Vda. De Roxas vs. Our Lady's Foundation, Inc.

Under Articles 448 and 450 of the Civil Code, the reimbursement due from a builder for land encroached upon must be valued at the prevailing market value at the time of payment, not at the original acquisition cost. A corporate officer’s separate assets cannot be reached by execution for a corporate liability unless the proponent presents clear and convincing evidence of wrongdoing warranting the piercing of the corporate veil.

Salve Dealca Latosa filed a complaint in 1988 to recover a portion of her residential land in Sorsogon City, alleging that Henry Amado Roxas had extended his concrete fence on to her property. Roxas, in turn, filed a third-party complaint against OLFI, claiming that he had been forced to encroach on Latosa’s lot because OLFI had earlier trimmed 92 square meters from his own property for a subdivision road. After trial, the RTC found for Latosa against Roxas and also ordered OLFI to reimburse Roxas for the 92-square-meter area it had taken. The reimbursement provision became the central dispute upon execution.

• The Original Suit and Third-Party Complaint: In 1988, Salve Dealca Latosa filed a Complaint for recovery of ownership against Henry Amado Roxas, alleging that Roxas encroached on a portion of her residential land by extending his concrete fence beyond the correct boundary. Roxas filed a third-party complaint against Our Lady’s Foundation, Inc. (OLFI), asserting that he occupied the adjoining portion to recover the equivalent area OLFI had taken from his own lot when it developed a subdivision road.
• Trial Court’s Findings: The RTC found that Roxas occupied 112 square meters of Latosa’s property, and that OLFI had earlier trimmed 92 square meters from Roxas’s lot. The decision ordered Roxas to return the area to Latosa and demolish structures, and ordered OLFI to reimburse Roxas for the value of the 92-square-meter portion “plus legal interest to be reckoned from the time it was paid to the third-party defendant.” The dispositive portion did not specify the monetary rate.
• Execution Proceedings: After the decision became final, the RTC issued a Writ of Execution. The initial Sheriff’s Bill valued the property at ₱2,500 per square meter, but the RTC later approved an Amended Sheriff’s Bill pegging the value at ₱1,800 per square meter. OLFI sought to quash the bill, arguing that reimbursement should be limited to the ₱40 per square meter Roxas originally paid for the lot.
• RTC’s Justification for Current Valuation: In its 2 December 2004 Order, the trial court reasoned that although the property was purchased at ₱40 per square meter, the devaluation of the Philippine peso over two decades rendered that amount grossly unfair; ₱40 could purchase only two kilos of rice at the time of the order. The court, deeming itself in the best position to determine the proper amount, fixed the reimbursement at ₱1,800 per square meter.
• Garnishment of the General Manager’s Accounts: To satisfy the judgment, the sheriff issued Notices of Garnishment against the personal bank accounts of Bishop Robert Arcilla-Maullon, OLFI’s general manager, who had never been impleaded as a party in the proceedings.

• Valuation Based on Current Market Price: Petitioner maintained that the RTC’s silence on the specific rate meant the value should be determined at execution, and that reimbursement must account for the devaluation of the Philippine peso; paying only ₱40 per square meter after 20 years would be absurd. Petitioner contended that reimbursement encompassed all expenses, damages, and losses, and that the trial court properly exercised its discretion in fixing the amount at ₱1,800 per square meter.
• Garnishment of the General Manager’s Accounts: Petitioner argued that OLFI was a mere dummy corporation and that its general manager’s bank accounts could be garnished to collect the judgment debt. Petitioner claimed that by failing to rebut this allegation in its pleadings, OLFI effectively admitted its status as a corporate conduit.

• Reimbursement Limited to Original Purchase Price: Respondent argued that the directive to “reimburse” meant returning the exact amount Roxas had originally paid — ₱40 per square meter — as reflected in the Deed of Absolute Sale. Any deviation, such as the RTC’s order to pay ₱1,800 per square meter, altered the tenor of the final judgment and was void.
• Separate Corporate Personality: Respondent countered that its general manager was never impleaded and thus could not be held personally liable for the corporation’s obligation. The corporate veil could not be pierced without clear and convincing evidence of fraud or misuse.

• Valuation of Reimbursement: Whether the reimbursement due to Roxas for the 92-square-meter encroached property should be based on the original purchase price (₱40 per square meter) or the current fair market value (₱1,800 per square meter).
• Garnishment of Corporate Officer’s Accounts: Whether the Notices of Garnishment issued against the personal bank accounts of OLFI’s general manager were valid for satisfying the corporation’s judgment debt.

• Valuation of Reimbursement: The reimbursement must be pegged at the prevailing market value at the time of payment, not at the historical purchase price. Under Articles 448 and 450 of the Civil Code, the landowner whose property has been encroached upon has the option to compel the builder to pay the price of the land. Jurisprudence — Ballatan v. Court of Appeals, Tuatis v. Spouses Escol, Sarmiento v. Agana, and Depra v. Dumlao — uniformly holds that the price must be the current fair market value at the time the landowner elects the option or at the time of payment, not the value stated in an old deed of sale. The RTC’s valuation of ₱1,800 per square meter, reflecting the current fair price determined in the Amended Sheriff’s Bill, was thus proper. The CA’s ruling limiting reimbursement to ₱40 per square meter was reversed, and the RTC’s 2 December 2004 Order was reinstated.
• Garnishment of Corporate Officer’s Accounts: The Notices of Garnishment against the bank accounts of Bishop Arcilla-Maullon were void. The general manager was never impleaded as a party, and a corporation possesses a separate juridical personality distinct from its officers. Under the doctrine of Santos v. NLRC, corporate obligations are the sole liabilities of the corporation. Piercing the corporate veil required petitioner to prove clearly and convincingly that OLFI was a mere business conduit used to commit fraud or injustice. Petitioner presented no evidence of wrongdoing, bad faith, or misuse of the corporate fiction. Mere allegation, without more, could not justify disregarding the separate personality. Consequently, execution could not reach the personal assets of the general manager.

• Valuation in Encroachment Cases under Articles 448 and 450 of the Civil Code — When the landowner opts to sell the encroached portion to the builder, the price is the prevailing market value at the time of payment or at the time the landowner exercises the option, not the original purchase price stated in a previous deed. The obligation to pay is statutory, not contractual, and arises only upon the landowner’s election under the Civil Code. (Citing Ballatan v. Court of Appeals, Tuatis v. Spouses Escol, Sarmiento v. Agana, Depra v. Dumlao.)
• Separate Juridical Personality of Corporations — A corporation is a juridical entity with a legal personality separate and distinct from the individuals who compose it, and its obligations are its sole liabilities. Officers are not personally liable for corporate debts absent proof of fraud or bad faith. (Citing Santos v. NLRC, Good Earth Emporium Inc. v. Court of Appeals.)
• Piercing the Corporate Veil — The doctrine of piercing the corporate veil applies only when the corporate fiction is misused to perpetrate injustice, fraud, or a crime, and the wrongdoing must be established by clear and convincing evidence; it cannot be presumed. Mere failure to rebut an allegation of dummy status does not constitute such proof. (Citing Sarona v. NLRC, Kukan International Corporation v. Reyes.)

• “Under the second option, Visminda may choose not to appropriate the building and, instead, oblige Tuatis to pay the present or current fair value of the land. The ₱10,000.00 price of the subject property, as stated in the Deed of Sale on Installment executed in November 1989, shall no longer apply, since Visminda will be obliging Tuatis to pay for the price of the land in the exercise of Visminda’s rights under Article 448 of the Civil Code, and not under the said Deed. Tuatis’ obligation will then be statutory, and not contractual, arising only when Visminda has chosen her option under Article 448 of the Civil Code.” — Tuatis v. Spouses Escol, quoted by the Court to explain that the reimbursement obligation is statutory and valued at current market price.
• “A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed.” — Sarona v. NLRC, reiterating the stringent standard for piercing the corporate veil.

• Ballatan v. Court of Appeals, 363 Phil. 408, 423 (1999) — Established that when the landowner elects to sell the encroached land, the price must be fixed at the prevailing market value at the time of payment. Followed.
• Tuatis v. Spouses Escol, G.R. No. 175399, 27 October 2009, 604 SCRA 471 — Clarified that the obligation under Article 448 is statutory and that the current fair value is reckoned at the time the landowner makes the election, not at the time of purchase. Applied as controlling.
• Sarmiento v. Agana, 214 Phil. 101 (1984); Depra v. Dumlao, 221 Phil. 168 (1985) — Both recognized that valuation of the land in encroachment cases must be based on the fair market value at or near the time the landowner demands relief. Followed.
• Santos v. NLRC, 325 Phil. 145 (1996) — Upheld the doctrine of separate juridical personality, ruling that corporate obligations are the sole liabilities of the corporation. Applied.
• Sarona v. NLRC, G.R. No. 185280, 18 January 2012, 663 SCRA 394 — Emphasized that piercing the corporate veil requires clear and convincing evidence of misuse of the corporate fiction. Applied.

• Articles 448 and 450, Civil Code — Govern the rights and obligations when a builder constructs on another’s land in good faith or bad faith, respectively. The landowner may oblige the builder to pay the price of the land. The Court used these provisions as the foundation for the builder’s statutory duty to reimburse, interpreting “price” as the present or current fair value at the time the option is exercised or payment is made.

Teresita J. Leonardo-De Castro, Lucas P. Bersamin, Martin S. Villarama, Jr., Bienvenido L. Reyes.