GR 120303; (July, 1996) (Digest)
G.R. No. 120303 July 24, 1996
FEDERICO GEMINIANO, ET AL., petitioners, vs. COURT OF APPEALS, DOMINADOR NICOLAS, and MARY A. NICOLAS, respondents.
FACTS
The petitioners, the Geminianos, owned a lot on which an unfinished bungalow stood. In 1978, they sold this house to the respondents, the Nicolas spouses, with an alleged promise to sell the underlying lot. Simultaneously, the petitioners’ mother executed a seven-year lease over a portion of the lot, including the house site, in favor of the respondents. The respondents introduced improvements and registered the house. After the lease expired in 1985, the lessor refused rentals. The lot’s ownership was contested; it was eventually acquired by third parties before being quitclaimed to the petitioners in 1992. Upon the respondents’ refusal to vacate after demand, the petitioners filed an unlawful detainer case.
The Municipal Trial Court (MTCC) ruled for the petitioners, ordering ejectment. It found no implied lease renewal and held that respondents, as lessees, were not builders in good faith entitled to reimbursement under Article 448 of the Civil Code. The Regional Trial Court (RTC) reversed, ordering petitioners to reimburse the respondents P180,000 for the house and allowing retention until payment, considering the respondents builders in good faith due to the promise to sell. The Court of Appeals affirmed the RTC.
ISSUE
Whether the rights of the lessee-respondents over the improvements they introduced are governed by Article 448 or Article 1678 of the Civil Code.
RULING
The Supreme Court reversed the Court of Appeals and reinstated the MTCC decision. The Court held that Article 1678 of the Civil Code specifically governs the rights of a lessee who introduces useful improvements on the leased property. This provision grants the lessor the option to appropriate the improvements by reimbursing the lessee one-half of their value or to allow the lessee to remove them. The general provisions on builders in good faith under Article 448 do not apply to a lessee, as a lessee is aware his possession is temporary and derived from the lease contract.
The Court emphasized that the respondents’ claim of good faith based on an alleged promise to sell the lot is irrelevant in an ejectment suit, which solely determines physical possession. Since the petitioners, as lessors, refused to exercise their option under Article 1678 to appropriate the improvements, the respondents cannot compel reimbursement. Consequently, the respondents have no right to retain possession of the premises. Their sole right is to remove the improvements, provided no unnecessary damage is caused to the property. The respondents were ordered to vacate and pay reasonable compensation for their use of the property.