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PACIFIC FARMS V. ESGUERRA

Carrier and delivered lumber and construction

materials to the Insular Farms.

Insular used it t0 construct six buildings.

Insular failed to pay the total value of the lumber

materials so it instituted a case to recover the said
unpaid balance. The court ruled in favour of Carrier.

Asserting absolute and exclusive ownership of the

buildings in question, the Pacific Farms filed a
complaint against Carrier and the sheriff. The lower
court annulled the levy and judicial sale.

It is undenied that Insular furnished lumber to the

Insular Farms, Inc. which was used in the construction
of the six buildings. Likewise unchallenged is there
remains an unpaid balance by the Insular Farms.

The Supreme Court ruled that the controversy between

the parties can be resolved by the application by
analogy of the rules of accession.

The owner of the land who in good faith — whether

personally or through another — makes constructions
or works thereon, using materials belonging to
somebody else, becomes the owner of the said
materials with the obligation however of praying for
their value.
The owner of the materials, on the other hand, is
entitled to remove them, provided no substantial
injury is caused to the landowner. Otherwise, he has
the right to reimbursement for the value of his
materials.

Therefore, applying article 447 by analogy, the

buildings can be considered as the principal and the
lumber and construction materials that went into their
construction as the accessory.
Jurisprudence provides that compensation should be
borne by the person who has been benefited by the
accession. No doubt, Pacific Farms benefited from the
accession, i.e., from the lumber and materials that
went into the cons-truction of the six buildings. It
should therefore shoulder the com-pensation due to
Insular as unpaid furnisher of materials.

Thus Pacific Farms, if it does own the six buildings,

must bear the obligation to pay for the value of the said
materials.

Pacific Farm's stance that it is an innocent purchaser

for value and in good faith, which could exonerate it
from payment, is open to grave doubt.

J. Antonio Araneta was not only the president of the

Insular Farms, Inc. but also a director and counsel of
Pacific Farms.

It is reasonable therefore to conclude that Pacific

Farms, through its director and counsel, J. Antonio
Araneta, knew about the unpaid balance of the
purchase price of the lumber and construction
materials supplied or furnished by Insular Farms, Inc.
ACCORDINGLY, the judgment a quo is reversed, and
the complaint is hereby dismissed.

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PNB V DE JESUS

De Jesus had acquired a parcel of land and had caused

a verification survey of the property . Therein he
discovered that the northern portion of his lot was
being encroached upon by a building of PNB. Despite
two demand letters, PNB refused to vacate the area.
Thus, De Jesus filed a complaint for recovery of
ownership and possession.

The trial court decided the case in favor of de Jesus.

PNB in its answer asserted that when it acquired the lot

and the building, the encroachment already was in
existence.

The Regional Trial Court and the Court of Appeals have

both rejected the idea that petitioner can be considered
a builder in good faith.

PNB filed a petition to the Supreme Court contending

that the Court of Appeals erred in adjudging PNB a
builder in bad faith. It also contended that the CA erred
in not applying in its favour the provision of Art. 448.

In its decision, the Supreme Court ruled that PNB falls

much too short from its claim of good faith. It was
aware, and was advised, prior to its acquisition of the
land and building from Ignacio, that a part of the
building sold to it stood on the land not covered by the
land conveyed to it.

Article 448, of the Civil Code refers to a piece of land

whose ownership is claimed by two or more parties,
one of whom has built some works (or sown or planted
something) and not 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.

Where the true owner himself is the builder of works

on his own land, the issue of good faith or bad faith is
entirely irrelevant.

Thus, PNB is not in a valid position to invoke the

provisions of Article 448 of the Civil Code.

Decision of the Court of Appeals is AFFIRMED.

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Tuatis and Visminda entered into a contract of sale by

instalment. The purchase price was at Php 10,000.00
to be paid within three months. It was stipulated in
their contract that if Tuatis fails to pay the whole
amount within the period. Tuatis will be return the
land to Visminda and Visminda will return the
payment of Tuatis.

Tuatis took possession of the property and built a

residential house thereon.
Seven years after this transaction, Tuatis requested
Visminda to sign a prepared absolute deed of sale
covering the subject property. Visminda refused as the
purchase price had not yet been fully paid.

Tuatis filed a case at the RTC for Specific Performance

to order Visminda to sign the deed of sale. She lost in
the RTC and ultimately filed this Petition at the
Supreme Court principally arguing that Article 448 of
the Civil Code must be applied to the situation between
her and Visminda.

The building she constructed was now valued at

₱502,073.00, while the entire piece of land of Visminda
has a market value of only about ₱27,000.00.

The Supreme Court ruled that Tuatis breached the

conditions stipulated in their contract of sale but
Visminda was likewise guilty of bad faith for not
making a timely objection when Tuatis started building
her house. Both parties being in bad faith, their rights
will be governed by Article 448 of the New Civil Code of
the Philippines."

The options under Article 448 are available to

Visminda. 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.

Visminda has the following options: first, she may

appropriate for herself the building on the subject
property after indemnifying Tuatis for the necessary
and useful expenses.
Under the second option, Visminda may choose not to
appropriate the building and, instead, oblige Tuatis to
pay the present or current fair value of the land,
following the ruling in Pecson v CA. The ₱10,000.00
price in the Deed of Sale shall no longer apply.

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.

When Tuastis filed this petition before the Supreme

Court, the decision at the lower court had long become
final and executory. By acting on this petition, the
Supreme Court can be said to be violating the doctrine
of immutability of final judgments which provides that
when a final judgment is executory, it thereby becomes
immutable and unalterable. The judgment may no
longer be modified in any respect, even if the
modification is meant to correct what is perceived to be
an erroneous conclusion of fact or law, and regardless
of whether the modification is attempted to be made by
the court rendering it or by the highest Court of the
land. The doctrine is founded on considerations of
public policy and sound practice that, at the risk of
occasional errors, judgments must become final at
some definite point in time.

The Supreme Court justified its action by pointing out

that where there was an ambiguity in the RTC decision
caused by an omission or a mistake in its dispositive
portion. In such a case, the Court may clarify such an
ambiguity by an amendment even after the judgment
has become final.

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Pecson was the owner of a lot located on which he built

a four-door two-storey apartment building. For his
failure to pay realty taxes, the lot was sold at public
auction to Nepomuceno who in turn sold it Juan
Nuguid one hundred three thousand pesos.

Pecson challenged the validity of the auction sale. The

RTC dismissed the complaint but affirmed the
contention of Pecson that the apartment building was
not part of the auction sale.

Nuguid filed a motion for delivery of possession of the

lot and the apartment building, citing article 546 of the
Civil Code.

On Petition to the Supreme Court, it found that the

parties agreed that Pecson was a builder in good faith
of the apartment building on the theory that he
constructed it at the time when he was still the owner
of the lot, and that the key issue in this case is the
application of Articles 448 and 456 of the Civil Code.

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.

But the provision on indemnity may be applied by

analogy considering that the primary intent of Article
448 is to avoid a state of forced co-ownership.

Article 546 does not specifically state how the value of

the useful improvements should be determined. The
Nuguids espouse the belief that the cost of construction
of the apartment building in 1965, and not its current
market value, is sufficient reimbursement for
necessary and useful improvements made by Pecson.

The objective of Article 546 of the Civil Code is to

administer justice between the parties involved. The
said provision was formulated in trying to adjust the
rights of the owner and possessor in good faith of a
piece of land, to administer complete justice to both of
them in such a way as neither one nor the other may
enrich himself of that which does not belong to him.

Therefor, the current market value of the

improvements which should be made the basis of
reimbursement. A contrary ruling would unjustly
enrich Nuguid who would otherwise be allowed to
acquire a highly valued income-yielding four-unit
apartment building for a measly amount.
The trial court also erred in ordering Pecson to pay
monthly rentals. Since Nuguid opted to appropriate
the apartment building, Pecson is thus entitled to the
possession and enjoyment of the apartment building,
until he is paid the proper indemnity.

This is so because the right to retain the improvements

while the corresponding indemnity is not paid implies
possession in fact of the land on which it is built,
planted or sown.

The Supreme Court then ordered that the case be

remanded to the trial court for it to determine the
current market value of the apartment building on the
lot.

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Moralidad vs Pernes

Mercedes Moralidad bought a parcel of land on which

she allowed her niece to build a house. By written
authority, the niece could stay on the property for as
long as they want. Other kin were likewise free to stay
as long as they stayed there in harmony.

When Mercedes returned from the US, she lived with

the family of her niece. The relationship among them,
however, turned sour, prompting Mercedes to institute
an unlawful detainer case against her niece.
The MTC ruled in favour of Mercedes. It ordered the
niece to vacate the property and to pay rent while still
unable to leave.

On appeal, the RTC ruled that the niece occupied the

property with the consent of the owner thus, they were
builders in good faith of the house, and their rights will
be those provided in Art. 448.

The CA on the other hand, ruled that what was

constituted between the parties was a usufruct.

The Supreme Court ruled that the niece was given

authority to use the land and to build their house
thereon. The written authority makes it clear that a
usufruct was constituted and that there was no
contract of lease between the two parties.

But was the usufruct deemed to have been

extinguished?

If yes, then the right of the niece to possession,

proceeding as it did from the right of usufruct, likewise
ceased. In that case, the action for ejectment filed by
Mercedes could proceed and prosper.

Earlier, it was pointed out that the authority given to

stay on the property was subject to the condition that
the stay will not be inimical to the purpose, which can
be gleaned to mean that the atmosphere of harmony
should be maintained. Anyone who cannot conform,
can look for his own place.
When this resolutely condition occurred, it
extinguished the usufruct. (Art. 603 Par. 3 Usufruct is
extinguished by the fulfilment of a resolutory
condition.)

The claim for reimbursement introduced on the

property will be ruled by article 579 and 578 and not by
article 448.

In such a case, they do not have the right of

reimbursement. They will have to vacate the property
but they may remove or destroy the improvements
without damaging the owner’s property.

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Cheng vs Donini

Serefin leased his property to Helen who intended to

put up a restaurant thereon. An interim authority by
Serefin allowed Helen to put improvements on the
premises.

Before a formal written contract could be executed

between the parties, the relationship between the two
soured. Serefin then demanded from Helen payment of
deposit and rentals, and that he will discontinue the
lease if Helen fails to pay.

Helen’s caretaker ultimately surrendered the property

but Helen instituted an action praying that Serefin be
ordered to execute a written contract and deducting
from the deposit and rent the cost of repair or to order
Serefin to return their investment on the building.
The RTC dismissed Helen’s complaint.

The CA reversed the RTC.

At the Supreme Court, Helen stressed that they were

possessors in good faith hence Art. 448 should apply
and they should be indemnified for the improvements
they introduced.

The principle of equity was raised by Helen in the sense

that the owner of the land should not be allowed to
enjoy perpetually the improvements introduced by the
builder without reimbursing them for the value of the
improvements. No one should be allowed to enrich
himself at the expense of another.

But the Supreme Court said the principle of equity will

be applied only in the absence of, and never against
statutory law or judicial rules of procedure.

The relationship between Serefin and Helen are

governed by the provisions on lease, under Art. 1678,
which clearly provides for the rule on reimbursement
of useful improvements and ornamental expenses
after termination of a lease agreement.

Art. 448, which allow full reimbursement of useful

improvements and retention of the premises until
reimbursement is made apply only to a possessor in
good faith or to one who builds on land in the belief that
he is the owner thereof.

Helen cannot be considered a builder in good faith

because she knew that she was not the owner of the
property leased. She introduced improvements on the
property at her own risk. She cannot recover their
value from the lessor nor retain the premises until
reimbursement.

Under Art 1678, Serefin has the primary right to

reimburse Helen for 50% of the value of the
improvements at the end of the lease. If Serefin refuses
to make the reimbursement Helen can remove them
even if the principal thing suffers damage. If Serefin
refuses to pay one-half of the value of the
improvements, he cannot be compelled to do so.

As regards the ornamental expenses, Helen is not

entitled to reimbursement. Art 1678 gives her the right
to remove the ornaments without damage to the
principal thing, but if Serefin appropriates and retains
said ornaments he shall pay for their value.

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DepEd vs Casibang

Upon the request of their town mayor, Juan Cepeda

allowed the construction and operation on his property
of a public school. Despite the death of Juan, his
descendants tolerated the use of the property by the
school.

Years later, Casibang, a descendant of Juan, occupied

a portion of the property. The school officials
demanded that they vacate the property. Casibang
refused. DepEd filed a case for Forcible Entry. The MTC
ruled in favour of DepEd and ordered Casibang to
vacate the property. The RTC affirmed. Casibang
refused.

Casibang instead filed an action for recovery of

possession against DepEd. Casibang presented the OCT
of the property in the name of Juan Cepeda, tax receipt
payments and the technical description of the
property.

On the other hand, DepEd alleged that it owned the

property as it was purchased by civic-minded residents
of the municipality and they have been in possession of
the property for more than 40 years. Casibang was
guilty of laches.

The RTC ruled in favour of Casibang. The CA affirmed

the RTC decision.

The Supreme Court ruled that the property is covered

by an OCT. The Certificate of Title is an evidence of an
indefeasible and inconvertible title to a property. The
right of the owner to eject any person illegally
occupying the property is imprescriptible. This is not
barred by laches, no manner how long the possession
was by another.

Those who occupy a property on the owner’s tolerance

are bound by an implied promise to vacate the property
upon demand.

Despite being a possessor by mere tolerance, the

DepEd is considered a builder in good faith, since
Cepeda permitted the construction of building and
improvements to conduct classes on his property.
Hence, Article 448 may be applied. But the only the
second option left to Casibang of obliging the DepEd to
pay the price of the land or to require the DepEd to pay
reasonable rent if the value of the land is considerably
more than the value of the buildings and
improvements.

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Lacap vs. Ong Lee

Lacap, in 1981, assumed the mortgage of a certain

Facundo from the bank. With Lacap’s failure to pay the
loan, the bank foreclosed the mortgage and during the
auction sale, the bank emerged as the highest bidder
and title passed on to it.

The bank allowed Lacap to stay in the premises as

lessees. They introduced improvements to the property
until such time that when they went to the bank to
deposit their payment, the same was refused. Instead,
they soon received a notice to vacate because the
premises was now owned by Ong Lee.

Ong Lee filed an ejectment suit at the lower court. They

prevailed at the both the MTC and the RTC but the RTC
decision directed them to reimburse Lacap for the
improvements they introduced on the premises.

The Supreme Court, however, ruled that Art. 1678 will

apply in this case.
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IGNAO V. IAC

Florencio and his uncles were co-owners of a parcel of

land. Florencio petitioned for the partition of the
property. What went to his uncles was 133 sq. meters
of the property and 266 was allotted to Florencio. But
actual partition did not take place.

Florencio later filed a case for recovery of possession

against his uncles since the houses of his uncles
occupied his lot.

After trial, the court found that the houses of his uncles
indeed encroached on the property of Florencio. But
the court ruled that although they occupied a portion
of the property of Florencio, they should be considered
as builders in good faith. They cannot be made to pay
damages. The court also ordered Florencio to sell a
portion of his land occupied by his uncles.

On appeal, IAC affirmed the decision of the lower

court.

The Supreme Court held that prior to the partition, all

co-owners hold the property in common. As co-
owners, they own the property in common dominion
but at the same time each is an owner of a share which
is abstract and undetermined until partition is
effected.

As co-owners, the parties may have unequal shares in

the common property, quantitatively speaking. But in
a qualitative sense, each co-owner has the same right
as any one of the other co-owners.

Florencio contended that Art. 448 does not apply since

this article contemplates a situation wherein the land
belongs to one person and the thing built, sown or
planted belongs to another. In the instant case, the land
in dispute used to be owned in common by the
contending parties.

While it is true that Art. 448 will not apply to co-

owners, once the co-ownership, however, is
terminated by partition, then the provisions of Article
448 of the new Civil Code should apply.
In other words, when the co-ownership is terminated
by a partition and it appears that the house of an
erstwhile co-owner has encroached upon a portion
pertaining to another co-owner which was however
made in good faith, then the provisions of Article 448
should apply to determine the respective rights of the
parties.

Florencio Ignao was directed to exercise his option in

accordance with Art. 448.

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ROSALES V. CASTELLTORT

Rosales was the registered owners of a parcel of land

(Lot No. 17 of the Subdivision plan).
Rosales discovered that a house was being constructed
on their lot, without their knowledge and consent, by
Castelltort.
It turned out that Castelltort had purchased Lot 16 of
the same Subdivision Plan, but the geodetic engineer
who conducted a survey thereof pointed to Lot 17 as the
Lot 16 that the Castelltorts purchased.

Rosales sued for recovery of possession and damages.

Castelltorts claimed that they were builders in good
faith.

The Supreme Court, in resolving whether Castelltort

was in good faith of not, noted that Castelltort acted in
the manner of a prudent man and went to the Registry
of Deeds of Laguna to procure a certified true copy of
the TCT. The certified true copy bore no annotation
indicating any prior adverse claim on Lot 16. The
records indicate that at the time Castelltort began
constructing his house on the lot of Rosales, he
believed that it was the Lot 16 he bought and delivered
to him by Villegas.

The confusion in the identification of Lot 16 was

eventually traced to the error committed by geodetic
engineer in placing stone monuments on petitioners'
property, instead of on Lot 16, the lot sold to
Castelltort.

Both parties having acted in good faith, the applicable

provision in this case is Article 448 of the Civil Code.

The good faith ceases or is legally interrupted 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.
Castelltort's good faith ceased on August 21, 1995 when
Rosales personally apprised him of their title over the
questioned lot.

Should Rosales opt to appropriate the house, they

should only be made to pay for that part of the
improvement built by Castelltort on the questioned
property at the time good faith still existed on his part
or until August 21, 1995.

The commencement of Castelltort's payment of

reasonable rent should start on August 21, 1995 as well,
to be paid until such time that the possession of the
property is delivered to petitioners, subject to the
reimbursement of expenses, that is, if such option is
for Rosales to appropriate the house.

If the option chosen by Rosales is compulsory sale,

however, the payment of rent should continue up to the
actual transfer of ownership.