Title
Suria vs. Intermediate Appellate Court
Case
G.R. No. 73893
Decision Date
Jun 30, 1987
A dispute over a Deed of Sale with Mortgage led to claims of rescission and damages due to unpaid installments. The Supreme Court ruled foreclosure, not rescission, was the proper remedy, as the contract was consummated and foreclosure was stipulated. Petitioners were ordered to pay the balance or face foreclosure.
dispute
sellers
buyers
A

Case Summary (G.R. No. 73893)

Factual Background

The case stemmed from a sale of real property executed through a Deed of Sale with Mortgage dated March 31, 1975, in which the vendors agreed to transfer ownership and the vendees undertook to pay the purchase price in installments. Petitioners failed to pay the installments on time, and respondents alleged that only one installment due in July 1975 was paid very late in September 1975, leaving the other installments unsettled despite written demands made on September 24, 1981, February 7, 1982, February 24, 1983, March 13, 1983, and April 12, 1983.

Respondents thus filed a complaint before the RTC on June 20, 1983 for rescission of contract and damages, asserting that the vendees’ nonpayment constituted a breach warranting rescission. The complaint relied on the Deed of Sale with Mortgage as the governing instrument.

RTC Proceedings: Motions to Dismiss and Orders

On November 14, 1983, petitioners filed their answer with counterclaim. Subsequently, on July 16, 1984, petitioners moved to dismiss the complaint, raising the argument that rescission was unavailable because the contract provided for foreclosure as a remedy, and that assuming rescission were otherwise proper, rescission was ineffective due to noncompliance with legal requirements apparent on the face of the complaint.

Respondents opposed the motion on July 26, 1984. In the meantime, on August 6, 1984, petitioners offered to pay the outstanding balance, but respondents rejected the offer on August 7, 1984.

On November 26, 1984, the RTC denied the motion to dismiss, reasoning that in a motion to dismiss for lack of cause of action, the allegations of the complaint must be assumed true, and that petitioners’ grounds lacked merit. Petitioners later filed a motion for reconsideration on January 31, 1985, which respondents opposed on February 11, 1985, followed by petitioners’ reply on February 19, 1985. On March 13, 1985, the RTC denied the motion for reconsideration.

The Petition for Certiorari and the Court of Appeals Ruling

Petitioners thereafter pursued certiorari in the Court of Appeals, challenging the RTC’s denial of the motions to dismiss. The Court of Appeals eventually dismissed the petition for certiorari for lack of merit, prompting petitioners to seek further review by the Supreme Court.

Issues Raised Before the Supreme Court

Petitioners framed two central questions.

First, they asked whether, in a deed of sale coupled with a mortgage to secure payment of the balance of the purchase price, the seller may resort to rescission under Article 1191 of the Civil Code, which they described as providing for a subsidiary and equitable remedy in case of breach of reciprocal obligations, particularly in light of Article 1383 which states that the action for rescission is subsidiary and may not be instituted except when the injured party has no other legal means to obtain reparation.

Second, petitioners asked whether the seller could demand rescission without offering to restore what he had received, as required by Article 1385, or without compliance with the requirements of Republic Act No. 6552, including the grace period and, upon continued default by the buyer, the requirement that cancellation be preceded by payment of the cash surrender value before cancellation becomes effective.

The Parties’ Contentions on Remedies

Petitioners argued that the remedy of foreclosure was the proper and available legal recourse because the transaction had already moved beyond the original buyer-seller relationship and into a mortgagor-mortgagee relationship after perfection and consummation of the sale. They also maintained that rescission was subsidiary and could not be pursued when foreclosure was available as another legal means of obtaining reparation.

Respondents took the position that Article 1191 governed the situation by implying the power to rescind in reciprocal obligations when one obligor fails to comply, and that the injured party could choose rescission and damages. They relied on the principle that rescission under Article 1191 should be available, even with the existence of the mortgage arrangement.

The decision addressed the contention by distinguishing the nature of the transaction and the point at which contractual rights shifted toward mortgage enforcement.

Legal Basis and Reasoning: Why Rescission Was Not the Proper Remedy

The Court analyzed the transaction as a sale of real property that had been perfected and consummated through a deed of sale with mortgage, rather than a mere contract to sell or a continuing reciprocal-obligation stage where Article 1191 would control. The Court noted that respondents had already transferred the title to the petitioners, as evidenced by the transfer certificate of title in petitioners’ name as of June 27, 1975. The vendees’ subsequent execution of the mortgage became the mechanism securing payment of the purchase price installments. As the relationship had already shifted, the Court characterized the parties’ situation as one of mortgagor and mortgagee, not buyer and seller.

From that premise, the Court reasoned that the breach did not concern the perfected sale itself but the obligations created by the mortgage contract. Accordingly, rescission could not be treated as a principal retaliatory remedy under Article 1191 in the way respondents suggested. Instead, rescission became subsidiary, aligning with the Civil Code’s structure that limits rescission to circumstances where no other legal remedy for reparation exists.

The Court also addressed the relevance of contractual foreclosure rights. It observed that foreclosure was available not only as a remedy recognized by law but also as a specific provision within the parties’ contract. While the Court of Appeals had rejected petitioners’ reliance on the contract clause authorizing foreclosure upon failure to comply with mortgage provisions, the Supreme Court held that the Court of Appeals erred in treating foreclosure as something that merely supplemented other legal remedies. The Court treated the foreclosure remedy as definitive in the context of the mortgage security.

To support the conclusion that the mortgage arrangement implied that the appropriate remedy was foreclosure, the Court invoked Villaruel v. Tan King (43 Phil. 251). There, the Court had explained that the pacto comisorio or ley comisoria effectively functioned as a condition subsequent in bilateral obligations, and that where the parties had stipulated that payment was guaranteed by mortgage, the vendor’s adequate remedy upon nonpayment was the foreclosure of the mortgage rather than resolution of the sale.

Consistent with this reasoning, the Court held that there was “no cause for the resolution of the sale” because the parties had already structured the situation so that, upon default, foreclosure was the remedy. The Court also stated that Article 1124 and related doctrines invoked for sales were not applicable in that context, emphasizing the primacy of the mortgage stipulation when real property is involved.

The Court further addressed petitioners’ good-faith offer to pay outstanding accounts, noting that petitioners had offered to pay all past due accounts. The Court acknowledged that respondents claimed losses due to the lower purchasing value of the peso i

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