G.R. No. 120303. July 24, 1996.

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FEDERICO GEMINIANO, MARIA GEMINIANO, ERNESTO GEMINIANO, ASUNCION
GEMINIANO, LARRY GEMINIANO, and MARLYN GEMINIANO, petitioners, vs. COURT OF
APPEALS, DOMINADOR NICOLAS, and MARY A. NICOLAS, respondents.
Decano and Decano Law Office for petitioners.
Bengzon, Baraan, Fernandez Law Offices for private respondents.
DAVIDE, JR., J.:
This petition for review on certiorari has its origins in Civil Case No. 9214 of Branch 3 of
the Municipal Trial Court in Cities (MTCC) in Dagupan City for unlawful detainer and
damages. The petitioners ask the Court to set aside the decision of the Court of Appeals
affirming the decision of Branch 40 of the Regional Trial Court (RTC) of Dagupan City,
which, in turn, reversed the MTCC; ordered the petitioners to reimburse the private
respondents the value of the house in question and other improvements; and allowed
the latter to retain the premises until reimbursement was made.
It appears that Lot No. 3765-B-1 containing an area of 314 square meters was originally
owned by the petitioners mother, Paulina Amado vda. de Geminiano. On a 12-squaremeter portion of that lot stood the petitioners unfinished bungalow, which the
petitioners sold in November 1978 to the private respondents for the sum of P6,000.00,
with an alleged promise to sell to the latter that portion of the lot occupied by the house.
Subsequently, the petitioners mother executed a contract of lease over a 126 squaremeter portion of the lot, including that portion on which the house stood, in favor of the
private respondents for P40.00 per month for a period of seven years commencing on 15
November 1978.1 The private respondents then introduced additional improvements and
registered the house in their names. After the expiration of the lease contract in
November 1985, however, the petitioners mother refused to accept the monthly rentals.
It turned out that the lot in question was the subject of a suit, which resulted in its
acquisition by one Maria Lee in 1972. In 1982, Lee sold the lot to Lily Salcedo, who in
turn sold it in 1984 to the spouses Agustin and Ester Dionisio.
On 14 February 1992, the Dionisio spouses executed a Deed of Quitclaim over the said
property in favor of the petitioners.2 As such, the lot was registered in the latters
names.3
On 9 February 1993, the petitioners sent, via registered mail, a letter addressed to
private respondent Mary Nicolas demanding that she vacate the premises and pay the
rentals in arrears within twenty days from notice.4
Upon failure of the private respondents to heed the demand, the petitioners filed with
the MTCC of Dagupan City a complaint for unlawful detainer and damages.
During the pre-trial conference, the parties agreed to confine the issues to: (1) whether
there was an implied renewal of the lease which expired in November 1985; (2) whether
the lessees were builders in good faith and entitled to reimbursement of the value of the
house and improvements; and (3) the value of the house.
The parties then submitted their respective position papers and the case was heard
under the Rule on Summary Procedure.
On the first issue, the court held that since the petitioners mother was no longer the
owner of the lot in question at the time the lease contract was executed in 1978, in view
of its acquisition by Maria Lee as early as 1972, there was no lease to speak of, much
less, a renewal thereof. And even if the lease legally existed, its implied renewal was not
for the period stipulated in the original contract, but only on a month-to-month basis
pursuant to Article 1678 of the Civil Code. The refusal of the petitioners mother to
accept the rentals starting January 1986 was then a clear indication of her desire to
terminate the monthly lease. As regards the petitioners alleged failed promise to sell to
the private respondents the lot occupied by the house, the court held that such should

be litigated in a proper case before the proper forum, not an ejectment case where the
only issue was physical possession of the property.
The court resolved the second issue in the negative, holding that Articles 448 and 546 of
the Civil Code, which allow possessors in good faith to recover the value of
improvements and retain the premises until reimbursed, did not apply to lessees like the
private respondents, because the latter knew that their occupation of the premises
would continue only during the life of the lease. Besides, the rights of the private
respondents were specifically governed by Article 1678, which allows reimbursement of
up to one-half of the value of the useful improvements, or removal of the improvements
should the lessor refuse to reimburse.
On the third issue, the court deemed as conclusive the private respondents allegation
that the value of the house and improvements was P180,000.00, there being no
controverting evidence presented.
The trial court thus ordered the private respondents to vacate the premises, pay the
petitioners P40.00 a month as reasonable compensation for their stay thereon from the
filing of the complaint on 14 April 1993 until they vacated, and to pay the sum of
P1,000.00 as attorneys fees, plus costs.5
On appeal by the private respondents, the RTC of Dagupan City reversed the trial courts
decision and rendered a new judgment: (1) ordering the petitioners to reimburse the
private respondents for the value of the house and improvements in the amount of
P180,000.00 and to pay the latter P10,000.00 as attorneys fees and P2,000.00 as
litigation expenses; and (2) allowing the private respondents to remain in possession of
the premises until they were fully reimbursed for the value of the house.6 It ruled that
since the private respondents were assured by the petitioners that the lot they leased
would eventually be sold to them, they could be considered builders in good faith, and as
such, were entitled to reimbursement of the value of the house and improvements with
the right of retention until reimbursement had been made.
On appeal, this time by the petitioners, the Court of Appeals affirmed the decision of the
RTC7 and denied8 the petitioners motion for reconsideration. Hence, the present
petition.
The Court is confronted with the issue of which provision of law governs the case at
bench: Article 448 or Article 1678 of the Civil Code? The said articles read as follows:
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. 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 onehalf 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.
With regard to ornamental expenses, the lessee shall not be entitled to any
reimbursement, but he may remove the ornamental objects, provided no damage is
caused to the principal thing, and the lessor does not choose to retain them by paying
their value at the time the lease is extinguished.
The crux of the said issue then is whether the private respondents are builders in good
faith or mere lessees.

The private respondents claim they are builders in good faith, hence, Article 448 of the
Civil Code should apply. They rely on the lack of title of the petitioners mother at the
time of the execution of the contract of lease, as well as the alleged assurance made by
the petitioners that the lot on which the house stood would be sold to them.
It has been said that while the right to let property is an incident of title and possession,
a person may be a lessor and occupy the position of a landlord to the tenant although he
is not the owner of the premises let.9 After all, ownership of the property is not being
transferred,10 only the temporary use and enjoyment thereof.11
In this case, both parties admit that the land in question was originally owned by the
petitioners mother. The land was allegedly acquired later by one Maria Lee by virtue of
an extrajudicial foreclosure of mortgage. Lee, however, never sought a writ of possession
in order that she gain possession of the property in question.12 The petitioners mother
therefore remained in possession of the lot.
It is undisputed that the private respondents came into possession of a 126 squaremeter portion of the said lot by virtue of a contract of lease executed by the petitioners
mother in their favor. The juridical relation between the petitioners mother as lessor,
and the private respondents as lessees, is therefore well-established, and carries with it
a recognition of the lessors title.13 The private respondents, as lessees who had
undisturbed possession for the entire term under the lease, are then estopped to deny
their landlords title, or to assert a better title not only in themselves, but also in some
third person while they remain in possession of the leased premises and until they
surrender possession to the landlord.14 This estoppel applies even though the lessor had
no title at the time the relation of lessor and lessee was created,15 and may be asserted
not only by the original lessor, but also by those who succeed to his title.16
Being mere lessees, the private respondents knew that their occupation of the premises
would continue only for the life of the lease. Plainly, they cannot be considered as
possessors nor builders in good faith.17
In a plethora of cases,18 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 ones 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.
Anent the alleged promise of the petitioners to sell the lot occupied by the private
respondents house, the same was not substantiated by convincing evidence. Neither the
deed of sale over the house nor the contract of lease contained an option in favor of the
respondent spouses to purchase the said lot. And even if the petitioners indeed promised
to sell, it would not make the private respondents possessors or builders in good faith so
as to be covered by the provisions of Article 448 of the Civil Code. The latter cannot raise
the mere expectancy of ownership of the aforementioned lot because the alleged
promise to sell was not fulfilled nor its existence even proven. The first thing that the
private respondents should have done was to reduce the alleged promise into writing,
because under Article 1403 of the Civil Code, an agreement for the sale of real property
or an interest therein is unenforceable, unless some note or memorandum thereof be
produced. Not having taken any steps in order that the alleged promise to sell may be
enforced, the private respondents cannot bank on that promise and profess any claim
nor color of title over the lot in question.
There is no need to apply by analogy the provisions of Article 448 on indemnity as was
done in Pecson vs. Court of Appeals,19 because the situation sought to be avoided and
which would justify the application of that provision, is not present in this case. Suffice it
to say, a state of forced coownership would not be created between the petitioners
and the private respondents. For, as correctly pointed out by the petitioners, the rights of
the private respondents as lessees are governed by Article 1678 of the Civil Code which
allows reimbursement to the extent of one-half of the value of the useful improvements.

It must be stressed, however, that the right to indemnity under Article 1678 of the Civil
Code arises only if the lessor opts to appropriate the improvements. Since the petitioners
refused to exercise that option,20 the private respondents cannot compel them to
reimburse the one-half value of the house and improvements. Neither can they retain
the premises until reimbursement is made. The private respondents sole right then is to
remove the improvements without causing any more impairment upon the property
leased than is necessary.21
WHEREFORE, judgment is hereby rendered GRANTING the instant petition; REVERSING
and SETTING ASIDE the decision of the Court of Appeals of 27 January 1995 in CA-G.R. SP
No. 34337; and REINSTATING the decision of Branch 3 of the Municipal Trial Court in
Cities of Dagupan City in Civil Case No. 9214 entitled Federico Geminiano, et al. vs.
Dominador Nicolas, et al.