Sia vs. Court of Appeals

A lessee who constructs improvements on leased land is not a builder in good faith under Articles 448 and 546 of the Civil Code, and therefore cannot invoke the right of retention until full reimbursement; the rights of such lessee are exclusively governed by Article 1678, which limits recovery to one-half the value of useful improvements and allows removal only if the lessor refuses to pay.

Atty. Rodolfo N. Pelaez owned a parcel of commercial land at the corner of Tiano Bros. Street and Cruz Taal Street, Cagayan de Oro City. He leased the land to petitioner's parents, spouses Lim Siok Oan and Sia Bon Suan, who constructed a commercial building thereon in 1970 with the lessor's consent. Upon Rodolfo's death, the land was inherited by his son Atty. Pacifico Pelaez, who subsequently sold it to private respondent Torre de Oro Development Corporation. Petitioner succeeded to his parents' rights as lessee.

• Filed in MTC: Civil Case No. 11987 (ejectment) filed by Torre de Oro against Henry L. Sia in the Municipal Trial Court of Cagayan de Oro City, Branch 5.
• MTC Decision: June 26, 1990 — Dismissed the complaint; ruled petitioner was a builder in good faith under Articles 448 and 546 and could not be ejected without full reimbursement of the building's fair market value.
• Appealed to RTC: Branch 20, Cagayan de Oro City.
• RTC Decision: October 31, 1991 — Reversed the MTC; held the lease expired on December 31, 1988; applied Article 1678; ordered petitioner to vacate and pay monthly rental of P5,000.00 from December 1988 plus litigation expenses and attorney's fees.
• Appealed to CA: Fourth Division, CA-G.R. SP No. 26800.
• CA Decision: June 19, 1992 — Affirmed the RTC with modification: computed rentals from January 1989 (not December 1988) and deleted the award of attorney's fees.
• Elevated to SC: Petition for review dismissed for lack of merit on May 5, 1997.

• March 22, 1988: Lease contract executed between Torre de Oro (lessor) and Henry L. Sia (lessee) for one year, "counting from this date," but also specifying the period is "for One (1) year counted from January, 1988 and renewable for another year [after] every expiration of the contract upon agreement of both parties."
• Terms: Monthly rental of P2,000.00 effective January 1987; prohibition against sublease without written consent; lessor pays taxes on land, lessee pays for improvements, electricity, and telephone.
• Improvements: A commercial building existed on the lot since 1970, constructed by petitioner's parents with the consent of the original lessor, Rodolfo Pelaez.
• December 22, 1988: Private respondent sent notice of non-renewal upon expiration, citing alleged unauthorized subleasing as ground.
• December 26-27, 1988: Sublessees notified of lease expiration; petitioner paid December 1988 rent on December 27, 1988.
• January 20, 1989: Petitioner offered to increase rent by only P500.00 instead of the demanded P8,500.00; private respondent rejected the offer.
• February 8, 1989: Ejectment complaint filed by private respondent.

• The lease contract had not yet expired when the ejectment case was filed, arguing the one-year period should run from March 22, 1988 (signing date) or April 5, 1988 (notarization date), not January 1988.
• He is a builder in good faith under Articles 448 and 546, entitled to retain possession of the leased premises until paid the full fair market value of the building constructed by his parents.
• Article 1678 does not apply because it contemplates improvements made on a building owned by the lessor, not when only bare land is leased; a building is not an "improvement" within the meaning of Article 1678.
• The MTC lacked jurisdiction to determine the applicability of Article 448 and to fix the reasonable value of improvements (jurisdictional attack).
• The P5,000.00 monthly rental fixed by the RTC is excessive, exorbitant, and unreasonable.

• The lease contract clearly expired on December 31, 1988 (one year from January 1988); the ejectment case filed in February 1989 was therefore timely.
• Petitioner violated the lease contract by subleasing without written consent.
• Articles 448 and 546 apply only to possessors who believe themselves to be owners of the land; a lessee knows he is not the owner and is therefore not a possessor in good faith.
• Article 1678 exclusively governs the rights of a lessee regarding useful improvements, limiting recovery to one-half the value and providing only for removal, not retention.
• Petitioner is estopped from questioning the MTC's jurisdiction after voluntarily submitting to it, stipulating to the issues (including good faith status), and obtaining a favorable decision below.

• Procedural Issues:
  • Whether petitioner is estopped from assailing the jurisdiction of the MTC to determine his status as a builder in good faith and to fix the value of improvements.
• Substantive Issues:
  • Whether the lease contract had expired when the ejectment suit was filed.
  • Whether a lessee who constructs a building on leased land is a builder in good faith under Articles 448 and 546 entitled to retention until full reimbursement, or is governed by Article 1678.
  • Whether the fixed monthly rental of P5,000.00 is reasonable.

• Procedural: Petitioner is estopped from questioning the MTC's jurisdiction. He voluntarily submitted to the court's jurisdiction, participated in pre-trial where he stipulated to issues including whether he was a builder in good faith, actively sought affirmative relief (declaration of rights under Articles 448/546), and only raised the jurisdictional defect after receiving adverse decisions on appeal. Citing Tijam v. Sibonghanoy and Cloma v. Court of Appeals, the SC held that a party cannot invoke jurisdiction to secure relief and later repudiate it to escape an adverse judgment.
• Substantive:
  • Lease Expiration: The lease expired on December 31, 1988. The contract must be interpreted as a whole; despite the March 1988 signing date, the parties expressly agreed the one-year period would be "counted from January, 1988." The complaint filed February 8, 1989 was therefore filed after expiration.
  • Applicable Law: Article 1678 applies, not Articles 448 and 546. A lessee is conclusively presumed to know he is not the owner of the leased land. Articles 448 and 546 apply only to possessors who build believing themselves to be owners. A building constitutes an "improvement" under Article 1678.
  • Rights under Article 1678: The lessor has the option to (a) appropriate the improvements by paying the lessee one-half of the value, or (b) refuse reimbursement, in which case the lessee may remove the improvements even if the principal thing suffers damage (but not more than necessary). The lessee has no right of retention.
  • Reasonable Rental: The P5,000.00 monthly rental is reasonable. Upon termination of the lease, the stipulated rental no longer binds the parties; courts may fix reasonable compensation for use and occupancy based on the property's status as prime commercial real estate, increased taxes, and prevailing rental rates. The burden to prove unconscionability rests on the lessee, which petitioner failed to discharge.

• Estoppel by Laches (Tijam v. Sibonghanoy Doctrine) — A party who voluntarily submits to a court's jurisdiction to obtain affirmative relief cannot later repudiate that same jurisdiction to avoid an adverse decision. The SC applied this to bar petitioner's belated jurisdictional attack on the MTC.
• Builder in Good Faith (Articles 448 and 546) — Requisites: (1) The builder believes himself to be the owner of the land; (2) He builds in good faith. Application: These provisions do not apply to lessees because a lessee knows he is not the owner of the land he leases.
• Rights of Lessee regarding Improvements (Article 1678) — Requisites: (1) Lessee makes improvements in good faith; (2) Improvements are useful; (3) Suitable to the use for which the lease is intended; (4) Without altering the form or substance of the property leased. Effects: (a) Lessor may appropriate by paying one-half the value; (b) If lessor refuses, lessee may remove improvements (even if principal thing suffers damage, but no more than necessary); (c) No right of retention exists.
• Interpretation of Contracts — The entire document must be read as a whole, giving effect to all provisions and considering the intention of the parties; specific dates stated in the contract prevail over mere signing dates.
• Fixing of Reasonable Rental — After lease termination, courts may fix reasonable compensation for use and occupancy considering factors such as realty assessment, location (prime commercial), tax increases, and prevailing rates; the stipulated rental expires with the contract.

• "A lessee, being conclusively presumed to know that he is not the owner of the land that he is leasing, is not such a possessor-builder contemplated of by Articles 448 and 546 of the New Civil Code."
• "It is too late in the day for petitioners to question the jurisdiction of the trial court... Voluntarily submitting to the jurisdiction of the trial court, petitioners freely participated in all the hearings of the case and adduced their own evidence. It was only after an adverse judgment that petitioners raised the trial court's alleged lack of jurisdiction. Our law and policy do not sanction such a somersault."
• "Art. 546 applies only to a case where a party builds or sows or plants in a land in which he believes himself to have a title and not to lands wherein his interest is merely that of tenant under a lease contract."

• Tijam v. Sibonghanoy (23 SCRA 29) — Controlling precedent on estoppel by laches; party cannot invoke jurisdiction then repudiate it after adverse decision.
• Cloma v. Court of Appeals (324 SCRA 665) — Applied Tijam doctrine; held petitioner estopped from questioning jurisdiction after voluntary submission and active participation.
• Cabangis v. Court of Appeals (200 SCRA 414) — Directly controlling; held Articles 448/546 inapplicable to lease contracts; Article 1678 governs; building is an "improvement" under Article 1678.
• Bocaling v. Laguna (54 SCRA 243) — Lessees are not possessors in good faith; rights governed by Article 1678.
• Southwestern University v. Salvador (90 SCRA 318) — Lessees are neither builders in good faith nor bad faith; Article 1678 applies.
• Manila Bay Club v. Court of Appeals (245 SCRA 715) — Trial court has authority to fix reasonable value for continued use after lease termination; not bound by stipulated rental.

• Article 1678, Civil Code — Rights of lessee regarding useful improvements; governs reimbursement and removal.
• Article 448, Civil Code — Right of accession regarding builders in good faith (declared inapplicable to lessees).
• Article 546, Civil Code — Effects of possession; right of retention (declared inapplicable to lessees).
• Article 1673(1), Civil Code — Grounds for judicial ejectment (expiration of lease contract).

N/A (Padilla, Bellosillo, Vitug, and Kapunan, JJ., concurred without separate opinions).