Tuesday, March 20, 2012

Velarde, et.al. vs. CA [361 SCRA 56 GR No. 108346. July 11, 2001]

Facts: David Raymundo (private respondent) is the absolute and registered owner of a parcel of land, located at 1918 Kamias St., Dasmariñas Village Makati, together with the house and other improvements, which was under lease. It was negotiated by David’s father with plaintiffs Avelina and Mariano Velarde (petitioners). A Deed of Sale with Assumption of Mortgage was executed in favor of the plaintiffs. Part of the consideration of the sale was the vendee’s 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 interest loan 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. Raymundo’s 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. 

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