Villasi vs. Garcia

A third-party claimant in a terceria proceeding must unmistakably establish ownership or right of possession over the levied property to warrant suspension of execution; mere assertion of land ownership does not suffice to establish title to a building erected thereon where the judgment debtor holds the tax declaration and is in actual possession, and the principle that the accessory follows the principal does not apply when clear and convincing evidence demonstrates that the building and land are owned by different persons.

In 1990, Magdalena T. Villasi engaged Fil-Garcia Construction, Inc. (FGCI) to construct a seven-storey condominium in Cubao, Quezon City. A payment dispute arose, leading FGCI to file a collection suit. The Regional Trial Court initially ruled for FGCI, but the Court of Appeals reversed, finding that Villasi had overpaid and ordering FGCI to return the excess amount. FGCI's appeal to the Supreme Court was dismissed for being filed out of time, rendering the Court of Appeals decision final and executory.

• The Construction Contract and Initial Litigation: In 1990, petitioner Magdalena T. Villasi engaged the services of respondent Fil-Garcia Construction, Inc. (FGCI) to construct a seven-storey condominium building at Aurora Boulevard corner N. Domingo Street, Cubao, Quezon City. FGCI subsequently filed a collection suit for unpaid accomplishment billings amounting to ₱2,865,000.00 before the RTC of Quezon City, Branch 77. Villasi countered that she had overpaid FGCI, having delivered ₱7,490,325.10 while FGCI accomplished only 28% of the project.
• The Court of Appeals Decision: The RTC ruled in favor of FGCI, but the Court of Appeals reversed in a Decision dated 20 November 2000, finding that Villasi had overpaid and directing FGCI to return ₱1,244,543.33 as overpayment and ₱425,004.00 for unpaid construction materials, plus liquidated damages. FGCI's appeal to the Supreme Court was dismissed for being filed out of time, rendering the decision final and executory on 27 November 2001.
• Execution and Levy: Villasi filed a Motion for Execution, and the RTC issued a Writ of Execution on 28 April 2004. The sheriff levied on a building located at No. 140 Kalayaan Avenue, Quezon City, covered by Tax Declaration No. D-021-01458 in the name of FGCI, erected on lots registered under TCT Nos. 379193 and 379194 in the names of Spouses Filomeno Garcia and Ermelinda Halili-Garcia (Spouses Garcia). A public auction was scheduled for 25 January 2006.
• Third-Party Claim: The Spouses Garcia filed an Affidavit of Third-Party Claim and a Motion to Set Aside Notice of Sale on Execution, asserting that they were the lawful owners of the building, which they claimed was erroneously assessed in FGCI's name. They alleged that they financed the construction through a personal loan from Metrobank and merely contracted FGCI as the builder. Villasi opposed the motion, citing the tax declaration and building permit in FGCI's name.
• Orders of the Lower Courts: The RTC issued an Order on 24 February 2005 suspending the sale on execution, which it affirmed in an Order dated 11 October 2005 denying Villasi's motion for reconsideration. The Court of Appeals dismissed Villasi's Petition for Certiorari in a Decision dated 19 May 2009 and denied reconsideration in a Resolution dated 28 October 2009.

• Validity of the Third-Party Claim: Villasi argued that the Court of Appeals grievously erred in upholding the suspension of the sale on execution based on the Spouses Garcia's Affidavit of Third-Party Claim. She maintained that the levy was proper because the building belonged to the judgment debtor FGCI, as evidenced by the tax declaration and building permit issued in FGCI's name.
• Piercing the Corporate Veil: Villasi contended that the corporate veil of FGCI should be pierced to hold the Spouses Garcia liable for the judgment debt, alleging that FGCI was merely a vehicle used by the spouses to avoid liability.
• Mandatory Notice of Levy: Villasi argued that the Branch Sheriff should be directed to file the appropriate notice of levy with the Register of Deeds of Quezon City to protect her interests as judgment creditor.

• Bona Fide Title to the Building: The Spouses Garcia countered that they were the lawful owners of the levied building, asserting that as owners of the land, they were presumed owners of the improvements under the principle of accession. They claimed the tax declaration in FGCI's name resulted from an erroneous assessment by the City Assessor, which they belatedly sought to correct.
• Financing of Construction: Respondents argued that they personally obtained a loan from Metrobank to finance the construction and merely contracted FGCI as the builder, thereby retaining ownership of the building.
• Separate Personality: The Spouses Garcia maintained that there was no reason to pierce the corporate veil of FGCI, asserting their separate identity from the corporation and disclaiming FGCI's ownership of the building.

• Standard for Third-Party Claims: Whether the Court of Appeals erred in upholding the suspension of the sale on execution based on the Spouses Garcia's Affidavit of Third-Party Claim without sufficient proof of ownership.
• Piercing the Corporate Veil: Whether there was reason to pierce the veil of FGCI's corporate fiction to hold the Spouses Garcia liable for the judgment debt.
• Notice of Levy: Whether the Branch Sheriff should be directed to file the appropriate notice of levy with the Register of Deeds of Quezon City.

• Standard for Third-Party Claims: The suspension of the sale on execution was improper because the Spouses Garcia failed to unmistakably establish their ownership or right of possession over the levied building. Under Section 16, Rule 39 of the Revised Rules of Court, a third-party claimant must sufficiently establish his right to the property to warrant relief; the court's power is limited to determining whether the sheriff acted rightly or wrongly, not to adjudicating title with finality. Here, the Spouses Garcia relied merely on their title to the land and their unsubstantiated claim of financing the construction, while Villasi presented the tax declaration and building permit in FGCI's name, coupled with FGCI's actual possession and the fact that court processes in the earlier case were served at the property through FGCI's representative. Tax declarations, while not conclusive evidence of ownership, constitute credible proof of claim of title when coupled with actual possession.
• Piercing the Corporate Veil: There was no basis to pierce the corporate veil. Piercing is an equitable remedy applied only when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime. The Spouses Garcia were asserting their separation from FGCI to claim the building as their own property; piercing the veil would identify them with FGCI and make them liable for its debts, which is contrary to their position that they are not the corporation but separate owners of the property. The doctrine is irrelevant where third parties assert ownership over corporate assets to defeat a creditor's claim.
• Notice of Levy: The Court found it unnecessary to rule on the third issue regarding the notice of levy with the Register of Deeds, as the resolution of the first two issues determined the outcome of the case.

• Third-Party Claim (Terceria) under Section 16, Rule 39: A third person whose property is levied to satisfy another's debt may invoke the court's supervisory power to determine whether the sheriff acted rightly or wrongly. The claimant must first unmistakably establish ownership or right of possession. The court does not pass upon title with finality but only determines if the sheriff correctly levied on property belonging to the judgment debtor. If the claimant's proofs do not persuade the court of the validity of his title, the claim will be denied.
• Tax Declarations as Evidence: Although tax declarations or realty tax payments are not conclusive evidence of ownership, they constitute good indicia of possession in the concept of owner and credible proof that the holder has a claim of title over the property, particularly when coupled with actual possession.
• Accession (Accessory Follows Principal): Under Article 440 of the New Civil Code, ownership of property gives the right by accession to everything incorporated or attached thereto. However, this rule is not absolute. Where clear and convincing evidence proves that the principal (land) and accessory (building) are owned by different persons, the presumption shall not apply, and actual ownership shall be upheld. The building and land may be treated separately and made liable for the obligations of their respective owners.
• Piercing the Veil of Corporate Fiction: The doctrine is applied only when the corporate personality is used to defeat public convenience, justify wrong, protect fraud, or defend crime. It is irrelevant where third-party claimants assert that they, not the corporation, own the property sought to be levied, as piercing would identify them with the corporation and make them liable for its debts rather than protecting them from the corporation's liabilities.

• "The right of a third-party claimant to file a terceria is founded on his title or right of possession. Corollary thereto, before the court can exercise its supervisory power to direct the release of the property mistakenly levied and the restoration thereof to its rightful owner, the claimant must first unmistakably establish his ownership or right of possession thereon."
• "While it is true that tax receipts and tax declarations are not incontrovertible evidence of ownership, they constitute credible proof of claim of title over the property."
• "The rule on accession is not an iron-clad dictum. On instances where this Court was confronted with cases requiring judicial determination of the ownership of the building separate from the lot, it never hesitated to disregard such rule."
• "Piercing FGCI's corporate veil will not protect FGCI from its judgment debt. Piercing will result in the identification of the Spouses Garcia as FGCI itself and will make them liable for FGCI's judgment debt."

• Spouses Sy v. Hon. Discaya, 260 Phil. 401 (1990): Controlling precedent establishing that in terceria proceedings, the court determines only whether the sheriff acted rightly or wrongly, and the claimant must establish title or right of possession.
• Buduhan v. Pakurao, 518 Phil. 285 (2006): Cited for the principle that tax declarations constitute proof of claim of title and indicia of possession.
• Carbonilla v. Abiera, G.R. No. 177637, 26 July 2010, 625 SCRA 461: Followed for the principle that mere ownership of land does not establish ownership of the building thereon without evidence.
• Caltex (Phil.) Inc. v. Felias, 108 Phil. 873 (1960): Followed for the principle that land and building may have separate owners and the accessory does not always follow the principal when evidence shows otherwise.

• Section 16, Rule 39, Revised Rules of Court: Governs proceedings where property is claimed by third persons during execution; provides for the remedy of terceria and the filing of bonds.
• Article 440, New Civil Code: Defines the right of accession, stating that ownership of property gives the right to everything produced thereby or incorporated thereto.

Antonio T. Carpio (Chairperson), Arturo D. Brion, Estela M. Perlas-Bernabe, and Marvic Mario Victor F. Leonen.