November 21, 2001 FACTS:
In June 1967, Carmelo & Bauerman, Inc. entered into a Contract of Lease with Mayfair Theater for a parcel of land with 2-storey building for 20 years. Two years later in March, 1969, Carmelo entered into a second Contract with Mayfair for another portion of the property also for 20 years. In both contracts, Mayfair was given the right-of-first refusal to purchase the properties. However, on July 30, 1978, within the 20-year period, Carmelo sold the same properties to Equatorial for P11,300,000. Mayfair sued Equatorial for specific performance and annulment of the Deed of Absolute Sate with Carmelo. The trial court ruled in favor of Mayfair but was reversed by the CA. The Supreme Court, however, upheld the trial court, for which Mayfair filed a motion for execution. The Deed of Absolute Sale was rescinded and the lot was registered in the name of Mayfair.
However, in September 1997, Equatorial filed a collection suit for a sum of money against Mayfair claiming payment of rentals or reasonable compensation for the use of the properties AFTER its lease contracts had expired. The trial court ruled in favor Mayfair holding that the Deed of Absolute Sale in the mother
case DID NOT confer on Equatorial any vested or residual property rights. Hence, the present case.
ISSUES:
1. Did Equatorial obtain rights to the property when it entered into Deed of Absolute Sale with Carmelo and hence, entitled to the fruits thereof? 2. Is the right of first refusal granted to Mayfair through the lease contracts
with Carmelo superior to that of Equatorial, and therefore a bar to the consummation of the Deed of Absolute Sale between Carmelo and Equatorial?
RULING:
1. No. Equatorial did not obtain right of ownership over the property when it entered into the Deed of Absolute Sale. Ownership of the property which the buyer acquires only upon the delivery of the thing to him. There is delivery if the thing sold is placed in the control and possession of the vendee. While the execution of a public instrument of sale is recognized by law as the equivalent of delivery of the thing sold, such constructive or symbolic delivery, being only presumptive, is deemed negated by the failure of the vendee to take actual possession of the property sold. Since Mayfair was in actual possession of the property by virtue of the lease contract with Carmelo, there was no consummation of the sale, and therefore, Equatorial did not get ownership right (real right).
2. The Deed of Absolute Sale entered into by Carmelo and Equatorial was a violation of the right of first refusal granted by Carmelo to Mayfair. The execution of the deed of absolute sale as a form of constructive delivery is a legal fiction. It holds true only if there is no legal impediment that may prevent the passing of the property from the vendor to the vendee. The right of first refusal held by Mayfair was such legal impediment. Therefore, there was no transfer of ownership from Camelot to Equatorial.
Dissenting opinion:
The Deed of Absolute Sale was deemed a rescissible contract and should remain valid until rescinded. Since the Deed was not actually rescinded in the decision of the mother case, then it was valid until it is rescinded in a proper court decision. Since there was no actual rescission of the contract, then
Equatorial was deemed the own of the property from the signing of the Deed to the time the property was legally transferred to Mayfair.
EFFECTS OF RESOLUTION/RESCISSION
Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE
VS. COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO 2001 Jul 11
G.R. No. 108346 FACTS:
David Raymundo is the absolute and registered owner of a parcel of land, together with the house and other improvements thereon, located at 1918 Kamias St., Dasmariñas Village, Makati and covered by TCT No. 142177. Defendant George Raymundo is David’s father who negotiated with plaintiffs Avelina and Mariano Velarde for the sale of said property, which was, however, under lease.
On August 8, 1986, a Deed of Sale with Assumption of Mortgage was executed by defendant David Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee, with terms and conditions one of which is:
‘That as part of the consideration of this sale, the VENDEE hereby assumes to pay the mortgage obligations on the property herein sold in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in favor of Bank of the Philippine Islands, in the name of the VENDOR, and further agrees to strictly and faithfully comply with all the terms and conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI, including interests and other charges for late payment levied by the Bank, as if the same were originally signed and executed by the VENDEE.
The Vendee herby agreed that until such time as her assumption of the mortgage obligations on the property purchased is approved by the mortgagee bank, the Bank of the Philippine Islands, she shall continue to pay the said loan in accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of Mr. David A. Raymundo, the original Mortgagor. And further agrees That, in the event there is violation in any of the terms and conditions of the said Deed of Real Estate Mortgage, that the downpayment of P800,000.00, plus all payments made with the Bank of the Philippine Islands on the mortgage
loan, shall be forfeited in favor of Mr. David A. Raymundo, as and by way of liquidated damages, without necessity of notice or any judicial declaration to that effect, and Mr. David A Raymundo shall resume total and complete ownership and possession of the property sold by way of Deed of Sale with Assumption of Mortgage, and the same shall be deemed automatically cancelled and be of no further force or effect, in the same manner as if (the) same had never been executed or entered into.
Plaintiffs were advised that the Application for Assumption of Mortgage with BPI was not approved. This prompted plaintiffs not to make any further payment. Defendants, thru counsel, wrote plaintiffs informing the latter that their non-payment to the mortgage bank constituted non-performance of their obligation
Plaintiffs, thru counsel, responded, that they are willing to pay the balance in cash not later than January 21, 1987 provided: (a) there is deliver actual possession of the property to her not later than January 15, 1987 for her immediate occupancy; (b) defendant cause the release of title and mortgage from the Bank of P.I. and make the title available and free from any liens and encumbrances; and (c) defendant must execute an absolute deed of sale in plaintiff’s favor free from any liens or encumbrances not later than January 21, 1987.
On January 8, 1987, defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended sale of the subject property allegedly due to the latter’s failure to comply with the terms and conditions of the Deed of Sale with Assumption of Mortgage
ISSUE:
Whether or not rescission should be granted in the case at bar.
RULING:
The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the said provision is the obligor’s failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in
the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission.
In the present case, private respondents validly exercised their right to rescind the contract, because of the failure of petitioners to comply with their obligation to pay the balance of the purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract of sale, a violation that consequently gave rise to private respondents’ right to rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase price one month after it became due; however, this was not equivalent to actual payment as would constitute a faithful compliance of their reciprocal obligation. Moreover, the offer to pay was conditioned on the performance by private respondents of additional burdens that had not been agreed upon in the original contract. Thus, it cannot be said that the breach committed by petitioners was merely slight or casual as would preclude the exercise of the right to rescind.
In the instant case, the breach committed did not merely consist of a slight delay in payment or an irregularity; such breach would not normally defeat the intention of the parties to the contract. Here, petitioners not only failed to pay the P1.8 million balance, but they also imposed upon private respondents new obligations as preconditions to the performance of their own obligation. In effect, the qualified offer to pay was a repudiation of an existing obligation, which was legally due and demandable under the contract of sale. Hence, private respondents were left with the legal option of seeking rescission to protect their own interest.
EFFECTS OF RESOLUTION/RESCISSION ASUNCION VS. EVANGELISTA G.R. No. 133491 October 13, 1999 316 SCRA 848 FACTS:
Private respondent has been operating a piggery since 1970, which was under the trade name of Embassy Farms. In 1981, private respondent’s wife,
together with three others, organized Embassy Farms, Inc. and registered it with the Securirties and Exchange Commission. Private respondent was the majority stockholder of the corporation, president and chief executive officer. On September 9, 1980, he borrowed P500,000.00 from Paluwagan ng Bayan Savings and Loan Association to use as working capital for the farm. He executed a real estate mortgage on three of his properties as security for the loan. On November 4, 1981, he mortgaged ten titles more in favor of PAIC Savings and Mortgage Bank as security for another loan in the amount of P1,712,000.00. On February 16, 1982, he obtained another loan in the amount of P844,625.78 from Mercator Finance Corporation. It was secured by a real estate mortgage on five other landholdings of private respondent, all situated in Bulacan.
However, he defaulted in his loan payments. By June 1984, private respondent debt had ballooned to almost six million pesos in overdue principal payments, interests, penalties and other financial charges. On August 2, 1984, petitioner and private respondent executed a Memorandum of Agreement that states that petitioner will pay all of the loans of respondent provided that the latter will transfer the title of the farm and properties, which were mortgaged in favor of the petitioner.
The petitioner was able to pay partially the loans of respondent from the three creditors as compliance to the MOA. For his part, private respondent was obligated under the MOA to execute, sign, and deliver any and all documents necessary for the transfer and conveyance of the mortgaged properties as well as of the farm. However, more than a year after signing the MOA, the landholdings of the respondent still remained titled in his name. Neither did he inform said mortgages of the transfer of his lands.
On April 10, 1986, petitioner filed in the RTC a compliant for rescission of the MOA with a prayer for damages. The trial court ruled in favor of the private respondent. On July 12, 1994, a copy of the decision of the trial court was sent by registered mail to petitioner’s counsel however, unknown to petitioner, his counsel died while the case was pending. On February 2, 1998, CA affirmed the decision of the trial court and ordered its immediate execution. Petitioner’s motion for reconsideration was likewise denied.
ISSUE:
Whether or not rescission of the MOA is a valid remedy for the petitioner. RULING:
Yes. Article 1191 of the Civil Code governs the situation where there is non-compliance by one party in case of reciprocal obligations.
The Supreme Court found that private respondent failed to perform his substantial obligations under the MOA. Hence, petitioner sought the rescission of the agreement and ceased infusing capital into the piggery business of private respondent. He later justified his refusal to execute any deed of sale and deliver the certificates of stock by accusing petitioner of having failed to assume his debts.
The Court holds that the respondent’s insistence that petitioner execute a formal assumption of mortgage independent and separate from his own execution of a deed of cases is legally untenable, considering that a recorded real estate mortgage is a lien inseparable from the property mortgaged and until discharged, it follows the property.
The Court holds, in fine, that the MOA entered into by petitioner and private respondent should indeed be rescinded. The respondent appellate court erred in assessing damages against petitioner for his refusal to fully pay private respondent’s overdue loans. Such refusal was justified, considering that private respondent was the first to refuse to deliver to petitioner the lands and certificates of stock that were the consideration for the almost 6M in debt that petitioner was to assume and pay.
The effect of rescission is also provided in Article 1385 of the Civil Code. The instant petition was granted. Decisions of the lower and appellate courts were reversed and set aside. The MOA entered into by the parties is declared rescinded. EFFECTS OF RESOLUTION/RESCISSION UY VS. COURT OF APPEALS 314 SCRA 69 September 9, 1999 FACTS:
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight (8) parcels of land by the owners thereof. By virtue of such authority, petitioners offered to sell the lands, located in Tuba, Tadiangan, Benguet to respondent National Housing Authority (NHA) to be utilized and developed as a housing project.
On February 14, 1989, NHA approved the acquisition of the said parcels of land with an area of 31.8231 hectares at the cost of P23.867 million, pursuant to which the parties executed a series of Deeds of Absolute Sale covering the subject lands. Of the eight parcels of lands, however, only five were paid for by the NHA because of the report it received from the Land Geosciences Bureau of the Department of Environment and Natural Resources that the remaining area is located at an active landslide area and therefore, not suitable for development into a housing project. NHA eventually cancelled the sale over the remaining three (3) parcels of land.
On March 9, 1992, petitioners filed a complaint for damages. After trial, the RTC of Quezon City rendered the cancellation of contract to be justified and awarded P1.255 million as damages in favor of petitioners.
Upon appeal by petitioners, the Court of Appeals reversed the decision and entered a new one dismissing the complaint including the award of damages.
The motion for reconsideration having been denied, petitioners seek relief from this court contending, inter alia, that the CA erred in declaring that NHA had any legal basis to rescind the subject sale.
ISSUE:
Whether or not the contention of petitioner is correct. RULING:
NO. Petitioners confuse the cancellation of the contract by the NHA as a rescission of the contract under Article 1191 of the Civil Code. The right to rescission is predicated on a breach of faith by the other party that violates the reciprocity between them. The power to rescind is given to the injured party. In this case, the NHA did not rescind the contract. Indeed, it did not have the right to do so for the other parties to the contract, the vendors did not commit any breach of their obligation. The NHA did not suffer any injury. The cancellation was not therefore a rescission under Article 1191. Rather, it was based on the negation of the cause arising from the realization that the lands, which were the objects of the sale, were not suitable for housing.