Case Summary (G.R. No. 108346)
Facts of the Transaction
- Vendor David A. Raymundo owned and mortgaged the property to BPI for ₱1.8 million.
- Vendee Avelina Velarde paid ₱800,000 down and agreed to assume the ₱1.8 million mortgage, including all terms, interest, and charges.
- An Undertaking by the Velardes reaffirmed their obligation to continue paying the mortgage pending BPI’s approval of assumption and stipulated automatic forfeiture and rescission upon breach.
- The Velardes paid interest for three months (Sept–Nov 1986). On December 15, 1986, BPI disapproved the assumption application.
- Instead of paying the ₱1.8 million balance, petitioners sent a conditional offer (Jan 7, 1987) and received a notarial rescission notice (Jan 8, 1987).
Procedural History
- February 9, 1987: Petitioners sued for specific performance, nullity of rescission, possession, and damages (RTC Makati Br. 149).
- November 14, 1990: RTC dismissed the complaint.
- May 15, 1991: On reconsideration, RTC ordered payment of the balance and conveyance of title.
- October 9, 1992: CA set aside the reconsideration order, reinstated dismissal, and upheld respondents’ rescission.
- December 29, 1992: CA denied petitioners’ motion for reconsideration.
Issues Presented
- Whether nonpayment of the mortgage obligation breached the contract.
- Whether respondents’ rescission of the contract was justified.
- Whether petitioners’ January 7, 1987 letter constituted an attempted novation.
Ruling of the Court of Appeals
- Held that assumption of the mortgage was an integral part of the purchase price.
- Petitioners’ failure to pay the ₱1.8 million balance on BPI’s disapproval amounted to a material breach under Civil Code Article 1191.
- Petitioners’ January 7 letter imposed new conditions not in the original contract, amounting at most to an attempted novation which failed for lack of mutual consent.
- Notarial notice of rescission validly invoked the automatic-cancellation clause and Civil Code rescission rules, precluding specific performance.
Supreme Court’s Analysis and Decision
- Breach of Contract: Petitioners admitted their obligation to pay the ₱1.8 million balance upon bank disapproval but instead conditioned payment on new terms. Their failure to pay constituted nonperformance of a reciprocal obligation, justifying rescission.
- Rescission under Art. 1191: The provision recognizes the injured party’s option to rescind when a reciprocal obligation is not performed. The breach need not be slight or casual when it defeats the contract’s purpose. Here, petitioners not only defaulted but also effectively repudiated their duty by introducing additional preconditions.
- Mutual Restitution: Rescission abrogates the contract ab initio and requires return of be
Case Syllabus (G.R. No. 108346)
Facts of the Case
- David A. Raymundo is the registered owner of a Makati parcel (TCT No. 142177) subject to a P1.8 million mortgage in favor of BPI.
- George R. Raymundo, David’s father, negotiated the sale with petitioners, spouses Mariano Z. Velarde and Avelina D. Velarde.
- On August 8, 1986, a Deed of Sale with Assumption of Mortgage was executed:
- Downpayment of P800,000 paid in full.
- Vendee (Avelina) to assume and pay the P1.8 million mortgage obligations “as if originally executed” by her.
- Vendor (David) to bear capital gains tax; vendee to bear registration and transfer taxes.
Undertaking and Mortgage Payments
- A separate Undertaking by Avelina (with Mariano’s consent) bound the Velardes to pay monthly mortgage amounts pending bank approval of assumption.
- Clauses provided that any breach would result in forfeiture of all payments as liquidated damages and automatic cancellation of the sale.
- Petitioners paid three interest installments to BPI:
- September 19, 1986: P27,225
- October 20, 1986: P23,000
- November 19, 1986: P23,925
- On December 15, 1986, BPI disapproved the assumption application.
Pre-litigation Correspondence and Rescission
- January 5, 1987: Respondents’ counsel warned that non-payment to BPI was non-performance.
- January 7, 1987: Petitioners’ counsel offered to pay the P1.8 million balance by January 21, 1987, subject to three new conditions (possession delivery, release of title/mortgage, execution of absolute deed).
- January 8, 1987: Respondents served a notarial notice of cancellation and rescission for breach of