G.R. No. 138113; October 17, 2000
Emilio Bugatti, petitioner, vs. Court of Appeals and Spouses Ben Baguilat and Maria Baguilat, respondents.

FACTS

Respondents-spouses Baguilat filed an action for recovery of possession and damages against petitioner Bugatti. They alleged ownership of a parcel of land in Lagawe, Ifugao. The parties negotiated a lease where Bugatti would construct a building not exceeding P40,000, with rentals applied to reimburse him, after which he would pay P500 monthly for a nine-year term, with the building passing to the spouses upon lease termination. They agreed these terms would be embodied in a written contract to be prepared by Bugatti. However, Bugatti entered the land and began construction in January 1988 before any contract was signed. Respondents immediately objected, demanding a signed contract first. Bugatti presented drafts in March and April 1988, but they contained different terms, including counter-proposals like an extended lease period until he recovered construction costs, which respondents rejected. No contract was ever perfected.
Despite the absence of a signed agreement and over respondents’ protests and subsequent demand to vacate, Bugatti continued construction and occupied the land. Respondents sought barangay mediation, but Bugatti was uncooperative, leading to the filing of the court case.

ISSUE

Whether a contract of lease was perfected between the parties, and if not, what are the rights and obligations of the parties concerning the building constructed by Bugatti on the land of the Baguilats.

RULING

The Supreme Court ruled that no contract of lease was perfected. Consent, a vital element for contract perfection, was absent. The preparation and signing of a written contract embodying the agreed terms was a suspensive condition. Bugatti’s drafts deviated from the negotiated terms, and respondents’ consistent rejection thereof meant no meeting of the minds occurred. His act of commencing construction without a perfected contract and despite objections constituted bad faith.
As a builder in bad faith, Bugatti is governed by Articles 449 and 450 of the Civil Code. Consequently, the respondents, as landowners, have the following options: (1) to appropriate the building without indemnity to Bugatti; (2) to require Bugatti to remove the building at his own expense; or (3) to compel Bugatti to pay the value of the land. Furthermore, respondents are entitled to damages equivalent to the fair rental value of the land from January 1988 until they recover possession. The case was remanded to the trial court for the determination of the proper amount of rentals. The Court of Appeals’ decision was set aside.