SECOND DIVISION

July 3, 2017

G.R. No. 211170

SPOUSES MAXIMO ESPINOZA and WINIFREDA DE VERA, Petitioners

vs.

SPOUSES ANTONIO MAYANDOC and ERLINDA CAYABYAB MAYANDOC, Respondents

DECISION

PERALTA, J.:

Before this Court is the Petition for Review on Certiorari under Rule 45, dated March 21, 2014, of
petitioners-spouses Maximo Espinoza and Winifreda De Vera, that seeks to reverse and set aside the
Decision1 dated September 17, 2013 and Resolution dated January 28, 2014, both of the Court of
Appeals (CA) which, in turn, affirmed with modifications the Decision2 dated February 18, 2011 of the
Regional Trial Court (RTC), Branch 42, Dagupan City, in a complaint for useful expenses under Articles
4483 and 5464 of the New Civil Code of the Philippines.

The facts follow.

A parcel of land located in Dagupan City was originally owned by Eusebio Espinoza. After the death of
Eusebio, the said parcel of land was divided among his heirs, namely: Pastora Espinoza, Domingo
Espinoza and Pablo Espinoza. Petitioner Maximo is the son of Domingo Espinoza, who died on November
3, 1965, and Agapita Cayabyab, who died on August 11, 1963.

Thereafter, on May 25, 1972, Pastora Espinoza executed a Deed of Sale conveying her share of the same
property to respondents and Leopoldo Espinoza. However, on that same date, a fictitious deed of sale
was executed by petitioner Maximo's father, Domingo Espinoza, conveying the three-fourth (3/4) share
in the estate in favor of respondent Erlinda Cayabyab Mayandoc's parents; thus, TCT No. 28397 was
issued in the names of the latter.
On July 9, 1977, a fictitious deed of sale was executed by Nemesio Cayabyab, Candida Cruz, petitioners-
spouses Maximo Espinoza and Winifreda De Vera and Leopoldo Espinoza over the land in favor of
respondents- spouses Antonio and Erlinda Mayandoc; thus, TCT No. 37403 was issued under the names
of the latter.

As a result of the foregoing, petitioners filed an action for annulment of document with prayer for the
nullification of TCT No. 37403 and, on August 16, 1999, the RTC, Branch 40, Dagupan City rendered a
Decision in favor of petitioners and ordering respondents to reconvey the land in dispute and to pay
attorney's fees and the cost of the suit.

Respondents appealed, but the CA, in its Decision dated February 6, 2004, affirmed the RTC with
modifications that the award of attorney's fees and litigation expenses be deleted for lack of factual
basis. The said CA Decision became final and executory on March 8, 2004.

Thus, respondents filed a complaint for reimbursement for useful expenses, pursuant to Articles 448 and
546 of the New Civil Code, alleging that the house in question was built on the disputed land in good
faith sometime in 1995 and was finished in 1996. According to respondents, they then believed
themselves to be the owners of the land with a claim of title thereto and were never prevented by the
petitioners in constructing the house. They added that the new house was built after the old house
belonging to respondent Erlinda Mayandoc's father was torn down due to termite infestation and would
not have reconstructed the said house had they been aware of the defect in their title. As such, they
claimed that they are entitled to reimbursement of the construction cost of the house in the amount of
₱800,000.00. They further asserted that at the time that their house was constructed, they were
possessors in good faith, having lived over the land in question for many years and that petitioners
questioned their ownership and possession only in 1997 when a complaint for nullity of documents was
filed by the latter.

Petitioners, in their Answer, argued that respondents can never be considered as builders in good faith
because the latter were aware that the deeds of sale over the land in question were fictitious and,
therefore, null and void; thus, as builders in bad faith, they lose whatever has been built over the land
without right to indemnity.

Respondents, on January 5, 2011, manifested their option to buy the land where the house stood, but
petitioners expressed that they were not interested to sell the land or to buy the house in question.

The RTC, on February 18, 2011, rendered its Decision with the following dispositive portion:
WHEREFORE, judgment is hereby rendered requiring the defendants to sell the land, where the plaintiffs'
house stands, to the latter at a reasonable price based on the zonal value determined by the Bureau of
Internal Revenue (BIR).

SO ORDERED.5

Petitioners appealed to the CA, but the latter, in its Decision dated September 17, 2013, affirmed the
decision of the RTC with modifications. The dispositive portion of the Decision reads:

WHEREFORE, the Decision dated February 18, 2011 by the Regional Trial Court, Branch 42 of Dagupan
City, in Civil Case No. 2005- 0271-D is hereby AFFIRMED with MODIFICATIONS.

Let the case be REMANDED to the aforementioned trial court for further proceedings consistent with the
proper application of Articles 448, 546 and 548 of the New Civil Code and to render a complete
judgment of the case.

SO ORDERED.6

The motion for reconsideration of petitioners were subsequently denied by the CA in its Resolution
dated January 28, 2014.

Hence, the present petition.

Petitioners raise the following issues:

I.

WHETHER THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PETITIONERS WERE NOT
ABLE TO PROVE BAD FAITH ON THE PART OF THE RESPONDENTS.

II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT RES JUDJCATA DOES
NOT APPLY IN THE INST ANT CASE.

According to petitioners, whether or not respondents were in bad faith in introducing improvements on
the subject land is already moot, since the judgment rendered by the RTC of Dagupan City, Branch 40
and affirmed by the CA, that declared the two Deeds of Definite/ Absolute Sale dated May 25, 1972 and
July 9, 1977 as null and void, had long become final and executory on March 8, 2004. They also argue
that respondents had not successfully shown any right to introduce improvements on the said land as
their claim of laches and acquisitive prescription have been rejected by the CA on appeal; thus, it follows
that the respondents were builders in bad faith because knowing that the land did not belong to them
and that they had no right to build thereon, they still caused the house to be erected. They further insist
that respondents are deemed builders in bad faith because their house has been built and reconstructed
into a bigger one after respondent Erlinda's parents forged a fictitious sale. Finally, they claim that the
principle of res judicata in the mode of "conclusiveness of judgment" applies in this case.

The petition lacks merit.

The findings of facts of the Court of Appeals are conclusive and binding on this Court7 and they carry
even more weight when the said court affirms the factual findings of the trial court.8 Stated differently,
the findings of the Court of Appeals, by itself, which are supported by substantial evidence, are almost
beyond the power of review by this Court.9 Although this rule is subject to certain exceptions, this Court
finds none that is applicable in this case. Nevertheless, the petition still fails granting that an exception
obtains.

To be deemed a builder in good faith, it is essential that a person asserts title to the land on which he
builds, i.e., that he be a possessor in the concept of owner, and that he be unaware that there exists in
his title or mode of acquisition any flaw which invalidates it.10 The RTC, as affirmed by the CA, found
respondents to be builders in good faith, thus:

The plaintiffs are builders in good faith. As asserted by plaintiffs and not rebutted by defendants, the
house of plaintiffs was built on the lot owned by defendants in 1995. The complaint for nullity of
documents and reconveyance was filed in 1997, about two years after the subject conjugal house was
constructed. Defendants-spouses believed that at the time when they constructed their house on the lot
of defendants, they have a claim of title. Art. 526, New Civil Code, states that a possessor in good faith is
one who has no knowledge of any flaw or defect in his title or mode of acquisition. This determines
whether the builder acted in good faith or not. Surely, plaintiffs would not have constructed the subject
house which plaintiffs claim to have cost them ₱800,000.00 to build if they knew that there is a flaw in
their claim of title. Nonetheless, Art. 527, New Civil Code, states clearly that good faith is always
presumed, and upon him who alleges bad faith on the part of the possessor lies the burden of proof. The
records do not show that the burden of proof was successfully discharged by the defendants.

xxxx

Plaintiffs are in good faith in building their conjugal house in 1995 on the lot they believed to be their
own by purchase. They also have in their favor the legal presumption of good faith. It is the defendants
who had the burden to prove otherwise. They failed to discharge such burden until the Regional Trial
Court, Br. 40, Dagupan City, promulgated an adverse ruling in Civil Case No. 97-0187-D. Thus, Art. 448
comes in to protect the plaintiffs-owners of their improvement without causing injustice to the lot
owner. Art. 448 comes in to protect the plaintiff-owners of their improvement without causing injustice
to the lot owner. Art. 448 provided a just resolution of the resulting "forced-ownership" by giving the
defendants lot owners the option to acquire the conjugal house after payment of the proper indemnity
or to oblige the builder plaintiffs to pay for the lot. It is the defendants-lot owners who are authorized to
exercise the option as their right is older, and under the principle of accession where the accessory
(house) follows the principal. x x x.11

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

As such, Article 44816 of the Civil Code must be applied. It applies when the builder believes that he is
the owner of the land or that by some title he has the right to build thereon,17 or that, at least, he has a
claim of title thereto.18 In Tuatzs v. Spouses Escol, et al.,19 this Court ruled that the seller (the owner of
the land) has two options under Article 448: (1) he may appropriate the improvements for himself after
reimbursing the buyer (the builder in good faith) the necessary and useful expenses under Articles 54620
and 54821 of the Civil Code; or (2) he may sell the land to the buyer, unless its value is considerably more
than that of the improvements, in which case, the buyer shall pay reasonable rent, thus:

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

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

The CA, therefore, did not err in its ruling that instead of requiring the petitioners to sell the land, the R
TC must determine the option which the petitioners would choose.1âwphi1 As aptly ruled by the CA:

The rule that the right of choice belongs to the owner of the land is in accordance with the principle of
accession. However, even if this right of choice is exclusive to the land owner, he cannot refuse to
exercise either option and demand, instead for the removal of the building.

Instead of requiring defendants-appellants to sell the land, the court a quo must determine the option
which they would choose. The first option to appropriate the building upon payment of indemnity or the
second option, to sell the land to the plaintiffs-appellees. Moreover, the court a quo should also
ascertain: (a) under the first option, the amount of indemnification for the building; or (b) under the
second option, the value of the subject property vis-a-vis that of the building, and depending thereon,
the price of, or the reasonable rent for, the subject prope1iy.

Hence, following the ruling in the recent case of Briones v. Macabagdal, this case must be remanded to
the court a quo for the conduct of further proceedings to assess the current fair market of the land and
to determine other matters necessary for the proper application of Article 448, in relation to Articles 546
and 548 of the New Civil Code.23

Therefore, this Court agrees with the CA that there is a need to remand the case to the RTC for further
proceedings, specifically, in assessing the current fair market value of the subject land and other matters
that are appropriate in the application of Article 448, in relation to Articles 546 and 548 of the New Civil
Code.
As to the issue of res judicata, the CA is correct in its ruling that there is no identity of subject matter and
cause of action between the prior case of annulment of document and the present case, thus:

In the instant case, res judicata will not apply since there is no identity of subject matter and cause of
action. The first case is for annulment of document, while the instant case is for reimbursement of useful
expenses as builders in good faith under article 448 in relation to Articles 546 and 548 of the New Civil
Code.

Moreover, We are not changing or reversing any findings of the RTC and by this Court in Our 6 February
2004 decision. The Court is still bound by this judgment insofar as it found the Deeds of Absolute Sale
null and void, and that defendants-appellants are the rightful owners of the lot in question.

However, if the court a quo did not take cognizance of the instant case, plaintiffs-appellees shall lose
ownership of the building worth Php316,400.00 without any compensation. While, the defendant-
appellants not only will recover the land but will also acquire a house without payment of indemnity.
The fairness of the rules enunciated in Article 448 is explained by the Supreme Court in the case of
Depra v. Dumlao, viz.:

Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the
owners, and it becomes necessary to protect the owner of the improvements without causing injustice
to the owner of the land. In view of the impracticability of creating a state of forced 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 to pay the proper rent. It is the owner of the land who is authorized to exercise the option,
because his right is older, and because, by the principle of accession, he is entitled to the ownership of
the accessory thing.

Finally, "the decision of the court a quo should not be viewed as a denigration of the doctrine of
immutability of final judgments, but a recognition of the equally sacrosanct doctrine that a person
should not be allowed Io profit or enrich himself inequitably at anal her's expense."24

The well-settled rule is that the principle or rule of res judicata is primarily one of public policy. It is
based on the policy against multiplicity of suits,26 whose primary objective is to avoid unduly burdening
the dockets of the courts.27 In this case, however, such principle is inapplicable.
WHEREFORE, the Petition for Review on Certiorari under Rule 45, dated March 21, 2014, of petitioners-
spouses Maximo Espinoza and Winifreda De Vera, is DENIED. Consequently, the Decision dated
September 17, 2013 and Resolution dated January 28, 2014, both of the Court of Appeals are AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA

Associate Justice

WE CONCUR:

On wellness leave

ANTONIO T. CARPIO*

Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

MARVIC M.V.F. LEONEN

Associate Justice

SAMUEL R. MARTIRES

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

DIOSDADO M. PERALTA**

Associate Justicebr />Acting Chairperson, Second Division

Pursuant to the Section 13, Article VIII of the Constitution and the Division Acting Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

* On wellness leave.

** Acting Chairperson, per Special Order No. 2445 dated June 16, 2017.

1 Penned by Associate Justice Danton Q. Bueser, with the concurrence of Associate Justices Amelita G.
Tolentino and Ramon R. Garcia; rollo, pp. 34-43.

2 Penned by Presiding Judge A. Florentino R. Dumlao, Jr.; id. at 118-125.

3 Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall
have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity
provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the
land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy
the land if its value is considerably more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the building or trees after
proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the
court shall fix the terms thereof.

4 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.

5 Rollo, p. 125.

6 Id. at 42-43.

7 Security Bank and Trust Company v. Triumph lumber and Construction Corporation, 361 Phil. 463, 474
(1999); American Express International, Inc. v. Court of Appeals, 367 Phil. 333, 339 (1999).

8 Borromeo v. Sun, 375 Phil. 595, 602 (1999); Boneng v. People, 363 Phil. 594, 600 (1999).

9 Pimentel v. Court of Appeals, 366 Phil. 494, 501 (1999).

10 Department of Education v. Delfina C. Casibang, et al., G.R. No. 192268, January 27, 2016, citing Heirs
of Victorino Sarili v. lagrosa, 724 Phil. 608, 623 (2014).

11 Id. at 120-121. (Citations omitted)

12 Ford Philippines, Inc. v. Court of Appeals, 335 Phil. I, 9-10 (1997).

13 Id. at 9.

14 Id.

15 Id.
16Art. 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. (361 a)

17 Rosales v. Castelltort, 509 Phil. 137, 147 (2005).

18 Briones v. Macabagdal, 640 Phil. 343, 352 (2010).

19 619 Phil. 465, 483 (2009), cited in Communities Cagayan, inc. v. Spouses Arsenio and Angeles Nanol,
et al., 698 Phil. 648 663-664 (2012).

20 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.

21 ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good
faith; but he may remove the ornaments with which he has embellished the principal thing if it suffers
no injury thereby, and if his successor in the possession does not prefer to refund the amount expended.

22 Tuatis v. Spouses Escol, et al., supra note 19, at 488-489. (Citations omitted)

23 Rollo, p. 40. (Citation omitted).

24 Id. at 41-42. (Italics in the original)

27 Riviera Golf Club, Inc. v. CCA Holdings, B.V., G.R. No. 173783, June 17, 2015, 758 SCRA 691, 707.

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