JESUS AGUIRRE, PETITIONER, VS. VICTOR S. PHENG, IN HIS CAPACITY AS GENERAL MANAGER OF THE LEONORA & COMPANY, AND NATIONAL SHIPYARDS AND STEEL CORPORATION, RESPONDENTS.

Aguirre versus Pheng

The Case

This is a petition for review brought by Jesus Aguirre against Victor S. Pheng, in his capacity as General Manager of the Leonora and Company, and the National Shipyards and Steel Corporation. Aguirre claims to be the owner of a circular bolted steel tank that was sold to him, then wrongfully resold to others, and finally improved and sold to the shipyards corporation. The case matters because it fixes the rule on accession by specification when the improvements are made in good faith by one who is not the owner: the owner keeps the thing, but he must reimburse the builder, and he cannot claim the enhanced value as his own.

Procedural History

Two civil cases were filed in the Court of First Instance of Manila and were jointly heard. In the first, Aguirre sued the Leonora and Company and the Aldabas for delivery of the tank with damages. The trial court declared Aguirre the absolute owner, annulled the subsequent sales, and ordered delivery of the tank, or payment of 900 pesos if delivery was no longer possible. No appeal was perfected on time, so that judgment became final.

In the second case, the Leonora and Company sued the National Shipyards and Steel Corporation for the purchase price of 14,500 pesos, or reimbursement of 11,299 pesos spent on improvements. Aguirre intervened. On a stipulation of facts, the trial court again adjudged Aguirre owner, ordered delivery of the tank, and provided that if delivery was impossible, the shipyards corporation should pay Aguirre 900 pesos and the Leonora and Company 11,299 pesos; and if the tank were delivered as improved, Aguirre should reimburse the Leonora and Company 11,299 pesos.

Aguirre appealed to the Court of Appeals, which affirmed the trial court. Aguirre then filed the present petition for review before the Supreme Court.

Facts

On June 28, 1954, Vicente Aldaba and Teresa V. Aldaba sold to Jesus Aguirre a circular bolted steel tank with a capacity of 5,000 gallons for 900 pesos, paid by a duly endorsed check. Aguirre, however, failed to take physical possession of the tank, having been prevented by the municipal authorities of Los Baños, Laguna, where the tank was located, because the Bureau of Public Highways was claiming ownership.

Despite the first sale, the Aldabas sold the same tank on December 2, 1954 to Zosimo Gabriel for 900 pesos. Gabriel sold it to the Leonora and Company on December 5, 1954 for 2,500 pesos. After alterations and improvements, the Leonora and Company sold the tank to the National Shipyards and Steel Corporation for 14,500 pesos, following a public bidding won by the company.

Aguirre immediately filed with the shipyards corporation a formal notice of his claim of ownership, and payment of the purchase price to the Leonora and Company was suspended. This led to the two civil cases, which were jointly heard and decided as narrated above.

Issues

• Whether or not Aguirre, as owner of the tank, is entitled to the fair and reasonable value of the tank as improved, amounting to 14,500 pesos, instead of merely 900 pesos.
• Whether or not the Leonora and Company is entitled to reimbursement of the 11,299 pesos it spent for the reconditioning of the tank.

Applicable Provisions

Article 440 of the Civil Code, invoked by Aguirre, provides:

The owner of a thing has the right to everything that is produced thereby, or is incorporated or attached thereto, either naturally or artificially.

Aguirre relies on this to claim the enhanced value of the tank as improved.

Article 466 of the Civil Code, which the Court cites as applicable to all modes of accession, provides:

Whenever two movable things belonging to different owners are, without bad faith, united in such a way that they form a single object, the owner of the principal thing acquires the accessory, indemnifying the former owner thereof for its value.

This provision governs the case of accession by specification, where the improvements were made in good faith.

Ruling

On the first issue, the Court held that Aguirre is not entitled to the 14,500 pesos. The Court found that this is a case of accession by specification: the Leonora and Company, as purchaser acting in good faith, spent 11,299 pesos for the reconditioning of the tank later adjudged to belong to Aguirre. There was no showing that without the works, the tank in its original condition would command the price of 14,500 pesos. Although ordinarily the owner would be entitled to any accession, the rule is different where the works were made by one who acted in good faith, and it was not contended that the improvements were made in bad faith. To uphold Aguirre's contention would be to allow him to enrich himself at the expense of another.

On the second issue, the Court held that the lower courts correctly ordered reimbursement to the Leonora and Company of its expenses. The Court also noted that the judgment in the first case, directing the shipyards corporation to pay Aguirre 900 pesos if delivery was no longer possible, had already become final and could not be disregarded, involving the same parties and the same issue. The shipyards corporation cannot be compelled to pay more than 14,500 pesos, the bid it accepted, which must be the actual market value of the property at the time of delivery.

Doctrine

Under the rule on accession by specification, when improvements are made on property by one who acts in good faith, the owner of the principal thing acquires the accessory but must indemnify the former owner for its value. The owner cannot claim the enhanced value of the property as improved; he is entitled only to the original value, and the builder in good faith is entitled to reimbursement of the expenses incurred. To rule otherwise would unjustly enrich the owner at the expense of another.

Disposition

The Supreme Court dismissed the petition, finding no error in the decision of the Court of Appeals, with costs against Aguirre.

Remember This

The single line worth memorizing: the owner keeps the thing, but where improvements are made in good faith by another, the owner must reimburse the builder and cannot claim the enhanced value. Examiners use this case to test accession by specification and the principle against unjust enrichment.