Page |1

Case Title : TECNOGAS PHILIPPINES MANUFACTURING CORPORATION, petitioner, vs. COURT OF

APPEALS (FORMER SPECIAL SEVENTEENTH DIVISION) and EDUARDO UY, respondents.
Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals.
Syllabi Class : Civil Law|Property

Civil Law; Property; Unless one is versed in the science of surveying, “no one can determine the precise
extent or location of his property by merely examining his paper title.”—We disagree with respondent
Court. The two cases it relied upon do not support its main pronouncement that a registered owner of
land has presumptive knowledge of the metes and bounds of its own land, and is therefore in bad faith if
he mistakenly builds on an adjoining land. Aside from the fact that those cases had factual moorings
radically different from those obtaining here, there is nothing in those cases which would suggest,
however remotely, that bad faith is imputable to a registered owner of land when a part of his building
encroaches upon a neighbor’s land, simply because he is supposedly presumed to know the boundaries
of his land as described in his certificate of title. No such doctrinal statement could have been made in
those cases because such issue was not before the Supreme Court. Quite the contrary, we have rejected
such a theory in Co Tao vs. Chico, where we held that unless one is versed in the science of surveying,
“no one can determine the precise extent or location of his property by merely examining his paper
title.”

Same; Same; Good faith consists in the belief of the builder that the land he is building on is his, and his
ignorance of any defect or flaw in his title.—There is no question that when petitioner purchased the land
from Pariz Industries, the buildings and other structures were already in existence. The record is not clear
as to who actually built those structures, but it may well be assumed that petitioner’s predecessor-in-
interest, Pariz Industries, did so. Article 527 of the Civil Code presumes good faith, and since no proof
exists to show that the encroachment over a narrow, needle-shaped portion of private respondent’s
land was done in bad faith by the builder of the encroaching structures, the latter should be presumed to
have built them in good faith. It is presumed that possession continues to be enjoyed in the same
character in which it was acquired, until the contrary is proved. Good faith consists in the belief of the
builder that the land he is building on is his, and his ignorance of any defect or flaw in his title. Hence, such
good faith, by law, passed on to Pariz’s successor, petitioner in this case. Further, “(w)here one derives
title to property from another, the act, declaration, or omission of the latter, while holding the title, in
relation to the property, is evidence against the former.” And possession acquired in good faith does not
lose this character except in case and from the moment facts exist which show that the possessor is not
unaware that he possesses the thing improperly or wrongfully. The good faith ceases from the moment
 Page |2

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

Same; Same; Same; The builder, if sued by the aggrieved landowner for recovery of possession, could
have invoked the provisions of Art. 448 of the Civil Code.—Recall that the encroachment in the present
case was caused by a very slight deviation of the erected wall (as fence) which was supposed to run in a
straight line from point 9 to point 1 of petitioner’s lot. It was an error which, in the context of the
attendant facts, was consistent with good faith. Consequently, the builder, if sued by the aggrieved
landowner for recovery of possession, could have invoke the provisions of Art. 448 of the Civil Code.

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

Same; Same; Same; Petitioner is deemed to have stepped into the shoes of the seller in regard to all rights
of ownership over the immovable sold, including the right to compel the private respondent to exercise
either of the two options provided under Article 448 of the Civil Code.—Upon delivery of the property by
Pariz Industries, as seller, to the petitioner, as buyer, the latter acquired ownership of the property.
Consequently and as earlier discussed, petitioner is deemed to have stepped into the shoes of the seller in
regard to all rights of ownership over the immovable sold, including the right to compel the private
respondent to exercise either of the two options provided under Article 448 of the Civil Code.

Same; Same; Same; The supervening awareness of the encroachment by petitioner does not militate
against its right to claim the status of a builder in good faith.—In the context of the established facts, we
hold that petitioner did not lose its rights under Article 448 of the Civil Code on the basis merely of the
fact that some years after acquiring the property in good faith, it learned about—and aptly recognized—
the right of private respondent to a portion of the land occupied by its building. The supervening
awareness of the encroachment by petitioner does not militate against its right to claim the status of a
builder in good faith. In fact, a judicious reading of said Article 448 will readily show that the landowner’s
exercise of his option can only take place after the builder shall have come to know of the intrusion—in
short, when both parties shall have become aware of it. Only then will the occasion for exercising the
 Page |3

option arise, for it is only then that both parties will have been aware that a problem exists in regard to
their property rights.

Same; Same; Same; The settlement may have recognized the ownership of private respondent but such
admission cannot be equated with bad faith.—From the foregoing, it is clear that petitioner agreed only
to the demolition of a portion of the wall separating the adjoining properties of the parties—i.e. “up to
the back of the building housing the machineries.” But that portion of the fence which served as the wall
housing the electroplating machineries was not to be demolished. Rather, it was to “be subject to
negotiation by herein parties.” The settlement may have recognized the ownership of private
respondent but such admission cannot be equated with bad faith. Petitioner was only trying to avoid a
litigation, one reason for entering into an amicable settlement.

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

 Page |4

G.R. No. 108894 February 10, 1997

TECNOGAS PHILIPPINES MANUFACTURING CORPORATION, petitioner,
vs.
COURT OF APPEALS (FORMER SPECIAL SEVENTEENTH DIVISION) and EDUARDO UY, respondents.

PANGANIBAN, J.:

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

These are the questions raised in the petition for review of the Decision1 dated August 28, 1992, in CA-
G.R. CV No. 28293 of respondent Court2 where the disposition reads:

WHEREFORE, premises considered, the Decision of the Regional Trial Court is hereby reversed and set aside and another one
entered —
1. Dismissing the complaint for lack of cause of action;
2. Ordering Tecnogas to pay the sum of P2,000.00 per month as reasonable rental from October 4, 1979 until appellee
vacates the land;
3. To remove the structures and surrounding walls on the encroached area;
4. Ordering appellee to pay the value of the land occupied by the two-storey building;
5. Ordering appellee to pay the sum of P20,000.00 for and as attorney's fees;
6. Costs against appellee.

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

WHEREFORE, premises considered, our decision of August 28, 1992 is hereby modified deleting
paragraph 4 of the dispositive portion of our decision which reads:
4. Ordering appellee to pay the value of the land occupied by the two-storey building.
 Page |5

The motion for reconsideration of appellee is hereby DENIED for lack of merit.

The foregoing Amended Decision is also challenged in the instant petition.

The Facts

The facts are not disputed. Respondent Court merely reproduced the factual findings of the trial court, as
follows:

That plaintiff (herein petitioner) which is a corporation duly organized and existing under and by virtue of
Philippine laws is the registered owner of a parcel of land situated in Barrio San Dionisio, Parañaque,
Metro Manila known as Lot 4331-A (should be 4531-A) of Lot 4531 of the Cadastral Survey of Parañaque,
Metro Manila, covered by Transfer Certificate of Title No. 409316 of the Registry of Deeds of the Province
of Rizal; that said land was purchased by plaintiff from Pariz Industries, Inc. in 1970, together with all the
buildings and improvements including the wall existing thereon; that the defendant (herein private
respondent) is the registered owner of a parcel of land known as Lot No. 4531-B of Lot 4531 of the
Cadastral Survey of Parañaque, LRC (GLRO) Rec. No. 19645 covered by Transfer Certificate of Title No.
279838, of the Registry of Deeds for the Province of Rizal; that said land which adjoins plaintiff's land was
purchased by defendant from a certain Enrile Antonio also in 1970; that in 1971, defendant purchased
another lot also adjoining plaintiffs land from a certain Miguel Rodriguez and the same was registered in
defendant's name under Transfer Certificate of Title No. 31390, of the Registry of Deeds for the Province
of Rizal; that portions of the buildings and wall bought by plaintiff together with the land from Pariz
Industries are occupying a portion of defendant's adjoining land; that upon learning of the encroachment
or occupation by its buildings and wall of a portion of defendant's land, plaintiff offered to buy from
defendant that particular portion of defendant's land occupied by portions of its buildings and wall with
an area of 770 square meters, more or less, but defendant, however, refused the offer.

In 1973, the parties entered into a private agreement before a certain Col. Rosales in Malacañang, wherein
plaintiff agreed to demolish the wall at the back portion of its land thus giving to defendant possession of
a portion of his land previously enclosed by plaintiff's wall; that defendant later filed a complaint before
the office of Municipal Engineer of Parañaque, Metro Manila as well as before the Office of the Provincial
Fiscal of Rizal against plaintiff in connection with the encroachment or occupation by plaintiff's buildings
and walls of a portion of its land but said complaint did not prosper; that defendant dug or caused to be
dug a canal along plaintiff's wall, a portion of which collapsed in June, 1980, and led to the filing by
 Page |6

plaintiff of the supplemental complaint in the above-entitled case and a separate criminal complaint for
malicious mischief against defendant and his wife which ultimately resulted into the conviction in court of
defendant's wife for the crime of malicious mischief; that while trial of the case was in progress, plaintiff
filed in Court a formal proposal for settlement of the case but said proposal, however, was ignored by
defendant.

After trial on the merits, the Regional Trial Court6 of Pasay City, Branch 117, in Civil Case No. PQ-7631-P,
rendered a decision dated December 4, 1989 in favor of petitioner who was the plaintiff therein. The
dispositive portion
reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant and ordering the latter to sell to plaintiff
that portion of land owned by him and occupied by portions of plaintiff's buildings and wall at the price of P2,000.00 per
square meter and to pay the former:
1. The sum of P44,000.00 to compensate for the losses in materials and properties incurred by plaintiff through thievery as
a result of the destruction of its wall;
2. The sum of P7,500.00 as and by way of attorney's fees; and
3. The costs of this suit.

Appeal was duly interposed with respondent Court, which as previously stated, reversed and set aside the
decision of the Regional Trial Court and rendered the assailed Decision and Amended Decision. Hence,
this recourse under Rule 45 of the Rules of Court.

The Issues

The petition raises the following issues:

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

(B) Whether or not the respondent Court of Appeals erred when it used the amicable settlement between
the petitioner and the private respondent, where both parties agreed to the demolition of the rear portion
of the fence, as estoppel amounting to recognition by petitioner of respondent's right over his property
including the portions of the land where the other structures and the building stand, which were not
included in the settlement.
 Page |7

(C) Whether or not the respondent Court of Appeals erred in ordering the removal of the "structures and
surrounding walls on the encroached area" and in withdrawing its earlier ruling in its August 28, 1992
decision for the petitioner "to pay for the value of the land occupied" by the building, only because the
private respondent has "manifested its choice to demolish" it despite the absence of compulsory sale
where the builder fails to pay for the land, and which "choice" private respondent deliberately deleted
from its September 1, 1980 answer to the supplemental complaint in the Regional Trial Court.

In its Memorandum, petitioner poses the following issues:

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

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

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

D. Quite contrary to respondent Uy's reasoning, petitioner Tecnogas continues to be a builder in good
faith, even if it subsequently built/repaired the walls/other permanent structures thereon while the case a
quo was pending and even while respondent sent the petitioner many letters/filed cases thereon. 12

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

E.(F.)
 Page |8

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

Private respondent, on the other hand, argues that the petition is "suffering from the following flaws:
1. It did not give the exact citations of cases decided by the Honorable Supreme Court that allegedly
contradicts the ruling of the Hon. Court of Appeals based on the doctrine laid down in Tuason vs.
Lumanlan case citing also Tuason vs. Macalindong case (Supra).

2. Assuming that the doctrine in the alleged Co Tao vs. Chico case is contradictory to the doctrine in
Tuason vs. Lumanlan and Tuason vs. Macalindong, the two cases being more current, the same should
prevail.

Further, private respondent contends that the following "unmistakably" point to the bad faith of
petitioner: (1) private respondent's purchase of the two lots, "was ahead of the purchase by petitioner of
the building and lot from Pariz Industries"; (2) the declaration of the General Manager of Tecnogas that
the sale between petitioner and Pariz Industries "was not registered" because of some problems with
China Banking Corporation; and (3) the Deed of Sale in favor of petitioner was registered in its name only
in "the month of May 1973." 16

The Court's Ru1ing

The petition should be granted.

Good Faith or Bad Faith

Respondent Court, citing the cases of J.M. Tuason & Co., Inc. vs. Vda. de Lumanlan 17 and J.M. Tuason &
Co., Inc. vs. Macalindong, 18 ruled that petitioner "cannot be considered in good faith" because as a land
owner, it is "presumed to know the metes and bounds of his own property, specially if the same are
reflected in a properly issued certificate of title. One who erroneously builds on the adjoining lot should
 Page |9

be considered a builder in (b)ad (f)aith, there being presumptive knowledge of the Torrens title, the area,
and the extent of the boundaries." 19

We disagree with respondent Court. The two cases it relied upon do not support its main pronouncement
that a registered owner of land has presumptive knowledge of the metes and bounds of its own land, and
is therefore in bad faith if he mistakenly builds on an adjoining land. Aside from the fact that those cases
had factual moorings radically different from those obtaining here, there is nothing in those cases which
would suggest, however remotely, that bad faith is imputable to a registered owner of land when a part of
his building encroaches upon a neighbor's land, simply because he is supposedly presumed to know the
boundaries of his land as described in his certificate of title. No such doctrinal statement could have been
made in those cases because such issue was not before the Supreme Court. Quite the contrary, we have
rejected such a theory in Co Tao vs. Chico, 20 where we held that unless one is versed in the science of
surveying, "no one can determine the precise extent or location of his property by merely examining his
paper title."

There is no question that when petitioner purchased the land from Pariz Industries, the buildings and
other structures were already in existence. The record is not clear as to who actually built those structures,
but it may well be assumed that petitioner's predecessor-in-interest, Pariz Industries, did so. Article 527 of
the Civil Code presumes good faith, and since no proof exists to show that the encroachment over a
narrow, needle-shaped portion of private respondent's land was done in bad faith by the builder of the
encroaching structures, the latter should be presumed to have built them in good faith. 21 It is presumed
that possession continues to be enjoyed in the same character in which it was acquired, until the contrary
is proved. 22 Good faith consists in the belief of the builder that the land he is building on is his, and his
ignorance of any defect or flaw in his title. 23 Hence, such good faith, by law, passed on to Pariz's
successor, petitioner in this case. Further, "(w)here one derives title to property from another, the act,
declaration, or omission of the latter, while holding the title, in relation to the property, is evidence against
the former." 24 And possession acquired in good faith does not lose this character except in case and
from the moment facts exist which show that the possessor is not unaware that he possesses the thing
improperly or wrongfully. 25 The good faith ceases from the moment defects in the title are made known
to the possessor, by extraneous evidence or by suit for recovery of the property by the true owner. 26

Recall that the encroachment in the present case was caused by a very slight deviation of the erected wall
(as fence) which was supposed to run in a straight line from point 9 to point 1 of petitioner's lot. It was an
error which, in the context of the attendant facts, was consistent with good faith. Consequently, the
 P a g e | 10

builder, if sued by the aggrieved landowner for recovery of possession, could have invoked the provisions
of Art. 448 of the Civil Code, which reads:

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

The obvious benefit to the builder under this article is that, instead of being outrightly ejected from the
land, he can compel the landowner to make a choice between the two options: (1) to appropriate the
building by paying the indemnity required by law, or (2) sell the land to the builder. The landowner cannot
refuse to exercise either option and compel instead the owner of the building to remove it from the land.
27

The question, however, is whether the same benefit can be invoked by petitioner who, as earlier stated, is
not the builder of the offending structures but possesses them as buyer.

We answer such question in the affirmative.

In the first place, there is no sufficient showing that petitioner was aware of the encroachment at the time
it acquired the property from Pariz Industries. We agree with the trial court that various factors in
evidence adequately show petitioner's lack of awareness thereof. In any case, contrary proof has not
overthrown the presumption of good faith under Article 527 of the Civil Code, as already stated, taken
together with the disputable presumptions of the law on evidence. These presumptions state, under
Section 3 (a) of Rule 131 of the Rules of Court, that the person is innocent of a crime or wrong; and under
Section 3 (ff) of Rule 131, that the law has been obeyed. In fact, private respondent Eduardo Uy himself
was unaware of such intrusion into his property until after 1971 when he hired a surveyor, following his
purchase of another adjoining lot, to survey all his newly acquired lots. Upon being apprised of the
encroachment, petitioner immediately offered to buy the area occupied by its building — a species of
conduct consistent with good faith.
 P a g e | 11

In the second place, upon delivery of the property by Pariz Industries, as seller, to the petitioner, as buyer,
the latter acquired ownership of the property. Consequently and as earlier discussed, petitioner is
deemed to have stepped into the shoes of the seller in regard to all rights of ownership over the
immovable sold, including the right to compel the private respondent to exercise either of the two
options provided under Article 448 of the Civil Code.

Estoppel

Respondent Court ruled that the amicable settlement entered into between petitioner and private
respondent estops the former from questioning the private respondent's "right" over the disputed
property. It held that by undertaking to demolish the fence under said settlement, petitioner recognized
private respondent's right over the property, and "cannot later on compel" private respondent "to sell to it
the land since" private respondent "is under no obligation to sell." 28

We do not agree. Petitioner cannot be held in estoppel for entering into the amicable settlement, the
pertinent portions of which read: 29

That the parties hereto have agreed that the rear portion of the fence that separates the property of the
complainant and respondent shall be demolished up to the back of the building housing the machineries
which demolision (sic) shall be undertaken by the complainant at anytime.

That the fence which serve(s) as a wall housing the electroplating machineries shall not be demolished in
the mean time which portion shall be subject to negotiation by herein parties.

From the foregoing, it is clear that petitioner agreed only to the demolition of a portion of the wall
separating the adjoining properties of the parties — i.e. "up to the back of the building housing the
machineries." But that portion of the fence which served as the wall housing the electroplating
machineries was not to be demolished. Rather, it was to "be subject to negotiation by herein parties." The
settlement may have recognized the ownership of private respondent but such admission cannot be
equated with bad faith. Petitioner was only trying to avoid a litigation, one reason for entering into an
amicable settlement.

As was ruled in Osmeña vs. Commission on Audit, 30

 P a g e | 12

A compromise is a bilateral act or transaction that is expressly acknowledged as a juridical agreement by

the Civil Code and is therein dealt with in some detail. "A compromise," declares Article 2208 of said Code,
"is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to
one already commenced."

xxx xxx xxx

The Civil Code not only defines and authorizes compromises, it in fact encourages them in civil actions. Art. 2029 states that
"The Court shall endeavor to persuade the litigants in a civil case to agree upon some fair compromise." . . .

In the context of the established facts, we hold that petitioner did not lose its rights under Article 448 of
the Civil Code on the basis merely of the fact that some years after acquiring the property in good faith, it
learned about — and aptly recognized — the right of private respondent to a portion of the land
occupied by its building. The supervening awareness of the encroachment by petitioner does not militate
against its right to claim the status of a builder in good faith. In fact, a judicious reading of said Article 448
will readily show that the landowner's exercise of his option can only take place after the builder shall have
come to know of the intrusion — in short, when both parties shall have become aware of it. Only then will
the occasion for exercising the option arise, for it is only then that both parties will have been aware that a
problem exists in regard to their property rights.

Options of Private Respondent

What then is the applicable provision in this case which private respondent may invoke as his remedy:
Article 448 or Article 450 31 of the Civil Code?

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

Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes
necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the
impracticality of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land
the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for
the land and the sower to pay the proper rent. It is the owner of the land who is authorized to exercise the option, because his
 P a g e | 13

right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing. (3 Manresa 213;
Bernardo vs. Bataclan, 37 Off. Gaz. 1382; Co Tao vs. Chan Chico, G.R. No. 49167, April 30, 1949; Article applied; see Cabral, et al.
vs. Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs. Velasco, [C.A.] 52 Off. Gaz. 2050).

The private respondent's insistence on the removal of the encroaching structures as the proper remedy,
which respondent Court sustained in its assailed Decisions, is thus legally flawed. This is not one of the
remedies bestowed upon him by law. It would be available only if and when he chooses to compel the
petitioner to buy the land at a reasonable price but the latter fails to pay such price. 33 This has not taken
place. Hence, his options are limited to: (1) appropriating the encroaching portion of petitioner's building
after payment of proper indemnity, or (2) obliging the latter to buy the lot occupied by the structure. He
cannot exercise a remedy of his own liking.

Neither is petitioner's prayer that private respondent be ordered to sell the land 34 the proper remedy.
While that was dubbed as the "more workable solution" in Grana and Torralba vs. The Court of Appeals, et
al., 35 it was not the relief granted in that case as the landowners were directed to exercise "within 30 days
from this decision their option to either buy the portion of the petitioners' house on their land or sell to
said petitioners the portion of their land on which it stands." 36 Moreover, in Grana and Torralba, the area
involved was only 87 square meters while this case involves 520 square meters 37. In line with the case of
Depra vs. Dumlao, 38 this case will have to be remanded to the trial court for further proceedings to fully
implement the mandate of Art. 448. It is a rule of procedure for the Supreme Court to strive to settle the
entire controversy in a single proceeding leaving no root or branch to bear the seeds of future
litigation. 39

Petitioner, however, must also pay the rent for the property occupied by its building as prescribed by
respondent Court from October 4, 1979, but only up to the date private respondent serves notice of its
option upon petitioner and the trial court; that is, if such option is for private respondent to appropriate
the encroaching structure. In such event, petitioner would have a right of retention which negates the
obligation to pay rent. 40 The rent should however continue if the option chosen is compulsory sale, but
only up to the actual transfer of ownership.

The award of attorney's fees by respondent Court against petitioner is unwarranted since the action
appears to have been filed in good faith. Besides, there should be no penalty on the right to litigate. 41

WHEREFORE, premises considered, the petition is hereby GRANTED and the assailed Decision and the
Amended Decision are REVERSED and SET ASIDE. In accordance with the case of Depra vs. Dumlao, 42
 P a g e | 14

this case is REMANDED to the Regional Trial Court of Pasay City, Branch 117, for further proceedings
consistent with Articles 448 and 546 43 of the Civil Code, as follows:

The trial court shall determine:

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

2. After said amounts shall have been determined by competent evidence, the regional trial court
shall render judgment as follows:
a) The private respondent shall be granted a period of fifteen (15) days within which to exercise his option under the law
(Article 448, Civil Code), whether to appropriate the portion of the building as his own by paying to petitioner its fair market
value, or to oblige petitioner to pay the price of said area. The amounts to be respectively paid by petitioner and private
respondent, in accordance with the option thus exercised by written notice of the other party and to the court, shall be paid by
the obligor within fifteen (15) days from such notice of the option by tendering the amount to the trial court in favor of the
party entitled to receive it;

b) If private respondent exercises the option to oblige petitioner to pay the price of the land but the latter rejects such
purchase because, as found by the trial court, the value of the land is considerably more than that of the portion of the
building, petitioner shall give written notice of such rejection to private respondent and to the trial court within fifteen (15) days
from notice of private respondent's option to sell the land. In that event, the parties shall be given a period of fifteen (15) days
from such notice of rejection within which to agree upon the terms of the lease, and give the trial court formal written notice of
the agreement and its provisos. If no agreement is reached by the parties, the trial court, within fifteen (15) days from and after
the termination of the said period fixed for negotiation, shall then fix the terms of the lease provided that the monthly rental to
be fixed by the Court shall not be less than two thousand pesos (P2,000.00) per month, payable within the first five (5) days of
each calendar month. The period for the forced lease shall not be more than two (2) years, counted from the finality of the
judgment, considering the long period of time since 1970 that petitioner has occupied the subject area. The rental thus fixed
shall be increased by ten percent (10%) for the second year of the forced lease. Petitioner shall not make any further
constructions or improvements on the building. Upon expiration of the two-year period, or upon default by petitioner in the
payment of rentals for two (2) consecutive months, private respondent shall be entitled to terminate the forced lease, to
recover his land, and to have the portion of the building removed by petitioner or at latter's expense. The rentals herein
provided shall be tendered by petitioner to the trial court for payment to private respondent, and such tender shall constitute
evidence of whether or not compliance was made within the period fixed by the said court.

c) In any event, petitioner shall pay private respondent an amount computed at two thousand pesos (P2,000.00) per
month as reasonable compensation for the occupancy of private respondent's land for the period counted from October 4,
1979, up to the date private respondent serves notice of its option to appropriate the encroaching structures, otherwise up to
 P a g e | 15

the actual transfer of ownership to petitioner or, in case a forced lease has to be imposed, up to the commencement date of
the forced lease referred to in the preceding paragraph;

d) The periods to be fixed by the trial court in its decision shall be non-extendible, and upon failure of the party obliged to
tender to the trial court the amount due to the obligee, the party entitled to such payment shall be entitled to an order of
execution for the enforcement of payment of the amount due and for compliance with such other acts as may be required by
the prestation due the obligee.