Pacific Farms, Inc. v.

Esguerra

30 SCRA 684 (1969)

From 1956 to 1957, Carried Lumber Company sold and delivered lumber and
construction materials to the Insular Farms, Inc. which the latter used in the construction
of six buildings at its compound in Bolinao, Pangasinan. For failure of Insular Farms to
pay the full purchase price, Carried Lumber instituted in October 1958 a civil case
against Insular Farms for the recovery of the unpaid balance. In 1961, the trial court
rendered judgment in favor of Carried Lumber. Insular Farms did not appeal. In 1962,
Carried Lumber levied upon six buildings in Bolinao, Pangasinan. At this point, Pacifi c
Farms, Inc. f i led a third-party claim, asserting ownership over the levied buildings which
it had allegedly acquired from Insular Farms by virtue of a deed of absolute sale
executed sometime in March 1958. The sheriff proceeded, however, with the public
auction and eventually sold the buildings to Carried Lumber as the highest bidder.
Thereafter, Pacifi c Farms fi led a complaint against Carried Lumber and the sheriff for
the nullifi cation of the auction and for damages. The trial court, after trial, rendered
judgment annulling the levy and the certifi cate of sale. Carried Lumber appealed from
said judgment alleging, inter alia, that there exists a materialman’s lien over the six
buildings in its favor. In resolving the controversy, the Supreme Court opted not to rule
on the issue of the materialman’s lien but applied by analogy the rules of accession, thus —

Article 447 of the Civil Code provides: “The owner of the land who makes thereon
personally or through another, plantings, constructions or works with the materials of
another, shall pay their value; and, if he acted in bad faith, he shall also be obliged to
the reparation of damages. The owner of the materials shall have the right to remove
them only in case he can do so without injury to the work constructed, or without the
plantings, constructions or works being destroyed. However, if the landowner acted in bad
faith, the owner of the materials may remove them in any event with a right to be
indemnifi ed for damages.” The above-quoted legal provision contemplates a principal and
an accessory, the land being considered the principal, and the plantings, constructions or
works, the accessory. 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
paying 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. Although it does not appear from
the records of this case that the land upon which the six buildings were built is owned
by the appellee, nevertheless, that the appellee claims that it owns the six buildings
constructed out of the lumber and construction materials furnished by the appellant, is
indubitable. Therefore, applying Article 447 by analogy, we perforce consider the
buildings as the principal and the lumber and construction materials that went into their
construction as the accessory. Thus the appellee, if it does own the six buildings, must
bear the obligation to pay for the value of the said materials; the appellant — which
apparently has no desire to remove the materials, and, even if it were minded to do so,
cannot remove them without necessarily damaging the bui1dings — has the corresponding
right to recover the value of the unpaid lumber and construction materials. Well-established
in jurisprudence is the rule that compensation should be borne by the person who has been
benefi ted by the accession. No doubt, the appellee benefi ted from the accession, i.e.,
from the lumber and materials that went into the construction of the six buildings. It
should therefore shoulder the compensation due to the appellant as unpaid furnisher of
materials.

Of course, the character of a buyer in good faith and for value, if really possessed by
the appellee, could possibly exonerate it from making compensation. But the appellee’s
stance that it is an innocent purchaser for value and in good faith is open to grave
doubt because of certain facts of substantial import (evident from the records) that cannot
escape notice.

Ignao v. IAC

193 SCRA 17 (1991)

In this case, Florencio Ignao and his uncles, Juan Ignao and Isidro Ignao, were co-
owners of a parcel of land with an area of 534 square meters. Pursuant to an action for
partition, the CFI of Cavite in 1975 directed the partition of the aforesaid land, allotting
133.5 square meters or 2/8 thereof to Juan and Isidro, and giving the remaining portion
with a total area of 266.5 square meters to Florencio. However, no actual partition was
effected. In 1978, Florencio instituted a complaint for recovery of possession of real
property against Juan and Isidro alleging that the area occupied by the two houses built
by Juan and Isidro exceeded the 133.5 square meters previously allotted to them by the
trial court. When the property was surveyed upon the agreement of the parties, it was
disclosed that the house of Juan occupied 42 square meters while that of Isidro occupied
59 square meters of Florencio’s land or a total of 101 square meters. The trial court
applied article 448 of the Civil Code in resolving the confl icting rights of the parties,
which decision was affi rmed by the Court of Appeals. Florencio appealed to the
Supreme Court contending that the CA erred in applying Article 448 of the Civil Code
since this article contemplates a situation wherein the land belongs to one person and the
thing built, sown or planted belongs to another. In holding that Article 448 applies in
this particular case, the Supreme Court explained — Whether or not the provisions of Article
448 should apply to a builder in good faith on a property held in common has been
resolved in the affi rmative in the case of Spouses del Campo v. Abesia (160 SCRA 379
[1988]) wherein the Court ruled that: “The court a quo correctly held that Article 448 of the
Civil Code cannot apply where a co-owner builds, plants or sows on the land owned in
common for then he did not build, plant or sow upon land that exclusively belongs to
another but of which he is a co-owner. The co-owner is not a third person under the
circumstances, and the situation is governed by the rules of co-ownership. “However, when,
as in this case, the ownership is terminated by the partition and it appears that the home
of defendants overlaps or occupies a portion of 5 square meters of the land pertaining to
plaintiffs which the defendants obviously built in good faith, then the provisions of Article
448 of the New Civil Code should apply. Manresa and Navarro Amandi agree that the
said provision of the Civil Code may apply even when there is a co-ownership if good
faith has been established.’’ 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.
Petitioner’s second assigned error is however well taken. Both the trial court and the
Appellate Court erred when they peremptorily adopted the “workable solution” in the case
of Grana v. Court of Appeals (109 Phil. 260), and ordered the owner of the land,
petitioner Florencio, to sell to private respondents, Juan and Isidro, the part of the land
they intruded upon, thereby depriving petitioner of his right to choose. Such ruling
contravened the explicit provisions of Article 448 to the effect that “(t)he owner of the
land xxx shall have the right to appropriate xxx or to oblige the one who built xxx to
pay the price of the land xxx.” The law is clear and unambiguous when it confers the
right of choice upon the landowner and not upon the builder and the courts. Thus, in Quemuel
v. Olaes (1 SCRA 1159 [1961]), the Court categorically ruled that the right to
appropriate the works or improvements or to oblige the builder to pay the price of the
land belongs to the landowner. As to the third assignment of error, the question on the
price to be paid on the land need not be discussed as this would be premature inasmuch
as petitioner Florencio has yet to exercise his option as the owner of the land.
WHEREFORE, the decision appealed from is hereby MODIFIED as follows: Petitioner
Florencio Ignao is directed within thirty (30) days from entry of judgment to exercise his
option to either appropriate as his own the portions of the houses of Juan and Isidro
Ignao occupying his land upon payment of indemnity in accordance with Articles 546
and 548 of the Civil Code, or sell to private respondents the 101 square meters occupied
by them at such price as may be agreed upon. Should the value of the land exceed the
value of the portions of the houses that private respondents have erected thereon, private
respondents may choose not to buy the land but they must pay reasonable rent for the
use of the portion of petitioner’s land as may be agreed upon by the parties. In case of
disagreement, the rate of rental and other terms of the lease shall be determined by the
trial court. Otherwise, private respondents may remove or demolish at their own expense
the said portions of their houses encroaching upon petitioner’s land.

Pecson v. Court of Appeals

244 SCRA 407 (1995)

In this case, Pedro Pecson was the owner of a commercial lot located in Kamias Street,
Quezon City, 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 by the City Treasurer of Quezon
City to Mamerto Nepomuceno whoin turn sold it in 1983 to the spouses Juan and
Erlinda Nuguid. Pecson challenged the validity of the auction sale. The trial court
dismissed the complaint but held that the apartment building was not included in the
auction sale. Both parties appealed. The Court of Appeals, on the other hand, affi rmed
in toto the decision of the trial court. When the decision became fi nal, the spouses
Nuguid fi led with the trial court a motion for the delivery of possession of the lot and
the apartment building citing Article 546 of the Civil Code. The trial court granted the
motion. Pecson elevated the matter to the CA in a special civil action for certiorari. The
Court of Appeals affi rmed in part the order of the trial court citing Article 448 of the
Civil Code. Aggrieved by the decision of the CA, Pecson went to the Supreme Court on
appeal. The parties agree 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. The key issue in this case is the application of Articles 448 and 546 of the
Civil Code. The Court held — By its clear language, Article 448 refers to a land whose
ownership is claimed by two or more parties, one of whom has built some works, or
sown or planted something. The building, sowing or planting may have been made in
good faith or in bad faith. The rule on good faith laid down in Article 526 of the Civil
Code shall be applied in determining whether a builder, sower or planter had acted in good
faith. 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. This
Court said so in Coleongco v. Regalado (92 Phil. 387, 395 [1952]):
Article 361 of the old Civil Code is not applicable in this case, for Regalado constructed
the house on his own land before he sold said land to Coleongco. Article 361 applies
only in cases where a person constructs a building on the land of another in good or in
bad faith, as the may be. It does not apply to a case where a person constructs a
building on his own land, for then there can be no question as to good or bad faith on the
part of the builder. Elsewise stated, 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 in strict
point of law, Article 448 is not apposite to the case at bar. Nevertheless, we believe that
the provision therein on indemnity may be applied by analogy considering that the
primary intent of Article 448 is to avoid a state of forced co-ownership and that the
parties, including the two courts below, in the main agree that Articles 448 and 546 of
the Civil Code are applicable and indemnity for the improvements may be paid although
they differ as to the basis of the indemnity. Article 546 does not specifi cally state how the
value of the useful improvements should be determined. The respondent court and the
private respondents espouse the belief that the cost of construction of the apartment
building in 1965, and not its current market value, is suffi cient reimbursement for
necessary and useful improvements made by the petitioner. This position is, however, not
in consonance with previous rulings of this Court in similar cases. In Javier v.
Concepcion, Jr. (94 SCRA 212 [1979]), this Court pegged the value of the useful
improvements consisting of various fruits, bamboos, a house and camarin made of strong
material based on the market value of the said improvements. In Sarmiento v. Agana
(129 SCRA 122 [1984]), despite the fi nding that the useful improvement, a residential
house, was built in 1967 at a cost of between Eight thousand pesos (P8,000.00) to Ten
thousand pesos (P10,000.00), the landowner was ordered to reimburse the builder in the
amount of Forty thousand pesos (P40,000.00), the value of the house at the time of the
trial. In the same way, the landowner was required to pay the “present value” of the
house, a useful improvement, in the case of De Guzman v. De la Fuente (55 Phil. 501
[1930]), cited by the petitioner. The objective of Article 546 of the Civil Code is to
administer justice between the parties involved. In this regard, this Court had long ago
stated in Rivera v. Roman Catholic Archbishop of Manila (40 Phil. 717 [1920]) that 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. Guided by this precept, it is therefore the current market value of the improvements
which should be made the basis of reimbursement. A contrary ruling would unjustly
enrich the private respondents who would otherwise be allowed to acquire a highly
valued income-yielding four unit apartment building for a measly amount. Consequently,
the parties should therefore be allowed to adduce evidence on the present market value
of the apartment building upon which the trial court should base its fi nding as to the
amount of reimbursement to be paid by the landowner. The trial court also erred in ordering
the petitioner to pay monthly rentals equal to the aggregate rentals paid by the lessees of
the apartment building. Since the private respondents have opted to appropriate the
apartment building, the petitioner is thus entitled to the possession and enjoyment of the
apartment building, until he is paid the proper indemnity, as well as of the portion of
the lot where the building has been constructed. This is so because the right to retain the
improvements while the corresponding indemnity is not paid implies the tenancy or
possession in fact of the land on which it is built, planted or sown. The petitioner not
having been so paid, he was entitled to retain ownership of the building and, necessarily,
the income therefrom. It follows, too, that the Court of Appeals erred not only in
upholding the trial court’s determination of the indemnity, but also in ordering the
petitioner to account for the rentals of the apartment building from 23 June 1993 to 23
September 1993.

WHEREFORE, the decision of the Court of Appeals in CAG.R. SP No. 32679 and the
Order of 15 November 1993 of the Regional Trial Court, Branch 101, Quezon City in
Civil Case No. Q-41470 are hereby SET ASIDE.

The case is hereby remanded to the trial court for it to determine the current market
value of the apartment building on the lot. For this purpose, the parties shall be allowed
to adduce evidence on the current market value of the apartment building. The value so
determined shall be forthwith paid by the private respondents to the petitioner otherwise
the petitioner shall be restored to the possession of the apartment building until payment
of the required indemnity.

PNB v. De Jesus

411 SCRA 557 (2003)

 Petitioner Philippine National Bank disputes the decision handed down by the Court of
Appeals promulgated on 23 March 2001 in CA-G.R. CV No. 56001, entitled “Generoso
De Jesus, represented by his Attorney-in-Fact, Christian De Jesus, versus Philippine
National Bank.” The assailed decision has affi rmed the judgment rendered by the
Regional Trial Court, Branch 44, of Mamburao, Occidental Mindoro, declaring respondent
Generoso de Jesus as being the true and lawful owner of the 124-square-meter portion of
the land covered by Transfer Certifi cate of Title (TCT) No. T-17197 and ordering
petitioner bank to vacate the premises, to deliver possession thereof to respondent, and to
remove the improvement thereon. It would appear that on 10 June 1995, respondent fi led
a complaint against petitioner before the Regional Trial Court of Occidental Mindoro for
recovery of ownership and possession, with damages, over the questioned property. In his
complaint, respondent stated that he had acquired a parcel of land situated in Mamburao,
Occidental Mindoro, with an area of 1,144 square meters covered by TCT No. T-17197,
and that on 26 March 1993, he had caused a verifi cation survey of the property and
discovered that the northern portion of the lot was being encroached upon by a building
of petitioner to the extent of 124 square meters. Despite two letters of demand sent by
respondent, petitioner failed and refused to vacate the area. Petitioner, in its answer, asserted
that when it acquired the lot and the building sometime in 1981 from then Mayor
Bienvenido Ignacio, the encroachment already was in existence and to remedy the
situation, Mayor Ignacio offered to sell the area in question (which then also belonged to
Ignacio) to petitioner at P100.00 per square meter which offer the latter claimed to have
accepted. The sale, however, did not materialize when, without the knowledge and
consent of petitioner, Mayor Ignacio later mortgaged the lot to the Development Bank of
the Philippines. The trial court decided the case in favor of respondent declaring him to
be the rightful owner of the disputed 124-square-meter portion of the lot and ordering
petitioner to surrender possession of the property to respondent and to cause, at its
expense, the removal of any improvement thereon. The Court of Appeals, on appeal,
sustained the trial court but it ordered to be deleted the award to respondent of
attorney’s fees, as well as moral and exemplary damages, and litigation expenses. Petitioner
went to this Court, via a petition for review, after the appellate court had denied the
bank’s motion for reconsideration, here now contending that — “1. THE COURT OF
APPEALS GRAVELY ERRED IN LAW IN ADJUDGING PNB A BUILDER IN BAD
FAITH OVER THE ENCROACHED PROPERTY IN QUESTION; “2. THE COURT OF
APPEALS GRAVELY ERRED IN LAW IN NOT APPLYING IN FAVOR OF PNB THE
PROVISION OF ARTICLE 448 OF THE CIVIL CODE AND THE RULING IN
TECNOGAS PHILIPPINES MANUFACTURING CORP. V. COURT OF APPEALS, G.R.
No. 108894, February 10, 1997, 268 SCRA 7.” The Regional Trial Court and the Court
of Appeals have both rejected the idea that petitioner can be considered a builder in
good faith. In the context that such term is used in particular reference to Article 448, et
seq., of the Civil Code, a builder in good faith is one who, not being the owner of the
land, builds on that land believing himself to be its owner and unaware of any defect in
his title or mode of acquisition. The various provisions of the Civil Code, pertinent to the subject,
read: “Article 448. 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 a 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 fi x the terms thereof.” “Article 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.”“Article 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.” A builder in good faith can, under the foregoing provisions, 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. The choice belongs to the owner of the
land, a rule that accords 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. He much choose one. He cannot, for
instance, compel the owner of the building to instead remove it from the land. In order,
however, that the builder can invoke that accruing benefi t and enjoy his corresponding
right to demand that a choice be made by the landowner, he should be able to prove good
faith on his part. Good faith, here understood, is an intangible and abstract quality with no
technical meaning or statutory defi nition, and it encompasses, among other things, an
honest belief, the absence of malice and the absence of design to defraud or to seek an
unconscionable advantage. An individual’s personal good faith is a concept of his own
mind and, therefore, may not conclusively be determined by his protestations alone. It
implies honesty of intention, and freedom from knowledge of circumstances which ought
to put the holder upon inquiry. The essence of good faith lies in an honest belief in the
validity of one’s right, ignorance of a superior claim, and absence of intention to
overreach another. Applied to possession, one is considered in good faith if he is not
aware that there exists in his title or mode of acquisition any fl aw which invalidates it.
Given the fi ndings of both the trial court and the appellate court, it should be evident
enough that petitioner would fall much too short from its claim of good faith. Evidently,
petitioner was quite aware, and indeed 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. Equally signifi cant is the fact that the building, constructed on the
land by Ignacio, has in actuality been part of the property transferred to petitioner. 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 or otherwise for, elsewise stated, “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.” In fi ne, petitioner is not in a valid position to invoke the provisions
of Article 448 of the Civil Code. The Court commiserates with petitioner in its present
predicament; upon the other hand, respondent, too, is entitled to his rights under the law,
particularly after having long been deprived of the enjoyment of his property.
Nevertheless, the Court expresses hope that the parties will still be able to come up with
an arrangement that can be mutually suitable and acceptable to them. WHEREFORE, the
decision of the Court of Appeals in CA-G.R. CV No. 56001 is AFFIRMED. No costs. SO
ORDERED.

DEPARTMENT OF EDUCATION, represented by its Regional Director, vs. DELFINA C.

CASIBANG, ANGELINA C. CANAPI, ERLINDA C. BAJAN, LORNA G. GUMABAY,
DIONISIA C. ALONZO, MARIA C. BANGA YAN and DIGNA C. BINAYUG,

G.R. No. 192268

TOPIC: Rules Regarding Builder in Good Faith FACTS:

Respondents are the heirs of late Juan Cepeda, the registered owner of the property in
controversy. It is alleged that sometime in 1965, upon the request of the then Mayor Justo Cesar
Caronan, Cepeda allowed the construction and operation of a school on the western portion of
his property. The school is now known as Solana North Central School, operating under the
control and supervision of the petitioner Department of Education (DepEd).

Sometime between October 31, 2000 and November 2, 2000, the respondents entered and
occupied a portion of the property. Upon discovery of the said occupation, the teachers of the
school brought the matter to the attention of the barangay captain. The school officials demanded
the respondents to vacate the property. However, the respondents refused to vacate the property,
and asserted Cepeda's ownership of the lot.

DepEd filed a complaint for Forcible Entry and Damages against respondents and the court ruled
in favor of the petitioner and directed the respondents to vacate the premises. Respondents filed
an action for Recovery of Possession and/or Sum of Money against the DepEd. Respondents
averred that since their late father did not have any immediate need of the land in 1965, he
consented to the building of the temporary structure and allowed the conduct of classes in the
premises. They claimed that they have been deprived of the use and the enjoyment of the portion
of the land occupied by the school, thus, they are entitled to just compensation and reasonable
rent for the use of property.

In its Answer, the DepEd alleged that it owned the subject property because it was purchased by
civic-minded residents of Solana, Cagayan from Cepeda. It further alleged that contrary to
respondents' claim that the occupation is by mere tolerance, the property has always been
occupied and used adversely, peacefully, continuously and in the concept of owner for almost
forty (40) years. It insisted that the respondents had lost whatever right they had over the
property through laches.

During the trial, respondents presented, inter alia, the OCT No. O-627 registered in the name of
Juan Cepeda; Tax Declarations also in his name and the tax receipts showing that they had been
paying real property taxes on the property since 1965. They also presented the Technical
Description of the lot by the Department of Environment and Natural Resources Land
Management Services showing that the subject property was surveyed in the name of Cepeda
and a certification from the Municipal Trial Court of Solana, Cagayan declaring that Lot 115 was
the subject of Cad Case No. N-13 in LRC Cad. Record No. N-200 which was adjudicated to
Cepeda.

On the other hand, despite notice and reset of hearing, the DepEd failed to present its evidence or
witness to substantiate its defense. Consequently, the RTC considered the case submitted for
decision and rendered a Decision dated January 10, 2008, finding that the respondents are the
owners of the subject property. The Court of Appeals then affirmed the decision of the RTC.

ISSUES:

1. Whether or not the respondents are barred to recover possession because of Prescription
and/or laches.

2. Whether or not DepEd is a builder in good faith? RULINGS:

1. No,respondentisnotbarredbyprescriptionandor/laches.

The court ruled that Laches, in a general sense, is the failure or neglect for an unreasonable and
unexplained length of time, to do that which, by exercising due diligence, could or should have
been done earlier; it is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned it or declined to
assert it.

There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be
determined according to its particular circumstances. The question of laches is addressed to the
sound discretion of the court, and since laches is an equitable doctrine, its application is
controlled by equitable considerations. It cannot work to defeat justice or to perpetrate fraud and
injustice.

In order to constitute laches, the following elements must be present:

1)conduct on the part of the defendant, or of one under whom he claims, giving rise to the
situation of which complaint is made for which the complaint seeks a remedy; (2) delay in
asserting the complainant's rights, the complainant having had knowledge or notice, of the
defendant's conduct and having been afforded an opportunity to institute a suit; (3) lack of
knowledge or notice on the part of the defendant that the complainant would assert the right on
which he bases his suit; and (4) injury or prejudice to the defendant in the event relief is accorded
to the complainant, or the suit is not held to be barred.

In the present case, as registered owners of the lots in question, the respondents have a right to
eject any person illegally occupying their property. This right is imprescriptible. Even if it be
supposed that they were aware of the petitioner's occupation of the property, and regardless of
the length of that possession, the lawful owners have a right to demand the return of their
property at any time as

long as the possession was unauthorized or merely tolerated, if at all. This right is never barred
by laches.
Further, case law teaches that those who occupy the land of another at the latter's tolerance or
permission, without any contract between them, are necessarily bound by an implied promise
that the occupants will vacate the property upon demand.

2. YES, DepEd is a builder in good faith.

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 the concept of owner, and that he be unaware that there
exists in his title or mode of acquisition any flaw which invalidates it.

However, there are cases where Article 448 of the Civil Code was applied beyond the recognized
and limited definition of good faith, e.g., cases wherein the builder has constructed
improvements on the land of another with the consent of the owner. The Court ruled therein that
the structures were built in good faith in those cases that the owners knew and approved of the
construction of improvements on the property.

In the present case, 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 in the case at bar.

G.R. No. 175399 Oct.27, 2009

TUATIS V. ESCOL.

FACTS:
On 18 June 1996, Tuatis filed a Complaint for Specific Performance with Damages against
herein respondent Visminda Escol (Visminda) before the RTC. Tuatis alleged in her Complaint
that sometime in November 1989, Visminda, as seller, and Tuatis, as buyer, entered into a Deed
of Sale of a Part of a Registered Land by Installment. The parties agreed that in consideration of
the sum of 10,000 pesos, the seller sells to the buyer the parcel of land under the conditions that
the buyer pays 3,000 pesos as downpayment, 4,000 pesos on or before December 31, 1989, and
3,000 pesos on or before January 31, 1990. The agreement also stated that failure of the buyer to
pay the remaining balance within the period of three months from the period stipulated above,
the BUYER [Tuatis] shall return the land subject of this contract to the SELLER [Visminda] and
the SELLER [Visminda] [shall] likewise return all the amount paid by the BUYER [Tuatis]. 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.
After trial, the RTC rendered a Decision in Visminda’s favor. RTC ruled that Tuatis failed to pay
the remaining balance within the period of three months from the period stipulated, hence, Tuatis
shall return the land subject of this Contract to the Seller [Visminda] and the Seller [Visminda]
shall likewise return all the amount paid by Tuatis.

Tuatis constructed the building in bad faith for she had knowledge of the fact that the Seller
[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.
Tuatis appealed but the same was dismissed. The RTC decision became final and executor.
Tuatis thereafter filed before the RTC on 22 April 2002 a Motion to Exercise Right under Article
448 of the Civil Code. Tuatis moved that the RTC issue an order allowing her to buy the subject
property from Visminda. While Tuatis indeed had the obligation to pay the price of the subject
property, she opined that such should not be imposed if the value of the said property was
considerably more than the value of the building constructed thereon by Tuatis. Tuatis alleged
that the building she constructed was valued at P502,073. but the market value of the entire piece
of land measuring 4.0144 hectares, of which the subject property measuring 300 square meters
formed a part, was only about P27,000. Tuatis maintained that she then had the right to choose
between being indemnified for the value of her residential building or buying from Visminda the
parcel of land subject of the case. Tuatis stated that she was opting to exercise the second option.

ISSUE: W/N Tuatis has the right to choose between being indemnified for the value of her
residential building or buying from Visminda the parcel of land subject of the case pursuant to
Article 448 of the Civil Code

HELD: No, under Article 448, the landowner, Visminda, has the right to choose and not Tuatis.
Taking into consideration the provisions of the Deed of Sale by Installment and Article 448 of
the Civil Code, Visminda has the following options:

Under the first option, Visminda may appropriate for herself the building on the subject property
after indemnifying Tuatis for the necessary and useful expenses the latter incurred for said
building, as provided in Article 546 of the Civil Code. It is worthy to mention that in Pecson v.
Court of Appeals, the Court pronounced that the amount to be refunded to the builder under
Article 546 of the Civil Code should be the current market value of the improvement.

Until Visminda appropriately indemnifies Tuatis for the building constructed by the latter,

Tuatis may retain possession of the building and the subject property.

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. The P10,000 price of the subject
property, as stated in the Deed of Sale on Installment executed in November 1989, shall no
longer apply, since Visminda will be obliging Tuatis to pay for the price of the land in the
exercise of Visminda’s rights under Article 448 of the Civil Code, and not under the said Deed.
Tuatis’ obligation will then be statutory, and not contractual, arising only when Visminda has
chosen her option under Article 448 of the Civil Code. Still under the second option, if the
present or current value of the land, the subject property herein, turns out to be considerably
more than that of the building built thereon, Tuatis cannot be obliged to pay for the subject
property, but she must pay Visminda reasonable rent for the same. Visminda and Tuatis must
agree on the terms of the lease; otherwise, the court will fix the terms.

Necessarily, the RTC should conduct additional proceedings and it should determine which of
the aforementioned options Visminda will choose. Subsequently, the RTC should ascertain: (a)
under the first option, the amount of indemnification Visminda must pay Tuatis; or (b) under the
second option, the value of the subject property vis-à-vis that of the building, and depending
thereon, the price of, or the reasonable rent for, the subject property, which Tuatis must pay
Visminda. The Court highlights that the options under Article 448 are available to Visminda, as
the owner of the subject property. 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.

ROSALES VS. CASTELLFORT

FACTS:

Spouses-petitioners Rodolfo V.

Rosales and Lily Rosqueta-Rosales (petitioners) are the registered owners of a parcel of land
with an area of approximately 315 square meters, covered by Transfer Certificate of Title (TCT)
No. 36856[4] and designated as Lot 17, Block 1 of Subdivision Plan LRC Psd-55244 situated in
Los Baños, Laguna. On August 16, 1995, petitioners discovered that a house was being
constructed on their lot, without their knowledge and consent, by respondent Miguel Castelltort
(Castelltort). It turned out that respondents Castelltort and his wife Judith had purchased a lot,
Lot 16 of the same Subdivision Plan, from respondent Lina Lopez Villegas (Lina) through her
son-attorney-in-fact Rene Villegas (Villegas) but that after a survey thereof by geodetic engineer
Augusto Rivera, he pointed to Lot 17 as the Lot 16 the Castelltorts purchased. Negotiations for
the settlement of the case thus began, with Villegas offering a larger lot near petitioners’ lot in
the same subdivision as a replacement thereof. In the alternative, Villegas proposed to pay the
purchase price of petitioners’ lot with legal interest. Both proposals were, however, rejected by
petitioners whose counsel, by letter of August 24, 1995, directed Castelltort to stop the
construction of and demolish his house and any other structure he may have built thereon, and
desist from entering the lot. Petitioners subsequently filed on September 1, 1995 a complaint for
recovery of possession and damages with prayer for the issuance of a restraining order and
preliminary injunction against spousesrespondents Miguel and Judith Castelltort before the RTC
of Calamba, Laguna, docketed as Civil Case No. 2229-95-C.

ISSUE:

Under Art 448, who has the right of option?

HELD:

Under the foregoing provision (Art

448), the landowner can choose between appropriating the building by paying the proper
indemnity or obliging the builder to pay the price of the land, unless its value is considerably
more than that of the structures, in which case the builder in good faith shall pay reasonable rent.
[34] If the parties cannot come to terms over the conditions of the lease, the court must fix the
terms thereof. The choice belongs to the owner of the land, a rule that accords 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.

(93) Cheng v Sps Donini

G.R. No. 167017 22 June 2009

To be entitled to full reimbursement for useful improvements introduced on the property, one
must be considered a builder in good faith

FACTS . The subject of this petition is an oral lease agreement that went sour. Petitioner Serafin
Cheng agreed to lease his property located at Mandaluyong City to respondents, Spouses Vittorio
and Ma. Helen Donini, who intended to put up a restaurant thereon. They agreed to a monthly
rental of P17,000, to commence in December 1990. Respondents proceeded to introduce
improvements in the premises through the Interim Grant of Authority executed by petitioner.

However, before respondents' business could take off and before any final lease agreement could
be drafted and signed, the parties began to have serious disagreements regarding its terms and
conditions. Petitioner thus wrote respondents on January 28, 1991, demanding payment of the
deposit and rentals, and signifying that he had no intention to continue with the agreement should
respondents fail to pay. Respondents, however, ignored petitioner's demand and continued to
occupy the premises until April 17, 1991.

Respondents then filed an action for specific performance and damages with a prayer for the
issuance of a writ of preliminary injunction in the Regional Trial Court (RTC) of Pasig City. It
prayed that petitioner be ordered to execute a written lease contract for five years, deducting
from the deposit and rent the cost of repairs in the amount of P445,000, or to order petitioner to
return their investment in the amount of P964,000 and compensate for their unearned net income
of P200,000 with interest, plus attorney's fees. Petitioner, in his answer, denied respondents'
claims.

RESPONDENT’s CONTENTION. They were possessors in good faith, hence, Articles 448 and
546 of the Civil Code applied and they should be indemnified for the improvements introduced
on the leased premises. Respondents contend that petitioner was going to benefit from these
improvements.

RTC rendered its decision in favor of petitioner. The CA reversed the trial court decision.

ISSUE. Did the CA err in ordering the petitioner to reimburse respondents the full value of
expenses for their alleged repairs and improvements of the leased premises?

RULING. YES.

Contrary to respondents' position, Articles 448 and 546 of the Civil Code did not apply. Under
these provisions, to be entitled to full reimbursement for useful improvements introduced on the
property, respondents must be considered builders in good faith. A builder in good faith is one
who is unaware of any flaw in his title to the land at the time he builds on it. But respondents
cannot be considered possessors or builders in good faith. Being mere lessees, respondents knew
that their right to occupy the premises existed only for the duration of the lease.
The fact that petitioner will benefit from the improvements introduced by respondents is of no
moment. Respondents introduced these improvements at their own risk as lessees. Respondents
were not forced or obliged to splurge on the leased premises as it was a matter of necessity as
well as a business strategy. In fact, had respondents only complied with their obligation to pay
the deposit/rent, there would have been no dispute to begin with. If they were able to shell out
more than a million pesos to improve the property, the P34,000 deposit demanded by petitioner
was a mere "drop in the bucket”.

Petitioner is ordered to pay only the amount of P171,650.95 to respondents as indemnity for the
useful improvements.

SPOUSES DARIO LACAP and MATILDE LACAP, petitioners, vs. JOUVET ONG LEE,
represented by Reynaldo de los Santos, respondent.

G.R. No. 142131. December 11, 2002

DOCTRINE:
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 reimburse said amount, the lessee may
remove the improvements, 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 cause to the principal thing, and the
lessor does not choose to retain them by paying their value at the time the lease is extinguished.

FACTS:

Before 1981, a certain Victor Facundo mortgaged two parcels of land and the improvements
thereon to Monte de Piedad Savings Bank (the bank, for brevity). In 1981, herein petitioner
spouses Dario and Matilde Lacap assumed to pay Facundos mortgage obligation to the bank.
Due to their failure to pay their obligation to the bank, however, the latter foreclosed on the
mortgage. During the auction sale, the bank emerged as the highest bidder and title passed on to
it.

The bank allowed the petitioner spouses to stay in the premises as lessees paying a monthly
rental of P800. The petitioner spouses introduced improvements thereon allegedly amounting to
some P500,000 after relying on the banks assurance that the property would be sold back to
them. On May 1, 1996, the petitioner spouses representative went to the bank to pay the monthly
rental.

However, the bank refused to accept the rentals inasmuch as, according to the bank, the property
had already been sold to another person. When the petitioner spouses called the banks head
office, the Vice-President of the Assets Division of the bank advised them to submit a written
offer to the bank for P1,100,000. The petitioner spouses complied that same day. But, on May
22, 1996, the bank turned down the petitioner spouses offer. On June 20, 1996, the petitioner
spouses received a letter demanding that they vacate the premises because it was already owned
by herein respondent, Jouvet Ong Lee.

The petitioner spouses instituted a civil case against the respondent for cancellation of sale and
damages with an application for preliminary injunction. This case is now pending before Branch
13 of the Regional Trial Court (RTC, for brevity) of Davao City.

Meanwhile, the respondent filed a complaint for unlawful detainer against the petitioners. After
trial, the Municipal Trial Court of Davao City rendered in favor of the plaintiff and against the
defendants ordering the latter vacate the premises and pay reasonable expense for the use of the
said premises.

On appeal, the RTC of Davao City, Branch 11, affirmed the assailed decision of the municipal
trial court, with the modification that respondent should reimburse the petitioner spouses for the
improvements the latter introduced to the premises.

The respondent filed a motion for reconsideration praying for the deletion of the order to
reimburse petitioner spouses for the improvements introduced on the subject premises which the
court granted.

The petitioner spouses filed a motion for reconsideration which was denied by the court.
Petitioner spouses appealed the decision of the RTC to the Court of Appeals.

The Court of Appeals dismissed the instant petition for lack of merit. It ruled that petitioner
spouses could not be builders in good faith inasmuch as their payment of rentals to the bank was
an indication that they were lessees. Thus, in the indemnification for improvements made,
Article 1678, not Article 448, of the Civil Code should govern.

ISSUE:

Whether or not the Court of Appeals correctly applied Article 1678 instead of Article 448 of the
Civil Code with regard to indemnity for the improvements introduced by the petitioners on the
subject property

HELD:

YES.

Article 528 of the Civil Code provides that possession in good faith continues to subsist until
facts exist which show that the possessor is already aware that he wrongfully possesses the thing.
Although, in the beginning, the petitioners were made to believe that they had a claim of title
over the said property by assuming the mortgage and possessing the subject property, all this
changed when they started paying monthly rentals to the mortgagee bank after the foreclosure of
the said property. We find this finding of the courts a quo conclusive on us in this petition for
review.

A conclusive presumption arises from the fact that, during the tenancy relationship, the petitioner
spouses admitted the validity of the title of their landlord. This negated their previous claim of
title. 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. In other words, their supposed belief in good faith of their right
of dominion ended when the bank foreclosed and acquired title over the subject premises.

Hence, the applicable provision in the instant case is Article 1678 of the Civil Code which
provides that:

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 reimburse said amount, the lessee may
remove the improvements, 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 cause to the principal thing, and the
lessor does not choose to retain them by paying their value at the time the lease is extinguished.

The petitioner spouses are therefore entitled to be paid only one-half of the value of the useful
improvements at the time of the termination of the lease or to have the said improvements
removed if the respondent refuses to reimburse them.

Moralidad v. Pernes

FACTS: Moralidad sent money to Arceli, Arlene Pernes older sister to buy a parcel of land
where Arlene and her family could transfer. Moralidad acquired the lot for the purpose of letting
Arlene move but later she wanted the property to be also available to any of her kins wishing to
live and settle in Davao city.
When the petitioner retires she stays with the respondent’s house they build on the subject
property. In the course of time, their relations turned sour because members of the respondent’s
family were impervious to her suggestions and attempts to change certain practices concerning
matters of health and sanitation with their compound until it went to incident of violent
confrontations with Arlene.
Because of that, Moralidad was forced to file an ejectment case with the MTCC against the now
respondent Arlene Pernes and alleged that she is the registered owner of the land on which the
respondent built their house. The repondents in their defense alleged having entered the property
in question, building their thereon and maintaining the same as their residence with petitioner’s
full knowledge and express consent.
MTCC ruled in favor of the petitioner stating that the respondent’s continued possession of the
premises turned unlawful upon their receipt of demand to vacate such possession being merely at
petitioner’s tolerance.
Dissatisfied, the respondent appealed to the RTC. In the meantime the judgment in favor of the
petitioner , she filed a motion of execution also with the RTC. The RTC then reversed the
decision of the MTCC holding that respondents being builder in good faith, they have the right to
retain possession of the property until they have been reimbursed the cost of the improvements.
Petitioner then went to the CA, but it dismissed the case and ruled that what governs the rights of
the parties is the law on usufruct but petitioner failed to establish that the respondents right to
possess had already ceased.
ISSUE: Whether or not the Court of Appeals is correct in applying the rule on usufruct in the
present case.
HELD: The Supreme Court agrees with the Court of Appeals that what was constituted between
the parties is one of usufruct. With the petitioner being the owner of the property upon whom the
naked title thereto remained and the respondents being two among others unnamed
usufructuaries who was simply referred as petitioners kins. But the Supreme Court did not agree
with its decision that the action for unlawful detainer must be dismissed on ground of
prematurity. From the pleading submitted by the parties it is indubitable that there were indeed
facts and circumstances whereby the subject usufruct may be deemed terminated or extinguished
by the occurrence of resolutory condition “that anybody of my kins who wishes to stay on the
aforementioned property should maintain an atmosphere of cooperation, live in harmony and
must avoid brickering with one another”
Thus the court ruled that the continuing conflict between the petitioner and the repondent’s
family are enough factual bases to consider the usufruct as having been terminated. The
respondent will have to be ordered to vacate the premise without any right of reimbursement ,
the respondent may however removed or destroy the improvements without damaging the
petitioner’s property.