Velarde v.

CASUMMARY OF DOCTRINE:
Failure to pay the price in the manner prescribed by the contract constitutes a substantial
breach of contract
A substantial breach of contract entitles injured party to rescind the obligation.
Rescission abrogates the contract from its inception and requires mutual restitution of
benefits.
FACTS:
David Raymundo is the owner of a parcel of land together with the house and other
improvements erected uponit.
The property was mortgaged to the Bank of the Philippine Islands (BPI) for P1.8M
through a
Deed of RealEstate Mortgage (DREM).
George Raymundo, Davids father, negotiated the sale of the property to spouses Avelina
and Mariano Velarde.
The parties executed a
Deed of Sale with Assumption of Mortgage (DSAM)
where the Velardes agreed,inter alia,to:
1.Pay Raymundo P800,000.00
2.Assume the obligation to repay the mortgage worth P1.8M
3.Strictly and faithfully comply with all terms and conditions of the mortgage agreement
with BPI
4.Pay interests and other charges for late payment levied by the Bank
(all in all, to treat the mortgage as if it were originally signed and executed by them)
Avelina Velarde also executed an
Undertaking further stating,inter alia,that:
1.While her application for assumption of mortgage obligations on the
property was still being processed, she will still pay the mortgage obligationsin the name
of the owner Raymundo
2. should she violate any of the terms and conditions of the
DREM, she agrees to (1)forfeit in favorof David Raymundo the P800T plus all
payments made to BPI as liquidated damages without necessity of judicial
declaration; (2) Raymundos
resumption of total ownershipof the property;and (3) automatic cancellation of the
DSAM
However, Velardes application for assumption of mortgage obligations was not approved.
From then on, the Velardes stopped payment of the mortgage loan
In response, Raymundo wrote to the Velardes stating that their nonpayment
of the mortgage constitutednonperformance of their obligation.
Velardes replied through a letter stating their willingness to pay the balance
Provided that Raymundo:
1.deliver actual possession of the property for Velardes immediate occupancy;
2.cause the release of the title and mortgage from BPI and make the title available free from
anyliens and encumbrances; and
3.execute an absolute deed of sale in Avelina Velardes favor
Raymundo then sent the Velardes aNotice of Cancellation/Rescission of the Intended
Sale
on the groundsof failure to comply with the terms and conditions of the
DSAMand
Undertaking
The Velardes filed a Complaint for:
1.Specific performance (enforcement of the DSAM);
2.Nullity of Cancellation;
3.Issuance of a writ of possession; and
4.Damages
Judge Ynares-Santiago of the RTC of Makati dismissed the complaint, but a new
judge granted the Motion forReconsideration after Justice Ynares-Santiago was promoted to
the CA
The new judge ruled in favor of the Velardes, ordering them to pay the P1.8M and ordering
Raymundo to executea deed of absolute sale and to surrender possession of the property


Raymundo appealed to the CA, which ruled in favor of him, finding that:
1.
the nonpayment of the mortgage resulted in a breach of contract
2.
that the rescission of the contract was, therefore, justified
3.
that the letter giving new conditions was an attempt to novate, which requires a new
agreementbetween the parties.
ISSUES:
I.
W/N there was a Breach of Contract.HELD: YES. Velardes failure to perform their correlative
obligation (payment of the balance of P1.8M) resulted in abreach.

Petitioners allege that disapproval of their application

to assume obligation of the mortgageextinguished their
obligation to pay the monthly amortizations, which then devolved uponRaymundo
again.

Failure to pay the mortgage would not have been a problem if they paid the
balance of thepurchase price amounting to P1.8M, as agreed upon in the event
the application is disapproved.

Thus, when the application was disapproved, they should have proceeded to pay Raymundo
thebalance of P1.8M

The breach was not the nonpayment of the mortgage, but the nonperformance of
theirreciprocal obligation to pay the price under the contract of sale

Their conditional off er to pay cannot take the place of actual payment that would
discharge a
buyers obligation under a contract of sale

In a
contract of sale,
seller
obligates itself to transfer ownership and deliver a determinate thing,and the
buyer
obligates itself to pay a
price certain
in money or its equivalent

When Raymundo executed the

DSAM
, his obligation has already been performed through
constructive delivery
, where prior physical delivery is not legally required. Deed of Sale isdeemed
equivalent to delivery

Petitioners did not only fail to perform their correlative obligation, they
also tried to compelRaymundo to perform obligations beyond those stipulated in
the contract before fulfi lling their own.
II.
W/N the breach was substantial enough to justify the rescission of the
contract.HELD: YES. The Velardes, in failing to pay the purchase price under the contract of
sale, violated the very essenceof reciprocity in the contract of sale.LEGAL BASIS:
Article 1191 of the Civil Code:
The power to rescind obligations is implied in reciprocal ones in case one of the
obligorsshould not comply with what in incumbent upon him.The injured party may choose
between fulfillment and the rescission of the obligation, with the payment of damages
ineither case. He may also seek rescission even after he has chosen fulfillment, if the latter
should become possible

Since it is established that the Velardes violated the reciprocity of the contract
of sale, the right of rescission under Article 1191 was validly exercised

This right is predicated on a breach of faith

While it is true that they expressed their willingness to pay the price one month after it
became due,this does not constitute faithful compliance of their reciprocal
obligation, especially considering the offer was made conditional.

Petitioners tried to invoke the cases of

Song Fo
,
Zepeda v. CA
and
Tan v. CA

The court held that the facts of this case are distinguishable from the other
cases because those involved only delays of a few days and the buyers offers to pay were
unconditional and accepted by theseller
III.
W/N the payments were forfeitedHELD: NO. Rescission requires mutual restitution.

Since the breach consisted of the nonperformance of reciprocal obligation, and not a
breach of themortgage contract, what applies are the Civil Code provisions and not the
automatic rescission andforfeiture clause of the Undertaking.

Rescission under the Civil Code required mutual restitution to bring back the parties to their
originalsituations prior to the inception of the contract

The payments of P800T and monthly amortizations must be returned, lest one party enrich
itself in theexpense of the other (Principle of Unjust Enrichment)

This is because
to rescind is to declare the contract void, to put an end to it as if it never was,and
not merely to terminate it and release the parties from further obligations to each other.
SAN MIGUEL PROPERTIES PHILS., INC. v SPOUSES ALFREDO and GRACE HUANG, G.
R. No. 137290, 31 July 2000

posted in land titles and deeds cases

Mendoza, J. delivered the decision of the Court.
Nature of the Case:
A petition for review for a decision of the Court of Appeals which
reversed the decision of the RTC dismissing the complaint brought by the Huangs against
San Miguel Properties for enforcement of a contract of sale.
Facts: San Miguel Properties offered two parcels of land for sale and the offer was made to
an agent of the respondents. An earnest-deposit of P1 million was offered by the
respondents and was accepted by the petitioners authorized officer subject to certain
terms.
Petitioner, through its executive officer, wrote the respondents lawyer that because ethe
parties failed to agree on the terms and conditions of the sale despite the extension granted
by the petitioner, the latter was returning the earnest-deposit.
The respondents demanded execution of a deed of sale covering the properties and
attempted to return the earnest-deposit but petitioner refused on the ground that the
option to purchase had already expired.
A complaint for specific performance was filed against the petitioner and the latter filed a
motion to dismiss the complaint because the alleged exclusive option of the respondents
lacked a consideration separate and distinct from the purchase price and was thus
unenforceable; the complaint did not allege a cause of action because there was no
meeting of the mind between the parties and therefore the contact of sale was not
perfected.
The trial court granted the petitioners motion and dismissed the action. The respondents
filed a motion for reconsideration but were denied by the trial court. The respondents
elevated the matter to the Court of Appeals and the latter reversed the decision of the trial
court and held that a valid contract of sale had been complied with.
Petitioner filed a motion for reconsideration but was denied.
Issue: WON there was a perfected contract of sale between the parties
Ruling:
The decision of the appellate court was reversed and the respondents
complaint was dismissed.
Ratio Decidendi:
It is not the giving of earnest money , but the proof of the concurrence
of all the essential elements of the contract of sale which establishes the existence of a
perfected sale.
The P1 million earnest-deposit could not have been given as earnest money because at
the time when petitioner accepted the terms of respondents offer, their contract had not yet
been perfected. This is evident from the following conditions attached by respondents to
their letter.
The first condition for an option period of 30 days sufficiently shows that a sale was never
perfected. As petitioner correctly points out, acceptance of this condition did not give rise to
a perfected sale but merely to an option or an accepted unilateral promise on the part of
respondents to buy the subject properties within 30 days from the date of acceptance of the
offer. Such option giving respondents the exclusive right to buy the properties within the
period agreed upon is separate and distinct from the contract of sale which the parties may
enter. All that respondents had was just the option to buy the properties which privilege was
not, however, exercised by them because there was a failure to agree on the terms of
payment. No contract of sale may thus be enforced by respondents.
Even the option secured by respondents from petitioner was fatally defective. Under the
second paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate
thing for a price certain is binding upon the promisor only if the promise is supported by a
distinct consideration. Consideration in an option contract may be anything of value, unlike
in sale where it must be the price certain in money or its equivalent. There is no showing
here of any consideration for the option. Lacking any proof of such consideration, the option
is unenforceable.
Equally compelling as proof of the absence of a perfected sale is the second condition that,
during the option period, the parties would negotiate the terms and conditions of the

purchase. The stages of a contract of sale are as follows: (1) negotiation, covering the period
from the time the prospective contracting parties indicate interest in the contract to the time
the contract is perfected; (2) perfection, which takes place upon the concurrence of the
essential elements of the sale which are the meeting of the minds of the parties as to the
object of the contract and upon the price; and (3) consummation, which begins when the
parties perform their respective undertakings under the contract of sale, culminating in the
extinguishment thereof.
In the present case, the parties never got past the negotiation stage. The alleged
indubitable evidence of a perfected sale cited by the appellate court was nothing more
than offers and counter-offers which did not amount to any final arrangement containing the
essential elements of a contract of sale. While the parties already agreed on the real
properties which were the objects of the sale and on the purchase price, the fact remains
that they failed to arrive at mutually acceptable terms of payment, despite the 45-day
extension given by petitioner.

Atty. Gomez vs CA
Facts:
Atty. Gomez et al applied for registration of several lots before RTCSaid lots were involved in
Government vs Abran case where SC declared ConsolacionGomez as the owner. Teodoro and
Luis (Consolacions father and son) inherited the lots.
When Teodoro died, Luis executed a Quitclaim in favor of the Gomezes.In 1981, RTC
adjudicated the lots in favor of the Gomezes. Subsequently, RTC issued anorder directing the
Chief of the General Land Registration Office to issue thecorresponding decrees of
registration over the lots.In 1984, Perez, Chief of the Division of Original Registration, Land
RegistrationCommission (now known as the National Land Titles and Deeds
RegistrationAdministration), submitted a report to the RTC stating that the Lots were already
covered by homestead patents issued in 1928 and 1929 and registered under the Land
RegistrationAct. Perez then recommended that the 1981 order be set aside.The Gomezes
opposed the report, pointing out that no opposition was raised by theBureau of Lands during
the registration proceedings and the 1981 decision should beimplemented because it had
long become final and executor.RTC then set aside its earlier decision.CA affirmed the new
decision of RTC holding that 1) prior to the issuance of the decreeof registration, RTC Judge
has still the power and control over the decision he rendered;2) The finality of an
adjudication of land in a registration or cadastral case takes placeonly after the expiration of
the one-year period after entry of the final decree ofregistrationGomez et al argued that 1)
under Sec 30 and 32 of PD 1529, the 5 Aug 1981 decisionhaving become final, it may no
longer be reopened, reviewed, much less, set aside;2) Perez has no alternative but to issue
the decrees of registration because his duty is purely ministerial; 3)"the law of the case" is the
decision in Govt v. Abran, which heldthat the lands adjudicated to Consolacion Gomez were not
public lands thus, they could not have been acquired by holders of homestead titles as
against them; 4) by sustaining the 5 Aug 1981 decision, the homestead title holders may
still vindicate their rights by filing a separate civil action for cancellation of titles and for
reconveyance in a court of ordinary civil jurisdiction
Issue: Would finality of the decision adjudicating the land to the Gomezes bar the RTC from
setting it aside?
Held:
NO. Adjudication of land in a cadastral or land registration proceeding does not become final,
in the sense of incontrovertibility, until after the expiration of 1 year after the entry of the
final decree of registration. As long as a final decree has not been entered by theLand
Registration Commission and the period of 1 year has not elapsed from date of entry of the
decree, the title is not finally adjudicated and the decision in the registration proceeding
continues to be under the control and sound discretion of the court renderingit. Duty of the
land registration officials to issue the decree is NOT purely ministerial. Ifland registration
officials are in doubt upon any point in relation to the preparation and issuance of the
decree, it is their duty to refer the matter to the court. They act, in this respect, as officials
of the court. The lots were not private lands of Consolacion Gomez when homestead patents
were issued over them in 1928-1929.
Govt vs. Abran, is not "the law of the case." It was
promulgated only on 31 Dec 1931.The Gomezes can be the ones to vindicate their rights
instead. If they are the true owner,they may bring an action to have the ownership or title to
land judicially settled
Regina Dizon et al v. CA and Overland Express Lines, Inc.
G.R. No. 122544 January 28, 1999Martinez, J.
FACTS:
Overland Express Lines, Inc. entered into a Contract of Lease with Option to Buy
with petitionersinvolving a 1,755.80 square meter parcel of land situated at corner

MacArthur Highway and SouthH Street, Diliman, Quezon City. The term of the lease was for
1 year commencing from May 16,1974 up to May 15, 1975. During this period,
Overland Express Lines was granted an option topurchase for the amount
of P3,000.00 per square meter. Thereafter, the lease shall be on a permonth basis
with a monthly rental of P3,000.00.
For failure of Overland Express Lines to pay the increased rental of P8,000.00 per month
effective June 1976, petitioners filed an action for ejectment against it. The lower court
rendered judgmentordering Overland Express Lines to vacate the leased premises and to
pay the sum of P624,000.00representing rentals in arrears and/or as damages in the form of
reasonable compensation for theuse and occupation of the premises during the period of illegal
detainer from June 1976 to November1982 at the monthly rental of P8,000.00, less payments
made, plus 12% interest per annum fromNovember 18, 1976, the date of fi ling of the
complaint, until fully paid, the sum of P8,000.00 amonth starting December 1982,
until Overland Express Lines fully vacates the premises, and to payP20,000.00 as and by way of
attorneys fees.
ISSUE:
W O N O v e r l a n d E x p r e s s L i n e s a c t u a l l y p a i d t h e a l l e g e d P 3 0 0 , 0 0 0 . 0 0 t o Fi
d e l a D i z o n , a s representative (agent) of petitioners in consideration of the option
HELD:
No.CA opined that the payment by Overland Express Lines of P300,000.00 as partial
payment for theleased property, which petitioners accepted (through Alice A. Dizon) and for
which an official receiptwas issued, was the operative act that gave rise to a perfected
contract of sale, and that for failureof petitioners to deny receipt thereof, Overland Express
Lines can therefore assume that Alice A.Dizon, acting as agent of petitioners, was authorized
by them to receive the money in their behalf.CA went further by stating that in fact, what
was entered into was a conditional contract of salewherein ownership over the leased
property shall not pass to the Overland Express Lines until it hasfully paid the purchase
price. Since Overland Express Lines did not consign to the court the balanceof the purchase
price and continued to occupy the subject premises, it had the obligation to pay theamount of
P1,700.00 in monthly rentals until full payment of the purchase price.
In an attempt to resurrect the lapsed option, Overland Express Lines gave P300,000.00 to
petitioners(thru Alice A. Dizon) on the erroneous presumption that the said amount tendered would
constitute aperfected contract of sale pursuant to the contract of lease with option to buy.
There was no validconsent by the petitioners (as co-owners of the leased premises) on the
supposed sale entered intoby Alice A. Dizon, as petitioners alleged agent, and Overland
Express Lines. The basis for agency isrepresentation and a person dealing with an agent is
put upon inquiry and must discover upon hisperil the authority of the agent. As
provided in Article 1868 of the New Civil Code, there was noshowing that
petitioners consented to the act of Alice A. Dizon nor authorized her to act on
theirbehalf with
regard
to her
transaction
with private respondent. The
most prudent thing privaterespondent should have done was to ascertain the extent of
the authority of Alice A. Dizon. Beingnegligent in this regard, private respondent cannot seek relief on
the basis of a supposed agency.
Every person
dealing with an agent is put upon inquiry
a n d m u s t d i s c o v e r u p o n h i s p e r i l t h e authority of the agent. If he does not
make such inquiry, he is chargeable with knowledge of the agents authority, and his
ignorance of that authority will not be any excuse. Persons dealing with anassumed agency,
whether the assumed agency be a general or special one, are bound at their peril,if they
would hold the principal, to ascertain not only the fact of the agency but also the nature
andextent of the authority, and in case either is controverted, the burden of
proof is upon them toestablish it