Case Summary (G.R. No. 126102)
Key Dates
• August 25, 1976 – Deed of sale executed with restrictive residential‐use covenants (annotated on TCT No. 0737).
• March 1981 – MMC Ordinance No. 81-01 reclassifies portion of Greenhills from residential to commercial.
• June 8, 1984 – Mathay leases the lot; constructs a one‐story commercial building.
• January 18, 1995 – Ortigas files suit in RTC Pasig (Civil Case No. 64931) for demolition and injunctive relief.
• June 16, 1995 – RTC issues writ of preliminary injunction.
• March 25, 1996 – CA grants Mathay’s certiorari petition, sets aside injunction.
• August 13, 1996 – CA denies Ortigas’s motion for reconsideration.
• December 4, 2000 – Supreme Court issues final decision under the 1987 Constitution.
Facts of the Case
- Ortigas sold a residential lot to Hermoso in 1976, embedding covenants (exclusive residential use, single-family building, seller’s approval of plans) running until December 31, 2025.
- In 1981, MMC Ordinance No. 81-01 reclassified that portion of Greenhills as commercial.
- In 1984, Mathay leased the lot and erected a commercial structure for Greenhills Autohaus, Inc. without seller’s approval.
- Ortigas sued in 1995, obtained a preliminary injunction; Mathay challenged this by certiorari in the CA, alleging the zoning ordinance nullified the restrictions.
Procedural History
• RTC Pasig issued a writ of preliminary injunction against commercial use.
• Mathay petitioned the CA for certiorari, arguing grave abuse of discretion by the RTC in ignoring MMC Ordinance No. 81-01.
• CA granted the petition (Mar 25, 1996), nullifying the injunction; denied reconsideration (Aug 13, 1996).
• Ortigas elevated the case to the Supreme Court.
Issues Presented
- Whether MMC Ordinance No. 81-01, a police‐power measure, retroactively extinguished the 1976 residential‐use covenants.
- Whether Mathay, as a lessee and stranger to the deed, had locus standi to challenge the restrictive covenants.
Applicable Law
• 1987 Philippine Constitution, Art. III, Sec. 10 – Non-impairment of contracts; police power exception.
• Civil Code (Arts. 1159, 1306, 525) – Sanctity of contract; stipulations contrary to law/public policy are void; concepts of possession.
• Torrens system – Annotations on certificate of title.
• Jurisprudence – Police‐power legislation may be read into existing contracts (Phil. Am. Life Ins. Co. v. Auditor Gen.; Presley v. Bel-Air Village Ass’n; Sangalang v. IAC).
Court’s Analysis
Retroactivity of Police Power
– General rule: statutes are prospective (lex prospicit), and contracts are governed by laws in force at execution.
– Exception: valid police‐power measures may operate retroactively and impair vested rights.
– MMC Ordinance No. 81-01 was upheld as legitimate police power in Sangalang v. IAC. It reclassified urban residential land to commercial, thereby extinguishing contrary covenants.
– Unlike agricultural zones in Co v. IAC, the Greenhills reclassification explicitly affected existing residential parcels, and contractual restrictions cannot override police power.Locus Standi of the Lessee
– Real party in interest: one who stands to gain or lose from the suit’s outcome (Rules of Court, Rule 3, S
Case Syllabus (G.R. No. 126102)
Facts of the Case
- On August 25, 1976, Ortigas & Company sold Lot 1, Block 21, Psd-66759 (1,508 sqm) in Greenhills Subdivision IV, San Juan, Metro Manila, covered by TCT No. 0737, to Emilia Hermoso.
- The Deed of Sale contained real covenants running with the land, including:
• Exclusive residential use and single-family building restriction
• Prohibition against signs or billboards for advertising
• Requirement that building plans be approved by the seller
• Termination of restrictions on December 31, 2025 - In 1981, MMC Ordinance No. 81-01 reclassified a portion of Ortigas Avenue (including the lot) from residential to commercial.
- On June 8, 1984, Ismael G. Mathay III leased the lot from Emilia Hermoso and J.P. Hermoso Realty Corp. without specifying lease purposes.
- Mathay III constructed a single-story commercial building for Greenhills Autohaus, Inc.
- On January 18, 1995, Ortigas & Co. filed Civil Case No. 64931 in the RTC of Pasig, seeking demolition of the commercial structure and issuance of a TRO and writ of preliminary injunction for breach of the residential-use covenant.
- The complaint was amended to implead Mathay III and J.P. Hermoso Realty Corp.; Mathay III denied knowledge of the covenants and filed a cross-claim.
Trial Court Proceedings
- On June 16, 1995, RTC Branch 261 issued a writ of preliminary injunction prohibiting commercial construction and use.
- Mathay III moved to set aside the injunction on June 29, 1995; the trial court denied the motion.
- The trial court applied the general rule that laws are prospective and held that MMC Ordinance No. 81-01, enacted after the 1976 contract, did not operate retroactively.
Court of Appeals Decision
- Mathay III petitioned the Cour