G.R. No. 83588 September 29, 1997
Spouses Adoracion C. Pangilinan and George B. Pangilinan, represented by Arcadio S. Mallari, petitioners, vs. Court of Appeals, Jose R. Canlas, Luis R. Canlas, and Rural Bank of Sta. Rita, Inc., respondents.

FACTS

Petitioners Pangilinan and respondents Canlas entered into a Contract to Buy and To Sell a subdivision lot on May 18, 1968. The contract price was P17,310.00, payable in monthly installments. Petitioners paid a 10% down payment and subsequent installments, amounting to about 85% of the total price by 1974, with their last payment made on May 14, 1975. Paragraph 5 of the contract stipulated automatic extrajudicial rescission upon default in payment of three consecutive monthly installments, with forfeiture of all amounts paid.
In 1983, petitioners’ attorney-in-fact, Arcadio Mallari, offered to pay the alleged remaining balance and requested the title. Respondents refused, revealing the lot had been disposed of and was mortgaged to respondent Rural Bank. On July 25, 1983, petitioners filed a complaint for Specific Performance and Damages. The Regional Trial Court ruled in favor of petitioners, ordering respondents to accept payment, execute a deed of sale, and pay damages. The Court of Appeals reversed this decision, dismissing the complaint.

ISSUE

1. Whether the automatic rescission clause in the contract was validly invoked by respondents.
2. Whether petitioners were guilty of laches.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. On the first issue, the Court held that Article 1592 of the Civil Code, which requires a judicial or notarial demand for rescission in sales of immovable property, applies only to contracts of absolute sale. The agreement between the parties was a contract to sell, where ownership is retained by the vendor until full payment of the price. In such contracts, a stipulation for automatic rescission upon default is valid and binding. The clause in Paragraph 5 was clear: the contract would be “automatically rescinded and canceled” upon failure to pay three consecutive installments. Petitioners defaulted after their last payment in 1975, triggering the automatic rescission without need for judicial intervention or notice.
On the second issue, the Court ruled petitioners were guilty of laches. They defaulted in 1975 but only asserted their rights and filed suit in 1983, an unreasonable delay of eight years. During this period, they took no action to inquire about their account, tender payment, or assert their claim, while respondents, believing the contract rescinded, mortgaged the property. Laches operates as a presumption of abandonment of right due to negligence and failure to assert a claim for an unreasonable time. Petitioners’ inaction, despite having paid a significant portion, barred them from seeking equitable relief. The Court emphasized that laches is not merely a question of time but of inequity in permitting a stale claim.