Fajardo vs. Freedom To Build, Inc.

Restrictive covenants in subdivision contracts are valid and enforceable if reasonable, not contrary to public policy or law, and not in restraint of trade; breach of a negative covenant (an obligation not to do) entitles the obligee to specific relief in the form of demolition under Article 1168 of the Civil Code, unless the parties stipulated a unique formula for monetary damages.

Freedom to Build, Inc. developed De la Costa Homes in Marikina, a low-cost socialized housing project designed to accommodate at least 100 families per hectare. To maintain safety, aesthetics, privacy, and decent living conditions while controlling overcrowding, the developer imposed restrictive covenants on all lots.

• Filed in RTC National Capital Judicial Region, Branch 261, Pasig City: Respondent filed an action to demolish unauthorized structures constructed by petitioners.
• Decision of lower court (RTC): Rendered judgment directing petitioners to immediately demolish and remove the extensions exceeding the restrictive covenant limits; otherwise, the sheriff would execute the decision at petitioners' expense.
• Appealed to CA: The CA affirmed the RTC decision in CA-G.R. CV No. 50085 on 13 July 1998.
• Elevated to SC: Petitioners filed a petition for review.

• Respondent (Freedom to Build, Inc.) sold Lot No. 33, Block 14 of De la Costa Homes, Barangka, Marikina to petitioner-spouses Eliseo Fajardo, Jr. and Marissa Fajardo.
• The Contract to Sell contained a Restrictive Covenant with specific prohibitions annotated on Transfer Certificate of Title No. N-115384:
  • Front Easement: Mandatory 2-meter front easement (relaxed from an original 4-meter setback by mutual agreement between the Homeowners Association and the developer); no structures (store, garage, bodega, etc.) may be built on this easement.
  • Upward Expansion: Second storey permitted only above the back portion of the house; must not extend forward beyond the apex of the original building or exceed the line 6 meters back from the front property line.
  • 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 and upward expansion restrictions.
  • Adjacent homeowners reportedly expressed no objection and indicated interest in similar expansions.
  • Petitioners have two children who might marry and need additional living space.
  • The De la Costa Low Income Project Homeowners' Association, through its board of directors, confirmed and allowed respondent to enforce the provisions of the restrictive covenant.

• The construction is necessary to accommodate the families of their two children who might soon marry.
• Adjacent owners have not opposed the construction and have expressed interest in undertaking similar expansions.
• Respondent lacks legal personality to enforce the covenant because it relinquished all ownership rights upon executing the Deed of Absolute Sale; enforcement authority now resides exclusively with the homeowners' association.
• The Restrictive Covenant contains no specific provision prescribing demolition as a penalty for breach; thus, only damages should be awarded, citing Ayala Corporation vs. Ray Burton Development Corporation, 294 SCRA 48, where the SC adjudged payment of damages in lieu of demolition.

• The restrictions are reasonable and necessary to uphold the design intent of the project: to ensure privacy, foster community spirit, and prevent overcrowding among low-income families in a high-density development (100 families per hectare).
• The restrictions were explicitly written in the Contract to Sell and annotated on the TCT, binding petitioners and all subsequent grantees.
• The homeowners' association authorized respondent to enforce the covenant, validating its standing.
• Ayala Corporation is distinguishable because the Deed of Restrictions in that case contained an elaborate mathematical formula for determining compensatory damages, which is absent here; thus, demolition under Article 1168 is the proper remedy.

• Procedural Issues: Whether respondent has the legal personality (standing) to enforce the restrictive covenant after selling the subject lot to petitioners.
• Substantive Issues:
  • Whether the restrictive covenants are valid and enforceable against petitioners.
  • Whether petitioners are bound by the covenants despite claims of necessity and lack of objection from neighbors.
  • Whether demolition is the proper remedy for the breach.

• Procedural: Yes, respondent has standing. While a developer generally retains enforcement rights against remote grantees only if it retains part of the land, here the homeowners' association confirmed and allowed respondent to enforce the provisions of the restrictive covenant, thereby vesting it with authority to sue.
• Substantive:
  • Validity: Yes, the restrictive covenants are valid. While courts view such covenants with disfavor as restrictions on property use, they are sustained where reasonable, not contrary to public policy or law, and not in restraint of trade. Restrictions promoting aesthetics, health, privacy, and preventing overcrowding in low-cost housing meet this standard.
  • Binding Nature: Yes, petitioners are bound. The covenants formed part of the consideration for the conveyance and were explicitly annotated on the TCT. Consent of adjacent owners is irrelevant because the covenant benefits the entire community/project, not merely adjoining lots. Personal necessity (family expansion) does not override the contractual and title restrictions.
  • Remedy: Yes, demolition is proper. Under Article 1168 of the New Civil Code, when an obligation consists in not doing and the obligor does what has been forbidden, it shall be undone at his expense. Ayala Corporation applies only where the parties stipulated a specific formula for damages in lieu of demolition; absent such stipulation, specific performance through demolition is the statutory remedy.

• Restrictive Covenants as Negative Easements/Servitudes — Covenants limiting the use of land are not strictly synonymous with easements but create servitudes or negative easements (burdens precluding the owner from doing an act he would otherwise be entitled to perform). Validity depends on reasonableness and consistency with public policy.
• Standing to Enforce Restrictive Covenants — Generally, only one for whose benefit the covenant is intended, or a developer who retains an interest in the land, may enforce it. However, a developer may enforce with the express authorization of the homeowners' association.
• Article 1168, New Civil Code (Remedy for Breach of Negative Obligations) — When the obligation consists in not doing, and the obligor performs the forbidden act, the act must be undone at the obligor’s expense. This provides the statutory basis for ordering demolition of structures built in violation of restrictive covenants.

• "Restrictive covenants are not, strictly speaking, synonymous with easements... 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." (Article 1168, New Civil Code)
• "The statement of petitioners that their immediate neighbors have not opposed the construction is unavailing to their cause, the subject restrictive covenant not being intended for the benefit of adjacent owners but to prescribe the uses of the building..."

• Ayala Corporation vs. Ray Burton Development Corporation, 294 SCRA 48 — Distinguished; cited to show that damages in lieu of demolition are appropriate only where the Deed of Restrictions contains an explicit mathematical formula for calculating compensatory damages. The absence of such a formula in the instant case mandates demolition under Article 1168.
• Kutchinski vs. Thompson, 101 NJ Eq. 649 — Cited for the definition of restrictive covenants as limitations on property use.
• Moses vs. Hazen, 63 App DC 104 — Cited regarding the characterization of restrictive covenants as servitudes rather than true easements.
• Wilson vs. Owen, (Mo) 261 SW2d 19 — Cited for the definition of negative easement.
• Aull vs. Kraft, (Tex Civ App) 286 SW2d 460 and Lillard vs. Jet Homes, Inc., (La App) 129 So2d 109 — Cited for the principle that a suit for equitable enforcement can only be made by one for whose benefit the covenant is intended.

• Article 1168, New Civil Code — Basis for the demolition order as the remedy for breach of a negative obligation.
• Transfer Certificate of Title No. N-115384 — Instrument containing the annotated restrictive covenants binding subsequent owners.

N/A (Melo, Panganiban, Purisima, and Gonzaga-Reyes, JJ., concurred without separate opinions).