Bachrach Motor Co V.

Lacson Ledesma

FACTS:
*June 30, 1927: CFI favored Bachrach Motor Co., Inc (Bachrach)
against Mariano Lacson Ledesma EQUATORIAL REALTY V. MAYFAIR

*Ledesma mortgaged to the Philippine National Bank (PNB) Talisay-Silay
Milling Co., Inc shares
*September 29, 1928: PNB brought an action against Ledesma and his
wife Concepcion Diaz for the recovery of a mortgage credit
FACTS: Petitioner Carmelo and Bauermann Inc. leased its parcel of land
with 2-storey building to respondent Mayfair Theater Inc.
They entered a contract which provides that if the LESSOR should desire
to sell the leased premises, the LESSEE shall be given 30-days exclusive
option to purchase the same.

*January 2, 1929: PNB amended its complaint by including the Bachrach
Motor Co., Inc., as party defendant because they claim to have rights to
some of the subject matters of this complaint
*January 30, 1929: Bachrach field a gen. denial
Carmelo informed Mayfair that it will sell the property to
Equatorial. Mayfair made known its interest to buy the property but only to
the extent of the leased premises.
Notwithstanding Mayfair’s intention, Carmelo sold the property to
Equatorial.

*CFI: favored PNB ISSUE: WON the sale of the property to Equatorial is valid.

*December 20, 1929: Bachrach brought an action in the CFI against the
Talisay-Silay Milling Co., Inc., to recover P13,850 against the bonus or
dividend w/c, by virtue of the resolution of December 22, 1923, Central
Talisay-Silay Milling Co., Inc., had declared in favor of Ledesma as one of
the owners of the hacienda which had been mortgaged to the PNB to
secure the obligation of the Talisay-Silay Milling Co., Inc. in favor of said
bank
*CFI: favored Bachrach
HELD: The sale of the property should be rescinded because Mayfair has
the right of first refusal. Both Equatorial and Carmelo are in bad faith
because they knew of the stipulation in the contract regarding the right of
first refusal.
The stipulation is a not an option contract but a right of first refusal and as
such the requirement of a separate consideration for the option, has no
applicability in the instant case. The consideration is built in the reciprocal
obligation of the parties.

ISSUE: W/N shares of stock are personal property and therefore can be
subject to pledge or chattel mortgage
HELD: YES. AFIRMED
*Section 4 of the Chattel Mortgage Law, in so far as it provides that a
chattel mortgage shall not be valid against any person except the
mortgagor, his executors or administrators, unless the possession of the
property is delivered to and retained by the mortgagee or unless the
mortgage is recorded in the office of the register of deeds of the province
in which the mortgagor resides.
In reciprocal contract, the obligation or promise of each party is the
consideration for that of the other. (Promise to lease in return of the right
to first refusal)
With regard to the impossibility of performance, only Carmelo can be
blamed for not including the entire property in the right of first refusal.
Court held that Mayfair may not have the option to buy the property. Not
only the leased area but the entire property.

*Pledge of the 6,300 stock dividends is valid against

the Bachrach because the certificate was delivered to the creditor bank,
notwithstanding the fact that the contract does not appear in a public
instrument

*Certificates of stock or of stock dividends, under the Corporation Law, are

quasi negotiable instruments in the sense that they may be given in
pledge or mortgage to secure an obligation

*Certificates of stock, while not negotiable in the sense of the law

merchant, like bills and notes, are so framed and dealt with as to be
transferable, when property endorsed, by mere delivery, and as they
frequently convey, by estoppel against the corporation or against prior
holders, as good a title to the transferee as if they were negotiable, and
inasmuch as a large commercial use is made of such certificates as
collateral security, and it is to the public interest that such use should be
simplify and facilitated by placing them as nearly as possible on the plane
of commercial paper, they are often spoken of and treated as quasi
negotiable, that is as having some of the attributes and partaking of the
character of negotiable instruments, in passing from hand to hand,
especially where they are accompanied by an assignment and power of
attorney, executed in blank, to transfer them to anyone who may obtain
possession as holders, even though such assignment and power are
under seal.
DACLISON v. BAYTION
It cannot be considered as an improvement or accession.
FACTS: Baytion filed a complaint for Forcible Entry and Damages with
Prayer for Issuance of Preliminary Mandatory IInjunction with the MeTC of Civil Code provides:
Quexon city against Daclison. Baytion was co-owner and administrator of
a parcel of land he and his siblings inherited from his parents. This 1,500 Art. 445. Whatever is built, planted or sown on the land of
SqM land was covered by TCT No. 221507. On said land was a one- another and the improvements or repairs made thereon, belong
storey building divided into seven stalls. One of these stalls was leased to to the owner of the land, subject to the provisions of the
Leonida, whose lease expired sometime in May 2008. Daclison took following articles.
possession of the Leonida’s portion without prior knowledge and consent
of Baytion, and used it for his business of selling marble and other Improvements must be made, constructed, or introduced WITHIN OR ON
finishing materials. Upon learning of the unauthorized entry, Baytion THE PROPERTY
demanded that Daclison vacate the property.
BAYTION IS NOT THE OWNER OF THE CONTESTED PORTION; HE
Daclison contends that Baytion leased the subject portion in 1978 to DOES NOT HAVE A BETTER RIGHT TO POSSESSS THE SAME. He
Antonio dela Cruz for his business. 15 yrs later, a RIPRAP was erected at does not have any cause of action to eject Daclison.
the creek lying beside Baytion’s property, leaving a deep down-sloping
area, which Antonio filled until it was levelled with the leased portion. He
then paid for the right to possess the same. In 2000, Leonida took over his
business; she suffered a stroke in December 2007 and after her death,
Ernanie dela Cruz and Daclison took over the business in 2008. Daclison
took over the management of their business venture. Baytion demanded
that he vacate the premises. Baytion and Ernanie agreed that ernanie
would continue the lease, and as such, he issued a check in the amount of
P100,000 s payment for rental arrears. Baytion returned the check 2
weeks after and demanded that they vacate the property. Baytion also
promised not to bother them anymore if thy transferred to the filled-up,
plane-levelled property. As such, Daclison and ernanie vacated the leased
area and transferred to the area in question.
The MeTC dismissed the case(without prejudice) on the ground that
Baytion failed to include his siblings/co-owners as plaintiffs in the case.
On appeal to the RTC, RTC ruled that MeTC did not have jurisdiction as
the allegations in the complaint failed to constitute a case of forcible entry;
RTC did not dismiss the case but exercised its original jurisdiction. It held
that Baytion had a better right of possession over the property. Daclison
appealed to the CA.

CA ruled that MeTC had no jurisdiction to hear and decide the case in a
summary proceeding for forcible entry because Baytion failed to allege
that he was in prior physical possession of the property and that he was
deprived of his possession under Section 1, Rule 70 of the Revised Rules
of Court. It was of the view that the present action for forcible entry had
actually ripened into one for recovery of the right to possess or accion
publiciana. It also held that Baytion had a better right to possess as co-
owner of the said property.

Daclison contends that the filled-up portion is not an improvement on the

leased property; it is separate and distinct from the leased property.

Baytion contends that the disputed portion is outside of the property under
TCT 221507, it forms an integral part as it is an accretion, construction or
improvement on the property, and thus under the law, any accretion or
anything built thereon belongs to him and his co-owners.

ISSUE: Who between the parties has a better right over the contested
portion of the land co-owned by Baytion and the constructed riprap

HELD: Baytion's contention that he owns that portion by reason of

accretion is misplaced. Article 457 of the New Civil Code provides:

To the owners of lands adjoining the banks of rivers belongs

the accretion which they gradually receive from the effects of
the current of the waters.
In other words, the following requisites must concur in order
for an accretion to be considered, namely:

1.that the deposit be gradual and imperceptible;

2. that it be made through the effects of the current of the
water; and,
3.that the land where accretion takes place is adjacent to the
banks of rivers

Baytion does not have a better right over the contested portion; it is not an
accretion as the deposits were artificial and man-made
Land Bank of the Philippines v. Perez
Art. 445. Whatever is built, planted or sown on the land of another and the
improvements or repairs made thereon, belong to the owner of the land,
subject to the provisions of the following articles. (358)
FACTS: Petitioner Land Bank of the Philippines (LBP) is a government
financial institution and the official depository of the Philippines.
Respondents were officers of Asian Construction and Development
Corporation (ACDC), a corporation engaged in the construction business.
On several occasions, respondents executed in favor of Land Bank of the
Philippines (LBP) trust receipts to secure the purchase of construction
materials that they will need in their construction projects. When the trust
receipts matured, ACDC failed to return to LBP the proceeds of the
construction projects or the construction materials subject of the trust
receipts. After several demands went unheeded, LBP filed a complaint for
Estafa or violation of Art. 315, par. 1(b) of the RPC, in relation to PD 115,
against the respondent officers of ACDC.
Even if we consider the vague possibility that the materials, consisting of
cement, bolts and reinforcing steel bars, would be used for the
construction of a movable property, the ownership of these properties
would still pertain to the government and not remain with the bank as they
would be classified as property of the public domain, which is defined by
the Civil Code as:
In contrast with the present situation, it is fundamental in a trust receipt
transaction that the person who advanced payment for the merchandise
becomes the absolute owner of said merchandise and continues as owner
until he or she is paid in full, or if the goods had already been sold, the
proceeds should be turned over to him or to her.

ISSUE: WON the disputed transactions is a trust receipt or a loan?

HELD: TRUST RECEIPT – There are two obligations in a trust receipt

transaction. The first is covered by the provision that refers to money
under the obligation to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision referring to
merchandise received under the obligation to return it (devolvera) to the
owner. Thus, under the Trust Receipts Law,] intent to defraud is presumed
when (1) the entrustee fails to turn over the proceeds of the sale of goods
covered by the trust receipt to the entruster; or (2) when the entrustee fails
to return the goods under trust, if they are not disposed of in accordance
with the terms of the trust receipts.
In all trust receipt transactions, both obligations on the part of the trustee
exist in the alternative the return of the proceeds of the sale or the return
or recovery of the goods, whether raw or processed. When both parties
enter into an agreement knowing that the return of the goods subject of
the trust receipt is not possible even without any fault on the part of the
trustee, it is not a trust receipt transaction penalized under Section 13 of
P.D. 115; the only obligation actually agreed upon by the parties would be
the return of the proceeds of the sale transaction. This transaction
becomes a mere loan, where the borrower is obligated to pay the bank the
amount spent for the purchase of the goods.
Article 1371 of the Civil Code provides that [i]n order to judge the intention
of the contracting parties, their contemporaneous and subsequent acts
shall be principally considered. Under this provision, we can examine the
contemporaneous actions of the parties rather than rely purely on the trust
receipts that they signed in order to understand the transaction through
their intent.
We note in this regard that at the onset of these transactions, LBP knew
that ACDC was in the construction business and that the materials that it
sought to buy under the letters of credit were to be used for the following
projects: the Metro Rail Transit Project and the Clark Centennial
Exposition Project. LBP had in fact authorized the delivery of the materials
on the construction sites for these projects, as seen in the letters of credit
it attached to its complaint. Clearly, they were aware of the fact that there
was no way they could recover the buildings or constructions for which the
materials subject of the alleged trust receipts had been used. Notably,
despite the allegations in the affidavit-complaint wherein LBP sought the
return of the construction materials, its demand letter dated May 4, 1999
sought the payment of the balance but failed to ask, as an alternative, for
the return of the construction materials or the buildings where these
materials had been used.
Ignacio vs Hilario
FACTS: Sometime during the 1940s in Pangasinan, a civil suit arose
between Damian Ignacio and Elias Hilario. Hilario was the owner of a parcel
of land. He later discovered that Ignacio built some buildings therein (a
granary and a house). After trial, Judge Antonio Felix of the Court of First
Instance of Pangasinan ruled that both were in good faith (Hilario was the
owner in good faith while Ignacio was the builder in good faith).
Judge Felix then spelled out the rights of the parties to wit:
a.) Ignacio can retain possession over the buildings he erected until after he
is paid by Hilario for the value of the buildings he erected;
b.) Hilario can choose to buy the said buildings or he can choose to sell
Ignacio his land since the value of his land was only P45.00 while the value
of the buildings erected was P2,000.00.
However, Hilario refused to avail of his options. Instead, he filed a motion in
court to have Ignacio be ejected and have them destroy the buildings he
erected. Judge Felipe Natividad (he replaced Judge Felix), granted Hilario’s
motion.
ISSUE: Whether or not Hilario, the owner in good faith, may eject a builder
in good faith without choosing either to appropriate the building for himself
after payment of its value or to sell his land to the builder in good faith.
HELD: No. The owner in good faith has to make a choice. He cannot
dispense the options under the law and then eject the builder in good faith.
This is because both are in good faith.
But when can the owner in good faith compel the builder in good faith
to remove the building he erected?
This is only available if after the owner in good faith chose to sell his land to
the builder in good faith and the latter fails to pay the value of the land within
the agree period. Only then can the owner in good faith compel the builder
in good faith to remove the building he erected.

The fact that LBP had knowingly authorized the delivery of construction
materials to a construction site of two government projects, as well as
unspecified construction sites, repudiates the idea that LBP intended to be
the owner of those construction materials. As a government financial
institution, LBP should have been aware that the materials were to be
used for the construction of an immovable property, as well as a property
of the public domain. As an immovable property, the ownership of
whatever was constructed with those materials would presumably belong
to the owner of the land, under Article 445 of the Civil Code.
Ignacio vs Intermediate Appellate Court
Facts: Florencio Ignao and his Uncles, Juan and Isidro Ignao, were co
owners of a parcel of land. Petitioner filed an action for partition the party.
On July 27, 1978, Floriencio filed a complaint to recover real property
against Juan and Isidro claiming that the houses the latter constructed were
in excess to their portion of the property according to the judicial partition.
The court ruled that even if the buses encroached upon the property of
Florencio, the respondents are building in good faith. Therefore, Article 448
of the Civil Code awards the petitioner two options (ie. appropriate the
portion of the house on his land, or sell the portion of the land to the
respondents). However, the court found that the first option would be near
worthless in the present case and ordered the sale of the land. The CA
affirmed.
Issue: Whether or not Article 448 of the Civil Code is applicable.
Art. 448. The owner of the land on which anything has been built, sown or
planted in good faith, shall have the right to appropriate as his own the
works, sowing or planting, after payment of the indemnity provided for in
Articles 546 and 548, or to oblige the one who built or planted to pay the
price of the land, and the one who sowed, the proper rent. However, the
builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall
pay reasonable rent, if the owner of the land does not choose to appropriate
the building or trees after proper indemnity. The parties shall agree upon
the terms of the lease and in case of disagreement, the court shall fix the
terms thereof. (361a)
Decision: The court ruled that Article 448 applies because it pertains to
builders in good faith. Although said article do not apply to co-owners of a
land over which a co-owner constructed a building, co-ownership was
already terminated by the partition of the land. Where it appears that the
house build by a co-owner encroaches upon the portion of another, he is a
builder in good faith and Article 448 applies. The decision of the court which
deprives the landowner the option to chose those provided by the said
provision is null and void as it contravenes the law.
FILIPINAS COLLEGES INC. vs. MARIA GARCIA TIMBANG, ET AL.
FACTS: This is an appeal taken from an order of the Court of First Instance
of Manila dated May 10, 1957 (a) declaring the Sheriff’s certificate of sale
covering a school building sold at public auction null and void unless within
15 days from notice of said order the successful bidders, defendants-
appellantsspouses Maria Garcia Timbang and Marcelino Timbang, shall
pay to, appellee Maria Gervacio Blas directly or through the Sheriff of Manila
the sum of P5,750.00 that the spouses Timbang had bid for the building at
the Sheriff's sale; (b) declaring the other appellee Filipinas Colleges, Inc.
owner of 24,500/3,285,934 undivided interest in Lot No. 2-a covered by
certificate of tile No 45970, on which the building sold in the auction sale is
situated; and© ordering the sale in public auction of the said undivided
interest of the Filipinas Colleges, Inc., in lot No. 2-a aforementioned to
satisfy the unpaid portion of the judgment in favor of appellee Blas and
against Filipinas Colleges, Inc. in the amount of P8,200.00 minus the sum
of P5,750.00mentioned in (a) above. The order appealed from is the result
of three motions filed in the court a quo in the course of the execution of a
final judgment of the Court of Appeals rendered in 2 cases appealed to it in
which the spouses Timbang, the Filipinas Colleges, Inc., and Maria
Gervacio Blaswere the parties. The Timbang spouses presented their
opposition to each and all of this motion. In assailing the order of the court
a quo directing the appellants to pay appellee Blas the amount of their bid
(P5,750.00) made at the public auction, appellants' counsel has presented
a novel, albeit ingenious, argument. They contend that since the builder in
good faith has failed to pay the price of the land after the owners thereof
exercised their option under Article 448 of the Civil Code, the builder has
lost his right and the appellants as owners of the land automatically became
the owners ipso facto.
ISSUE/S: 1. Whether or not the contention of the appellants is valid. If not,
what are the remedies left to the owner of the land if the builder fails to pay?
2.Whether or not the appellants, as owner of the land, may seek recovery
of the value of their land by a writ of execution; levy the house of the builder
and sell it in public auction.
HOLDING & RATIO DECIDENDI: NO, THE APPELLANTS CONTENTION
IS SUPERFLUOUS.
There is nothing in the language of these two articles, 448 and 546, which
would justify the conclusion of appellants that, upon the failure of the builder
to pay the value of the land, when such is demanded by the land-owner, the
latter becomes automatically the owner of the improvement under Article
445. Although it is true, it was declared therein that in the event of the failure
of the builder to pay the land after the owner thereof has chosen this
alternative, the builder’s right of retention provided in Article 546 is lost,
nevertheless there was nothing said that as a consequence thereof, the
builder loses entirely all rights over his own building. The remedy left to the
parties in such eventuality where the builder fails to pay the value of the
land, though the Code is silent on this Court, a builder in good faith not be
required to pay rentals. He has right to retain the land on which he has built
in good faith until he is reimbursed the expenses incurred by him.
Possibly he might be made to pay rental only when the owner of the land
chooses not to appropriate the improvement and requires the builder in
good faith to pay for the land but that the builder is unwilling or unable to
pay the land, and then they decide to leave things as they are and assume
the relation of lessor and lessee, and should they disagree as to the amount
of rental then they can go to the court to fix that amount.
This was ruled in the case of
Miranda vs. Fadullon, et al., 97 Phil.,801. A further remedy is indicated in
the case of Bernardo vs. Bataclan, supra, where this Court approved the
sale of the land and the improvement in a public auction applying the
proceeds thereof first to the payment of the value of the land and the excess,
if any, to be delivered to the owner of the house in payment thereof.
The second contention was without merit.
In the instant case, the Court of Appeals has already adjudged that appellee
Blas is entitled to the payment of the unpaid balance of the purchase price
of the school building. With respect to the order of the court declaring
appellee Filipinas Colleges, Inc. part owner of the land to the extent of the
value of its personal properties sold at public auction in favor of the
Timbang, this Court likewise finds the same as justified, for such amount
represents, in effect, a partial payment of the value of the land. Failure of
the Timbang spouses to pay to the Sheriff or to Manila Gervacio Blas said
sum of P5,750.00 within fifteen (15) days from notice of the final judgment,
an order of execution shall issue in favor of Maria Gervasio Blas to be levied
upon all properties of the Timbang spouses not exempt from execution for
the satisfaction of the said amount.
Manotok Realty, Inc. vs Hon. Jose Tecson
Facts: Manotok Realty, inc. filed a complaint against Nilo Madlangawa for
the recovery of possession of a parcel of land, but the trial court declared
the latter a building and possessor in good faith.
Petitioner then filed a case for the appropriation of the building as provided
in Article 448 and 546 of the Civil Code. It was argued that since the
judgment became final it is entitled to the execution of the judgment and
delivery of possession over the property. The CFI denied and held that
circumstances intervened, such as the construction of improvements, which
would make the action not legally proper. Appeal was then made to the
Supreme Court. In their comment, the respondent claim that the issue has
already become moot because fire has already gutted the buildings.
Issue: Whether or not the petitioner is entitled to the delivery of the
possession of the property in question.
Decision: The court ruled in the affirmative. When the judgment became
final, it became incumbent upon the court to issue the necessary writ of
execution. The landowner cannot be denied of his right to appropriate the
building because it is an option given to him by law.
Furthermore, the buildings/improvements introduced father the filing of the
complaint cannot be held to be made in good faith. Since the improvements
thereon has been gutted by fire, the basis of the respondent’s right to retain
the premises has already been extinguished. He therefore, has no other
choice but to deliver the property.
Bernardo v. Bataclan
Facts: By a contract of sale executed from Pastor Samonte and others
ownership of a parcel of land of about 90 hectares. To secure possession
of the land from the vendors the said plaintiff, on July 20, 1929, instituted a
civil case. The trial court found for the plaintiff in a decision which was
affirmed by this Supreme Court on appeal (G.R. No. 33017). When plaintiff
entered upon the premises, however, he found the defendant herein,
Catalino Bataclan, who appears to have been authorized by former owners,
as far back as 1922, to clear the land and make improvements thereon. As
Bataclan was not a party in the civil case, plaintiff, on June 11, 1931,
instituted against him a civil case. In this case, plaintiff was declared owner
but the defendant was held to be a possessor in good faith, entitled for
reimbursement in the total sum of P1,642, for work done and improvements
made.
The defendant states that he is a possessor in good faith and that the
amount of P2,212 to which he is entitled has not yet been paid to him.
Therefore, he says, he has a right to retain the land in accordance with the
provisions of article 453 of the Civil Code. In obedience to the decision of
this court in G.R. No. 37319, the plaintiff expressed his desire to require the
defendant to pay for the value of the land. The said defendant could have
become owner of both land and improvements and continued in possession
thereof. But he said he could not pay and the land was sold at public auction
to Toribio Teodoro. When he failed to pay for the land, the defendant herein
lost his right of retention.
Issue: Whether or not there is good faith.
Held: The judgment of the lower court is accordingly modified by eliminating
therefrom the reservation made in favor of the defendant-appellant to
recover from the plaintiff the sum of P2,212. In all the respects, the same is
affirmed, without pronouncement regarding costs. So ordered
The sale at public auction having been asked by the plaintiff himself (p. 22,
bill of exceptions) and the purchase price of P8,000 received by him from
Toribio Teodoro, we find no reason to justify a rapture of the situation thus
created between them, the defendant-appellant not being entitled, after all,
to recover from the plaintiff the sum of P2,212.
HEIRS OF DURANO SR VS UY
Facts: As far back as August 1970, a 128 hectare of land located in the
barrios of Dunga and Cahumayhumayan, Danao City. On December 27,
1973, the late Congressman Ramon Durano Sr. together with his son
Ramon Durano III, and the latter’s wide Elizabeth Hotchkins-Durano,
instituted an action for damages against spouses Angeles Sepulveda Uy
and Emigdio Beng Sing Uy, Spouses Faustino Alatan and Valeriana
Garro, Spouses Rufino Lavador and Aurelia Mata, Silvestre Ramos,
Hermogenes Tito, Teotimo Gonzales, Primitiva Garro, Julian Garro,
Ismael Garro, Bienvido Castro, Glicerio Alcala, Felemon Lavador,
Candelario Lumantao, Garino Quimbo, Justino Tito, Marcelino Gonzales,
Salvador Duyday, Venancia Repaso, Leodegracia Gonzales, Jose dela
Calzada, Restituta Gonzales, and Cosme Ramos before branch XVII of
the then Court of First Instance of Cebu, Danao City.. Herein respondents
are the possessors of the subject parcel of land which they are cultivating,
it was used to be owned by CEPCO who later sold the same to Durano &
Co. On September 15, 1990, Durano & Co sold the disputed property to
petitioner Ramon Durano III, who procured the registration of these lands
in his name under TCT no. T-103 and T-104. The different parts of the
entire land was bulldozed by the petitioner’s company resulting to the
destruction of plants and other products that were placed by the
respondents. Hence, a claim for damages was lodged against herein
petitioner. The respondents presented tax declaration covering the
different areas of the parcel of land that is titled in each of them as proof
that they are entitled for the said damages.
Issue: Whether or not the doctrine of piercing the veil of corporate entity
can be applied in order to make Durano & Co liable for damages.
Held: Yes. The court of appeals applied the well-recognized principle of
piercing the corporate veil, i.e. the law will regard the act of the corporation
as the ac of its individual stockholders, when it is shown that the
corporation was used merely as an alter ego by those persons in the
commission of fraud or other illegal acts.
That the test in determining the applicability of the doctrine of piercing the
veil of corporate fiction is as follows:
1.Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own.
2.Such control must, have been used by the defendant to commit fraud or
wrong, to perpetrate the violation of statutory or other positive legal duty,
on dishonest and unjust acts in contravention of plaintiff’s legal right; and
3.The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of.
The absence of any one of these elements prevents the piercing the
corporate veil. In applying the instrumentality or alter ego doctrine, the
courts are concerned with reality not form, with how the corporation
operated and the individual defendant’s relationship to that operation.
Eden Ballatan and Sps. Betty Martinez and Chong Chy Ling v. CA
Facts: In 1985, Eden Ballatan constructed her house on Lot No. 24 in Araneta
University Village, Malabon. During the construction, she noticed that the
concrete fence & side pathway of the adjoining house of Winston Go encroached
upon the entire length of the eastern side of her property. Her building contractor
informed her that the area of her lot was actually less than that described in the
title.
Ballatan informed Go about the discrepancy and encroachment, but Go claimed
that his house (including its fence and pathway) were built within the parameters
of his father’s lot.
The owner-developer of the subdivision, Araneta Insitute of Agriculture (AIA)
authorized a survey of the land by Engr. Jose N. Quedding. Quedding found that
the lot area of Ballatan was less by a few meters & that of Li Ching Yao (3 lots
away), increased by 2 meters. He declared that he made a verification survey of
the lots belonging to Go in 1983, and found the boundaries to be in order.
However he could not explain the reduction in Ballatan’s area.
Engr. Quedding made another relocation survey upon request of the parties. He
found that Lot 24 lost approx.. 25sqm. on its eastern boundary; that Lot 25 did
not lose nor gain any area; that Lot 26 lost around 3 sqm which were however
gained by Lot 27.
On the basis of this survey, Ballatan made a written demand on Go to remove
& dismantle their improvements on Lot No. 24. Go refused, thus Ballatan brought
the issue before the barangay. Go did not appear.
Ballatan filed a case for recovery of possession before the RTC of Malabon. The
Go’s filed an answer with third-party complaint, impleading Li Ching Yao, AIA &
Engr. Quedding.
The RTC decided in favor of Ballatan, ordering Go to vacate Lot No. 24 and
demolish their improvements and to pay Ballatan actual damages. It also
dismissed the third-party complaint against AIA, Quedding & Li Ching Yao.
On appeal, the CA modified the decision of the RTC. It ordered Li Ching Yao &
Engr. Quedding to pay Ballatan; and Li Ching Yao to pay Go, a reasonable
amount for that portion of the lot which they encroached – the value to be fixed
at the time of taking.
Issues: 1. Is the award of damages proper, despite Go’s failure to specify the
amount prayer for & failure to pay the corresponding additional filing fees
thereon? 2. Given the fact of encroachment on Ballatan’s property, what are her
rights?
Ruling: 1.YES, the award of damages is proper.
The third-party complaint in the instant case arose from the complaint of accion
publiciana of Ballatan against Go, which is a real action. In real actions, the
docket & filing fees are based on the value of property & the amount of damages
claimed.
Where the fees prescribed for the real action have been paid, but the fees of
certain related damages are not, the court, although having jurisdiction over the
real action, may not have acquired jurisdiction over the accompanying claim for
damages. Accordingly, the court may expunge those claims for damages, or
allow (on motion) a reasonable time for amendment of the complaint so as to
allege the precise amount of damages & accept payment of the requisite legal
fees.
In the instant case, the third-party complaint sought the same remedy as the
principal complaint, but added a prayer for attorney’s fees & costs without
specifying their amounts. The additional filing fee on this claim is deemed to
constitute a lien on the judgment award.
2.The erroneous survey by Engr. Quedding triggered the discrepancies. It was
upon said erroneous survey that Go relied upon in constructing his house on
his father’s land. Otherwise stated, Go had no knowledge that they encroached
on Ballatan’s lot. They are deemed builders in good faith.
Li Ching Yao built his house on his lot before any of the other parties did. There
is no evidence, much less, any allegation that Li Ching Yao was aware that when
he built his house he knew that a portion thereof encroached on Go’s adjoining
land. Good faith is always presumed, & upon him who alleges bad faith on the
part of a possessor rests the burden of proof.
Thus, Ballatan as owner of Lot No. 24, may choose to purchase the
improvement made by Go on their land, or sell to Go the subject portion.
If buying the improvement is impractical as it may render Go’s house useless,
then Ballatan may sell to Go that portion of Lot No. 24 on which their
improvement stands. If the Go’s are unwilling or unable to buy the lot, then they
must vacate the land and, until they vacate, they must pay rent to Ballatan.
In the event that Ballatan elects to sell to Go the subject portion of their lot, the
price must be fixed at the prevailaing market value at the time of payment. The
time of taking is determinative of just compensation in expropriation
proceedings; clearly the instant case is not one for expropriation.
Ballatan was ordered to decide within 30 days whether to buy the portion of Go’s
improvement on Lot 24, or to sell to Go the portion of their land on which the
improvement stands. Engr. Quedding was ordered to pay attorney’s fees of
P5,000 to Go.
Fuentes vs. Roca
FACTS: Sabina Tarroza owned a land in Canelar,Zamboanga City and
she sold it to her son, Tarciano T. Roca (Tarciano) under a deed of
absolute sale. Six years later in 1988, Tarciano offered to sell the lot to
petitioners Manuel and Leticia Fuentes (the Fuentes spouses). They met
in the office of Atty. Romulo D. Plagata whom they asked to prepare the
documents of sale and signed an agreement to sell that Atty. Plagata
prepared. It expressly stated that the sale was to take effect in six months.
Within six months, Tarciano was to clear the lot of structures and
occupants and secure the consent of his estranged wife, Rosario Gabriel
Roca (Rosario), to the sale.
Upon Tarciano’s compliance with these conditions, the Fuentes spouses
were to take possession of the lot and pay him an additional pay besides
the downpayment, depending on whether or not he succeeded in
demolishing the house standing on it. If Tarciano was unable to comply with
these conditions, the Fuentes spouses would become owners of the lot
without any further formality and payment.
The parties left their signed agreement with Atty. Plagata who then worked
on the other requirements of the sale. According to the lawyer, he went to
see Rosario in one of his trips to Manila and had her sign an affidavit of
consent. After 6 months, a new title was issued in the name of the spouses
who immediately constructed a building on the lot. Thereafter Tarciano
passed away, followed by his wife Rosario who died nine months
afterwards.
Eight years later in 1997, the children of Tarciano and Rosario, namely,
respondents(collectively, the Rocas), filed an action for annulment of sale
and re-conveyance of the land against the Fuentes spouses before the
RTC.
The Rocas claimed that the sale to the spouses was void since Tarciano’s
wife, Rosario, did not give her consent to it. Her signature on the affidavit of
consent had been forged. They thus prayed that the property be reconveyed
to them upon reimbursement of the price that the Fuentes spouses paid
Tarciano.
The spouses denied the Rocas’ allegations. They presented Atty. Plagata
who testified that he personally saw Rosario sign the affidavit at her
residence. He admitted, however,that he notarized the document in
Zamboanga City four months later. All the same, the Fuentes spouses
pointed out that the claim of forgery was personal to Rosario and she alone
could invoke it. Besides, the four-year prescriptive period for nullifying the
sale on ground of fraud had already lapsed.
ISSUES: 1. Whether Rosario’s signature on the document of consent to
her husband Tarciano’s sale of their conjugal land to the Fuentes spouses
was forged? 2. Whether the Rocas’ action for the declaration of nullity of
that sale to the spouses already prescribed? 3. Whether or not only
Rosario, the wife whose consent was not had, could bring the action to
annul that sale?
HELD: 1. It was forged 2. It did not prescribe 3. The heirs of Rosario may
bring an action to annul the sale.
RATIO: 1. The key issue in this case is whether or not Rosario’s signature
on the document of consent had been forged. For, if the signature were
genuine, the fact that she gave her consent to her husband’s sale of
the conjugal land would render the other issues merely academic. The SC
agreed with the CA that the signature was forged.
While a defective notarization will merely strip the document of its public
character and reduce it to a private instrument, that falsified jurat, taken
together with the marks of forgery in the signature, dooms such document
as proof of Rosario’s consent to the sale of the land. That the Fuentes
spouses honestly relied on the notarized affidavit as proof of Rosario’s
consent does not matter. The sale is still void without an authentic consent.
2. Contrary to the ruling of the Court of Appeals, the law that applies to this
case is the Family Code, not the Civil Code. Although Tarciano and Rosario
got married in 1950, Tarciano sold the conjugal property to the Fuentes
spouses on January 11, 1989, a few months after the Family Code took
effect on August 3, 1988.
When Tarciano married Rosario, the Civil Code put in place the system
of conjugalpartnership of gains on their property relations. While
its Article 165 made Tarciano the sole administrator of
the conjugal partnership, Article 166 prohibited him from selling commonly
owned real property without his wife’s consent. Still, if he sold the same
without his wife’s consent, the sale is merely voidable. Article 173 gave
Rosario the right to have the sale annulled during the marriage within ten
years from the date of the sale. Failing in that, she or her heirs may demand,
after dissolution of the marriage, only the value of the property that Tarciano
fraudulently sold.
But, as already stated, the Family Code took effect on August 3, 1988. Its
Chapter 4 on Conjugal Partnership of Gains expressly superseded Title
VI, Book I of the CivilCode on Property Relations Between Husband and
Wife. Further, the Family Code provisions were also made to apply to
already existing conjugal partnerships without prejudice to vested rights.
Art. 105. x x x The provisions of this Chapter shall also apply
to conjugalpartnerships of gains already established between spouses
before the effectivity of this Code, without prejudice to vested rights
already acquired in accordance with the Civil Code or other laws, as
provided in Article 256.
(n)
In contrast to Article 173 of the Civil Code, Article 124 of the Family Code
does not provide a period within which the wife who gave no consent may
assail her husband’s sale of the real property. It simply provides that without
the other spouse’s written consent or a court order allowing the sale, the
same would be void.
Under the provisions of the Civil Code governing contracts, a void or
inexistent contract has no force and effect from the very beginning. And this
rule applies to contracts that are declared void by positive provision of law,
as in the case of a sale of conjugal property without the other spouse’s
written consent. But, although a void contract has no legal effects even if no
action is taken to set it aside, when any of its terms have been performed,
an action to declare its inexistence is necessary to allow restitution of what
has been given under it. This action, according to Article1410 of
the Civil Code does not prescribe.
Here, the Rocas filed an action against the Fuentes spouses in 1997 for
annulment of sale and re-conveyance of the real property that Tarciano sold
without their mother’s (his wife’s) written consent. The passage of time did
not erode the right to bring such an action.
3. As stated above, that sale was void from the beginning. Consequently,
the land remained the property of Tarciano and Rosario despite that sale.
When the two died, they passed on the ownership of the property to their
heirs.
COMMUNITIES CAGAYAN INC. VS SPOUSES NANOL
Facts: Sometime in 1994, respondent-spouses Arsenio and Angeles Nanol
entered into contract to Sell with petitioner Communities Cagayan, Inc.,
whereby the former agreed to sell to respondent-spouses a house and Lots
17 and 19″ locate Block 16, Camella Homes Subdivision, Cagayan de
Oro City, for the price of P 368,000.00. Respondent-spouses, however,
did not avail of petitioner’s inhouse financing due to its high interest
rates. Instead, they obtained a loan from Capitol Development Bank, a
sister company of petitioner, using the property as collateral. To facilitate
the loan, a simulated sale over the property was executed by petitioner
in favor of respondent-spouses. Accordingly, titles were transferred in the
names of respondent-spouses under Transfer Certificates of Title (TCT)
Nos. 105202 and 105203, and submitted to Capitol Development Bank
for loan processing. Unfortunately, the bank collapsed and closed before
it could release the loan. Thus, on November 30, 1997, respondent-
spouses entered into another Contract to Sell with petitioner over the
same property for the same price of P 368,000.00. This time, respondent-
spouses availed of petitioner’s in-house financing thus, undertaking to
pay the loan over four years, from 1997 to 2001. Sometime in 2000,
respondent Arsenio demolished the original house and constructed a
three-story house allegedly valued at P 3.5 million, more or less.18 In
July 2001, respondent Arsenio died, leaving his wife, herein respondent
Angeles, to pay for the monthly amortizations.
Sarmiento v. Agana, the builders were found to be in good faith despite
their reliance on the consent of another, whom they had mistakenly
believed to be the owner of the land.
In fine, the Court applied Article 448 by construing good faith beyond its
limited definition. We find no reason not to apply the Court’s ruling in
Spouses Macasaet v. Spouses Macasaet in this case. We thus hold
that Article 448 is also applicable to the instant case. First, good faith
is presumed on the part of the respondent-spouses. Second, petitioner
failed to rebut this presumption. Third, no evidence was presented to
show that petitioner opposed or objected to the improvements
introduced by the respondent-spouses. Consequently, we can validly
presume that petitioner consented to the improvements being
constructed. This presumption is bolstered by the fact that as the
subdivision developer, petitioner must have given the respondent-spouses
permits to commence and undertake the construction. Under Article
453 of the Civil Code, “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.”

Issue: Whether or not respondents are considered builders in good faith

entitled to indemnification for necessary and useful expenses and/or to buy
the land under the provisions of the New Civil Code.

Held: Yes. As a general rule, Article 448 on builders in good faith does
not apply where there is a contractual relation between the parties,
such as in the instant case. We went over the records of this case and
we note that the parties failed to attach a copy of the Contract to Sell.
As such, we are constrained to apply Article 448 of the Civil Code, which
provides viz:

ART. 448. The owner of the land on which anything has been built,
sown or planted in good faith, shall have the right to appropriate as his
own the works, sowing or planting, after payment of the indemnity
provided for in Articles 546 and 548, or to oblige the one who built or
planted to pay the price of the land, and the one who sowed, the proper
rent. However, the builder or planter cannot be obliged to buy the land if
its value is considerably more than that of the building or trees. In such
case, he shall pay reasonable rent, if the owner of the land does not
choose to appropriate the building or trees after proper indemnity. The
parties shall agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof.

Article 448 of the Civil Code applies when the builder believes that he
is the owner of the land or that by some title he has the right to build
thereon, or that, at least, he has a claim of title thereto. Concededly,
this is not present in the instant case. The subject property is covered
by a Contract to Sell hence ownership still remains with petitioner being
the seller. Nevertheless, there were already instances where this Court
applied Article 448 even if the builders do not have a claim of title over
the property. Thus:

This Court has ruled that this provision covers only cases in which
the builders, sowers or planters believe themselves to be owners of the
land or, at least, to have a claim of title thereto. It does not apply when
the interest is merely that of a holder, such as a mere tenant, agent or
usufructuary. From these pronouncements, good faith is identified by the
belief that the land is owned; or that – by some title – one has the
right to build, plant, or sow thereon.

However, in some special cases, this Court has used Article 448 by
recognizing good faith beyond this limited definition. Thus, in Del Campo
v. Abesia, this provision was applied to one whose house – despite
having been built at the time he was still co-owner – overlapped with
the land of another. This article was also applied to cases wherein a
builder had constructed improvements with the consent of the owner.
The Court ruled that the law deemed the builder to be in good faith. In