Velarde Et Al v. Court of Appeals_Digest

[OBLICON] 2nd semester, A.Y. 2014-2015

VELARDE ET AL. vs. COURT OF APPEALS G.R. No.: 108346 Ponente: J. Panganiban Date: July 11, 2001 Petition for review on certiorari questioning the decision of CA denying petitioner’s motion for reconsideration Petitioner: Spouses Mariano and Avelina Velarde Respondent: Court of appeals, David Raymundo and George Raymundo, respondents FACTS:    

David Raymundo, herein private respondent, is the absolute and registered owner of a parcel of land in Dasmarinas Village, Makati. His father, George Raymundo, negotiated with plaintiffs, Velardes for the sale of the said property which was, however, under lease A Deed of Sale was executed by defendant , as vendor, in favor of plaintiff, as vendee. Prior to the sale, the aforesaid parcel of land was mortgaged to BPI to secure the payment of a loan of P 1, 800, 000. Pertinent stipulations of the Deed of Sale: ⇒ Petitioners paid P800,000 and agreed to assume the mortgage obligations on the property to BPI in the name of the vendor (respondent) ⇒ While the application for the assumption of the mortgage obligations on the property is not yet approved by the Bank, the mortgage obligations on the property are to be paid for by the vendee, in the name of the vendor/respondent. ⇒ In the event that the vendee violates any of the terms and conditions, the downpayment of P800,000 and all the payments made with the Bank on the mortgage loan shall be forfeited in favor of David Raymundo, respondent. Raymundo shall resume total and complete ownership and possession of the property sold by way of Deed of Sale with Assumption of Mortgage and the same shall be deemed automatically cancelled and be of no force or effect, in the same manner as if (the) same had never been executed or entered into.  Pursuant to the Deed, plaintiffs paid BPI the monthly interest on the loan for three months.  On December 15, 1986, plaintiffs were advised that the Application for Assumption of Mortgage with BPI was not approved. This prompted plaintiffs not to make any further payment.  Defendants, through counsel, wrote to plaintiffs informing the latter that their non-payment to mortgage constituted non-performance of obligation.  Respondents replied through counsel stating that they are willing to pay the balance not later that Jan 21, 1987. However, such payment would depend on several conditions newly provided for in the letter.  Defendants sent plaintiff a notarial notice of cancellation/ rescission of the intended sale of the subject  Procedural History: (1) Petitioners filed a Complaint for specific performace, nullity of cancellation, writ of possession and damages at RTC Makati. Judge Ynares Santiago dismissed the Complaint, upholding the validity of Batac, Endaya, Lingat, Santos, Saturnino, Villafuerte, Yee

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[OBLICON] 2nd semester, A.Y. 2014-2015

rescission. (2) Motion for Reconsideration filed. Judge Abad Santos directed to proceed with the sale. He instructed the petitioners to pay the balance of P1.8 million to private respondents who, in turn, were to execute a deed of absolute sale and to surrender possession of the disputed property to petitioners. (3) Respondents appealed to the CA which set aside the Order of Judge Abad Santos and reinstated the decision of Judge Ynares-Santiago dismissing the Complaint, upholding the validity of rescission. ISSUE1: Whether or not there was a breach of contract–YES. Petitioner: nonpayment of the mortgage did not constitute breach of contract considering their request to assume the obligation has been disapproved by the bank. Accordingly, the payment of monthly amortizations ceased to be their obligations, and devolved upon the private respondents again. HELD/RATIO1: There was a breach of contract. Petitioners did not merely stop paying the mortgage obligations; they also failed to pay the balance of the purchase price. As admitted by both parties, their agreement mandated that petitioners should pay the purchase price balance of P1.8 million to private respondents in case the request to assume the mortgage would be disapproved. Thus, when petitioners received notice of the bank’s disapproval of their application, they should have paid the balance of P1.8 million. Petitioners only sent a letter offering to make such payment only upon fulfillment of certain conditions not originally agreed upon in the contract of sale. Such conditional offer to pay cannot take the place of actual payment. ISSUE2: Whether or not the rescission of the contract by private respondents was valid – YES. HELD/RATIO2: Yes. The private respondents’ right to rescind the contract finds basis in Article 1191 of the Civil Code. Article 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. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. DOCTRINE: The right of rescission is predicated on the breach of faith by the party who violates the reciprocity between the parties The breach contemplated in the provision is the obligor’s failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the oblige may seek rescission and, in the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission. Batac, Endaya, Lingat, Santos, Saturnino, Villafuerte, Yee

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[OBLICON] 2nd semester, A.Y. 2014-2015

In the present case, private respondents have the right to rescind the contract because of petitioners’ failure to comply with their obligation to pay the balance of purchase price. Petitioners did not only fail to pay the balance but also imposed upon respondents new obligations as preconditions to the performance of their own obligation. In effect, the qualified offer to pay was a repudiation of an existing obligation, which was legally due and demandable under the contract of sale. Mutual restitution required in rescission. The breach committed was nonperformance of a reciprocal obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the automatic rescission and forfeiture of payment clauses in the contract does NOT apply. Instead, Civil Code provisions shall govern. Considering that rescission of the contract is based on Article 1191, mutual restitution is required to bring back parties to their original situation prior to inception of contract. DOCTRINE: Rescission creates the obligation to return the object of the contract. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. To rescind is to declare a contract void at its inception and to put an end to it as though it never was. It is not merely to terminate it and release the parties from further obligations to each other, but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been made. DISPOSITIVE: WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that private respondents are ordered to return to petitioners the amount of P874,150, which the latter paid as a consequence of the rescinded contract, with legal interest thereon from January 8, 1987, the date of rescission. No pronouncement as to costs.

Batac, Endaya, Lingat, Santos, Saturnino, Villafuerte, Yee

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