This case involves a lot and the building erected thereon bought by a bank from Menardo sometime in 1981. The building purchased encroached on the adjacent land containing an area of 1,144 sq.m. covered by TCT No. T-17197 which was also owned by Menardo. It occupied an area of abut 124 sq.m. of said land. To remedy the situation, Menardo offered to sell the area in question. The bank accepted the offer but the sale did not materialize because Menardo mortgaged the said lot to another bank without its knowledge and consent.
Eventually, the said land on which the building encroached was sold by Menardo to Gene. In 1993, Gene caused a vertification survey of the property and discovered the encroachment of the bank’s building on his land to the extent of 124 sq.m. So he sent two demand letters to the bank to vacate area but the bank refused. Thus Gene was constrained to sue the bank for recovery of ownership and possession of the questioned property with a prayer for damages.
After the trial, the Regional Trial Court (RTC) decided the case in favor of Gene declaring him the rightful owner of the disputed 1245 sq.m. portion of the lot and ordering the bank to surrender possession of the property to Gene and to cause, at its expense, the removal of any improvement thereon particularly the portion of the building that occupied 124 sq.m. of Gene’s land.
The Court of Appeals, on appeal, sustained the RTC. The bank questioned these decisions; it contended that the RTC and the CA erred in adjudging it a builder in bad faith. The bank argued that it is a builder in good faith and therefore has the right to compel Gene to make a choice between appropriating the building by paying the proper indemnity or obliging the builder (the bank) to pay the price of the land under Article 448 of the Civil Code.
Was the bank correct?
No.
Good faith is an intangible and abstract quality with no technical meaning or statutory definition and it encompasses, among other things, an honest belief, the absence of malice and of design to defraud or to seek an unconscionable advantage. An individual’s personal good faith is a concept of his own mind, and therefore, may not conclusively be determined by his protections alone. It implies honesty of intention and freedom from knowledge of circumstances which ought to put the builder on inquiry. The essence of good faith lies in an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intention to overreach another. Applied to possession, one is considered in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.
In this case, the bank is evidently quite aware, and indeed advised, prior to its acquisition of the land and building from Menardo that a part of the building sold to it stood on the land not covered by the land conveyed to it.
Equally significant is the fact that the building constructed on the land by Menardo, has in actuality been part of the property transferred to the bank. Article 448 of the Civil Code refers to a piece of land whose ownership is claimed by two or more parties, one of whom has built some works (or sown or planted something) and not to a case where the owner of the land is the builder, sower, or planter who then later loses ownership of the land by sale or otherwise. "Where the true owner himself is the builder of the works on his land, the issue of good faith or bad faith is entirely irrelevant." In fine, the bank cannot invoke the provisions of Article 448 of the Civil Code (PNB vs. De Jesus, G.R. No. 149295 September 23, 2003).