SECOND DIVISION

January 18, 2017

G.R. No. 211175
ATTY. REYES G. GEROMO, FLORENCIO BUENTIPO, JR., ERNALDO
YAMBOT and LYDIA BUSTAMANTE, Petitioners,
vs.
LA PAZ HOUSING AND DEVELOPMENT CORPORATION and
GOVERNMENT SERVICE INSURANCE SYSTEM, Respondents.
DECISION
MENDOZA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court assailing the September 26, 2013 Decision 1 and the January
29, 2014 Resolution2 of the Court of Appeals (CA), in CA-G.R. SP No. 123139,
which affirmed the January 11, 2012 Decision 3 of the Office of the
President (OP), dismissing the action for damages filed by the petitioners
before the Housing and Land Regulatory Board (HLURB) against La Paz
Housing and Development Corporation (La Paz) and the Government Service
Insurance System (GSIS), on the ground of breach of warranty against hidden
defects.
The Antecedents
Petitioners Atty. Reyes G. Geromo (Geromo), Florencio Buentipo,
Jr. (Buentipo), Ernaldo Yambot (Yambot), and Lydia
Bustamante (Bustamante) acquired individual housing units of Adelina 1-A
Subdivision (Adelina) in San Pedro, Laguna from La Paz, through GSIS
financing, as evidenced by their deeds of conditional sale. 4 The properties
were all situated along the old Litlit Creek.
In 1987, Geromo, Bustamante and Yambot started occupying their respective
residential dwellings, which were all located along Block 2 (Pearl Street) of
the said subdivision. Buentipo, on the other hand, opted to demolish the
turned-over unit and build a new structure thereon. After more than two (2)
years of occupation, cracks started to appear on the floor and walls of their
houses. The petitioners, through the President of the Adelina 1-A
Homeowners Association, requested La Paz, being the owner/developer, to
take remedial action. They collectively decided to construct a riprap/retaining
wall along the old creek believing that water could be seeping underneath the
soil and weakening the foundation of their houses. Although La Paz was of the
view that it was not required to build a retaining wall, it decided to give the
petitioners ₱3,000.00 each for expenses incurred in the construction of the
said riprap/retaining wall. The petitioners claimed that despite the retaining
wall, the condition of their housing units worsened as the years passed. When
they asked La Paz to shoulder the repairs, it denied their request, explaining
that the structural defects could have been caused by the 1990 earthquake
and the renovations/improvements introduced to the units that overloaded
the foundation of the original structures.
In 1998, the petitioners decided to leave their housing units in Adelina. 5
In May 2002, upon the request of the petitioners, the Municipal Engineer of
San Pedro and the Mines and Geosciences Bureau (MGB) of the Department
of Environment and Natural Resources (DENR) conducted an ocular
inspection of the subject properties. They found that there was "differential
settlement of the area where the affected units were constructed. "6
On the basis thereof, Geromo filed a complaint for breach of contract with
damages against La Paz and GSIS before the HLURB. 7 On May 3, 2003,
Buentipo, Yambot and Bustamante filed a similar complaint against La Paz
and GSIS. 8 They all asserted that La Paz was liable for implied warranty
against hidden defects and that it was negligent in building their houses on
unstable land. Later on, the said complaints were consolidated.
La Paz, in its Answer, averred that it had secured the necessary permits and
licenses for the subdivision project; that the houses thereon were built in
accordance with the plans and specifications of the National Building Code
and were properly delivered to the petitioners; that it did not violate
Presidential Decree (P.D.) No. 957 as it was issued compliance documents,
such as development permits, approved alteration plan, license to sell, and
certificate of completion by HLURB; that the Philippine Institute of
Volcanology and Seismology (PHILVOLCS), based on the serial photo
interpretation of its field surveyors in 1996, reported that a portion of the
topography of the subdivision developed an active fault line; and lastly, that
there were unauthorized, irregular renovation/alteration and additional
construction in the said units. Hence, it argued that it should not be held
liable for any damage incurred and that the same should be for the sole
account of the petitioners.9
In its defense, GSIS moved for the dismissal of the complaint for lack of cause
of action. It asserted that the deeds of conditional sale were executed
between La Paz and the petitioners only and that its only participation in the
transactions was to grant loans to the petitioners for the purchase of their
respective properties. 10
The Decision of the HLURB Arbiter
In its August 9, 2004 Decision, 11 the HLURB Arbiter found La Paz liable for the
structural damage on the petitioners' housing units, explaining that the
damage was caused by its failure to properly fill and compact the soil on
which the houses were built and to maintain a three (3) meter easement from
the edge of the creek as required by law. As to GSIS, the HLURB ruled that
there was no cogent reason to find it liable for the structural defects as it
merely facilitated the financing of the affected units. The decretal portion of
the decision of the HLURB Arbiter reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1) Ordering respondent La Paz Housing and Dev't. Corp. to immediately
undertake and cause the necessary repairs/ construction of the subject units
to make it suitable for human habitation for which it was originally intended
for;
2) In the alternative, if it is no longer possible for the said units to be repaired
to make it suitable for human habitation, respondent LPHDC is hereby
ordered to give each complainant a substitute property of the same nature
and area, more or less, within the subdivision project or in any project owned
and developed by LPHDC within the vicinity of San Pedro, Laguna;
3) Ordering respondent LPHDC to pay complainants:
a. the equivalent sum of what each complainant may prove by documentary
evidence such as receipts and the like, as actual damages;
b. the sum of ₱15,000.00 each as moral damages;
c. the sum of ₱10,000.00 each as exemplary damages;
d. the sum of ₱10,000.00 as attorney's fees.;
e. cost of suit.
SO ORDERED.12
The Decision of the HLURB
Board of Commissioners
In its September 12, 2005 Decision, 13 the HLURB Board of Commissioners set
aside the Arbiter's decision, explaining that there was no concrete evidence
presented to prove that the houses of the petitioners were indeed damaged
by the failure of La Paz to comply with the building standards or easement
requirements.
The petitioners moved for reconsideration, but the HLURB Board of
Commissioners denied their motion in its Resolution, 14 dated January 31,
2006.
The Decision of the OP
Aggrieved, the petitioners elevated the case to the OP which initially
dismissed the appeal on December 18, 2006 for late filing. 15 The petitioners
questioned the dismissal before the CA and, in its Decision, 16 dated March
31, 2009, the appellate court reversed the resolution of the OP and ordered
the latter to resolve the appeal on the merits.
On January 11, 2012, the OP finally rendered a decision dismissing the appeal
for lack of merit. It found that on the culpability of La Paz, the petitioners
merely relied on the report submitted by the team that conducted the "ocular
inspection" of the subject properties. It wrote that "[w]hat is visual to the eye,
though, is not always reflective of the real cause behind. xxx other than the
ocular inspection, no investigation was conducted to determine the real
cause of damage on the housing units." According to the OP, the petitioners
"did not even show that the plans, specifications and designs of their houses
were deficient and defective." It concluded that the petitioners failed to show
that La Paz was negligent or at fault in the construction of the houses in
question or that improper filing and compacting of the soil was the proximate
cause of damage. 17
The CA Decision
Not in conformity, the petitioners appealed the OP decision, dated January
11, 2012, before the CA. On September 26, 2013, the CA affirmed the ruling
of the OP and found that the petitioners had no cause of action against La Paz
for breach of warranty against hidden defects as their contracts were merely
contracts to sell, the titles not having been legally passed on to the
petitioners. It likewise ruled that La Paz could not be held liable for damages
as there was not enough evidence on record to prove that it acted
fraudulently and maliciously against the petitioners. 18
On January 29, 2014, the CA denied the motion for reconsideration 19 filed by
the petitioners.
Hence, the present petition raising the following
ISSUES
The CA gravely erred in the issuance of the assailed Decision and challenged
Resolution which affirmed in toto the Decision of the O.P. [dismissing the
petition for lack of merit] despite the conclusive:
A. Findings of the MGB, DENR, Engineer's Office, San Pedro, Laguna and
HLURB Director that petitioners' housing are unfit for human habitation.
Hence, they are entitled to the protective mantle of PD 957 which was
enacted to protect the subdivision lot buyers against the commission of fraud
or negligence by the developer/contractor like La Paz.
B. The contractual relationship between the parties is not governed by
Articles 1477 or 1478, the New Civil Code as the correct issue is the liability
of La Paz as the contractor/developer to the petitioners' housing units
declared by government agencies unfit for human habitation. What governs
are Art. 2176 in relation to Art. 1170, 1173 and Art. 19 in relation to Art. 20
and Art. 21, the Civil Code of the Philippines.
C. La Paz is liable for warranty against hidden defects when it sold to the
petitioners the housing units declared unfit for human habitation. La Paz's
defense of force majeure will not lie.
D. GSIS' privity to the Contract (Deed of Conditional Sale) executed by and
between the petitioners and La Paz for the housing loans which it financed
makes it jointly and severally liable for the petitioners' defective housing
units.20
The central issue in this case is whether La Paz should be held liable for the
structural defects on its implied warranty against hidden defects.
The petitioners assert that La Paz was grossly negligent when it constructed
houses over a portion of the old Litlit Creek. They claim that La Paz merely
covered the old creek with backfilled materials without properly compacting
the soil.21 They argue that they, or any buyer for that matter, could not have
known that the soil beneath the cemented flooring of their housing units were
not compacted or leveled properly and that the water beneath continuously
seeped, causing the soil foundation to soften resulting in the differential
settlement of the area. 22
The Court's Ruling
After a judicious review of the records of this case, the Court finds merit in
the petition.
Under the Civil Code, the vendor shall be answerable for warranty against
hidden defects on the thing sold under the following circumstances:
Art. 1561. The vendor shall be responsible for warranty against the hidden
defects which the thing sold may have, should they render it unfit for the use
for which it is intended, or should they diminish its fitness for such use to
such an extent that, had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it; but said vendor shall not
be answerable for patent defects or those which may be visible, or for those
which are not visible if the vendee is an expert who, by reason of this trade or
profession, should have known them. (Emphasis supplied)
Art. 1566. The vendor is responsible to the vendee for any hidden faults or
defects in the thing sold, even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated and the
vendor was not aware of the hidden faults or defects in the thing sold.
For the implied warranty against hidden defects to be applicable, the
following conditions must be met:
a. Defect is Important or Serious
i. The thing sold is unfit for the use which it is intended
ii. Diminishes its fitness for such use or to such an extent that the buyer
would not have acquired it had he been aware thereof
b. Defect is Hidden
c. Defect Exists at the time of the sale
d. Buyer gives Notice of the defect to the seller within reasonable time
Here, the petitioners observed big cracks on the walls and floors of their
dwellings within two years from the time they purchased the units. The
damage in their respective houses was substantial and serious. They reported
the condition of their houses to La Paz, but the latter did not present a
concrete plan of action to remedy their predicament. They also brought up
the issue of water seeping through their houses during heavy rainfall, but
again La Paz failed to properly address their concerns. The structural cracks
and water seepage were evident indications that the soil underneath the said
structures could be unstable. Verily, the condition of the soil would not be in
the checklist that a potential buyer would normally inquire about from the
developer considering that it is the latter's prime obligation to ensure
suitability and stability of the ground.
Furthermore, on June 11, 2002, HLURB Director Belen G. Ceniza, after
confirming the cracks on the walls and floors of their houses, requested MGB-
DENR and the Office of the Municipal Mayor to conduct a
geological/geohazard assessment and thorough investigation on the entire
Adelina subdivision. 23 Thus, in its August 8, 2002 Letter-Report, 24 MGB
reported that there was evident ground settlement in the area of the Litlit
Creek where the houses of the petitioners were located, probably "caused by
hydrocompaction of the backfill and or alluvial deposits xxx." The Engineering
Department of San Pedro Municipality, on the other hand, confirmed the
settlement affecting at least six (6) houses along Block 2, Pearl St., including
that of Geromo, resulting in various structural damage. 25 Records reveal that
a portion of Pearl Street itself had sunk, cracking the concrete pavement of
the road. For several years, the petitioners had to endure the conditions of
their homes while La Paz remained silent on their constant follow-ups.
Eventually, they had to leave their own dwellings due to safety concerns.
Based on the said findings, the Court is of the considered view that the
petitioners were justified in abandoning their dwellings as they were living
therein under unsafe conditions. With the houses uncared for, it was no
surprise that, by the time the case was filed in 2004, they were in a worse
condition.
La Paz remained unconcerned even after receiving incident reports of
structural issues from homeowners and despite constant follow-ups from
them for many years. In fact, the petitioners took it upon themselves to build
a riprap/retaining wall due to La Paz's indifference.
One of the purposes of P.D. No. 957, also known as The Subdivision and
Condominium Buyers' Protective Decree, is to discourage and prevent
unscrupulous owners, developers, agents, and sellers from reneging on their
obligations and representations to the detriment of innocent purchasers. 26
Considering the nature of the damage sustained by the structures, even
without the findings of the local governmental agency and the MGB-DENR, La
Paz is still liable under the doctrine of res ipsa loquitur. In the case of D.M
Consunji, Inc. v. CA, 27 the Court expounded on this doctrine in this wise:
The concept of res ipsa loquitur has been explained in this wise:
While negligence is not ordinarily inferred or presumed, and while the mere
happening of an accident or injury will not generally give rise to an inference
or presumption that it was due to negligence on defendants part, under the
doctrine of res ipsa loquitur, which means, literally, the thing or transaction
speaks for itself, or in one jurisdiction, that the thing or instrumentality
speaks for itself, the facts or circumstances accompanying an injury may be
such as to raise a presumption, or at least permit an inference of negligence
on the part of the defendant, or some other person who is charged with
negligence.
x x x where it is shown that the thing or instrumentality which caused the
injury complained of was under the control or management of the defendant,
and that the occurrence resulting in the injury was such as in the ordinary
course of things would not happen if those who had its control or
management used proper care, there is sufficient evidence, or, as sometimes
stated, reasonable evidence, in the absence of explanation by the defendant,
that the injury arose from or was caused by the defendant's want of care.
One of the theoretical bases for the doctrine is its necessity, i.e., that
necessary evidence is absent or not available.
The res ipsa loquitur doctrine is based in part upon the theory that the
defendant in charge of the instrumentality which causes the injury either
knows the cause of the accident or has the best opportunity of ascertaining it
and that the plaintiff has no such knowledge, and therefore is compelled to
allege negligence in general terms and to rely upon the proof of the
happening of the accident in order to establish negligence. The inference
which the doctrine permits is grounded upon the fact that the chief evidence
of the true cause, whether culpable or innocent, is practically accessible to
the defendant but inaccessible to the injured person.
It has been said that the doctrine of res ipsa loquitur furnishes a bridge by
which a plaintiff, without knowledge of the cause, reaches over to defendant
who knows or should know the cause, for any explanation of care exercised
by the defendant in respect of the matter of which the plaintiff complains.
The res ipsa loquitur doctrine, another court has said, is a rule of necessity, in
that it proceeds on the theory that under the peculiar circumstances in which
the doctrine is applicable, it is within the power of the defendant to show that
there was no negligence on his part, and direct proof of defendants
negligence is beyond plaintiffs power. Accordingly, some courts add to the
three prerequisites for the application of the res ipsa loquitur doctrine the
further requirement that for the res ipsa loquitur doctrine to apply, it must
appear that the injured party had no knowledge or means of knowledge as to
the cause of the accident, or that the party to be charged with negligence has
superior knowledge or opportunity for explanation of the accident. 28
Under the said doctrine, expert testimony may be dispensed with to sustain
an allegation of negligence if the following requisites obtain: a) the event is of
a kind which does not ordinarily occur unless someone is negligent; b) the
cause of the injury was under the exclusive control of the person in charge;
and c) the injury suffered must not have been due to any voluntary action or
contribution on the part of the person injured. 29
In this case, the subdivision plan/layout was prepared and approved by La
Paz. The actual excavation, filling and levelling of the subdivision grounds
were exclusively done under its supervision and control. There being no
contributory fault on the part of the petitioner, there can be no other
conclusion except that it was the fault of La Paz for not properly compacting
the soil, which used to be an old creek.
It should have taken adequate measures to ensure the structural stability of
the land before they started building the houses thereon.1âwphi1 The uneven
street pavements and visible cracks on the houses were readily apparent yet
La Paz did not undertake any corrective or rehabilitative work.
La Paz's argument that the damage could have been sustained because of
the 1990 earthquake or through the various enhancements undertaken by
the petitioners on their respective structures was not substantiated. Records
undeniably show that the petitioners had raised their concerns as early as
1988 - before the earthquake occurred in 1990.
On Damages
Due to the indifference and negligence of La Paz, it should compensate the
petitioners for the damages they sustained. On actual damages, the standing
rule is that to be entitled to them, there must be pleading and proof of actual
damages suffered.
Actual damages, to be recoverable, must not only be capable of proof, but
must actually be proved with a reasonable degree of certainty. Courts cannot
simply rely on speculation, conjecture or guesswork in determining the fact
and amount of damages. To justify an award of actual damages, there must
be competent proof of the actual amount of loss, credence can be given only
to claims which are duly supported by receipts. 30
In this regard, the petitioners failed to prove with concrete evidence the
amount of the actual damages they suffered. For this reason, the Court does
not have any basis for such an award.
Nevertheless, temperate or moderate damages may be recovered when
some pecuniary loss has been suffered but its amount cannot, from the
nature of the case, be proved with certainty. 31 The amount thereof is usually
left to the discretion of the courts but the same should be reasonable,
bearing in mind that temperate damages should be more than nominal but
less than compensatory.32 In this case, the petitioners suffered some form of
pecuniary loss due to the impairment of the structural integrity of their
dwellings. In view of the circumstances obtaining, an award of temperate
damages amounting to ₱200,000.00 is just and reasonable.
The petitioners are also entitled to moral and exemplary damages. Moral
damages are not meant to be punitive but are designed to compensate and
alleviate the physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation,
and similar harm unjustly caused to a person. To be entitled to such an
award, the claimant must satisfactorily prove that he indeed suffered
damages and that the injury causing the same sprung from any of the cases
listed in Articles 2219 33 and 2220 34 of the Civil Code. Moreover, the damages
must be shown to be the proximate result of a wrongful act or omission.
Moral damages may be awarded when the breach of contract was attended
with bad faith, 35 or is guilty of gross negligence amounting to bad
faith. 36 Obviously, the uncaring attitude of La Paz amounted to bad faith. For
said reason, the Court finds it proper to award moral damages in the amount
of ₱150,000.00.
Petitioners are also entitled to exemplary damages which are awarded when
a wrongful act is accompanied by bad faith or when the guilty party acted in
a wanton, fraudulent, reckless, oppressive, or malevolent manner" 37 under
Article 2232 38 of the Civil Code. The indifference of La Paz in addressing the
petitioners' concerns and its subsequent failure to take remedial measures
constituted bad faith.
Considering that the award of moral and exemplary damages is proper in this
case, attorney's fees and cost of the suit may also be recovered as provided
under Article 220839 of the Civil Code.40
GSIS not liable
As to the petitioners' prayer to make GSIS jointly and severally liable with La
Paz, the Court finds that there is no legal basis to juridically bind GSIS
because it was never a party in the contracts between La Paz and the
petitioners. The housing loan agreements that the petitioners entered into
with GSIS were separate and distinct from the purchase contracts they
executed with La Paz. GSIS merely agreed to pay the purchase price of the
housing unit that each petitioner purchased from La Paz. It was merely the
lender, not the developer.
WHEREFORE, the petition is GRANTED. The August 9, 2004 Decision of the
HLURB Arbiter is hereby REINSTATED with MODIFICATIONS to read as
follows:
WHEREFORE, Judgment is hereby rendered
1) Ordering respondent La Paz Housing and Development Corporation to
immediately undertake and cause the necessary repairs/construction of the
subject units to make it suitable for human habitation for which it was
originally intended;
2) In the alternative, if it would no longer possible for the said units to be
repaired to make it suitable for human habitation, ordering respondent La Paz
to give each petitioner another property of the same nature and size, more or
less, within the subdivision project or in any project owned and developed by
La Paz in San Pedro, Laguna, or pay the monetary equivalent thereof; and
3) Ordering respondent La Paz to pay each of the petitioners:
a. the sum of ₱200,000.00 as temperate damages;
b. the sum of ₱150,000.00 as moral damages;
c. the sum of ₱150,000.00 as exemplary damages;
d. the sum of ₱100,000.00 as attorney's fees; and
e. cost of suit.
All awards shall earn legal interest at the rate of six percent (6%) per
annum from the finality of judgment until full payment, in line with recent
jurisprudence.41
SO ORDERED.