Title
Geromo vs. La Paz Housing and Development Corp.
Case
G.R. No. 211175
Decision Date
Jan 18, 2017
Petitioners sued La Paz for structural damage to housing units due to improper soil compaction. SC held La Paz liable under res ipsa loquitur, awarding damages; GSIS absolved.
structural defects
houses
lender

Case Summary (G.R. No. 211175)

Factual Background

The petitioners acquired their housing units through conditional sale arrangements with La Paz, with GSIS financing the purchase prices for each unit. Geromo, Bustamante, and Yambot began occupying their homes in 1987, specifically those on Block 2 (Pearl Street) of Adelina 1-A Subdivision. Buentipo initially chose to demolish his turned-over unit and build a new structure thereon. After more than two years of occupation, cracks appeared on the petitioners’ floors and walls. The petitioners, acting through the President of the Adelina 1-A Homeowners Association, asked La Paz to take remedial action. The petitioners decided to construct a riprap/retaining wall along the old creek, believing water seepage had undermined the foundation.

La Paz opposed the need for a retaining wall but provided PHP 3,000.00 each for expenses incurred in constructing the riprap/retaining wall. The petitioners later alleged that the defects worsened notwithstanding the retaining wall. When they demanded that La Paz shoulder repairs, La Paz denied liability, attributing possible causes to the 1990 earthquake and to renovations or improvements by the petitioners that allegedly overloaded the original foundations.

In 1998, the petitioners decided to leave their units due to safety concerns. In May 2002, at the petitioners’ request, the Municipal Engineer of San Pedro and the Mines and Geosciences Bureau (MGB) of the Department of Environment and Natural Resources (DENR) conducted an ocular inspection. They found differential settlement in the area where the affected units were constructed. The petitioners then pursued administrative action, filing complaints against La Paz and GSIS before the HLURB.

HLURB Proceedings and Division of Liability

After the findings of the May 2002 inspection, Geromo filed an HLURB complaint for breach of contract with damages against La Paz and GSIS. Shortly thereafter, Buentipo, Yambot, and Bustamante filed similar complaints alleging implied warranty against hidden defects and negligence in building on unstable land. The complaints were consolidated. La Paz asserted defenses grounded on compliance with permitting and licensing requirements, conformity with building code plans and specifications, and the absence of violation of P.D. No. 957. La Paz also relied on a report that part of the subdivision’s topography developed an active fault line, and it alleged unauthorized renovations or alterations by the homeowners.

GSIS moved to dismiss, arguing lack of cause of action on the ground that the deeds of conditional sale were executed between La Paz and the petitioners, and that GSIS merely granted loans.

In its August 9, 2004 Decision, the HLURB Arbiter held La Paz liable for structural damage. It found the damage attributable to La Paz’s failure to properly fill and compact the soil and to maintain the required three (3) meter easement from the edge of the creek. As to GSIS, the HLURB Arbiter found no cogent reason to hold GSIS liable because GSIS only facilitated financing.

In the September 12, 2005 Decision, however, the HLURB Board of Commissioners set aside the Arbiter’s decision. It ruled that there was no concrete evidence proving the houses were damaged due to La Paz’s failure to comply with building standards or easement requirements. The petitioners’ motion for reconsideration was denied on January 31, 2006.

Office of the President and Court of Appeals

The petitioners elevated the matter to the Office of the President (OP). The OP initially dismissed the appeal for late filing on December 18, 2006, but the Court of Appeals later reversed that dismissal and ordered the OP to decide on the merits. On January 11, 2012, the OP dismissed the appeal for lack of merit. The OP reasoned that the petitioners relied primarily on an ocular inspection, and that there was no further investigation to determine the real cause of damage. It also concluded the petitioners had not shown that the plans, specifications, or designs of the houses were deficient or defective, nor had they established that La Paz’s alleged negligence was the proximate cause.

On further appeal, the Court of Appeals on September 26, 2013 affirmed the OP. It found no cause of action for breach of warranty against hidden defects because the contracts were merely contracts to sell, and title had not been legally passed to the petitioners. It further found insufficient evidence to impose liability for damages on La Paz absent proof that La Paz acted fraudulently or maliciously. The Court of Appeals denied reconsideration on January 29, 2014, prompting the petitioners’ resort to the Supreme Court.

Issues Framed by the Petitioners

The petitioners argued that the CA erred in affirming the dismissal by allegedly disregarding material findings by governmental units and HLURB officials that the petitioners’ housing units were unfit for human habitation and that they were therefore entitled to the protective mantle of P.D. No. 957. They contended that La Paz’s liability was governed by principles on implied warranty against hidden defects and related causes of action under the Civil Code, and that La Paz’s defenses, including force majeure-type explanations, could not negate liability. They also maintained that GSIS should be held jointly and severally liable due to its privity and participation in the financing through the deed of conditional sale arrangement.

Core Legal Question: Liability for Hidden Defects and Structural Unfitness

The Supreme Court focused on whether La Paz should be held liable for structural defects under the implied warranty against hidden defects provisions of the Civil Code. Under Art. 1561, the vendor is answerable for hidden defects that render the thing sold unfit for the use intended or diminish such fitness to the extent that the buyer would not have acquired it or would have paid a lower price. Under Art. 1566, the vendor is responsible for hidden faults or defects even if unaware, subject to stipulated exceptions.

The Court stated that implied warranty against hidden defects applies only when several conditions are met: the defect must be serious or important (making the thing unfit or diminishing fitness to the point of non-purchase), it must be hidden, it must exist at the time of sale, and the buyer must give notice of the defect within reasonable time.

Applying these conditions, the Court noted that within two years from purchase, the petitioners observed significant cracks on walls and floors. The damage was described as substantial and serious. They notified La Paz of the condition but alleged that La Paz did not present a concrete remedial plan. They also raised water seepage issues during heavy rainfall, but La Paz allegedly failed to address their concerns in a manner supported by evidence.

The Court emphasized that structural cracking and water seepage were indications that the underlying soil could be unstable. It held that the soil condition was not part of what a buyer would normally inquire about from the developer, because ensuring ground suitability and stability was the developer’s prime obligation.

Governmental Findings and Causation

The Court relied on subsequent findings and documented inspections. It noted that on June 11, 2002, HLURB Director Belen G. Ceniza confirmed cracks on walls and floors and requested a geological/geohazard assessment and thorough investigation. Through an August 8, 2002 Letter-Report, MGB reported evident ground settlement in the Litlit Creek area where the houses were located, “probably caused by hydrocompaction of the backfill and or alluvial deposits.” The Engineering Department of the Municipality of San Pedro also confirmed settlement affecting at least six houses, including Geromo’s, resulting in various structural damages. Records also showed that part of Pearl Street itself had sunk and cracked, which the Court treated as a significant corroborative indication of ground instability.

The Court found credible that the petitioners had endured unsafe living conditions for years while La Paz remained silent despite follow-ups and incident reports. It also found persuasive that the petitioners left their dwellings due to safety concerns. The Court further treated the petitioners’ decision to construct the riprap/retaining wall as evidence of La Paz’s indifference to remediation.

Doctrine of Res Ipsa Loquitur and Rejection of Alternative Causes

The Court held La Paz liable even in the absence of final determinations by local agencies alone, invoking the doctrine of res ipsa loquitur. It adopted the explanation of the doctrine articulated in D.M. Consunji, Inc. v. CA, describing it as a rule permitting an inference of negligence where an accident is of a kind that ordinarily does not occur without negligence, the causative instrumentality was under the defendant’s exclusive control or management, and there was no voluntary action or contribution by the injured party.

In this case, the Court reasoned that the subdivision plan/layout had been prepared and approved by La Paz. It also found that excavation, filling, and levelling of the subdivision grounds were done under La Paz’s supervision and control. It found no contributory fault on the part of the petitioners. The Court concluded that the fault lay with La Paz for failing to properly compact soil that had been an old creek.

The Court rejected La Paz’s theory that the damage could have resulted from the 1990 earthquake or from homeowners’ renovations, noting that the petitioners had raised concerns as early as 1988, before the earthquake occurred. It also pointed to the visible cracks and uneven street pavement as readily apparent indicators that La Paz should have undertaken corrective or rehabilitative work. The Court thus treated the petitioners’ long-standing complaints and La Paz’s failure to act as consistent with negligence and bad faith.

Damages: Actual Damages Not Proven; Temperate, Moral, a

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