Boyer-Roxas vs. Court of Appeals

A stockholder is not a co-owner of corporate property and acquires no possessory right over specific corporate assets; a corporation’s separate juridical personality shields its property from direct claims by its members unless the veil is pierced for fraud, illegality, injustice, or creditor protection. Further, when a person builds on another’s land with the landowner’s knowledge and without objection, both are deemed in good faith under Article 453 of the Civil Code, and the rights and obligations under Article 448 apply in lieu of an unqualified removal order.

The Heirs of Eugenia V. Roxas incorporated respondent Heirs of Eugenia V. Roxas, Inc. in 1962 to develop inherited agricultural lands. Its Articles of Incorporation were amended in 1971 to permit operation of a resort business. The corporation established Hidden Valley Springs Resort on its registered land in Calauan, Laguna. Petitioners Rebecca Boyer-Roxas and Guillermo Roxas, heirs and stockholders, occupied two houses within the resort—Rebecca in a former staff house, Guillermo in a converted recreation hall—originally with the tolerance of the majority stockholder and de facto manager Eufrocino Roxas. Rebecca also began constructing a third building on the premises using personal funds, again with corporate knowledge and without objection. After Eufrocino Roxas and Rebecca’s husband Eriberto (the general manager) died, disputes over operations erupted, leading the board of directors in 1983 to adopt a resolution ejecting petitioners to facilitate expansion and halt interference.

• Nature of the action: Respondent Heirs of Eugenia V. Roxas, Inc. filed two complaints for recovery of possession (accion publiciana) to eject Rebecca Boyer-Roxas from a residential house near Balugbugan Pool and an unfinished building, and Guillermo Roxas from a residential house near the tennis court, all within Hidden Valley Springs Resort.
• Corporate formation and property: The corporation was incorporated on December 4, 1962, with the primary purpose of developing the properties inherited from Eugenia V. Roxas. The incorporators were family members, with Eufrocino Roxas holding the largest share. The articles were amended in 1971 to allow a resort business. Hidden Valley Springs Resort was established on land covered by TCT No. 32639, registered in the corporation’s name.
• Occupancy of Rebecca Boyer-Roxas: The house near Balugbugan Pool (Exh. “B-1”) was built with corporate funds as a staff house, later used as the residence of Eriberto Roxas (Rebecca’s deceased husband and father of Guillermo). After Eriberto’s death in 1980, Rebecca continued occupying it. She also began constructing a second, unfinished building (Exh. “B-2”) with funds from her and her husband, with the board’s knowledge and without objection.
• Occupancy of Guillermo Roxas: The building near the tennis court (Exh. “B-3”) was built with corporate funds as a recreation hall, later converted into a residence with the knowledge of Eufrocino Roxas and without board objection, using materials left by a film production as payment for room rentals. Guillermo Roxas moved in with his family around 1977 or 1978.
• Management and tolerance: During Eufrocino Roxas’s lifetime, he and Eriberto Roxas managed the corporation with few board meetings. The petitioners’ occupancy was with the blessing of Eufrocino Roxas and was not challenged by the board until after his death.
• Disputes and resolution to eject: After the deaths of Eufrocino and Eriberto Roxas, the petitioners allegedly committed acts that impeded the resort’s operations, leading to administrative complaints and criminal cases. On August 27, 1983, the board of directors adopted Resolution No. 83-12 (Exh. “F”), stating that the petitioners’ houses were constructed or occupied “only on tolerance of the Corporation and without any contract therefor,” and authorizing their ejectment to allow the corporation’s expansion and prevent further interference.
• Demand and barangay conciliation: Demand letters to vacate were sent on September 1, 1983 (Exhs. “D” and “D-1”). Barangay conciliation failed (Exhs. “E” and “E-1”), prompting the filing of the ejectment suits.
• Trial court proceedings: The cases were consolidated. The original presiding judge inhibited himself; they were re-raffled to Branch 37. Petitioners and their counsel Atty. Conrado Manicad repeatedly failed to attend hearings despite personal notice of the orders. The trial court warned in its September 29, 1986 order that failure to appear at the October 22, 1986 hearing would result in the submission of the cases for decision based on the evidence on record. On October 22, 1986, only respondent’s counsel appeared; the court ordered the cases submitted for decision. A late motion for reconsideration was filed and denied.
• RTC decision: The trial court found occupancy was merely by tolerance, petitioners had no right as co-owners, and ordered ejectment with monthly rentals, removal of the unfinished building, and separate monthly compensation for the occupied land.

• Piercing the Corporate Veil / Co-ownership: Petitioners maintained that as heirs and stockholders of the family corporation, they are co-owners of an aliquot part of all corporate properties, including the resort, and thus have a right to possess and occupy the premises. They argued that the corporate veil should be pierced because the corporation was used as a family vehicle, the board and stockholders had impliedly delegated authority to Eufrocino Roxas, and the corporation itself had disregarded corporate formalities.
• Denial of Due Process: Petitioners contended that they were denied their day in court owing to the gross negligence of their former counsel, Atty. Manicad, who failed to attend hearings and file timely a motion for reconsideration, thereby forclosing the presentation of their evidence and resulting in the ex parte submission of the cases.
• Builder in Good Faith: Petitioner Rebecca Boyer-Roxas asserted that she was a builder in good faith as to the unfinished building, because the construction was undertaken with the full knowledge and without objection of the corporation’s board, and that she should not be compelled to remove it; instead, the rules on accession under the Civil Code should apply.

• Separate Corporate Personality: Respondent corporation countered that it is a bona fide corporation with a juridical personality distinct from its stockholders. Title to the land and buildings is in the corporation’s name, and petitioners, as mere stockholders, are not co-owners and have no right to possession of any portion of the corporate property.
• Tolerance Revocable at Will: Respondent argued that petitioners’ occupancy was merely by tolerance, terminable at any time without need for a contract, and that the board of directors properly exercised its authority to withdraw that tolerance and eject them for the corporation’s benefit.
• No Exception to Binding Effect of Counsel’s Negligence: Respondent maintained that petitioners knew of their counsel’s repeated absences and did nothing to replace him or attend the hearings themselves; thus, they were bound by counsel’s omissions and could not claim denial of due process.
• No Builder in Good Faith: Respondent contended that the construction of the unfinished building was undertaken at petitioners’ own risk, and that the order for its removal was proper.

• Denial of Due Process: Whether the petitioners were deprived of due process of law in the trial court because of the gross negligence of their counsel, which resulted in the ex parte submission of the cases for decision.
• Piercing the Corporate Veil / Right to Possession: Whether petitioners, as stockholders of the respondent corporation, are co-owners of the corporate properties, thereby possessing a right to occupy the premises that requires piercing the corporate veil.
• Builder in Good Faith: Whether petitioner Rebecca Boyer-Roxas is a builder in good faith with respect to the unfinished building, such that the provisions of Article 448 of the Civil Code, rather than an order of removal, should govern.

• Denial of Due Process: Due process was not denied. The general rule that a client is bound by the mistakes and negligence of counsel applied. The exception for gross negligence resulting in deprivation of property without due process — as in Legarda v. Court of Appeals and Escudero v. Judge Dulay — was not established. The petitioners themselves received notices of the hearings and the September 29, 1986 order expressly warning that failure to appear on October 22, 1986 would cause submission of the cases for decision. Despite this clear warning, they failed to appear and took no steps to replace their counsel or to attend personally. Their continued retention of Atty. Manicad with full knowledge of his serial lapses precluded a claim of gross negligence.
• Piercing the Corporate Veil / Right to Possession: Petitioners could not claim a right of possession as co-owners. Title over the land and the structures occupied by petitioners is registered in the corporation’s name. A corporation has a separate and distinct juridical personality; its property is owned by the entity, not by the stockholders. A share of stock represents only a right to share in the proceeds upon lawful distribution, not a right to possess any definite corporate asset. The separate personality may be disregarded only where the corporation is used as a cloak for fraud or illegality, to work injustice, to achieve equity, or to protect creditors. None of these circumstances attended. The occupancy was purely by tolerance, terminable at will. The board’s Resolution No. 83-12 was a valid exercise of corporate authority, and Eufrocino Roxas’s previous tolerance did not bind the corporation perpetually in the absence of a board resolution or charter provision granting a permanent right.
• Builder in Good Faith: Petitioner Rebecca Boyer-Roxas was a builder in good faith. The construction of the unfinished building with her own funds was undertaken with the corporation’s knowledge and without any objection from the board. Under Article 453 of the Civil Code, where both the builder and the landowner act in bad faith — the builder building on land she knew was not her own and the landowner knowingly permitting construction — the rights of both are the same as though both had acted in good faith. Consequently, Article 448 governs: the corporation may either appropriate the unfinished building after payment of the indemnity provided in Articles 546 and 548, or oblige the builder to pay the price of the land. If the value of the land is considerably more than that of the building, the builder cannot be obliged to purchase the land and shall instead pay reasonable rent if the owner opts not to appropriate after proper indemnity. The parties shall agree on the terms of the lease, and in case of disagreement, the court shall fix the terms.

• Separate Corporate Personality and Stockholder’s Interest — A corporation possesses a juridical personality separate and distinct from its members. Properties registered in the corporation’s name are owned by the entity. A stockholder is not a co-owner or tenant in common of corporate property; a share of stock only typifies an aliquot part of the corporation’s property or the right to share in its proceeds upon lawful distribution, but does not vest any right to the possession of a definite portion of corporate assets.
• Piercing the Corporate Veil — The fiction of separate corporate personality may be disregarded only when the corporation is used as a cloak or cover for fraud or illegality, to work injustice, to achieve equity, or when necessary for the protection of creditors. Mere family incorporation and informal management practices do not, by themselves, warrant piercing.
• Authority of Corporate Officers — The power of a corporate officer or agent must be derived from the statute, the articles of incorporation, the by-laws, or a delegation of authority from the board of directors, formally expressed or implied from a habit or custom of doing business. The mere tolerance of a majority stockholder without board authorization does not permanently bind the corporation.
• Client Bound by Counsel’s Negligence — A client is generally bound by the mistakes, negligence, or tactical errors of counsel. The exception — where gross negligence results in deprivation of property without due process — applies only when the negligence is so reckless and inexcusable that it effectively denies the client a day in court. A client who is aware of the counsel’s lapses and fails to take corrective action cannot subsequently invoke this exception.
• Builder in Good Faith and Mutual Bad Faith (Article 453 in Relation to Article 448) — Article 453 of the Civil Code provides that where both the person building on the land of another and the landowner acted in bad faith, their rights shall be the same as though both had acted in good faith. In such a case, the remedies under Article 448 apply: the landowner may either (1) appropriate the works after paying the indemnity provided in Articles 546 and 548, or (2) oblige the builder to pay the price of the land. However, if the land’s value is considerably more than the building, the builder cannot be forced to purchase the land and shall pay reasonable rent if the owner does not choose to appropriate after proper indemnity. The parties shall agree upon the terms of the lease, and the court shall fix the terms in case of disagreement.

• “Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. … A share of stock only typifies an aliquot part of the corporation’s property, or the right to share in its proceeds to that extent when distributed according to law and equity … but its holder is not the owner of any part of the capital of the corporation … nor is he entitled to the possession of any definite portion of its property or assets. The stockholder is not a co-owner or tenant in common of the corporate property.” — Core definition of a stockholder’s limited interest in corporate assets.
• “The separate personality of the corporation may be disregarded only when the corporation is used ‘as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or when necessary for the protection of the creditors.’” — Enumeration of the strict grounds for piercing the corporate veil.
• “Article 453 of the Civil Code provides: If there was bad faith, not only on the part of the person who built, planted or sown 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. In such a case, the provisions of Article 448 of the Civil Code govern…” — The statutory foundation for treating both parties as in good faith.

• Legarda v. Court of Appeals, 195 SCRA 418 (1991) — Invoked as an example where the gross negligence of counsel was recognized as an exception to the rule that a client is bound by counsel’s acts; used to delineate the standard for excusable neglect.
• Aguila v. Court of First Instance of Batangas, Branch I, 160 SCRA 352 (1988) — Followed for the rule that a client who retains counsel despite known lapses cannot later claim gross negligence to overturn an adverse judgment; directly applied to reject the petitioners’ due process claim.
• Stockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of Manila, 6 SCRA 373 (1962) — Quoted extensively for the principle that a stockholder is not a co-owner of corporate property and holds no right to the possession of any specific corporate asset.
• Sulong Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 (1976) — Cited to restate the limited circumstances under which the corporate veil may be pierced.

• Article 448, Civil Code — Governs the respective rights of the landowner and the builder in good faith. Applied to the unfinished building, requiring the corporation to choose between appropriating the structure after indemnity or obliging the builder to pay the price of the land.
• Article 453, Civil Code — Provides that where both the builder and the landowner acted in bad faith, their rights are the same as though both had acted in good faith. Applied to deem both parties in good faith, thereby triggering Article 448.
• Articles 546 and 548, Civil Code — Referred to as the provisions governing the computation of indemnity for necessary and useful expenses when the owner appropriates the building under Article 448.

Feliciano, Bidin, Davide, Jr., and Romero, JJ., concurred.