WHO IS A POSSESSOR IN BAD FAITH?

This article was originally published on June 1, 2022 and has been updated to reflect recent legal developments.

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of a lawyer or you may directly contact and consult Alburo Alburo and Associates Law Offices to address your specific legal concerns, if there is any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

AT A GLANCE:

Article 527 provides that a person is deemed a possessor in bad faith when he possesses in circumstances contrary to those that define a possessor in good faith.

Mistakes are an inescapable part of human life. It is the response to the error that counts. The same may be said in law: liability depends whether one acted in good faith or in bad faith.

In a previous discussion, we examined the concept of a possessor in good faith. Article 526 of the Civil Code of the Philippines defines a possessor in good faith as one who is not aware of any flaw in his title or mode of acquisition that would invalidate it.

We now turn to the concept of a possessor in bad faith under the Civil Code.

Article 527 provides that a person is deemed a possessor in bad faith when he possesses in circumstances contrary to those that define a possessor in good faith.

In the City of Valenzuela v. Roman Catholic Archbishop of Manila, G.R. No. 236900, April 28, 2021, the Supreme Court explained that bad faith contemplates a state of mind affirmatively operating with furtive design or some motive of self-interest or ill will for ulterior purposes

Similarly, in Princess Rachel Development Corporation and Boracay Enclave Corporation v. Hillview Marketing Corporation, G.R. No. 222482, June 02, 2020, the Supreme Court ruled that, in relation to possession, a landowner may be in good faith or may be deemed in bad faith depending on the landowner’s knowledge of the fact of encroachment. A landowner is deemed in bad faith when there are circumstances indicating that he had become aware of the encroachment and had chosen not to act on it. In such cases, the owner’s failure to act gives rise to laches or estoppel, and bars the registered owner from asserting good faith.

Burden of Proof

While good faith is always presumed, Article 527 provides that upon him who alleges bad faith on the part of a possessor rests the burden of proof.

Rights and Liabilities of a Possessor in Bad Faith

Even if a possessor is in bad faith, the law does not leave him entirely without rights. While the Civil Code imposes stricter liabilities upon a possessor in bad faith, it nevertheless recognizes that certain rights remain, particularly where equity and justice so require.

For instance, the following rights are still accorded to a possessor in bad faith:

1.) Reimbursement for Expenses (Article 546, Civil Code)

Article 546 provides that necessary expenses shall be refunded to every possessor. Hence, a person in bad faith is also entitled to the reimbursement for the necessary expenses.

However, the same excludes a possessor in bad faith from reimbursement for useful expenses.

2.) Rights to Necessary Expenses Related to Fruits (Article 549, Civil Code)

The possessor in bad faith shall reimburse the fruits received and those which the legitimate possessor could have received, and shall have a right only to the necessary expenses, as mentioned in paragraph 1 of Article 546, and in Article 443.

Article 443 states that he who receives the fruits has the obligation to pay the expenses made by a third person in their production, gathering, and preservation

3.) Rights to Remove Improvements for Luxury or Pleasure (Article 549, Civil Code)

In cases of expenses incurred in improvements for pure luxury or mere pleasure, the same shall not be refunded to the possessor in bad faith, but he may remove the objects for which such expenses have been incurred, provided that the thing suffers no injury thereby, and that the lawful possessor does not prefer to retain them by paying the value they may have at the time he enters into possession.

4.) Liability for Loss or Deterioration (Article 552(2), Civil Code)

A possessor in bad faith shall be liable for deterioration or loss in every case, even if caused by a fortuitous event.

For a better understanding, let us take the case of Pen Development Corporation and Las Brisas Resort Corporation vs. Martinez Leyba, Inc., G.R. No. 211845, August 9, 2017.

In this case, Martinez noticed that a construction of Las Brisas’ fence seemed to encroach on its titled land. Upon verification by surveyors, Martinez was informed that the fence of Las Brisas overlaps its property. For this reason, Martinez sent a letter and succeeding several letters to Las Brisas informing the latter of the said encroachment and requested Las Brisas to refrain from further intruding on its property.

Las Brisas did not respond to any of Martinez’s letters and continued developing its land. This constrained Martinez to seek the aid of the court by filing a case against Las Brisas. Las Brisas denied that it encroached on Martinez’ land and that it constructed the Las Brisas Resort Complex within the land covered by their TCT and that it took possession of the land in good faith.

Is Las Brisas a possessor in bad faith?

The Supreme Court says: Yes.

There is no question that petitioners should be held liable to respondent for their obstinate refusal to abide by the latter’s repeated demands to cease and desist from continuing their construction upon the encroached area. Petitioners’ sole defense is that they purchased their property in good faith and for value; but this does not squarely address the issue of encroachment or overlapping.

While petitioners may have been innocent purchasers for value with respect to their land, this does not prove that they are equally innocent of the claim of encroachment upon respondent’s lands. The evidence suggests otherwise: despite being apprised of the encroachment, petitioners turned a blind eye and deaf ear and continued to construct on the disputed area. They did not bother to conduct their own survey to put the issue to rest, and to avoid the possibility of being adjudged as builders in bad faith upon land that did not belong to them.

The right of the owner of the land to recover damages from a builder in bad faith is clearly provided for in Article 451 of the Civil Code. Although said Article 451 does not elaborate on the basis for damages, the Court perceives that it should reasonably correspond with the value of the properties lost or destroyed as a result of the occupation in bad faith, as well as the fruits (natural, industrial or civil) from those properties that the owner of the land reasonably expected to obtain.

As to the reimbursement of necessary expenses, petitioners are not entitled to the same. The Supreme Court held that under Article 452 of the Civil Code, the builder, planter or sower in bad faith is entitled to reimbursement for the necessary expenses of preservation of the land. However, in this case, respondent’s lands were not preserved: petitioners’ construction and use thereof in fact caused damage, which must be undone or simply endured by respondent by force of law and circumstance. Respondents did not in any way benefit from petitioners’ occupation of its lands.

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding legal services, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/ 09175772207/ 09778050020.