Case Summary (G.R. No. 108894)
Key Dates
1970 – Purchase of land and improvements by petitioner from Pariz Industries; purchase by respondent of adjacent lots.
1971 – Respondent engages a surveyor and discovers the encroachment.
1973 – Amicable settlement before Col. Rosales agreeing to demolish rear portion of fence.
1979 – Date from which reasonable rental was claimed by respondent.
December 4, 1989 – RTC decision in favor of petitioner ordering sale of encroached land.
August 28, 1992 & February 9, 1993 – CA decisions reversing RTC and modifying reliefs.
February 10, 1997 – Supreme Court decision applying the 1987 Constitution.
Applicable Law
1987 Philippine Constitution (due process and property rights).
Civil Code of the Philippines:
• Art. 448 – Rights of owner of land upon good-faith building by another.
• Art. 450 – Remedies when building is in bad faith.
• Arts. 527–529 – Presumption and continuity of good faith in possession.
• Arts. 546 & 548 – Indemnity and necessary expenses.
Factual Background
Petitioner acquired from Pariz Industries existing buildings and perimeter walls that partially encroached on respondent’s adjoining lot. Respondent’s complaints before municipal and fiscal authorities failed. In 1973, parties agreed to demolish only the rear fence up to the back of the machinery building, leaving other encroaching structures subject to further negotiation. Respondent later filed suit in RTC seeking compulsory removal or purchase of the occupied land, compensation, attorney’s fees, and rental. The RTC granted petitioner’s demand to compel sale of the encroached land at ₱2,000/m² plus damages and fees. The CA reversed, dismissing the complaint, ordering demolition of structures, imposition of rental, and attorney’s fees, deleting the award of land value.
Issues Presented
- Whether petitioner is a builder in bad faith by presumed knowledge of its title’s metes and bounds.
- Whether the 1973 amicable settlement estops petitioner from invoking Article 448 remedies.
- Whether respondent may demand removal of structures absent bad faith or compulsory sale failure.
- Proper remedial options under the Civil Code when building is in good faith.
Court of Appeals Ruling
The CA held petitioner a builder in bad faith, presuming its knowledge of precise boundaries under Torrens doctrine. It treated the partial demolition agreement as estoppel to challenge respondent’s territorial rights. It ordered complete removal of encroaching works, rental payments of ₱2,000/month, and attorney’s fees.
Good Faith Analysis
• The Supreme Court rejects imputing bad faith to petitioner based on Torrens presumptions. Absent evidence of actual knowledge or fraud by the original builder (Pariz Industries), good faith is presumed under Art. 527.
• Non-survey-specialists cannot precisely locate paper boundaries; Co Tao vs. Chico refutes constructive knowledge of metes and bounds by mere title‐holders.
• Good faith in the predecessor transfers to petitioner; no proof overcame the presumption.
Application of Article 448
• Owner of land occupied in good faith may compel the landowner to choose between:
(a) appropriating the building upon indemnity; or
(b) selling the land at its reasonable price.
• Removal of structures is not a remedy under Art. 448 unless the landowner opts for sale but the builder fails to pay.
Estoppel and Amicable Settlement
• The 1973 compromise concerned demolition of only a portion of the fence; it did not relinquish petitioner’s rights under Art. 448.
• Compromises aim to avoid litigation and do not transform into admissions of bad faith or complete recognition of boundaries beyond the settlement’s express terms.
Remedies and Options of Private Respondent
• Because both parties acted in good faith, Art. 448 governs. Respondent must choose to:
- Appropriate the encroaching structure by paying its fair market value; or
- Compel petitioner to pu
Case Syllabus (G.R. No. 108894)
Facts of the Case
- Petitioner Tecnogas Philippines Manufacturing Corporation and private respondent Eduardo Uy own adjoining lots in Barrio San Dionisio, Parañaque, Metro Manila.
- Lot 4531-A (TCT No. 409316) belongs to petitioner; Lots 4531-B (TCT No. 279838) and another adjoining lot (TCT No. 31390) belong to respondent.
- A survey revealed that portions of petitioner’s buildings and walls, constructed by its predecessor-in-interest (Pariz Industries, Inc.), encroached on respondent’s land—initially estimated at 770 sqm, later reduced to 520 sqm after partial demolition.
- Petitioner offered to buy the encroached portion; respondent refused.
- In 1973, the parties agreed before Col. Rosales to demolish the rear portion of the fence up to the back of petitioner’s machine-housing building; walls housing electroplating machineries were excluded pending further negotiation.
- Respondent filed administrative and criminal complaints; petitioner’s wall partially collapsed in 1980 leading to supplemental pleadings and a criminal conviction for respondent’s wife.
- During trial, petitioner’s settlement proposals were ignored by respondent.
Procedural History
- RTC Pasay City (Branch 117) in Civil Case No. PQ-7631-P (Dec. 4, 1989) ruled for petitioner, ordering respondent to sell the encroached land at ₱2,000/sqm and to pay damages (₱44,000 materials loss; ₱7,500 attorney’s fees; costs).
- On appeal, the CA (Aug. 28, 1992) reversed and dismissed for lack of cause of action; ordered petitioner to pay rent of ₱2,000/month from Oct. 4, 1979 until vacatur; to remove structures; to pay land value; to pay ₱20,000 attorney’s fees; costs.
- On reconsideration, CA (Feb. 9, 1993) deleted the paragraph ordering payment for land value; denied respondent’s motion for reconsideration.
- Petitioner elevated the case to the Supreme Court via Rule 45 petition.
Issues Presented
- Whether the CA erred in presuming petitioner a builder in bad faith by assuming knowledge of metes and bounds under Torrens titles.
- Whether the CA erred in applying estoppel against petitioner based on the 1973 amicable settlement.
- Whether the CA erred