1. Cannu v.

Galang, 459 SCRA 80 [2005]

TOPIC: Article 1191 - Resolution/ Recission of Obligations
FACTS:
Respondents-spouses Gil and Fernandina Galang obtained a loan from Fortune Savings & Loan
Association for P173,800.00 to purchase a house and lot located at Pulang Lupa, Las Piñas, with
an area of 150 square meters covered by Transfer Certificate of Title (TCT) No. T-8505 in the
names of respondents-spouses. To secure payment, a real estate mortgage was constituted on the
said house and lot in favor of Fortune Savings & Loan Association. In early 1990, National
Home Mortgage Finance Corporation (NHMFC) purchased the mortgage loan of respondents-
spouses from Fortune Savings & Loan Association for P173,800.00.
Petitioner Leticia Cannu agreed to buy the property for P120,000.00 and to assume the balance
of the mortgage obligations with the NHMFC and with CERF Realty (the Developer of the
property). The petitioners made several payments but still has a balance of P45,000.00. The
petitioner immediately occupied the said lot.
Despite requests from Adelina R. Timbang and Fernandina Galang to pay the balance of
P45,000.00 or in the alternative to vacate the property in question, petitioners refused to do so.
Because the Cannus failed to fully comply with their obligations, respondent Fernandina Galang,
on 21 May 1993, paid P233,957.64 as full payment of her remaining mortgage loan with
NHMFC.
Thereupon, a Complaint for Specific Performance and Damages was filed asking, among other
things, that petitioners (plaintiffs therein) be declared the owners of the property involved subject
to reimbursements of the amount made by respondents-spouses (defendants therein) in
preterminating the mortgage loan with NHMFC.
ISSUE:
Whether or not the acts of petitioners in not fully complying with their obligations give rise to
rescission of the Deed of Sale with Assumption of Mortgage with the corresponding damages.
DECISION AND RATIO DECIDENDI:
Yes. Article 11913 is predicated on a breach of faith by the other party that violates the
reciprocity between them. Although rescission may be had only for such breaches that are
substantial and fundamental as to defeat the object of the parties in making the agreement, which
is in this case, the Court ruled that substantial petitioners’ failure to pay the remaining balance of
P45,000.00 to be substantial, as such rescission is tenable.
The Court also ruled that Article 1191 and not Article 1383 is applicable in this case. Under
Article 1191 is a principal action, while rescission under Article 1383 is a subsidiary action. The
former is based on breach by the other party that violates the reciprocity between the parties,
while the latter is not.
In the case at bar, the reciprocity between the parties was violated when petitioners failed to fully
pay the balance of P45,000.00 to respondents-spouses and their failure to update their
amortizations with the NHMFC.
2. UP v. De Los Angeles, 35 SCRA 102 [1970]
TOPIC: Article 1191 - Resolution/ Recission of Obligations
FACTS:
That on or about 2 November 1960, UP and ALUMCO entered into a logging agreement under
which the latter was granted exclusive authority, for a period starting from the date of the
agreement to 31 December 1965, extendible for a further period of five (5) years by mutual
agreement, to cut, collect and remove timber from the Land Grant, in consideration of payment
to UP of royalties, forest fees, etc.; that ALUMCO cut and removed timber therefrom but, as of 8
December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated
demands, it had failed to pay; that after it had received notice that UP would rescind or terminate
the logging agreement, ALUMCO executed an instrument, entitled "Acknowledgment of Debt
and Proposed Manner of Payments," dated 9 December 1964, which was approved by the
president of UP, included in the stipulation is that: In the event that the DEBTOR fails to comply
with any of its promises or undertakings in this document, the DEBTOR agrees without
reservation that the CREDITOR shall have the right and the power to consider the Logging
Agreement dated December 2, 1960 as rescinded without the necessity of any judicial suit.
ISSUE:
Whether or not petitioner U.P. can treat its contract with ALUMCO rescinded and may disregard
the same before any judicial pronouncement to that effect.
DECISION AND RATIO DECIDENDI:
Yes. In connection with Article 1191 of the Civil Code, there is nothing in the law that prohibits
the parties from entering into agreement that violation of the terms of the contract would cause
cancellation thereof, even without court intervention. In other words, it is not always necessary
for the injured party to resort to court for rescission of the contract.
In other words, the party who deems the contract violated may consider it resolved or rescinded,
and act accordingly, without previous court action, but it proceeds at its own risk.
However, in cases where the extrajudicial resolution is contested, only the final award of the
court of competent jurisdiction can conclusively settle whether the resolution was proper or not.
It is in this sense that judicial action will be necessary, as without it, the extrajudicial resolution
will remain contestable and subject to judicial invalidation, unless attack thereon should become
barred by acquiescence, estoppel or prescription.
3. Gil vs. Garcia, 410 SCRA 562 [2003]
FACTS:
Concepcion Palma Gil, and her sister, Nieves Palma Gil, married to Angel Villarica, were
the co-owners of a parcel of commercial land with an area of 829 square meters. The spouses
Angel and Nieves Villarica had constructed a two-storey commercial building on the property.
On October 13, 1953, Concepcion filed a complaint against her sister Nieves. for specific
performance, to compel the defendant to cede and deliver to her an undivided portion of the said
property with an area of 256.2 square meters. After due proceedings, the court rendered
judgment on April 7, 1954 in favor of Concepcion, ordering the defendant to deliver to the
plaintiff an undivided portion of the said property with an area of 256.2 square meters.
On October 24, 1956, Concepcion executed a deed of absolute sale over the owned lot in favor
of Iluminada Pacetes. The vendee obliged herself to pay the said amount under the payment
scheme agreed by the parties.
On August 4, 1959, Concepcion died intestate and was survived by Nieves Villarica and her
nephews and nieces.
It was averred by the heirs of Concepcion that Iluminada had not yet paid the balance of the
purchase price of Lot 59-C-1; hence, she had not acquired title over the lot and the right to evict
the defendant. The deed of absolute sale executed by Concepcion in favor of the plaintiff was an
executory, not an executed deed. On January 26, 1965, the court rendered judgment in favor of
the defendants and dismissed the complaint.
On March 16, 1966, Iluminada Pacetes and Agapito Pacetes executed a deed of absolute sale
over the property involved in the case in favor of Constancio B. Maglana for P110,000.00. The
spouses-vendors undertook to secure title over the lots under the name of the vendee within
ninety days.
ISSUE:
Whether or not the petitioners have the right to demand the rescission of the deed of absolute
sale.
DECISION AND RATIO DECIDENDI:
No. The Court ruled that he consignation by the vendee of the purchase price of the property is
sufficient to defeat the right of the petitioners to demand for a rescission of the said deed of
absolute sale. When the vendee consigned part of the purchase price with the Court and secured
title over the property in her name, the heirs of Concepcion, including the petitioners, had not yet
sent any notarial demand for the rescission of the deed of absolute sale to the vendee, or filed any
action for the rescission of the said deed with the appropriate court.
As provided for in Article 1191, the right of rescission of a party to an obligation is predicated on
a breach of faith by the other party that violates the reciprocity between them. In the case at bar,
the vendee consigned to the court the purchase price of property, as such the right to rescind the
contract on the ground of breach of contract is defeated.
4. Visayan Sawmill Company, Inc. vs. CA, 219 SCRA 378
TOPIC: Article 1191 - Resolution/ Recission of Obligations
FACTS:
On May 1, 1983, herein plaintiff-appellee and defendants-appellants entered into a sale involving
scrap iron subject to the condition that plaintiff-appellee will open a letter of credit in the amount
of P250,000.00 in favor of defendant-appellant corporation on or before May 15, 1983. This is
evidenced by a contract entitled `Purchase and Sale of Scrap Iron' duly signed by both parties.
On May 17, 1983, plaintiff-appellee through his man (sic), started to dig and gather and (sic)
scrap iron at the defendant-appellant's (sic) premises, proceeding with such endeavor until May
30 when defendants-appellants allegedly directed plaintiff-appellee's men to desist from pursuing
the work in view of an alleged case filed against plaintiff-appellee by a certain Alberto Pursuelo.
This, however, is denied by defendants-appellants who allege that on May 23, 1983, they sent a
telegram to plaintiff-appellee cancelling the contract of sale because of failure of the latter to
comply with the conditions thereof.
On May 24, 1983, plaintiff-appellee informed defendants-appellants by telegram that the letter of
credit was opened May 12, 1983, at the Bank of the Philippine Islands main office in Ayala, but
then (sic) the transmittal was delayed. On May 26, 1983, defendants-appellants received a letter
advice from the Dumaguete City Branch of the Bank of the Philippine Islands dated May 26,
1983.
However, on July 20, 1983, informed plaintiff-appellee's lawyer that defendant-appellant
corporation is unwilling to continue with the sale due to plaintiff-appellee's failure to comply
with essential pre-conditions of the contract. On July 29, 1983, plaintiff-appellee filed the
complaint below with a petition for preliminary attachment. The writ of attachment was returned
unserved because the defendant-appellant corporation was no longer in operation and also
because the scrap iron as well as other pieces of machinery can no longer be found on the
premises of the corporation."
In his complaint, private respondent prayed for judgment ordering the petitioner corporation to
comply with the contract by delivering to him the scrap iron subject thereof; he further sought an
award of actual, moral and exemplary damages, attorney's fees and the costs of the suit.
In their Answer with Counterclaim, petitioners insisted that the cancellation of the contract was
justified because of private respondent's non-compliance with essential pre-conditions, among
which is the opening of an irrevocable and unconditional letter of credit not later than 15 May
1983.
ISSUE:
Whether or not the cancellation for the contract in the case at bar was justified.
DECISION AND RATIO DECIDENDI:
No. the obligation of the petitioner corporation to sell did not arise; it therefore cannot be
compelled by specific performance to comply with its prestation. In short, Article 1191 of the
Civil Code does not apply; on the contrary, pursuant to Article 1597 of the Civil Code, the
petitioner corporation may totally rescind, as it did in this case, the contract. The said provision
provides: “Where the goods have not been delivered to the buyer, and the buyer has repudiated
the contract of sale, or has manifested his inability to perform his obligations, thereunder, or has
committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of
his election so to do to the buyer."
5. Tayag vs. Court of Appeals, 219 SCRA 480
FACTS:
A deed of conveyance executed on May 28, 1975, by Juan Galicia, Sr., prior to his demise in
1979, and Celerina Labuguin, in favor of Albrigido Leyva involving the undivided one-half
portion of a piece of land for the sum of P50,000.00 under the following terms of the contract
providing for the payment scheme. Petitioners asserted breach of the conditions as against
private respondent's claim anchored on full payment and compliance with the stipulations
thereof.
Petitioners asserted that not a single centavo representing the remaining balance was paid to
them. Because of the apprehension that the heirs of Juan Galicia, Sr. are disavowing the contract
inked by their predecessor, private respondent filed the complaint for specific performance.
The trial court and the Court of Appeals ruled in favor of the private respondent, counting
against the petitioner Tayag’s statement on her admission that checks were issued as payment
thereof in the staggering basis in the second condition; Leyva was also prevented of paying the
debt in Veteran’s Bank to satisfy the third condition; and that he has paid fully the balance stated
in the fourth condition as the petitioners accepted the payments on various payments beyond the
periods agreed upon in the stipulation. Hence, this petition.
ISSUE:
Whether or not the contract may be rescinded for by the petitioner as granted by Article 1191 of
the Civil Code.
DECISION AND RATIO DECIDENDI:
No. In a perfected contract of sale of land under an agreed schedule of payments, while the
parties may mutually oblige each other to compel the specific performance of the monthly
amortization plan, and upon failure of the buyer to make the payment, the seller has the right to
ask for a rescission of the contract under Art. 1191 of the Civil Code, this shall be deemed
waived by acceptance of posterior payments.
When the obligee accepts the performance, knowing its incompleteness or irregularity, and
without expressing any protest or objection, the obligation is deemed fully complied with. This is
under the Article 1235 of the Civil Code, which acceptance of delayed payments by the creditor
constitutes estoppel or waiver by acceptance of such delayed payments.
6. Binalbagan Tech. Inc. vs. CA, 219 SCRA 541
FACTS:
On May 11, 1967, private respondents, through Angelina P. Echaus, in her capacity as Judicial
Administrator of the intestate estate of Luis B. Puentevella, executed a Contract to Sell and a
Deed of Sale of forty-two subdivision lots, conveying and transferring said lots to petitioner
Binalbagan Tech., Inc. (hereinafter referred to as Binalbagan). In turn Binalbagan, through its
president, petitioner Hermilio J. Nava (hereinafter referred to as Nava), executed an
Acknowledgment of Debt with Mortgage Agreement, mortgaging said lots in favor of the estate
of Puentebella.
Upon the transfer to Binalbagan of titles to the 42 subdivision lots, said petitioner took
possession of the lots and the building and improvements thereon. Binalbagan started operating a
school on the property from 1967 when the titles and possession of the lots were transferred to it.
It appears that there was a pending case which is a Third-Party Claim based on an alleged Deed
of Sale executed in their favor by spouses Jose and Lolita Lopez, thus Puentevella was
constrained to assert physical possession of the premises to counteract the fictitious and
unenforceable claim of herein plaintiffs.
When the Supreme Court dissolved the aforesaid injunction issued by the Court of Appeals,
possession of the building and other property was taken from petitioner Binalbagan and given to
the third-party claimants, the de la Cruz spouses. Petitioner Binalbagan transferred its school to
another location. The petitioner was not in the possession of the lots from 1974 to May 31, 1982.
After petitioner Binalbagan was again placed in possession of the subdivision lots, private
respondent Angelina Echaus demanded payment from petitioner Binalbagan for the subdivision
lots, enclosing in the letter of demand a statement of account showing a total amount due
representing the price of the land and accrued interest as of that date.
As petitioner Binalbagan failed to effect payment, private respondent Angelina P. Echaus filed a
case for recovery of title and damages.
ISSUE:
Whether or not the private respondent can rightfully demand performance of the obligation from
the petitioner, Binalbangan Tech, during the period of 1974 to May 31, 1982.
DECISION AND RATIO DECIDENDI:
No. A party to a contract cannot demand performance of the other party's obligations unless he is
in a position to comply with his own obligations. Similarly, the right to rescind a contract can be
demanded only if a party thereto is ready, willing and able to comply with his own obligations
thereunder.
In a contract of sale, the vendor is bound to transfer the ownership of and deliver, as well as
warrant, the thing which is the object of the sale (Art. 1495, Civil Code); he warrants that the
buyer shall, from the time ownership is passed, have and enjoy the legal and peaceful possession
of the thing.