Sarmiento vs. Agana

A landowner on whose property a building has been erected in good faith cannot refuse both to indemnify the builder for the value of the building and to sell the land; the landowner must exercise one of the two options prescribed by Article 448 of the Civil Code, and a builder in good faith is entitled to retain possession until indemnified. The landowner’s failure to choose within a reasonable period allows the builder to pay the price of the land. Valuation of the building at the upper end of an uncontradicted range provided by the builder’s testimony does not amount to grave abuse of discretion.

While Ernesto Valentino was courting Rebecca Lorenzo, Rebecca’s mother told him that the couple could build a residential house on a 145-square-meter lot in Parañaque, which they assumed belonged to the mother. In 1967, Ernesto built a house on the lot at a cost of P8,000.00 to P10,000.00, expecting that the land would eventually be transferred to them. The lot was later discovered to be titled in the name of spouses Jose C. Santo, Jr., who sold it to petitioner Leonila Sarmiento on September 7, 1974. Sarmiento then demanded that the Valentinos vacate, and upon their refusal, filed an ejectment suit.

• The Alleged Permission and Construction: During their courtship, Rebecca Lorenzo’s mother told Ernesto Valentino that the couple could build a residential house on a 145-square-meter lot in Parañaque. In 1967, relying on that representation and under the belief that the lot belonged to the mother, Ernesto constructed a house at a cost of P8,000.00 to P10,000.00. The spouses occupied the house and lot thereafter.
• Acquisition of Land by Petitioner: The lot was subsequently found to be titled in the name of spouses Jose C. Santo, Jr. On September 7, 1974, petitioner Leonila Sarmiento purchased the land from the Santos for P15,000.00. The title was transferred to Sarmiento’s name.
• Ejectment Suit and Municipal Court Ruling: On January 6, 1975, Sarmiento demanded that the Valentinos vacate the premises, and on April 21, 1975, she filed an ejectment suit against them in the Municipal Court of Parañaque. During the hearings, Sarmiento presented the deed of sale showing a purchase price of P15,000.00. Ernesto Valentino testified that the then-present value of the house was between P30,000.00 and P40,000.00; Sarmiento did not contest those figures. The Municipal Court found the spouses to be builders in good faith, disregarded Ernesto’s testimony, and set the value of the house at P20,000.00, ordering ejectment only after Sarmiento paid that amount.
• CFI Decision and the Exercised Option: On appeal by the spouses to the Court of First Instance of Pasay City under Republic Act No. 6031, the case was decided on the basis of memoranda. The CFI applied Article 448 of the Civil Code, fixed the value of the land at P25,000.00 and the house at P40,000.00, and directed Sarmiento to choose within 60 days between reimbursing the P40,000.00 or allowing the Valentinos to purchase the land for P25,000.00. Sarmiento did not elect either option. The CFI then permitted the Valentinos to deposit the sum of P25,000.00 as the purchase price for the land. Sarmiento challenged the CFI decision through a petition for certiorari before the Supreme Court.

• Valuation of the House and Land: Petitioner Sarmiento maintained that the Court of First Instance gravely abused its discretion in valuing the house at P40,000.00—the extreme upper limit of the builder’s uncorroborated testimony—when the land had been purchased only months earlier for P15,000.00, and the Municipal Court had valued the house at only P20,000.00. She contended that the valuation was not supported by the evidence and that the land’s valuation at P25,000.00 was likewise excessive.
• Application of Article 448: Petitioner argued that she could not be compelled to sell her land and that the remedy of ejectment should not be conditioned on her paying for a house she did not want, effectively asserting that the CFI misapplied Article 448 by forcing her to choose between two options rather than simply ordering eviction.

• Good Faith and Right of Retention: Respondents Ernesto and Rebecca Valentino countered that they built the house in good faith, relying on the representation of Rebecca’s mother that the land could be built upon, and that under Article 448 of the Civil Code they were entitled to retain possession of the land until indemnified for the value of the building.
• Correctness of Valuation: Respondents argued that the CFI’s valuation of the house at P40,000.00 was supported by the only evidence on record—Ernesto’s uncontradicted testimony that the value ranged from P30,000.00 to P40,000.00—and that the land valuation of P25,000.00, which they did not question, was reasonable. They maintained that the CFI correctly applied the options under Article 448 and that Sarmiento’s refusal to exercise either option entitled them to deposit the purchase price and acquire the land.

• Valuation of the House and Land: Whether the Court of First Instance gravely abused its discretion in fixing the value of the residential house at P40,000.00 and the land at P25,000.00.
• Correct Application of Article 448: Whether the CFI correctly applied Article 448 of the Civil Code in requiring the landowner to elect between reimbursing the builders for the house or selling the land to them, and whether the landowner’s failure to exercise any option entitled the builders to deposit the purchase price and acquire the land.

• Valuation of the House and Land: The CFI’s valuations did not constitute grave abuse of discretion. The only evidence of the house’s value was Ernesto’s testimony that it was worth between P30,000.00 and P40,000.00, and Sarmiento did not challenge those figures. The CFI’s choice of the maximum amount within that uncontradicted range was supported by the evidence. The land, purchased for P15,000.00 in September 1974, was valued at P25,000.00—an amount the Valentinos did not question, and which was not unreasonable given the short time lapse and the court’s appreciation of the land’s current value. The assignment of values was therefore not an arbitrary exercise of judicial power.
• Correct Application of Article 448: The CFI correctly applied Article 448. The Valentinos built their house in good faith, as they were led to believe the land was owned by Rebecca’s mother and that the property would eventually be given to them. Under Article 448, once a builder in good faith is established, the landowner must either appropriate the building after paying indemnity, or compel the builder to purchase the land. The landowner cannot refuse both options and instead seek removal of the building; removal is available only if, after the landowner elects to sell, the builder fails to pay the price. Because Sarmiento failed to exercise either option within the prescribed period, the CFI did not err in allowing the Valentinos to deposit the purchase price and thereby acquire the land. This application is consistent with the long-standing rule in Ignacio v. Hilario.

• Dual Option of Landowner under Article 448 — When a builder in good faith erects a structure on another’s land, the landowner has two mutually exclusive rights: (a) to appropriate the building as his own after paying the indemnity required under Articles 546 and 548, or (b) to oblige the builder to pay the price of the land (or, if the value of the land is considerably more than that of the building, to pay reasonable rent if the landowner does not choose to appropriate the building). The landowner may not refuse both options and compel the builder to remove the building. Removal is only permissible when, after the landowner has chosen to sell the land, the builder fails to pay the price. In this case, the Court enforced the rule by dismissing the petition and upholding the CFI’s order that allowed the builder to purchase the land after the landowner declined to exercise either option.
• Right of Retention of Builder in Good Faith — Under Article 546 (formerly Article 453) of the Civil Code, a builder in good faith is entitled to retain possession of the land until he is indemnified for the value of his building. This right was recognized by the Court as underlying the CFI’s directive, ensuring that the Valentinos could not be evicted without payment of the value of their house.
• Valuation Discretion of Trial Courts — A trial court’s valuation of property based on uncontradicted testimony, even if it selects the higher end of a range, does not amount to grave abuse of discretion when the opposing party did not contest the figures at the hearing. The Court deferred to the CFI’s assessment in the absence of any showing that it was arbitrary or unfounded.

• “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 (now Article 546). The owner of the land, upon the other hand, has the option, under article 361 (now Article 448), 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 such removal only when, after having chosen to sell his land, the other party fails to pay for the same.” (quoting Ignacio v. Hilario, 76 Phil. 605, 608 [1946]) — This passage articulates the ratio decidendi that a landowner may not avoid the alternative obligations imposed by Article 448, and that removal is a last resort contingent on the builder’s default.

• Ignacio v. Hilario, 76 Phil. 605 (1946) — Followed and quoted extensively. The Supreme Court relied on this case for the established rule that the landowner cannot refuse both to pay for the building and to sell the land, and that an order compelling removal without first giving the landowner the option to sell or pay is void. The present case applied the same rule to affirm the CFI’s order granting the builders the right to purchase after the landowner’s inaction.

• Article 448, Civil Code — Provided the substantive framework governing the rights and obligations of the landowner and the builder in good faith. The Court held that the CFI correctly required the landowner to elect between paying indemnity for the house or selling the land, and that Sarmiento’s refusal to exercise either option entitled the Valentinos to purchase the land.
• Article 546 (formerly Article 453), Civil Code — Recognized as the basis for the builder in good faith’s right of retention until indemnified. The Court cited it in conjunction with Article 448 to underscore that the Valentinos could not be dispossessed without payment.

Justice Claudio Teehankee (Chairman), Justice Plana, Justice Relova, Justice Gutierrez, Jr., and Justice De la Fuente concurred.

• N/A (the decision was unanimous with no registered dissent).