G.R. No. 199353 - Leviste Management System, Inc. vs. Legaspi Towers 200, Inc.

Case Summary (G.R. No. 199353)

Factual Background

Legaspi Towers is a condominium building on Paseo de Roxas, Makati City, composed of seven floors, a roof deck, and two levels above the roof deck identified as Concession 2 and Concession 3. Concession 3 was originally owned by Leon Antonio Mercado and was purchased by LEMANS on 9 March 1989 through Mr. Conrad Leviste. In 1989 LEMANS decided to erect an additional unit, termed Concession 4, on the roof deck above Concession 3. LEMANS obtained a building permit and commenced construction in October 1990. Legaspi Towers protested the construction as illegal and barred entry of construction materials; it also requested the Building Official to cancel the permit. The Building Official, Engr. Nelson Q. Irasga, denied the cancellation request on the ground that the applicant complied with permit requirements and that the application bore the signature of the then president of Legaspi Corporation.

Procedural History at Trial

LEMANS filed a complaint dated 20 February 1991 with the RTC seeking, among other reliefs, a writ of mandatory injunction to permit completion of Concession 4. The RTC issued the writ on 3 April 1991. Legaspi Towers later filed a third-party complaint against Irasga and De Jesus dated 7 October 1991 to nullify the building permit. After trial on the merits, but prior to final judgment, the RTC in an interlocutory Order dated 24 May 2002 applied Article 448 and the Court’s ruling in Depra v. Dumlao, a ruling which LEMANS sought to contest by a petition for certiorari to the Court of Appeals. The Court of Appeals denied that petition on 4 March 2004. The RTC thereafter determined that LEMANS had incurred PhP 800,897.96 in actual construction costs and adduced evidence of a purported fair market value of Concession 4 of PhP 6,000,000. The RTC rendered its final Decision dated 25 October 2005 ordering Legaspi Towers to exercise within sixty days its option under the law to appropriate the additional structure or, if it refused, to agree with LEMANS on lease terms or have the court fix them; the RTC dismissed the third-party complaint and counterclaims and assessed costs against the plaintiff.

Court of Appeals Proceedings

The Court of Appeals, on consolidated appeals, affirmed the RTC Decision in a Decision promulgated 26 May 2011. The appellate court dismissed LEMANS’ appeal for failure to comply with Section 13, Rule 44 in relation to Section 1(f), Rule 50 of the Rules of Court, because LEMANS’ brief lacked a digest of arguments and a list of authorities. The Court of Appeals therefore did not resolve LEMANS’ sole substantive issue regarding valuation. As to Legaspi Towers’ appeal, the Court of Appeals found Concession 4 to be a nuisance but held that LEMANS had been declared a builder in good faith and had not been successfully contested on that point; accordingly, the structure could not be demolished. The appellate court also upheld the validity of the building permit on the ministerial duty theory as the application and plans appeared to conform to regulatory requirements. Motions for reconsideration were denied by Resolution dated 17 November 2011.

Issues Presented to the Supreme Court

The consolidated petitions present the central question whether Article 448 of the Civil Code and the doctrine in Depra v. Dumlao apply to the dispute over Concession 4, and ancillary questions concerning valuation and the right to abate or demolish the additional structure. LEMANS asked this Court to apply Depra and determine the value of Concession 4 for purposes of the owner’s option under Article 448. Legaspi Towers sought recognition of its right to demolish or abate Concession 4 as an illegal construction and to have the building permit declared invalid.

Parties’ Contentions

LEMANS maintained that it was a builder in good faith and that, under Article 448 and Depra v. Dumlao, the proper remedy was for the owner to exercise the statutory option upon payment of indemnity; LEMANS urged that Concession 4 be valued at PhP 6,800,897.96 plus legal interest or at least according to the evidence submitted showing actual cost and market value. Legaspi Towers contended that Concession 4 was an illegal construction that violated the Condominium Act and the Master Deed and By-Laws; it invoked Article 699 as a ground for abatement and argued that LEMANS failed to obtain the consent of the registered owners for any amendment to the Master Deed and failed to secure the approvals required by the By-Laws. Legaspi Towers further asserted that LEMANS’ internal arrangement with a past president could not bind the condominium corporation and therefore could not validate the construction.

Procedural Issue on Interlocutory Orders and Remedies

The Court addressed whether the RTC’s interlocutory Order of 24 May 2002 that applied Article 448 and Depra bound the parties and limited subsequent relief. The Court observed that interlocutory orders are not appealable under Section 1, Rule 41 and that the proper immediate remedy is a special civil action for certiorari under Rule 65, subject to stringent requirements. The Court noted that LEMANS pursued certiorari to the Court of Appeals and that the Court of Appeals found the trial court’s ruling to be at most an error of judgment not proper for Rule 65 relief. The Supreme Court clarified that it is not bound by the interlocutory orders of the trial court or by the Court of Appeals’ decision in the certiorari petition that was not itself elevated to this Court, and that a petition for review under Rule 45 permits review of errors of judgment; accordingly, this Court entertained review on the merits in light of the novelty of the legal question.

Ownership of the Air Space Above Concession 3

The Court affirmed the lower courts’ finding that Legaspi Towers owns the air space above Concession 3 and the condominium building. The Court relied on provisions of Republic Act No. 4726, specifically Section 2, Section 3(d), and Section 6, and on the Master Deed’s description of the building, to conclude that a unit is bounded by the interior surfaces of perimeter walls, ceilings, windows, and doors and that roofs and other structural elements are common areas. The Court observed that nothing in the Master Deed expressly conferred upon Concession 3 ownership of the air space above the condominium and that allowing such a claim would permit unlimited vertical accretions that would risk the structural integrity of the building.

Inapplicability of Article 448 and Depra on These Facts

The Court held that Article 448 and the Court’s ruling in Depra v. Dumlao presuppose that the owner of the land and the builder are distinct persons not already bound by special legislation or contractual relations regarding the subject property. The Court explained that upon acquisition of a condominium unit the purchaser becomes a member or stockholder of the condominium corporation and thereby enters into a statutory and contractual regime governed by the Condominium Act, the Master Deed, and the By-Laws. The Court applied the principle generalia specialibus non derogant and ruled that the general provisions of the Civil Code must yield to the special regime created by the Condominium Act for properties recorded under Section 4. Consequently, Articles 448 and 546 do not apply to situations covered by the Condominium Act where unit owners are already in co-ownership and are governed by contractual rules.

Master Deed, By-Laws, and Corporate Action

The Court examined the Master Deed and By-Laws of Legaspi Towers. The Master Deed described the building as consisting of seven storeys with a deck roof and two levels above the deck. Concession 4 introduced an unauthorized third level above the roof deck and the Master Deed was never amended to permit such an addition. The By-Laws require member approval for extraordinary improvements costing more than PhP 100,000 or involving structural modification and empower the Board to enjoin, abate, or remedy violations and to assess abatement expenses against a defaulting member. The Court held that LEMANS’ internal agreement with a past corporate officer could not bind the condominium corporation, which acts only through its Board pursuant to Section 23 of the Corporation Code

Case Syllabus (G.R. No. 199353)

Parties and Procedural Posture

Leviste Management System, Inc. filed a petition under Rule 45 assailing the decision of the Court of Appeals in CA-G.R. CV No. 88082.
Legaspi Towers 200, Inc. filed a separate petition under Rule 45 consolidated with the petition of Leviste Management System, Inc. and cross-challenged the same Court of Appeals decision.
Engr. Nelson Q. Irasga, in his capacity as Municipal Building Official of Makati, and Hon. Jose P. De Jesus, in his capacity as Secretary of the Department of Public Works and Highways, were impleaded as third-party respondents in the trial court proceedings.
The Regional Trial Court, Branch 135, Makati City rendered the main judgment on October 25, 2005, which was affirmed by the Court of Appeals on May 26, 2011.
The consolidated Rule 45 petitions sought review of the Court of Appeals decision and related interlocutory rulings, with one petition being denied and the other granted by the Supreme Court.

Key Factual Allegations

Legaspi Towers 200, Inc. owns a condominium building consisting of seven floors with a roof deck and two levels above the roof deck identified as Concession 2 and Concession 3.
Leviste Management System, Inc. purchased Concession 3 from Leon Antonio Mercado on March 9, 1989, and subsequently constructed an additional structure on the roof deck called Concession 4 beginning October 1990.
Leviste Management System, Inc. obtained a building permit for Concession 4 and continued construction despite notices from Legaspi Corporation that the construction was illegal and attempts to bar entry of construction materials.
The Municipal Building Official declined requests by Legaspi Corporation to cancel the building permit on grounds that permit requirements were met and that the application bore the signature of the then president of Legaspi Corporation.
The trial court issued a writ of mandatory injunction on April 3, 1991 allowing completion of Concession 4, and later interlocutorily applied Article 448 and the doctrine of Depra v. Dumlao.
The trial court eventually ordered Legaspi Towers 200, Inc. to exercise its option to appropriate the additional structure or agree on lease terms, and the Court of Appeals affirmed the trial court’s decision while declaring LEMANS a builder in good faith.

Statutory Framework

Republic Act No. 4726 (The Condominium Act) governed the rights and incidents of condominium ownership in this case.
Article 448 and Article 546 of the Civil Code were relied upon by respondents and earlier courts in invoking the doctrine applicable to builders in good faith.
Article 699 of the Civil Code on remedies against public nuisance was invoked by Legaspi Towers 200, Inc. as an alternative ground for abatement.
Section 4, Section 2, Section 3(d), Section 6, and Section 10 of Republic Act No. 4726 were material in defining unit boundaries, common areas, and the regulatory scheme for condominium projects.
The Master Deed and the By-Laws of Legaspi Towers set forth contractual restrictions and procedures including approval requirements for extraordinary improvements and abatement procedures.
Section 23 of the Corporation Code was cited to emphasize that corporations act through their Board of Directors and that internal arrangements with individual officers cannot bind the corporation.

Issues Presented

Whether Article 448 of the Civil Code and the doctrine in Depra v. Dumlao apply to the construction of Concession 4 in a condominium project governed by Republic Act No. 4726 and by the Master Deed and By-Laws.
Whether Legaspi Towers 200, Inc. may abate or demolish Concession 4 despite a prior interlocutory finding that Leviste Management System, Inc. was a builder in good faith.
Whether the validity of the building permit for Concession 4 affects the right of Legaspi Towers 200, Inc. to abate the structure.

Contentions of the Parties

Leviste Management System, Inc. contended that it was a builder in good faith and that, under Article 4