G.R. No. 222897 & G.R. No. 223241, February 22, 2023
Sta. Lucia Realty and Development, Incorporated, Petitioner, vs. Edsel B. Lumawag, AFP Retirement and Separation Benefits System, and Lourdes Pearce, Respondents. [G.R. No. 223241] AFP Retirement and Separation Benefits System, Petitioner, vs. Edsel B. Lumawag, Lourdes Pearce, and Sta. Lucia Realty and Development, Incorporated, Respondents.

FACTS

In August 1991, the AFP Retirement and Separation Benefits System (AFP Retirement System) sold a 240-square meter lot (Lot 20) in Citadella Subdivision, Las Piñas City to Edsel B. Lumawag. After Edsel completed payment, AFP Retirement System failed to execute the final deed of sale, deliver the title, and turn over possession. Edsel discovered that Lourdes Pearce, owner of the adjoining Lot 21, had constructed her house encroaching on a 20-square meter portion of his lot. Edsel sued AFP Retirement System and Lourdes for delivery of title, transfer of possession, and damages. AFP Retirement System admitted the failure to execute the deed was due to the re-mapping necessitated by Lourdes’s encroachment and suggested a lot exchange as a resolution. Lourdes claimed she built in good faith relying on Sta. Lucia Realty’s (the subdivision developer) relocation survey and approved construction permit. She filed a third-party complaint against Sta. Lucia Realty, which denied liability, asserting Lourdes failed to exercise due diligence. The HLURB ruled in favor of Edsel, ordering AFP Retirement System to deliver the title to Lot 20 (or Lot 21 if exchanged) and pay damages; holding Lourdes, as a builder in good faith but partly at fault, liable for damages to Edsel; and holding Sta. Lucia Realty liable for damages to Lourdes for negligence. The HLURB Board of Commissioners and the Office of the President affirmed. The Court of Appeals largely affirmed but modified the interest rate on the area refund. AFP Retirement System and Sta. Lucia Realty filed separate petitions before the Supreme Court.

ISSUE

The primary issues involve determining the liabilities of the parties: (1) Whether AFP Retirement System is liable for damages to Edsel for its failure to fulfill its contractual obligations; (2) Whether Lourdes is a builder in good faith or bad faith; and (3) Whether Sta. Lucia Realty is liable for negligence to Lourdes.

RULING

The Supreme Court denied the petitions and affirmed the Court of Appeals’ Decision with modifications.
1. Liability of AFP Retirement System: The Court affirmed AFP Retirement System’s liability to Edsel for damages. As the seller, it breached its obligation to deliver the property in the condition described in the contract (240 sqm) and failed to protect Edsel’s rights when the encroachment was discovered. Its actions constituted gross negligence, warranting the award of moral and exemplary damages and attorney’s fees.
2. Status of Lourdes as Builder: The Court affirmed that Lourdes was a builder in good faith. She constructed her house relying on a valid relocation survey from Sta. Lucia Realty and a duly issued construction permit. Her immediate actions to rectify the error upon discovery demonstrated good faith. However, she was concurrently negligent for not updating her 1993 survey and ignoring the developer’s memorandum to consult before building, making her liable for nominal damages to Edsel under Article 456 of the Civil Code.
3. Liability of Sta. Lucia Realty: The Court affirmed Sta. Lucia Realty’s liability to Lourdes for damages based on quasi-delict. As the subdivision developer, it had the duty to ensure accurate lot demarcations. Its negligence in providing an erroneous relocation survey and approving construction plans based on it was the proximate cause of Lourdes building on the wrong lot. The award of moral and exemplary damages and attorney’s fees was proper.
4. Remedy for Encroachment: The Court upheld the HLURB’s directive giving Edsel the option under Article 448 of the Civil Code: either (a) appropriate the encroaching portion of Lourdes’s house after paying indemnity, or (b) compel Lourdes to pay the price of the encroached land. If the land value is considerably more, Lourdes must pay reasonable rent.
The Court modified the awards by deleting the moral damages imposed on Lourdes in favor of Edsel, substituting it with nominal damages of P30,000, and reducing the attorney’s fees awarded to Edsel against AFP Retirement System from P30,000 to P20,000.