July 3, 2017

G.R. No. 211170

SPOUSES MAXIMO ESPINOZA and WINIFREDA DE VERA, Petitioners

DECISION

PERALTA, J.:

Before this Court is the Petition for Review on Certiorari under Rule 45, dated March 21, 2014, of
petitioners-spouses Maximo Espinoza and Winifreda De Vera, that seeks to reverse and set aside
the Decision1 dated September 17, 2013 and Resolution dated January 28, 2014, both of the Court
of Appeals (CA) which, in turn, affirmed with modifications the Decision2 dated February 18, 2011 of
the Regional Trial Court (RTC), Branch 42, Dagupan City, in a complaint for useful expenses under
Articles 4483 and 5464 of the New Civil Code of the Philippines.

The facts follow.

A parcel of land located in Dagupan City was originally owned by Eusebio Espinoza. After the death
of Eusebio, the said parcel of land was divided among his heirs, namely: Pastora Espinoza,
Domingo Espinoza and Pablo Espinoza. Petitioner Maximo is the son of Domingo Espinoza, who
died on November 3, 1965, and Agapita Cayabyab, who died on August 11, 1963.

Thereafter, on May 25, 1972, Pastora Espinoza executed a Deed of Sale conveying her share of the
same property to respondents and Leopoldo Espinoza. However, on that same date, a fictitious
deed of sale was executed by petitioner Maximo's father, Domingo Espinoza, conveying the three-
fourth (3/4) share in the estate in favor of respondent Erlinda Cayabyab Mayandoc's parents; thus,
TCT No. 28397 was issued in the names of the latter.

On July 9, 1977, a fictitious deed of sale was executed by Nemesio Cayabyab, Candida Cruz,
petitioners-spouses Maximo Espinoza and Winifreda De Vera and Leopoldo Espinoza over the land
in favor of respondents- spouses Antonio and Erlinda Mayandoc; thus, TCT No. 37403 was issued
under the names of the latter.

As a result of the foregoing, petitioners filed an action for annulment of document with prayer for the
nullification of TCT No. 37403 and, on August 16, 1999, the RTC, Branch 40, Dagupan City
rendered a Decision in favor of petitioners and ordering respondents to reconvey the land in dispute
and to pay attorney's fees and the cost of the suit.

Respondents appealed, but the CA, in its Decision dated February 6, 2004, affirmed the RTC with
modifications that the award of attorney's fees and litigation expenses be deleted for lack of factual
basis. The said CA Decision became final and executory on March 8, 2004.

Thus, respondents filed a complaint for reimbursement for useful expenses, pursuant to Articles 448
and 546 of the New Civil Code, alleging that the house in question was built on the disputed land in
good faith sometime in 1995 and was finished in 1996. According to respondents, they then believed
themselves to be the owners of the land with a claim of title thereto and were never prevented by the
petitioners in constructing the house. They added that the new house was built after the old house
belonging to respondent Erlinda Mayandoc's father was torn down due to termite infestation and
would not have reconstructed the said house had they been aware of the defect in their title. As
such, they claimed that they are entitled to reimbursement of the construction cost of the house in
the amount of ₱800,000.00. They further asserted that at the time that their house was constructed,
they were possessors in good faith, having lived over the land in question for many years and that
petitioners questioned their ownership and possession only in 1997 when a complaint for nullity of
documents was filed by the latter.

Petitioners, in their Answer, argued that respondents can never be considered as builders in good
faith because the latter were aware that the deeds of sale over the land in question were fictitious
and, therefore, null and void; thus, as builders in bad faith, they lose whatever has been built over
the land without right to indemnity.

Respondents, on January 5, 2011, manifested their option to buy the land where the house stood,
but petitioners expressed that they were not interested to sell the land or to buy the house in
question.

The RTC, on February 18, 2011, rendered its Decision with the following dispositive portion:

WHEREFORE, judgment is hereby rendered requiring the defendants to sell the land, where the
plaintiffs' house stands, to the latter at a reasonable price based on the zonal value determined by
the Bureau of Internal Revenue (BIR).

SO ORDERED.5

Petitioners appealed to the CA, but the latter, in its Decision dated September 17, 2013, affirmed the
decision of the RTC with modifications. The dispositive portion of the Decision reads:

WHEREFORE, the Decision dated February 18, 2011 by the Regional Trial Court, Branch 42 of
Dagupan City, in Civil Case No. 2005- 0271-D is hereby AFFIRMED with MODIFICATIONS.

Let the case be REMANDED to the aforementioned trial court for further proceedings consistent with
the proper application of Articles 448, 546 and 548 of the New Civil Code and to render a complete
judgment of the case.

SO ORDERED.6

The motion for reconsideration of petitioners were subsequently denied by the CA in its Resolution
dated January 28, 2014.

Hence, the present petition.

Petitioners raise the following issues:

I.

WHETHER THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE

II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT RES
JUDJCATA DOES NOT APPLY IN THE INST ANT CASE.

According to petitioners, whether or not respondents were in bad faith in introducing improvements
on the subject land is already moot, since the judgment rendered by the RTC of Dagupan City,
Branch 40 and affirmed by the CA, that declared the two Deeds of Definite/ Absolute Sale dated May
25, 1972 and July 9, 1977 as null and void, had long become final and executory on March 8, 2004.
They also argue that respondents had not successfully shown any right to introduce improvements
on the said land as their claim of laches and acquisitive prescription have been rejected by the CA
on appeal; thus, it follows that the respondents were builders in bad faith because knowing that the
land did not belong to them and that they had no right to build thereon, they still caused the house to
be erected. They further insist that respondents are deemed builders in bad faith because their
house has been built and reconstructed into a bigger one after respondent Erlinda's parents forged a
fictitious sale. Finally, they claim that the principle of res judicata in the mode of "conclusiveness of
judgment" applies in this case.

The petition lacks merit.

The findings of facts of the Court of Appeals are conclusive and binding on this Court7 and they carry
even more weight when the said court affirms the factual findings of the trial court.8 Stated differently,
the findings of the Court of Appeals, by itself, which are supported by substantial evidence, are
almost beyond the power of review by this Court.9 Although this rule is subject to certain exceptions,
this Court finds none that is applicable in this case. Nevertheless, the petition still fails granting that
an exception obtains.

To be deemed a builder in good faith, it is essential that a person asserts title to the land on which
he builds, i.e., that he be a possessor in the concept of owner, and that he be unaware that there
exists in his title or mode of acquisition any flaw which invalidates it.10 The RTC, as affirmed by the
CA, found respondents to be builders in good faith, thus:

The plaintiffs are builders in good faith. As asserted by plaintiffs and not rebutted by defendants, the
house of plaintiffs was built on the lot owned by defendants in 1995. The complaint for nullity of
documents and reconveyance was filed in 1997, about two years after the subject conjugal house
was constructed. Defendants-spouses believed that at the time when they constructed their house
on the lot of defendants, they have a claim of title. Art. 526, New Civil Code, states that a possessor
in good faith is one who has no knowledge of any flaw or defect in his title or mode of acquisition.
This determines whether the builder acted in good faith or not. Surely, plaintiffs would not have
constructed the subject house which plaintiffs claim to have cost them ₱800,000.00 to build if they
knew that there is a flaw in their claim of title. Nonetheless, Art. 527, New Civil Code, states clearly
that good faith is always presumed, and upon him who alleges bad faith on the part of the possessor
lies the burden of proof. The records do not show that the burden of proof was successfully
discharged by the defendants.

xxxx

Plaintiffs are in good faith in building their conjugal house in 1995 on the lot they believed to be their
own by purchase. They also have in their favor the legal presumption of good faith. It is the
defendants who had the burden to prove otherwise. They failed to discharge such burden until the
Regional Trial Court, Br. 40, Dagupan City, promulgated an adverse ruling in Civil Case No. 97-
0187-D. Thus, Art. 448 comes in to protect the plaintiffs-owners of their improvement without
causing injustice to the lot owner. Art. 448 comes in to protect the plaintiff-owners of their
improvement without causing injustice to the lot owner. Art. 448 provided a just resolution of the
resulting "forced-ownership" by giving the defendants lot owners the option to acquire the conjugal
house after payment of the proper indemnity or to oblige the builder plaintiffs to pay for the lot. It is
the defendants-lot owners who are authorized to exercise the option as their right is older, and under
the principle of accession where the accessory (house) follows the principal. x x x.11

The settled rule is bad faith should be established by clear and convincing evidence since the law
always presumes good faith.12 In this particular case, petitioners were not able to prove that
respondents were in bad faith in constructing the house on the subject land. Bad faith does not
simply connote bad judgment or negligence.13 It imports a dishonest purpose or some moral obliquity
and conscious doing of a wrong.14 It means breach of a known duty through some motive, interest or
ill will that partakes of the nature of fraud.15 For anyone who claims that someone is in bad faith, the
former has the duty to prove such. Hence, petitioners err in their argument that respondents failed to
prove that they are builders in good faith in spite of the findings of the RTC and the CA that they are.

As such, Article 44816 of the Civil Code must be applied. It applies when the builder believes that he
is the owner of the land or that by some title he has the right to build thereon,17 or that, at least, he
has a claim of title thereto.18 In Tuatzs v. Spouses Escol, et al.,19 this Court ruled that the seller (the
owner of the land) has two options under Article 448: (1) he may appropriate the improvements for
himself after reimbursing the buyer (the builder in good faith) the necessary and useful expenses
under Articles 54620 and 54821 of the Civil Code; or (2) he may sell the land to the buyer, unless its
value is considerably more than that of the improvements, in which case, the buyer shall pay
reasonable rent, thus:

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.22

The CA, therefore, did not err in its ruling that instead of requiring the petitioners to sell the land, the
R TC must determine the option which the petitioners would choose. As aptly ruled by the CA:
1âwphi1

The rule that the right of choice belongs to the owner of the land is in accordance with the principle
of accession. However, even if this right of choice is exclusive to the land owner, he cannot refuse to
exercise either option and demand, instead for the removal of the building.

Instead of requiring defendants-appellants to sell the land, the court a quo must determine the option
which they would choose. The first option to appropriate the building upon payment of indemnity or
the second option, to sell the land to the plaintiffs-appellees. Moreover, the court a quo should also
ascertain: (a) under the first option, the amount of indemnification for the building; or (b) under the
second option, the value of the subject property vis-a-vis that of the building, and depending thereon,
the price of, or the reasonable rent for, the subject prope1iy.
Hence, following the ruling in the recent case of Briones v. Macabagdal, this case must be
remanded to the court a quo for the conduct of further proceedings to assess the current fair market
of the land and to determine other matters necessary for the proper application of Article 448, in
relation to Articles 546 and 548 of the New Civil Code.23

Therefore, this Court agrees with the CA that there is a need to remand the case to the RTC for
further proceedings, specifically, in assessing the current fair market value of the subject land and
other matters that are appropriate in the application of Article 448, in relation to Articles 546 and 548
of the New Civil Code.

As to the issue of res judicata, the CA is correct in its ruling that there is no identity of subject matter
and cause of action between the prior case of annulment of document and the present case, thus:

In the instant case, res judicata will not apply since there is no identity of subject matter and cause of
action. The first case is for annulment of document, while the instant case is for reimbursement of
useful expenses as builders in good faith under article 448 in relation to Articles 546 and 548 of the
New Civil Code.

Moreover, We are not changing or reversing any findings of the RTC and by this Court in Our 6
February 2004 decision. The Court is still bound by this judgment insofar as it found the Deeds of
Absolute Sale null and void, and that defendants-appellants are the rightful owners of the lot in
question.

However, if the court a quo did not take cognizance of the instant case, plaintiffs-appellees shall lose
ownership of the building worth Php316,400.00 without any compensation. While, the defendant-
appellants not only will recover the land but will also acquire a house without payment of indemnity.
The fairness of the rules enunciated in Article 448 is explained by the Supreme Court in the case of
Depra v. Dumlao, viz.:

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
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 to pay the proper rent. 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.

Finally, "the decision of the court a quo should not be viewed as a denigration of the doctrine of
immutability of final judgments, but a recognition of the equally sacrosanct doctrine that a person
should not be allowed Io profit or enrich himself inequitably at anal her's expense."24

The well-settled rule is that the principle or rule of res judicata is primarily one of public policy. It is
based on the policy against multiplicity of suits,26 whose primary objective is to avoid unduly
burdening the dockets of the courts.27 In this case, however, such principle is inapplicable.

WHEREFORE, the Petition for Review on Certiorari under Rule 45, dated March 21, 2014, of
petitioners-spouses Maximo Espinoza and Winifreda De Vera, is DENIED. Consequently, the
Decision dated September 17, 2013 and Resolution dated January 28, 2014, both of the Court of
Appeals are AFFIRMED.

SO ORDERED.