G.R. No. L-24670 December 14, 1979
ORTIGAS & CO., LIMITED PARTNERSHIP, plaintiff-appellant, vs. FEATI BANK AND TRUST CO., defendant-appellee.

FACTS

Ortigas & Co., a real estate developer, sold subdivision lots to vendees under agreements containing a restrictive covenant limiting land use exclusively to residential purposes. This covenant was annotated on the titles. The vendees eventually transferred their rights to Emma Chavez, and upon full payment, Ortigas executed deeds of sale in her favor, which contained the same residential-use restriction. The lots were later acquired by Feati Bank, with the restrictive covenant still annotated on the transfer certificates of title. Subsequently, the Municipal Council of Mandaluyong enacted Resolution No. 27, s. 1960, declaring the area along Epifanio de los Santos Avenue, where the lots are located, as a commercial and industrial zone.
Feati Bank began constructing a bank building on the lots. Ortigas demanded the cessation of construction, invoking the annotated residential restriction. Feati Bank refused, asserting it had secured the necessary building permits from the municipality and that the municipal resolution reclassifying the zone prevailed over the private covenant. Ortigas filed a complaint seeking to enforce the restriction and enjoin the commercial construction.

ISSUE

Whether the municipal zoning resolution, enacted under the state’s police power, prevails over and renders unenforceable the private contractual restriction on land use annotated on the titles.

RULING

Yes, the municipal zoning resolution prevails. The Supreme Court affirmed the trial court’s dismissal of the complaint. The legal logic rests on the supremacy of the state’s police power over private contractual agreements. Police power is an inherent attribute of sovereignty exercised for the public welfare, encompassing regulations promoting health, morals, peace, education, good order, safety, and the general prosperity of the people. Zoning ordinances, such as Resolution No. 27, are classic exercises of this power, designed to regulate land use for the orderly development of communities and the common good.
While restrictive covenants in deeds are valid and enforceable as property rights, they operate subject to the superior authority of the state. Non-compliance with a zoning ordinance cannot be excused by the existence of a prior private agreement. To hold otherwise would allow private individuals to contravene public law and frustrate the state’s regulatory objectives for community planning and development. The Court emphasized that private interests must yield to the general welfare when the state legitimately exercises its police power. Consequently, the conversion of the area into a commercial zone via the valid municipal resolution rendered the residential restriction ineffective and unenforceable against Feati Bank’s commercial use, which complied with the new zoning classification. The decision underscores that property rights and contracts are held subject to reasonable public regulation.