Bliss Development Corp. vs.

Diaz
G.R. 213233 August 5, 2015
Velasco, Jr., J.

Facts:
Petitioner Bliss Development Corporation (BDC) owned a lot in Diliman, Quezon City which was
sold through execution of a Deed of Sale to Spouses Melgazo, both of whom are now deceased.
A certain Rodolfo Nacua sent a letter to BDC, saying that Sps. Melgazo transferred to him their
rights over the property. Nacua then sold his rights to Olivia Garcia, through a Deed of Transfer
of Rights. Later, Garcia transferred her rights to Elizabeth Reyes. Reyes then transferred her
rights to Domingo Tapay, who then later sold his rights to herein respondent Montano Diaz for
P600,000.00. Diaz then paid BDC the amortizations due on the property, amounting to
P406,915.15, and BDC issued a permit to occupy the property in favor of Diaz. Diaz then
introduced improvements on the property, amounting to P700,000.00. On April 14, 1992, BDC
executed a Contract to Sell in favor of Diaz. On April 15, 1994, however, BDC informed Diaz
that respondent Edgar Arreza was claiming that the heirs of Sps. Melgazo sold to him the rights
over the property. BDC then placed Diaz's account in "inactive status." To resolve the conflicting
claims of Arreza and Diaz, BDC filed a complaint for Interpleader against them, before the
Makati RTC, Makati City which ruled that Arreza lead a better right over the property. Diaz filed
the present complaint for sum of money against BDC before the RTC, Makati City, Branch 59
but it was dismissed. Diaz appealed to the Court of Appeals. The CA ruled that Diaz is a buyer in
good faith, and that Diaz need not go beyond the title to be considered a buyer in good faith,
because what is involved is a registered land. The CA ruled that the provision in the Contract to
Sell excusing BDC from reimbursing the monthly amortizations to Diaz cannot exempt it from
liability, because it acted in bad faith and was ordered to pay Diaz P1,106,915.58 for the
amortizations paid and amount spent on improvements on the property, P100,000.00 as moral
damages, P50,000.00 as exemplary damages, and P25,000.00 as attorney's fee. Petitioner BDC
moved for reconsideration, insisting that Diaz cannot be declared a buyer in good faith.

Issue:
Whether or not BDC is liable to Diaz, both for the amortizations that Diaz paid to it, and the
value of the improvements that Diaz introduced to the property

Held:
The Court ruled that Diaz is not an innocent purchaser in good faith and for value. While it is
true that the subject lot is a registered lot, the doctrine of not going beyond the face of the title
does not apply in the case here, because what was subjected to a series of sales was not the lot
itself but the right to purchase the lot from BDC. For one to be considered a purchaser in good
faith, the following requisites must concur: (1) that the purchaser buys the property of another
without notice that some other person has a right to or interest in such property; and (2) that
the purchaser pays a full and fair price for the property at the time of such purchase or before
he or she has notice of the claim of another. The Court find that in the case at bar, the first
element is lacking.
Notwithstanding the fact that Diaz is in bad faith, BDC is nevertheless liable to return to him
the amortizations which he already paid on the property, applying the rule on unjust
enrichment. The Court resolve the issue of whether BDC is liable to Diaz for the value of the
improvements that Diaz introduced to the property. Arts. 448, 453, 546, and 548 of the Civil
Code are material in resolving the issue. Under Article 448, the landowner is given the option,
either to appropriate the improvement as his own upon payment of the proper amount of
indemnity or to sell the land to the possessor in good faith. Relatedly Article 546 provides that a
builder in good faith is entitled to full reimbursement for all the necessary and useful expenses
incurred. According to Article 453, if both the land owner and the person who built, planted or
sowed the land of another, the rights of one and the other shall be the same as though both
had acted in good faith. The Court ordered BDC to pay respondent Montano M. Diaz the
amount of P1,106,915.58 for the amortizations paid and the amount spent on improvements
on the property; and (2) Domingo Tapay is ordered to pay respondent Montano M. Diaz the
amount of P600,000.00, the amount he paid for the transfer of rights. However, because both
parties acted in bad faith, there is no basis for the award of moral and exemplary damages, as
well as attorney's fees.

Heirs of Victorino Sarili vs. Lagrosa

G.R. No. 193517 January 15, 2014
Perlas-Bernabe, J.

Facts:
Respondent Pedro F. Lagrosa filed a complaint against Spouses Sarili and against the Register of
Deeds. Lagrosa claims that he is a resident of California, USA, and that during his vacation in the
Philippines, he discovered that his parcel of land located in Caloocan is now under the name of
Victorino Sarili by virtue of a falsified Deed of Sale dated February 16, 1978 purportedly
executed by him and his wife, Amelia U. Lagrosa (Amelia). Lagrosa prayed for the annulment of
TCT No. 262218, and that Sps. Sarili deliver to him the possession of the subject property, or, in
the alternative, that Sps. Sarili and the RD jointly and severally pay him the amount of
P1,000,000.00, including moral damages as well as attorney's fees. In their answer, Sps. Sarili
maintained that they are innocent purchasers for value, having purchased the subject property
from Ramon B. Rodriguez, who possessed and presented a Special Power of Attorney to dispose
of the same, and, in such capacity, executed a Deed of Absolute Sale dated November 20, 1992
conveying the said property in their favor. RTC rendered a Decision finding respondent's
signature on the subject SPA as "the same and exact replica" of his signature in the November
25, 1999 SPA in favor of Lourdes. respondent appealed to the CA. CA granted respondent's
appeal and held that the RTC erred in its ruling since the November 20, 1992 deed of sale,
which the RTC found "as valid and genuine," was not the source document for the transfer of
the subject property and the issuance of TCT No. 262218 in the name of Sps. Sarili 25 but rather
the February 16, 1978 deed of sale, the fact of which may be gleaned from the Affidavit of Late
Registration executed by Isabel (affidavit of Isabel). Petitioners essentially argue that regardless
of the fictitious February 16, 1978 deed of sale, there was still a valid conveyance of the subject
property to Sps. Sarili who relied on the authority of Ramos (as per the subject SPA) to sell the
same.
Issue:
Whether or not there was a valid conveyance of the subject property to Sps. Sarili

Held:
It is well-settled that even if the procurement of a certificate of title was tainted with fraud and
misrepresentation, such defective title may be the source of a completely legal and valid title in
the hands of an innocent purchaser for value. The general rule is that every person dealing with
registered land may safely rely on the correctness of the certificate of title issued therefor and
the law will in no way oblige him to go beyond the certificate to determine the condition of the
property. However, a higher degree of prudence is required from one who buys from a person
who is not the registered owner, although the land object of the transaction is registered. The
strength of the buyer's inquiry on the seller's capacity or legal authority to sell depends on the
proof of capacity of the seller. If no such power of attorney is provided or there is one but there
appears to be flaws in its notarial acknowledgment, mere inspection of the document will not
do; the buyer must show that his investigation went beyond the document and into the
circumstances of its execution. The Court, however, finds a need to remand the case to the
court a quo in order to determine the rights and obligations of the parties with respect to the
house Sps. Sarili had built on the subject property in bad faith in accordance with Article 449
in relation to Articles 450, 451, 452, and the first paragraph of Article 546 of the Civil Code.

ART. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built,
planted or sown without right to indemnity.

ART. 450. The owner of the land on which anything has been built, planted or sown in bad faith
may demand the demolition of the work, or that the planting or sowing be removed, in order to
replace things in their former condition at the expense of the person who built, planted or
sowed; or he may compel the builder or planter to pay the price of the land, and the sower the
proper rent.

ART. 451. In the cases of the two preceding articles, the landowner is entitled to damages from
the builder, planter or sower.

ART. 452. The builder, planter or sower in bad faith is entitled to reimbursement for the
necessary expenses of preservation of the land.

xxx xxx xxx

ART. 546. 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. (Emphases and
underscoring supplied)
xxx xxx xxx

To be deemed a builder in good faith, it is essential that a person asserts title to the land on
which he builds, i.e., that he be a possessor in concept of owner, and that he be unaware that
there exists in his title or mode of acquisition any flaw which invalidates it. As for Sps. Sarili,
they knew — or at the very least, should have known — from the very beginning that they were
dealing with a person who possibly had no authority to sell the subject property considering the
palpable irregularity in the subject SPA's acknowledgment. Yet, relying solely on said document
and without any further investigation on Ramos's capacity to sell, Sps. Sarili still chose to
proceed with its purchase and even built a house thereon. Based on the foregoing, it cannot be
seriously doubted that Sps. Sarili were actually aware of a flaw or defect in their title or mode of
acquisition and have consequently built the house on the subject property in bad faith under
legal contemplation. The case is therefore remanded to the court a quo for the proper
application of the above-cited Civil Code provisions.

Benedicto vs. Villaflores

G.R. No. 185020 October 6, 2010
Nachura, J.

Facts:
Maria Villaflores sold a portion of her lot located at Poblacion, Meycauayan, Bulacan to her
nephew, respondent Antonio Villaflores. Antonio then took possession of the portion sold to
him and constructed a house thereon. Twelve (12) years later, Maria executed in favor of
Antonio a Kasulatan ng Bilihang Tuluyan covering the entire Lot 2-A. However, Antonio did not
register the sale or pay the real property taxes for the subject land. On August 31, 1994, Maria
sold the same Lot 2-A to Filomena, evidenced by a Kasulatan ng Bilihang Tuluyan. Filomena
registered the sale with the Registry of Deeds of Meycauayan on September 6, 1994. Filomena
led a case for Accion Publiciana with Cancellation of Notice of Adverse Claim, Damages and
Attorney's Fees against Antonio. She alleged that she acquired Lot 2-A in 1994 from her
grandaunt Maria by virtue of the Kasulatan ng Bilihang Tuluyan. Antonio traversed the
complaint, asserting absolute ownership over Lot 2-A. He alleged that he purchased the subject
property from Maria in 1980; and that he took possession of the same and constructed his
house thereon. RTC declared Filomena the owner of the lot and Antonio as a builder in good
faith. Filomena and Antonio then filed their separate appeals with the CA. Filomena assailed the
RTC pronouncement that Antonio was a builder in good faith, and the denial of her claim for
damages. Antonio, on the other hand, faulted the RTC for sustaining Filomena's ownership of
the subject lot. On September 30, 2008, the CA rendered the now challenged Decision affirming
with modification the RTC decision. The CA affirmed the RTC for upholding Filomena's
ownership of Lot 2-A and for declaring Antonio a builder in good faith. However, it remanded
the case to the RTC for further proceedings to determine the respective rights of the parties
under Articles 448 and 546 of the Civil Code, and the amount due Antonio.

Issue:
Whether or not Antonio is a builder in good faith and was entitled to reimbursement for the
necessary and useful expenses incurred, with right of retention until reimbursement of the said
expenses in full

Held:
As explained by the CA, Antonio claims not being aware of any flaw in his title. He believed
being the owner of the subject premises on account of the Deed of Sale thereof in his favor
despite his inability to register the same. The improvement was, in fact, introduced by Antonio
prior to Filomena's purchase of the land. Thus, the Court sustain the finding that Antonio is a
builder in good faith. Under Article 448, a landowner is given the option to either appropriate
the improvement as his own upon payment of the proper amount of indemnity, or sell the land
to the possessor in good faith. Relatedly, Article 546 provides that a builder in good faith is
entitled to full reimbursement for all the necessary and useful expenses incurred; it also gives
him right of retention until full reimbursement is made. The CA correctly ordered the remand of
the case to the RTC for further proceedings.

Briones vs. Macabagdal

G.R. No. 150666 August 3, 2010
Villarama, Jr., J.

Facts:
Macabagdal spouses purchased from Vergon Realty Investments Corporation (Vergon) Lot No.
2-R, a 325-square-meter land located in Vergonville Subdivision No. 10 at Las Piñas City, Metro
Manila. On the other hand, Briones spouses are the owners of Lot No. 2-S, which is adjacent to
Lot No. 2-R. Sometime in 1984, after obtaining the necessary building permit and the approval
of Vergon, Briones spouses constructed a house on Lot No. 2-R which they thought was Lot No.
2-S. After being informed of the mix up by Vergon's manager, Macabagdal spouses immediately
demanded petitioners to demolish the house and vacate the property. Briones spouses,
however, refused to heed their demand. Thus, Macabagdal spouses filed an action to recover
ownership and possession of the said parcel of land with the RTC of Makati City. Briones
spouses insisted that the lot on which they constructed their house was the lot which was
consistently pointed to them as theirs by Vergon's agents over the seven (7)-year period they
were paying for the lot. They interposed the defense of being buyers in good faith and
impleaded Vergon as third-party defendant claiming that because of the warranty against
eviction, they were entitled to indemnity from Vergon in case the suit is decided against them.
The RTC ruled in favor of Macabagdal spouses. The Briones spouses were ordered to demolish
their house, vacate the premises and return the lot and their third-party complaint against
Vergonville Realty and Investments Corporation was dismissed for lack of cause of action and
evidently without merit. On appeal, the CA affirmed the RTC's finding. Aggrieved, petitioners
filed a motion for reconsideration, but it was denied by the appellate court. Hence, this petition
for review on certiorari. Briones spouses claimed that they must not bear the damage alone.
Petitioners insist that they relied with full faith and confidence in the reputation of Vergon's
agents when they pointed the wrong property to them. Even the President of Vergon, Felix
Gonzales, consented to the construction of the house when he signed the building permit.

Issue:
Whether or not the Briones spouses are builders in good faith

Held:
The Court find that the trial court nonetheless erred in outrightly ordering petitioners to vacate
the subject property or to pay respondent spouses the prevailing price of the land as
compensation. Article 527 of the Civil Code presumes good faith, and since no proof exists to
show that the mistake was done by petitioners in bad faith, the latter should be presumed to
have built the house in good faith. When a person builds in good faith on the land of another,
Article 448 of the Civil Code governs. Said article provides, “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. . . .” The above-cited article covers cases in which the builders, sowers
or planters believe themselves to be owners of the land or, at least, to have a claim of title
thereto. The builder in good faith can compel the landowner to make a choice between
appropriating the building by paying the proper indemnity or obliging the builder to pay the
price of the land. Moreover, petitioners have the right to be indemnified for the necessary and
useful expenses they may have made on the subject property. Articles 546 and 548 of the Civil
Code provide:
ART. 546. 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.

ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the
possessor in good faith; but he may remove the ornaments with which he has
embellished the principal thing if it suffers no injury thereby, and if his successor in the
possession does not prefer to refund the amount expended.

The case is REMANDED to the Regional Trial Court of Makati City, Branch 135, for further
proceedings consistent with the proper application of Articles 448, 546 and 548 of the Civil
Code. The trial court shall determine: a. present fair price of the respondent-spouses' lot; b. the
amount of the expenses spent by petitioners for the building of their house; c. the increase in
value ("plus value") which the said lot may have acquired by reason thereof; and d. whether the
value of said land is considerably more than that of the house built thereon. The Macabagdal
spouses have an option whether to appropriate the house as their own by paying to petitioners
either the amount of the expenses spent by petitioners for the building of the house, or the
increase in value ("plus value") which the said lot may have acquired by reason thereof, or to
oblige petitioners to pay the price of said land. In any event, petitioners shall pay the
respondent-spouses reasonable compensation for the occupancy of the respondent-spouses'
land for the period counted from the year petitioners occupied the subject area, up to the
commencement date of the forced lease which shall not be more than 2 years. Upon expiration
of the two (2)-year period, or upon default by petitioners in the payment of rentals for two (2)
consecutive months, the respondent-spouses shall be entitled to terminate the forced lease, to
recover their land, and to have the house removed by petitioners or at the latter's expense.

Tuatis vs Spouses Escol

G.R. No 175399 October 27, 2009
Chico-Nazario, J.

Facts:
Visminda and Tuatis entered into a Deed of Sale by Installment. The subject matter of said Deed
was a piece of real property situated in Poblacion, Sindangan, Zamboanga del Norte with an
area of 300 square meters, more or less. According to the terms of the Deed, Visminda is selling
the lot for the sum of Php 10,000 and Tuatis must pay Visminda Php 3,000 as downpayment,
the amount of Php 4,000 on or before December 31, 1989 and that failure of the buyer Tuatis
to pay the remaining balance within the period of three months from the period stipulated,
then the Tuatis shall return the land subject of this contract to the Visminda and the Visminda
shall likewise return all the amount paid by Tuatis. Tuatis claimed that of the entire purchase
price of P10,000.00, she had paid Visminda P3,000.00 as downpayment. Subsequently, Tuatis
paid P3,000.00 as installment on 19 December 1989, and another P1,000.00 installment on 17
February 1990. Tuatis averred that she paid Visminda the remaining P3,000.00 on February
1990 in the presence of Eric Selda (Eric), a clerk in the law of ce of one Atty. Alanixon Selda. In
support of this averment, Tuatis attached to her Complaint a certification executed by Eric on
27 May 1996. In the meantime, Tuatis already took possession of the subject property and
constructed a residential building thereon. In 1996, Tuatis requested Visminda to sign a
prepared absolute deed of sale covering the subject property, but the latter refused,
contending that the purchase price had not yet been fully paid. The parties tried to amicably
settle the case before the Lupon Barangay, to no avail. Tuatis contended that Visminda failed
and refused to sign the absolute deed of sale without any valid reason. Thus, Tuatis prayed that
the RTC order Visminda to do all acts for the consummation of the contract sale, sign the
absolute deed of sale and pay damages, as well as attorney's fees. In her Answer, Visminda
countered that, except for the P3,000.00 downpayment and P1,000.00 installment paid by
Tuatis on 19 December 1989 and 17 February 1990, respectively, Tuatis made no other
payment to Visminda. Despite repeated verbal demands, Tuatis failed to comply with the
conditions that she and Visminda agreed upon in the Deed of Sale by Installment for the
payment of the balance of the purchase price for the subject property. Visminda asked that the
RTC dismiss Tuatis' Complaint, or in the alternative, order Tuatis to return the subject property
to Visminda after Visminda's reimbursement of the P4,000.00 she had received from Tuatis.
The RTC decided in favor of Visminda. That failure of Tuatis to pay the remaining balance within
the period of three months from the period stipulated above, then Tuatis shall return the land
subject of this Contract to Visminda and Visminda shall likewise return all the amount paid by
Tuatis." This stipulation is the law between the buyer and seller, and should be complied with in
good faith. Tuatis constructed the building in bad faith for, she had knowledge of the fact that
Visminda is still the absolute owner of the subject land. There was bad faith also on the part of
Visminda in accordance with the express provisions of Article 454 of the New Civil Code since
she allowed Tuatis to construct the building without any opposition on her part and so occupy
it. The rights of the parties must, therefore, be determined as if they both had acted in bad
faith. Their rights in such cases are governed by Article 448 of the New Civil Code of the
Philippines. The RTC decreed the dismissal of Tuatis' Complaint for lack of merit, the return by
Tuatis of physical possession of the subject property to Visminda, and the return by Visminda of
the P4,000.00 she received from Tuatis. Tuatis filed an appeal with the Court of Appeals which
was dismissed. Tuatis filed a Motion for Reconsideration but was denied. Tuatis filed the instant
Petition, principally arguing that Article 448 of the Civil Code must be applied to the situation
between her and Visminda. Tuatis posits that she is entitled to buy the land at a price to be
determined by the Court or, alternatively, she is willing to sell her house to Visminda in the
amount of P502,073.00.

Issue:
Whether or not Tuatis is entitled to exercise the options granted in Art. 448 of the Civil Code.

Held:
No, Tuatis is not entitled to exercise the options granted in Article 448 of the Civil Code. Article
448 provides that 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 Court highlights that the options under Article 448 are available to Visminda, as the owner
of the subject property. There is no basis for Tuatis’ demand that, since the value of the
building she constructed is considerably higher than the subject property, she may choose
between buying the subject property from Visminda and selling the building to Visminda for
P502,073.00. Again, the choice of options is for Visminda, not Tuatis, to make. And, depending
on Visminda’s choice, Tuatis’ rights as a builder under Article 448 are limited to the following:
(a) under the first option, a right to retain the building and subject property until Visminda pays
proper indemnity; and (b) under the second option, a right not to be obliged to pay for the
price of the subject property, if it is considerably higher than the value of the building, in which
case, she can only be obliged to pay reasonable rent for the same. The rule that the choice
under Article 448 of the Civil Code belongs to the owner of the land is in accord with the
principle of accession, i.e., that the accessory follows the principal and not the other way
around. Even as the option lies with the landowner, the grant to him, nevertheless, is
preclusive. The landowner cannot refuse to exercise either option and compel instead the
owner of the building to remove it from the land. The raison d’etre for this provision has been
enunciated thus: 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 impracticability
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 the proper rent.
He cannot refuse to exercise either option. It is the owner of the land who is authorized to
exercise the option, because his right is older, and because, by the principle of accession, he is
entitled to the ownership of the accessory thing.

Spouses Narvaez vs. Spouses Alciso

G.R. No. 165907 July 27, 2009
Carpio, J.

Facts:
Larry A. Ogas (Ogas) owned a 1,329-square meter parcel of land situated in Pico, La Trinidad,
Benguet a portion of which was subject to a 30-year lease agreement with Esso Standard
Eastern, Inc. Ogas sold the property to his daughter Rose O. Alciso. TCT No T-1068 was
cancelled and TCT No. T-12422 5 was issued in the name of Alciso. On 25 August 1979, Alciso
entered into a Deed of Sale with Right to Repurchase, selling the property to Jaime Sansano for
P10,000. Alciso later repurchased the property from Sansano and, on 28 March 1980, she
entered into another Deed of Absolute Sale, this time selling the property to Celso S. Bate for
P50,000. The lease rights over the said property in favor of ESSO STANDARD EASTERN, INC., as a
lessor is likewise hereby transfered in full to the buyer. TCT No. T-12422 was cancelled and TCT
No. T-16066 9 was issued in the name of Bate. On 14 August 1981, Bate entered into a Deed of
Sale of Realty, selling the property to the spouses Dominador R. Narvaez and Lilia W. Narvaez
(Spouses Narvaez) for P80,000. TCT No. T-16066 was cancelled and TCT No. T-16528 11 was
issued in the name of the Spouses Narvaez. In 1982, the Spouses Narvaez built a commercial
building on the property amounting to P300,000. Alciso demanded that a stipulation be
included in the 14 August 1981 Deed of Sale of Realty allowing her to repurchase the property
from the Spouses Narvaez. In compliance with Alciso's demand, the Deed stated that, "The
SELLER (Bate) carries over the manifested intent of the original SELLER of the property (Alciso)
to buy back the same at a price under such conditions as the present BUYERS (Spouses Narvaez)
may impose." The Spouses Narvaez furnished Alciso with a copy of the Deed. Alciso alleged that
she informed the Spouses Narvaez that she wanted to repurchase the property. The Spouses
Narvaez demanded P300,000, but Alciso was willing to pay only P150,000. Alciso and the
Spouses Narvaez failed to reach an agreement on the repurchase price. In a Complaint dated 15
June 1984 and filed with the RTC, Alciso prayed that (1) the 25 August 1979 Deed of Sale with
Right to Repurchase, the 28 March 1980 Deed of Absolute Sale, and the 14 August 1981 Deed
of Sale of Realty be annulled; (2) the Register of Deeds be ordered to cancel TCT Nos. T-16066
and T-16528; (3) the Spouses Narvaez be ordered to reconvey the property; and (4) Sansano,
Bate, and the Spouses Narvaez be ordered to pay damages, attorney's fees and expenses of
litigation. Alciso claimed that the intention of the parties was to enter into a contract of real
estate mortgage and not a contract of sale with right of repurchase. The RTC held among others
that Deed of Sale of Realty contained a stipulation pour autrui in favor of Alciso — Alciso could
repurchase the property and that Alciso could either appropriate the commercial building after
payment of the indemnity equivalent to one-half of its market value when constructed or sell
the land to the Spouses Narvaez. The Spouses Narvaez appealed to the Court of Appeals. The
Spouses Narvaez claimed that (1) the 14 August 1981 Deed of Sale of Realty did not contain a
stipulation pour autrui — not all requisites were present; (2) the RTC erred in setting the
repurchase price at P80,000; (3) they were purchasers for value and in good faith; and (4) they
were builders in good faith. The Court of Appeals held among others that the Spouses Narvaez
were builders in good faith; and Alciso could either appropriate the commercial building after
payment of the indemnity or oblige the Spouses Narvaez to pay the price of the land, unless the
price was considerably more than that of the building. The Spouses Narvaez elevated the case
to the Supreme Court.

Issue:

Held:
The Court disagreed with the Court of Appeals. The Court of Appeals stated that:
“The contract between defendants-appellants Bate and Narvaez spouses is a contract of sale
with a stipulation granting plaintiffs-appellees the right to repurchase the property at a
reasonable price. Being the absolute owners of the property in question, defendants-appellants
Narvaez spouses have the undisputed right to use, enjoy and build thereon.

Having built the improvement on the land they own and registered in their names, they are
likened to builders in good faith and their rights over the improvement shall be governed by
Article 448 of the Civil Code.

Applying said Article, plaintiffs-appellees, after repurchasing the land, will have the following
options:(1) to appropriate for themselves the building upon payment of its value to defendants-
appellants Narvaez spouses; OR (2) to compel the defendants-appellants Narvaez spouses to
buy the land, unless the value of thereof [sic] be considerably more than that of the building, in
which case, said spouses may lease the land instead. The parties shall agree upon the terms of
the lease and in case of disagreement, the courts shall fix the terms thereof.”

Article 448 does not apply to a case where the owner of the land is the builder, sower, or
planter who then later loses ownership of the land by sale or donation. Elsewise stated, where
the true owner himself is the builder of the works on his own land, the issue of good faith or
bad faith is entirely irrelevant. Article 448 is inapplicable in the present case because the
Spouses Narvaez built the commercial building on the land that they own. Besides, to compel
them to buy the land, which they own, would be absurd.

In a sale with right of repurchase, the applicable provisions are Articles 1606 and 1616 of the
Civil Code, not Article 448. Under Article 1616, Alciso may exercise her right of redemption by
paying the Spouses Narvaez (1) the price of the sale, (2) the expenses of the contract, (3)
legitimate payments made by reason of the sale, and (4) the necessary and useful expenses
made on the thing sold. In the present case, the cost of the building constitutes a useful
expense. Useful expenses include improvements which augment the value of the land.