THIRD DIVISION G.R. No. 189609, January 29, 2018 parties agreed on a month-to-month lease and rent of P10,000.

o-month lease and rent of P10,000.00 per

VICTORIA N. RACELIS, IN HER CAPACITY AS
ADMINISTRATOR, Petitioner, v. SPOUSES GERMIL JAVIER AND REBECCA
JAVIER, Respondents.
D E C I S I O N LEONEN, J.:
Lessees are entitled to suspend the payment of rent under Article 1658 of the
Civil Code if their legal possession is disturbed. Acts of physical disturbance
that do not affect legal possession is beyond the scope of this rule.
In a contract to sell, the payment of earnest money represents the seller's
opportunity cost of holding in abeyance the search for other buyers or better
deals. Absent proof of a clear agreement to the contrary, it should be forfeited
if the sale does not happen without the seller's fault. The potential buyer
bears the burden of proving that the earnest money was intended other than
as part of the purchase price and to be forfeited if the sale does not occur
without the seller's fault.
Through this Petition for Review,1 petitioner Victoria N. Racelis (Racelis)
challenges the Court of Appeals January 13, 2009 Decision 2 and September
17, 2009 Resolution,3 which ordered her to reimburse the sum of P24,000.00
to respondents Spouses Germil Javier and Rebecca Javier (the Spouses
Javier).
Before his death, the late Pedro Nacu, Sr. (Nacu) appointed his daughter,
Racelis,4 to administer his properties, 5 among which was a residential house
and lot located in Marikina City.6 Nacu requested his heirs to sell this
property first.7 Acting on this request, Racelis immediately advertised it for
sale.8
In August 2001, the Spouses Javier offered to purchase the Marikina
property. However, they could not afford to pay the price of
P3,500,000.00.9 They offered instead to lease the property while they raise
enough money. Racelis hesitated at first but she eventually agreed. 10 The
month.11 This was later increased to P11,000.00. 12 The Spouses Javier used
the property as their residence and as the site of their tutorial school, the
Niñ o Good Shepherd Tutorial Center.13
Sometime in July 2002, Racelis inquired whether the Spouses Javier were still
interested to purchase the property. The Spouses Javier reassured her of
their commitment and even promised to pay P100,000.00 to buy them more
time within which to pay the purchase price.14
On July 26, 2002, the Spouses Javier tendered the sum of P65,000.00
representing "initial payment or goodwill money." 15 On several occasions,
they tendered small sums of money to complete the promised
P100,000.00,16 but by the end of 2003, they only delivered a total of
P78,000.00. 17 Meanwhile, they continued to lease the property. They
consistently paid rent but started to fall behind by February 2004. 18
Realizing that the Spouses Javier had no genuine intention of purchasing the
property, Racelis wrote to inform them that her family had decided to
terminate the lease agreement and to offer the property to other interested
buyers.19 In the same letter, Racelis demanded that they vacate the property
by May 30, 2004.20 Racelis also stated that:
It is a common practice that earnest money will be forfeited in favor of the
seller if the buyer fails to consummate [the] sale after the lapse of a specified
period for any reason so that we have the legal right to forfeit your P78,000
on account of your failure to pursue the purchase of the property you are
leasing. However, as a consideration to you, we undertake to return to you
the said amount after we have sold the property and received the purchase
price from [the] prospective buyer.21
The Spouses Javier refused to vacate due to the ongoing operation of their
tutorial business. They wrote Racelis on March 16, 2004, informing her of
their inability to purchase the property at P3,500,000.00 because "Mrs.
Rebecca Javier's plan for overseas employment did not materialize." 22 They
also informed her that they had "purchased a more affordable lot." 23 They
insisted that the sum of P78,000.00 was advanced rent and proposed that
this amount be applied to their outstanding liability until they vacate the
premises.24
Disagreeing on the application of the P78,000.00, Racelis and the Spouses
Javier brought the matter to the barangay for conciliation. Unfortunately, the
parties failed to reach a settlement. 25 During the proceedings, Racelis
demanded the Spouses Javier to vacate the premises by the end of April 30,
2004.26 However, the Spouses Javier refused to give up possession of the
property and even refused to pay rent for the succeeding months. 27
On May 12, 2004, Racelis caused the disconnection of the electrical service
over the property forcing the Spouses Javier to purchase a generator. 28 This
matter became the subject of a complaint for damages filed by the Spouses
Javier against Racelis.29 Racelis was absolved from liability.30 The Spouses
Javier no longer interposed an appeal.31
Meanwhile, Racelis filed a complaint for ejectment against the Spouses Javier
before the Metropolitan Trial Court in Marikina City. The case was docketed
as Civil Case No. 04-7710.32
In her Complaint,33 Racelis alleged that she agreed to lease the property to
the Spouses Javier based on the understanding that they would eventually
purchase it.34 Racelis also claimed that they failed to pay rent from March
2004 to September 200435 and the balance of P7,000.00 for the month of
February, or a total of P84,000.00. 36 Racelis prayed that the Spouses Javier be
ordered to: (1) vacate the leased premises; (2) pay accrued rent; and (3) pay
moral and exemplary damages, and attorney's fees.37
In their Answer,38 the Spouses Javier averred that they never agreed to
purchase the property from Racelis because they found a more affordable
property at Greenheights Subdivision in Marikina City. They claimed that the
amount of P78,000.00 was actually advanced rent.39
During trial, the Spouses Javier vacated the property and moved to their new
residence at Greenheights Subdivision40 on September 26, 2004.41 The
Metropolitan Trial Court then determined that the only issue left to be
resolved was the amount of damages in the form of unpaid rentals to which
Racelis was entitled.42
On August 19, 2005, the Metropolitan Trial Court rendered a
Decision43 dismissing the complaint. It ruled that the Spouses Javier were
entitled to suspend the payment of rent under Article 1658 of the Civil Code
due to Racelis' act of disconnecting electric service over the property. 44 The
Metropolitan Trial Court declared that the Spouses Javier's obligation had
been extinguished. Their advanced rent and deposit were sufficient to cover
their unpaid rent.45
The Metropolitan Trial Court, however, did not characterize the P78,000.00
as advanced rent but as earnest money. Accordingly, Racelis was ordered to
return the P78,000.00 due to her waiver in the Letter dated March 4, 2004. 46
On appeal, the Regional Trial Court rendered a Decision 47 reversing the
Metropolitan Trial Court August 19, 2005 Decision. The Regional Trial Court
held that the Spouses Javier were not justified in suspending rental
payments.48 However, their liability could not be offset by the P78,000.00.
The Regional Trial Court explained that the parties entered into two (2)
separate and distinct contracts—a lease contract and a contract of sale. Based
on the evidence presented, the P78,000.00 was not intended as advanced
rent, but as part of the purchase price of the property. 49 The Regional Trial
Court ordered the Spouses Javier to pay accrued rent and declared that they
may recover the P78,000.00 in a separate proceeding.50
The Spouses Javier moved for reconsideration. In its April 24, 2007
Order,51 the Regional Trial Court reduced the Spouses Javier's unpaid rentals
by their advanced rental deposit. They were ordered to pay P54,000.00
instead.52
The Spouses Javier appealed the Regional Trial Court January 15, 2007
Decision and April 24, 2007 Order.
On January 13, 2009, the Court of Appeals rendered a Decision 53 declaring the
Spouses Javier justified in withholding rental payments due to the
disconnection of electrical service over the property. 54 Nevertheless, the
Court of Appeals stated that they were not exonerated from their obligation
to pay accrued rent. On the other hand, Racelis was bound to return the sum
of P78,000.00 in view of her waiver. The Court of Appeals, by way of
compensation, reduced the liability of the Spouses Javier by their advanced
rent and the sum of P78,000.00. Accordingly, Racelis was ordered to
reimburse the amount of P24,000.00 to the Spouses Javier. 55 The dispositive
portion of this Decision stated:
WHEREFORE, in view of the foregoing, the petition is GRANTED. The assailed
decision is REVERSED and SET ASIDE. Herein respondent RACELIS is ordered
to reimburse herein petitioners in the amount of P24,000.00 on the
counterclaim.
SO ORDERED.56
Racelis moved for reconsideration but her motion was denied in the Court of
Appeals September 17, 2009 Resolution.57
On November 25, 2009, Racelis filed a Petition for Review 58 before this Court
to which the Spouses Javier filed a Comment. 59 On July 1, 2010, Racelis filed a
Reply.60
Petitioner asserts that the Court of Appeals erred in applying Article 1658 of
the Civil Code in favor of respondents. Respondents cannot invoke the right
given to lessees under Article 1658 of the Civil Code. Petitioner claims that
she was justified in causing the temporary disconnection of electrical service
over the property because respondents were remiss in paying rent. However,
assuming that respondents were entitled to suspend the payment of rent
pursuant to Article 1658 of the Civil Code, petitioner argues that the
suspension should only be temporary or for an intervening period. 61
Petitioner likewise claims that she did not expressly waive her right over the
initial payment of P78,000.00 but merely extended an offer to reimburse this
amount, which respondents rejected. Hence, she is entitled to retain it and it
cannot be used to offset respondents' accrued rent. 62
Respondents do not dispute their liability to pay accrued rent. However, they
insist that their liability should be offset by the initial payment of P78,000.00.
Respondents argue that petitioner waived her right over this, amount. Hence,
it can be applied to pay their obligation.63
The issues for this Court's resolution are:
First, whether or not respondents Spouses Germil and Rebecca Javier can
invoke their right to suspend the payment of rent under Article 1658 of the
Civil Code; and
Second, whether or not the P78,000.00 initial payment can be used to offset
Spouses Germil and Rebecca Javier's accrued rent.
I
A contract of lease is a "consensual, bilateral, onerous and commutative
contract by which the owner temporarily grants the use of his property to
another who undertakes to pay rent therefor."64
Article 1658 of the Civil Code allows a lessee to postpone the payment of rent
if the lessor fails to either (1) "make the necessary repairs" on the property
or (2) "maintain the lessee in peaceful and adequate enjoyment of the
property leased." This provision implements the obligation imposed on
lessors under Article 1654(3) of the Civil Code. 65
The failure to maintain the lessee in the peaceful and adequate enjoyment of
the property leased does not contemplate all acts of disturbance. 66 Lessees
may suspend the payment of rent under Article 1658 of the Civil Code only if
their legal possession is disrupted.67 In Goldstein v. Roces:68
Nobody has in any manner disputed, objected to, or placed any difficulties in
the way of plaintiff's peaceful enjoyment, or his quiet and peaceable
possession of the floor he occupies. The lessors, therefore, have not failed to
maintain him in the peaceful enjoyment of the floor leased to him and he
continues to enjoy this status without the slightest change, without the least
opposition on the part of any one. That there was a disturbance of the peace
or order in which he maintained his things in the leased story does not mean
that he lost the peaceful enjoyment of the thing rented. The peace would
likewise have been disturbed or lost had some tenant of the Hotel de Francia,
living above the floor leased by plaintiff, continually poured water on the
latter's bar and sprinkled his bar-tender and his customers and tarnished his
furniture; or had some gay patrons of the hotel gone down into his saloon
and broken his crockery or glassware, or stunned him with deafening
noises. Numerous examples could be given to show how the lessee might fail
peacefully to enjoy the floor leased by him, in all of which cases he wo[u]ld, of
course, have a right of action for the recovery of damages from those who
disturbed his peace, but he would have no action against the lessor to compel
the latter to maintain him in his peaceful enjoyment of the thing rented. The
lessor can do nothing, nor is it incumbent upon him to do anything, in the
examples or cases mentioned, to restore his lessees peace.
....
True it is that, pursuant to paragraph 3, of article 1554, the lessor must
maintain the lessee in the peaceful enjoyment of the lease during all of the
time covered by the contract, and that, in consequence thereof, he is obliged
to remove such obstacles as impede said enjoyment; but, as in warranty in a
case of eviction (to which doctrine the one we are now examining is very
similar, since it is necessary, as we have explained, that the cause of eviction
be in a certain manner imputable to the vendor, which must be understood as
saying that it must be prior to the sale), the obstacles to enjoyment which the
lessor must remove are those that in some manner or other cast doubt upon the
right by virtue of which the lessor himself executed the lease and, strictly
speaking, it is this right that the lessor should guarantee to the
lessee.69 (Citations omitted, emphasis supplied)
The principle in Goldstein was reiterated in Chua Tee Dee v. Court of Appeals.70
In  Chua Tee Dee, the lease contract stated that the lessor was obliged to
"maintain the [lessee] in the quiet peaceful possession and enjoyment of the
leased premises during the effectivity of the lease." 71 The lessees were
harassed by claimants of the leased property. Hence, the lessee withheld
rental payments for the lessor's failure to comply with his contractual
obligation.72
Citing Goldstein, this Court in Chua Tee Dee struck down the lessee's
argument and held that "[t]he duty 'to maintain the lessee in the peaceful and
adequate enjoyment of the lease for the duration of the contract' mentioned
in [N]o. 3 of [Article 1654] is merely a warranty that the lessee shall not be
disturbed in his legal, and not physical, possession." Furthermore, this Court
found that there was no disturbance in the lessee's legal possession because
her right to possess the property was neither questioned nor raised as an
issue in any legal proceeding. Hence, she was not entitled to suspend the
payment of rent.73
In this case, the disconnection of electrical service over the leased premises
on May 14, 2004 74 was not just an act of physical disturbance but one that is
meant to remove respondents from the leased premises and disturb their
legal possession as lessees. Ordinarily, this would have entitled respondents
to invoke the right accorded by Article 1658 of the Civil Code.
However, this rule will not apply in the present case because the lease had
already expired when petitioner requested for the temporary disconnection
of electrical service. Petitioner demanded respondents to vacate the premises
by May 30, 2004.75 Instead of surrendering the premises to petitioner,
respondents unlawfully withheld possession of the property. Respondents
continued to stay in the premises until they moved to their new residence on
September 26, 2004.76 At that point, petitioner was no longer obligated to
maintain respondents in the "peaceful and adequate enjoyment of the lease
for the entire duration of the contract." 77 Therefore, respondents cannot use
the disconnection of electrical service as justification to suspend the payment
of rent.
Assuming that respondents were entitled to invoke their right under Article
1658 of the Civil Code, this does exonerate them from their obligation under
Article 1657 of the civil Code "to pay the price of the lease according to the
terms stipulated."78 Lessees who exercise their right under Article 1658 of the
Civil Code are not freed from the obligations imposed by law or contract.
Moreover, respondents' obligation to pay rent was not extinguished when
they transferred to their new residence. Respondents are liable for a
reasonable amount of rent for the use and continued occupation of the
property upon the expiration of the lease. To hold otherwise would unjustly
enrich respondents at petitioner's expense.
II
Respondents admit their liability to pay accrued rent for the continued use
and possession of the property. However, they take exception to the proper
treatment of the P78,000.00 initial payment. Throughout the proceedings,
respondents insist that this amount was intended as advanced rent. Hence, it
can be used to offset their obligation.79
Respondents' argument is unmeritorious.
The P78,000.00 initial payment cannot be characterized as advanced rent.
First, records show that respondents continued to pay monthly rent until
February 2004 despite having delivered the P78,000.00 to petitioner on
separate dates in 2003.80 Second, as observed by the Metropolitan Trial
Court, respondents indicated in the receipt that the P78,000.00 was initial
payment or goodwill money. They could have easily stated in the receipt that
the P78,000.00 was advanced rent instead of denominating it as "initial
payment or goodwill money." Respondents even proposed that the initial
payment be used to offset their accrued rent.81
Both the Metropolitan Trial Court and the Regional Trial Court rejected
respondents' assertion that the P78,000.00 was advanced rent and
characterized it as earnest money.82
Under Article 1482 of the Civil Code, whenever earnest money is given in a
contract of sale,83 it shall be considered as "proof of the perfection of the
contract."84 However, this is a disputable presumption, which prevails in the
absence of contrary evidence. The delivery of earnest money is not conclusive
proof that a contract of sale exists.85
The existence of a contract of sale depends upon the concurrence of the
following elements: (1) consent or meeting of the minds; (2) a determinate
subject matter; and (3) price certain in money or its equivalent. 86 The
defining characteristic of a contract of sale is the seller's obligation to transfer
ownership of and deliver the subject matter of the contract. Without this
essential feature, a contract cannot be regarded as a sale although it may
have been denominated as such.87
In a contract of sale, title to the property passes to the buyer upon delivery of
the thing sold. In contrast, in a contract to sell, ownership does not pass to the
prospective buyer until full payment of the purchase price. The title of the
property remains with the prospective seller.88
In a contract of sale, the non-payment of the purchase price is a resolutory
condition that entitles the seller to rescind the sale. 89 In a contract to sell, the
payment of the purchase price is a positive suspensive condition that gives
rise to the prospective seller's obligation to convey title. 90 However, non-
payment is not a breach of contract but "an event that prevents the obligation
of the vendor to convey title from becoming effective." 91 The contract would
be deemed terminated or cancelled, and92 the parties stand "as if the
conditional obligation had never existed."93
Based on the evidence on record, petitioner and respondents executed a
contract to sell, not a contract of sale. Petitioner reserved ownership of the
property and deferred the execution of a deed of sale until receipt of the full
purchase price. In her Letter dated March 4, 2004, petitioner stated:
It was our understanding that pending your purchase of the property you will
rent the same for the sum of P10,000.00 monthly. With our expectation that
you will be able to purchase the property during 2002, we did not offer the
property for sale to third parties. We even gave you an extension verbally for
another twelve months or the entire year of 2003 within which we could
finalize the sale agreement and for you to deliver to us the amount of P3.5
Million, the agreed selling price of the property. However, to this date, we are
not certain whether or not you have the capacity to purchase the property.
The earnest money of P100,000 that we initially agreed upon only reached
P78,000 as of date accumulated through several installments during 2003. It
is not our intention to wait for a long time to dispose the property since you
are very much aware of the situation of my mother.94 (Emphasis supplied)
In this case, since respondents failed to deliver the purchase price at the end
of 2003, the contract to sell was deemed cancelled. The contract's
cancellation entitles petitioner to retain the earnest money given by
respondents.
Earnest money, under Article 1482 of the Civil Code, is ordinarily given in a
perfected contract of sale.95 However, earnest money may also be given in a
contract to sell.
In a contract to sell, earnest money is generally intended to compensate the
seller for the opportunity cost of not looking for any other buyers. It is a show
of commitment on the part of the party who intimates his or her willingness
to go through with the sale after a specified period or upon compliance with
the conditions stated in the contract to sell.
96
Opportunity cost is defined as "the cost of the foregone alternative."  In a
potential sale, the seller reserves the property for a potential buyer and
foregoes the alternative of searching for other offers. This Court in Philippine
National Bank v. Court of Appeals97 construed earnest money given in a
contract to sell as "consideration for [seller's] promise to reserve the subject
property for [the buyer]."98 The seller, "in excluding all other prospective
buyers from bidding for the subject property ... [has given] up what may have
been more lucrative offers or better deals."99
Earnest money, therefore, is paid for the seller's benefit. It is part of the
purchase price while at the same time proof of commitment by the potential
buyer. Absent proof of a clear agreement to the contrary, it is intended to be
forfeited if the sale does not happen without the seller's fault. The potential
buyer bears the burden of proving that the earnest money was intended
other than as part of the purchase price and to be forfeited if the sale does not
occur without the fault of the seller. Respondents were unable to discharge
this burden.
There is no unjust enrichment on the part of the seller should the initial
payment be deemed forfeited. After all, the owner could have found other
offers or a better deal. The earnest money given by respondents is the cost of
holding this search in abeyance.
This Court notes that respondents were even unable to meet their own
promise to pay the full amount of the earnest money. Of the P100,000.00 that
respondents committed to pay, only P78,000.00 was received in irregular
tranches. To rule that the partial earnest money should even be returned is
both inequitable and would have dire repercussions as a precedent.
Although petitioner offered to return the earnest money to respondents, it
was conditioned upon the sale of the property to another buyer. 100 Petitioner
cannot be said to have expressly waived her right to retain the earnest
money. Petitioner's offer was even rejected by respondents, who proposed
that the earnest money be applied instead to their unpaid rent. 101
Therefore, respondents' unpaid rent amounting to P84,000.00 102 cannot be
offset by the earnest money. However, it should be reduced by respondents'
advanced deposit of P30,000.00. As found by the Regional Trial Court,
petitioner failed to establish that respondents' advanced deposit had already
been consumed or deducted from respondents' unpaid rent. 103
WHEREFORE, the Petition for Review is GRANTED. The January 13, 2009
Decision and September 17, 2009 Resolution of the Court of Appeals in CA-
G.R. SP No. 98928 are REVERSED and SET ASIDE. Respondents Spouses
Germil and Rebecca Javier are ordered to pay petitioner Vanessa N. Racelis
the sum of P54,000.00, representing accrued rentals, with interest at the rate
of six percent (6%) per annum from the date of the finality of this judgment
until fully paid. SO ORDERED.
Velasco, Jr., (Chairperson), Bersamin, and Gesmundo, JJ., concur.
Martires, J., On official leave as per Letter dated January 18, 2018.
 THIRD DIVISION
G.R. No. 210297, April 03, 2019
BNL MANAGEMENT CORPORATION AND ROMEO DAVID, PETITIONERS,
v. REYNALDO UY, RODIEL BALOY, ATTY. LUALHATI CRUZ, ALBERTO
WONG, TERESITA PASIA, ROLAND INGEL, AND MARISSA SEVILLA,
RESPONDENTS.
DECISION
LEONEN, J.:
Under Section 9 of Republic Act No. 4726, 1 or the Condominium Act, a
condominium owner shall register a declaration of restrictions, which shall
be annotated to the certificate of title of land included within the project. The
declaration of restrictions provides for the project management, among
others, and is enforceable by the condominium's management body.
This resolves a Petition for Review on Certiorari2 assailing the July 25, 2012
Decision3 and December 4, 2013 Resolution4 of the Court of Appeals in CA-
G.R. CV No. 90493. The Court of Appeals affirmed the August 18, 2005
Decision5 in Civil Case No. 99-95686 issued by the Regional Trial Court, which
dismissed the Complaint for damages filed by BNL Management Corporation
(BNL Management) and its president, Romeo David (David), against
Reynaldo Uy, Rodiel Baloy, Atty. Lualhati Cruz, Alberto Wong, Teresita Pasia,
Roland Ingel, and Marissa E. Sevilla (collectively, Uy, et al.). 6
BNL Management owned six (6) condominium units at the Imperial Bayfront
Tower Condominium, A. Mabini Street, Malate, Manila (Imperial Bayfront).
These units were leased to its clients under separate contracts of lease. BNL
Management also held exclusive rights to three (3) parking spaces of Imperial
Bayfront.7
On December 16, 1996, BNL Management, through David, wrote a letter to
the building administrator of Imperial Bayfront, acknowledging receipt of the
November billing statement. 8 In the letter, it brought up concerns over: (1)
the general cleanliness and maintenance of common areas; (2) security; (3)
building insurance; (4) encroachment on two (2) of the parking spaces; and
(5) the annotation of the parking spaces on the mother title. The letter read:
Further, this is to put on notice that if the above list of problems remain
unresolved, we will be constrained to withold (sic) all future payments of
association dues until the issue (sic) are resolved satisfactorily. A situation
we both want to avoid. Anticipating your positive response. 9
In a follow-up letter sent on March 4, 1997, BNL Management, through
counsel, declared that it would withhold paying monthly dues and instead
deposit them and its arrears in a bank as escrow, which could be withdrawn
by the Imperial Bayfront Tower Condominium Association (the Association)
only after it has complied with the demands in the letter. 10
In a May 7, 1997 response, Building Administrator Erma Abella explained
that the failure to annotate ownership of the parking spaces was due to BNL
Management not submitting the necessary documents to the Association. It
added that the maintenance issues were due to lack of funds as a result of
BNL Management's nonpayment of association dues. 11
On August 27, 1998, BNL Management requested that it be removed from the
Association's list of delinquent members.12
On April 21, 1999, BNL Management sent a letter to the succeeding building
administrator, Marissa E. Sevilla (Sevilla), reiterating its earlier complaints. It
also requested the following documents: (1) an updated financial report; (2)
the fire insurance coverage of the building; (3) the Association's articles of
incorporation and by-laws; (4) an updated list of owners; and (5) documents
showing turnover of the building to the Association. On May 4, 1999, Sevilla
sent BNL Management the requested documents.13
On July 7, 1999, BNL Management received a letter from Sevilla containing a
breakdown of its arrears in the payment of association dues from November
1996 to June 1999. It received a Second Notice of Billing on August 11, 1999,
which informed it of its pending arrears worth P180,981.80, representing
unpaid association dues from November 1996 to August 1999. The Second
Notice also contained a warning that after a third notice had been sent, the
Association would terminate utility services. On August 19, 1999, BNL
Management received the Third Notice of Billing.14
Still, BNL Management did not pay the arrears. Thus, in an August 24, 1999
meeting, the Association's Board of Directors, composed of Reynaldo Uy,
Rodiel Baloy, Atty. Lualhati Cruz, Alberto Wong, Teresita Pasia, and Roland
Ingel, resolved to disconnect the lighting facilities in the six (6) units owned
by BNL Management:
RESOLVED, AS IT IS HEREBY RESOLVED, that the lighting facilities fronting
units 501, 502, 503, 506, 507 and 508 be cut pursuant to par. 5 of the House
Rules, Section V, Article V of the By-Laws and Section 1, Part II of the Master
Deed of [the Association], for unpaid association dues amounting to
P180,981.90 as of August 16, 1999 notice. The Building Administrator is
hereby authorized to carry out this resolution.15
BNL Management again wrote the Association on August 28, 1999,
complaining that the lights in the hallway leading to its units had been turned
off. Sevilla, in turn, informed BNL Management that the power outage had
been sanctioned by the Board of Directors due to its nonpayment of
association dues. On August 30, 1999, the Association sent a Notice informing
BNL Management that should it fail to pay its dues, the water services would
be disconnected from its units.16
Since the Association refused to restore its electricity and water, BNL
Management and David filed before the Regional Trial Court a
Complaint17 against Uy, et al. for damages and specific performance with
preliminary mandatory/prohibitory injunction.
In its August 18, 2005 Decision, 18 the Regional Trial Court dismissed the
Complaint. It found that a homeowners' association depended on the dues
paid by its members to deliver services such as building maintenance. 19 It
held that Uy, et al. were justified in disconnecting BNL Management's power
and water services under Paragraph 5 of the Association's House Rules and
Regulations, which were based on its Master Deed and Declaration of
Restrictions under Section 9 of the Condominium Act.20 Paragraph 5 reads:
Non-payment of Association Dues, deposits for utilities and capital
expenditures and other special assessments promulgated by the association
that may result to any disruption or interruption of the operation,
administration, security, janitorial, utilities and other services for lack of
operational funds and/or capital shall empower the association to limit or
totally out (sic) the services and/or utilities to delinquent unit owner/tenant;
and/or prevent the unit owner/tenants to their entry and avoid (sic) of the
facilities of the common area, property, machinery and equipment of the
corporation.21
BNL Management and David filed an Appeal, but it was denied by the Court of
Appeals in its July 25, 2012 Decision. 22 In affirming the Regional Trial Court
Decision, the Court of Appeals held that Uy, et al.'s act of cutting off BNL
Management's electricity and water supply was legal. 23
BNL Management and David argued that the House Rules and Regulations, on
which the disconnection was based, were never ratified by the Association
members. However, the Court of Appeals found that the Condominium Act
requires that any declaration of restrictions must be registered prior to
conveyance of the condominium, and that these restrictions shall constitute
enforceable liens. The declaration of restrictions attached to the Master Deed
of Imperial Bayfront referred to a set of rules to be implemented:
Section 5. Building Rules. The use, occupancy and enjoyment of each unit,
whether by the owner or purchaser thereof or his/her/its tenants or lessees,
shall likewise be subject to such rules and regulations (hereinafter called
"Building Rules") as the condominium corporation may promulgate from
time to time which are deemed necessary or convenient for the efficient and
mutually beneficial management and operation of the project. 24
he Court of Appeals, citing Limson v. Wack Wack Condominium 25—where this
Court emphasized the importance of a declaration of restrictions in a Master
Deed26—held that BNL Management bound itself to the House Rules and
Regulations when it purchased the units. Thus, it could neither claim
ignorance of these rules nor assert that it was never informed of the
consequences of not paying dues, especially when it received two (2) notices
stating that should it fail to pay, utility services would be interrupted. 27
Likewise, the Court of Appeals found that BNL Management and David were
not entitled to damages as they failed to prove bad faith or malice on Uy, et
al.'s part. Upon review of the correspondence between the parties, it noted
that the Association exerted all efforts to address BNL Management's
complaints, repeatedly explaining that the lack of funds, which resulted from
the latter's nonpayment, was why some of its concerns could not be
addressed. Thus, Uy, et al. were constrained to implement the House Rules
and Regulations.28
BNL Management and David moved for reconsideration, but the Motion was
denied in the Court of Appeals December 4, 2013 Resolution.29
On December 23, 2013, BNL Management and David filed before this Court a
Motion for Extension of Time to File Verified Petition for Review on
Certiorari under Rule 45 of the Rules of Court, 30 praying for an additional 30
days within which to file their Petition.31
On January 24, 2014, BNL Management and David filed before this Court a
Petition for Review on Certiorari,32 assailing the July 25, 2012 Decision and
December 4, 2013 Resolution of the Court of Appeals.
Petitioners claim that the Court of Appeals should have applied Fedman
Development Corporation v. Agcaoili,33 where this Court sanctioned a unit
owner's nonpayment of monthly amortizations and condominium dues when
the condominium corporation failed to comply with its obligations to provide
working air-conditioning for his unit. They argue that, applying Fedman
Development Corporation, a condominium corporation cannot impose
assessed dues in arrears when it fails to run the condominium corporation
properly.34
Relying on Twin Towers Condominium Corporation v. Court of
Appeals,35 petitioners claim that they are "justified in refusing to pay
assessment dues unless and until [the Association] complies with its
obligations to [unit] owners under the principle of reciprocal
obligation."36 They argue that the Association's right to demand payment of
assessments and dues entails a correlative obligation to address petitioners'
complaints.
Moreover, petitioners claim that they had not defaulted on assessments and
dues before they sent the first letter to the Association. They point out that
they even offered to put the assessed dues in escrow, withdrawable by the
Association once it complied with their demands.37
Petitioners likewise assail the validity of the House Rules and Regulations,
claiming that they: (1) were not authenticated; (2) bear no date; (3) offered
no source; (4) had no signatures; and (5) did not state that they were ratified
by the Association's members. Aside from this, they claim that there was no
formally organized association. Neither were there duly ratified by-laws and
master plan, nor a duly elected Board of Directors.38
Petitioners further claim that the computation of the amount of the supposed
arrears is inaccurate.39 Thus, they argue that they are entitled to actual,
moral, and exemplary damages.
Petitioners argue that respondents showed bad faith in deliberately cutting
off the utility services from the units despite knowing that they were not the
validly-elected officers of the Association. Because of this, five (5) units
remained vacant until July 2000 after the tenants left after a month or so,
depriving petitioners of rental income.40
While conceding that they will no longer quantify the actual damages
sustained, petitioners assert that they are still entitled to moral damages, as
respondents were the proximate cause of the wrongful acts committed with
bad faith or with ill-motive. They claim that petitioner David was entitled to
P300,000.00 for being wrongfully accused of owing association dues, in
consideration of his "official, political, social[,] and financial standing[.]" 41
Meanwhile, petitioner BNL Management is entitled to P1,000,000.00 in
exemplary damages for the financial losses and loss of reputation it sustained
as a result of respondents' acts.42
Petitioners pray that they be awarded: (1) P100,000.00 in attorney's fees; (2)
P3,000.00 for every court appearance; and (3) the costs of suit. 43
On January 30, 2014, respondents filed a Comment/Opposition 44 to the
Petition for Review.
Respondents point out that the issues raised by petitioners are not questions
of law, but of fact, namely: (1) the validity of the House Rules and
Regulations; (2) the amount of the alleged arrears; (3) the resolution of the
complaints allegedly made by petitioners concerning the management of
Imperial Bayfront; and (4) their entitlement to awards of damages. 45
Further, respondents argue that Fedman Development Corporation is
inapplicable, pointing out that the portion of the Decision in that case, as cited
by petitioners, was mere obiter .46
Finally, respondents claim that they were merely elected officers of the
Association who cannot be held liable for damages without actual proof of
participation and bad faith in the acts complained of. Thus, the Petition must
be denied.47
In its April 23, 2014 Resolution, 48 this Court granted the Motion for
Extension, noted the Petition for Review and the Comment/Opposition, and
required petitioners to reply to the Comment/Opposition.
On July 14, 2014, petitioners filed their Reply, 49 which this Court noted in its
July 23, 2014 Resolution.50
In their Reply, petitioners argue that their Petition raises pure questions of
law, and did not require this Court to re-examine the probative value of the
evidence already presented during trial. Instead, this Court is only "asked to
apply sound legal principles and jurisprudence" 51 on the reciprocal
obligations of unit owners and condominium corporations. 52 Petitioners
claim that even if they posed questions of fact, this Court may still review
them since the Court of Appeals based its judgment on a misapprehension of
facts. Moreover, they reiterate their claim that they are entitled to moral and
exemplary damages.53
Petitioners further argue that respondents should be held liable for
"individually and collectively act[ing] in bad faith" 54 in cutting off utility
services from petitioners' units. They claim that respondents failed to present
any "signed, validly approved[,] and ratified document" 55 that authorized the
disconnection.56
The main issue for resolution is whether or not petitioners BNL Management
Corporation and its president, Romeo David, are entitled to damages for the
disconnection of water and electricity utilities from the units they own at
Imperial Bayfront.
The Petition is denied.
Petitioners defend their nonpayment of association dues based on the
Association's noncompliance with its correlative obligation to address their
complaints concerning Imperial Bayfront's management and maintenance.
They claim that they are entitled to withhold payment until and unless their
demands are met by the Association.57
Moreover, petitioners allege that they are not bound by the House Rules and
Regulations, claiming that they are invalid and, thus, cannot be the basis for
the disconnection of utility services from their units. 58
Both these defenses must fail.
First, as to the party first at fault, the common finding of the Regional Trial
Court59 and the Court of Appeals60 is that it was petitioners who failed to
comply with their obligation to timely pay association dues.
As the Regional Trial Court found:
Indeed, a homeowner association depends on the dues paid by its members
for its operation and delivery of services to its members. It is therefore
incumbent upon it to devise ways and means on how to collect the
association dues from its members.
In the instant case, defendants are justified in cutting off plaintiffs' water and
electric services pursuant to paragraph 5 of the House Rules and Regulations
of the IBTCA which provides:
"Non-payment of Association Dues, deposits for utilities and capital
expenditures and other special assessments promulgated by the association
that may result to any disruption or interruption of the operation,
administration, security, janitorial, utilities and other services for lack of
operational funds and/or capital shall empower the association to limit or
totally out (sic) the services and/or utilities to delinquent unit owner/tenant;
and/or prevent the unit owner/tenants to their entry and avoid (sic) of the
facilities of the common area, property, machinery and equipment of the
corporation."
The said House Rules was (sic) in accordance with the Master Deed and
Declaration of Restriction[s] of IBTCA as required by Sec. 9 of RA 4726[.]
It must be noted that the cutting off of the utility services in plaintiffs' units
was the last option that the association has to compel plaintiff to pay its dues.
It is rather unfair and ran (sic) counter to the idea of fair play for plaintiff to
demand enjoyment of the services without paying what is required of him,
(sic) thereby unjustly enriching itself at the expense of another. 61
The Court of Appeals, for its part, held:
In the instant case, BNL failed to overcome the presumption of good faith.
From the communication between BNL and IBTCA, it is evident that IBTCA
exerted all efforts to address BNL's complaints which it cites as the reason for
its deliberate non-payment of dues. IBTCA repeatedly explained that there
was a lack of funds to resolve the problems pointed out by BNL. The issue of
lack of sufficient funds would have been settled if BNL had at least partially
paid its outstanding balance of PhP 180,981.90 sometime during the three-
year grace period given by IBTCA. There was no lack of effort or explanation
on the part of IBTCA to address BNL's concerns. In fact, it even gave BNL
several notices of billing with a warning of the consequences of its failure to
settle its pending obligation, all of which were ignored by BNL. Thus, there
can be no bad faith attributed to defendants-appellees as they were
constrained to implement the House Rules and Regulations, as mandated by
the declaration of restrictions attached to the Master Deed. 62
This Court can no longer review this finding, being a question of fact.
Questions of fact are not reviewable in a petition for review on certiorari
under Rule 45 of the Rules of Court, as they dwell on the truth or falsity of
facts. Hence, this Court would have to evaluate the evidence presented. 63 In
contrast, questions of law are those which occur when there is "doubt or
difference . . . on what the law is on a certain state of facts."64
Here, the conclusion of the Regional Trial Court and the Court of Appeals that
petitioners were first in fault was based on evidence presented by the parties,
and for this Court to review their conclusions would require weighing the
probative value of the parties' evidence.
Petitioners fail to present a compelling reason for this Court to review these
factual findings. They have not shown how the lower courts failed to
appreciate the evidence they presented, or that their findings are wholly
lacking in basis in the record, or that they have committed a misapprehension
of facts.
Consequently, Fedman Development Corporation65 is inapplicable. There, the
Regional Trial Court, the Court of Appeals, and this Court all found that
respondent Federico Agcaoili adequately proved that he was justified in not
paying his monthly amortizations due to the fault of petitioner Fedman
Development Corporation. Here, however, no such similar findings have been
made by the lower courts.
Second, petitioners are bound by the House Rules and Regulations issued by
the Association.
The creation and incidents of the Imperial Bay front are governed by the
Condominium Act. Under Section 9, the owner of the condominium shall
register a declaration of restrictions to be annotated to the certificate of title
of land included within the project. The declaration of restrictions provides
for, among others, the management of the project:
 SECTION 9. The owner of a project shall, prior to the conveyance of any members of any management
condominium therein, register a declaration of restrictions relating to such body;
project, which restrictions shall constitute a lien upon each condominium in
the project, and shall insure to and bind all condominium owners in the      
project. Such liens, unless otherwise provided, may be enforced by any
condominium owner in the project or by the management body of such (3) Provisions for maintenance, utility,
project. The Register of Deeds shall enter and annotate the declaration of gardening and other services
restrictions upon the certificate of title covering the land included within the benefiting the common areas, for
project, if the land is patented or registered under the Land Registration or the employment of personnel
Cadastral Acts. necessary for the operation of the
building, and legal, accounting and
other professional and technical
The declaration of restrictions shall provide for the management of the services;
project by anyone of the following management bodies: a condominium
corporation, an association of the condominium owners, a board of governors      
elected by condominium owners, or a management agent elected by the
owners or by the board named in the declaration. It shall also provide for (4) For purchase of materials, supplies
voting majorities quorums, notices, meeting date, and other rules governing and the like needed by the
such body or bodies. common areas;
     
Such declaration of restrictions, among other things, may also provide:
(5) For payment of taxes and special
assessments which would be a lien
(a) As to any such management body; upon the entire project or common
areas, and for discharge of any lien
      or encumbrance levied against the
entire project or
(1) For the powers thereof, including
power to enforce the provisions of      
the declarations of restrictions; (6) For reconstruction of any portion
      or portions of any damage to or
destruction of the project;
(2) For maintenance of insurance
policies, insuring condominium      
owners against loss by fire, (7) The manner for delegation of its
casualty, liability, workmen's powers;
compensation and other insurable
risks, and for bonding of the      
 (8)
(9)
   
(b) The manner and procedure for
amending such restrictions:
Provided, That the vote of not less
than a majority in interest of the
owners is obtained.
   
(c) For independent audit of the
accounts of the management body;
   
(d) For reasonable assessments to
meet authorized expenditures, each
condominium unit to be assessed
separately for its share of such
For entry by its officers and agents
into any unit when necessary in
connection with the maintenance
or construction for which such
body is responsible;
For a power of attorney to the
management body to sell the
entire project for the benefit of all
of the owners thereof when
partition of the project may be
authorized under Section 8 of this
Act, which said power shall be
binding upon all of the
condominium owners regardless
of whether they assume the
obligations of the restrictions or
not.
expenses in proportion (unless
otherwise provided) to its owners
fractional interest in any common
areas;
(e) For the subordination of the liens
securing such assessments to other
liens either generally or specifically
described;
   
(f) For conditions, other than those
provided for in Sections eight and
thirteen of this Act, upon which
partition of the project and
dissolution of the condominium
corporation may be made. Such
right to partition or dissolution may
be conditioned upon failure of the
condominium owners to rebuild
within a certain period or upon
specified inadequacy of insurance
proceeds, or upon specified
percentage of damage to the
building, or upon a decision of an
arbitrator, or upon any other
reasonable condition.
These restrictions are imposed for the "common interest and safety of the
occupants"66 of the condominium. In Limson v. Wack Wack Condominium
Corporation:67
In a multi-occupancy dwelling such as Apartments, limitations are imposed
under R.A. 4726 in accordance with the common interest and safety of the
occupants therein which at times may curtail the exercise of ownership. To
maintain safe, harmonious and secured living conditions, certain stipulations
are embodied in the duly registered deed of restrictions, in this case the
Master Deed, and in house rules which the condominium corporation, like
respondent, is mandated to implement. Upon acquisition of a unit, the owner
not only affixes his conformity to the sale; he also binds himself to a contract
with other unit owners.68 (Citations omitted)
The declaration of restrictions is enforceable by the management body of the
condominium.69 In Twin Towers Condominium Corporation v. Court of
Appeals:70
To reiterate, the Condominium Act expressly provides that the Master Deed
may empower the management body of the Condominium "to enforce the
provisions of the declaration of restrictions." The Master Deed authorizes
petitioner, as the management body, to enforce the provisions of the Master
Deed in accordance with petitioner's By-Laws. Thus, petitioner's Board of
Directors is authorized to determine the reasonableness of the penalties and
interests to be imposed against those who violate the Master Deed. Petitioner
has validly done this by adopting the House Rules.
The Master Deed binds ALS since the Master Deed is annotated on the
condominium certificate of title of ALS' Unit. The Master Deed is ALS'
contract with all Condominium members who are all co-owners of the
common areas and facilities of the Condominium. Contracts have the force of
law between the parties and are to be complied with in good faith. From the
moment the contract is perfected, the parties are bound to comply with what
is expressly stipulated as well as with what is required by the nature of the
obligation in keeping with good faith, usage and the law. Thus, when ALS
purchased its Unit from petitioner, ALS was bound by the terms and
conditions set forth in the contract, including the stipulations in the House
Rules of petitioner, such as House Rule 26.2.71 (Citations omitted)
Here, when petitioners bought the condominium units from Imperial
Bayfront, they were bound by the terms and conditions of the declaration of
restrictions attached to the Master Deed. As the Court of Appeals found, the
Master Deed expressly allows its condominium association to subject its
owners, purchasers, tenants, and lessees to rules and regulations for "the
efficient and mutually beneficial management and operation of the
project."72 These were the House Rules and Regulations, which vested in the
Association the power to interrupt utility services in case of nonpayment of
association dues.
As the Court of Appeals held, petitioners cannot feign ignorance and insist
that these rules cannot apply to them. Neither can they justify their
nonpayment of dues with mere allegations that the House Rules and
Regulations are invalid and that the Association's Board of Directors was not
duly elected. Petitioners' action for damages is not the proper forum to
determine the legitimacy of the Association's Board of Directors and whether
its acts are ultra vires.73
Finally, petitioners are not entitled to the damages they prayed for.
Moral damages are awarded in circumstances enumerated under Article
2217 of the Civil Code:
ARTICLE 2217. Moral damages include physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury. Though incapable of pecuniary
computation, moral damages may be recovered if they are the proximate
result of the defendant's wrongful act or omission.
For moral damages to be awarded, the following requisites must be present:
Such damages, to be recoverable, must be the proximate result of a wrongful
act or omission the factual basis for which is satisfactorily established by the
aggrieved party. An award of moral damages would require certain
conditions to be met; to wit: (1) First, (sic) there must be an injury, whether
physical, mental or psychological, clearly sustained by the claimant;
(2) second, (sic) there must be a culpable: act or omission factually
established; (3) third, (sic) the wrongful act or omission of the defendant is
the proximate cause of the injury sustained by the claimant; and (4) fourth,
(sic) the award of damages is predicated on any of the cases stated in Article
2219.74 (Emphasis in the original, citations omitted)
Here, respondents were not found to have committed any culpable act or
omission that would warrant an award of moral damages for petitioner
David. Clearly, the injury he allegedly sustained was caused by his own
failure, as president of petitioner BNL Management, to resolve the
corporation's nonpayment of dues.
For its part, petitioner BNL Management, being a corporation, is not entitled
to moral damages. In Noell Whessoe, Inc. v. Independent Testing Consultants,
Inc.:75
A corporation is not a natural person. It is a creation of legal fiction and "has
no feelings[,] no emotions, no senses[.]" A corporation is incapable of fright,
anxiety, shock, humiliation, and physical or mental suffering. "Mental
suffering can be experienced only by one having a nervous system and it
flows from real ills, sorrows, and griefs of life[.]" A corporation, not having a
nervous system or a human body, does not experience physical suffering,
mental anguish, embarrassment, or wounded feelings. Thus, a corporation
cannot be awarded moral damages.
In the 1968 case of Mambulao Lumber v. Philippine National Bank, this Court
stated, in passing, "[a] corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral damages."
There is no showing here that an exception should apply pro hac vice in favor
of petitioner BNL Management.
Moreover, as the Court of Appeals aptly pointed out, 77 exemplary damages
may only be awarded if a party proves entitlement to temperate, liquidated,
actual,78 or moral damages.79 Petitioners have already admitted that they will
not quantify the actual damages they sustained. 80 They have also neither
sought for nor been granted temperate or liquidated damages.
Accordingly, petitioner BNL Management cannot be awarded exemplary
damages.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The July 25,
2012 Decision and December 4, 2013 Resolution of the Court of Appeals in
CA-G.R. CV No. 90493 are AFFIRMED.
SO ORDERED.
Peralta (Chairperson), A. Reyes, Jr., Hernando, and Carandang*, JJ., concur.

This same statement has appeared in People v. Manero. Mambulao

Lumber and Manero, however, were not meant to be used as basis to carve an
exception to the rule. There is still no definitive pronouncement by this Court
of any existing exceptions to the rule. In ABS-CBN Broadcasting Corporation v.
Court of Appeals, this Court even clarified that the statement in Mambulao
Lumber and Manero was mere obiter dictum.

There is no standing doctrine that corporations are, as a matter of right,

entitled to moral damages. The existing rule is that moral damages are not
awarded to a corporation since it is incapable of feelings or mental anguish.
Exceptions, if any, only apply pro hac vice.76 (Emphasis in the original,
citations omitted)