G.R. No.
199353 Despite Legaspi Corporation's notice that the construction of Concession 4 was illegal, Lemans
LEVISTAE MANAGEMENT SYSTEM, INC., Petitioner
vs
LEGASPI TOWERS 200, INC., and VIVAN Y. LOCSIN and PITONG MARCORDE,
Respondents
x-----------------------x
ENGR. NELSON Q. IRASGA, in his capacity as Municipal Building Official of Makati, Metro
Manila and HON. JOSE P. DE JESUS, in his capacity as Secretary of the Dept.
DECISION
LEONARDO-DE CASTRO, J.:
The Civil Code provisions on builders in good faith presuppose that the owner of the land and
the builder are two distinct persons who are not bound either by specific legislation on the
subject property or by contract. Properties recorded in accordance with Section 41 of Republic
Act No. 47262 (otherwise known as the Condominium Act) are governed by said Act; while the
Master Deed and the By Laws of the condominium corporation establish the contractual
relations between said condominium corporation and the unit owners.
These are consolidated petitions under Rule 45 filed by Leviste Management System, Inc.
(LEMANS) and Legaspi Towers 200, Inc. (Legaspi Towers), both assailing the Decision3 dated
May 26, 2011 of the Court of Appeals in CA-G.R. CV No. 88082. The assailed Decision4
affirmed the October 25, 2005 Decision of the Regional Trial Court (RTC), Branch 135 of Makati
City in Civil Case No. 91-634.
The facts, as culled by the Court of Appeals from the records, follow:
Legaspi Towers is a condominium building located at Paseo de Roxas, Makati City. It consists
of seven (7) floors, with a unit on the roof deck and two levels above said unit called Concession
2 and Concession 3. The use and occupancy of the condominium building is governed by the
Master Deed with Declaration of Restrictions of Legaspi Towers (hereafter "Master Deed")
annotated on the transfer certificate of title of the developer, Legaspi Towers Development
Corporation.
Concession 3 was originally owned by Leon Antonio Mercado. On 9 March 1989, Lemans,
through Mr. Conrad Leviste, bought Concession 3 from Mercado.
Sometime in 1989, Lemans decided to build another unit (hereafter "Concession 4") on the roof
deck of Concession 3. Lemans was able to secure the building permit for the construction of
Concession 4 and commenced the construction thereof on October 1990.
refused to stop its construction. Due to this, Legaspi Corporation forbade the entry of Lemans'
construction materials to be used in Concession 4 in the condominium. Legaspi Corporation
similarly wrote letters to the Building Official Nelson Irasga ("hereafter Irasga"), asking that the
[building permit of Lemans for Concession 4 be cancelled. Trasga, however, denied the
requested cancellation, stating that the applicant complied with the requirements for a building
permit and that the application was signed by the then president of Legaspi Corporation.
Lemans filed the Complaint dated February 20, 1991 with the RTC, praying among others that
a writ of mandatory injunction be issued to allow the completion of the construction of
Concession 4. On 3 April 1991, the RTC issued the writ prayed for by Lemans.
Later, Legaspi Corporation filed the Third Party Complaint dated October 7, 1991. This was
against Irasga, as the Municipal Building Official of Makati, and Jose de Jesus (herafter "De
Jesus"), as the Secretary of Public Works and Highways (collectively referred to as the ""third-
party defendants-appellees") so as to nullify the building permit issued in favor of Lemans for
the construction of Concession 4.
After the parties had presented and formally offered their respective pieces of evidence, but
before the rendition of a judgment on the main case, the RTC, in its Order dated May 24, 2002,
found the application of Article 448 of the Civil Code and the ruling in the Depra vs. Dumlao
[case] (hereafter "Depra Case") to be proper.
Lemans moved for the reconsideration o[f] the aforementioned order. The RTC denied this and
further ruled:
The main issue in this case is whether or not [LEMANS] owns the air space above its
condominium unit. As owner of the said air space, [LEMANS) contends that its construction of
another floor was in the exercise of its rights.
It is the [finding] of the Court that [LEMANS) is not the owner of the air space above its unit.
[LEMANS'] claim of ownership is without basis in fact and in law. The air space which
[LEMANS] claims is not on top of its unit but also on top of the condominium itself, owned and
operated by defendant Legaspi Towers.
Since it appears that both plaintiff and defendant Legaspi Towers were in good faith, the Court
finds the applicability of the ruling in Depra vs. Dumlao, 136 SCRA 475.
From the foregoing, Lemans filed the Petition for Certiorari dated November 13, 2002 with the
Court of Appeals], docketed as CA G.R. SP. No. 73621, which was denied in the Decision
promulgated on March 4, 2004. The Court did not find grave abuse of discretion, amounting to
lack or excess of jurisdiction, on the RTC's part in issuing the above orders. Lemans sought
reconsideration of this decision but failed.
Meanwhile, Lemans adduced evidence before the RTC to establish that the actual cost for the
construction of Concession 4 was Eight Hundred Thousand Eight Hundred Ninety-seven and
96/100 Pesos (PhP800,897.96) and that the fair market value of Concession 4 was Six Million
Pesos (PhP6,000,000.00). Afterwards, the RTC rendered the Assailed Decision.5
Reiterating its previous ruling regarding the applicability of Article 448 of the Civil Code to the
case, the RTC in its October 25, 2005 Decision disposed of the dispute in this wise:
WHEREFORE, judgment is hereby rendered ordering defendant Legaspi Towers 200, Inc. to
exercise its option to appropriate the additional structure constructed on top of the penthouse
owned by plaintiff Leviste Management Systems, Inc. within sixty [60] days from the time the
Decision becomes final and executory. Should defendant Legaspi Towers 200, Inc. choose not
to appropriate the additional structure after proper indemnity, the parties shall agree upon the
terms of the lease and in case of disagreement, the Court shall fix the terms thereof.
For lack of merit, the third party complaint and the counterclaims are hereby dismissed.
Costs against the plaintiff.6
When the parties respective motions for reconsideration were denied by the trial court, both
elevated the matter to the Court of Appeals.
On May 26, 2011, the Court of Appeals, acting on the consolidated appeals of LEMANS and
Legaspi Towers, rendered its Decision affirming the decision of the RTC of Makati City.
The Court of Appeals held that the appeal of LEMANS should be dismissed for failure to comply
with Section 13, Rule 44 in relation to Section 1(f), Rule 50 of the Rules of Court, as the subject
index of LEMANS' brief did not contain a digest of its arguments and a list of textbooks and
statutes it cited.7 For this reason, the appellate court no longer passed upon the sole issue
raised by LEMANS, i.e., whether its construction of Concession 4 should be valued at its actual
cost or its market value.
As regards the appeal of Legaspi Towers, the Court of Appeals held that while Concession 4
is indeed a nuisance, LEMANS has been declared a builder in good faith, and noted that
Legaspi Towers failed to contest this declaration. Since Concession 4 was built in good faith,
it cannot be demolished. The Court of Appeals likewise affirmed the validity of the building
permit for Concession 4, holding that if the application and the plans appear to be in conformity
with the requirements of governmental regulation, the issuance of the permit may be
considered a ministerial duty of the building official. 8
The Motion for Partial Reconsideration of Legaspi Towers and the Motion for Reconsideration
of LEMANS were denied for lack of merit in the appellate court's Resolution9 dated November
17, 2011.
Consequently, LEMANS and Legaspi Towers filed separate Petitions for Review on Certiorari
with this Court based on the following grounds:
[LEMANS PETITION:]
I
THE COURT OF APPEALS ERRED WHEN IT FAILED TO APPLY THE DEPRA VS. DUMLAO
DOCTRINE WHEN IT REFUSED TO RULE ON THE PROPER VALUATION OF THE
SUBJECT PROPERTY FOR THE PURPOSE OF DETERMINING THE PURCHASE PRICE IN
THE EVENT THAT RESPONDENT LEGASPI TOWERS EXERCISES ITS OPTION TO
PURCHASE
II
THE PROPERTY THE COURT OF APPEALS ERRED WHEN, REFUSING TO RULE ON THE
VALUATION OF THE SUBJECT PROPERTY, IT DISREGARDED THE EVIDENCE ALREADY
SUBMITTED AND PART OF THE RECORDS.10
[LEGASPI TOWERS PETITION:]
I. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT [LEGASPI TOWERS] HAS
THE RIGHT TO DEMOLISH CONCESSION 4 FOR BEING AN ILLEGAL CONSTRUCTION.
II. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BUILDING PERMIT OF
CONCESSION 4 IS NOT VALIDLY ISSUED.11
At the crux of the present controversy is the legal issue whether Article 448 of the Civil Code
and our ruling in Depra v. Dumlao12 are applicable to the parties' situation.
Prior to answering this key question, we dispose of a procedural matter. LEMANS has taken
the position that in light of the finality of the trial court's Order dated May 24, 2002 holding that
Article 448 of the Civil Code and the Depra case should be applied in this case, Legaspi Towers
is now bound by same and may no longer question the former's status as a builder in good
faith. The Court of Appeals in its assailed Decision appears to subscribe to the same view when
it ruled that, despite the fact that Concession 4 was a nuisance, the previous declaration that
LEMANS is a builder in good faith limits Legaspi Towers' options to those provided in Article
448.
The Court does not agree with LEMANS and the Court of Appeals.
At the outset, it must be pointed out that the May 24, 2002 RTC Order is an interlocutory order
that did not finally dispose of the case and, on the contrary, set the case for hearing for
reception of evidence on the amount of expenses spent by LEMANS in the construction of
Concession 4. For this reason, it is apropos to discuss here the remedies available to a party
aggrieved by interlocutory orders of the trial court.
Section 1, Rule 41 of the Rules of Court pertinently states:
RULE 41
Appeal from the Regional Trial Courts
SECTION 1. Subject of appeal. — An appeal may be taken from a judgment or final order that
completely disposes of the case, or of a particular matter therein when declared by these Rules
to be appealable.
No appeal may be taken from:
(a) An order denying a motion for new trial or reconsideration;
(b) An order denying a petition for relief or any similar motion seeking relief from judgment;
(c) An interlocutory order;
(d) An order disallowing or dismissing an appeal;
(e) An order denying a motion to set aside a judgment by consent, confession or compromise
on the ground of fraud, mistake or duress, or any other ground vitiating consent;
(f) An order of execution;
(g) A judgment or final order for or against one or more of several parties or in separate claims,
counterclaims, cross-claims and third-party complaints, while the main case is pending, unless
the court allows an appeal therefrom; and
(h) An order dismissing an action without prejudice.
In all the above instances where the judgment or final order is not appealable, the aggrieved
party may file an appropriate special civil action under Rule 65. (Emphases supplied.)
Hence, we explained in Crispino v. Tansay13 that:
The remedy against an interlocutory order is not appeal but a special civil action for certiorari
under Rule 65 of the Rules of Court. The reason for the prohibition is to prevent multiple appeals
in a single action that would unnecessarily cause delay during trial. In Rudecon v. Singson:
The rule is founded on considerations of orderly procedure, to forestall useless appeals and
avoid undue inconvenience to the appealing party by having to assail orders as they are
promulgated by the court, when all such orders may be contested in a single appeal.
Faced with an interlocutory order, parties may instantly avail of the special civil action of
certiorari. This would entail compliance with the strict requirements under Rule 65 of the Rules
of Court. Aggrieved parties would have to prove that the order was issued without or in excess
of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction and
that there is neither appeal nor any plain, speedy, and adequate remedy in the ordinary course
of law.
This notwithstanding, a special civil action for certiorari is not the only remedy that aggrieved
parties may take against an interlocutory order, since an interlocutory order may be appealed
in an appeal of the judgment itself. In Investments, Inc. v. Court of Appeals it was held:
Unlike a "final" judgment or order, which is appealable, as above pointed out, an "interlocutory"
order may not be questioned on appeal except only as part of an appeal that may eventually
be taken from the final judgment rendered in the case. (Emphases supplied; citations omitted.)
From the foregoing disquisition in Crispino, a party who wishes to assail an interlocutory order
may (a) immediately file a petition for certiorari if appropriate and compliant with the stringent
requirements of Rule 65 or (b) await judgment and question the interlocutory order in the appeal
of the main decision. Notably, in the case at bar, LEMANS filed a petition for certiorari against
the RTC's May 24, 200214 and August 19, 200215 Orders while Legaspi Towers chose to
simply appeal the main decision.
This Court is not bound by the interlocutory orders of the trial court nor by the Court of Appeals'
Decision dated March 4, 2004 in CA-G.R. SP No. 73621, i.e., LEMANS' petition for certiorari
of said interlocutory orders.
To begin with, the Court of Appeals' decision in CA-G.R. SP No. 73621 was never evelated to
this Court. Secondly, in resolving LEMANS' petition for certiorari, the Court of Appeals itself
ruled, among others, that:
It is noteworthy to state that the petitioner imputes grave abuse of discretion on the part of the
respondent judge in ruling that Article 448 and the case of Depra v. Dumlao (136 SCRA 475)
are applicable in the case at bar. At most, these are considered mere errors of judgment, which
are not proper for resolution in a petition for certiorari under Rule 65.
The error is not jurisdictional, and certiorari is not available to correct errors in judgment or
conclusions of law and fact not amounting to excess or lack of jurisdiction. In the extraordinary
writ of certiorari, neither questions of fact nor even of law are entertained, but only questions
of lack or excess of jurisdiction or grave abuse of discretion.16 (Emphases supplied.)
We are not so constrained in these consolidated petitions under Rule 45 for as we observed in
E.I. Dupont De Nemours and Co. v. Francisco17:
The special civil action of certiorari under Rule 65 is intended to correct errors of jurisdiction.
Courts lose competence in relation to an order if it acts in grave abuse of discretion amounting
to lack or excess of jurisdiction. A petition for review under Rule 45, on the other hand, is a
mode of appeal intended to correct errors of judgment. Errors of judgment are errors committed
by a court within its jurisdiction. This includes a review of the conclusions of law of the lower
court and, in appropriate cases, evaluation of the admissibility, weight, and inference from the
evidence presented. (Emphases supplied; citations omitted.)
In all, there is no procedural bar for this Court to pass upon the previous interlocutory orders of
the court a quo and examine the legal conclusions therein in the present consolidated appeals
of the trial court's decision. We are compelled to undertake such a review in light of the novelty
of the main issue presented in these petitions. The Court, after all, is the final arbiter of all legal
questions properly brought before it.18
We proceed to the merits of these consolidated cases.
First, we find no cogent reason to disturb the finding of the lower courts that it is Legaspi Towers
which owns the air space above Concession 3 as the same is in keeping with the facts and the
applicable law. We quote with approval the following discussion from the Court of Appeals
Decision dated March 4, 2004 in CA-G.R. SP No. 73621:
As correctly pointed out by the private respondent Legaspi, the air space wherein Concession
4 was built is not only above Concession 3, but above the entire condominium building. The
petitioner's [LEMANS'] ownership of Concession 3 does not necessarily extend to the area
above the same, which is actually the "air space" of the entire condominium building. The
ownership of the air space above Concession 3 is not a necessary incident of the ownership
of Concession 3.
It may be well to state here the following provisions of Republic Act No. 4726, otherwise known
as The Condominium Act:
Section 2. A condominium is an interest in real property consisting of a separate interest in a
unit in a residential, industrial or commercial building and an undivided interest in common
directly or indirectly, in the land on which it is located and in other common areas of the building.
A condominium may include, in addition, a separated interest on other portions of such real
property. Title to the common areas, including the land, or the appurtenant interests in such
areas, may be held by a corporation specially formed for the purpose (hereinafter known as
the "condominium corporation") in which the holders of separate interests shall automatically
be members or shareholders, to the exclusion of others, in proportion to the appurtenant
interest of their respective units in the common areas. (RA 4726, The Condominium Act)
Section 3 (d). "Common areas" means the entire project excepting all units separately granted
or held or reserved.
Section 6. Unless otherwise expressly provided in the enabling or master deed or the
declaration of restrictions, the incidents of the condominium grant are as follows:
(a) The boundary of the unit granted are the interior surfaces of the perimeter walls, ceilings,
windows and doors thereof.1âwphi1 The following are not part of the unit - bearing walls,
columns, walls, roofs, foundations and other common structural elements of the building x x x.
Evidently, what a unit includes is only the four walls, ceilings, windows and doors thereof. It
certainly does not include the roof or the areas above it.
In a condominium, common areas and facilities are "portions of the condominium property not
included in the units," whereas, a unit is a part of the condominium property which is to be
subject to private ownership." Inversely, that which is not considered a unit should fall under
common areas and facilities.
Inasmuch as the air space or the area above Concession 3 is not considered as part of the
unit, it logically forms part of the common areas.
The petitioner's efforts to establish that Concession 3 and the open area in the roof deck are
reserved and separately granted from the condominium project are futile, inasmuch as even if
the same is established, it would not prove that the area above it is not part of the common
area. Admittedly, there is nothing in the Master Deed which prohibits the construction of an
additional unit on top of Concession 3, however, there is also nothing which allows the same.
The more logical inference is that the unit is limited to that stated in the Condominium Act,
considering that the Master Deed with Declaration of Restrictions does not expressly declare
otherwise.
To allow the petitioner's claim over the air space would not prevent the petitioner from further
constructing another unit on top of Concession 4 and so on. This would clearly open the door
to further "impairment of the structural integrity of the condominium building" which is explicitly
proscribed in the Master Deed.19
Significantly, the parties are no longer questioning before us the past rulings regarding Legaspi
Towers' ownership of the air space above Concession 3 which is the air space above the
condominium building itself. The principal bones of contention here are the legal consequences
of such ownership and the applicability of Article 448 of the Civil Code and our ruling in Depra
v. Dumlao20 on the factual antecedents of these cases.
The ruling of this Court in Depra v. Dumlao extensively cited by both parties pertains to the
application of Articles 448 and 546 of the Civil Code, which respectively provide:
Art. 448. The owner of the land on which anything has been built, sown or planted in good faith,
shall have the right to appropriate as his own the works, sowing or planting, after payment of
the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to
pay the price of the land, and the one who sowed, the proper rent. However, the builder or
planter cannot be obliged to buy the land if its value is considerably more than that of the
building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not
choose to appropriate the building or trees after proper indemnity. The parties shall agree upon
the terms of the lease and in case of disagreement, the court shall fix the terms thereof.
Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in
good faith may retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding
the amount of the expenses or of paying the increase in value which the thing may have
acquired by reason thereof.
To recap, the defendant in Depra constructed his house on his lot but, in good faith, encroached
on an area of 34 square meters of the property of plaintiff on which defendant's kitchen was
built. The Court ruled that pursuant to Article 448 of the Civil Code, plaintiff, as the owner of the
land, has the option either to pay for the encroaching part of the kitchen, or to sell the
encroached 34 square meters of his lot to the defendant, the builder in good faith. The owner
of the land cannot refuse to pay for the encroaching part of the building and to sell the
encroached part of the land. Pursuant to Articles 448 and 546 of the Civil Code, the Court
remanded the case to the RTC to determine the following:
(1) the present fair price of the 34-square meter encroached area of the land;
(2) the amount of expenses spent in building the kitchen;
(3) the increase in value the area may have acquired by reason of the building; and
(4) whether the value of the 34-square meter area is considerably more than that of the kitchen
built thereon.
After the RTC has determined the four items above, the RTC shall grant the owner a period of
15 days to exercise his option whether (a) to appropriate the kitchen by paying the amount of
expenses spent for building the same or the increase of such area's value by reason of the
building or (b) to oblige the builder in good faith to pay the price of said area. The Court
thereafter provided for further contingencies based on the RTC finding in the fourth item.
In the case at bar, LEMANS prays that, pursuant to Depra, the Court should determine the
value of Concession 4, and find such value to be Six Million Eight Hundred Thousand Eight
Hundred Ninety-Seven and 96/100 Pesos (₱6,800,897.96) plus legal interest. Legaspi Towers,
on the other hand, prays for the extrajudicial abatement of Concession 4, on the ground that
the applicable provision of the Civil Code is Article 699, which provides:
Article 699. The remedies against a public nuisance are:
(1) A prosecution under the Penal code or any local ordinance; or
(2) A civil action; or
(3) Abatement, without judicial proceedings.
Legaspi Towers also argues that Concession 4 is an illegal construction, for being in violation
of the Condominium Act and the By Laws of Legaspi Towers. Legaspi Towers stresses that
LEMANS failed to comply with the Condominium Act, which requires the consent of the
registered owners of the condominium project for the amendment of the Master Deed.
Indeed, the last paragraph of Section 4 of the Condominium Act provides:
The enabling or master deed may be amended or revoked upon registration of an instrument
executed by the registered owner or owners of the property and consented to by all registered
holders of any lien or encumbrance on the land or building or portion thereof. The term
"registered owner" shall include the registered owners of condominiums in the project. Until
registration of a revocation, the provisions of this Act shall continue to apply to such property.
The Master Deed of Legaspi Towers21 states the number of stories and basements, and the
number of units and accessories, and contains as an attachment a diagrammatic floor plan of
the building as required by Section 4(b)22 of the Condominium Act. Section 2 of the Master
Deed states:
Section 2. The Building and the Units. The building included in the condominium project is a
commercial building constructed of reinforced concrete and consisting of seven (7) storeys with
a basement, a ground floor, a deck roof, and two levels above the deck roof. x x x.23
The construction by LEMANS of Concession 4 contravenes the Master Deed by adding a third
level above the roof deck. As pointed out by Legaspi Towers and shown in the records, the
Master Deed was never amended to reflect the building of Concession 4. Furthermore,
LEMANS failed to procure the consent of the registered owners of the condominium project as
required in the last paragraph of Section 4 of the Condominium Act.
The By-Laws of Legaspi Towers 24 specifically provides that extraordinary improvements or
additions must be approved by the members in a regular or special meeting called for the
purpose prior to the construction:
ARTICLE V
IMPROVEMENTS AND ADDITIONS
XXXX
Section 2. Extraordinary Improvements. Improvements or additions to the common areas which
shall cost more than ₱100,000.00 or which involve structural construction or modification must
be approved by the members in a regular or special meeting called for the purpose before such
improvements or additions are made. x x x.25
Said By-Laws also provides for the process by which violations of the Master Deed are
redressed, and the same coincides with the prayer of Legaspi Towers:
ARTICLE VII
ABATEMENT OF VIOLATIONS
Section 1. Power to Abate Violations. In the event that any member or his tenant or lessee fails
or refuses to comply with any limitation, restriction, covenant or condition of the Master Deed
with Declaration of Restrictions, or with the rules and regulations on the use, enjoyment and
occupancy of office/units or other property in the project, within the time fixed in the notice given
him by the Board of Directors, the latter or its duly authorized representative shall have the
right to enjoin, abate or remedy the continuance of such breach or violation by appropriate legal
proceedings.
The Board shall assess all expenses incurred in abatement of the violation, including interest,
costs and attorney's fees, against the defaulting member.26
Instead of procuring the required consent by the registered owners of the condominium project
pursuant to the Condominium Act, or having Concession 4 approved by the members in a
regular or special meeting called for the purpose pursuant to the By-Laws, LEMANS merely
had an internal arrangement with the then president of Legaspi Towers. The same, however,
cannot bind corporations, which includes condominium corporations such as Legaspi Towers,
as they can act only through their Board of Directors.27
Unperturbed, LEMANS argues that the internal arrangement shows its good faith in the
construction of Concession 4, and claims the application of the aforementioned Articles 448
and 546 of the Civil Code. For reference, Article 448 provides:
Art. 448. The owner of the land on which anything has been built, sown or planted in good faith,
shall have the right to appropriate as his own the works, sowing or planting, after payment of
the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to
pay the price of the land, and the one who sowed, the proper rent. However, the builder or
planter cannot be obliged to buy the land if its value is considerably more than that of the
building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not
choose to appropriate the building or trees after proper indemnity. The parties shall agree upon
the terms of the lease and in case of disagreement, the court shall fix the terms thereof.
Firstly, it is recognized in jurisprudence that, as a general rule, Article 448 on builders in good
faith does not apply where there is a contractual relation between the parties.28
Morever, in several cases, this Court has explained that the raison d'etre for Article 448 of the
Civil Code is to prevent the impracticability of creating a state of forced co-ownership:
The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is
in accord with the principle of accession, i.e., that the accessory follows the principal and not
the other way around. Even as the option lies with the landowner, the grant to him,
nevertheless, is preclusive. The landowner cannot refuse to exercise either option and compel
instead the owner of the building to remove it from the land.
The raison d'etre for this provision has been enunciated thus: 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. It is the owner of the land
who is authorized to exercise the option, because his right is older, and because, by the
principle of accession, he is entitled to the ownership of the accessory thing. 29
In the case at bar, however, the land belongs to a condominium corporation, wherein the
builder, as a unit owner, is considered a stockholder or member in accordance with Section 10
of the Condominium Act, which provides:
SECTION 10. Whenever the common areas in a condominium project are held by a
condominium corporation, such corporation shall constitute the management body of the
project.1âwphi1 The corporate purposes of such a corporation shall be limited to the holding
of the common areas, either in ownership or any other interest in real property recognized by
law, to the management of the project, and to such other purposes as may be necessary,
incidental or convenient to the accomplishment of said purposes. The articles of incorporation
or by-laws of the corporation shall not contain any provision contrary to or inconsistent with the
provisions of this Act, the enabling or master deed, or the declaration of restrictions of the
project. Membership in a condominium corporation, regardless of whether it is a stock or non-
stock corporation, shall not be transferable separately from the condominium unit of which it is
an appurtenance. When a member or stockholder ceases to own a unit in the project in which
the condominium corporation owns or holds the common areas, he shall automatically cease
to be a member or stockholder of the condominium corporation.
The builder is therefore already in a co-ownership with other unit owners as members or
stockholders of the condominium corporation, whose legal relationship is governed by a special
law, the Condominium Act. It is a basic tenet in statutory construction that between a general
law and a special law, the special law prevails. Generalia specialibus non derogant.30 The
provisions of the Civil Code, a general law, should therefore give way to the Condominium Act,
a special law, with regard to properties recorded in accordance with Section 431 of said Act.
Special laws cover distinct situations, such as the necessary co-ownership between unit
owners in condominiums and the need to preserve the structural integrity of condominium
buildings; and these special situations deserve, for practicality, a separate set of rules.
Articles 448 and 546 of the Civil Code on builders in good faith are therefore inapplicable in
cases covered by the Condominium Act where the owner of the land and the builder are already
bound by specific legislation on the subject property (the Condominium Act), and by contract
(the Master Deed and the By-Laws of the condominium corporation). This Court has ruled that
upon acquisition of a condominium unit, the purchaser not only affixes his conformity to the
sale; he also binds himself to a contract with other unit owners.32
In accordance therefore with the Master Deed, the By-Laws of Legaspi Towers, and the
Condominium Act, the relevant provisions of which were already set forth above, Legaspi
Towers is correct that it has the right to demolish Concession 4 at the expense of LEMANS.
Indeed, the application of Article 448 to the present situation is highly iniquitous, in that an
owner, also found to be in good faith, will be forced to either appropriate the illegal structure
and impliedly be burdened with the cost of its demolition) or to allow the continuance of such
an illegal structure that violates the law and the Master Deed, and threatens the structural
integrity of the condominium building upon the payment of rent. The Court cannot countenance
such an unjust result from an erroneous application of the law and jurisprudence.
We will no longer pass upon the issue of the validity of building permit for Concession 4 as the
same has no bearing on the right of Legaspi Towers to an abatement of Concession 4.
Finally, we are constrained to deny the Petition of LEMANS in view of our ruling that the doctrine
in Depra and Articles 448 and 546 of the Civil Code were improperly applied in these cases.
WHEREFORE, the Petition in G.R. No. 199353 is hereby DENIED for lack of merit. The Petition
in G.R. No. 199389 is GRANTED. The Decision dated May 26, 2011 and Resolution dated
November 17, 2011 of the Court of Appeals in CA-G.R. CV No. 88082 are REVERSED and
SET ASIDE. Leviste Management System, Inc. is ORDERED to remove Concession 4 at its
own expense.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 167680 November 30, 2006
SAMUEL PARILLA, CHINITA PARILLA and DEODATO PARILLA, Petitioners,
vs.
DR. PROSPERO PILAR, Respondent.
DECISION
CARPIO MORALES, J.:
Assailed via Petition for Review on Certiorari is the Court of Appeals Decision1 of January 19,
2005 reversing that of the Regional Trial Court (RTC) of Vigan City, Branch 202 which affirmed
the Decision3 of February 3, 2003 of the Municipal Trial Court (MTC) of Bantay, Ilocos Sur.
Petitioner-spouses Samuel and Chinita Parilla and their co-petitioner-son Deodato Parilla, as
dealers4 of Pilipinas Shell Petroleum Corporation (Pilipinas Shell), have been in possession of
a parcel of land (the property) located at the poblacion of Bantay, Ilocos Sur which was leased
to it by respondent Dr. Prospero Pilar under a 10-year Lease Agreement5 entered into in 1990.
When the lease contract between Pilipinas Shell and respondent expired in 2000, petitioners
remained in possession of the property on which they built improvements consisting of a billiard
hall and a restaurant, maintained a sari-sari store managed by Leonardo Dagdag, Josefina
Dagdag and Edwin Pugal, and allowed Flor Pelayo, Freddie Bringas and Edwin Pugal to use
a portion thereof as parking lot.6
Despite demands to vacate, petitioners7 and the other occupants8 remained in the property.
Hence, respondent who has been residing in the United States,9 through his attorney-in-fact
Marivic Paz Padre, filed on February 4, 2002 a complaint for ejectment before the Bantay MTC
with prayer for the issuance of a writ of preliminary injunction with damages10 against
petitioners and the other occupants of the property.
After trial, the MTC, by Decision of February 3, 2003, ordered herein petitioners and their co-
defendants and all persons claiming rights under them to vacate the property and to pay the
plaintiff-herein respondent the amount of ₱50,000.00 as reasonable compensation for the use
of the property and ₱10,000.00 as attorney’s fees and to pay the cost of suit. And it ordered
the plaintiff-herein respondent to reimburse defendants Samuel Parilla, Chinita Parilla and
Deodato Parilla the amount of Two Million Pesos (₱2,000,000.00) representing the value of the
improvements introduced on the property.
Respondent appealed to the RTC of Vigan City that portion of the trial court’s decision ordering
him to reimburse petitioners the amount of Two Million Pesos. The RTC affirmed the MTC
Decision, however.11
On respondent’s petition for review, the Court of Appeals set aside the questioned order for
respondent to reimburse petitioners Two Million Pesos.12 In setting aside the questioned order,
the appellate court, applying Article 546 of the New Civil Code which provides:
ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor
in good faith may retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding
the amount of the expenses or of paying the increase in value which the thing may have
acquired by reason thereof[,]
held that "[herein petitioners]’ tolerated occupancy . . . could not be interpreted to mean . . .
that they are builders or possessors in good faith"13 and that for one to be a builder in good
faith, it is assumed that he claims title to the property which is not the case of petitioners.
Hence, the present petition which faults the appellate court to have erred
I
. . . WHEN IT SET ASIDE THE DECISIONS OF THE TRIAL COURTS WHICH ORDERED
THE RESPONDENT TO REIMBURSE PETITIONERS THE AMOUNT OF TWO MILLION
(₱2,000,000.00) PESOS FOR THE SUBSTANTIAL IMPROVEMENTS INTRODUCED BY
THEM ON THE SUBJECT PREMISES.
II
. . . IN NOT HOLDING THAT PETITIONERS ARE BUILDERS IN GOOD FAITH OF THE
SUBSTANTIAL IMPROVEMENTS THEY HAD INTRODUCED ON THE PREMISES, HENCE,
THEY ARE ENTITLED TO REIMBURSEMENT OF SUCH IMPROVEMENTS.
III
. . . IN NOT HOLDING THAT THE BUILDING WHICH PETITIONERS ERECTED ON THE
PREMISES WAS WORTH, AND THAT THE PETITIONERS ACTUALLY SPENT, THE
AMOUNT OF TWO MILLION (P2,000,000.00) PESOS.
IV
. . . IN NOT HOLDING THAT PETITIONERS HAVE THE RIGHT OF RETENTION OF THE
PREMISES UNTIL THEY ARE REIMBURSED OF THE SAID AMOUNT ADJUDGED IN THEIR
FAVOR BY THE COURTS A QUO.14
Petitioners, proffering that neither respondent nor his agents or representatives performed any
act to prevent them from introducing the improvements,15 contend that the appellate court
should have applied Article 453 of the New Civil Code which provides that "[i]f there was bad
faith not only on the part of the person who built, planted or sowed on the land of another, but
also on the part of the owner of such land, the rights of one and the other shall be the same as
though both had acted in good faith."16
Petitioners thus conclude that being builders in good faith, until they are reimbursed of the Two
Million Peso-value of the improvements they had introduced on the property, they have the
right of retention or occupancy thereof pursuant to Article 448, in relation to Article 546, of the
New Civil Code,17 otherwise, respondent would be unjustly enriched at their expense.
The petition fails in light of the following discussions.
The evidence shows that in 1960, a lease contract over the property was forged between Shell
Company of the Philippines Limited and respondent’s predecessors-in-interest. In 1990, the
lease contract was renewed by Pilipinas Shell and respondent.
Petitioners, being dealers of Pilipinas Shell’s petroleum products, were allowed to occupy the
property. Petitioners are thus considered agents18 of Pilipinas Shell. The factual milieu of the
instant case calls then for the application of the provisions on lease under the New Civil Code.
The right of the lessor upon the termination of a lease contract with respect to useful
improvements introduced on the leased property by a lessee is covered by Article 1678 which
reads:
Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use
for which the lease is intended, without altering the form or substance of the property leased,
the lessor upon the termination of the lease shall pay the lessee one-half of the value of the
improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may
remove the improvements, even though the principal thing may suffer damage thereby. He
shall not, however, cause any more impairment upon the property leased than is necessary.
x x x x (Emphasis supplied)
The foregoing provision is a modification of the old Code under which the lessee had no right
at all to be reimbursed for the improvements introduced on the leased property, he being
entitled merely to the rights of a usufructuary – right of removal and set-off, but not of
reimbursement.19
The modification introduced in the above-quoted paragraph of Article 1678 on partial
reimbursement was intended to prevent unjust enrichment of the lessor which now has to pay
one-half of the value of the improvements at the time the lease terminates because the lessee
has already enjoyed the same, whereas the lessor could enjoy them indefinitely thereafter.20
As the law on lease under the New Civil Code has specific rules concerning useful
improvements introduced by a lessee on the property leased, it is erroneous on the part of
petitioners to urge this Court to apply Article 448, in relation to Article 546, regarding their claim
for reimbursement and to invoke the right of retention before reimbursement is made. Article
448 and Article 546 read:
ART. 448. The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting, after payment
of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted
to pay the price of the land, and the one who sowed, the proper rent. However, the builder or
planter cannot be obliged to buy the land if its value is considerably more than that of the
building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not
choose to appropriate the building or trees after proper indemnity. The parties shall agree upon
the terms of the lease and in case of disagreement, the court shall fix the terms thereof.
ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor
in good faith may retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding
the amount of the expenses or of paying the increase in value which the thing may have
acquired by reason thereof.
Jurisprudence is replete with cases21 which categorically declare that Article 448 covers only
cases in which the builders, sowers or planters believe themselves to be owners of the land or,
at least, have a claim of title thereto, but not when the interest is merely
that of a holder, such as a mere tenant, agent or usufructuary. A tenant cannot be said to be a
builder in good faith as he has no pretension to be owner.22
In a plethora of cases,23 this Court has held that Articles 448 of the Civil Code, in relation to
Article 546 of the same Code, which allows full reimbursement of useful improvements and
retention of the premises until reimbursement is made, applies only to a possessor in good
faith, i.e., one who builds on land with the belief that he is the owner thereof. It does not apply
where one’s only interest is that of a lessee under a rental contract; otherwise, it would always
be in the power of the tenant to "improve" his landlord out of his property. 24 (Underscoring
supplied)
Sia v. Court of Appeals,25 which cites Cabangis v. Court of Appeals,26 exhaustively explains
the applicability of Article 1678 on disputes relating to useful improvements introduced by a
lessee on leased premises, viz:
xxxx
Second. Petitioner stubbornly insists that he may not be ejected from private respondent's land
because he has the right, under Articles 448 and 546 of the New Civil Code, to retain
possession of the leased premises until he is paid the full fair market value of the building
constructed thereon by his parents. Petitioner is wrong, of course. The Regional Trial Court
and the Court of Appeals correctly held that it is Article 1678 of the New Civil Code that governs
petitioner's right vis-a-vis the improvements built by his parents on private respondent's land.
In the 1991 case of Cabangis v. Court of Appeals where the subject of the lease contract was
also a parcel of land and the lessee's father constructed a family residential house thereon,
and the lessee subsequently demanded indemnity for the improvements built on the lessor's
land based on Articles 448 and 546 of the New Civil Code, we pointed out that reliance on said
legal provisions was misplaced.
"The reliance by the respondent Court of Appeals on Articles 448 and 546 of the Civil Code of
the Philippines is misplaced. These provisions have no application to a contract of lease which
is the subject matter of this controversy. Instead, Article 1678 of the Civil Code applies. . . .
xxxx
On the other hand, Article 448 governs the right of accession while Article 546 pertains to
effects of possession. The very language of these two provisions clearly manifest their
inapplicability to lease contracts. . . .
xxxx
Thus, the improvements that the private respondent's father had introduced in the leased
premises were done at his own risk as lessee. The right to indemnity equivalent to one-half of
the value of the said improvements — the house, the filling materials, and the hollow block
fence or wall — is governed, as earlier adverted to, by the provisions of Art. 1678, first
paragraph of the Civil Code above quoted. But this right to indemnity exists only if the lessor
opts to appropriate the improvements (Alburo v. Villanueva, supra, note 10 at 279-280;
Valencia v. Ayala de Roxas, supra, note 10 at 46). The refusal of the lessor to pay the lessee
one-half of the value of the useful improvements gives rise to the right of removal. On this
score, the commentary of Justice Paras is enlightening.
'Note that under the 1st paragraph of Art. 1678, the law on the right of REMOVAL says that
'should the lessor refuse to reimburse said amount, the lessee may remove the improvements,
even though the principal thing may suffer thereby.' While the phrase 'even though' implies that
Art. 1678 always applies regardless of whether or not the improvements can be removed
without injury to the leased premises, it is believed that application of the Article cannot always
be done. The rule is evidently intended for cases where a true accession takes place as when
part of the land leased is, say, converted into a fishpond; and certainly not where as easily
removable
thing (such as a wooden fence) has been introduced. There is no doubt that in a case involving
such a detachable fence, the lessee can take the same away with him when the lease expires
(5 E. Paras, Civil Code of the Philippines Annotated 345 [11th ed., 1986]).'
xxxx
Clearly, it is Article 1678 of the New Civil Code which applies to the present case.1âwphi1
Petitioners’ claim for reimbursement of the alleged entire value of the improvements does not
thus lie under Article 1678. Not even for one-half of such alleged value, there being no
substantial evidence, e.g., receipts or other documentary evidence detailing costs of
construction. Besides, by petitioners’ admission, of the structures they originally built — the
billiard hall, restaurant, sari-sari store and a parking lot, only the "bodega-like" sari-sari store
and the parking lot now exist.27
At all events, under Article 1678, it is the lessor who is given the option, upon termination of
the lease contract, either to appropriate the useful improvements by paying one-half of their
value at that time, or to allow the lessee to remove the improvements. This option solely
belongs to the lessor as the law is explicit that "[s]hould the lessor refuse to reimburse said
amount, the lessee may remove the improvements, even though the principal thing may suffer
damage thereby." It appears that the lessor has opted not to reimburse.
WHEREFORE, the petition is DENIED. The Court of Appeals Decision of January 19, 2005 is
AFFIRMED in light of the foregoing discussions.
Costs against petitioners.
SO ORDERED.
G.R. No. 163429 March 3, 2006
JOHNNY JOSEFA, Petitioner,
vs.
LOURDES SAN BUENAVENTURA, represented by Attorneys-in-Fact, TERESITA SAN
BUENAVENTURA and/or RAUL SAN BUENAVENTURA, Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari for the reversal of the Court of Appeals’ (CA)
Decision1 in CA-G.R. SP No. 69546.
The antecedent facts are as follows:
Lourdes San Buenaventura is the owner of a 364-square meter parcel of land in Pasig City,
covered by Transfer Certificate of Title No. PT-76848.2
On July 15, 1990, Johnny Josefa entered into a Contract of Lease3 with San Buenaventura
over the said parcel of land. The parties agreed, inter alia, that –
1. The period covered by this lease agreement is from August 1, 1990 to July 31, 1995, or a
period of five (5) years, renewable upon agreement of the parties.4
Upon the expiry of the contract, San Buenaventura wrote Josefa informing him that the lease
would no longer be extended but that he may continue with the lease at a rental rate of
P30,000.00 a month.5 Josefa was told to vacate the property and pay any arrearages if he
opted not to lease the property after the expiration of the lease contract. However, Josefa
refused to vacate the premises. He continued to occupy the property and paid a monthly rental
of P15,400.00 which San Buenaventura received. However, the latter subsequently made
demands for Josefa to vacate the property in a Letter dated June 3, 1998.6 Josefa still refused
to leave the premises.7
This prompted San Buenaventura to file a complaint for unlawful detainer against Josefa which
was, however, dismissed due to the plaintiff’s failure to secure a certification from the lupon ng
barangay.8 San Buenaventura refiled the Complaint9 on July 9, 1998 with the Metropolitan
Trial Court (MeTC) of Pasig City. The complaint, docketed as Civil Case No. 6798, was raffled
to Branch 69. It contained the following prayer:
WHEREFORE, premises considered, plaintiff respectfully prays that this Honorable Court, after
due hearing, lender [sic] judgment, in favor of plaintiff and against defendant, ordering the latter:
1. To vacate the premises and to deliver the peaceful possession thereof to plaintiff;
2. To pay plaintiff the amount equivalent to the deficit on monthly rentals from August 1, 1995
up to the time that defendant actually surrenders possession of the property at the rate of PhP
30,000.00 per month;
3. To pay plaintiff the amount of PhP 100,000.00 as and by way of moral damages;
4. To pay plaintiff the amount of PhP 100,000.00 as and by way of exemplary damages;
5. To pay plaintiff the amount of PhP 50,000.00 and PhP 1,500.00/per appearance as and by
way of attorney’s fees; and
6. To pay costs of suit and expenses of litigations.
Other reliefs just and equitable under the premises are likewise prayed for.10
In his Answer,11 Josefa averred that San Buenaventura had no cause of action against him
because, under the contract, she (San Buenaventura) was obliged to renew the lease. Josefa
pointed out that because of this commitment to renew the contract, he had made renovations
and improvements on the land. Josefa also set up attorney’s fees as counterclaim against San
Buenaventura. He likewise prayed that should the lease contract not be renewed, San
Buenaventura be ordered to reimburse to him the cost of the improvements in the amount of
not less than P3 million.
On July 15, 1999, the MeTC rendered its Decision,12 the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering herein defendant
and all persons claiming rights under him to vacate the subject leased premises located as
(sic) A. Mabini St., Capasigan, Pasig City and surrender possession thereof to the plaintiff;
ordering defendant to pay P10,000.00 as and for attorney’s fees, the same being deemed just
and equitable, and to pay the costs of suit.
The claim for moral and exemplary damages is denied, the same not being recoverable in an
ejectment suit. Moreover, for lack of basis, the claim for deficit in monthly rentals from August
1, 1995 is likewise denied. Defendant is, therefore, directed to continue to pay reasonable
compensation for his continued use and occupation of the subject premises at the old rate of
P15,000.00 a month from the time of the institution of this complaint until defendant and all
person[s] claiming rights under him shall have completely vacated the premises.
Defendant’s counterclaim is dismissed for want of basis.
SO ORDERED.13
The MeTC declared that the phrase "renewable upon agreement of the parties" in the lease
contract implied mutuality, i.e., both parties’ consent to the renewal of the lease. Thus, San
Buenaventura’s demand for Josefa to vacate the premises after the expiration of the lease
necessarily negates the idea of her consent to such renewal. The court also held that the clause
does not and cannot constitute a commitment or a promise on the part of San Buenaventura
to renew the lease.14
Josefa appealed the decision to the Regional Trial Court (RTC). On June 27, 2001, the RTC
rendered its Decision15 reversing and setting aside the ruling of the MeTC and dismissing San
Buenaventura’s complaint. The decretal portion of the decision reads:
WHEREFORE, premises considered, the questioned Decision is REVERSED and SET ASIDE,
and the Complaint in Civil Case No. 6798 hereby DISMISSED.16
The RTC held that the inclusion of the renewal clause in the contract showed the intent on the
part of both parties to extend the lease without any condition or requirement of mutual
agreement. It declared that the phrase was merely a useless addition "for the convenience of
any party who may wish, in bad faith, to back out of the extension of the lease." According to
the RTC, "the only time that phrase may come into play is when both parties mutually decline
to extend the lease, but when only one party insists on the extension while the other refuses,
the latter party is bound by the term."17
This time, San Buenaventura appealed to the CA via a Petition for Review under Rule 42 of
the Revised Rules of Court, where she alleged the following:
5.1 Petitioner respectfully submits that the REGIONAL TRIAL COURT erred in finding that the
phrase "renewable upon agreement of the parties" is an outright intent of the parties to renew
the contract upon its expiration.
5.2 Petitioner respectfully submits that the REGIONAL TRIAL COURT erred in finding that the
phrase "renewable upon agreement of the parties" does not mean that there has to be mutual
consent before the lease contract may be extended.
5.3 Petitioner respectfully submits that the REGIONAL TRIAL COURT erred in finding that the
phrase "renewable upon agreement of the parties" is indeed renewable and without any
condition or requirement of mutual agreement notwithstanding the phrase upon agreement of
the parties which the Court found as a useless addition for the convenience of any party who
may wish, in bad faith, to back out of the extension.
5.4 Petitioner respectfully submits that the REGIONAL TRIAL COURT erred in finding that the
act of sending defendant a demand to vacate, signifying her lack of intention to renew the lease
is in violation of the terms and conditions of the lease contract.
5.5 Petitioner submits that the Regional Trial Court erred in not ordering respondent to pay
PHP 30,000.00 monthly rental.
5.6 Petitioner respectfully submits that the REGIONAL TRIAL COURT erred in dismissing the
ejectment Complaint.18
San Buenaventura argued that the RTC failed to apply the ruling of this Court in Fernandez v.
Court of Appeals,19 where a similar clause in the lease contract of the parties was construed.
On November 22, 2002, the CA granted the petition and reversed the decision of the RTC. The
fallo of the decision reads:
IN VIEW OF ALL THE FOREGOING, the challenged RTC Decision is hereby REVERSED and
SET ASIDE, reinstating in the process the earlier judgment of the MTC in Civil Case No. 6798,
with a modification that herein respondent Josefa is ordered to pay petitioner San
Buenaventura rentals in the sum of P30,000.00 a month from the first demand therefor until he
vacates the leased premises. In all other respect[s], the MTC Decision stands. No cost.
SO ORDERED.20
The appellate court declared that, after the expiration of the five-year period in the lease
contract, the owner of the property had the right not only to terminate the lease but to demand
a new rental rate. It held that it was unfair for the lessee to refuse to pay the demanded
increased rate and still remain in possession of the property. The CA also ruled that Josefa
could not claim to be a builder in good faith since he knew that he was only a lessee, whose
rights relative to the improvements he introduced on the property are governed by Article 1678
of the New Civil Code.
Josefa (now petitioner) filed the instant petition against San Buenaventura (respondent) and
raises the following issues for resolution: (a) whether the lease contract between petitioner and
respondent contained a "renewal clause," and as such, they had agreed to extend the period
of the lease after July 31, 1995; (b) whether petitioner is entitled to reimbursement for his
improvements on the leased premises; and (c) whether petitioner is obliged to pay P30,000.00
a month by way of reasonable compensation for his continued occupancy of the property.
On the first issue, petitioner recalls that his predecessor had leased the property way back in
1939, and that said lease had always been renewed. Petitioner insists that when his lease
contract with respondent was executed on July 15, 1990, a commitment was made to renew it
upon its expiration on July 31, 1995, which was why the clause "renewable upon agreement of
the parties" was incorporated in the lease contract. He posits that respondent could not
unilaterally cancel the lease contract without affording him an opportunity to negotiate for its
renewal. While the clause could not be construed to mean that the lease contract would be
automatically renewed after its expiry, the provision negates the right of respondent to
terminate the lease until after negotiations for its renewal should prove to be unsuccessful.
However, he also maintains that respondent had the obligation to renew the lease contract
without modifying any of its terms and conditions. He posits that the ruling of this Court in
Fernandez v. Court of Appeals21 is not controlling in this case.
Respondent, for her part, avers that a similar issue was raised and resolved by this Court in
the following cases: Fernandez v. Court of Appeals,22 Heirs of Amando Dalisay v. Court of
Appeals,23 Buce v. Court of Appeals,24 and LL and Company Development and Agro-
Industrial Corporation v. Huang Chao Chun.25 Respondent asserts that the rulings of this Court
in said cases should apply.
The contention of petitioner has no merit.

It bears stressing that after the subject lease contract expired on July 15, 1995, petitioner was
already unlawfully withholding possession of the leased premises from respondent as to entitle
the latter to file her complaint for ejectment against petitioner as defendant.26 Since the lease
contract was executed for a determinate time, such contract ceased on the day fixed without
need of further demand.27 A notice to vacate constitutes an express act on the part of the
lessor that he no longer consents to the continued occupation by the lessee of the property.28
Hence, respondent, as plaintiff in the trial court, had a cause of action for ejectment against
petitioner who was the defendant below.
It is true that petitioner and respondent agreed that the subject lease contract was "renewable
upon agreement." The Court notes, however, that the effect of petitioner’s intransigent refusal
to pay the P30,000.00 monthly rental proposed by respondent was the failure of the parties to
agree on the renewal of the contract. The clause "renewable upon agreement of the parties" in
the lease contract is clear and admits of no other interpretation: the contract is renewable only
upon agreement of the parties. If no such agreement is forged, petitioner has no other option
except to vacate the property.
Even petitioner himself admits that under the subject clause, the lease contract would not be
automatically renewed upon its expiration on July 31, 1995. Respondent, as the owner of the
property whose title is recognized in the lease contract, was not obliged to agree to renew the
lease contract, much less negotiate with petitioner for such renewal if she opts not to renew
the agreement. Since the renewal of the contract contemplates the death of the old contract, it
is necessary that a new one be executed by the parties.29 A contract can only be renewed
upon the mutual agreement of the parties or at the will of both of them. After all, as the Court
ruled in Buce v. Court of Appeals:30
In the case at bar, it was not specifically indicated who may exercise the option to renew,
neither was it stated that the option was given for the benefit of herein petitioner. Thus, pursuant
to the Fernandez ruling and Article 1196 of the Civil Code, the period of the lease contract is
deemed to have been set for the benefit of both parties. Renewal of the contract may be had
only upon their mutual agreement or at the will of both of them. Since the private respondents
were not amenable to a renewal, they cannot be compelled to execute a new contract when
the old contract terminated on 1 June 1994. It is the owner-lessor’s prerogative to terminate
the lease at its expiration. The continuance, effectivity and fulfillment of a contract of lease
cannot be made to depend exclusively upon the free and uncontrolled choice of the lessee
between continuing the payment of the rentals or not, completely depriving the owner of any
say in the matter. Mutuality does not obtain in such a contract of lease and no equality exists
between the lessor and the lessee since the life of the contract would be dictated solely by the
lessee.31
In Fernandez v. Court of Appeals,32 the Court ruled that the stipulation of the parties in their
lease contract "to be renewable" at the option of both parties stresses that the faculty to renew
was given not to the lessee alone nor to the lessor by himself but to the two simultaneously;
hence, both must agree to renew if a new contract is to come about.
Petitioner’s contention that respondents had verbally agreed to extend the lease indefinitely is
inadmissible to qualify the terms of the written contract under the parole evidence rule, and
unenforceable under the statute of frauds.33
On the second issue, petitioner avers that the CA erred in denying his claim for compensation
of one-half of the value of the improvements he had introduced in the property amounting to
P3,000,000.00. Citing Article 1678 of the New Civil Code,34 he avers that while he may not be
a possessor in good faith being a lessee, he is a builder in good faith since his possession as
lessee is lawful; as such, he is entitled to recover one-half of the value of his useful
improvements. Petitioner insists that the CA erred in applying Article 52635 of the New Civil
Code.
The Court is not persuaded.
The issue of whether a lessee may be considered a builder in good faith was resolved by the
Court in Geminiano v. Court of Appeals.36 The Court stressed that the private respondents
therein, being mere lessees, knew that their occupation of the premises would continue only
for the life of the lease, and as such, could not be considered as possessors nor builders in
good faith.
The Court went on to explain:
In a plethora of cases, this Court has held that Article 448 of the Civil Code, in relation to Article
546 of the same Code, which allows full reimbursement of useful improvements and retention
of the premises until reimbursement is made, applies only to a possessor in good faith, i.e.,
one who builds on land with the belief that he is the owner thereof. It does not apply where
one’s only interest is that of a lessee under a rental contract; otherwise, it would always be in
the power of the tenant to "improve" his landlord out of his property.37
In this case, there is no question that petitioner was initially a lawful possessor because his
entry into the property is by virtue of a lease contract with respondent. However, as a mere
lessee whose possession after the expiration of the contract is at the sufferance of the owner
of the property, he cannot claim to be a builder in good faith. Under Article 1678 of the New
Civil Code, petitioner is entitled to one-half of the value of the improvements only if respondent,
as the owner, decides to appropriate the improvements. Since respondent refused to
appropriate the improvements, petitioner cannot compel her to reimburse to him one-half their
value.38 The sole right of petitioner under Article 1678 is to remove the improvements without
causing any more damage upon the property leased than is necessary.39
On the third issue, petitioner avers that the CA erred in ordering him to pay P30,000.00 monthly
rental for the renewal of the lease contract. He maintains that the amount has no factual basis
and is exorbitant.
The submission of petitioner has no merit. In the first place, the CA awarded the P30,000.00
monthly rentals not for the renewal of the lease contract, but as compensation for petitioner’s
continued occupancy of the property after the lease expired. However, we agree with
petitioner’s contention that the increase of the award to P30,000.00 has no factual basis,
considering that the appellate court failed to state its basis for doubling the amount adjudged
by the trial court. It simply increased the award in the dispositive portion of its decision. Rule
70, Section 17 of the 1997 Rules of Civil Procedure reads:
SEC. 17. Judgment. – If after trial the court finds that the allegations of the complaint are true,
it shall render judgment in favor of the plaintiff for the restitution of the premises, the sum justly
due as arrears of rent or as reasonable compensation for the use and occupation of the
premises, attorney’s fees and costs. If it finds that said allegations are not true, it shall render
judgment for the defendant to recover his costs. If a counterclaim is established, the court shall
render judgment for the sum found in arrears from either party and award costs as justice
requires. (Emphasis added)
In Asian Transmission Corporation v. Canlubang Sugar Estates,40 the Court ruled that the
reasonable compensation contemplated under said Rule partakes of the nature of actual
damages. While the trial court may fix the reasonable amount of rent, it must base its action on
the evidence adduced by the parties. The Court also ruled that "fair rental value is defined as
the amount at which a willing lessee would pay and a willing lessor would receive for the use
of a certain property, neither being under compulsion and both parties having a reasonable
knowledge of all facts, such as the extent, character and utility of the property, sales and
holding prices of similar land and the highest and best use of the property." The Court further
held that the rental value refers to "the value as ascertained by proof of what the property would
rent or by evidence of other facts from which the fair rental value may be determined."41
the rental value of the property was increased by 500% from P3,642,187.50 to P15,000,000
annually.
The CA decision is likewise as nebulous. It affirmed the decision of the RTC, which affirmed
on appeal the decision of the MTC, fixing the reasonable compensation at P15,000,000 simply
because the petitioner offered no controverting evidence as to the fair rental value of the leased
property –
With respect to the rental fixed by the trial court, suffice it to say that petitioner failed to present
controverting evidence as to the fair rental value of the leased premises. The burden of proof
to show that the rental demanded is unconscionable or exorbitant rests upon the lessee. The
trial court had the authority to fix the reasonable value for the continued use and occupancy of
the premises after termination of the lease contract.
It must be underscored that the respondent was the plaintiff in the MTC. It had the burden to
adduce evidence to prove the fair rental value or reasonable compensation for the leased
property. If the respondent failed to discharge its burden, the petitioner was not obligated to
adduce controverting evidence. The burden of evidence would be shifted to the petitioner only
if the respondent, as plaintiff, would be able to adduce preponderant evidence to prove its
claim.45
The Court holds that the trial court’s award of P15,000.00 as reasonable compensation for
petitioner’s occupancy of the property after the expiration of the lease should be maintained.

In D.O. Plaza Management Corporation v. Co-Owners Heirs of Andres Atega,42 the Court IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The decision of
ruled that the following factors may be considered in determining the reasonableness of the the Court of Appeals is AFFIRMED WITH MODIFICATION. The award of P30,000.00 a month,
rental charged: (a) the prevailing rates in the vicinity; (b) location of the property; (c) use of the by way of reasonable compensation for petitioner Johnny Josefa’s occupancy of the property
property; (d) inflation rate; and (e) the testimony of one of the private respondents.43 from July 31, 1995, is DELETED, and the award of P15,000.00 a month made by the MeTC of
Pasig City, Branch 69, is REINSTATED. No costs.
In the present case, there is no evidence on record to justify the increase of the award to
P30,000.00. Respondent’s bare proposal to increase the monthly rental to P30,000.00 after SO ORDERED.
July 31, 1995 cannot be the factual basis for such increase in the compensation due to
petitioner for respondent’s occupancy on the property after the lease contract expired. Thus,
aside from unilaterally and perfunctorily increasing such rentals, the appellate court also
ignored the trial court’s award of P15,000.00 which was based on the evidence on record. As
this Court emphasized in Asian Transmission Corporation v. Canlubang Sugar Estates:44

But the court made no ratiocination as to how it arrived at the amount of P15,000,000 with
reference to the evidence that the respondent adduced, if any, to prove the said claim, vis-à-
vis the evidence adduced by the petitioner. The court made a conclusion without any factual
basis. What is so worrisome is that under their MOA, the parties fixed the annual rental of the
property for the period of July 1, 1991 to June 30, 1992 at P3,373,352.80; and for the period of
July 1, 1992 to June 30, 1993 at the said amount plus 8% or in the amount of P3,642,187.50.
But in its decision, the MTC increased the amount by no less than 500% for the period of July
1, 1993 onwards. The trial court did not bother to explain or elucidate how and for what reason