Spouses Salvador vs Spouses Rabaja and Gonzales

Nature: This is a Petition for Review on certiorari seeking to set aside the decision of Court of Appeals
which affirmed the modification the March 29 2007 decision of the RTC for rescission of a contract.

Facts:

Parties in this case are:

Spouses Salvador Sellers

Gonzales- Sellers Agents

Spouses Rabaja - ( From 1994-2002, they were leasing am apartment in the subject lot)

Subject Property: No 25 Merryland Village, 375 Jose Rizal Street, Mandaluyong City.

Spouses Rabaja, 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.

ISSUES:

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 valid
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.

RULING:

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 non-
attendance 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.

3. 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.