COMMUNITIES CAGAYAN, INC., vs. SPOUSES ARSENIO (Deceased) and ANGELES NANOL AND ANYBODY CLAIMING RIGHTS UNDER THEM

COMMUNITIES CAGAYAN, INC., 
vs.
SPOUSES ARSENIO (Deceased) and ANGELES NANOL AND ANYBODY CLAIMING RIGHTS UNDER THEM

Facts:

          Sometime in 1994, respondent-spouses Arsenio and Angeles Nanol entered into a Contract to Sell with petitioner Communities Cagayan, Inc., (CCI) whereby the latter agreed to sell to respondent-spouses a house and Lots 17 and 19 located at Block 16, Camella Homes Subdivision, Cagayan de Oro City, for the price of P368,000.00 (P368T). They obtained a loan from Capitol Development Bank (CDB), using the property as collateral. To facilitate the loan, a simulated sale over the property was executed by petitioner in favor of respondent-spouses. Accordingly, titles (TCT Nos. 105202 and 105203) were transferred in the names of respondent-spouses and submitted to CDB for loan processing.  The bank collapsed and closed before it could release the loan.

          On November 30, 1997, respondent-spouses entered into another Contract to Sell with petitioner over the same property for the same price. This time, they availed of petitioner’s in-house financing thus, undertaking to pay the loan over four years, from 1997 to 2001.

          Respondent Arsenio demolished the original house and constructed a three-story house allegedly valued at P3.5 million, more or less. (Respondent Arsenio died, leaving his wife, herein respondent Angeles, to pay for the monthly amortizations.)

          On September 10, 2003, petitioner sent respondent-spouses a notarized Notice of Delinquency and Cancellation of Contract to Sell due to the latter’s failure to pay the monthly amortizations. Petitioner filed before the Municipal Trial Court in Cities, an action for unlawful detainer against respondent-spouses.

          In her Answer, respondent Angeles averred that the Deed of Absolute Sale is valid.

Issues

1) Whether petitioner is obliged to refund to respondent-spouses all the monthly installments paid; and

2) Whether petitioner is obliged to reimburse respondent-spouses the value of the new house minus the cost of the original house.

Ruling

The petition is partly meritorious.

          Respondent-spouses are entitled to the cash surrender value of the payments 
on the property equivalent to 50% of the total payments made under the Maceda Law.

          Respondent-spouses are entitled to reimbursement of the improvements 
made on the property.

           In view of the special circumstances obtaining in this case, we are constrained to rely on the presumption of good faith on the part of the respondent-spouses which the petitioner failed to rebut. Thus, respondent-spouses being presumed builders in good faith, we now rule on the applicability of Article 448 of the Civil Code. Article 448 on builders in good faith does not apply where there is a contractual relation between the parties, such as in the instant case. We went over the records of this case and we note that the parties failed to attach a copy of the Contract to Sell. As such, we are constrained to apply Article 448 of the Civil Code, which provides viz:

ART. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.

          The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord with the principle of accession, i.e., that the accessory follows the principal and not the other way around. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. The landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land. The raison d’etre for this provision has been enunciated thus: Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing.

          In conformity with the foregoing pronouncement, we hold that petitioner, as landowner, has two options. It may appropriate the new house by reimbursing respondent Angeles the current market value thereof minus the cost of the old house. Under this option, respondent Angeles would have "a right of retention which negates the obligation to pay rent." In the alternative, petitioner may sell the lots to respondent Angeles at a price equivalent to the current fair value thereof. However, if the value of the lots is considerably more than the value of the improvement, respondent Angeles cannot be compelled to purchase the lots. She can only be obliged to pay petitioner reasonable rent.