Key Takeaway: Establishing Bad Faith in Property Encroachment Requires Clear Evidence

Princess Rachel Development Corporation and Boracay Enclave Corporation, Petitioners, vs. Hillview Marketing Corporation, Stefanie Dornau and Robert Dornau, Respondents, G.R. No. 222482, June 02, 2020

Imagine waking up to find that a neighbor has built a luxurious condominium on your property without your consent. This is not a far-fetched scenario but a real-life situation faced by Princess Rachel Development Corporation (PRDC) and Boracay Enclave Corporation. Their case against Hillview Marketing Corporation (Hillview) and its officers, Stefanie and Robert Dornau, revolved around a significant encroachment dispute. The central question was whether Hillview acted in good faith or bad faith when it constructed the Alargo Residences on PRDC’s land. This case underscores the importance of understanding the nuances of property rights and the legal implications of encroachment.

The dispute began when PRDC discovered that Hillview had built on a portion of their land in Boracay. Despite PRDC’s demands for Hillview to vacate, the latter refused, leading to a legal battle that traversed the Regional Trial Court (RTC) and the Court of Appeals (CA) before reaching the Supreme Court. The crux of the issue was whether Hillview’s actions constituted bad faith, a determination that would significantly affect the legal remedies available to PRDC.

Legal Context: The Concept of Good Faith and Bad Faith in Property Law

In Philippine jurisprudence, the concepts of good faith and bad faith are pivotal in determining the rights and obligations of parties in property disputes. Under the Civil Code of the Philippines, good faith is presumed, and the burden of proving bad faith lies on the party alleging it. Article 527 of the Civil Code states, “Good faith is always presumed, and upon him who alleges bad faith on the part of a possessor rests the burden of proof.”

Good faith is defined as an honest belief in the validity of one’s right, ignorance of a superior claim, and absence of intention to overreach another. Conversely, bad faith involves a state of mind affirmatively operating with furtive design or some motive of self-interest or ill will for ulterior purposes.

When it comes to property encroachment, the Torrens system of land registration plays a crucial role. Under Presidential Decree No. 1529, known as the Property Registration Decree, registered land titles are considered indefeasible. Section 52 of the decree provides that every conveyance or instrument affecting registered land, if registered, serves as constructive notice to all persons. This means that parties dealing with registered land are presumed to have knowledge of the title’s contents, including the property’s metes and bounds.

For instance, if a homeowner mistakenly builds a fence on a neighbor’s registered property, the law presumes that the homeowner should have known the boundaries as stated in the neighbor’s title. However, the Supreme Court has acknowledged that determining the exact boundaries of a property based solely on a title can be challenging, even for experts. This acknowledgment has led to cases where builders were deemed to have acted in good faith despite encroaching on registered land.

Case Breakdown: The Journey of PRDC vs. Hillview

PRDC, a registered landowner, discovered in 2007 that Hillview had encroached upon 2,783 square meters of their property. The encroachment was substantial, visible to the naked eye, and not merely negligible. PRDC promptly sent demand letters to Hillview, but when these were ignored, they filed a complaint for accion publiciana and damages against Hillview and its officers, Stefanie and Robert Dornau.

The RTC found that Hillview acted in bad faith, based on the testimony of Engineer Reynaldo Lopez, who had informed Hillview’s representative, Martin Dornau, of the encroachment. Despite this knowledge, Hillview proceeded with the construction. The RTC ordered Hillview to vacate and demolish the encroaching structures at its own cost.

On appeal, the CA reversed the finding of bad faith, arguing that Hillview had relied on the survey plans prepared by Engineer Lopez, which did not indicate any encroachment. The CA held that Hillview was a builder in good faith and applied Articles 448, 546, and 548 of the Civil Code, which provide remedies for builders in good faith.

The Supreme Court, however, reinstated the RTC’s decision. The Court emphasized that Hillview could not feign ignorance of the substantial encroachment, especially given Engineer Lopez’s testimony. The Supreme Court stated, “Hillview was also actually informed by Engineer Lopez of the intrusion, but nevertheless proceeded with the development.” Furthermore, the Court noted that Hillview, as a large property developer, should have exercised a higher degree of diligence in verifying the property’s boundaries.

The Supreme Court’s decision highlighted several key points:

• Hillview’s knowledge of the encroachment was established through Engineer Lopez’s testimony.
• The substantial size of the encroachment (2,783 square meters) was visible and should have been apparent to Hillview.
• Hillview’s failure to conduct a proper survey and its reliance on erroneous plans did not absolve it of bad faith.

The Court ordered Hillview to vacate the encroached portions and pay nominal damages of P100,000.00 to PRDC, recognizing PRDC’s rights as a landowner in good faith.

Practical Implications: Navigating Property Encroachment Disputes

This ruling reinforces the importance of due diligence in property development and the consequences of encroachment on registered land. Property developers and owners must ensure accurate boundary surveys before commencing construction to avoid legal disputes. The case also underscores that bad faith in encroachment cases can be established through clear evidence of knowledge and deliberate action despite such knowledge.

For property owners, this decision highlights the protection afforded by the Torrens system. Registered landowners can rest assured that their titles are indefeasible, and they have the right to eject any person illegally occupying their property.

Key Lessons:

• Conduct thorough boundary surveys before building to prevent encroachment disputes.
• Understand that ignorance of property boundaries is not a defense against claims of bad faith.
• Registered landowners should promptly act upon discovering encroachment to protect their rights.

Frequently Asked Questions

What constitutes bad faith in property encroachment?

Bad faith in property encroachment is established when the builder knowingly constructs on another’s land without permission and with the intent to encroach.

How can a property owner protect their land from encroachment?

Property owners should ensure their land is registered under the Torrens system and conduct regular boundary surveys. Prompt action upon discovering encroachment is crucial.

Can a builder in bad faith be forced to demolish their construction?

Yes, if a builder is found to have acted in bad faith, the landowner can demand the demolition of the encroaching structure at the builder’s expense.

What is the significance of the Torrens system in property disputes?

The Torrens system provides a strong legal framework for property ownership, ensuring that registered titles are indefeasible and serve as constructive notice to all parties.

How can property developers avoid legal issues related to encroachment?

Developers must verify property boundaries through accurate surveys and ensure they do not build beyond their legal rights. Consulting with legal experts can also help mitigate risks.

ASG Law specializes in property law and real estate disputes. Contact us or email hello@asglawpartners.com to schedule a consultation and protect your property rights effectively.