Heirs of Quirong vs. Development Bank of the Philippines

An action for rescission based on the warranty against eviction under Article 1556 prescribes in four years pursuant to Article 1389, it being a subsidiary action based on injury to economic interests, distinct from an action for resolution under Article 1191 based on a breach of reciprocal obligation which prescribes in ten years under Article 1144.

Emilio Dalope died, leaving an untitled lot to his wife Felisa and their nine children. Felisa sold the entire property to her daughter Rosa and son-in-law Antonio Funcion, who mortgaged it to the Development Bank of the Philippines (DBP). DBP foreclosed the mortgage after the Funcions defaulted, consolidating ownership in 1981. DBP subsequently sold the lot to Sofia Quirong in 1983 and 1984, with Quirong expressly waiving the warranty against eviction. The other Dalope heirs then sued to nullify the sale and partition the property, resulting in a 1992 trial court decision annulling the sale with respect to the shares of the eight other children, thereby depriving Quirong of 80% of the lot.

• The Dalope Property and Foreclosure: Upon Emilio Dalope's death, his 589-square meter lot was co-owned by his wife Felisa and nine children. Felisa sold the entire lot to her daughter Rosa and son-in-law Antonio Funcion, who mortgaged it to DBP. Following default, DBP foreclosed the mortgage and consolidated ownership in 1981.
• Sale to Sofia Quirong: DBP conditionally sold the lot to Sofia Quirong in September 1983 for P78,000.00, with Quirong waiving any warranty against eviction. Notwithstanding a pending suit by the other Dalope heirs, DBP executed a deed of absolute sale in December 1984, carrying the same waiver of warranty.
• The Partition Suit (Civil Case D-7159): In November 1983, Felisa and her eight other children sued for partition and annulment of documents. Quirong's heirs intervened after her death, seeking to retain the lot or recover its value from DBP, but failed to make a formal offer of evidence. In December 1992, the RTC declared the sale valid only concerning the shares of Felisa and Rosa, annulling the sale as to the eight other children. This effectively stripped Quirong of 80% of the lot.
• Finality of the Partition Suit: DBP received the RTC decision on January 13, 1993, but failed to appeal by January 28, 1993, rendering the decision final. DBP's subsequent certiorari petition to the Supreme Court (G.R. 116575) regarding the writ of execution was dismissed in September 1994 for non-payment of fees, becoming final on January 17, 1995.
• The Rescission Action: On June 10, 1998, the Quirong heirs filed a separate action for rescission of the contract of sale against DBP, seeking reimbursement of the P78,000.00 purchase price plus damages due to the loss of 80% of the lot. The RTC rescinded the sale, but the Court of Appeals reversed the decision, dismissing the action based on the four-year prescriptive period under Article 1389 of the Civil Code.

• Prescriptive Period: Petitioners argued that the action prescribes in ten years under Article 1144 of the Civil Code as an action "upon a written contract," rather than four years under Article 1389.
• Accrual of Action: Petitioners maintained that the prescriptive period should be reckoned from January 17, 1995, the date the Supreme Court resolution in G.R. 116575 became final and executory, not from the finality of the RTC decision in the partition suit.

• Prescriptive Period: Respondent countered that the action for rescission prescribes in four years pursuant to Article 1389 of the Civil Code.
• Accrual of Action: Respondent argued that the cause of action accrued upon the finality of the RTC decision in Civil Case D-7159, rendering the 1998 complaint time-barred.

• Prescription: Whether the action for rescission of the contract of sale was barred by prescription, specifically whether it prescribes in four years under Article 1389 or ten years under Article 1144.
• Accrual: Whether the prescriptive period should be reckoned from the finality of the RTC decision in the partition suit or from the finality of the Supreme Court resolution regarding the writ of execution.

• Prescription: The action was correctly dismissed as barred by prescription. The action for rescission based on eviction under Article 1556 is a subsidiary action based on injury to economic interests, falling under the rescissible contracts in Article 1381, which prescribes in four years under Article 1389. It is distinct from an action for resolution under Article 1191, which is based on a breach of reciprocal obligation and prescribes in ten years under Article 1144. While an action for fulfillment of a written contract prescribes in ten years, it would be illogical to apply the same period to the alternative remedy of resolution while subjecting the distinct remedy of rescission to a shorter period if both arose from the same injury; however, the action here is specifically for rescission due to eviction, an economic injury.
• Accrual: The prescriptive period was reckoned from January 28, 1993, the date the RTC decision in Civil Case D-7159 became final and executory. The subsequent Supreme Court resolution in G.R. 116575 merely concerned the issuance of a writ of execution and did not affect the finality of the RTC decision that ousted the petitioners from the property. Because the complaint was filed on June 10, 1998, more than four years after the cause of action accrued, the action was time-barred.

• Distinction between Rescission and Resolution — Rescission is a subsidiary action based on injury to the plaintiff’s economic interests as described in Articles 1380 and 1381, prescribing in four years under Article 1389. Resolution, the action referred to in Article 1191, is based on the defendant’s breach of faith or violation of the reciprocity between the parties, prescribing in ten years under Article 1144 as an action upon a written contract.
• Rescission based on Warranty Against Eviction — An action for rescission under Article 1556, where the vendee loses a part of the thing sold by reason of eviction of such importance that the vendee would not have bought it without said part, is a rescissible action subject to the four-year prescriptive period.

• "Rescission is a subsidiary action based on injury to the plaintiff’s economic interests as described in Articles 1380 and 1381. Resolution, the action referred to in Article 1191, on the other hand, is based on the defendant’s breach of faith, a violation of the reciprocity between the parties." — Defines the conceptual distinction between the two remedies and their corresponding prescriptive periods.
• "Article 1191 gives the injured party an option to choose between, first, fulfillment of the contract and, second, its rescission. An action to enforce a written contract (fulfillment) is definitely an 'action upon a written contract,' which prescribes in 10 years (Article 1144). It will not be logical to make the remedy of fulfillment prescribe in 10 years while the alternative remedy of rescission (or resolution) is made to prescribe after only four years as provided in Article 1389 when the injury from which the two kinds of actions derive is the same." — Explains the rationale for the 10-year prescriptive period for resolution under Art. 1191, distinguishing it from rescission under Art. 1381.

• Development Bank of the Philippines v. Fontanilla, G.R. No. 116575 — The prior certiorari petition filed by DBP to the Supreme Court. It was distinguished as having no effect on the accrual of the cause of action for rescission, as it only concerned the issuance of a writ of execution and did not touch upon the merits of the eviction.

• Article 1389, Civil Code — Provides that the action to claim rescission must be commenced within four years. Applied as the governing prescriptive period for the petitioners' action.
• Article 1144, Civil Code — Provides that actions upon a written contract must be brought within ten years. Cited by petitioners but held inapplicable, as the action was for rescission (economic injury), not resolution (breach of reciprocal obligation).
• Article 1381, Civil Code — Enumerates rescissible contracts. Applied to classify the action as one based on economic injury.
• Article 1191, Civil Code — Gives the injured party in reciprocal obligations the option to choose between fulfillment and rescission (resolution). Distinguished from the present action, as the petitioners' claim stemmed from eviction, not breach of reciprocity.
• Article 1548, Civil Code — Defines eviction as occurring whenever by a final judgment based on a right prior to the sale, the vendee is deprived of the whole or part of the thing purchased. Applied to establish the nature of the petitioners' injury.
• Article 1556, Civil Code — Allows the vendee to demand rescission of the contract if evicted from a part of the thing sold of such importance that the vendee would not have bought it without said part. Applied as the substantive basis for the rescission claim, which nevertheless prescribed.

Carpio, Leonardo-De Castro, Brion, Peralta.