CIVIL CODE OF THE PHILIPPINES Art. 1678
1678 CIVIL CODE OF THE PHILIPPINES
Art. 1678. If the lessee makes, in good faith, useful
improvements which are suitable to the use for which the
lease is intended, without altering the form or substance
of the property leased, the lessor upon the termination of
the lease shall pay the lessee one-half of the value of the
improvements at that time. Should the lessor refuse to re-
imburse said amount, the lessee may remove the improve-
ments, even though the principal thing may suffer damage
thereby. He shall not, however, cause any more impairment
upon the property leased than is necessary.
With regard to ornamental expenses, the lessee shall
not be entitled to any reimbursement, but he may remove
the ornamental objects, provided no damage is caused to
the principal thing, and the lessor does not choose to re-
tain them by paying their value at the time the lease is
extinguished.
COMMENT:
(1) Right of Lessee to Useful Improvements and Ornamental
Expenses
This Article speaks of the right of the lessee to:
(a) useful improvements;
(b) ornamental or luxurious expenses.
(2) Example With Reference to Useful Improvement
A is renting B’s house. A constructed a fence. When the
lease ends, what is A’s right regarding this useful improve-
ment?
ANS.: A has the right to be reimbursed one-half of the
value of the fence. The value is computed as of the time the
lease ENDS.
If B refuses to make the reimbursement, A can remove
the fence even if in doing so, the concrete pavement to which
the fence may be attached would suffer damage thereby. The
injury must however be minimized. (Art. 1678, par. 1).
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Art.
Salonga v. Farrales
L-47088, Jul. 10, 1981
A lessee of a lot who constructs in good faith thereon a
house may remove said house, but cannot compel the lessor
to sell to him the lot, unless there be an agreement to this
effect.
(3) Rule Under the Old Law
Under the old law, the lessee had no right to be reim-
bursed for he might improve the landlord out of the latter’s
property. He could not be given the right of a possessor in
good faith (for the lessee knows that the land does not belong
to him; and certainly from the very outset, he is aware of
the precarious nature of his possession); but neither could be
considered a possessor in bad faith (for certainly, as lessee, he
had a right to stay on the property). He, therefore, was entitled
under the old law merely to the rights of a USUFRUCTUARY
(right of removal and set-off, but not that of reimbursement).
(See Alburo v. Villanueva, 7 Phil. 277; Rivera v. Trinidad,
48 Phil. 396; Guitarte v. Sabaco, L-13688-91, Mar. 28, 1960;
Cortez v. Manimbo, L-15596-97, Oct. 31, 1961).
(4) Comment of the Code Commission
The first paragraph is intended to prevent the unjust
enrichment of the lessor. The lessor is to pay only one-half
of the value of the improvements at the time the lease termi-
nates because the lessee has already enjoyed the same. On the
otherhand, the lessor will enjoy them indefinitely thereafter.
(Report of the Code Commission, pp. 144-146.)
(5) Meaning of ‘Good Faith’ in the Article
“Good faith” as used in Art. 1678 is not the “good faith”
defined in the law of possession. (Art. 526). Evidently, “good
faith” under Art. 1678, refers to a case where the lessee
introduces improvements not calculated to harm or destroy
the property leased. (If improvements are made contrary to
agreement with the lessor, it is evident that the lessee is not
in good faith, and is therefore not entitled to any reimburse-
ment.) (See Susana Realty v. Hernandez, et al., C.A., 54 O.G.
2206).
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CIVIL CODE OF THE PHILIPPINES Art. 1678
(6) Rule if Lessor Refuses to Reimburse
If the lessee demands reimbursement for half, and the
lessor refuses, who should prevail?
ANS.: In a sense the lessor prevails in that the lessee
cannot insist on reimbursement. It is clear that the option of
reimbursing belongs to the lessor, and not to the lessee. (See
Lapena, et al. v. Pineda, L-10089, Jul. 31, 1957). This does
not mean that the lessee is left helpless, for under the law it
is clear that he may, as a remedy, remove the improvements,
even though the leased premises may suffer some damage
thereby. (See Art. 1678, par. 1).
Juanito A. Rosario v. CA & Alejandro Cruz
GR 89554, Jul. 10, 1992
It would be inequitable to allow the petitioner, as new
owner of the Lot 3-A; to occupy that part of private respondent’s
house built thereon without reimbursing the latter for one-half
of its value as provided in Art. 1678 of the Civil Code.
(7) Bar
O, the owner of a residential house and lot in Manila,
leased the property to L for 10 years. There was no stipulation
between the parties as to improvements. The property had a
driveway for cars, but it had no garage. L built a garage.
(a) What is the legal nature of the garage as an improve-
ment?
ANS.: The garage is in the nature of a useful im-
provement or expense since it adds value to the property.
(See Aringo v. Arenas, 14 Phil. 263 and Robles, et al. v.
Lizarraga Hermanos, et al., 42 Phil. 584).
(b) Can O retain the garage after the expiration of the
lease?
ANS.: Yes. The owner of the house and lot can retain
the garage after the expiration of the lease, but he must
pay the lessee one-half of the value of the garage at that
time, inasmuch as the lessee made in good faith a useful
improvement suitable to the use for which the lease was
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Art. 1678 CIVIL CODE OF THE PHILIPPINES
intended, without altering the form or substance of the
property leased. (Art. 1678).
(c) Can O require L to remove the garage after the expira-
tion of the lease?
ANS.: Evidently, the law does not authorize O to
require L to remove the garage after the expiration of
the lease. As a matter of fact, it is L who is allowed to
remove the garage should the lessor refuse to reimburse
the amount stated in the preceding paragraph. After
all, considering the presence of a driveway for cars, it
cannot be doubted that under the law, the lessee had
every right to construct the garage. (See Art. 1678).
(8) Rule if Useful Improvements Are Not Suitable
Art. 1678 refers to “useful improvements, which are
suitable to the use for which the lease is intended.” Now
then, suppose said useful improvements are NOT suitable, it
is clear that the first paragraph of Art. 1678 will not apply.
What then should apply? It is submitted that they should
be considered in the category of “ornamental expenses” since
undoubtedly they are “expenses” and purely “ornamental” in
the sense that they are not suitable. Therefore, the second
paragraph of Art. 1678 should apply.
(9) Rule if There Is No True Accession
Note that under the first paragraph of Art. 1678, the law
on the right of REMOVAL says that “should the lessor refuse
to reimburse said amount, the lessee may remove the improve-
ments, even though the principal thing may suffer thereby.”
While the phrase “even though” implies that Art. 1678 always
applies regardless of whether or not the improvements can be
removed without injury to the leased premises, it is believed
that application of the Article cannot always be done. The rule
is evidently intended for cases where a true accession takes place
as when part of the land leased is, say, converted into a fishpond;
and certainly not where an easily removable thing (such as a
wooden fence) has been introduced. There is no doubt that in a
case involving such a detachable fence, the lessee can take the
same away with him when the lease expires.
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CIVIL CODE OF THE PHILIPPINES Art. 1678
(10) Query
R, the owner of a brick building rented it to F for a
period of 5 years under a written lease which contained no
agreement as to improvements but did provide that it was to
be used as the office of a real estate broker. After six months
of occupancy, F requested a new glass brick front, and the
installation of a cooling system. R refused the request for
improvements. Without advising R, F took down the existing
glass front, and replaced it with one constructed with glass
brick. He also installed a cooling system which was connected
to the pipes of the hot air furnace in such a manner that it
could be removed without injury to the building or heating
system. Near the expiration of the term of the lease, F de-
manded that R pay the cost of these improvements. When R
refused to make payment, F threatened to remove the glass
brick front and the cooling system from the building. R has filed
an action to establish the ownership of these improvements
and to prevent their removal by F. Discuss and decide.
(NOTE: The reader will please answer the query stated
hereinabove. Hints: Are the improvements useful ones or only
for ornament? Were the improvements made in good faith or
in bad faith? Are they suitable for use in the office of a real
estate broker? Is F responsible for any damages?)
(11) Stipulation Giving Lessor the Improvements
The condition that ownership of the improvements con-
structed on the land leased shall pass to the lessor at the
expiration of the contract of lease, or in case of violation of the
terms thereof, is NOT IMMORAL and UNCONSCIONABLE.
This kind of resolutory condition is quite common in lease
contract, and there are two reasons given for the imposition
of such conditions. Firstly, they serve as a guaranty to the
lessors; they tend to compel the timely payment of rentals by
the lessees who had chosen to enter into a long term lease
contract. Secondly, the rentals are relatively low, and the
lessees would, therefore, after a number of years, be able to
obtain a fair return of their investment. (Co Bun Kim v. C.A.
and Tiongson, et al., L-9617, Dec. 14, 1956).
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Art. 1679 CIVIL CODE OF THE PHILIPPINES
(12) Conclusive Presumption
Spouses Dario Lacap & Matilde Lacap
v. Jouvet Ong Lee,
represented by Reynaldo de los Santos
GR 142131, Dec. 11, 2002
FACTS: During the tenancy relationship, petitioner-
spouses admitted the validity of title of their landlord. Issue:
Does a conclusive presumption arise from this fact?
HELD: Yes. This admission negated their previous claim
of title. (Sec. 2[b], Rule 131, Rules of Court). If, indeed they
believed in good faith they had at least an imperfect title of
dominion over the subject premises, they should have tried
to prevent the foreclosure and objected to the acquisition
of title by the bank. Their supposed belief in good faith of
their right of dominion ended when the bank foreclosed and
acquired title over the subject premises.
With regard to indemnity for improvements introduced
by petitioner-spouses on the subject property, they are entitled
to be paid only 1/2 of the value of the useful improvements
at the time of termination of the lease or to have the said
improvements removed if the respondent refuse to reimburse
them. Thus, the Supreme Court affirms the appellate court’s
holding that petitioner-spouses could not be builders in good
faith inasmuch as their payment of rentals to the bank was
indication that they were lesses. Thus, in the indemnifica-
tion for improvements made, Art. 1678, not Art. 448, should
govern.
Art. 1679. If nothing has been stipulated concerning
theplace and the time for the payment of the lease, the
provisions of Article 1251 shall be observed as regards the
place; and with respect to the time, the custom of the place
shall be followed.
COMMENT:
(1) Rules Regarding Place of Payment of the Rent
(a) Follow the stipulation
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