Fajardo v. Freedom to Build, Inc.
REITERATIONFacts
1. The Antecedents: Freedom To Build, Inc., a developer of low-cost housing, sold a house and lot to spouses Eliseo and Marissa Fajardo. The sale was subject to a Contract to Sell which included a Restrictive Covenant. This covenant stipulated specific limitations on easements and upward and frontward expansion of the house. These restrictions were also noted on the property's Transfer Certificate of Title. The Fajardos proceeded to extend their house's roof to the property line and expanded the second floor beyond the original front wall, violating the covenant's terms, despite warnings from the developer. 2. Procedural History: Following the Fajardos' construction of unauthorized extensions, Freedom To Build, Inc. filed an action for demolition before the Regional Trial Court (RTC) in Pasig City. The RTC ruled in favor of the developer, ordering the spouses to demolish the structures exceeding the limitations of the Restrictive Covenant. The spouses appealed this decision to the Court of Appeals, which affirmed the RTC's ruling. The case then proceeded to the Supreme Court via a petition for review. 3. The Petition: The spouses Fajardo petitioned the Supreme Court, arguing that adjacent owners did not object to the construction and that the developer had relinquished its ownership rights, thus losing the personality to enforce the covenant. They contended that enforcement was now the responsibility of the homeowners' association. They also argued that the covenant lacked a specific penalty of demolition for breaches. The Supreme Court, however, upheld the validity of the restrictive covenant, finding that it was intended for the benefit of the subdivision's residents to prevent overcrowding and promote privacy. The Court also affirmed the developer's standing to enforce the covenant, noting the homeowners' association's implicit consent, and invoked Article 1168 of the Civil Code to justify demolition as a remedy for non-performance of a negative obligation.
Issue(s)
Whether FTBI has the personality to enforce the restrictive covenant. Whether the restrictive covenant is valid and enforceable. Whether the petitioners' construction constitutes a breach of the restrictive covenant. Whether demolition is the proper remedy for the breach of the restrictive covenant.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals, upholding the validity and enforceability of the restrictive covenant and ordering the petitioner-spouses to demolish the unauthorized structures that exceeded the limits imposed by the covenant. The Court ruled that FTBI had the personality to enforce the covenant, that the petitioners breached the covenant, and that demolition was a proper remedy under Article 1168 of the Civil Code.
Ratio Decidendi
On the personality of FTBI to enforce the covenant: The Court held that while generally, a suit for equitable enforcement of a restrictive covenant can only be made by one for whose benefit it is intended, and a developer who has relinquished ownership may be precluded from enforcing it, this was not the case here. The homeowners' association, confirmed by its board of directors, had allowed FTBI to enforce the provisions of the restrictive covenant. This explicit authorization granted FTBI the standing to pursue the enforcement action. On the validity and enforceability of the restrictive covenant: The Court found the restrictive covenant to be valid and enforceable. It explained that restrictive covenants are not strictly easements but can be characterized as servitudes or negative easements, precluding the landowner from doing what they would otherwise be entitled to do. Courts generally sustain such covenants when they are reasonable, not contrary to public policy or law, and not in restraint of trade. The restrictions in this case were intended to promote aesthetics, health, privacy, and prevent overcrowding in a low-cost housing project, which are legitimate purposes. On the breach of the restrictive covenant: The Court determined that the petitioners had indeed breached the restrictive covenant. The petitioners extended the roof of their house to the property line and expanded the second floor beyond the stipulated setback and forward line. These actions directly contravened the explicit prohibitions contained in the contract to sell and were also annotated on their TCT, indicating their knowledge of the restrictions. On the remedy of demolition: The Court rejected the petitioners' argument that demolition was not a proper remedy due to the lack of a specific penalty provision in the covenant. It invoked Article 1168 of the New Civil Code, which states that when an obligation consists in not doing something and the obligor does what has been forbidden, it shall be undone at their expense. This provision directly applies to breaches of restrictive covenants where the prohibited act is the construction of unauthorized structures.
Main Doctrine
Restrictive covenants in contracts to sell and transfer certificates of title, designed to promote aesthetics, health, privacy, or prevent overcrowding, are valid and enforceable. A breach thereof may result in the obligor being required to undo what has been forbidden at their expense, as provided under Article 1168 of the Civil Code.