Sta. Lucia Realty v. Lumawag
REITERATIONFacts
The Antecedents: In August 1991, the AFP Retirement and Separation Benefits System (AFP Retirement System) sold Lot 20, Block 7, Citadella Subdivision, Las Piñas City, to Edsel B. Lumawag (Edsel) for PHP 540,000.00, payable in 10 years. After full payment, Edsel demanded the deed of sale, title, and possession, which AFP Retirement System failed to provide. Edsel discovered that Lourdes Pearce (Lourdes), owner of the adjoining Lot 21, constructed her house on a portion of Lot 20. Edsel sued AFP Retirement System and Lourdes for delivery of title, possession, and damages, alleging AFP Retirement System's failure to prevent Lourdes's encroachment and its attempt to compel him to accept a reduced lot area. AFP Retirement System admitted failure to execute the deed of sale due to re-mapping and re-blocking caused by Lourdes's wrongful construction, which reduced Edsel's lot area by 20 square meters. It denied coercing Edsel to settle with Lourdes and claimed it informed Edsel about the encroachment and suggested exchanging lots. Lourdes claimed she relied on Sta. Lucia Realty's relocation survey and believed the lot was hers, obtaining construction permits. Upon learning of the error, she followed up with Sta. Lucia Realty without success and sent a letter to Edsel, which was ignored. Lourdes filed a third-party complaint against Sta. Lucia Realty, attributing fault to the developer. Sta. Lucia Realty denied liability, stating it was not privy to the sale contracts and had no hand in Lourdes's construction, asserting Lourdes failed to exercise due diligence. Procedural History: The Housing and Land Use Regulatory Board (HLURB) Arbiter ruled in favor of Edsel, ordering AFP Retirement System to execute the deed of sale, transfer title, and deliver possession of Lot 20, and pay damages for the reduced area. Lourdes was held liable to Edsel for damages as a builder in good faith but with contributory negligence. Sta. Lucia Realty was held liable to Lourdes for damages due to negligence as a developer. The HLURB Board of Commissioners affirmed the Arbiter's decision. The Office of the President (OP) also affirmed the HLURB's findings. The Court of Appeals (CA) affirmed the OP's decision but modified the interest rate on the refund of excess payment to 6% per annum. AFP Retirement System and Sta. Lucia Realty filed separate petitions for review on certiorari with the Supreme Court. The Petition: AFP Retirement System questioned its liability for moral and exemplary damages and attorney's fees, arguing it did not act in bad faith. Sta. Lucia Realty contended that Lourdes was a builder in bad faith and solely responsible for the encroachment. Lourdes maintained she was a builder in good faith. Edsel argued Lourdes acted in bad faith and prayed for forfeiture of her improvements, and that AFP Retirement System acted in bad faith by breaching its obligations.
Issue(s)
(G.R. No. 223241) Whether the CA correctly affirmed AFP Retirement System's liabilities for moral and exemplary damages and attorney's fees to Edsel for its failure to comply with its obligations as a seller. (G.R. Nos. 222897 & 223241) Whether the CA correctly affirmed that Lourdes is a builder in good faith, and if so, to what extent is she liable for damages due to contributory negligence. (G.R. No. 222897) Whether Sta. Lucia Realty should be held liable to Lourdes for moral and exemplary damages, and attorney's fees, and whether Sta. Lucia Realty is liable to reimburse Lourdes for expenses or losses not covered by Articles 546 and 548 of the Civil Code.
Ruling
The Supreme Court denied AFP Retirement System's Petition in G.R. No. 223241 and partly granted Sta. Lucia Realty's Petition in G.R. No. 222897. The Court affirmed the CA's decision with modifications. AFP Retirement System is ordered to execute the Deed of Absolute Sale and deliver the title of Lot 20 to Edsel, and to pay Edsel PHP 100,000.00 for moral damages, PHP 30,000.00 for exemplary damages, and PHP 30,000.00 for attorney's fees and costs. Lourdes Pearce is ordered to pay Edsel PHP 30,000.00 as nominal damages and PHP 10,000.00 for attorney's fees. Sta. Lucia Realty is ordered to reimburse Lourdes for expenses or losses not covered by Articles 546 and 548 of the Civil Code. Edsel is given 30 days to exercise his option under Article 448 of the Civil Code. G.R. No. 222897 is remanded to the HLURB for determination of lot values and expenses for the application of Article 448. Sta. Lucia Realty's liability for moral and exemplary damages to Lourdes was deleted based on a prior final and executory CA decision.
Ratio Decidendi
On the liability of AFP Retirement System for damages: The Court affirmed the CA's ruling that AFP Retirement System is liable to Edsel for moral and exemplary damages and attorney's fees. Under Article 1170 of the Civil Code, those who contravene their obligations are liable for damages. AFP Retirement System failed to deliver Lot 20 to Edsel after full payment, depriving him of its use and possession. The Court found that AFP Retirement System acted in bad faith, as it was aware of Lourdes's encroachment before Edsel completed payment but failed to inform him or investigate. Instead, it proceeded with the sale and received full payment, later using the encroachment as a justification for its failure to deliver, thereby failing to protect Edsel's interests. This constituted a breach of its contractual obligation with manifest bad faith, entitling Edsel to damages as provided by Article 2201 of the Civil Code. On Lourdes Pearce being a builder in good faith and her liability: The Court affirmed the CA's finding that Lourdes is a builder in good faith. A builder in good faith believes the land is theirs and is unaware of any flaw in their title. Lourdes believed the house was built on her lot and was unaware of the encroachment. However, the Court found her liable to Edsel for damages due to contributory negligence, as she failed to update her relocation survey and ignored instructions from Sta. Lucia Realty to consult surveyors before construction. This negligence contributed to Edsel's damages, making her liable under Article 456 in relation to Article 2176 of the Civil Code. The damages awarded to Edsel from Lourdes were considered nominal damages, not moral damages, to vindicate Edsel's right as a property owner. On Sta. Lucia Realty's liability to Lourdes Pearce: The Court affirmed the deletion of Sta. Lucia Realty's liability for moral and exemplary damages to Lourdes Pearce, citing the final and executory Decision dated April 10, 2012, in CA-G.R. SP No. 120060. This prior decision had already deleted such liabilities due to the lack of convincing proof of bad faith on Sta. Lucia Realty's part. The Court emphasized the principle of immutability of judgments, stating that a final and executory decision cannot be altered except for clerical errors. However, Sta. Lucia Realty was still held liable to reimburse Lourdes for expenses or losses not covered by Articles 546 and 548 of the Civil Code, as per the HLURB's original ruling, acknowledging its negligence as a subdivision developer.
Main Doctrine
The seller AFP Retirement System is liable to Edsel for moral and exemplary damages for failing to comply with its obligation with manifest bad faith. Lourdes Pearce, while a builder in good faith, remains liable to Edsel for damages due to contributory negligence. Sta. Lucia Realty and Development, Incorporated's liability for moral and exemplary damages to Lourdes Pearce was deleted based on a prior final and executory decision.