G.R. No. 172036; April 23, 2010
SPOUSES FAUSTINO AND JOSEFINA GARCIA, SPOUSES MELITON GALVEZ AND HELEN GALVEZ, and CONSTANCIA ARCAIRA represented by their Attorney-in-Fact JULIANA O. MOTAS, Petitioners, vs. COURT OF APPEALS, EMERLITA DE LA CRUZ, and DIOGENES G. BARTOLOME, Respondents.

FACTS

Petitioners entered into a Contract to Sell with respondent Emerlita Dela Cruz for five parcels of land. They made a down payment and several installments but failed to pay the final installment of ₱1,670,220.00 on its due date of December 31, 1993. Petitioners alleged they withheld payment due to their discovery that a prior Deed of Absolute Sale, by which Dela Cruz acquired three of the lots from the original owner, was spurious. In July 1995, after a delay of over one and a half years, petitioners tendered payment of the balance, but Dela Cruz refused to accept it. Subsequently, in September 1995, Dela Cruz rescinded the contract and sold the properties to respondent Diogenes Bartolome.
Petitioners filed a complaint for specific performance. The Regional Trial Court ruled in their favor, declaring Dela Cruz’s rescission invalid under the Maceda Law, ordering her to accept the balance, and declaring the subsequent sale to Bartolome null and void. The Court of Appeals reversed this decision, holding the rescission valid and ordering Dela Cruz to return only the amount in excess of the forfeitable sum to petitioners, while absolving Bartolome of liability.

ISSUE

Whether the Court of Appeals erred in upholding the validity of the rescission of the Contract to Sell by respondent Dela Cruz and the subsequent sale to respondent Bartolome.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. The legal logic is anchored on contract law and the inapplicability of the Maceda Law. Petitioners’ failure to pay the final installment on the stipulated date constituted a breach of contract. Their purported reason for withholding payment—apprehension over the authenticity of Dela Cruz’s title—was unjustified. The Contract to Sell explicitly placed the responsibility and cost for transferring title from the original owner to Dela Cruz on the petitioners themselves, negating any claim of a valid excuse for non-payment.
Consequently, Dela Cruz had a clear right to rescind the contract following the breach. The Court found her rescission procedurally valid as she sent the notice of cancellation via notarial act to the address provided by the petitioners in the contract, which complies with legal requirements. The Maceda Law, designed to protect installment buyers, was correctly held inapplicable because the contract involved a single down payment followed by lump-sum installments, not the “installment payments” over a period of at least two years contemplated by the law. Finally, respondent Bartolome was a purchaser in good faith for value, as the titles were clean and he was unaware of any defect in Dela Cruz’s right to sell at the time of purchase.