G.R. No. 102526 -31, May 21, 1998.
Sps. LORENZO V. LAGANDAON and CECILIA T. LAGANDAON and OVERSEAS AGRICULTURAL DEVELOPMENT CORPORATION, petitioners, vs. COURT OF APPEALS, Sps. MELITON BANOYO and ASUNCION P. BANOYO, Sps. DEMETRIO B. BATAYOLA and ANITA A. BATAYOLA, BONIFACIO VASQUEZ, Sps. ROMEO M. GOMEZ and ESTER M. GOMEZ, AURORA GOMEZ, Sps. CARLOS V. DAVID and MANUELA C. DAVID, Sps. LEONIDO D. BONGCO and FE V. BONGCO, Sps. RAFAEL S. SOLIDUM and LUCENDA M. SOLIDUM, Sps. RAYMUNDO SITJAR and LUCIA SITJAR AND Sps. BENJAMIN V. VIVA and GILDA VIVA, respondents.

FACTS

Petitioners are purchasers of subdivision lots: the Lagandaon spouses purchased from the foreclosing mortgagee-bank (DBP), and the Overseas Agricultural Development Corporation purchased at an execution sale. The lots were originally owned by Pacweld, which had executed contracts to sell in favor of private respondents. The trial court and the Court of Appeals held petitioners liable for the obligations of Pacweld under these contracts to sell, including the obligation to develop the subdivision. The trial court found that no modified contracts to sell existed between petitioners and private respondents and that petitioners were not entitled to rescind the original contracts under Republic Act No. 6552 , as they were not the subdivision owners or developers envisioned by the law.

ISSUE

Whether petitioners, as purchasers from the foreclosing mortgagee-bank and at an execution sale, can be held liable to private respondents for the obligations of the original owner-mortgagor (Pacweld) under the contracts to sell.

RULING

No. The separate opinion of Justice Vitug, while not the main decision, argues that petitioners cannot be held liable for Pacweld’s obligations based on the principle of relativity of contracts under Article 1311 of the Civil Code. A contract obligates only the parties thereto, their assigns, and heirs. Petitioners are third persons to the contracts between Pacweld and private respondents. Lorenzo Lagandaon’s participation in Pacweld’s contracts was in a corporate, not individual, capacity, and there is no basis to pierce the corporate veil. The provision in the Deed of Absolute Sale between DBP and the Lagandaon spouses, which stated that the vendees would assume claims or liabilities involving the properties, did not mean petitioners assumed Pacweld’s specific developmental obligations. Petitioners, as buyers at foreclosure/execution sales, acquired the rights, not the personal liabilities, of the debtor, but they hold the property subject to existing legitimate charges and encumbrances, such as the recorded contracts to sell. They are bound to recognize these subsisting contracts and allow private respondents to perfect their rights by completing payments (less the cost of any unfinished development), but this does not equate to assuming Pacweld’s unqualified liabilities. The opinion votes to remand the case to the trial court to determine the parties’ correlative rights consistent with this view.