Case Digest (G.R. No. 109680)
Facts:
Petitioner Diego Rapanut and private respondent Susan Flunker executed a Deed of Conditional Sale with Mortgage on November 29, 1985 for a parcel of land in San Rafael, Pasay City, with a price of P42,840.00 payable in P500.00 monthly installments and P1,000.00 semi-annual installments, with 10% per annum interest on the remaining balance. They later signed a Supplemental Agreement changing the total price to P37,485.00, payable in monthly P500.00 installments and the same 10% interest; it also provided that failure to pay monthly installments for three months would be sufficient cause for rescission, with payments treated as rentals upon rescission. Petitioner paid monthly installments from January 1986 to January 1990. On February 13, 1990, private respondent’s counsel sent a letter rescinding the contracts “as of receipt,” and demanding that petitioner vacate within fifteen days; private respondent then sued for rescission in the Regional Trial Court, Branch 117, Pasay City, which ordered rescission and monetary awards. The Court of Appeals affirmed rescission but deleted actual damages and attorney’s fees.
Issues:
- Whether the February 13, 1990 letter rescinding the contracts was effective.
- Whether petitioner substantially complied with his payment obligations under the contracts, considering the interest and installment provisions.
Ruling:
The Supreme Court granted the petition, reversed the Court of Appeals, and annulled private respondent’s rescission of the contracts. It also ordered private respondent to accept petitioner’s monthly installments without penalty until the full amount of the contracts, including accrued interest, is paid.
Ratio:
The Court construed the parties’ intent from the contracts’ payment terms and the parties’ acts, holding that the 10% interest on the remaining balance was to be effectively handled by adding it to the outstanding principal at the end of each year, after which petitioner would continue paying the monthly installments on the stipulated dates. It emphasized that private respondent accepted petitioner’s payments for about four years without asserting any correct application of interest, and thus could not later rely on contractual silence to justify rescission.
The Court further ruled that private respondent’s continued acceptance of installments despite alleged default amounted to waiver of the contractual right to rescind and also created estoppel. It added that, under Article 1253 of the Civil Code, where the creditor applies payments to interest, the creditor must inform the debtor of the interest that falls due and how payments are applied; otherwise, the creditor cannot apply payments to interest and then claim default on the principal installments.
Doctrine:
- Under Article 1253 of the Civil Code, if the debt produces interest, the creditor must inform the debtor of the amount of interest due and how the installment payments are applied to cover that interest, or else the creditor cannot treat the debtor as in default on the principal.
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