Case Summary (G.R. No. 222897)
Antecedents
In August 1991, AFP Retirement and Separation Benefits System sold Lot 20 (240 sqm) to Edsel under a ten-year installment contract. After full payment by 2000, Edsel demanded the final deed of sale, delivery of title, and possession. AFP did not comply. Edsel then discovered that Lourdes built her house on a 20-sqm portion of his lot. He sued AFP and Lourdes for delivery of title, transfer of possession, and damages, alleging AFP failed to protect his rights and pressured him to accept a reduced lot area.
Parties’ Positions
AFP acknowledged the lot’s re-mapping reduced its area to 220 sqm and attributed non-execution of the deed to this encroachment. It informed Edsel of the error and proposed a lot exchange with Lourdes. Lourdes claimed she relied in good faith on Sta. Lucia’s relocation survey, obtained a valid construction permit, and repeatedly sought correction from the developer. Sta. Lucia Realty denied liability, asserting no involvement in survey errors or construction and attributing fault to Lourdes’s failure to update her survey and heed instructions.
HLURB Arbiter Decision
On July 5, 2005, the HLURB Arbiter ruled:
- AFP must either execute the deed of absolute sale for Lot 20 and deliver the title to Edsel or exchange Lots 20 and 21 and then sell Lot 21 to Edsel.
- AFP to pay Edsel PHP 100,000 (moral damages), PHP 30,000 (exemplary damages), PHP 30,000 (attorney’s fees), plus refund excess payment with 12% interest.
- Lourdes to pay Edsel PHP 30,000 (moral damages) and PHP 10,000 (attorney’s fees).
- Sta. Lucia to pay Lourdes PHP 100,000 (moral damages), PHP 30,000 (exemplary damages), PHP 30,000 (attorney’s fees), and indemnify her for construction-related expenses.
HLURB Board and Office of the President
The HLURB Board of Commissioners affirmed the Arbiter’s decision on May 25, 2006, and denied reconsiderations. On October 23, 2009, the Office of the President affirmed the HLURB decisions, and on June 2, 2011, it denied motions for reconsideration by AFP and Sta. Lucia.
Court of Appeals Decision
On June 26, 2015, the Court of Appeals affirmed the HLURB and OP findings, modifying only the interest rate on AFP’s refund obligation from 12% to 6% per annum. It denied reconsideration on February 3, 2016.
Issues
- AFP’s liability for moral and exemplary damages and attorney’s fees to Edsel (G.R. No. 223241).
- Whether Lourdes is a builder in good faith (G.R. Nos. 222897 & 223241).
- Whether Sta. Lucia is liable to Lourdes for moral and exemplary damages and attorney’s fees (G.R. No. 222897).
Supreme Court on AFP’s Liability
The Court denied AFP’s petition. Under Articles 1163 and 1170 of the Civil Code, AFP bound itself to preserve and deliver the property upon full payment. Its two-year delay, failure to inform Edsel of the encroachment, and receipt of full payment before disclosing the issue demonstrated manifest bad faith. Pursuant to Articles 2201 and 2220–2234, AFP is liable for:
- PHP 100,000 (moral damages)
- PHP 30,000 (exemplary damages)
- PHP 30,000 (attorney’s fees)
Supreme Court on Lourdes as Builder
Lourdes is a builder in good faith under Article 448 because she believed Lot 21 belonged to her and was unaware of the encroachment. However, she was negligent in failing to update her relocation survey and ignoring Sta. Lucia’s directive to consult its surveyor. Pursuant to Articles 456 and 2176, her contributory negligence warrants nominal damages rather than moral damages. Lourdes is ordered to pay Edsel:
- PHP 30,000 (nominal damages)
- PHP 10,000 (attorney’s fees)
Supreme Court on Sta. Lucia’s Liability
The April 10, 2012 Court of Appeals decision in CA-G.R. SP No. 120060, which deleted Sta. Lucia’s liability for moral and exemplary damages to Lourdes and declared her a good-faith builder, attained finality and is no longer subject to review. Sta. Lucia remains liable to reimburse Lourdes for necessary and useful expenses under Articles 546 and 548 of the Civil Code due to its negligence in approving the flawed survey and issuing the construction permit.
Application of Article 448
Under Article 448, Edsel may choose to appropriate the improvements on his land after indemnifying Lourdes for necessary and useful expenses or compel Lourdes to p
Case Syllabus (G.R. No. 222897)
Antecedents
- In August 1991, AFP Retirement and Separation Benefits System sold Lot 20 (240 sqm) in Citadella Subdivision to Edsel B. Lumawag for PHP 540,000, payable over ten years.
- Upon full payment, Edsel demanded execution of the final deed of sale, delivery of title, and possession; AFP Retirement System failed to comply.
- Edsel discovered that adjoining owner Lourdes Pearce had built her house atop a 20-sqm portion of his lot, preventing him from using or improving it.
- AFP Retirement System admitted non-execution of the deed of sale due to re-mapping and re-blocking caused by Lourdes’s encroachment, but denied coercing Edsel to accept a smaller lot. It informed Edsel of the error and suggested a lot exchange.
- Lourdes claimed she relied in good faith on Sta. Lucia Realty’s relocation survey and obtained a construction permit; upon learning of the mistake, she followed up repeatedly with Sta. Lucia and wrote Edsel without response.
- Lourdes filed a third-party complaint against Sta. Lucia Realty for negligent surveying; the developer denied liability, attributing the error to Lourdes’s failure to secure a new survey or heed existing instructions.
HLURB Ruling
- The HLURB Arbiter (July 5, 2005) ordered AFP Retirement System to:
• Execute the Deed of Absolute Sale and deliver the Transfer Certificate of Title over Lot 20, or
• Exchange Lots 20 and 21 with Lourdes Pearce and then sell Lot 21 to Edsel. - AFP Retirement System was ordered to pay Edsel PHP 100,000 (moral), PHP 30,000 (exemplary), PHP 30,000 (attorney’s fees), plus interest on excess payment.
- Lourdes was found a good-faith builder but contributorily negligent; ordered to pay Edsel PHP 30,000 (moral) and PHP 10,000 (attorney’s fees).
- Sta. Lucia Realty was held liable to reimburse Lourdes for moral damages (PHP 100,000), exemplary damages (PHP 30,000), attorney’s fees (PHP 30,000), and actual construction expenses.
- All parties’ motions for reconsideration were denied; the HLURB Board of Commissioners (May 25, 2006) affirmed.
Office of the President’s Ruling
- On October 23, 2009,