Fajardo vs. Freedom To Build, Inc.

Restrictive covenants in subdivision contracts are valid and enforceable if they are reasonable, not contrary to public policy or law, and not in restraint of trade; a developer may enforce such covenants against lot owners even after relinquishing ownership, provided the homeowners' association consents; and breach of a negative obligation (not to build) warrants demolition of the offending structure at the expense of the violator under Article 1168 of the Civil Code.

• Freedom To Build, Inc., an owner-developer of low-cost housing, sold to petitioner-spouses Eliseo Fajardo, Jr. and Marissa Fajardo a house and lot designated as Lot No. 33, Block 14 of the De la Costa Homes in Barangka, Marikina, Metro Manila.
• The Contract to Sell executed between the parties contained a Restrictive Covenant imposing prohibitions including: (a) a two-meter front easement where no structures may be built; (b) upward expansion rules requiring second storey construction to be placed above the back portion and not extend forward beyond the apex of the original building; and (c) front expansion limitations requiring second floor expansion to be 6 meters back from the front property line and 4 meters back from the front wall.
• These restrictions were annotated on Transfer Certificate of Title No. N-115384 issued in the name of petitioners.
• Despite repeated warnings from respondent, petitioners extended the roof of their house to the property line and expanded the second floor directly above the original front wall, violating the setback requirements.
• By mutual agreement between the Homeowners Association and the developer, the restriction was relaxed from 4-meters to a 2-meter setback, but petitioners still violated even this relaxed standard.
• Petitioners' immediate neighbors reportedly had no objection to the construction and expressed interest in undertaking similar expansions.
• The De la Costa Low Income Project Homeowners' Association confirmed by its board of directors that respondent was allowed to enforce the provisions of the restrictive covenant.

• Adjacent owners have not opposed the construction and have even expressed interest in undertaking similar expansions in their respective residences.
• The expansion is necessary to accommodate the individual families of their two children who might soon get married and share living quarters with petitioners.
• Respondent lacks the legal personality to question the construction because it effectively relinquished its ownership, right, or interest over the subdivision upon the execution of the Deed of Absolute Sale in favor of the individual homeowners.
• Per the contract between Freedom to Build, Inc. and the De la Costa Low Income Project Homeowners' Association, the enforcement of the prohibitions contained in the Restrictive Covenant is now lodged in the homeowners' association, not the respondent.
• For lack of a specific provision prescribing the penalty of demolition in the Restrictive Covenant, the prayer for demolition should fail.

• The restrictions are reasonable and intended for the protection and benefit of the De La Costa Low Income Housing Project and all its homeowners.
• The restrictions aim to uphold the project's design to accommodate at least 100 families per hectare while providing safety, aesthetic conditions, and preventing overcrowding.
• The restrictive covenants are valid stipulations intended to promote aesthetics, health, privacy, and to prevent overcrowding.
• The homeowners' association, confirmed by its board of directors, allowed respondent to enforce the provisions of the restrictive covenant.
• Petitioners cannot claim good faith as the restrictive covenants are explicitly written in the Contract to Sell and annotated on the Transfer Certificate of Title.

• Procedural: N/A
• Substantive Issues:
  • Whether the restrictive covenants contained in the Contract to Sell are valid and enforceable.
  • Whether respondent has the legal personality to enforce the restrictive covenants against petitioners.
  • Whether demolition is the proper remedy for the breach of the restrictive covenants, or whether the absence of a specific provision for demolition precludes such remedy.

• Procedural: N/A
• Substantive:
  • The restrictive covenants are valid and enforceable. While courts generally view restrictive covenants with disfavor as they restrict the use of property, they are sustained when reasonable, not contrary to public policy or law, and not in restraint of trade. Frontline restrictions on constructions have been held to be valid stipulations, especially when aimed at promoting aesthetics, health, privacy, and preventing overcrowding in low-cost housing projects.
  • The consent of adjacent owners is irrelevant because the restrictive covenant is intended for the benefit of the entire subdivision community, not merely adjacent owners, to ensure compliance with the project's original design and density requirements.
  • Respondent has the legal personality to enforce the covenant. While generally a suit for equitable enforcement can only be made by one for whose benefit it is intended, and a developer can enforce restrictions only if it retains part of the land, the homeowners' association confirmed by its board of directors allowed respondent to enforce the provisions of the restrictive covenant, thereby curing any defect in standing.
  • Demolition is the proper remedy under Article 1168 of the New Civil Code, which provides that when an obligation consists in not doing and the obligor does what has been forbidden, it shall be undone at his expense. The case of Ayala Corporation vs. Ray Burton Development Corporation, which awarded damages in lieu of demolition, is distinguishable because that case contained an elaborate mathematical formula for determining compensatory damages in the Deed of Restrictions, which circumstance is absent in the present case.

• Restrictive Covenants vs. Easements — Restrictive covenants are not synonymous with easements; while they may broadly create rights, they are limitations on the manner in which one may use property, sometimes characterized as negative easements or servitudes (burdens) that preclude the owner from doing an act which he would otherwise be entitled to do.
• Validity of Restrictive Covenants — Courts enforce restrictive covenants to the same extent as other valid contractual relationships, provided they are reasonable, not contrary to public policy or law, and not in restraint of trade.
• Standing to Enforce Restrictive Covenants — A suit for equitable enforcement can only be made by one for whose benefit the covenant is intended; a developer can enforce restrictions against remote grantees only if it retains part of the land, unless the homeowners' association authorizes such enforcement.
• Remedy for Breach of Negative Obligation — Under Article 1168 of the New Civil Code, when an obligation consists in not doing and the obligor does what has been forbidden, the proper remedy is to undo the forbidden act at the obligor's expense, which includes demolition of unauthorized structures.

• "Restrictive covenants are not, strictly speaking, synonymous with easements. While it may be correct to state that restrictive covenants on the use of land or the location or character of buildings or other structures thereon may broadly be said to create easements or rights, it can also be contended that such covenants, being limitations on the manner in which one may use his own property, do not result in true easements, but a case of servitudes (burden), sometimes characterized to be negative easements or reciprocal negative easements."
• "Courts which generally view restrictive covenants with disfavor for being a restriction on the use of one's property, have, nevertheless, sustained them where the covenants are reasonable, not contrary to public policy, or to law, and not in restraint of trade."
• "When the obligation consists in not doing and the obligor does what has been forbidden him, it shall be undone at his expense."
• "Broadly speaking, a suit for equitable enforcement of a restrictive covenant can only be made by one for whose benefit it is intended. It is not thus normally enforceable by one who has no right nor interest in the land for the benefit of which the restriction has been imposed."

• Ayala Corporation vs. Ray Burton Development Corporation (294 SCRA 48) — Distinguished; the Court awarded damages in lieu of demolition because the Deed of Restrictions contained an elaborate mathematical formula for determining compensatory damages, a circumstance absent in the present case.

• Article 1168 of the New Civil Code — Provides that when the obligation consists in not doing and the obligor does what has been forbidden, it shall be undone at his expense, serving as the legal basis for the demolition order.