Padilla, Jr. vs. Malicsi

A person claiming the status of a builder in good faith must substantiate that claim through preponderance of evidence; it is not enough to invoke the ordinary presumption of good faith. The builder must demonstrate an honest belief in the validity of one's right, ignorance of a superior claim, and the exercise of the diligence required by the situation, such as examining the title or tax declarations of the property before building on it.

Spouses Pablo M. Padilla, Jr. and Maria Luisa P. Padilla are the registered owners of a parcel of land in Magsaysay Norte, Cabanatuan City, covered by Transfer Certificate Title No. T-45565. The lot, which had an assessed value of more than P20,000.00, was originally titled to petitioner Pablo M. Padilla, Jr.'s mother as early as 1963 under TCT No. T-8303. Respondents Leopoldo Malicsi, Lito Casino, and Agrifino Guanes constructed houses on the lot between 1980 and 1983, claiming they did so with the permission of Toribia Vda. De Mossessgeld, who allegedly represented herself as the owner and agreed to sell them the areas they occupied.

Spouses Pablo M. Padilla, Jr. and Maria Luisa P. Padilla bought a parcel of land in Magsaysay Norte, Cabanatuan City in 1984, covered by Transfer Certificate Title No. T-45565 with an area of 150 square meters and an assessed value of more than P20,000.00. Sometime in 1998, Spouses Padilla discovered that Leopoldo Malicsi, Lito Casino, and Agrifino Guanes had constructed houses on their lot. Spouses Padilla made repeated verbal and written demands for Malicsi, et al. to vacate the premises and pay a monthly rental of P2,000.00, but the latter refused. The matter was referred to the Katarungang Pambarangay for conciliation proceedings, but all efforts at conciliation failed.

On August 6, 2007, Spouses Padilla filed a complaint for recovery of possession against Malicsi, et al., along with three others: Larry Marcelo, Diosdado dela Cruz, and Rolando Pascua. In their Answer with Compulsory Counterclaim, Malicsi, et al. alleged that they believed in all honesty and good faith that the lot belonged to Toribia Vda. De Mossessgeld. They claimed that they possessed the land and built their houses only after receiving De Mossessgeld's permission, and that they agreed with her that she would sell them the areas occupied by their houses, provided that pending full payment, they would pay her P40.00 per month as rent. Between 1980 and 1983, Malicsi, et al. constructed their respective houses on the lot in the belief that they would eventually own the areas they were occupying. They stated that they first found out about Spouses Padilla's claim of ownership sometime in 2002, and they denied that conciliation proceedings were ever conducted.

On September 3, 2008, a commission was created to determine the actual valuation of the lot, including the improvements erected on it. The Commission found that the prevailing valuation of similar lots in the vicinity ranged from P4,000 to P6,000 per square meter, or an average valuation of P5,000.00 per square meter. The Commissioner's Report also quoted the appraised values of the improvements: P161,075.20 for the 2-level residential house occupied by Sps. Angelito and Carmelita Casino; P175,366.40 for the house occupied by Sps. Larry and Candida Marcelo; P59,840 for the bungalow occupied by Diosdado dela Cruz; P161,075.20 for the house occupied by Sps. Leopoldo Malicsi; and P183,040 for the house occupied by Sps. Agrifino and Aida Guanes.

On January 30, 2009, Spouses Padilla, exercising their option to sell the land to Malicsi, et al. under Article 448 of the Civil Code in the amount of P5,000.00 per square meter, filed a Motion and Manifestation with Offer to Sell. In their Comment, Malicsi, et al. stated that by filing the Motion and Manifestation, Spouses Padilla had, in effect, recognized their standing as builders in good faith, but they did not accept the offer to sell. The Regional Trial Court ruled that Malicsi, et al. could not be considered builders in good faith, finding that the property had been registered in the name of petitioner Pablo M. Padilla, Jr.'s mother as early as 1963 under TCT No. T-8303, and that De Mossessgeld had never been an owner of the lot. The Court of Appeals reversed, giving credence to Malicsi, et al.'s allegation that they relied on De Mossessgeld's representation that she owned the lot and gave them permission to build their houses on it.

• Failure to Substantiate Good Faith: Petitioners argued that respondents failed to substantiate their claim of being builders in good faith, pointing out that De Mossessgeld was never presented as a witness, nor was there evidence that she was the owner of the lot. Petitioners questioned whether respondents' bare declaration that De Mossessgeld permitted them to stay on the premises was sufficient evidence to support their claim of good faith.
• Exceptions to the Rule on Factual Review: Petitioners claimed that the Court of Appeals erred in reversing the trial court's finding that respondents were not builders in good faith, invoking the recognized exceptions to the rule that factual findings of the Court of Appeals are not subject to review.

• Settlement of the Question: Respondents maintained that the question of whether they were builders in good faith had already been settled by the Court of Appeals, and that there was no reason to deviate from its findings.
• Reliance on De Mossessgeld's Representation: Respondents claimed to be builders in good faith because they believed that the lot was owned by De Mossessgeld, who gave them permission to build their houses and agreed to sell them the areas they occupied, pending full payment of P40.00 monthly rent.

• Builders in Good Faith: Whether respondents are builders in good faith.

• Builders in Good Faith: No. Respondents cannot be considered builders in good faith because they failed to substantiate their claim through preponderance of evidence. The benefits and rights provided under Article 448 of the Civil Code do not apply to them.

• Builders in Good Faith: The Court defined a builder in good faith as one who was not aware of a defect or flaw in his or her title when he or she introduced improvements on a lot that turns out to be owned by another. Citing Philippine National Bank vs. De Jesus, the Court explained that the essence of good faith lies in an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another. The Court found that the Court of Appeals relied heavily on Sarmiento vs. Agana and Spouses Macasaet vs. Spouses Macasaet to support its reversal, but a judicious reading of those cases showed that the facts greatly differed. In Sarmiento, the builders were allowed by Ernesto's mother to build on what she claimed was her lot, and in Spouses Macasaet, the son and daughter-in-law built on the lot with the knowledge and consent of their parents, the registered lot owners. No such peculiar circumstance of close family relations existed in this case. The Court noted that De Mossessgeld was a complete stranger to respondents, and the lack of blood relation should have been enough to put them on guard and convince them not to rely on her claim of ownership. If respondents had looked into the ownership of the lot, they would have easily discovered that it was titled to petitioner's mother as early as 1963. Citing Baltazar vs. Court of Appeals, the Court held that the burden of proving the status of a builder in good faith lies on the person asserting that status, and it is not enough to invoke the ordinary presumption of good faith. Respondents failed to present any evidence to bolster their claim aside from their naked and self-serving testimony. They failed to adduce evidence of an agreement to sell with De Mossessgeld, failed to prove payment of P40.00 monthly rent, and neither presented De Mossessgeld herself nor submitted proof on which she might have based her purported ownership. As builders in bad faith, respondents have no right to recover their expenses over the improvements under Article 449 of the Civil Code, which provides that one who builds in bad faith on the land of another loses what is built without right to indemnity. Under Article 452, a builder in bad faith is entitled to recoup necessary expenses incurred for the preservation of the land, but respondents neither alleged nor presented evidence to show such improvements. The Court held that petitioners, as landowners, became the owners of the improvements, and considering that petitioners prayed for the reinstatement of the Regional Trial Court Decision ordering respondents to vacate the lot, petitioners are deemed to have chosen to appropriate the improvements built on their lot without any obligation to pay indemnity to respondents.

• Builder in Good Faith — A builder in good faith is one who was not aware of a defect or flaw in his or her title when he or she introduced improvements on a lot that turns out to be owned by another. The essence of good faith lies in an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another. In this case, the Court held that respondents could not claim this status because they failed to exercise the diligence required by their situation, such as examining the tax declarations or title to the property before building on it.

• Burden of Proof in Asserting Good Faith — The burden of proving the status of a builder in good faith lies on the person asserting that status, and it is not enough to invoke the ordinary presumption of good faith. The party must substantiate the claim through preponderance of evidence. In this case, respondents' naked and self-serving testimony, without corroborating evidence such as the testimony of De Mossessgeld or disinterested third parties, was insufficient to establish their good faith.

• Remedies of the Landowner Against a Builder in Bad Faith — Under Articles 449, 450, and 451 of the Civil Code, the owner of the land on which anything has been built in bad faith has three alternative rights: (1) to appropriate what has been built without any obligation to pay indemnity therefor; (2) to demand that the builder remove what he had built; or (3) to compel the builder to pay the value of the land. In any case, the landowner is entitled to damages under Article 451.

• "Good faith, here understood, is an intangible and abstract quality with no technical meaning or statutory definition, and it encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage. An individual's personal good faith is a concept of his own mind and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. The essence of good faith lies in an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another[.]" — This passage from Philippine National Bank vs. De Jesus defines the controlling standard of good faith that the Court applied in determining whether respondents qualified as builders in good faith.

• "It is not enough to invoke the ordinary presumption of good faith; that is, that everyone is presumed to act in good faith. Respondents, as the party asserting the status of builder in good faith, must substantiate their claim through preponderance of evidence." — This passage articulates the burden of proof placed on the party asserting the status of builder in good faith, which the Court found respondents failed to discharge.

• "The lack of blood relation should have been enough to put respondents on guard and convince them not to rely on her claim of ownership. If respondents had looked into the ownership of the lot, they would have easily discovered that it was titled to petitioner Pablo M. Padilla, Jr.'s mother as early as 1963 under Transfer Certificate of Title No. T-8303." — This passage explains the Court's application of the diligence requirement, distinguishing the case from Sarmiento and Spouses Macasaet where close family relations justified reliance on the purported owner's representations.

• Medina vs. Mayor Asistio, Jr., 269 Phil. 225 (1990) — Cited for the ten recognized exceptions to the rule that factual findings of the Court of Appeals are not subject to review, particularly the exceptions that "the inference made is manifestly mistaken" and that "the findings of the Court of Appeals are contrary to those of the trial court."

• Pascual vs. Burgos, G.R. No. 171722, January 11, 2016 — Cited for the instruction that parties praying for review of factual findings must demonstrate and prove that the case clearly falls under the exceptions to the rule, and that mere assertion does not suffice.

• Philippine National Bank vs. De Jesus, 458 Phil. 454 (2003) — Cited for the definition of good faith as an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another.

• Ignacio vs. Hilario, 76 Phil. 605 (1946) — Cited for the summary of the respective rights of the landowner and builder in good faith under Articles 448 and 546 of the Civil Code.

• Rosales vs. Castelltort, 509 Phil. 137 (2005) — Cited for the principle that the choice under Article 448 belongs to the landowner, but the landowner must choose from the two available options and cannot refuse to exercise either option.

• Sarmiento vs. Agana, 214 Phil. 101 (1984) — Distinguished from the present case; in that case, the builders were allowed by Ernesto's mother to build on what she claimed was her lot, and the Court ruled they were builders in good faith "in view of the peculiar circumstances under which they had constructed the residential house."

• Spouses Macasaet vs. Spouses Macasaet, 482 Phil. 853 (2004) — Distinguished from the present case; in that case, the son and daughter-in-law built on the lot with the knowledge and consent of their parents, the registered lot owners, and were deemed builders in good faith.

• Baltazar vs. Court of Appeals, 250 Phil. 349 (1988) — Cited for the rule that the burden of proving the status of a purchaser in good faith lies on the person asserting that status, and that it is not enough to invoke the ordinary presumption of good faith.

• Heirs of Durano vs. Spouses Uy, 398 Phil. 125 (2000) — Cited for the summary of the remedies available to the landowner against a builder in bad faith under Articles 449, 450, and 451 of the Civil Code.

• Article 448, Civil Code — Provides that the owner of the land on which anything has been built in good faith shall have the right to appropriate the works after payment of indemnity, or to oblige the builder to pay the price of the land. The Court held that this provision does not apply to respondents because they were builders in bad faith.

• Article 449, Civil Code — Provides that one who builds, plants, or sows in bad faith on the land of another loses what is built, planted, or sown without right to indemnity. The Court applied this provision to deny respondents any right to recover their expenses over the improvements.

• Article 450, Civil Code — Provides that the owner of the land on which anything has been built in bad faith may demand the demolition of the work or compel the builder to pay the price of the land. The Court cited this provision as one of the landowner's alternative remedies.

• Article 451, Civil Code — Provides that in the cases of the two preceding articles, the landowner is entitled to damages from the builder, planter, or sower. The Court noted that petitioners are entitled to damages under this provision.

• Article 452, Civil Code — Provides that the builder in bad faith is entitled to reimbursement for necessary expenses of preservation of the land. The Court noted that respondents neither alleged nor presented evidence to show that they introduced improvements for the preservation of the land.

• Article 546, Civil Code — Provides that necessary expenses shall be refunded to every possessor, but only the possessor in good faith may retain the thing until reimbursed. The Court cited this provision in the context of the remedies available to a builder in good faith.

• Article 548, Civil Code — Provides that expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good faith. The Court cited this provision in the context of the indemnity provisions under Article 448.

• Rule 45, Section 1, Rules of Court — Provides that a petition for review on certiorari shall raise only questions of law which must be distinctly set forth. The Court noted that factual questions are not the proper subject of an appeal by certiorari, subject to recognized exceptions.

• Rule 45, Section 6, Rules of Court — Provides that a review of appeals filed before the Supreme Court is "not a matter of right, but of sound judicial discretion." The Court cited this provision in discussing the scope of its review.

Brion (Acting Chairperson), Del Castillo, and Mendoza, JJ., concurred. Carpio, J., was on official leave.