G.R. No. 96490 - Indophil Textile Mill Workers Union-PTGWO vs. Calica

Case Summary (G.R. No. 96490)

Contractual Restriction and Relevant Deed Provision

The 1980 Deed of Sale with Mortgage executed by NHA in favor of the Alfaros contained an express prohibition: except by hereditary succession, the lot or any part thereof 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. The mortgage and the annotation of this restriction were entered on the Alfaros’ title on April 14, 1981.

Transaction Timeline and Material Events

November 25, 1980: NHA executed the Deed of Sale with Mortgage in favor of the Alfaros; TCT 277321 issued to them in due course.
November 30, 1990: While the mortgage still subsisted, the Alfaros sold the property to their son Victor.
March 21, 1991: NHA released the mortgage after full payment.
March 27, 1991: Six days after mortgage release, Victor transferred ownership to his illegitimate daughters (petitioners).
October 4, 1995: Victor registered the November 30, 1990 sale in his favor, canceling his parents’ title; TCT 140646 issued to Victor.
December 14, 1995: Victor mortgaged the land to Chua and co-mortgagees.
February 14, 1997: Victor sold the property to Chua; TCT N-172342 issued in Chua’s name.
April 10, 1998: NHA filed suit in the Quezon City RTC for annulment of the NHA–Alfaros sale and subsequent titles on grounds of violation of NHA rules and the five-year restriction.

Procedural History

The RTC (February 12, 2004) held that although the Alfaros violated the five-year prohibition, NHA’s right to rescind had prescribed under Article 1389 (four-year prescriptive period). Both NHA and the Lalicons appealed. The Court of Appeals (August 1, 2008) reversed, finding NHA entitled to rescission, annulling the Alfaros’ title and subsequent titles, and ordering reconveyance to NHA while directing NHA to pay the Lalicons for amortizations and improvements. The Supreme Court affirmed the CA decision.

Issue 1 — Breach of Contractual Restriction

The Court affirmed that the Alfaros breached the five-year restriction against alienation. The prohibition was a substantive condition on the sale: the purchaser-beneficiary was not permitted to alienate the property without NHA’s written consent within five years counted from release of the mortgage. The sale by the Alfaros to Victor occurred before the mortgage was released and therefore contravened the prohibition. The Court rejected arguments that the clause only prohibited transfers after release, characterizing the restriction as an essential term designed to protect the socialized housing objective and to prevent speculative resale.

Issue 2 — Whether NHA’s Right to Rescind Had Prescribed

The Court analyzed the nature of rescission actions and prescription. It distinguished rescission under Article 1191 (reciprocal obligations; resolution as remedial remedy) from rescission under Article 1381 (subsidiary action). The four-year prescription of Article 1389 applies to rescissions under Article 1381. Because the NHA sought annulment based on contractual breach of the five-year prohibition (a breach of reciprocal obligation), the remedy was governed by Article 1191 and thus by the ten-year prescriptive period of Article 1144. The Court found NHA’s right of action accrued on February 18, 1992 when it learned of the prohibited sale; NHA filed suit on April 10, 1998, well within the ten-year period. Accordingly, the right to rescind had not prescribed.

Issue 3 — Good Faith of Subsequent Buyers

The Court held that the Lalicons and Chua were not good-faith purchasers whose rights could prevail against the rescission. The restrictive annotation was on the title, and that annotation placed subsequent acquirers on constructive notice of the limitation. The Alfaros’ sale to Victor and Victor’s mortgage and sale to Chua occurred while the restriction was effective; therefore Victor had no valid right to convey or encumber the property without NHA’s consent. Chua’s acquisition (first by mortgage in 1995, later by purchase in 1997) was within the prohibited period and thus could not be insulated by a claim of ignorance when the title bore the annotation.

Remedy — Mutual Restitution and Monetary Awards

Because rescission under Article 1191 requires mutual restitution, the Court ordered restitution as follows: NHA must return the full amount of the amortizations it received for th

Case Syllabus (G.R. No. 96490)

Citation and Court

Reported at 669 Phil. 231; 108 OG No. 22, 2609 (May 28, 2012).
Decision of the Supreme Court, Third Division, G.R. No. 185440, dated July 13, 2011.
Ponente: ABAD, J.
Concurring: Carpio, Velasco, Jr. (Chairperson), Mendoza, and Sereno, JJ.
Special Orders: Carpio designated as additional member in lieu of Associate Justice Diosdado M. Peralta per Special Order 1029 dated June 30, 2011; Sereno designated as additional member per Special Order 1028 dated June 21, 2011.

Parties

Petitioners: Vicelet Lalicon and Vicelen Lalicon (illegitimate daughters of Victor Alfaro).
Respondent: National Housing Authority (NHA).
Other relevant parties named in the proceedings: Isidro and Flaviana Alfaro (original purchasers/beneficiaries), Victor Alfaro (their son), Cecilia (Victor’s common-law wife), Marcela Lao Chua (Chua), Rosa Sy, Amparo Ong, and Ida See (mortgagees).

Nature and Legal Themes of the Case

The case concerns:
- The right of the National Housing Authority to seek annulment (rescission) of sales made by housing beneficiaries of lands purchased from it, where such sales occurred within a contractually prohibited period.
- The legal distinction between actions for rescission instituted under Article 1191 of the Civil Code and those instituted under Article 1381, and the corresponding prescriptive periods applicable to each remedy.

Factual Background — Chronology and Key Transactions

November 25, 1980: NHA executed a Deed of Sale with Mortgage over a Quezon City lot in favor of spouses Isidro and Flaviana Alfaro.
April 14, 1981: The mortgage and the restriction on sale were annotated on the Alfaros’ title (Transfer Certificate of Title (TCT) 277321 issued in their name).
Contract clause: Deed of Sale contained the following restriction (emphasis supplied in source):
- "Except by hereditary succession, the lot herein sold and conveyed, or any part thereof, cannot be alienated, transferred or encumbered within five (5) years from the date of release of herein mortgage without the prior written consent and authority from the VENDOR-MORTGAGEE (NHA)."
November 30, 1990: While the mortgage on the land still subsisted, the Alfaros sold the property to their son, Victor Alfaro.
Victor’s family situation: Victor had taken a common-law wife, Cecilia, with whom he had two daughters (petitioners Vicelet and Vicelen Lalicon). Cecilia had a house built on the property and paid for the amortizations.
March 21, 1991: NHA released the mortgage after full payment of the loan.
March 27, 1991: Victor transferred ownership of the land to his illegitimate daughters (the Lalicons), six days after the mortgage release.
October 4, 1995: Victor registered the November 30, 1990 sale to him, resulting in the cancellation of his parents’ title and issuance of TCT 140646 in Victor’s name.
December 14, 1995: Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida See.
February 14, 1997: Victor sold the property to Chua; resulting in cancellation of his TCT 140646 and issuance of TCT N-172342 in Chua’s name.
April 10, 1998: NHA instituted an action before the Quezon City Regional Trial Court (RTC) seeking annulment of:
- NHA’s 1980 sale to the Alfaros,
- the Alfaros’ November 30, 1990 sale to Victor,
- and the subsequent sale(s) to Chua, on the ground of violations of NHA rules and regulations (specifically the five-year prohibition and absence of NHA prior written consent).
February 12, 2004: RTC rendered decision holding that although the Alfaros violated the five-year prohibition, NHA’s right to rescind had prescribed under Article 1389 of the New Civil Code.
NHA and the Lalicons appealed to the Court of Appeals (CA).
August 1, 2008: CA reversed the RTC, found NHA entitled to rescission, declared TCT 277321 (Alfaros) and all subsequent titles and deeds of sale null and void, ordered Chua to reconvey the subject land to the NHA, and ordered NHA to pay the Lalicons the full amount of their amortization plus interest and the value of improvements.
Chua’s separate appeal to the Court was denied due course; NHA failed to file its own petition for review, and thus the CA decision ordering restitution in favor of the Lalicons became final and binding as between those parties.

Contractual Restriction and Annotation on Title

The Deed of Sale expressly prohibited alienation, transfer, or encumbrance of the lot (except by hereditary succession) within five years from the date of release of the mortgage without NHA’s prior written consent.
The mortgage and that restriction were annotated on the Alfaros’ TCT on April 14, 1981, putting subsequent parties on notice.

Issues Presented (as framed by the Court)

Whether the Court of Appeals erred in holding that the Alfaros violated their contract with the NHA.
Whether the NHA’s right to rescind has prescribed.
Whether subsequent buyers of the land acted in good faith such that their rights cannot be affected by rescission.

Rulings — Summary of the Supreme Court’s Decision

The Supreme Court affirmed the Court of Appeals decision (CA-G.R. CV 82298 dated August 1, 2008).

First — Violation of the Five-Year Restriction and Right to Rescind

The Deed of Sale forbade alienati