G.R. No. L-29748; August 29, 1969.
PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. FERNANDO PINEDA, defendant-appellant.

FACTS

Elisa Quiogue Palma owns parcels of land in Paco, Manila, a portion of which, known as 1163-D Meding Street, has been leased by the defendant Fernando Pineda since 1945 at a monthly rental of P18.00. The contract of lease is verbal, on a month-to-month basis, and of indefinite duration. The defendant introduced useful improvements on the premises in good faith and with the knowledge and consent of the owner’s predecessor-in-interest, Remedios Quiogue Silverio. The improvements consist of a concrete residential house and the filling of the lot with gravel, sand, and “lastillas,” all with an actual value of P18,000.00. The plaintiff Philippine National Bank is the trustee of Elisa Quiogue Palma’s properties. Because the owner wanted to use the property for the construction of her own building, the plaintiff, on July 1, 1966, sent the defendant a notice terminating the lease as of August 31, 1966, asking him to vacate and remove all improvements. Despite demands, the defendant refused to vacate, leading to an ejectment action. The parties agreed the issues were: (1) whether the defendant is entitled to reimbursement of one-half the value of the useful improvements, and (2) whether the court has the power to fix a longer period for the defendant’s stay.

ISSUE

Whether the lessee, Fernando Pineda, is entitled to reimbursement by the lessor of one-half of the value of the useful improvements made upon the termination of the lease under Article 1678 of the Civil Code.

RULING

No. The Supreme Court affirmed the trial court’s decision, holding that the defendant-appellant is not entitled to reimbursement. Article 1678 of the Civil Code provides that if the lessee makes, in good faith, useful improvements suitable to the lease’s purpose without altering the form or substance of the property, the lessor, upon termination of the lease, shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse, the lessee may remove the improvements, even if the principal thing suffers damage, but shall not cause more impairment than necessary. The Court emphasized that Article 1678 gives the lessor, not the lessee, the option to appropriate the improvements by paying one-half of their value or to allow their removal. The lessee cannot demand reimbursement as a builder in good faith, as the concept of a possessor in good faith does not apply to a lessee, who knows he is not the owner. The lessee introduces improvements at his own risk and cannot recover their value from the lessor unless the lessor opts to appropriate them. The appellant’s omission of key parts of Article 1678 in his brief was noted as misleading. The Court modified the decision to specify that the defendant-appellant has the right to remove the improvements without injury to the property under the applicable principles but is not entitled to reimbursement. The appeal was deemed without merit and dilatory.