Title
Spouses Lagandaon vs. Court of Appeals
Case
G.R. No. 102526-31
Decision Date
May 21, 1998
Petitioners sought to rescind Contracts to Sell after acquiring foreclosed properties, claiming a modified verbal agreement. Courts ruled no modified contract existed; petitioners assumed prior obligations. Supreme Court affirmed, denying rescission.
contract to sell
subdivision lots
modified contracts
A

Case Summary (G.R. No. 102526-31)

Factual Background: The Three Key Transactions and the CFI Judgment

The Supreme Court emphasized three undisputed transactions: first, the contracts to sell executed by Pacweld (then headed by petitioner Lorenzo V. Lagandaon) in favor of the private respondents on different dates; second, the DBP foreclosure where DBP acquired ownership of the Pacweld subdivision lots due to Pacweld’s failure to pay its loan of P1.5 million at maturity; and third, a deed of absolute sale executed by DBP on May 12, 1980 in favor of petitioners, covering 69 parcels known as Pacweld Village, with titles later issued in petitioners’ name under TCT No. B-42988.

The facts showed that, as of around 1972, the defendant-purchasers had deferred or refused further payments because Pacweld officials allegedly refused to develop the areas bought. In response, buyers—including the private respondents and other lot buyers—filed an action for specific performance before the then Court of First Instance of Manila, Branch XXVII, docketed as Civil Case No. 87763. On October 12, 1976, the CFI rendered judgment ordering the defendants to comply with their contractual obligation to cement roads, gutters, concrete curbs, and the drainage system, and it awarded moral damages, exemplary damages, and attorneys fees.

The Supreme Court also noted the special circumstance that Pacweld’s lots were subject to a real estate mortgage in favor of DBP. DBP foreclosed on June 2, 1975, participated in the bidding due to the lack of bidders, and, after non-redemption, the titles were consolidated under DBP.

When petitioners later became registered owners by virtue of DBP’s deed, they were contractually bound by a condition appearing in pleadings: any claims, liens, assessments, liabilities, and/or damages arising from litigation involving the properties would be assumed and borne by the vendees to the exclusion of the vendor.

Petitioners’ Complaints for Rescission and the Claimed “Modified Contract to Sell”

The Supreme Court stated that this case began when petitioners filed several identical complaints in the CFI seeking to rescind the original contracts to sell executed by Pacweld in favor of the private respondents. Petitioners alleged that the contracts had become stale and/or inoperative because DBP’s acquisition of ownership rendered the original arrangement ineffective. Petitioners also invoked an alleged modified agreement to sell under which private respondents were required to update their accounts consistent with the original contracts; petitioners retained the right of forfeiture; and petitioners would not be bound or liable to comply with the developer obligations of the previous owner-developer, Pacweld.

Petitioners justified the rescission actions by claiming that the private respondents failed to pay their outstanding accounts. The private respondents denied the existence of any modified contract, and they argued that petitioners, as successors-in-interest of Pacweld, had no right to demand rescission or payment of the unpaid balance until petitioners had completed the subdivision development in accordance with the contract and the CFI judgment.

Trial Court Ruling and the Appellate Court’s Modified Disposition

The trial court held that petitioners could not base their actions on an alleged modified contract to sell, which it found to be non-existent, both physically and legally. It therefore dismissed the complaints, including the claims for attorneys fees and costs of litigation, but it awarded attorneys fees to defendants in each case as part of their counterclaims for resisting the suits.

On appeal, the CA observed that petitioners did not properly challenge the trial court’s finding that the modified contract to sell did not exist. The CA also ruled that petitioners could not, on appeal, raise new theories regarding their ownership rights stemming from DBP’s May 12, 1980 sale and the execution foreclosure, because this would contradict the theory presented in the trial court that the private respondents had defaulted under the alleged modified contract.

Thus, while the CA affirmed the dismissal, it modified the disposition by deleting the award of attorneys fees in favor of the defendant-appellees.

Issues Raised in the Petition for Review

Petitioners assigned errors on the following points: whether the CA erred in finding there was no modified contract to sell; whether the CA erred in finding petitioners had changed their theory on appeal; and whether the CA erred in ruling that petitioners had no right to ask for rescission based on the alleged modified contract, thereby dismissing the complaints.

Supreme Court’s Ruling: No Modified Contracts to Sell and Binding Factual Findings

The Supreme Court held that the petition lacked merit. On the first issue, it ruled that petitioners’ theory depended on the existence of modified contracts to sell. Petitioners insisted that the original contracts became stale upon DBP’s acquisition and that thereafter the parties entered into oral modifications.

The Court rejected petitioners’ submission. It reasoned that the staleness of the contracts due to foreclosure and DBP’s acquisition did not automatically establish that petitioners and the private respondents later entered into oral modified contracts. The trial court had found that the modified contracts were non-existent physically and legally and that the plaintiff spouses did not execute any contract different from the original contracts existing between Pacweld and the private respondents.

In addition, the Court invoked the procedural doctrine that questions of fact may not be raised in a petition for review under Rule 45, especially where the trial court had already resolved those factual matters and the CA had affirmed them. The Court treated the existence of modified contracts to sell as a question of fact. It further held that petitioners had not justified any exceptional circumstance that would allow reevaluation of the lower courts’ factual conclusions.

The Court also reiterated the limited function of Rule 45 review, citing the principle that the Supreme Court reviews errors of law, and that factual findings of the trial court, as affirmed by the CA, become final and conclusive in the absence of specific exceptional grounds such as speculation, manifest absurdity, grave abuse of discretion in appreciation of facts, findings beyond the issues, or contradictions with admissions.

Supreme Court’s Ruling: Petitioners Assumed Pacweld’s Obligations

On the second issue, petitioners claimed they could not have assumed Pacweld’s obligations because they supposedly acquired title from DBP as buyers in good faith and for value, with contracts-to-sell allegedly not annotated on Pacweld’s titles. They further invoked the protection of Republic Act No. 6552, the Maceda Law.

The Court held that petitioners’ argument did not persuade. It first found that petitioner Lorenzo Lagandaon had actual knowledge of the contracts to sell because he had signed them while he was Pacweld’s president. Thus, when he acquired DBP’s title, he was aware of preexisting contracts to sell between Pacweld and the private respondents. The Court also treated knowledge of a prior unregistered interest as having the effect of registration as to the acquiring party.

More importantly, the Court held that petitioners’ later actions showed an assumption of Pacweld’s obligations under the original contracts. After acquiring title on May 12, 1980, petitioners sought to collect installment payments from private respondents. In petitioners’ demand letters—one addressed to Rafael Solidum and Leonido Bongco and another addressed to Raymundo Sitjar—petitioners’ counsel repeatedly demanded payment based on the original contracts to sell, with no mention of any alleged modified contracts. The Court characterized the “modified contract” notion as an afterthought raised only when petitioners filed their complaint before the RTC.

Because petitioners assumed Pacweld’s obligations by virtue of their purchase and by their subsequent conduct, the Court ruled that they were liable for Pacweld’s undertakings toward the private respondents. It further stated that the Maceda Law was inapplicable because petitioners were not the installment buyers; private respondents were. Thus, if the Maceda Law had any relevance, it would have protected the buyers—private respondents—not petitioners. The Court also held that Section 3(b) of the Maceda Law did not provide petitioners a basis to cancel the contracts to sell; rather, it prescribed the seller’s refund duties in case of cancellation.

The Court also upheld the trial court’s reasoning that petitioners’ prayers for vacation and surrender of lots could not be granted because such remedy would contravene RA 6552, and because petitioners were not the subdivision owners or developers contemplated by the law.

Rejection of the “Dormant Judgment” and Developer-Licensing Defenses

Petitioners also argued that they could not be compelled to assume Pacweld’s obligations because the CFI decision of October 12, 1976 had become dormant after more than ten (10) years and because petitioners were not licensed real estate developers. The Supreme Court found these contentions meritless.

The Court treated it as irrelevant whether the CFI decision had become dormant, because petitioners themselves assumed the development-related obligations by purchasing the properties and by seeking collection under the original contracts. The Court further ruled that lack of developer licensing did not excuse noncompliance with ob

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