Lessor in good faith and Builders in Good faith are not synonymous. Article 1678 may apply to the former’s case and Art 448 may apply to the latter’s case. If a person knew that his stay would likely end or that he knew somehow that he is not the owner of the land then he is not a BPS in good faith.


The lot in question was originally owned by the mother of the petitioner. Petitioner sold their unfinished bungalow to the respondents for P6,000, with a promise to sell the lot to the latter. The property was later leased to the respondents for 7 years starting November 1978 for P40 a month as evidenced by their written lease contract. The respondents built their house and introduced some improvements in the lot. In 1985 petitioner’s mother refused receiving monthly rentals. It turned out that the lot in question was subject to litigation which resulted to its acquisition by Maria Lee which was sold to Salcedo, who further sold to Dionisio spouses. The property eventually came back to the petitioner when the Dinisio spouses executed a Deed of Quitclaim over the said property in favor of the petitioners. As such, the lot was registered in the latter’s names. (petitioners never lost possession of the land because Lee and company never issued a writ of possession against them).

In 1993, petitioners wrote a letter to respondents demanding them to vacate the premises and when the latter refused, petitioners filed in court. Respondents claim that they should be entitled to buy the land because of the promise of the petitioners to sell them the land and because they were builders in Good faith. The courts now are deciding which one to use: Art. 448 regarding builders and land owners in good faith or Art. 1678 regarding lessee in good faith who can be reimbursed half of the expenses of the improvements if the LO chooses to appropriate them and that such lessee have the right to retain in the premises until fully reimbursed.


1) Whether or not the respondents were builders in Good faith?
2) Whether Art 448 or 1678 should be applied?


1) No, they were not builders in good faith. The respondents knew that their stay would end after the lease contract expires. They can’t bank on the promise, which was not in writing, of the petitioners that the latter will sell the land to them. According to 1403, an agreement for the sale of real property or an interest therein is unenforceable, unless some note or memorandum thereof be produced. Other than the alleged promise by petitioner, respondents had no other evidence to prove their claim.

2) They are mere lessees in good faith; therefore Art 1678 may apply if the lessor chooses to appropriate the improvements. But since the petitioners refused to exercise that option, the private respondents can’t compel them to reimburse the one-half value of the house and improvements. Neither can they retain the premises until reimbursement is made. The private respondents’ sole right then is to remove the improvements without causing any more impairment upon the property leased than is necessary.