FACTS:

The petitioners, Crispin and Teresa Aquino, owned a house and lot in Makati City. The respondents, Eusebio and Josefina Aguilar, occupied the property with the consent of the petitioners. The original house was demolished and replaced with a three-storey building, and the respondents occupied half of the third floor for 20 years without paying rent. The petitioners demanded the surrender of the property, but the respondents refused. The petitioners filed a Complaint for ejectment, while the respondents claimed they were builders in good faith and requested compensation for their contributions. The Metropolitan Trial Court ruled in favor of the petitioners, stating that the respondents had no right of ownership over the building and were builders in bad faith.

The petitioners filed a complaint for unlawful detainer against the respondents, claiming that they illegally occupied the property without permission. The Metropolitan Trial Court ruled in favor of the petitioners, ordering the respondents to vacate the property and pay rent, attorney's fees, and the cost of suit. The respondents appealed but the Regional Trial Court upheld the decision, concluding that the respondents were mere occupants by the petitioners' tolerance. The Court of Appeals affirmed the ruling but ordered reimbursement for the respondents' necessary and useful expenses.

The respondents, as registered owners, filed an ejectment case against the petitioners, who were their former tenants. The Municipal Trial Court ruled in favor of the respondents and ordered the petitioners to vacate the property. The court also granted reimbursement for improvements introduced by the respondents. The Regional Trial Court affirmed the decision, denying the petitioners' request for retention of the property pending reimbursement.

The Court of Appeals modified the decision, ruling that the respondents were entitled to reimbursement but remanded the case to determine the amount. The CA also denied the petitioners' request for retention of the property. The petitioners appealed to the Supreme Court, arguing that the respondents were builders in bad faith and not entitled to reimbursement. The respondents claimed they were similar to lessees whose term had expired and were entitled to reimbursement. The petitioners disputed the amount of improvements claimed by the respondents.

ISSUES:

1. Whether the respondents can be considered builders in good faith.

2. Whether Articles 1678 and 546 of the Civil Code are applicable to the case.

3. Whether the respondents are entitled to reimbursement of their necessary and useful expenses.

4. Whether respondents can invoke the provisions of Article 1678 as builders in good faith.

5. Whether the prohibition against respondents from building on the property is valid and binding.

6. Whether respondents, who are builders in bad faith, are entitled to reimbursement of necessary expenses incurred for the preservation of the property.

7. Whether petitioners are entitled to actual damages for the unlawful occupation of their property.

RULING:

1. The respondents cannot be considered builders in good faith as they were aware that the subject lot belonged to another when they constructed the building.

2. Article 1678 is not applicable to the case as it applies only to lessees who build useful improvements on the leased property, whereas the respondents possessed the property by mere tolerance of the owners, without a contractual right.

3. The respondents, being builders in bad faith, are not entitled to reimbursement of their necessary and useful expenses.

4. No, respondents cannot invoke the provisions of Article 1678 as builders in good faith. The MeTC, RTC, and CA all rejected respondents' claims of being builders in good faith, and since they failed to appeal from the CA decision, that rejection is considered conclusive. Article 1678 as well as other provisions requiring good faith on the part of the builder cannot be applied in this case due to the absence of good faith on respondents' part.

5. Yes, the prohibition against respondents from building on the property is considered valid and binding. The MeTC and RTC found that petitioners had warned respondents not to construct a structure on the property as early as 1983. The absence of constant reminders from petitioners about the prohibition expressed in the 1983 letter does not make it immaterial. The prohibition is considered extant and continuing since there is no evidence that the letter was ever withdrawn or modified. Moreover, petitioners were not aware of respondents' construction activities and did not give consent or agree to share the expenses. Therefore, petitioners have the right to appropriate what has been built on the property without any obligation to pay indemnity, and respondents have no right to a refund of any improvement pursuant to Articles 449 and 450 of the Civil Code.

6. Respondents, as builders in bad faith, are entitled to reimbursement of necessary expenses incurred for the preservation of the property. However, they do not have the right of retention over the premises.

7. Petitioners are entitled to actual damages for the unlawful occupation of their property. The Court affirmed the Court of Appeals' award of actual damages in the amount of P7,000 per month from the date of demand until the subject properties are vacated.

PRINCIPLES:

• The term "builder in good faith" refers to one who, not being the owner of the land, builds on that land believing himself to be its owner and unaware of the defect in his title or mode of acquisition.

• Good faith in the context of builders refers to an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another.

• The rule on accession under the Civil Code governs the resolution of issues in cases involving builders.

• Article 1678 of the Civil Code applies only to lessees who build useful improvements on the leased property.

• Occupants of property by mere tolerance or generosity of the owners are bound by an implied promise to vacate the premises upon demand.

• Calubayan v. Pascual, which describes the status and rights of a lessee whose term of lease has expired but whose occupancy continues by tolerance of the owner, is not applicable to those who occupy property by mere tolerance without a lease contract.

• Builders in bad faith are not entitled to reimbursement of their necessary and useful expenses.

• The absence of good faith prevents a builder from invoking the provisions of Article 1678 and other provisions requiring good faith on the part of the builder.

• A prohibition against building on a property can be valid and binding, and failure to constantly remind the builder of the prohibition does not render it immaterial.

• The prohibition remains in effect unless it is withdrawn or modified by the property owner.

• The owner of the land has the right to appropriate what has been built on the property by a builder in bad faith, without any obligation to pay indemnity.

• The builder in bad faith loses what is built without right to indemnity.

• Article 450 of the Civil Code states that the owner of the land on which something has been built, planted, or sown in bad faith may demand the demolition of the work, or removal of the planting or sowing, at the expense of the person who built, planted, or sowed. The landowner may also compel the builder, planter, or sower to pay the price of the land or the proper rent.

• A builder in bad faith is entitled to recoup the necessary expenses incurred for the preservation of the land.

• Those who occupy the land of another at the latter's tolerance or permission, even without any contract between them, are bound by an implied promise to vacate the property upon demand. Failure to comply with this demand renders the possession unlawful, and actual damages may be awarded to the owner from the date of the demand to vacate until the surrender of the property.