G.R. No. 222482, June 2, 2020,
♦ Decision, J. Reyes Jr., [J]
♦ Concurring Opinion, Leonen, [J]
♦ Separate Concurring Opinion, Caguioa, [J]
♦ Separate Concurring Opinion, Lazaro-Javier, [J]
♦ Separate Concurring Opinion, Zalameda, [J]
[ G.R. No. 222482, June 02, 2020 ]
PRINCESS RACHEL DEVELOPMENT CORPORATION AND BORACAY ENCLAVE CORPORATION, PETITIONERS, V. HILL VIEW MARKETING CORPORATION, STEFANIE DORNAU AND ROBERT DORNAU, RESPONDENTS.
D E C I S I O N
J. REYES, JR., J.:
Assailed in this Petition for Review on Certiorari are the November 28, 2014 Decision1 and the January 15, 2016 Resolution2 of the Court of Appeals-Cebu City (CA) in CA-G.R. C.V. No. 04415 which affirmed with modification the April 30, 2012 Decision3 of the Regional Trial Court, Kalibo, Aklan, Branch 6 (RTC) in Civil Case No. 8237, a case for accion publiciana and damages.
While the RTC and the CA agreed on the fact of encroachment by respondent Hillview Marketing Corporation (Hillview) on petitioners' properties, they differed on their findings as to whether Hillview was a builder in good faith or bad faith.
On January 25, 2008, petitioner Princess Rachel Development Corporation (PRDC) filed a Complaint for Accion Publiciana and Damages with Prayer for Issuance of Writ of Preliminary Injunction against respondents Hillview, Stefanie Dornau (Stefanie) and Robert Dornau (Robert; collectively, respondents). The original complaint was amended to expunge claims for damages representing reasonable rentals in the amount of P3,402,669.00.4 Later on, PRDC's prayer to hold respondents "liable to pay damages in such amount" as may be determined by the RTC was likewise expunged.5
In its Complaint, PRDC alleged that it is the registered and absolute owner of the following parcels of land: Lot 1-B-7-A-1 of the subdivision plan Psd-06-015339, with an area of 10,000 square meters, more or less, covered by Transfer Certificate of Title (TCT) No. T-24348; and Lot 1-B-7-B-1 of subdivision plan Psd-06-015339, with an area of 20,000 sq m, more or less, covered by TCT No. T-24349, both of the Register of Deeds of Kalibo, Aklan.
PRDC has been in physical possession of the said properties as early as May 1996 and has religiously paid the realty taxes thereon. In August 2007, Engineer Lester Madlangbayan (Engr. Madlangbayan) conducted a relocation survey on the properties and it was discovered that Hillview, which owns the adjoining property known as Lot 1-B-7-A-2, has encroached an area of 2,614 sq m, more or less.6 Further, respondents have built condominium units known as the Alargo Residences on the encroached area without PRDC's knowledge and consent. A survey conducted by Engr. Madlangbayan in September 2007 showed an encroachment of 4,685 sq m when he inadvertently included a portion of a property belonging to the Vargas family in the survey.7
PRDC alleged that the construction of the buildings on the encroached area was done in bad faith as the respondents have full knowledge of the territorial boundaries of their respective properties. Consequently, on September 20, 2007, PRDC sent respondents a demand letter requesting them to vacate the subject premises, but the latter ignored it. A subsequent letter to vacate was sent on September 27, 2007, but it was likewise left unheeded.
In their Answer, respondents counter that petitioner did not have prior physical possession over the disputed area. There was no manifestation of PRDC's claim of possession over the area in controversy and there was no noticeable mark or boundary which delineated the adjoining properties. The Alargo Residences project was allegedly constructed within respondents' own land which they bought from Leo Niel Tirol and Dem Tirol (the Tirols). Further, respondents diligently examined the titles and boundaries of the properties, and even obtained an approved survey plan thereof before they started the construction of the Alargo Residences project sometime in 2004.
Respondents also argue that PRDC has no cause of action against Stefanie and Robert because Hillview is imbued with a separate juridical personality, and there was no allegation of any specific wrongful act or omission on the part of Stefanie and Robert. Respondents contend that Hillview is both a buyer and builder in good faith, having bought the land free from any liens or encumbrances, and having constructed structures within the premises of the land which they bought from the Tirols.
The RTC directed the parties to submit their respective survey reports which shall be reviewed and evaluated by the court-appointed Commissioner. In compliance, PRDC submitted the relocation survey report with the attached survey plans, revealing an encroachment of about 2,614 sq m. Respondents, on the other hand, submitted the consolidated sketch plan, but not the relocation survey report. The consolidated sketch plan was a table survey which was made without the surveyor conducting an actual survey on the ground.8
A survey was then scheduled by the court-appointed Commissioner. This survey was sought to be postponed by respondents on various grounds.9 The survey was nevertheless conducted and, thereafter, the Commissioner submitted his Report,10 with the following observations:
When plotted all structures using all references intact in actual ground, it was found out that portion of perimeter of concrete fence constructed by [Hillview] encroached the area claimed by [PRDC]. Area encroached in Lot 1-B-7-B-1 is 383 square meters and 2,400 square meters in Lot 1-B-7-A-1 with a total area of 2,783 square meters.
The land in question is fully developed with 3 conc. houses inside and a swimming pool.11
Respondents opposed the Commissioner's Report and were, thus, instructed by the RTC to submit its own survey on the land. Trial on the merits thereafter ensued.
Among the witnesses presented by PRDC was Engr. Reynaldo Lopez (Engr. Lopez) who testified that he was hired by Hillview to survey Lot 1-B-7-A-2. At the survey, Engr. Lopez discovered an error in the concrete monuments mounted on the boundary limits of Hillview that encroached upon the boundary of PRDC. He informed Stefanie's husband and one of Hillview's owners, Martin Dornau (Martin), of the encroachment, but the latter instructed him to nevertheless proceed with the survey and that he will be responsible for the error.12 Since the adjoining property was vacant, Hillview kept developing the property.
Engr. Lopez further testified that he made an actual survey of the boundaries of Hillview and discovered that the boundary pointed by Hillview is not in accordance with the title. The boundary line agreed upon by the Tirols and the Vargases does not conform to the titles of the lots, and using this boundary line will result in encroachment. Again, Engr. Lopez informed Martin of his findings, but the latter nevertheless instructed him to proceed since the adjoining lot was vacant.13 The lots were then surveyed and all corner monuments were fully monumented, but the geographical position on the ground was altered and not in accordance with the title.14 They then proceeded with the partition and Hillview made improvements thereon.
Engr. Lopez explained that the reason why no encroachment was stated in the subdivision plans of Hillview was because the plans were based on the wrong boundary lines.15 He further explained that he was not allowed by the Vargases to place monuments as the existing concrete monuments were along the boundary of the Tirols and the Vargases. When he surveyed the lot of the Tirols being sold to Hillview, there were monuments that were already planted, but it was not in accordance with the technical description of the land.16 Engr. Lopez stressed that he informed Martin of the foregoing.17
For its part, respondents presented, among others, the testimony of Althea C. Acevedo (Acevedo), the Chief of Technical Services Section of the Department of Environment and Natural Resources (DENR). Acevedo testified that the survey plans were submitted by Engr. Lopez and were approved by the DENR since said survey plans did not overlap with any previous plans. She further testified that the survey plans did not indicate any encroachment. On cross-examination, she confirmed that there can be a situation where no encroachment is indicated in the survey plans, but at actual ground survey there is an encroachment because of the reference point that was used. She testified that in this case, the reference monument was transferred two to three meters and that, accordingly, there is a great possibility of an encroachment.18
The testimony of Atty. Rodolfo B. Pollentes (Atty. Pollentes), a geodetic engineer hired by respondents, was also presented.1aшphi1 He sought to excuse respondents' non-submission of their own relocation survey for lack of reliable reference point within the two properties.19 He also impugns the survey conducted by the court-appointed Commissioner as it was supposedly conducted while the parties' representatives were discussing about the postponement of the survey.20 Atty. Pollentes also represented that since Engr. Lopez refutes his own survey, he should be liable for damages and revocation of license.21
Notably, respondents did not present any geodetic engineer who may have conducted a relocation survey of its own property.
On rebuttal, Engr. Lopez testified that since there was a mistake in the survey plans which he submitted to the DENR, he wrote a letter seeking for the cancellation of said plans.22 Acevedo confirmed receipt of Engr. Lopez's request for cancellation, but stressed that if titles were already issued for the sub-lots, these titles should first be cancelled before the cancellation of the survey plans.23
Meanwhile, PRDC sold its properties to Boracay Enclave Corporation (Boracay Enclave). For this reason, Boracay Enclave was joined as a party to the case.24
The RTC Ruling
In a Decision dated April 30, 2012, the RTC ruled that there was encroachment on the basis of the survey conducted by the court-appointed Commissioner. It found that respondents encroached on about 383 sq m on Lot 1-B-7-B-1 and into about 2,400 sq m in Lot 1-B-7-A-1 of PRDC's properties, or a total of 2,783 sq m.
The RTC noted that the adjoining properties of PRDC and respondents were registered and, as such, encroachment can be determined by checking the metes and bounds of the properties as set forth in the titles. The parties' titles in this case contained no errors in the technical descriptions. To settle the issue of encroachment, the RTC emphasized that it ordered the parties to submit their respective relocation surveys, but respondents failed to comply.25 At any rate, the RTC observed that the fact of encroachment was settled through the actual survey conducted by the court-appointed Commissioner.26
As to the issue of whether or not respondents are builders in bad faith, the RTC took note that PRDC anchored its imputation of bad faith on the testimony of Engr. Lopez. While noting that Engr. Lopez was the one who conducted the survey, discovered the encroachment, caused the survey to be approved, and who later on assailed these surveys as erroneous, the RTC was nevertheless convinced that Engr. Lopez has informed Martin of the encroachment which the latter ignored. The RTC found that respondents deliberately ignored Engr. Lopez's discovery as they were bent on developing the properties. In fact, the RTC noted that at the time of the survey, respondents have a subdivision plan already prepared.27
The RTC also held that respondents' bad faith was further proven by the fact that Martin, despite having knowledge of the encroachment, acquiesced to the use of the wrong boundary line dividing the properties of the Tirols and the Vargases.28 The RTC declared that it was beneficial for the respondents to just maintain the use of the wrong boundary line as there were already established improvements on the premises. The use of the wrong boundary line resulted to the encroachment upon PRDC's adjoining properties.29
Anent respondents' defense that their survey plans were approved and adopted by the DENR, the RTC ruled that such approval does not prove that there was no error in the conduct of the surveys or that respondents did hot consent to the encroachment. The RTC noted that an approved survey may actually later on be corrected or cancelled.30 It likewise noted that Engr. Lopez himself assails the correctness of the surveys he conducted and prepared, thus, there was no reason for respondents to insist on adopting and relying upon such surveys.31
In conclusion, the RTC held that respondents acted in bad faith in introducing improvements on the encroached areas of PRDC's properties, and that, in spite of this, respondents refused to vacate the area despite demand.
Consequently, the RTC ordered respondents, jointly and severally, to vacate and demolish the buildings and improvements in the encroached premises at its own cost, and to return physical possession thereof to PRDC. The RTC also ordered respondents to pay attorney's fees in the amount of P200,000.00 and litigation expenses in the total amount of P3,546,163.20, composed of P143,494.20 as legal fees and P3,402,669.00 as additional filing fees.
The fallo reads:
WHEREFORE, in view of the foregoing premises, this Court hereby rules and so holds that the defendants have encroached into the properties of the plaintiff consisting of 383 sq m in Lot 1-B-7-B-1 covered by TCT No. T-24349 and 2,400 sq m in Lot 1-B-7-A-1 covered by TCT No. T-24348 or a total of 2,783 sq m in the name of plaintiff Princess Rachel Development Corporation and now in the name of Boracay Enclave Corporation. This Court also finds the defendants acting in bad faith in introducing the improvements on the said encroached areas of plaintiff’s properties. By reason of the encroachment by defendant of plaintiff’s properties and having refused to vacate said area despite demand, the plaintiff was forced to file this case and is entitled to recover litigation expenses in the amount of P143,494.20 (Legal Fees form dated January 25, 2008) plus P3,402,669.00 as additional filing fees or a total of P3,546,163.20 and attorney's fee of P200,000.00.
For this reason, the defendants, jointly and severally, are hereby ordered to vacate the said premises and demolish the buildings and improvements made in the encroached premises at its own cost and to return to plaintiff the physical possession of the encroached premises and to pay plaintiff the amount of P3,546,163.20 for litigation/filing fees and P200,000.00 as attorney's fees.
Aggrieved, respondents appealed to the CA on the arguments that the encroachment was not established since the survey conducted by the court-appointed Commissioner was void since the latter did not take an oath before assuming his duties and that, instead, the approved survey plans prepared by Engr. Lopez which do not show any encroachment should be given weight. Respondents also dispute the finding of bad faith as they allegedly built on their own land which they bought from the Tirols. Should there be any finding of encroachment, they argued that it should be Engr. Lopez who must be held accountable because of his professional misconduct.33 Respondents also questioned the RTC's award of attorney's fees and litigation expenses for lack of basis.34
The CA Ruling
In a Decision dated November 28, 2014, the CA affirmed with modification the RTC's ruling.
The CA disregarded respondents' contention as regards the validity of the survey conducted by the court-appointed Commissioner and upheld the RTC's finding that respondents encroached on 2,783 sq m of PRDC's properties.
Nevertheless, the CA declared that Hillview is a builder in good faith.
The CA held that there was no sufficient proof of bad faith because the testimony of Engr. Lopez was inherently weak. As an expert in the field, it was Engr. Lopez's duty to see to it that the subdivision and survey plans he prepared for Hillview were true and accurate. As such, his clients had the right to rely on the survey reports and respondents could not be faulted for doing so. According to the CA, there was no showing that Martin's alleged knowledge of the encroachment was relayed to the respondents.35
The CA further held that the subdivision and survey plans prepared by Engr. Lopez remain valid and subsisting to this date. These were the same plans which respondents relied upon when they caused the construction of Alargo Residences.36
The CA likewise noted that PRDC waited for a considerable time before protecting its rights since the construction of the Alargo Residences began in 2004 while the complaint was filed only in 2007.37
Citing Article 527 of the Civil Code, the CA held that since good faith is presumed and there is no sufficient proof to show that respondents are guilty of bad faith, they should be presumed to have built the properties in good faith.
As builders in good faith, the CA held that the provisions of the Civil Code, specifically, Article 448 (giving the landowner the choice to appropriate the building by payment of indemnity or to pay the price of the land), Article 546 (giving the builder in good faith the right to be indemnified for the necessary and useful expenses) and Article 548 (giving the possessor in good faith the right to remove ornaments without causing injury to the principal thing) should be applied.38
The CA affirmed the RTC's award for attorney's fees and litigation expenses, but deleted the award of P3,402,669.00 as additional filing fees on the ground that PRDC did not pay such amount when they filed the complaint as they in fact deleted the claim for rentals over the encroached property.
Anent the liability of Stefanie and Robert, the CA held that they cannot be held solidarily liable with Hillview which enjoys a separate juridical personality in the absence of proof that said stockholders acted in bad faith.39
Hence, the CA disposed the case in this wise:
WHEREFORE, premises considered, the instant appeal is PARTIALLY GRANTED and the assailed Decision dated April 30, 2012 is AFFIRMED with MODIFICATION. The award of P3,402,669.00 as additional filing fees in favor of plaintiffs-appellees is DELETED. Only defendant-appellant Hillview Marketing Corporation is liable. The case is REMANDED to the Regional Trial Court, Branch 6, Kalibo, Aklan for further proceedings consistent with the proper application of Articles 448, 546 and 548 of the Civil Code, as follows:
1 The trial court shall determine:
a. [T]he present fair price of the plaintiff-appellees' lot encroached upon;
b. [T]he amount of the expenses spent by defendants-appellants for the construction of the buildings situated on plaintiffs-appellees' lot;
c. [T]he increase in value ("plus value") which the said lot may have acquired by reason of the construction; and
d. [W]hether the value of said land is considerably more than that of the improvements built thereon.
2 After said amounts shall have been determined by competent evidence, the Regional Trial Court shall render judgment, as follows:
a. The trial court shall grant the plaintiffs-appellees a period of fifteen (15) days within which to exercise their option under Article 448 of the Civil Code, whether to appropriate the improvements as their own by paying to defendants-appellants either the amount of the expenses spent by them for the building of the improvements, or the increase in value ("plus value") which the said lot may have acquired by reason thereof, or to oblige [the] defendants-appellants to pay the price of the said land. The amounts to be respectively paid by the plaintiffs-appellees and defendants-appellants, in accordance with the option thus exercised by written notice of the other party and to the Court, shall be paid by the obligor within fifteen (15) days from such notice of the option by tendering the amount to the Court in favor of the party entitled to receive it;
b. The trial court shall further order that if the plaintiffs-appellees exercises the option to oblige defendants-appellants to pay the price of the land but if the latter rejects such purchase because, as found by the trial court, the value of the land is considerably more than those of the buildings, defendants-appellants shall give written notice of such rejection to the plaintiffs-appellees and to the Court within fifteen (15) days from notice of the plaintiffs- appellees' option to sell the land.
In that event, the parties shall be given a period of fifteen (15) days from such notice of rejection within which to agree upon the terms of the lease, and give the Court formal written notice of such agreement and its provisos. If no agreement is reached by the parties, the trial court, within fifteen (15) days from and after the termination of the said period fixed for negotiation, shall then fix the terms of the lease, payable within the first five (5) days of each calendar month. The period for the forced lease shall not be more than two (2) years, counted from the finality of the judgment, considering the long period of time since petitioners have occupied the subject area. The rental thus fixed shall be increased by ten percent (10%) for the second year of the forced lease.
Defendants-appellants shall not make any further constructions or improvements on the lot. Upon expiration of the two(2)-year period, or upon default by defendants-appellants in the payment of rentals for two (2) consecutive months, the plaintiffs-appellees shall be entitled to terminate the forced lease, to recover their land, and to have the improvements removed by defendants-appellants at the latter's expense. The rentals herein provided shall be tendered by defendants-appellants to the Court for payment to the plaintiffs-appellees, and such tender shall constitute evidence of whether or not compliance was made within the period fixed by the Court.
c. In any event, defendants-appellants shall pay the plaintiffs-appellees reasonable compensation for the occupancy of plaintiffs-appellees' land for the period counted from the year defendants-appellants occupied the subject area, up to the commencement date of the forced lease referred to in the preceding paragraph;
d. The periods to be fixed by the trial court in its Decision shall be inextendible, and upon failure of the party obliged to tender to the trial court the amount due to the obligee, the party entitled to such payment shall be entitled to an order of execution for the enforcement of payment of the amount due and for compliance with such other acts as may be required by the prestation due the obligee.
PRDC and Boracay Enclave (collectively, petitioners) moved for reconsideration, but the same was denied by the CA in a Resolution dated January 15, 2016. Hence, this petition for review on certiorari raising the following errors:
THE [CA] ERRED IN HOLDING THAT THE TESTIMONY OF ENGR. LOPEZ WAS INHERENTLY WEAK AND WAS INSUFFICIENT TO PROVE BAD FAITH ON THE PART OF THE RESPONDENTS.
THE [CA] ERRED IN HOLDING THAT SINCE THE SUBDIVISION AND SURVEY PLANS PREPARED BY ENGR. LOPEZ REMAINED VALID AND SUBSISTING TO THIS DAY, THE RESPONDENTS WHO JUST RELIED THEREON ARE NOT BUILDERS IN BAD FAITH.
THE [CA] ERRED IN RULING THE RESPONDENTS BUILDERS IN GOOD FAITH BASED ON THE PERCEIVED INACTION OF THE PETITIONERS TO PROTECT THEIR RIGHTS.41
Petitioners argue that Engr. Lopez had personally known about respondents' encroachment on petitioners' properties and he had personally informed Martin, thus, respondents were already aware that the area where they built the Alargo Residences were not theirs; that respondents never refuted the allegations of Engr. Lopez about Martin's prior knowledge of petitioners' ownership of the encroached premises; that respondents did not even bother to present any testimonial evidence to prove their good faith; and that it is the duty of respondents to deny any knowledge on their part about the encroachment and prove that Martin never relayed to them such information.42
In their Comment,43 respondents counter that they have the right to rely on the subdivision and survey plans prepared by Engr. Lopez because these were approved by the DENR-LMS, a government agency tasked to verify the same; that the approved subdivision and survey plans are public documents which carry with it the presumption of regularity and constitute prima facie evidence of the facts stated therein; that Hillview should be considered a builder in good faith because it merely relied on the regular, official and professional execution of Engr. Lopez's duty as a duly licensed geodetic engineer when he surveyed the properties it acquired from the Tirols; and that after being shown the sketch plans, Hillview relied in good faith on Engr. Lopez's technical and professional opinion, and was convinced that the properties sought to be purchased were within the technical boundaries as stated in their titles and did not encroach on the adjoining properties.
In their Reply,44 petitioners contend that the validity of the subdivision plans does not determine whether respondents had knowingly constructed their structures in the properties of petitioners; and that even at the time of the initial surveys of the lots in issue, Engr. Lopez already informed Martin about the encroachment on petitioners' lots, but the same was just dismissed by Martin who then told Engr. Lopez to proceed with the survey of the lot.
The Court's Ruling
There is merit in the petition. There is no dispute as regards the fact of encroachment as this much was settled by the RTC and the CA, which factual finding being amply supported by evidence binds the Court. The controversy lies as to whether Hillview was a builder in good faith or bad faith, as the character of its possession over the encroached portion largely determines the parties' relative rights and obligations.
Hillview is a Builder in Bad Faith
Bad faith contemplates a state of mind affirmatively operating with furtive design or some motive of self-interest or ill will for ulterior purposes.45 To be deemed a builder in good faith, it is essential that a person asserts title to the land on which he builds, i.e., that he be a possessor in the concept of owner, and that he be unaware that there exists in his title or mode of acquisition any flaw which invalidates it.46
The factual circumstances surrounding the instant case lead the Court to inevitably conclude that Hillview was a builder in bad faith.
As competently pointed out by Justice Zalameda and Justice Carandang, the encroachment in this case covers 2,783 sq m. Given that such encroachment is substantial, visible to the naked eye, and not merely negligible, Hillview could not feign ignorance thereof.
Hillview was also actually informed by Engr. Lopez of the intrusion, but nevertheless proceeded with the development. The Court, thus, takes with a grain of salt Hillview's contention that it merely relied on the surveys prepared by Engr. Lopez given the latter's testimony that he discovered the use of the wrong boundary line as early as the time when the property was being sold by the Tirols to Hillview. The use of this wrong boundary line despite the resultant encroachment was nevertheless maintained by Hillview.
Hillview also took advantage of the fact that PRDC's adjoining property was vacant, thus, it proceeded with the construction which remained unhampered as PRDC knew nothing thereof.
Further, at the trial before the RTC, Hillview was given the opportunity to present evidence to dispute the alleged encroachment. However, instead of doing so, Hillview submitted a mere consolidated sketch plan which was accomplished without the surveyor conducting an actual physical survey. Hillview also sought to postpone the survey to be conducted by the court-appointed Commissioner, and when the survey was not postponed, Hillview impugned the same as supposedly having been made clandestinely.
Significantly as well, Hillview is not an ordinary landowner, but a property developer. Hillview is undeniably engaged in large-scale property development projects where it is expected to exercise a higher degree of diligence. More so in this case where there was no noticeable mark or boundary which delineated the adjoining properties. As a large property developer, Hillview ought to have, and which it could have easily dispensed, verified the definite boundaries of the property it sought to improve.
Clearly, these facts when taken together, show that Hillview was not unaware that it possesses the encroached portion improperly or wrongfully.47 Bad faith on the part of Hillview is, thus, evident.
PRDC is a Landowner in Good Faith
As a registered owner, PRDC enjoys the indefeasibility of its titles and, thus, "may rest secure without necessity of waiting in the portals of the court sitting in the 'mirador de su casa' to avoid the possibility of losing his land."48 Thus, PRDC had the right to eject any person illegally occupying its property, and although it may be aware of Hillview's encroachment, PRDC maintains the right to demand the return of its property as registered owner thereof.49
However, in relation to possession, a landowner may be in good faith or may be deemed in bad faith depending on the landowner's knowledge of the fact of encroachment. A landowner is deemed in bad faith when there are circumstances indicating that he had become aware of the encroachment and had chosen not to act on it. In such cases, the owner's failure to act gives rise to laches or estoppel, and bars the registered owner from asserting good faith. Article 453 of the Civil Code provides:
ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith.
It is understood that there is bad faith on the part of the landowner whenever the act was done with his knowledge and without opposition on his part. (Emphasis supplied)
The circumstances of the instant case show that PRDC had become aware of Hillview's encroachment only in 2007 when it decided to conduct a relocation survey on its properties because of the contemplated sale to Boracay Enclave. While the construction of the Alargo Residences commenced in 2004, the fact of encroachment was not known to PRDC at that time considering that it holds office in Quezon City while the properties were in Boracay. From PRDC's discovery of Hillview's encroachment in 2007 as a consequence of the relocation survey, PRDC lost no time in asserting its right and protecting its interest by sending Hillview notices to vacate which unfortunately went unheeded and which eventually lead to the immediate filing of the complaint a quo. Thus, PRDC is a landowner in good faith.
Rights and obligations of the parties
Because of the CA's erroneous conclusion that Hillview was a builder in good faith, the CA likewise erred in applying Articles 448 in relation to Articles 546 and 548 of the Civil Code (possessor's right of reimbursement and retention) as these provisions apply where the builder acted in good faith.
Instead, the following provisions of the Civil Code governing the rights of a landowner in good faith and a builder in bad faith find application in this case:
ART. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right of indemnity.
ART. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of the land, and the sower the proper rent.
ART. 451. In the cases of the two preceding articles, the landowner is entitled to damages from the builder, planter or sower.
ART. 452. The builder, planter or sower in bad faith is entitled to reimbursement for the necessary expenses of preservation of the land.
x x x x
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.
Thus, petitioners have the right to appropriate what has been built on its property, without any obligation to pay indemnity therefor. Due to its bad faith, Hillview forfeits what it has built without any right to be paid indemnity. While necessary expenses shall be refunded to the builder, whether he built the same in good faith or in bad faith, PRDC's properties were in fact not preserved but used, and were consequently damaged, for the construction of Hillview's project. Notably, as well, Hillview did not file a counterclaim for the refund of necessary expenses to which it may have been entitled, if at all.50 Neither does Hillview have the right of retention over the encroached portions as the right of retention is afforded only to a possessor in good faith.
Should petitioners choose not to exercise its right to appropriate the improvements as granted to it under Article 449 of the Civil Code, it may exercise either of its alternative rights under Articles 450 and 451, i.e., (a) to demand the removal or demolition of what has been built at Hillview's expense; or (b) to compel Hillview to pay the price or value of the portions it had encroached upon, whether or not the value of the land is considerably more than the value of the improvements.
These considered, the RTC's order to "demolish the buildings and improvements made in the encroached premises at its own cost" should be modified so as to correctly reflect the foregoing alternative rights given to the landowner.
Award of damages
In addition, Article 451 of the Civil Code grants the landowner the right to recover damages from a builder in bad faith. While Article 451 does not provide the basis for damages, the amount thereof should reasonably correspond with the value of the properties lost or destroyed as a result of the occupation in bad faith, as well as the fruits from those properties that the landowner reasonably expected to obtain.51
While the Court had allowed the award of actual damages representing reasonable compensation or monthly rental for the use and occupation of the landowner's property,52 we find no basis to award actual or compensatory damages in this case considering that PRDC itself deleted its prayer for reasonable rentals and other damages as may be determined by the Court. Article 2199 of the Civil Code also provides that actual damages must be duly proved.53 For these reasons, as well, we find the CA's deletion of the award of P3,402,669.00 to be proper.
Temperate damages could not likewise be awarded since there is no basis for the Court to conclude that PRDC indeed suffered some pecuniary loss and that only the amount thereof cannot be ascertained.54 Nevertheless, since Article 451 of the Civil Code guarantees the award of damages in favor of the landowner and as further punishment for the builder's bad faith, we find it proper to award nominal damages. Nominal damages are awarded in every case where any property right has been invaded. Articles 2221 and 2222 of the Civil Code provide:
ART. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.
ART. 2222. The court may award nominal damages in every obligation arising from any source enumerated in Article 1157, or in every case where any property right has been invaded. (Emphasis supplied)
Since Hillview indubitably violated the property rights of PRDC, the Court finds that nominal damages in the amount of P100,000.00 is warranted under the circumstances.55
Solidary liability of respondents
Finally, petitioners question the CA's reversal of the RTC's finding of respondents' solidary liability on the argument that individual respondents Stefanie and Robert, as stockholders and corporate officers, benefited from the construction of the Alargo Park Residences.56 Petitioners, thus, urge the Court to pierce the veil of corporate fiction.
To hold a corporate officer personally liable for corporate obligations, two requisites must concur: (a) it must be alleged that the officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (b) such unlawful acts, negligence or bad faith must be clearly and convincingly proven.57
Here, apart from its allegation, petitioners have not presented proof that Hillview was a mere alter ego of individual respondents to justify the piercing of the veil of corporate fiction. The question of whether a corporation is a mere alter ego is purely one of fact.58 Thus, before this doctrine can be applied, the parties must have presented evidence for and/or against piercing the veil of corporate fiction. Fundamental is the rule that bare allegations, unsubstantiated by evidence, are not equivalent to proof.59
Failing in its burden to prove by clear and convincing evidence that individual respondents Stefanie and Robert assented to Hillview's unlawful acts or are guilty of gross negligence or bad faith, petitioners cannot hold said individual respondents personally and solidarily liable with Hillview's corporate liabilities. As such, we find no reason to reverse the CA's finding on this score.
WHEREFORE, the petition is PARTLY GRANTED.
The November 28, 2014 Decision and the January 15, 2016 Resolution of the Court of Appeals in CA-G.R. C.V. No. 04415 are REVERSED insofar as it found Hillview Marketing Corporation to be a builder in good faith and insofar as it applied the provisions of Articles 448, 546, and 548 of the Civil Code in determining the rights and obligations of the parties.
Accordingly, the April 30, 2012 Decision of the Regional Trial Court, Kalibo, Aklan, Branch 6 in Civil Case No. 8237 is REINSTATED insofar as it:
1. Found respondent Hillview Marketing Corporation to have encroached on 383 sq m of Lot 1-B-7-B-1 covered by TCT No. T-24349 and 2,400 sq m of Lot 1-B-7-A-1 covered by TCT No. T-24348 registered in the name of petitioner Princess Rachel Development Corporation, and to have acted in bad faith in introducing improvements thereon;
2. Ordered Hillview Marketing Corporation to vacate the encroached portions and surrender possession thereof to petitioners; and
3. Awarded litigation expenses in the amount of P143,494.20 and attorney's fees in the amount of P200,000.00.
The case is REMANDED to the Regional Trial Court for further proceedings for the proper application of Articles 449, 450, and 451 of the Civil Code. The trial court shall grant petitioners a reasonable period within which to exercise its option either to:
1. Appropriate what has been built without any obligation to pay indemnity therefor, or
2. Demand that Hillview Marketing Corporation remove what it had built, or
3. Compel Hillview Marketing Corporation to pay the value of the land.
In any case, Hillview Marketing Corporation is further ORDERED to pay nominal damages in the amount of P100,000.00.
The Decision and the Resolution of the Court of Appeals are AFFIRMED insofar as it absolved individual respondents Stefanie Dornau and Robert Dornau of solidary liability with Hillview Marketing Corporation, and deleted the award of additional filing fees in the amount of P3,546,163.20.
Peralta, C.J., Perlas-Bernabe, Gesmundo, Hernando, Carandang, Inting, Lopez, and Gaerlan, JJ., concur.
Leonen, Caguioa, Lazaro-Javier, and Zalameda, JJ., see separate concurring opinions.
Delos Santos,* J., on leave and no part.
NOTICE OF JUDGMENT
Please take notice that on June 2, 2020 a Decision, copy attached herewith, was rendered by the Supreme Court in the above-entitled case, the original of which was received by this Office on October 2, 2020 at 3:50 p.m.
Very truly yours,
(Sgd.) EDGAR O. ARICHETA
Division Clerk of Court
* On leave and no part due to prior participation in the Court of Appeals' Decision.
1 Penned by Associate Justice Marilyn B. Lagura-Yap, with Associate Justices Edgardo L. Delos Santos (now a Member of the Court), and Jhosep Y. Lopez, concurring; rollo, pp. 61-102.
2 Id. at 104-107.
3 Penned by Presiding Judge Jemena L. Abellar Arbis; id. at 136-171.
4 Id. at 15 and 66.
5 Id. at 69.
6 Id. at 12.
7 Id. at 13.
8 Id. at 16.
9 Id. at 17 and 67-68.
10 Id. at 121-122.
11 Id. at 122.
12 Id. at 140.
14 Id. at 141.
15 Id. at 142.
18 Id. at 145.
19 Id. at 146.
21 Id. at 147.
24 Id. at 19.
25 Id. at 150.
26 Id. at 151.
27 Id. at 155.
28 Id. at 160.
29 Id. at 164.
30 Id. at 167.
31 Id. at 170.
32 Id. at 170-171.
33 Id. at 81.
34 Id. at 82.
35 Id. at 92.
36 Id. at 93.
37 Id. at 93-94.
38 Id. at 96.
39 Id. at 97.
40 Id. at 99-102.
41 Id. at 22.
42 Id. at 23-50.
43 Id. at 190-206.
44 Id. at 211-221.
45 See Villanueva v. Sandiganbayan, 295 Phil. 615, 623 (1993).
46 Spouses Espinoza v. Spouses Mayandoc, 812 Phil. 95, 102 (2017).
47 CIVIL CODE, Art. 528.
48 Salao, v. Salao, 162 Phil. 89, 116 (1976).
49 See Arroyo v. Bocago Inland Development Corp., 698 Phil. 626, 636 (2012), citing Labrador v. Spouses Perlas, 641 Phil. 388, 396 (2010).
50 See Beltran v. Valbuena, 53 Phil. 697, 700-701 (1929).
51 Heirs of Durano, Sr. v. Spouses Uy, 398 Phil. 125, 155, (2000).
52 Spouses Aquino v. Spouses Aguilar, 762 Phil. 52, 71 (2015).
53 CIVIL CODE, Art. 2199 provides:
Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages.
54 See Seven Brothers Shipping Corp. v. DMC-Construction Resources, Inc., 748 Phil. 692, 701 (2014).
55 See Pen Development Corporation v. Martinez Leyba, Inc., 816 Phil. 554, 573 (2017).
56 Rollo, p. 45.
57 Zaragoza v. Tan, 847 Phil. 437, 454 2017.
58 Concept Builders, Inc. v. National Labor Relations Commission, 326 Phil. 955, 966 (1996).
59 Domingo v. Robles, 493 Phil. 916, 921 (2005).
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