Title
Ferndale Homes Homeowners Association, Inc. vs. Spouses Abayon
Case
G.R. No. 230426
Decision Date
Apr 28, 2021
Spouses Abayon contested liability for pre-ownership association dues, interest, and penalties on Ferndale Homes lots. Courts ruled they inherited dues via property liens, reduced rates, and denied damages.
excessive interest
penalty charge
association dues

Case Summary (G.R. No. 230426)

Facts and Lot Ownership History

Ferndale Homes was a residential subdivision project. FHHAI’s members’ dues and assessments formed part of the subdivision’s contractual and regulatory framework, principally through Ferndale Homes’ Deed of Restrictions, FHHAI’s Articles of Incorporation and By-Laws, and FHHAI’s House Rules. The decision recounted that Lots 1 to 8 in Block 2, Phase 4B, were sold to various owners on specified dates: Lot 1 was purchased by Salud C. Abayon on February 16, 2004; Lot 2 was purchased by Spouses Abayon on October 8, 2004; Lot 3 was purchased by Salud on August 11, 2003; Lot 4 was purchased by Spouses Abayon on October 15, 2004; Lot 5 was purchased by Ladislawa A. Castro on May 13, 2003; and Lots 6, 7, and 8 were later transferred in a manner that resulted in Spouses Abayon owning certain lots at different times, including through a Deed of Exchange of Real Property dated March 18, 2005 between Salud and Castro and Spouses Abayon’s properties in Cebu City. On account of their ownership, Spouses Abayon became members of FHHAI and were required to pay association dues. FHHAI also imposed twenty-four percent (24%) interest and an eight percent (8%) penalty per annum for late payments.

Payments Made and the Basis of the Complaint

The facts disclosed that Spouses Abayon paid association dues and, together with them, the interest and penalty charged by FHHAI, for various lots and periods, and made these payments under protest. Their protest was premised on their position that they acquired specific lots only on certain dates and that dues, interest, and penalties that accrued before acquisition should not be charged to them. Their complaint, filed with the Housing and Land Use Regulatory Board (HLURB) in December 2013, sought sum of money and damages. They argued that they acquired Lots 1, 3, and 5 only on March 18, 2005, while Lot 4 was acquired only on October 15, 2004. They thus demanded reimbursement of association dues for defined periods prior to those acquisition dates, and they also challenged the 24% interest and 8% penalty as lacking basis and as excessive, unconscionable, and unjust. They further contended that FHHAI had no authority to impose those charges.

FHHAI’s Defense

FHHAI countered that by accepting the lots, Spouses Abayon also accepted the Deed of Restrictions, as well as FHHAI’s House Rules and By-Laws, including the assessment and collection provisions, the liens for unpaid dues, and the imposition of 24% interest and 8% penalty for late payments. FHHAI’s theory was that Spouses Abayon, as successors-in-interest and as members, stepped into the contractual obligations attached to the properties.

HLURB Ruling

By Decision dated June 27, 2014, HLURB Regional Office Arbiter Ma. Larina J. Rigor granted the complaint. The HLURB found that while the FHHAI By-Laws required members to pay membership dues, it did not obligate successors-in-interest to pay the unpaid dues of previous members or previous lot owners. On this basis, Spouses Abayon were not liable for dues that accrued prior to their acquisition of the subject lots. The HLURB also ruled that the 24% interest was highly excessive and reduced it to 6%; it deleted the 8% penalty because it served the same purpose as the interest on delayed payments. The HLURB further held that although the 2006 FHHAI House Rules showed a 24% interest and 8% penalty, those could be imposed only beginning in 2007. The HLURB’s dispositive portion ordered reimbursement for interest and penalties paid prior to January 2007, and reimbursement of association dues for defined lots and periods before March 18, 2005 for Lots 1, 3, 5, and related handling, together with legal interest, plus exemplary damages, attorney’s fees, and costs. It dismissed all other claims and counterclaims.

Appeal to the Court of Appeals

FHHAI appealed to the Court of Appeals after the HLURB Board of Commissioners denied its subsequent appeal for procedural lapses related to the surety bond. The Court of Appeals, in a Decision dated August 9, 2016 and a Resolution dated March 8, 2017 denying reconsideration, reversed the HLURB. It ordered that (i) the interest rate for late payments be reduced to 12% per annum, (ii) the penalty charge be reduced to 6% per annum, and (iii) Spouses Abayon were to be reimbursed only of the interests and penalties paid in excess of those reduced rates. The Court of Appeals also dismissed Spouses Abayon’s claim for reimbursement of association dues, and it dismissed the claims for damages, attorney’s fees, and litigation expenses. It remanded the case to the HLURB National Capital Region Field Office for appropriate computation of reimbursable amounts.

Court of Appeals’ Key Findings

The Court of Appeals found that FHHAI actually complied with the surety bond requirements for the appeal before the HLURB Board of Commissioners, reasoning that FHHAI corrected earlier defects as shown in its supplemental filings before the HLURB Commissioners. It also held that Spouses Abayon were liable for dues even for periods accruing before their acquisition. It reasoned that under Ferndale Homes’ Deed of Restrictions, unpaid assessments constituted liens on the property, and that liens were deemed assumed upon acquisition of the lots. As to interest and penalties for late payment, the Court of Appeals held them to be imposable under the relevant FHHAI House Rules, but it reduced the rates from 24% to 12% interest per annum and from 8% to 6% penalty per annum. It deleted damages and attorney’s fees for lack of basis, in line with its disposition reversing the HLURB.

The Petitions and the Threshold Issues

In G.R. No. 230476, Spouses Abayon sought reinstatement of the HLURB rulings. They argued, first, that FHHAI’s bond compliance was defective because the required joint declaration under oath had been signed only by the bonding company and not by FHHAI itself, as contemplated by Section 52, Rule 14 of the 2011 Revised Rules of Procedure of the HLURB. Second, they argued they should not be liable for association dues accruing prior to acquisition because the By-Laws allegedly imposed no such successor liability and because the supposed liens were not annotated on the titles. Third, they argued FHHAI had no authority to impose the interest and penalty in the first instance and that the charged rates were excessive and contrary to morals. Finally, they asserted that the Court of Appeals erred in deleting exemplary damages and attorney’s fees because FHHAI allegedly did not question those awards on appeal. In G.R. No. 230426, FHHAI assailed the Court of Appeals rulings insofar as they reduced interest and penalty for late payment, invoking jurisprudence that allegedly declined to reduce similar default loan rates. Both petitions raised threshold questions on bond compliance, successor liability for prior dues, the enforceability of interest and penalty, the applicable rates, and entitlement to damages and attorney’s fees.

Supreme Court Disposition: Petitions Denied with Modification

The Court denied both petitions for lack of merit. It affirmed the Court of Appeals’ general disposition but modified it on the rates and the corresponding refund mechanics. It held that FHHAI complied with the surety bond requirement, that Spouses Abayon were liable for association dues that accrued prior to their acquisition of certain lots, and that FHHAI had authority to impose interest and penalty for late payment. However, the Court held that the interest and penalty imposed had to be equitably reduced, setting the interest at 12% per annum and the penalty at 6% per annum. It also clarified the award of refund and ordered that the reimbursable amounts earn six percent (6%) interest per annum from finality of the Court’s Decision until fully paid.

Supreme Court Ruling on Surety Bond Compliance

On the procedural issue, the Court agreed with the Court of Appeals that FHHAI complied with the bond requirement under Section 52, Rule 14 of the 2011 Revised Rules of Procedure of the HLURB. The Court found that the Supersedeas Bond dated July 25, 2014 was jointly signed by FHHAI President Atty. Felipe P. Cruz and an authorized representative of the bonding company. The Court acknowledged that Atty. Felipe admitted an initial failure to sign the endorsement portion through inadvertence, but it noted that the defect was corrected by attaching copies of the duly signed Supersedeas Bond to FHHAI’s subsequent comment and that Spouses Abayon were served a copy of that comment. Thus, the earlier deficiencies identified by the HLURB Commissioners had been cured.

Supreme Court Ruling on Prior Accrued Association Dues and Liens

The Court held that the Court of Appeals did not err in reversing the HLURB and dismissing Spouses Abayon’s claim for reimbursement of association dues. The Court anchored its ruling on the contractual framework in the Deed of Restrictions and the structure of liens attached to the properties. It clarified that, even though Spouses Abayon contested interests and penalties on the late payment of association dues, the reimbursement they pursued before the Court pertained to association dues for Lots 1, 3, 4, and 5. The Court then relied on the deed provisions governing ownership and membership, including the stipulation that purchasers agreed to be bound by the Deed of Restrictions, and the provision that membership in the association and the obligation to pay duly levied dues and assessments applied from the time of full purchase price payment and membership acquisition. It emphasized that, under the Deed of Restrictions, the association was authorized to collect dues or assessments and that those charges would constitute a lien on the property, junior only to government tax liens and voluntary mortgages entered in good faith. Using People v. Togonon, the Court described a lien as a charge on property for the payment of an obligation and treated unpaid association dues as

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