G.R. No. 116825 - San Lorenzo Village Association, Inc. vs. Court of Appeals

ADEC (Almeda Development & Equipment Corporation), the private respondent, initiated a petition for cancellation of restrictions annotated on Transfer Certificate of Title (TCT) No. 47348.
San Lorenzo Village Association, Inc. (SLVAI) is the petitioner who, along with San Lorenzo Company, Inc., is implicated in the restrictive covenants contained in the certificate of title.
The petition for cancellation was originally filed in the Regional Trial Court (RTC) of Makati, Branch 62 on December 13, 1991.
Two orders were issued by the RTC denying separate motions – one on March 31, 1992, and another on October 15, 1992 – in which the motion to dismiss the petition was rejected.
SLVAI subsequently filed a petition for certiorari before the Court of Appeals challenging the RTC decisions, which was also denied.
The case’s final procedural step involved a petition for review on certiorari before the Supreme Court.

The subject property is a parcel of land with a building and other improvements situated at Pasay Road, San Lorenzo Village, Makati, Metro Manila, as evidenced by TCT No. 47348.
The title bears an annotation (Entry No. 59599) imposing several restrictions including:

An automatic requirement that the owner (or successor in interest) becomes a member of SLVAI.
Limitations on subdividing the lot and on the type and height of any structures built.
Specific requirements for building setbacks, materials, and construction features (such as limitation of building height to 5 meters and requirements on spacing from boundaries).

These restrictions were originally imposed in 1958 when the lots were used purely for residential purposes, a condition which has since changed with the advent of commercial/industrial usage along Pasay Road.

They unduly limit its rights as a property owner under Article 428 of the Civil Code and the Constitution.
The conditions under which the restrictions were imposed (i.e., the purely residential character of the area) no longer exist, given the transformation to a mixed-use environment.
It neither wishes to be bound by the automatic membership in SLVAI nor is it reliant on the services traditionally provided by the association, such as security and waste management.
It intends to construct a taller building than allowed under the restrictive annotation.

ADEC is not a registered owner of the property since the deed of sale is yet to be registered, and therefore, it lacks the requisite cause of action.
The deed of sale (and the subsequent transfer of interest) does not bind third parties, meaning ADEC does not have standing to challenge the restrictions.
The cancellation of the restrictive covenant should be initiated only by members of SLVAI (i.e., registered owners of the lots) and with the requisite two-thirds majority vote.

ADEC relied on the principle that actual notice of sale is equivalent to registration, thus contending that its status as successor-in-interest confers upon it the capacity to sue.
The motion to dismiss raised by SLVAI was based on arguments that:

ADEC did not possess a sufficient cause of action, since its claim of ownership was largely inferential from a deed of sale.
The rules governing the cancellation of restrictive covenants in the title required that only association members could initiate the cancellation.

The RTC and later the Court of Appeals ruled that the factual allegations in ADEC’s complaint—accepted under the hypothetical admission principle—were sufficient to state a cause of action, thereby allowing the proceedings to move forward.

Whether the hypothetical admission principle applies such that the allegations—specifically, that ADEC is the successor-in-interest and thus the de facto owner by virtue of a deed of sale—grant ADEC the capacity to sue.
Whether the restrictive covenant annotated on TCT No. 47348, which includes compulsory membership in SLVAI and limitations on building structures, constitutes an unlawful restraint on ADEC’s right to enjoy and dispose of its property.
Whether the petition filed by ADEC properly alleges a cause of action despite challenges regarding its status as a real party in interest given the contention that only association members can seek cancellation of the title restrictions.
Whether the lower courts erred in dismissing the challenges raised by SLVAI on grounds such as lack of cause of action and ADEC’s non-membership, considering that such issues may be more appropriately addressed on the merits at trial.