G.R. No. 212942 - Estrella y Gili vs. People

On November 25, 1980, the National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a lot in Quezon City in favor of spouses Isidro and Flaviana Alfaro (the Alfaros).
The Transfer Certificate of Title (TCT) 277321 was issued in the name of the Alfaros.
The contract explicitly stipulated a restriction clause prohibiting the sale, transfer, or encumbrance of the property within five years from the release of the mortgage without prior written consent of NHA. This restriction was also annotated on the title on April 14, 1981.

On November 30, 1990, before the mortgage was released, the Alfaros sold the property to their son Victor Alfaro.
Victor, who had a common-law wife, Cecilia (mother of petitioners Vicelet and Vicelen Lalicon), took possession; Cecilia built a house and paid amortizations.
The mortgage was released by NHA on March 21, 1991; six days later, Victor transferred ownership to his two illegitimate daughters, the Lalicons.
On October 4, 1995, Victor registered his purchase from his parents, resulting in cancellation of TCT 277321 and issuance of TCT 140646 in his name.
Victor mortgaged the property to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida See on December 14, 1995.
On February 14, 1997, Victor sold the property to Chua, leading to cancellation of his TCT and issuance of TCT N-172342 in Chua’s name.

On April 10, 1998, NHA sued for annulment of the sale from NHA to the Alfaros, the sale from the Alfaros to Victor, and subsequent sale to Chua, alleging violations of NHA rules and regulations on sale restrictions.
The Regional Trial Court (RTC) ruled on February 12, 2004, that although the Alfaros breached the five-year restriction, NHA’s right to rescind had prescribed under Article 1389 of the Civil Code (four-year prescriptive period).
Both NHA and the Lalicons appealed to the Court of Appeals (CA).
On August 1, 2008, the CA reversed the RTC, ruling the NHA entitled to rescission; all titles and deeds arising from unlawful sales were declared null and void. The CA ordered reconveyance to the NHA and required the latter to reimburse Lalicons for amortizations with interest and value of improvements.

Whether the Alfaros violated their contract with NHA by selling the property within the prohibited period without NHA’s prior written consent.
Whether NHA’s right to rescind the sale has already prescribed under applicable Civil Code provisions.
Whether the subsequent buyers, including the Lalicons and Chua, acted in good faith and whether their rights are protected from rescission.