Arroyo vs. Rosal Homeowners Association

The termination or expulsion of a member from a homeowners association is valid when conducted in accordance with the association's By-Laws, which require notice and opportunity to be heard, and members who are expelled for non-compliance with the Community Mortgage Program requirements (such as refusal to sign the Lease Purchase Agreement and failure to pay dues) may be ejected from the property as their possession becomes merely by tolerance, not entitling them to ownership rights under the socialized housing program.

The case arises from the implementation of the Community Mortgage Program (CMP), a government socialized housing initiative administered by the National Home Mortgage Finance Corporation (NHMFC) to enable urban poor communities to acquire land they occupy. The respondent Rosal Homeowners Association, Inc. (RHAI) was organized by occupants of a parcel of land in Bacolod City to avail of CMP financing and purchase the land from its former owner, Philippine Commercial International Bank (PCIB). The dispute centers on the rights of actual occupants who refuse to comply with the procedural and financial requirements of the CMP and the association's By-Laws, and the association's authority to terminate their membership and recover possession of the land allocated to them.

• Respondent Rosal Homeowners Association, Inc. (RHAI) is a non-stock, non-profit organization duly organized under Philippine laws, composed mainly of occupants of a 19,897 square-meter parcel of land situated in Brgy. Rosal, Taculing, Bacolod City, formerly owned by Philippine Commercial International Bank (PCIB).
• Petitioners Jasmin Alipato, Primitivo Belandres, Nestor Leduna, Anita de los Reyes, Gina Caballero, and others were actual occupants of the subject land by mere tolerance long before PCIB acquired it in 1989.
• To avoid eviction and avail of the benefits of the Community Mortgage Program (CMP) of the National Home Mortgage Finance Corporation (NHMFC), the occupants organized themselves into RHAI, with the aid of the Bacolod Housing Authority (BHA) as originator.
• RHAI obtained a loan from NHMFC and acquired the subject land from PCIB, resulting in the issuance of Transfer Certificate of Title (TCT) No. T-202933 in the name of RHAI, making all occupants automatic members of the association.
• To fully avail of CMP benefits, NHMFC required RHAI members to sign the Lease Purchase Agreement (LPA) and maintain membership in good standing in accordance with the RHAI By-Laws.
• Petitioners refused to sign the LPA and failed to attend regular meetings and pay membership dues as required by the RHAI By-Laws.
• RHAI, through its Board of Directors, approved a resolution to enforce the eviction of petitioners and recover possession of the portions of land they were occupying, citing their failure to comply with membership obligations.
• RHAI sent written letters of demand to petitioners to vacate the premises and deliver possession, which petitioners ignored.
• The NHMFC, through Regional Director Jeanette Deslate, confirmed that substitution of beneficiaries is allowed under the CMP for three reasons: default in paying monthly amortization, waiver of the beneficiary, and non-compliance or disobedience of the rules and regulations of the association.
• RHAI submitted the names of petitioners to NHMFC for substitution as recalcitrant members, with the favorable endorsement of the BHA to improve collection deficiency.

• Petitioners were denied due process when they were expelled as members of RHAI because the records show no evidence of initiated expulsion proceedings and they were not informed of their expulsion.
• Citing Ynot v. Intermediate Court of Appeals, petitioners insist that due process requires they be given the opportunity to be heard before expulsion.
• Petitioners argue they cannot be ejected because they were actual occupants of the subject land long before RHAI acquired title, giving them a right to own the land under the socialized housing program.
• They claim that RHAI filed the ejectment case merely to accommodate other persons who were not qualified beneficiaries of the CMP, using non-payment of dues as a convenient excuse.
• They contend that the RTC erred in finding that they refused to join the association or were expelled for failure to comply with obligations, alleging they were never given proper notice of their expulsion.

• The issues raised involve questions of fact already properly disposed of by the RTC and CA, which found that petitioners were deemed expelled for non-compliance with association rules, specifically refusal to pay membership dues and reasonable fees.
• The evidence shows petitioners were validly expelled in accordance with the RHAI By-Laws and in compliance with due process requirements.
• Petitioners' refusal to sign the LPA disqualified them as loan beneficiaries under the CMP, and their possession became merely by tolerance of the lawful owner.
• The expulsion process followed the By-Laws: three successive demands were sent, and when petitioners failed to appear or comply, the Board passed a resolution expelling them, with notices sent to the petitioners (which they refused to receive).
• RHAI had the authority to substitute beneficiaries under NHMFC rules to address collection deficiencies caused by recalcitrant members.

• Procedural Issues:
  • Whether petitioners were denied procedural due process when the RTC rendered judgment in favor of RHAI.
  • Whether petitioners were denied due process in their expulsion as members of RHAI for lack of notice and hearing.
• Substantive Issues:
  • Whether the expulsion of petitioners from RHAI membership was valid and legal.
  • Whether petitioners were denied their right to own a piece of land for their homes under the socialized housing program of the government.

• Procedural:
  • The Court held that petitioners were not denied procedural due process in the court proceedings. They were represented by counsel who was able to confront and cross-examine witnesses, and they had ample opportunity to present evidence but chose not to do so. The negligence of counsel binds the client.
  • Regarding the expulsion proceedings, the Court ruled that due process was observed. The essence of due process is the opportunity to be heard, not necessarily a formal hearing. The records disclose that a board resolution was issued for the expulsion, and petitioners were duly informed through notices sent to them (which they refused to receive). The expulsion followed the procedure in the RHAI By-Laws: three successive demands were made, and upon continued non-compliance, the Board passed a resolution expelling them.
• Substantive:
  • The expulsion of petitioners was valid. They were expelled for non-payment of dues, non-attendance of meetings, and refusal to sign the LPA, which are expressly sanctioned by the RHAI By-Laws. Their refusal to comply with these obligations indicated they did not want to be part of the association.
  • Petitioners were not denied the right to own land under the CMP. They were never prevented from becoming members; in fact, they were encouraged by RHAI and the BHA to comply. Their unreasonable refusal to sign the LPA and comply with obligations disqualified them as beneficiaries.
  • As expelled members, petitioners became mere squatters possessing the land by tolerance of RHAI, the lawful owner. No amount of acquiescence converts squatting into a lawful act.
  • The period of occupation, no matter how long, did not vest them with ownership rights since possession by tolerance does not start the running of the period of acquisitive prescription.
  • RHAI had the authority under the CMP to substitute beneficiaries who were in default or non-compliant to ensure the financial viability of the project and protect the interests of complying members.

• Due Process in Administrative Proceedings — The essence of due process is the opportunity to be heard, not necessarily a formal trial-type hearing. What the law prohibits is the absolute absence of notice and lack of opportunity to be heard. As long as a party is given the opportunity to defend his interest, the demands of due process are sufficiently met.
• Termination of Membership in Homeowners Associations — Members may be expelled from a homeowners association for non-compliance with By-Laws, specifically failure to pay dues and attend meetings, provided the expulsion follows the procedure outlined in the By-Laws (notice, demands, board resolution).
• Possession by Tolerance — Acts of possessory character executed by virtue of license or tolerance of the owner, no matter how long, do not start the running of the period of acquisitive prescription. Once tolerance is withdrawn through expulsion, the possessor becomes a mere squatter.
• Substitution of Beneficiaries in the Community Mortgage Program — Under the CMP, associations may substitute beneficiaries who are recalcitrant (default in payment, waiver of rights, or non-compliance with rules) to ensure the financial sustainability of the housing project and allow qualified substitutes to avail of the benefits.

• "The essence of due process is the opportunity to be heard. What the law prohibits is not the absence of previous notice but the absolute absence thereof and the lack of opportunity to be heard."
• "It is basic that, as long as a party is given the opportunity to defend his interest in due course, he would have no reason to complain, for it is this opportunity to be heard that makes upon the essence of due process. Where opportunity to be heard, either through oral argument or pleadings is accorded, there can be no denial of procedural due process."
• "Squatting is unlawful and no amount of acquiescence converts it into a lawful act."
• "acts of possessory character executed by virtue of license or tolerance of the owner, no matter how long, do not start the running of the period of acquisitive prescription."

• Ynot v. Intermediate Court of Appeals, 232 Phil. 615 (1987) — Cited by petitioners regarding due process requirements; the Court distinguished this case by noting that petitioners were given opportunity to be heard unlike in Ynot.
• Espinocilla, Jr. v. Bagong Tanyag Homeowners Association, Inc., G.R. No. 151019, August 9, 2007, 529 SCRA 654 — Controlling precedent on similar facts involving CMP beneficiaries and expulsion from homeowners associations; applied for the principle that possession by tolerance does not ripen into ownership.
• Medenilla v. Civil Service Commission, G.R. No. 93868, February 19, 1991, 194 SCRA 278 — Cited for the definition of due process as the opportunity to be heard.
• Cada v. Time Saver Laundry, G.R. No. 181480, January 30, 2009, 577 SCRA 565 — Cited for the rule that negligence of counsel binds the client.
• Flores v. Montemayor, G.R. No. 170146, June 8, 2011, 651 SCRA 396 — Cited for the principle that parties cannot complain of denial of due process when they had opportunity to present their side.
• Equitable PCI Banking Corporation v. RCBC Capital Corporation, G.R. No. 182248, December 18, 2008, 574 SCRA 858 — Cited for the rule that filing a motion for reconsideration and appeal negates a claim of denial of due process.

• Rule 45 of the 1997 Rules of Civil Procedure — The procedural basis for the petition for review on certiorari filed by petitioners before the Supreme Court.
• RHAI By-Laws — Internal rules of the association governing membership, expulsion procedures (requiring three successive demands and board resolution), and obligations of members (payment of dues, attendance at meetings).
• Community Mortgage Program (CMP) Guidelines — Policies of the NHMFC governing the substitution of beneficiaries for default, waiver, or non-compliance with association rules.