Sangalang vs. Intermediate Appellate Court

Restrictive easements embodied in deed restrictions in a subdivision are valid and enforceable but are subordinate to the legitimate exercise of police power through zoning ordinances, such that when the State, through competent authority, reclassifies an area in a manner inconsistent with contractual restrictions, the restrictions cannot be raised as a bar to the reclassification, and individual lot owners in the reclassified zone are released from compliance with those restrictions.

Bel-Air Village was developed in the 1950s by Makati Development Corporation (MDC), which in 1968 merged with Ayala Corporation, into a residential subdivision in Makati, Metro Manila. Lots were sold subject to "deed restrictions" annotated on the titles, including a stipulation that lots "shall only be used for residential purposes," effective for fifty years from January 15, 1957. A commercial block lay between Buendia Avenue (now Sen. Gil J. Puyat Avenue) and Jupiter Street, fronting the village. The Bel-Air Village Association, Inc. (BAVA) served as the homeowners' association, charged with sanitation, security, traffic regulation, and general welfare. Jupiter Street ran along the boundary between the residential lots of Bel-Air Village and the commercial block. Over time, the Municipality of Makati and the Metro Manila Commission enacted zoning ordinances reclassifying portions of the area, including Jupiter Street, into commercial zones, precipitating the conversion of several residences along Jupiter Street into commercial establishments and the resulting litigation.

Bel-Air Village, a residential subdivision in Makati, was developed in the 1950s by Makati Development Corporation (MDC), which later merged with Ayala Corporation in 1968. Lots were sold subject to "deed restrictions" forming part of each deed of sale, including a provision that lots "shall only be used for residential purposes," and that the restrictions would remain in force for fifty years from January 15, 1957. The restrictions also required lot owners to be members of the Bel-Air Village Association, Inc. (BAVA), the homeowners' association responsible for sanitation, security, and general welfare. A commercial block lay between Buendia Avenue (now Sen. Gil J. Puyat Avenue) and Jupiter Street, fronting the village to the south. Jupiter Street served as the boundary between the residential lots and the commercial block, a fact acknowledged in BAVA's own articles of incorporation.

When the commercial area was still undeveloped in 1966, MDC constructed a fence or wall along Jupiter Street to prevent unrestricted access to the village. The wall was partly destroyed by typhoon "Yoling" in 1970 and was subsequently rebuilt. When Jupiter Street was widened by 3.5 meters in 1972, the wall had to be destroyed and was rebuilt inside the boundary of the commercial block upon BAVA's request. Beginning in 1972, Ayala Corporation informed BAVA of its plan to subdivide and sell the commercial lots, proposing deed restrictions for the commercial lot owners including a 19-meter building setback from Jupiter Street, parking requirements, and traffic limitations. BAVA acknowledged these communications and even assessed and collected membership dues from the commercial lot owners as special members of the association, with dues increasing over time.

In 1974–1975, purchasers of the commercial lots commenced construction of their buildings, demolishing portions of the perimeter wall to gain access to Jupiter Street. Many erected their own fences and hired their own security guards. On April 4, 1975, the Municipality of Makati enacted Ordinance No. 81, classifying Bel-Air Village as a Class A Residential Zone with its southern boundary at the center line of Jupiter Street, and classifying the Buendia Avenue Extension area as an Administrative Office Zone, also bounded by the center line of Jupiter Street. Later, on March 14, 1981, the Metro Manila Commission adopted the Comprehensive Zoning Ordinance No. 81-01, under which the block-deep strip along the northwest side of Buendia Avenue Extension from Reposo to EDSA was classified as a High Intensity Commercial Zone, with Jupiter Street as the common boundary between the residential and commercial zones.

On August 12, 1977, the Mayor of Makati forcibly opened and removed the gates on Jupiter Street, opening the entire length of the street to public vehicular and pedestrian traffic. Prior to this, Jupiter Street had not been open to the general public, and there had been no parking or traffic problems. The opening of the street brought a tremendous increase in traffic volume. On January 27, 1978, Ayala Corporation donated Jupiter Street from Metropolitan Avenue to Zodiac Street to BAVA, subject to the condition that the property would be used as a street for members of BAVA, their families, personnel, guests, domestic help, and, under certain reasonable conditions and restrictions, by the general public.

Thereafter, several residents along Jupiter Street and, in one case, Reposo Street, converted their residences into commercial establishments. In G.R. No. 74376, Rosario de Jesus Tenorio allowed Cecilia Gonzalvez to convert the house at 50 Jupiter Street into a restaurant. In G.R. No. 76394, spouses Eduardo and Buena Romualdez constructed a bake and coffee shop at 108 Jupiter Street despite warnings from BAVA. In G.R. No. 78182, Dolores Filley leased her building and lot at 205 Reposo Street to the advertising firm J. Romero and Associates. In G.R. No. 82281, Violeta Moncal leased her house and lot at 104 Jupiter Street to Majal Development Corporation, a construction company. BAVA sued in each case for specific performance to enforce the deed restrictions.

In the mother case, G.R. No. 71169, the Sangalangs, joined by the Gastons and the Brioneses, all residents of Jupiter Street, and BAVA as intervenor, sued Ayala Corporation for damages predicated on breach of contract and quasi-delict, alleging that Ayala's demolition of the perimeter wall and subsequent actions led to the commercialization of Jupiter Street and the deterioration of living conditions in Bel-Air Village. The Court of First Instance of Rizal rendered judgment in favor of the plaintiffs, awarding substantial damages and ordering Ayala to reconstruct the perimeter wall. The Court of Appeals reversed, dismissing the case for lack of cause of action, relying on its earlier ruling in AC-G.R. No. 66649 and on the zoning ordinances. The Court of Appeals similarly reversed the trial courts in all four companion cases on the same basis.

• Procedural Error by Appellate Court: Petitioners maintained that the Court of Appeals erred in reversing the trial court on issues — specifically the applicability of Makati Ordinance No. 81 and MMC Ordinance No. 81-01 — which were neither raised by Ayala in its answers nor assigned as errors on appeal.
• Disregard of Trial Court Findings: Petitioners argued that the Court of Appeals arbitrarily ignored the trial court's documented and uncontradicted factual findings, particularly those pointing to Ayala's alleged bad faith in contriving to remove the perimeter wall for its own commercial purposes.
• Contractual Obligation to Maintain Wall: Petitioners contended that Ayala Corporation had a continuing contractual obligation to maintain the perimeter wall along Jupiter Street, which was intended to separate the residential from the commercial areas and insure the privacy and security of Bel-Air Village, and that Ayala acted in bad faith to do away with the wall.
• Validity and Enforceability of Deed Restrictions: Petitioners argued that the deed restrictions, being contractual stipulations embodied in the deeds of sale and annotated on titles, remain valid and enforceable and cannot be nullified by zoning ordinances, invoking the constitutional guarantee against impairment of contracts.
• Estoppel (in G.R. No. 78182): Respondents-appellants in G.R. No. 78182 argued that BAVA was estopped from enforcing the deed restrictions because it had allowed the use of property within the village for non-residential purposes.

• Zoning Ordinances Rendered Restrictions Vacated (G.R. No. 78182): Respondents argued that regulations promulgated by the municipal authorities of Makati and the Ministry of Human Settlements, changing the character of the areas in question, had rendered the restrictive easements on their titles vacated.
• Estoppel of BAVA (G.R. No. 78182): Respondents countered that because BAVA had allowed the use of property within the village for non-residential purposes, it was estopped from enforcing the restrictive prohibitions.
• Bilateral Contract and Non-Performance (G.R. No. 78182): Respondents argued that a bilateral contract existed between the parties, and since BAVA had not performed its obligations under the arrangement, respondents were under no obligation to annotate the restrictive prohibitions on the back of the title.
• Commercial Character of the Area (G.R. No. 78182): Respondents characterized the restrictions as completely outmoded, having lost all relevance to present-day realities in Makati, now the premier business hub of the nation, where commercial enterprises had proliferated even within so-called "residential" villages.
• Ayala's Position (G.R. No. 71169): Ayala Corporation maintained that it had acted with justice, gave the petitioners their due, and observed honesty and good faith, and that it could not be held liable for damages under Articles 19 and 21 of the Civil Code. Ayala contended that the real cause of the deterioration of peace and order was the opening of Jupiter Street to vehicular traffic in 1977 upon orders of the Mayor, not the demolition of the wall in 1974–1975.

• Procedural — Appellate Court's Authority to Consider Unassigned Issues: Whether the Court of Appeals erred in considering the zoning ordinances as a basis for reversal when these were not raised as errors on appeal.
• Procedural — Appellate Court's Disregard of Trial Court Findings: Whether the Court of Appeals arbitrarily ignored the trial court's documented factual findings.
• Contractual Obligation to Maintain Wall: Whether Ayala Corporation had a contractual obligation to maintain the perimeter wall along Jupiter Street, the breach of which would render it liable for damages.
• Enforceability of Deed Restrictions Against Zoning: Whether the deed restrictions requiring residential-only use remain enforceable against individual lot owners despite the reclassification of Jupiter Street as a commercial zone under MMC Ordinance No. 81-01.
• Police Power vs. Sanctity of Contract: Whether zoning ordinances reclassifying an area constitute a valid exercise of police power that overrides contractual deed restrictions.

• Procedural — Appellate Court's Authority to Consider Unassigned Issues: No procedural error was committed. The zoning ordinances were raised by Ayala Corporation as affirmative defenses in its answers and in its brief, and were submitted as exhibits at trial, providing sufficient basis for the Court of Appeals to consider them.
• Procedural — Appellate Court's Disregard of Trial Court Findings: No. The Court of Appeals did not arbitrarily ignore the trial court's findings; it is the duty of the appellate court to review findings of fact and law and arrive at its own conclusions unless grave abuse of discretion is shown.
• Contractual Obligation to Maintain Wall: No. No contractual obligation was established; the wall was erected as a security measure and a show of goodwill, not pursuant to any covenant in the deed restrictions, and the reason for its existence ceased when commercial buildings were constructed.
• Enforceability of Deed Restrictions Against Zoning: No. The deed restrictions, while valid within the subdivision, cannot be enforced against lot owners on Jupiter Street after the National Government, through the MMC, reclassified Jupiter Street into a high-density commercial zone pursuant to Ordinance No. 81-01.
• Police Power vs. Sanctity of Contract: Yes, police power prevails. The MMC Ordinance constitutes a legitimate exercise of police power that overrides contractual deed restrictions, the non-impairment clause being secondary to the more compelling interests of general welfare.

• Procedural — Appellate Court's Authority to Consider Unassigned Issues: While the general rule is that the Court of Appeals may determine only questions properly raised, this rule is not inflexible. An unassigned error closely related to an error properly assigned, or upon which the determination of a properly assigned error depends, may be considered. The modern trend accords courts broad discretionary power to consider matters having some bearing on the issue submitted. More importantly, Ayala Corporation did raise the zoning measures as affirmative defenses in its answers and in its brief, and submitted the ordinances as exhibits at trial. There was therefore no violation of procedural rules, and no cause for complaint on the part of the petitioners.

• Procedural — Appellate Court's Disregard of Trial Court Findings: It is the duty of the appellate court to review the findings of the trial judge, whether of fact or law. It is not bound by the trial court's conclusions and may accept or reject the lower tribunal's determinations, relying solely on the records, unless grave abuse of discretion is imputed. The Court of Appeals' findings that Ayala acted in good faith and that the zoning ordinances affected the enforceability of the deed restrictions were supported by the records. The trial court's findings pointing to alleged bad faith by Ayala were not necessarily incompatible with the conclusion that no commitment to maintain the wall had been made.

• Contractual Obligation to Maintain Wall: Obligations arise from contract, among other sources, and a contract is characterized by a meeting of minds between two persons. The existence of a contract must be shown clearly and convincingly as a fact; it cannot be inferred from a mishmash of circumstances disclosing some kind of "understanding" when those circumstances are not themselves incompatible with claims that no accord existed. The records did not establish any commitment by Ayala to maintain the wall. The subdivision plans did not mention it, and nothing in the deed restrictions pointed to any covenant regarding wall construction. Jupiter Street was intended for use by both the commercial and residential blocks, as acknowledged by BAVA's own articles of incorporation, and was not for the exclusive benefit of Bel-Air Village residents. The wall was erected in 1966 because the commercial area was vacant and open to interlopers; once commercial buildings were constructed in 1974–1975, the reason for the wall ceased to exist, as the buildings themselves provided security. The commercial lot owners had equal right to use Jupiter Street and were entitled to demolish portions of the wall to gain access. BAVA had been informed from the outset that commercial lot owners would use Jupiter Street, as shown by multiple letters and meeting minutes in the records. The alleged promise by Ayala's manager to build a "fence along Jupiter with gate for entrance and/or exit" could not establish a pre-existing obligation to maintain an impenetrable wall, and the proposed fence was never constructed because it became unnecessary. The deed of donation of Jupiter Street to BAVA expressly allowed use by the general public under certain reasonable conditions, contradicting the claim that it was for the private use of Bel-Air residents. Ayala could not be held liable for specific performance of a demandable obligation, let alone damages, having acted with justice, given the petitioners their due, and observed honesty and good faith under Articles 19 and 21 of the Civil Code.

• Enforceability of Deed Restrictions Against Zoning: The private respondents in the companion cases were exculpated not only because Jupiter Street is not covered by the restrictive easements based on the deed restrictions — it being a boundary, not part of either the residential or commercial zones — but chiefly because the National Government, through the Metro Manila Commission, had reclassified Jupiter Street into a high-density commercial (C-3) zone pursuant to Ordinance No. 81-01. The petitioners therefore had no cause of action on the strength of the deed restrictions alone. The restrictions are valid and enforceable as far as the Bel-Air subdivision itself is concerned, but they are subject to the overriding demands, needs, and interests of the greater number as the State may determine in the legitimate exercise of police power.

• Police Power vs. Sanctity of Contract: While the Constitution guarantees the sanctity of contract and contracts are the law between the parties, they cannot contravene law, morals, good customs, public order, or public policy. Above all, contracts cannot be raised as a deterrent to police power, which is designed to promote health, safety, peace, and the common good at the expense of contractual rights whenever necessary. Police power is "the most essential, insistent, and illimitable of powers" and "the greatest and most powerful attribute of government." Its exercise may be judicially inquired into and corrected only if capricious, whimsical, unjust, or unreasonable, or if there has been a denial of due process. The MMC Ordinance No. 81-01 represents a legitimate exercise of police power; the petitioners did not show it to be capricious, arbitrary, or unreasonable, relying only on the supposed non-impairment guarantee, which is secondary to the more compelling interests of general welfare. No reversible error was committed by the Court of Appeals.

• Police Power as Paramount Over Contractual Obligations — The non-impairment of contracts clause is not absolute and must yield to the legitimate exercise of police power. Contracts, while constituting the law between the parties, cannot contravene law, morals, good customs, public order, or public policy, and cannot be raised as a deterrent to police power designed to promote health, safety, peace, and the common good. The exercise of police power may be judicially inquired into and corrected only if capricious, whimsical, unjust, or unreasonable, or if there has been a denial of due process. In this case, the Court applied the doctrine to uphold MMC Ordinance No. 81-01, which reclassified Jupiter Street as a commercial zone, as a valid exercise of police power that overrode the residential-only deed restrictions.

• Restrictive Easements in Subdivision Deed Restrictions — Deed restrictions in a subdivision, requiring lots to be used for residential purposes only, are valid and enforceable among lot owners and the developer. However, they are subject to the overriding demands of police power. When the State, through competent authority, reclassifies an area in a manner inconsistent with these restrictions, the restrictions cannot serve as a bar to the reclassification, and lot owners in the reclassified zone are released from compliance. The Court applied this principle to hold that individual lot owners along Jupiter Street could not be compelled to comply with residential-only restrictions after the MMC reclassified the street as a high-density commercial zone.

• Burden of Proof in Establishing Contractual Obligation — A contract must be shown to exist as a fact clearly and convincingly; it cannot be inferred from a mishmash of circumstances alone disclosing some kind of an "understanding," especially when those circumstances are not themselves incompatible with contentions that no accord existed. The burden of proof rests on the party asserting the contract. The Court applied this standard to reject the petitioners' claim that Ayala Corporation had a contractual obligation to maintain the perimeter wall, finding no covenant in the deed restrictions or subdivision plans supporting such an obligation.

• "Our jurisdiction guarantees sanctity of contract and is said to be the 'law between the contracting parties,' but while it is so, it cannot contravene 'law, morals, good customs, public order, or public policy.' Above all, it cannot be raised as a deterrent to police power, designed precisely to promote health, safety, peace, and enhance the common good, at the expense of contractual rights, whenever necessary." — This passage articulates the ratio decidendi on the supremacy of police power over contractual restrictions, the central doctrinal holding of the case.

• "It is not that we are saying that restrictive easements, especially the easements herein in question, are invalid or ineffective. As far as the Bel-Air subdivision itself is concerned, certainly, they are valid and enforceable. But they are, like all contracts, subject to the overriding demands, needs, and interests of the greater number as the State may determine in the legitimate exercise of police power." — This passage defines the scope and limits of restrictive easements vis-à-vis police power, clarifying that the restrictions remain valid within the subdivision but yield to legitimate zoning reclassifications.

• "A contract, however, is characterized by a 'meeting of minds between two persons.' As a consensual relation, it must be shown to exist as a fact, clearly and convincingly. But it cannot be inferred from a mishmash of circumstances alone disclosing some kind of an 'understanding,' when especially, those disparate circumstances are not themselves incompatible with contentions that no accord had existed or had been reached." — This passage states the evidentiary standard for proving the existence of a contract, applied to reject the claim that Ayala Corporation was contractually bound to maintain the perimeter wall.

• Ortigas & Co., Limited Partnership vs. Feati Bank and Trust Co., 94 SCRA 533 (1979) — Followed. The Court relied on this case for the principle that the non-impairment of contracts clause must be reconciled with the legitimate exercise of police power, and that police power prevails when public welfare clashes with individual property rights. The Court quoted extensively from this decision to support its holding that zoning ordinances constitute a valid exercise of police power overriding contractual restrictions.

• Hernandez vs. Andal, 78 Phil. 196 (1947) — Followed. Cited for the procedural principle that an unassigned error closely related to an error properly assigned, or upon which the determination of a properly assigned error depends, may be considered by the appellate court notwithstanding the failure to assign it as error.

• Baquiran vs. Court of Appeals, 2 SCRA 873 (1961) — Followed. Cited for the "modern trend of procedure" according courts broad discretionary power to consider matters having some bearing on the issue submitted which the parties failed to raise or the lower court ignored.

• Vda. de Javellana vs. Court of Appeals, 123 SCRA 799 (1983) — Followed. Cited for the proposition that a "patent error" of the trial court may be considered by the Court of Appeals under Section 7 of Rule 51, even if not raised in the brief.

• Bel-Air Village, Inc. vs. Hy-Land Realty & Development Corporation, et al., AC-G.R. No. 66649 (Court of Appeals) — Followed (as the foundational appellate ruling). The Court of Appeals' ruling in this case, which rejected claims under the same deed restrictions based on the zoning ordinances, was the primary basis for the Court of Appeals' decisions in all five consolidated cases. The Supreme Court ultimately affirmed the approach taken in this case, though on somewhat different reasoning regarding Jupiter Street as a boundary.

• Article 1157, Civil Code — Cited for the principle that obligations arise from contracts, among other sources. Applied to determine whether Ayala Corporation's alleged obligation to maintain the perimeter wall arose from a contract, which the Court found it did not.

• Article 1305, Civil Code — Cited for the definition of a contract as a "meeting of minds between two persons." Applied to establish the evidentiary standard for proving the existence of a contractual obligation, which the petitioners failed to meet regarding the perimeter wall.

• Article 1306, Civil Code — Cited for the principle that contracts cannot contravene law, morals, good customs, public order, or public policy. Applied to support the holding that deed restrictions are subordinate to police power.

• Article 1159, Civil Code — Cited for the principle that obligations arising from contracts have the force of law between the contracting parties. Applied but qualified by the overriding demands of police power.

• Articles 19 and 21, Civil Code — Cited for the principles that persons must act with justice, give everyone his due, and observe honesty and good faith, and that any person who wilfully causes loss or injury to another in a manner contrary to law, morals, good customs, or public policy shall compensate the latter. Applied to exonerate Ayala Corporation, the Court finding that Ayala acted with justice and in good faith.

• Article 1267, Civil Code — Referenced by the Court of Appeals in G.R. No. 82281 for the principle that when the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may be released. Applied by the appellate court to excuse compliance with the deed restrictions due to the commercialization of the area.

• Section 7, Rule 51, Rules of Court — Cited for the rule that the appellate court may notice plain errors affecting jurisdiction even if not assigned. Applied to support the Court of Appeals' authority to consider the zoning ordinances.

• Makati Ordinance No. 81 (1975) — The municipal zoning ordinance classifying Bel-Air Village as a Class A Residential Zone and the Buendia Avenue Extension area as an Administrative Office Zone, with Jupiter Street as the common boundary. Applied to support the finding that Jupiter Street is a boundary, not part of either zone exclusively.

• MMC Ordinance No. 81-01 (1981) — The Comprehensive Zoning Ordinance for the National Capital Region, reclassifying the block-deep strip along Buendia Avenue Extension as a High Intensity Commercial Zone. Applied as the primary basis for holding that the deed restrictions could not be enforced against lot owners on Jupiter Street, as the ordinance constituted a legitimate exercise of police power.

Fernan, C.J., Melencio-Herrera, Gutierrez, Jr., Cruz, Gancayco, Bidin, Cortes, Griño-Aquino, Medialdea, and Regalado, JJ., concurred. No separate concurring opinions were noted.

N/A. No dissenting opinions were rendered. Justices Narvasa, Paras, Feliciano, and Padilla did not participate — Narvasa was on leave, while Paras, Feliciano, and Padilla took no part.