G.R. No. 199990 , February 4, 2015
SPOUSES ROLANDO and HERMINIA SALVADOR, Petitioners, vs. SPOUSES ROGELIO AND ELIZABETH RABAJA and ROSARIO GONZALES, Respondents.

FACTS

Petitioner Spouses Rolando and Herminia Salvador owned a parcel of land in Mandaluyong City. From 1994 to 2002, respondent Spouses Rogelio and Elizabeth Rabaja were leasing an apartment on the lot. In July 1998, the Spouses Rabaja learned the property was for sale. Petitioner Herminia Salvador introduced respondent Rosario Gonzales as the property administrator and handed her the owner’s duplicate certificate of title. On July 24, 1998, the parties executed a “Contract to Sell” for ₱5,000,000.00. Spouses Rabaja made an initial payment of ₱48,000.00 to Gonzales in Herminia’s presence and subsequent payments totaling ₱950,000.00, received by Gonzales pursuant to a Special Power of Attorney (SPA) presented by her and evidenced by check vouchers and improvised receipts. In June 1999, Spouses Salvador complained they received no payments from Gonzales, prompting Spouses Rabaja to suspend further payments. Spouses Salvador then sent a notice to vacate and filed an ejectment case. Spouses Rabaja, in turn, filed a rescission case (the subject of this petition) against Spouses Salvador and Gonzales. In the rescission case, the RTC declared Spouses Salvador in default for failure to attend the pre-trial. After ex parte proceedings, the RTC rescinded the contract, ordering Spouses Salvador and Gonzales jointly and severally to refund the ₱950,000.00, return ₱593,400.00 garnished from the Rabajas’ account in the ejectment case, and pay damages. The CA affirmed with modification, absolving Gonzales from solidary liability. Spouses Salvador appealed to the Supreme Court.

ISSUE

1. Whether the RTC gravely abused its discretion in declaring petitioners in default.
2. Whether the RTC erred in giving credence to Gonzales’s testimony and the improvised receipts.
3. Whether the RTC erred in rescinding the Contract to Sell and ordering the refund of ₱950,000.00.
4. Whether the RTC erred in ordering the return of the ₱593,400.00 garnished in the ejectment case.

RULING

1. No. The Supreme Court held the RTC did not gravely abuse its discretion. Default orders are addressed to the court’s sound discretion. Spouses Salvador failed to attend the pre-trial without a valid excuse, and their motion for reconsideration offered only a flimsy explanation. The RTC’s denial was not capricious.
2. No. The Court found no error. Gonzales was introduced by Herminia as the administrator and was armed with an SPA. Spouses Rabaja, dealing with her in good faith, were not required to investigate the extent of her authority. The authenticity of the improvised receipts, while questioned, was supported by Gonzales’s testimony, which the trial court found credible.
3. No. The Contract, though denominated a “Contract to Sell,” was a contract of sale as the vendors did not reserve title until full payment. It was a reciprocal obligation. Spouses Salvador’s failure to deliver the title upon receipt of substantial payments (through their agent) constituted a breach, justifying rescission under Article 1191 of the Civil Code and entitling Spouses Rabaja to a refund of their payments.
4. Yes. The RTC and CA erred in ordering the return of the ₱593,400.00 garnished in the separate ejectment case. This amount represented adjudged rental arrearages from a final and executory judgment (CA-G.R. SP No. 89259). The rescission case cannot nullify or modify that final judgment. The claim for its return is a separate cause of action not pleaded in the rescission complaint. Furthermore, legal compensation under Articles 1279 and 1290 of the Civil Code could not apply as the garnished amount was a judgment debt, not a simple contract debt, and the requisites for compensation were not met.
The Supreme Court DENIED the petition for lack of merit, AFFIRMED the CA Decision with the MODIFICATION that the order for Spouses Salvador to return the ₱593,400.00 garnished amount is DELETED.