Facts: David Raymundo (private respondent) is the

absolute andregistered owner of a parcel of land,
located at 1918 Kamias St., Dasmariñas Village Makati,
together with the house and other improvements, which
was under lease. It was negotiated by David’s father
with plaintiffs Avelina and Mariano Velarde (petitioners).
ADeed of Sale with Assumption of Mortgage was
executed in favor of the plaintiffs. Part of the
consideration of the sale was the vendee’s assumption
to pay the mortgage obligations of the property sold in
the amount of P 1,800,000.00 in favor of the Bank of the
Philippine Islands. And while their application for the
assumption of the mortgage obligations is not yet
approved by the mortgagee bank, they have agreed to
pay the mortgage obligations on the property with the
bank in the name of Mr. David Raymundo. It was further
stated that “in the event Velardes violate any of the
terms and conditions of the said Deed of Real Estate
Mortgage, they agree that the downpayment
P800,000.00, plus all the payments made with the BPI
on the mortgage loan, shall be forfeited in Favor of Mr.
Raymundo, as and by way of liquidated damages, w/out
necessity of notice or any judicial declaration to that
effect, and Mr. Raymundo shall resume total and
complete ownership and possession of the property, and
the same shall be deemed automatically cancelled”,
signed by the Velardes.
Pursuant to said agreements, plaintiffs paid BPI the
monthly interestloan for three months but stopped in
paying
the
mortgage
when
informed
that
their application for the assumption of mortgage was not
approved. The defendants through a counsel, wrote

Issue: Whether the rescission of contract made by the private respondent is valid. However. the plaintiffs responded and advised the vendor that he is willing to pay provided that Mr.8 million to private respondent who. 21. the court upheld the earlier decision of the RTC regarding the validity of the rescission made by private respondents. nullity of cancellation.plaintiffs informing the latter that their non-payment to the mortgagee bank constituted non-performance of their obligation and the cancellation and rescission of the intended sale. Upon the appeal of the private respondent to the CA. Held: There is a breach of contract because the petitioners did not merely stopped paying the mortgage . And after two days. 1987. writ of possession and damages. Raymundo: (1) delivers actual possession of the property to them not later than January 15. Raymundo for specific performance. in turn were ordered to execute a deed of absolute sale and to surrender possession of the disputed property to petitioners. their Motion for Reconsideration was granted and the Court instructed petitioners to pay the balance of P 1. The RTC of Makati dismissed the complaint of the petitioners against Mr. 1987 for their occupancy (2) causes the release of title and mortgage from the BPI and make the title available and free from any liens and encumbrances (3) executes an absolute deed of sale in their favor free from any liens and encumbrances not later than Jan.

.obligations but they also failed to pay the balance purchase price. Raymundo’s source of right to rescind the contract is Art. Mr. To rescind. Rescission creates the obligation to return the obligation of contract. The initial payment and the mortgage payments advanced by petitioners should be returned by private respondents. Moreover. 1191 of the Civil Code predicated on a breach of faith by the other party who violates the reciprocity between them. Raymundo cannot take the place of actual payment as would discharge the obligation of the buyer under contract of sale. lest the latter unjustly enriched at the expense of the other. the new obligations as preconditions to the performance of the petitioners’ own obligation were repudiation of an existing obligation. is to declare a contract void at its inception and to put an end to it as though it never was. Their conditional offer to Mr. The decision of the CA is affirmed with modification that private respondents are ordered to return to petitioners. The mutual restitution is required to bring back the parties to their original situation prior to the inception of the contract. the amount they have received in advanced payment. which was legally due and demandable under the contract of sale. The breach committed by the petitioners was the nonperformance of a reciprocal obligation.