PHILIPPINE NATIONAL BANK, PETITIONER, VS. GENEROSO DE JESUS, REPRESENTED BY HIS ATTORNEY-IN-FACT, CHRISTIAN DE JESUS, RESPONDENT.

Philippine National Bank versus De Jesus

The Case

This is a case about a bank that bought a building and the land under it, only to discover that part of the building stood on somebody else's lot. The Philippine National Bank, the petitioner, asks the Supreme Court to reverse the Court of Appeals, which had affirmed the trial court's ruling that Generoso de Jesus, represented by his attorney-in-fact Christian de Jesus, is the true and lawful owner of a 124-square-meter portion of land covered by Transfer Certificate of Title Number T-17197, situated in Mamburao, Occidental Mindoro. The action below was one for recovery of ownership and possession, with damages. The case matters because it is the Court's cleanest statement of who may invoke Article 448 of the Civil Code: only a builder in good faith, and never the owner of the land who himself built the works and later lost the land by sale.

Procedural History

Generoso de Jesus filed a complaint for recovery of ownership and possession, with damages, before the Regional Trial Court of Occidental Mindoro, Branch 44, sitting in Mamburao. The trial court decided in his favor. It declared him the rightful owner of the disputed 124-square-meter portion, ordered the bank to surrender possession of the property to him, and ordered the bank to cause, at its own expense, the removal of any improvement thereon. The bank appealed to the Court of Appeals. The appellate court sustained the trial court but deleted the award of attorney's fees, moral and exemplary damages, and litigation expenses. After the Court of Appeals denied the bank's motion for reconsideration, the bank came to the Supreme Court by a petition for review.

Facts

Generoso de Jesus owned a parcel of land in Mamburao, Occidental Mindoro, with an area of 1,144 square meters, covered by Transfer Certificate of Title Number T-17197. On 26 March 1993, he caused a verification survey of the property. The survey revealed that the northern portion of his lot was being encroached upon by a building of the Philippine National Bank to the extent of 124 square meters. Despite two letters of demand, the bank refused to vacate the area. On 10 June 1995, he sued.

The bank answered that when it acquired the lot and the building sometime in 1981 from then Mayor Bienvenido Ignacio, the encroachment already existed. To remedy the situation, Mayor Ignacio offered to sell the affected area, which then also belonged to him, to the bank at 100 pesos per square meter, and the bank claimed to have accepted the offer. The sale never materialized because, without the knowledge and consent of the bank, Mayor Ignacio later mortgaged the lot to the Development Bank of the Philippines.

What the bank knew at the time of purchase proved decisive. Both the trial court and the Court of Appeals found that the bank was aware, and indeed had been advised, before it acquired the land and building from Ignacio, that a part of the building sold to it stood on land not covered by the land conveyed to it. The building had in fact been constructed on the land by Ignacio himself.

Issues

• Whether or not the Court of Appeals gravely erred in law in adjudging the Philippine National Bank a builder in bad faith over the encroached property.
• Whether or not the Court of Appeals gravely erred in law in not applying in favor of the bank the provision of Article 448 of the Civil Code and the ruling in Tecnogas Philippines Manufacturing Corporation versus Court of Appeals.

Applicable Provisions

Article 448 of the Civil Code provides:

Article 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 a 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.

This is the provision the bank invokes, and its text confines the right to a builder in good faith, which the Court holds the bank is not.

Article 449 of the Civil Code provides:

Article 449. He who builds, plants, or sows in bad faith on the land of another, loses what is built, planted or sown without right to indemnity.

This is the consequence of the bad faith the Court finds, and it is why the bank cannot demand indemnity or compel a choice.

Article 450 of the Civil Code provides:

Article 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of the land, and the sower the proper rent.

This is the remedy that belongs to the landowner, Generoso de Jesus, and it supports the order to remove the improvement at the bank's expense.

Ruling

On the first issue, the Court held that the bank is not a builder in good faith. In the context of Article 448 and the provisions that follow it, a builder in good faith is one who, not being the owner of the land, builds on that land believing himself to be its owner and unaware of any defect in his title or mode of acquisition. Good faith is an intangible and abstract quality with no technical meaning or statutory definition. It implies honesty of intention and freedom from knowledge of circumstances which ought to put the holder upon inquiry. Its essence lies in an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another. The bank fell short. It knew, before buying, that part of the building stood on land not covered by the conveyance.

On the second issue, the Court held that Article 448 does not apply at all. The provision refers to a piece of land whose ownership is claimed by two or more parties, one of whom has built some works, and not to a case where the owner of the land is himself the builder who later loses ownership of the land by sale or otherwise. As the Court put it:

where the true owner himself is the builder of works on his own land, the issue of good faith or bad faith is entirely irrelevant.

Here, Ignacio built on his own land, and the building later passed to the bank. The Court added that even a builder in good faith may only compel the landowner to choose between appropriating the building upon payment of indemnity and obliging the builder to pay the price of the land. The choice belongs to the landowner, a rule that accords with the principle of accession, that the accessory follows the principal. The grant to the landowner is preclusive: he must choose one, and he cannot be compelled to make the builder remove the building instead. But the bank never earned that benefit, because it could not prove good faith.

Doctrine

First, a builder in good faith, for purposes of Article 448 of the Civil Code, is one who, not being the owner of the land, builds on that land believing himself to be its owner and unaware of any defect in his title or mode of acquisition. Second, good faith means an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another; knowledge of circumstances that ought to put a person upon inquiry destroys it. Third, Article 448 applies only where the land is claimed by two or more parties and one of them has built the works. Where the true owner himself built on his own land and later lost the land by sale or otherwise, the question of good faith or bad faith is entirely irrelevant, and Article 448 cannot be invoked. Fourth, the option under Article 448 belongs to the landowner and is preclusive: he must choose between appropriating the works upon indemnity and obliging the builder to pay the price of the land, and he cannot be forced to demand removal instead. Fifth, a builder in bad faith loses what he built without right to indemnity under Article 449, and under Article 450 the landowner may demand demolition at the builder's expense.

Disposition

The Supreme Court affirmed the decision of the Court of Appeals, with no pronouncement as to costs, and Generoso de Jesus kept his property, with the bank ordered to surrender possession and remove the improvement at its own expense.

Remember This

Memorize this line: where the true owner himself is the builder of works on his own land, the issue of good faith or bad faith is entirely irrelevant, so Article 448 cannot be invoked. Examiners use this case to test the requisites of a builder in good faith and to trap students who apply Article 448 to a seller who built on his own land before losing it.