the CA erred in applying Article 1678, since they had no lease agreement

with respondents.

BRIONES VS MACABAGDAL
Property; builder in good faith. Article 527 of the Civil Code presumes good
faith, and since no proof exists to show that the mistake was done by
petitioners in bad faith, the latter should be presumed to have built the
house in good faith.
When a person builds in good faith on the land of another, Article 448 of the
Civil Code governs. This article covers cases in which the builders, sowers
or planters believe themselves to be owners of the land or, at least, to have a
claim of title thereto. The builder in good faith can compel the landowner to
make a choice between appropriating the building by paying the
proper indemnity or obliging the builder to pay the price of the land. The
choice belongs to the owner of the land, a rule that accords with the
principle of accession, i.e., that the accessory follows the principal and not
the other way around. However, even as the option lies with the landowner,

We clarify. Article 447 is not applicable, because it relates to the rules

that apply when the owner of the property uses the materials of another. It
does not refer to the instance when a possessor builds on the property of
another, which is the factual milieu here.
In view of the unique factual setting of the instant case, the
contention of petitioners regarding the inapplicability of Article 1678
deserves attention. The CA applied the provisions on lease, because it found
their possession by mere tolerance comparable with that of a lessee, per the
[62]
pronouncement in Calubayan v. Pascual, from which we quote:
x x x. It has been held that a person who occupies the land of another at the
latters 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
[63]
vacate. (Emphasis in the original.)

the grant to him, nevertheless, is preclusive. He must choose one. He cannot,

for instance, compel the owner of the building to remove the building from
the land without first exercising either option. It is only if the owner chooses

As explained earlier, Ismael and Teresitas possession of the two lots was not
by mere tolerance, a circumstance that negates the applicability
of Calubayan.

to sell his land, and the builder or planter fails to purchase it where its value
is not more than the value of the improvements, that the owner may remove
the improvements from the land. The owner is entitled to such remotion

Article 448 Applicable

only when, after having chosen to sell his land, the other party fails to pay for
On the other hand, when a person builds in good faith on the land of
[64]
another, the applicable provision is Article 448, which reads:

the same.
Moreover, petitioners have the right to be indemnified for the necessary and
useful expenses they may have made on the subject property as provided in
Articles 546 and 548 of the Civil Code. Consequently, the respondent-spouses
have the option to appropriate the house on the subject land after payment
to petitioners of the appropriate indemnity or to oblige petitioners topay the
price of the land, unless its value is considerably more than the value of the
structures,

in

which

case

petitioners

shall

pay

reasonable

rent. Luciano Briones and Nelly Briones vs. Jose Macabagdal, Fe D.

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.

Macabagdal and Vergon Realty InvestmentsCorporation, G.R. No. 150666,

August 3, 2010.

MACASAET VS MACASAET
Rights of a Builder in Good Faith

As applied to the present case, accession refers to the right of the

owner to everything that is incorporated or attached to the
[60]
property. Accession industrial -- building, planting and sowing on an
immovable -- is governed by Articles 445 to 456 of the Civil Code.

Articles 447 and 1678 of the

Civil Code Inapplicable

To buttress their claim of reimbursement for the improvements

[61]
introduced on the property, petitioners cite Article 447. They allege that

This Court has ruled that this provision covers only cases in which the
builders, sowers or planters believe themselves to be owners of the land or,
[65]
at least, to have a claim of title thereto. It does not apply when the
interest is merely that of a holder, such as a mere tenant, agent or
[66]
usufructuary. From these pronouncements, good faith is identified by the
belief that the land is owned; or that -- by some title -- one has the right to
[67]
build, plant, or sow thereon.
However, in some special cases, this Court has used Article 448 by
recognizing good faith beyond this limited definition. Thus, in Del Campo v.
[68]
Abesia, this provision was applied to one whose house -- despite having
been built at the time he was still co-owner -- overlapped with the land of
[69]
another. This article was also applied to cases wherein a builder had
constructed improvements with the consent of the owner. The Court ruled
[70]
that the law deemed the builder to be in good faith. In Sarmiento v.
[71]
Agana, the builders were found to be in good faith despite their reliance
on the consent of another, whom they had mistakenly believed to be the
[72]
owner of the land.
Based on the aforecited special cases, Article 448 applies to the
present factual milieu. The established facts of this case show that
respondents fully consented to the improvements introduced by
petitioners. In fact, because the children occupied the lots upon their
invitation, the parents certainly knew and approved of the construction of

[73]

the improvements introduced thereon. Thus, petitioners may be deemed

to have been in good faith when they built the structures on those lots.
[74]

The instant case is factually similar to Javier v. Javier. In that case,

this Court deemed the son to be in good faith for building the improvement
(the house) with the knowledge and consent of his father, to whom belonged
[75]
the land upon which it was built. Thus, Article 448 was applied.

Rule on Useful Expenses

The structures built by petitioners were useful improvements, because

[76]
they augmented the value or income of the bare lots. Thus, the indemnity
to be paid by respondents under Article 448 is provided for by Article 546,
which we quote:
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.
Consequently, respondents have the right to appropriate -- as their
own -- the building and other improvements on the subject lots, but only
after (1) refunding the expenses of petitioners or (2) paying the increase in
value acquired by the properties by reason thereof. They have the option to
oblige petitioners to pay the price of the land, unless its value is considerably
more than that of the structures -- in which case, petitioners shall pay
reasonable rent.
[77]

In accordance with Depra v. Dumlao, this case must be remanded to

the trial court to determine matters necessary for the proper application of
Article 448 in relation to Article 546.Such matters include the option that
respondents would take and the amount of indemnity that they would pay,
should they decide to appropriate the improvements on the lots. We
disagree with the CAs computation of useful expenses, which were based
[78]
only on petitioners bare allegations in their Answer.

Ruling on Improvement Justified

While, ordinarily, the jurisdiction of the MTCC on ejectment

proceedings is limited to the issue of physical or material possession of the
property in question, this Court finds it necessary to abbreviate the issue on
the improvements in relation to Article 448. First, the determination of the
parties right to those improvements is intimately connected with the MTCC
proceedings in the light of the ejectment of petitioners. Second, there is no
dispute that while they constructed the improvements, respondents owned
the land. Third, both parties raised no objection when the RTC and the CA
ruled accordingly on this matter.
Equitable considerations compel us to settle this point
immediately, pro hoc vice, to avoid needless delay. Both parties have already
been heard on this issue; to dillydally or equivocate would not serve the
cause of substantial justice.

LEONOR GRANA and JULIETA TORRALBA VS. THE COURT OF APPEALS,

AURORA BONGATO and JARDENIO SANCHEZ
GR L-12486 31 AUG 1960
Facts:

The herein Petitioners were sued by Bongato and Sanchez for the recovery of
87 square meters of residential land which they have inherited as the
children of the spouses Marcos Bongato and Eusebia. The former were
ordered by the to vacate and deliver it to said respondents and to pay a
monthly rental of P10.00 from the filing of the complaint until they actually
vacate the same, plus attorney's fees and costs.
The Petitioners alleged that the said property became a subject of a cadastral
survey due to conflicts and overlapping of boundaries. In that survey,
Gregorio Bongato's lot, according to petitioners, was identified as Lot No.
311 and that of Isidaria Trillo, their predecessor in interest, as Lot No. 310.
Citing the fact that Original Certificate of Title No. RO-72 (138) covers 295
square meters of land, while the sketch plan of the second cadastral survey
of Butuan shows that Lot No. 311 has only 230 square meters, petitioners
maintain that it is the latter area properly belongs to respondents and that
the land in question is part of the adjoining land, Lot No. 310, which
belonged to their predecessor in interest.
Issue:
Whether or not the first survey was erroneous or that it included part of the
contiguous land of petitioners' predecessor in interest?
Held:
Petitioners' stand is untenable. No proof was presented to show that the first
survey was erroneous or that it included part of the contigous land of
petitioners' predecessor in interest as part of the lot now covered by Original
Certificate of Title No. RO-72 (138). Note that the difference in area between
the land covered by said title and Lot No. 311 of the resurvey plan is 65
square meters while the area of the land in dispute if 87 square meters. And
what is more, the alleged sketch plan of the resurvey was not presented in
evidence.
Upon the other hand, it is not disputed that the land in question is part of the
lot covered by the Torrens title issued way back in 1923 in the name of
respondents' predecessor in interest. Said title has not been contested up to
the present, and, therefore, has become inconvertible evidence of the
ownership of the land covered by it. Well settled is the rule that a Torrens
certificate of title becomes conclusive and indefeasible after the lapse of the
period within which it may be impugned (Reyes, et al. vs. Borbon, et al., 50
Phil., 791; Yumul vs. Rivera, et al., 64 Phil., 13).
Although without any legal and valid claim over the land in question,
petitioners, however, were found by the Court of Appeals to have
constructed a portion of their house thereon in good faith. Under Article 361
of the old Civil Code (Article 448 of the new), the owner of the land on which
anything has been built in good faith shall have the right to appropriate as his
own faith shall have the right to appropriate as his own the building, after
payment to the builder of necessary and useful expenses, and in the proper
case, expenses for pure luxury or mere pleasure, or to oblige the builder to
pay the price of the land. Respondents, as owners of the land, have therefore
the choice of either appropriating the portion of petitioners' house which is
on their land upon payment of the proper indemnity to petitioners, or selling
to petitioners that part of their land on which stands the improvement. It
may here be pointed out that it would be impractical for respondents to
choose to exercise the first alternative, i.e., buy that portion of the house
standing on their land, for in that event the whole building might be
rendered useless. The more workable solution, it would seem, is for
respondents to sell to petitioners that part of their land on which was
constructed a portion of the latter's house. If petitioners are unwilling or
unable to buy, then they must vacate the land and must pay rentals until
they do so. Of course, respondents cannot oblige petitioners to buy the land
if its value is considerably more than that of the aforementioned portion of
the house. If such be the case, then petitioners must pay reasonable rent.
The parties must come to an agreement as to the conditions of the lease, and
should they fail to do so, then the court shall fix the same. (Article 361, old
Civil Code; Article 448 of the new)

Damian Ignacio vs Elias Hilario

Sometime during the 1940s in Pangasinan, a civil suit arose between Damian
Ignacio and Elias Hilario. Hilario was the owner of a parcel of land. He later
discovered that Ignacio built some buildings therein (a granary and a house).
After trial, Judge Antonio Felix of the Court of First Instance of Pangasinan
ruled that both were in good faith (Hilario was the owner in good faith while
Ignacio was the builder in good faith).
Judge Felix then spelled out the rights of the parties to wit:
a.) Ignacio can retain possession over the buildings he erected until after he
is paid by Hilario for the value of the buildings he erected;
b.) Hilario can choose to buy the said buildings or he can choose to sell
Ignacio his land since the value of his land was only P45.00 while the value of
the buildings erected was P2,000.00.
However, Hilario refused to avail of his options. Instead, he filed a motion in
court to have Ignacio be ejected and have them destroy the buildings he
erected. Judge Felipe Natividad (he replaced Judge Felix), granted Hilarios
motion.
ISSUE: Whether or not Hilario, the owner in good faith, may eject a builder
in good faith without choosing either to appropriate the building for himself
after payment of its value or to sell his land to the builder in good faith.
HELD: No. The owner in good faith has to make a choice. He cannot
dispense the options under the law and then eject the builder in good faith.
This is because both are in good faith.
But when can the owner in good faith compel the builder in good faith
to remove the building he erected?
This is only available if after the owner in good faith chose to sell his land to
the builder in good faith and the latter fails to pay the value of the land
within the agree period. Only then can the owner in good faith compel the
builder in good faith to remove the building he erected.

BELEN UY TAYAG and JESUS B. TAYAG, petitioners,

vs.
ROSARIO YUSECO, JOAQUIN C. YUSECO and THE COURT OF
APPEALS, respondents.
Pelaez and Jalandoni for petitioners.
Yuseco, Abdon, Yuseco and Narvasa for respondents.
MONTEMAYOR, J.:
This is an appeal by certiorari by petitioners Belen Uy Tayag and her husband
Jesus B. Tayag from the decision of the Court of Appeals of April 23, 1954,
affirming the decision of the Court of First Instance of Manila. The facts in
this case as may be gathered from the records and as found by the Court of

Appeals may be briefly stated as follows. In and prior to the year 1930 Atty.
Joaquin C. Yuseco had been rendering professional services to Maria Lim,
owner of lots 11-A and 11-B, block 2251 of the Government Subdivision
known as Hacienda de San Lazaro covered by transfer certificates of title Nos.
36400 and 36401 of the Register of Deeds of Manila. To show her
appreciation of the service rendered to her Maria offered the two lots to
Atty. Yuseco and his wife Rosario Yuseco for them to build on, and accepting
the offer, the Yusecos built a house and an annex for servants quarters on
the two lots which improvements at present may be reasonably valued at
P50,000. Although Atty. Yuseco claims that the two lots were donated to
him, he could exhibit no evidence of said donation and the certificates of title
already mentioned remained in the name of Maria. There is reason to
believe that at least during her lifetime and while she remained owner of the
two lots, it was her desire to have the Yusecos occupy the land free. But to
go through the formalities and to legalize the possession of the two lots,
after the house and the annex were built, there was executed a lease
contract to the effect that the lease was to run for a period of five years, with
a rental of P120 a year; that the owner of the lots was to pay all land taxes,
and that failure to pay the rent when due would be sufficient cause for the
recission of the contract. This agreement was noted on the certificates of
title.
On November 29, 1945, a few days before her death, Maria sold the two lots
to her daughter Belen Uy married to Jesus B. Tayag for and in consideration
of the sum of P4,000. The new owners in 1946 asked the Yusecos to remove
their houses from the land because Belen and her husband planned to build
their own house on the two lots, or else pay a monthly rent of P120. Because
of the failure of the Yusecos to comply with the demand, Belen assisted by
her husband filed an action of ejectment in the Municipal Court of Manila
which later rendered judgment for the plaintiffs and against the defendants
"for the restitution of the premises described in the complaint and for the
recovery of a monthly rental of P100 from November 30, 1945, up to the
date of restitution, and for cost." On appeal by the defendants to the Court
of First Instance of Manila, the latter rendered judgment, the dispositive part
of which reads as follows:
Wherefore judgment is hereby rendered declaring the plaintiff,
Belen Uy Tayag, to be entitled to the possession of the two
parcels of land described in the complaint upon payment by her
to the defendants of the sum of P50,000, which is the value of the
two houses they had built thereon; but in the event said plaintiff
shall not be in a position to pay said amount within 90 days from
the date this decision shall become final, the defendants are
hereby declared to be entitled to purchase the two parcels of land
in question for the sum P10,000, within 90 days from the date the
defendants shall have failed to buy the house. In the meantime,
the two parcels of land without any obligation thereof. No
pronouncement is hereby made as to costs.
On appeal by the plaintiffs to the Court of Appeals said court found that the
Yusecos were builders in good faith under article 448 of the new Civil Code;
and that as such builders in good faith, they cannot be required to remove
their house and the annex unless they were paid the value thereof. The Court
of Appeals further approved P50,000 and P10,000 as the reasonable values
of the house and the two lots, respectively, as found by the Court of First
Instance and that the Yusecos as builders in good faith will begin to pay rent
only when the plaintiffs as owners of the land are unable or choose not to
exercise their right to purchase the land, but in the present case, neither
partly has expressed his willingness or inability to exercise the right
corresponding to him under article 448 of the new Civil Code, hence the
payment of rent is not in order. The Court of Appeals affirmed the decision of
the Court of First Instance.
Appellants Belen and her husband Jesus Tayag filed the present petition for
review of the decision of the Court of Appeals, and in their brief assign the
following errors:
I

The Court of Appeals committed a grave error of law when it

decided an issue foreign to that raised in an ejectment case, for in
so doing it acted without jurisdiction over the subject matter.
II
Granting, arguendo, that there was jurisdiction to determine an
issue other than that raised in an ejectment case, the Court of
Appeals committed a grave error of law in holding that the rights
of Belen Uy Tayag and Jesus B. Tayag, owners of the land, and
those of Rosario Yuseco and Joaquin C. Yuseco, owner of the
building, should be resolved in accordance with the provisions of
Article 448 (formerly Article 361) of the Civil Code of the
Philippines.
III
Granting, further, for the sake of argument only, that Article 448
of the Civil Code of the Philippines should govern the rights of the
parties herein, the Court of Appeals gravely abused its discretion
and committed a serious error of law when it affirmed the
judgment of the trial court which, in effect, compels the owner of
the land to sell it to the owner of the building.

good faith and that finding is conclusive. In connection with said finding, we
are of the opinion that the Yusecos in the mistaken belief that the two lots
were being given to them free constructed the improvements in question,
and that as already stated, the execution and registration of the contract of
lease was a mere formality to legalize the occupation of the lots. Despite the
belief of the Yusecos about the lots being donated to them, there is every
reason to believe that what Maria Lim intended was to keep the title to the
land but allow the Yusecos to occupy the same free, at least as long as she
kept said title. This arrangement would appear to have been known to Belen,
Maria's daughter, when the two lots were transferred to her a few days
before Maria died, because as observed by the Court of Appeals although the
Yusecos had paid no rent since the year 1930 when they constructed the two
buildings, Belen in 1946, one year after the land was transferred to her,
demanded rents not for the period of 15 or 16 years but only from 1946. This
action of hers neither supports nor strengthens her theory that the Yusecos
since 1930 were mere lessees and continued to be such after Belen acquired
the lots in question.
It will be remembered that the construction in good faith was effected in
1930 and that good faith of the builders may be considered as ended in 1946
when the demand for rent was made. It is, therefore, clear that Art. 361 of
the old Civil Code instead of article 448 of the new Civil Code is applicable for
the reason that the new Civil Code did not go into effect until 1950. Article
361 of the old Civil Code reads as follows:
Art. 361. The owner of land on which anything has been built,
sown, or planted in good faith, shall be entitled to appropriate the
things so built, sown or planted, upon paying the compensation
mentioned in Article 453 and 454, or to compel the person who
has built or planted to pay him the value of the land, and the
person who sowed thereon to pay the proper rent therefor.

IV
The Court of Appeals gravely erred in holding that the petitioners
Belen Uy Tayag and Jesus B. Tayag shall be entitled to the
possession of the land described in the complaint upon payment
of the sum of P50,000 but in the event that they are not in a
position to pay said amount within 90 days from the date the
decision shall have become final, the respondents Rosario Yuseco
and Joaquin C. Yuseco shall be entitled to purchase the land in
question for the sum of P10,000.
Petitioners claim that the Court of First Instance and the Court of Appeals
lacked jurisdiction to decide the case as they did for the reason that the only
issue involved in an ejectment case is actual possession and that under Rule
72, section 6, the only judgment that may be rendered in such a case is for
the defendant to recover costs in the event that the court find that the
complaint is not true, or if it finds the complaint to be true to render
judgment for the plaintiff for the restitution of the premises, for the sum
justly due as arrears of rent or as reasonable compensation for the use and
occupation of the premises, and for costs. But according to petitioners, in
spite of this legal provision both courts went further and applied the
provision of article 448 of the new Civil Code.
In theory, and speaking of ordinary ejectment cases, petitioners may be
right; that is to say, if the lessee or occupant has not built anything on the
premises, payment of rent would be a valid and satisfactory solution of the
problem; but where the occupant has built on the land, especially where said
building is substantial and valuable, the courts even in ejectment cases are
bound to take cognizance of said fact and when they find that the
construction or planting had been effected in good faith, instead of
dismissing the complaint and suggesting to the parties to observe and follow
the provisions of article 361 or article 448 of the old and the new Civil Code
of the Philippines, respectively, and if they cannot agree, to file a new action,
not only to enforce or defend the respective rights of the parties but to
assess the value of the land and of the improvement as well, the courts in
order to avoid multiplicity of actions and to administer practical and speedy
justice may, as was done in this case, apply the provisions of the Civil Code
relative to builders specially since there is no question as to the ownership of
the land as shown by the certificates of title, and the ownership of the
buildings.
Petitioners insist that the relation between them and the respondents is that
of lessor and lessee and in support of their contention they point to the
contract of lease between Maria Lim and the Yusecos executed in 1930. As
already stated, the Court of Appeals found respondents to be builders in

The above-quoted legal provision is clear and it is now up to the parties,

particularly the petitioners to act and make their choice. Since the Court of
Appeals has found that neither party has expressed its desire or willingness
to do the thing or things which by law they are authorized or compelled to
perform, the courts cannot disturb their present status and naturally,
payment of rent by respondent for the present, is not in order.
Petitioners question the correctness of the amount of P50,000 fixed by the
trial court and approved by the Court of Appeals, as the value of the
improvements, claiming that under article 546 of the new Civil Code (taken
from article 453 of the old Civil Code) they (petitioners) as owners of the land
have the option of either refunding the amount spent for the construction of
the two buildings, said to be only P18,000 or "paying him the increase in
value which the thing has acquired by reason thereof." The contention of
petitioners is well taken.
Affirming the decision of the Court of Appeals in so far as it finds and
declares respondents to be possessors in good faith, let this case be
remanded to the trial court for further proceedings, particularly to give an
opportunity to plaintiffs-petitioners to exercise their choice and option; and
for purposes of said choice and option the trial court will admit evidence and
make a finding as to the amount of the useful expenditures or "the increase
in value which the thing has acquired by reason thereof", under article 453 of
the old Civil Code, to be refunded or paid by the petitioners should they
choose to appropriate the buildings; "the value of the land" under article 361
of the same Code, to be paid by the defendants-respondents in case
plaintiffs-petitioner elect to compel them to buy the land. No costs

SPOUSES DEL CAMPO V. ABESIA 160 SCRA 379

Facts:
This case involves a parcel of land, situated at the corner of F. Flores and
Cavan Streets, Cebu City. An action for partition was filed by plaintiffs in the

CFI of Cebu. Plaintiffs and defendants are co-owners pro indiviso of this lot in

terms of the lease and in case of disagreement, the court shall fix the terms

the proportion of and 1/3 share each, respectively. The trial court appointed

thereof.

a commissioner in accordance with the agreement of the parties. ,the Id

commissioner conducted a survey, prepared a sketch plan and submitted a
report to the trial court on May 29, 1976, recommending that the property

PECSON V. CA

be divided into two lots: Lot 1161-A with an area of 30 square meters for
plaintiffs and Lot No. 1161-B with an area of 15 square meters for the

FACTS:

defendants. The houses of plaintiffs and defendants were surveyed and

Petitioner was the owner of a parcel of land wherein he built an apartment

complex. Due to his failure to pay for realty taxes, his land was sold in a
public auction and was sold to spouses Nuguid. He moved for the setting
aside of the auction but was denied.

shown on the sketch plan. The house of defendants occupied the portion
with an area of 5 square meters of Lot 1161-A of plaintiffs. The parties
manifested their conformity to the report and asked the trial court to finally
settle and adjudicate who among the parties should take possession of the 5
square meters of the land in question.
Issue: Whether or Not Article 448 of the Civil Code is applicable to a builder
in good faith when the property involved is owned in common.
Held: When the co-ownership is terminated by the partition and it appears
that the house of defendants overlaps or occupies a portion of 5 square
meters of the land pertaining to plaintiffs which the defendants obviously
built in good faith, then the provisions of Article 448 of the new Civil Code
should apply. Manresa and Navarro Amandi agree that the said provision of

HELD:
Article 448 doesn't apply to a case where the owner of the land is the
builder who then later loses ownership of the land by sale or auction.
Nevertheless, the provision therein on indemnity may be applied by
analogy considering that the primary intent of this provision is to avoid a
state of forced ownership.
The current market value of the improvements which should be
made the basis of reimbursement to the builder in good faith
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 and retention of ownership of the
improvements, and necessarily, the income therefrom

the Civil Code may apply even when there was co-ownership if good faith has
been established.
Applying the aforesaid provision of the Civil Code, the plaintiffs have the right
to appropriate said portion of the house of defendants upon payment of
indemnity to defendants as provided for in Article 546 of the Civil Code.
Otherwise, the plaintiffs may oblige the defendants to pay the price of the
land occupied by their house. However, if the price asked for is considerably
much more than the value of the portion of the house of defendants built
thereon, then the latter cannot be obliged to buy the land. The defendants
shall then pay the reasonable rent to the plaintiff upon such terms and
conditions that they may agree. In case of disagreement, the trial court shall
fix the terms thereof. Of course, defendants may demolish or remove the
said portion of their house, at their own expense, if they so decide.
Article 448 of the New Civil Code provides as follows:
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

G.R. NO. 170923 JANUARY 20, 2009SULO SA NAYON, INC. VS

NAYONG PILIPINOFOUNDATION
FACTS:In 1975, respondent leased a portion of theNayong Pilipino Complex,
to petitioner Sulo saNayon, Inc. for the construction and operation of ahotel
building, to be known as the Philippine VillageHotel. The lease was for an
initial period of 21 years,or until May 1996. It is renewable for a period of
25years under the same terms and conditions upon due notice in writing to
respondent of the intention torenew.In 1995, petitioners sent respondent a
letter notifying the latter of their intention to renew thecontract for another.
July of the same year, partiesagreed to the renewal of the contract for
another 25years, or until 2021. Under the new agreement,petitioner PVHI
was bound to pay the monthly rentalsBeginning January 2001,
petitionersdefaulted in the payment of their monthly rental.Respondent
repeatedly demanded petitioners to paythe arrears and vacate the
premises.MeTC rendered its decision in favor of respondentRTC which
modified the ruling of the MeTC.CA which held that the RTC
erroneouslyapplied the rules on accession, as found in Articles448 and 546 of
the Civil Code
ISSUE :WON Sulo sa Nayon 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.

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

HELD :Article 448 is manifestly intended to apply only to a case where one
builds, plants, or sows onland in which he believes himself to have a claim of
title, and not to lands where the only interest of the builder, planter or sower
is that of a holder, such as atenant.In the case at bar, petitioners have no
adverse claim or title to the land. In fact, as lesses, 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, thatthey 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 that would call for the application of Articles
448and 546 of the Civil Code. His rights are governed by art 1678 of the NCC

Neither was there notice of acceptance given to the donor, therefore the
donation is void.
Heirs of Roman Durano, Sr. vs Spouses Uy, et al.

Facts:
Congressman Ramon Durano, Sr, and son Ramon Durano III and the latters
wife Elizabeth Hotchkiss Durano (herein petitioners) filed a case for damages
against respondents for allegedly officiating a hate campaign against them
by lodging complaints for invasion of the respondents properties in
Cahumayhumayan, Danao City. The complaints were filed with the Police

Elvira Arangote vs. Spouses Martin and Lourdes Maglunob and Romeo

Department of Danao and the Office of the President. The said complaints
were investigated by the Department of Justice through the City Fiscal and

Salido

the Philippine Constabulary who later on dismissed the complaints for being

FACTS:

baseless. The petitioners added that the respondents spread false rumours

Elvira Arangote acquired the subject parcel of land from Esperanza

and tales which subjected them to public contempt and ridicule.

Maglunob,who is grand aunt of respondents Martin Maglunob and Romeo

The respondents made a counterclaim demanding the return of their

Salido. In June 1986,Esperenza executed an affidavit in which she renounced

properties claiming that in August 1970, they received mimeographed

her rights, share and participationin the land in favor of Elvira and her

notices signed by Durano Sr. informing them that the land they occupied is

husband. It appears that the lot was not exclusive property of Esperanza but
also of the other heirs of Martin I whom sherepresented in the partition
agreement. Elvira and her husband, Ray constructed a house on the land in
1989 and in 1993, OCT was issued in her name bythe DAR. However,

owned by Cebu Portland Cement Company and was purchased by Durano &
Co for immediate turn over. However, before many of them could even
receive the notice, employees of Durano & Co. proceeded to bulldoze the
land, destroying plantings and improvements made therein. On September
15, 1970, Durano & Co. sold the subject land to Durano III. Claiming that

respondents with the help of hired persons entered the property and built a

during that time, they were not able to find local relief as Durano Sr.s wife

wall behind and in front of Elviras house. Elvira and Ray sued respondents

was the Mayor at that time causing them to send a letter to then President

for quieting of title and declaration of ownership. Respondents averred that

Marcos.

they were co-owners of the land with Esperanza who allegedly inherited the

On April 22, 1975, petitioners moved to dismiss their own complaint

land from Martin 1 together with Tomas and Inocencia (Martin 2s and

granted by the RTC without prejudice to the counterclaim of the

Romeos predecessor in interest). They argued that Esperanza could not have

respondents. According to the petitioners, the property originally belonged

validlywaived her rights in favor of Elvira and Ray. MCTC ruled for Elvira.
RTCreversed MCTC and declared respondents lawful owners of the land
together withthe other heirs of Martin I. Elvira went to the CA but the CA
affirmed the RTC decision.Before SC, Elvira argued that both RTC and CA

to Cepoc and was sold to Durano & Co., and later on to Durano III. But
Durano III claimed that he only learned of the bulldozing when complaints
were already filed by the respondents. He further claimed that they
dismissed the complaints against the respondents as a form of reconciliation
with them but the latter still pursued their counterclaim. According to him,

erred in declaring the affidavit of Esperanza void because it is a valid and

the properties of the claimants, except for Sepulveda Uy, daughter of former

binding proof of transfer of ownershipof the subject property as it was

Mayor of Danao, were occupants of the said property and Durano & Co.

coupled with actual delivery.

purchased the adjacent property for mining coal.

ISSUE: Whether or not the donation to Elvira and her husband is valid.

The RTC ordered in their ruling that the petitioners are to pay damages to

HELD: Supreme Court affirmed the decision of CA. SC ruled that the affidavit

the respondent and the return of the properties of Venancia Repaso,

executed by Esperanza wherein she renounced, relinquished and waived all

Hermogenes Tito, and Marcelino Gonzales as well as the property of Angeles

her rights, share, interest and participation in the subject property in favor of
Elvira and Ray is in fact a donation. Thus, it should have complied with the
requirements of Article 749 of the Civil Code.

Sepulveda Uy with respect to the are found outside of the Cepoc property.
On appeal, the CA affirmed the decision but modified the judgement
ordering the return of all properties to the respondents.
Issue:

A simple donation of real property to be valid

Whether or not the respondents are builders in good faith.

:1) Must be made in a public instrument;2) It must be accepted, which must

Decision:

be in the same deed of donation or in a separate publicinstrument;3) If the

The court ruled that the records indicated that the respondents possession

acceptance is made in a separate instrument, the donor must be notified

has already ripened into ownership by acquisitive prescription. Acquisitive

inauthentic form and the same must be noted in both instruments. The

prescription is acquired by possession in good faith with just tittle for a

affidavit executed by Esperanza relinquishing her rights, share and

period of ten years. One is considered in good faith when he is not aware of

participation over the property in favor of Elvira suffered from legal

any flaw in his tittle or mode of acquisition of the property and there is just

infirmities. In Sumipat vs.Banga, the Court ruled that title to immovable does
not pass from the donor to the done byvirtue of a Deed of Donation until and
unless it has been accepted in a public instrument and the donor duly

title when the adverse claimant came into possession of the property
through one of the modes of acquiring ownership provided by law.
In the case at bar, the respondents acquired the properties by purchase or
inheritance and ever since were in actual, continuous, open, and adverse

notified thereof. In this case, the acceptance of the donation was not made

possession. The records showed that they were unaware of any claims over

by Elvira either in the same affidavit or in a separate public instrument.

the properties until the notices given on August 1970.

The petitioners on the other hand cannot claim good faith. The validity of the

Facts:

certificates of title obtained by them were doubted by the courts as there

Sometime in 1994, respondent-spouses Arsenio and Angeles Nanol

was a lack of registered title of Cepoc and the deed of sale between Cepoc

entered into a Contract to Sell with petitioner Communities Cagayan, Inc.,

and Durano & Co. were not notarised and therefore unregisterable.

(CCI) whereby the latter agreed to sell to respondent-spouses a house and

Furthermore, a buyer could not have been ignorant that the property they

Lots 17 and 19 located at Block 16, Camella Homes Subdivision, Cagayan de

bought were adversely possessed by the respondents nor did they

Oro City, for the price of P368,000.00 (P368T). They obtained a loan from

investigate the property the petitioners cannot be held to be buyers in

Capitol Development Bank (CDB), using the property as collateral. To

good faith, nor builders in good faith.

facilitate the loan, a simulated sale over the property was executed by

Under the Article 449 of the New Civil Code, he who builds etc. in bad faith

petitioner in favor of respondent-spouses. Accordingly, titles (TCT Nos.

on the land of another, loses what is built etc. without right of indemnity.

105202 and 105203) were transferred in the names of respondent-spouses

Furthermore, Article 450 gives the landowner over which something was

and submitted to CDB for loan processing. The bank collapsed and closed

built in bad faith the power to demolish the works to replace the property in

before it could release the loan.

their former condition at the expense of the builder. And Article 451 gives
him the right to damages.

On November 30, 1997, respondent-spouses entered into another

Contract to Sell with petitioner over the same property for the same
price. This time, they availed of petitioners in-house financing thus,

FELICIANO VS ZALDIVAR
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.

undertaking to pay the loan over four years, from 1997 to 2001.
Respondent Arsenio demolished the original house and constructed a
three-story house allegedly valued at P3.5 million, more or less. (Respondent
Arsenio died, leaving his wife, herein respondent Angeles, to pay for the
monthly amortizations.)

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.
Under the circumstances, respondents and Remegia are in mutual bad faith
and, as such, would entitle the former to the application of Article 448 of the
Civil Code governing builders in good faith:
ART. 448. The owner of the land on which anything has been built, sown or

On September 10, 2003, petitioner sent respondent-spouses a

notarized Notice of Delinquency and Cancellation of Contract to Sell due to
the latters failure to pay the monthly amortizations. Petitioner filed before
the Municipal Trial Court in Cities, an action for unlawful detainer against
respondent-spouses.
In her Answer, respondent Angeles averred that the Deed of Absolute
Sale is valid.

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

Issues
1) Whether petitioner is obliged to refund to respondent-spouses

Articles 54629 and 548,30 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

all the monthly installments paid; and

2) Whether petitioner is obliged to reimburse respondent-spouses

builder or planter cannot be obliged to buy the land if its value is

considerably more than that of the building or trees. In such a case, he shall

the value of the new house minus the cost of the original house.

pay reasonable rent, if the owner of the land does not choose to appropriate

Ruling
The petition is partly meritorious.

the building or trees after the proper indemnity. The parties shall agree upon
the terms of the lease and in case of disagreement, the court shall fix the

Respondent-spouses are entitled to the cash surrender value of the

terms thereof.

payments

Following the above provision, the owner of the land on which anything has

on the property equivalent to 50% of the total payments made under the

been built, sown or planted in good faith shall have the right to appropriate

Maceda Law.

as his own the building, planting or sowing, after payment to the builder,

Respondent-spouses are entitled to reimbursement of the

planter or sower of the necessary and useful expenses, and in the proper

improvements

case, expenses for pure luxury or mere pleasure.

made on the property.

Consequently, the petitioners are obliged to exercise either of the following

In view of the special circumstances obtaining in this case, we are

options:

constrained to rely on the presumption of good faith on the part of the

(1) to appropriate the improvements, including the house, built by the

respondent-spouses which the petitioner failed to rebut. Thus, respondent-

respondents on the subject lot by paying the indemnity required by law, or

spouses being presumed builders in good faith, we now rule on the

(2) sell the subject lot to the respondents.

applicability of Article 448 of the Civil Code. Article 448 on builders in good

Petitioners cannot refuse to exercise either option and compel respondents

faith does not apply where there is a contractual relation between the

to remove their house from the land. In case petitioners choose to exercise

parties, such as in the instant case. We went over the records of this case and

the second option, respondents are not obliged to purchase the subject lot if

we note that the parties failed to attach a copy of the Contract to Sell. As

its value is considerably more than the improvements thereon and in which

such, we are constrained to apply Article 448 of the Civil Code, which

case, respondents must pay rent to petitioners. If they are unable to agree

provides viz:

on the terms of the lease, the court shall fix the terms thereof.

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

COMMUNITIES

CAGAYAN,

INC.,

works, sowing or planting, after payment of the indemnity provided for in

vs.

Articles 546 and 548, or to oblige the one who built or planted to pay the

SPOUSES ARSENIO (Deceased) and ANGELES NANOL AND ANYBODY

price of the land, and the one who sowed, the proper rent. However, the

CLAIMING RIGHTS UNDER THEM

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.
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

did not take part in the deed of sale, and several other persons who were
stockholders of the said corporation, as plaintiffs, and the parties who signed the
deed of sale as defendants. The second action was for rescission (Civil Case No.
1907, filed July 17, 1956) with Rosenda Nuqui, Sotero Dionisio, Jr. and Erlinda
D. Diaz (and the latter's husband Antolin Diaz) as plaintiffs, and Ildefonso D. Yap
as lone defendant. The other four children of Rosenda did not join, having
previously ceded and quitclaimed their shares in the litigated properties in favor
of their sister Erlinda D. Diaz.
The two actions were tried jointly and on March 31, 1960 the court a
quo rendered judgment as follows:

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

In both Cases

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 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

(1) The Mutual Agreement is hereby declared null and void ab initio;
(2) Defendant Ildefonso D. Yap is hereby ordered to pay the costs of
the proceedings in both cases.

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

In Civil Case No. 1907 only

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

(1) Defendant Ildefonso D. Yap is hereby ordered to restore to the

plaintiffs in said case all the buildings and grounds described in the
Mutual Agreement together with all the permanent improvements
thereon;
(2) To pay to the plaintiffs therein the amount of P300.00 monthly
from July 31, 1956 up to the time he shall have surrendered the
properties in question to the plaintiffs herein, plus P1,000.00 as
attorney's fees to plaintiffs Antolin and Erlinda D. Diaz.

thing.
In conformity with the foregoing pronouncement, we hold that

In Civil Case No. 1774 only

petitioner, as landowner, has two options. It may appropriate the new house
by reimbursing respondent Angeles the current market value thereof minus
the cost of the old house. Under this option, respondent Angeles would have
"a right of retention which negates the obligation to pay rent." In the

(1) Defendant Ildefonso D. Yap is hereby ordered to restore to the

Mindanao Academy, Inc., all the books laboratory apparatus, furniture
and other equipments described in the Mutual Agreement and
specified in the inventory attached to the Records of this case; or in
default thereof, their value in the amount of P23,500.00;

alternative, petitioner may sell the lots to respondent Angeles at a price

equivalent to the current fair value thereof. However, if the value of the lots
is considerably more than the value of the improvement, respondent Angeles
cannot be compelled to purchase the lots. She can only be obliged to pay
petitioner reasonable rent.
MINDANAO ACADEMY VS YAP
By deed entitled "Mutual Agreement," executed on May 10, 1964, Rosenda A. de
Nuqui (widow of deceased Sotero Dionisio) and her son Sotero Dionisio, Jr. sold
three parcels of residential land in Oroquieta, Misamis Occidental, and another
parcel in Ozamis City in favor of Ildefonso D. Yap. Included in the sale were
certain buildings situated on said lands as well as laboratory equipment, books,
furniture and fixtures used by two schools established in the respective
properties, the Mindanao Academy in Oroquieta and the Misamis Academy in
Ozamis City. The aggregate price stated in the deed was P100,700.00, to be
paid according to the terms and conditions specified in the contract.
Besides Rosenda and her son Sotero, Jr., both of whom signed the instrument,
Adelaida Dionisio-Nuesa (a daughter of Rosenda) is also named therein as covendor, but actually did not take part either personally or through her uncle and
supposed attorney-in-fact, Restituto Abuton.
These three Rosenda and her two children above named are referred to in
the deed as the owners pro-indiviso of the properties sold. The truth, however,
was that there were other co-owners of the lands, namely, Erlinda D. Diaz, Ester
Aida D. Bas, Rosalinda D. Belleza, and Luz Minda D. Dajao, children also of
Rosenda by her deceased husband Sotero Dionisio, Sr., and that as far as the
school building, equipment, books, furniture and fixtures were concerned, they
were owned by the Mindanao Academy, Inc., a corporation operating both the
Mindanao Academy in Oroquieta and the Misamis Academy in Ozamis City.
The buyer, Ildefonso D. Yap, obtained possession of the properties by virtue of
the sale, took over the operation of the two schools and even changed their
names to Harvardian Colleges. In view thereof two actions were commenced in
the Court of First Instance of Misamis Occidental. The first was for annulment of
the sale and recovery of rents and damages (Civil Case No. 1774, filed May 3,
1955) with the Mindanao Academy, Inc., the five children of Rosenda Nuqui who

(2) To return all the Records of the Mindanao Academy and Misamis
Academy;
(3) To pay to the plaintiffs stockholders of the Mindanao Academy,
Inc., the amount of P10,000.00 as nominal damages, P3,000.00 as
exemplary damages; and P2,000.00 as attorney's fees. These
damages shall be apportioned to each of the stockholders named as
plaintiffs in said case in proportion to their respective interests in the
corporation.
Ildefonso D. Yap appealed from the foregoing judgment and has assigned five
errors therein.
I. He first contends that the lower court erred "in declaring that the mutual
agreement dated May 10, 1954 ... is entirely void and legally non-existent in that
the vendors therein ceded to defendant-appellant not only their interests, rights,
shares and participation in the property sold but also those that belonged to
persons who were not parties thereto."
The lower court did not rule categorically on the question of rescission
considering it unnecessary to do so in view of its conclusion that the contract of
sale is null and void. This conclusion is premised on two grounds: (a) the contract
purported to sell properties of which the sellers were not the only owners, since
of the four parcels of land mentioned in the deed their shares consisted only of
7/12, (6/12 for Rosenda Nuqui and 1/12 for Sotero, Jr.), while in the buildings,
laboratory equipment, books, furniture and fixtures they had no participation at
all, the owner being the Mindanao Academy, Inc.; and (b) the prestation involved
in the sale was indivisible, and therefore incapable of partial annulment,
inasmuch as the buyer Yap, by his own admission, would not have entered into
the transaction except to acquire all of the properties purchased by him.
These premises are not challenged by appellant. But he calls attention to one
point, namely, that the four children of Rosenda Nuqui who did not take part in
the sale, besides Erlinda Dionisio Diaz, quitclaimed in favor of the latter their
interests in the properties; and that the trial court held that Erlinda as well as her
husband acted in bad faith, because "having reasonable notice of defendants'
having unlawfully taken possession of the property, they failed to make
reasonable demands for (him) to vacate the premises to respect their rights
thereto." It is argued that being herself guilty of bad faith, Erlinda D. Diaz, as

owner of 5/12 undivided interest in the properties (including the 4/12 ceded to her
by her four sisters), is in no position to ask for annulment of the sale. The
argument does not convince us. In the first place the quitclaim, in the form of an
extrajudicial partition, was made on May 6, 1956, after the action for annulment
was filed, wherein the plaintiffs were not only Erlinda but also the other coowners who took no part in the sale and to whom there has been no imputation
of bad faith. Secondly, the trial court's finding of bad faith is an erroneous
conclusion induced by a manifest oversight of an undisputed fact, namely, that
on July 10, 1954, just a month after the deed of sale in question, Erlinda D. Diaz
did file an action against Ildefonso D. Yap and Rosenda Nuqui, among others,
asserting her rights as co-owner of the properties (Case No. 1646). Finally, bad
faith on the part of Erlinda would not militate against the nullity of the sale,
considering that it included not only the lands owned in common by Rosenda
Nuqui and her six children but also the buildings and school facilities owned by
the Mindanao Academy, Inc., an entity which had nothing to do with the
transaction and which could be represented solely by its Board of Trustees.
The first assignment of error is therefore without merit.
II. The second and third errors are discussed jointly in appellant's brief. They
read as follows:
THE LOWER COURT ERRED IN HOLDING DEFENDANTAPPELLANT LIABLE FOR RENTS AND ATTORNEY'S FEES IN
THE SUM OF P1,000.00 AFTER DECLARING THAT ALL THE
PLAINTIFFS-APPELLEES IN CIVIL CASE NO. 1907 ACTED IN BAD
FAITH.
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFFSAPPELLEES IN SAID CIVIL CASE NO. 1907 ARE ENTITLED TO
RECOVER ALL THE LANDS, BUILDINGS AND OTHER
PERMANENT IMPROVEMENTS DESCRIBED IN THE MUTUAL
AGREEMENT DATED MAY 10, 1954.
The lower court correctly found that both vendors and vendee in the sale acted in
bad faith and therefore must be treated, vis-a-vis each other, as having acted in
good faith. The return of the properties by the vendee is a necessary
consequence of the decree of annulment. No part of the purchase price having
been paid, as far as the record shows, the trial court correctly made no
corresponding order for the restitution thereof.
In regard to the rents the trial court found that prior to the sale the Mindanao
Academy, Inc., was paying P300.00 monthly for its occupancy of the lands on
which the buildings are situated. This is the amount the defendant has been
ordered to pay to the plaintiffs in Civil Case No. 1907, beginning July 31, 1956,
when he filed his "first pleading" in the case. There can be no doubt that Erlinda
D. Diaz is entitled to recover a share of the said rents in proportion to her own
interests in the lands and the interest in the four co-owners which she had
acquired. Rosenda Nuqui and her son Sotero, it is true, acted in bad faith when
they sold the properties as theirs alone, but so did the defendant Yap when he
purchased them with knowledge of the fact that there were other co-owners.
Although the bad faith of one party neutralizes that of the other and hence as
between themselves their rights would be as if both of them had acted in good
faith at the time of the transaction, this legal fiction of Yap's good faith ceased
when the complaint against him was filed, and consequently the court's
declaration of liability for the rents thereafter is correct and proper. A possessor
in good faith is entitled to the fruits only so long as his possession is not legally
interrupted, and such interruption takes place upon service of judicial summons
(Arts. 544 and 1123, Civil Code).
In our opinion the award of attorney's fees to Erlinda D. Diaz and her husband is
erroneous. Civil Case No. 1907, in which said fees have been adjudged, is for
rescission (more properly resolution) of the so-called "mutual agreement" on the
ground that the defendant Yap failed to comply with certain undertakings
specified therein relative to the payment of the purchase price. Erlinda Diaz was
not a party to that agreement and hence had no cause of action for rescission.
And as already stated, the trial court did not decide the matter of rescission
because of the decree of annulment it rendered in the other case (Civil Case No.
1774), wherein the defendants are not only Ildefonso D. Yap but also Rosenda
Nuqui and her son Sotero. Erlinda D. Diaz could just as well have refrained from
joining as plaintiff in the action for rescission, not being a party to the contract
sought to be rescission and being already one of the plaintiffs in the other action.
In other words, it cannot be said with justification that she was constrained to
litigate, in Civil Case No. 1907, because of some cause attributable to the
appellant.
The appellant claims reimbursement for the value of the improvements he
allegedly introduced in the schools, consisting of a new building worth P8,000.00
and a toilet costing P800.00, besides laboratory equipment, furniture, fixtures and
books for the libraries. It should be noted that the judgment of the trial court
specifies, for delivery to the plaintiffs (in Civil Case No. 1907), only "the buildings
and grounds described in the mutual agreement together with all the permanent
improvements thereon." If the defendant constructed a new building, as he

alleges, he cannot recover its value because the construction was done after the
filing of the action for annulment, thus rendering him a builder in bad faith who is
denied by law any right of reimbursement.
In connection with the equipment, books, furniture and fixtures brought in by him,
he is not entitled to reimbursement either, because the judgment does not award
them to any of the plaintiffs in these two actions. What is adjudged (in Civil Case
No. 1774) is for the defendant to restore to the Mindanao Academy, Inc. all the
books, laboratory apparatus, furniture and other equipment "described in the
Mutual Agreement and specified in the Inventory attached to the records of this
case; or in default thereof, their value in the amount of P23,500.00." In other
words, whatever has been brought in by the defendant is outside the scope of
the judgment and may be retained by him.
III. The appellant's fourth assignment of error refers to the nominal and
exemplary damages, as well as the attorney's fees, granted to the stockholders
of the Mindanao Academy, Inc. The trial court awarded no compensatory
damages because the Mindanao Academy, Inc. had been operating the two
schools at a loss before the sale in question, and the defendant himself was no
more successful after he took over. Are the stockholders of the said corporation
who joined as plaintiffs in Civil Case No. 1774 entitled to nominal and exemplary
damages? We do not believe so. According to their second amended complaint
they were joined merely pro forma, and "for the sole purpose of
the moral damage which has been all the time alleged in the original complaint."
Indeed the interests of the said stockholders, if any, were already represented by
the corporation itself, which was the proper party plaintiff; and no cause of action
accruing to them separately from the corporation is alleged in the complaint,
other than that for moral damages due to "extreme mental anguish, serious
anxiety and wounded feelings." The trial court, however, ruled out this claim for
moral damages and no appeal from such ruling has been taken. The award for
nominal and exemplary damages should be eliminated in toto.
The award for attorney's fees in the amount of P2,000.00 should be upheld,
although the same should be for the account, not of the plaintiff stockholders of
the Mindanao Academy, Inc., but of the corporation itself, and payable to their
common counsel as prayed for in the complaint.
IV. Under the fifth and last assignment of error the appellant insists on the
warranty provided for in clause VI of the deed of sale in view of the claims of the
co-owners who did not take part therein. The said clause provides: "if any claim
shall be filed against the properties or any right, share or interest which are in the
possession of the party of the First Part (vendors) which had been hereby
transferred, ceded and conveyed unto the party of the Second Part (vendee) the
party of the First Part assumes as it hereby holds itself answerable.
It is unnecessary to pass upon the question posed in this assignment of error in
view of the total annulment of the sale on grounds concerning which both parties
thereto were at fault. The nullity of the contract precludes enforcement of any of
its stipulations.