G.R. No. 146555 - Cordova vs. Reyes, Daway, Lim, Bernardo, Lindo, Rosales Law Offices

On February 12, 1948, respondent Pedro J. Velasco purchased three (3) lots from the Peoples Homesite and Housing Corporation (PHHC) located at the corner of the then South D and South 6 Streets in Quezon City.
The Deed of Sale contained restrictive covenants, including:

A stipulation that the lots and any construction thereon be used exclusively for residential purposes, expressly prohibiting any business, industrial, or factory uses.
A provision granting the vendor the right to enter the premises to install electric lines or other utilities for the community.
A condition that the burdens and restrictions would bind not only the immediate parties but also their heirs, executors, administrators, successors, and assigns.

Though not printed word-for-word, these restrictive conditions were substantially annotated on the title issued to Velasco.

On January 31, 1952, Velasco sold two of the three lots (collectively referred to as the PROPERTY) to petitioner Manila Electric Company (MERALCO), the public utility provider in the Manila area, including Quezon City.
In 1953, MERALCO established an electric substation within the PROPERTY, with construction commencing in September 1953 and completed the following November.

On November 29, 1954, Velasco communicated his concern by letter to MERALCO regarding the effects of the substation, specifically citing:

Severe and incessant noise that made life unbearable for his family in what was supposed to be a residential district.
Adverse effects on his artesian well due to electrification of the ground.
A characterization of the residential district as having been illegally converted into a “dangerous factory-like site.”

On February 1, 1955, Velasco initiated the so-called "Nuisance Case" in the Court of First Instance of Rizal, seeking:

The trial court initially dismissed the case; however, upon appeal, this Court ordered MERALCO on August 6, 1971, to either move the substation or rectify the noise situation at the boundary of the two properties within a stipulated period.

On November 23, 1957, Velasco filed a separate "Cancellation Case" in the Court of First Instance of Rizal, seeking:

The rescission of the sale of the PROPERTY to MERALCO based on violation of the residential use restriction.
Collection of rentals for the occupation of the PROPERTY by MERALCO.

The trial court dismissed the cancellation complaint on the ground that filing both cases split the single cause of action.
The Court of Appeals later reversed this dismissal, holding that the cause of action for abatement of nuisance was distinct from that for rescission of the contract of sale.

This Court set aside the decision of the Appellate Tribunal regarding the cancellation claim.
The Court underscored that the right of action stemming from the “residential purposes” restriction was vested in PHHC, not Velasco.
The Court addressed the interpretation of “residential purposes” in the larger context of the subdivided community and the essential nature of electric utilities in residential areas.
Velasco’s actions, including his inaction at the time of the substation’s erection and subsequent acceptance of its operation (barring timely objection except for later noise issues), led to the application of contractual estoppel and collateral estoppel by judgment.
Ultimately, Velasco’s complaint in the cancellation case was dismissed without costs.

Whether the restrictive covenant in the original contract—with an exclusive "residential purposes" requirement—conferred the right of action on Velasco or solely on PHHC, the vendor.
Whether the contractual arrangement precluded Velasco from seeking cancellation of the title transferred to MERALCO.

Whether the construction and operation of an electric substation within the PROPERTY violated the restriction on “residential purposes.”
The extent to which the term “residential purposes” should be interpreted in light of the broader community and utility needs of a subdivided residential area.

Whether Velasco’s subsequent objection to the substation (after initially tolerating its construction) constitutes a basis for cancellation given the principle of contractual estoppel.
Whether his conduct, including accepting the substation without early objection, estops him from later alleging breach of the contractual restriction.

Whether the previous determinations in the Nuisance Case (which acknowledged the legality of the substation’s establishment subject to noise reduction) result in collateral estoppel that bars Velasco’s cancellation claim in the later case.