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Jonnifer S.

Quiros JD 1 Case Digests

CPU College of Law Obligations and Contracts


G.R. No. 185440; July 13, 2011

The National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a Quezon City
lot in favor of the spouses Isidro and Flaviana Alfaro. It was provided in the deed of sale that the
Alfaros could not sell the land within five years from the date of its release from mortgage without
NHAs prior written consent.
Nine years later the Alfaros sold the land to their son, Victor Alfaro, who had a common-law wife,
Cecilia. Cecilia, who had the means, had a house built on the property and paid for the amortizations.
The NHA released the mortgage. After four and a half years since the mortgaged was released
Victor registered the sale of land in his favor, resulting in the cancellation of his parents title. Victor
mortgaged and subsequently sold the land to Marcela Lao Chua, one of the mortgagees, resulting in the
cancellation of his TCT140646 and the issuance of TCT N- 172342 in Chuas name.
Moreover, a year later the NHA instituted a case before the Quezon City Regional Trial Court (RTC)
for the annulment of the NHAs 1980 sale of the land by the Alfaros to their son Victor and the
subsequent sale of Victor to Chua due to a violation of NHA rules and regulations. The RTC ruled
that although the Alfaros clearly violated the five-year prohibition, the NHA could no longer rescind its
sale to them since its right to do so had already prescribed, applying Article 1389 of the New Civil
Code. While the CA declared TCT 277321 in the name of the Alfaros and all subsequent titles and
deeds of sale null and void.

ISSUES : Whether or not the NHAs right to rescind has prescribed; and whether or not the subsequent
buyers of the land acted in good faith and their rights, therefore, cannot be affected by the rescission.

The NHA's right of action accrued on February 18, 1992 when it learned of the Alfaros' forbidden
sale of the property to Victor. Since the NHA filed its action for annulment of sale on April 10, 1998, it
did so well within the 10-year prescriptive period. The Court also agrees with the CA that the Lalicons
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 in 1995, well within the prohibited period. Since mutual
restitution is required in cases involving rescission under Article 1191, the NHA must return the full
amount of the amortizations it received for the property, plus the value of the improvements introduced
on the same, with 6% interest per annum from the time of the finality of this judgment. Hence, the
Court affirms the Decision of the CA.