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CONTRIBUTOR: BEJASA, Kirk Dean H.

CASE TITLE: SPOUSES DARIO LACAP and MATILDE LACAP, petitioners, vs. JOUVET
ONG LEE, represented by Reynalod de los Santos, respondent [G.R. No. 142131.
December 11, 2002]

PRINCIPLE: “Possession in good faith continues to subsist until facts exist which show
that the possessor is already aware that he wrongfully possesses the thing.”

FACTS:
A certain Victor Facundo (“VICTOR”) mortgaged parcels of land to Monte de Piedad
Savings Bank (“BANK”). Later on, Spouses Dario and Matilde Lacap (“SPS. LACAP”)
assumed to pay VICTOR’s mortgage obligation to the BANK. Due to their failure to
pay said obligation, the BANK foreclosed on the mortgage. During the auction sale,
the BANK emerged as the highest bidder and title pass on to it. The BANK allowed
SPS. LACAP to stay in the premises as lessees. The SPS. LACAP introduced
improvements thereon after relying on the BANK’s assurance that the property
would be sold back to them. Later on when SPS. LACAP went to the bank to pay the
monthly rental, the BANK refused to accept the rentals because according to the
BANK the property had already been sold to another person. Months thereafter, SPS.
LACAP received a letter demanding that they vacate the premises because it was
already owned by a certain Jouvet Ong Lee (“LEE”).

Consequently, LEE filed a complaint for unlawful detainer against SPS. LACAP before
the MTC, which ruled in his favor. On appeal by SPS. LACAP, the RTC affirmed the
decision of the MTC with modification that LEE should reimburse SPS. LACAP for the
improvements that the latter introduced to the premises. Both parties filed a motion
for reconsideration (“MR”). However, only LEE’s MR was granted, and hence,
deleted the order to reimburse SPS. LACAP for the improvements introduced on the
subject premises. SPS. LACAP appealed the decision of the RTC to the CA arguing
that they are entitled to reimbursement for the necessary and useful expenses, with
right of retention in both cases, because they are considered as builders in good
faith having merely stepped into the shoes of VICTOR, the former owner-mortgagor,
when the latter assigned to them the obligation to pay the BANK the balance due on
mortgage. However, the CA dismissed their appeal ruling that they are not
considered as builders in good faith because their payment of rentals to the bank
was an indication that they were lessees. Ruling further that in the indemnification
for improvements made, Article 1678, not Article 448, of the Civil Code should
govern.
ISSUES:
1. Whether or not SPS. LACAP are builders in good faith.
2. Whether or not SPS. LACAP are entitled to reimbursement for the value of the
useful improvements that they introduced into the property.

HELD:
1. No, SPS. LACAP are not builders in good faith. The SC held that possession in good
faith continues to subsist until facts exists which show that the possessor is already
aware that he wrongfully possesses the thing. In this case, although, in the beginning,
the SPS. LACAP were made to believe that they had a claim of title over the said
property by assuming the mortgage and possessing the subject property, all of this
changed when they started paying monthly rentals to the BANK after the foreclosure
of said property. In other words, their supposed belief in good faith of their right of
dominion ended when the BANK foreclosed and acquired title over the subject
premises.

2. Yes, SPS. LACAP are entitled to the reimbursement of the value of the useful
improvements that they introduced to the property, but only limited to 1/2 of said
value. Under Article 1678 of the Civil Code, 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. In this case, SPS. LACAP are therefore entitled to be paid
only one-half of the value of the useful improvements at the time of the termination
of the lease, considering that it was already established that they are lessees to the
subject property.