Republic of the Philippines

Second DivisionAgenda for ______________Item ___

Republic of the PhilippinesSupreme CourtManila

SECOND DIVISION

GOTESCO PROPERTIES, INC., JOSE C. GO, EVELYN GO, LOURDES G. ORTIGA, GEORGE GO and VICENTE GO,Petitioners,

- versus -

SPOUSES EUGENIO and ANGELINA FAJARDO,Respondents.G.R. No. 201167

Present:

CARPIO, Chairperson,BRION,DEL CASTILLO,PEREZ, andPERLAS-BERNABE, JJ.

Promulgated:

____________________

x -------------------------------------------------------------------------------------------- x

DECISIONPERLAS-BERNABE, J.:Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the July 22, 2011 Decision1Rollo, pp. 42-50. Penned by Associate Justice Magdangal M. de Leon, with Associate Justices Mario V. Lopez and Socorro B. Inting, concurring.

and February 29, 2012 Resolution2Id. at 53-54.

of the Court of Appeals (CA) in CA-G.R. SP No. 112981, which affirmed with modification the August 27, 2009 Decision3Id. at 195-198.

of the Office of the President.

The Factual Antecedents

On January 24, 1995, respondent spouses Eugenio and Angelina Fajardo (Sps. Fajardo) entered into a Contract to Sell4Id. at 101-104.

(contract) with petitioner Gotesco Properties, Inc. (GPI) for the purchase of a 100 square meter (sq. m.) lot identified as Lot No. 13, Block No. 6, Phase No. IV of Evergreen Executive Village, a subdivision project owned and developed by GPI located at Deparo Road, Novaliches, Kalookan. The subject lot is a portion of a bigger lot covered by Transfer Certificate of Title (TCT) No. 244220.5Id. at 56-57.

Under the contract, Sps. Fajardo undertook to pay the consideration of P126,000.00, with 9% annual interest within a 10-year period, upon the completion of which GPI shall execute the final deed of sale (deed), warranting that the subject lot is free from any liens and encumbrances except those imposed by law. However, despite full payment on January 17, 20006Certificate of Full Payment. Id. at 105.

and subsequent demands, GPI failed to execute the deed and to deliver the title and physical possession of the subject lot,7Letters dated September 16, 2002 and February 10, 2006. Id. at 108-112.

claiming that the technical description of the subject lot had not been inscribed and the subdivision plan had not been approved. Thus, on March 3, 2006, Sps. Fajardo filed before the Housing and Land Use Regulatory Board Expanded National Capital Region Field Office (HLURB-ENCRFO) a complaint8Id. at 94-100.

for specific performance or rescission of the contract with damages against GPI and the other petitioners as members of GPI's board of directors, docketed as HLURB Case No. REM-050306-13319.

Sps. Fajardo further averred that GPI had not developed the subdivision project, having failed to provide for boundary marks for each lot, water facilities, improvements, infrastructures and other forms of development including water supply and lighting facilities in violation of Section 20 of Presidential Decree (P.D.) No. 957 (The Subdivision and Condominium Buyers' Protective Decree). They also discovered that there was no technical description for the subject lot and that the same was levied upon by the Bangko Sentral ng Pilipinas (BSP), which would have affected their decision to purchase the property had they been brought to their knowledge before or after the execution of the contract. They thereby prayed that GPI be ordered to execute the deed, to deliver the same as well as the physical possession of the lot and the corresponding certificate of sale within a reasonable period, and to develop Evergreen Executive Village; or in the alternative, to cancel and/or rescind the contract and refund the total payments made plus legal interest starting January 2000.

For their part, petitioners claimed that at the time of the execution of the contract, Sps. Fajardo were aware that GPI's certificate of title lacked a technical description and that the individual titles would be issued once the subdivision plan was approved and the technical description was inscripted on the certificate of title. The title over the subject lot was likewise free from any liens or encumbrances that may adversely affect the rights and interests that GPI may transfer to them.9Answer. Id. at 113-122.

However, the failure to deliver the title to Sps. Fajardo were for reasons beyond GPI's control10Position Paper. Id. at 123-133.

because while its petition for inscription of technical description (LRC Case No. 4211) was favorably granted11Amended Decision dated October 8, 2001. Id. at 61-63.

by the Regional Trial Court of Caloocan City, Branch 131 (RTC-Caloocan), the same was reversed12Decision dated July 15, 2003 in CA-G.R. CV No. 72187 (Id. at 64-72) The petition for inscription was dismissed for GPI's failure (a) to implead the adverse claimant, Andres Rustia (representative of BSP); (b) to notify the adjoining owners; and (c) to show why the technical description was in the name of one Andres Pacheco, the averred predecessor-in-interest, whose ownership was not sufficiently established.

by the CA, which likewise delayed the subdivision of the property into individual lots with individual titles. Petitioners, thus, argued that Article 1191 of the Civil Code on which Sps. Fajardo anchor their right of rescission is inapplicable since they were willing to comply with their obligation but certain legal requirements prevented them from doing so. On the other hand, BSP's adverse claim/levy which was annotated long after the execution of the contract had already been settled.The Ruling of the HLURB-ENCRFO

On February 9, 2007, the HLURB-ENCRFO issued a Decision13Id. at 147-151. Penned by Housing and Land Use Arbiter Atty. Ma. Lorina J. Rigor.

in favor of Sps. Fajardo. It ruled that upon full payment of the purchase price, GPI's obligation to deliver title, to execute the Deed of Absolute Sale and to deliver the corresponding transfer certificate of title arose and must, thus, be complied. Accordingly, its failure to do so constitutes a substantial breach of the contract, which is a ground for rescission thereof. Consequently, Sps. Fajardo have the option to refund the amount of P168,728.83 plus legal interest reckoned from September 2002 until fully paid. It likewise held petitioners jointly and solidarily liable for the payment of moral and exemplary damages, attorney's fees and the costs.

The Ruling of the HLURB Board of Commissioners

On appeal, the HLURB Board of Commissioners affirmed the above judgment in the Decision14Id. at 153-154. Penned by Commissioner Romulo Q. Fabul, with Commissioners Jesus Yap Pang and Joel I. Jacob, concurring.

dated August 3, 2007, ruling that the failure to execute the deed and to deliver the title to Sps. Fajardo is violative of Section 25 of P.D. No. 957, warranting a refund of payments made.

The Ruling of the Office of the President

On further appeal, the Office of the President (OP) affirmed the above HLURB rulings in the Decision15Id. at 195-198.

dated August 27, 2009, emphasizing the mandatory tenor of Section 25 of P.D. No. 957 requiring delivery of title to the buyer upon full payment. It likewise found as insufficient GPI's reason for its failure to deliver the title, justifying a refund of payments and damages.The Ruling of the CA

On petition for review, the CA affirmed the above rulings but held that the amount to be refunded should be the prevailing market value of the property,16Supra note 1.

following the ruling in Solid Homes v. Tan.17G.R. Nos. 145156-57, July 29, 2005, 465 SCRA 137.

The Petition

In the instant petition, petitioners insist that rescission was not available considering that GPI was willing to comply with the contract but its inability was due to reasons beyond its control. As such, GPI is not liable to refund payments received. Neither are individual petitioners liable to pay damages and attorney's fees in the absence of showing that they acted in wanton, fraudulent, and oppressive manner.

The Court's Ruling

The petition is partly meritorious.

It is settled that in a contract to sell, the seller's obligation to deliver the corresponding certificates of title is simultaneous and reciprocal to the buyer's full payment of the purchase price.18Cantemprate v. CRS Realty Development Corporation, G.R. No. 171399, May 8, 2009, 587 SCRA 492, 513.

On this score, Section 25 of P.D. No. 957 which regulates the subject transaction declares it the obligation of the subdivision owner or developer to cause the transfer of the corresponding certificate of title to the buyer upon full payment, to wit:

Sec. 25. Issuance of Title.The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit. No fee, except those required for the registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance of such title. In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the corresponding portion thereof within six months from such issuance in order that the title over any fully paid lot or unit may be secured and delivered to the buyer in accordance herewith.In relation thereto, the contract to sell itself expressly obliges the vendor to execute the deed of sale in favor of the purchaser upon full payment of the purchase price, thus:

4. DEED OF SALE. Upon complete payment by the PURCHASER of all obligations herein stipulated, the OWNER agrees to execute a final deed of sale in favor of the PURCHASER free from any liens and encumbrances whatsoever except those impose (sic) herein and by law.19Rollo, p. 102.

In the present case, it is undisputed that GPI failed to execute the deed of sale and to deliver the title and possession over the subject lot notwithstanding full payment by Sps. Fajardo on January 17, 200020Id. at 105.

and the demand letter21Id. at 108-110.

dated September 16, 2002. It, however, claimed that certain legal requirements prevented it from doing so. Hence, it cannot be said to have breached the contract, making rescission under Article 1191 of the Civil Code unavailing. The Court does not find merit to the contention.

A perusal of the records show that GPI acquired the subject property on March 10, 1992 through a Deed of Partition and Exchange22Id. at 58-60.

executed between it and Andres Pacheco (Andres), the former registered owner of the property. It was issued TCT No. 244220 on March 16, 1992 but the same did not bear any technical description.23Id. at 56-57.

However, no plausible explanation was advanced why the petition for inscription (docketed as LRC Case No. 4211) was belatedly filed only on January 6, 200024Id. at 61.

or after almost eight (8) years from acquisition of the property, when the same was anchored on the technical description in the name of Andres issued as early as December 19, 1991. Neither was it sufficiently explained why GPI made no positive action to cause the filing of a new petition for inscription within a reasonable time from notice of the July 15, 2003 CA Decision dismissing its earlier petition on technical defects despite Sps. Fajardo's full payment and prior demand for delivery of title. GPI filed the petition before the RTC-Caloocan (docketed as LRC Case No. C-5026) only on November 20, 200625Id. at 73.

following receipt of the letter26Id. at 111-112.

dated February 10, 2006 seeking refund of payments plus interest and the filing of the complaint before the HLURB-ENCRFO on May 3, 2006. While the court decided the case in its favor,27Decision dated June 7, 2007. Id. at 160-162.

there is no showing that the same had attained finality, that the approved technical description had been in fact annotated on TCT No. 244220, and that the subdivision plan had already been approved. Moreover, despite the allegation28Id. at 130.

of settlement of the claim of BSP in whose favor notices of adverse claim and levy on attachment were annotated on TCT No. 244220,29Id. at 57.

it does not appear that GPI had already caused the cancellation of such annotations. Clearly, the long delay in the performance of the obligation from the time of the demand to deliver title on September 16, 2002 was unreasonable and unjustified considering that the same goes into the very essence of the reciprocity in the contract to sell. It is thus apparent that the breach committed by GPI was substantial, giving rise to the rights of the buyer under Article 1191 of the Civil Code (Code) which provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

The right of rescission under Article 1191 is predicated on a breach of faith by the defendant who violates the reciprocity between the parties.30F.F. Cruz & Co., Inc. v. HR Construction Corp., G.R. No. 187521, March 14, 2012, 668 SCRA 302, 327.

Rescission does not merely terminate the contract and release the parties from

further obligations to each other, but abrogates the contract from its inception and restores the parties to their original positions as if no contract has been made.31Unlad Resources Development Corporation v. Dragon, G.R. No. 149338, July 28, 2008, 560 SCRA 63, 79.

Consequently, mutual restitution which entails the return of the benefits that each party may have received as a result of the contract is, thus, required.32Goldloop Properties Inc. v. Government Service Insurance System, G.R. No. 171076, August 1, 2012.

Article 1385 of the Code provides the effects of rescission, to wit:

ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to return.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

It bears stressing that only GPI benefited from the contract, having received full payment of the contract price plus interests as early as January 17, 2000 but nonetheless failed to comply with its contractual obligation up to the present time. In Solid Homes v. Tan,33Supra note 17.

the Court held that there would be unjust enrichment if the subdivision developer who has reneged on its obligation under the contract to sell shall be made to return only the purchase price plus interest considering the escalation of the value of the property during the length of time that lapsed from the time the buyer paid for it. Since the intent of P.D. No. 957 is to protect the buyer against swindling and fraudulent manipulations perpetrated by unscrupulous subdivision owners, developers, operators and/or sellers who reneged on their obligations, equity and justice dictate that the injured party should instead be paid the market value for the lot, as correctly ruled by the CA. There being factual and legal bases for the award of moral and exemplary damages, attorney's fees and the costs of litigation, the same must be likewise sustained.However, the Court finds no basis to hold individual petitioners solidarily liable with petitioner GPI for the payment of damages in favor of Sps. Fajardo, absent sufficient showing that they acted maliciously or in bad faith in dealing with the latter. Settled is the rule that in the absence of malice and bad faith, officers of the corporation cannot be made personally liable for liabilities of the corporation which, by legal fiction, has a personality separate and distinct from its officers, stockholders and members.34Vide Alert Security and Investigation Agency, Inc. v. Pasawilan, G.R. No. 182397, September 14, 2011, 657 SCRA 655, 671.

WHEREFORE, the assailed July 22, 2011 Decision and February 29, 2012 Resolution of the Court of Appeals in CA-G.R. SP No. 112981 are hereby AFFIRMED with the modification absolving individual petitioners Jose C. Go, Evelyn Go, Lourdes G. Ortiga, George Go and Vicente Go from personal liability to respondents Eugenio and Angelina Fajardo.

SO ORDERED.

ESTELA M. PERLAS-BERNABEAssociate Justice

WE CONCUR:

ANTONIO T. CARPIO Associate JusticeChairperson

ARTURO D. BRION MARIANO C. DEL CASTILLO Associate Justice Associate Justice

JOSE P. PEREZAssociate JusticeA T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO Associate Justice Chairperson, Second Division

CERTIFICATION

I certify that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

MARIA LOURDES P. A. SERENOChief JusticeDecision G.R. No. 201167

Resolution OCA IPI No. 08-2720-P