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THE LEGAL EFFECTS OF GOOD FAITH or BAD FAITH

of POSSESSOR IN THE CONCEPT OF OWNER:

i. AS TO THE FRUITS (Art. 544, par.1, Art. 545)

1. FRUITS ALREADY RECEIVED (Article 544, par. 1)

1.1 Rights of Possessor in GOOD FAITH:

Art. 544. A possessor in good faith is entitled to the fruits received before
the possession is legally interrupted.

Natural and industrial fruits are considered received from the time they are
gathered or severed.

Civil fruits are deemed to accrue daily and belong to the possessor in good
faith in that proportion.


Q. Is PCO in Good Faith entitled to all the fruits received before possession is legally
interrupted?

PCO is entitled to all the fruits received until possession is legally interrupted (i.e.
before summons is received from court).

After receipt of judicial summons or legal interruption, the right to get the fruits
not yet gathered ceases.

Q. What are the fruits referred to in Art. 544?
A. Fruits refer to Natural, Industrial and Civil fruits. ( see Art. 442)
o Natural fruits are the spontaneous products of the soil and the young
and other products of animals.

o Industrial fruits are those produced by lands or any kind through cultivation or labor.
o Civil fruits are the rents of buildings, the price of leases of lands and other property
and the amount of perpetual or life annuities or other similar income.


When Civil Fruits are Deemed to Accrue

RULE: Art. 544. A possessor in good faith is entitled to the fruits received before
the possession is legally interrupted.

3
rd
par. - Civil fruits are deemed to accrue daily, and belong to the possessor in
good faith in that proportion.


Q. What is the rule as to civil fruits when possession of a possessor in good faith is
legally interrupted?

A. Civil fruits (like rents) are accrued daily, Art. 544 applies, NOT Art. 545;
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Actual receipt of the rents is immaterial.

Example : X in good faith, possesses a big house which he rents out as a B&B
Inn. Y filed a case for accion reivindicatoria against X and on 20 May 2000, X
received summons from the RTC.

Q. If Y wins the case against X, who will receive the income or rent received up to 19
May 2000, and on the date after?

A. If Y wins the case against X, all income or rent received up to 19 May 2000 will
belong to X. Thereafter, the rent or income will pertain to B.

Q: Possession of X was legally interrupted on 20 May 2000. But if a guest checked
in on May 15, and checked out and paid only on May 30, who is now entitled to
receive the rent or civil fruits at this time?


A. Yes. X will be entitled to the rent that has accrued from May 15-19, before the
possession of X was legally interrupted.

That the rent was received or paid only on the 30
th
of May is immaterial.

When Natural Fruits & Industrial Fruits are Considered Received

Art. 544. A possessor in good faith is entitled to the fruits received
before the possession is legally interrupted.

2
nd
par.: Natural and industrial fruits are considered received
from the time they are gathered or severed.

Q. When are Natural and Industrial fruits considered received?
A. From the time they are gathered or severed.

Q. If the possession of PCO is legally interrupted when the crops have already
been gathered, but not yet sold or alienated or consumed, is PCO entitled to
receive these crops or its value?

A. (a) Yes. The law (Art. 544, par. 2) requires only that the fruits have been
gathered or severed for the natural and industrial fruits to be deemed received.

(b) If at the time of legal interruption, the crops have already been gathered, but
are sold only after such interruption, the sale is immaterial.

ILLUSTRATE:
Facts: X a possessor in good faith, harvested rice from his farm on 01 Sept. 2000.
He sold for P100,000 net, the rice harvested on 30 Sept. 2000. But on 15 Sept.
2000, X already received summons from the Court due to the case filed by Y.

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Q: If Y wins the case against X, who will be entitled to receive the P100K from the
rice harvest (industrial fruit)?

A. X will be entitled to receive the P100K from the rice harvest (industrial fruit)
under Art. 544, par. 2:
A possessor in good faith is entitled to the fruits received before the possession is
legally interrupted.
Natural and industrial fruits are considered received from the time they are
gathered or severed.

B. If at the time of legal interruption, the fruits are still growing or pending, the
rule of pending fruits, NOT on gathered fruits, should apply. (See Art. 545)

NOTA BENE : RULINGS & DOCTRINES

Rights of Possessor in Good Faith to Fruits Already Received under Art. 544 :

1. Before legal interruption, the fruits received belongs to the possessor in good faith. He should
return only the value of the fruits collected after receipt of judicial summons and conversion of his
possession into bad faith, but not prior to said date. (Nacoco v. Geronimo, L-2899, Apr. 29, 1949;
Calma v. Calma, 56 Phil. 102)

2. After the receipt of judicial summons, the right to get the fruits not yet gathered ceases. (Mindanao
Academy, Inc. v. Yap, L-17681-82, Feb. 26, 1965)

3. Legal interruption occurs when a complaint is filed and the possessor in good faith receives the
judicial summons. All fruits accrued and received since that time must be turned over to whoever
wins, owner or possessor. (Tacas v. Tabon, 53 Phil. 356)

4. The reason why fruits should be returned from the time of legal interruption is that it is ordinarily
only from said date that the possessor should be considered in bad faith.

Possessors in bad faith are not entitled to the fruits and are even required to reimburse the fruits
received and those which the legitimate possessor (or owner) could have received. (Ortiz v.
Kayanan, L-32974 July 30, 1979)

5. When a contract of sale is void, the possessor in good faith is entitled to keep the fruits during the
period for which it held the property in good faith. This good faith ceases when an action to recover
possession of the property is filed against him and he is served with summons. (DBP v. CA, 316
SCRA 650)


1.2. Rights of Possessor in BAD FAITH: As to Gathered and Pending Fruits
Art. 544. A possessor in good faith is entitled to the fruits received before
the possession is legally interrupted.

Art. 549. 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 expenses mentioned in par. 1 of Art. 546 and in Art. 443.

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Q. Is PCO in Bad Faith also entitled to the fruits received before possession is legally
interrupted?

A. NO. Art. 544 applies only to a PCO in Good Faith. If he is in Bad Faith, he has no
right whatsoever to the fruits, whether gathered or pending. Apply Art. 549.

Q. What are the rights and obligations of a PCO in BAD FAITH as to the FRUITS of
the property possessed?

A. As to the FRUITS, the PCO in BAD FAITH shall have the following rights -
a.) Gathered or Severed Fruits:
Reimburse or return the value of the fruits received to the other party and
those which the adjudged legitimate possessor/owner could have received.

However, in case the fruits were already gathered before his possession is
legally interrupted, he may be reimbursed for the necessary expenses for
production, gathering and preservation of the fruits, if applicable, under Art.
443, to avoid unjust enrichment of the true owner/possessor who will get the
fruits.

b.) Pending or Ungathered Fruits:
Have NO rights to pending fruits. By principle of Accession, he who builds,
plants or sows in bad faith loses the thing, without any right of indemnity (Art.
449).

2. FRUITS STILL PENDING (Article 545)

2.1 Rights of Possessor in GOOD FAITH as to PENDING
NATURAL & INDUSTRIAL FRUITS:

Art. 545. If at the time the good faith ceases, there should be any natural or
industrial fruits, the possessor shall have a right to a part of the expenses of
cultivation, and to a part of the net harvest, both in proportion to the time of
the possession. The charges shall be divided on the same basis by the two
possessors.

The owner of the thing may, should he so desire, give the possessor in good
faith the right to finish the cultivation and gathering of the growing fruits,
as an indemnity for his part of the expenses of cultivation and the net
proceeds; the possessor in good faith who for any reason whatever should
refuse to accept this concession, shall lose the right to be indemnified in any
other manner.

Q. If at the time the good faith of a PCO ceases, or legally interrupted, there should
be any natural or industrial fruits, pending or growing, i.e., not yet gathered or
harvested, what will be his rights to these if any?

PCO in good faith is entitled to pro-rate the fruits already growing but not yet
harvested, when his possession was legally interrupted, in the following manner:
a.) Right to share in the expenses for cultivation, and;
b.) Right to share in the net harvest or proceeds thereof,
c.) Both rights, to be computed in proportion to the time of the possession.
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Q. How should the fruits be divided or pro-rated?

For example: PCO X planted corn on land he thinks he owns. It takes the corn 3
months to grow and mature. After 2 mos.,or in the beginning of the 3rd month,
summons is served to X arising from the action to recover filed by Y. At the end of
the 3rd month, the crops are harvested.

A. Under Article 545, the possessor X is entitled to 2/3 of the crop since the
possessor was in good faith possession for 2 months while the corn crop is growing.
However, PCO X must also pay 2/3 of the expenses.

Note: What about if crop is rice which need 6 mos. to grow and harvest, and X possessed only
for 2 mos. But he paid the most expense for the 2 mos. of land preparation and
planting/cultivation. But his share in rice yield net is only 2/6 or 33%, while Y will have 67% share
but has much lesser expense for cultivation in the last 4mos. near the harvest time, how should
expenses be borne by the parties?

J. Paras: Expense to be borne in proportion to what each receives from harvest/yield. Fair. No
unjust enrichment resulting. X will have a share in harvest 33% and also in expense. Y will share
in harvest and expense by 67%.
Or: in proportion to the time of the possession to the length of possession

Q. What are the options given to the true owner Y if he wins the case against PCO X,
with regard to the pending fruits under Art. 545?

A. The adjudged owner Y may:

1. Get his share in the natural or industrial fruits, but he must also pay for his
proportional share in the expenses for cultivation, or;

2. If Y is not interested in the pending fruits, or for whatever reason, Y can
simply allow the PCO X to complete the cultivation and harvest, and this will
serve as Ys indemnity for his part of the expenses of cultivation and the net
proceeds.
o The owner is given the option in par. 3 as he may not be interested in the
pending fruits at all, or realize that to continue cultivation may result in a
loss for him.

If Y elects option 2 but X refuses to accept, X will lose the right to be
indemnified in any other manner (e.g. costs of cultivation).


THE LEGAL EFFECTS OF GOOD FAITH or BAD FAITH
of POSSESSOR IN THE CONCEPT OF OWNER:

ii. AS TO NECESSARY EXPENSES (Article 546, par.1)

Art. 546. Necessary expenses shall be refunded to every possessor;
but only the possessor in good faith may retain the thing until he has been
reimbursed therefor.

Q. What are the rights of a PCO in GOOD FAITH with respect to NECESSARY
Expenses?
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A. As to NECESSARY Expenses, PCO in GOOD FAITH, is Entitled to these RIGHTS:
1.) Reimbursemenr or refund of necessary expenses.
Must be filed as a compulsory counter-claim in the same action filed against PCO. Otherwise, it
will be barred; to prevent multiplicity of suits. (Beltran v. Valbuena, 53 Phil. 697)
2.) Retain the thing until he is reimbursed

Q. What are the rights of a PCO in BAD FAITH as to NECESSARY Expenses?
A. PCO in BAD FAITH as to NECESSARY Expenses:
1.) Entitled to a refund of necessary expenses.
2.) But NO right to retain the thing until he is reimbursed for necessary expenses.
This serves as penalty to the bad faith possessor (Dir. Of Lands v. Abagat, 53 Phil. 147)

Q. What are considered by law as NECESSARY EXPENSES?
A. Those expenses without which the thing would physically deteriorate or be lost; or
those made for the preservation of the thing.
Sample of Necessary Expenses:
1.) Those incurred for cultivation, production and upkeep of the land.
2.) Those made for necessary repairs of the thing possessed
3.) Those made for urgent repairs of the thing possessed



ILLUSTRATE:
1. PCO X possessed in good faith, a house and lot subject of a recovery case filed by the
true owner Y in Nov. 2000. X spent P40K for the replacement of the leaking roof in
Oct. 2000; P60k for the electrical re-wiring and waterline re-piping in Oct. 2000,
replacing the old electrical and water system of the house to avoid fire hazard, and
severe water leakage. X received judicial summons in Nov. 2000.
Q. Are these constructions by X deemed necessary expenses? YES
Q. If Y wins the case, will he be required to reimburse these expenses to X? YES

2. PCO X possess in good faith, a farm land which Y is now subject of recovery by a
case filed by the true owner Y. PCO X built on the land a warehouse to store the
harvest, and ditches to irrigate the land and increase the crop yield.

Q. Are the warehouse and irrigation ditches deemed necessary expenses?
A. No, as these are not needed to preserve the land. They may be deemed useful
expenses which would improve the value of the land, but not necessary for the lands
physical existence.

Q. Should Y win vs. X, will Y be required to reimburse X these expenses?
A. Yes, but not as necessary expenses. They are deemed useful expenses. The rules
in Art. 546, par. 2 and Art. 547 shall apply.


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THE LEGAL EFFECTS OF GOOD FAITH or BAD FAITH
of POSSESSOR IN THE CONCEPT OF OWNER:

iii. AS TO USEFUL EXPENSES (Article 546, par. 2; Art. 547)

Art. 546, par. 2. Useful expenses shall be refunded only to the possessor
in good faith with the same right of retention, the person who has defeated
him in the possession having the option of refunding the amount of the
expenses or of paying the increase in value which the thing may have
acquired by reason thereof.

Art. 547. If the useful improvements can be removed without damage to
the principal thing, the possessor in good faith may remove them, unless the
person who recovers the possession exercises the option under paragraph 2
of the preceding article.

Q. What are USEFUL Expenses?
A. Those expenses that:
add value to the property;
increase the objects productivity
satisfy the spiritual or religious yearnings
give rise to all kinds of fruits

Note: Read comments and examples of Paras in Vol. II

Q. What are the rights of a Possessor in the Concept of an Owner who is in GOOD
FAITH, as to USEFUL Expenses if his possession is later defeated by the true
owner/possessor ?

A. As to USEFUL Expenses, PCO in GOOD FAITH, is Entitled to these RIGHTS in Art.
546, par. 2 and Art. 547:

1.) The possessor in good faith is entitled to a refund of useful expenses.
2.) The possessor in good faith may retain the thing until he is reimbursed for
useful expenses.
Damages cannot be assessed against possessor in good faith, for he was merely exercising his
rights, when he refused to leave the premises due to non-reimbursement of his useful
expenses made when he was still a possessor in good faith. (Robles v. Hermanos, et al, 42 Phil.
584)
No rent can be demanded while possessor in good faith retains the thing until reimbursed.
3.) Remove the useful improvements if they can be removed without damaging
the principal thing, unless the other party who won or recovered the property
wants to keep the useful improvements.

On the part of the Other Party who won or recovered the property from the PCO
in good faith, the following are his options/rights in Art. 546 par. 2 and Art. 547:

a. He has the option to retain the useful improvements provided the possessor
in good faith is reimbursed; this right or option prevails over the right of
removal by possessor in good faith in Art. 547.

b. Pay increase in value which the thing acquired due to useful improvements.
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Q. What are the rights of a Possessor in the Concept of an Owner who is in BAD
FAITH, as to USEFUL Expenses if his possession is later defeated by the true
owner/possessor ?

A. PCO in Bad Faith is NOT ENTITLED to any right or indemnity for any useful
improvements on the premises, because of Art. 449. (Santos v. Mojica, L-25450, Jan. 31, 1969)

Even if removal of the useful improvements is possible without any damage to
the principal thing, possessor in bad faith has NO right to make the removal.
(Rivera v. Roman Catholic Church, 40 Phil. 717)
Reason: Art. 449 provides that a builder in bad faith loses whatever is built or
planted without right to indemnity.


Q. What is the meaning of Damage in Art. 547 xxx useful improvements can be
removed without damage to the principal thing x x x?
A. It means substantial injury or damage that reduces value of the property.
If it is only a slight injury or damage which can be repaired, then, this will not
affect the right of removal by the possessor in good faith. But the latter will
pay for these repairs as he benefits from the removal.

Study Examples of Necessary and Useful expenses and cases in the annotated books
by Paras and Tolentino.



THE LEGAL EFFECTS OF GOOD FAITH or BAD FAITH
of POSSESSOR IN THE CONCEPT OF OWNER:

iv. AS TO ORNAMENTAL EXPENSES (Article 548)

Art. 548. Expenses for pure luxury or mere pleasure shall not be refunded to
the possessor in GOOD FAITH; but he may remove the ornaments with
which he has embellished the principal thing if it suffers no injury thereby,
and if his successor in the possession does not prefer to refund the amount
expended.

Art. 549. 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 expenses mentioned in paragraph 1 of article 546
and in article 443. The expenses incurred in improvements for pure luxury
or mere pleasure 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.


Q. What are LUXURY or ORNAMENTAL Expenses?

A. Those that add value to the thing only for certain determinate persons due to
their particular whims; but these expenses are -
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Not essential for preservation of the thing
Not useful to everybody in general

Examples: mural paintings on the wall, sculpture & fountain in garden,

Q. What are the rights of a Possessor in the Concept of an Owner who is in GOOD
FAITH, as to LUXURY or ORNAMENTAL Expenses if his possession is later defeated by
the true owner/possessor ?

A. As to LUXURY or ORNAMENTAL Expenses, PCO in GOOD FAITH, is Entitled to
these RIGHTS in Art. 548:

1) The possessor in good faith is NOT entitled to a refund for ornamental expenses.
2) But the possessor in GOOD FAITH may remove the luxury/ornamental
improvements. However, he can have this right, only if:
a. Removal can be done without injury to the principal thing, and;
b. The lawful possessor/owner does not prefer to retain the ornamental
improvements by REFUNDING the AMOUNT SPENT for the luxury or ornamental
objects. (Art. 548)

Q. What are the rights of a Possessor who is in BAD FAITH, as to LUXURY or
ORNAMENTAL Expenses?

A. (1) The possessor in BAD FAITH is NOT entitled to a refund of ornamental
expenses.
(2) But the possessor in bad faith may remove the luxury/ornamental
improvements. However, he can have this right, only if:
a. Removal can be done without injury to the principal thing, and;
b. The lawful possessor/owner does not prefer to retain the ornamental
improvements by PAYING the VALUE thereof AT THE TIME HE ENTERS INTO
POSSESSION. (Art. 549)
NOTE:
A.) The rights of a possessor in Good Faith and in Bad Faith as to luxury or
ornamental expenses are similar.
B.) The only difference is in the MANNER or HOW REFUND is to be made by the
adjudged lawful possessor/owner for the luxury or ornamental expenses he will
retain. See above.
C.) Justice Paras noted that the lawful possessor will refund LESS to the PCO in BAD
FAITH for DEPRECIATION of the price is supposed to set in by the time he enters
into possession.
Q. What about if the what is to be refunded is an ornamental expense arising
from a former unknown painter who painted a mural and fresco paintings on the
plaster walls and ceiling in the house of the lawful possessor, and was paid only
P10,000 for the entire work. But later, by the time the lawful possessor recovered
and entered into possession of the property, the mural and fresco paintings are
now valued at P500,000 because the painter is now a celebrated and award
winning artist?


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Possible Legal Resolution:
1. No Refund be given to possessor in Bad Faith. In Arts. 548 & 549: possessor in
BAD FAITH, may remove the objects for which such expenses have been incurred,
provided that the thing suffers no injury thereby. Since the losing possessor cannot
remove them without substantial injury or damage being done to the wall and ceiling,
he cannot remove them at all. Neither will he be entitled to a refund. The possessor in
bad faith must suffer the loss. This will serve as a penalty for his bad faith.
OR:
2. The law intends to penalize a Possessor in Bad Faith. On the other hand, there
is also the equitable principle that no one shall be unjustly enriched at the
expense of another. In this case, possessor in bad faith may be refunded by
the lawful possessor for the amount spent at the time they were painted to
avoid violating the principle of unjust enrichment.

THE LEGAL EFFECTS OF GOOD FAITH or BAD FAITH
of POSSESSOR IN THE CONCEPT OF OWNER (PCO):

v. AS TO LIABILITY FOR DETERIORATION OR LOSS (Article 552, par. 1)

Art. 552. A possessor in good faith shall not be liable for the deterioration
or loss of the thing possessed, except in cases in which it is proved that he
has acted with fraudulent intent or negligence, after the judicial summons.

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

Q. What is the LIABILITY of a PCO in GOOD FAITH for any Loss or Deterioration of
the thing possessed, subject of the case?
A. The possessor in Good faith is not liable since he thought that he was the owner
of the thing he possessed.
But, once the good faith ceases (i.e. after judicial summons), then the possessor
can be liable if it is shown he acted with fraudulent intent, or negligence.

Example:
1.) Good Faith Before Judicial Summons: A slept during a brown-out and left the lighted
candles near the open curtained window. The house burned as a result. The day after, he
received judicial summons from B who filed a recovery case against him.
A is NOT liable in this case as he was in good faith and thought himself owner of the house
when the loss occurred.

2.) After Judicial Summons: Same facts above. A may be liable if it is shown that he was negligent
in leaving the lighted candles near the open curtained windows.

Q. What is the LIABILITY of a PCO in BAD FAITH for any Loss or Deterioration of the
thing possessed, subject of the case?
A. The possessor in Bad faith is LIABLE, for any Loss or Deterioration of the thing
possessed, IN EVERY CASE: i. whether it occurs Before or After judicial summons,
and; ii. even if the loss or deterioration is caused by fortuitous event or force
majeure.
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EFFECTS, RIGHTS & BENEFITS GIVEN BY LAW
TO PERSON WHO RECOVERS POSSESSION:

(1) Art. 551. Improvements caused by NATURE or TIME shall always
inure to the benefit of the person who has succeeded in recovering
possession.

No need to reimburse former possessor in good faith as the Improvements
caused by Nature (example: alluvium), or Time (example: increase in value of
property, improved flavor of wine, food), is given by law to the owner or
legitimate possessor who recovers.

(2) Art. 553. One who recovers possession shall not be obliged to pay for
improvements which have ceased to exist at the time he takes
possession of the thing.

Reason: There is none to be enjoyed by person who recovers possession.


(3) Art. 554. A present possessor who shows his possession at some
previous time, is presumed to have held possession also during the
intermediate period, in the absence of proof to the contrary.

Art. 561. One who recovers, according to law, possession unjustly
lost, shall be deemed for all purposes which may redound to his
benefit, to have enjoyed it without interruption.

The legal presumption of NON-INTERRUPTION OF POSSESSION which
redounds to the benefit of the lawful possessor is useful for acquisitive
prescription purposes.

Example: PCO X possessed in good faith for 9 years in May 2001, an untitled Alluvium.
Stranger Y, took possession of the same land by force and intimidation in June 2001.
PCO X legally recovered the land in May 2002.
Z, is the successor to the riparian owner A, whose land the alluvium has
attached. Sometime, July 2002, Z filed a recovery action vs. X. Resolve the case.

a.) When PCO X recovered the land from Y in May 2002, he is deemed to have
possessed the land for 10 years already, despite the unlawful interruption
of possession by Y. See and Apply - Arts. 554, 561 and 537.

b.) Thus, Z will lose the recovery action vs. PCO X, who is now deemed to
have acquired the alluvium thru acquisitive prescription of 10 years
possession in good faith.