G.R. No. 185440 ; July 13, 2011
Vicelet Lalicon and Vicelen Lalicon, Petitioners, vs. National Housing Authority, Respondent.

FACTS

On November 25, 1980, the National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a Quezon City lot in favor of spouses Isidro and Flaviana Alfaro. The deed contained a stipulation that the lot could not be alienated, transferred, or encumbered within five (5) years from the date of release of the mortgage without NHA’s prior written consent. This restriction was annotated on the Alfaros’ title on April 14, 1981. On November 30, 1990, while the mortgage still subsisted, the Alfaros sold the property to their son, Victor Alfaro. The NHA released the mortgage on March 21, 1991. On March 27, 1991, Victor transferred ownership to his illegitimate daughters, petitioners Vicelet and Vicelen Lalicon. On October 4, 1995, Victor registered the 1990 sale, resulting in the issuance of a new title in his name. He later mortgaged and subsequently sold the property to Marcela Lao Chua on February 14, 1997. On April 10, 1998, the NHA filed an action for annulment of the sales for violation of the five-year restriction. The Regional Trial Court ruled that while there was a violation, the NHA’s right to rescind had prescribed. The Court of Appeals reversed, declaring the titles and sales null and void, ordering reconveyance to NHA, and ordering NHA to pay the Lalicons for amortizations and improvements. The Lalicons elevated the case to the Supreme Court.

ISSUE

1. Whether the Alfaros violated their contract with the NHA.
2. Whether the NHA’s right to rescind has prescribed.
3. Whether the subsequent buyers (the Lalicons and Chua) acted in good faith.

RULING

1. Yes, the Alfaros violated the contract. The Supreme Court held that the Alfaros clearly violated the five-year restriction by selling the property to Victor on November 30, 1990, even before the mortgage was released on March 21, 1991. The restriction was a condition on the sale intended to preserve the beneficiary’s ownership for a reasonable period to achieve the socialized housing program’s objective. The NHA had no obligation to grant a request for exemption, and the resale without consent constituted a substantial breach.
2. No, the NHA’s right to rescind has not prescribed. The Court distinguished between rescission under Article 1191 (resolution of reciprocal obligations due to breach) and rescission under Article 1381 (rescissible contracts). The action filed by NHA, based on the Alfaros’ breach of the contractual prohibition, falls under Article 1191. The prescriptive period for such an action is ten (10) years under Article 1144, not the four-year period under Article 1389 which applies to rescission under Article 1381. The NHA’s right of action accrued on February 18, 1992 (when it learned of the sale), and it filed the case on April 10, 1998, well within the ten-year period.
3. No, the subsequent buyers were not in good faith. The Lalicons and Chua were not buyers in good faith. The five-year prohibition was annotated on the title, placing them on constructive notice. The Lalicons knew the sale from the Alfaros to Victor violated the prohibition. Chua, who took a mortgage from Victor in 1995 (within the prohibited period) and later bought the property, was also aware of the illegality of Victor’s acquisition due to the annotated restriction. Consequently, their rights could be affected by the rescission.
The Supreme Court affirmed the Court of Appeals’ decision, declaring the relevant titles and deeds of sale null and void, ordering reconveyance to NHA, and ordering NHA to return the amortizations paid and the value of improvements to the Lalicons with interest, as mutual restitution is required in rescission under Article 1191.