Title
Ortigas and Co. Ltd. vs. Court of Appeals
Case
G.R. No. 126102
Decision Date
Dec 4, 2000
A 1976 deed restricted land use to residential until 2025; a 1981 zoning ordinance reclassified it as commercial. The Supreme Court upheld the ordinance, nullifying the restriction, ruling police power supersedes contractual terms.
zoning ordinance
reclassification
commercial nullification

Case Summary (G.R. No. 126102)

Factual Background

ORTIGAS & CO. LTD. sold Lot 1, Block 21, Psd-66759, measuring 1,508 square meters in Greenhills Subdivision IV to Emilia Hermoso by a deed of sale dated August 25, 1976. The deed contained restrictive covenants providing exclusive residential use, prohibition on advertising signs, and a requirement that building plans receive the seller’s approval; the restrictions were annotated on the Transfer Certificate of Title No. 0737 and were to run with the land until December 31, 2025. In 1981, the Metropolitan Manila Commission enacted MMC Ordinance No. 81-01, reclassifying a portion of Ortigas Avenue within Greenhills, including the subject lot, as commercial. On June 8, 1984, ISMAEL G. MATHAY III leased the lot from Emilia Hermoso and J.P. Hermoso Realty Corp. and constructed a single-story commercial building for Greenhills Autohaus, Inc.

Trial Court Proceedings

On January 18, 1995, ORTIGAS & CO. LTD. filed a complaint in the Regional Trial Court of Pasig, Branch 261 (Civil Case No. 64931), seeking demolition of the commercial structure for violation of the deed restrictions and praying for a temporary restraining order and a writ of preliminary injunction. The complaint was later amended to implead ISMAEL G. MATHAY III and J.P. Hermoso Realty Corp. The trial court issued a writ of preliminary injunction on June 16, 1995. ISMAEL G. MATHAY III moved to set aside the injunction on June 29, 1995, but the trial court denied the motion.

Court of Appeals Decision

ISMAEL G. MATHAY III filed a special civil action for certiorari with the Court of Appeals (CA-G.R. SP No. 39193), alleging that the trial court committed grave abuse of discretion in issuing the injunction by failing to apply MMC Ordinance No. 81-01. The Court of Appeals granted the petition and on March 25, 1996 nullified and set aside the trial court’s orders. The CA held that MMC Ordinance No. 81-01 effectively nullified the deed restriction limiting the lot to residential use. Petitioner’s motion for reconsideration before the Court of Appeals was denied on August 13, 1996.

Issues Presented

The principal question was whether the Court of Appeals erred in finding that the trial court committed grave abuse of discretion by refusing to apply MMC Ordinance No. 81-01, thereby sustaining the annotated residential restriction. A subsidiary question was whether ISMAEL G. MATHAY III, as lessee, had capacity and standing to assail the validity or enforceability of the deed restrictions.

Parties’ Contentions

ORTIGAS & CO. LTD. contended that the contractual restrictions annotated on the Torrens title must prevail because the parties agreed to them before the enactment of the zoning ordinance, and that the ordinance did not prohibit residential construction so as to invalidate voluntary covenants. Petitioner further argued that ISMAEL G. MATHAY III lacked legal capacity and was estopped from challenging the deed restrictions. ISMAEL G. MATHAY III argued that MMC Ordinance No. 81-01 was a valid exercise of the State’s police power, that police power is superior to the nonimpairment clause in the Constitution, and that the ordinance should be read into the contract, thereby justifying dissolution of the trial court’s injunction.

Legal Principles and Precedent

The Court reviewed the general principle that statutes are presumed to operate prospectively (lex prospicit, non respicit) and that later laws that impair the obligations or fruits of a contract ordinarily violate the constitutional prohibition on impairment of contracts (Art. III, Sec. 10). The opinion recognized, however, the established exception that legislation enacted in the exercise of the police power may be applied retroactively and may reasonably impair vested rights or contracts when necessary to promote health, safety, morals, order, or the general welfare. The Court noted precedent holding that statutes enacted under valid police power must be read into contracts. The Court cited prior rulings upholding MMC Ordinance No. 81-01 as a legitimate exercise of police power and relied on the line of authority that contractual stipulations annotated on Torrens titles yield to zoning ordinances that validly reclassify land use, including the Court’s earlier decision in Ortigas & Co., Ltd. vs. Feati Bank & Trust Co..

Supreme Court Ruling and Reasoning

The Supreme Court affirmed the Court of Appeals. The Court held that the trial court erred in refusing to treat MMC Ordinance No. 81-01 as applicable to Civil Case No. 64931 and thereby committed grave abuse of discretion. The Court distinguished the case relied upon by the trial court (Co vs. Intermediate Appellate Court) on the ground that that case involved agricultural land where the ordinance expressly warranted prospective application only; by contrast, the present case involved urban residential land reclassified as commercial by MMC Ordinance No. 81-01 in March 1981. The Court reiterated that laws validly enacted under the police power may operate retroactively to affect existing contracts and that contractual stipulations cannot contravene law, morals, good customs, public order, or public policy. Applying those princ

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