VELARDE VS CA (361SCRA 30)

Facts: David Raymundo (private respondent) is the

absolute andregistered owner of a parcel of land,
located at 1918 Kamias St., Dasmarias Village
Makati, together with the house and other
improvements, which was under lease. It was
negotiated by Davids 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 vendees 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 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. And after two days, the plaintiffs responded
and advised the vendor that he is willing to pay
provided that Mr. Raymundo: (1) delivers actual
possession of the property to them not later than
January 15, 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. 21, 1987.
The RTC of Makati dismissed the complaint of the
petitioners against Mr. Raymundo for specific

performance, nullity of cancellation, writ of

possession and damages. However, their Motion
for Reconsideration was granted and the Court
instructed petitioners to pay the balance of P 1.8
million to private respondent who, in turn were
ordered to execute a deed of absolute sale and to
surrender possession of the disputed property to
petitioners.
Upon the appeal of the private respondent to the
CA, the court upheld the earlier decision of the RTC
regarding the validity of the rescission made by
private respondents.
Issue: Whether the rescission of contract made by
the private respondent is valid.
Held: There is a breach of contract because the
petitioners did not merely stopped paying the
mortgage obligations but they also failed to pay
the balance purchase price. Their conditional offer
to Mr. Raymundo cannot take the place of actual
payment as would discharge the obligation of the
buyer under contract of sale.
Mr. Raymundos source of right to rescind the
contract is Art. 1191 of the Civil Code predicated
on a breach of faith by the other party who violates
the reciprocity between them. Moreover, the new
obligations as preconditions to the performance of
the petitioners own obligation were repudiation of
an existing obligation, which was legally due and
demandable under the contract of sale.
The breach committed by the petitioners was the
non-performance of a reciprocal obligation. The
mutual restitution is required to bring back the
parties to their original situation prior to the
inception of the contract. The initial payment and
the mortgage payments advanced by petitioners
should be returned by private respondents, lest the
latter unjustly enriched at the expense of the other.
Rescission creates the obligation to return the
obligation of contract. To rescind, is to declare a
contract void at its inception and to put an end to it
as though it never was.
The decision of the CA is affirmed with modification
that private respondents are ordered to return to
petitioners, the amount they have received in
advanced payment.