G.R. No. L-39044 - Manotok Realty, Inc. vs. Court of Appeals

The property in dispute is a parcel of land covered by Tax Declarations Nos. 2455 and 2456, with titles TCT No. 55125 and TCT No. 76130, located in Manila.
The land was originally acquired by the petitioner, Manotok Realty, Inc., from the testate estate of Clara Tambunting de Legarda, as the highest bidder in a sale ordered by the Probate Court.
After acquisition, the petitioner subdivided the property, with one of the lots being Lot 143, Block 2, later occupied by Felipe Carillo.

Despite demands to vacate and surrender possession—made verbally, by publication, and via circulars—the respondent, Carillo, continued to occupy the disputed lot.
Carillo maintained his possession of the lot and introduced improvements thereon, claiming to be a builder in good faith entitled to retention of the lot free of rent pending reimbursement for expenses incurred.

Evidence presented by Carillo indicated that he acquired the lot from Delfin Dayrit on September 25, 1962, through a deed of assignment.
Prior to Dayrit’s assignment, the lot had been acquired by Dayrit from Clara Tambunting on an installment basis, wherein Dayrit had paid most but left an unpaid balance.
Dayrit’s inability to meet subsequent installments—exacerbated by the refusal of Vicente Legarda, the surviving spouse of Clara Tambunting, to accept further payments—resulted in the reversion of the property to the estate.
By the time Carillo completed the acquisition from Dayrit, the disputed lot was already registered and titled in the name of the petitioner, rendering Dayrit’s rights or claims over the property null.

The petitioner filed a reivindicatory action against Carillo after its attempts to reclaim possession failed.
The trial court ruled in favor of the petitioner ordering:

Carillo to vacate and/or surrender possession of the lot.
Carillo to pay back rentals starting from January 21, 1961 until actual surrender, computed at P75.50 per month.
Payment for attorney’s fees and costs.

The decision was later modified by the Court of Appeals, wherein Carillo was declared a builder in good faith entitled to retain the lot without payment of rentals pending reimbursement of improvement costs.

The petitioner argued that Carillo, as a builder in good faith, should not claim the benefits of good faith because the title to the disputed property was registered in the petitioner’s name at the time of Dayrit’s deed of assignment.
It was contended that a prudent purchaser should have verified ownership from the Register of Deeds, rendering Carillo’s claim of building in good faith untenable.

Whether the respondent, Carillo, can be considered a possessor in good faith given that the disputed lot was already registered in the petitioner’s name at the time of his acquisition from Dayrit.
Whether Carillo’s failure to verify the certificate of title—and, by extension, the absence of due inquiry regarding the seller’s (Dayrit’s) ownership—disqualifies him from being treated as a builder in good faith entitled to retention of the lot free from rental liabilities.
Whether the petitioner is entitled to back rentals and reimbursement for the expenses incurred for improvements made by Carillo on the disputed lot.