9/11/24, 8:44 PM G.R. No. 120303 | Geminiano v.

Court of Appeals

THIRD DIVISION

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

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.

Bengson, Baraan, Fernandez Law Offices for private respondents.

SYLLABUS

1. CIVIL LAW; PROPERTY; OWNERSHIP; RIGHT TO FULL REIMBURSEMENT OF USEFUL

IMPROVEMENTS AND RETENTION OF THE PREMISES UNTIL REIMBURSEMENT IS MADE, APPLIES
ONLY TO A POSSESSOR IN GOOD FAITH. — This Court has held that Article 448 of the Civil Code, in
relation to Article 546 of the same Code, which allowed 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.

2. ID.; LEASE; THE RIGHT TO INDEMNITY ARISES ONLY IF THE LESSOR OPTS TO
APPROPRIATE THE IMPROVEMENTS. — The right to indemnity under Article 1678 of the Civil Code
arises only if the lessor opts to appropriate the improvements. Once the petitioners refused to exercise that
option, 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.

DECISION

DAVIDE, JR., J : p

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.

https://cdasiaonline.com/document?type=case&id=fb98ae52&title=Geminiano v. Court of Appeals&refNo=G.R. No. 120303 1/6

9/11/24, 8:44 PM G.R. No. 120303 | Geminiano v. Court of Appeals

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-square-meter 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
square-meter 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 latter's 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 1687 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

https://cdasiaonline.com/document?type=case&id=fb98ae52&title=Geminiano v. Court of Appeals&refNo=G.R. No. 120303 2/6

9/11/24, 8:44 PM G.R. No. 120303 | Geminiano v. Court of Appeals

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 attorney's fees, plus costs. [5]

On appeal by the private respondents, the RTC of Dagupan City reversed the trial court's 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
attorney's 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 RTC [7] and
denied [8] 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.

xxx xxx xxx

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.

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

https://cdasiaonline.com/document?type=case&id=fb98ae52&title=Geminiano v. Court of Appeals&refNo=G.R. No. 120303 3/6

9/11/24, 8:44 PM G.R. No. 120303 | Geminiano v. Court of Appeals

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 square-meter 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 lessor's title. [13] The private respondents, as lessees
who had undisturbed possession for the entire term under the lease, are then estopped to deny their
landlord's 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 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.

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
https://cdasiaonline.com/document?type=case&id=fb98ae52&title=Geminiano v. Court of Appeals&refNo=G.R. No. 120303 4/6
9/11/24, 8:44 PM G.R. No. 120303 | Geminiano v. Court of Appeals

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 co-ownership"
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."

Costs against the private respondents

SO ORDERED.

Narvasa, C . J .,Melo, Francisco, and Panganiban, JJ .,concur.

Footnotes

1. Rollo,CA-G.R. SP No. 34337 (CA-Rollo),26.

2. Id.,25.

3. Id.,24.

4. Id.,28.

5. CA-Rollo,37. Per Judge Emilio V. Angeles.

6. Id.,20. Per Judge Deodoro J. Sison.

https://cdasiaonline.com/document?type=case&id=fb98ae52&title=Geminiano v. Court of Appeals&refNo=G.R. No. 120303 5/6

9/11/24, 8:44 PM G.R. No. 120303 | Geminiano v. Court of Appeals

7. Annex "A" of Petition; Rollo, 15. Per Luna, A.,J.,with Barcelona, R.,and Jacinto, G.,JJ.,concurring.

8. Annex "B", Id.,28.

9. 49 Am Jur 2d, Landlord and Tenant, §12, 55.

10. EDGARDO L. PARAS, Civil Code of the Philippines,vol. V [1986],258.

11. Jovellanos vs. Court of Appeals,210 SCRA 126, 132 [1992].

12. Joven vs. Court of Appeals,212 SCRA 700, 708 [1992].

13. 49 Am Jur, op. cit.,§120, 150.

14. §2(b), Rule 131, Rules of Court;Borre vs. Court of Appeals,158 SCRA 560, 566 [1988];Manuel vs.
Court of Appeals,199 SCRA 603, 607 [1991];Munar vs. Court of Appeals,238 SCRA 372, 380
[1994];49 Am Jur, op. cit.,§ 129, 158.

15. Manuel vs. Court of Appeals,supra note 14, at 607-608; 49 Am Jur, op. cit.,§ 110, 144; § 129, 158.

16. 49 Am Jur, op. cit.,§ 122, 152.

17. Racaza vs. Susana Realty, Inc.,18 SCRA 1172, 1178 [1966];Vda. de Bacaling vs. Laguna,54 SCRA
243, 250 [1973];Santos vs. Court of Appeals,221 SCRA 42, 46 [1993].

18. Alburo vs. Villanueva, 7 Phil. 277, 280 [1907] referring to the provisions of the Old Civil Code);
Racaza vs. Susana Realty, Inc.,supra note 17, at 1177-1178; Bulacanag vs. Francisco,122 SCRA 498,
502 [1983];Gabrito vs. Court of Appeals,167 SCRA 771, 778-779 [1988];Cabangis vs. Court of
Appeals,200 SCRA 414, 419-421 [1991];Heirs of the late Jaime Binuya vs. Court of Appeals,211
SCRA 761, 766 [1922].

19. 244 SCRA 407 SCRA 407 [1995].

20. CA-Rollo,15.

21. Heirs of the late Jaime Binuya vs. Court of Appeals,supra note 18, at 768.

https://cdasiaonline.com/document?type=case&id=fb98ae52&title=Geminiano v. Court of Appeals&refNo=G.R. No. 120303 6/6