2013 Civil Law, Q8

Ciriaco Realty Corporation (CRC) sold to the spouses Del a Cruz a500-square meter land (Lot A) in Paranaque. The land now has a fair market value of Pl,200,000. CRC likewise sold to the spouses Rodriguez, a 700-square meter land (Lot B) which is adjacent to Lot A. Lot B has a present fair market value of P1,500,000.
The spouses Dela Cruz constructed a house on Lot B, relying on there presentation of the CRC sales agent that it is the property they purchased. Only upon the completion of their house did the spouses Dela Cruz discover that they had built on Lot B owned by the spouses Rodriguez, not on Lot A that they purchased. They spent P 1 000,000 for the house.
As their lawyer, advise the spouses Dela Cruz on their rights and obligations under the given circumstances, and the recourses and options open to them to protect their interests. (8%)

Quick check

Under Article 448 of the Civil Code, who has the primary right of option when a person builds a house in good faith on another's land?

Under Pleasantville Development Corp. v. CA, what is the legal status of a buyer who builds on the wrong lot due to an agent's mistaken representation?

What option is available to a landowner under Article 448 if the value of the land is considerably more than the value of the building?

What is the legal effect of a builder in good faith's right of retention under Articles 448 and 546 of the Civil Code?

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Against whom may the spouses Dela Cruz seek recourse for damages caused by the mistaken lot identification?

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1. Builder Good Faith
Under Article 448 of the Civil Code, a builder in good faith is one who builds on land believing he is the owner thereof or has a valid title thereto. In Pleasantville Development Corp. v. Court of Appeals, the Supreme Court ruled that a lot buyer who builds on the wrong lot relying on the mistaken representation or pointing out of the seller's real estate agent is considered a possessor and builder in good faith. Good faith is always presumed, and bad faith requires clear proof of knowledge of the lack of title.

2. Landowner Options
Under Article 448 of the Civil Code, the owner of the land on which a building has been constructed in good faith has the sole option either to appropriate the building after paying indemnity under Article 546, or to compel the builder to pay the price of the land. However, if the value of the land is considerably more than that of the building, the builder cannot be compelled to buy the land. In such a case, the parties must agree upon the terms of a forced lease.

3. Builder Retention Right
Under Articles 448 and 546 of the Civil Code, a builder in good faith who constructs a house on another's land enjoys a statutory right of retention over the land and building. If the landowner chooses to appropriate the building, the builder in good faith cannot be ousted from possession until the full indemnity for necessary and useful expenses is actually paid. Furthermore, the builder may seek legal recourse and claim damages against the negligent developer or sales agent who caused the mislocation.

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