Facts

• Petitioner Pleasantville Development Corporation (the principal) was the developer and owner of Pleasantville Subdivision in Bacolod City. C.T. Torres Enterprises, Inc. (CTTEI) (the agent) was its exclusive real estate agent for the sale of subdivision lots.
• Wilson Kee bought Lot 8 on instalment through CTTEI.
• When Kee asked to be shown his lot, CTTEI's employee — its geodetic engineer's assistant — pointed him to Lot 9 instead. (The blunder was the agent's own employee's, not the developer's — so whether it reaches Pleasantville at all depends on the agency, and the buyer had no way of checking the boundaries for himself.)
• Relying on that, Kee took possession of Lot 9, built a residence, a store, an auto repair shop, and other improvements, and fenced it.
• Eldred Jardinico, the true owner of Lot 9 (an innocent third party to the mix-up), later completed payments on his lot and obtained title.
• Upon discovering Kee's occupation and improvements, he demanded that Kee vacate. Efforts to settle failed, and Jardinico sued for ejectment.
• Kee, in turn, impleaded Pleasantville and CTTEI, contending that the mistake was theirs and that he had built in good faith.
• Municipal Trial Court — Kee a builder in bad faith. The Municipal Trial Court found Kee a builder in bad faith.
• Regional Trial Court — reversed on that point, but developer and agent absolved. The Regional Trial Court reversed on that point but absolved Pleasantville and CTTEI.
• Court of Appeals — Kee in good faith; developer and agent solidarily liable. The Court of Appeals held Kee a builder in good faith and ruled Pleasantville and CTTEI solidarily liable to him.

Issue

1. Whether Wilson Kee is a builder in good faith.
2. Whether Pleasantville, as principal, is liable for the negligence of its agent CTTEI.

Ruling

1. Yes — Kee is a builder in good faith, and the rights of the parties are governed by Article 448§ of the Civil Code.
2. Yes. Pleasantville is liable for CTTEI's negligence, that negligence having been committed in the exercise of the functions entrusted to the agent.

Ratio

• Good faith consists in an honest belief in the validity of one's right, ignorance of a superior claim, and absence of intention to overreach another.
• It is presumed, and the burden of proving bad faith lies on the one alleging it.
• Nothing suggested Kee knew he was building on another's land.
• He had done what an ordinarily prudent buyer would do — asked the seller's agent to identify his lot — and was misdirected.
• Article 527 confirms that good faith is always presumed.

• As a builder in good faith on land owned by another, Kee's rights are those under Article 448§: the landowner, Jardinico, has the option either to appropriate the improvements upon payment of indemnity, or to oblige Kee to buy the land — unless its value is considerably more than that of the improvements, in which case Kee pays reasonable rent.

• Pleasantville argued that CTTEI was a separate corporation with its own juridical personality, and that the error was its employee's alone. The Court rejected this.
• CTTEI was Pleasantville's exclusive selling agent, and pointing out the lot to a buyer is squarely among the functions such an agent performs.
• The negligence occurred in the exercise of the very functions entrusted to it§.
• The principal is bound by, and answerable for, the acts of its agent performed within the scope of the agency.
• Pleasantville sold through CTTEI, enjoyed the benefit of that arrangement, and cannot disclaim the burden of the agent's carelessness in carrying it out.

• While affirming liability in principle, the Court adjusted the award, deleting items not adequately proved and declining to hold the parties solidarily liable beyond what the evidence justified.

Doctrine

• Builder in good faith. One who builds on land believing honestly in his right to do so is in good faith; good faith is presumed, and Article 448§ supplies the remedy.
• Principal's liability for the agent's negligence. The principal answers for negligent acts of its agent committed in the exercise of the functions entrusted to it. The agent's separate corporate personality is no shield.
• Reasonable reliance on the agent. A buyer who asks the seller's authorized agent to identify the property, and acts on the answer, is not negligent; the loss falls on the principal who supplied the erroneous information through its agent.