(1)

Bachrach Motor Co., Inc. v. Talisay Silay Milling Co.

G.R. No. 35223, September 17, 1931, 56 Phil. 117 Romualdez, J.
FACTS: On December 22, 1923, the Talisay-Silay Milling Co., Inc., was indebted to the
Philippine National Bank. To secure the payment of its debt, it succeeded in inducing its
planters, among whom, was Mariano Lacson Ledesma, to mortgage their land to the
creditor bank. And in order to compensate those planters for the risk they were running
with their property under the mortgage, the aforesaid central, by a resolution passed on
that same date, i.e., December 22, 1923, undertook to credit the owners of the
plantation thus mortgaged every year with a sum equal to two per centum of the debt
secured according to yearly balance, the payment of the bonus being made at once, or
in part from time to time, as soon as the central became free of its obligations to the
aforesaid bank, and of those contracted by virtue of the contract of supervision, and had
funds which might be so used, or as soon as it obtained from said bank authority to
make such payment.
Bachrach Motor Co., Inc. filed a complaint against the Talisay-Silay Milling Co., Inc., for
the delivery of the amount P13,850 or promissory notes or other instruments or credit for
that sum payable on June 30, 1930, as bonus in favor of Mariano Lacson Ledesma.
The Philippine National Bank filed a third party claim alleging a preferential right to
receive any amount which Mariano Lacson Ledesma might be entitled to from the
Talisay-Silay Milling Co. as bonus, because that would be civil fruits of the land
mortgaged to said bank by said debtor for the benefit of the central referred to, and by
virtue of a deed of assignment, and praying that said central be ordered to delivered
directly to the intervening bank said sum on account of the latter's credit against the
aforesaid Mariano Lacson Ledesma.
ISSUE: Whether or not the bonus in question is civil fruits
HELD: No. The said bonus bears no immediate, but only a remote accidental relation to
the land mentioned, having been granted as compensation for the risk of having
subjected one's land to a lien in favor of the bank, for the benefit of the entity granting
said bonus. If this bonus be income or civil fruits of anything, it is income arising from
said risk, or, if one chooses, from Mariano Lacson Ledesma's generosity in facing the
danger for the protection of the central, but certainly it is not civil fruits or income from
the mortgaged property. Hence, the amount of the bonus, according to the resolution of
the central granting it, is not based upon the value, importance or any other
circumstance of the mortgaged property, but upon the total value of the debt thereby
secured, according to the annual balance, which is something quite distinct from and
independent of the property referred to.
(2) Pacific Farms Inc. v. Esguerra
G.R. No. L-21783, November 29, 1969, 30 SCRA 684 Castro, J.
FACTS: On October 1, 1956 to March 2, 1957 the Company sold and delivered lumber
and construction materials to the Insular Farms Inc. which the latter used in the
construction of the si buildings at its compound in Bolinao, Pangasinan, of the total
procurement price of P15,000.00, the sum of P4,710.18 has not been paid.
Consequently, the Company instituted a civil case to recover the unpaid balance and the
court sustained their claim. The defendant sheriff levied th six buildings. The Pacific
Farms, Inc. filed a suit against the Company and the sheriff asserting ownership over the
levied buildings which it had acquired from the Insular Farms by virtue of absolute sale

executed on March 21, 1958. Pacific prays that the judicial sale of the six buildings be
declared null and void. The trial court rendered judgment annulling the levy and the
certificate of sale. However, it denied the plaintiff's claim for actual and exemplary
damages on the ground that it was not "prepared to find there was gross negligence or
bad faith on the part of any defendants".
ISSUE: Whether or not the application by analogy of the rules of accession would suffice
for a just adjudication.
HELD: Article 447 of the Civil Code contemplates a principal and an accessory; the land
being considered the principal, and the plantings, constructions or works, the accessory.
The owner of the land who in good faith - whether personally or through another - makes
constructions or works thereon, using materials belonging to somebody else, becomes
the owner of the said materials with the obligation however of paying for their value. On
the other hand, the owner of the materials is entitled to remove them, provided no
substantial injury is caused to the landowner. Otherwise, he has the right to
reimbursement for the value of his materials,
Applying article 447 by analogy, the Court consider the buildings as the principal and the
lumber and construction materials that went into their construction as the accessory.
Thus the appellee, if it does own the six buildings, must bear the obligation to pay for the
values of the said materials; the appellant which apparently has no desire to remove
the materials, and, even if it were minded to do so, cannot remove them without
necessarily damaging the buildings has the corresponding right to recover the value of
the unpaid lumber and construction materials.
(3) Bernardo v. Bataclan
G.R. No. L-44606, November 28, 1938, 66 Phil. 598 Laurel, J.
FACTS: Bernardo bought a parcel of land from Samonte which was located in Cavite. In
order that he may take possession and occupy the said land, he filed a case in the CFI for
such purpose and the court rendered a favorable decision for Bernardo. However, when
he was supposedly set in occupying the said land, he found Bataclan. He was within the
premises because he was authorized by the previous owners to clear the land and make
the necessary improvements he deems fit, further claiming that such authorization was
granted to him ever since 1922. Since Bataclan was not a party in the first case,
Bernardo filed against him a separate case. Bernardo was declared owner but the
defendant was held to be a possessor in good faith for whom the work done and
improvements made by him should be reimbursed. An appeal to the decision of the court
was filed by both Bernardo and Bataclan. The decision was modified by lowering the
price of the land from P300 to P200 per hectare. Bernardo was given 30 days to exercise
his option, whether to sell the land to Bataclan or to buy the improvements from him.
Bernardo chose the option which would require Bataclan to pay him the value of the land
at the rate of P200 per hectare. However, Bataclan informed the court that he will not be
able to pay for the price of the land. The court then gave Bataclan 30 days to pay the
price of the property and after the lapse of the period, the land shall be sold in a public
auction. After 30 days, the land was sold to Teodoro at a public auction, after failure of
Bataclan to pay within the period the purchase price.
ISSUE: Whether or not Bataclan has the right of retention over the parcel of land in
question.
HELD: No. Bataclan no longer has lost the right of retention. The option of the owner was
already exercised where he decided that he will just allow the defendant to purchase the

land such that Bataclan was to comply with the option if he wants to retain the land.
From the moment that he told the courts of his inability to pay for the price of the land,
he already lost his right to retain the land.
(4)
(5)
(6) Ignacio v. Hilario
G.R. No. L-175, August 30, 1946, 76 Phil. 605 Moran, C. J.
FACTS: This case concerns the ownership of a parcel of land, partly rice-land and partly
residential. The lower court rendered judgment holding plaintiffs as the legal owners of
the whole property but conceding to defendants the ownership of the houses and
granaries built by them on the residential portion with the rights of a possessor in good
faith, in accordance with article 361 of the Civil Code.
Subsequently, the plaintiffs prayed for an order of execution alleging that since they
chose neither to pay defendants for the buildings nor to sell to them the residential lot,
said defendants should be ordered to remove the structure at their own expense and to
restore plaintiffs in the possession of said lot. Defendants objected to this motion which,
after hearing, was granted by Judge Natividad. Hence, this petition by defendants
praying for (a) a restraint and annulment of the order of execution issued by Judge
Natividad; (b) an order to compel plaintiffs to pay them the sum of P2,000 for the
buildings, or sell to them the residential lot for P45; or (c), a rehearing of the case for a
determination of the rights of the parties upon failure of extra-judicial settlement.
ISSUE: Whether the respondent Court erred in its judgment.
HELD: Yes. The Civil Code provides:
ART. 361. The owner of land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the work, sowing or planting, after
the payment of the indemnity stated in articles 453 and 454, or to oblige the one who
built or planted to pay the price of the land, and the one who sowed, the proper rent.
ART. 453. Necessary expenses shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until such expenses are made good to him.
Useful expenses shall be refunded 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 paying the increase in value which the thing
may have acquired in consequence thereof.
The owner of the building erected in good faith on a land owned by another, is entitled to
retain the possession of the land until he is paid the value of his building, under article
453. The owner of the land, upon the other hand, has the option, under article 361,
either to pay for the building or to sell his land to the owner of the building. But he
cannot, as respondents here did, refuse both to pay for the building and to sell the land
and compel the owner of the building to remove it from the land where it is erected. He
is entitled to another motion only when, after having chosen to sell his land, the other
party fails to pay for the same.

The Court holds, therefore, that the order of Judge Natividad compelling defendantspetitioners to remove their buildings from the land belonging to plaintiffs-respondents
only because the latter chose neither to pay for such buildings not to sell the land, is null
and void, for it amends substantially the judgment sought to be executed and is,
furthermore, offensive to articles 361 and 453 of the Civil Code.
(7)
(8) ORTIZ v KAYANAN (1979; Antonio)
Facts: Homestead Application Lot belonged to Dolorico II, Ortizs ward located in Barrio
Cabuluan, Calauag, Quezon .

Dolorico II named as successor and heir his uncle Dolorico, then died.

All this time Ortiz was in possession and cultivation of the property.

Dolorico relinquished rights over property in favour of Comintan and Zamora.

Court found Ortiz to be in good faith, but held the public bidding to be valid. If
petitioner was not found to be the winner, Comintan and Zamora are to reimburse him
for P13,632. Ortiz is to retain possession until the amount is paid.

CA affirmed RTC

Respondent Judge discovered that after the decision of the lower courts, Ortiz
collected tolls on portions of the land even if he had not introduced any improvements
on said portions estimated to amount to P25,000.

Petitioner contends that he is entitled to the fruits of the property while the
P13,632 has yet to be paid, this being considered as civil fruits.
Issue: WON petitioner is entitled to fruits while Comintan and Zamora have yet to pay
the indemnity due petitioner.
Decision: NO.

Before possession is legally interrupted, possessor in good faith is entitled to fruits.

This right ceases upon defects being known. This is known as a right to retention, for the
creditor to obtain payment of a debt.

Also we must consider that tolls were collected from portions with no
improvements of petitioner, therefore he really has no right to said fruits.
(9) Ignao v. Intermediate Appellate Court
G.R. No. 72876, January 18, 1991, 193 SCRA 17 Fernan, C. J.
FACTS: Petitioner Florencio Ignao and his uncles Juan Ignao and Isidro Ignao were coowners of a 534sqm land located in Cavite. Pursuant to an action for partition filed by
petitioner, the CFI of Cavite directed the partition of the said land. A total of 133.5 sqm
was allotted to the petitioners uncles while the remaining 266.5 was allotted to the
petitioner. However, when Juan and Isidro built their houses they encroached upon a
portion of land belonging to Florencio. A geodetic engineer surveyed the land and it was
found out that Juan and Isidro occupied a total of 101sqm of Florencios lot.
The trial court which based its decision on Article 448 of the Civil Code, ruled that
Florencio should have the choice to either appropriate to himself that part of the house
standing on his lot or to require Juan and Isidro to pay the price of the land. But since
the first option seems to be impractical, it ordered to sell to Juan and Isidro those
portions occupied by them because it is the workable solution. Upon appeal petitioner

contends that Article 448 cannot be applied because they are co-owners of he subject
property. However, the appellate court affirmed in toto the decision of the trial court.
ISSUE: Whether or not Article 448 of the Civil Code is applicable in the case at bar.
HELD: Yes. It is true that Article 448 cannot be applied where a co-owner builds upon a
land owned in common. However, in the case at bar, the co-ownership has already been
terminated by virtue of the partition, thus, Article 448 now applies since the builder is
not anymore considered as an owner of the land where the house was built.
As to the workable solution applied by the lower court, the same cannot be upheld
because Article 448 clearly states that the right of choice belongs to the land owner and
not upon the builder and the courts. Thus, whether it might seem impractical, the
landowner may choose to appropriate the improvements.
(10) Filipinas Colleges, Inc. v. Garcia Timbang, et. al., G.R. No. L-12812,
September 29, 1989, 164 SCRA 287 Barrera, J.
FACTS: After appropriate proceedings, the Court of Appeals held, among other things,
that Filipinas Colleges, Inc. are declared to have acquired the rights of the spouses
Timbang in the questioned lots, they are ordered to pay the spouses Timbang in the
amount of P15,807.90 plus such other amount which said spouses might have paid or
had to pay. On the other hand, Maria Gervacio Blas was also declared to be a builder in
good faith of the school building constructed in the lot in question and was entitled to be
paid the amount of P19,000.00 for the same. Also, in case that Filipinas Colleges, Inc.
failed to deposit the value of the land, which after liquidation was fixed at P32,859.34,
within the 90-day period set by the Court, Filipinas Colleges would lose all its rights to
the land and the spouses Timbang would then become the owners thereof. If that is the
case, the Timbangs are ordered to make known to the court their option under Article
448 of the Civil Code whether they would appropriate the building in question, in which
even they would have to pay Filipinas Colleges, Inc. the sum of P19,000.00, or would
compel the latter to acquire the land and pay the price thereof. Filipinas Colleges, Inc.
failed to pay the sum of P32,859.34 so the spouses Timbang made known to the court
their decision that they had chosen not to appropriate the building but to compel
Filipinas Colleges, Inc., for the payment of the sum of P32,859,34 which was granted by
the Court. As a consequence of which, a writ of execution was issued. Meanwhile, Blas
filed a motion for execution of her judgment representing the unpaid portion of the price
of the house sold to Filipinas which was granted. Levy was made on the house in virtue
of the writs of execution. Then, the Sheriff of Manila sold the building in public auction in
favor of the spouses Timbang, as the highest bidders. Several motion were the
subsequently filed before the lower court wherein the court held that: a) the Sheriff's
certificate of sale covering a school building sold at public auction was null and void
unless within 15 days from notice of said order spouses Timbang shall pay to Blas the
sum of P5,750.00 that the spouses Timbang had bid for the building at the Sheriff's sale;
b) that Filipinas is owner of 245.00/32,859.34 undivided interest in Lot No. 2-a on which
the building sold in the auction sale is situated; and c) that the undivided interest of the
Filipinas in the lot should be sold to satisfy the unpaid portion of the judgment in favor of
Blas and against Filipinas in the amount of P8,200.00 minus the sum of P5,750.00. The
spouses Timbang contends that because the builder in good faith has failed to pay the
price of the land after the owners thereof exercised their option under Article 448 of the
Civil Code, the builder lost his right of retention provided in Article 546 and that by

operation of Article 445, the spouses Timbang as owners of the land automatically
became the owners ipso facto of the school building.
ISSUE: Whether or not the spouses Timbang automatically become the owners of the
building upon failure of Filipinas to pay the value of the land.
HELD: No. Based on Article 448 and 546 of the New Civil Code, the owner of the land has
the right to choose between appropriating the building by reimbursing the builder of the
value thereof or compelling the builder in good faith to pay for his land. Even this second
right cannot be exercised if the value of the land is considerably more than that of the
building. In addition to the right of the builder to be paid the value of his improvement,
Article 546 gives him the corollary right of retention of the property until he is
indemnified by the owner of the land. There is nothing in the language of these two
articles, 448 and 546, which would justify the conclusion of appellants that, upon the
failure of the builder to pay the value of the land, when such is demanded by the landowner, the latter becomes automatically the owner of the improvement under Article
445. The case of Bataclan vs Bernardo cannot be applied in this case in the sense that
although it is true it was declared therein that in the event of the failure of the builder to
pay the land after the owner thereof has chosen this alternative, the builder's right of
retention provided in Article 546 is lost, nevertheless there was nothing said that as a
consequence thereof, the builder loses entirely all rights over his own building. Also, in
the present case, the Court of Appeals has already adjudged that appellee Blas is
entitled to the payment of the unpaid balance of the purchase price of the school
building. Blas is actually a lien on the school building are concerned. The order of the
lower court directing the Timbang spouses, as successful bidders, to pay in cash the
amount of their bid in the sum of P5,750.00 is therefore correct.
(11) Manotok Realty v. Tecson
G.R. No. L-47475 August 19, 1988, 164 SCRA 287 Gutierrez Jr., J.
FACTS: Petitioner Manotok Realty filed a complaint against Nilo Madlangawa for recovery
of possession with damages with the Court of First Instance of Manila. Said court
rendered judgment declaring Madlangawa as a builder-possessor in good faith; ordering
the company to recognize the right of Madlangawa to remain in Lot 345, Block 1, of the
Clara Tambunting Subdivision until after he shall have been reimbursed by the company
the sum of P7,500.00, without pronouncement as to costs.
Not satisfied with the trial courts decision, petitioner appealed to the Court of Appeals
and upon affirming the trial courts decision, it elevated the case to the Supreme Court.
On July 13, 1977, the Supreme Court issued a resolution denying Manotoks petition for
lack of merit. Petitioner then filed with the trial court (Judge Jose H. Tecson), a motion for
the approval of the companys exercise of option and for satisfaction of judgment.
However, Judge Tecson denied the motion for approval. Hence, this petition is filed.
ISSUE: Whether or not respondent Judge Tecson can deny petitioners (landowner)
motion to avail of its option.
HELD: No. There is, therefore, no basis for the respondent judge to deny the petitioners
motion to avail of its option to appropriate the improvements made on its property.
Neither can the judge deny the issuance of a writ of execution because the private
respondent was adjudged a builder in good faith or on the ground of peculiar

circumstances which supervened after the institution of this case, like, for instance, the
introduction of certain major repairs of and other substantial improvements because
the option given by law belongs to the owner of the land. Under Article 448 of the Civil
Code, the right to appropriate the works or improvements or to oblige the one who built
or planted to pay the proper price of the land belongs to the owner of the land. The only
right given to the builder in good faith is the right of reimbursement of necessary
expenses for the preservation of the land; the builder cannot compel the landowner to
sell such land to the former.
(12) Spouses Del Ocampo v. Abesia
G.R. No. L-49219, April 15, 1998, 160 SCRA 379 Gancayco, J.
FACTS: Plaintiffs spouses Concepcion Fernandez and Estanislao Del Campo and
defendant Bernarda Fernandez Abesia are co-owners of parcel of land with an area of 45
square meters and divided in the proportion of 2/3 and 1/3 share each, respectively. A
commissioner, who is appointed by the court, conducted a survey and recommended
that the property be divided into two lots: Lot 1161 A with an area of 30 square meters
for the plaintiffs and Lot 1161 B with an area of 15 square meters for the defendants.
However, it was shown in the sketch plan that the house of the defendant occupied the
portion with an area of 5 square meters of Lot 1161 A of plaintiffs. The parties asked
the court to finally settle and adjudicate who among the parties should take possession
of the 5 square meters of land.
ISSUES:
1.) Whether or not Article 448 of the Civil Code, the rights of a builder in good faith,
should be applied to the plaintiff-spouses Del Campo.
2.) Whether or not the house of the defendant Abesia should be removed and
demolished at their expense.
HELD: 1.) Yes. Article 448 of the Civil Code cannot apply where a co-owner builds, plants
or sows on the land owned in common for then, he did not build, plant or sow upon land
that exclusively belongs to another but of which he is a co-owner. The co-owner is not a
third person under the circumstances, and the situation is governed by the rules of coownership. However, when, as in this case, 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 the Civil Code may apply even when
there was co-ownership if good faith has been established.
2.) It depends. Applying Article 448 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
defendant shall then pay the reasonable rent to the plaintiffs 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.

(13) Pecson v. Court of Appeals

G.R. No. 115814, May 26, 1995, 244 SCRA 407 Davide, Jr. J.
FACTS: Pedro Pecson owned a commercial lot situated in Kamias street, Quezon City, on
which he built a a four-door, two-storey apartment building. But because of failure to pay
realty taxes amounting to P12,000.00, the commercial lot owned was sold at a public
auction. It was purchased by Nepomuceno, which later sold the same to the Nuguid
spouses for P103,000 on October 12, 1983. Pecson then challenged the sale, alleging
that the apartment building, contrary to the claim of the Nuguid spouses, was not
included in the sale. The lower court judged in favor of Pecson, declaring that the
apartment building was indeed not included in the subject sale. The Court of Appeals
affirmed the same. The Spouses Nuguid then filed a motion for delivery of possession of
the lot and the apartment building. The lower court ruled in favor of the private
respondents, but subject to the reimbursement to Pecson of the cost of constructing the
apartment building minus the rents due to the spouses (calculated at P21,000 from June
23, 1993 to September 23, 1993). With the said decision at hand, the spouses then
made a move to eject Pecson and as well as the tenants residing therein. However, the
spouses have yet to pay Pecson for the construction costs.
ISSUE: Whether the Nuguid Spouses can eject Pecson even if reimbursement hasnt been
given for the construction costs.
HELD: No. The Court ruled that since the spouses still havent reimbursed Pecson for the
cost of construction of the building, the latter has the right to retain the property, and
along with it, the fruits of which during such possession.
The court ruled that though Article 448 do not apply in the case at bar. By its clear
language, Article 448 refers to a land whose ownership is claimed by two or more
parties, one of whom has built some works, or sown or planted something. The building,
sowing or planting may have been made in good faith or in bad faith. As in this case,
since the owner himself was the one who constructed the improvement, good faith and
bad faith becomes irrelevant. However, by analogy, the indemnity may be applied,
considering that the primary intent of Article 448 is to avoid a state of forced coownership and that the parties agree that Articles 448 and 546 of the Civil Code are
applicable and indemnity for the improvements may be paid, although they differ as to
the basis of the indemnity. Since the spouses have opted to appropriate the apartment
building, Pecson is thus entitled to the possession and enjoyment of the apartment
building, until he is paid the proper indemnity, as well as of the portion of the lot where
the building has been constructed. 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. The petitioner not
having been so paid, he was entitled to retain ownership of the building and, necessarily,
the income therefrom.

(14)
(15)

(16) Technogas Philippines Manufacturing Corporation v. Court of Appeals G.R.

No. 108894, February, 10, 1997, 268 SCRA 5
Panganiban, J.
FACTS: Technogas purchased a parcel of land from Pariz Industries, Inc. In the same year,
Eduardo Uy purchased the land adjacent to it. The following year, Uy bought another lot
adjoining the lot of Technogas. Portions of the buildings and wall bought by Technogas
together with the land from Pariz Industries are occupying a portion of Uys adjoining
land. The knowledge of some encroachment was only made known to both parties after
their parties of their respective parcels of land.
ISSUES: 1.) Whether or not petitioner Technogas Philippines is a possessor in bad faith.
2.) Whether or not petitioner Technogas Philippines has stepped into the shoes of the
seller.
HELD: 1.) No. Unless one is versed in the science of surveying, no one can determine
the precise extent or location of his property by merely examining his paper title. There
is no question in that when Technogas purchased the land from Pariz Industries, the
buildings and other structures were already in existence. Furthermore, it is not clear as
to who actually built these structures but it can be assumed that the predecessor-ininterest of Technogas, Pariz Industries, did so. An article 527 of the New Civil Code
presumes good faith. Since no proof exists to show that the builder built the encroaching
structures in bad faith, the structures should be presumed to have been built in good
faith. Good faith consists in the belief of the builder that the land he is building on is his,
and his ignorance of any defect or flaw in his title. Furthermore, possession acquired in
good faith does not lose this character except in case and from the moment facts exist
which show that the possessor is not aware that he possesses the thing improperly or
wrongfully. The good faith ceases from the moment the defects in the title are made
known to the possessor, by extraneous evidence or by suit for recovery of the property
of the true owner.
2.) Yes. Has been shown, contrary as to the good faith of Technogas has not been
overthrown. Similarly, upon delivery of the property to Pariz Industries, as seller, to
Technogas, as buyer, the latter acquired ownership of the property. Consequently,
Technogas is deemed to have stepped into the shoes of the seller with regard to all the
rights of ownership of the property over the immovable sold, including the right to
compel Uy to exercise either of the two options under Article 448 of the New Civil Code.
Thus, the landowners exercise of his option can only take place after the builder shall
have to know the intrusion in short, when both parties shall have become aware of it.
Only then will the occasion for exercising the option arise, for it is only then that both
parties will have been aware that a problem exists with regard to their property rights.
(17) Pleasantville Development Corporation v. Court of Appeals G.R. No.
79688, February 1, 1996,
Panganiban, J.
FACTS: On March 26, 1974, Wilson Kee on installment Lot 8 from C.T. Torres Enterprises
Inc. the exclusive real estate agent of petitioner. Under the Contract to Sell on
installment. Kee can exercise possession over the parcel of land even before the
completion of installment payments. On January 20, 1975, Kee paid CTTEI relocation fee
of Php 50.00 and another on January 27, 1975 for the preparation of lot plan. These

amounts were paid by Kee before he took possession of Lot 8. After the preparation of
the lot plan and a copy was presented to Kee, Zenaida Octaviano, employee of CTTEI
accompanied Donnabelle Kee the wife of Wilson Kee to inspect Lot 8. Unfortuantely,
Octaviano pointed Lot 9. Thereafter, Kee constructed his residence on the said Lot 9
together a store, repair shop and other improvements.
Edith Robillo purchased from Pleasantville Development Corporation Lot 9. Sometime in
1975, she sold the said parcel of land, Lot 9, to Eldred Jardinico which at that time is
vacant. Upon paying completely to Robillo, Jardinico secured from the Register of Deeds
of Bacolod City on December 19, 1978 Transfer Certificate of Title No. 106367 in his
name. It was only that time that he discovered that Wilson Kee take possession of that
lot and that the same have introduced improvements to the same lot. Jardinico
confronted Kee and tried to reach for an amicable settlement, but failed.
On January 30, 1981, Jardinico, through his lawyer, demanded that Kee vacate Lot 9 and
remove all the improvements introduced by the latter. Kee refused which made Jardinico
filed with the Municipal Trial Court in Cities, Branch 3, Bacolod City a complaint for
ejectment with damages against Kee. Kee, in turn filed a third-party complaint against
Pleasantville Development Corporation and CTTEI.
The MTCC held that the erroneous delivery was attributable to CTTEI and the Kee has no
rights to Lot 9 because of the rescission made by CTTEI of their contract due to Kees
failure to pay the installment. MTCC also held that Kee must pay reasonable rental for
the use of Lot 9 and furthermore he cannot claim reimbursement for the improvements
introduced by him. On appeal, the Regional Trial Court held that Pleasantville and CTTEI
were not negligent and that Kee was in bad faith.
Kee appealed directly to the Supreme Court which referred the matter to the Court of
Appeals. The Appellate Court overturned the ruling of the RTC and held the Kee was a
builder in good faith and the erroneous delivery was attributable to the negligence of
CTTEI. Hence the instant petition filed by Pleasantville.
ISSUES:
1.) Whether or not, Wilson Kee is a builder in good faith.
2.) Whether or not petitioner is liable for the acts of its agent CTTEI.
HELD: 1.) Petitioner fails to persuade the Court to abandon the findings and conclusions
of the Court of Appeals that Kee was a builder in good faith. Good faith consists in the
belief of the builder that the land he is building on is his and his ignorance of any defect
or flaw in his title. And as good faith is presumed, petitioner has the burden of proving
bad faith on the part of Kee. At the time he built improvements on Lot 8, Kee believed
that said lot was what he bought from petitioner. He was not aware that the lot delivered
to him was not Lot 8. Thus, Kee is in good faith. Petitioner failed to prove otherwise.
To demonstrate Kee's bad faith, petitioner points to Kee's violation of paragraphs 22 and
26 of the Contract of Sale on Installment. It has no merit. Such violations have no
bearing whatsoever on whether Kee was a builder in good faith, that is, on his state of
mind at the time he built the improvements on Lot 9. These alleged violations may give
rise to petitioner's cause of action against Kee under the said contract (contractual
breach), but may not be the basis to negate the presumption that Kee was a builder in
good faith.

2.) Yes. The rule is that the principal is responsible for the acts of the agent done within
the scope of his authority, and should bear the damage caused to third persons. On the
other hand, the agent who exceeds his authority is personally liable for the damage. But
CTTEI was acting within its authority as the sole real estate representative of petitioner
when it made the delivery to Kee, only that in so acting, it was negligent. It is this
negligence that is the basis of petitioner's liability, as principal of CTTEI, per Articles
1909 and 1910 of the Civil Code. For such negligence, the petitioner should be held
liable for damages. The rights of Kee and Jardinico vis-a-vis each other, as builder in
good faith and owner in good faith, respectively, are regulated by law (i.e., Arts. 448, 546
and 548 of the Civil Code). It was error for the Court of Appeals to make a "slight
modification" in the application of such law [by holding petitioner and CTTEI solidarily
liable], on the ground of "equity".