G.R. No. 83588 September 29, 1997
Spouses Adoracion C. Pangilinan and George B. Pangilinan, represented by Arcadio S. Mallari, petitioners, vs. Court of Appeals, Jose R. Canlas, Luis R. Canlas, and Rural Bank of Sta. Rita, Inc., respondents.

FACTS

Petitioners Pangilinan and respondents Canlas entered into a Contract to Buy and To Sell a subdivision lot on May 18, 1968. The contract price was P17,310.00, payable in monthly installments. Petitioners paid a 10% down payment and subsequent installments, amounting to about 85% of the total price, with the last payment made on May 14, 1975. Paragraph 5 of the contract stipulated automatic extrajudicial rescission upon default in payment of three consecutive monthly installments, with forfeiture of all amounts paid.
In 1983, petitioners’ attorney-in-fact, Arcadio S. Mallari, offered to pay the alleged remaining balance and requested the title. Respondents refused, revealing the lot had been disposed of and was mortgaged to respondent Rural Bank. On July 25, 1983, petitioners filed a complaint for Specific Performance and Damages. The Regional Trial Court ruled in favor of petitioners, ordering respondents to accept payment, execute a deed of sale, and pay damages. The Court of Appeals reversed this decision, dismissing the complaint.

ISSUE

The primary issues are: (1) whether the automatic rescission clause in the contract was validly invoked by respondents without judicial intervention; and (2) whether petitioners were guilty of laches.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. On the first issue, the Court distinguished a contract to sell from a contract of sale. In a contract to sell, ownership is retained by the vendor until full payment of the price. The stipulation for automatic rescission upon default is valid and binding, and Article 1592 of the Civil Code, which requires a judicial or notarial demand for rescission in a sale of immovable property, does not apply. The contract here was a contract to sell, and the automatic rescission clause was a potestative condition that became operative upon petitioners’ default, which occurred when they stopped paying installments. Respondents were not required to make a demand or seek judicial approval for the rescission.
On the second issue, the Court found petitioners guilty of laches. They made their last payment in May 1975 but only sought to assert their rights and tender full payment in 1983—a delay of eight years. During this period, they were inexplicably inactive, failing to inquire about their account or make further payments. This unreasonable and unexplained neglect to assert a right for an extended time warrants a presumption that the right was abandoned. Laches, unlike prescription, is based on equity and discourages the enforcement of stale claims. Petitioners’ inaction barred them from seeking equitable relief.