Dear Atty. Gab,

Musta Atty! I hope you can shed some light on a very frustrating situation I’m facing. My name is Ricardo Cruz, and about 15 years ago, I bought a parcel of land in Batangas City for about P50 per square meter. Recently, I discovered that the neighboring property, owned by a corporation called “Progressive Builders Inc.”, built their perimeter fence incorrectly, encroaching on about 100 square meters of my land.

We went to court, and thankfully, the judge ruled in my favor. The court decision ordered Progressive Builders Inc. to reimburse me for the value of the 100 square meters they occupied. Here’s the problem: Progressive Builders insists they should only pay me P50 per square meter, which was the price I originally paid 15 years ago! That comes out to only P5,000. But land values have significantly increased, and similar lots in the area now sell for around P2,000 per square meter. Paying me the old price feels incredibly unfair given how much property values have risen and the hassle I’ve gone through.

To make matters worse, Progressive Builders Inc. is claiming they don’t have enough funds or assets to pay even the P5,000. However, I know their General Manager, Mr. Alfredo Fernandez, lives quite lavishly and seems to have plenty of personal wealth. Can the court go after Mr. Fernandez’s personal bank accounts or properties to satisfy the corporation’s debt to me? I feel stuck and unsure about what amount I’m truly entitled to and how to actually collect it. Any guidance would be greatly appreciated.

Salamat po,
Ricardo Cruz

Dear Ricardo,

Thank you for reaching out. I understand your frustration regarding the encroachment issue and the complications with collecting the judgment award from Progressive Builders Inc. It’s indeed challenging when dealing with property disputes, especially concerning fair valuation and corporate liability.

Generally, when a landowner opts to compel the encroaching party (the builder) to pay for the land, Philippine law favors using the current market value of the property at the time of payment, not the original purchase price. This principle aims to provide just compensation. Regarding the manager’s liability, the law typically treats corporations as separate legal entities from their officers. Holding an officer personally liable for corporate debt is possible but requires meeting specific legal standards, often involving proof of bad faith or fraud.

Understanding Fair Compensation and Corporate Shields

Your situation touches upon two important legal principles: the proper valuation of property in encroachment cases under the Civil Code and the doctrine of separate juridical personality for corporations.

When someone builds on another’s land, the Civil Code provides remedies. If the builder acted in good faith, the landowner (you, in this case) typically has options. One key option, relevant here since the court ordered reimbursement for the land’s value, is to essentially sell the encroached portion to the builder. The critical question becomes: at what price? Should it be the historical cost or the present value?

Jurisprudence clarifies this point. The goal is fair compensation reflecting the property’s worth at the time the obligation to pay arises, which is generally considered the time the landowner makes their choice or when payment is due following a final judgment. Using the original purchase price from years ago would not adequately compensate you for the current value of the land you are effectively being forced to part with due to the encroachment. The law recognizes that values change, and compensation should reflect present-day realities.

“Although these provisions of the Civil Code do not explicitly state the reckoning period for valuing the property… in the event that the seller elects to sell the lot, ‘the price must be fixed at the prevailing market value at the time of payment.’ …the present or current fair value of the land is to be reckoned at the time that the landowner elected the choice, and not at the time that the property was purchased.”

This principle ensures fairness, acknowledging that the P50 you paid years ago has a vastly different purchasing power today. Requiring reimbursement at only P50 per square meter would unjustly enrich the encroacher at your expense. Therefore, the court’s initial determination, if based on current value (like the P1,800/sqm mentioned in a similar situation analyzed by the Supreme Court, although we don’t cite the specific case), aligns better with established legal interpretation than the corporation’s P50/sqm stance.

Now, let’s address the issue of collecting from Progressive Builders Inc. and the potential liability of its General Manager, Mr. Fernandez. The general rule is anchored on the doctrine of separate juridical personality.

“A corporation is a juridical entity with a legal personality separate and distinct from those acting for and on its behalf and, in general, of the people comprising it. Hence, the obligations incurred by the corporation, acting through its officers… are its sole liabilities.”

This means Progressive Builders Inc. is legally distinct from Mr. Fernandez. Its debts are its own, not his personally. His perceived wealth generally doesn’t automatically make him liable for the corporation’s judgment debt, nor does it typically allow you to garnish his personal bank accounts.

However, there’s an exception called piercing the veil of corporate fiction. This doctrine allows courts to disregard the separate corporate personality if it’s proven that the corporate structure is being misused – for example, to perpetrate fraud, justify a wrong, defend crime, or defeat public convenience. To hold Mr. Fernandez personally liable, you would need to convince the court to pierce this veil.

This is not easily done. The law requires caution and substantial proof.

“Any piercing of the corporate veil has to be done with caution… The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.”

Furthermore, you’d specifically need to establish Mr. Fernandez’s bad faith in relation to this obligation.

“…in order for us to hold [an officer] personally liable alone for the debts of the corporation and thus pierce the veil of corporate fiction, we have required that the bad faith of the officer must first be established clearly and convincingly.”

Simply showing the corporation claims insolvency while the manager appears wealthy is usually insufficient. You would need concrete evidence that Mr. Fernandez is using the corporation as a mere alter ego or business conduit for his personal dealings, or that he acted fraudulently or in bad faith in managing the corporation specifically to evade this debt to you. Without such clear proof, attempts to garnish his personal assets for the corporation’s debt will likely fail.

Practical Advice for Your Situation

• Assert Current Value: Firmly argue, based on legal principles, that the reimbursement must be based on the land’s current fair market value at the time of payment, not the outdated P50/sqm price.
• Gather Valuation Evidence: Obtain official property appraisals or evidence of recent sales of comparable lots in your area to establish the current market value (e.g., P2,000/sqm). Present this to the court during the execution stage.
• Focus on Corporate Assets: Initially, direct your collection efforts towards any assets owned by Progressive Builders Inc. itself, however minimal they claim them to be. Work with the court sheriff to identify and levy corporate assets.
• Burden of Proof for Piercing: Understand that holding Mr. Fernandez personally liable requires overcoming the high threshold of piercing the corporate veil. Suspicions about his wealth are not enough.
• Evidence is Key: If you intend to pursue Mr. Fernandez personally, you must gather strong, convincing evidence of fraud, bad faith, or his treating the corporation as a mere facade for his personal affairs, directly linked to avoiding this debt.
• Consult a Litigation Lawyer: Engage a lawyer experienced in execution of judgments and corporate litigation. They can help enforce the judgment against the corporation and advise on the feasibility and strategy for attempting to pierce the corporate veil based on available evidence.
• Document Everything: Keep meticulous records of all court orders, communications with Progressive Builders Inc., attempts to collect, and any evidence gathered regarding the corporation’s assets or potential misuse by Mr. Fernandez.
• Manage Expectations: While you are likely entitled to the current market value, collecting it can be challenging, and piercing the corporate veil is an uphill battle reserved for specific circumstances of proven wrongdoing.

Dealing with encroachment and collection issues requires persistence and adherence to legal procedures. Ensure your claim for reimbursement reflects the fair, current value of your property, and carefully evaluate the evidence before attempting to pursue the personal assets of the corporate manager.

Hope this helps!

Sincerely,
Atty. Gabriel Ablola

For more specific legal assistance related to your situation, please contact me through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This correspondence is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please schedule a formal consultation.