ATTY. REYES G. GEROMO, FLORENCIO BUENTIPO, JR., ERNALDO YAMBOT and LYDIA BUSTAMANTE vs.

LA
PAZ HOUSING AND DEVELOPMENT CORPORATION and GOVERNMENT SERVICE INSURANCE SYSTEM
G.R. No. 211175
January 18, 2017
PONENTE: ASSOCIATE JUSTICE JOSE CATRAL MENDOZA

FACTS: Petitioners Atty. Reyes G. Geromo,  Florencio Buentipo, Jr., Ernaldo Yambot, and Lydia 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 reconsideration19 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.