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


knowledge of the “Kasunduan”. When Patricio and his wife died, petitioner became their sole successor-ininterest 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.


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


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


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 Facts: RVM, acting through its local unit and specifically through Sr. Fe Enhenco, and Respondents Orola met to discuss the sale of the latter’s property adjacent to St. Mary’s Academy. A contract to sell made out in the names of petitioner and respondents as parties to the agreement was presented in evidence pegging the total consideration of the property at P5.5M with 10% of the total consideration payable upon the execution of the contract and which was already signed by all the respondents and Sr. Enhenco as witness. Then, respondents acknowledged receipt of a check from RVM Congregation with the conforme signed by Sr. Enginco, Mo. Superior, SMAC. Then, respondents executed an extrajudicial settlement. Thereafter, respondents, armed with an undated Deed of Absolute Sale, which they had 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 2year 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 2year period to effect payment has been mooted by the lapse of time.

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. Moreover, RVM committed breach of the obligation when it suddenly refused to execute and sign the agreement and pay the balance of the purchase price. Thus, respondents rightfully availed of the alternative remedies provided in Art. 1191. The absence of fraud and bad faith by RVM notwithstanding, it is liable to respondents for interest. Lastly, the clear language of Art. 1191 mandates that damages shall be awarded in either case of fulfillment or rescission of the obligation, therefore, it is correct to impose interest on the remaining balance of the purchase price to cover the damages caused to the respondents by RVM’s breach.


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