In a dispute over overlapping land titles, the Supreme Court affirmed the principle that the earlier registered title generally prevails. However, the Court also considered the complexities of determining “good faith” in construction on contested land, impacting the liabilities of builders who may have relied on a later-issued title. This case clarifies the rights and responsibilities of landowners and builders when title conflicts arise, highlighting the importance of due diligence and the potential for mitigating damages even when encroachment occurs.

Building on Shifting Sands: Can Good Faith Justify Encroachment on a Prior Title?

Pen Development Corporation and Las Brisas Resort Corporation (collectively, “Las Brisas”) found themselves in a legal battle with Martinez Leyba, Inc. (“MLI”) over land in Antipolo, Rizal. MLI claimed that Las Brisas had encroached upon its registered property, relying on a verification survey that showed an overlap between their respective titles. Las Brisas countered that it had purchased its land in good faith and relied on the validity of its title, Transfer Certificate of Title (TCT) 153101. The central legal question was whether Las Brisas was a builder in bad faith, and thus liable for demolition and damages, despite holding a valid title that overlapped with MLI’s earlier-registered titles. The Regional Trial Court (RTC) ruled in favor of MLI, ordering Las Brisas to vacate the encroached portions and remove its structures. The Court of Appeals (CA) affirmed this decision but modified the damages awarded.

At the heart of the dispute was the principle of priority in land registration. Philippine jurisprudence firmly establishes that when two certificates of title cover the same land, the earlier in date prevails. The Supreme Court, in affirming the CA’s decision, reiterated this principle. MLI’s titles, derived from Original Certificate of Title (OCT) No. 756 registered in 1915, predated Las Brisas’ TCT 153101, which originated from OCT 9311 registered in 1973. This established MLI’s superior right to the portions of land covered by the overlap. The Court quoted the established doctrine:

‘When two certificates of title are issued to different persons covering the same land, in whole or in part, the earlier in date must prevail and in cases of successive registrations where more than one certificate of title is issued over the same land, the person holding a prior certificate is entitled to the land as against a person who relies on a subsequent certificate.’

However, the determination of whether Las Brisas acted in good faith as a builder significantly impacted the remedies available to MLI. The Civil Code distinguishes between builders in good faith and those in bad faith, with different consequences for each. A builder in good faith is one who is unaware of any defect in their title or mode of acquisition, while a builder in bad faith knows of the defect or is negligent in discovering it.

MLI argued that Las Brisas was a builder in bad faith because it had been notified of the encroachment as early as 1968, yet continued to construct improvements on the disputed land. The Court acknowledged that Las Brisas had received several letters from MLI informing them of the overlapping titles and demanding that they cease construction. Despite these notices, Las Brisas proceeded with development, leading the Court to conclude that they could not claim ignorance of the defect in their claim to the land. The Court cited Article 528 of the Civil Code, stating that possession in good faith ceases from the moment defects in the title are made known to the possessors.

Article 449 of the Civil Code states: “He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right to indemnity.”

Las Brisas contended that it relied on the validity of its TCT 153101 and should be considered an innocent purchaser for value. The Court rejected this argument, stating that while Las Brisas may have acquired the land in good faith, this did not excuse their subsequent actions after being notified of the encroachment. The Court emphasized that Las Brisas should have conducted its own survey to verify the boundaries of its property and avoid encroaching on MLI’s land. Their failure to do so demonstrated a lack of diligence and further supported the finding of bad faith. However, the dissenting opinion argued that Las Brisas’ good faith should be considered up until the point that a court declared their title null and void.

The consequences of being deemed a builder in bad faith are severe. Under Article 449 of the Civil Code, a builder in bad faith loses what is built without right to indemnity. The landowner has the right to demand demolition of the work or compel the builder to pay the price of the land. Additionally, Article 451 of the Civil Code entitles the landowner to damages from the builder in bad faith.

The Court also addressed the issue of laches, which Las Brisas argued should bar MLI’s claim. Laches is the failure to assert a right within a reasonable time, which can lead to the presumption that the right has been abandoned. However, the Court held that laches does not apply to registered land covered by the Torrens system. As the registered owner, MLI had the imprescriptible right to recover possession of its land from any illegal occupant.

Ultimately, the Supreme Court upheld the CA’s decision, finding Las Brisas to be a builder in bad faith and affirming MLI’s right to recover the encroached portions of its land. This case reinforces the importance of due diligence in land transactions and the consequences of proceeding with construction despite notice of potential title conflicts.

FAQs

What was the key issue in this case?	The central issue was whether Las Brisas, who built on land covered by its title that overlapped with MLI’s earlier-registered titles, was a builder in bad faith and liable for demolition and damages.
What is the significance of prior registration in land disputes?	Prior registration establishes a superior right to the land. When two certificates of title cover the same land, the earlier in date prevails, according to Philippine jurisprudence.
What constitutes good faith in land possession and construction?	Good faith implies an honest belief in the validity of one’s right or title, ignorance of a superior claim, and absence of intention to overreach another. It is assessed based on the possessor’s awareness of any flaws in their title or mode of acquisition.
What happens when a builder is deemed to be in bad faith?	A builder in bad faith loses what is built, planted, or sown without right to indemnity. The landowner can demand demolition or compel the builder to pay the price of the land, and is also entitled to damages.
How did the court determine that Las Brisas was in bad faith?	The court found that Las Brisas was in bad faith because it had been notified of the encroachment through multiple letters from MLI but continued with construction. Las Brisas also failed to conduct its own survey to verify its boundaries.
Does laches apply in cases involving registered land?	No, laches does not apply to registered land covered by the Torrens system. The registered owner has the imprescriptible right to recover possession of the land from any illegal occupant.
What is the Torrens system of land registration?	The Torrens system is a system of land registration where a certificate of title serves as conclusive evidence of ownership. Once a title is registered, the owner can rest secure, without the need to constantly defend their ownership.
What should a buyer do to avoid land disputes?	A buyer should conduct thorough due diligence, including verifying the title, conducting a survey, and investigating any potential claims or encumbrances on the property.

This case underscores the critical importance of conducting thorough due diligence before undertaking any construction on land. While reliance on a valid title is a factor, it does not absolve landowners of the responsibility to ensure they are not encroaching on neighboring properties. By prioritizing careful investigation and open communication, potential disputes can be avoided, and the rights of all parties can be protected.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: PEN DEVELOPMENT CORPORATION AND LAS BRISAS RESORT CORPORATION vs. MARTINEZ LEYBA, INC., G.R. No. 211845, August 09, 2017