Republic of The Philippines Supreme Court Manila en Banc: Non-Impairment Clause

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-3708
May 18, 1953
ROYAL L. RUTTER,plaintiff- appellant,
vs.
PLACIDO J. ESTEBAN,defendant- appellee.
Susano A. Velasquez for appellant.
Teodoro R. Dominguez for appellee.
BAUTISTA ANGELO,J.:
On August 20, 1941, Royal L. Rutter sold to Placido J.Esteban two parcels of land situated in the city of Manila for
the sum of P9,600 of which P4,800 were paid outright, and the balance of P4,800 was made payable as follows:
P2,400 on or before August 7, 1942, and P2,400 on or before August 27, 1943, with interest at the rate of 7 percent
per annum.
To secure the payment of said balance of P4,800, a first mortgage over the same parcels of land has
been constituted in favor of the plaintiff. The deed of sale having been registered, a new title was
issued in favor of Placido J.Esteban with a mortgage duly annotated on the back thereof.
Placido J. Esteban failed to pay the two installments as agreed upon, as well as the interest that had
accrued there-on, and so on August 2, 1949, Royal L. Rutter instituted this action in the Court of First
Instance of Manila to recover the balance due, the interest due thereon, and the attorney's fees
stipulated in the contract. The complaint also contains a prayer for sale of the properties mortgaged in
accordance with law.
Placido J. Esteban admitted the averments of the complaint, but set up a defense the moratorium
clause embodied in Republic Act No. 342. He claims that this is a prewar obligation contracted on
August 20, 1941; that he is a war sufferer, having filed his claim with the Philippine War Damage
Commission for the losses he had suffered as a consequence of the last war; and that under section 2
of said Republic Act No. 342, payment of his obligation cannot be enforced until after the lapse of
eight years from the settlement of his claim by the Philippine War Damage Commission, and this
period has not yet expired.
After a motion for summary judgment has been presented by the defendant, and the requisite
evidence submitted covering the relevant facts, the court rendered judgment dismissing the complaint
holding that the obligation which plaintiff seeks to enforce is not yet demandable under the
moratorium law. Plaintiff filed a motion for reconsideration wherein he raised for the first time the
constitutionality of the moratorium law, but the motion was denied. Hence this appeal.
The only question to be determined hinges on the validity of Republic Act No. 342 which was
approved by Congress on July 26, 1948. It is claimed that this act if declared applicable to the present
case is unconstitutional being violative of the constitutional provision forbidding the impairement of
the obligation of contracts (Article III, section 1, Constitution of the Philippines).
Section 2 of Republic Act No. 342 provides that all debts and other monetary obligations contracted
before December 8, 1941, any provision in the contract creating the same or any subsequent
aggreement affecting such obligation to the contrary notwithstanding, shall not due and demandable
for a period of eight (8) years from and after settlement of the war damage claim of the debtor by the
Philippine War Damage Commission; and section 3 of said Act provides that should the provision of
section 2 be declared void and unenforceable, then as regards the obligation affected thereby, the
provisions of Executive Order No. 25 dated November 18, 1944, as amended by Executive Order No.
32, dated March 10, 1945, relative to debt moratorium, shall continue to be in force and effect, any
contract affecting the same to the contrary notwithstanding, until subsequently repealed or amended
by a legislative enactment. It thus clearly appears in said Act that the nullification of its provisions
will have the effect of reviving the previous moratorium orders issued by the President of the
Philippines.
Statutes declaring a moratorium on the enforcement of monetary obligations are not of recent
enactment. These moratorium laws are not new. "For some 1,400 years western civilization has made
use of extraordinary devices for saving the credit structure, devices generally known as moratoria.
The moratorium is postponement of fulfillment of obligations decreed by the state through the
medium of the courts or the legislature. Its essence is the application of the sovereign power" (58 C.J.
S., p. 1208 footnote 87). In the United States, may state legislatures have adopted moratorium laws
"during times of financial distress, especially when incident to, or caused by, a war" (41 C.J., p.213).
Thus, such laws "were passed by many state legislatures at the time of the civil war suspending the
rights of creditors for a definite and reasonable time, . . . whether they suspend the right of action or
make dilatory the remedy" (12 C.J., p 1078). The laws were declared constitutional. However, some
NON-IMPAIRMENT CLAUSE 1
courts have also declared that "such statutes are void as to contracts made before their passage where
the suspension of remedied prescribed is indefinite or unreasonable in duration" (12C.J., 1078). The
true test, therefore, of the constitutionality of the moratorium statute lies in the determination of the
period of a suspension of the remedy. It is required that such suspension be definite and reasonable,
otherwise it would be violative of the constitution.
One of the arguments advanced against the validity of the moratorium law is the fact that it impairs
the obligation of contracts which is prohibited by the Constitution. This argument, however does not
now hold water. While this may be conceded, it is however justified as a valid exercise by the State
of its police power. The leading case on the matter is Home Building and Loan Associationvs .
Blaisdell, 290 U. S., 398, decide by the Supreme Court of the United States on January 8, 1934. Here
appellant contested the validity of charter 339 of the laws of Minnesota of 1993, approved April 13,
1933, called the Minnesota Mortgage Moratorium Law, as being repugnant to the contract clause of
the Federal Constitution. The statute was sustained by the Supreme Court of Minnesota as an
emergency measure. "Although coceding that the obligations of the mortgage contract was impaired,
the court decided that what it thus described as an impairment was, notwithstanding the contract
clause of the Federal Constitution, within the police power of the State as that power was called into
exercise by the public economic emergency which the legislative had found to exist". This theory
was up-held by the Supreme Court. Speaking through Chief Justice Hughes, the court made the
following pronouncements:
Not only is the constitutional provision qualified by the measure of control which the State retains over remedial
processes, but the State also continues to possess authority to safeguard
the vital interest of its people. It does not matter that legislation appropriate to that end "has
the result of modifying or abrogating contracts already in effect.". . . . Not only are existing
laws read into contracts in order to fix obligations as between the parties, but the reservation
of essential attributes of sovereign power is also read into contracts as a postulate of the legal
order. The policy of protecting contracts against impairement presupposes the maintenance of
a government by virtue of which contractual relations are worthwhile a government which
retains adequate authority to secure the peace and good order of society. This principle of
harmonizing the constitutional prohibition with the necessary residuum of state power has had
progressive recognition in the decision of this Court.
x x x x x x x x x
The economic interests of the State may justify the exercise of its continuing and dominant protective power
notwithstanding interference with contracts. . . .
xx x x x x x x x
Similarly, where the protective power of the State is exercised in a manner otherwise
appropriate in the regulation of a business it is no objection that the performance of existing
contracts may be frustrated by the prohibition of injurious practices. . . .
. . . . The question is not whether the legislative action affects contracts incidentally, or directly or indirectly, but
whether the legislation is addressed to a legitimate end and the measures taken are reasonable and appropriate to
that end.
x x x x x x x x x
Undoubtedly, whatever is reserved of state power must be consistent with the fair intent of the
constitutional limitation of that power. The reserved power cannot be construed to destroy the
limitation to be construed so as to destroy the reserved power in its essential aspects. They
must be construed to harmony with each other. This principle precludes a construction which
would permit the State to adopt as its policy the repudiation of debts or the destruction of
contracts or the denial of means to enforce them. But it does not follow that conditions may
not arise in which a temporary restraint of enforcement may be consistent with the spirit and
purpose of the constitutional provision and thus be found to be within the range of the
reserved power of the state to protect the vital interests of the community. It cannot be
maintained that the constitutional prohibition should be so construed as to prevent limited and
temporary interpositions with respect to the enforcement of contracts if made necessary by
great public calamity such as fire, flood, or earthquake. See American Land Co.vs . Zeiss, 219
U.S. 47, 55 L. ed. 82, 31 S. Ct. 200. The reservation of state power appropriate to such
extraordinary conditions may be deemed to be as much a part of all contracts, as is the
reservation of state power to protect the public interest in the other situation to which we have
referred. And if state power exists to give temporary relief from the enforcement of contracts
in the present of disasters due to physical causes such as fire, flood or earthquake, that power
cannot be said to be nonexistent when the urgent public need demanding such relief is
produced by other and economic causes (78 L.ed. 426, 428-429.)
This decision elicited several comments. One came from the Harvard Law Review. It said: "Forsaking its well-trodden
of the new mortgage moratory laws meet its scrutiny, and in so doing announced an elastic concept of the contract
clause which, if not newly formulated, at least received
such unequivocal expression that it bids fair to revolutionize a tradition of constitutional
interpretation. . . . The court rested its decision on the ground that laws altering existing contracts
constitute an impairment within the meaning of the contract clause only if they are unreasonable in
the light of the circumstances occasioning their enactment. Application of this 'rule of reason was
justified on the theory that all contracts are made subject to an implied reservation of the protective
power of the state, and that therefore statutes which validly exercise this reserved power, rather than
impairing the obligations of an existing contract, are comprehended within them" (47 Harvard Law
Review, pp. 660, 661-662).
But the ruling in the Blaisdell case has its limitations which should not be overlooked in the
determination of the extent to be given to the legislation which attempts to encroach upon the
enforcement of a monetary obligation. It must be noted that the application of the reserved power of
the State to protect the integrity of the government and the security of the people should be limited to
its proper bounds and must be addressed to a legitimate purpose. If these bounds are transgressed,
there is no room for the exercise of the power, for the constitutional inhibition against the impairment
of contracts would assert itself. We can cite instances by which these bounds may be transgressed.
One of them is that the impairment should only refer to the remedy and not to a substantive right. The
State may postpone the enforcement of the obligation but cannot destroy it by making the remedy
futile (W.B. Worthen Co.vs. Kavanaugh, 79 L.ed. 1298, 1301-1303). Another limitation refers to the
propriety of the remedy. The rule requires that the alteration or change that the new legislation
desires to write into an existing contract must not be burdened with restrictions and conditions that
would make the remedy hardly pursuing (Bronsonvs . Kinziel, I How, 311, 317; 46 Har. Law
Review, p. 1070). In other words, the Blaisdell case postulates that the protective power of the State,
the police power, may only be invoked and justified by an emergency, temporary in nature, and can
only be exercised upon reasonable conditions in order that it may not infringe the constitutional
provision against impairment of contracts (First Trust Co. of Lincolnvs . Smith 277 N.W., pp. 762,
769). As justice Cardozo aptly said, "A different situation is presented when extensions are so piled
up as to make the remedy a shadow . . . The changes of remedy now challenged as invalid are to be
viewed in combination, with the cumulative significance that each imparts to all. So viewed they are
seen to be an oppressive and unnecessary destruction of nearly all the incidents that give
attractiveness and value to collateral security (W.B. Worthenvs . Kavanaugh, 295 U.S. 56, 62). In
fine, the decision in the Blaisdell case is predicated on the ground that the laws altering existing
contracts will constitute an impairment of the contract clause of the Constitution only if they are
unreasonable in the light of the circumstances occasioning their enactment (47 Harvard Law Review,
p. 660).The question now to be determined is, is the period of eight (8) years which Republic Act No. 342 grants to
debtors of a monetary obligation contracted before the last global war and who is a war sufferer with a claim duly
approved by the Philippine War Damage Commission reasonable under the present circumstances?
It should be noted that Republic Act No. 342 only extends relief to debtors of prewar obligations who
suffered from the ravages of the last war and who filed a claim for their losses with the Philippine
War Damage Commission. It is therein provided that said obligation shall not be due and demandable
for a period of eight (8) years from and after settlement of the claim filed by the debtor with said
Commission. The purpose of the law is to afford to prewar debtors an opportunity to rehabilitate
themselves by giving them a reasonabled time within which to pay their prewar debts so as to prevent
them from being victimized buy their creditors. While it is admitted in said law that since liberation
conditions have gradually returned to normal, this is not so with regard to those who have suffered
the ravages of war and so it was therein declared as a policy that as to them the debt moratorium should be
continued in force (section 1).
But we should not lost sight of the fact that these obligations had been pending since 1945 as a result
of the issuance of Executive Orders Nos. 25 and 32 and at present their enforcement is still inhibited
because of the enactment of Republic Act No. 342 and would continue to be unenforceable during
the eight-year period granted to prewar debtors to afford them an opportunity to rehabilitate
themselves, which in plain languaged means that the creditors would have to observe a vigil of at
least twelve (12) years before they could effect a liquidation of their investment dating as far back as
1941. This period seems to us unreasonable, if not oppressive. while the purpose of Congress is
plausible, and should be commended, the relief accorded works injustice to creditors who are
practically left at the mercy of the debtors. Their hope to effect collection becomes extremely remote,
more so if the credits are unsecured. And the injustice is more patent when, under the law, the debtor
is not even required to pay interest during the operation of the relief, unlike similar statutes in the
United States (Home Building and Loan Association vs. Blaisdell,supra).
There are at least three cases where the Supreme Court of the United States declared the moratorium
laws violative of the contract clause of the constitution because the period granted to debtors as a
relief was found unwarranted by the contemplated emergency. One of them is W. B. Worthen Co.vs.
Thomas, 292 U. S., 426-435; 78 L. ed., 1344, 1347. Here the Legislature of Arkansas passed na act
providing for an exemption, "without limitation as to amount or restriction with respect to particular
circumstances or relations, of all moneys paid or payable to any resident of the state under any life,
sick, accident or disability insurance policy, from liability for the payment of the debts of the
recipient", and an attempt was made to apply the statute to debts owing before its approval. The court
held that "such an exemption, applied in the case of debts owing before the exemption was created by
the legislature, constitutes an unwarranted interference with the obligation of contracts in violation of
the constitutional provision", and cannot be sustained even as emergency legislation, because it
contains no limitation as to time, amount, circumstances or need (supra, 292 U. S., pp. 426-432).
The other case is W. B. Worthen vs. Kavanaugh (supra). Here certain Municipal Improvement
Districts organized under the laws of Arkansas were empowered to issue bonds and to mortgage
benefit assessments as security therefor. One of these districts acted upon the powers thus conferred.
Some of the bonds were in default for nonpayment of principal and interest. So an action was brought
by the bond-holders to foreclose the assessment upon the lots of delinquent owners. These bonds and
mortgages were executed under the statutes then in force. Later the legislature of Arkansas passed
three acts making changes in the remedies available under the former statutes, which changes were
attacked as an unconstitutional impairment of contracts. The court sustained this view holding that
the "changes in the remedies available for the enforcement of a mortgage may not, even when the
public welfare is invoked as an excuse, be pressed so far as to cut down the security of a mortgage
without moderation or reason or in a spirit of oppression. . . . A State is free to regulate the procedure
in its courts even with reference to contracts already made, and moderate extensions of the time for
pleading or for trial will ordinarily fall within the power so reversed; by a different situation is
presented when extensions are so piled up to make the remedy a shadow."
The third case is Louisville joint Stock Land Bank vs. Radford, 295 U. S. 555, 79 L. ed 1593. This
case presented for decision the question whether subsection (s) added to section 75 of the Bankruptcy
Act by the Frazier-Lemke Act, June 28, 1934, chap. 869, 48 Stat. at L. 1289 U. S. C. title 11, sec.
203, is consistent with the Federal Constitution. The court said that it is unconstitutional if applied to
farm mortgages already existing, holding that "property rights of holders of farm mortgages are
unconstitutionally taken, in violation of the Fifth Amendment, by a statute (Bankruptcy Act, sec.
75(s) Frazier-Lemke Act of June 28, 1934, chap. 869, 48 Stat. at L. 1286) applicable only to debts existing at the
time of its enactment which provides that a farmer whose farm is mortgaged, and who
has failed to obtain the consents necessary to a composition under the Bankruptcy Act, may, upon
being adjudged a bankrupt, if the mortgagee assents, purchase the mortgaged property at its them
appraised value by agreeing to make deferred payments of stated percentages of the appraised value
over a period of six years, with interests at 1 per cent per annum, or, if the mortgagee refuses hisassent to such
purchase, may obtain a stay of all proceedings for a period of five years, during which he shall retain possession of
all or any part of his property, under the control of the court, provided he
pays a reasonable rental therefor, and that at the end of five years he may pay into court the appraised
price thereof, or, if a lien holder shall request a reappraisal by the court, the reappraised price,
whereupon the court shall, by an order, turn over full possession and title of the property to the
debtor, and he may apply for his discharge."
In addition, we may cite leading state court decisions which practically involved the same ruling and
which reflect the tendency of the courts towards legislation involving modification of mortgage or
monetary contracts which contains provisions that are deemed unreasonable or oppressive. Some of
those which may be deemed representative follows:
1. Pouquettevs. O'Brien, 100 Pac. 2nd series, 979 (1940). The Supreme Court of Arizona held
unconstitutional a 1937 statute authorizing courts to extend for a period of not longer than two years
all actions or foreclosures of real estate mortgages, and a 1939 statutes authorizing the courts to
extend foreclosure proceedings not later than March 4, 1941.
2. First Trust Joint Stock Land Bank of Chicagovs. Adolph Arp et al., 283 N.W. 441, 120 A.L.R. 932 (1939). The
Supreme Court of Iowa declared unconstitutional the Moratorium Acts enacted in 1933, 1935 and 1937, providing for
extension of the 1933 Moratorium Act covering a period of six years.
3. First Trust Co. of Lincolnvs. Smith et al., 227 N.W. 762 (1938). The Supreme Court of Nebraska declared
unconstitutional the Nebraska Moratorium Law as reenacted, extending the benefit of the remedy to a period of six
years, as being repugnant to the contract clause of the Constitution.
4. Milkintvs. McNeely, Clerk of court, et al., 169 S.E. 790 (1933). The Supreme Court of Appeals of
West Virginia declared unconstitutional certain acts of legislature enacted in 1932, extending the
period of redemption three years beyond the one-year period then allowed by statute, being an
impairment of contract as to sales made prior to enactment thereof.
5. Haynesvs. Treadway, 65 Pac. 892 (1901). The Supreme Court of California declared
unconstitutional a statute which extends the right of redemption from six months twelve months
being a substantial impairment of the obligation contracts if applied to a mortgage already executed.
6. Swinburnevs. Mills, 50 Pac. 489 (1879). The Supreme Court of Washington declared a statute
unconstitutional in so far as it provides that, on a decree for foreclosure of a mortgage executed
before the act was passed, the debtor shall be entitled to have the order of sale stayed for one year, as
being an impairment of the obligation of contract.
These cases apply with added force in this jurisdiction considering the conditions no prevailing in our
country. We do not need to go far to appreciate this situation. We can see it and feel it as we gaze
around to observe the wave of reconstruction and rehabilitation that has swept the country since
liberation thanks to the aid of America and the innate progressive spirit of our people. This aid and
this spirit have worked wonders in so short a time that it can now be safely stated that in the main the financial
condition of our country and our people, individually and collectively, has practically
returned to normal notwithstanding occasional reverses caused by local dissidence and the sporadic
disturbance of peace and order in our midst. Business, industry and agriculture have picked up and
developed at such stride that we can say that we are now well on the road to recovery and progress.
This is so not only as far as our observation and knowledge are capable to take note and comprehend
but also because of the official pronouncements made by our Chief Executive in public addresses and
in several messages he submitted to Congress on the general state of the nation. To bear this out, it
would suffice for us to state some of those public statements which we deem to be most expressive
and representative of the general situation. We quote:We have balanced our national budget. We shall again have at
the end of the current fiscal year a sizeable surplus. . . . We have greatly improved the economic and financial
conditions of the country. Through the
Rehabilitation Finance Corporation, loans amounting to P90,480,136 have been granted for
the recontruction and rehabilitation purposes. . . .
We have set up the Central bank to expand our credit, stabilize our currency and provide a
new source of financing for the agricultural and industrial development of the nation.
x x x x x x x x x
. . . The commitment thus far made is not only a favorable sign ushering in finally the
implementation of our plans of economic development, but a significantly successful test of
the solvency of our foreign credit, for it was accepted only after a thorough examination of
our resources and development plans by a board of economists of international authority
(Pres. Quirino's "State-of-the-Nation" Message of the Joint Session of Congress on Jan. 24,
1949, 45 Off. Gaz., Ja., 1949). We have strengthen…our internal and external finances. Six years ago, we were a
country prostrate from the destruction of war t oday, we can say that our people not only
have returned to their prewar activities, but . . . have progressed and prospered far beyond
what they ever dreamed of before the war.
. . . Three years ago the national income stood at four billion pesos; today it is over seven billion pesos. . . .
The government income has been steadily rising from 60 million pesos in 1946 to approximately 600 million pesos
today, also a progress in six years.
x x x x x x x x x
. . . The ravages of war are fast disappearing, and instead, what beautiful vistas unfold
themselves before our eyes at this moment in our immediate surroundings. Compare this
beautiful view with that of the past and all that we have accomplished in scarcely six years of
struggle, sacrifice, determination, and bold decision. (Applause.) We have brought this nation
out of the paralysis of destruction into economic normalcy and financial stability. . . .
. . . Our external finances have greatly improved, and . . . our pesos is one of the most stable currencies in the
world today. (Applause.) I repeat, our pesos is one of the most stable currencies in the world today
All these find grateful reflection in a better-sheltered, better-clothed, better-fed, and healthier
population that has grown from 18 million to 20 million in a half dozen years, in a school
enrollment that has doubled since the outbreak of the last war from less than 2 million to over
4 million young students in the public schools, and in democratic processes that are gaining in
vigor and permanence with each passing year" (Address of his Excellency Quirino, President
of the Philippines, on the occasion of the celebration of the sixth anniversary of the
independence of the Philippines, July 4, 1952, Luneta, Manila, 48 Off. Gaz., pp. 3287-3289).
In the face of the foregoing observations, and consistent with what we believe to be as the only
course dictated by justice, fairness and righteousness, we feel that the only way open to us under the
present circumstances is to declare that the continued operation and enforcement of Republic Act No.
342 at the present time is unreasonable and oppressive, and should not be prolonged a minute longer,
and, therefore, the same should be declared null and void and without effect. And what we say here
with respect to said Act also holds true as regards Executive Orders Nos. 25 and 32, perhaps with
greater force and reason as to the latter, considering that said Orders contain no limitation whatsoever
in point of time as regards the suspension of the enforcement and effectivity of monetary obligations.
And there is need to make this pronouncement in view of the revival clause embodied in said Act if
and when it is declared unconstitutional or invalid.
Wherefore, the decision appealed from will be reversed, without pronouncement as to costs.
Judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P4,800 with
interest thereon at the rate of 7 per cent annum from August 27, 1942, until its full payment, plus 12
per cent as attorney's fees. Failure to pay this judgment as stated, the properties mortgaged will be
sold at public auction and the proceeds applied to its payment in accordance with law. So ordered.
Paras, C.J., Feria, Bengzon, Padilla, Tuason, and Labrador, JJ.,concur. Pablo, J., concurs with the dispositive part.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-61311 September 2l, 1987
FELICIDAD VILLANUEVA, FERNANDO CAISIP, ANTONIO LIANG, FELINA MIRANDA, RICARDO PUNO,
FLORENCIO LAXA, and RENE OCAMPO, petitioners,
vs.
HON. MARIANO CASTAÑEDA, JR., Presiding Judge of the Court of First Instance of Pampanga, Branch III,
VICENTE A. MACALINO, Officer-in-Charge, Office of the Mayor, San Fernando, Pampanga, respondents.
CRUZ, J.:
There is in the vicinity of the public market of San Fernando, Pampanga, along Mercado Street, a strip of land
measuring 12 by 77 meters on which stands a conglomeration of vendors stalls together forming what is commonly
known as a talipapa. This is the subject of the herein petition. The petitioners claim they have a right to remain in and
conduct business in this area by virtue of a previous authorization granted to them by the municipal government. The
respondents deny this and justify the demolition of their stalls as illegal constructions on public property. At the
petitioners' behest, we have issued a temporary restraining order to preserve the status quo between the parties
pending our decision. 1 Now we shall rule on the merits.
This dispute goes back to November 7, 1961, when the municipal council of San Fernando adopted Resolution No.
218 authorizing some 24 members of the Fernandino United Merchants and Traders Association to construct
permanent stags and sell in the above-mentioned place. 2 The action was protested on November 10, 1961, in Civil
Case No. 2040, where the Court of First Instance of Pampanga, Branch 2, issued a writ of preliminary injunction that
prevented the defendants from constructing the said stalls until final resolution of the controversy. 3 On January 18,
1964, while this case was pending, the municipal council of San Fernando adopted Resolution G.R. No. 29, which
declared the subject area as "the parking place and as the public plaza of the municipality, 4 thereby impliedly
revoking Resolution No. 218, series of 1961. Four years later, on November 2, 1968, Judge Andres C. Aguilar
decided the aforesaid case and held that the land occupied by the petitioners, being public in nature, was beyond the
commerce of man and therefore could not be the subject of private occupancy. 5 The writ of preliminary injunction
was made permanent. 6
The decision was apparently not enforced, for the petitioners were not evicted from the place; in fact, according to
then they and the 128 other persons were in 1971 assigned specific areas or space allotments therein for which they
paid daily fees to the municipal government. 7 The problem appears to have festered for some more years under a
presumably uneasy truce among the protagonists, none of whom made any move, for some reason that does not
appear in the record. Then, on January 12, 1982, the Association of Concerned Citizens and Consumers of San
Fernando filed a petition for the immediate implementation of Resolution No. 29, to restore the subject property "to its
original and customary use as a public plaza. 8
Acting thereon after an investigation conducted by the municipal attorney, 9 respondent Vicente A. Macalino, as
officer-in-charge of the office of the mayor of San Fernando, issued on June 14, 1982, a resolution requiring the
municipal treasurer and the municipal engineer to demolish the stalls in the subject place beginning July 1, 1982. 10
The reaction of the petitioners was to file a petition for prohibition with the Court of First Instance of Pampanga,
docketed as Civil Case No. 6470, on June 26, 1982. The respondent judge denied the petition on July 19, 1982, 11
and the motion for reconsideration on August 5, 1982, 12 prompting the petitioners to come to this Court on certiorari
to challenge his decision. 13
As required, respondent Macalino filed his comment 14 on the petition, and the petitioners countered with their reply.
15 In compliance with our resolution of February 2, 1983, the petitioners submitted their memorandum 16 and
respondent Macalino, for his part, asked that his comment be considered his memorandum. 17 On July 28, 1986, the
new officer-in-charge of the office of the mayor of San Fernando, Paterno S. Guevarra, was impleaded in lieu of
Virgilio Sanchez, who had himself earlier replaced the original respondent Macalino. 18
After considering the issues and the arguments raised by the parties in their respective pleadings, we rule for the
respondents. The petition must be dismissed. There is no question that the place occupied by the petitioners and
from which they are sought to be evicted is a public plaza, as found by the trial court in Civil Case No. 2040. This
finding was made after consideration of the antecedent facts as especially established by the testimony of former
San Fernando Mayor Rodolfo Hizon, who later became governor of Pampanga, that the National Planning
Commission had reserved the area for a public plaza as early as 1951. This intention was reiterated in 1964 through
the adoption of Resolution No. 29.
It does not appear that the decision in this case was appealed or has been reversed. In Civil Case G.R. No. 6740,
which is the subject of this petition, the respondent judge saw no reason to disturb the finding in Civil Case No. 2040
and indeed used it as a basis for his own decision sustaining the questioned order. 20
The basic contention of the petitioners is that the disputed area is under lease to them by virtue of contracts they had
entered into with the municipal government, first in 1961 insofar as the original occupants were concerned, and later
with them and the other petitioners by virtue of the space allocations made in their favor in 1971 for which they saw
they are paying daily fees. 21 The municipal government has denied making such agreements. In any case, they
argue, since the fees were collected daily, the leases, assuming their validity, could be terminated at will, or any day,
as the claimed rentals indicated that the period of the leases was from day to day. 22
The parties belabor this argument needlessly.
A public plaza is beyond the commerce of man and so cannot be the subject of lease or any other contractual
undertaking. This is elementary. Indeed, this point was settled as early as in Municipality of Cavite vs. Rojas, 23
decided in 1915, where the Court declared as null and void the lease of a public plaza of the said municipality in
favor of a private person.
Justice Torres said in that case:
According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the
provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works of
general service supported by said towns or provinces.
The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907
withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria
Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff municipality
exceeded its authority in the exercise of its powers by executing a contract over a thing of which it could not
dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the
object of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme court of
Spain in its decision of February 12, 1895, which says: "communal things that cannot be sold because they are by
their very nature outside of commerce are those for public use, such as the plazas, streets, common lands, rivers,
fountains, etc."
Therefore, it must be concluded that the contract, Exhibit C, whereby the municipality of Cavite leased to Hilaria
Rojas a portion of the Plaza Soledad is null and void and of no force or effect, because it is contrary to the law and
the thing leased cannot be the object of a was held that the City of contract.
In Muyot vs. de la Fuente, 24 it was held that the City of Manila could not lease a portion of a public sidewalk on Plaza
Sta. Cruz, being likewise beyond the commerce of man.
Echoing Rojas, the decision said:
Appellants claim that they had obtained permit from the present of the City of Manila, to connect booths Nos. 1 and
2, along the premises in question, and for the use of spaces where the booths were constructed, they had paid and
continued paying the corresponding rentals. Granting this claim to be true, one should not entertain any doubt that
such permit was not legal, because the City of Manila does not have any power or authority at all to lease a portion
of a public sidewalk. The sidewalk in question, forming part of the public plaza of Sta. Cruz, could not be a proper
subject matter of the contract, as it was not within the commerce of man (Article 1347, new Civil Code, and article
1271, old Civil Code). Any contract entered into by the City of Manila in connection with the sidewalk, is ipso facto
null and ultra vires. (Municipality of Cavite vs. Roxas, et a1, 30 Phil. 603.) The sidewalk in question was intended
for and was used by the public, in going from one place to another. "The streets and public places of the city shall
be kept free and clear for the use of the public, and the sidewalks and crossings for the pedestrians, and the same
shall only be used or occupied for other purpose as provided by ordinance or regulation; ..." (Sec. 1119, Revised
Ordinances of the City of Manila.) The booths in question served as fruit stands for their owners and often, if not
always, blocked the fire passage of pedestrians who had to take the plaza itself which used to be clogged with
vehicular traffic.
Exactly in point is Espiritu vs. Municipal Council of Pozorrubio, 25 where the Supreme Court declared:
There is absolutely no question that the town plaza cannot be used for the construction of market stalls, specially
of residences, and that such structures constitute a nuisance subject to abatement according to law. Town plazas
are properties of public dominion, to be devoted to public use and to be made available to the public in general
They are outside the common of man and cannot be disposed of or even leased by the municipality to private
parties.
Applying this well-settled doctrine, we rule that the petitioners had no right in the first place to occupy the disputed
premises and cannot insist in remaining there now on the strength of their alleged lease contracts. They should have
realized and accepted this earlier, considering that even before Civil Case No. 2040 was decided, the
municipalcouncil of San Fernando had already adopted Resolution No. 29, series of 1964, declaring the area as the
parking place and public plaza of the municipality.
It is the decision in Civil Case No. 2040 and the said resolution of the municipal council of San Fernando that
respondent Macalino was seeking to enforce when he ordered the demolition of the stags constructed in the disputed
area. As officer-in-charge of the office of the mayor, he had the duty to clear the area and restore it to its intended
use as a parking place and public plaza of the municipality of San Fernando, conformably to the aforementioned
orders from the court and the council. It is, therefore, not correct to say that he had acted without authority or taken
the law into his hands in issuing his order.
Neither can it be said that he acted whimsically in exercising his authority for it has been established that he directed
the demolition of the stalls only after, upon his instructions, the municipal attorney had conducted an investigation, to
look into the complaint filed by the Association of Concerned Citizens and Consumers of San Fernando. 26 There is
evidence that the petitioners were notified of this hearing, 27which they chose to disregard. Photographs of the
disputed area, 28 which does look congested and ugly, show that the complaint was valid and that the area really
needed to be cleared, as recommended by the municipal attorney.
The Court observes that even without such investigation and recommendation, the respondent mayor was justified in
ordering the area cleared on the strength alone of its status as a public plaza as declared by the judicial and
legislative authorities. In calling first for the investigation (which the petitioner saw fit to boycott), he was just
scrupulously paying deference to the requirements of due process, to remove an taint of arbitrariness in the action he
was caged upon to take.
Since the occupation of the place in question in 1961 by the original 24 stallholders (whose number later ballooned to
almost 200), it has deteriorated increasingly to the great prejudice of the community in general. The proliferation of
stags therein, most of them makeshift and of flammable materials, has converted it into a veritable fire trap, which,
added to the fact that it obstructs access to and from the public market itself, has seriously endangered public safety.
The filthy condition of the talipapa, where fish and other wet items are sold, has aggravated health and sanitation
problems, besides pervading the place with a foul odor that has spread into the surrounding areas. The entire place
is unsightly, to the dismay and embarrassment of the inhabitants, who want it converted into a showcase of the town
of which they can all be proud. The vendors in the talipapa have also spilled into the street and obstruct the flow of
traffic, thereby impairing the convenience of motorists and pedestrians alike. The regular stallholders in the public
market, who pay substantial rentals to the municipality, are deprived of a sizable volume of business from
prospective customers who are intercepted by the talipapa vendors before they can reach the market proper. On top
of all these, the people are denied the proper use of the place as a public plaza, where they may spend their leisure
in a relaxed and even beautiful environment and civic and other communal activities of the town can be held.
The problems caused by the usurpation of the place by the petitioners are covered by the police power as delegated
to the municipality under the general welfare clause. 29 This authorizes the municipal council "to enact such
ordinances and make such regulations, not repugnant to law, as may be necessary to carry into effect and discharge
the powers and duties conferred upon it by law and such as shall seem necessary and proper to provide for the
health and safety, promote the prosperity, improve the morals, peace, good order, comfort, and convenience of the
municipality and the inhabitants thereof, and for the protection of property therein." This authority was validly
exercised in this casethrough the adoption of Resolution No. 29, series of 1964, by the municipal council of San
Fernando. Even assuming a valid lease of the property in dispute, the resolution could have effectively terminated
the agreement for it is settled that the police power cannot be surrendered or bargained away through the medium of
a contract. 30 In fact, every contract affecting the public interest suffers a congenital infirmity in that it contains an
implied reservation of the police power as a postulate of the existing legal order. 31 This power can be activated at
any time to change the provisions of the contract, or even abrogate it entirely, for the promotion or protection of the
general welfare. Such an act will not militate against the impairment clause, which is subject to and limited by the
paramount police power. 32
We hold that the respondent judge did not commit grave abuse of discretion in denying the petition for prohibition. On
the contrary, he acted correctly in sustaining the right and responsibility of the mayor to evict the petitioners from the
disputed area and clear it of an the structures illegally constructed therein.
The Court feels that it would have been far more amiable if the petitioners themselves, recognizing their own civic
duty, had at the outset desisted from their original stance and withdrawn in good grace from the disputed area to
permit its peaceful restoration as a public plaza and parking place for the benefit of the whole municipality. They
owned this little sacrifice to the community in general which has suffered all these many years because of their
intransigence. Regrettably, they have refused to recognize that in the truly democratic society, the interests of the
few should yield to those of the greater number in deference to the principles that the welfare of the people is the
supreme law and overriding purpose. We do not see any altruism here. The traditional ties of sharing are absent
here. What we find, sad to say, is a cynical disdaining of the spirit of "bayanihan," a selfish rejection of the cordial
virtues of "pakikisama " and "pagbibigayan" which are the hallmarks of our people.
WHEREFORE, the petition is DISMISSED. The decision dated July 19, 1982, and the order-dated August 5, 1982,
are AFFIRMED. The temporary restraining order dated August 9, 1982, is LIFTED. This decision is immediately
executory. Costs against the petitioners.
SO ORDERED.
Teehankee, C.J., Narvasa and Paras, JJ., concur.

SUPREME COURT
Manila
EN BANC
G.R. No. 71169 December 22, 1988
JOSE D. SANGALANG and LUTGARDA D. SANGALANG, petitioners, FELIX C. GASTON and DOLORES R.
GASTON, JOSE V. BRIONES and ALICIA R. BRIONES, and BEL-AIR VILLAGE ASSOCIATION, INC.,
intervenors-petitioners,
vs.
INTERMEDIATE APPELLATE COURT, and AYALA CORPORATION, respondents.
G.R. No. 74376 December 22, 1988
BEL-AIR VILLAGE ASSOCIATION, INC., petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT, ROSARIO DE JESUS TENORIO, and CECILIA GONZALVEZ,
respondents.
G.R. No. 76394 December 22,1988
vs.
THE COURT OF APPEALS, and EDUARDO and BUENA ROMUALDEZ respondents.
G.R. No. 78182 December 22, 1988
vs.
COURT OF APPEALS, DOLORES FILLEY, and J. ROMERO & ASSOCIATES, respondents.
G.R. No. 82281 December 22, 1988
BEL-AIR VILLAGE ASSOCIATION, INC, petitioner,
vs.
COURT OF APPEALS, VIOLETA MONCAL, and MAJAL DEVELOPMENT CORPORATION, respondents.
Sangco, Anastacio, Castaneda & Duran Law Office for petitioners & private intervenors- petitioners.
Raul S. Sison Law Offices for intervenor-petitioner Bel-Air Village Association, Inc. Renato L. Dela Fuente for
respondent Ayala Corporation.
G.R. No. L-74376:
Raul S. Sison Law Offices for petitioner.
Sergio L. Guadiz for private respondents.
G.R. No. L-76394:
Raul S. Sison Law Offices for petitioner.
Gruba, Tanlimco Lamso and Apuhin Law Offices for respondents.
G.R. No. L-78182:
Funk & Associates for petitioners.
Tee Tomas & Associates for respondents.
G.R. No. L-82281:
Funk & Associates for petitioner.
Castillo, Laman, Tan & Associates for private respondents.
SARMIENTO, J.:
Before the Court are five consolidated petitions, 1 docketed as G.R. Nos. 71169, 74376, 76394, 78182, and 82281
hereof, in the nature of appeals (by certiorari under Rule 45 of the Rules of Court) from five decisions of the Court of
Appeals, denying specific performance and damages.
The proceedings were commenced at the first instance by Jose Sangalang, joined by his wife Lutgarda Sangalang,
both residents of No. 110 Jupiter Street, Makati, Metro Manila (G.R. No. 71169) to enforce by specific performance
restrictive easement upon property, specifically the Bel- Air Village subdivision in Makati, Metro Manila, pursuant to
stipulations embodied in the deeds of sale covering the subdivision, and for damages. Later, the Sangalangs were
joined by Felix Gaston, a resident of No. 64 Jupiter Street of the same municipality, and by Mr. and Mrs. Jose and
Alicia Briones, both of No. 66 Jupiter Street. Pending further proceedings, the Bel-Air Village Association, Inc.
(BAVA), an incorporated homeowners' association, entered its appearance as plaintiff-in-intervention.
BAVA itself had brought its own complaints, four in number, likewise for specific performance and damages to
enforce the same 'deed restrictions.' (See G.R. Nos. 74376, 76394, 78182, and 82281.)
ANTECEDENTS FACTS
I. G.R. No. 71169
The facts are stated in the decision appealed from. We quote:
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(1) Bel-Air Village is located north of Buendia Avenue extension (now Sen. Gil J. Puyat Ave.) across a stretch of
commercial block from Reposo Street in the west up to Zodiac Street in the east, When Bel-Air Village was
planned, this block between Reposo and Zodiac Streets adjoining Buendia Avenue in front of the village was
designated as a commercial block. (Copuyoc TSN, p. 10, Feb. 12, 1982).
(2) Bel-Air Village was owned and developed into a residential subdivision in the 1950s by Makati Development
Corporation (hereinafter referred to as MDC), which in 1968 was merged with appellant Ayala Corporation.
(3) Appellees-spouses Sangalang reside at No. 11O Jupiter Street between Makati Avenue and Reposo Street;
appellees-spouses Gaston reside at No. 64 Jupiter Street between Makati Avenue and Zodiac Street; appellees-
spouses Briones reside at No. 66 Jupiter Street also between Makati Avenue and Zodiac Street; while appellee
Bel-Air Village Association, Inc. (hereinafter referred to as BAVA) is the homeowners' association in Bel-Air
Village which takes care of the sanitation, security, traffic regulations and general welfare of the village.
(4) The lots which were acquired by appellees Sangalang and spouse Gaston and spouse and Briones and
spouse in 1960, 1957 and 1958, respectively, were all sold by MDC subject to certain conditions and easements
contained in Deed Restrictions which formed a part of each deed of sale. The pertinent provisions in said Deed
Restrictions, which are common to all lot owners in Bel-Air Village, are as follows:
I-BEL-AIR ASSOCIATION
The owner of this lot/s or his successors in interest is required to be and is automatically a member of the Bel-Air
Association and must abide by such rules and regulations laid down by the Association in the interest of the
sanitation, security and the general welfare of the community.
The association will also provide for and collect assessments, which will constitute as a lien on the property
junior only to liens of the government for taxes and to voluntary mortgages for sufficient consideration entered
into in good faith.
II-USE OF LOTS
Subject to such amendments and additional restrictions, reservations, servitudes, etc., as the Bel- Air
Association may from time to time adopt and prescribe, this lot is subject to the following restrictions:
a. This lot/s shall not be subdivided. However, three or more lots may be consolidated and subdivided into a
lesser number of lots provided that none of the resulting lots be smaller in area than the smallest lot before the
consolidation and that the consolidation and subdivision plan be duly approved by the governing body of the Bel-
Air Association.
b. This lot/s shall only be used for residential purposes.
c. Only one single family house may be constructed on a single lot, although separate servants' quarters or
garage may be built.
d. Commercial or advertising signs shall not be placed, constructed, or erected on this lot. Name plates and
professional signs of homeowners are permitted so long as they do not exceed 80 x 40 centimeters in size.
e. No cattle, pigs, sheep, goats, ducks, geese, roosters or rabbits shall be maintained in the lot, except that pets
may be maintained but must be controlled in accordance with the rulings of the Association. The term "pets'
includes chickens not in commercial quantities.
f. The property is subject to an easement of two (2) meters within the lot and adjacent to the rear and sides
thereof not fronting a street for the purpose of drainage, sewage, water and other public facilities as may be
necessary and desirable; and the owner, lessee or his representative shall permit access thereto by authorized
representatives of the Bel-Air Association or public utility entities for the purposes for which the easement is
created.
g. This lot shall not be used for any immoral or illegal trade or activity.
h. The owner and/or lessee of this lot/s shall at all times keep the grass cut and trimmed to reduce the fire hazard
of the property.
xxx xxx xxx
VI-TERM OF RESTRICTIONS
The foregoing restrictions shall remain in force for fifty years from January 15, 1957, unless sooner cancelled in
its entirety by two thirds vote of members in good standing of the Bel-Air Association. However, the Association
may, from time to time, add new ones, amend or abolish particular restrictions or parts thereof by majority rule.
VII--ENFORCEMENT OF RESTRICTIONS
The foregoing restrictions may be enjoined and/or enforced by court action by the Bel-Air Association, or by the
Makati Development Corporation or its assigns, or by any registered owner of land within the boundaries of the
Bel-Air Subdivision (Sub-division plan PSD-49226 and Lot 7-B, Psd-47848) or by any member in good standing
of the Bel-Air association." (Exh. 1 -b; Exh. 22, Annex "B"). (Appellant's Brief, pp. 4- 6)
(5) When MDC sold the above-mentioned lots to appellees' predecessors-in-interest, the whole stretch of the
commercial block between Buendia Avenue and Jupiter Street, from Reposo Street in the west to Zodiac Street
in the east, was still undeveloped. Access, therefore, to Bel-Air Village was opened to all kinds of people and
even animals. So in 1966, although it was not part of the original plan, MDC constructed a fence or wall on the
commercial block along Jupiter Street. In 1970, the fence or wall was partly destroyed by typhoon "Yoling." The
destroyed portions were subsequently rebuilt by the appellant. (Copuyoc TSN, pp. 31-34, Feb. 12, 1982). When
Jupiter Street was widened in 1972 by 3.5 meters, the fence or wall had to be destroyed. Upon request of BAVA,
the wall was rebuilt inside the boundary of the commercial block. (Copuyoc TSN, pp. 4447, Feb. 12,1982).
(6) When the appellant finally decided to subdivide and sell the lots in the commercial block between Buendia
and Jupiter, BAVA wrote the appellant on May 9, 1972, requesting for confirmation on the use of the commercial
lots. The appellant replied on May 16, 1972, informing BAVA of the restrictions intended to be imposed in the
sale and use of the lots. Among these restrictions are: that the building shall have a set back of 19 meters; and
that with respect to vehicular traffic along Buendia Avenue, entrance only will be allowed, and along Jupiter
Street and side streets, both entrance and exit will be allowed.
(7) On June 30, 1972, appellant informed BAVA that in a few months it shall subdivide and sell the commercial
lots bordering the north side of Buendia Avenue Extension from Reposo Street up to Zodiac Street. Appellant
also informed BAVA that it had taken all precautions and will impose upon the commercial lot owners deed
restrictions which will harmonize and blend with the development and welfare of Bel-Air Village. Appellant further
applied for special membership in BAVA of the commercial lot owners. A copy of the deed restrictions for the
commercial lots was also enclosed. The proposed deed restrictions shall include the 19 meter set back of
buildings from Jupiter Street, the requirement for parking space within the lot of one (1) parking slot for every
seventy five (75) meters of office space in the building and the limitation of vehicular traffic along Buendia to
entrance only, but allowing both vehicular entrance and vehicular exit through Jupiter Street and any side street.
In its letter of July 10, 1972, BAVA acknowledged the above letter of appellant and informed the latter that the
application for special membership of the commercial lot owners in BAVA would be submitted to BAVA's board
of governors for decision.
(8) On September 25, 1972, appellant notified BAVA that, after a careful study, it was finally decided that the
height limitation of buildings on the commercial lots shall be increased from 12.5 meters to 15 meters. Appellant
further informed BAVA that Jupiter Street shall be widened by 3.5 meters to improve traffic flow in said street.
BAVA did not reply to said letter, but on January 22, 1973, BAVA wrote a letter to the appellant informing the
latter that the Association had assessed the appellant, as special member of the association, the amount of
P40,795.00 (based on 81,590 square meters at P.50 per square meter) representing the membership dues to
the commercial lot owners for the year 1973, and requested the appellant to remit the amount which its board of
governors had already included in its current budget. In reply, appellant on January 31, 1973 informed BAVA that
due to the widening of Jupiter Street, the area of the lots which were accepted by the Association as members
was reduced to 76,726 square meters. Thus, the corresponding dues at P.50 per square meter should be
reduced to P38,363.00. This amount, therefore, was remitted by the appellant to BAVA. Since then, the latter has
been collecting membership dues from the owners of the commercial lots as special members of the Association.
As a matter of fact, the dues were increased several times. In 1980, the commercial lot owners were already
being charged dues at the rate of P3.00 per square meter. (Domingo, TSN, p. 36, March 19, 1980). At this rate,
the total membership dues of the commercial lot owners amount to P230,178. 00 annually based on the total
area of 76,726 square meters of the commercial lots.
(9) Meantime, on April 4, 1975, the municipal council of Makati enacted its ordinance No. 81, providing for the
zonification of Makati (Exh. 18). Under this Ordinance, Bel-Air Village was classified as a Class A Residential
Zone, with its boundary in the south extending to the center line of Jupiter Street (Exh. 18-A).
Thus, Chapter III, Article 1, Section 3.03, par. F. of the Ordinance provides:
F. Bel-Air Village area, as bounded on the N by Polaris and Mercedes streets and on the NE by Estrella Street;
on the SE by Epifanio de los Santos Avenue and on the SW by the center line of Jupiter Street. Then bounded
on the N by the abandoned MRR Pasig Line; on the E by Makati Avenue; on the S by the center line of Jupiter
Street and on the W by the center line of Reposo Street." (Exh. 18-A)
Similarly, the Buendia Avenue Extension area was classified as Administrative Office Zone with its boundary in
the North-North East Extending also up to the center line of Jupiter Street (Exh. 18b).
Thus, Chapter III, Article I, Section 3.05, par. C. of the Ordinance provides:
C. The Buendia Avenue Extension areas, as bounded on the N-NE by the center line of Jupiter Street, on the SE
by Epifanio de los Santos Avenue; on the SW by Buendia Avenue and on the NW by the center line of Reposo
Street, then on the NE by Malugay Street; on the SE by Buendia Avenue and on the W by Ayala Avenue
Extension." (Exh. 18-B)
The Residential Zone and the Administrative Office Zone, therefore, have a common boundary along the center
line of Jupiter Street.
The above zoning under Ordinance No. 81 of Makati was later followed under the Comprehensive Zoning
Ordinance for the National Capital Region adopted by the Metro Manila Commission as Ordinance 81 -01 on
March 14, 1981 (Exh. 19). However, under this ordinance, Bel-Air Village is simply bounded in the South-
Southeast by Jupiter Street-not anymore up to the center line of Jupiter Street (Exh. B). Likewise, the blockdeep
strip along the northwest side of Buendia Avenue Extension from Reposo to EDSA was classified as a High
Intensity Commercial Zone (Exh. 19-c).
Thus, the Zoning District Boundaries -Makati, in Annex B of the Ordinance provides:
R-I-Low Intensity Residential
xxxxxxxxx
4. Bel-Air 1, 3, 4
Bounded on the North -- J.P. Rizal and Amapola St.
South - Rockwell
Northwest - P. Burgos
Southeast - Jupiter
Southwest - Epifanio de los Santos Ave. (EDSA)
5. Bel-Air 2
Bounded on the Northwest - J.P. Rizal
Southwest - Makati Avenue
South --- Jupiter
Southeast -- Pasig Line
East - South Avenue" (Exh. 19-b)
xxxxxxxxx
C-3-High Intensity Commercial Zone
2. A block deep strip along the northwest side of Buendia Ave. Ext. from Reposo to EDSA." (Exh, 19-c)
Under the above zoning classifications, Jupiter Street, therefore, is a common boundary of Bel-Air Village and
the commercial zone.
(10) Meanwhile, in 1972, BAVA had installed gates at strategic locations across Jupiter Street which were
manned and operated by its own security guards who were employed to maintain, supervise and enforce traffic
regulations in the roads and streets of the village. (Villavicencio, TSN, pp, 22-25, Oct. 30, 1980; BAVA Petition,
par. 11, Exh. 17).
Then, on January 17, 1977, the Office of the Mayor of Makati wrote BAVA directing that, in the interest of public
welfare and for the purpose of easing traffic congestion, the following streets in Bel-Air Village should be opened
for public use:
Amapola Street - from Estrella Street to Mercedes Street
Amapola Street -junction of Palma Street gate going to J. Villena Street
Mercedes Street -- from EDSA to Imelda Avenue and Amapola junction
Zodiac Street - from Mercedes Street to Buendia Avenue
Jupiter Street -- from Zodiac Street to Reposo Street connecting Metropolitan Avenue to Pasong Tamo and V.
Cruz Extension intersection
Neptune Street - from Makati Avenue to Reposo Street Orbit Street - from F. Zobel-Candelaria intersection to
Jupiter Street
Paseo de Roxas - from Mercedes Street to Buendia Avenue (Exh. 17, Annex A, BAVA Petition)
On February 10, 1977, BAVA wrote the Mayor of Makati, expressing the concern of the residents about the
opening of the streets to the general public, and requesting specifically the indefinite postponement of the plan to
open Jupiter Street to public vehicles. (Exh. 17, Annex B, BAVA Petition).
However, BAVA voluntarily opened to the public Amapola, Mercedes, Zodiac, Neptune and Paseo de Roxas
streets. (Exh. 17-A, Answer of Makati par. 3-7).
Later, on June 17,1977, the Barangay Captain of Bel-Air Village was advised by the Office of the Mayor that, in
accordance with the agreement entered into during the meeting on January 28, 1 977, the Municipal Engineer
and the Station Commander of the Makati Police were ordered to open for public use Jupiter Street from Makati
Avenue to Reposo Street. Accordingly, he was requested to advise the village residents of the necessity of the
opening of the street in the interest of public welfare. (Exh. 17, Annex E, BAVA Petition).
Then, on June 10, 1977, the Municipal Engineer of Makati in a letter addressed to BAVA advised the latter to
open for vehicular and pedestrian traffic the entire portion of Jupiter Street from Makati Avenue to Reposo Street
(Exh. 17, BAVA Petition, par. 14).
Finally, on August 12, 1977, the municipal officials of Makati concerned allegedly opened, destroyed and
removed the gates constructed/located at the corner of Reposo Street and Jupiter Street as well as the
gates/fences located/constructed at Jupiter Street and Makati Avenue forcibly, and then opened the entire length
of Jupiter Street to public traffic. (Exh. 17, BAVA Petition, pars. 16 and 17).
(11) Before the gates were-removed, there was no parking problem or traffic problem in Jupiter Street, because
Jupiter Street was not allowed to be used by the general public (Villavicencio, TSN, pp. 24-25, Oct. 30, 1980).
However, with the opening of Zodiac Street from Estrella Street to Jupiter Street and also the opening to the
public of the entire length of Jupiter Street, there was a tremendous increase in the volume of traffic passing
along Jupiter Street coming from EDSA to Estrella Street, then to Zodiac Street to Jupiter Street, and along the
entire length of Jupiter Street to its other end at Reposo Street. (Villavicencio, TSN, pp. 30-32, Oct. 30, 1980).
In the meantime, the purchasers of the commercial lots between Jupiter Street and Buendia Avenue extension
had started constructing their respective buildings in 1974-1975. They demolished the portions of the fence or
wall standing within the boundary of their lots. Many of the owners constructed their own fences or walls in lieu of
the wall and they employed their own security guards. (TSN, p. 83, Feb. 20,1981; TSN, pp. 53-54; 72-74, March
20,1981; TSN, pp. 54-55, July 23, 1981).
(12) Then, on January 27, 1978, appellant donated the entire Jupiter Street from Metropolitan Avenue to Zodiac
Street to BAVA (Exh. 7)- However, even before 1978, the Makati Police and the security force of BAVA were
already the ones regulating the traffic along Jupiter Street after the gates were opened in 1977. Sancianco TSN,
pp. 26-30, Oct. 2,1981).
In October, 1979, the fence at the corner of Orbit and Neptune Streets was opened and removed (BAVA Petition,
par. 22, Exh. 17). The opening of the whole stretch of Orbit Street from J.P. Rizal Avenue up to Imelda Avenue
and later to Jupiter Street was agreed to at the conference attended by the President of BAVA in the office of the
Station Commander of Makati, subject to certain conditions, to wit:
That, maintenance of Orbit St. up to Jupiter St. shall be shouldered by the Municipality of Makati.
That, street lights will be installed and maintenance of the same along Orbit St. from J.P. Rizal Ave. up to Jupiter
St. shall be undertaken by the Municipality.
That for the security of the residents of San Miguel Village and Bel-Air Village, as a result of the opening of Orbit
Street, police outposts shall be constructed by the Municipality of Makati to be headed by personnel of Station
No. 4, in close coordination with the Security Guards of San Miguel Village and Bel-Air Village." (CF. Exh. 3 to
Counter-Affidavit, of Station Commander, Ruperto Acle p. 253, records)" (Order, Civil Case No. 34948, Exh. 17-
c).
(13) Thus, with the opening of the entire length of Jupiter Street to public traffic, the different residential lots
located in the northern side of Jupiter Street ceased to be used for purely residential purposes. They became, for
all purposes, commercial in character.
(14) Subsequently, on October 29, 1979, the plaintiffs-appellees Jose D. Sangalang and Lutgarda D. Sangalang
brought the present action for damages against the defendant-appellant Ayala Corporation predicated on both
breach of contract and on tort or quasi-delict A supplemental complaint was later filed by said appellees seeking
to augment the reliefs prayed for in the original complaint because of alleged supervening events which occurred
during the trial of the case. Claiming to be similarly situated as the plaintiffs-appellees, the spouses Felix C.
Gaston and Dolores R. Gaston, Jose V. Briones and Alicia R. Briones, and the homeowners' association (BAVA)
intervened in the case.
(15) After trial on the merits, the then Court of First Instance of Rizal, Pasig, Metro Manila, rendered a decision in
favor of the appellees the dispositive portion of which is as follows:
WHEREFORE, judgment is hereby accordingly rendered as follows:
ON PLAINTIFFS' COMPLAINT:
Defendant is ordered to pay to the plaintiffs-spouses Sangalang the following damages:
1. The sum of P500,000.00 as actual and consequential damages;
2. The sum of P2,000,000.00 as moral damages;
3. The sum of P500,000.00 as exemplary damages;
4. The sum of P100,000.00 as attorney's fees; and
5. The costs of suit.
ON INTERVENORS FELIX and DOLORES GASTON'S COMPLAINT:
Defendant is ordered to pay to the spouses Felix and Dolores Gaston, the following damages:
1 . The sum of P400,000.00 as consequential damages;
2 The sum of P500,000.00 as moral damages;
3 The sum of P500,000.00 as exemplary damages:
4 The sum of P50,000.00 as attorney's fees; and
5 The costs of suit.
ON INTERVENORS JOSE and ALICIA BRIONES' COMPLAINT:
Defendant is ordered to pay to the spouses Jose and Alicia Briones, the following damages:
1 . The sum of P400,000.00 as consequential damages;
2 The sum of P500,000.00 as moral damages;
3 The sum of P500,000.00 as exemplary damages;
4 The sum of P50,000.00 as attorney's fees; and
5 The costs of suit.
ON INTERVENOR BAVA'S COMPLAINT:
Defendant is ordered to pay intervenor BAVA, the following damages:
1. The sum of P400,000.00 as consequential damages;
2. The sum of P500,000.00 as exemplary damages;
3. The sum of P50,000.00 as attorney's fees; and
4. The costs of suit.
The above damages awarded to the plaintiffs and intervenors shall bear legal interest from the filing of the
complaint.
Defendant is further ordered to restore/reconstruct the perimeter wall at its original position in 1966 from Reposo
Street in the west to Zodiac Street in the east, at its own expense, within SIX (6) MONTHS from finality of
judgment.
SO ORDERED.
(Record on Appeal, pp. 400-401) 2
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On appeal, the Court of Appeals 3 rendered a reversal, and disposed as follows:
ACCORDINGLY, finding the decision appealed from as not supported by the facts and the law on the matter, the
same is hereby SET ASIDE and another one entered dismissing the case for lack of a cause of action. Without
pronouncement as to costs.
SO ORDERED. 4
II. G.R. No. 74376
This petition was similarly brought by BAVA to enforce the aforesaid restrictions stipulated in the deeds of sale
executed by the Ayala Corporation. The petitioner originally brought the complaint in the Regional Trial Court of
Makati, 5 principally for specific performance, plaintiff [now, petitioner] alleging that the defendant [now, private
respondent] Tenorio allowed defendant [Tenorio's co-private respondent] Gonzalves to occupy and convert the
house at 50 Jupiter Street, Bel-Air Village, Makati, Metro Manila, into a restaurant, without its knowledge and
consent, and in violation of the deed restrictions which provide that the lot and building thereon must be used only for
residential purposes upon which the prayed for main relief was for 'the defendants to permanently refrain from using
the premises as commercial and to comply with the terms of the Deed Restrictions." 6 The trial court dismissed the
complaint on a procedural ground, i.e., pendency of an Identical action, Civil Case No. 32346, entitled "Bel-Air Village
Association, Inc. v. Jesus Tenorio." The Court of Appeals 7 affirmed, and held, in addition, that Jupiter Street "is
classified as High density commercial (C-3) zone as per Comprehensive Zoning Ordinance No. 81-01 for National
Capital Region," 8 following its own ruling in AC-G.R. No. 66649, entitled "Bel-Air Village Association, Inc. vs. Hy-
Land Realty & Development Corporation, et al."
III. G.R. No. 76394
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Defendants-spouses Eduardo V. Romualdez, Jr. and Buena Tioseco are the owners of a house and lot located at
108 Jupiter St., Makati, Metro Manila as evidenced by Transfer Certificate of Title No. 332394 of the Registry of
Deeds of Rizal. The fact is undisputed that at the time the defendants acquired the subject house and lot, several
restrictions were already annotated on the reverse side of their title; however, for purposes of this appeal we shall
quote hereunder only the pertinent ones, to wit:
(b,) This lot/shall be used only for residential purposes.
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IV. Term of Restriction
The foregoing restriction(s) shall remain in force for fifty years from January 15, 1957, unless sooner cancelled in its
entirety by two-thirds vote of the members in good standing of the Bel-Air Association. However, the Association may
from time to time, add new ones, amend or abolish particular restrictions or parts thereof by majority rule.
During the early part of 1979, plaintiff noted that certain renovations and constructions were being made by the
defendants on the subject premises, for which reason the defendants were advised to inform the plaintiff of the kind
of construction that was going on. Because the defendants failed to comply with the request of the plaintiff, the
latter's chief security officer visited the subject premises on March 23, 1979 and found out that the defendants were
putting up a bake and coffee shop, which fact was confirmed by defendant Mrs. Romualdez herself. Thereafter, the
plaintiff reminded defendants that they were violating the deed restriction. Despite said reminder, the defendants
proceeded with the construction of the bake shop. Consequently, plaintiff sent defendants a letter dated April 30,
1979 warning them that if they will not desist from using the premises in question for commercial purposes, they will
be sued for violations of the deed restrictions.
Despite the warning, the defendants proceeded with the construction of their bake shop. 9
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The trial court 10 adjudged in favor of BAVA. On appeal, the Court of Appeals 11 reversed, on the strength of its
holding in AC-G.R. No. 66649 earlier referred to.
BAVA then elevated the matter to the Court by a petition for review on certiorari. The Court 12 initially denied the
petition "for lack of merit, it appearing that the conclusions of the respondent Court of Appeals that private
respondents' bake and coffee shop lies within a commercial zone and that said private respondents are released
from their obligations to maintain the lot known as 108 Jupiter Street for residential purposes by virtue of Ordinance
No. 81 of the Municipality of Makati and Comprehensive Zoning Ordinance No. 81-01 of the Metropolitan Manila
Commission, are in accord with law and jurisprudence," 13 for which BAVA sought a reconsideration. Pending
resolution, the case was referred to the Second Division of this Court, 14 and thereafter, to the Court En Banc en
consulta. 15 Per our Resolution, dated April 29, 1988, we consolidated this case with G.R. Nos. 74376 and 82281. 16
IV. G.R. No. 78182.
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The case stemmed from the leasing by defendant Dolores Filley of her building and lot situated at No. 205 Reposo
Street, Bel-Air Village Makati, Metro Manila to her co-defendant, the advertising firm J. Romero and Associates, in
alleged violation of deed restrictions which stipulated that Filley's lot could only be used for residential purposes.
Plaintiff sought judgment from the lower court ordering the defendants to "permanently refrain" from using the
premises in question "as commercial" and to comply with the terms of the deed restrictions.
After the proper proceedings, the court granted the plaintiff the sought for relief with the additional imposition of
exemplary damages of P50,000.00 and attorney's fees of P10,000.00. The trial court gave emphasis to the restrictive
clauses contained in Filley's deed of sale from the plaintiff, which made the conversion of the building into a
commercial one a violation.
Defendants now seek review and reversal on three (3) assignments of errors, namely:
I. THE TRIAL COURT ERRED IN NOT FINDING THAT THE REGULATIONS PROMULGATED BY THE
MUNICIPAL AUTHORITIES IN MAKATI AND THE MINISTRY OF HUMAN SETTLEMENT'S CHANGING THE
CHARACTER OF THE AREAS IN QUESTION HAD RENDERED THE RESTRICTIVE EASEMENT ON THE
TITLE OF THE APPELLANTS VACATED.
II. THE COURT ERRED IN NOT RULING THAT BECAUSE THE APPELLEE(S) HAD ALLOWED THE USE OF
THE PROPERTY WITHIN THE VILLAGE FOR NON- RESIDENTIAL PURPOSES, IT IS NOW ESTOPPED FROM
ENFORCING THE RESTRICTIVE PROHIBITIONS SUBJECT MATTER OF THIS CASE.
III. THE COURT ERRED IN NOT FINDING THAT THERE EXISTED A BILATERAL CONTRACT BETWEEN THE
PARTIES AND THAT SINCE APPELLEE HAD NOT PERFORMED ITS OBLIGATIONS UNDER THIS
ARRANGEMENT THE APPELLANT IN TURN WAS UNDER NO OBLIGATION TO ANNOTATE THE
RESTRICTIVE PROHIBITIONS ON THE BACK OF THE TITLE.
Appellants anchor their appeal on the proposition that the Bel-Air Village area, contrary to plaintiff- appellee's
pretension of being a strictly residential zone, is in fact commercial and characterize the restrictions contained in
appellant Filley's deed of sale from the appellee as completely outmoded, which have lost all relevance to the
present-day realities in Makati, now the premier business hub of the nation, where there is a proliferation of
numerous commercial enterprises established through the years, in fact even within the heart of so-called
"residential" villages. Thus, it may be said that appellants base their position on the inexorable march of progress
which has rendered at naught the continued efficacy of the restrictions. Appellant on the other hand, relies on a
rigid interpretation of the contractual stipulations agreed upon with appellant Filley, in effect arguing that the
restrictions are valid ad infinitum.
The lower court quite properly found that other commercial establishments exist in the same area (in fact, on the
same street) but ignored it just the same and said-
The fact that defendants were able to prove the existence of several commercial establishments inside the village
does not exempt them from liability for violating some of the restrictions evidently choosing to accord primacy to
contractual stipulation. 17
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The Court of Appeals 18 overturned the lower court, 19 likewise based on AC-G.R. No. 66649. The respondent Court
observed also that J. Romero & Associates had been given authority to open a commercial office by the Human
Settlements Regulatory Commission.
V. G.R. No. 82281
The facts of this case have been based on stipulation. We quote:
COMES NOW, the Parties, assisted by their respective counsel and to this Honorable Court, respectfully enter into
the following stipulations of facts, to wit:
1. The parties admit the personal circumstances of each other as well as their capacities to sue and be sued.
2. The parties admit that plaintiff BAVA for short) is the legally constituted homeowners' association in Bel-Air
Subdivision, Makati, Metro Manila.
3. The parties admit that defendant Violets Moncal is the registered owner of a parcel of land with a residential
house constructed thereon situated at No. 104 Jupiter Street, Bel-Air Village, Makati, Metro Manila; that as such lot
owner, she is a member of the plaintiff association.
4. The parties admit that defendant Majal Development Corporation (Majal for short) is the lessee of defendant
Moncal's house and lot located at No. 104 Jupiter Street.
5. The parties admit that a deed restrictions is annotated on the title of defendant Moncal, which provides, among
others, that the lot in question must be used only for residential purposes;' that at time Moncal purchased her
aforesaid lot in 1959 said deed restrictions was already annotated in the said title.
6. The parties admit that when Moncal leased her subject property to Majal, she did not secure the consent of
BAVA to lease the said house and lot to the present lessee.
7. The parties admit that along Jupiter Street and on the same side where Moncal's property is located, there are
restaurants, clinics placement or employment agencies and other commercial or business establishments. These
establishments, however, were sued by BAVA in the proper court.
8. The parties admit that at the time Moncal purchased the subject property from the Makati Development
Corporation, there was a perimeter wall, running along Jupiter Street, which wall was constructed by the
subdivision owner; that at that time the gates of the entrances to Jupiter Street were closed to public traffic. In
short, the entire length of Jupiter which was inside the perimeter wall was not then open to public traffic
9. The parties admit that subsequent thereto, Ayala tore down the perimeter wall to give way to the commercial
building fronting Buendia Avenue (now Gil J. Puyat Avenue).
10. The parties admit that on August 12, 1977, the Mayor of Makati forcibly opened and removed the street gates
constructed on Jupiter Street and Reposo Street, thereby opening said streets to the public.
11. The parties admit plaintiffs letters of October 10, 23 and 31, 1984; as well as defendants' letters-reply dated
October 17 and 29, 1984. 20
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The trial court 21 dismissed the petitioner's complaint, a dismissal affirmed on appeal, 22 According to the appellate
court, the opening of Jupiter Street to human and vehicular traffic, and the commercialization of the Municipality of
Makati in general, were circumstances that had made compliance by Moncal with the aforesaid "deed restrictions"
"extremely difficult and unreasonable," 23 a development that had excused compliance altogether under Article 1267
of the Civil Code.
VI. The cases before the Court; the Court's decision.
In brief, G.R. Nos. 74376, 76394, 78182, and 82281 are efforts to enforce the "deed restrictions" in question against
specific residents (private respondents in the petitions) of Jupiter Street and with respect to G.R. No. 78182, Reposo
Street. The private respondents are alleged to have converted their residences into commercial establishments (a
restaurant in G.R. No. 74376, a bakery and coffee shop in G.R. No. 76394, an advertising firm in G.R. No. 78182;
and a construction company, apparently, in G.R. No. 82281) in violation of the said restrictions. 24
Their mother case, G. R. No. 71169 is, on the other hand, a petition to hold the vendor itself, Ayala Corporation
(formerly Makati Development Corporation), liable for tearing down the perimeter wall along Jupiter Street that had
therefore closed its commercial section from the residences of Bel-Air Village and ushering in, as a consequence, the
full "commercialization" of Jupiter Street, in violation of the very restrictions it had authored.
As We indicated, the Court of Appeals dismissed all five appeals on the basis primarily of its ruling in AC-G.R. No.
66649, "Bel-Air Village, Inc. v. Hy-Land Realty Development Corporation, et al.," in which the appellate court
explicitly rejected claims under the same 'deed restrictions" as a result of Ordinance No. 81 enacted by the
Government of the Municipality of Makati, as well as Comprehensive Zoning Ordinance No. 8101 promulgated by the
Metropolitan Manila Commission, which two ordinances allegedly allowed the use of Jupiter Street both for
residential and commercial purposes. It was likewise held that these twin measures were valid as a legitimate
exercise of police power.
The Court of Appeals' reliance on Ordinance Nos. 81. and 8101 is now assailed in these petitions, particularly the
Sangalang, et al. petition.
Aside from this fundamental issue, the petitioners likewise raise procedural questions. G.R. No. 71169, the mother
case, begins with one.
1. G.R. No. 71169
In this petition, the following questions are specifically put to the Court:
May the Honorable Intermediate Appellate Court reverse the decision of the trial court on issues which were
neither raised by AYALA in its Answers either to the Complaint or Supplemental Complaint nor specifically
assigned as one of the alleged errors on appeal? 25
May the Honorable Intermediate Appellate Court arbitrarily ignore the decisive findings of fact of the trial court,
even if uncontradicted and/or documented, and premised mainly on its own unsupported conclusions totally
reverse the trial court's decision? 26
May the Honorable Intermediate Appellate Court disregard the trial court's documented findings that respondent
Ayala for its own self-interest and commercial purposes contrived in bad faith to do away with the Jupiter Street
perimeter wall it put up three times which wall was really intended to separate the residential from the commercial
areas and thereby insure the privacy and security of Bel Air Village pursuant to respondent Ayala's express
continuing representation and/or covenant to do so? 27
a. The first question represents an attack on the appellate court's reliance on Ordinances Nos. 81 and 81-01, a
matter not supposedly taken up at the trial or assigned as an error on appeal. As a rule, the Court of Appeals (then
the Intermediate Appellate Court) may determine only such questions as have been properly raised to it, yet, this is
not an inflexible rule of procedure. In Hernandez v. Andal, 28 it was stated that "an unassigned error closely related to
an error properly assigned, or upon which the determination of the question raised by the error properly assigned is
dependent, will be considered by the appellate court notwithstanding the failure to assign it as error." 29
In Baquiran v. Court of Appeals, 30 we referred to the " modern trend of procedure . . . according] the courts broad
discretionary power" 31 and in which we allowed consideration of matters "having some bearing on the issue
submitted which the parties failed to raise or the lower court ignore[d]. 32 And in Vda. de Javellana v. Court of
Appeals, 33 we permitted the consideration of a 'patent error' of the trial court by the Court of Appeals under Section
7, of Rule 51, of the Rules of Court, 34 although such an error had not been raised in the brief. But what we note is
the fact that the Ayala Corporation did raise the zoning measures as affirmative defenses, first in its answers 35 and
second, in its brief, 36 and submitted at the trial as exhibits. 37 There is accordingly no cause for complaint on the part
of the petitioners for Ayala's violation of the Rules. But while there was reason for the consideration, on appeal, of the
said zoning ordinances in question, this Court nevertheless finds as inaccurate the Court of Appeals' holding that
such measures, had "in effect, [made] Jupiter Street ... a street which could be used not only for residential
purposes," 38 and that "[It lost its character as a street for the exclusive benefit of those residing in Bel-Air Village
completely." 39
Among other things, there is a recognition under both Ordinances Nos. 81 and 8 1-01 that Jupiter Street lies as the
boundary between Bel-Air Village and Ayala Corporation's commercial section. And since 1957, it had been
considered as a boundary not as a part of either the residential or commercial zones of Ayala Corporation's real
estate development projects. Thus, the Bel-Air Village Association's articles of incorporation state that Bel-Air Village
is 'bounded on the NE., from Amapola St., to de los Santos Ave., by Estrella St., on the SE from Extrella St., to
Pedestrian Lane by E. De los Santos Ave., on the SW., from Pedestrian Lane to Reposo St., by Jupiter Street
. . . . 40 Hence, it cannot be said to have been "for the exclusive benefit" of Bel-Air Village residents.
We come to the perimeter wall then standing on the commercial side of Jupiter Street the destruction of which
opened the street to the public. The petitioners contend that the opening of the thoroughfare had opened, in turn, the
floodgates to the commercialization of Bel-Air Village. The wall, so they allege, was designed precisely to protect the
peace and privacy of Bel-Air Village residents from the din and uproar of mercantile pursuits, and that the Ayala
Corporation had committed itself to maintain it. It was the opinion of the Court of Appeals, as we said, that Ayala's
liability therefor, if one existed, had been overtaken by the passage of Ordinances Nos. 81 and 82-01, opening
Jupiter Street to commerce.
It is our ruling, we reiterate, that Jupiter Street lies as a mere boundary, a fact acknowledged by the authorities of
Makati and the National Government and, as a scrutiny of the records themselves reveals, by the petitioners
themselves, as the articles of incorporation of Bel-Air Village Association itself would confirm. As a consequence,
Jupiter Street was intended for the use by both -the commercial and residential blocks. It was not originally
constructed, therefore, for the exclusive use of either block, least of all the residents of Bel-Air Village, but, we
repeat, in favor of both, as distinguished from the general public.
When the wall was erected in 1966 and rebuilt twice, in 1970 and 1972, it was not for the purpose of physically
separating the two blocks. According to Ayala Corporation, it was put up to enable the Bel-Air Village Association
"better control of the security in the area, 41 and as the Ayala Corporation's "show of goodwill " 42 a view we find
acceptable in the premises. For it cannot be denied that at that time, the commercial area was vacant, "open for [sic]
animals and people to have access to Bel-Air Village." 43 There was hence a necessity for a wall.
In any case, we find the petitioners' theory, that maintaining the wall was a matter of a contractual obligation on the
part of Ayala, to be pure conjecture. The records do not establish the existence of such a purported commitment. For
one, the subdivision plans submitted did not mention anything about it. For another, there is nothing in the "deed
restrictions" that would point to any covenant regarding the construction of a wall. There is no representation or
promise whatsoever therein to that effect.
With the construction of the commercial buildings in 1974, the reason for which the wall was built- to secure Bel-Air
Village from interlopers had naturally ceased to exist. The buildings themselves had provided formidable curtains of
security for the residents. It should be noted that the commercial lot buyers themselves were forced to demolish parts
of the wall to gain access to Jupiter Street, which they had after all equal right to use.
In fine, we cannot hold the Ayala Corporation liable for damages for a commitment it did not make, much less for
alleged resort to machinations in evading it. The records, on the contrary, will show that the Bel-Air Village
Association had been informed, at the very outset, about the impending use of Jupiter Street by commercial lot
buyers. We quote:
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1. Exh. I of appellee, the memorandum of Mr. Carmelo Caluag, President of BAVA, dated May 10, 1972, informing
the BAVA Board of Governors and Barrio Council members about the future use of Jupiter Street by the lot owners
fronting Buendia Avenue. The use of Jupiter Street by the owners of the commercial lots would necessarily require
the demolition of the wall along the commercial block adjoining Jupiter Street.
2. Exh. J of appellee, the minutes of the joint meeting of BAVA Board of Governors and the Bel-Air Barrio Council
where the matter that "Buendia lot owners will have equal rights to use Jupiter Street," and that Ayala's "plans
about the sale of lots and use of Jupiter Street" were precisely taken up. This confirms that from the start BAVA
was informed that the commercial lot owners will use Jupiter Street and that necessarily the wall along Jupiter
Street would be demolished.
3. Exh. 10, the letter of Mr. Demetrio Copuyoc to the President of BAVA, dated May 16, 1972, expressly stating
that vehicular entrance and exit to the commercial lots would be allowed along Jupiter and side streets.
4. Exhs. 27, 27-A, 27-B, the letter of Atty. Salvador J. Lorayes dated June 30, 1972, with enclosed copy of
proposed restriction for the commercial lots to BAVA. He proposed restriction again expressly stated that
"Vehicular entrances and exits are allowed thru Jupiter and any side streets."
5. Exh. L of appellee, the minutes of the meeting of the members of BAVA, dated August 26, 1972, where it is
stated "Recently, Ayala Corporation informed the Board that the lots fronting Buendia Avenue will soon be offered
for sale, and that future lot owners will be given equal rights to use Jupiter Street as well as members of the
Association."
6. Exh. 25, the letter of Atty. Lorayes dated September 25, 1972, informing BAVA of the widening of Jupiter Street
by 3.5 meters to improve traffic flow in said street to benefit both the residents of Bel-Air and the future owners of
the commercial lots. 44
The petitioners cannot successfully rely on the alleged promise by Demetrio Copuyoc, Ayala's manager, to build a
"[f]ence along Jupiter with gate for entrance and/or exit 45 as evidence of Ayala's alleged continuing obligation to
maintain a wall between the residential and commercial sections. It should be observed that the fence referred to
included a "gate for entrance and or exit" which would have defeated the purpose of a wall, in the sense the
petitioners would put in one, that is to say, an impenetrable barrier. But as Ayala would point out subsequently, the
proposed fence was not constructed because it had become unnecessary when the commercial lot owners
commenced constructions thereon.
Be that as it may, the Court cannot visualize any purported obligation by Ayala Corporation to keep the wall on the
strength of this supposed promise alone. If truly Ayala promised anything assuming that Capuyoc was authorized to
bind the corporation with a promise it would have been with respect to the fence. It would not have established the
pre-existing obligation alleged with respect to the wall.
Obligations arise, among other things, from contract. 46 If Ayala, then, were bound by an obligation, it would have
been pursuant to a contract. A contract, however, is characterized by a "meeting of minds between two persons . 47
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. 48
The petitioners cannot simply assume that the wall was there for the purpose with which they now give it, by the bare
coincidence that it had divided the residential block from the commercial section of Bel-Air. The burden of proof rests
with them to show that it had indeed been built precisely for that objective, a proof that must satisfy the requirements
of our rules of evidence. It cannot be made to stand on the strength of plain inferences.
b. This likewise answers the petitioners' second query, whether or not the Court of Appeals had "arbitrarily ignore(d)
the decisive findings of the trial court." 49 i.e., findings pointing to alleged acts performed by the Ayala Corporation
proving its commitment to maintain the wall abovesaid. Specifically, the petitioners refer to, among other things: (1)
Ayala's alleged announcement to Bel- Air Village Association members that "[the perimeter wall along Jupiter Street
will not be demolished," 50 (2) Ayala's alleged commitment "during the pendency of the case in the trial court" to
restore the wall; (3) alleged assurances by Copuyoc that the wall will not be removed; (4) alleged contrivances by the
corporation to make the association admit as members the commercial lot buyers which provided them equal access
to Jupiter Street; and (5) Ayala's donation to the association of Jupiter Street for "private use" of Bel-Air residents. 51
682 (1903), where it was held that "whether the plaintiffs services were solicited or whether they were offered to the
defendant for his assistance, inasmuch as these services were accepted and made use of by the latter, we must
consider that there was a tacit and mutual consent as to the rendition of services." (At 686.) In that case, the
defendant had enormously benefitted from the services that entitled the plaintiff to compensation on the theory that
no one may unjustly enrich himself at the expense of another (Solutio indebiti) The facts of this case differ.
As we stated, the Ayala Corporation's alleged conduct prior to or during the proceedings below are not necessarily at
war with claims that no commitment had been in fact made.
With respect to Ayala's alleged announcement before the association, the Court does not agree that Ayala had
categorically assumed as an obligation to maintain the wall "perpetually," i.e., until the year 2007 (the expiration date
under the "deed restrictions.") There is nothing in its statement that would bare any commitment. In connection with
the conference between the parties "during the pendency" of the trial, it is to be noted that the Ayala Corporation
denies having warranted the restoration of the said wall therein. What, on the other hand, appears in the records is
the fact that Ayala did make that promise, but provided that the Mayor allowed it. It turned out, however, that the
Mayor balked at the Idea. 52 But assuming that Ayala did promise to rebuild the wall (in that conference), it does not
seem to us that it did consequently promise to maintain it in perpetuity.
It is unfair to say, as the trial court did, that the Ayala had "contrived to make future commercial lot owners special
members of BAVA and thereby acquire equal right with the regular members thereof to use Jupiter Street 53 since, as
we stated, the commercial lot buyers have the right, in any event, to make use of Jupiter Street, whether or not they
are members of the association. It is not their memberships that give them the right to use it. They share that right
with Bel-Air residents from the outset.
The objective of making the commercial lot owners special members of the Bel-Air Village Association was not to
accord them equal access to Jupiter Street and inferentially, to give them the right to knock down the perimeter wall.
It was, rather, to regulate the use of the street owing precisely to the "planned" nature of Ayala's development
project, and real estate development in general, and this could best be done by placing the commercial lot owners
under the association's jurisdiction.
Moreover, Ayala's overtures with the association concerning the membership of commercial lot buyers therein have
been shown to be neither perfidious nor unethical nor devious (paraphrasing the lower court). We quote anew:
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(7) On June 30, 1972, appellant informed BAVA that in a few months it shall subdivide and sell the commercial lots
bordering the north side of Buendia Avenue Extension from Reposo Street up to Zodiac Street. Appellant also
informed BAVA that it had taken all precautions and will impose upon the commercial lot owners deed restrictions
which will harmonize and blend with the development and welfare of Bel-Air Village. Appellant further applied for
special membership in BAVA of the commercial lot owners. A copy of the deed restrictions for the commercial lots
was also enclosed. The proposed deed restrictions shall include the 19 meter set back of buildings from Jupiter
Street, the requirement for parking space within the lot of one (1) parking slot for every seventy five (75) meters of
office space in the building and the limitation of vehicular traffic along Buendia to entrance only, but allowing both
vehicular entrance and vehicular exit through Jupiter Street and any side street.
In its letter of July 10, 1972, BAVA acknowledged the above letter of appellant and informed the latter that the
application for special membership of the commercial lot owners in BAVA would be submitted to BAVA's board of
governors for decision.
(8) On September 25,1972, appellant notified BAVA that, after a careful study, it was finally decided that the height
limitation of buildings on the commercial lots shall be increased from 12.5 meters to 15 meters. Appellant further
informed BAVA that Jupiter Street shall be widened by 3.5 meters to improve traffic flow in said street. BAVA did not
reply to said letter, but on January 22, 1973, BAVA wrote a letter to the appellant informing the latter that the
Association had assessed the appellant, as special member of the association, the amount of P40,795.00 (based on
81,590 square meters at P.50 per square meter) representing the membership dues of the commercial lot owners for
the year 1973, and requested the appellant to remit the amount which its board of governors had already included in
its current budget. In reply, appellant on January 31, 1973 informed BAVA that due to the widening of Jupiter Street,
the area of the lots which were accepted by the Association as members was reduced to 76,726 square meters.
Thus, the corresponding due at P.50 per square meter should be reduced to P38,363.00. This amount, therefore,
was remitted by the appellant to BAVA. Since then, the latter has been collecting membership dues from the owners
of the commercial lots as special members of the Association. As a matter of fact, the dues were increased several
times. In 1980, the commercial lot owners were already being charged dues at the rate of P3.00 per square meter.
(Domingo, TSN, p. 36, March 19, 1980). At this rate, the total membership dues of the commercial lot owners
amount to P230,178.00 annually based on the total area of 76,726 square meters of the commercial lots. 54
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The alleged undertaking, finally, by Ayala in the deed of donation (over Jupiter Street) to leave Jupiter Street for the
private use of Bel-Air residents is belied by the very provisions of the deed. We quote:
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IV. That the offer made by the DONOR had been accepted by the DONEE subject to the condition that the property
will be used as a street for the use of the members of the DONEE, their families, personnel, guests, domestic help
and, under certain reasonable conditions and restrictions, by the general public, and in the event that said lots or
parts thereof cease to be used as such, ownership thereof shall automatically revert to the DONOR. The DONEE
shall always have Reposo Street, Makati Avenue, and Paseo de Roxas open for the use of the general public. It is
also understood that the DONOR shall continue the maintenance of the street at its expense for a period of three
years from date hereof." (Deed of Donation, p. 6, Exh. 7) 55
xxxxxxxxx
The donation, on the contrary, gave the general public equal right to it.
The Court cannot then say, accepting the veracity of the petitioners' facts" enumerated above, that the Ayala
Corporation may be held liable for specific performance of a demandable obligation, let alone damages.
The Court adds that Ayala can hardly be held responsible for the alleged deterioration of "living and environmental
conditions" 56 of the Bel-Air area, as a consequence of "Ayala's authorized demolition of the Jupiter perimeter wall in
1974-1975. " 57 We agree with Ayala that until 1976, "there was peace and quiet" at Jupiter Street, as the petitioners'
(Sangalang, Gaston, and Briones) complaints admit. Hence, the degeneration of peace and order in Bel-Air cannot
be ascribed to the destruction of the wall in 1974 and 1975.
What Ayala submits as the real cause was the opening of Jupiter Street to vehicular traffic in 1977., 58 But this was
upon orders of the Mayor, and for which the homeowners' association had precisely filed suit (Civil Case No. 34998)
59
to contest the act of the Mayor.
c. This likewise disposes of the third question presented. The petitioners' reliance on Ayala's alleged conduct
(proving its alleged commitment), so we have ruled, is not well-taken. Ayala's alleged acts do not, by themselves,
reflect a commitment to maintain the wall in dispute. It cannot be therefore said that the Court of Appeals "arbitrarily
ignore(d]" 60 the lower court's findings. Precisely, it is the duty of the appellate court to review the findings of the trial
judge, be they of fact or law. 61 It is not bound by the conclusions of the judge, for which reason it makes its own
findings and arrives at its own conclusions. Unless a grave abuse of discretion may be imputed to it, it may accept or
reject the lower tribunal's determinations and rely solely on the records.
Accordingly, the Court affirms the Court of Appeals' holding that the Ayala Corporation, in its dealings with the
petitioners, the Bel-Air Village Association in particular, had "acted with justice, gave the appellees [petitioners] their
due and observed honesty and good faith." 62 "Therefore, under both Articles 19 and 21 of the Civil Code, the
appellant [Ayala] cannot be held liable for damages." 63
2. G.R. Nos. 74376, 76394, 78182, & 82281
Our decision also resolves, quite anticlimactically, these companion cases. But we do so for various other reasons.
In the Sangalang case, we absolve the Ayala Corporation primarily owing to our finding that it is not liable for the
opening of Jupiter Street to the general public. Insofar as these petitions are concerned, we likewise exculpate the
private respondents, not only because of the fact that Jupiter Street is not covered by the restrictive easements
based on the "deed restrictions" but chiefly because the National Government itself, through the Metro Manila
Commission (MMC), had reclassified Jupiter Street into high density commercial (C-3) zone, 64 pursuant to its
Ordinance No. 81-01. Hence, the petitioners have no cause of action on the strength alone of the said "deed
restrictions.
In view thereof, we find no need in resolving the questions raised as to procedure, since this disposition is sufficient
to resolve these cases.
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. Our jurisdiction guarantees sanctity of contract and is said
to be the "law between the contracting parties, 65 but while it is so, it cannot contravene 'law, morals, good customs,
public order, or public policy. 66 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. In Ortigas & Co., Limited Partnership v. Feati Bank and Trust Co., 67 we are told:
xxxxxxxxx
2. With regard to the contention that said resolution cannot nullify the contractual obligations assumed by the
defendant-appellee referring to the restrictions incorporated in the deeds of sale and later in the corresponding
Transfer Certificates of Title issued to defendant-appellee it should be stressed, that while non-impairment of
contracts is constitutionally guaranteed, the rule is not absolute, since it has to be reconciled with the legitimate
exercise of police power, i.e., "the power to prescribe regulations to promote the health, morals, peace, education,
good order or safety and general welfare of the people.' Invariably described as "the most essential, insistent, and
illimitable of powers" and "in a sense, the greatest and most powerful attribute of government," the exercise of the
power may be judicially inquired into and corrected only if it is capricious, whimsical, unjust or unreasonable, there
having been a denial of due process or a violation of any other applicable constitutional guarantee. As this Court held
through Justice Jose P. Bengson in Philippine Long Distance Company vs. City of Davao, et al. police power 'is
elastic and must be responsive to various social conditions; it is not confined within narrow circumscriptions of
precedents resting on past conditions; it must follow the legal progress of a democratic way of life.' We were even
more emphatic in Vda. de Genuino vs. The Court of agrarian Relations, et al., when We declared: "We do not see
why public welfare when clashing with the individual right to property should not be made to prevail through the
state's exercise of its police power."
Resolution No. 27, 1960 declaring the western part of High way 54, now E. de los Santos Avenue (EDSA, for short)
from Shaw Boulevard to the Pasig River as an industrial and commercial zone, was obviously passed by the
Municipal Council of Mandaluyong, Rizal in the exercise of police power to safeguard or promote the health, safety,
peace, good order and general welfare of the people in the locality. Judicial notice may be taken of the conditions
prevailing in the area, especially where Lots Nos. 5 and 6 are located. The lots themselves not only front the
highway; industrial and commercial complexes have flourished about the place. EDSA, a main traffic artery which
runs through several cities and municipalities in the Metro Manila area, supports an endless stream of traffic and the
resulting activity, noise and pollution are hardly conducive to the health, safety or welfare of the residents in its route.
Having been expressly granted the power to adopt zoning and subdivision ordinances or regulations, the municipality
of Mandaluyong, through its Municipal Council, was reasonably, if not perfectly, justified under the circumstances, in
passing the subject resolution. 68
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Undoubtedly, the MMC Ordinance represents a legitimate exercise of police power. The petitioners have not shown
why we should hold otherwise other than for the supposed "non-impairment" guaranty of the Constitution, which, as
we have declared, is secondary to the more compelling interests of general welfare. The Ordinance has not been
shown to be capricious or arbitrary or unreasonable to warrant the reversal of the judgments so appealed. In that
connection, we find no reversible error to have been committed by the Court of Appeals.
WHEREFORE, premises considered, these petitions are DENIED No pronouncement as to costs.
IT IS SO ORDERED.
Fernan, (C.J.), Melencio-Herrera, Gutierrez, Jr., Cruz, Gancayco, Bidin, Cortes, Griño-Aquino, Medialdea and
Regalado, JJ., concur. Narvasa, J., on leave. Paras, J., Took no part;Feliciano, J., Took no part; Padilla, J., Took no
part;
SECOND DIVISION
[G.R. No. 126102. December 4, 2000]
ORTIGAS & CO. LTD., petitioner, vs. THE COURT OF APPEALS and ISMAEL G. MATHAY III, respondents.
DECISION
QUISUMBING, J.:
This petition seeks to reverse the decision of the Court of Appeals, dated March 25, 1996, in CA-G.R. SP No. 39193,
which nullified the writ of preliminary injunction issued by the Regional Trial Court of Pasig City, Branch 261, in Civil
Case No. 64931. It also assails the resolution of the appellate court, dated August 13, 1996, denying petitioner’s
motion for reconsideration.
The facts of this case, as culled from the records, are as follows:
On August 25, 1976, petitioner Ortigas & Company sold to Emilia Hermoso, a parcel of land known as Lot 1, Block
21, Psd-66759, with an area of 1,508 square meters, located in Greenhills Subdivision IV, San Juan, Metro Manila,
and covered by Transfer Certificate of Title No. 0737. The contract of sale provided that the lot:
1. …(1) be used exclusively…for residential purposes only, and not more than one single-family residential building
will be constructed thereon,…
xxx
6. The BUYER shall not erect…any sign or billboard on the roof…for advertising purposes…
xxx
11. No single-family residential building shall be erected…until the building plans, specification…have been approved
by the SELLER…
xxx
14....restrictions shall run with the land and shall be construed as real covenants until December 31, 2025 when they
shall cease and terminate…
These and the other conditions were duly annotated on the certificate of title issued to Emilia.
In 1981, the Metropolitan Manila Commission (now Metropolitan Manila Development Authority) enacted MMC
Ordinance No. 81-01, also known as the Comprehensive Zoning Area for the National Capital Region. The
ordinance reclassified as a commercial area a portion of Ortigas Avenue from Madison to Roosevelt Streets of
Greenhills Subdivision where the lot is located.
On June 8, 1984, private respondent Ismael Mathay III leased the lot from Emilia Hermoso and J.P. Hermoso Realty
Corp.. The lease contract did not specify the purposes of the lease. Thereupon, private respondent constructed a
single story commercial building for Greenhills Autohaus, Inc., a car sales company.
On January 18, 1995, petitioner filed a complaint against Emilia Hermoso with the Regional Trial Court of Pasig,
Branch 261. Docketed as Civil Case No. 64931, the complaint sought the demolition of the said commercial
structure for having violated the terms and conditions of the Deed of Sale. Complainant prayed for the issuance of a
temporary restraining order and a writ of preliminary injunction to prohibit petitioner from constructing the commercial
building and/or engaging in commercial activity on the lot. The complaint was later amended to implead Ismael G.
Mathay III and J.P. Hermoso Realty Corp., which has a ten percent (10%) interest in the lot. In his answer, Mathay III
denied any knowledge of the restrictions on the use of the lot and filed a cross-claim against the Hermosos.
On June 16, 1995, the trial court issued the writ of preliminary injunction. On June 29, 1995, Mathay III moved to set
aside the injunctive order, but the trial court denied the motion.
Mathay III then filed with the Court of Appeals a special civil action for certiorari, docketed as CA-G.R. SP No. 39193,
ascribing to the trial court grave abuse of discretion in issuing the writ of preliminary injunction. He claimed that MMC
Ordinance No. 81-01 classified the area where the lot was located as commercial area and said ordinance must be
read into the August 25, 1976 Deed of Sale as a concrete exercise of police power.
Ortigas and Company averred that inasmuch as the restrictions on the use of the lot were duly annotated on the title
it issued to Emilia Hermoso, said restrictions must prevail over the ordinance, specially since these restrictions were
agreed upon before the passage of MMC Ordinance No. 81-01.
On March 25, 1996, the appellate court disposed of the case as follows:
WHEREFORE, in light of the foregoing, the petition is hereby GRANTED. The assailed orders are hereby nullified
and set aside.
SO ORDERED.
In finding for Mathay III, the Court of Appeals held that the MMC Ordinance No. 81-01 effectively nullified the
restrictions allowing only residential use of the property in question.
Ortigas seasonably moved for reconsideration, but the appellate court denied it on August 13, 1996.
Hence, the instant petition.
In its Memorandum, petitioner now submits that the “principal issue in this case is whether respondent Court of
Appeals correctly set aside the Order dated June 16, 1995 of the trial court which issued the writ of preliminary
injunction on the sole ground that MMC Ordinance No. 81-01 nullified the building restriction imposing exclusive
residential use on the property in question.” It also asserts that “Mathay III lacks legal capacity to question the validity
of conditions of the deed of sale; and he is barred by estoppel or waiver to raise the same question like his principals,
the owners.” Lastly, it avers that the appellate court “unaccountably failed to address” several questions of fact.
Principally, we must resolve the issue of whether the Court of Appeals erred in holding that the trial court committed
grave abuse of discretion when it refused to apply MMC Ordinance No.81-01 to Civil Case No. 64931.
But first, we must address petitioner’s allegation that the Court of Appeals “unaccountably failed to address”
questions of fact. For basic is the rule that factual issues may not be raised before this Court in a petition for review
and this Court is not duty-bound to consider said questions. CA-G.R. SP No. 39193 was a special civil action for
certiorari, and the appellate court only had to determine if the trial court committed grave abuse of discretion
amounting to want or excess of jurisdiction in issuing the writ of preliminary injunction. Thus, unless vital to our
determination of the issue at hand, we shall refrain from further consideration of factual questions.
Petitioner contends that the appellate court erred in limiting its decision to the cited zoning ordinance. It avers that a
contractual right is not automatically discarded once a claim is made that it conflicts with police power. Petitioner
submits that the restrictive clauses in the questioned contract is not in conflict with the zoning ordinance. For one,
according to petitioner, the MMC Ordinance No. 81-01 did not prohibit the construction of residential buildings.
Petitioner argues that even with the zoning ordinance, the seller and buyer of the re-classified lot can voluntarily
agree to an exclusive residential use thereof. Hence, petitioner concludes that the Court of Appeals erred in holding
that the condition imposing exclusive residential use was effectively nullified by the zoning ordinance.
In its turn, private respondent argues that the appellate court correctly ruled that the trial court had acted with grave
abuse of discretion in refusing to subject the contract to the MMC Ordinance No. 81-01. He avers that the appellate
court properly held the police power superior to the non-impairment of contract clause in the Constitution. He
concludes that the appellate court did not err in dissolving the writ of preliminary injunction issued by the trial court in
excess of its jurisdiction.
We note that in issuing the disputed writ of preliminary injunction, the trial court observed that the contract of sale
was entered into in August 1976, while the zoning ordinance was enacted only in March 1981. The trial court
reasoned that since private respondent had failed to show that MMC Ordinance No. 81-01 had retroactive effect,
said ordinance should be given prospective application only, citing Co vs. Intermediate Appellate Court, 162 SCRA
390 (1988).
In general, we agree that laws are to be construed as having only prospective operation. Lex prospicit, non respicit.
Equally settled, only laws existing at the time of the execution of a contract are applicable thereto and not later
statutes, unless the latter are specifically intended to have retroactive effect. A later law which enlarges, abridges, or
in any manner changes the intent of the parties to the contract necessarily impairs the contract itself and cannot be
given retroactive effect without violating the constitutional prohibition against impairment of contracts.
But, the foregoing principles do admit of certain exceptions. One involves police power. A law enacted in the
exercise of police power to regulate or govern certain activities or transactions could be given retroactive effect and
may reasonably impair vested rights or contracts. Police power legislation is applicable not only to future contracts,
but equally to those already in existence. Nonimpairment of contracts or vested rights clauses will have to yield to the
superior and legitimate exercise by the State of police power to promote the health, morals, peace, education, good
order, safety, and general welfare of the people. Moreover, statutes in exercise of valid police power must be read
into every contract. Noteworthy, in Sangalang vs. Intermediate Appellate Court, we already upheld MMC Ordinance
No. 81-01 as a legitimate police power measure.
The trial court’s reliance on the Co vs. IAC, is misplaced. In Co, the disputed area was agricultural and Ordinance
No. 81-01 did not specifically provide that “it shall have retroactive effect so as to discontinue all rights previously
acquired over lands located within the zone which are neither residential nor light industrial in nature,” and stated
with respect to agricultural areas covered that “the zoning ordinance should be given prospective operation only.”
The area in this case involves not agricultural but urban residential land. Ordinance No. 81-01 retroactively affected
the operation of the zoning ordinance in Greenhills by reclassifying certain locations therein as commercial.
Following our ruling in Ortigas & Co., Ltd. vs. Feati Bank & Trust Co., 94 SCRA 533 (1979), the contractual
stipulations annotated on the Torrens Title, on which Ortigas relies, must yield to the ordinance. When that stretch of
Ortigas Avenue from Roosevelt Street to Madison Street was reclassified as a commercial zone by the Metropolitan
Manila Commission in March 1981, the restrictions in the contract of sale between Ortigas and Hermoso, limiting all
construction on the disputed lot to single-family residential buildings, were deemed extinguished by the retroactive
operation of the zoning ordinance and could no longer be enforced. While our legal system upholds the sanctity of
contract so that a contract is deemed law between the contracting parties, nonetheless, stipulations in a contract
cannot contravene “law, morals, good customs, public order, or public policy.” Otherwise such stipulations would be
deemed null and void. Respondent court correctly found that the trial court committed in this case a grave abuse of
discretion amounting to want of or excess of jurisdiction in refusing to treat Ordinance No. 81-01 as applicable to Civil
Case No. 64931. In resolving matters in litigation, judges are not only duty-bound to ascertain the facts and the
applicable laws, they are also bound by their oath of office to apply the applicable law.
As a secondary issue, petitioner contends that respondent Mathay III, as a mere lessee of the lot in question, is a
total stranger to the deed of sale and is thus barred from questioning the conditions of said deed. Petitioner points
out that the owners of the lot voluntarily agreed to the restrictions on the use of the lot and do not question the
validity of these restrictions. Petitioner argues that Mathay III as a lessee is merely an agent of the owners, and
could not override and rise above the status of his principals. Petitioner submits that he could not have a higher
interest than those of the owners, the Hermosos, and thus had no locus standi to file CA-G.R. SP No. 39193 to
dissolve the injunctive writ issued by the RTC of Pasig City.
For his part, private respondent argues that as the lessee who built the commercial structure, it is he and he alone
who stands to be either benefited or injured by the results of the judgment in Civil Case No. 64931. He avers he is
the party with real interest in the subject matter of the action, as it would be his business, not the Hermosos’, which
would suffer had not the respondent court dissolved the writ of preliminary injunction.
A real party in interest is defined as “the party who stands to be benefited or injured by the judgment or the party
entitled to the avails of the suit.” “Interest” within the meaning of the rule means material interest, an interest in issue
and to be affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental
interest. By real interest is meant a present substantial interest, as distinguished from a mere expectancy or a future,
contingent, subordinate, or consequential interest.
Tested by the foregoing definition, private respondent in this case is clearly a real party in interest. It is not disputed
that he is in possession of the lot pursuant to a valid lease. He is a possessor in the concept of a “holder of the
thing” under Article 525 of the Civil Code. He was impleaded as a defendant in the amended complaint in Civil Case
No. 64931. Further, what petitioner seeks to enjoin is the building by respondent of a commercial structure on the
lot. Clearly, it is private respondent’s acts which are in issue, and his interest in said issue cannot be a mere
incidental interest. In its amended complaint, petitioner prayed for, among others, judgment “ordering the demolition
of all improvements illegally built on the lot in question.” These show that it is petitioner Mathay III, doing business as
“Greenhills Autohaus, Inc.,” and not only the Hermosos, who will be adversely affected by the court’s decree.
Petitioner also cites the rule that a stranger to a contract has no rights or obligations under it, and thus has no
standing to challenge its validity. But in seeking to enforce the stipulations in the deed of sale, petitioner impleaded
private respondent as a defendant. Thus petitioner must recognize that where a plaintiff has impleaded a party as a
defendant, he cannot subsequently question the latter’s standing in court.
WHEREFORE, the instant petition is DENIED. The challenged decision of the Court of Appeals dated March 25,
1996, as well as the assailed resolution of August 13, 1996, in CA-G.R. SP No. 39193 is AFFIRMED. Costs against
petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.
G.R. No. L-32312 November 25, 1983
AURELIO TIRO vs. HONORABLE AGAPITO HONTANOSAS

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-32312 November 25, 1983
AURELIO TIRO, as City Superintendent of Schools of Cebu City,peti ti oner-appell ant,
vs.
HONORABLE AGAPITO HONTANOSAS, Judge of the Court of First Instance of Cebu, Branch
XI, ZAFRA FINANCING ENTERPRISE and MARCELINO ZAFRA,respondents-appel lees.
Nazareno R. Pacquiao and Medudio P. Belarmino for petitioner-appellant.
The Solicitor General and Amadeo Seno and Teodoro Almase for respondents-appellees.
ABAD SANTOS,J,:
In Civil Case No. 11616 of the defunct Court of First Instance of Cebu, Zafra Financing Enterprise
sued Aurelio Tiro in his official capacity as Superintendent of Schools in Cebu City. It appears that
Zafra had extended loans to public school teachers in Cebu City and the teachers concerned
executed promissory notes and special powers of attorney in favor of Zafra to take and collect their
salary checks from the Division Office in Cebu City of the Bureau of Public Schools. However, Tiro
forbade the collection of the checks on the basis of Circular No. 21, series 1969, dated December 5,
1969, of the Director of Public Schools which reads as follows:têñ.£îhqw â£
PROHIBITING PAYMENT OF SALARY TO PERSONS OTHER THAN THE EMPLOYEE CONCERNED
To Superintendents:
1. Quoted hereunder is Memorandum Order No. 93 dated February 5, 1968, of the Executive Office entitled
"Prohibiting Payment of Salary to Any Person Other Than the Employees Concerned, Except As
Provided Herein."têñ.£îhqwâ£
It has been observed that some employees delegate the collection of their salaries to
attorneys-in-fact on the strength of powers of attorney or other forms of authority in favor
of other persons, evidently in satisfaction of obligations contracted by them. This practice
should be discouraged in view of its adverse effects on the efficiency and morale of
employees whose incentive to work is necessarily impaired, since their salary or a portion
thereof goes to other persons.
To curb this unwholesome practice, it is hereby directed that henceforth no cashier or
disbursing officer shall pay to attorneys-in-fact or other persons who may be authorized
under a power of attorney or other forms of authority to collect the salary of an employee,
except when the persons so designated and authorized is an immediate member of the
family of the employee concerned, and in all other cases, except upon proper
authorization of the Assistant Executive Secretary for Legal and Administrative Matters,
with the recommendation of the Financial Assistant.
All orders or regulations inconsistent herewith are hereby revoked.
This order shall take effect immediately.
2. Accordingly, it is desired that, henceforth, cashiers or disbursing officers pay the salary due any school
employee or issue the treasury warrant of any teacher direct to such employee or teacher, except when
authority to collect the salary or treasury warrant has been given to another person, and the person so
authorized is an immediate member of the family of the employee or teacher concerned.
3. Any previous regulation issued by this Office inconsistent with this Circular is hereby revoked. Zafra sought to
compel Tiro to honor the special powers of attorney; to declare Circular No. 21 to be
illegal; and to make Tiro pay attorney's fees and damages. The trial court granted the prayer of Zafra
but the claim for money was disallowed on the ground that he acted in good faith in implementing
Circular No. 21.Tiro now seeks in this petition for review a reversal of the trial court's decision.
The petition is highly impressed with merit.
The core issue is whether or not Circular No. 21 is valid and enforceable and the answer is definitely
in the affirmative.
The salary check of a government officer or employee such as a teacher does not belong to him
before it is physically delivered to him. Until that time the check belongs to the Government.
Accordingly, before there is actual delivery of the check, the payee has no power over it; he cannot
assign it without the consent of the Government. On this basis Circular No. 21 stands on firm legal
footing.
The Circular in question is authorized by relevant statutes extant when it was issued such as the following:
SEC. 79(b). Power to regulate. — The Department Head shall have power to promulgate, whoever he
may see fit to do so, all rules, regulations, orders, circular, memorandums, not contrary to law, necessary
to regulate the proper working and harmonious and efficient administration of each and all of the offices
and dependencies of his Department, and for the strict enforcement and proper execution of the laws
relative to matters under the jurisdiction of said Department; but none of said rules or orders shall
prescribe penalties. All rules, regulations, orders or instructions of a general and permanent character
promulgated in conformity with this section shall be numbered by each Department consecutively each
year, and shall be duly published.
Chiefs of Bureaus or offices may, however, be authorized to promulgate circulars of information or
instructions for the government of the officers and employees in the interior administration of the business
of each Bureau or office, and in such case said circulars shall not be required to be published. (Revised
Administrative Code.)
SEC. 21. Deductions Prohibited. — No person shall make any deduction whatsoever from the salaries of
teachers except under specific authority of law authorizing such deductions: Provided, however, that upon
written authority executed by the teacher concerned, (1) lawful dues and fees owing to the Philippine
Public School Teachers Association, and (2) premiums properly due on insurance policies, shall be
deductible. (Magna Carta For Teachers, R.A. No. 4670.)
Zafra's claim that the Circular impairs the obligation of contracts with the teachers is baseless. For the
Circular does not prevent Zafra from collecting the loans. The Circular merely makes the Government
a non-participant in their collection which is within its competence to do.
WHEREFORE, the petition is granted; the judgment of the court a quo is hereby set aside; costs against the private
respondent.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin, JJ., concur.
De Castro, J., took no part.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 77365 April 7, 1992
RITA CALEON, petitioner,
vs.
AGUS DEVELOPMENT CORPORATION and COURT OF APPEALS, respondents.
BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the January 28, 1987 decision of the Court of
Appeals in CA-G.R. SP No. 10990 entitled "Rita Caleon V. Hon. Samilo Barlongay, et al." dismissing the petition for
review of the decision of the Regional Trial Court of Manila, Branch 34, which affirmed the decision of the
Metropolitan Trial Court of Manila, Branch XII, ejecting the petitioner.
The undisputed facts of the case are as follows:
Private respondent Agus Development Corporation is the owner of a parcel of land denominated as Lot 39, Block 28,
situated at 1611-1619 Lealtad, Sampaloc, Manila, which it leased to petitioner Rita Caleon for a monthly rental of
P180.00. Petitioner constructed on the lot leased a 4-door apartment building.
Without the consent of the private respondent, the petitioner sub-leased two of the four doors of the apartment to
Rolando Guevarra and Felicisima Estrada for a monthly rental of P350.00 each. Upon learning of the sub-lease,
private respondent through counsel demanded in writing that the petitioner vacate the leased premises (Rollo, Annex
"A", p. 20).
For failure of petitioner to comply with the demand, private respondent filed a complaint for ejectment (Civil Case No.
048908) with the Metropolitan Trial Court of Manila, Branch XII against the petitioner citing as ground therefor the
provisions of Batas Pambansa Blg. 25, Section 5, which is the unauthorized sub-leasing of part of the leased
premises to third persons without securing the consent of the lessor within the required sixty (60)-day period from the
promulgation of the new law (B.P. 25). (Rollo, Petition, p. 8).
After trial, the court a quo rendered its decision ordering petitioner and all persons claiming possession under her (a)
to vacate the premises alluded to in the complaint; (b) to remove whatever improvement she introduced on the
property; (c) to pay private respondent the amount of P2,000.00 as attorney's fees; and (d) to pay the costs (Rollo,
Annex "A", p. 19).
Petitioner appealed the decision to the Regional Trial Court and on November 24, 1980, presiding judge of the RTC,
the Hon. Samilo Barlongay, affirmed in toto the decision of the Metropolitan Trial Court (Rollo, Annex "A", p. 19).
The decision of the Regional Trial Court was appealed to the Court of Appeals for review. The respondent Court of
Appeals rendered its decision dated January 28, 1987, the dispositive portion of which reads as follows:
PREMISES CONSIDERED, the petition not being prima facie meritorious, the same is outright dismissed.
SO ORDERED. (Rollo, Annex "A", p. 21)
Hence, the petition for review on certiorari.
The principal issue in this case is whether or not the lease of an apartment includes a sublease of the lot on which it
is constructed, as would constitute a ground for ejectment under Batas Pambansa BLg. 25.
Petitioner is of the view that Batas Pambansa Blg. 25 is not applicable because what she leased was her own
apartment house which does not include a sublease of the lot she leased from private respondent on which the
apartment is constructed.
Petitioner's contention is untenable.
This issue has already been laid to rest in the case of Duellome v. Gotico (7 SCRA 841 [1963]) where this Court
ruled that the lease of a building naturally includes the lease of the lot, and the rentals of the building includes those
of the lot. Thus:
. . . the lease of a building would naturally include the lease of the lot and that the rentals of the building include the
rentals of the lot.
xxx xxx xxx
Furthermore, under our Civil Code, the occupancy of a building or house not only suggests but implies the tenancy
or possession in fact of the land on which they are constructed. This is not a new pronouncement. An extensive
elaboration of this rule was discussed by this Court in the case of Baquiran, et al., v. Baquiran, et al., 53 O.G. p.
1130.
. . . the Court of Appeals should have found the herein appellees lessees of the house, and for all legal purposes,
of the lot on which it was built as well.
But petitioner insists that the ruling in the aforecited case is not applicable to the case at bar because the former is a
damage suit while the latter is an ejectment case.
Be that as it may, this Court has categorically answered in the affirmative, the principal question, common to both
cases and on which rests the resolution of the issues involved therein. Under the above ruling it is beyond dispute
that petitioner in leasing her apartment has also subleased the lot on which it is constructed which lot belongs to
private respondent. Consequently, she has violated the provisions of Section 5, Batas Pambansa Blg. 25 which is a
ground for Ejectment.
Section 5 of Batas Pambansa Blg. 25 enumerates the grounds for judicial ejectment, among which is the subleasing
of residential units without the written consent of the owner/lessor, to wit:
Se. 5 Grounds for judicial ejectment. Ejectment shall be allowed on the following grounds:
a) Subleasing or assignment of lease of residential units in whole or in part, with the written consent of the
owner/lessor: Provided that in the case of subleases or assignments executed prior to the approval of this Act,
the sublessor/assignor shall have sixty days from the effectivity of this Act within which to obtain the written
approval of the owner/lessor or terminate the sublease or assignment.
Section 2(b) of Batas Pambansa Blg. 25 defines the term residential unit as follows:
Sec. 2. Definition of Terms — Unless otherwise indicated wherever in this Act, the following shall have the
following meaning:
xxx xxx xxx
b. A residential unit — refers to an apartment, house and/or land on which another's dwelling is located used for
residential purposes and shall include not only buildings, parts or units thereof used solely as dwelling places,
except motels, motel rooms, hotels, hotel rooms, boarding houses, dormitories, rooms and bedspaces for rent,
but also those used for home industries, retail stores, or other business purposes if the owner thereof and his
family actually live therein and use it principally for dwelling purposes: . . .
Petitioner argued further that Batas Pambansa Blg. 25 cannot be applied in this case because there is a perfected
contract of lease without any express prohibition on subleasing which had been in effect between petitioner and
private respondent long before the enactment of Batas Pambansa Blg. 25. Therefore, the application of said law to
the case at bar is unconstitutional as an impairment of the obligation of contracts.
It is well settled that all presumptions are indulged in favor of constitutionality; one who attacks a statute, alleging
unconstitutionality must prove its invalidity beyond a reasonable doubt (Victoriano v. Elizalde Rope Workers' Union,
59 SCRA 54 [1974]). In fact, this Court does not decide questions of a constitutional nature unless that question is
properly raised and presented in appropriate cases and is necessary to a determination of the case, i.e., the issue of
constitutionality must be the very lis mota presented (Tropical Homes, Inc. v. National Housing Authority, 152 SCRA
540 [1987]).
In any event, it is now beyond question that the constitutional guaranty of non-impairment of obligations of contract is
limited by and subject to the exercise of police power of the state in the interest of public health, safety, morals and
general welfare (Kabiling, et al. v. National Housing Authority, 156 SCRA 623 [1987]). In spite of the constitutional
prohibition, the State continues to possess authority to safeguard the vital interests of its people. Legislation
appropriate to safeguarding said interest may modify or abrogate contracts already in effect (Victoriano v. Elizalde
Rope Workers' Union, et al., supra). In fact, every contract affecting public interest suffers a congenital infirmity in
that it contains an implied reservation of the police power as a postulate of the existing legal order. This power can
be activated at anytime to change the provisions of the contract, or even abrogate it entirely, for the promotion or
protection of the general welfare. Such an act will not militate against the impairment clause, which is subject to and
limited by the paramount police power (Villanueva v. Castañeda, 154 SCRA 142 [1987]).
Batas Pambansa Blg. 25, "An Act Regulating Rentals of Dwelling Units or of Land On Which Another's Dwelling is
Located and For Other Purposes" shows that the subject matter of the law is the regulation of rentals and is intended
only for dwelling units with specified monthly rentals constructed before the law became effective (Baens v. Court of
Appeals, 125 SCRA 634 [1983]).
Batas Pambansa Blg. 25 is derived from P.D. No. 20 which has been declared by this Court as a police power
legislation, applicable to leases entered into prior to July 14, 1971 (effectivity date of RA 6539), so that the
applicability thereof to existing contracts cannot be denied (Gutierrez v. Cantada, 90 SCRA 1 [1979]).
Finally, petitioner invokes, among others, the promotion of social justice policy of the New Constitution. Like P.D. No.
20, the objective of Batas Pambansa Blg. 25 is to remedy the plight of lessees, but such objective is not subject to
exploitation by the lessees for whose benefit the law was enacted. Thus, the prohibition provided for in the law
against the sublease of the premises without the consent of the owner. As enunciated by this Court, it must be
remembered that social justice cannot be invoked to trample on the rights of property owners, who under our
Constitution and laws are also entitled to protection. The social justice consecrated in our Constitution was not
intended to take away rights from a person and give them to another who is not entitled thereto (Salonga v. Farrales,
105 SCRA 360 [1981]).
WHEREFORE, the Petition is Denied for lack of merit and the assailed decision of the Court of Appeals is Affirmed.
SO ORDERED.
Gutierrez, Jr., Davide, Jr. and Romero, JJ., concur. Feliciano, J., is on leave.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 131359 May 5, 1999
MANILA ELECTRIC COMPANY, petitioner,
vs.
PROVINCE OF LAGUNA and BENITO R. BALAZO, in his capacity as Provincial Treasurer of Laguna,
respondents.
VITUG, J.:
On various dates, certain municipalities of the Province of Laguna, including, Biñan, Sta. Rosa, San Pedro, Luisiana,
Calauan and Cabuyao, by virtue of existing laws then in effect, issued resolutions through their respective municipal
councils granting franchise in favor of petitioner Manila Electric Company ("MERALCO") for the supply of electric
light, heat and power within their concerned areas. On 19 January 1983, MERALCO was likewise granted a
franchise by the National Electrification Administration to operate an electric light and power service in the
Municipality of Calamba, Laguna.
On 12 September 1991, Republic Act No. 7160, otherwise known as the "Local Government Code of 1991," was
enacted to take effect on 01 January 1992 enjoining local government units to create their own sources of revenue
and to levy taxes, fees and charges, subject to the limitations expressed therein, consistent with the basic policy of
local autonomy. Pursuant to the provisions of the Code, respondent province enacted Laguna Provincial Ordinance
No. 01-92, effective 01 January 1993, providing, in part, as follows:
Sec. 2.09. Franchise Tax. — There is hereby imposed a tax on businesses enjoying a franchise, at a rate of fifty
percent (50%) of one percent (1%) of the gross annual receipts, which shall include both cash sales and sales on
account realized during the preceding calendar year within this province, including the territorial limits on any city
located in the province.
On the basis of the above ordinance, respondent Provincial Treasurer sent a demand letter to MERALCO for the
corresponding tax payment. Petitioner MERALCO paid the tax, which then amounted to P19,520.628.42, under
protest. A formal claim for refund was thereafter sent by MERALCO to the Provincial Treasurer of Laguna claiming
that the franchise tax it had paid and continued to pay to the National Government pursuant to P.D. 551 already
included the franchise tax imposed by the Provincial Tax Ordinance. MERALCO, contended that the imposition of a
franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it concerned MERALCO,
contravened the provisions of Section 1 of P.D. 551 which read:
Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all grantees
of franchises to generate, distribute and sell electric current for light, heat and power shall be two per cent (2%)
of their gross receipts received from the sale of electric current and from transactions incident to the generation,
distribution and sale of electric current.
Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized
representative on or before the twentieth day of the month following the end of each calendar quarter or month,
as may be provided in the respective franchise or pertinent municipal regulation and shall, any provision of the
Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes and assessments of
whatever nature imposed by any national or local authority on earnings, receipts, income and privilege of
generation, distribution and sale of electric current.
On 28 August 1995, the claim for refund of petitioner was denied in a letter signed by Governor Jose D. Lina relied
on a more recent law, i.e. Republic Act No. 7160 or the Local Government Code of 1991, than the old decree
invoked by petitioner.
On 14 February 1996, petitioner MERALCO filed with the Regional Trial Court of Sta. Cruz, Laguna, a complaint for
refund, with a prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order, against
the Province of Laguna and also Benito R. Balazo in his capacity as the Provincial Treasurer of Laguna. Aside from
the amount of P19,520,628.42 for which petitioner MERALCO had priorly made a formal request for refund,
petitioner thereafter likewise made additional payments under protest on various dates totaling P27,669,566.91.
The trial court, in its assailed decision of 30 September 1997, dismissed the complaint and concluded:
WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS, JUDGMENT is hereby rendered
in favor of the defendants and against the plaintiff, by:
1. Ordering the dismissal of the Complaint; and
2. Declaring Laguna Provincial Tax Ordinance No. 01-92 as valid, binding, reasonable and enforceable. 2
In the instant petition, MERALCO assails the above ruling and brings up the following issues; viz:
1. Whether the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar
as petitioner is concerned, is violative of the non-impairment clause of the Constitution and Section 1 of
Presidential Decree No. 551.
2. Whether Republic Act No. 7160, otherwise known Local Government Code of 1991, has repealed, amended or
modified Presidential Decree No. 551.
3. Whether the doctrine of administrative remedies is applicable in this case. 3
The petition lacks merit.
Prefatorily, it might be well to recall that local governments do not have the inherent power to tax 4 except to the
extent that such power might be delegated to them either by the basic law or by statute. Presently, under Article X of
the 1987 Constitution, a general delegation of that power has been given in favor of local government units. Thus:
Sec. 3. The Congress shall enact a local government code which shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization with effective mechanisms
of recall, initiative, and referendum, allocate among the different local government units their powers,
responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term,
salaries, powers and functions, and duties of local officials, and all other matters relating to the organization and
operation of the local units.
xxx xxx xxx
Sec. 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes,
fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.
The 1987 Constitution has a counterpart provision in the 1973 Constitution which did come out with a similar
delegation of revenue making powers to local governments. 5
Under regime of the 1935 Constitution no similar delegation of tax powers was provided, and local government units
instead derived their tax powers under a limited statutory authority. Whereas, then, the delegation of tax powers
granted at that time by statute to local governments was confined and defined (outside of which the power was
deemed withheld), the present constitutional rule (starting with the 1973 Constitution), however, would broadly confer
such tax powers subject only to specific exceptions that the law might prescribe.
Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax power must
be deemed to exist although Congress may provide statutory limitations and guidelines. The basic rationale for the
current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them
general and broad tax powers. Nevertheless, the fundamental law did not intend the delegation to be absolute and
unconditional; the constitutional objective obviously is to ensure that, while the local government units are being
strengthened and made more autonomous, 6 the legislature must still see to it that (a) the taxpayer will not be over-
burdened or saddled with multiple and unreasonable impositions; (b) each local government unit will have its fair
share of available resources; (c) the resources of the national government will not be unduly disturbed; and (d) local
taxation will be fair, uniform, and just.
The Local Government Code of 1991 has incorporated and adopted, by and large, the provisions of the now
repealed Local Tax Code, which had been in effect since 01 July 1973, promulgated into law by Presidential Decree
No. 231 7 pursuant to the then provisions of Section 2, Article XI, of the 1973 Constitution. The 1991 Code explicitly
authorizes provincial governments, notwithstanding "any exemption granted by any law or other special law, . . . (to)
impose a tax on businesses enjoying a franchise." Section 137 thereof provides:
Sec. 137. Franchise Tax — Notwithstanding any exemption granted by any law or other special law, the province
may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent
(1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within
its territorial jurisdiction. In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of
one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business
started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction
thereof, as provided herein. (Underscoring supplied for emphasis)
Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax powers to local
government units, the Local Government Code has effectively withdrawn under Section 193 thereof, tax exemptions
or incentives theretofore enjoyed by certain entities. This law states:
Sec. 193. Withdrawal of Tax Exemption Privileges — Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned
or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.
(Underscoring supplied for emphasis)
The Code, in addition, contains a general repealing clause in its Section 534; thus:
Sec. 534. Repealing Clause. — . . .
(f) All general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative
regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby
repealed or modified accordingly. (Underscoring supplied for emphasis) 8
To exemplify, in Mactan Cebu International Airport Authority vs. Marcos, 9 the Court upheld the withdrawal of the real
estate tax exemption previously enjoyed by Mactan Cebu International Airport Authority. The Court ratiocinated:
. . . These policy considerations are consistent with the State policy to ensure autonomy to local governments and
the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their
fullest development as self-reliant communities and make them effective partners in the attainment of national
goals. The power to tax is the most effective instrument to raise needed revenues to finance and support myriad
activities if local government units for the delivery of basic services essential to the promotion of the general
welfare and the enhancement of peace, progress, and prosperity of the people. It may also be relevant to recall
that the original reasons for the withdrawal of tax exemption privileges granted to government-owned and
controlled corporations and all other units of government were that such privilege resulted in serious tax base
erosion and distortions in the tax treatment of similarity situated enterprises, and there was a need for these
entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges
due from them. 10
Petitioner in its complaint before the Regional Trial Court cited the ruling of this Court in Province of Misamis Oriental
vs. Cagayan Electric Power and Light Company, Inc.; 11 thus:
In an earlier case, the phrase "shall be in lieu of all taxes and at any time levied, established by, or collected by any
authority" found in the franchise of the Visayan Electric Company was held to exempt the company from payment
of the 5% tax on corporate franchise provided in Section 259 of the Internal Revenue Code (Visayan Electric Co.
vs. David, 49 O.G. [No. 4] 1385) Similarly, we ruled that the provision: "shall be in lieu of all taxes of every name
and nature" in the franchise of the Manila Railroad (Subsection 12, Section 1, Act No. 1510) exempts the Manila
Railroad from payment of internal revenue tax for its importations of coal and oil under Act No. 2432 and the
Amendatory Acts of the Philippine Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).
The same phrase found in the franchise of the Philippine Railway Co. (Sec. 13, Act No. 1497) justified the
exemption of the Philippine Railway Company from payment of the tax on its corporate franchise under Section
259 of the Internal Revenue Code, as amended by R.A. No. 39 (Philippine Railway Co vs. Collector of Internal
Revenue, 91 Phil. 35).
Those magic words, "shall be in lieu of all taxes" also excused the Cotabato Light and Ice Plant Company from the
payment of the tax imposed by Ordinance No. 7 of the City of Cotabato (Cotabato Light and Power Co. vs. City of
Cotabato, 32 SCRA 231).
So was the exemption upheld in favor of the Carcar Electric and Ice Plant Company when it was required to pay
the corporate franchise tax under Section 259 of the Internal Revenue Code, as amended by R.A. No. 39 (Carcar
Electric & Ice Plant vs. Collector of Internal Revenue, 53 O.G. [No. 4]. 1068). This Court pointed out that such
exemption is part of the inducement for the acceptance of the franchise and the rendition of public service by the
grantee. 2
In the recent case of the City Government of San Pablo, etc., et al. vs. Hon. Bienvenido V. Reyes, et al., 13 the Court
has held that the phrase in lieu of all taxes "have to give way to the peremptory language of the Local Government
Code specifically providing for the withdrawal of such exemptions, privileges," and that "upon the effectivity of the
Local Government Code all exemptions except only as provided therein can no longer be invoked by MERALCO to
disclaim liability for the local tax." In fine, the Court has viewed its previous rulings as laying stress more on the
legislative intent of the amendatory law — whether the tax exemption privilege is to be withdrawn or not — rather
than on whether the law can withdraw, without violating the Constitution, the tax exemption or not.
While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in the
nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are
far from being strictly contractual in nature. Contractual tax exemptions, in the real sense of the term and where the
non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in
contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling
laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental
immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. 14
These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. A
franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the
Constitution. 15 Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and
the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under
the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the
common good so requires.
WHEREFORE, the instant petition is hereby DISMISSED. No costs.
SO ORDERED.
Romero, Panganiban, Purisima and Gonzaga-Reyes, JJ., concur.

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