G.R. No. 182754 , June 29, 2015
SPOUSES CRISPIN AQUINO and TERESA V. AQUINO, herein represented by their Attorney-in-Fact, AMADOR D. LEDESMA, Petitioners, vs. SPOUSES EUSEBIO AGUILAR and JOSEFINA V. AGUILAR, Respondents.

FACTS

Petitioners Spouses Crispin and Teresa Aquino are the owners of a house and lot in Makati. Since 1981, respondents Spouses Eusebio and Josefina Aguilar (Teresa’s sister) have occupied the property with petitioners’ consent, as petitioners resided in the United States. During their possession, respondents demolished the old house and constructed a three-storey building in its place, occupying half of the third floor for 20 years without paying rent. In 2003, petitioners demanded that respondents vacate the property within 10 days due to an immediate family member’s need to use it. Respondents refused, claiming they contributed around ₱1 million and uncompensated supervision to the building’s construction, pursuant to an agreement granting them exclusive use of a portion, making them co-owners or builders in good faith entitled to compensation. Petitioners filed an ejectment case. The Metropolitan Trial Court (MeTC) ruled for petitioners, ordering respondents to vacate and pay monthly rental, and declared respondents builders in bad faith, noting petitioners had informed them as early as 1983 of an intent to sell the property. The Regional Trial Court (RTC) affirmed the MeTC decision. The Court of Appeals (CA) affirmed that respondents were not co-owners or builders in good faith, as their possession was by mere tolerance, but modified the ruling by ordering reimbursement for necessary and useful expenses introduced on the property under Articles 1678 and 546 of the Civil Code, and remanded the case to determine the amounts.

ISSUE

Whether the Court of Appeals erred in ruling that respondents, despite being possessors in bad faith, are entitled to reimbursement for the useful improvements they introduced on petitioners’ property.

RULING

The Supreme Court granted the petition, reversed the Court of Appeals’ modification, and reinstated the MeTC and RTC decisions in full. The Court held that respondents were possessors in bad faith, as they were aware their possession was by mere tolerance of the owners and they constructed the building despite knowing petitioners’ intention to sell the property. As builders in bad faith, respondents are not entitled to reimbursement for useful expenses under Article 546 or Article 1678 of the Civil Code. Article 1678 applies only to lessees, and respondents were not lessees but mere occupants by tolerance. Article 546 grants reimbursement for useful expenses only to possessors in good faith. The right to reimbursement for necessary expenses under Article 546 extends to every possessor, including one in bad faith, but this refers only to expenses for the preservation of the property, not for improvements that enhance its value. The respondents’ claims pertained to useful improvements (the building), not necessary expenses for preservation. Therefore, as builders in bad faith, respondents have no right to reimbursement or retention, and must vacate the property and pay rentals as ordered by the MeTC.