G.R. No. 170923 January 20, 2009
The court is convinced by the evidence that indeed,
SULO SA NAYON, INC. and/or PHILIPPINE VILLAGE
HOTEL, INC. and JOSE MARCEL E.
PANLILIO,Petitioners,
vs.
NAYONG PILIPINO FOUNDATION, Respondent.
DECISION
PUNO, C.J.:
On appeal are the Court of Appeals’ (CA’s) October 4, 2005
Decision1 in CA-G.R. SP No. 74631 and December 22, 2005
Resolution,2 reversing the November 29, 2002 Decision3 of
the Regional Trial Court (RTC) of Pasay City in Civil Case
No. 02-0133. The RTC modified the Decision4 of the
Metropolitan Trial Court (MeTC) of Pasay City which ruled
against petitioners and ordered them to vacate the premises
and pay their arrears. The RTC declared petitioners as
builders in good faith and upheld their right to indemnity.
The facts are as follows:
Respondent Nayong Pilipino Foundation, a government-
owned and controlled corporation, is the owner of a parcel of
land in Pasay City, known as the Nayong Pilipino Complex.
Petitioner Philippine Village Hotel, Inc. (PVHI), formerly
called Sulo sa Nayon, Inc., is a domestic corporation duly
organized and existing under Philippine laws. Petitioner Jose
Marcel E. Panlilio is its Senior Executive Vice President.
On June 1, 1975, respondent leased a portion of the Nayong
Pilipino Complex, consisting of 36,289 square meters, to
petitioner Sulo sa Nayon, Inc. for the construction and
operation of a hotel building, to be known as the Philippine
Village Hotel. The lease was for an initial period of 21 years,
or until May 1996. It is renewable for a period of 25 years
under the same terms and conditions upon due notice in
writing to respondent of the intention to renew at least 6
months before its expiration. Thus, on March 7, 1995,
petitioners sent respondent a letter notifying the latter of their
intention to renew the contract for another 25 years. On July
4, 1995, the parties executed a Voluntary Addendum to the
Lease Agreement. The addendum was signed by petitioner
Jose Marcel E. Panlilio in his official capacity as Senior
Executive Vice President of the PVHI and by Chairman
Alberto A. Lim of the Nayong Pilipino Foundation. They
agreed to the renewal of the contract for another 25 years,
or until 2021. Under the new agreement, petitioner PVHI was
bound to pay the monthly rental on a per square meter basis
at the rate of ₱20.00 per square meter, which shall be
subject to an increase of 20% at the end of every 3-year
period. At the time of the renewal of the lease contract, the
monthly rental amounted to ₱725,780.00.
Beginning January 2001, petitioners defaulted in the
payment of their monthly rental. Respondent repeatedly
demanded petitioners to pay the arrears and vacate the
premises. The last demand letter was sent on March 26,
2001.
On September 5, 2001, respondent filed a complaint for
unlawful detainer before the MeTC of Pasay City. The
complaint was docketed as Civil Case No. 708-01.
Respondent computed the arrears of petitioners in the
amount of twenty-six million one hundred eighty-three
thousand two hundred twenty-five pesos and fourteen
centavos (₱26,183,225.14), as of July 31, 2001.
On February 26, 2002, the MeTC rendered its decision in
favor of respondent. It ruled, thus:
. . . .
defendants defaulted in the payment of their rentals. It is
basic that the lessee is obliged to pay the price of the lease
according to the terms stipulated (Art. 1657, Civil Code).
Upon the failure of the lessee to pay the stipulated rentals,
the lessor may eject (sic) and treat the lease as rescinded
and sue to eject the lessee (C. Vda[.] De Pamintuan v.
Tiglao, 53 Phil. 1). For non-payment of rentals, the lessor
may rescind the lease, recover the back rentals and recover
possession of the leased premises. . .
xxx
. . . . Improvements made by a lessee such as the
defendants herein on leased premises are not valid reasons
for their retention thereof. The Supreme Court has occasion
to address a similar issue in which it ruled that: "The fact that
petitioners allegedly made repairs on the premises in
question is not a reason for them to retain the possession of
the premises. There is no provision of law which grants the
lessee a right of retention over the leased premises on that
ground. Article 448 of the Civil Code, in relation to Article
546, which provides for full reimbursement of useful
improvements and retention of the premises until
reimbursement is made, applies only to a possessor in good
faith, i.e., one who builds on a land in the belief that he is the
owner thereof. This right of retention does not apply to a
mere lessee, like the petitioners, otherwise, it would always
be in his power to "improve" his landlord out of the latter’s
property (Jose L. Chua and Co Sio Eng vs. Court of Appeals
and Ramon Ibarra, G.R. No. 109840, January 21, 1999)."
Although the Contract of Lease stipulates that the building
and all the improvements in the leased premises belong to
the defendants herein, such will not defeat the right of the
plaintiff to its property as the defendants failed to pay their
rentals in violation of the terms of the contract. At most,
defendants can only invoke [their] right under Article 1678 of
the New Civil Code which grants them the right to be
reimbursed one-half of the value of the building upon the
termination of the lease, or, in the alternative, to remove the
improvements if the lessor refuses to make reimbursement.
The dispositive portion of the decision reads as follows:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of Nayong Pilipino Foundation, and against
the defendant Philippine Village Hotel, Inc[.], and all persons
claiming rights under it, ordering the latter to:
1. VACATE the subject premises and surrender
possession thereof to plaintiff;
2. PAY plaintiff its rental arrearages in the sum of
TWENTY SIX MILLION ONE HUNDRED EIGHTY
THREE THOUSAND TWO HUNDRED TWENTY
FIVE PESOS AND 14/100 (P26,183,225.14)
incurred as of July 31, 2001;
3. PAY plaintiff the sum of SEVEN HUNDRED
TWENTY FIVE THOUSAND SEVEN HUNDRED
EIGHTY PESOS (P725,780.00) per month starting
from August 2001 and every month thereafter by
way of reasonable compensation for the use and
occupation of the premises;
4. PAY plaintiff the sum of FIFTY THOUSAND
PESOS (P50,000.00) by way of attorney’s fees[;
and]
5. PAY the costs of suit.
The complaint against defendant Jose Marcel E. Panlilio is
hereby dismissed for lack of cause of action. The said
defendant’s counterclaim however is likewise dismissed as
the complaint does not appear to be frivolous or maliciously
instituted.
SO ORDERED.5
Petitioners appealed to the RTC which modified the ruling of
the MeTC. It held that:
. . . it is clear and undisputed that appellants-lessees were
expressly required to construct a first-class hotel with
complete facilities. The appellants were also unequivocally
declared in the Lease Agreement as the owner of the
improvements so constructed. They were even explicitly
allowed to use the improvements and building as security or
collateral on loans and credit accommodations that the
Lessee may secure for the purpose of financing the
construction of the building and other improvements (Section
2; pars. "A" to "B," Lease Agreement). Moreover, a time
frame was setforth (sic) with respect to the duration of the
lease initially for 21 years and renewable for another 25
years in order to enable the appellants-lessees to recoup
their huge money investments relative to the construction
and maintenance of the improvements.
xxx
Considering therefore, the elements of permanency of the
construction and substantial value of the improvements as
well as the undispute[d] ownership over the land
improvements, these, immensely engender the application
of Art. 448 of the Civil Code. The only remaining and most
crucial issue to be resolved is whether or not the appellants
as builders have acted in good faith in order for Art. 448 in
relation to Art. 546 of the Civil Code may apply with respect
to their rights over improvements.
xxx
. . . it is undeniable that the improvement of the hotel building
of appellants (sic) PVHI was constructed with the written
consent and knowledge of appellee. In fact, it was precisely
the primary purpose for which they entered into an
agreement. Thus, it could not be denied that appellants were
builders in good faith.
Accordingly, and pursuant to Article 448 in relation to Art.
546 of the Civil Code, plaintiff-appellee has the sole option
or choice, either to appropriate the building, upon payment
of proper indemnity consonant to Art. 546 or compel the
appellants to purchase the land whereon the building was
erected. Until such time that plaintiff-appellee has elected an
option or choice,
it has no right of removal or demolition against appellants
unless after having selected a compulsory sale, appellants
fail to pay for the land (Ignacio vs. Hilario; 76 Phil. 605). This,
however, is without prejudice from the parties agreeing to
adjust their rights in some other way as they may mutually
deem fit and proper.
The dispositive portion of the decision of the RTC reads as
follows:
WHEREFORE, and in view of the foregoing, judgment is
hereby rendered modifying the decision of [the] MTC,
Branch 45 of Pasay City rendered on February 26, 2002 as
follows:
1. Ordering plaintiff-appellee to submit within thirty
(30) days from receipt of a copy of this decision a
written manifestation of the option or choice it
selected, i.e., to appropriate the improvements upon
payment of proper indemnity or compulsory sale of
the land whereon the hotel building of PVHI and
related improvements or facilities were erected;
2. Directing the plaintiff-appellee to desist and/or
refrain from doing acts in the furtherance or exercise
of its rights and demolition against appellants unless
and after having selected the option of compulsory
sale and appellants failed to pay [and] purchase the
land within a reasonable time or at such time as this
court will direct;
3. Ordering defendants-appellants to pay plaintiff-
appellee [their] arrears in rent incurred as of July 31,
2001 in the amount of P26,183,225.14;
4. Ordering defendants-appellants to pay to plaintiff-
appellee the unpaid monthly rentals for the use and
occupation of the premises pending this appeal from
July to November 2002 only at P725,780.00 per
month;
5. The fourth and fifth directives in the dispositive
portion of the trial court’s decision including that the
last paragraph thereof JME Panlilio’s complaint is
hereby affirmed;
6. The parties are directed to adjust their respective
rights in the interest of justice as they may deem fit
and proper if necessary.
SO ORDERED.6
Respondent appealed to the CA which held that the RTC
erroneously applied the rules on accession, as found in
Articles 448 and 546 of the Civil Code when it held that
petitioners were builders in good faith and, thus, have the
right to indemnity. The CA held:
By and large, respondents are admittedly mere lessees of
the subject premises and as such, cannot validly claim that
they are builders in good faith in order to solicit the
application of Articles 448 and 546 of the Civil Code in their
favor. As it is, it is glaring error on the part of the RTC to
apply the aforesaid legal provisions on the supposition that
the improvements, which are of substantial value, had been
introduced on the leased premises with the permission of the
petitioner. To grant the respondents the right of retention and
reimbursement as builders in good faith merely because of
the valuable and substantial improvements that they
introduced to the leased premises plainly contravenes the
law and settled jurisprudential doctrines and would, as
stated, allow the lessee to easily "improve" the lessor out of
its property.
. . . . Introduction of valuable improvements on the leased
premises does not strip the petitioner of its right to avail of
recourses under the law and the lease contract itself in case
of breach thereof. Neither does it deprive the petitioner of its
right under Article 1678 to exercise its option to acquire the
improvements or to let the respondents remove the same.
Petitioners’ Motion for Reconsideration was denied.
Hence, this appeal.7
Petitioners assign the following errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED A
GRAVE REVERSIBLE ERROR IN NOT HOLDING THAT
PETITIONERS WERE BUILDERS IN GOOD FAITH OVER
THE SUBSTANTIAL AND VALUABLE IMPROVEMENTS
WHICH THEY HAD INTRODUCED ON THE SUBJECT
PROPERTY, THUS COMPELLING THE APPLICATION OF
ARTICLE 448 OF THE CIVIL CODE IN RELATION TO
ARTICLE 546 OF THE SAME CODE, INSTEAD OF
ARTICLE 1678 OF THE CIVIL CODE.
II
THE HONORABLE COURT OF APPEALS COMMITTED A
SERIOUS REVERSIBLE ERROR WHEN IT
DISREGARDED THE FACT THAT THE LEASE
CONTRACT GOVERNS THE RELATIONSHIP OF THE
PARTIES AND CONSEQUENTLY THE PARTIES MAY BE
CONSIDERED TO HAVE IMPLIEDLY WAIVED THE
APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE TO
THE INSTANT CASE.
III
ASSUMING ARGUENDO THAT THE PETITIONERS ARE
NOT BUILDERS IN GOOD FAITH, THE HONORABLE
COURT OF APPEALS COMMITTED A GRAVE
REVERSIBLE ERROR WHEN IT OVERLOOKED THE
FACT THAT RESPONDENT ALSO ACTED IN BAD FAITH
WHEN IT DID NOT HONOR AND INSTEAD BREACHED
THE LEASE CONTRACT BETWEEN THE PARTIES, THUS
BOTH PARTIES ACTED AS IF THEY ARE IN GOOD
FAITH.
IV
TO SANCTION THE APPLICATION OF ARTICLE 1678 OF
THE CIVIL CODE INSTEAD OF ARTICLE 448 OF THE
CIVIL CODE IN RELATION TO ARTICLE 546 OF THE
SAME CODE WOULD NOT ONLY WREAK HAVOC AND
CAUSE SUBSTANTIAL INJURY TO THE RIGHTS AND
INTERESTS OF PETITIONER PHILIPPINE VILLAGE
HOTEL, INC. WHILE RESPONDENT NAYONG PILIPINO
FOUNDATION, IN COMPARISON THERETO, WOULD
SUFFER ONLY SLIGHT OR INCONSEQUENTIAL INJURY
OR LOSS, BUT ALSO WOULD CONSTITUTE UNJUST
ENRICHMENT ON THE PART OF RESPONDENT AT
GREAT EXPENSE AND GRAVE PREJUDICE OF
PETITIONERS.
V Useful expenses shall be refunded only to the possessor in
THE HONORABLE COURT OF APPEALS COMMITTED A
GRAVE REVERSIBLE ERROR IN NOT HOLDING THAT
THE COURTS A QUO DID NOT ACQUIRE JURISDICTION
OVER THE UNLAWFUL DETAINER CASE FOR NON-
COMPLIANCE WITH JURISDICTIONAL REQUIREMENTS
DUE TO THE ABSENCE OF A NOTICE TO VACATE UPON
PETITIONERS.8
First, we settle the issue of jurisdiction. Petitioners argue that
the MeTC did not acquire jurisdiction to hear and decide the
ejectment case because they never received any demand
from respondent to pay rentals and vacate the premises,
since such demand is a jurisdictional requisite. We reiterate
the ruling of the MeTC, RTC and CA. Contrary to the claim
of petitioners, documentary evidence proved that a demand
letter dated March 26, 2001 was sent by respondent through
registered mail to petitioners, requesting them "to pay the
rental arrears or else it will be constrained to file the
appropriate legal action and possess the leased premises."
Further, petitioners’ argument that the demand letter is
"inadequate" because it contained no demand to vacate the
leased premises does not persuade. We have ruled that:
. . . . The word "vacate" is not a talismanic word that must be
employed in all notices. The alternatives in this case are
clear cut. The tenants must pay rentals which are fixed and
which became payable in the past, failing which they must
move out. There can be no other interpretation of the notice
given to them. Hence, when the petitioners demanded that
either he pays ₱18,000 in five days or a case of ejectment
would be filed against him, he was placed on notice to move
out if he does not pay. There was, in effect, a notice or
demand to vacate.9
In the case at bar, the language of the demand letter is plain
and simple: respondent demanded payment of the rental
arrears amounting to ₱26,183,225.14 within ten days from
receipt by petitioners, or respondent will be constrained to
file an appropriate legal action against petitioners to recover
the said amount. The demand letter further stated that
respondent will possess the leased premises in case of
petitioners’ failure to pay the rental arrears within ten days.
Thus, it is clear that the demand letter is intended as a notice
to petitioners to pay the rental arrears, and a notice to vacate
the premises in case of failure of petitioners to perform their
obligation to pay.
Second, we resolve the main issue of whether the rules on
accession, as found in Articles 448 and 546 of the Civil Code,
apply to the instant case.
Article 448 and Article 546 provide:
Art. 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 case, he shall pay reasonable rent, if the
owner of the land does not choose to appropriate the
building or trees after proper indemnity. The parties shall
agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof.
Art. 546. Necessary expenses shall be refunded to every
possessor; but only the possessor in good faith may retain
the thing until he has been reimbursed therefor.
good faith with the same right of retention, the person who
has defeated him in the possession having the option of
refunding the amount of the expenses or of paying the
increase in value which the thing may have acquired by
reason thereof.
We uphold the ruling of the CA.
The late Senator Arturo M. Tolentino, a leading expert in Civil
Law, explains:
This article [Article 448] is manifestly intended to apply only
to a case where one builds, plants, or sows on land in which
he believes himself to have a claim of title,10 and not to lands
where the only interest of the builder, planter or sower is that
of a holder, such as a tenant.11
In the case at bar, petitioners have no adverse claim or title
to the land. In fact, as lessees, they recognize that the
respondent is the owner of the land. What petitioners insist
is that because of the improvements, which are of
substantial value, that they have introduced on the leased
premises with the permission of respondent, they should be
considered builders in good faith who have the right to retain
possession of the property until reimbursement by
respondent.
We affirm the ruling of the CA that introduction of valuable
improvements on the leased premises does not give the
petitioners the right of retention and reimbursement which
rightfully belongs to a builder in good faith. Otherwise, such
a situation would allow the lessee to easily "improve" the
lessor out of its property. We reiterate the doctrine that a
lessee is neither a builder in good faith nor in bad faith 12 that
would call for the application of Articles 448 and 546 of the
Civil Code. His rights are governed by Article 1678 of the
Civil Code, which reads:
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.
unpaid rents, fees, charges, taxes, assessment and others
which the LESSOR may be entitled to.
Petitioners assert that respondent committed a breach of the
lease contract when it filed the ejectment suit against them.
However, we find nothing in the above quoted provision that
prohibits respondent to proceed the way it did in enforcing
its rights as lessor. It can rightfully file for ejectment to evict
petitioners, as it did before the court a quo.
IN VIEW WHEREOF, petitioners’ appeal is DENIED. The
October 4, 2005 Decision of the Court of Appeals in CA-G.R.
SP No. 74631 and its December 22, 2005 Resolution are
AFFIRMED. Costs against petitioners.
SO ORDERED.

With regard to ornamental expenses, the lessee shall not be

entitled to any reimbursement, but he may remove the
ornamental objects, provided no damage is caused to the
principal thing, and the lessor does not choose to retain them
by paying their value at the time the lease is extinguished.

Under Article 1678, the lessor has the option of paying one-
half of the value of the improvements which the lessee made
in good faith, which are suitable for the use for which the
lease is intended, and which have not altered the form and
substance of the land. On the other hand, the lessee may
remove the improvements should the lessor refuse to
reimburse.

Petitioners argue that to apply Article 1678 to their case

would result to sheer injustice, as it would amount to giving
away the hotel and its other structures at virtually bargain
prices. They allege that the value of the hotel and its
appurtenant facilities amounts to more than two billion
pesos, while the monetary claim of respondent against them
only amounts to a little more than twenty six-million pesos.
Thus, they contend that it is the lease contract that governs
the relationship of the parties, and consequently, the parties
may be considered to have impliedly waived the application
of Article 1678.

We cannot sustain this line of argument by petitioners. Basic

is the doctrine that laws are deemed incorporated in each
and every contract. Existing laws always form part of any
contract. Further, the lease contract in the case at bar shows
no special kind of agreement between the parties as to how
to proceed in cases of default or breach of the contract.
Petitioners maintain that the lease contract contains a
default provision which does not give respondent the right to
appropriate the improvements nor evict petitioners in cases
of cancellation or termination of the contract due to default
or breach of its terms. They cite paragraph 10 of the lease
contract, which provides that:

10. DEFAULT. - . . . Default shall automatically take place

upon the failure of the LESSEE to pay or perform its
obligation during the time fixed herein for such obligations
without necessity of demand, or, if no time is fixed, after 90
days from the receipt of notice or demand from the LESSOR.
..

In case of cancellation or termination of this contract due to

the default or breach of its terms, the LESSEE will pay all
reasonable attorney’s fees, costs and expenses of litigation
that may be incurred by the LESSOR in enforcing its rights
under this contract or any of its provisions, as well as all
G.R. No. 182754 June 29, 2015
SPOUSES CRISPIN AQUINO and TERESA V. AQUINO,
herein represented by their Attorney-in-Fact, AMADOR
D. LEDESMA, Petitioners,
vs.
SPOUSES EUSEBIO AGUILAR and JOSEFINA V.
AGUILAR, Respondents.
DECISION
SERENO, CJ:
In this Petition for Review on Certiorari1 filed under Rule 45
of the Rules of Court, Petitioner spouses Crispin and Teresa
Aquino (petitioners) assail the Court of Appeals (CA)
Decision dated 25 April 20082 in CA-GR SP No. 92778. The
CA modified the Decisions of both the Metropolitan Trial
Court (MeTC) and the Regional Trial Court (RTC). The CA
ruled that although respondent spouses Eusebio and
Josefina Aguilar (respondents) cannot be considered
builders in good faith, they should still be reimbursed for the
improvements they have introduced on petitioners'
property.3
THE FACTS
Teresa Vela Aquino (Teresa) and her husband, Crispin
Aquino, are the owners of a house and lot located at No.
6948, Rosal Street, Guadalupe
Since 1981, this property has been occupied by Teresa's
sister, Josefina Vela Aguilar; Josefina's spouse Eusebio;
and their family.5 It appears from the record that respondents
stayed on the property with the consent and approval of
petitioners, who were then residing in the United States.6
While respondents were in possession of the property, the
house previously constructed therein was demolished, and
a three-storey building built in its place.7 Respondents
occupied half of the third floor of this new building)for the
next 20 years without payment of rental.8
On 22 September 2003, petitioners sent a letter to
respondents informing them that an immediate family
member needed to use the premises and demanding the
surrender of the property within 10 days from
notice.9 Respondents failed to heed this demand, prompting
petitioners to file a Complaint for ejectment against them
before the office of the barangay captain of Guadalupe
Viejo.10 The parties attempted to reach an amicable
settlement in accordance with Section 412 of the Local
Government Code, but these efforts proved unsuccessful.11
On 19 November 2003, petitioner spouses Aquino filed a
Complaint12 with the MeTC of Makati City praying that
respondents be ordered to (a) vacate the portion of the
building they were then occupying; and (b) pay petitioner a
reasonable amount for the use and enjoyment of the
premises from the time the formal demand to vacate was
made.13
In their Answer with Counterclaim,14 respondents claimed
that they had contributed to the improvement of the property
and the construction of the building, both in terms of money
and management/supervision services. Petitioners
purportedly agreed to let them contribute to the costs of
construction in exchange for the exclusive use of a portion
of the building. Respondents averred:
2.3 That the construction of the three (3) storey
building was also at the uncompensated supervision
of defendant Eusebio Aguilar, of which only r 2
Million was spent by plaintiffs while defendants
spent around r 1 Million as contribution to the
construction cost. It was defendants who introduced
improvements on subject lot because at the time
plaintiffs bought the property it was marshy which
was filled up by defendants (sic) truck load with
builders, adobe and scumbro that elevated the
ground;
2.4 The original agreement was for my client to
contribute his share so that they will have the portion
of the subject building for their own exclusive use. It
turned out later that the agreement they had was
disowned by plaintiffs when they saw the totality of
the building constructed thereon coupled by the fact,
that the value of the lot has tremendously
appreciated due to the commercialization of the
vicinity which will command higher price and windfall
profits should plaintiffs sell the property which they
are now contemplating on (sic);
2.5 The portion which plaintiffs want defendants to
vacate is a portion which the latter built with their
own money upon your clients agreement and
consent whom they built in good faith knowing and
hoping that later on the same will be theirs
exclusively. It was never an act of generosity,
liberality and tolerance. Conversely, it was one of
the implied co-ownership or partnership, because
aside from the fact that defendants, who were then
peacefully residing in Laguna, made unquantifiable
contributions in terms of money and services arising
from his uncompensated management and
supervision over the entire subject property while
plaintiffs are abroad. By legal implications he is an
industrial partner responsible for the development
and improvements of the subject property. His
contribution was never without the consent of
plaintiffs. Whatever contribution defendants
introduced over the said property was made and
built in good faith;15
Since they were allegedly co-owners of the building and
builders in good faith, respondents claimed that they had the
right to be compensated for the current value of their
contribution.16 Accordingly, they prayed for the dismissal of
the Complaint and the award of ₱5 million as compensation
for their contributions to the construction of the building, as
well as moral damages, attorney's fees and costs of
litigation.17
THE RULING OF THE METC
In a Decision18 dated 12 November 2004, the MeTC ruled in
favor of petitioners, stating that they had the right to enjoy
possession of the property as the registered owners
thereof.19 Since the case was merely one for ejectment, the
court held that it was no longer proper to resolve
respondents' claim of co-ownership over the building.20
The MeTC also declared that respondents were builders in
bad faith who were not entitled to recover their purported
expenses for the construction of the building.21 It
emphasized that their occupation of the property was by
mere tolerance of petitioners and, as such, could be
terminated at any time.22 The court further noted that in a
letter dated 15 July 1983, petitioners had already asked
respondents to refrain from constructing improvements on
the property because it was intended to be sold.23
The dispositive portion of the MeTC Decision, which ordered
respondents to vacate the property, reads:
WHEREFORE, premises considered, judgment is hereby
rendered ordering defendants Eusebio & Josefina Aguilar
and all persons claiming rights under them to immediately
vacate the subject property, and deliver peaceful possession
thereof to the plaintiffs. Defendants are likewise ordered to
pay plaintiffs ₱7,000.00 monthly rental commencing 22
October 2003 until such time that defendant finally vacate
the premises, ₱10,000.00 as and by way of attorney's fees,
and the cost of suit.24
On 14 September 2005, respondents appealed the MeTC's
Decision to the RTC.25
THE RULING OF THE RTC
In their Memorandum on Appeal26 before the R TC,
respondents assailed the MeTC's finding that petitioners, as
the registered owners of the land, were also the owners of
the improvement constructed thereon.27 Respondents
asserted that they were co-owners of the building since they
built a portion thereof using their own funds, as evidenced
by various receipts they presented before the MeTC.28
Respondents also maintained that they were builders in
good faith. They pointed out that petitioners never objected
to the construction of the improvement on their
property.29 According to respondents, petitioners' letter
dated 15 July 1983 was written at a time when an old
dilapidated house was still standing on the
property.30 Subsequently however, the house was
demolished and the new building was constructed thereon
by respondents, with petitioners' knowledge and consent.31
In a Decision32 dated 3 January 2006, the RTC denied the
appeal and affirmed the MeTC's Decision. According to the
court, respondents did not become co-owners of the
property although they may have contributed to the
construction of the building thereon. 33 Hence, their stay in
the premises remained to be by mere tolerance of the
petitioners.34
The RTC also ruled that respondents cannot be considered
builders in good faith.35 The court found that as early as
1983, petitioners had informed respondents of the intention
to eventually dispose of the property.36 The RTC concluded
that petitioners never consented to the construction of any
form of structure on the property.37 Since respondents
participated in the construction of the building even after they
had been notified that their occupation may be terminated
anytime, the R TC ruled that they did not build the structures
in good faith.38 The RTC likewise noted that "the
improvements in question as well as other personal
belongings of the appellants were removed from the
premises through a writ of demolition, and these properties
are now in their possession."39
THE RULING OF THE CA
Aggrieved by the RTC Decision, respondents elevated the
matter to the CA. They reiterated that they owned one-half
of the third floor of the building on the property, having spent
their own funds for the construction thereof. Respondents
also asserted that because they built that portion in good
faith, with no objection from petitioners, they were entitled to
reimbursement of all necessary and useful expenses
incurred in the construction.
On 25 April 2008, the CA affirmed the conclusion of the lower
courts that respondents could not be considered co-owners
of the property or builders in good faith.40 According to the
appellate court, respondents were aware that their right to
possess the property had a limitation, because they were not
the owners thereof. They knew that their occupation of the
building was by mere tolerance or permission of petitioners,
who were the registered owners of the property. The CA
likewise noted that respondents failed to prove the alleged
agreement between the parties with respect to the
ownership of one-half of the third floor of the improvement.
There being no contract between them, respondents are
necessarily bound to vacate the property upon
demand.41 The CA ruled:
The Supreme Court has consistently held 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. Based on the
principles enunciated in Calubayan v. Pascual, the status of
petitioners is analogous to that of a lessee or a tenant whose
term of lease has expired but whose occupancy continued
by tolerance of the owner. In such a case, the unlawful
deprivation or withholding of possession is to be reckoned
from the date of the demand to vacate.42 (Citations omitted)
Nevertheless, the CA declared that respondents should be
reimbursed for the necessary and useful expenses they had
introduced on petitioners' property, pursuant to Articles 1678
and 548 of the Civil Code.43 The dispositive portion of the CA
Decision dated 25 April 200844 reads:
WHEREFORE, the assailed Decision is AFFIRMED with the
following MODIFICATIONS:
1. The case is REMANDED to the court of origin for
further proceedings to determine the facts essential
to the application of Article 1678 and Article 546 of
the Civil Code, specifically on the following matters:
a) To determine the cost of necessary
expenses incurred by petitioners during
their period of possession.
b) To determine the cost of useful
improvements introduced by petitioners in
the construction of the building.
2. After said amounts shall have been determined
by competent evidence:
a) Respondents Aquino are ordered to pay
petitioners the costs of necessary
improvements incurred during the period of
their occupation.
b) Petitioners Aguilar are to be reimbursed
one half (1/2) of the amount they expended
on the construction of the building should
respondents decided to appropriate the
same. Should respondents refuse to
reimburse the costs of the improvements,
petitioners may remove the improvements
even though the principal thing may suffer
damage thereby.
c) In both instances, petitioners shall have
no right of retention over the subject
premises.
d) In any event, petitioners shall pay
respondents the amount of Php7,000.00 as
monthly rental commencing 22 October
2003 until such time that petitioners finally
vacate the premises. No pronouncement as
to costs.
SO ORDERED.45
Respondents no longer appealed the Decision of the CA.
This time, petitioners elevated the matter to this Court
through the instant Petition for Review46 under Rule 45 of the
Rules of Court.
PROCEEDINGS BEFORE THIS COURT
In their Petition, petitioners allege that the CA seriously erred
in remanding the case to the court of origin for the purpose
of ascertaining the right of respondents to be reimbursed for
the improvements introduced on the property.47 They
emphasize that respondents were builders in bad faith, and,
as such, are not entitled to reimbursement under Articles
449, 450 and 451 of the Civil Code.
In theirComment,48 respondents assert that the CA correctly
ruled that their status is akin to that of a lessee or tenant
whose term of lease has expired, but whose occupancy
continues by virtue of the tolerance of the owner. They aver
that the CA properly upheld their entitlement to
reimbursement pursuant to Articles 167849 and 54650 of the
Civil Code.51
In their Reply,52 petitioners argue against supposed
improvements constructed by respondents from 1999 to
2003 amounting to ₱995,995.94. Petitioners say this claim
is highly ridiculous and unbelievable.53
OUR RULING
Since respondents no longer appealed the Decision of the
CA,54 they are considered bound by its findings and
conclusions. These include its affirmation of the earlier
findings of the MeTC and the RTC that respondents cannot
be considered builders in good faith:
Both the MeTC and the RTC have rejected the idea that
petitioners are builders in good faith. We agree. The
resolution of the issues at bar calls for the application of the
rules on accession under the Civil Code. The term "builder
in good faith" as used in reference to Article 448 of the Civil
Code, refers to one who, not being the owner of the land,
builds on that land believing himself to be its owner and
unaware of the land, builds on that land, believing himself to
be its owner and unaware of the defect in h is title or mode
of acquisition. 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.
In the instant case, the Spouses Aguilar cannot be
considered as builders in good faith on account of their
admission that the subject lot belonged to the Spouses
Aquino when they constructed the building. At the onset,
petitioners were aware of a flaw in their title and a limit to
their right to possess the property. By law, one is considered
in good faith if he is not aware that there exists in his title or
mode of acquisition any flaw which invalidates it.55
Respondents are deemed to have acquiesced to the
foregoing findings when they failed to appeal the CA
Decision. A party who does not appeal from a judgment can
no longer seek the modification or reversal
thereof.56 Accordingly, the only issue left for this Court to
determine is that which is now raised by petitioners - whether
the CA erred in remanding this case to the court of origin for
the determination of the necessary and useful expenses to
be reimbursed to respondents pursuant to Articles 1678 and
546 of the Civil Code.
We resolve to PARTLY GRANT the Petition and modify the
ruling of the CA.
Article 1678 is not applicable to this case.
In its Decision, the CA found that respondents were
occupants of the property by mere tolerance or generosity of
petitioners and were bound by an implied promise to vacate
the premises upon demand.57
Based on this finding, the CA held that "the status of
petitioners is analogous to that of a lessee or a tenant whose
term of lease has expired but whose occupancy continued
by tolerance of owner"58 pursuant to this Court's ruling in
Calubayan v. Pascual,59 As a result, the CA concluded that
Articles 1678 and 546 of the Civil Code must be applied to
allow respondents to be reimbursed for their necessary and
useful expenses.
We disagree. By its express provision, Article 1678 of the
Civil Code applies only to lessees who build useful
improvements on the leased property. It does not apply to
those who possess property by mere tolerance of the
owners, without a contractual right.
A careful reading of the statement made by this Court in
Calubayan would show that it did not, as it could not, modify
the express provision in Article 1678, but only noted an
"analogous" situation. According to the Court, the analogy
between a tenant whose term of lease has expired and a
person who occupies the land of another at the latter's
tolerance lies in their implied obligation to vacate the
premises upon demand of the owner. The Court stated:
To begin with, it would appear that although the defendant is
regarded by the plaintiffs as a "squatter" his occupancy of
the questioned premises had been permitted or tolerated
even before the Philippine Realty Corporation sold the lots
to the plaintiffs. Otherwise, the latter would not have found
him on the premises. It may be true that upon their
acquisition of the parcels of land in 1957, plaintiffs notified
and .requested defendant to see them, but despite
defendant's failure to heed these requests, plaintiffs did not
choose to bring an action in court but suffered the defendant
instead to remain in the premises for almost six years. Only
on February 2, 1963, did the plaintiffs for the first time notify
the defendant that "they now need the two parcels of land in
question" and requested him to vacate the same. In allowing
several years to pass without requiring the occupant to
vacate the premises nor filing an action to eject him, plaintiffs
have acquiesced to defendant's possession and use of the
premises. It has been held that a person who occupies the
land of another at the latter's tolerance or permission, without
any contract between them, is necessarily bound by an
implied promise that he will vacate upon demand, failing
which a summary action for ejectment is the proper remedy
against them. The status of defendant is analogous to that
of a lessee or tenant whose term of lease has expired but
whose occupancy continued by tolerance of the owner. In
such a case, the unlawful deprivation or withholding of
possession is to be counted from the date of the demand to
vacate.60(Emphasis in the original)
It is clear from the above that Calubayan is not sufficient
basis to confer the status and rights of a lessee on those who
occupy property by mere tolerance of the owner.
In this case, there is absolutely no evidence of any lease
contract between the parties. In fact, respondents
themselves never alleged that they were lessees of the lot
or the building in question. Quite the opposite, they insisted
that they were co-owners of the building and builders in good
faith under Article 448 of the Civil Code. For that reason,
respondents argue that it was erroneous for the CA to
consider them as lessees and to determine their rights in
accordance with Article 1678.
As builders in bad faith, respondents are
not entitled to reimbursement of useful expenses.
Furthermore, even if we were to subscribe to the CA' s theory
that the situation of respondents is "analogous to that of a
lessee or tenant whose term of lease has expired but whose
occupancy continued by tolerance," the absence of good
faith on their part prevents them from invoking the provisions
of Article 1678.
As discussed above, the MeTC, the RTC and the CA all
rejected the claims of respondents that they were builders in
good faith. This pronouncement is considered conclusive
upon this Court, in view of respondents' failure to appeal
from the CA decision. This rule bars the application of Article
1678 as well as Articles 448 and 576 of the Civil Code and
all other provisions requiring good faith on the part of the
builder.
We are aware that in some instances, this Court has allowed
the application of Article 448 to a builder who has
constructed improvements on the land of another with the
consent of the owner.61 In those cases, the Court found that
the owners knew and approved of the construction of
improvements on the property. Hence, we ruled therein that
the structures were built in good faith, even though the
builders knew that they were constructing the improvement
on land owned by another.
Although the factual circumstances in the instant case are
somewhat similar, there is one crucial factor that warrants a
departure from the above-described rulings: the presence of
evidence that petitioners prohibited respondents from
building their own structure on a portion of the property.
Based on the findings of fact of the MeTC and the RTC,
petitioners had already warned respondents not to build a
structure on the property as early as 1983. The MeTC
explained: Likewise, in a letter dated 15 July 1983 sent by
plaintiffs to the defendants marked as Exhibit "2" of
defendants' Position Paper, Teresa Aquino made known to
the defendants not to construct on the premises as she
planned to sell the same when the value of the property shall
increase (sic). Defendants are undoubtedly builders in bad
faith for despite the prohibition made upon them, they
continued their construction activities upon respondents'
property.62
This ruling was affirmed by the R TC in its Decision dated 3
January 2006, which reads:
An examination of appellants' Exhibit "2" which is a letter
dated July 15, 1983, sent to appellant Josefina Aguilar, the
sister of appellee Teresa Aquino, abundantly shows that
their occupancy of the premises in question is by tolerance
of the appellees. Thus, the letter expressly states that the
appellants are advised not to put up a shop, as the appellees
had plan (sic) then of disposing the property (the land) in
question for a reasonable profit after a period of three or four
years, thereby placing on notice them (appellants) that their
possession of the said property is temporary in nature and
by mere generosity of the appellees, they being sisters.
The letter likewise advised them to apply for a housing
project so that by the time the property in question is sold,
they have a place to transfer to. All these undisputed
antecedents which can be considered as judicially admitted
by the appellants being their own evidence marked as
Exhibit "2", coupled with the fact that since the time they
occupied the premises in 1983 up to the time when the
complaint was filed, they were not asked to pay any monthly
rental for the use, enjoyment and occupancy of the said
property, ineluctably established the fact that their
possession of the said property is by mere tolerance of the
appellees.63
xxxx
Their contention that pursuant to Article 453 of the Civil
Code, they should be considered builders in good faith even
if they have acted in bad faith, since their act of introducing
improvements to one-half of the third floor of the three storey
building was with knowledge and without opposition on the
part of the appellants, cannot be sustained, principally on the
ground that as stated earlier, their Exhibit "2" is very limpid
on the act that they were already forewarned as early as
1983 not to introduce any improvements thereon as the
property is slated to be sold as it was only bought for
investment purposes. The fact that the appellees did not
thereafter remind them of this, is of no moment, as this letter
was not likewise withdrawn by a subsequent one or modified
by the appellees.64
We find no reason to depart from the conclusions of the trial
courts. Respondents were evidently prohibited by petitioners
from building improvements on the land because the latter
had every intention of selling it. That this sale did not
materialize is irrelevant. What is crucial is that petitioners left
respondents clear instructions not to build on the land.
We also agree with the RTC's ruling that the lack of constant
reminders from petitioners about the "prohibition" expressed
in the 1983 letter was immaterial. The prohibition is
considered extant and continuing since there is no evidence
that this letter was ever withdrawn or modified. Moreover, no
evidence was presented to show that petitioners were aware
of what was happening: that respondents were constructing
a portion of the building with their own funds and for their
exclusive use and ownership. Neither were respondents
able to present evidence that petitioners had agreed to share
the expenses with them, or that the former had given
consent to the latter's contribution, if any.
In view of the foregoing, this Court's previous rulings on
Article 448 cannot be applied to this case. Hence, we hold
that petitioners, as the owners of the land, have the right to
appropriate what has been built on the property, without any
obligation to pay indemnity therefor;65 and that respondents
have no right to a refund of any improvement built
therein,66 pursuant to Articles 449 and 450 of the Civil Code:
Art. 449. He who builds, plants or sows in bad faith on the
land of another, loses what is built, planted or sown without
right of indemnity.
Art. 450. The owner of the land on which anything has been
built, planted or sown in bad faith may demand the
demolition of the work, or that the planting or sowing be
removed, in order to replace things in their former condition
at the expense of the person who built, planted or sowed; or
he may compel the builder or planter to pay the price of the
land, and the sower the proper rent.
Art. 451. In the cases of the two preceding articles, the
landowner is entitled to damages from the builder, planter or
sower.
Respondents may recover the
necessary expenses incurred for the
preservation of the property but
without the right of retention.
Pursuant to Article 452 of the Civil Code, a builder in bad
faith is entitled to recoup the necessary expenses incurred
for the preservation of the land.67 The CA correctly ruled that
respondents in this case are similarly entitled to this
reimbursement. However, being builders in bad faith, they
do not have the right of retention over the premises.68
While the evidence before this Court does not establish the
amount of necessary expenses incurred by respondents
during their stay in the property, we note that even
petitioners do not deny that such expenses were incurred. In
fact, in a letter dated 15 July 1983, petitioners acknowledged
that respondents had spent personal money for the
maintenance of the property. Petitioners even promised to
reimburse them for those expenses.69 In this light, we find it
proper to order the remand of this case to the court a quo for
the purpose of determining the amount of necessary
expenses to be reimbursed to respondents.

With respect to the award of actual damages to petitioners,

we find no reason to reverse or modify the ruling of the
CA.1âwphi1 This Court has consistently held that those who
occupy the land of another at the latter's tolerance or
permission, even without any contract between them, are
necessarily bound by an implied promise that the occupants
would vacate the property upon demand.70 Failure to comply
with this demand renders the possession unlawful and actual
damages may be awarded to the owner from the date of the
demand to vacate71 until the actual surrender of the property.

Accordingly, we affirm the CA's award of actual damages to

petitioners in the amount of ₱7 ,000 per month from the date
of demand (22 October 2003) until the subject properties are
vacated. This amount represents a reasonable
compensation for the use and occupation of respondents'
property72 as determined by the RTC and the MeTC.

As to petitioners' prayer for attorney's fees, we find no cogent

basis for the award. WHEREFORE, the Petition is PARTLY
GRANTED.

The Court of Appeals Decision dated 25 April 2008 is

REVERSED insofar as it ordered: (a) the reimbursement of
the useful expenses incurred by respondents while in
possession of the property; and (b) the determination of the
cost of these useful improvements by the court of origin. The
rest of the Decision of the Court of Appeals is hereby
AFFIRMED.

Accordingly, this case is REMANDED to the court of origin

for the determination of the necessary expenses of
preservation of the land, if any, incurred by respondent
spouses Eusebio and Josefina Aguilar while they were in
possession of the property, which expenses shall be
reimbursed to them by petitioner spouses Crispin and
Teresa Aquino.

On the other hand, respondents and all persons claiming

rights under them are ordered, upon finality of this Decision
without awaiting the resolution of the matter of necessary
expenses by the trial court, to immediately VACATE the
subject property and DELIVER its peaceful possession to
petitioners. Respondents are likewise ordered to PAY
petitioners ₱7 ,000 as monthly rental plus interest thereon at
the rate of 6% per annum, to be computed from 22 October
2003 until the finality of this Decision.

No pronouncement as to costs.

SO ORDERED.
G.R. No. 146259 September 13, 2007
FLORENTINO, TROADIO and PEDRO, all surnamed
OCHOA, petitioners,
vs.
MAURO APETA and APOLONIA
ALMAZAN, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Challenged in this Petition for Review on Certiorari under
Rule 45 of the 1997 Rules of Civil Procedure, as amended,
are the Decision1 dated September 8, 2000 and
Resolution2 dated November 20, 2000 of the Court of
Appeals in CA G.R. CV No. 56109.
The facts are:
Since 1910, the above-named petitioners and their
predecessors-in-interest have been occupying Lot No. 1580
consisting of 886 square meters situated in Malaban, Biñan,
Laguna. The lot is covered by Transfer Certificate of Title
(TCT) No. T-40624 of the Registry of Deeds of that province.
They built their houses and apartment building thereon.
Sometime in May 10, 1982, Mauro Apeta and Apolonia
Almazan, respondents, found that they are the true owners
of Lot No. 1580 being occupied by petitioners.
On January 22, 1988, respondents filed with the Regional
Trial Court (RTC), Branch 24, Biñan, Laguna a complaint for
recovery of possession and damages against petitioners,
docketed as Civil Case No. B-2777. Respondents alleged in
the main that they are the lawful owners of Lot No. 1580
covered by Certificate of Title No. RT-599 (10731) issued by
the Registry of Deeds of Laguna.
In their answer to the complaint, petitioners specifically
denied the allegations in the complaint, contending that they
are the owners of Lot No. 1580 as shown by TCT No. T-
40624 issued by the Registry of Deeds of Laguna.
During the proceedings before the RTC, upon agreement of
the parties, the trial judge commissioned Engr. Romulo
Unciano of the Bureau of Lands of Region IV to conduct a
resurvey of the disputed property. The result of the resurvey
(approved by the Bureau of Lands) shows that Lot No. 1580,
occupied by petitioners, was registered in the name of
Margarita Almada, respondents’ predecessor-in-interest;
and that the lot covered by TCT No. T-40624 is not Lot No.
1580, but Lot No. 1581 registered in the name of Servillano
Ochoa, petitioners’ predecessor-in-interest. This lot has
been occupied by Isidro Jasmin.
On March 24, 1995, the trial court rendered a Decision in
favor of respondents, thus:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the plaintiffs and against
the defendants as follows:
1. Declaring plaintiffs as the true and lawful owners
of Lot 1580 of the Biñan Estate Subdivision covered
by Transfer Certificate of Title No. RT-599 (10731)
and declaring the defendants without right
whatsoever to continue in possession thereof.
2. Ordering the defendants and all those acting in
their behalf to deliver peacefully the physical
possession of Lot 1580 to the plaintiffs and to
remove their houses and apartment building
thereon.
3. Ordering the defendants to pay, jointly and
severally to plaintiffs the amount of P30,000 as and
for attorney’s fees and litigation expenses.
SO ORDERED.3
On appeal, the Court of Appeals, in its Decision dated
September 8, 2000, affirmed the judgment of the RTC.
Petitioners filed a motion for reconsideration, but it was
denied by the appellate court in its Resolution4 dated
November 20, 2000.
Hence, the instant petition.
Petitioners contend that Lot No. 1580 belongs to them and
that respondents’ action is barred by prescription.
Petitioners’ contention lacks merit.
On petitioners’ claim that they are the owners of Lot No.
1580, it is a well-established principle that in an appeal viaa
petition for review on certiorari, only questions of law may be
raised. Here, the issue posed by petitioners requires us to
weigh anew the evidence submitted by the parties already
passed upon by the Court of Appeals. It is basic that this
Court is not a trier of facts. Thus, it may not review the
findings of the Court of Appeals except, among others: (a)
when its factual findings and those of the trial court are
contradictory; (b) when its inference is manifestly mistaken
or absurd; (c) when its judgment is premised on its
misapprehension of the facts; and (d) when it failed to
resolve relevant facts which, if properly considered, would
justify a modification or reversal of the decision of the
appellate court.5 The issue raised by petitioners that they are
the actual owners of Lot No. 1580 is factual in nature and
requires a review of the pieces of evidence presented by the
parties. Thus, we can no longer pass upon and evaluate the
lower courts’ finding that based on the evidence presented
before them, specifically the result of the resurvey conducted
by Engr. Romulo Unciano, respondents are "the true and
lawful owners of Lot 1580."
Anent petitioners’ second contention that respondents’
action has been barred by prescription, suffice it to state that
no title to registered land in derogation to that of the
registered owner shall be acquired by prescription or
adverse possession.6 Neither can prescription be allowed
against the hereditary successors of the registered owner,
because they step into the shoes of the decedent and are
merely the continuation of the personality of their
predecessor-in-interest.7
Verily, the Court of Appeals did not err when it ruled that
respondents are the true and lawful owners of Lot No. 1580.
Hence, they "should now be placed in possession thereof."
Parenthetically, considering that petitioners and their
predecessors-in-interest have built their houses and
apartment building on Lot No. 1580, should respondents be
allowed to take possession of those improvements? In order
to settle this matter, we should determine whether petitioners
were builders in good faith.
Good faith is an intangible and abstract quality with no
technical meaning or statutory definition, 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. It implies honesty of
intention, and freedom from knowledge of circumstances
which ought to put the holder upon inquiry.8 The essence of and their predecessors-in-interest on Lot No. 1580; or to
good faith lies in an honest belief in the validity of one’s right, oblige petitioners to pay the price of the lot in an amount not
ignorance of a superior claim and absence of intention to more than the value of the said improvements.
overreach another.9 Applied to possession, one is
considered in good faith if he is not aware that there exists SO ORDERED.
in his title or mode of acquisition any flaw which invalidates
it.10

Using the above parameters, we are convinced that

petitioners and their predecessors-in-interest were in good
faith when they built their houses and apartment building on
Lot No. 1580 since they were convinced it was covered by
their TCT No. T-40624.

The following provisions of the Civil Code are relevant:

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 case, he shall pay
reasonable rent, if the owner of the land does not
choose to appropriate the building or trees after
proper indemnity. The parties shall agree upon the
terms of the lease and in case of disagreement, the
court shall fix the terms thereof.

Article 546. Necessary expenses shall be refunded

to every possessor; but only the possessor in good
faith may retain the thing until he has been
reimbursed therefor.

Useful expenses shall be refunded only to the

possessor in good faith with the same right of
retention, the person who has defeated him in the
possession having the option of refunding the
amount of the expenses or of paying the increase in
value which the thing may have acquired by reason
thereof.

Article 548. Expense for pure luxury or mere

pleasure shall not be refunded to the possessor in
good faith; but he may remove the ornaments with
which he has embellished the principal thing if it
suffers no injury thereby, and if his successors in the
possession do not prefer to refund the amount
expended.

Under the foregoing provisions, the landowner can make a

choice - either by 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 that the
accessory follows the principal and not the other way
around. He must choose only one.

Following the above provisions, respondents, as owners of

Lot No. 1580, may choose between appropriating as their
own the houses and apartment building constructed thereon
by petitioners and their predecessors-in-interest by paying
the proper indemnity or value; or obliging petitioners to pay
the price of Lot No. 1580 which is not more than that of the
improvements.

WHEREFORE, we DENY the petition. The assailed

Decision and Resolution of the Court of Appeals in CA G.R.
CV No. 56109 are AFFIRMED with MODIFICATION in the
sense that respondents have the option to pay for the
houses and apartment building constructed by petitioners
 RODOLFO V. ROSALES, G.R. No. 157044
(represented by his heirs, in the same subdivision as a replacement thereof.[6] In the
Rodolfo, Jr., Romeo Allan, Present: alternative, Villegas proposed to pay the purchase price of
Lillian Rhodora, Roy Victor,
Roger Lyle and Alexander PANGANIBAN, J., petitioners lot with legal interest.[7] Both proposals were,
Nicolai, all surnamed Rosales) Chairman, however, rejected by petitioners[8] whose counsel, by
and LILY ROSQUETA- SANDOVAL-
ROSALES, GUTIERREZ, letter[9] of August 24, 1995, directed Castelltort to stop the
Petitione CORONA, construction of and demolish his house and any other
rs, CARPIO
MORALES, and structure he may have built thereon, and desist from entering
- versus - GARCIA, JJ.
the lot.
MIGUEL CASTELLTORT, Petitioners subsequently filed on September 1, 1995
JUDITH CASTELLTORT, and
LINA LOPEZ-VILLEGAS, a complaint[10] for recovery of possession and damages with
assisted by her Attorney-in- prayer for the issuance of a restraining order and preliminary
Fact, Rene Villegas,
Respondents. injunction against spouses-respondents Miguel and Judith
Castelltort before the RTC of Calamba, Laguna, docketed as
Promulgated:
Civil Case No. 2229-95-C.

October 5, 2005
xx - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - To the complaint, the Castelltorts claimed in their
- - - xx
Answer with Counterclaim [11] that they were builders in good
DECISION faith.

Lina, represented by her son-attorney-in-fact

CARPIO MORALES, J.:
Villegas, soon filed a Motion for Intervention[12] before the
The present petition for review on certiorari assails
RTC which was granted by Order[13] of December 19, 1995.
the October 2, 2002 Decision[1] and February 6, 2003
Resolution[2] of the Court of Appeals (CA) in CA G.R. CV No.
In her Answer to the complaint,[14] Lina alleged that
64046 and seeks to reinstate the April 21, 1999 Decision[3] of
the Castelltorts acted in good faith in constructing the house
the Regional Trial Court (RTC) of Calamba, Laguna, Branch
on petitioners lot as they in fact consulted her before
34 in Civil Case No. 2229-95-C.
commencing any construction thereon, they having relied on
Spouses-petitioners Rodolfo V. Rosales and Lily
the technical description of the lot sold to them, Lot 16, which
Rosqueta-Rosales (petitioners) are the registered owners of
was verified by her officially designated geodetic engineer.
a parcel of land with an area of approximately 315 square
meters, covered by Transfer Certificate of Title (TCT) No.
Nevertheless, Lina proposed to give petitioners a lot
36856[4] and designated as Lot 17, Block 1 of Subdivision
containing an area of 536 square meters together with the
Plan LRC Psd-55244 situated in Los Baos, Laguna.
house and duplex structure built thereon or, if petitioners
choose, to encumber the 536 square meter lot as collateral
On August 16, 1995, petitioners discovered that a
to get immediate cash through a financing scheme in order
house was being constructed on their lot, without their
to compensate them for the lot in question.[15]
knowledge and consent, by respondent Miguel Castelltort
(Castelltort).[5]
Ruling out good faith, the RTC, by Decision of April
21, 1999, found for petitioners in this wise:
It turned out that respondents Castelltort and his wife
Judith had purchased a lot, Lot 16 of the same Subdivision In the instant case, there is no well-
founded belief of ownership by the
Plan, from respondent Lina Lopez-Villegas (Lina) through defendants of the land upon which they built
their house. The title or mode of acquisition
her son-attorney-in-fact Rene Villegas (Villegas) but that
upon which they based their belief of such
after a survey thereof by geodetic engineer Augusto Rivera, ownership stemmed from a Contract to Sell
(Exhibit P) of which they were not even
he pointed to Lot 17 as the Lot 16 the Castelltorts parties, the designated buyer being
purchased. Elizabeth Yson Cruz and the sale even
subjected to the judicial reconstitution of the
title. And by their own actions, particularly
Negotiations for the settlement of the case thus defendant Miguel Castelltort, defendants
betrayed this very belief in their ownership
began, with Villegas offering a larger lot near petitioners lot when realizing the inutility of anchoring their
 ownership on the basis of the Contract of
Sale, defendant Miguel Castelltort in his
testimony declared Elizabeth Yson Cruz as
his wife (tsn, pp. 7-8, March 24, 1998)
despite an admission in their answer that
they are the spouses named as defendants
(tsn, p. 8, January 12, 1998) and which
declaration is an utter falsehood as the
Contract to Sell itself indicates the civil
status of said Elizabeth Yson Cruz to be
single.
Even if we are to concede that
defendants built their house in good faith on
account of the representation of attorney-in-
fact Rene Villegas, their failure to comply
with the requirements of the National
Building Code, particularly the procurement
of a building permit, stained such good faith
and belief.
xxx
From any and all indications,
this deliberate breach is an unmitigated
manifestation of bad faith. And from the
evidence thus adduced, we hold that
defendants and the intervenor were
equally guilty of negligence which led to the
construction of the defendants house on
plaintiffs property and therefore jointly and
severally liable for all the damages suffered
by the plaintiffs.[16] (Underscoring supplied)
The dispositive portion of the trial courts Decision
reads, quoted verbatim:
ACCORDINGLY, in view of all the
foregoing, judgment is hereby rendered in
favor of plaintiffs and against the defendants,
ordering the latter to surrender the
possession of the property covered by TCT
No. 36856 of the Register of Deeds of
Laguna including any and all improvements
built thereon to the plaintiffs.
Defendants and intervenors are
likewise jointly and severally directed to pay
to plaintiffs the following damages:
a) TWO
THOUSAND (P2,000.00)
PESOS per month from
February 1995 by way of
reasonable compensation for
the use of plaintiffs property
until the surrender of the same;
b) FIFTY
THOUSAND (P50,000.00)
PESOS by way of moral
damages;
c) THIRTY
THOUSAND (P30,000.00)
PESOS as exemplary
damages;
d) TWENTY
THOUSAND (P20,000.00)
PESOS as attorneys fees and
cost of suit.
The counterclaim interposed by the
defendants in their responsive pleading is
hereby dismissed for lack of merit.
SO ORDERED.[17]
Respondents thereupon filed their respective
appeals with the CA.
Petitioner Rodolfo Rosales, in the meantime, died on
December 7, 2001. His heirs Rodolfo, Jr., Romeo Allan,
Lillian Rhodora, Roy Victor, Roger Lyle and Alexander
Nicolai, all surnamed Rosales, filed their Appearance[18] as
his substitute.
By Decision of October 2, 2002, the CA granted the
appeal and set aside the April 21, 1999 RTC Decision. The
dispositive portion of the Decision reads, quoted verbatim:
WHEREFORE, premises
considered, the instant appeal is
hereby GRANTED and the assailed
decision of the court a quo REVERSED
AND SET ASIDE. In accordance with the
cases of Technogas Philippines
Manufacturing Corp. vs. Court of
Appeals and Depra vs. Dumlao, applying
Article 448 of the Civil Code, this case
is REMANDED to the Regional Trial Court
of Calamba, Laguna, Branch 34, for further
proceedings, as follows:
1. to determine the present fair
price of appellees 315 square meter area of
land and the amount of the expenses
actually spent by the appellants for building
the house as of 21 August 1995, which is
the time they were notified of appellees
rightful claim over Lot 17.
2. to order the appellees to exercise
their option under the law (Article 448, Civil
Code), whether to appropriate the house as
their own by paying to the appellants the
amount of the expenses spent for the house
as determined by the court a quo in
accordance with the limitations as
aforestated or to oblige the appellants to
pay the price of the land.
In case the appellees exercise the
option to oblige the appellants to pay the
price of the land but the latter reject such
purchase because, as found by the court,
the value of the land is considerably more
than that of the house, the court shall order
the parties to agree upon the terms of a
forced lease, and give the court a quo a
formal written notice of such agreement and
its provisos. If no agreement is reached by
the parties, the court a quo shall then fix the
terms of the forced lease, provided that the
monthly rental to be fixed by the Court shall
not be less that Two Thousand Pesos
(P2,000.00) per month, payable within the
first five (5) days of each calendar month
and the period thereof shall not be more
than two (2) years, counted from the finality
of the judgment.
 Upon the expiration of the forced
lease, or upon default by the appellants in
the payment of rentals for two (2)
consecutive months, the appellees shall be
entitled to terminate the forced lease, to
recover their land, and to have the
improvement removed by the appellants at
the latters expense. The rentals herein
provided shall be tendered by the
appellants to the court for payment to the
appellees, and such tender shall constitute
evidence of whether or not compliance was
made within the period fixed by the court.
In any event, the appellants shall
pay the appellees the amount of Two
Thousand Pesos (P2,000.00) as
reasonable compensation for their
occupancy of the encroached property from
the time said appellants good faith cease
(sic) to exist until such time the possession
of the property is delivered to the appellees
subject to the reimbursement of the
aforesaid expenses in favor of the
appellants or until such time the payment of
the purchase price of the said lot be made
by the appellants in favor of the appellees
in case the latter opt for the compulsory sale
of the same.
SO ORDERED.[19] (Emphasis in
the original)
In reversing the trial court, the CA held:
xxx
x x x A perusal of the records
readily reveals that said court instead relied
on flimsy, if not immaterial, allegations of
the appellees, which have no direct bearing
in the determination of whether the
appellants are builders in bad faith.
For one, the pivotal issue to be
resolved in this case, i.e. whether appellant
Miguel is a builder in good faith, was
ignored by the court a quo. The instant case
does not in any way concern the personal
and property relations of spouses-
appellants and Elizabeth Yson Cruz which
is an altogether different matter that can be
ventilated by the concerned parties through
the institution of a proper action. xxx The
court a quo should have focused on the
issue of whether appellant Miguel built, in
good faith, the subject house without notice
of the adverse claim of the appellees and
under the honest belief that the lot which he
used in the construction belongs to him. xxx
xxx As it is, appellant Miguel relied
on the title which the intervenor showed to
him which, significantly, has no annotation
that would otherwise show a prior adverse
claim. Thus, as far as appellant Miguel is
concerned, his title over the subject lot, as
well as the title of the intervenor thereto, is
clean and untainted by an adverse claim or
other irregularities.
For another, the appellants failure
to secure a building permit from the
Municipal Engineers Office on their
construction on Lot 17 does not impinge on
the good faith of the appellants. In fact, it
can be told that a building permit was
actually filed by appellant Miguel with
respect to Lot 16 and it was only due to the
confusion and misapprehension by the
intervenor of the exact parameters of the
property which caused appellants belief
that Lot 17 [the questioned lot], is his. This
fact bolsters appellant Miguels good faith in
building his house on appellees lot under
the mistaken belief that the same is his
property. Otherwise, he should have
secured a building permit on Lot 17 instead
or should not have bothered to take the
necessary measures to obtain a building
permit on Lot 16 in the first place.
By and large, the records show that,
as testified to by Engr. Rebecca T.
Lanuang, appellant Miguel had already
applied for a building permit as early as
February 1994 and was in fact issued a
temporary building permit pending the
completion of the requirements for said
permit. Although the building permit was
belatedly issued in January 1996, this does
not in any way detract from appellant
Miguels good faith.
xxx
In holding the appellants as
builders in bad faith, the court a quo defied
law and settled jurisprudence considering
that the factual basis of its findings and the
incontrovertible evidence in support thereof
prove that the appellant Miguel, in good
faith, built the house on appellees land
without knowledge of an adverse claim or
any other irregularities that might cast a
doubt as to the veracity of the assurance
given to him by the intervenor. Having been
assured by the intervenor that the stone
monuments were purposely placed, albeit
wrongfully, by the land surveyor in said land
to specifically identify the lot and its
inclusive boundaries, the appellants cannot
be faulted for having relied on the expertise
of the land surveyor who is more equipped
and experienced in the field of land
surveying. Although under the Torrens
system of land registration, the appellant is
presumed to have knowledge of the metes
and bounds of the property with which he is
dealing, appellant however, considering
that he is a layman not versed in the
technical description of his property, cannot
be faulted in his reliance on the survey plan
that was delivered to him by the intervenor
and the stone monuments that were placed
in the encroached property.
xxx
Peremptorily, contrary to the flawed
pronouncements made by the court a quo
that appellant Miguel is deemed as a builder
in bad faith on the basis of a mere assertion
that he built his house without initially
satisfying himself that he owns the said
property, this Court finds reason to maintain
good faith on the part of the
appellant. Admittedly, the appellants house
erroneously encroached on the property of
the appellees due to a mistake in the
placement of stone monuments as
 indicated in the survey plan, which error is
directly attributable to the fault of the
geodetic engineer who conducted the
same. This fact alone negates bad faith on
the part of appellant Miguel.
xxx
Moreover, it is quite illogical for
appellant Miguel to knowingly build his
house on a property which he knew belongs
to another person. x x x
xxx
In view of the good faith of both
parties in this case, their rights and
obligations are to be governed by Article
448, which has been applied to
improvements or portions of
improvements built by mistaken belief
on land belonging to the adjoining
owner. x x x
x x x[20] (Emphasis and underscoring
supplied)
Petitioners Motion for Reconsideration[21] dated
October 22, 2002 having been denied by the CA by
Resolution of March 13, 2002, the present petition was filed
raising the following issues:
I.
WHETHER OR NOT THE HONORABLE
COURT OF APPEALS COMMITTED A
GRAVE ABUSE OF DISCRETION IN
MAKING A FINDING THAT IS CONTRARY
TO THE ADMISSIONS BY THE PARTIES
II.
WHETHER OR NOT THE HONORABLE
COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR OF LAW IN
CONCLUDING THAT THE TRIAL COURT,
IN DECIDING THE CASE, RELIED ON
FLIMSY, IF NOT IMMATERIAL,
ALLEGATIONS OF THE PETITIONERS,
WHICH HAVE NO DIRECT BEARING IN
THE DETERMINATION OF WHETHER THE
RESPONDENTS ARE BUILDERS IN GOOD
FAITH
III.
WHETHER OR NOT THE HONORABLE
COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR OF LAW IN
RENDERING A DECISION THAT IS
UNENFORCEABLE AGAINST BOTH
RESPONDENT JUDITH CASTELLTORT
AND THIRD-PARTY ELIZABETH CRUZ[22]
Petitioners initially hammer against respondents
proving that Castelltort and a certain Elizabeth Cruz are the
builders of the house on the subject property, they faulting
them with estoppel for alleging in their Answer before the trial
court that they (respondents Castelltort and Judith) caused
the construction of their house which they bought from a
certain Lina Lopez-Villegas.
Petitioners rely on the following doctrine established
in Elayda v. Court of Appeals:[23]
an admission made in the
pleadings cannot be controverted by the
party making such admission and are
conclusive as to him and that all proofs
submitted by him contrary thereto or
inconsistent therewith, should be ignored,
whether objection is interposed by the party
or not x x x
Petitioners contention is hardly relevant to the case
at bar. Whether it was Castelltort and Judith or Castelltort
and Elizabeth Cruz who purchased the property from Lina is
not material to the outcome of the instant controversy. As
found by the CA:
The fact remains that appellant
[Castelltort] is the builder of the house on Lot
17 xxx The court a quo should have focused
on the issue of whether appellant Miguel
built, in good faith, the subject house without
notice of the adverse claim of the appellees
and under the honest belief that the lot which
he used in the construction belongs to him.
xxx it cannot be gainsaid that appellant
Miguel has a title over the land that was
purchased from the intervenor x x x[24]
At all events, as this Court held in the case
of Gardner v. Court of Appeals:[25]
In its Resolution reversing the
original Decision, respondent Court
discredited the testimony of Ariosto
SANTOS for being at variance with the
allegations in his Answer. The fact,
however, that the allegations made by
Ariosto SANTOS in his pleadings and in his
declarations in open Court differed will not
militate against the findings herein made
nor support the reversal by respondent
Court. As a general rule, facts alleged in a
partys pleading are deemed admissions of
that party and binding upon it, but this is not
an absolute and inflexible rule. An Answer
is a mere statement of fact which the party
filing it expects to prove, but it is not
evidence. As Ariosto SANTOS himself, in
open Court, had repudiated the defenses
he had raised in his Answer and against his
own interest, his testimony is deserving of
weight and credence.[26] (Underscoring
supplied)
 A: Yes, because based on my knowledge
The issue determinative of the controversy in the also that that was the lot as pointed by
Engr. Rivera.
case at bar hinges on whether Castelltort is a builder in good
xxx
faith.
Q: Was there any remarkable difference
between lot 16 and 17 at the time that
this particular lot was sold to Miguel
A builder in good faith is one who builds with the Castelltort and Elizabeth Cruz?

belief that the land he is building on is his, or that by some xxx

title one has the right to build thereon, and is ignorant of any A: Both lots 16 and 17 are practically the
same. The (sic) have the same
defect or flaw in his title.[27] frontage. There is only a difference of
4 square meters, one is 311 square
meters and the other 315 square
Article 527 of the Civil Code provides that good faith meters. Both sides were fenced, as
drawn they were facing the same road.
is always presumed, and upon him who alleges bad faith on They are practically the same.

the part of a possessor rests the burden of proof.[28] Q: But at the time or immediately before Mr.
Castelltort started the construction of
In the case at bar, Lot 16 was sold by Lina, through the house, was there any remarkable
distinction between these two
her attorney-in-fact Villegas, to Castelltort and a certain properties?
Elizabeth Cruz[29] for a consideration of P500,000.00. While A: None.[32] (Emphasis and underscoring
supplied)
prior to the sale, what Villegas showed Castelltort as

evidence of his mother Linas ownership of the property was

The confusion in the identification of Lot 16 was
only a photocopy of her title TCT No. (T-42171) T-
eventually traced to the error committed by geodetic
18550[30] he explaining that the owners duplicate of the title
engineer Augusto Riveras employees in placing stone
was lost and that judicial reconstitution thereof was ongoing,
monuments on petitioners property, instead of on Lot 16,
Castelltort acted in the manner of a prudent man and went
the lot sold to Castelltort, based on the survey made by the
to the Registry of Deeds of Laguna to procure a certified true
engineer in 1992.
copy of the TCT.[31] The certified true copy bore no

annotation indicating any prior adverse claim on Lot 16. The engineer so testified:

Q: Now, aside from inspecting personally the

The records indicate that at the time Castelltort site, what else did your men or
assistants do?
began constructing his house on petitioners lot, he believed A: After computing the subdivision lots, they
went back to the field to plant those
that it was the Lot 16 he bought and delivered to him by
subdivision corners with concrete
Villegas. monuments.

In his cross-examination, Villegas testified: Q: Which is (sic) also called as mohons?

A: Yes, sir.
Q: You said the surveyor placed a mujon
along boundary of the property?
A: Yes. Q: Now, can you point to this Honorable
Court where exactly did your men
Q: When were the mujons placed in the place these additional mohons and
boundary of the property? how many?
A: These mujons were the basis for my A: Later on we discovered that they placed
locating the property in pointing to Mr. the mohons in the adjoining lot, lot 17.
Castelltort.
xxx
xxx
Q: x x x when again did you meet Mr. Rene
Q: Is it not a fact that before Miguel Castelltort Villegas or after how many months or
started constructing that house he year?
sought your advice or permission to A: Maybe after a year, sir.
construct the same over that particular
lot? Q: And you met him again because he had a
A: Yes. problem regarding the property of one
Engr. Rosales?
Q: And you gave your consent? A: Yes, sir.

Q: And when he confided to you this matter,
did you go to the site of Lot 16 or 17?
A: Yes, sir.
Q: And what did you see there?
A: A house being constructed then I
rechecked the location of the house
and it turned out to be in Lot 17.
xxx
Q: Considering that you found out that a
mistake was actually made by your
assistants Dennis Orencio, Mario
Carpio and Sovejano when you
allowed them to proceed on their own
to make this computation, did you
confront these men of yours
afterwards?
A: Yes, sir.
Q: In what manner?
A: I actually reprimanded them verbally and
also I dismissed Mario Carpio from my
office.
xxx
Q: And did you investigate how your men
committed this mistake of planting
these monuments on another lot when
corners 4 & 1 were clearly planted on
the ground?
A: I myself rechecked it and found out that
they committed an error.
xxx
Q: And now, you are saying that your men
committed a mistake by placing
thereon monuments by planting these
monuments not on Lot 16 but on Lot
17?
A: When I investigated how did they commit
(sic) a mistake it came to be like this.
Before when we surveyed first this in
1992, at that time Dante Villegas
contracted my services there was a
fence here then when we went back,
the road was already removed so they
committed an error that this point is Lot
19, they thought that it was Lot 19, the
back portion.
xxx
Q: In this particular case, did you find out how
your men checked the succeeding
lots, how they determine (sic) the
exact location of lot 16?
A: They just relied on one side of the
subdivision.
Q: By just counting the number of lots?
A: Yes, sir.
Q: Without making any actual measurement?
A: They made an actual measurement but
the reference point is not the one, the
correct one because they also
checked it with the other corner of the
road going back.
xxx
Q: And how did they commit a mistake when
you said they checked the lot at the
back of Lot 16?
A: Because they were quite confident since
we had already relocated the property
two years ago so they thought that
they get (sic) the right lot without
checking the other side of the
subdivision.
xxx
Q: Now, you said that when you went to the
place because you heard from Rene
Villegas that there was a mistake you
no longer could find the monuments on
lines 1 and 4 and according to you the
reason is that a fence was already
constructed?
A: Yes, sir.
Q: For clarification, is this line 1 & 4 on Lot 16
a common line 1 &4 on Lot 17?
A: Yes, sir a common line.
Q: In other words, this line 1 &4 devides (sic)
Lot 16 & 17?
A: Yes, sir.
Q: So that when these monuments were
placed on lines 1 & 4 somebody could
mistake it for Lot 17 also because there
were monuments now 1 &4 for lot 16
since these are common lines for
Lot 17 also with Lot 16, it could also be
construed that these are monuments for
Lot 17?
A: Yes, sir possible.[33] (Underscoring
supplied)
As correctly found by the CA, both parties having
acted in good faith at least until August 21, 1995, the
applicable provision in this case is Article 448 of the Civil
Code which reads:
Art. 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
case, he shall pay reasonable rent, if the
owner of the land does not choose to
appropriate the building or trees after
proper indemnity. The parties shall agree
upon the terms of the lease and in case of
disagreement, the court shall fix the terms
thereof.
Under the foregoing provision, 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.[35] The landowner cannot
refuse to exercise either option and compel instead the
owner of the building to remove it from the land.[36]
The raison detre 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.[37]
Possession acquired in good faith does not lose this
character except in the case and from the moment facts exist
which show that the possessor is not unaware that he
possesses the thing improperly or wrongfully.[38] 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.[39]
In the case at bar, Castelltorts good faith ceased on
August 21, 1995 when petitioners personally apprised him of
their title over the questioned lot. As held by the CA, should
petitioners then 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 CA, however, failed to qualify that said part of
the improvement should be pegged at its current fair market
value consistent with this Courts pronouncement in Pecson
v. Court of Appeals.[40]
And, as correctly found by the CA, the
commencement of Castelltorts 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 petitioners to appropriate the house.
This Court quotes the CAs ratiocination with
approval:
x x x Generally, Article 448 of the
Civil Code provides that the payment of
reasonable rent should be made only up to
the date appellees serve notice of their
option as provided by law upon the
appellants and the court a quo; that is, if
such option is for appellees to appropriate
the encroaching structure. In such event,
appellants would have a right to retain the
land on which they have built in good faith
until they are reimbursed the expenses
incurred by them. 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.
However, considering that
appellants had ceased as builders in good
faith at the time that appellant Miguel was
notified of appellees lawful title over the
disputed property, the payment of
reasonable rent should accordingly
commence at that time since he can no
longer avail of the rights provided under the
law for builders in good faith.[41]
If the option chosen by petitioners is compulsory
sale, however, the payment of rent should continue up to the
actual transfer of ownership.[42]
Respecting petitioners argument that the appellate
court erred in rendering a decision that is unenforceable
against Judith who is not the owner of the house and
Elizabeth Cruz who was found to be a part owner of the
house built on their lot but is not a party to the case, the same

does not lie.

While one who is not a party to a proceeding shall

not be affected or bound[43] by a judgment rendered

therein,[44] like Elizabeth Cruz, this does not detract from the

validity and enforceability of the judgment on petitioners and

respondents Castelltorts.

WHEREFORE, the petition is DENIED. The

Decision dated October 2, 2002 and Resolution dated

February 6, 2003 of the Court of Appeals

are AFFIRMED with MODIFICATION such that the trial

court shall include for determination the increase in value

(plus value) which petitioners 315 square meter lot may have

acquired by reason of the existence of that portion of the

house built before respondents Miguel and Judith Castelltort

were notified of petitioners rightful claim on said lot, and the

current fair market value of said portion.

SO ORDERED.