Rosales vs. Castelltort

A builder who constructs on another's property due to a surveyor's mistake, without notice of any adverse claim, is a builder in good faith, entitling both parties to the remedies under Article 448 of the Civil Code, where the landowner must choose between appropriating the improvement by paying its current fair market value plus any increase in the land's value, or obliging the builder to pay the price of the land.

Spouses Rodolfo and Lily Rosales are the registered owners of Lot 17, covered by Transfer Certificate of Title No. 36856. Respondents Miguel and Judith Castelltort purchased Lot 16, an adjacent parcel, from respondent Lina Lopez-Villegas through her son and attorney-in-fact Rene Villegas. Prior to construction, a geodetic engineer hired by Villegas mistakenly placed stone monuments on Lot 17 instead of Lot 16. Relying on these monuments and a certified true copy of the title for Lot 16 bearing no adverse claims, Miguel Castelltort constructed a house on Lot 17, believing it to be the lot he purchased. Upon discovering the construction on August 16, 1995, the Rosaleses demanded that Castelltort stop building and demolish the structure.

• Registered Ownership: Spouses Rosales are the registered owners of a 315-square meter parcel of land designated as Lot 17, covered by TCT No. 36856.
• Mistaken Purchase and Survey: The Castelltorts bought Lot 16 from Lina Lopez-Villegas through her attorney-in-fact, Rene Villegas. Villegas showed Castelltort a photocopy of the title, explaining the original was lost and undergoing reconstitution. Castelltort verified the title at the Registry of Deeds and obtained a certified true copy bearing no adverse claims.
• Erroneous Monuments: A geodetic engineer's employees mistakenly placed stone monuments on Lot 17 instead of Lot 16. The two lots are practically identical in size, frontage, and orientation, and share a common boundary line.
• Construction in Good Faith: Relying on the monuments and Villegas's confirmation, Castelltort began constructing a house on Lot 17, believing it was Lot 16. He applied for a building permit for Lot 16 and was issued a temporary permit pending completion of requirements.
• Discovery and Demand: On August 16, 1995, the Rosaleses discovered the ongoing construction. On August 21, 1995, they personally apprised Castelltort of their title over the lot and subsequently demanded that he stop construction, demolish the house, and desist from entering the property.
• Intervention: Lina Lopez-Villegas intervened, proposing to give the Rosaleses a larger lot with the existing structures or encumber it as collateral to compensate them. The Rosaleses rejected these proposals.

• Judicial Admissions: Petitioners argued that the CA gravely abused its discretion by making findings contrary to the respondents' judicial admissions, specifically the discrepancy between Castelltort's testimony identifying Elizabeth Cruz as his wife and the Answer stating Judith as his wife, which should estop the respondents.
• Builder in Bad Faith: Petitioners maintained that the CA committed reversible error in concluding the RTC relied on flimsy allegations, asserting that Castelltort was a builder in bad faith because he failed to comply with the National Building Code by not securing a proper building permit and made misrepresentations regarding his civil status and the Contract to Sell.
• Enforceability of Judgment: Petitioners argued that the CA rendered a decision unenforceable against Judith Castelltort, who is not the owner of the house, and Elizabeth Cruz, a part-owner who is not a party to the case.

• Good Faith in Construction: Respondents countered that Castelltort was a builder in good faith, having relied on the clean title shown by Villegas and the stone monuments placed by the geodetic engineer, without notice of any adverse claim.
• Building Permit Compliance: Respondents argued that the failure to secure a building permit for Lot 17 does not negate good faith, as a permit was applied for Lot 16 based on the mistaken monuments, and a temporary permit was issued.

• Judicial Admissions: Whether the Court of Appeals gravely abused its discretion in making a finding contrary to the admissions by the parties.
• Good Faith: Whether the Court of Appeals committed a reversible error of law in concluding that respondents are builders in good faith.
• Enforceability: Whether the Court of Appeals rendered a decision that is unenforceable against respondent Judith Castelltort and third-party Elizabeth Cruz.

• Judicial Admissions: The alleged variance between Castelltort's testimony and his Answer does not militate against the finding of good faith. Judicial admissions in pleadings are not absolute and inflexible; testimony repudiating defenses raised in an Answer, especially against one's own interest, can be given weight and credence. The identity of the wife or co-buyer is immaterial to the pivotal issue of whether Castelltort was a builder in good faith.
• Good Faith: Castelltort was a builder in good faith. Good faith is always presumed, and the burden of proving bad faith lies with the party alleging it. Castelltort verified the title at the Registry of Deeds, found no adverse claims, and relied on the monuments placed by the geodetic engineer. The error in the monuments was directly attributable to the engineer's employees. The failure to secure a building permit for Lot 17 does not impinge on good faith, as a permit was applied for Lot 16 based on the mistaken monuments. Castelltort's good faith ceased on August 21, 1995, when he was notified of the Rosaleses' title. Consequently, Article 448 of the Civil Code governs the rights and obligations of the parties.
• Enforceability: The judgment is valid and enforceable against the parties to the case. While a judgment cannot bind persons who are not parties to the action, such as Elizabeth Cruz, this does not detract from the validity and enforceability of the judgment against the petitioners and the Castelltorts.

• Builder in Good Faith — A builder in good faith is one who builds with the belief that the land he is building on is his, or that by some title he has the right to build thereon, and is ignorant of any defect or flaw in his title. Good faith is always presumed, and the burden of proving bad faith rests upon the party alleging it. In this case, the builder was found to be in good faith because he relied on a clean title verified at the Registry of Deeds and the erroneous monuments placed by a geodetic engineer, without notice of any adverse claim.
• Article 448, Civil Code (Accession) — When the landowner and the builder are both in good faith, the landowner has the right to appropriate the works after payment of indemnity, or to oblige the builder to pay the price of the land. The landowner cannot refuse to exercise either option and compel the builder to remove the improvement. The choice belongs to the landowner, consistent with the principle of accession that the accessory follows the principal. In this case, because both parties were in good faith, the landowner was given the option to appropriate the house or compel the builder to buy the land.
• Indemnity for Useful Improvements — If the landowner chooses to appropriate the improvement, the indemnity to be paid must be based on the current fair market value of the improvement at the time of payment, not the cost of construction. Additionally, the "plus value" or increase in value that the land may have acquired by reason of the improvement must be included in the determination. The Court applied this to ensure the landowner justly compensates the builder for the current value of the improvement and to prevent unjust enrichment.

• "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."
• "Possession acquired in good faith does not lose this character except in the case and from the moment facts exist which show that the possessor is not unaware that he possesses the thing improperly or wrongfully."

• Pecson v. Court of Appeals, 244 SCRA 407 (1995) — Followed. Established that the indemnity for useful improvements under Article 448 must be based on the current fair market value of the improvement, not the cost of construction, to prevent unjust enrichment of the landowner.
• Technogas Philippines Manufacturing Corp. v. Court of Appeals, 268 SCRA 5 (1997) — Followed. Applied Article 448 of the Civil Code and established that the landowner cannot refuse to exercise either option under the article and compel the builder to remove the improvement.
• Gardner v. Court of Appeals, 131 SCRA 585 (1984) — Followed. Held that judicial admissions in pleadings are not absolute and inflexible; testimony in open court repudiating defenses raised in an Answer can be given weight and credence.

• Article 448, Civil Code — Governs the rights and obligations of a landowner and a builder in good faith. Applied to grant the landowner the option to appropriate the improvement or oblige the builder to pay the price of the land, as both parties were in good faith.
• Article 527, Civil Code — Provides that good faith is always presumed, and upon him who alleges bad faith rests the burden of proof. Applied to establish the presumption of good faith in favor of the builder.
• Article 528, Civil Code — Defines when possession in good faith ceases, which is from the moment facts exist showing that the possessor is not unaware that he possesses the thing improperly. Applied to determine that the builder's good faith ceased upon personal notification by the true owner.

Artemio V. Panganiban, Angelina Sandoval-Gutierrez, Renato C. Corona, Cancio C. Garcia