PNB vs.

De Jesus
G.R. No. 149295 September 23, 2003

Facts:
Respondent filed a case for recovery of ownership of land against the bank, alleging encroachment of
the northern portion of his lot through a building the latter built. Petitioner argued it acquired the
building and the lot from which the former stood from its previous owner (Mayor Bienvenido Ignacio).

The Regional Trial Court and the Court of Appeals consecutively ruled in respondent’s favor, considering
petitioner as builders in bad faith; and ordered the removal of any improvement thereon at the latter’s
expense.

Issue: Is PNB a builder in good faith?

Held:
1. Art. 448 Civil Code:
The owner of a land from which anything has been built, sown, and planted has the following
options:
(a) If the builder is in good faith
(i) The right to appropriate as his own the works…after the payment of the indemnity
provided for in Arts. 546 and 548
(ii) Oblige the one who built or planted to pay the price of the land, and the sower
proper rent
(iii) [In case the value of the land exceeds that of the building or trees] Oblige the
payment of reasonable rent; the terms of lease either agreed upon, or fixed by court
in case of disagreement
(b) If the builder is in bad faith (Art. 450)- he has no right to indemnity (Art. 449)
(i) Demand the demotion of the work at the expense of the buider
(ii) Compel the builder or planter the price of the land, and the sower proper rent
 These choices are preclusive (i.e., the owner must choose one)

2. Good faith:
The essence of good faith lies in an honest belief of the validity of one’s right, ignorance of a
superior claim, and the absence of intention to overreach another

3. 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."

PETITION DENIED
Cosio and De Rama vs. Palileo
G.R. No. L-18452 May 31, 1965

Facts:
Respondent Cherie Palileo bought a two-story house in Pasay City, which she subsequently mortgaged;
she later defaulted in payment. To save possession of the house, Palileo entered into a contract of
“Conditional Sale of Residential Building” with petitioner Beatriz Cosio De Rama, in exchange for
P12,000. They agreed that Palileo would be entitled for repurchase of the house within 1 year;
meanwhile, she would keep possession of the house, paying petitioner De Rama a monthly rental of
P250.

After a fire broke out from the home, petitioners De Rama and Augusto Cosio entered the premises to
engage in repairs. Later, Palileo filed two actions against petitioners: one for reformation of the deed of
pacto de recto before the Court of First Instance, and another for ejectment before the Municipal Trial
Court.

The ejectment suit did not prosper before the trial court and the Court of First Instance. On the other
hand, the reformation suit was eventually settled before the Supreme Court in favor of respondent,
ruling that the agreement was actually a loan with an equitable mortgage, not a conditional sale (Palileo
vs. Cosio).

Following the ruling, respondent now filed a new action for recovery of possession of the house. The
lower court deemed petitioner Cosio De Rama a possessor in good faith, and entitled to retain
possession of the house until the reimbursement of the repair expenses. However, the Court of Appeals
reversed the ruling, and declared respondent Palileo as lawful owners of the house entitled of its
possession without the obligation of reimbursing petitioners who were deemed builders in bad faith.

Issue:
1. Are petitioners possessors in good faith?
2. Are petitioners builders in good faith?
3. Is the second action barred by prior judgement due to the dismissal of the ejectment suit?

Held:
1. Possessor in good faith (Art. 526, Civil Code): one who is not aware that there exists in his title or
mode of acquisition any flaw which invalidates it.
Petitioners are possessors in bad faith. The terms of their agreement with respondent (i.e.,
security for the payment of a loan) did not entitle them to take possession of the house. Despite
this knowledge, petitioners occupied it anyway.

They are liable for payment of rentals.

2. Builders in good faith (Art. 449 Civil Code): accesio decit principali (the accessory follows the
principal). Hence, a builder of bad faith has no right of indemnity.
This principle is inapplicable in the present case, since petitioners merely repaired respondent’s
home, and not build a new home in her land.

Petitioner’s expenses were deemed necessary, and therefore refundable even to possessors in
bad faith (Sec. 546)

3. Sec. 9 Rule 40 Rules of Court: Effect of appeals. — A perfected appeal shall operate to vacate the
judgment of the justice of the peace or the municipal court, and the action when duly docketed
in the Court of First Instance, shall stand for trial de novo upon its merits in accordance with the
regular procedure in that court, as though the same had never been tried before and had been
originally there commenced.

PETITION PARTIALLY GRANTED

Heirs of Victorino Sarili vs. Lagrosa
G.R. No. 193517 January 15, 2014

Facts:
Respondent Pedro Lagrosa filed a complaint praying for annulment of a Transfer Certificate of Title and
delivery of possession of land against petitioner Victorino Sarili (substituted by his heirs), alleging the creation
of a falsified Deed of Absolute Sale issued by him and his wife on February 16, 1978, in favor of the petitioner
spouses.

Petitioner Sarili claimed that he was an innocent purchaser of the subject property from Ramon B. Rodriguez,
who was then empowered with a Special Power of Attorney; and consequently, executed a Deed of Absolute
Sale on November 20, 1992.

The Regional Trial Court ruled in petitioner’s favor, citing the genuineness of the respondent’s signature found
in the Special Power of Attorney, and thus the validity of the sale.

However, the Court of Appeals reversed this decision. It pointed out that it was the February 1978 Deed of
Absolute Sale that caused the issuance of the questioned title certificate. Mere examination found
dissimilarity of the signature found in the said sale compared to the special power of attorney of the
respondent and petitioner’s other documents. Moreover, the appellate court was satisfied of respondent’s
claim over the property, and his proof that his wife’s signature was forged.

Issue:
1. Is Petitioner the rightful owner of the property; should the Transfer Certificate of Title in his favor be
sustained?
2. Is petitioner a builder in good faith?

Held:
1. If the procurement of a certificate of title was tainted with fraud and misrepresentation, such
defective title may still be the source of a completely legal and valid title in the hands of an innocent
purchaser for value

Provided: there is nothing in the certificate of title to indicate any cloud or vice in the ownership of
the property, or any encumbrance thereon.

Petitioner is not an innocent purchaser for value, since the notarial acknowledgement (petitioner’s
special power of attorney) does not contain respondent’s community tax certificate.

2. Petitioner’s special of attorney is a private document whose due execution and authenticity could be
examined through Sec. 20 Rule 132 of the Rules of Court, namely by:
(a) anyone who saw the document executed or written; or
(b) by evidence of the genuineness or signature or hardwiring

Ramon failed to show basis of his familiarity with respondent’s signature, and failed to identify the
other signatories to the document.

Petitioners did not rebut respondent’s claim that he and his wife was in the United States, ruling out
the possibility of executing the document.

Petitioner can have no valid title based on forged documents.

3. Petitioner as a builder in good faith (Art. 450-452) and a possessor in good faith (Art. 546):
Good faith: an honest belief in the absence of malice and the absence of design to defraud or to seek
an unconscionable advantage.

On this question, The Court remanded the case to the court a quo, having yet to know whether Sps.
Sarili’s occupation of the land was attended with the knowledge that they had no right to possess the
same.

PETITION DENIED
Briones vs. Macabagdal and Vergon Realty Investments Corporation
G.R. No. 150666 August 3, 2010

Facts:
The controversy revolves around two adjacent lots: Lot 2-R (owned by Respondent-spouses Jose and Fe
Macanagdal) and Lot 2-S (owned by Luciano and Nelly Briones). In an action for recovery of ownership
and possession before the Regional Trial Court, respondent-spouses alleged that petitioners built their
building on their lot. The petitioners claimed that they relied on the representations of Vergon’s agents
for the 7 years they were paying for the lot.

The trial court and the Court of Appeals found petitioners to have built on respondents’ lot, ordering the
former to vacate from the premises, and compensate the latter. The appellate court dismissed
petitioner’s defense of being purchasers in good faith.

Issue: are the petitioners builders in good faith?

1. The remedy availed by petitioners is covered by Rule 45 of the Rules of Court, requiring them to
raise only questions of law, especially when there is no conflict between the findings of the
lower courts
2. Nevertheless, the trial court was found in error to order that petitioners vacate the premises,
and compel them to compensate the respondents:
(a) Art. 527, Civil Code: good faith is presumed without evidence to the contrary
(b) Art. 448, Civil Code: the owner of a land where a builder in good faith builds, plants, or sows
has the following options
(i) Appropriate the building after paying the proper indemnity
(ii) Oblige the builder to pay the price of the land
 The choice is preclusive (i.e., the owner of the land can choose only one)

3. Petitioners are also entitled for indemnification for necessary and useful expenses (Art. 546 and
548, Civil Code)
4. Depra vs. Dumlao: the case is remanded to the Regional Trial Court to assess the values relevant
to the case (e.g., land, improvement, indemnity, lease)
5. Petitioners failed to establish Vergon’s negligence under Art. 2176 of the Civil Code:
(a) The damages suffered by the plaintiff
(b) The fault or negligence
(c) The connection of cause and effect between the fault or negligence and the damages
incurred

PETITION AFFIRMED WITH MODIFICATION

Sulo sa Nayon vs. Nayong Pilipino Foundation
G.R. No. 170923 January 20, 2009

Facts:
Resondent Nayong Pilipino entered into a lease agreement with petitioner Sulo ng Bayan. They agreed
that Sulo ng Bayan would construct a building to be later known as the Philippine Village Hotel. Later,
petitioner found itself to have defaulted from its rental payments, and failed to comply accordingly
despite respondent’s submission of a demand letter.

As a result, respondent initiated a civil suit for unlawful detainer before the Metropolitan Trial Court,
praying for the recovery of unpaid rentals— it ruled favorably for the respondent, also pointing out that
the right of accession in the Civil Code (Art. 448) do not apply to lessees; otherwise, lessees would be
evicted from their properties by lessee’s improvements.

On appeal, however, the Regional Trial Court applied Art. 448 in relation to Art. 546 of the Civil Code,
ruling petitioners to be builders in good faith. As such, appellee has no right to remove or demolish
petitioner’s improvements until it has chosen compulsory sale.

Further elevating the case to the Court of Appeals, respondent’s appeal was granted, with the appellate
court’s decision mirroring that of the Metropolitan Trial Court’s.

Issues:
1. Is the right of accession applicable to a lease agreement?
2. Was there a sufficient notice to the petitioners to place them under the trial court’s jurisdiction?
3. Did respondent breach the contract when it filed an ejectment suit against petitioner?

Held:
1. Jurisdiction: respondent issued a demand letter to petitioner, demanding payment of unpaid
rentals, otherwise it will be forced to resort to appropriate legal action.
2. Right of accession: Art. 449 in relation to 546 does not apply to a lease agreement; Art. 1678 is
the proper law governing rights of the parties concerning improvements.
The lessor has 2 options:
(a) Pay one-half of the value of the improvements
(b) Have the lessee remove the improvements in case the lessor refuses to reimburse
3. There was no breach committed by respondent, since the agreement does not bar it from
instituting legal action in case of default of rental payment

PETITION DENIED
Communities Cagayan Inc. vs. Sps. Arsenio
G.R. No. 176791 November 14, 2012

Facts:
The parties entered into a Contract to Sell where petitioners agreed to sell a house and 2 lots. To make the
payment, the parties simulated a sale in which Transfer Certificates of Title for the respective lots were issued
under respondent-spouses name; and submitted them o the Capitol Development Bank for loan processing.
Unfortunately, the bank collapsed before the loan was ever delivered.

The parties entered a second Contract to Sell, this time availing of petitioner’s in-house financing. Meanwhile,
respondents demolished the original house and built a 3 story one in its place.

Later, the husband passed, survived by his wife. She then defaulted on the monthly amortizations, prompting
petitioner to institute an action for unlawful detainer before the Municipal Trial Court—the court, however
dismissed the complaint when it learned the titles were registered in the name of the spouses.

Undeterred, petitioner instituted another suit before the Regional Trial Court, praying for cancellation of title,
recovery of possession, and reconveyance with damages—the court declared the sale void and cancelled the title
certificates. It also ordered petitioner to pay the total value of the spouses monthly installments and the value of
the new houses minus the value of the old one.

Unsatisfied, Petitioner appeals directly to the Supreme Court raising questions of law

Issue:
1. Petitioner challenges the validity of the dispositive portion of the RTC, ordering it to return the spouses’
monthly installments, and reimbursement of the value of the new house minus the old

Held:
1. The decision of the Regional Trial Court has become final and irreversible. It can no longer be modified
2. Secs. 3-5 of the Maceda Law: Requisites for cancelling a contract to sell
(a) Lapse of 30 days from buyer’s receipt of a notarized notice of cancellation
(b) Refund the cash surrender value (i.e., 50% of total payments made)
In this case, the Court found the agreement to be [supposedly] subsisting, with petitioner’s failure to
deliver the refund to the spouses.

But because of the final decision of the Regional Trial Court, the Court cannot reverse the former’s order
to vacate, nor reinstate the contract. Its only recourse is to order the return of the cash surrender value.

3. Art. 448 in relation to Arts. 546 and 548 of the Civil Code; and good faith in the context of jurisprudence
(especially Tuatis vs. Escol)
(a) The designation of being a builder in good faith is always presumed, without evidence to the contrary.

Petitioner has waived its right to raise factual issue due to its direct petition before the Supreme Court,
and hence cannot dispute the presumption

(b) Jurisprudence has shown that the Court in numerous instances has departed from the limited context
(i.e., existence of a landowner and a builder who introduces improvements in the former) provided by
the Civil Code in which good faith on the part of the builder is presumed (e.g., Del Campo vs. Abesia,
where the parties were co-owners; Sarmiento vs. Agana, where the builders were deemed in good
faith by relying on the representation of a non-owner)
(c) Tuatis vs. Escol: options of the petitioner
(i) Reimburse the respondent spouses for the value of the new house minus the value of the old
one
(ii) Sell the lots to the respondent spouses
(iii) [If the lots’ values are higher than the improvement] Oblige respondents to pay reasonable
rent

4. Depra vs. Dumlao and Technogas Philippines Manufacturing Corporation vs. CA: the case is remanded to
the court of origin for determination of matters covered by Art. 448 in relation to Arts. 546 and 548 of the
Civil Code

PETITION AFFIRMED WITH MODIFICATION

Heirs of Limense vs. De Ramos
G.R. No. 152913 October 28, 2009

Facts:
Dalmacio Lozada was the owner of a parcel of land. It was subdivided into 5 lots (Lot 12-A to Lot 12-E)
and donated the same to his daughters, Catalina (Lots 12-B and 12-C) and Salud (Lot 12-D) Lozada
among them. As a result, Original Certificate of Title No. 7036 was cancelled and new Transfer
Certificates of Title were issued: TCT Nos. 40041,40042,40043,40044,40045. TCT No. 40043 covered Lot
12-C

Meanwhile, respondents’ predecessors-in-interest built a residential building on Lot 12-D adjacent to Lot
12-C.

Later, TCT No. 96886 emerged on the records, covering Lot 12-C, this time named to Joaquin Limense. He
commissioned the construction of a hollow block fence, but was impeded by the building previously built
in Lot 12-D that encroached portions of the former’s lot.

Failing to arrive at a settlement, petitioner instituted a complaint before the Regional Trial Court—it
dismissed the same, arguing plaintiff’s knowledge of the existence of the easement of right of way
(through an alley between the lots) must prevent any intervention that diminishes that benefit; that
actual notice or knowledge is as binding as registration.

The Court of Appeals affirmed RTC’s decision in toto

Issues:
1. Does respondents have an easement of right of way?
2. Should the portion of respondent’s house in Lot-D be considered a nuisance and should be
removed

Held:
1. Prohibition on the collateral attack of title: Sec. 48, Presidential Decree No. 1529
Petitioner’s main action is for removal of obstruction. Its subsequent allegations that
respondent’s title was acquired through fraud or misrepresentations is prohibited by law.

2. Easement is a real right on another’s property, corporeal and immovable, whereby the owner of
the latter must refrain from doing or allowing somebody else to do something to be done on his
property, for the benefit of other person or tenement

Easement could either be continuous or discontinuous, apparent or non-apparent:

Continuous- are those the use of which is or may be incessant, without the intervention of any
act of man
Discontinuous- are those which are used at intervals, depending on the acts of man
Apparent- made known and are continually kept in view by external signs that reveal the use and
enjoyment of the same
Non-apparent- those which show no external indication of its existence

In this case, there is discontinuous and apparent easement in favor of respondents

3. The right of easement however, does not include the right to encroach, pertaining to portions of
respondent’s house on Lot 12-C
4. The Court found respondents builders in good faith and thus entitled to the benefits provided in
Art. 448 in relation to Arts. 546 and 548 of the Civil Code.

Good faith:
An honest belief in the absence of malice and in the absence of a design to defraud and seek an
unconscionable advantage
 The essence of good faith lies in the honest belief in the validity of one’s right, ignoriace of
superior claim, and absence of intention to overreach another

Good faith is presumed and burden of proof of bad faith lies in the person alleging

Petitioners relied on their predecessor-in-interest’s Deed of Donation that Lot 12-C be divided
among the Lozada sisters in “equal parts”

5. The encroachment can be considered a nuisance and could be removed but respondents are
entitled to the benefits provided in Art. 448 of the Civil Code as builders in good faith.
Land owner has 2 options:
(a) To appropriate the building by paying the indemnity provided by law
(b) To sell the land to the builder

6. Rationale of right of accession:

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

7. Depra vs. Dumlao: case is remanded to the court of origin for determination of matters
respecting Art. 448 in relation to Art. 546

PETITION DENIED
Sps. Macasaet vs. Sps. Macasaet
G.R. No. 154391-92 September 30, 2004

Facts:
Respondents Vicente and Rosario Macasaet are the parents of Ismael Macasaet, who is the husband of Teresita
Macasaet (petitioners). Respondents filed an ejectment suit against petitioners, alleging the termination of a verbal
lease agreement, due to petitioners’ failure to pay rentals. Petitioners argued that they were merely invited to
reside in the property and subsequently build their residence and business within it.

The Municipal Trial Court in Cities ruled for the respondents, pointing out that mere tolerance (not lease
agreement) that governed the parties with respect to petitioners’ stay; and as such, they are necessarily bound by
implied promise to vacate the premises upon demand.

The Regional Trial Court likewise affirmed the decision, but ruled that petitioner are entitled to indemnity granted
under Art. 448 of the Civil Code.

The Court of Appeals sustained the rulings of the previous courts, but cited Art. 1678 instead as the law governing
their right of indemnity, applicable only to builders under a lease agreement.

Issue:
1. Whether the parties were governed by a lease agreement, and therefore qualifies the case to be remedied
by unlawful detainer?
2. Whether respondent’s absence to the preliminary conference warrants dismissal of the complaint?
3. Whether petitioners are builders in good faith; what provision should be applied: Art. 448 or Art. 1678?
Held:
1. Occupation of land by mere tolerance or permission of the owner: tolerance is the act or promise of
permitting or enduring something not wholly approved
The Court determined respondents gave complete approval to petitioners to reside in the premises to live
and help together resolve family issues

2. Unlawful detainer: the defendant is illegally withholding possession from plaintiff due to expiration or
termination of defendant’s right to possess from an express or implied contract

The implied contract allowing petitioners to stay is governed by resolutory condition: When persistent
conflict and animosity overtook the love and solidarity between the parents ad the children, the purpose
of the agreement ceased.

3. Appearance at the Preliminary Conference: Rule 70 of the Rules of Court must be read in conjunction with
Rule 18, allowing parties to designate an authorized representative to attend on their behalf during the
proceedings.

4. Art. 448 Civil Code: Builders in good faith

Landowners are allowed to appropriate any improvements on their land by builders in good faith,
provided:
(a) They refund the expenses to petitioners
(b) Oblige the payment of the price of the land
(c) [In case the land’s value exceeds the improvement] Oblige payment of reasonable rent

Petitioners are builders in good faith, assuming their right to build structures in the premises based on the
fact they were invited to live with the respondents.

Art. 448, not Art. 1678 governs the relationship of the properties with respect to improvement; the
jurisprudence has liberally applied Art. 448 in different contexts, despite its limited definition (i.e., there
must be a landowner and a builder).

5. Depra vs. Dumlao: Case should be remanded to the trial court for proper application of Art. 448 in relation
to Art. 456

PETITION DENIED
Villasi vs. Sps. Garcia
G.R. No. 190106 January 15, 2014

Facts:
Magdalena Villasi (Petitioner) contracted the services of Fil-Garcia Construction Inc. for the construction
of a seven-story condominium building. But only a partial payment was accomplished, prompting the
company to file a suit for collection of sum of money before the Regional Trial Court—the court found
petitioner indebted and order payment of her dues.

The Court of Appeals reversed the trial court’s ruling, which would then be carried on before the
Supreme Court in its resolution (G.R. No. 147960) due to the appeal being filed out of time; the
resolution would also become final and executory.

Petitioner then filed a Motion for Execution. The Sheriff was directed accordingly to levy properties of
the company for the satisfaction of judgement, particularly a building located in Quezon City. However,
tax declarations on the building were named in the company’s favor not reflecting the fact of the true
owners of the lots on which it stood: Spouses Filomeno and Emelinda Garcia (respondents). They
proceeded to institute a 3rd party complaint against petitioner, alleging sheriff’s mistake in the
assessment.

The Regional Trial Court and the Court of Appeals agreed with respondents’ contention which resulted in
the abeyance of the sale on execution of the building.

Issue: Should the sale on execution take place?

2. 1 Rule 39: Judgement

Terceria- remedy of persons whose properties were wrongly taken, believing that such belonged
to the judgement obligor.

One perusal of the record shows that the party asserting the Title, spouses Garcia failed to prove
that they have bona fide title to the building in question.

2. 2 Execution is the fruit, the end, and the life of the suit…Hailing it as the life of the law, ratio legis
est anima, this Court has zealously guarded against any attempt to thwart this rigid rule

Respondents’ explanation that an error was committed when the company, through tax
declarations, was declared owner of the building, indicates their intention to delay and deprive
judgement creditor of what he stands to gain from litigation.

2. 3 Accession is not an iron-clad dictum, especially when it is discovered that the principal and
accessory are owned by two different persons. (i.e., the company owned the building; the
respondents owned the lots on which the building was situated).

PETITION GRANTED
Arangote vs. Maglunob
G.R. No. 178906 February 18, 2009

Facts:
Petitioner Elvira Arangote filed a suit primarily for Quieting of Title and Declaration of Ownership against
respondent spouses; one of them, Martin Maglunob is a grandnephew of Esperanza Maglunob-Dallisan.

It was alleged that the subject land was passed down from Victorino Sorrosa to his legal heirs, Esperanza among
them. Esperanza later executed an Affidavit in which she divested herself of her rights to the property in favor of
petitioner and her husband Mars Arangote. Whilst in their possession, they built a house and accommodated the
filing of a new Original Certificate of Title issued by the Secretary of Agrarian Reform, naming petitioner and her
spouse as owners.

On the other hand, respondents narrated that the land was indeed passed down to Esperanza, along with her
siblings Tomas and Inocencia in equal shares. Upon the death of the latter two siblings, their shares was inherited
by Esperanza, Martin II Maglunob and Romeo (respondents). Hence as co-owners, Esperanza could not have validly
disposed of the land by herself.

While the Municipal Trial Court in the Cities ruled in petitioner’s favor, the decision would later be reversed on
appeal before the Regional Trial Court and the Court of Appeals.

Issue:
1. Whether petitioner’s title is valid?
2. Whether the Affidavit executed by Esperanza is valid?
3. Whether is a builder in good faith?

Held:
1. Petitioner’s title is based on the Affidavit executed by Esperanza; but it is void due to the following reasons

a. Esperanza is not the exclusive owner of the land

b. The Affidavit was intended for Donation of an Immovable, governed by Art. 749 of the Civil Code
requiring:
(i) it must be made in a public instrument;
(ii) it must be accepted, which acceptance may be made either in the same Deed of
Donation or in a separate public instrument;
(iii) if the acceptance is made in a separate instrument, the donor must be notified in an
authentic form, and the same must be noted in both instruments.
The Affidavit failed to provide important facts to render the donation valid:
(i) the acceptance of the husband
(ii) the notice of the acceptance to the donor

c. The title was directly attacked (Sec. 48 Presidential Decree No. 1529); it was established that the
Original Certificate of Title issued under suspicious circumstances, as petitioner admitted that her
husband was not in the country to be the land’s tenant, essential for the grant of title under the
Comprehensive Agrarian Reform Act (RA 6657)

2. Good faith
 an honest belief, the absence of malice and the absence of design to defraud or to seek an
unconscionable advantage
 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.
3. Benefits of a builder in Good Faith (Art. 448 Civil Code):
Landowner has the following choices, either:
a. Appropriate the building after paying the proper indemnity
b. Oblige the payment of the price of the land
 A builder in bad faith is not entitled to indemnity, and the landowner can demand the
demolition or removal at the builder’s expense
Not bothered to probe into Esperanza’s rights over the land, petitioner cannot be considered a builder in
good faith.

PETITION DENIED
Metropolitan Waterworks and Sewerage System vs. CA and City of Dagupan
G.R. No. L-54526 August 25, 1986

Facts:
City of Dagupan filed a suit against the National Waterworks and Sewerage Authority for recovery of
ownership of the Dagupan Waterworks System. Petitioner then filed a counterclaim for the
reimbursement of expenses for useful improvements. The trial court and the Court of Appeals ruled in
the city’s favor, considering petitioner a builder or possessor in bad faith, barred from receiving
indemnity.

Issue: Is MWSS a builder or possessor in good faith.

Held: The Court sustained the lower courts’ rulings that MWSS is a builder or possessor in bad faith
1. Benefits of a builder in good faith (Art. 448 Civil Code)
a. They refund the expenses to petitioners
b. Oblige the payment of the price of the land
c. [In case the land’s value exceeds the improvement] Oblige payment of reasonable rent

2. Benefits of a possessor in good faith (Art. 546 Civil Code)

a. Refund of useful expenses
b. Right of retention until reimbursement