G.R. No. 211845 - Pen Development Corp. vs. Martinez Leyba, Inc.

Case Summary (G.R. No. 211845)

Factual Background

Martinez Leyba, Inc. owned three contiguous titled lots in Antipolo, Rizal, registered as TCT Nos. 250242, 250243 and 250244. Las Brisas Resorts Corporation held adjacent land under TCT No. 153101, having occupied and fenced the property beginning in 1967. Martinez discovered in 1968 that Las Brisas’ fence overlapped Martinez’s land and thereafter sent several written notices, including letters dated March 11, 1968, March 31, 1970 and November 3, 1970, protesting encroachments and requesting cessation. Martinez commissioned a verification survey, which the Regional Technical Director for Lands approved as Verification Survey Plan Vs-04-000394 on May 23, 1996, showing encroachments totaling 3,454 square meters from Las Brisas’ TCT No. 153101 onto Martinez’s three titles.

Trial Court Proceedings

On March 24, 1997, Martinez Leyba, Inc. filed a Complaint for Quieting of Title, Cancellation of Title and Recovery of Ownership with Damages against Las Brisas, alleging that TCT No. 153101 cast a cloud over Martinez’s prior titles and that Las Brisas had constructed improvements on the overlapped areas. Las Brisas answered, denying encroachment and asserting that it acquired TCT No. 153101 in good faith and for value, and that Martinez was the encroacher.

Ruling of the Regional Trial Court

The RTC found that the verified survey plan proved overlapping of portions of Lots 29, 30 and 31 with TCT No. 153101 and that Martinez’s mother title dated from an original certificate registered in 1915 predating Las Brisas’ mother title registered in 1973. The RTC concluded that Las Brisas, although initially an innocent purchaser, lost good faith upon receipt of Martinez’s letters and thereafter acted in bad faith by continuing construction. Applying Articles 449, 450 and 451 of the Civil Code, the RTC ordered cancellation of the overlapping portions of TCT No. 153101, directed Las Brisas to vacate and remove improvements without right to indemnity, allowed Martinez to appropriate the improvements or compel payment for the land value, and awarded moral damages of P1,000,000.00, exemplary damages of P1,000,000.00, attorney’s fees of P100,000.00, and costs.

Ruling of the Court of Appeals

The CA affirmed the RTC’s factual finding of overlapping and the cancellation of the overlapped portions of TCT No. 153101. The CA held that Martinez’s repeated written notices put Las Brisas on inquiry and, by continuing construction, Las Brisas bore bad-faith possession under Articles 526 and 528 of the Civil Code. The CA declined to entertain, on appeal, Las Brisas’ hearsay objection to the verification survey because that issue was not raised below. The CA deleted the RTC’s awards of moral and exemplary damages for lack of factual basis and, instead, awarded nominal damages of Php100,000.00. The CA otherwise affirmed the RTC’s orders, including cancellation of the overlapped portions and removal of improvements.

Issues Advanced to the Supreme Court

Petitioners assigned errors contending that the CA and RTC erred in declaring them builders in bad faith; that Martinez’s claims were barred by laches; and that the CA erred in ruling that the hearsay issue regarding the verification survey could not be raised for the first time on appeal. Petitioners sought dismissal of Civil Case No. 97-4386 and restoration of the RTC’s original findings in their favor.

Petitioners’ Contentions

Pen Development Corporation and Las Brisas Resorts Corporation argued that they acquired TCT No. 153101 in good faith and relied on the indefeasibility of their Torrens title; that they were entitled as builders in good faith either to reimbursement for necessary expenses and retention of the land until paid or to remove improvements without damage to Martinez; that Martinez’s claim was barred by laches after nearly thirty years of occupation; and that the verification survey plan and relocation survey were hearsay and inadmissible because not properly authenticated.

Respondent’s Contentions

Martinez Leyba, Inc. maintained that the verification survey plan was a public document admissible without further authentication and that it established encroachment. Martinez argued that Las Brisas ceased to be an innocent possessor upon receipt of Martinez’s repeated written notices and that, under the Civil Code, a builder in bad faith loses the improvements without right to indemnity and the landowner is entitled to damages. Martinez further contended that laches does not bar a registered owner’s imprescriptible right to recover possession of registered land under the Torrens system.

Supreme Court Ruling

The Supreme Court denied the petition and affirmed the CA Decision and Resolution in toto. The Court held that Verification Survey Plan Vs-04-000394 was a public document entitled to the presumption of regularity and admissible without further authentication. The Court found that petitioners presented no clear, convincing or contradictory proof to overcome the survey’s certification by the Regional Technical Director for Lands. The Court agreed that Las Brisas lost the character of good-faith possessor upon receiving Martinez’s written notices and that continuing construction on the overlapped portions constituted bad faith.

Legal Basis and Reasoning

The Court relied on the Manual on Land Survey Procedures provisions empowering verification surveys and on authorities recognizing the probative value of a verification survey approved by the Regional Technical Director. The Court applied the Torrens-system rule favoring the earlier certificate of title against subsequent registrants and invoked Civil Code provisions that penalize building in bad faith — Articles 449, 450, 451 and 452 — to justify annulment of the overlapped portions of TCT No. 153101 and denial of indemnity to Las Brisas. The Court held that a builder in bad faith is not entitled to reimbursement for improvements where the occupation did not preserve the land or otherwise benefit the owner. The Court also sustained the CA’s procedural ruling that the hearsay objection to the verification survey was waived when not timely raised below. Finally, the Court reiterated that laches and prescription do not run against a registered owner’s right to recover possession under Section 47 of the Property Registration Decree (PD 1529).

Damages and Reliefs

The Supreme Court affirmed the cancellation of the portions of TCT No. 153101 that overlapped Martinez’s TCT Nos. 250242, 250243 and 250244, ordered Las Brisas to vacate and remove improvements at its expense without right to indemnity, and left intact the CA’s modification deleting moral and exemplary damages while affirming the award of nominal damages in the amount of Php100,000.00. The Court’s disposition l

Case Syllabus (G.R. No. 211845)

Parties and Procedural Posture

Pen Development Corporation and Las Brisas Resorts Corporation were appellants below and petitioners before the Supreme Court after the Court of Appeals affirmed with modification the Regional Trial Court decision.
Martinez Leyba, Inc. was the plaintiff below and the respondent before the Supreme Court and claimed title to three contiguous parcels covered by TCT Nos. 250242, 250243 and 250244.
The RTC, Branch 71, Antipolo City, rendered judgment on January 20, 2009, in Civil Case No. 97‑4386 in favor of Martinez Leyba, Inc..
The Court of Appeals issued its Decision on July 17, 2013, affirming the RTC with modification and issued a Resolution denying reconsideration on March 28, 2014.
The Supreme Court resolved to give due course to the petition and rendered a Decision affirming the Court of Appeals on August 9, 2017.

Key Facts

Martinez Leyba, Inc. was the registered owner of three contiguous parcels identified as Lot Nos. 29, 30 and 31, Block 3, (LRC) Pcs‑7305 and registered under TCT Nos. 250242, 250244 and 250243.
Las Brisas Resorts Corporation traced title to a parcel adjacent to Martinez and occupied and fenced the property in 1967 after acquiring title from Republic Bank.
Martinez discovered apparent encroachment as early as 1968 and sent a letter dated March 11, 1968, followed by six additional letters between 1970 and 1971, informing Las Brisas of the alleged overlap.
Martinez commissioned a verification survey, which the Regional Technical Director for Lands approved as Verification Survey Plan VS‑04‑000394 on May 23, 1996, and which showed specific overlaps.
The Verification Survey Plan revealed overlapping areas of 567 square meters in Lot No. 29, 1,389 square meters in Lot No. 30, and 1,498 square meters in Lot No. 31, for a total of 3,454 square meters allegedly encroached by Las Brisas.
Martinez filed a Complaint for Quieting of Title, Cancellation of Title and Recovery of Ownership with Damages on March 24, 1997, against Las Brisas.

Procedural History

The RTC conducted trial and admitted documentary and testimonial evidence from both parties and rendered judgment in favor of Martinez on January 20, 2009.
Petitioners filed a Motion for Reconsideration with the RTC, which was denied in an August 7, 2009 Order.
Petitioners appealed to the Court of Appeals under CA‑G.R. CV No. 97478, which issued its Decision on July 17, 2013 and denied reconsideration on March 28, 2014.
Petitioners filed a Petition for Review on Certiorari before the Supreme Court, which resolved to give due course and subsequently denied the petition.

Issues Presented

Whether petitioners were possessors and builders in bad faith when they constructed improvements on the overlapped areas.
Whether laches barred Martinez from seeking recovery of the encroached portions.
Whether the Verification Survey Plan and related survey documents were inadmissible hearsay that could be raised for the first time on appeal.

Petitioners' Contentions

Petitioners contended that they acquired TCT No. 153101 in good faith and for value and thus were builders in good faith entitled to reimbursement or retention until paid.
Petitioners argued that Martinez’s delay invoked laches and that Martinez should be barred from relief after nearly thirty years of inaction.
Petitioners asserted that the Verification Survey Plan and other survey documents were hearsay and inadmissible because they were not properly authenticated at trial.

Respondent's Contentions

Martinez Leyba, Inc. maintained that the verification survey established actual encroachment and that petitioners received repeated written notice which transformed any initial good faith into bad faith.
Martinez argued that as a registered owner its right to recover its property was imprescriptible and thus not barred by laches.
Martinez asserted that the Verification Survey Plan was a public document entitled to a presumption of regularity and admissibility.

Trial Court Ruling

The RTC found that the Verification Survey Plan showed overlapping of petitioners’ TCT No. 153101 over Martinez’s earlier titles and that Martinez’s mother title dated to 1915 preceded petitioners’ title of 1973.
The RTC held that petitioners acquired TCT No. 153101 in good faith when they