Ayala Corporation vs. Rosa-Diana Realty and Development Corporation

Obiter dicta from prior proceedings—pronouncements unnecessary to the resolution of the issue actually before the court—cannot operate as law of the case or stare decisis to bar a party from enforcing contractual obligations. A party who freely consented to be bound by deed restrictions annotated on its title, and who acted in bad faith by submitting two sets of building plans—one compliant and one grossly violative—remains liable for compliance, and where specific performance and rescission are no longer feasible, may be held liable for substitute performance through payment of development charges as compensatory damages.

Ayala Corporation was the registered owner of an 840-square-meter lot on Alfaro Street, Salcedo Village, Makati City, covered by TCT No. 233435 of the Register of Deeds of Rizal. On April 20, 1976, Ayala sold the lot to Manuel Sy (married to Vilma Po) and Sy Ka Kieng (married to Rosa Chan) under a Deed of Sale containing Special Conditions of Sale and Deed Restrictions. The Special Conditions required the vendees to build on the lot within specified deadlines and prohibited resale; the Deed Restrictions limited the gross floor area of any building to five times the lot area and the total height to forty-two meters, with the restrictions set to expire in 2025. The Makati Commercial Estate Association, Inc. (MACEA), an association of lot owners in the Makati Central Business District, later revised the deed restrictions in a general membership meeting, abolishing direct height restrictions in lieu of floor area limits and imposing development charges on constructions exceeding original gross floor area limits.

On April 20, 1976, Ayala Corporation sold an 840-square-meter lot in Salcedo Village, Makati City to Manuel Sy (married to Vilma Po) and Sy Ka Kieng (married to Rosa Chan). The Deed of Sale contained Special Conditions requiring the vendees to submit building plans to Ayala for approval by September 30, 1976, to commence construction by March 30, 1977 and complete it before 1979, and prohibiting resale of the property. The Deed Restrictions limited the gross floor area to five times the lot area and the total building height to forty-two meters, with the restrictions to expire in 2025. Manuel Sy and Sy Ka Kieng failed to construct any building, violating the Special Conditions of Sale.

Notwithstanding that violation, in April 1989 Manuel Sy and Sy Ka Kieng were able to sell the lot to respondent Rosa-Diana Realty and Development Corporation with Ayala's approval. As a condition for Ayala to release the certificate of title, Rosa-Diana on July 27, 1989 executed an Undertaking—signed by its Chairman and President—agreeing to construct and complete a building on the lot as required under the Special Conditions of Sale and to comply with the deed restrictions. Rosa-Diana simultaneously submitted building plans for a condominium project called "The Peak" to Ayala for approval. The plans envisioned a 24-meter high, seven-storey condominium with a gross floor area of 3,968.56 square meters, fully conforming to the deed restrictions. Ayala approved the plans, released the title, and Rosa-Diana registered the deed of sale in its favor, obtaining TCT No. 165720, which carried as encumbrances the special conditions of sale and the deed restrictions.

Thereafter, Rosa-Diana submitted to the Makati building official an entirely different set of building plans for "The Peak." While the first set complied with the deed restrictions, the second set contemplated a 91.65-meter high, 38-storey condominium with a gross floor area of 23,305.09 square meters. The building as actually constructed stood at 133.65 meters with a total gross floor area of 23,305.09 square meters, exceeding the approved height limit by approximately 109 meters and the allowable gross floor area under the deed restrictions by approximately 19,105 square meters. Rosa-Diana did not vote for the revision of the deed restrictions abolishing direct height restrictions in lieu of floor area limits at the MACEA general membership meeting on July 11, 1990, and thus remained bound by the original deed restrictions annotated on its title.

Ayala filed an action for specific performance with the RTC of Makati, Branch 139, seeking to compel Rosa-Diana to comply with the deed restrictions and building plans, with an alternative prayer for rescission. The trial court denied injunctive relief, allowing Rosa-Diana to complete construction. Ayala attempted to annotate a notice of lis pendens on Rosa-Diana's title, but the Register of Deeds refused registration. The LRA reversed that refusal, but the Court of Appeals overturned the LRA in C.A. G.R. S.P. No. 29157, holding that the action was personal and lis pendens was improper; the Supreme Court affirmed that ruling on February 16, 1994, in G.R. No. 112774. In that same CA decision, the appellate court made an additional pronouncement that Ayala was estopped from enforcing the deed restrictions—a pronouncement the Supreme Court noted but did not rule upon, as the only issue on appeal was the propriety of the lis pendens annotation.

After Ayala completed its presentation of evidence, Rosa-Diana filed a Demurrer to Evidence, arguing that Ayala did not uniformly enforce the deed restrictions, had lost its right to enforce them through its own acts and omissions, and that the restrictions were no longer valid. The trial court sustained the demurrer, finding Ayala guilty of abandonment and estoppel for failing to enforce the restrictions against the original vendees and for discriminatory enforcement against other properties in Salcedo Village. The Court of Appeals affirmed, citing the doctrine of law of the case based on the CA's earlier pronouncement in C.A. G.R. S.P. No. 29157, and also referenced C.A. G.R. C.V. No. 46488 (Ayala Corporation vs. Ray Burton Development Corporation) as precedential under stare decisis. Upon denial of its motion for reconsideration, Ayala filed the present petition.

• Obiter Dictum, Not Law of the Case: Petitioner contended that the CA's pronouncement in C.A. G.R. S.P. No. 29157 that Ayala was estopped from enforcing the deed restrictions was merely obiter dictum, because the only issue raised in that case was the propriety of a lis pendens annotation on Rosa-Diana's certificate of title.
• No Evidence of Waiver or Estoppel: Petitioner averred that Rosa-Diana presented no evidence whatsoever on Ayala's supposed waiver or estoppel in C.A. G.R. S.P. No. 29157, and that at the time that case was on appeal, the issues of validity, continued viability, and enforceability of the deed restrictions were being tried before the trial court.
• CA Failed to Rule on Assigned Errors: Petitioner argued that the Court of Appeals erred in failing to expressly pass upon the specific errors assigned in Ayala's appeal, merely relying on the doctrines of law of the case and stare decisis to dismiss the petition.
• Findings of Waiver Unsupported: Petitioner reiterated that law and evidence do not support the trial court's findings that Ayala had waived its right to enforce the deed restrictions.

• Building Plans Approved by Building Official: Respondent argued that there was nothing illegal or unlawful in the building plans used for constructing "The Peak," as they bore the imprimatur of the Makati building official tasked with determining compliance with the National Building Code.
• Impression of Non-Enforcement: Respondent claimed it was under the impression that Ayala was no longer enforcing the deed restrictions.
• Undertaking Not Binding: Respondent insisted that the trial court had ruled the Undertaking executed by its Chairman and President could not validly bind Rosa-Diana without authority or confirmation from its Board of Directors.

• Law of the Case / Stare Decisis: Whether the doctrine of the law of the case or stare decisis operated to bar Ayala from enforcing the deed restrictions, based on the CA's prior pronouncement in C.A. G.R. S.P. No. 29157.
• Estoppel / Waiver: Whether Ayala is estopped or has waived its right to enforce the deed restrictions against Rosa-Diana.
• Validity of Undertaking: Whether the Undertaking executed by Rosa-Diana's Chairman and President validly binds Rosa-Diana to comply with the deed restrictions.
• Proper Remedy: What is the proper remedy available to Ayala, given that specific performance and rescission may no longer be feasible.

• Law of the Case / Stare Decisis: No. The CA's pronouncement on estoppel in C.A. G.R. S.P. No. 29157 was obiter dictum, unnecessary to the resolution of the sole issue of lis pendens propriety, and cannot operate as law of the case or stare decisis.
• Estoppel / Waiver: No. Ayala is not estopped from enforcing the deed restrictions. Rosa-Diana acted in bad faith by submitting two sets of building plans—one compliant to obtain title release, one grossly violative for the building permit—and freely consented to be bound by the restrictions through its Undertaking.
• Validity of Undertaking: Yes. The Undertaking validly binds Rosa-Diana. Respondent never alleged in its Answer that its Chairman and President lacked authority to execute the Undertaking, and the presumption of regularity of business transactions applies.
• Proper Remedy: Development charges as compensatory damages under the Consolidated and Revised Deed Restrictions, plus exemplary damages and attorney's fees, since specific performance is no longer feasible and Ayala waived its right to rescission.

• Law of the Case / Stare Decisis: The doctrine of the law of the case operates only in the particular case and only as a rule of policy, not of law; the ruling adhered to need not be followed as precedent in subsequent litigation between other parties. Stare decisis, by contrast, requires that once a point of law is established, it will generally be followed by the same court and all lower courts in subsequent cases raising the same legal issue. Neither doctrine applies here because the only issue before the CA in C.A. G.R. S.P. No. 29157 was whether an action for specific performance or rescission to enforce deed restrictions was a real or personal action affecting title to land. The CA's additional pronouncement that Ayala was estopped was not necessary to dispose of the lis pendens issue; the CA itself acknowledged that the estoppel question was yet to be resolved by the trial court. The Supreme Court, in affirming the CA in G.R. No. 112774, ruled only on the lis pendens issue. The estoppel pronouncement was therefore obiter dictum—made without argument or full consideration of the point—and mere dicta are not binding under stare decisis. Furthermore, in the final decision in Ayala Corporation vs. Ray Burton Development Corporation (294 SCRA 48, 1998), the Supreme Court explicitly stated that the finding of estoppel in the Rosa-Diana case was "immaterial to the annotation of the lis pendens" and "made in excess of jurisdiction."

• Estoppel / Waiver: As complainant, Ayala had the prerogative to initiate actions against violators of the deed restrictions. Rosa-Diana's bad faith was manifest: it submitted two sets of building plans—one conforming to the deed restrictions, submitted to Ayala and MACEA, and another grossly exceeding the height requirement, submitted to the Makati building official to procure a building permit. The violation was not minor: the approved plan envisioned a 24-meter, seven-storey building, while the actual structure stood at 133.65 meters with a gross floor area of 23,305.09 square meters, exceeding the approved height by approximately 109 meters and the allowable gross floor area by approximately 19,105 square meters. Rosa-Diana did not vote for the MACEA revision abolishing direct height restrictions, and even assuming arguendo that it had, the total floor area would still violate the revised limits by approximately 9,865 square meters. The trial court's finding of discriminatory enforcement was unsupported, as Ayala's prerogative to choose against whom to initiate action is not tantamount to waiver or estoppel.

• Validity of Undertaking: Respondent never alleged in its Answer that its Chairman and President were not authorized to execute the Undertaking. The trial court's ruling that the Undertaking could not bind Rosa-Diana without board authorization was therefore without factual and legal basis. The trial court inconsistently applied the presumption of regularity to the Deed of Sale between the original vendees and Rosa-Diana while denying it to the Undertaking. The fact that Rosa-Diana prepared two sets of building plans—one compliant and one violative—demonstrated that it never intended to be bound by the Undertaking and was not under any good-faith impression that the restrictions were unenforceable. Contractual obligations have the force of law between parties and must be complied with in good faith pursuant to Article 1159 of the Civil Code.

• Proper Remedy: Specific performance is no longer feasible because the building has been completed and is presumably fully tenanted. Rescission is likewise unavailable because Ayala's approval of the resale by the original vendees effectively waived its right to rescind the sale. Following the ruling in Ayala Corporation vs. Ray Burton Development Corporation, which is on all fours, the party guilty of violating deed restrictions may be held liable for substitute performance through payment of damages. The development charges under the Consolidated and Revised Deed Restrictions serve as a fair measure of compensatory damages. Exemplary damages of P2,500,000.00 are warranted due to respondent's evident bad faith in submitting compliant plans solely to obtain title, then constructing in gross violation of the restrictions. Attorney's fees of P250,000.00 are likewise appropriate.

• Law of the Case — A doctrine of policy, not of law, whereby a ruling adhered to in a particular case on one appeal continues to bind the same case on subsequent appeals. It operates only in the single case where it arises and is not carried into other cases as precedent. The Court held it inapplicable because the CA's estoppel pronouncement in C.A. G.R. S.P. No. 29157 was not a ruling on an issue necessary to that case's disposition.

• Stare Decisis — The principle that once a point of law has been established by the court, it will generally be followed by the same court and all courts of lower rank in subsequent cases where the same legal issue is raised. It proceeds from the principle that like cases ought to be decided alike. The Court held it inapplicable because the estoppel pronouncement was obiter dictum, and mere dicta are not binding under stare decisis.

• Obiter Dictum — An opinion of a judge which does not embody the resolution or determination of the court, made without argument or full consideration of the point, and not the proffered deliberate opinion of the judge. It is not necessarily limited to issues essential to the decision but may include expressions of opinion not necessary to support the decision reached. Mere dicta are not binding under the doctrine of stare decisis. The Court held that the CA's pronouncement on estoppel in C.A. G.R. S.P. No. 29157 was obiter dictum because it was unnecessary to resolve the sole issue of lis pendens propriety.

• Res Judicata — Distinguished from law of the case; the Court noted that C.A. G.R. C.V. No. 46488 (Ayala Corporation vs. Ray Burton Development Corporation) was not res judicata to the case at bar, as the CA itself clarified, and neither could it serve as precedent under stare decisis because at the time the assailed decision was rendered, that case was still on appeal.

• Force of Law of Contracts — Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith (Article 1159, Civil Code). The Court applied this to hold Rosa-Diana bound by the deed restrictions and the Undertaking it freely executed.

• Development Charges as Compensatory Damages — Where specific performance and rescission are no longer feasible, development charges computed under the Consolidated and Revised Deed Restrictions serve as a fair measure of compensatory damages for violation of deed restrictions. The formula is: DEVELOPMENT CHARGE = A × (B − C − D), where A is the Area Assessment, B is the Gross Floor Area of the completed building, and C is the estimated Gross Floor Area permitted under the original deed restrictions.

• "A dictum is an opinion of a judge which does not embody the resolution or determination of the court, and made without argument, or full consideration of the point, not the proffered deliberate opinion of the judge itself." — This passage defines obiter dictum and forms the basis for the Court's holding that the CA's estoppel pronouncement was non-binding dicta.

• "Mere dicta are not binding under the doctrine of stare decisis." — This concise statement establishes the controlling rule that prevents obiter dicta from operating as binding precedent, directly defeating the CA's reliance on law of the case and stare decisis.

• "Contractual obligations between parties have the force of law between them and absent any allegation that the same are contrary to law, morals, good custom, public order or public policy, they must be complied with in good faith." — This articulates the ratio for enforcing the deed restrictions and the Undertaking against Rosa-Diana notwithstanding its claims of non-enforcement impression.

• "An examination of the decision in the said Rosa-Diana case reveals that the sole issue raised before the appellate court was the propriety of the lis pendens annotation. However, the appellate court went beyond the sole issue and made factual findings bereft of any basis in the record to inappropriately rule that AYALA is in estoppel and has waived its right to enforce the subject restrictions. Such ruling was immaterial to the annotation of the lis pendens. The finding of estoppel was thus improper and made in excess of jurisdiction." — Quoted from the Court's prior decision in Ayala Corporation vs. Ray Burton Development Corporation (294 SCRA 48, 1998), this passage definitively characterizes the CA's estoppel pronouncement as improper and made in excess of jurisdiction, reinforcing the obiter dictum holding.

• Ayala Corporation vs. Ray Burton Development Corporation, 294 SCRA 48 (1998) — Controlling precedent on all fours with the case at bar. The Court there held that the deed restrictions were valid, Ayala was not estopped from enforcing them, and that the party guilty of violating the restrictions could be held liable for substitute performance through payment of development charges as compensatory damages. The Court also explicitly stated therein that the CA's finding of estoppel in the Rosa-Diana case was immaterial to the lis pendens issue and made in excess of jurisdiction.

• Banson vs. Court of Appeals, 246 SCRA 42 (1995) — Cited for the general proposition that findings of fact of the trial court and the Court of Appeals are conclusive upon the Supreme Court when supported by substantial evidence. The Court noted this rule but found itself constrained to review the trial court's findings because the CA chose not to pass upon the specific errors assigned and because certain facts were overlooked that would affect the disposition.

• Article 1159, New Civil Code — Provides that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Applied to hold Rosa-Diana bound by the deed restrictions and the Undertaking it freely executed, notwithstanding its claims that it believed the restrictions were no longer being enforced.

Bellosillo, Mendoza, Quisumbing, and Buena, JJ., concurred.