Heirs of Marcelino Cabal v. Spouses Lorenzo and Rosita Cabal

d. Disputed portion/portions already concretely determined; and (Chapter V) possession in good faith

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Case DigestChapter III — Co-ownership

Heirs of Marcelino Cabal v. Spouses Lorenzo and Rosita Cabal

G.R. No. 153625 · July 31, 2006 · Supreme Court

d. Disputed portion/portions already concretely determined; and (Chapter V) possession in good faith

Gist

Marcelino built his house on part of his father's land in 1949 with his father's consent, and lived there ever after. A 1976 subdivision survey then assigned him a different, adjacent lot. Decades later his brother Lorenzo, to whom the occupied lot had been titled, sued to recover it. The Supreme Court held there had never been co-ownership over the portion Marcelino occupied — it was concretely determined before the co-ownership arose — and that he was a builder in good faith, remanding for the application of Article 448.

Core Doctrine

Two holdings. On co-ownership: "there is no co-ownership where the portion owned is concretely determined and identifiable, though not technically described," nor does its being embraced in one certificate of title make it "less determinable or identifiable, or distinguishable, one from the other, nor... dominion over each portion less exclusive" — so a share physically segregated before the community arose was never part of it. On good faith: one is a possessor in good faith "if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it," good faith "is always presumed," and a builder in good faith is governed by Article 448 until he is informed of his encroachment.

Facts

Marcelo Cabal owned a 4,234-square-metre parcel at Barrio Palanginan, Iba, Zambales, designated Lot G and covered by OCT No. 29.
Sometime in 1949, five years before he died, Marcelo allowed his son Marcelino to build his house on a portion of Lot G — now the southernmost portion of Lot 1-E under TCT No. 43419 — and Marcelino resided there ever after; his son later built a house there too. This is the fact that decides the co-ownership question. The portion was physically segregated by the father's own act five years before the co-ownership among the heirs came into being.
In August 1954, Marcelo died, survived by his wife Higinia Villanueva and nine children: Marcelino, Daniel, Cecilio, Natividad, Juan, Margarita, Lorenzo, Lauro and Anacleto. (Only on his death did the heirs' co-ownership arise — and by then Marcelino's share "was already particularly designated or physically segregated.")
On August 17, 1964, the heirs extrajudicially settled Lot G into undivided equal shares of 423.40 square metres each, and TCT No. T-8635 issued in their names.
On September 12, 1976, the heirs subdivided Lot G into Lot G-1 for Marcelino (TCT No. T-22656) and Lot G-2 for the rest (TCT No. 22657). This is the survey that "spawned the dilemma": it "designated Lot G-1 as Marcelino's share in the inheritance notwithstanding his possession since 1949 of a definite portion of Lot G" — a different, adjacent lot.
On March 1, 1977, Marcelino mortgaged Lot G-1 to the Rural Bank of San Antonio (Zambales), Inc.; the mortgage was released December 19, 1983. (The respondents pointed to this as proof he knew Lot G-1 was his; the Court holds it "not an indication of bad faith since there is no concrete evidence that he was aware at that time that the property covered by the title and the one he was occupying were not the same." He never built on Lot G-1.)
Lot G-2 was further subdivided; the remaining Lot 1 of 3,387.20 square metres became TCT No. T-24533. On August 3, 1978, its co-owners executed a Deed of Agreement of Partition with Sale, in which Lorenzo bought the shares of Higinia, Margarita, Daniel and Natividad, bringing his share to 1,737 square metres.
On January 13, 1982, geodetic engineers Dominador L. Santos and Eufemio A. Abay surveyed Lot 1, producing subdivision plan (LRC) Psd-307100 designating Lot 1-E to Lorenzo; the plan was approved by the Director of Lands May 7, 1982. A Subdivision Agreement followed June 7, 1990, and TCT No. 43419 over Lot 1-E issued to Lorenzo on July 13, 1993.
The subdivision plan revealed that Marcelino and his son occupied a 423-square-metre area on the southernmost portion of Lot 1-E, not the adjacent Lot G-1 titled in his name. Respondents Lorenzo and Rosita Cabal confronted him, and on March 1, 1989 the parties agreed to a re-survey and swapping of lots for reconstruction of titles. The Court treats that agreement as evidence for Marcelino: it is "substantial proof of... good faith, sincerity of purpose and lack of intention to hold on to two lots."
The resurvey and swap did not materialise, barangay settlement failed, and on August 10, 1994 respondents sued Marcelino for Recovery of Possession with Damages in the MTC of Iba, Zambales (Civil Case No. 735), alleging he built in bad faith knowing the adjacent lot was titled to him. He answered August 26, 1994 pleading possession in good faith since 1949 with the co-heirs' knowledge and acquiescence, and acquisitive prescription.
Lorenzo died during the trial, on January 24, 1997; Marcelino died while his petition was pending in the Court of Appeals.
On November 19, 1997, the MTC ruled for Marcelino on prescription, ordering the plaintiffs to relinquish possession, remove improvements, and pay ₱10,000 moral, ₱5,000 exemplary damages and ₱20,000 attorney's fees. On August 10, 2000, the RTC, Branch 70, Iba reversed, holding Marcelino's possession was "in the concept of a co-owner" so prescription did not run and tolerated possession "does not ripen into ownership," and awarded the same sums against him.
On September 27, 2001, the Court of Appeals affirmed in toto, reasoning that Marcelino's good faith "diminished after Lot G was surveyed" and that he wished "to hold on to both" lots, which "will double his inheritance to the detriment of his brother Lorenzo." Reconsideration was denied May 22, 2002. The Supreme Court calls that conclusion "pure speculation, palpably unsupported by the evidence on record."

Issue

Whether Marcelino may be adjudged a possessor and builder in good faith of the disputed 423-square-metre portion of Lot 1-E, so that his rights are governed by Article 448 — and in particular whether his good faith ceased when Lot G was surveyed in 1976.

Secondary issues. Whether the disputed portion was ever held in co-ownership; whether acquisitive prescription had set in; and whether the petitioners' alternative prayer for a swapping of lots may be granted.

Ruling

Main issue. YES — Marcelino is deemed a builder in good faith, and the case is remanded for the application of Article 448. Good faith "is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof"; it "implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry," its essence being "an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another," and applied to possession one is in good faith "if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it". Marcelino's possession "was based on a mistaken belief that Lot G-1 is the same lot on which he has built his house with the consent of his father," and "[t]here is no evidence, other than bare allegation, that Marcelino was aware that he intruded on respondents' property" after the 1976 partition. The 1977 mortgage of Lot G-1 is "not an indication of bad faith since there is no concrete evidence that he was aware at that time that the property covered by the title and the one he was occupying were not the same"; he built nothing on Lot G-1; and the March 1, 1989 agreement to resurvey and swap "is substantial proof of Marcelino's good faith, sincerity of purpose and lack of intention to hold on to two lots." The Court of Appeals' contrary conclusion "is pure speculation, palpably unsupported by the evidence on record." Marcelino is therefore a builder in good faith "at least until the time he was informed by respondents of his encroachment on their property," and Article 448 governs — the owner electing either to appropriate the improvements on payment of the indemnity under Articles 546 and 548, or to oblige the builder to buy the land, unless its value is considerably more than the building, in which case rent is paid on terms the court fixes. Following Depra v. Dumlao, the case is remanded to determine "the option that respondents would take and the amount of indemnity that they would pay."

Secondary issues. No co-ownership over the disputed portion; no prescription; and no swapping. Marcelino built with his father's consent in 1949 and possessed with his co-heirs' knowledge, "such that even before his father died in 1954, when the co-ownership was created, his inheritance or share in the co-ownership was already particularly designated or physically segregated"; hence "even before Lot G was subdivided in 1976, Marcelino already occupied the disputed portion and even then co-ownership did not apply over the disputed lot." "Elementary is the rule that there is no co-ownership where the portion owned is concretely determined and identifiable, though not technically described", nor does a common certificate make the portions "less determinable or identifiable, or distinguishable, one from the other, nor... dominion over each portion less exclusive" — so "it would have been just and equitable to have segregated said portion in his favor and not one adjacent to it." On prescription, the evidence "were sorely insufficient": the tax declaration and receipts "factually established only that Marcelino had been religiously paying realty taxes on Lot G-1," the lot he did not occupy, and such documents "can only be the basis of a claim of ownership through prescription when coupled with proof of actual possession"; besides, prescription was dropped after the MTC and is "deemed... abandoned." The alternative prayer to swap lots "cannot be granted," neither side having prayed for it or alleged the swapping agreement below — "[t]hey are deemed to have renounced or abandoned any enforceable right they had under the swapping agreement."

"WHEREFORE, the instant petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 64729 are REVERSED and SET ASIDE. The case is REMANDED to the court of origin for further proceedings to determine the facts essential to the proper application of Article 448 in relation to Articles 546 and 548 of the Civil Code. No pronouncement as to costs. SO ORDERED."

Ratio

Why the Court reviews the facts. Findings of the Court of Appeals are generally conclusive, but exceptions apply — among them where findings "are grounded entirely on speculation, surmises or conjectures," where "the inference made is manifestly mistaken, absurd or impossible," where "the judgment is based on a misapprehension of facts," and where the CA "manifestly overlooked certain relevant facts not disputed by the parties." "The Court finds that exceptions (1), (2), (4) and (11) apply."
The share was segregated before the community existed. "It is undisputed that Marcelino built his house on the disputed property in 1949 with the consent of his father. Marcelino has been in possession of the disputed lot since then with the knowledge of his co-heirs, such that even before his father died in 1954, when the co-ownership was created, his inheritance or share in the co-ownership was already particularly designated or physically segregated. Thus, even before Lot G was subdivided in 1976, Marcelino already occupied the disputed portion and even then co-ownership did not apply over the disputed lot."
The rule. "Elementary is the rule that there is no co-ownership where the portion owned is concretely determined and identifiable, though not technically described, or that said portion is still embraced in one and the same certificate of title [which] does [not] make said portion less determinable or identifiable, or distinguishable, one from the other, nor that dominion over each portion less exclusive, in their respective owners."
What should have happened. "Thus, since Marcelino built a house and has been occupying the disputed portion since 1949, with the consent of his father and knowledge of the co-heirs, it would have been just and equitable to have segregated said portion in his favor and not one adjacent to it. Undoubtedly, the subdivision survey effected in 1976 spawned the dilemma in the present case."
Prescription fails on the evidence. Prescription requires possession "in the concept of an owner, public, peaceful, uninterrupted and adverse"; ordinary acquisitive prescription needs good faith and just title for ten years, extraordinary needs thirty years without title or good faith. Here the proof "were sorely insufficient": the tax declaration and receipts "factually established only that Marcelino had been religiously paying realty taxes on Lot G-1," and "[t]ax declarations and receipts can only be the basis of a claim of ownership through prescription when coupled with proof of actual possession." "Evidently, Marcelino declared and paid realty taxes on property which he did not actually possess."
And by abandonment. "Marcelino no longer invoked prescription in his pleadings before the RTC and CA; neither did herein petitioners raise prescription in their petition and memorandum before this Court... They are thus deemed to have abandoned the defense of prescription."
Good faith is presumed. "It has been said that good faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof."
What good faith means. It "encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage"; it "implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry"; its essence "lies in an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another"; and applied to possession, "one is considered in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it".
Applied. "Marcelino's possession of the disputed lot was based on a mistaken belief that Lot G-1 is the same lot on which he has built his house with the consent of his father. There is no evidence, other than bare allegation, that Marcelino was aware that he intruded on respondents' property when he continued to occupy and possess the disputed lot after partition was effected in 1976."
The two pieces of conduct. The 1977 mortgage of Lot G-1 "is not an indication of bad faith since there is no concrete evidence that he was aware at that time that the property covered by the title and the one he was occupying were not the same. There is also no evidence that he introduced improvements on Lot G-1. In fact, the agreement on March 1, 1989 to a resurvey and swapping of lots for the purpose of reconstructing the land titles is substantial proof of Marcelino's good faith, sincerity of purpose and lack of intention to hold on to two lots. Thus, the CA's conclusion that Marcelino intended to hold on to both the disputed lot and Lot G-1 is pure speculation, palpably unsupported by the evidence on record."
The consequence. "Marcelino is deemed a builder in good faith at least until the time he was informed by respondents of his encroachment on their property." Article 448 then applies, and "[t]he right to choose between appropriating the improvement or selling the land on which the improvement stands to the builder, planter or sower, is given to the owner of the land."
Why a remand. "In accordance with Depra v. Dumlao, this case must be remanded to the trial court to determine matters necessary for the proper application of Article 448 in relation to Articles 546 and 548. Such matters include the option that respondents would take and the amount of indemnity that they would pay, should they decide to appropriate the improvements on the lots."
No swapping. "Respondents and Marcelino... did not pray for swapping of lots in all their pleadings below. Both parties also did not allege the existence of a swapping agreement in their initial pleadings, much less pursue the enforcement of the swapping agreement. They are deemed to have renounced or abandoned any enforceable right they had under the swapping agreement and the parties cannot be compelled to a swapping of lots."

Doctrine

No Co-Ownership Over a Concretely Determined Portion (Art. 484): "[T]here is no co-ownership where the portion owned is concretely determined and identifiable, though not technically described," and a common certificate of title does not make the portions less determinable or dominion over each less exclusive.
Segregation May Precede the Community: Where a portion was already physically designated before the co-ownership arose — here by the father's consent in 1949, five years before his death — "co-ownership did not apply over the disputed lot" at all.
Good Faith Is Presumed (Art. 526): "[U]pon him who alleges bad faith on the part of the possessor rests the burden of proof." Good faith is "honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry," and in possession it means being unaware of any invalidating flaw.
Conduct Is the Evidence: Mortgaging the titled-but-unoccupied lot is not bad faith absent proof of awareness; agreeing to a resurvey and swap is "substantial proof of... good faith, sincerity of purpose and lack of intention to hold on to two lots."
Builder in Good Faith and Article 448: The landowner elects to appropriate the works on payment of the indemnity in Articles 546 and 548, or to oblige the builder to buy the land — the choice is the owner's — unless the land's value is considerably more, in which case a forced lease at reasonable rent arises.
Remand for the Option and the Indemnity: Following Depra v. Dumlao, the option and the amount are matters for the trial court.
Tax Declarations Do Not Prove Prescription Alone (Art. 1117): They "can only be the basis of a claim of ownership through prescription when coupled with proof of actual possession" — and here they covered the wrong lot.
Defences and Prayers Not Pressed Are Abandoned: Prescription dropped after the MTC, and a swapping agreement never pleaded, are both "deemed... abandoned."

Note the temporal limit on the good faith. Marcelino is a builder in good faith "at least until the time he was informed by respondents of his encroachment" — the same cut-off as in Rosales v. Castelltort. What he built before that notice is protected by Article 448; the finding says nothing about anything done after it.

Full Digest — Recitation Format

I. Gist and Central Doctrine

Relationship to requested topic: DIRECT. Marcelino Cabal built his house on part of his father Marcelo's Lot G in 1949 with his father's consent, and lived there for forty-five years. Marcelo died in 1954, the heirs partitioned in 1976, and the survey assigned Marcelino Lot G-1 — a lot adjacent to the one he actually occupied, which ended up titled to his brother Lorenzo as Lot 1-E. Lorenzo's spouses sued to recover it. The MTC ruled for Marcelino on prescription, the RTC and Court of Appeals for the respondents; the Supreme Court reversed and remanded. The central doctrines are that "there is no co-ownership where the portion owned is concretely determined and identifiable, though not technically described" — so the strip Marcelino occupied was never part of the heirs' community — and that he was a builder in good faith, entitled to the regime of Article 448.

II. Chronological Narration of Material Facts

During his lifetime Marcelo Cabal owned a 4,234-square-metre parcel at Barrio Palanginan, Iba, Zambales, described as Lot G and covered by OCT No. 29 of the Registry of Deeds of Zambales.
Sometime in 1949, five years before he died, "Marcelo allowed his son, Marcelino, to build his house on a portion of Lot G, now the southernmost portion of Lot 1-E of Transfer Certificate of Title (TCT) No. 43419." Marcelino resided there from then on, and later his son also built a house on the disputed property.
In August 1954, Marcelo died, survived by his wife Higinia Villanueva and his children Marcelino, Daniel, Cecilio, Natividad, Juan, Margarita, Lorenzo, Lauro and Anacleto.
On August 17, 1964, Marcelo's heirs "extra-judicially settled among themselves Lot G into undivided equal shares of 423.40-square meters each," and TCT No. T-8635 issued in their names.
On September 17, 1973, Daniel sold 380 square metres of his 423.40-square-metre undivided share to spouses Oscar Merete and Clarita Ebue.
On September 12, 1976, the heirs subdivided Lot G into Lot G-1 in favour of Marcelino (TCT No. T-22656) and Lot G-2 in favour of the other heirs (TCT No. 22657).
On March 1, 1977, Marcelino mortgaged Lot G-1 to the Rural Bank of San Antonio (Zambales), Inc.; the mortgage was released on December 19, 1983.
Lot G-2 was further subdivided under consolidated subdivision plan (LRC) Pcd-24078, the remaining Lot 1 of 3,387.20 square metres becoming TCT No. T-24533 with Higinia, Margarita, Natividad, Lorenzo, Daniel, Oscar Merete, Cecilio, Carmelita C. Pagar and Anacleto as co-owners.
On August 3, 1978, the co-owners of Lot 1 executed a Deed of Agreement of Partition with Sale, allotting 423.40 square metres each to Higinia, Margarita, Natividad, Lorenzo, Cecilio, Carmelita C. Pagar and Anacleto, 43.4 to Daniel and 380 to Oscar Merete. In the same deed Lorenzo bought the shares of Higinia, Margarita, Daniel and Natividad, bringing his share to 1,737 square metres, and Cecilio sold his share to Marcela B. Francia.
On January 13, 1982, Geodetic Engineer Dominador L. Santos and Junior Geodetic Engineer Eufemio A. Abay surveyed Lot 1, producing subdivision survey plan (LRC) Psd-307100 designating Lots 1-A to 1-E to Carmelita C. Pagar, Marcela B. Francia, the Merete spouses, Anacleto and Lorenzo respectively; the plan was approved by the Director of the Bureau of Lands on May 7, 1982.
On June 7, 1990, the co-owners of Lot 1 executed a Subdivision Agreement based on the approved plan, and on July 13, 1993, TCT No. 43419 covering Lot 1-E issued in Lorenzo's name.
The subdivision plan revealed "that Marcelino and his son occupied and built their houses on a 423-square meter area located on the southernmost portion of Lot 1-E and not the adjacent lot designated as Lot G-1 under TCT No. T-22656." Respondents Lorenzo and Rosita Cabal confronted Marcelino, which resulted on March 1, 1989 in "an agreement... to a re-survey and swapping of lots for the purpose of reconstruction of land titles."
The agreed resurvey and swapping "did not materialize," and efforts to settle at the barangay level "proved futile."
On August 10, 1994, respondents filed a complaint for Recovery of Possession with Damages against Marcelino before the MTC of Iba, Zambales (Civil Case No. 735), alleging he "introduced improvements in bad faith on their land with knowledge that the adjacent lot is titled in his name."
On August 26, 1994, Marcelino answered with counterclaim, contending "that he has been in possession in good faith since 1949 with the respondents' knowledge and acquiescence," and that "acquisitive prescription has set in."
On January 24, 1997, during the trial, Lorenzo died.
On November 19, 1997, the MTC ruled for Marcelino, directing the plaintiffs to relinquish possession and remove their improvements, and to pay ₱10,000 moral damages, ₱5,000 exemplary damages and ₱20,000 attorney's fees; it reasoned "that prescription or the length of time by which Marcelino has held or possessed the property has barred the respondents from filing a claim." Reconsideration was denied February 5, 1998.
On August 10, 2000, the RTC, Branch 70, Iba, Zambales (RTC-1489-I) reversed, ordering Marcelino to vacate the 423 square metres within Lot 1-E, remove his improvements, and pay ₱10,000 and ₱5,000 moral and exemplary damages and ₱20,000 attorney's fees. It held "that Marcelino's possession was in the concept of a co-owner and therefore prescription does not run in his favor; that his possession, which was tolerated by his co-owners, does not ripen into ownership." Reconsideration was denied May 3, 2001.
Marcelino died during the pendency of his petition for review in the Court of Appeals (CA-G.R. SP No. 64729).
On September 27, 2001, the Court of Appeals affirmed in toto, holding "that Marcelino may have been in good faith when he started to occupy the disputed portion in 1949 but his occupation in good faith diminished after Lot G was surveyed when he was apprised of the fact that the portion he was occupying was not the same as the portion titled in his name," and that he "would like to hold on to both" lots, which "will double his inheritance to the detriment of his brother Lorenzo." Reconsideration was denied May 22, 2002.
On June 6, 2002, the heirs of Marcelino, represented by his widow Victoria Cabal, filed the present petition; on July 31, 2006 the Supreme Court granted it.

III. Arguments of the Parties

A. Petitioners (Heirs of Marcelino Cabal)

Petitioners contended that "since 1949 Marcelino has claimed no other portion as his inheritance from Marcelo, except the disputed lot"; that he "believed in good faith that the disputed lot is Lot G-1"; that he "never intended to hold on to both lots since he did not introduce any improvement on Lot G-1 and he even agreed to a resurvey, swapping of lots and reconstruction of title after discovery of the mistake in 1989"; that he became aware of the flaw only before the March 1, 1989 agreement, "long after he had introduced considerable improvements"; and that he "should not be faulted for believing that the disputed lot is his titled property because he is a layman, not versed with the technical description of properties." They asked that he be adjudged a builder in good faith, or alternatively that a swapping of lots be ordered.

B. Respondents (Spouses Lorenzo and Rosita Cabal)

Respondents submitted "that Marcelino cannot be adjudged a builder in good faith since he exhibited blatant and deliberate bad faith in dealing with respondents," having built on their land with knowledge that the adjacent lot was titled in his own name.

C. Common Ground

"It is undisputed that Marcelino built his house on the disputed property in 1949 with the consent of his father," and that he has possessed it since "with the knowledge of his co-heirs."

IV. Issues

A. MAIN ISSUE

Whether Marcelino was a possessor and builder in good faith of the disputed portion, and in particular whether his good faith "began to diminish after Lot G was surveyed."

B. SECONDARY ISSUES

Whether the disputed portion was ever subject to co-ownership; whether acquisitive prescription had set in; and whether the alternative prayer for a swapping of lots may be granted.

V. Ruling / Disposition

A. MAIN ISSUE

YES — he is a builder in good faith, and Article 448 applies. "Marcelino's possession of the disputed lot was based on a mistaken belief that Lot G-1 is the same lot on which he has built his house with the consent of his father. There is no evidence, other than bare allegation, that Marcelino was aware that he intruded on respondents' property when he continued to occupy and possess the disputed lot after partition was effected in 1976." The 1977 mortgage "is not an indication of bad faith," no improvements were made on Lot G-1, and the 1989 agreement to resurvey and swap "is substantial proof of Marcelino's good faith, sincerity of purpose and lack of intention to hold on to two lots." The CA's contrary conclusion "is pure speculation, palpably unsupported by the evidence on record." "Marcelino is deemed a builder in good faith at least until the time he was informed by respondents of his encroachment on their property."

B. SECONDARY ISSUES

No co-ownership, no prescription, no swapping. "[E]ven before his father died in 1954, when the co-ownership was created, his inheritance or share in the co-ownership was already particularly designated or physically segregated. Thus, even before Lot G was subdivided in 1976, Marcelino already occupied the disputed portion and even then co-ownership did not apply over the disputed lot." On prescription, the evidence "were sorely insufficient," the tax declaration and receipts covering Lot G-1, which he did not possess, and the defence was in any event "abandoned." The swapping prayer "cannot be granted," never having been pleaded below.

"WHEREFORE, the instant petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 64729 are REVERSED and SET ASIDE. The case is REMANDED to the court of origin for further proceedings to determine the facts essential to the proper application of Article 448 in relation to Articles 546 and 548 of the Civil Code. No pronouncement as to costs. SO ORDERED."

VI. Ratio Decidendi and Doctrines

A. Ratio Decidendi

Review of facts is warranted. Exceptions "(1), (2), (4) and (11)" apply — findings "grounded entirely on speculation, surmises or conjectures," an inference "manifestly mistaken, absurd or impossible," a judgment "based on a misapprehension of facts," and relevant undisputed facts "manifestly overlooked."
The portion was segregated before the co-ownership arose. "Marcelino has been in possession of the disputed lot since then with the knowledge of his co-heirs, such that even before his father died in 1954, when the co-ownership was created, his inheritance or share in the co-ownership was already particularly designated or physically segregated."
The governing rule. "Elementary is the rule that there is no co-ownership where the portion owned is concretely determined and identifiable, though not technically described" — nor does inclusion in one certificate make the portions "less determinable or identifiable, or distinguishable, one from the other, nor... dominion over each portion less exclusive."
What follows. "[I]t would have been just and equitable to have segregated said portion in his favor and not one adjacent to it. Undoubtedly, the subdivision survey effected in 1976 spawned the dilemma in the present case."
Prescription. It requires possession "in the concept of an owner, public, peaceful, uninterrupted and adverse," ordinary prescription needing good faith and just title for ten years and extraordinary needing thirty years without either. The evidence "were sorely insufficient": tax declarations and receipts "can only be the basis of a claim of ownership through prescription when coupled with proof of actual possession," and Marcelino "declared and paid realty taxes on property which he did not actually possess." The defence was also "abandoned" after the MTC.
Good faith presumed. "[G]ood faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof."
Its content. Good faith "encompasses... an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage"; it "implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry"; its essence "lies in an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another"; and in possession, one is in good faith "if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it".
Applied to the conduct. The mortgage of Lot G-1 in 1977 is "not an indication of bad faith since there is no concrete evidence that he was aware at that time that the property covered by the title and the one he was occupying were not the same"; "[t]here is also no evidence that he introduced improvements on Lot G-1"; and the 1989 resurvey-and-swap agreement "is substantial proof of Marcelino's good faith, sincerity of purpose and lack of intention to hold on to two lots."
The regime. Article 448, quoted in full, gives the landowner the right "to appropriate as his own the works... 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," the builder not being obliged to buy "if its value is considerably more than that of the building," in which case he "shall pay reasonable rent" on terms the court fixes. "The right to choose... is given to the owner of the land."
Remand. "In accordance with Depra v. Dumlao, this case must be remanded to the trial court to determine matters necessary for the proper application of Article 448 in relation to Articles 546 and 548."
No swapping. Neither side "pray[ed] for swapping of lots in all their pleadings below," nor alleged the agreement in their initial pleadings, so "[t]hey are deemed to have renounced or abandoned any enforceable right they had under the swapping agreement."

B. Doctrines/Rules

No Co-Ownership Over a Determined Portion (Art. 484): Concrete determination defeats co-ownership even without a technical description, and even under a single certificate of title.
Segregation Before the Community: A portion designated by the ancestor's own act before his death never enters the heirs' co-ownership.
Good Faith Presumed (Art. 526): The burden of proving bad faith lies on the one alleging it; good faith is unawareness of an invalidating flaw.
Builder in Good Faith (Art. 448): The landowner elects between appropriating the works on payment of the Article 546/548 indemnity and obliging the builder to buy the land; a forced lease follows where the land is worth considerably more.
Prescription Needs Possession, Not Just Receipts (Art. 1117): Tax declarations count only "when coupled with proof of actual possession."
Abandonment: A defence dropped on appeal, and a prayer never pleaded, are treated as renounced.

C. Limitations/Exceptions

The good faith is bounded in time — "at least until the time he was informed by respondents of his encroachment on their property."
The Court did not fix the option or the indemnity; both are for the trial court on remand under Depra v. Dumlao.
The swapping agreement of March 1, 1989 was treated as evidence of good faith, not as an enforceable contract, neither party having sued on it.

D. Topic Integration

The relationship is DIRECT, and the case is assigned twice — under co-ownership for "Disputed portion/portions already concretely determined," and again under Possession.
On co-ownership it extends Si v. Court of Appeals in an instructive direction. In Si the portions were concretely determined by deeds; here by occupation with the owner's consent, years before the co-ownership was even created. Either way the community never attaches to the identified portion.
On possession it is a clean illustration of how good faith is proved and disproved: not by protestation but by conduct — what the possessor built, where he built it, what he did when told of the mistake.
It also warns about tax declarations, which students reach for reflexively. Marcelino paid faithfully for forty years and it availed him nothing, because he was paying on the wrong lot.

VII. Separate Opinions

NOT IN RECORD. The decision was penned for the First Division with Chief Justice Panganiban and Justices Ynares-Santiago, Callejo, Sr. and Chico-Nazario concurring.

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 484, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title III (Co-Ownership)

There is co-ownership whenever the ownership of an undivided thing or right belongs to different persons.

In default of contracts, or of special provisions, co-ownership shall be governed by the provisions of this Title. (392)

Why it is cited here

The definition, and the reason the community never covered the disputed strip. "There is co-ownership whenever the ownership of an undivided thing or right belongs to different persons."

The timing is what makes this case distinctive. Marcelo consented to Marcelino building in 1949; Marcelo died in 1954, and only then did the co-ownership among the heirs arise. So "even before his father died in 1954, when the co-ownership was created, his inheritance or share in the co-ownership was already particularly designated or physically segregated" — and "even before Lot G was subdivided in 1976, Marcelino already occupied the disputed portion and even then co-ownership did not apply over the disputed lot."

The rule the Court applies is the one from Si v. Court of Appeals: "there is no co-ownership where the portion owned is concretely determined and identifiable, though not technically described," and a common certificate does not make the portions "less determinable or identifiable, or distinguishable, one from the other, nor... dominion over each portion less exclusive."

Civil Code

Article 526, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title V (Possession), Chapter 1 (Possession and the Kinds Thereof)

He is deemed a possessor in good faith who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.

He is deemed a possessor in bad faith who possesses in any case contrary to the foregoing.

Mistake upon a doubtful or difficult question of law may be the basis of good faith. (433a)

Why it is cited here

The test of good faith the Court applies to Marcelino: a possessor in good faith is one "not aware that there exists in his title or mode of acquisition any flaw which invalidates it."

The Court fills it out: good faith "encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage," and "implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry." Its essence is "an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another."

Two evidentiary consequences run through the judgment. Good faith "is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof." And it is not disproved by protestation or inference: mortgaging Lot G-1 in 1977 was "not an indication of bad faith since there is no concrete evidence that he was aware at that time that the property covered by the title and the one he was occupying were not the same," while agreeing in 1989 to a resurvey and swap is "substantial proof of Marcelino's good faith, sincerity of purpose and lack of intention to hold on to two lots."

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 regime that follows from good faith, quoted in full by the Court. The landowner "shall have the right to appropriate as his own the works... 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"; but "the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building," in which case he pays reasonable rent on terms the court fixes if the parties disagree.

"The right to choose between appropriating the improvement or selling the land... is given to the owner of the land" — not to the builder, and not to the court.

Because the choice and the indemnity are both factual, the Court does not decide them: on the authority of Depra v. Dumlao it remands so the trial court can determine "the option that respondents would take and the amount of indemnity that they would pay."

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

What the indemnity covers if the owner appropriates: necessary expenses are refunded to every possessor, and the possessor in good faith additionally recovers useful expenses, with the right of retention until reimbursed.

Read with Article 548, which governs expenses for pure luxury or mere pleasure — not refunded, though the good-faith possessor may remove the ornaments if the principal thing suffers no injury and the owner does not elect to keep them by paying their value.

This is the practical stake of the good-faith finding for Marcelino's heirs. A builder in bad faith loses what he built without indemnity; a builder in good faith either gets paid for it or gets the land.

Civil Code

Article 1117, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book III (Different Modes of Acquiring Ownership), Title V (Prescription), Chapter 2 (Prescription of Ownership and Other Real Rights)

Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary.

Ordinary acquisitive prescription requires possession of things in good faith and with just title for the time fixed by law. (1940a)

Why it is cited here

The defence that failed, and why. Acquisitive prescription "is either ordinary or extraordinary": ordinary requires possession in good faith and with just title for ten years; extraordinary vests ownership through "uninterrupted adverse possession... for thirty years, without need of title or of good faith." Possession must throughout be "in the concept of an owner, public, peaceful, uninterrupted and adverse."

Marcelino pleaded prescription in the MTC and it carried him there — but "the evidence presented... were sorely insufficient." His tax declaration and receipts "factually established only that Marcelino had been religiously paying realty taxes on Lot G-1," the lot he did not occupy, and "[t]ax declarations and receipts can only be the basis of a claim of ownership through prescription when coupled with proof of actual possession."

He also lost the point by abandonment: he "no longer invoked prescription in his pleadings before the RTC and CA," nor did his heirs before the Supreme Court, so "[t]hey are thus deemed to have abandoned the defense of prescription."

Cited laws & provisions

Article 484, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title III (Co-Ownership)

There is co-ownership whenever the ownership of an undivided thing or right belongs to different persons.

In default of contracts, or of special provisions, co-ownership shall be governed by the provisions of this Title. (392)

Why it is cited here

The definition, and the reason the community never covered the disputed strip. "There is co-ownership whenever the ownership of an undivided thing or right belongs to different persons."

Full entry below ↓

Article 526, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book II (Property, Ownership, and Its Modifications), Title V (Possession), Chapter 1 (Possession and the Kinds Thereof)

He is deemed a possessor in good faith who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.

He is deemed a possessor in bad faith who possesses in any case contrary to the foregoing.

Mistake upon a doubtful or difficult question of law may be the basis of good faith. (433a)

Why it is cited here

The test of good faith the Court applies to Marcelino: a possessor in good faith is one "not aware that there exists in his title or mode of acquisition any flaw which invalidates it."

Full entry below ↓

Article 448, Civil Code

Civil Code

Why it is cited here

"The right to choose between appropriating the improvement or selling the land... is given to the owner of the land" — not to the builder, and not to the court.

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 1117, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book III (Different Modes of Acquiring Ownership), Title V (Prescription), Chapter 2 (Prescription of Ownership and Other Real Rights)

Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary.

Ordinary acquisitive prescription requires possession of things in good faith and with just title for the time fixed by law. (1940a)

Why it is cited here

Full entry below ↓

Facts

Marcelo Cabal owned a 4,234-square-metre parcel at Barrio Palanginan, Iba, Zambales, designated Lot G and covered by OCT No. 29.
Sometime in 1949, five years before he died, Marcelo allowed his son Marcelino to build his house on a portion of Lot G — now the southernmost portion of Lot 1-E under TCT No. 43419 — and Marcelino resided there ever after; his son later built a house there too. This is the fact that decides the co-ownership question. The portion was physically segregated by the father's own act five years before the co-ownership among the heirs came into being.
In August 1954, Marcelo died, survived by his wife Higinia Villanueva and nine children: Marcelino, Daniel, Cecilio, Natividad, Juan, Margarita, Lorenzo, Lauro and Anacleto. (Only on his death did the heirs' co-ownership arise — and by then Marcelino's share "was already particularly designated or physically segregated.")
On August 17, 1964, the heirs extrajudicially settled Lot G into undivided equal shares of 423.40 square metres each, and TCT No. T-8635 issued in their names.
On September 12, 1976, the heirs subdivided Lot G into Lot G-1 for Marcelino (TCT No. T-22656) and Lot G-2 for the rest (TCT No. 22657). This is the survey that "spawned the dilemma": it "designated Lot G-1 as Marcelino's share in the inheritance notwithstanding his possession since 1949 of a definite portion of Lot G" — a different, adjacent lot.
On March 1, 1977, Marcelino mortgaged Lot G-1 to the Rural Bank of San Antonio (Zambales), Inc.; the mortgage was released December 19, 1983. (The respondents pointed to this as proof he knew Lot G-1 was his; the Court holds it "not an indication of bad faith since there is no concrete evidence that he was aware at that time that the property covered by the title and the one he was occupying were not the same." He never built on Lot G-1.)
Lot G-2 was further subdivided; the remaining Lot 1 of 3,387.20 square metres became TCT No. T-24533. On August 3, 1978, its co-owners executed a Deed of Agreement of Partition with Sale, in which Lorenzo bought the shares of Higinia, Margarita, Daniel and Natividad, bringing his share to 1,737 square metres.
On January 13, 1982, geodetic engineers Dominador L. Santos and Eufemio A. Abay surveyed Lot 1, producing subdivision plan (LRC) Psd-307100 designating Lot 1-E to Lorenzo; the plan was approved by the Director of Lands May 7, 1982. A Subdivision Agreement followed June 7, 1990, and TCT No. 43419 over Lot 1-E issued to Lorenzo on July 13, 1993.
The subdivision plan revealed that Marcelino and his son occupied a 423-square-metre area on the southernmost portion of Lot 1-E, not the adjacent Lot G-1 titled in his name. Respondents Lorenzo and Rosita Cabal confronted him, and on March 1, 1989 the parties agreed to a re-survey and swapping of lots for reconstruction of titles. The Court treats that agreement as evidence for Marcelino: it is "substantial proof of... good faith, sincerity of purpose and lack of intention to hold on to two lots."
The resurvey and swap did not materialise, barangay settlement failed, and on August 10, 1994 respondents sued Marcelino for Recovery of Possession with Damages in the MTC of Iba, Zambales (Civil Case No. 735), alleging he built in bad faith knowing the adjacent lot was titled to him. He answered August 26, 1994 pleading possession in good faith since 1949 with the co-heirs' knowledge and acquiescence, and acquisitive prescription.
Lorenzo died during the trial, on January 24, 1997; Marcelino died while his petition was pending in the Court of Appeals.
On November 19, 1997, the MTC ruled for Marcelino on prescription, ordering the plaintiffs to relinquish possession, remove improvements, and pay ₱10,000 moral, ₱5,000 exemplary damages and ₱20,000 attorney's fees. On August 10, 2000, the RTC, Branch 70, Iba reversed, holding Marcelino's possession was "in the concept of a co-owner" so prescription did not run and tolerated possession "does not ripen into ownership," and awarded the same sums against him.
On September 27, 2001, the Court of Appeals affirmed in toto, reasoning that Marcelino's good faith "diminished after Lot G was surveyed" and that he wished "to hold on to both" lots, which "will double his inheritance to the detriment of his brother Lorenzo." Reconsideration was denied May 22, 2002. The Supreme Court calls that conclusion "pure speculation, palpably unsupported by the evidence on record."

Issue

Ruling

"WHEREFORE, the instant petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 64729 are REVERSED and SET ASIDE. The case is REMANDED to the court of origin for further proceedings to determine the facts essential to the proper application of Article 448 in relation to Articles 546 and 548 of the Civil Code. No pronouncement as to costs. SO ORDERED."

Ratio

Why the Court reviews the facts. Findings of the Court of Appeals are generally conclusive, but exceptions apply — among them where findings "are grounded entirely on speculation, surmises or conjectures," where "the inference made is manifestly mistaken, absurd or impossible," where "the judgment is based on a misapprehension of facts," and where the CA "manifestly overlooked certain relevant facts not disputed by the parties." "The Court finds that exceptions (1), (2), (4) and (11) apply."
The share was segregated before the community existed. "It is undisputed that Marcelino built his house on the disputed property in 1949 with the consent of his father. Marcelino has been in possession of the disputed lot since then with the knowledge of his co-heirs, such that even before his father died in 1954, when the co-ownership was created, his inheritance or share in the co-ownership was already particularly designated or physically segregated. Thus, even before Lot G was subdivided in 1976, Marcelino already occupied the disputed portion and even then co-ownership did not apply over the disputed lot."
The rule. "Elementary is the rule that there is no co-ownership where the portion owned is concretely determined and identifiable, though not technically described, or that said portion is still embraced in one and the same certificate of title [which] does [not] make said portion less determinable or identifiable, or distinguishable, one from the other, nor that dominion over each portion less exclusive, in their respective owners."
What should have happened. "Thus, since Marcelino built a house and has been occupying the disputed portion since 1949, with the consent of his father and knowledge of the co-heirs, it would have been just and equitable to have segregated said portion in his favor and not one adjacent to it. Undoubtedly, the subdivision survey effected in 1976 spawned the dilemma in the present case."
Prescription fails on the evidence. Prescription requires possession "in the concept of an owner, public, peaceful, uninterrupted and adverse"; ordinary acquisitive prescription needs good faith and just title for ten years, extraordinary needs thirty years without title or good faith. Here the proof "were sorely insufficient": the tax declaration and receipts "factually established only that Marcelino had been religiously paying realty taxes on Lot G-1," and "[t]ax declarations and receipts can only be the basis of a claim of ownership through prescription when coupled with proof of actual possession." "Evidently, Marcelino declared and paid realty taxes on property which he did not actually possess."
And by abandonment. "Marcelino no longer invoked prescription in his pleadings before the RTC and CA; neither did herein petitioners raise prescription in their petition and memorandum before this Court... They are thus deemed to have abandoned the defense of prescription."
Good faith is presumed. "It has been said that good faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof."
What good faith means. It "encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage"; it "implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry"; its essence "lies in an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another"; and applied to possession, "one is considered in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it".
Applied. "Marcelino's possession of the disputed lot was based on a mistaken belief that Lot G-1 is the same lot on which he has built his house with the consent of his father. There is no evidence, other than bare allegation, that Marcelino was aware that he intruded on respondents' property when he continued to occupy and possess the disputed lot after partition was effected in 1976."
The two pieces of conduct. The 1977 mortgage of Lot G-1 "is not an indication of bad faith since there is no concrete evidence that he was aware at that time that the property covered by the title and the one he was occupying were not the same. There is also no evidence that he introduced improvements on Lot G-1. In fact, the agreement on March 1, 1989 to a resurvey and swapping of lots for the purpose of reconstructing the land titles is substantial proof of Marcelino's good faith, sincerity of purpose and lack of intention to hold on to two lots. Thus, the CA's conclusion that Marcelino intended to hold on to both the disputed lot and Lot G-1 is pure speculation, palpably unsupported by the evidence on record."
The consequence. "Marcelino is deemed a builder in good faith at least until the time he was informed by respondents of his encroachment on their property." Article 448 then applies, and "[t]he right to choose between appropriating the improvement or selling the land on which the improvement stands to the builder, planter or sower, is given to the owner of the land."
Why a remand. "In accordance with Depra v. Dumlao, this case must be remanded to the trial court to determine matters necessary for the proper application of Article 448 in relation to Articles 546 and 548. Such matters include the option that respondents would take and the amount of indemnity that they would pay, should they decide to appropriate the improvements on the lots."
No swapping. "Respondents and Marcelino... did not pray for swapping of lots in all their pleadings below. Both parties also did not allege the existence of a swapping agreement in their initial pleadings, much less pursue the enforcement of the swapping agreement. They are deemed to have renounced or abandoned any enforceable right they had under the swapping agreement and the parties cannot be compelled to a swapping of lots."

Doctrine

No Co-Ownership Over a Concretely Determined Portion (Art. 484): "[T]here is no co-ownership where the portion owned is concretely determined and identifiable, though not technically described," and a common certificate of title does not make the portions less determinable or dominion over each less exclusive.
Segregation May Precede the Community: Where a portion was already physically designated before the co-ownership arose — here by the father's consent in 1949, five years before his death — "co-ownership did not apply over the disputed lot" at all.
Good Faith Is Presumed (Art. 526): "[U]pon him who alleges bad faith on the part of the possessor rests the burden of proof." Good faith is "honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry," and in possession it means being unaware of any invalidating flaw.
Conduct Is the Evidence: Mortgaging the titled-but-unoccupied lot is not bad faith absent proof of awareness; agreeing to a resurvey and swap is "substantial proof of... good faith, sincerity of purpose and lack of intention to hold on to two lots."
Builder in Good Faith and Article 448: The landowner elects to appropriate the works on payment of the indemnity in Articles 546 and 548, or to oblige the builder to buy the land — the choice is the owner's — unless the land's value is considerably more, in which case a forced lease at reasonable rent arises.
Remand for the Option and the Indemnity: Following Depra v. Dumlao, the option and the amount are matters for the trial court.
Tax Declarations Do Not Prove Prescription Alone (Art. 1117): They "can only be the basis of a claim of ownership through prescription when coupled with proof of actual possession" — and here they covered the wrong lot.
Defences and Prayers Not Pressed Are Abandoned: Prescription dropped after the MTC, and a swapping agreement never pleaded, are both "deemed... abandoned."

Full Digest — Recitation Format

I. Gist and Central Doctrine

II. Chronological Narration of Material Facts

During his lifetime Marcelo Cabal owned a 4,234-square-metre parcel at Barrio Palanginan, Iba, Zambales, described as Lot G and covered by OCT No. 29 of the Registry of Deeds of Zambales.
Sometime in 1949, five years before he died, "Marcelo allowed his son, Marcelino, to build his house on a portion of Lot G, now the southernmost portion of Lot 1-E of Transfer Certificate of Title (TCT) No. 43419." Marcelino resided there from then on, and later his son also built a house on the disputed property.
In August 1954, Marcelo died, survived by his wife Higinia Villanueva and his children Marcelino, Daniel, Cecilio, Natividad, Juan, Margarita, Lorenzo, Lauro and Anacleto.
On August 17, 1964, Marcelo's heirs "extra-judicially settled among themselves Lot G into undivided equal shares of 423.40-square meters each," and TCT No. T-8635 issued in their names.
On September 17, 1973, Daniel sold 380 square metres of his 423.40-square-metre undivided share to spouses Oscar Merete and Clarita Ebue.
On September 12, 1976, the heirs subdivided Lot G into Lot G-1 in favour of Marcelino (TCT No. T-22656) and Lot G-2 in favour of the other heirs (TCT No. 22657).
On March 1, 1977, Marcelino mortgaged Lot G-1 to the Rural Bank of San Antonio (Zambales), Inc.; the mortgage was released on December 19, 1983.
Lot G-2 was further subdivided under consolidated subdivision plan (LRC) Pcd-24078, the remaining Lot 1 of 3,387.20 square metres becoming TCT No. T-24533 with Higinia, Margarita, Natividad, Lorenzo, Daniel, Oscar Merete, Cecilio, Carmelita C. Pagar and Anacleto as co-owners.
On August 3, 1978, the co-owners of Lot 1 executed a Deed of Agreement of Partition with Sale, allotting 423.40 square metres each to Higinia, Margarita, Natividad, Lorenzo, Cecilio, Carmelita C. Pagar and Anacleto, 43.4 to Daniel and 380 to Oscar Merete. In the same deed Lorenzo bought the shares of Higinia, Margarita, Daniel and Natividad, bringing his share to 1,737 square metres, and Cecilio sold his share to Marcela B. Francia.
On January 13, 1982, Geodetic Engineer Dominador L. Santos and Junior Geodetic Engineer Eufemio A. Abay surveyed Lot 1, producing subdivision survey plan (LRC) Psd-307100 designating Lots 1-A to 1-E to Carmelita C. Pagar, Marcela B. Francia, the Merete spouses, Anacleto and Lorenzo respectively; the plan was approved by the Director of the Bureau of Lands on May 7, 1982.
On June 7, 1990, the co-owners of Lot 1 executed a Subdivision Agreement based on the approved plan, and on July 13, 1993, TCT No. 43419 covering Lot 1-E issued in Lorenzo's name.
The subdivision plan revealed "that Marcelino and his son occupied and built their houses on a 423-square meter area located on the southernmost portion of Lot 1-E and not the adjacent lot designated as Lot G-1 under TCT No. T-22656." Respondents Lorenzo and Rosita Cabal confronted Marcelino, which resulted on March 1, 1989 in "an agreement... to a re-survey and swapping of lots for the purpose of reconstruction of land titles."
The agreed resurvey and swapping "did not materialize," and efforts to settle at the barangay level "proved futile."
On August 10, 1994, respondents filed a complaint for Recovery of Possession with Damages against Marcelino before the MTC of Iba, Zambales (Civil Case No. 735), alleging he "introduced improvements in bad faith on their land with knowledge that the adjacent lot is titled in his name."
On August 26, 1994, Marcelino answered with counterclaim, contending "that he has been in possession in good faith since 1949 with the respondents' knowledge and acquiescence," and that "acquisitive prescription has set in."
On January 24, 1997, during the trial, Lorenzo died.
On November 19, 1997, the MTC ruled for Marcelino, directing the plaintiffs to relinquish possession and remove their improvements, and to pay ₱10,000 moral damages, ₱5,000 exemplary damages and ₱20,000 attorney's fees; it reasoned "that prescription or the length of time by which Marcelino has held or possessed the property has barred the respondents from filing a claim." Reconsideration was denied February 5, 1998.
On August 10, 2000, the RTC, Branch 70, Iba, Zambales (RTC-1489-I) reversed, ordering Marcelino to vacate the 423 square metres within Lot 1-E, remove his improvements, and pay ₱10,000 and ₱5,000 moral and exemplary damages and ₱20,000 attorney's fees. It held "that Marcelino's possession was in the concept of a co-owner and therefore prescription does not run in his favor; that his possession, which was tolerated by his co-owners, does not ripen into ownership." Reconsideration was denied May 3, 2001.
Marcelino died during the pendency of his petition for review in the Court of Appeals (CA-G.R. SP No. 64729).
On September 27, 2001, the Court of Appeals affirmed in toto, holding "that Marcelino may have been in good faith when he started to occupy the disputed portion in 1949 but his occupation in good faith diminished after Lot G was surveyed when he was apprised of the fact that the portion he was occupying was not the same as the portion titled in his name," and that he "would like to hold on to both" lots, which "will double his inheritance to the detriment of his brother Lorenzo." Reconsideration was denied May 22, 2002.
On June 6, 2002, the heirs of Marcelino, represented by his widow Victoria Cabal, filed the present petition; on July 31, 2006 the Supreme Court granted it.

III. Arguments of the Parties

A. Petitioners (Heirs of Marcelino Cabal)

B. Respondents (Spouses Lorenzo and Rosita Cabal)

C. Common Ground

"It is undisputed that Marcelino built his house on the disputed property in 1949 with the consent of his father," and that he has possessed it since "with the knowledge of his co-heirs."

IV. Issues

A. MAIN ISSUE

Whether Marcelino was a possessor and builder in good faith of the disputed portion, and in particular whether his good faith "began to diminish after Lot G was surveyed."

B. SECONDARY ISSUES

Whether the disputed portion was ever subject to co-ownership; whether acquisitive prescription had set in; and whether the alternative prayer for a swapping of lots may be granted.

V. Ruling / Disposition

A. MAIN ISSUE

B. SECONDARY ISSUES

VI. Ratio Decidendi and Doctrines

A. Ratio Decidendi

Review of facts is warranted. Exceptions "(1), (2), (4) and (11)" apply — findings "grounded entirely on speculation, surmises or conjectures," an inference "manifestly mistaken, absurd or impossible," a judgment "based on a misapprehension of facts," and relevant undisputed facts "manifestly overlooked."
The portion was segregated before the co-ownership arose. "Marcelino has been in possession of the disputed lot since then with the knowledge of his co-heirs, such that even before his father died in 1954, when the co-ownership was created, his inheritance or share in the co-ownership was already particularly designated or physically segregated."
The governing rule. "Elementary is the rule that there is no co-ownership where the portion owned is concretely determined and identifiable, though not technically described" — nor does inclusion in one certificate make the portions "less determinable or identifiable, or distinguishable, one from the other, nor... dominion over each portion less exclusive."
What follows. "[I]t would have been just and equitable to have segregated said portion in his favor and not one adjacent to it. Undoubtedly, the subdivision survey effected in 1976 spawned the dilemma in the present case."
Prescription. It requires possession "in the concept of an owner, public, peaceful, uninterrupted and adverse," ordinary prescription needing good faith and just title for ten years and extraordinary needing thirty years without either. The evidence "were sorely insufficient": tax declarations and receipts "can only be the basis of a claim of ownership through prescription when coupled with proof of actual possession," and Marcelino "declared and paid realty taxes on property which he did not actually possess." The defence was also "abandoned" after the MTC.
Good faith presumed. "[G]ood faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof."
Its content. Good faith "encompasses... an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage"; it "implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry"; its essence "lies in an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another"; and in possession, one is in good faith "if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it".
Applied to the conduct. The mortgage of Lot G-1 in 1977 is "not an indication of bad faith since there is no concrete evidence that he was aware at that time that the property covered by the title and the one he was occupying were not the same"; "[t]here is also no evidence that he introduced improvements on Lot G-1"; and the 1989 resurvey-and-swap agreement "is substantial proof of Marcelino's good faith, sincerity of purpose and lack of intention to hold on to two lots."
The regime. Article 448, quoted in full, gives the landowner the right "to appropriate as his own the works... 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," the builder not being obliged to buy "if its value is considerably more than that of the building," in which case he "shall pay reasonable rent" on terms the court fixes. "The right to choose... is given to the owner of the land."
Remand. "In accordance with Depra v. Dumlao, this case must be remanded to the trial court to determine matters necessary for the proper application of Article 448 in relation to Articles 546 and 548."
No swapping. Neither side "pray[ed] for swapping of lots in all their pleadings below," nor alleged the agreement in their initial pleadings, so "[t]hey are deemed to have renounced or abandoned any enforceable right they had under the swapping agreement."

B. Doctrines/Rules

No Co-Ownership Over a Determined Portion (Art. 484): Concrete determination defeats co-ownership even without a technical description, and even under a single certificate of title.
Segregation Before the Community: A portion designated by the ancestor's own act before his death never enters the heirs' co-ownership.
Good Faith Presumed (Art. 526): The burden of proving bad faith lies on the one alleging it; good faith is unawareness of an invalidating flaw.
Builder in Good Faith (Art. 448): The landowner elects between appropriating the works on payment of the Article 546/548 indemnity and obliging the builder to buy the land; a forced lease follows where the land is worth considerably more.
Prescription Needs Possession, Not Just Receipts (Art. 1117): Tax declarations count only "when coupled with proof of actual possession."
Abandonment: A defence dropped on appeal, and a prayer never pleaded, are treated as renounced.

C. Limitations/Exceptions

The good faith is bounded in time — "at least until the time he was informed by respondents of his encroachment on their property."
The Court did not fix the option or the indemnity; both are for the trial court on remand under Depra v. Dumlao.
The swapping agreement of March 1, 1989 was treated as evidence of good faith, not as an enforceable contract, neither party having sued on it.

D. Topic Integration

The relationship is DIRECT, and the case is assigned twice — under co-ownership for "Disputed portion/portions already concretely determined," and again under Possession.
On co-ownership it extends Si v. Court of Appeals in an instructive direction. In Si the portions were concretely determined by deeds; here by occupation with the owner's consent, years before the co-ownership was even created. Either way the community never attaches to the identified portion.
On possession it is a clean illustration of how good faith is proved and disproved: not by protestation but by conduct — what the possessor built, where he built it, what he did when told of the mistake.
It also warns about tax declarations, which students reach for reflexively. Marcelino paid faithfully for forty years and it availed him nothing, because he was paying on the wrong lot.

VII. Separate Opinions

NOT IN RECORD. The decision was penned for the First Division with Chief Justice Panganiban and Justices Ynares-Santiago, Callejo, Sr. and Chico-Nazario concurring.