The Supreme Court clarifies the prescriptive period for rescinding a contract of sale due to eviction. The Court ruled that the action for rescission based on eviction prescribes in four years, aligning with Article 1389 of the Civil Code, which governs rescissible contracts. This decision underscores the importance of understanding the nature of the action—whether it stems from a breach of contract (Article 1191) or economic injury (Article 1381)—to determine the applicable prescriptive period.

Evicted and Excluded: When Does the Clock Start Ticking on Contract Rescission?

This case revolves around a property dispute that began with the death of Emilio Dalope, who left an untitled lot to his wife, Felisa, and their nine children. Felisa sold the entire lot to one of her daughters, Rosa, and her husband, the Funcions, to enable them to secure a loan from the Development Bank of the Philippines (DBP). The Funcions mortgaged the property to DBP, but after they failed to pay their loan, DBP foreclosed the mortgage and consolidated ownership. DBP then conditionally sold the lot to Sofia Quirong, with Quirong waiving any warranty against eviction. Later, Felisa and her other children filed an action against DBP and the Funcions, challenging the validity of the sale. This eventually led to a situation where Quirong’s heirs lost a significant portion of the land due to a court decision, prompting them to seek rescission of the sale with DBP. The central legal question is whether their action for rescission was filed within the prescribed period.

The Court of Appeals (CA) ruled that the Quirong heirs’ action for rescission was barred by prescription, applying the four-year prescriptive period under Article 1389 of the Civil Code. The CA reckoned the prescriptive period from the finality of the Regional Trial Court (RTC) decision in Civil Case D-7159, which resulted in the Quirong heirs’ loss of a significant portion of the lot. The Supreme Court (SC) clarified that the CA’s decision did not specify the exact date when the RTC decision became final and executory.

The petitioners argued that the prescriptive period should be reckoned from January 17, 1995, when the SC’s resolution in G.R. 116575 became final and executory. However, the SC clarified that G.R. 116575 pertained to the execution of the RTC decision and did not affect its finality, which occurred on January 28, 1993, when DBP failed to appeal the RTC decision. The next crucial point was determining the applicable prescriptive period for the action. DBP argued for a four-year period under Article 1389 of the Civil Code, while the Quirong heirs claimed a ten-year period under Article 1144, which applies to actions based on written contracts.

The Supreme Court addressed the core issue of whether the heirs’ action was truly one “for rescission” or one “upon a written contract”. The Court acknowledged that the heirs specifically sought the rescission of the contract of sale and reimbursement of the purchase price. The remedy of rescission isn’t solely limited to the rescissible contracts listed in Article 1381 of the Civil Code. Article 1191 provides an injured party in reciprocal obligations the option between fulfillment and rescission. The Court distinguished between “rescission” as a subsidiary action based on economic injury under Articles 1380 and 1381, and “resolution” under Article 1191, which stems from a breach of faith or violation of reciprocity. As an action based on a written contract, resolution under Article 1191 prescribes in ten years.

The Supreme Court emphasized the distinction, stating that Article 1191 offers the injured party a choice between fulfillment and rescission. An action to enforce a written contract (fulfillment) prescribes in ten years under Article 1144. It would be illogical for fulfillment to have a ten-year prescriptive period while the alternative remedy of rescission (resolution) has only four years under Article 1389. Here, the Quirong heirs based their claim on the deprivation of nearly the entire lot due to the RTC decision. However, the contract of sale had already been fully performed when Sofia Quirong paid the price and DBP executed the deed of absolute sale. The contract involved a transfer of control, as Quirong assumed responsibility for ejecting squatters.

The Quirong heirs’ cause of action stemmed from being ousted from ownership due to a final judgment, which constitutes a violation of the warranty against eviction. Article 1548 of the Civil Code defines eviction:

Article 1548. Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or of a part of thing purchased.

Due to losing 80% of the land to the Dalopes, the heirs had a right to file an action for rescission against DBP, according to Article 1556 of the Civil Code:

Article 1556. Should the vendee lose, by reason of the eviction, a part of the thing sold of such importance, in relation to the whole, that he would not have bought it without said part, he may demand the rescission of the contract; but with the obligation to return the thing without other encumbrances than those which it had when he acquired it. x x x

The SC emphasized that the rescission action, based on subsequent economic loss to the buyer, prescribes in four years from when the action accrued, as per Article 1389. Since the action accrued on January 28, 1993, when the decision in Civil Case D-7159 became final, the heirs had until January 28, 1997, to file their action. Filing on June 10, 1998, was beyond the four-year period. The Supreme Court affirmed the Court of Appeals’ decision to dismiss the action due to prescription.

The Court also noted that the Quirong heirs had intervened in the original action for annulment of sale, filing a cross-claim against DBP. Although they were heard, their claim was not adjudicated due to a failure to formally offer documentary evidence. They did not appeal this omission, which highlights that the Quirong heirs were partly responsible for their loss.

FAQs

What was the key issue in this case?	The main issue was determining the prescriptive period for an action to rescind a contract of sale due to eviction, specifically whether it should be four years under Article 1389 or ten years under Article 1144 of the Civil Code.
When did the prescriptive period for rescission begin to run?	The prescriptive period began to run on January 28, 1993, the date when the decision in Civil Case D-7159 became final and executory, which resulted in the eviction of the Quirong heirs from a substantial portion of the lot.
What is the prescriptive period for rescission based on eviction?	The prescriptive period for rescission based on eviction is four years, as provided under Article 1389 of the Civil Code, which governs actions for rescission due to economic injury.
Why did the Supreme Court rule against the Quirong heirs?	The Supreme Court ruled against the Quirong heirs because they filed their action for rescission on June 10, 1998, which was beyond the four-year prescriptive period that began on January 28, 1993.
What is the difference between “rescission” under Article 1381 and “resolution” under Article 1191 of the Civil Code?	“Rescission” under Article 1381 is a subsidiary action based on injury to the plaintiff’s economic interests, while “resolution” under Article 1191 is based on the defendant’s breach of faith or violation of reciprocity between the parties.
What is the prescriptive period for actions based on a written contract?	The prescriptive period for actions based on a written contract is ten years, as provided under Article 1144 of the Civil Code.
Did the Quirong heirs have any other recourse in the original case?	The Quirong heirs intervened in the original action for annulment of sale and filed a cross-claim against DBP. However, their claim was not adjudicated because they failed to formally offer their documentary evidence.
What does Article 1548 of the Civil Code define?	Article 1548 of the Civil Code defines eviction as the deprivation of the vendee of the whole or a part of the thing purchased, by a final judgment based on a right prior to the sale or an act imputable to the vendor.

This case provides a clear understanding of how prescriptive periods are applied in actions for rescission. It distinguishes between rescission based on economic injury and resolution due to breach of contract. By recognizing the specific nature of the action, the Court underscores the importance of filing claims within the correct timeframe to protect one’s rights.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: HEIRS OF SOFIA QUIRONG VS. DEVELOPMENT BANK OF THE PHILIPPINES, G.R. No. 173441, December 03, 2009