Case Summary (G.R. No. 167680)
Key Dates
- 1990: Lease Agreement executed between Pilipinas Shell and respondent.
- 2000: Lease expired; petitioners remained in possession and constructed improvements.
- February 4, 2002: Ejectment complaint filed by respondent in the Municipal Trial Court (MTC) of Bantay.
- February 3, 2003: MTC orders ejectment, awards P50,000 for use, P10,000 attorney’s fees to respondent, and orders reimbursement of P2,000,000 to petitioners for improvements.
- November 13, 2003: Regional Trial Court (RTC) of Vigan City affirms MTC Decision.
- January 19, 2005: Court of Appeals (CA) sets aside reimbursement order.
- November 30, 2006: Supreme Court renders final Decision.
Applicable Law
- 1987 Philippine Constitution (decision rendered post-1990).
- New Civil Code of the Philippines:
• Article 1678 (reimbursement for useful improvements by lessee)
• Article 448 (accession rights of good-faith builder)
• Article 546 (refund of necessary and useful expenses)
• Article 453 (effect of mutual bad faith)
Facts
Petitioners occupied the leased property after 2000 and built a billiard hall, a restaurant, a sari-sari store and a parking area. Despite demands, they refused to vacate. Respondent, residing in the United States, through counsel, sought ejectment and damages.
Procedural History
The MTC granted ejectment, awarded respondent compensation and ordered reimbursement to petitioners for improvements. The RTC affirmed. On respondent’s appeal, the CA removed the reimbursement obligation, holding petitioners were not builders in good faith.
Issue
Whether petitioners, as lessees and agents of Pilipinas Shell, qualify as good-faith builders entitled to full reimbursement of the cost or value of improvements and to retention of possession until payment.
Court’s Analysis
Lessee Status and Applicable Provision
- Petitioners, as mere lessees or agents, cannot claim ownership or good-faith title.
- Article 1678 governs reimbursement of useful improvements by a lessee: lessor must pay one-half the value at lease termination or allow removal; full reimbursement and retention rights under Articles 448 and 546 do not apply to tenants.
Inapplicability of Articles 448, 453 and 546
- Articles 448 and 546 protect possessors in good faith who believe themselves owners. Tenants lack such pretension.
- Article 453, addressing mutual bad faith, is irrelevant because petitioners never claimed title.
Jurisprudential Support
- Consistent decisions limit full reimbursement and retention rights to good-faith possessors asserting ownership, not to lessees or agents (e.g., Cabangis v. CA, Sia v. CA).
Valuation
Case Syllabus (G.R. No. 167680)
Facts of the Case
- Petitioners Samuel and Chinita Parilla and their son Deodato Parilla acted as authorized dealers of Pilipinas Shell Petroleum Corporation under a 10-year lease (1990–2000) of a parcel of land in Bantay, Ilocos Sur owned by respondent Dr. Prospero Pilar.
- Upon expiration of the lease in 2000, petitioners remained in possession, constructing a billiard hall and restaurant, maintaining a sari-sari store (operated by Leonardo Dagdag, Josefina Dagdag, Edwin Pugal), and permitting Flor Pelayo, Freddie Bringas, and Edwin Pugal to use part of the property as a parking lot.
- Despite repeated demands by respondent’s counsel to vacate, petitioners and other occupants refused to leave the premises.
Procedural History
- February 4, 2002: Respondent (through attorney-in-fact Marivic Paz Padre) filed an ejectment complaint with prayer for preliminary injunction and damages before the Municipal Trial Court (MTC) of Bantay.
- February 3, 2003: MTC ordered petitioners and co-defendants to vacate, awarded respondent ₱50,000 for use of the property, ₱10,000 attorney’s fees, costs, and directed respondent to reimburse petitioners ₱2,000,000 for the value of improvements.
- Respondent appealed to the Regional Trial Court (RTC) of Vigan City, contesting only the ₱2,000,000 reimbursement order; the RTC affirmed the MTC decision in all respects.
- Respondent then filed a petition for certiorari with the Court of Appeals (CA), which on January 19, 2005 set aside the reimbursement order, holding petitioners were not “builders in good faith” under Article 546 of the New Civil Code.
- Petitioners elevated the case by Petition for Review on Certiorari to the Supreme Court, challenging the CA’s reversal of the reimbursement award and asserting their status as good-faith builders entitled to full reimbursement and right of retention.
Issues Presented
- Whether petitioners, as lessees and dealers of Pilipinas Shell, are “builders in good faith” under Articles 448 and 546 of the New Civil Code, thereby entitled to full reimbursement (₱2,000,000) for