Pleasantville Development Corp. vs. Court of Appeals

G.R. No. 79688 (February 1, 1996)

Supreme Court: Wilson Kee is a good faith builder; agent's negligence highlights due diligence need.

Facts:

Edith Robillo purchased a parcel of land designated as Lot 9, Phase II, located at Taculing Road, Pleasantville Subdivision, Bacolod City, from Pleasantville Development Corporation (petitioner). In 1975, Eldred Jardinico acquired the rights to Lot 9 from Robillo and, upon completing all payments, received Transfer Certificate of Title No. 106367 in his name on December 19, 1978. However, he discovered that improvements had been made on Lot 9 by Wilson Kee, who had taken possession of the lot.

Wilson Kee had purchased Lot 8 from C.T. Torres Enterprises, Inc. (CTTEI), the exclusive real estate agent of the petitioner, on an installment basis. Kee was allowed to take possession of Lot 8 even before completing the payments. After paying a relocation fee and for the preparation of a lot plan, Kee's wife was shown Lot 9 instead of Lot 8 by CTTEI's employee, Zenaida Octaviano. Believing he was on Lot 8, Kee constructed various improvements, including a residence and a store.

When Jardinico confronted Kee about the occupancy of Lot 9, they attempted to settle the matter amicably but failed. Jardinico's lawyer sent a demand letter to Kee on January 30, 1981, to vacate Lot 9. Kee refused, prompting Jardinico to file an ejectment complaint against him. Kee then filed a third-party complaint against the petitioner and CTTEI.

The Municipal Trial Court in Cities (MTCC) ruled that the erroneous delivery of Lot 9 was due to CTTEI's negligence and that Kee was a builder in bad faith. The MTCC ordered Kee to vacate Lot 9 and pay reasonable rentals. On appeal, the Regional Trial Court (RTC) found Kee to be a builder in bad faith but affirmed the order for him to vacate and pay rentals. Kee appealed to the Court of Appeals, which ruled that he was a builder in good faith and attributed the erroneous delivery to CTTEI's negligence, thus reversing the RTC's decision.

Issues:

  1. Was Wilson Kee a builder in good faith?
  2. What is the liability of Pleasantville Development Corporation and CTTEI?
  3. Is the award of attorney's fees proper?

Arguments:

  • Petitioner’s Arguments:

    • The Court of Appeals erred in declaring Kee a builder in good faith, arguing that he violated the contract terms by not notifying the petitioner before constructing improvements.
    • The erroneous delivery of Lot 9 was outside CTTEI's authority, and thus, the petitioner should not be held liable.
    • The award of attorney's fees was unjustified and should be reversed.

  • Respondents’ Arguments:

    • Kee acted in good faith, believing he was building on Lot 8, as he relied on the representations made by CTTEI.
    • The negligence of CTTEI, as the agent of the petitioner, should render the petitioner liable for the erroneous delivery of Lot 9.
    • The award of attorney's fees was warranted due to the necessity of litigation to protect Jardinico's rights.

Court’s Decision and Legal Reasoning:

The Supreme Court upheld the Court of Appeals' ruling that Kee was a builder in good faith. The Court reasoned that Kee had taken reasonable steps to ascertain the identity of the property he was purchasing and relied on the representations of CTTEI, which was acting within its authority as the agent of the petitioner. The Court emphasized that good faith is presumed, and the burden of proving bad faith lies with the petitioner.

Regarding the liability of the petitioner and CTTEI, the Court ruled that the petitioner was liable for the negligence of its agent, CTTEI, in delivering the wrong lot. The Court clarified that while CTTEI acted negligently, it was still within the scope of its authority as the agent of the petitioner.

The Court also addressed the issue of attorney's fees, affirming the Court of Appeals' decision to reinstate the award, as Jardinico was compelled to litigate due to the negligence of the petitioner's agent.

Significant Legal Principles Established:

  1. A builder in good faith is one who constructs improvements on a property believing it to be his own, without knowledge of any defect in title.
  2. The principal is liable for the acts of its agent performed within the scope of authority, including negligent acts that cause damage to third parties.
  3. Attorney's fees may be awarded at the discretion of the court, particularly when a party is compelled to litigate to protect their rights due to another's negligence.