488 Phil. 87


[ G.R. No. 126260, December 16, 2004 ]




This is a petition for review on certiorari of the decision[1] of the Court of Appeals dated August 30, 1996 which affirmed in toto the decision[2] of the Regional Trial Court of Makati, Branch 60, dated November 5, 1990.

Private respondent Makati Commercial Estate Association, Inc. (formerly Ayala Commercial Estate Association) is an association of all real estate owners and long-term lessees of parcels of land located in the Makati commercial area. Pursuant to its Articles of Incorporation, the members of private respondent are assessed association dues annually, subject to penalty and interest in case of default. On July 25, 1973, by virtue of two duly notarized deeds of absolute sale, petitioner South Pachem Development, Inc. purchased from Ayala Corporation two adjoining parcels of land, designated as Lots Nos. 7 and 8, Block No. 5, located at Legaspi Village, Makati. Subparagraph (1) of paragraph (A) of the deed restrictions, which was duly annotated in the titles of the property and annexed to the two deeds, provides that:
  1. The owner of this lot or his successor-in-interest is required to be and is automatically a member of the [Makati Commercial Estate Association, Inc.] or any other Association which may be formed or to which the area may be affiliated for the purpose, and must abide by the rules and regulations laid down by the Association in the interest of security, maintenance, beautification and the general welfare of the area. The Association will also provide for and collect assessments which will constitute 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, PROVIDED that SCHOOLS, CHURCHES, other RELIGIOUS institutions and buildings for public use are exempt from the payment of Association dues.[3]
In 1984, petitioner stopped paying its association dues, including the interest and penalty, to private respondent. According to petitioner, it realized that private respondent was not really performing the services it promised to perform, e.g., collection of garbage and the maintenance of roads and ensuring the peace and order situation of the area, which are being undertaken by the city government of Makati. It claimed that the payment of association fees for forty seven (47) years amounts to a perpetual imposition upon a member of private respondent (as an association) which therefore makes it illegal.

On June 16, 1988, private respondent filed a complaint against petitioner in the Regional Trial Court of Makati, Branch 60, for collection of a sum of money arising from the latter’s non-payment of association dues. In its answer, the petitioner admitted that it was aware of the provisions in the deed restrictions, but questioned its legality for being contrary to morals, public policy, good customs, and the Constitution, as these constituted a perpetual burden on the property and the purchaser would be deprived of the use of the property without due process of law.

Meanwhile, on May 10, 1989, petitioner sought leave of court to file a third party complaint against China Banking Corporation allegedly for having assumed the liability of petitioner by virtue of a compromise agreement, dated May 27, 1988, in a separate civil case which was executed a month prior to the filing of the civil case. The trial court denied the motion. On November 5, 1990, the trial court rendered a decision in favor of the private respondent. The dispositive portion thereof reads:
WHEREFORE, the Court hereby renders judgment as follows:

The defendant SOUTH PACHEM DEVELOPMENT, INC. is ordered to pay the plaintiff MAKATI COMMERCIAL ESTATE ASSOCIATION, INC. the following:
P165,031.00 – The defendant’s unpaid dues and interest thereon from 1984 to 1988.

Six (6) percent of P165,031.00 – Annually from June 16, 1988 until the principal amount is fully paid, as damages.

Three (3) percent of P165,031.00 compounded monthly from January 1, 1989 until the amount is fully paid – As interest and penalty charges pursuant to Exh. E.

P19,755.00 – Annually from January 1, 1989 until it ceases to be a member of the plaintiff as annual dues.

The unpaid annual dues from January 1, 1989 shall bear an interest of three (3) percent per month; this interest is compounded monthly.

P10,000.00 – As attorney’s fees.

The counterclaim is DISMISSED; and

Cost is taxed against the defendant.[4]
On appeal, the Court of Appeals affirmed the decision of the trial court. Hence, this petition.

Petitioner challenges the validity of the stipulation in the deed restrictions, as annexed to the two deeds of absolute sale, which states that the buyer of a property shall pay the association dues for a period of 47 years commencing from the date of purchase. It maintains that the period of 47 years constitutes a restriction on its right to enjoy and dispose of the property under Article 428 of the Civil Code as the non-payment of the association dues would constitute a lien on the subject property. Petitioner also mentions that under paragraph (D) of the deed restrictions, in the event of a breach of any of the special conditions, private respondent shall have the right to rescind the sale without the necessity of giving notice to the petitioner; return the payments it received less whatever expenses incurred; and dispose of the property to any other person.

D. RESCISSION AND CANCELLATION: The breach of any of the herein special conditions, terms, restrictions, reservations and stipulations of sale by the VENDEE shall cause the cancellation and rescission of this sale without necessity of notice to the VENDEE or of any judicial declaration to that effect, and any amount paid on account of the lot shall be reimbursed to the VENDEE by the VENDOR minus expenses, if any, of the execution and registration of the corresponding instrument of rescission, real estate broker’s commission, if any, and any unpaid charges on the property, and the VENDEE shall remove within SIXTY DAYS any and all improvements placed or introduced in the lot to dispose of and sell said parcel of land to any other person in the same manner as if this contract had never been executed or entered into.[5]
Private respondent, on the other hand, contends that the deed restrictions is a valid limitation on petitioner’s right of ownership. It adds that even assuming that the deed restrictions amounted to a limitation on petitioner’s use and enjoyment over the subject properties, the same was voluntarily entered into with petitioner’s consent.

The petition has no merit.

To begin with, it is undisputed that petitioner South Pachem Development, Inc. purchased from Ayala Corporation two adjoining parcels of land, designated as Lots Nos. 7 and 8, Block No. 5, located in Legaspi Village, Makati. The deed restrictions, duly annotated on the titles, was incorporated in the contract of sale. The deed restrictions provided, among others, that a buyer or his successor-in interest automatically becomes a member of the private respondent as an association and enjoined compliance with its rules and regulations for the security, maintenance, beautification, and general welfare of the land owners. Assessments collected by the private respondent would constitute a lien on the subject property. The deed restrictions is a valid agreement freely and voluntarily agreed upon between the petitioner and private respondent. When an agreement between the parties has been forged, such contract becomes the law between the parties and each one is bound to comply therewith.

This Court emphasizes that under the principle of estoppel, petitioner is precluded from denying the validity of the transaction it had earlier freely and voluntarily entered into with private respondent. It shall not be allowed to disavow or repudiate a valid agreement at this late stage with regard to the provisions of the deed restrictions after having paid its association dues from 1973 to 1984. As the Court of Appeals rightly stated, the petitioner is guilty of “estoppel by acquiescence.” Petitioner’s inaction for the past 11 years effectively forecloses its right to question the perceived infirmity in an agreement which it had mutually entered into with the private respondent. In this regard, petitioner’s acceptance of the terms of the contract without any dissent raises the presumption that all the terms therein were brought to its knowledge and duly agreed upon. It is thus estopped from later denying that it had assented to the terms.[6] In view of its acquiescence, the petitioner is now barred from challenging the same under the principle that “one who sleeps on his rights shall not be heard to complain.”[7]

Even assuming that the fact of estoppel be not considered, the stipulation in the deed restrictions, with regard to the membership of a lot owner to the association and the payment of the fees, remains to be valid and binding between the petitioner and respondent for the following reasons:

First. The provision in the deed restrictions which required a purchaser of a parcel of land located in the Makati area to pay association fees is a valid stipulation. A case in point is Bel Air Village Association, Inc. v. Dionisio[8] where the village association filed a complaint for collection of the association dues and also claimed for penalty and other charges. The Court affirmed the rule that an annotation to the effect that the lot owner becomes an automatic member of the village association and must abide by such rules and regulations laid down by said association was a valid restraint on one’s ownership over the property as the same was for the interest of the sanitation, security and the general welfare of the community.

In Cariday Investment Corporation v. Court of Appeals,[9] it was recognized that residents and lot owners in the subdivision automatically become members of the Forbes Park Association and are bound by its rules and regulations stipulated in the “deed of restrictions.” A provision in the “deed of restrictions” annotated at the back of the certificate of title of a lot owner in the Forbes Park Subdivision required the owner to use his lot for residential purposes and stated that not more than one single family residential building will be constructed thereon; that the property would be subject to an easement of two meters within the lot and adjacent to the rear and two sides thereof for the purpose of drainage, sewerage water and other public facilities as may be necessary and desirable; and that additional restrictions, reservations, or servitudes as the association may, from time to time, adopt and prescribe would be for a period of fifty (50) years from January 1, 1949. Therein petitioner allowed the occupancy by two families, thereby violating the “single-family residential building restriction.” This Court declared that the purpose of the restriction is valid as it avoids overcrowding both in the houses and in the subdivision which would result in pressure upon the common facilities such as water, power and telephone connections; accelerate the deterioration of the roads; and create problems of sanitation and security in the subdivision. Likewise, the restrictions were for aesthetic consideration and for the preservation of the peace, beauty, tranquility, and serenity of living at Forbes Park.

Second. Petitioner insists that since the parties had no deliberate intent to clothe private respondent with the authority to impose fees for a period of 47 years at the time the contract was executed, it cannot make such imposition which partakes of a stipulation pour autrui.

The contention is untenable. The second paragraph of Article 1311 of the Civil Code explains that if a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. Accordingly, to sustain the theory of the petitioner would result in a modification of what the parties had expressly agreed to be bound. The imposition of the association fees in the deed restrictions cannot be regarded as a stipulation pour autrui clearly and deliberately conferred upon private respondent. What was clearly stated in the contract of sale between them is that upon purchase by the petitioner of the two parcels of land (Lots Nos. 7 and 8, Block No. 5, located in Legaspi Village, Makati), it automatically becomes a member of private respondent and is thus bound to comply with the rules and regulations thereof. Additionally, the assessments collected by the private respondent would constitute a lien on the properties of the petitioner. Nowhere can it be inferred that there was a stipulation pour autrui in favor of private respondent.

The case of Bel Air Village Association, Inc. v. Dionisio,[10] which had the same issues involved, explained that when therein private respondent voluntarily bought the subject parcel of land, it was understood that it took the same free from all encumbrances except the notations at the back of the certificate of title, among which was, that it automatically becomes a member of therein petitioner. The dues collected are intended for garbage collection, salary of security guards, cleaning and maintenance of streets and street lights, establishment of parks, and other community projects for the benefit of all residents within the Bel Air Village. These expenses are necessary, valid, and reasonable for the community.

Simply put, the requisites of a stipulation pour autrui or a stipulation in favor of a third person are the following: (1) there must be a stipulation in favor of a third person, (2) the stipulation must be a part, not the whole, of the contract, (3) the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or interest, (4) the third person must have communicated his acceptance to the obligor before its revocation, and (5) neither of the contracting parties bears the legal representation or authorization of the third party.[11] These requisites are not present in this case.

Third. Petitioner makes much of the fact that the deed restrictions partake of the nature of a contract of adhesion wherein a party to the agreement would be subjected to an onerous financial imposition for 47 years which in effect would curtail its freedom to enter into contracts without restraint as set forth in Article 1306 of the Civil Code[12] and Sections 1[13] and 8[14] of Article III of the Constitution.

A contract of adhesion is defined as one where one of the parties imposes a ready-made form of contract which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. These types of contracts have nonetheless been declared as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely.[15] Thus, such agreement is not per se inefficacious. Corollarily, should there be any ambiguity in a contract of adhesion, such ambiguity is to be construed against the party who prepared it. If, however, the stipulations are not obscure, but are clear and leave no doubt on the intention of the parties, the literal meaning of its stipulations must be held controlling.[16] To reiterate, contracts of adhesion are not prohibited even as the courts remain careful in scrutinizing the factual circumstances and the situation of the parties concerned in the case to determine the respective claims of contending parties on their efficacy and enforceability.[17] When petitioner purchased the subject properties in Makati, the deed restrictions were made an addendum or supplement to the two deeds of absolute sale. The deed restrictions were pre-printed and duly annotated on the titles corresponding to the parcels of land purchased and petitioner, through its duly authorized representative, affixed its signature thereto. The stipulations were plain and unambiguous which leave no room for interpretation. As such, petitioner was presumed to have full knowledge and to have acted with due care or, at the very least, to have been aware of the terms and conditions of the contract and that it had actually assented to the stipulations as there was never any objection interposed prior to the actual purchase of the subject property.

Nothing in this Decision forecloses the right of petitioner, as member of the association, from asking for an accounting of the funds of said association and/or the disposition of the dues collected by it for the avowed purposes stated the deed restrictions, as even, in the event that, as petitioner now contends, the association in fact no longer performs the aforesaid services, from the petitioner’s filing an appropriate complaint for specific performance or the rescission of the agreement and/or the deed restrictions for non-performance of the corresponding obligation thereunder.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is AFFIRMED. Costs against petitioner.


Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Carpio, JJ., concur.

[1] CA – G.R. No. CV No. 42224. Penned by Associate Justice Jose C. De La Rama and concurred in by Associate Justices Emeterio Cui (Chairman, Seventh Division) and Eduardo G. Montenegro.

[2] Civil Case No. 88 – 1126, entitled “Makati Commercial Estate Association, Inc. v. South Pachem Development, Inc.

[3] Rollo, pp. 25-26.

[4] Rollo, pp. 24-25.

[5] Rollo, p. 20.

[6] See Magellan Manufacturing Marketing Corp. v. Court of Appeals, 201 SCRA 102 (1991).

[7] See Allied Broadcasting Center, Inc. v. Republic, 190 SCRA 782 (1990).

[8] 174 SCRA 589 (1989).

[9] 176 SCRA 31 (1989).

[10] Supra, note 8.

[11] See Uy v. Court of Appeals, 314 SCRA 69 (1999); Young v. Court of Appeals, 169 SCRA 213 (1989); Marmont Resort Hotel Enterprises v. Guiang, 168 SCRA 373 (1988).

[12] Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

[13] Sec. 1 of Art. III: No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws.

[14] Sec. 8 of Art. III: The right of the people, including those employed in the public and private sectors, to form unions, associations, or societies for purposes not contrary to law shall not be abridged.

[15] Provident Insurance Corp. v. Court of Appeals, 419 SCRA 480 (2004); Philippine Commercial International Bank v. Court of Appeals, 325 Phil. 588 (1996); Ayala Corporation v. Ray Burton Development Corp., 294 SCRA 48 (1998) citing Ong Yiu v. Court of Appeals, et al., 91 SCRA 223 (1979).

[16] Pilipino Telephone Corporation v. Delfino Tecson, G.R. No. 156966, May 7, 2004 citing RCBC v. Court of Appeals, 305 SCRA 449 (1999); Lufthansa German Airlines v. Court of Appeals, 208 SCRA 708 (1992).

[17] Pilipino Telephone Corporation v. Delfino Tecson, ibid; Ayala Corporation v. Ray Burton Development Corp., supra, note 15.

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