G.R. No. 230426 & G.R. No. 230476, April 28, 2021
FERNDALE HOMES HOMEOWNERS ASSOCIATION INC., Petitioner, vs. SPOUSES HARLIN CAST ABAYON AND DARYL GRACE ABAYON, Respondents.

[G.R. No. 230476]
SPOUSES HARLIN CAST ABAYON AND DARYL GRACE ABAYON, Petitioners vs. FERNDALE HOMES HOMEOWNERS ASSOCIATION INC., Respondent.

FACTS

Spouses Harlin Cast Abayon and Daryl Grace Abayon (Spouses Abayon) acquired several lots in the Ferndale Homes subdivision. As lot owners, they became members of the Ferndale Homes Homeowners Association Inc. (FHHAI) and were required to pay association dues, including dues that had accrued prior to their acquisition of Lots 1, 3, 4, and 5. FHHAI also charged them 24% interest per annum and an 8% penalty per annum for late payment. The Spouses Abayon paid these amounts under protest.
In December 2013, the Spouses Abayon filed a complaint with the Housing and Land Use Regulatory Board (HLURB) against FHHAI for sum of money and damages. They sought reimbursement for association dues paid that accrued prior to their ownership of the lots and contested the imposition of the 24% interest and 8% penalty rates as excessive and unconscionable.
The HLURB Arbiter ruled in favor of the Spouses Abayon, ordering FHHAI to reimburse the pre-acquisition dues and the excess interests and penalties paid, reducing the interest rate to 6% per annum, deleting the 8% penalty, and awarding damages and attorney’s fees. The HLURB Board of Commissioners initially denied FHHAI’s appeal due to procedural defects in its surety bond.
The Court of Appeals reversed the HLURB ruling. It held the Spouses Abayon liable for all assessed dues, including those accruing before their acquisition, finding that unpaid assessments constituted liens on the property which they assumed. It also upheld FHHAI’s authority to impose interest and penalties but reduced the rates to 12% interest per annum and 6% penalty per annum. It deleted the award of damages and attorney’s fees. Both parties filed motions for reconsideration, which were denied.

ISSUE

1. Whether the Court of Appeals erred in finding the Spouses Abayon liable for association dues that accrued prior to their acquisition of the subject lots.
2. Whether the Court of Appeals erred in upholding, albeit at reduced rates, FHHAI’s imposition of interest and penalty charges for late payment of association dues.
3. Whether the Court of Appeals erred in deleting the award of exemplary damages and attorney’s fees.

RULING

The Supreme Court denied the petitions and affirmed the Decision and Resolution of the Court of Appeals.
1. On liability for pre-acquisition dues: The Spouses Abayon are liable. The Deed of Restrictions for Ferndale Homes, which binds all lot owners and their successors, explicitly provides that unpaid assessments constitute a lien on the lot. This lien runs with the land. Therefore, when the Spouses Abayon acquired the lots, they took them subject to this encumbrance and assumed the obligation to pay the delinquent dues of the previous owners. The absence of annotation on the title does not invalidate the lien created by the contractual Deed of Restrictions.
2. On interest and penalty charges: FHHAI has the authority to impose reasonable charges for late payment under its bylaws and pursuant to Republic Act No. 9904 (Magna Carta for Homeowners). The original rates of 24% interest and 8% penalty per annum were excessive and unconscionable. The Court of Appeals correctly reduced them to 12% interest per annum and 6% penalty per annum, which are reasonable and serve as a permissible deterrent against delinquency.
3. On exemplary damages and attorney’s fees: The award was correctly deleted. Exemplary damages are awarded only when the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. FHHAI’s act of collecting dues pursuant to its bylaws and the Deed of Restrictions was done in good faith and in the exercise of its rights. Attorney’s fees are also not warranted as the Spouses Abayon failed to prove that FHHAI acted in bad faith. The Court of Appeals has the authority to review and modify awards made by the HLURB, even if not specifically assailed on appeal.
The case was remanded to the HLURB for the appropriate computation of the reimbursable amounts representing the excess interest and penalty paid by the Spouses Abayon over the reduced rates.