GR No. 185440
July 13, 2011
RESCISSION & PRESCRIPTION
FACTS:
(1) On November 25, 1980 the National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a Quezon City lot in favor of the spouses Isidro and Flaviana Alfaro (the Alfaros). The deed of sale provided, among others, that the Alfaros could sell the land within five years from the date of its release from mortgage without NHA's prior written consent. Thus:
x x x. 5. Except by hereditary succession, the lot herein sold and conveyed, or any part thereof, cannot be alienated, transferred or encumbered within five (5) years from the date of release of herein mortgage without the prior written consent and authority from the VENDOR-MORTGAGEE (NHA). x x x
The mortgage and the restriction on sale were annotated on the Alfaros' title on April 14, 1981.
(2) About nine years later or on November 30, 1990, while the mortgage on the land subsisted, the Alfaros sold the same to their son, Victor Alfaro.
(3) After full payment of the loan or on March 21, 1991 the NHA released the mortgage.
(4) Six days later or on March 27 Victor transferred ownership of the land to his illegitimate daughters. (5) On December 14, 1995 Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida See.
(6) Subsequently, on February 14, 1997 Victor sold the property to Chua, one of the mortgagees.
RTC: 1990 sale of the land to their son Victor, and the subsequent sale of the same to Chua, made in violation of NHA rules and regulations. It ruled that, although the Alfaros clearly violated the five-year prohibition, the NHA could no longer rescind its sale to them since its right to do so had already prescribed, applying Article 1389 of the New Civil Code. The NHA and the Lalicons, who intervened, filed their respective appeals to the Court of Appeals (CA).
CA: CA reversed the RTC decision and found the NHA entitled to rescission. The CA declared TCT 277321 in the name of the Alfaros and all subsequent titles and deeds of sale null and void. It ordered Chua to reconvey the subject land to the NHA but the latter must pay the Lalicons the full amount of their amortization, plus interest, and the value of the improvements they constructed on the property.
ISSUE: Whether or not the subsequent sales constituted breach in the obligation and may give rise to rescission
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APPLICABLE LAW/S:
• Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
• This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)
• Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a)
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HELD: (1) Lalicons' request for exemption from the five-year restriction was not granted. Resale without NHA's consent is a substantial breach.
The five-year restriction against resale, counted from the release of the property from the NHA mortgage, measures out the desired hold that the government felt it needed to ensure that its objective of providing cheap housing for the homeless is not defeated by wily entrepreneurs. The restriction clause is more of a condition on the sale of the property to the Alfaros rather than a condition on the mortgage constituted on it. The Lalicons claim that the NHA unreasonably ignored their letters that asked for consent to the resale of the subject property. They also claim that their failure to get NHA's prior written consent was not such a substantial breach that warranted rescission. But the NHA had no obligation to grant the Lalicons' request for exemption from the five-year restriction as to warrant their proceeding with the sale when such consent was not immediately forthcoming. And the resale without the NHA's consent is a substantial breach. The essence of the government's socialized housing program is to preserve the beneficiary's ownerships for a reasonable length of time, here at least within five years from the time he acquired it free from any encumbrance.
(2) Action has not prescribed.
NHA sought annulment of the Alfaros' sale to Victor because they violated the five-year restriction against such sale provided in their contract. Thus, the CA correctly ruled that such violation comes under Article 1191 where the applicable prescriptive period is that provided in Article 1144 which is 10 years from the time the right of action accrues. The NHA's right of action accrued on February 18, 1992 when it learned of the Alfaros' forbidden sale of the property to Victor. Since the NHA filed its action for annulment of sale on April 10, 1998, it did so well within the 10-year prescriptive period.
(3) Lalicons and Chua were not buyers in good faith.
Since the five-year prohibition against alienation without the NHA's written consent was annotated on the property's title, the Lalicons very well knew that the Alfaros' sale of the property to their father, Victor, even before the release of the mortgage violated that prohibition.
(4) Lastly, since mutual restitution is required in cases involving rescission under Article 1191, the NHA must return the full amount of the amortizations it received for the property, plus the value of the improvements introduced on the same, with 6% interest per annum from the time of the finality of this judgment.
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