SPOUSES JUAN NUGUID AND ERLINDA T. NUGUID vs. HON.

COURT OF APPEALS AND

PEDRO P. PECSON

Facts: Pedro P. Pecson owned a commercial lot located at 27 Kamias Road, Quezon City, on
which he built a four-door two-storey apartment building. For failure to pay realty taxes, the
lot was sold at public auction by the City Treasurer of Quezon City to Mamerto Nepomuceno,
who in turn sold it for P103,000 to the spouses Juan and Erlinda Nuguid.Pecson challenged
the validity of the auction sale before the RTC of Quezon City . In its Decision, dated
February 8, 1989, the RTC upheld the spouses title but declared that the four-door two-
storey apartment building was not included in the auction sale. This was affirmed in toto by
the Court of Appeals and thereafter by this Court, in its Decision dated May 25, 1993, in G.R.
No. 105360 entitled Pecson v. Court of Appeals.

On June 23, 1993, by virtue of the Entry of Judgment of the aforesaid decision in G.R. No.
105360, the Nuguids became the uncontested owners of the 256-square meter commercial
lot.

As a result, the Nuguid spouses moved for delivery of possession of the lot and the
apartment building.

In the same order the RTC also directed Pecson to pay the same amount of monthly rentals
to the Nuguids as paid by the tenants occupying the apartment units or P21,000 per month
from June 23, 1993, and allowed the offset of the amount of P53,000 due from the Nuguids
against the amount of rents collected by Pecson from June 23, 1993 to September 23, 1993
from the tenants of the apartment.

Pecson duly moved for reconsideration, but on November 8, 1993, the RTC issued a Writ of
Possession, directing the deputy sheriff to put the spouses Nuguid in possession of the
subject property with all the improvements thereon and to eject all the occupants therein.

Issue: W/Not the Nuguids should reimburse Pecson for the benefits derived from the
apartment building.

Ruling: Yes. It is not disputed that the construction of the four-door two-storey apartment,
subject of this dispute, was undertaken at the time when Pecson was still the owner of the
lot. When the Nuguids became the uncontested owner of the lot on June 23, 1993, by virtue
of entry of judgment of the Courts decision, dated May 25, 1993, in G.R. No. 105360, the
apartment building was already in existence and occupied by tenants. In its decision dated
May 26, 1995 in G.R. No. 115814, the Court declared the rights and obligations of the
litigants in accordance with Articles 448 and 546 of the Civil Code. These provisions of the
Code are directly applicable to the instant case.

Under Article 448, the landowner is given the option, either to appropriate the improvement
as his own upon payment of the proper amount of indemnity or to sell the land to the
possessor in good faith. Relatedly, Article 546 provides that a builder in good faith is entitled
to full reimbursement for all the necessary and useful expenses incurred; it also gives him
right of retention until full reimbursement is made. While the law aims to concentrate in one
person the ownership of the land and the improvements thereon in view of the
impracticability of creating a state of forced co-ownership, it guards against unjust
enrichment insofar as the good-faith builders improvements are concerned. The right of
retention is considered as one of the measures devised by the law for the protection of
builders in good faith. Its object is to guarantee full and prompt reimbursement as it permits
the actual possessor to remain in possession while he has not been reimbursed (by the
person who defeated him in the case for possession of the property) for those necessary
expenses and useful improvements made by him on the thing possessed. Accordingly, a
builder in good faith cannot be compelled to pay rentals during the period of retention nor
be disturbed in his possession by ordering him to vacate. In addition, as in this case, the
owner of the land is prohibited from offsetting or compensating the necessary and useful
expenses with the fruits received by the builder-possessor in good faith. Otherwise, the
security provided by law would be impaired. This is so because the right to the expenses and
the right to the fruits both pertain to the possessor, making compensation juridically
impossible; and one cannot be used to reduce the other.

As we earlier held, since petitioners opted to appropriate the improvement for themselves as
early as June 1993, when they applied for a writ of execution despite knowledge that the
auction sale did not include the apartment building, they could not benefit from the lots
improvement, until they reimbursed the improver in full, based on the current market value
of the property.Given the circumstances of the instant case where the builder in good faith
has been clearly denied his right of retention for almost half a decade, we find that the
increased award of rentals by the RTC was reasonable and equitable. The petitioners had
reaped all the benefits from the improvement introduced by the respondent during said
period, without paying any amount to the latter as reimbursement for his construction costs
and expenses. They should account and pay for such benefits.