G.R. No. L-67881 - Pilipinas Bank vs. Intermediate Appellate Court

On April 18, 1961, Hacienda Benito, Inc. (the petitioner’s predecessor-in-interest) as vendor and the private respondents as vendees executed Contract to Sell No. VV-18(a) over a 5,936-square-meter parcel of land in the Victoria Valley Subdivision, Antipolo, Rizal.
Key terms of the contract included:

A total contract price of P47,488.00 for the entire lot.
An initial reduction of the principal by applying P12,182.00, thereby setting the remaining balance at P35,306.00 plus an interest rate of 6% per annum.
A payment schedule originally set over a period of 8-1/2 years, with a monthly installment initially at P446.10, later adjusted to P797.86 as of April 1965.
A provision that upon full payment, the vendor would execute a deed of sale in favor of the vendee.
An automatic rescission clause stating that failure to pay three or more consecutive installments or to comply with the other stipulated terms would result in the contract being automatically rescinded, with any payments made being forfeited as liquidated damages and the vendor entitled to resell the lot.

In July and August 1965, petitioner issued a Statement of Account indicating arrears, which specifically covered partial payments for April and May 1965 and a complete default for June, July, and August 1965.
On August 31, 1965, a second Statement of Account was sent, which also included accrued interests and details for September 1965’s installment.
A partial payment of P1,397.00 was made on September 3, 1965 to cover installments for June to August 1965.
Further communications from the petitioner include a simple demand letter on March 17, 1967, noting a 19-month arrearage, followed by another demand on April 17, 1967, indicating a 20-month default and warning of triggering the automatic rescission clause.
The respondents intermittently made partial payments and repeatedly requested extensions:

On May 17, 1967, a partial payment of P2,000.00 was remitted along with a request for a 60-day extension.
On July 17, 1967, another extension request of 60 days was submitted.
On September 18, 1967, a further partial payment of P5,000.00 was made with a request for an additional 30-day extension.

No further extension was sought after October 19, 1967, when respondents failed to update their arrearages.

After almost three years, on July 16, 1970, the respondents again requested a current Statement of Account, to which the petitioner replied on July 22, 1970.
On May 19, 1971, the petitioner issued a reminder letter indicating that the balance would be due on the 31st of that month.
On July 5, 1973, the respondents expressed their desire to fully settle their obligation and requested a complete statement of the balance due, including interests.
The respondents reiterated this request on March 14, 1974, but without compliance from the petitioner despite repeated follow-ups.
On March 25, 1974, Carmen I. Diokno of the respondents informed the Chairman of the petitioner’s Board of Directors that she had a buyer ready to purchase the property.
On March 27, 1974, the petitioner communicated that the Contract to Sell had been rescinded/cancelled by a notarial act, attaching a “Demand for Rescission of Contract” notarized on March 25, 1974.

The respondents filed a Complaint for Specific Performance with Damages, seeking the execution of a deed of sale and delivery of title.
The petitioner filed an Answer with a counterclaim for damages (in the form of attorney’s fees), asserting that the contract had been automatically rescinded under the stipulated clause due to non-payment.
In trial, the lower court rendered a decision in the respondents’ favor, holding that:

The petitioner had waived the automatic rescission clause by accepting payments (notably the September 1967 payment) and by issuing communications that indicated an expectation of further payments.
The petitioner could not deliver the entire contracted lot until as late as May 18, 1977, thereby invalidating any claim of default on the respondents’ part.

The decision, including the award of damages and the specifics regarding rescission, was affirmed on appeal.

The petitioner elevated the case via a Petition for Review on Certiorari, challenging the lower courts’ decisions and focusing on whether the Contract to Sell was validly rescinded using the automatic rescission clause.
The Supreme Court ultimately found the petition meritless, emphasizing the waiver of the automatic rescission clause due to the petitioner’s conduct in granting extensions and accepting partial payments.

Whether the petitioner validly rescinded or cancelled the Contract to Sell under the automatic rescission clause, considering that it had granted several extensions and accepted partial payments from the respondents.
Whether the conduct of the petitioner, particularly by not enforcing the automatic rescission clause during successive extensions and reminders, amounted to a waiver of that contractual right.
How the measure of damages should be computed given the respondents’ performance and the resulting profit loss from delayed delivery of the property.