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[G.R. No. 185440. July 13, 2011]
On November 25, 1980 the NHA executed a Deed of Sale with Mortgage over the
Quezon City lot in favor of the Isidro and Flaviana Alfaro. It was provided in the deed of sale
that the Alfaros could sell the land within five years from the date of its release from mortgage
without NHAs prior written consent.
Nine years later Afaros sold the land to their son. Victor Alfaro, who had a common-law
wife, Cecilia, who had the means, had a house built on the property and paid for the
amortization. On March 21, 1991, the NHA released the mortgage. After four and a half year
since the mortgaged was released Victor registered the sale of land in his favor, resulting in the
cancellation of his parents title, on Dec. 14, 1995, Victor mortgaged the land to Marcela Lao
Chua, Rosa Sy, Amparao Ong, and Ida See. Afterwards, on Feb. 14, 1997 Victor sold the
property to Chua, one of the mortgagees, resulting the cancelation of his TCT and the issuance in
Chuas name.
A year later, NHA instituted a case before the QC RTC for the annulment of the NHAs
1980 sale of the land to their son Victor and the subsequent sale of Victor to Chua was a violation
of NHA rules and regulations. The RTC ruled that although the Alfaros clearly violated the fiveyear prohibition, the NHA could no longer rescind its sale to them since its right to do so had
already prescribed, applying the Article 1389 of the New Civil Code. While the C.A declared that
TCT 277321 in the name of the Alfaros and all subsequent titles of deeds of sale null and void.

a. Whether or not the CA erred holding that the Alfaros violated their contract
with the NHA.
b. Whether or not NHAs right to rescind has prescribed.
c. Whether or not the subsequent buyers of the land acted in good faith and their
rights, therefore, cannot be affected by the rescission.

The CA correctly rules that such violation come under Art. 1191 where the applicable
prescriptive period is that provided in Art. 1144 which is 10 years from the time the right of
action accrues. It is clearly said that the Alfaros violated 5 years restriction, thus entitling the
NHA to rescind the contract. The NHAs right action accrued on Feb. 18, 1992 when it learned of
the Alfaros forbidden sale of the property to Victor. Since the NHA failed its action for
annulment of sale on April 10, 1998, it did not so well within the 10 years prescriptive period.
The Court also agrees that with the CA that Lalicon and Chua were not buyers in good faith. As
regards Chua, she and a few others with her took the property by way of mortgage from Victor
within the prohibited period. Since mutual restitution is required in case involving rescission
under art. 1191, the NHA must return the full amount of amortization it received for the property,
plus the value of the improvement introduce on the same, within 6% interest per annum from the
time of the finality of this judgment. Hence, the Court affirms the decision of the C.A.