Pleasantville Development Corporation vs. Court of Appeals

A purchaser of a subdivision lot who constructs improvements on the wrong parcel, having been authoritatively directed there by the seller's agent, is a builder in good faith. The principal is solidarily liable with its agent for damages resulting from the agent's negligence in erroneously delivering possession of the property.

Eldred Jardinico was the registered owner of Lot 9 in Pleasantville Subdivision. Wilson Kee had purchased Lot 8 from C.T. Torres Enterprises, Inc. (CTTEI), the exclusive real estate agent of the developer, Pleasantville Development Corporation. When Kee's wife, accompanied by a CTTEI employee, went to inspect Lot 8, the employee erroneously pointed to Lot 9 as the lot Kee had purchased. Kee subsequently constructed a residence and other improvements on Lot 9. Upon discovering the error, Jardinico filed an ejectment suit against Kee, who in turn filed a third-party complaint against Pleasantville and CTTEI.

• The Parties and Properties: Eldred Jardinico was the registered owner of Lot 9, Pleasantville Subdivision. Wilson Kee had a contract to purchase Lot 8 from C.T. Torres Enterprises, Inc. (CTTEI), the exclusive sales agent of the developer, Pleasantville Development Corporation.
• The Erroneous Delivery: In 1975, Kee's wife, accompanied by CTTEI employee Zenaida Octaviano, went to inspect Lot 8. Octaviano erroneously pointed to Lot 9 as Kee's lot. Kee subsequently constructed his residence and other improvements on Lot 9.
• Discovery and Demand: In 1978, Jardinico obtained title to Lot 9 and discovered Kee's occupancy. After failed settlement attempts, Jardinico's lawyer demanded Kee vacate on January 30, 1981.
• The Ejectment Suit: Jardinico filed an ejectment complaint. Kee filed a third-party complaint against Pleasantville and CTTEI.
• Subsequent Sale: During the pendency of the appeal before the Court of Appeals, Kee and Jardinico executed a deed of sale over Lot 9 in 1987, settling their rights inter se.

• Good Faith: Petitioner Pleasantville argued that Kee was a builder in bad faith, citing Kee's violations of clauses in the Contract to Sell (e.g., failure to give notice of construction) and the trial court's finding that the contract for Lot 8 had been rescinded.
• Scope of Authority: Petitioner contended that the erroneous delivery of Lot 9 was an act outside the scope of CTTEI's authority as an agent; therefore, CTTEI alone should be liable.
• Contractual Waiver: Petitioner asserted that a clause in the Contract to Sell where Kee declared he had inspected the lot barred him from claiming a different lot was erroneously pointed out.
• Unjust Enrichment: Petitioner argued that the CA's holding making it solidarily liable for the value of the land or demolition expenses would unjustly enrich Kee.
• Attorney's Fees: Petitioner maintained the award of attorney's fees had no basis.

• Good Faith: Respondent Kee countered that he was a builder in good faith, having relied on the representations of the developer's authorized agent. Good faith is presumed.
• Principal's Liability: Respondent Jardinico (and the CA's reasoning) argued that the principal (Pleasantville) is responsible for the acts of its agent (CTTEI) done within the scope of its authority, per Articles 1909 and 1910 of the Civil Code.
• Effect of Subsequent Sale: Kee argued that the deed of sale with Jardinico settled their rights but did not waive any claim against Pleasantville and CTTEI for negligence.

• Good Faith: Whether Wilson Kee was a builder in good faith on Lot 9.
• Principal's Liability: Whether Pleasantville Development Corporation is liable for the negligence of its agent, CTTEI, in erroneously delivering Lot 9 to Kee.
• Attorney's Fees: Whether the award of attorney's fees to Jardinico was proper.

• Good Faith: Kee was a builder in good faith. His belief that Lot 9 was his property was based on the authoritative representation of CTTEI's employee, and good faith is presumed. Petitioner failed to rebut this presumption. Alleged violations of the contract to sell were irrelevant to his state of mind at the time of construction.
• Principal's Liability: Pleasantville is solidarily liable with CTTEI. CTTEI was acting within the scope of its authority as a real estate agent when it delivered possession, albeit negligently. Under Articles 1909 and 1910 of the Civil Code, the principal is liable for damages caused by the agent's negligence within the scope of its authority. The CA's specific formula for solidary liability (for demolition costs or land value) was deleted because the extent of damages was not proven at trial and the parties had already settled their rights via a deed of sale.
• Attorney's Fees: The award was proper. Jardinico was compelled to litigate to protect his interests due to the negligence of Pleasantville's agent, justifying an award under Article 2208 of the Civil Code.

• Builder in Good Faith — A builder in good faith is one who builds on land with the belief that he is the owner and is unaware of any flaw in his title. Good faith is always presumed, and the burden of proving bad faith lies with the one alleging it. The Court applied this to Kee, who reasonably relied on the agent's identification of the lot.
• Principal's Liability for Agent's Acts — Under Articles 1909 and 1910 of the Civil Code, a principal is responsible for the damages caused by an agent acting within the scope of his authority. The principal is liable for the agent's negligence in the performance of his duties. The Court applied this to hold Pleasantville liable for CTTEI's negligent misidentification of the lot.

• "It is highly improbable that a purchaser of a lot would knowingly and willingly build his residence on a lot owned by another, deliberately exposing himself and his family to the risk of being ejected from the land and losing all improvements thereon, not to mention the social humiliation that would follow." — This reasoning underpins the finding of good faith.
• "CTTEI was acting within its authority as the sole real estate representative of petitioner when it made the delivery to Kee. In acting within its scope of authority, it was, however, 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." — This articulates the core basis for the principal's liability.

• Floreza vs. Evangelista, 96 SCRA 130 (1980) — Cited for the definition of good faith in builders.
• Lopez vs. Alvendia, 120 Phil. 1424 (1964) — Cited as authority for the rule that the principal is responsible for the acts of the agent done within the scope of his authority.
• BA Finance Corporation vs. Court of Appeals, 211 SCRA 112 (1992) — Cited for the rule that an agent who exceeds his authority is personally liable for damage.

• Articles 448, 546, and 548, Civil Code of the Philippines — Govern the rights of a builder in good faith and the landowner (e.g., option to appropriate improvements or sell the land). The Court of Appeals applied these, but the Supreme Court deleted their specific application in light of the parties' amicable settlement.
• Articles 1909 and 1910, Civil Code of the Philippines — Establish the principal's liability for damages caused by the agent's negligence within the scope of the agent's authority. These provisions formed the legal basis for holding Pleasantville liable.
• Article 2208, Civil Code of the Philippines — Enumerates the instances when attorney's fees may be recovered, including when the defendant's act has compelled the plaintiff to litigate with third persons. The Court relied on this to uphold the award.
• Article 6, Civil Code of the Philippines — Provides that rights may be waived unless the waiver is contrary to law, public order, public policy, morals, or good customs. Cited to reject petitioner's argument that a contract clause constituted a waiver of damages from negligence.

• Chief Justice Marcelo B. Fernan
• Justice Hilario G. Davide, Jr.
• Justice Jose C. Melo