippines Manufacturing Corp. vs. Court of
Appeals
Hence, his options are limited to: (1) appropriating the encroaching portion of
petitioner’s building after payment of proper indemnity, or (2) obliging the latter to buy
the lot occupied by the structure. He cannot exercise a remedy of his own liking.
Neither is petitioner’s prayer that private respondent be ordered to sell the land the 34

proper remedy. While that was dubbed as the “more workable solution” in Grana and
Torralba vs. The Court of Appeals, et al., it was not the relief granted in that case as the
35

landowners were directed to exercise “within 30 days from this decision their option to
either buy the portion of the petitioners’ house on their land or sell to said petitioners the
portion of their land on which it stands.” Moreover, in Grana and Torralba, the area
36

involved was only 87 square meters while this case involves 520 square meters. In line 37
with the case of Depra vs. Dumlao, this case will have to be remanded to the trial court
38

for further proceedings to fully implement the mandate of Art. 448. It is a rule of
procedure for the Supreme Court to strive to settle the entire controversy in a single
proceeding leaving no root or branch to bear the seeds of future litigation. 39

____________________________

the building. But he cannot, as respondents here did, refuse both to pay for the building and to sell the land and compel the
owner of the building to remove it from the land where it is erected. He is entitled to such remotion only when, after having
chosen to sell his land, the other party fails to pay for the same.”
Rollo, pp. 423-426.
34

109 Phil. 260, 264 (1960).

35

At p. 265.
36

In view of the compromise agreement, the encroaching wall was torn down. As explained in private
37

respondent’s Memorandum, the area encroached by petitioner’s building is only 520 square meters, no longer
the original 770 referred to in the statement of facts narrated by the two lower courts. (Rollo, p. 467).
Supra.
38

Heirs of Crisanta Y. Gabriel-Almoradie vs. Court of Appeals, 229 SCRA 15, 29, January 4, 1994.
39

22
22 SUPREME COURT REPORTS ANNOTATED
Tecnogas Philippines Manufacturing Corp. vs. Court of
Appeals
Petitioner, however, must also pay the rent for the property occupied by its building as
prescribed by respondent Court from October 4, 1979, but only up to the date private
respondent serves notice of its option upon petitioner and the trial court; that is, if such
option is for private respondent to appropriate the encroaching structure. In such event,
petitioner would have a right of retention which negates the obligation to pay rent. The 40

rent should however continue if the option chosen is compulsory sale, but only up to the
actual transfer of ownership.
The award of attorney’s fees by respondent Court against petitioner is unwarranted
since the action appears to have been filed in good faith. Besides, there should be no
penalty on the right to litigate. 41

WHEREFORE, premises considered, the petition is hereby GRANTED and the assailed
Decision and the Amended Decision are REVERSED and SET ASIDE. In accordance with
the case of Depra vs. Dumlao, this case is REMANDED to the Regional Trial Court of
42

Pasay City, Branch 117, for further proceedings consistent with Articles 448 and 546 of 43

the Civil Code, as follows:

The trial court shall determine:
____________________________

Grana vs. Court of Appeals, supra.

40

Castillo vs. Court of Appeals, 205 SCRA 529, 537, January 27, 1992, citing Ilocos Norte Electric Company vs.
41

Court of Appeals, 179 SCRA 5, November 6, 1989 and Espiritu vs. Court of Appeals, 137 SCRA 50, June 19, 1985.
Supra, at pp. 483-486.
42

Article 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith
43

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.
23
VOL. 268, FEBRUARY 10, 1997 23
Tecnogas Philippines Manufacturing Corp. vs. Court of
Appeals

1. a)the present fair price of private respondent’s 520 square-meter area of land;
2. b)the increase in value (“plus value”) which the said area of 520 square meters
may have acquired by reason of the existence of the portion of the building on the
area;
3. c)the fair market value of the encroaching portion of the building; and
4. d)whether the value of said area of land is considerably more than the fair market
value of the portion of the building thereon.

2. After said amounts shall have been determined by competent evidence, the regional
trial court shall render judgment as follows:

1. a)The private respondent shall be granted a period of fifteen (15) days within
which to exercise his option under the law (Article 448, Civil Code), whether to
appropriate the portion of the building as his own by paying to petitioner its fair
market value, or to oblige petitioner to pay the price of said area. The amounts to
be respectively paid by petitioner and private respondent, in accordance with the
option thus exercised by written notice of the other party and to the court, shall be
 paid by the obligor within fifteen (15) days from such notice of the option by
tendering the amount to the trial court in favor of the party entitled to receive it;
2. b)If private respondent exercises the option to oblige petitioner to pay the price of
the land but the latter rejects such purchase because, as found by the trial court,
the value of the land is considerably more than that of the portion of the building,
petitioner shall give written notice of such rejection to private respondent and to
the trial court within fifteen (15) days from notice of private respondent’s option to
sell the land. In that event, the parties shall be given a period of fifteen (15) days
from such notice of rejection within which to agree upon the terms of the lease,
and give the trial court formal written notice of the agreement and its provisos. If
no agreement is reached by the parties, the trial court, within fifteen (15) days
from and after the termination of the said period fixed for negotiation, shall then
fix the terms of the lease provided that the monthly rental to be fixed by the Court
shall not be less than two thousand pesos (P2,000.00) per month, payable within
the first five (5) days of each calendar month. The period for the forced lease shall
not be more than two (2) years, counted from the finality of the

24
24 SUPREME COURT REPORTS ANNOTATED
Tecnogas Philippines Manufacturing Corp. vs. Court of
Appeals
judgment, considering the long period of time since 1970 that petitioner has occupied
the subject area. The rental thus fixed shall be increased by ten percent (10%) for the
second year of the forced lease. Petitioner shall not make any further constructions or
improvements on the building. Upon expiration of the two-year period, or upon default
by petitioner in the payment of rentals for two (2) consecutive months, private
respondent shall be entitled to terminate the forced lease, to recover his land, and to
have the portion of the building removed by petitioner or at latter’s expense. The rentals
herein provided shall be tendered by petitioner to the trial court for payment to private
respondent, and such tender shall constitute evidence of whether or not compliance was
made within the period fixed by the said court.

1. c)In any event, petitioner shall pay private respondent an amount computed at two
thousand pesos (P2,000.00) per month as reasonable compensation for the
occupancy of private respondent’s land for the period counted from October 4,
1979, up to the date private respondent serves notice of its option to appropriate
the encroaching structures, otherwise up to the actual transfer of ownership to
petitioner or, in case a forced lease has to be imposed, up to the commencement
date of the forced lease referred to in the preceding paragraph;
2. d)The periods to be fixed by the trial court in its decision shall be non-extendible,
and upon failure of the party obliged to tender to the trial court the amount due to
the obligee, the party entitled to such payment shall be entitled to an order of
execution for the enforcement of payment of the amount due and for compliance
with such other acts as may be required by the prestation due the obligee.

No costs.
SO ORDERED.
Narvasa (C.J., Chairman), Davide, Jr., Melo and Francisco, JJ., concur.
Petition granted, judgment reversed and set aside. Case remanded to court a quo for
further proceedings.
Note.—Article 448 of the Civil Code does not apply to a case where the owner of the
land is the builder, sower or
25
VOL. 268, FEBRUARY 10, 1997 25
Carlos vs. Court of Appeals
planter who then later loses ownership of the land by sale or donation. (Pecson vs. Court
of Appeals, 244 SCRA 407 [1995])

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