Builder in Bad Faith: Forfeiture of Improvements Under Philippine Law

Property disputes often arise when one party constructs improvements on land that does not belong to them. Philippine law draws a sharp distinction between a builder in good faith and a builder in bad faith. The consequences for the latter are severe: a builder in bad faith forfeits everything he has built, without any right to indemnity or reimbursement.

This article explains the legal basis for this rule, its practical implications, and why the law imposes such a strict sanction.

Legal Basis Under the Civil Code

The governing provisions are found in the Civil Code of the Philippines, particularly Articles 449 and 450.

Article 449 – Forfeiture Without Indemnity

Article 449 provides:

“He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right to indemnity.”

This provision leaves no room for interpretation. When construction is undertaken with knowledge that the land belongs to another, or despite awareness of defects in one’s claim of ownership, the law imposes an automatic penalty: total loss of the improvements.

Article 450 – Rights of the Landowner

Article 450 further strengthens the position of the lawful landowner:

“The owner of the land on which anything has been built, planted or sown in bad faith may demand the demolition of the work… at the expense of the person who built… or he may compel the builder to pay the price of the land…”

Under this provision, the landowner has several options:

• Demand demolition or removal of the improvements at the builder’s expense;

• Compel the purchase of the land by the builder; or

• Require restoration of the property to its former condition.

The choice belongs exclusively to the landowner.

What Constitutes “Bad Faith”?

In legal contemplation, bad faith is not mere error or negligence.

A builder is deemed in bad faith when he:

• Knows that the land is owned by another;

• Is aware of defects in his title or right of possession; or

• Continues construction despite objections, warnings, or a pending ownership dispute.

Philippine jurisprudence consistently holds that knowledge or conscious disregard of another’s rights is sufficient to establish bad faith.

No Reimbursement, Even for Useful Improvements

Unlike a builder in good faith, who may be entitled to reimbursement under Articles 448 and 546, a builder in bad faith has no right to compensation whatsoever—even if the improvements increased the value of the land.

The law denies:

• Reimbursement for construction costs;

• Compensation for labor or materials; and

• Claims based on equity or unjust enrichment.

The principle is well-settled: equity cannot be invoked to reward wrongdoing.

Jurisprudential Consistency

The Supreme Court has consistently affirmed this doctrine, ruling that:

A builder in bad faith forfeits the improvements without any right to indemnity, and the landowner may appropriate them or demand their removal.

This reflects the judiciary’s firm stance on protecting property rights and discouraging unlawful occupation.

Policy Considerations

The strict treatment of builders in bad faith serves important legal and social objectives:

1. Protection of property ownership, particularly under the Torrens system;

2. Deterrence against land grabbing and opportunistic construction; and

3. Preservation of order and predictability in property relations.

Allowing reimbursement would undermine these objectives and encourage disregard for lawful ownership.

Practical Guidance

Before undertaking any construction, individuals and developers should ensure:

• Clear proof of ownership or lawful authority to build;

• Due diligence on land titles and boundaries; and

• Proper documentation and written consent when building on land owned by another.

Failure to do so may result in total financial loss of the improvements.

Conclusion

Philippine law is unequivocal: a builder in bad faith loses what he has built, without indemnity or reimbursement. This rule underscores the fundamental principle that no one may profit from an act done in bad faith or in violation of another’s property rights.

For landowners and builders alike, understanding this doctrine is essential to avoiding costly and irreversible consequences.

Source: Ziggurat Real Estate

Actions for claiming land ownership and possession

In a recently decided case, the Supreme Court explained the different actions for claiming land ownership and possession.

Lea Victa-Espinosa bought a parcel of land. When she had it surveyed, she discovered that parts of the land were occupied by the spouses Noel and Leny Agullo. Espinosa demanded that the Agullos vacate the portion belonging to her, but they refused.

Espinosa filed a complaint for recovery of possession (but not ownership) with the Regional Trial Court (RTC), asking the court to order the Agullos to vacate the portion of land. The RTC dismissed the complaint, declaring that Espinosa should have filed an action for forcible entry considering that the action was still within the one-year period from her discovery of dispossession.

The RTC denied Espinosa’s motion for reconsideration, notwithstanding her argument that her complaint was not merely to determine who between her and the Agullos had the better right of possession over the property, but one for accion reivindicatoria, since she sought not only to recover ownership but also possession.

The Court of Appeals reversed the RTC decision and agreed that Espinosa’s action was one for accion reivindicatoria, as her claim sought to recover full possession of the property, which is an element of ownership, allowing the case to proceed.

All the way to the Supreme Court

The Supreme Court, however, denied the appeal of the Agullos and allowed the RTC to proceed with the case on different grounds, declaring that the action was not accion reivindicatoria but one of accion publiciana.

The High Court explained that in accion publiciana, the issue is who has the better right to possess the land without necessarily claiming ownership, whereas in accion reivindicatoria, the determination of ownership of the land is essential, with possession granted to the rightful owner.

In the case, Espinosa did not seek a determination of ownership, nor did the Agullos dispute her title of ownership over the land. More importantly, the Supreme Court clarified that accion publiciana could be filed even within the one-year period from dispossession if no force, intimidation, threat, strategy or stealth was used by the possessor—which, in this case, was not alleged. (Sps. Agullo v. Victa-Espinosa, G.R. No. 269921, April 22, 2025)

Understandably, the legal terms ejectment, unlawful detainer and forcible entry, accion publiciana, and accion reivindicatoria may be confusing to non-lawyers.

The following may help clarify any confusion. 

Accion interdictal or summary ejectment proceeding

This type of action may either be an action for Forcible Entry or Unlawful Detainer where both have the objective of recovery of physical or material possession. The action is based on Rule 70 of the Rules of Court and proceedings are summary (expedited) in nature. 

A complaint for Forcible Entry is one where the entry of the party being ejected is illegal from the start whereas, in Unlawful Detainer, the possession was initially lawful but becomes unlawful upon the expiration or termination of the right to possess — such as when a lease agreement has ended. 

Cases for Forcible Entry and Unlawful Detainer are filed with the lower courts (Municipal and Metropolitan Trial Courts) within one year from the unlawful deprivation or entry in the case of Forcible Entry or one year from the last demand in cases for Unlawful Detainer. 

Accion publiciana 

This is an action for recovery of the right to possess.  It is based on Articles 523 to 560 of the Civil Code of the Philippines and it is an ordinary civil proceeding to determine the better right of possession of real property independently of title.

While this type of action is usually filed against third persons, it may also be filed against any co-owner who takes exclusive possession and asserts exclusive ownership of the property.  

In an action by one co-owner against another co-owner, the only purpose of the action is to obtain recognition of the co-ownership. The complaining co-owner cannot seek exclusion of the other from the property because as co-owner he has a right of possession.  (De Vera, et al. v. Manzanero, et al., GR 232437, June 30, 2021)

In the words of the Supreme Court, when possession can no longer be wrested via summary action for ejectment when dispossession has lasted for more than a year, the dispossessed party may still file a complaint for accion publiciana or accion reivindicatoria.

The general rule is accion publiciana is filed when the dispossession has lasted for more than a year. However, when the dispossession does not involve force, intimidation, threat, strategy or stealth, the case may be filed even if the dispossession has lasted for less than one year.

This type of case is filed with the lower courts or the Regional Trial Court, depending on the value of the property) and the action prescribed within 10 years from the time of the dispossession. 

Accion reivindicatoria 

Accion reivindicatoria is an action to recover ownership of a parcel of land and, as an element of this ownership, possession over the land. The party claimant must allege ownership over the parcel of land and seek recovery of its possession. (De Vera, et al. v. Manzanero, et al., GR 232437, June 30, 2021)

This action is based on Articles 428 and 434 of the Civil Code of the Philippines and, like Accion Publiciana, is considered an ordinary civil proceeding. 

The action may be filed with the lower court or the Regional Trial Court, depending on the value of the property and, generally, there is no time limit within which to bring the action except that the adverse party may acquire ownership over the land by virtue of prescription which will then defeat the claimant’s action in accion reivindicatoria. 

Source: Inquirer

Raise the land ownership retention ceiling

Raising the land ownership retention ceiling to at least 25 hectares.

This was pegged at 5 hectares for a married couple tilling the land and 3 hectares for an individual under the Comprehensive Agrarian Reform Law (CARL) of 1988. Note that the low land retention ceiling was intended to break up vast tracts of land under the ownership of a single individual or a family.

Agrarian reform advocates at that time said that this was meant to dismantle the monopoly hold of big landlords over local economies and politics, which had resulted in severe inequality and the exploitation of tenants and agricultural laborers.

So oppressive was the situation then that it led to a number of uprisings in the countryside, led by the communist insurgency. Hence, agrarian reform became an anti-insurgency instrument by successive political administrations.

There was the added argument, provided by liberal economists, that agrarian reform would result in greater productivity. They theorized that if the owners of the land were now the actual cultivators, there would be greater incentive to become efficient. No longer would the tillers have to share their harvests with their landlords.

Fast forward or nearly four decades after the CARL was passed, what were the results?

Undeniably, land ownership became more equitable as the average agricultural land holding is currently just a hectare. Now, one can hardly hear complaints about an evil landlord owning vast tracts of land and exercising the power of life and death over tenants.

As such, the anti-insurgency aim of the reform measure was successful. The communist movement never took over as a political power. Currently, its armed component has almost been decimated even in areas where they used to have effective control.

However, it is in the productivity or efficiency side that agrarian reform fared poorly. Overall, agricultural productivity is stagnant, averaging an annual growth of only 1 percent. It has not been able to keep pace with population growth, which has averaged 1.3-1.5 percent. Expectedly, our agricultural and food imports have kept on increasing.

Not surprisingly, agrarian reform advocates blame the government for this. They argue that the lack of government assistance is the reason why agrarian reform beneficiaries fail to significantly raise their productivity.

The argument is quite egregious. If the law wanted to turn our cultivators into farmer-entrepreneurs, why make them perpetually dependent on government assistance or subsidies to become successful? Isn't it the mark of a successful entrepreneur that of being innovative and resourceful? Don't real entrepreneurs value their independence as they find government regulation stifling to growth?

Unfortunately, one of the unintended consequences of the protracted implementation of the CARL is that it destroyed the middle-class farmers who could have transformed themselves into real agricultural entrepreneurs. The main reason is the low land ownership retention ceiling.

With the fragmentation of farm lands into miniscule sizes, there is no way that an agricultural venture can enjoy economies of scale and earn a decent income. A study by the late and revered friend Dr. Rolando Dy of the University of Asia and the Pacific's Center for Food and Agribusiness revealed that the economically viable land size for most crops is around 25 hectares (smaller for vegetables but larger for sugar).

Raising the land retention ceiling to 25 hectares will undoubtedly attract middle-class individuals to invest in agriculture as they have the means to buy the land, are educated enough to decide on the best agri-ventures to engage in, invest in technology to improve productivity and access greater markets for their products using e-commerce platforms.

It is a stylized fact in economic literature that investment is a function of savings and that growth is a function of investment. There are mainly two sources of investment for the agricultural sector: government and the private sector.

A study by another late colleague, Dr. Ramon Yedra, showed that there was little private sector investment in agriculture over the past three decades. There were hardly any new huge investments by big agribusiness corporations during that period, which coincided with the implementation of the CARL. This accounts for agriculture's stagnation as government resources are not enough to support the needs of various economic sectors.

There is a need to actively attract investments from the private sector, but until we are able to lift the low land ownership retention ceiling, this will remain an elusive goal.

But what about the government's farm clustering and consolidation effort so that economies of scale can be enjoyed by farms owned and operated by the small farmers? I am not too hopeful about it given the rigid and inflexible nature of our bureaucracy. Actually, the idea of farm clustering and consolidation started during the term of former Agriculture secretary William Dar.

After nearly four years since its introduction, nothing much has been attained. In other words, if we rely on the government to implement much-needed structural reforms to achieve an efficient, productive and competitive agricultural sector, it will take ages to happen without the guarantee that one will achieve the desired effect.

Just look at various government infrastructure projects: airports, a subway, reviving our rail system and now the EDSA upgrading. By the time these are completed, they will already be considered obsolete because they no longer meet the needs of their users, who have dramatically grown in size over the period the project was being constructed.

The best course of action is to rely on market forces, but this can only happen if we have the right policy framework that will be conducive for the private sector to participate in the agricultural economy to a greater degree. Absent that understanding from our agricultural policy makers, the sector will continue to be in deep trouble.

Source: Manila Times