Depra v. Dumlao

b. Right of Accession — Right of landowner to remove or demolish improvement

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Case DigestChapter II — Ownership

Depra v. Dumlao

G.R. No. L-57348 · May 16, 1985 · Supreme Court

b. Right of Accession — Right of landowner to remove or demolish improvement

Gist

A neighbour's kitchen encroached on thirty-four square metres of the adjoining lot, and both sides stipulated he had built in good faith. The landowner refused to buy the kitchen and refused to sell the land, then asked for possession — which the trial court granted, implying demolition. The Supreme Court held that a landowner has two choices under Article 448 and no third: he may not decline both and demand removal, and demolition becomes available only after he elects to sell and the builder fails to pay.

Core Doctrine

Article 448 gives the landowner an option, not a power of destruction. He may appropriate the building after paying the indemnity in Articles 546 and 548, or oblige the builder to buy the land — but "he cannot... 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." Meanwhile the builder in good faith "is entitled to retain the possession of the land until he is paid the value of his building"; and where the land is worth considerably more than the building, the builder cannot be forced to buy, and a lease is fixed by agreement or by the court.

Facts

Francisco Depra owns Lot No. 685 at Dumangas, Iloilo, about 8,870 square metres under a Torrens title; Agustin Dumlao owns the adjoining Lot No. 683. When Dumlao built his house, its kitchen encroached on 34 square metres of Depra's land, discovered in a relocation survey in November 1972.
The parties stipulated that Dumlao was a builder in good faith. The Court pointedly declines to test this, according "legal effect to the agreement of the parties" — so the case is about what follows from good faith, not about proving it.
After a demand letter, Depra's mother sued for unlawful detainer in the Municipal Court of Dumangas in February 1973.
That court found Dumlao a builder in good faith and, applying Article 448, "ordered that a forced lease is created between the parties" over the 34 square metres at ₱5.00 a month. Neither party appealed; Depra refused the rentals and Dumlao deposited them in court. The unappealed judgment is what Dumlao later pleaded as res judicata — and it is void, because a lease is beyond a municipal court's reach.
In July 1974 Depra sued to quiet title in the CFI of Iloilo over the very same 34 square metres. Dumlao admitted the encroachment but pleaded res judicata.
Depra had refused both to pay for the kitchen and to sell the land, and Dumlao had expressed willingness to buy. This pair of positions is the whole case: the landowner wanted neither option the law gives him, and the builder was ready to take the second.
On a joint motion for judgment on stipulated facts, the trial court held the 34 square metres part of Depra's lot and that he "is entitled to possess the same" — saying nothing of indemnity or of the option. The bare declaration is the error under review: it implies a right to tear the kitchen down, which Article 448 does not give.

Issue

Main issue. Whether a landowner whose land has been built upon in good faith may refuse both to pay for the building and to sell the land, and instead simply recover possession — that is, have the improvement removed.

Secondary issue. Whether the unappealed decision of the Municipal Court, which created a forced lease, is res judicata to the action for quieting of title.

Ruling

Main issue. NO — the landowner has two options and no third, and demolition is not among them. Article 448 lets him "appropriate as his own the works... after payment of the indemnity provided for in articles 546 and 548," or "oblige the one who built or planted to pay the price of the land" — and, on the authority of Ignacio v. Hilario, he "cannot... 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." It was therefore "error for the Trial Court to have ruled that DEPRA is 'entitled to possession,' without more... implying thereby that he is entitled to have the kitchen removed" — the more so since "DUMLAO had expressed his willingness to pay for the land, but DEPRA refused to sell." Two limits complete the scheme: the builder in good faith "is entitled to retain the possession of the land until he is paid the value of his building"; and if the land is worth "considerably more" than the kitchen he cannot be compelled to buy, the parties then agreeing on a lease and, "in case of disagreement, the court shall fix the terms thereof."

Secondary issue — res judicata. NO, the municipal court's judgment bars nothing, being void. It "over-stepped its bounds when it imposed upon the parties a situation of 'forced lease', which like 'forced co-ownership' is not favored in law," a lease being "an interest in real property, jurisdiction over which belongs to Courts of First Instance." A detainer judgment binds possession only and "shall not bar an action between the same parties respecting title to the land" — and the causes of action differ anyway, "deprivation of possession" below against "ownership" here.

"WHEREFORE, the judgment of the trial Court is hereby set aside, and this case is hereby ordered remanded to the Regional Trial Court of Iloilo for further proceedings consistent with Articles 448 and 546 of the Civil Code" — the Court then laying down a detailed remand scheme, set out in full in §V below. "No costs. SO ORDERED."

Ratio

The option is between two things, and refusing both is not one of them. "DEPRA has the option either to pay for the encroaching part of DUMLAO's kitchen, or to sell the encroached 34 square meters of his lot to DUMLAO. He cannot refuse to pay for the encroaching part of the building, and to sell the encroached part of his land."
Removal is conditional, and the condition had not happened. "[H]e 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."
A bare award of possession is error. "It was thus error for the Trial Court to have ruled that DEPRA is 'entitled to possession,' without more, of the disputed portion implying thereby that he is entitled to have the kitchen removed."
The builder's right of retention. "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."
What "indemnity" means. The landowner electing to appropriate pays either "the amount of the expenses spent by DUMLAO for the building of the kitchen" or "the increase in value ('plus value') which the said area of 34 square meters may have acquired by reason thereof" — the pairing Articles 546 and 548 supply.
The builder cannot be forced to buy a disproportionate lot. "[T]he 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... The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof."
The parties' stipulation of good faith is honoured, not re-examined. "Consistent with the principle that our Court system, like any other, must be a dispute resolving mechanism, we accord legal effect to the agreement of the parties, within the context of their mutual concession and stipulation... Hence, we shall refrain from further examining whether the factual situations of DUMLAO and DEPRA conform to the juridical positions respectively defined by law."
A void judgment cannot be res judicata. "Since the Municipal Court[ ]acted without jurisdiction, its Decision was null and void and cannot operate as res judicata to the subject complaint for Q[ui]eting of Title."
Why it was void. "The Municipal Court over-stepped its bounds when it imposed upon the parties a situation of 'forced lease', which like 'forced co-ownership' is not favored in law. Furthermore, a lease is an interest in real property, jurisdiction over which belongs to Courts of First Instance."
And independently, the causes of action differ. "In the Municipal Court, the cause of action was the deprivation of possession, while in the action to quiet title, the cause of action was based on ownership."
Why the law prefers the landowner. The Court reproduces Manresa's defence of the rule — the building is the accessory and the land the principal, so the owner of the land is given the election, subject always to full indemnity.

Doctrine

The Landowner Has Two Options, Not Three (Art. 448): appropriate after indemnity, or oblige the builder to buy. Refusing both is not permitted.
Demolition Is Conditional: it becomes available only after the landowner elects to sell and the builder fails to pay.
An Award of Bare Possession Against a Builder in Good Faith Is Error, because it implies a demolition the article does not authorise.
The Builder in Good Faith May Retain the Land Until Paid (Art. 546).
Indemnity Means Expenses or Plus Value, at the Landowner's Election (Arts. 546 and 548) — ornamental expenses are not refundable at all.
The Builder Cannot Be Compelled to Buy Land Worth Considerably More than the building; the fallback is a lease agreed by the parties or fixed by the court.
A "Forced Lease" Imposed by an Inferior Court Is Void: a lease is an interest in real property beyond a municipal court's jurisdiction, and forced leases "like 'forced co-ownership'[ ]" are "not favored in law."
An Ejectment Judgment Binds Possession Only (Rule 70, Sec. 18) and does not bar a later action on title.
A Stipulation of Good Faith Binds the Court, which will not re-open what the parties conceded.

How to place this case in the chapter. Depra is the procedural spine of the builder-in-good-faith group, and the other cases hang off it. Where Del Campo v. Abesia and Macasaet v. Macasaet ask whether Article 448 applies at all, Depra assumes it does and answers the next question: what the landowner may and may not do with his option. Read its remand scheme as the template — it is the fullest statement in Philippine jurisprudence of how an Article 448 case is actually executed: value the land, value the building, compute the plus value, ask whether the land is worth considerably more, then give the landowner fifteen days to elect. Nuguid v. Court of Appeals takes up the builder's side of the same machinery, the right of retention until payment. And note the jurisdictional lesson, which is easy to miss because it is buried in the res judicata discussion: a municipal court may find good faith in an ejectment case, but the moment the remedy requires a lease, the case has outgrown that court.

Full Digest — Recitation Format

I. Gist and Central Doctrine

Relationship to requested topic: DIRECT. Agustin Dumlao's kitchen encroached on 34 square metres of Francisco Depra's adjoining lot in Dumangas, Iloilo, and the parties stipulated that Dumlao had built in good faith. A Municipal Court detainer case ended in a court-created "forced lease" at ₱5.00 a month, which no one appealed; Depra then sued to quiet title in the CFI of Iloilo, which declared him "entitled to possess" the 34 square metres. The Supreme Court set that aside and remanded. Its central doctrine is that Article 448 gives the landowner a choice between appropriating the building on indemnity and obliging the builder to buy the land — and that he "cannot... refuse both... and compel the owner of the building to remove it," removal being available "only when, after having chosen to sell his land[,] the other party fails to pay for the same."

II. Chronological Narration of Material Facts

Francisco Depra is the registered owner of Lot No. 685, Cadastral Survey of Dumangas, municipality of Dumangas, Iloilo, of approximately 8,870 square metres, under Transfer Certificate of Title No. T-3087.
Agustin Dumlao owns the adjoining Lot No. 683, of approximately 231 square metres.
Sometime in 1972, when Dumlao constructed his house on his own lot, "the kitchen thereof had encroached on an area of thirty four (34) square meters of DEPRA's property." (The parties' Stipulation of Facts states instead that the encroaching portion "has been in the possession of the defendant since 1952 continuously up to the present." The decision reproduces both and reconciles neither; the 1952 date is the one used for computing compensation.)
On 2 November 1972, the encroachment was discovered "in a relocation survey of DEPRA's lot."
After writing a demand letter asking Dumlao to move back from his encroachment, Depra's mother Beatriz Depra filed an action for Unlawful Detainer on 6 February 1973 in the Municipal Court of Dumangas, docketed as Civil Case No. 1. The complaint was later amended to include Francisco Depra as a party plaintiff.
On 29 September 1973, the Municipal Court, "find[ing] that DUMLAO was a builder in good faith, and applying Article 448 of the Civil Code," rendered judgment "[o]rdering that a forced lease is created between the parties with the plaintiffs, as lessors, and the defendants as lessees, over the disputed portion with an area of thirty four (34) square meters, the rent to be paid is five (₱5.00) pesos a month... and the lease shall commence on the day that this decision shall have become final."
Neither party appealed that judgment. "[E]ven then, DEPRA did not accept payment of rentals so that DUMLAO deposited such rentals with the Municipal Court."
On 15 July 1974, Depra filed a Complaint for Quieting of Title against Dumlao before the Court of First Instance of Iloilo, Branch IV, "involving the very same 34 square meters, which was the bone of contention in the Municipal Court."
In his Answer, Dumlao admitted the encroachment but alleged "that the present suit is barred by res judicata by virtue of the Decision of the Municipal Court, which had become final and executory."
After the case was set for pre-trial, the parties submitted a Joint Motion for Judgment based on a Stipulation of Facts, paragraph 8 of which recorded that the 34-square-metre portion "built thereon in good faith is a portion of defendant's kitchen and has been in the possession of the defendant since 1952 continuously up to the present."
On 31 October 1974, the trial court issued the assailed Order: "the Court finds and so holds that the thirty four (34) square meters subject of this litigation is part and parcel of Lot 685... of which the plaintiff is owner as evidenced by Transfer Certificate of Title No. 3087 and such plaintiff is entitled to possess the same. Without pronouncement as to costs."
Depra answered the res judicata plea by contending that the Municipal Court's decision "was null and void ab initio because its jurisdiction is limited to the sole issue of possession, whereas decisions affecting lease, which is an encumbrance on real property, may only be rendered by Courts of First Instance."
The appeal went from the CFI of Iloilo to the Court of Appeals, which certified it to the Supreme Court as involving pure questions of law. On 16 May 1985 the Supreme Court set aside the trial court's order and remanded.

III. Arguments of the Parties

A. Plaintiff-Appellee (Francisco Depra)

That the 34 square metres are part of his titled Lot No. 685 and he is entitled to possess them; and that the Municipal Court's decision is void ab initio and cannot be res judicata, "because its jurisdiction is limited to the sole issue of possession, whereas decisions affecting lease, which is an encumbrance on real property, may only be rendered by Courts of First Instance." Before the Municipal Court he had manifested a refusal both to pay for the kitchen and to sell the land.

B. Defendant-Appellant (Agustin Dumlao)

He admitted the encroachment, but pleaded that the action was barred by res judicata by the final and executory decision of the Municipal Court creating the forced lease. He had expressed willingness to pay for the land, and had deposited the rentals in court when Depra refused to accept them. The stipulation of facts conceded his status as a builder in good faith.

IV. Issues

A. MAIN ISSUE

Whether the landowner may refuse both to pay indemnity for the building and to sell the encroached land, and thereby obtain possession — in effect, removal of the improvement.

B. SECONDARY ISSUES

Whether the Municipal Court's decision creating a forced lease was valid.
Whether that decision operates as res judicata to the action for quieting of title.

V. Ruling / Disposition

A. MAIN ISSUE

NO. Under Article 448 the landowner may "appropriate as his own the works... after payment of the indemnity provided for in articles 546 and 548, or... oblige the one who built or planted to pay the price of the land"; he "cannot refuse to pay for the encroaching part of the building, and to sell the encroached part of his land." Following Ignacio v. Hilario, "[h]e is entitled to such remotion only when, after having chosen to sell his land[,] the other party fails to pay for the same," and the builder in good faith may "retain the possession of the land until he is paid the value of his building". The trial court's bare declaration that Depra "is entitled to possess" the land was therefore error.

B. SECONDARY ISSUES

The Municipal Court's decision is null and void. It "over-stepped its bounds when it imposed upon the parties a situation of 'forced lease', which like 'forced co-ownership' is not favored in law," and "a lease is an interest in real property, jurisdiction over which belongs to Courts of First Instance."
No res judicata. A void judgment cannot bar anything; a detainer judgment binds possession only and "shall not bar an action between the same parties respecting title to the land"; and the causes of action differ — "deprivation of possession" against "ownership."

C. The Remand Scheme

The Court remanded with directions that are the fullest working template for an Article 448 case:

1. The trial court shall determine — "a) the present fair price of DEPRA's 34 square meter area of land; b) the amount of the expenses spent by DUMLAO for the building of the kitchen; c) the increase in value ('plus value') which the said area of 34 square meters may have acquired by reason thereof, and d) whether the value of said area of land is considerably more than that of the kitchen built thereon."

2. After those amounts are determined, judgment shall issue as follows:

(a) Fifteen days to elect. The court "shall grant DEPRA a period of fifteen (15) days within which to exercise his option under the law" — to appropriate the kitchen by paying either "the expenses spent" or "the increase in value ('plus value')," or to oblige Dumlao to pay the price of the land. The amount due is then tendered to the court "within fifteen (15) days from such notice of the option."
(b) If the builder rejects the purchase because the land is worth "considerably more" than the kitchen, he must give written notice within fifteen days, and the parties then have fifteen days to agree on lease terms; failing agreement the court fixes them, at not less than ₱10.00 per month, for a forced lease of not more than two years from finality, the rent increased by ten percent in the second year. Dumlao "shall not make any further constructions or improvements on the kitchen." On expiry, or on default in rentals for two consecutive months, Depra "shall be entitled to terminate the forced lease, to recover his land, and to have the kitchen removed by DUMLAO or at the latter's expense."
(c) Compensation for past occupancy. "In any event, DUMLAO shall pay DEPRA an amount computed at Ten Pesos (₱10.00) per month as reasonable compensation for the occupancy of DEPRA's land for the period counted from 1952, the year DUMLAO occupied the subject area, up to the commencement date of the forced lease."
(d) The periods are inextendible, and default entitles the other party to "an order of execution for the enforcement of payment of the amount due."

"No costs. SO ORDERED."

VI. Ratio Decidendi and Doctrines

A. Ratio Decidendi

The two options, stated. "Pursuant to the foregoing provision, DEPRA has the option either to pay for the encroaching part of DUMLAO's kitchen, or to sell the encroached 34 square meters of his lot to DUMLAO."
And the prohibition. "He cannot refuse to pay for the encroaching part of the building, and to sell the encroached part of his land, as he had manifested before the Municipal Court. But that manifestation is not binding because it was made in a void proceeding."
The rule from Ignacio v. Hilario, quoted at length. "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 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."
And its consequence for an order of demolition. "[T]he order of Judge Natividad compelling defendants-petitioners to remove their buildings from the land belonging to plaintiffs-respondents only because the latter chose neither to pay for such buildings nor to sell the land, is null and void, for it amends substantially the judgment sought to be executed and is[,] furthermore, offensive to articles 361 (now Article 448) and 453 (now Article 546) of the Civil Code."
The trial court's error. "It was thus error for the Trial Court to have ruled that DEPRA is 'entitled to possession,' without more, of the disputed portion implying thereby that he is entitled to have the kitchen removed. He is entitled to such removal only when, after having chosen to sell his encroached land, DUMLAO fails to pay for the same. In this case, DUMLAO had expressed his willingness to pay for the land, but DEPRA refused to sell."
The disproportion ceiling. "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."
Stipulated good faith is honoured. "[W]e accord legal effect to the agreement of the parties, within the context of their mutual concession and stipulation. They have, thereby, chosen a legal formula to resolve their dispute[,] to app[l]y to DUMLAO the rights of a 'builder in good faith' and to DEPRA those of a 'landowner in good faith' as prescribed in Article 448. Hence, we shall refrain from further examining whether the factual situations of DUMLAO and DEPRA conform to the juridical positions respectively defined by law."
Nullity of the forced lease. "The judgment in a detainer case is effective in respect of possession only... The Municipal Court over-stepped its bounds when it imposed upon the parties a situation of 'forced lease', which like 'forced co-ownership' is not favored in law. Furthermore, a lease is an interest in real property, jurisdiction over which belongs to Courts of First Instance."
No res judicata, on two grounds. "Since the Municipal Court[ ]acted without jurisdiction, its Decision was null and void and cannot operate as res judicata... Besides, even if the Decision were valid, the rule on res judicata would not apply due to difference in cause of action." And "judgment in a detainer case 'shall not bar an action between the same parties respecting title to the land.'"
The philosophy of the article. Tracing Article 448 to Article 361 of the Spanish Civil Code, the Court reproduces Manresa's answer to the criticism that the rule unfairly privileges the landowner — the objection being that a builder in good faith built believing himself owner, and might not have built at all had he known he would have to buy the land.

B. Doctrines/Rules

Two Options and No Third (Art. 448).
Removal Only After an Election to Sell and a Failure to Pay.
Right of Retention in the Builder in Good Faith (Art. 546).
Indemnity Is Expenses or Plus Value, at the Landowner's Choice, with ornamental expenses excluded.
No Compulsory Purchase Where the Land Is Worth Considerably More; the fallback is a lease by agreement or by the court.
A "Forced Lease" Decreed by an Inferior Court Is Void for want of jurisdiction over interests in real property.
An Ejectment Judgment Is Conclusive on Possession Only (Rule 70, Sec. 18).
A Void Judgment Is Never Res Judicata, and in any case ejectment and quieting of title rest on different causes of action.
Courts Give Effect to the Parties' Stipulations rather than re-litigating what has been conceded.

C. Limitations/Exceptions

The holding rests on a stipulation of good faith, which the Court expressly refused to examine. It is therefore no authority on when a builder is in good faith — for that, see Del Campo v. Abesia and Macasaet v. Macasaet.
Demolition is not abolished. It remains available at the end of the chain: after an election to sell and a failure to pay, and again at the end of the two-year forced lease or on default in rentals.
The forced lease the Court itself imposes is not inconsistent with its condemnation of the Municipal Court's. The difference is jurisdiction and statutory basis — a lease under the second paragraph of Article 448 fixed by a court competent over interests in real property, not a lease invented in an ejectment case.
The compensation for past occupancy runs "from 1952," which sits uneasily with the statement that the house was built "sometime in 1972." The decision does not resolve the conflict.
The Court disposed of the case on pure questions of law certified from the Court of Appeals, on a stipulation of facts — so nothing here rests on an evaluation of evidence.

D. Topic Integration

The relationship is DIRECT.
On the assigned subtopic — the landowner's right to remove or demolish — the answer is that there is no such free-standing right. Demolition is the tail end of a sequence, and a landowner who reaches for it first has skipped the steps the law requires.
Memorise the sequence, because exam problems are built on it: (1) landowner elects — appropriate on indemnity, or sell; (2) if he elects to sell but the land is worth considerably more than the building, the builder may refuse and a lease is fixed instead; (3) only if he elects to sell and the builder fails to pay does removal arise; (4) throughout, the builder in good faith retains the land until indemnified.
The remand scheme is worth reading as a checklist of the facts an Article 448 case actually needs: the present fair price of the land, the expenses of building, the plus value, and whether the land is worth considerably more than the improvement. A judgment that does not find these cannot be executed.
Note finally the jurisdictional point, which is the one students most often miss because it appears under res judicata. A municipal court in an ejectment case may find good faith, but the remedy Article 448 ultimately requires may exceed its powers — and a judgment beyond jurisdiction binds nobody, however final it looks.

VII. Separate Opinions

NOT IN RECORD. The decision was penned by Justice Ameurfina Melencio-Herrera for the First Division, with Acting Chief Justice Teehankee and Justices Plana, Relova, De la Fuente and Alampay concurring. Justice Hugo E. Gutierrez, Jr. took no part, "having been one of the two members of a Court of Appeals' Division of Five Justices who dissented from the majority opinion certifying this case to this Court."

Cited Laws & Provisions

Every statute, rule, and issuance the decision turns on — the text as written, and the work it does in this case.

Civil Code

Article 448, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title II (Ownership), Chapter 2 (Right of Accession), Section 2 (Right of Accession With Respect to Immovable Property)

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. (361a)

Why it is cited here

The article the case is built on, and the one the trial court ignored. The landowner "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."

Three things follow, and the case turns on all three.

The choice belongs to the landowner — but it is a choice between two things, not a licence to refuse both. "DEPRA has the option either to pay for the encroaching part of DUMLAO's kitchen, or to sell the encroached 34 square meters of his lot to DUMLAO. He cannot refuse to pay for the encroaching part of the building, and to sell the encroached part of his land."

Demolition is a remedy of last resort, not of first choice. It arises only "when, after having chosen to sell his land[,] the other party fails to pay for the same." Here the builder "had expressed his willingness to pay for the land, but DEPRA refused to sell," so no right of removal ever accrued.

The second option has a ceiling. "[T]he 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... The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof." That is the only lawful route to a lease here — which is why the municipal court's home-made "forced lease" was void.

On why the law favours the landowner at all, the Court quotes Manresa through Tolentino: the builder's position is the accessory and the land the principal, and "he who is the owner of the land is the owner of the improvement" unless he elects otherwise.

Civil Code

Article 546, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title V (Possession), Chapter 3 (Effects of Possession)

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

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

Why it is cited here

The measure of the indemnity, and the source of the builder's leverage. "Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor. Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof."

Two operative ideas. First, the right of retention: quoting Ignacio v. Hilario, "[t]he 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." The builder does not have to leave first and sue later.

Second, the choice within the choice. A landowner who elects to appropriate does not simply pay a bill; he chooses between "the amount of the expenses spent" and "the increase in value ('plus value') which the said area... may have acquired by reason thereof." The remand directs the trial court to determine both figures precisely so that election can be made.

Civil Code

Article 548, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title V (Possession), Chapter 3 (Effects of Possession)

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

Why it is cited here

The other half of the indemnity formula that Article 448 points to, and the boundary of what must be paid for. "Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good faith; but he may remove the ornaments with which he has embellished the principal thing if it suffers no injury thereby, and if his successor in the possession does not prefer to refund the amount expended."

Article 448 sends the landowner to "articles 546 and 548" together, so the pair defines the whole obligation: necessary and useful expenses are refunded with a right of retention; ornamental ones are not, and the builder's remedy for those is removal, if that can be done without injury to the thing.

Nothing on this record was ornamental — a kitchen is not decoration — but the article matters for the shape of the rule. It is what stops the indemnity from becoming a blank cheque, and it is the reason the remand asks for the expenses and the plus value, not for whatever the builder chose to spend.

Implementing Rules

Section 18, Rule 70, Rules of Court

Judgment conclusive only on possession; not conclusive in actions involving title or ownership

1997 Rules of Civil Procedure — Rule 70 (Forcible Entry and Unlawful Detainer)

The judgment rendered in an action for forcible entry or detainer shall be conclusive with respect to the possession only and shall in no wise bind the title or affect the ownership of the land or building. Such judgment shall not bar an action between the same parties respecting title to the land or building.

The judgment or final order shall be appealable to the appropriate Regional Trial Court which shall decide the same on the basis of the entire record of the proceedings had in the court of origin and such memoranda and/or briefs as may be submitted by the parties or required by the Regional Trial Court. (7a)

The decision cites this as "Sec. 7, Rule 70." That was its number under the pre-1997 Rules, and it is quoted in the decision's own footnote. The 1997 Revised Rules on Civil Procedure renumbered Rule 70, and the same provision is now Section 18. The library carries the current text and numbering; follow the id, not the opinion's section number.

Why it is cited here

The reason the municipal court's judgment could bar nothing. A judgment in forcible entry or detainer "shall be conclusive with respect to the possession only and shall in no wise bind the title or affect the ownership of the land or building. Such judgment shall not bar an action between the same parties respecting title to the land or building."

That disposes of the res judicata plea twice over. The municipal court "over-stepped its bounds when it imposed upon the parties a situation of 'forced lease', which like 'forced co-ownership' is not favored in law," and since "a lease is an interest in real property, jurisdiction over which belongs to Courts of First Instance," it "acted without jurisdiction" and its decision "was null and void."

And even a valid judgment would not have barred this suit: "the rule on res judicata would not apply due to difference in cause of action. In the Municipal Court, the cause of action was the deprivation of possession, while in the action to quiet title, the cause of action was based on ownership."

The practical warning is worth keeping. An inferior court may find good faith and apply Article 448 in an ejectment case, but it cannot impose the lease that Article 448's second paragraph contemplates — that requires a court with jurisdiction over interests in real property.

Cited laws & provisions

Article 448, Civil Code

Civil Code

Why it is cited here

Three things follow, and the case turns on all three.

Full entry below ↓

Article 546, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title V (Possession), Chapter 3 (Effects of Possession)

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

Why it is cited here

Full entry below ↓

Article 548, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title V (Possession), Chapter 3 (Effects of Possession)

Why it is cited here

Full entry below ↓

Section 18, Rule 70, Rules of Court

Implementing Rules

Judgment conclusive only on possession; not conclusive in actions involving title or ownership

1997 Rules of Civil Procedure — Rule 70 (Forcible Entry and Unlawful Detainer)

Why it is cited here

Full entry below ↓

Facts

Francisco Depra owns Lot No. 685 at Dumangas, Iloilo, about 8,870 square metres under a Torrens title; Agustin Dumlao owns the adjoining Lot No. 683. When Dumlao built his house, its kitchen encroached on 34 square metres of Depra's land, discovered in a relocation survey in November 1972.
The parties stipulated that Dumlao was a builder in good faith. The Court pointedly declines to test this, according "legal effect to the agreement of the parties" — so the case is about what follows from good faith, not about proving it.
After a demand letter, Depra's mother sued for unlawful detainer in the Municipal Court of Dumangas in February 1973.
That court found Dumlao a builder in good faith and, applying Article 448, "ordered that a forced lease is created between the parties" over the 34 square metres at ₱5.00 a month. Neither party appealed; Depra refused the rentals and Dumlao deposited them in court. The unappealed judgment is what Dumlao later pleaded as res judicata — and it is void, because a lease is beyond a municipal court's reach.
In July 1974 Depra sued to quiet title in the CFI of Iloilo over the very same 34 square metres. Dumlao admitted the encroachment but pleaded res judicata.
Depra had refused both to pay for the kitchen and to sell the land, and Dumlao had expressed willingness to buy. This pair of positions is the whole case: the landowner wanted neither option the law gives him, and the builder was ready to take the second.
On a joint motion for judgment on stipulated facts, the trial court held the 34 square metres part of Depra's lot and that he "is entitled to possess the same" — saying nothing of indemnity or of the option. The bare declaration is the error under review: it implies a right to tear the kitchen down, which Article 448 does not give.

Issue

Secondary issue. Whether the unappealed decision of the Municipal Court, which created a forced lease, is res judicata to the action for quieting of title.

Ruling

"WHEREFORE, the judgment of the trial Court is hereby set aside, and this case is hereby ordered remanded to the Regional Trial Court of Iloilo for further proceedings consistent with Articles 448 and 546 of the Civil Code" — the Court then laying down a detailed remand scheme, set out in full in §V below. "No costs. SO ORDERED."

Ratio

The option is between two things, and refusing both is not one of them. "DEPRA has the option either to pay for the encroaching part of DUMLAO's kitchen, or to sell the encroached 34 square meters of his lot to DUMLAO. He cannot refuse to pay for the encroaching part of the building, and to sell the encroached part of his land."
Removal is conditional, and the condition had not happened. "[H]e 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."
A bare award of possession is error. "It was thus error for the Trial Court to have ruled that DEPRA is 'entitled to possession,' without more, of the disputed portion implying thereby that he is entitled to have the kitchen removed."
The builder's right of retention. "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."
What "indemnity" means. The landowner electing to appropriate pays either "the amount of the expenses spent by DUMLAO for the building of the kitchen" or "the increase in value ('plus value') which the said area of 34 square meters may have acquired by reason thereof" — the pairing Articles 546 and 548 supply.
The builder cannot be forced to buy a disproportionate lot. "[T]he 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... The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof."
The parties' stipulation of good faith is honoured, not re-examined. "Consistent with the principle that our Court system, like any other, must be a dispute resolving mechanism, we accord legal effect to the agreement of the parties, within the context of their mutual concession and stipulation... Hence, we shall refrain from further examining whether the factual situations of DUMLAO and DEPRA conform to the juridical positions respectively defined by law."
A void judgment cannot be res judicata. "Since the Municipal Court[ ]acted without jurisdiction, its Decision was null and void and cannot operate as res judicata to the subject complaint for Q[ui]eting of Title."
Why it was void. "The Municipal Court over-stepped its bounds when it imposed upon the parties a situation of 'forced lease', which like 'forced co-ownership' is not favored in law. Furthermore, a lease is an interest in real property, jurisdiction over which belongs to Courts of First Instance."
And independently, the causes of action differ. "In the Municipal Court, the cause of action was the deprivation of possession, while in the action to quiet title, the cause of action was based on ownership."
Why the law prefers the landowner. The Court reproduces Manresa's defence of the rule — the building is the accessory and the land the principal, so the owner of the land is given the election, subject always to full indemnity.

Doctrine

The Landowner Has Two Options, Not Three (Art. 448): appropriate after indemnity, or oblige the builder to buy. Refusing both is not permitted.
Demolition Is Conditional: it becomes available only after the landowner elects to sell and the builder fails to pay.
An Award of Bare Possession Against a Builder in Good Faith Is Error, because it implies a demolition the article does not authorise.
The Builder in Good Faith May Retain the Land Until Paid (Art. 546).
Indemnity Means Expenses or Plus Value, at the Landowner's Election (Arts. 546 and 548) — ornamental expenses are not refundable at all.
The Builder Cannot Be Compelled to Buy Land Worth Considerably More than the building; the fallback is a lease agreed by the parties or fixed by the court.
A "Forced Lease" Imposed by an Inferior Court Is Void: a lease is an interest in real property beyond a municipal court's jurisdiction, and forced leases "like 'forced co-ownership'[ ]" are "not favored in law."
An Ejectment Judgment Binds Possession Only (Rule 70, Sec. 18) and does not bar a later action on title.
A Stipulation of Good Faith Binds the Court, which will not re-open what the parties conceded.

Full Digest — Recitation Format

I. Gist and Central Doctrine

II. Chronological Narration of Material Facts

Francisco Depra is the registered owner of Lot No. 685, Cadastral Survey of Dumangas, municipality of Dumangas, Iloilo, of approximately 8,870 square metres, under Transfer Certificate of Title No. T-3087.
Agustin Dumlao owns the adjoining Lot No. 683, of approximately 231 square metres.
Sometime in 1972, when Dumlao constructed his house on his own lot, "the kitchen thereof had encroached on an area of thirty four (34) square meters of DEPRA's property." (The parties' Stipulation of Facts states instead that the encroaching portion "has been in the possession of the defendant since 1952 continuously up to the present." The decision reproduces both and reconciles neither; the 1952 date is the one used for computing compensation.)
On 2 November 1972, the encroachment was discovered "in a relocation survey of DEPRA's lot."
After writing a demand letter asking Dumlao to move back from his encroachment, Depra's mother Beatriz Depra filed an action for Unlawful Detainer on 6 February 1973 in the Municipal Court of Dumangas, docketed as Civil Case No. 1. The complaint was later amended to include Francisco Depra as a party plaintiff.
On 29 September 1973, the Municipal Court, "find[ing] that DUMLAO was a builder in good faith, and applying Article 448 of the Civil Code," rendered judgment "[o]rdering that a forced lease is created between the parties with the plaintiffs, as lessors, and the defendants as lessees, over the disputed portion with an area of thirty four (34) square meters, the rent to be paid is five (₱5.00) pesos a month... and the lease shall commence on the day that this decision shall have become final."
Neither party appealed that judgment. "[E]ven then, DEPRA did not accept payment of rentals so that DUMLAO deposited such rentals with the Municipal Court."
On 15 July 1974, Depra filed a Complaint for Quieting of Title against Dumlao before the Court of First Instance of Iloilo, Branch IV, "involving the very same 34 square meters, which was the bone of contention in the Municipal Court."
In his Answer, Dumlao admitted the encroachment but alleged "that the present suit is barred by res judicata by virtue of the Decision of the Municipal Court, which had become final and executory."
After the case was set for pre-trial, the parties submitted a Joint Motion for Judgment based on a Stipulation of Facts, paragraph 8 of which recorded that the 34-square-metre portion "built thereon in good faith is a portion of defendant's kitchen and has been in the possession of the defendant since 1952 continuously up to the present."
On 31 October 1974, the trial court issued the assailed Order: "the Court finds and so holds that the thirty four (34) square meters subject of this litigation is part and parcel of Lot 685... of which the plaintiff is owner as evidenced by Transfer Certificate of Title No. 3087 and such plaintiff is entitled to possess the same. Without pronouncement as to costs."
Depra answered the res judicata plea by contending that the Municipal Court's decision "was null and void ab initio because its jurisdiction is limited to the sole issue of possession, whereas decisions affecting lease, which is an encumbrance on real property, may only be rendered by Courts of First Instance."
The appeal went from the CFI of Iloilo to the Court of Appeals, which certified it to the Supreme Court as involving pure questions of law. On 16 May 1985 the Supreme Court set aside the trial court's order and remanded.

III. Arguments of the Parties

A. Plaintiff-Appellee (Francisco Depra)

B. Defendant-Appellant (Agustin Dumlao)

IV. Issues

A. MAIN ISSUE

Whether the landowner may refuse both to pay indemnity for the building and to sell the encroached land, and thereby obtain possession — in effect, removal of the improvement.

B. SECONDARY ISSUES

Whether the Municipal Court's decision creating a forced lease was valid.
Whether that decision operates as res judicata to the action for quieting of title.

V. Ruling / Disposition

A. MAIN ISSUE

B. SECONDARY ISSUES

The Municipal Court's decision is null and void. It "over-stepped its bounds when it imposed upon the parties a situation of 'forced lease', which like 'forced co-ownership' is not favored in law," and "a lease is an interest in real property, jurisdiction over which belongs to Courts of First Instance."
No res judicata. A void judgment cannot bar anything; a detainer judgment binds possession only and "shall not bar an action between the same parties respecting title to the land"; and the causes of action differ — "deprivation of possession" against "ownership."

C. The Remand Scheme

The Court remanded with directions that are the fullest working template for an Article 448 case:

2. After those amounts are determined, judgment shall issue as follows:

(a) Fifteen days to elect. The court "shall grant DEPRA a period of fifteen (15) days within which to exercise his option under the law" — to appropriate the kitchen by paying either "the expenses spent" or "the increase in value ('plus value')," or to oblige Dumlao to pay the price of the land. The amount due is then tendered to the court "within fifteen (15) days from such notice of the option."
(b) If the builder rejects the purchase because the land is worth "considerably more" than the kitchen, he must give written notice within fifteen days, and the parties then have fifteen days to agree on lease terms; failing agreement the court fixes them, at not less than ₱10.00 per month, for a forced lease of not more than two years from finality, the rent increased by ten percent in the second year. Dumlao "shall not make any further constructions or improvements on the kitchen." On expiry, or on default in rentals for two consecutive months, Depra "shall be entitled to terminate the forced lease, to recover his land, and to have the kitchen removed by DUMLAO or at the latter's expense."
(c) Compensation for past occupancy. "In any event, DUMLAO shall pay DEPRA an amount computed at Ten Pesos (₱10.00) per month as reasonable compensation for the occupancy of DEPRA's land for the period counted from 1952, the year DUMLAO occupied the subject area, up to the commencement date of the forced lease."
(d) The periods are inextendible, and default entitles the other party to "an order of execution for the enforcement of payment of the amount due."

"No costs. SO ORDERED."

VI. Ratio Decidendi and Doctrines

A. Ratio Decidendi

The two options, stated. "Pursuant to the foregoing provision, DEPRA has the option either to pay for the encroaching part of DUMLAO's kitchen, or to sell the encroached 34 square meters of his lot to DUMLAO."
And the prohibition. "He cannot refuse to pay for the encroaching part of the building, and to sell the encroached part of his land, as he had manifested before the Municipal Court. But that manifestation is not binding because it was made in a void proceeding."
The rule from Ignacio v. Hilario, quoted at length. "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 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."
And its consequence for an order of demolition. "[T]he order of Judge Natividad compelling defendants-petitioners to remove their buildings from the land belonging to plaintiffs-respondents only because the latter chose neither to pay for such buildings nor to sell the land, is null and void, for it amends substantially the judgment sought to be executed and is[,] furthermore, offensive to articles 361 (now Article 448) and 453 (now Article 546) of the Civil Code."
The trial court's error. "It was thus error for the Trial Court to have ruled that DEPRA is 'entitled to possession,' without more, of the disputed portion implying thereby that he is entitled to have the kitchen removed. He is entitled to such removal only when, after having chosen to sell his encroached land, DUMLAO fails to pay for the same. In this case, DUMLAO had expressed his willingness to pay for the land, but DEPRA refused to sell."
The disproportion ceiling. "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."
Stipulated good faith is honoured. "[W]e accord legal effect to the agreement of the parties, within the context of their mutual concession and stipulation. They have, thereby, chosen a legal formula to resolve their dispute[,] to app[l]y to DUMLAO the rights of a 'builder in good faith' and to DEPRA those of a 'landowner in good faith' as prescribed in Article 448. Hence, we shall refrain from further examining whether the factual situations of DUMLAO and DEPRA conform to the juridical positions respectively defined by law."
Nullity of the forced lease. "The judgment in a detainer case is effective in respect of possession only... The Municipal Court over-stepped its bounds when it imposed upon the parties a situation of 'forced lease', which like 'forced co-ownership' is not favored in law. Furthermore, a lease is an interest in real property, jurisdiction over which belongs to Courts of First Instance."
No res judicata, on two grounds. "Since the Municipal Court[ ]acted without jurisdiction, its Decision was null and void and cannot operate as res judicata... Besides, even if the Decision were valid, the rule on res judicata would not apply due to difference in cause of action." And "judgment in a detainer case 'shall not bar an action between the same parties respecting title to the land.'"
The philosophy of the article. Tracing Article 448 to Article 361 of the Spanish Civil Code, the Court reproduces Manresa's answer to the criticism that the rule unfairly privileges the landowner — the objection being that a builder in good faith built believing himself owner, and might not have built at all had he known he would have to buy the land.

B. Doctrines/Rules

Two Options and No Third (Art. 448).
Removal Only After an Election to Sell and a Failure to Pay.
Right of Retention in the Builder in Good Faith (Art. 546).
Indemnity Is Expenses or Plus Value, at the Landowner's Choice, with ornamental expenses excluded.
No Compulsory Purchase Where the Land Is Worth Considerably More; the fallback is a lease by agreement or by the court.
A "Forced Lease" Decreed by an Inferior Court Is Void for want of jurisdiction over interests in real property.
An Ejectment Judgment Is Conclusive on Possession Only (Rule 70, Sec. 18).
A Void Judgment Is Never Res Judicata, and in any case ejectment and quieting of title rest on different causes of action.
Courts Give Effect to the Parties' Stipulations rather than re-litigating what has been conceded.

C. Limitations/Exceptions

The holding rests on a stipulation of good faith, which the Court expressly refused to examine. It is therefore no authority on when a builder is in good faith — for that, see Del Campo v. Abesia and Macasaet v. Macasaet.
Demolition is not abolished. It remains available at the end of the chain: after an election to sell and a failure to pay, and again at the end of the two-year forced lease or on default in rentals.
The forced lease the Court itself imposes is not inconsistent with its condemnation of the Municipal Court's. The difference is jurisdiction and statutory basis — a lease under the second paragraph of Article 448 fixed by a court competent over interests in real property, not a lease invented in an ejectment case.
The compensation for past occupancy runs "from 1952," which sits uneasily with the statement that the house was built "sometime in 1972." The decision does not resolve the conflict.
The Court disposed of the case on pure questions of law certified from the Court of Appeals, on a stipulation of facts — so nothing here rests on an evaluation of evidence.

D. Topic Integration

The relationship is DIRECT.
On the assigned subtopic — the landowner's right to remove or demolish — the answer is that there is no such free-standing right. Demolition is the tail end of a sequence, and a landowner who reaches for it first has skipped the steps the law requires.
Memorise the sequence, because exam problems are built on it: (1) landowner elects — appropriate on indemnity, or sell; (2) if he elects to sell but the land is worth considerably more than the building, the builder may refuse and a lease is fixed instead; (3) only if he elects to sell and the builder fails to pay does removal arise; (4) throughout, the builder in good faith retains the land until indemnified.
The remand scheme is worth reading as a checklist of the facts an Article 448 case actually needs: the present fair price of the land, the expenses of building, the plus value, and whether the land is worth considerably more than the improvement. A judgment that does not find these cannot be executed.
Note finally the jurisdictional point, which is the one students most often miss because it appears under res judicata. A municipal court in an ejectment case may find good faith, but the remedy Article 448 ultimately requires may exceed its powers — and a judgment beyond jurisdiction binds nobody, however final it looks.