G.R. No. 179518, 179835, 179954 November 19, 2014
BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. VICENTE VICTOR C. SANCHEZ, HEIRS OF KENNETH NEREO SANCHEZ, represented by FELISA GARCIA YAP, and HEIRS OF IMELDA C. VDA. DE SANCHEZ, represented by VICENTE VICTOR C. SANCHEZ, Respondents. (G.R. No. 179518)

GENEROSO TULAGAN, HEIRS OF ARTURO MARQUEZ, represented by ROMMEL MARQUEZ, and VARIED TRADERS CONCEPT, INC., represented by its President and General Manager, ANTHONY QUINA, Petitioners, vs. VICENTE VICTOR C. SANCHEZ, HEIRS OF KENNETH NEREO SANCHEZ, represented by FELISA GARCIA YAP, and HEIRS OF IMELDA C. VDA. DE SANCHEZ, represented by VICENTE VICTOR C. SANCHEZ, JESUS V. GARCIA, and TRANSAMERICAN SALES & EXPOSITION, INC., Respondents. (G.R. No. 179835)
REYNALDO V. MANIWANG, Petitioner, vs. VICENTE VICTOR C. SANCHEZ and FELISA GARCIA YAP, Respondents. (G.R. No. 179954)

FACTS

Vicente Victor C. Sanchez, Kenneth Nereo Sanchez, and Imelda C. Vda. De Sanchez owned a parcel of land in Quezon City. In October 1988, Jesus V. Garcia, doing business as TransAmerican Sales and Exposition, Inc. (TSEI), offered to buy the property. After negotiations, an agreement was reached wherein Garcia would buy the property for ₱1.85 million, payable in cash after the occupants vacated, with an immediate payment of ₱50,000 earnest money. Felisa Yap (widow of Kenneth) turned over the original title and related documents to Garcia. Garcia took possession, demolished the existing house, and began advertising townhouse units for sale on the property without fully paying the purchase price. On December 8, 1988, the parties executed a written Agreement documenting payment via six checks. The first four checks were honored, but the last two checks (each for ₱400,000) were dishonored for insufficient funds. Yap demanded replacement of the checks and, upon Garcia’s failure, rescinded the Agreement via letter dated January 10, 1989, demanding the return of the title documents. Garcia refused, claiming payment was contingent on the sellers paying certain taxes. Despite the rescission, Garcia, through TSEI, continued to advertise and sell townhouse units on the property to various buyers (Generoso Tulagan, Heirs of Arturo Marquez, Varied Traders Concept, Inc., and Reynaldo Maniwang) and mortgaged the property to Bank of the Philippine Islands (BPI) to secure a loan. The Sanchez heirs filed a complaint for rescission, reconveyance, and damages against Garcia and TSEI. The subsequent buyers and BPI were later impleaded.

ISSUE

The core issue is whether the Sanchez heirs validly rescinded the contract to sell with Garcia, and consequently, whether the subsequent sales and mortgage involving the property are valid.

RULING

The Supreme Court ruled in favor of the Sanchez heirs. The contract was validly rescinded. The Agreement of December 8, 1988, expressly granted the sellers the option to rescind if any check was dishonored. Garcia’s failure to pay the balance via the dishonored checks constituted a breach, and the sellers properly exercised their right to rescind through written notice. The rescission was valid and effective. All subsequent transactions by Garcia—including the sales to Tulagan, Marquez’s heirs, Varied Traders, and Maniwang, and the mortgage to BPI—were executed after the valid rescission and while Garcia held the title in trust for the true owners. These buyers and the mortgagee bank were not in good faith. The buyers were aware of defects (the property was occupied, advertised by a developer, and the title was not in the seller’s name) and did not exercise the diligence required of a prudent purchaser. BPI, as mortgagee, failed to verify the status of the property and the authority of Garcia/TSEI to mortgage it, especially since it was a subdivision project requiring prior HLURB approval for any mortgage under P.D. No. 957. The Court ordered the cancellation of all transfer certificates of title issued to the subsequent buyers and the mortgage in favor of BPI, and the reconveyance of the property to the Sanchez heirs. Garcia and TSEI were held liable for damages.