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(G. R. No. 199990, February 4, 2015)

FACTS: Petitioners Spouses Salvador sold a parcel of land located in Mandaluyong
City to respondents Spouses Rabaja, through Rosario Gonzales, the sellers agent.
From 1994-2002, respondents have been renting the property from
When they learned that petitioners were looking for a buyer, respondents
expressed desire to purchase the land and petitioners introduced Gonzales to
respondents as administrator of the land. Petitioners even handed to Gonzales the
owners duplicate certificate of title on the property.
In 1998, respondents paid 48,000 pesos to Gonzales, who then had an SPA
executed by petitioner-Rolando, in the presence of petitioner-Herminia.
On the same day, the parties executed a contract to sell, stipulating the
amount of the property at 5 million pesos.
Respondents made several payments amounting to 950,000 pesos to
Gonzales pursuant to the SPA provided earlier as evidenced by the check vouchers
signed by Gonzales and the improvised receipts signed by Herminia.
But in June 1999, petitioners complained that they did not receive any
payment from respondents, so respondents suspended further payment of the
purchase price; and as a consequence, they received a notice to vacate the subject
property from Spouses Salvador for non-payment of rentals.
An ejectment suit was filed by petitioners before the MeTC, while a case for
rescission of contract was filed by respondents before the RTC.
Petitioners won in the ejectment suit and were able to garnish 593,400 pesos
from respondents time deposits representing payment for the back rentals, as
ordered by the trial court in the writ of execution.
RTC reversed MeTC and ruled that there was no lease agreement between the
parties. This prompted petitioners to appeal the case before the CA, which
reinstated MeTCs ruling. This CA decision became final and executory.
Meanwhile, RTC, in the rescission case, ordered the rescission of the contract.
Petitioners were only able to attend the first of the many pre-trial conference,
leading to the RTCs issuance of an order of default, allowing respondents to present
evidence ex-parte . The RTC ruled in respondents favor and held that t-he contract
was one of sale not a contract to sell, which can appropriately be rescinded, being a
contract with reciprocal obligations. In its ruling in favor of respondents, it ordered
the return of the garnished amount and the 950,000 pesos which represents the
purchase price.
CA affirmed the RTCs decision, modifying it on the part that the latter held
solidary liability of Gonzales and petitioners. CA held that since Gonzales did not
exceed his authority, he is not solidarily liable with petitioners in the obligation to
return the purchase price.
1. Whether or not default order must be lifted for existence of reasonable
grounds to justify non-attendance of petitioners.
2. Whether or not the receipts given by Gonzales, SPA, and contract of sale are

3. Whether or not the final and executory judgment on the ejectment case which
orders the garnishment of 593,400 pesos can still be disturbed, and the garnished
amount returned.
4. Whether or not the award of damages in favor of Spouses Rabaja and Gonzales was
proper absent any legal and factual bases.
1. The failure of Spouses Salvador to attend pre-trial conference warrants
the presentation of evidence ex parte by Spouses Rabaja. The Court
reiterates the rule that the failure to attend the pre-trial conference does not result
in the default of an absent party. Under the 1997 Rules of Civil Procedure, a
defendant is only declared in default if he fails to file his Answer within the
reglementary period. On the other hand, if a defendant fails to attend the pre-trial
conference, the plaintiff can present his evidence ex parte. Justice Regalado, in his
book, clarified that while the order of default no longer obtained when a party fails
to appear at the pre-trial conference, its effects were retained. There is no dispute
that Spouses Salvador and their counsel failed to attend the pre-trial conference set
on February 4, 2005 despite proper notice. Spouses Salvador aver that their nonattendance was due to the fault of their counsel as he forgot to update his calendar.
This excuse smacks of carelessness, and indifference to the pre-trial stage. It simply
cannot be considered as a justifiable excuse by the Court.
2. On the SPA. According to Article 1990 of the New Civil Code, insofar as third
persons are concerned, an act is deemed to have been performed within the scope
of the agent's authority, if such act is within the terms of the power of attorney, as
written. Respondents did not recklessly enter into a contract to sell with Gonzales.
There was a valid SPA so respondents properly made payments to Gonzales, as
agent of petitioners; and it was as if they paid to the petitioners.
On Gonzales receipt of payment. It is of no moment, insofar as
respondents are concerned, whether or not the payments were actually remitted to
petitioners. Any internal matter, arrangement, grievance or strife between the
principal and the agent is theirs alone and should not affect third persons.
On the contract of sale. The Court agrees with the courts below in
finding that the contract entered into by the parties was essentially a contract of
sale which could be validly rescinded.
On the decision for garnishment. The amount of P593,400.00
should not be returned by petitioners. The garnishment stems from an entirely
different case involving an action for ejectment, and it does not concern the
rescission case which is on appeal before this Court. The decision on the ejectment
case is final and executory and an entry of judgment has already been made.
Nothing is more settled in law than that when a final judgment is executory, it
thereby becomes immutable and unalterable. Respondents must have instituted
their opposition to the execution proceeding in that separate case with they have
any objection on the manner and propriety of the execution. They can, however,
invoke the legal compensation or set-off under Articles 1278, 1279 and 1270
because the two obligations appear to have respectively offset each other.
4. On Damages. No award of actual, moral and exemplary damages can be sustained
by this Court. The filing alone of a civil action should not be a ground for an award
of moral damages. Article 2220 of the New Civil Code provides that to award moral
damages in a breach of contract, the defendant must act fraudulently or in bad
faith. In this case, respondents failed to sufficiently show that petitioners acted in a

fraudulent manner or with bad faith. Exemplary damages cannot be awarded too
since respondents failed to prove moral or compensatory damages as required by
Article 2229 of the New Civil Code before exemplary damages can be awarded.