OBLICON DIGESTED CASES
Article 1191
CANNU V. GALANG
Facts: Respondent-spouses Gil and Fernandina Galang
obtained a loan from Fortune Savings and Loan
Association to purchase a house and lot to secure
payment, a real estate mortgage was therefore
constituted on the said house and lot . In 1990, NHMFC
purchased the mortgage loan for P173,800. Respondent
Fernandina Galang authorized her atty-in-fact to sell the
subject house and lot. Petitioner Leticia Cannu agreed to
buy the property for P120,000 and to assume the
balance of the mortgage obligations with the NHMFC
and with CERF Realty (developer of the property). Of
the P120,000 full payments made by petitioner, a
balance of P45,000 was left. A Deed of Sale with
Assumption of Mortgage Obligation was entered into by
and between respondent-spouses as vendors and
petitioners as vendees over the house and lot.
Petitioners immediately took possession and occupied
the house and lot. The petitioners paid the “equity” or
second mortgage to CERF Realty. Despite requests
from respondnents to pay the balance of P45,000 or in
the alternative to vacate the property in question,
petitioners refused to do so. Petitioner’s formal
assumption of mortgage was not approved by the
NHMFC. Because of their failure to comply with their
obligations, respondent Galang paid the remaining
mortgage loan with NHMFC. Petitioners opposed the
release of TCT in favor of respondents insisting that the
subject property had already been sold to them.
Consequently, NHMFC held in abeyance the release of
said TCT. Thereupon, a complaint for specific
performance and damages was filed asking, among
other things, that petitioners be declared the owners of
the property involved subject to reimbursements of the
amount made by respondents in pre-terminating the
mortgage loan. In their counterclaim, they maintain that
the acts of petitioners in not fully complying with their
obligations, that is to pay the monthly amortizations with
NHMFC, give rise to rescission of the Deed of Sale with
corresponding damages.
Issue: W/N the action for rescission is subsidiary.
Ruling: The subsidiary character of the action for
rescission applies to contracts enumerated in Art. 1381.
The contract involved in the case is not one of those
mentioned therein. The provision that applies in the case
at bar as Art. 1191 as there was violation of reciprocity
between the parties.
In the case at bar, the reciprocity between the parties
was violated when petitioners failed to fully pay the
balance of P45,000 to respondent-spouses and their
failure to update their amortizations with the NHMFC.
It is evident that the contract under consideration does
not contain a provision authorizing its extrajudicial
rescission in case one of the parties fails to comply with
what is incumbent upon him. This being the case,
respondents-spouses should have asked for judicial
intervention to obtain a judicial declaration of rescission.
But, considering that respondents-spouses’ Answer with
Counterclaim seeks for the rescission of the Deed of
Sale, it behooves the court to settle the matter once and
for all. Having found that petitioners seriously breached
the contract, we, therefore, declare the same is
rescinded in favor of respondents-spouses.
There was no waiver on the part of petitioners to
demand the rescission of the Deed of Sale. The fact the
respondents-spouses accepted payments in installments
does not constitute waiver on their part to exercise their
right to rescind the deed of sale. It was only after
petitioners stopped paying that respondents-spouses
moved to exercise their right to rescission when they
paid the outstanding balance of the mortgage loan with
NHMFC.
As a consequence of the rescission of the Deed of Sale,
the parties should surrender whatever they may have
received from the other. The parties should be restored
to their original situation.
Pagtalunan v. dela Cruz vda. de Manzano
Facts: Patricio Pagtalunan, petitioner’s stepfather,
entered into a contract to sell with respondent, wife of
Patricio’s former mechanic whereby the former agreed
to sell and the latter to buy a house and lot. The
consideration of P17,800 was agreed to be paid in the ff.
manner: P1,500 as downpayment and the balance to be
paid in equal monthly installments of P150 until fully
paid. it was also stipulated in the contract that in case of
default of paying the installments, the contract would be
automatically rescinded without need of judicial
declaration and that all payments shall be considered as
rentals for the use and occupation of the property.
Petitioner claimed that respondent paid only P12,950.
She allegedly stopped paying after Dec. 1979 without
any justification. Moreover, in a “Kasunduan” respondent
borrowed P3,000 payable in one year either by lump
sum or by installments, failing which the balance of the
loan would be added to the principal of the monthly
amortizations on the land. On the other hand,
respondent alleged that she paid her monthly
installments religiously, until sometime in 1980 because
she and Patricio signed an agreement whereby he
consented to the suspension of respondent’s monthly
payments until Dec. 1981. Respondent did not deny that
she still owed Patricio P5,650 but denied having
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knowledge of the “Kasunduan”. When Patricio and his
wife died, petitioner became their sole successor-in-
interest pursuant to a waiver by the other heirs.
Respondent received a letter from petitioner’s counsel
demanding that she vacate the premises within 5 days
on the ground that her possession had become unlawful.
Issue: W/N the contract to sell was validly cancelled or
rescinded under Sec 3 (b) of R.A. 6552.
Ruling: R.A. 6552, otherwise known as the “Realty
Installment Buyer Protection Act”, recognizes in
conditional sales of all kinds of real estate the right of the
seller to cancel upon non-payment of an installment by
the buyer. However, the cancellation must be done in
accordance with Sec. 3 (b) of R.A. 6552, which requires
a notarial act of rescission and the refund of the buyer of
the full payment of the cash surrender value of the
payments on the property. Actual cancellation of the
contract takes place after 30 days from receipt by the
buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act upon full
payment of the cash surrender value to the buyer.
Based on the records of the case, the contract to sell
was not validly cancelled or rescinded under Sec 3 (b) of
R.A. 6552.
The letter, which was written by petitioner’s counsel,
merely made formal demand upon respondent to vacate
the premises within 5 days from receipt thereof since
she had “long ceased to have any right to possess the
premises due to her failure to pay without justifiable
cause the installment payments.” Clearly, the demand
letter is not the same as the notice of cancellation or
demand for rescission by a notarial act require by R.A.
6552.
In addition, the said act requires refund of the cash
surrender value of the payments on the property to the
buyer before cancellation of the contract. The provision
does not provide a diff. requirement for contracts to sell
which allow possession of the property by the buyer
upon execution of the contract like the instant case.
Hence, petitioner cannot insist on compliance with the
requirement by assuming that the cash surrender value
payable to the buyer had been applied to rentals of the
property after respondent failed to pay the installments
due. There being no valid cancellation of the contract to
sell, respondent has the right to occupy the property
subject of the contract to sell.
Macasaet v. R. Transport Corporation
Facts: R. Transport and Macasaet entered into a Deed
of Sale with Assumption of Mortgage over 4 passenger
buses whereby Macasaet undertook to pay the
consideration of P12M and assume the existing
mortgage obligation on the said buses in favor of Phil.
Hino Sales Corp. Accordingly, R. Transport delivered to
Macasaet 2 passenger buses. Despite demands,
however, Macasaet failed to pay the stipulated
purchased price. This prompted R. Transport to file a
complaint seeking the issuance of a writ of replevin,
praying for judgment declaring R. Transport as the lawful
owner and possessor of the passenger buses and
ordering Macasaet to remit the amount of P660,000
representing the income generated by the 2 buses. Prior
to the execution of the contract, “Special Trip Contract”
was entered into by the parties wherein it stipulated that
R. Transport would lease the 4 subject of the deed of
sale to Macasaet for the sum of P10,000 a day per bus.
For his defense, petitioner alleged that he had paid
respondent the full consideration of P12M and had
agreed to assume the mortgage obligation. He claimed
ownership over the 4 buses. He further contented that
he had already remitted P120,000 to respondent as
partial payment of the mortgage obligation. Petitioner
admitted that he had been earning at least P7,000 per
day on each bus. For his counterclaim, he prayed for the
return of the bus units seized and the immediate delivery
of the other 2 units, as well as payment for damages.
Issue: W/N respondent has the right to rescind or cancel
the deed of sale in view of petitioner’s failure to pay
stipulated consideration.
Ruling: The CA erred in stating that the deed of sale
was not perfected, for it was. There was no
consummation though. However, the rescission or
resolution of the deed of sale is in order.
Being a consensual contract, sale is perfected at the
moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law
governing the form of contracts. A perfected contract of
sale imposes reciprocal obligations on the parties
whereby the vendor obligates himself to transfer the
ownership of and to deliver a determinate thing to the
buyer who, in turn, is obligated to pay a price certain in
money or its equivalent. Failure of either party to comply
with his obligation entitles the other to rescission as the
power to rescind is implied in reciprocal obligations.
Applying these legal precepts to the case at bar, we hold
that respondent has the right to rescind or cancel the
deed of sale in view of petitioner’s failure to pay
stipulated consideration.
Non-payment of the purchase price of property
constitutes a very good reason to rescind a sale for it
violates the very essence of the contract of sale. While it
is preferable that respondent instead should have filed
an action to resolve or cancel the deed as the right to do
so must be invoked judicially, this shortcoming was
cured when the complaint itself made out a case for
rescission or resolution for failure of petitioner to comply
with his obligation to pay the full purchase price.
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As previously noted, petitioner did not pay the full
purchase price as stipulated in the contract whereas
respondent complied with its obligation when it delivered
the 2 buses. A necessary consequence of rescission is
restitution with payment of damages under Art. 1191.
Also, corollary to the rescission of the contract of sale is
the recovery of possession of the object thereof. Thus,
petitioner’s possession over the subject buses became
unlawful when upon demand for return, he wrongfully
retained possession over the same.
As to damages, a party is entitled only up to such
compensation for the pecuniary loss that he has duly
proven. Since the amount of damages was founded
merely on speculations, we return to the provisions of
the Special Trip Contract wherein the rental is fixed at
P10,000 a day per bus. This duly executed contract was
presented, marked and formally offered in evidence. The
fact that Macasaet voluntarily signed the contract
evinced his acquiescence to its terms, particularly the
amount of rentals.
PLRA v. CA
Facts: Sometime in 1989, 12 principal retirees of PLRA
organized and registered with the SEC the PRAMAI. In
1994, Atty. Collado, a principal retiree of PLRA,
registered with the SEC another association, the
PRAMA. After its incorporation, PRAMA executed
several MOAs with PLRA’s short-listed banks to promote
the bank’s services among PRAMA members who were
PLRA’s principal retirees. In the MOAs, the banks
agreed to pay PRAMA a marketing fee of ½ of 1% of the
total outstanding balance of the principal retirees’
deposits in the listed banks. In 1995, PLRA issued a
resolution requiring PLRA principal retirees to become
PRAMA members. The resolution provided that PLRA
would collect the annual membership fees. When
PRAMA transferred offices, PLRA remitted to PRAMA
the membership fees it collected from 1997 to 2000, all
duly acknowledged and receipted by PRAMA.
Subsequently, after collecting PRAMA’s annual
membership fees since 1996, PLRA sent PRAMa a
letter to the effect that it would continue to collect
PRAMA’s membership fees for a 5% service fee based
on total collections effective Jan. 2000. Thereafter, some
derogatory remarks were leveled against PLRA by
PRAMA, promptng PLRA to communicate its objections
to PRAMA. In a meeting, the officers of PLRA and
PRAMA tried to iron out their differences such as
discrepancies in their respective records on the number
of principal retirees and the actual annual membership
fee collections. PRAMA claimed that about 40% of its
member-retirees had not paid their annual membership
dues. An account was sent by PRAMA to reconcile the
records of the member-retirees with the remittances to
PRAMA, but said accountant complained she was not
given all the records. Due to the discrepancies of their
records, exchanges of letters between PRAMA and
PLRA ensued. PLRA accused PRAMA of sowing seeds
of discontent and suspicion among PLRA’s principal
retirees, and of breach of the MOA. PLRA referred the
rescission of the MOA to the OGCC, which opined that
PLRA through its board of trustees could unilaterally
rescind the MOA. Consequently, the board resolved to
terminate the MOA. Then, PRAMA instituted a
Complaint for Specific Performance with Prayer for
Preliminary Injunction against PLRA alleging that the
termination of the MOA was illegal and PLRA had yet to
remit all membership fee collections covering 1996 to
2000.
Issue: W/N the courts may interfere with PLRA’s
decision to rescind in the exercise of its management
prerogatives.
Ruling: Petitioner is mistaken to say that the courts
cannot interfere with the decision of corporation’s
officers and boards of trustees, nor can a party not be
allowed to unilaterally rescind an agreement. The right to
rescind is provided for in Art. 1191: “the power to rescind
obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent
upon him. xxx The court shall decree the rescission
claimed, unless there be just cause authorizing the fixing
of a period.”
Thus, even if a provision providing for a right to rescind
is not in the agreement, a party may still rescind a
contract should one obligor fail to comply with its
obligations.
While PLRA may have the right to rescind the MOA,
treat the contract as cancelled, and communicate the
rescission to PRAMA, the cancellation of the MOA is still
subject to judicial scrutiny, should the cancellation be
contested and brought to court.
In UP v. de los Angeles: 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. For it is only the final
judgment of the corresponding court that will and
finally settles whether the action taken was or was
not correct in law.
In the instant case, PRAMA judicially questioned the
unilateral rescission by PLRA, and the TC still has to
determine whether the unilateral rescission was justified.
PLRA is wrong to say that the courts may not interfere
with its decision to rescind in the exercise of its
management prerogatives.
Uniwide Holdings, Inc. v. Jandecs Transportation
Co., Inc.
Facts: Petitioner Uniwide Holdings and respondent
Jandecs Transportation entered into a contract of
“Assignment of Leasehold Rights” under which the latter
was to operate food and snack stalls at petitioner’s
Uniwide Coastal Mall. The contract was for a period of
18 yrs. For a consideration of P2.4M. Respondent paid
TAU MU SCROLL NO. 490 3
the contract price in full. Petitioner, however, failed to
turn over the stall units on the agreed date. Respondent
sought the rescission of the contract and the refund of its
payment. Petitioner refused both. Respondent filed a
complaint in the RTC for a breach of contract, rescission
of contract, damages and issuance of a writ of
preliminary attachment. In the complaint, respondent
claimed that despite full payment, petitioner failed to
deliver the stall units on the stipulated date, open its own
food and snack stalls near the cinema area and refused
to accommodate its request for the rescission of the
contract and the refund of payment. In its answer,
petitioner admitted respondent’s full payment of the
contract price but averred that it was to turn over the
units only upon completion of the mall. It likewise
claimed that, under the contract, it had option to
substitute stalls to respondent, which the latter, however,
rejected.
Issue: W/N petitioner’s failure to deliver the units on the
commenced date of lease gave respondent the right to
rescind the contract after it had fully paid the contract
price.
Ruling: Art. 1191 of the CC provides the power to
rescind obligations in reciprocal ones in case one of the
obligors should not comply with what is incumbent upon
him while the other is willing and ready to comply.
Certainly, petitioner’s failure to deliver the units on the
commencement date of the lease gave respondent the
right to rescind the contract after the latter had already
paid the contract price in full.
Further, respondent’s right to rescind the contract cannot
be prevented by the fact that petitioner had the option to
substitute the stalls. Even if petitioner had that option, it
did not, however, mean that it could insist on the
continuance of the contract by forcing respondent to
accept the substitution. Neither did it mean that its
previous default had been obliterated completely by the
exercise of the option.
Francisco v. DEAC Construction, Inc.
Facts: Petitioner Lino and Guia Francisco obtained the
services of respondent DEAC Construction to construct
a 3-storey residential building with mezzanine and roof
deck on their lot for a contract price of P3.5M. As agreed
upon a downpayment of P2M should be paid upon
signing of the contract of construction, and the remaining
balance of P1.5M was to be paid on two equal
installments: first, upon completion of the foundation
structure and the ground floor, and second, upon
completion of the 2nd floor up to the roof deck structure.
Even prior to the execution of the contract, the
petitioners had paid the downpayment. The construction
of the residential building commenced although DEAC
had not yet obtained the necessary building permit. It
was on this basis that the owner Lino Francisco was
charged with illegal construction. Then, the Office of the
Building Official of Manila issued the requisite bldg.
permit. As admitted by DEAC, the release of the permit
was withheld because of the erroneous designation of
the location of the lot in one of the bldg. plans. Thus,
DEAC had to make the necessary adjustment. To
facilitate the approval and the subsequent release of the
permit, the signatures of the petitioner Guia Francisco
were forged by DEAC representative. Then, another
Notice of violation against the owner was issued while at
the same time calling the attention of the contractor. In a
letter, petitioners suddenly complained of several
infractions emanating from the construction of the
project allegedly committed by DEAC, and demanded
that DEAC must comply with the approved plan and
construction contract. As such, the last installment was
withheld. DEAC responded in a letter that it had faithfully
complied with its obligation under the contract and said
that it was the petitioners who breached the contract
because the last installment was not yet paid. An option
was given by DEAC to the petitioners, that is to either
pay the last installment in full or just pay the worth of the
work already done. Then, a Work Stoppage order was
issued against the petitioners. Having learned of such,
petitioners immediately went to the Office of the Building
office of Manila to explain that the deviations of the
approved plan were unilateral acts of DEAC. The
petitioners filed a criminal complaint against DEAC with
the said office. They also filed a civil case for rescission
of contract and damages against DEAC with the RTC.
Issue: W/N Spouses Francisco should be allowed to
rescind the contract to the extent that this is possible
under the circumstances.
Ruling: The Spouses Francisco should be allowed to
rescind the contract to the extent that this is possible
under the circumstances.
Art. 1191 of the CC provides that the power to rescind
obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent
upon him. The rescission referred in this article is not
predicated on injury to economic interests but of breach
of faith, which is violative of the reciprocity between
parties. The right to rescind may be waived, expressly or
impliedly.
The Spouses Francisco, in their letter to respondents,
complained about the belated release of the bldg.
permit, the unauthorized corrections in the bldg. plan,
the forgery of petitioner Guia’s signature, and the
deletion of the open space/patio in the actual
construction of the project. The filing of a criminal case
against DEAC and the subsequent filing of this civil case
for rescission and damages within a reasonable time
after the petitioner-spouses had learned that
construction of their bldg. commenced without
necessary bldg. permit and discovered that there were
deviations from the bldg. plan demonstrate the vigilance
with which they guarded their rights. The appellate
court’s conclusion that the Spouses Francisco should be
deemed to have waived their right to seek rescission is
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clearly unfounded. Finally, given the fact that the
construction in this case is already 75% complete, the
TC was correct in ordering partial rescission only of the
undelivered or unfinished portion of the construction.
Equitable considerations justify rescission of the portion
of the obligation, which had not been delivered.
RVM v. Orola
However, the article that is applicable in this case is Art.
1191, not Art. 1381 because respondent’s cause of
action against RVM is for breach of the reciprocal
obligation. It is evident from the allegations in
respondent’s complaint that the instant case does not
fall within the enumerated instances in Art. 1381 as the
complaint did not pray for rescission of the contract
based on economic prejudice.

Facts: RVM, acting through its local unit and specifically Moreover, RVM committed breach of the obligation
through Sr. Fe Enhenco, and Respondents Orola met to when it suddenly refused to execute and sign the
discuss the sale of the latter’s property adjacent to St. agreement and pay the balance of the purchase price.
Mary’s Academy. A contract to sell made out in the Thus, respondents rightfully availed of the alternative
names of petitioner and respondents as parties to the remedies provided in Art. 1191.
agreement was presented in evidence pegging the total
consideration of the property at P5.5M with 10% of the The absence of fraud and bad faith by RVM
total consideration payable upon the execution of the notwithstanding, it is liable to respondents for interest.
contract and which was already signed by all the
respondents and Sr. Enhenco as witness. Then, Lastly, the clear language of Art. 1191 mandates that
respondents acknowledged receipt of a check from RVM damages shall be awarded in either case of fulfillment or
Congregation with the conforme signed by Sr. Enginco, rescission of the obligation, therefore, it is correct to
Mo. Superior, SMAC. Then, respondents executed an impose interest on the remaining balance of the
extrajudicial settlement. Thereafter, respondents, armed purchase price to cover the damages caused to the
with an undated Deed of Absolute Sale, which they had respondents by RVM’s breach.
signed, forthwith scheduled a meeting with VRM
Balleque to finalize the sale, specifically, to obtain
payment of the remaining balance of the purchase price
in the amount of P4.9M. However, VRM Balleque did not
meet with respondents. Succeeding attempts by
respondents to schedule an appointment with VRM
Balleque were likewise rebuffed. RVM denied
respondent’s demand for payment because (1) the
purported contract to sell was merely signed by Sr.
Enhenco as witness, and not by VRM Balleque, and (2)
RVM will only be in financial position to pay the balance
of the purchase price in 2 years time. Thus, respondents
filed with the RTC a complaint with alternative causes of
action of specific performance or rescission.

Issue: W/N RVM is liable for interest on the balance of

the purchase price.

Ruling: Art. 1191 speaks of the remedy of rescission in

reciprocal obligations.

There was a perfected contract of sale between the

parties. A contract of sale carries the correlative duty of
the seller to deliver the property and the obligation of the
buyer to pay the agreed price. As there was already a
binding contract of sale between the parties, RVM had
the corresponding obligation to pay the remaining
balance of the purchase price upon the issuance of the
title in the name of the respondents. The supposed 2-
year period within which to pay the balance did not affect
the nature of the agreement as a perfected contract of
sale. In fact, the 2-year period is neither reflected in any
of the drafts to the contract, nor in the acknowledgement
receipt of the downpayment executed by respondents
with the conformity of Sr. Enhenco. In any event, the 2-
year period to effect payment has been mooted by the
lapse of time.

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