Heirs of Ramon Durano, Sr. vs. Spouses Uy

The Supreme Court held that respondents acquired ownership over the disputed properties through ordinary acquisitive prescription by virtue of their possession in good faith with just title for the required ten-year period, either personally or through their predecessors-in-interest; that petitioners were builders in bad faith who lost all rights to indemnity for improvements; and that the corporate veil could be pierced to hold petitioners personally liable where Durano & Co. was merely used as an instrumentality or alter ego to commit fraud and deprive respondents of their properties.

The dispute arose from conflicting claims over agricultural lands located in Barrios Dunga and Cahumayhumayan, Danao City. Respondents were long-time occupants, cultivators, and tax declarants of portions of the property, claiming ownership through inheritance or purchase from predecessors who occupied the land for generations. Petitioners claimed ownership through a series of transactions originating from Cepoc, culminating in the registration of Transfer Certificate of Title Nos. T-103 and T-104 in the name of petitioner Ramon Durano III in 1970. The conflict escalated when petitioners conducted bulldozing operations in August 1970 to convert the land into sugarcane plantations, destroying respondents' crops and improvements, which led to administrative complaints by respondents and the subsequent civil action for damages filed by petitioners.

• The disputed property consists of a 128-hectare parcel of land located in Barrios Dunga and Cahumayhumayan, Danao City, originally owned by Cebu Portland Cement Company (Cepoc).
• Respondents were occupants and cultivators of various portions of the land, claiming ownership through inheritance from parents and grandparents or by purchase from former occupants, with some possessing tax declarations issued under the Land Registration Act.
• In August 1970, petitioners caused mimeographed notices to be sent to respondents declaring that the lands had been purchased by Durano & Co., Inc. and directing respondents to vacate immediately as the lands were needed for sugarcane planting.
• Simultaneously, tall bamboo poles with pennants bearing the initials "RMD" were planted on the land, and men identifying themselves as employees of Durano & Co. conducted bulldozing operations destroying respondents' plantings and improvements, allegedly firing shots in the air and acting under instructions of petitioner Ramon Durano III.
• On September 15, 1970, Durano & Co. sold the disputed property to petitioner Ramon Durano III, who procured registration under Transfer Certificate of Title Nos. T-103 and T-104.
• Respondents organized and sent complaints to the President of the Philippines and the Department of Justice alleging landgrabbing; these investigations were dismissed as baseless.
• Petitioners filed the civil action for damages alleging respondents conducted a "hate campaign" against them by lodging false complaints.
• Respondents counterclaimed for actual damages for destroyed improvements, moral damages for anguish suffered, exemplary damages, attorney's fees, and litigation expenses, alleging they were deprived of their independent source of income and suffered emotional shock.
• The trial lasted sixteen years with forty trial dates, with respondents represented by counsel from Manila.
• Evidence showed that Cepoc had no registered title over the disputed property as indicated in TCT Nos. T-103 and T-104, and the alleged reconstituted titles of Cepoc were never produced in evidence despite demand.
• The Deed of Absolute Sale between Cepoc and Durano & Co. was undated, unnotarized, and thus unregistrable.

• The Court of Appeals erred in granting relief to respondents who did not appeal the decision of the lower court, specifically the order to return properties to all respondents when the Regional Trial Court only ordered return to three respondents (Repaso, Tito, and Gonzales).
• The Court of Appeals erred in collaterally attacking the validity of the title of petitioner Ramon Durano III when fraud in the issuance of a certificate of title may only be raised in an action expressly instituted for that purpose.
• The respondents should not have been adjudged builders in good faith because they were merely occupants without valid titles.
• The petitioners should not be held personally liable for damages because of the doctrine of separate corporate personality, as Durano & Co., Inc. was a separate juridical entity distinct from the individual petitioners.
• It was error to hold that respondents proved the existence of improvements on the land by preponderance of evidence, and the damages awarded were excessive and not actually proved as required by Article 2199 of the Civil Code.
• It was error to direct the return of the properties to respondents Venancia Repaso, Hermogenes Tito, and Marcelino Gonzales as these were outside the properties covered by TCT Nos. T-103 and T-104.
• The award of litigation expenses and attorney's fees was erroneous and unjustified.
• The petitioners are not possessors in bad faith and should be entitled to reimbursement for useful expenses.

• Respondents possessed their respective portions of the property in the concept of owner, with possession dating back one or two generations through their predecessors-in-interest, and were therefore entitled to ownership by acquisitive prescription.
• Respondents were builders in good faith as they were unaware of any flaw in their title or mode of acquisition until the bulldozing operations in 1970, having inherited or purchased the properties and paid taxes thereon.
• Petitioners were aware of respondents' occupancy and possession at the time of purchase, making them purchasers in bad faith and possessors in bad faith not entitled to indemnity.
• The Deed of Sale between Cepoc and Durano & Co. was unnotarized and unregistrable, and the certificates of title issued to Ramon Durano III were attended by fraud and lacked valid derivative titles.
• Petitioners used Durano & Co. merely as an alter ego or instrumentality to appropriate the disputed property, warranting the piercing of the corporate veil to hold them personally liable.
• The damages awarded were justified under Articles 449-451 of the Civil Code for builders in bad faith, and respondents were compelled to litigate for sixteen years to protect their rights.

• Procedural Issues:
  • Whether the Court of Appeals could order the return of properties to all respondents when the Regional Trial Court only ordered return to three respondents (Repaso, Tito, and Gonzales) and the respondents did not file an appeal.
• Substantive Issues:
  • Whether respondents acquired ownership over the disputed properties through ordinary acquisitive prescription.
  • Whether petitioners were builders in bad faith and thus not entitled to indemnity for improvements made on the land.
  • Whether petitioners could invoke the principle of indefeasibility of title to defeat respondents' claims.
  • Whether the doctrine of piercing the corporate veil applies to hold petitioners personally liable for damages despite the involvement of Durano & Co., Inc.
  • Whether the awards of actual damages, attorney's fees, and litigation expenses were proper and supported by evidence.

• Procedural:
  • The Supreme Court held that the Court of Appeals did not err in ordering the return of properties to all respondents. Under Section 8, Rule 51 of the Rules of Civil Procedure, the Court of Appeals is not limited to reviewing only errors assigned by the appellant but may also review errors closely related to or dependent on an assigned error. The return of properties to all respondents was a legal consequence of the finding that respondents had a better right of possession than petitioners, being possessors in the concept of owner. The reliance on Madrideo and Medida was misplaced because petitioners had impleaded all respondents in their appeal, and the modification was necessary to accord complete relief based on the evidence.
• Substantive:
  • The Court modified the Court of Appeals decision to declare respondents owners by ordinary acquisitive prescription. Ordinary acquisitive prescription requires possession in good faith and with just title for ten years. Respondents complied with these requirements as they possessed the properties through their predecessors-in-interest, exercised rights of ownership, paid taxes, and introduced improvements, all while unaware of any flaw in their title until 1970. Possession could be tacked to that of grantors or predecessors-in-interest.
  • The Court held that petitioners were builders in bad faith. A purchaser who knows that the land is in the adverse possession of another is a buyer in bad faith. Petitioners knew of respondents' occupancy and bulldozed the properties while the conveyance to Ramon Durano III was being executed. They could not invoke the defense of indefeasibility of title because they were not innocent purchasers for value, and reconveyance lies against those who obtain title fraudulently or erroneously where the property has not passed to an innocent purchaser for value.
  • The Court sustained the piercing of the corporate veil. Durano & Co. was used merely as an instrumentality or alter ego by petitioners to appropriate the disputed property, as evidenced by the immediate sale to Ramon Durano III without registration in the company's name and the simultaneous bulldozing operations. The elements for piercing the veil were present: complete domination of finances and policy, use of control to commit fraud or wrong, and proximate causation of injury.
  • The Court upheld the awards of actual damages, attorney's fees, and litigation expenses. Under Articles 449-451 of the Civil Code, the landowner is entitled to damages from a builder in bad faith. The disparity between respondents' affidavits and tax declarations did not defeat their right to damages, and temperate damages could be awarded under Article 2224 when pecuniary loss was suffered but the amount could not be proved with certainty. The sixteen-year litigation justified the award of attorney's fees under Article 2208.

• Acquisitive Prescription — Ordinary acquisitive prescription of immovable property requires possession for ten years in good faith and with just title. Good faith means the possessor is not aware of any flaw in title or mode of acquisition, while just title exists when the adverse claimant came into possession through a mode recognized by law but the grantor was not the owner or could not transmit any right. Possession may be tacked to that of the grantor or predecessor-in-interest. Applied in this case to establish respondents' ownership over the disputed properties.
• Builder in Good Faith/Bad Faith — Under Articles 449-451 of the Civil Code, a builder in bad faith who builds on the land of another loses what is built without right of indemnity, and the landowner may demand demolition or payment of the land price plus damages. Applied to deny petitioners any indemnity for improvements and to justify the award of damages to respondents.
• Piercing the Corporate Veil — The doctrine applies when there is complete domination of finances, policy, and business practice such that the corporation has no separate mind or existence of its own; such control is used to commit fraud or wrong; and the control proximately causes the injury. The corporation is treated merely as an alter ego or instrumentality of the stockholders. Applied to hold petitioners personally liable despite the involvement of Durano & Co., Inc.
• Indefeasibility of Title — A Torrens title becomes incontrovertible after one year from the decree of registration, but reconveyance remains available as long as the property has not passed to an innocent purchaser for value. Fraud in the issuance of title cannot be raised collaterally but only in an action expressly instituted for that purpose. Applied to hold that petitioners, not being innocent purchasers, could not use title indefeasibility to defeat respondents' claim.

• "The decree (of registration) becomes incontrovertible and can no longer be reviewed after one (1) year from the date of the decree so that the only remedy of the landowner whose property has been wrongfully or erroneously registered in another's name is to bring an ordinary action in court for reconveyance, which is an action in personam and is always available as long as the property has not passed to an innocent third party for value."
• "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; Such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or dishonest and unjust acts in contravention of plaintiff's legal rights; and The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of."
• "A buyer who could not have failed to know or discover that the land sold to him was in the adverse possession of another is a buyer in bad faith."

• Madrideo vs. Court of Appeals — Distinguished; held that no affirmative relief may be afforded to a party who is a third party to the appeal (neither appellant nor appellee), but inapplicable here because petitioners impleaded all respondents in their appeal.
• Medida vs. Court of Appeals — Distinguished; held that appellees who failed to appeal could only argue to sustain the judgment below, but inapplicable because the return of properties was not an affirmative relief sought by respondents but a legal consequence of the Court of Appeals' findings.
• Javier vs. Court of Appeals — Cited for the principle that reconveyance is available against a landowner whose property was wrongfully registered in another's name as long as the property has not passed to an innocent purchaser for value.
• Concept Builders, Inc. vs. NLRC — Cited for the test in determining the applicability of piercing the corporate veil, emphasizing complete domination and use of control to commit fraud or wrong.
• De Vera vs. Court of Appeals — Cited for the rule that the owner of land has three alternative rights against a builder in bad faith: appropriate the building without indemnity, demand demolition, or compel payment of land price, plus damages.
• Republic vs. de Guzman and Embrado vs. Court of Appeals — Cited for the principle that a purchaser of land cannot close his eyes to facts which should put a reasonable man upon his guard, such as when the property is in the possession of persons other than the seller.

• Civil Code, Articles 449, 450, and 451 — Provisions governing builders, planters, and sowers in bad faith, providing for loss of improvements without indemnity and the landowner's right to damages.
• Civil Code, Articles 1117, 1129, 1134, 1138 — Provisions on acquisitive prescription, defining good faith, just title, and the tacking of possessions.
• Civil Code, Article 526 — Defines good faith in the context of possession as the possessor not being aware of any flaw in his title or mode of acquisition.
• Civil Code, Articles 2199, 2208, and 2224 — Provisions on actual damages, attorney's fees, and temperate damages, respectively.
• Presidential Decree No. 1529, Sections 48 and 112 — Property Registration Decree provisions stating that fraud in the issuance of title must be attacked directly and that notarization is essential to registrability of deeds.
• Rules of Court, Rule 51, Section 8 — Provides that appellate courts may review errors not assigned if closely related to or dependent on an assigned error.
• Rules of Court, Rule 131, Section 3(e) — Presumption that evidence willfully suppressed would be adverse to the party suppressing it, applied to petitioners' failure to produce the alleged reconstituted titles of Cepoc.