July 3, 2017

G.R. No. 211170

SPOUSES MAXIMO ESPINOZA and WINIFREDA DE VERA, Petitioners vs. SPOUSES ANTONIO MAYANDOC
and ERLINDA CAYABYAB MAYANDOC, Respondents

The settled rule is bad faith should be established by clear and convincing evidence since the law always
presumes good faith.12 In this particular case, petitioners were not able to prove that respondents were
in bad faith in constructing the house on the subject land. Bad faith does not simply connote bad
judgment or negligence.13 It imports a dishonest purpose or some moral obliquity and conscious doing
of a wrong.14 It means breach of a known duty through some motive, interest or ill will that partakes of
the nature of fraud.15 For anyone who claims that someone is in bad faith, the former has the duty to
prove such. Hence, petitioners err in their argument that respondents failed to prove that they are
builders in good faith in spite of the findings of the RTC and the CA that they are.

As such, Article 448  of the Civil Code must be applied. It applies when the builder believes that he
16

is the owner of the land or that by some title he has the right to build thereon,  or that, at least, he
17

has a claim of title thereto.  In Tuatzs v. Spouses Escol, et al.,  this Court ruled that the seller (the
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owner of the land) has two options under Article 448: (1) he may appropriate the improvements for
himself after reimbursing the buyer (the builder in good faith) the necessary and useful expenses
under Articles 546  and 548  of the Civil Code; or (2) he may sell the land to the buyer, unless its
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value is considerably more than that of the improvements, in which case, the buyer shall pay
reasonable rent, thus:

The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in
accord with the principle of accession, i.e., that the accessory follows the principal and not the other
way around. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive.
The landowner cannot refuse to exercise either option and compel instead the owner of the building
to remove it from the land.

The raison d'etre for this provision has been enunciated thus: Where the builder, planter or sower
has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to
protect the owner of the improvements without causing injustice to the owner of the land. In view of
the impracticability of creating a state of forced co-ownership, the law has provided a just solution by
giving the owner of the land the option to acquire the improvements after payment of the proper
indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He
cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the
option, because his right is older, and because, by the principle of accession, he is entitled to the
ownership of the accessory thing. 22

As clarified by the Supreme Court, 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, builds on that land, believing
himself/herself to be its owner and unaware of the defect in his/her 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 (Spouses Aquino vs. Spouses Aguilar, G.R. No. 182754,  June 29, 2015).

It must be noted that good faith is presumed, and bad faith should be established by
clear and convincing evidence. After all, bad faith is not simply bad judgment or
negligence, but implies a dishonest purpose or conscious doing of a wrong, usually
partaking the nature of fraud.

Note that, if both parties are in bad faith, the same rules apply. It is as if they are both in
good faith, and they cancel out each other’s bad faith.

[ G.R. No. 215820. March 20, 2017 ]

ERLINDA DINGLASAN DELOS SANTOS AND HER DAUGHTERS, NAMELY,
VIRGINIA, AUREA, AND BINGBING, ALL SURNAMED DELOS SANTOS,
PETITIONERS, VS. ALBERTO ABEJON AND THE ESTATE OF TERESITA
DINGLASAN ABEJON, RESPONDENTS.

The terms builder, planter, or sower 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, plants, or
sows on that land believing himself to be its owner and unaware of the defect in his 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."[33] On the other hand, bad faith may only be attributed to a landowner when
the act of building, planting, or sowing was done with his knowledge and without
opposition on his part.[34]

In this case, it bears stressing that the execution of the Deed of Sale involving the
subject land was done in 1992. However, and as keenly pointed out by Justice Alfredo
Benjamin S. Caguioa during the deliberations of this case, Teresita was apprised of
Pedro's death as early as 1990 when she went on a vacation in the Philippines. [35] As
such, she knew all along that the aforesaid Deed of Sale which contained a signature
purportedly belonging to Pedro, who died in 1989, or three (3) years prior to its
execution - was void and would not have operated to transfer any rights over the subject
land to her name. Despite such awareness of the defect in their title to the subject land,
respondents still proceeded in constructing a three (3)-storey building thereon.
Indubitably, they should be deemed as builders in bad faith.
On the other hand, petitioners knew of the defect in the execution of the Deed of Sale
from the start, but nonetheless, still acquiesced to the construction of the three (3)-
storey building thereon. Hence, they should likewise be considered as landowners in
bad faith.

In this relation, Article 453 of the Civil Code provides that where both the landowner and
the builder, planter, or sower acted in bad faith, they shall be treated as if both of them
were in good faith, viz.:

Article 453. If there was bad faith, not only on the part of the person who built, planted
or sowed on the land of another, but also on the part of the owner of such land, the
rights of one and the other shall be the same as though both had acted in good faith.

It is understood that there is bad faith on the part of the landowner whenever the act
was done with his knowledge and without opposition on his part.
Whenever both the landowner and the builder/planter/sower are in good faith (or in bad
faith, pursuant to the afore-cited provision), the landowner is given two (2) options under
Article 448[36] of the Civil Code, namely: (a) he may appropriate the improvements for
himself after reimbursing the buyer (the builder in good faith) the necessary and useful
expenses under Articles 546 [37] and 548[38] of the Civil Code; or (b) he may sell the land
to the buyer, unless its value is considerably more than that of the improvements, in
which case, the buyer shall pay reasonable rent. [39]

Applying the aforesaid rule in this case, under the first option, petitioner may appropriate
for themselves the three (3)-storey building on the subject land after payment of the
indemnity provided for in Articles 546 and 548 of the Civil Code, as applied in existing
jurisprudence. Under this option, respondents would have a right of retention over the
three (3)-storey building as well as the subject land until petitioners complete the
reimbursement. Under the second option, petitioners may sell the subject land to
respondents at a price equivalent to the current market value thereof. However, if the
value of the subject land is considerably more than the value of the three (3)-storey
building, respondents cannot be compelled to purchase the subject land. Rather, they
can only be obliged to pay petitioners reasonable rent. [40]

Thus, following prevailing jurisprudence, the instant case is remanded to the court a
quo for the purpose of determining matters necessary for the proper application of
Articles 448 and 453, in relation to Articles 546 and 548 of the Civil Code, [41] as applied
in existing jurisprudence.
In this relation, Article 453 of the Civil Code provides that where both the landowner and the builder,
planter or sower acted in bad faith, they shall be treated as if both of them were in good faith.

The law also provides that whenever both the landowner and the builder/planter/sower are in good
faith (or in bad faith, pursuant to the aforecited provision), the landowner is given two options under
Article 448 of the Civil Code, namely: (a) he may appropriate the improvements for himself after
reimbursing the buyer (the builder in good faith) the necessary and useful expenses under Articles 546
and 548 of the Civil Code; or (b) he may sell the land to the buyer, unless its value is considerably more
than that of the improvements, in which case, the buyer shall pay reasonable rent.

Applying the aforesaid rule in this case, under the first option, Linda and her children may appropriate
for themselves the three-storey building on subject land after payment of indemnity as provided by law.

Under this option, Tess and Al would have a right of retention over the three-storey building as well as
the subject land until Linda and her children complete the reimbursement. Under the second option,
Linda and her children may sell the subject land to Tess and Al at a price equivalent to the current
market value thereof.

However, if the value of the subject land is considerably more than the value of the three-storey
building, Tess and Al cannot be compelled to purchase the subject land. Rather, they can only be obliged
to pay petitioners reasonable rent.

Source: Delos Santos vs. Abejon, G.R. No. 215820, March 20, 2017

In the Civil Code provisions governing property law, one chapter discusses
Accession (Article 440, onwards).  In a nutshell, the owner of the property has
the right of accession (right to fruits) to everything produced by the property
itself, or those which are incorporated and attached thereto, either naturally or
artificially.

The chapter on Accession contains the provision on Builder/Planter/Sower, to

wit:

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.
Such provision, including the meaty jurisprudence centering on such concept
(e.g. Cheng vs. Donini), can be summarised as follows:

Case A:  If both the owner and the builder/planter/sower (hereinafter referred to
as “BPS”) are in good faith:  There is no co-ownership.  The owner owns the
property (e.g. land), and the BPS owns that which he built or planted (e.g.
building).  However, the owner has the following remedies:
 To appropriate that which was built or planted (e.g. building) as his own,
after paying the BPS the amount of indemnity (i.e. expenses) in Articles 546
and 548; or
 To compel the BPS to pay the price of the land (if B or P), or the rent (if S).
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It is very important to note that it is the owner who makes the determination
or choice.  If he does not make the decision, the parties remain status quo —
BPS remains the owner of that which was built/planted/sowed.  Moreover, the
BPS remains the possessor in good faith, and as a possessor in good faith, he
has the right to fruits of the property (e.g. rentals in the building).  This is so
because of Article 544 of the Civil Code, to wit:

Art. 544. A possessor in good faith is entitled to the fruits received before the
possession is legally interrupted.
Natural and industrial fruits are considered received from the time they are
gathered or severed.
Civil fruits are deemed to accrue daily and belong to the possessor in good
faith in that proportion.
BPS also has the right of retention over that which was built/planted/sowed,
and such right remains until the owner reimburses him for the amount of
expenses mentioned in Articles 546 and 548, to wit:

Art. 546. Necessary expenses shall be refunded to every possessor; but only
the possessor in good faith may retain the thing until he has been reimbursed
therefor.
Useful expenses shall be refunded only to the possessor in good faith with the
same right of retention, the person who has defeated him in the possession
having the option of refunding the amount of the expenses or of paying the
increase in value which the thing may have acquired by reason thereof.
(453a)

Art. 548. Expenses for pure luxury or mere pleasure shall not be refunded to
the possessor in good faith; but he may remove the ornaments with which he
has embellished the principal thing if it suffers no injury thereby, and if his
successor in the possession does not prefer to refund the amount expended.
(454)
A BPS in good faith is someone who possesses the property, believing the
property to be his under some mode or title of acquisition.  See Article 712 for
the modes of acquiring ownership.

Hence, if a person knows that he is not the owner, he cannot be considered as

a BPS in good faith.  This is why a lessee can never be a BPS in good faith.  It
bears noting that there are Supreme Court decisions which gave exception to
this rule, such as:  a) a mother-in-law tells the spouses to build on her own
property; b) an alleged landowner tells the BPS that he owns the land and that
the BPS can build on it, when in fact, the land is not his; or, c) tolerance of the
landowner to the acts of BPS.

The general remedy for the landowner to avoid the provision of Article 548 is
for him to execute an agreement with the BPS not to build on the property.  In
this case, the contractual provisions will apply; and the absent of which makes
the Civil Code provisions on lease applicable, such as:

Art. 1678. If the lessee makes, in good faith, useful improvements which are
suitable to the use for which the lease is intended, without altering the form
or substance of the property leased, the lessor upon the termination of the
lease shall pay the lessee one-half of the value of the improvements at that
time. Should the lessor refuse to reimburse said amount, the lessee may
remove the improvements, even though the principal thing may suffer
damage thereby. He shall not, however, cause any more impairment upon the
property leased than is necessary.

With regard to ornamental expenses, the lessee shall not be entitled to any
reimbursement, but he may remove the ornamental objects, provided no
damage is 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. (n)
Case B:  If the owner is in bad faith, and the BPS is in good faith:  Apply Article
447.
Art. 454. When the landowner acted in bad faith and the builder, planter or
sower proceeded in good faith, the provisions of article 447 shall apply.

Art. 447. The owner of the land who makes thereon, personally or through
another, plantings, constructions or works with the materials of another, shall
pay their value; and, if he acted in bad faith, he shall also be obliged to the
reparation of damages. The owner of the materials shall have the right to
remove them only in case he can do so without injury to the work
constructed, or without the plantings, constructions or works being destroyed.
However, if the landowner acted in bad faith, the owner of the materials may
remove them in any event, with a right to be indemnified for damages.
The general rule is that the landowner is liable to pay for the value of
improvements or materials used, and that the owner of materials is entitled to
reimbursement or the removal of materials if it will not cause any damage to
the property.

If the landowner is in bad faith, he shall be held liable for damages, plus the
owner of the materials has the right to remove the materials whether or not
there will be a damage to the property.

Case C:  The owner is in good faith, and the BPS is in bad faith:  Apply the
following articles:
Art. 449. He who builds, plants or sows in bad faith on the land of another,
loses what is built, planted or sown without right to indemnity.

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

Art. 451. In the cases of the two preceding articles, the landowner is entitled
to damages from the builder, planter or sower.
Art. 452. The builder, planter or sower in bad faith is entitled to
reimbursement for the necessary expenses of preservation of the land.
In essence, the landowner is entitled to damages, plus he may:

 Appropriate what was built without need of indemnity to the BPS;

 Demand the demolition of the thing built or restoration of the land at the
expense of the BPS;
 Compel the BPS to pay the land or the sower the proper rent.
Notwithstanding the bad faith on the part of BPS, he still:

 Is entitled to reimbursement for the necessary expenses of preservation of

land; and,
 Has the right to remove to remove the materials as long as there will be no
damage to the land.
Case D:  If both owner and the BPS are in bad faith:  Apply Article 453, to wit:
Art. 453. If there was bad faith, not only on the part of the person who built,
planted or sowed on the land of another, but also on the part of the owner of
such land, the rights of one and the other shall be the same as though both
had acted in good faith.
It is understood that there is bad faith on the part of the landowner whenever
the act was done with his knowledge and without opposition on his part.
This bears semblance with the in pari delicto rule.

Note:  The author appreciates any feedback or constructive criticisms.  He

encourages  the readers to correct any mistake that they find in the article above to
ensure the veracity and the accuracy of the information.  As the topic is a very
important one in the realm of Property law, it is also important to ensure that the
dissemination of such information remains correct and without any flaws.