Facts: On December 19, 1957, Ursula Torres Calasanz and Tomas Calasanz (defendants-appellants) entered into a contract

to sell a piece of land in Cainta, Rizal, to Buenaventura Angeles and Teofila Juani (plaintiffs-appellees) for P3,920.00 plus
7% interest per annum. The plaintiffs-appellees made a downpayment and continued to pay monthly installments until
July 1966, reaching a total of P4,533.38. Despite accepting delayed payments previously, the defendants-appellants sent a
letter on December 7, 1966, demanding past due accounts and eventually canceled the contract on January 28, 1967, due
to non-payment of subsequent installments. The plaintiffs-appellees filed a case to compel the execution of a final deed of
sale, arguing they had paid the total amount including interests and other expenses.

Lower Court Ruling: The Court of First Instance of Rizal ruled in favor of the plaintiffs-appellees, declaring the contract
not validly canceled and ordered the defendants-appellants to execute a final deed of sale, pay P500.00 in attorney's fees,
and cover the costs.

Issue on Remedies for Breach of Obligations: Whether the contract to sell was automatically and validly cancelled by
the defendants-appellants for the plaintiffs-appellees' failure to pay the monthly installment due in August 1966 and
subsequent months.

Supreme Court Ruling:

No. The Supreme Court denied the petition, affirming the decision of the lower court with modifications.

The Court held that the unilateral cancellation of the contract by the defendants-appellants was not justified.

The breach cited was deemed slight, considering the substantial amount already paid by the plaintiffs-appellees. The
Court emphasized the principle of substantial performance in good faith and the protective stance on contracts of
adhesion, interpreting ambiguities against the party who drafted the contract.

The defendants-appellants were ordered to execute the final deed of sale upon payment of the remaining balance of
P671.67 by the plaintiffs-appellees, without additional interest. The award of attorney's fees was upheld.

*************

The ruling and doctrine applied in the case you described revolve around the principles of contract law, specifically
regarding the remedies for breach of obligations and the rights to rescission and specific performance under Philippine
law. This case illustrates several key legal doctrines and principles:

1. Principle of Substantial Performance: The Supreme Court applied the doctrine of substantial performance,
which is encapsulated in Article 1234 of the Civil Code of the Philippines. This principle states that if an obligation
has been substantially performed in good faith, the obligor may recover as if there had been a strict and complete
fulfillment, less damages suffered by the obligee. This means that minor breaches or failures in performance,
which do not defeat the overall purpose of the contract, may not warrant rescission.
2. Right to Rescission: The case also touches on the right to rescission under reciprocal obligations, as provided by
Article 1191 of the Civil Code. It emphasizes that rescission is a remedy provided for the injured party when the
other party fails to comply with their obligations. However, the exercise of this right is not absolute and must
consider the nature and extent of the breach.
3. Doctrine of Contracts of Adhesion: The Supreme Court recognized the contract in question as a contract of
adhesion, which is one that is drafted by one party (usually the stronger party) and presented to the other party
on a "take it or leave it" basis. In such contracts, ambiguities or unclear terms are construed against the party that
prepared the contract, especially if such an interpretation aligns with justice and fairness.
4. Equity and Fairness: The Court's decision is heavily influenced by principles of equity and fairness, particularly
considering the plaintiffs-appellees' significant investment over the years and their near-complete fulfillment of
the contract terms. The Court aimed to prevent unjust enrichment on the part of the defendants-appellants by
denying the contract's cancellation and enforcing specific performance instead.
 5. Estoppel and Waiver: The defendants-appellants' acceptance of late payments without objection was viewed as a
waiver of their right to enforce the contract's strict terms (specifically, the right to cancel the contract for delayed
payments). The Court held that parties could be estopped from asserting a right they have waived by their actions
or inactions.

The ruling underscores the importance of the context and circumstances surrounding contractual breaches, emphasizing
fairness, the intention of the parties, and the principle that contracts must be honored and performed in good faith. These
doctrines collectively aim to balance the interests of both parties, ensuring that contracts are executed equitably and
justly, in line with the overarching principles of Philippine civil law.

NOTES:

RECAP:

The case originates from an appeal against the judgment of the Rizal Court of First Instance, Seventh Judicial District,
Branch X, which found the cancellation of a contract to sell invalid. The court ordered the defendants-appellants, Ursula
Torres Calasanz and Tomas Calasanz, to formalize a deed of sale for the plaintiffs-appellees, Buenaventura Angeles and
Teofila Juani, and mandated a payment of P500.00 for attorney's fees along with court costs.

This case was transferred to us by the Court of Appeals, focusing solely on legal questions as the facts were not contested.

On December 19, 1957, a contract was established between the Calasanz couple (defendants-appellants) and Angeles and
Juani (plaintiffs-appellees) to sell a parcel of land in Cainta, Rizal for P3,920.00 with a yearly interest rate of 7%. The
plaintiffs-appellees made an initial payment of P392.00 and agreed to monthly payments of P41.20, due every 19th, until
the full amount was settled. Payments continued until July 1966, accumulating to P4,533.38. Throughout, the Calasanz
couple accepted late payments on several occasions.

However, on December 7, 1966, the Calasanzes requested overdue payments from the plaintiffs-appellees, and by January
28, 1967, they terminated the contract due to missed payments. An appeal for reconsideration from the plaintiffs-
appellees was rejected.

In response, the plaintiffs-appellees initiated Civil Case No. 8943 at the Court of First Instance of Rizal, claiming full
payment of P4,533.38 for the land, including interest, realty taxes, and costs associated with the land's registration and
transfer, and demanded the execution of a final deed of sale.

The Calasanz couple countered, arguing the complaint was baseless and that the plaintiffs-appellees breached the
contract's terms by not paying the August 1966 installment and the subsequent five months, justifying the contract's
termination.
The initial court ruled in favor of the plaintiffs-appellees, stating the contract's termination by the defendants was
unjustified. It directed the Calasanz couple to complete the deed of sale for the plaintiffs-appellees and ordered them to
pay P500.00 in attorney's fees, with court costs also levied against them.

RULING:

The defendants-appellants' motion for reconsideration was dismissed, and the case was forwarded to us by the then Court
of Appeals due to its purely legal nature.

The defendants-appellants challenged the lower court's decision on several grounds:

1. They argued that the lower court erred by not recognizing the contract to sell as legally and validly terminated.
2. They contended that even if the contract was not properly terminated, the court was wrong to mandate them to
complete a final deed of sale for the plaintiffs.
3. They believed it was incorrect for the court to mandate them to compensate the plaintiffs with P500.00 in
attorney's fees.

The central question for our review is the legitimacy of the contract to sell's termination by the defendants-appellants.

The defendants-appellants insisted that the contract was rightfully terminated under a specific clause that allows for
cancellation if the buyer fails to meet payments within a given grace period followed by a 90-day window without
payment, after which the contract could be considered null and void without judicial intervention.

Conversely, the plaintiffs-appellees argued that this clause granting automatic cancellation rights is legally untenable and
emphasized the principle of reciprocity in contractual obligations, which allows for the rescission of the contract only
through judicial action or mutual agreement, unless the contract specifically stipulates otherwise.

The Supreme Court has previously determined that while parties can agree to contract terms allowing for cancellation
upon breach without court intervention, such actions are provisional and subject to judicial review to ensure fairness and
compliance with legal standards. This approach aims to balance the right to contract freely with the need to prevent unjust
enrichment and ensure that breaches are addressed proportionately, considering the overall fulfillment of contractual
obligations.

The defendants-appellants cited a balance due from the plaintiffs-appellees, arguing that payments made were applied to
interest as well as principal, as per the contract. However, the plaintiffs-appellees contended that having paid an amount
exceeding the principal, they fulfilled their obligations, making them eligible for the deed of sale as outlined in the
contract.

This case also touches on the nature of contracts of adhesion, where terms are set by one party, often leaving the other
with little choice but to agree. The court noted that such contracts should be interpreted in a manner that protects the
interests of the party with less bargaining power, especially when substantial compliance with the contract terms has been
demonstrated.

In conclusion, the Supreme Court upheld the lower court's decision but with a modification that the plaintiffs-appellees
must settle a remaining balance without additional interest. The decision reinforces the principle that contractual
obligations must be met with good faith, and that the judiciary plays a crucial role in resolving disputes arising from
contract terminations, ensuring that justice is served according to the circumstances of each case.

SEPARATE OPINION