Second Division

Agenda for ______________

Item ___

Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION

GOTESCO PROPERTIES, INC.,

JOSE C. GO, EVELYN GO,
LOURDES
G.
ORTIGA,
GEORGE GO and VICENTE
GO,
Petitioners,
- versus -

G.R. No. 201167

Present:
CARPIO, Chairperson,
BRION,
DEL CASTILLO,
PEREZ, and
PERLAS-BERNABE, JJ.

Promulgated:
SPOUSES
EUGENIO
and
ANGELINA FAJARDO,
____________________
Respondents.
x -------------------------------------------------------------------------------------------- x

DECISION
PERLAS-BERNABE, J.:

Assailed in this Petition for Review on Certiorari under Rule 45 of the

Rules of Court is the July 22, 2011 Decision 1 and February 29, 2012
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 112981, which
affirmed with modification the August 27, 2009 Decision3 of the Office of the
President.

Rollo, pp. 42-50. Penned by Associate Justice Magdangal M. de Leon, with Associate Justices Mario V. Lopez
and Socorro B. Inting, concurring.
2
Id. at 53-54.
3
Id. at 195-198.

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G.R. No. 201167

The Factual Antecedents

On January 24, 1995, respondent spouses Eugenio and Angelina Fajardo

(Sps. Fajardo) entered into a Contract to Sell4 (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. 244220.5
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, 20006 and
subsequent demands, GPI failed to execute the deed and to deliver the title and
physical possession of the subject lot,7 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 complaint8 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'
4

Id. at 101-104.
Id. at 56-57.
6
Certificate of Full Payment. Id. at 105.
7
Letters dated September 16, 2002 and February 10, 2006. Id. at 108-112.
8
Id. at 94-100.
5

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Protective Decree).

G.R. No. 201167

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.9

However, the failure to deliver the title to

Sps. Fajardo were for reasons beyond GPI's control 10 because while its petition
for inscription of technical description (LRC Case No. 4211) was favorably
granted11 by the Regional Trial Court of Caloocan City, Branch 131

(RTC-

Caloocan), the same was reversed12 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.
9

Answer. Id. at 113-122.

Position Paper. Id. at 123-133.
11
Amended Decision dated October 8, 2001. Id. at 61-63.
12
Decision 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.
10

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G.R. No. 201167

The Ruling of the HLURB-ENCRFO

On February 9, 2007, the HLURB-ENCRFO issued a Decision13 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 Decision14 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 Decision15 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.
13

Id. at 147-151. Penned by Housing and Land Use Arbiter Atty. Ma. Lorina J. Rigor.
Id. at 153-154. Penned by Commissioner Romulo Q. Fabul, with Commissioners Jesus Yap Pang and Joel I.
Jacob, concurring.
15
Id. at 195-198.

14

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G.R. No. 201167

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,16 following the ruling in Solid Homes v. Tan.17
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. 18 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.
16

Supra note 1.
G.R. Nos. 145156-57, July 29, 2005, 465 SCRA 137.
18
Cantemprate v. CRS Realty Development Corporation, G.R. No. 171399, May 8, 2009, 587 SCRA 492, 513.
17

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G.R. No. 201167

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.19

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, 200020 and the
demand letter21 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 Exchange 22 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.23 However, no plausible explanation was advanced why
the petition for inscription (docketed as LRC Case No. 4211) was belatedly
filed only on January 6, 200024 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
19

Rollo, p. 102.
Id. at 105.
21
Id. at 108-110.
22
Id. at 58-60.
23
Id. at 56-57.
24
Id. at 61.
20

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G.R. No. 201167

November 20, 200625 following receipt of the letter26 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,27 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

allegation28 of settlement of the claim of BSP in whose favor notices of adverse

claim and levy on attachment were annotated on TCT No. 244220, 29 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. 30
Rescission does not merely terminate the contract and release the parties from
25

Id. at 73.
Id. at 111-112.
27
Decision dated June 7, 2007. Id. at 160-162.
28
Id. at 130.
29
Id. at 57.
30
F.F. Cruz & Co., Inc. v. HR Construction Corp., G.R. No. 187521, March 14, 2012, 668 SCRA 302, 327.
26

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G.R. No. 201167

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.31

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.32 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,33 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.
31

Unlad Resources Development Corporation v. Dragon, G.R. No. 149338, July 28, 2008, 560 SCRA 63, 79.
Goldloop Properties Inc. v. Government Service Insurance System, G.R. No. 171076, August 1, 2012.
33
Supra note 17.
32

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G.R. No. 201167

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.34
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-BERNABE
Associate Justice
WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

JOSE P. PEREZ
Associate Justice
34

Vide Alert Security and Investigation Agency, Inc. v. Pasawilan, G.R. No. 182397, September 14, 2011,
SCRA 655, 671.

657

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10

G.R. No. 201167

AT T E S TAT 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. SERENO

Chief Justice