Case Summary (G.R. No. 213104)
Key Dates and Procedural Posture
- Original agreements of sale on installment: March 4, 1952.
- Transfer to Emma Chavez: July 19, 1962.
- Municipal Resolution No. 27 declaring commercial/industrial zone: February 4, 1960.
- Defendant began construction: May 5, 1963.
- Lower court dismissal of plaintiff’s complaint (Court of First Instance of Rizal, Branch VI): appealed by plaintiff on June 23, 1965; records elevated to the Supreme Court because only questions of law were presented. Decision affirmed by the Supreme Court (en banc).
Restrictions in the Sale Contracts and Titles
- The installment agreements and later deeds of sale contained restrictive covenants: exclusive residential use; prohibition on removal of soil/stones/gravel; construction standards (strong materials, modern sanitary installations) and a minimum distance of two meters from boundary lines (except fences).
- These restrictions were annotated in the Transfer Certificates of Title issued in the name of Emma Chavez and subsequently annotated in the titles issued to Feati Bank (TCT Nos. 101613 and 106092) after defendant’s acquisitions.
Facts Material to the Dispute
- Plaintiff alleges the restrictions form part of a general building scheme designed for subdivision beautification and development.
- Defendant claims the western portion of EDSA (from Shaw Blvd. to Pasig River) had already been declared a commercial and industrial zone by Municipal Resolution No. 27 (1960), and that the subject lots were acquired after that declaration.
- Defendant obtained municipal building and planning permits and constructed a commercial bank building; plaintiff demanded cessation and sought preliminary injunction and enforcement of restrictive covenants.
Issue Framed on Appeal
- Two legal issues were presented for the Supreme Court’s resolution: (1) whether Municipal Resolution No. 27 (1960) was a valid exercise of the municipality’s police power; and (2) whether that municipal resolution can nullify or supersede the contractual building restrictions and obligations annotated in the titles and assumed by defendant.
Trial Court Ruling and Basis
- The trial court dismissed plaintiff’s complaint, holding that Municipal Resolution No. 27, enacted pursuant to the municipality’s police power, prevailed over and rendered ineffective the restrictive covenants as against defendant. The trial court assumed the resolution valid and emphasized that private interests must yield to the general welfare.
Supreme Court: Validity of the Municipal Resolution
- The Supreme Court found the contention that the resolution was invalid to be procedurally barred because the validity of the resolution was not contested below and was, at least implicitly, admitted in the stipulation of facts. Issues not raised and litigated in the trial court cannot be raised for the first time on appeal.
- Substantively, even assuming the validity issue could be considered, the Court held that Section 3 of R.A. No. 2264 expressly empowers municipal councils to adopt zoning and subdivision ordinances or regulations; the statute does not limit exercise through an ordinance only, and the term “regulation” encompasses a resolution of this nature. Section 12 of the Act directs a liberal construction in favor of local governments and presumes existence of implied powers, subject only to protection of existing vested contractual rights between a local government and a third party — a category not applicable here. Hence the municipality possessed the authority to adopt the zoning measure.
Supreme Court: Police Power versus Non-Impairment of Contracts
- The Court acknowledged the constitutional guarantee against impairment of contracts but emphasized that the guarantee is not absolute and must be reconciled with a valid exercise of police power (the authority to enact regulations for health, safety, morals, good order and general welfare).
- Police power is described as broad, elastic, and responsive to changing social conditions; judicial interference is warranted only where the exercise is capricious, whimsical, unjust, unreasonable, or violates due process or other constitutional guarantees.
- Applying these principles, the Court concluded the municipal resolution was a reasonable legislative response to evident conditions along EDSA (traffic, commercial activity, noise and pollution) and thus enacted to protect public welfare. Given the reasonableness and legitimacy of the municipal action, the non-impairment clause did not bar application of the zoning regulation against private contractual restrictions.
Contractual Expectations and Reservation of Sovereign Power
- The Court reiterated the principle that laws and reservations of sovereign power are read into contracts; contractual obligations are subject to the operation of validly exercised public powers. The holding stressed that protecting contractual expectations presupposes the continued existence of government authority to ensure public order and welfare; accordingly, contracts do not immunize parties from subsequent valid exercises of police power.
- The Court distinguished and discussed American authorities relied upon by appellant, noting that some cited U.S. cases actually support the outcome here (e.g., Dolan v. Brown: equity will not enforce restrictive covenants by injunction where the property character and environment have changed to render restriction unfit or unprofitable). The Court also noted that local law and statutory text control in the Philippine context.
Application to the Present Case: Enforceability of Restrictions
- Because Resolution No. 27 was a valid regulatory exercise under the municipality’s zoning power and was not shown to be arbitrary or violative of due process, it superseded the restrictive covenants as to the use classification for the parcels. The Court held that the building restrictions declaring Lots Nos. 5 and 6 as residentia
Case Syllabus (G.R. No. 213104)
Citation and Procedural Posture
- Reported at 183 Phil. 176, En Banc; G.R. No. L-24670; Decision dated December 14, 1979.
- Appeal interposed by plaintiff-appellant Ortigas & Co., Limited Partnership from the decision of the Court of First Instance of Rizal, Branch VI, Pasig (Hon. Andres Reyes presiding), which dismissed Civil Case No. 7706 for lack of merit.
- Trial court judgment dismissed plaintiff's complaint and denied a motion for reconsideration (order of March 26, 1965).
- Plaintiff filed a notice of appeal and related papers (record on appeal reflects filings on April 2, 1965; appeal was given due course April 14, 1965); the Court of First Instance decision was appealed and records were elevated to the Supreme Court because only questions of law were raised.
- Final disposition by the Supreme Court: affirmed the trial court decision dismissing the complaint; no pronouncement as to costs.
Parties
- Plaintiff-Appellant: Ortigas & Co., Limited Partnership (formerly "Ortigas, Madrigal y Cia."), a limited partnership engaged in real estate development and sale, proprietor of the Highway Hills Subdivision, Epifanio de los Santos Avenue (EDSA), Mandaluyong, Rizal.
- Defendant-Appellee: FEATI Bank and Trust Co., a corporation duly organized and existing under Philippine law, purchaser and subsequent title holder of the subject lots.
Factual Background — Sales, Restrictions and Titles
- On March 4, 1952, Ortigas (vendor) entered into separate installment sale agreements with Augusto Padilla y Angeles and Natividad Angeles (vendees) for Lots Nos. 5 and 6, Block 31, Highway Hills Subdivision, Mandaluyong, Rizal.
- On July 19, 1962, the Angeless transferred their rights and interests in the aforesaid lots to Emma Chavez.
- Upon completion of the purchase price, Ortigas executed deeds of sale in favor of Emma Chavez.
- Both the original installment-sale agreements and the deeds of sale contained express building/use restrictions, quoted in the record:
- The parcel shall be used exclusively for residential purposes; the buyer shall not remove soil, stones or gravel from it or other lots belonging to the seller.
- All buildings and other improvements (except the fence) to be constructed must (a) be of strong materials and properly painted; (b) be provided with modern sanitary installations connected to public sewer or an approved septic tank; and (c) be located not less than two (2) meters from boundary lines.
- These restrictions were annotated in Transfer Certificate of Title (TCT) Nos. 101509 and 101511 issued in Emma Chavez’s name.
Subsequent Transfers and Title Annotations
- Defendant-appellee eventually acquired Lots Nos. 5 and 6; corresponding TCTs issued in defendant’s name were Nos. 101613 and 106092. The building restrictions were annotated in these titles.
- Lot No. 5 was acquired by defendant directly from Emma Chavez; the deed recites sale "free from all liens and encumbrances as stated in Annex 'D'."
- Lot No. 6 passed to defendant through a Deed of Exchange with Republic Flour Mills (Annex "E"), and TCT No. 101719 issued in the name of Republic Flour Mills likewise contained the same restrictions.
- Republic Flour Mills claimed it had purchased Lot No. 6 in good faith, free from all liens and encumbrances, per Deed of Sale (Annex "F") between it and Emma Chavez.
Plaintiff’s Claim About Building Scheme
- Plaintiff-appellant asserts that the restrictions annotated on various TCTs (Nos. 101509, 101511, 101719, 101613, and 106092) were imposed as part of a general building scheme intended for the beautification and development of Highway Hills Subdivision; the subdivision forms part of plaintiff’s larger estate where commercial and industrial sites are also designated.
Municipal Zoning Resolution and Defendant’s Position
- Defendant-appellee contends that the area along the western part of Epifanio de los Santos Avenue (EDSA) from Shaw Boulevard to the Pasig River was declared a commercial and industrial zone by Resolution No. 27, dated February 4, 1960 of the Municipal Council of Mandaluyong, Rizal.
- Defendant alleges plaintiff-appellant had already sold and transferred all lots in the subdivision facing EDSA to third persons, and that defendant acquired the subject lots only on July 23, 1962—more than two years after the municipal commercial/industrial designation.
- On or about May 5, 1963, defendant commenced laying the foundation and began construction of a building on Lots Nos. 5 and 6 to be used for banking (commercial) purposes; defendant contends such building could alternatively be used exclusively for residential purposes.
- Defendant filed building and planning permit applications with the Municipality of Mandaluyong and obtained building and planning permits; accordingly, defendant refused plaintiff’s written demand (dated May 6, 1963) to stop construction.
Lower Court Proceedings — Relief Sought and Ruling
- Plaintiff’s complaint sought, among other reliefs, issuance of a writ of preliminary injunction restraining defendant, its agents and assigns, from continuing or completing construction of a commercial bank building on the premises and commanding defendant to observe the building restrictions annotated on defendant’s title.
- The trial court treated as the main issue whether Municipal Resolution No. 27 declaring the lots to be part of the commercial and industrial zone prevailed over plaintiff’s building restrictions (contractual covenants annotated in titles).
- The trial court dismissed the complaint, holding that the municipal resolution was an exercise of police power, that private interest must yield to general welfare, and that the resolution rendered the building restrictions ineffective and unenforceable against defendant-appellee.
- The trial court "assumed said resolution to be valid," noting no party raised its invalidity in the lower court.
- Plaintiff’s motion for reconsideration (filed March 2, 1965) was denied March 26, 1965.
Issues Presented on Appeal
- Plaintiff-appellant’s primary assignments of error (as presented in brief) were:
- Whether the trial court erred in sustaining the validity of Resolution No. 27, series of 1960, of the Municipal Council of Mandaluyong as an exercise of police power.
- Whether the trial court erred in failing to consider whether the Municipal Council had the power to nullify the contractual obligations assumed by defendant-appellee and in failing to make a factual finding whether the building was erected less than two meters from the property line (in violation of the covenant).
- The Court framed the determinati