G.R. No. 176791 ; November 14, 2012
COMMUNITIES CAGAYAN, INC., Petitioner, vs. SPOUSES ARSENIO (Deceased) and ANGELES NANOL AND ANYBODY CLAIMING RIGHTS UNDER THEM, Respondents.

FACTS

In 1994, respondents Spouses Nanol entered into a Contract to Sell with petitioner for a house and lot. To secure a loan from a bank affiliated with the petitioner, a simulated Deed of Absolute Sale was executed, transferring titles to the respondents. The bank collapsed before releasing the loan. The parties subsequently executed a new Contract to Sell in 1997, with respondents availing of petitioner’s in-house financing. Respondents defaulted on payments starting 2000, and after the husband’s death, petitioner sent a Notice of Cancellation. An initial unlawful detainer case was dismissed upon discovery that titles were already in the respondents’ names. Petitioner then filed a Complaint for Cancellation of Title, Recovery of Possession, and Reconveyance.

ISSUE

Whether the Regional Trial Court erred in ordering the petitioner, upon recovery of the property, to reimburse the respondents for their total installment payments and the value of their improvements on the house.

RULING

No, the RTC did not err. The Supreme Court affirmed the RTC’s decision. The simulated Deed of Absolute Sale, executed solely to facilitate the bank loan that never materialized, was declared void for lack of consideration. Consequently, the transfer of titles was invalid. The subsequent 1997 Contract to Sell was the governing agreement. Since petitioner sought the contract’s cancellation and the property’s recovery, the action was essentially one for rescission under Article 1191 of the Civil Code. The legal consequence of rescission is mutual restitution; both parties must be returned to their original positions. Therefore, petitioner must return all installments received. Regarding improvements, respondents were builders in good faith. They constructed a new house believing themselves to be the owners, as titles were registered in their names due to the simulated sale. Under Article 448 of the Civil Code, the landowner (petitioner) has the option to appropriate the improvement upon payment of indemnity or to sell the land to the builder. The RTC’s order for petitioner to pay the value of the new house, minus the cost of the original structure it replaced, correctly implemented this legal principle, ensuring equity and preventing unjust enrichment. The Court found no merit in petitioner’s claim that the Maceda Law applied exclusively, as the case involved a void contract and the equitable principles of rescission and good-faith improvement.