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
A

Case Summary (G.R. No. 230426)

Key Dates and Procedural Posture

Relevant filings and decisions: HLURB Decision (Regional Office Arbiter) dated June 27, 2014; HLURB Board of Commissioners Resolution denying FHHAI’s appeal on September 22, 2014 (denial due to procedural defects in the surety bond); Court of Appeals Decision dated August 9, 2016 (reversing HLURB in part); CA Resolution denying reconsideration dated March 8, 2017; Supreme Court decision resolving petitions filed in G.R. Nos. 230426 and 230476, dated April 28, 2021.

Applicable Law and Authorities Cited

Primary instruments and authorities invoked in the litigation: Deeds of Absolute Sale and Deed of Exchange (containing contractual clauses subjecting title to Deed of Restrictions and homeowners’ association rules); Deed of Restrictions of Ferndale Homes; HLURB 2011 Revised Rules of Procedure (Section 52, Rule 14 on surety bond requirements); Republic Act No. 9904 (Magna Carta for Homeowners and Homeowners’ Associations) — referenced though its effective date post-dates the early impositions; Civil Code provisions — Article 1229 (reduction of penalties) and Article 1311 (contracts bind assigns); jurisprudence cited: People v. Togonon, Dy v. Aldea, MCMP Construction Co. v. Monark Equipment Corp., and Nacar v. Gallery Frames.

Factual Background — Property Transactions and Association Dues

Lots 1 to 8 in Block 2, Phase 4B of Ferndale Homes were sold on various dates to Salud C. Abayon, Ladislawa A. Castro, and Spouses Abayon. By Deed of Exchange dated March 18, 2005, Salud and Castro exchanged several Ferndale lots with properties of Spouses Abayon in Cebu City. As lot owners, Spouses Abayon became members of FHHAI and were assessed association dues. FHHAI charged unpaid dues, plus interest at 24% per annum and penalty at 8% per annum for late payments; Spouses Abayon paid certain sums under protest and filed a complaint before HLURB seeking reimbursement of dues paid for periods prior to their acquisition of certain lots and refund of interest/penalties alleged to be unauthorized or excessive.

HLURB Arbiter Ruling (June 27, 2014)

HLURB Arbiter Rigor granted Spouses Abayon’s complaint in material part: held that FHHAI’s by-laws did not impose liability on successors-in-interest for unpaid dues of prior owners, thus the Spouses should not be liable for dues accrued before their acquisition; reduced the 24% interest to 6% per annum; deleted the 8% penalty as redundant; ordered FHHAI to refund interests and penalties paid prior to January 2007 and the association dues and related charges for Lots 1, 3, 5 and 7 paid before March 18, 2005; awarded exemplary damages (P50,000), attorney’s fees (P25,000) and costs.

HLURB Board Action and FHHAI’s Appeal to the Court of Appeals

The HLURB Board of Commissioners denied FHHAI’s appeal on procedural grounds (defective surety bond formalities). FHHAI subsequently corrected the surety bond defects and elevated the appeal to the Court of Appeals. The CA reviewed both procedural compliance and the substantive claims.

Court of Appeals Decision (August 9, 2016)

The Court of Appeals reversed the HLURB decision in important respects: it found that FHHAI had cured the surety bond defects and that Spouses Abayon were liable for unpaid association dues that constituted liens on the properties by virtue of the Deed of Restrictions; it reduced, however, the interest and penalty rates from 24% and 8% to 12% and 6% per annum respectively; it ordered FHHAI to reimburse Spouses Abayon the amounts of interest and penalty paid in excess of those reduced rates; and it dismissed claims for reimbursement of paid association dues and claims for damages, attorney’s fees and litigation expenses.

Issues Presented to the Supreme Court

The Supreme Court identified and addressed threshold issues: (1) whether FHHAI complied with HLURB’s surety bond requirements under the 2011 Rules; (2) whether Spouses Abayon are liable for association dues that accrued prior to their acquisition of certain lots; (3) whether Spouses Abayon are liable for interest and penalties on late payment and, if so, at what rates; and (4) whether Spouses Abayon are entitled to exemplary damages and attorney’s fees.

Supreme Court: Compliance with HLURB Bond Requirement

The Supreme Court agreed with the Court of Appeals that FHHAI complied with Section 52, Rule 14 of the 2011 HLURB Rules. FHHAI’s Supersedeas Bond was jointly signed; an initial inadvertent omission of the appellant’s signature was later corrected and copies of the duly signed bond and supporting documents were filed and served on Spouses Abayon, thereby curing the defects noted by the HLURB Board.

Supreme Court: Liability for Pre-Acquisition Association Dues — Deed of Restrictions and Liens

The Supreme Court affirmed the Court of Appeals in holding Spouses Abayon liable for unpaid association dues that accrued prior to their acquisition of Lots 1, 3, 4 and 5. The point of the Court’s analysis was contractual and property-law based: the Deeds of Absolute Sale and the Deed of Restrictions expressly bound purchasers to the Deed of Restrictions and homeowners’ association by-laws and empowered the association to collect dues and assessments, which would constitute liens on the property junior only to government tax liens and voluntary mortgages. The Court relied on the concept that unpaid association dues are liens on the properties and therefore travel with the property; a subsequent purchaser takes the property subject to such liens. The Court also observed that Spouses Abayon had prior dealings and purchases in Ferndale Homes and were charged with knowledge of and bound by the Deed of Restrictions; they failed to demonstrate that titles were free of annotations of liens and did not prove due diligence in ascertaining the status of the lots. The Court emphasized Article 1311 of the Civil Code — contracts bind assigns — and noted that any remedy for reimbursement of sums paid to clear prior owners’ encumbrances should be pursued against those prior owners (Salud and Castro) under their warranty in the Deed of Exchange, not against FHHAI.

Supreme Court: Authority to Impose Interest and Penalties

The Court found that FHHAI had authority to impose interest and penalties pursuant to the house rules and the Deed of Restrictions, independent of RA 9904 (the latter became effective only in 2010 and could not have been the source of authority for impositions predating it). The 2002 House Rules explicitly provided for 24% per annum interest on late accounts and an additional 8% per annum penalty on delinquent accounts.

Supreme Court: Reduction of Interest and Penalty Rates — Equitable Jurisdiction under Article 1229

While recognizing FHHAI’s authority to impose contractual interest and penalties, the Supreme Court applied Article 1229 of the Civil Code and relevant jurisprudence to reduce unconscionable penalties. Citing prior decisions (including MCMP Construction Co. v. Monark Equipment Corp.), the Court held that the stipulated rates of 24%

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