G.R. No. L-33794 May 31, 1982
MANILA ELECTRIC COMPANY, petitioner, vs. COURT OF APPEALS and PEDRO J. VELASCO, respondents.

FACTS

Respondent Pedro J. Velasco purchased three lots from the People’s Homesite and Housing Corporation (PHHC) in 1948. The deed of sale contained a restrictive covenant limiting the use of the property exclusively to residential purposes, with a stipulation that violation would entitle PHHC to rescind the contract, cancel the title, and repossess the property. This condition was annotated on Velasco’s title. In 1952, Velasco sold two of these lots to petitioner Manila Electric Company (MERALCO). The following year, MERALCO constructed an electric substation on the property.
In 1955, Velasco filed a complaint (the Nuisance Case) against MERALCO, seeking the abatement of a nuisance due to noise and ground electrification from the substation. The Supreme Court ultimately ordered MERALCO to either transfer the substation or reduce its noise. Meanwhile, in 1957, Velasco instituted a separate action (the Cancellation Case) seeking rescission of the sale to MERALCO and recovery of rentals, alleging that the substation’s industrial use violated the residential restriction from the original PHHC deed. The trial court dismissed this, finding a splitting of a cause of action, but the Court of Appeals reversed, holding the causes of action were distinct.

ISSUE

Whether Velasco, as the original vendee from PHHC and subsequent seller to MERALCO, has a personal right of action to seek rescission of the sale to MERALCO and cancellation of MERALCO’s title based on the violation of the residential use covenant imposed by PHHC.

RULING

No. The Supreme Court reversed the Court of Appeals and ordered the dismissal of the Cancellation Case. The legal logic rests on two primary grounds. First, the right of action based on the violation of the restrictive covenant belongs solely to PHHC, not to Velasco. The covenant was imposed by PHHC in its contract with Velasco. The stipulated remedy for violation was explicitly granted to the “vendor” (PHHC), entitling it to rescind its own contract with Velasco and to seek cancellation of the resulting title. Since Velasco had already sold the property to MERALCO, PHHC’s redress would be a direct action against MERALCO, the current titleholder, for cancellation and repossession. Velasco suffered no damage from the violation as he had already received the purchase price; any damage would be borne by MERALCO. Therefore, Velasco lacks a personal cause of action to enforce the PHHC-imposed restriction against his transferee.
Second, the principle of estoppel by judgment, a facet of res judicata, bars Velasco’s claim. By instituting the prior Nuisance Case, which sought only the abatement of the nuisance and not the removal of the substation itself, Velasco tacitly conceded that MERALCO had the right to establish and maintain the substation on the property. He is now estopped from taking the contradictory position that the very establishment of the substation violated the covenant. To allow the Cancellation Case to proceed would lead to the absurd procedural result where a subordinate court (the Court of Appeals) could effectively nullify a final Supreme Court decision (in the Nuisance Case) that permitted the substation to remain subject to noise abatement.