106 SUPREME COURT REPORTS ANNOTATED

Barredo vs. Leaño

*
G.R. No. 156627. June 4, 2004.

SPOUSES MANUEL and JOCELYN BARREDO,

petitioners, vs. SPOUSES EUSTAQUIO and EMILDA
LEAÑO, respondents.

Civil Law; Contracts; When the language of the contract is

clear, it requires no interpretations and its terms should not be
disturbed.—Thus, par. 3 of the agreement provides that the
Leaño Spouses “bind themselves to assume as they hereby
assume beginning on July 1, 1987, the payment of the unpaid
balance x x x x” Hence, the Leaño Spouses merely bound

_______________

* SECOND DIVISION.

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Barredo vs. Leaño

themselves to assume, which they actually did upon the

signing of the agreement, the obligations of the Barredo
Spouses with the SSS and Apex. Nowhere in the agreement
was it stipulated that the sale was conditioned upon their full
payment of the loans with SSS and Apex. When the language
of the contract is clear, it requires no interpretation, and its
terms should not be disturbed. The primary and elementary
rule of construction of documents is that when the words or
language thereof is clear and plain or readily understandable
by any ordinary reader thereof, there is absolutely no room for
interpretation or construction anymore and the literal meaning
of its stipulations shall control.
Same; Same; As a general rule, when the terms of an
agreement have been reduced to writing, such written
agreement is deemed to contain all the terms agreed upon and
there can be, between the parties and their successors-in-
interest, no evidence of such terms other than the contents of the
written agreement.—To include the full payment of the
obligations with the SSS and Apex as a condition would be to
unnecessarily stretch and put a new meaning to the provisions
of the agreement. For, as a general rule, when the terms of an
agreement have been reduced to writing, such written
agreement is deemed to contain all the terms agreed upon and
there can be, between the parties and their successors-in-
interest, no evidence of such terms other than the contents of
the written agreement. And, it is a familiar doctrine in
obligations and contracts that the parties are bound by the
stipulations, clauses, terms and conditions they have agreed to,
which is the law between them, the only limitation being that
these stipulations, clauses, terms and conditions are not
contrary to law, morals, public order or public policy. Not being
repugnant to any legal proscription, the agreement entered
into by the parties must be respected and each is bound to
fulfill what has been expressly stipulated therein.
Same; Same; Rescission; Rescission of a contract will not
be permitted for a slight or casual breach but only such
substantial and fundamental breach as would defeat the very
object of the parties in making the agreement.—In Laforteza v.
Machuca, we said that the delay of one month in payment was
a mere casual breach that would not entitle the respondents to
rescind the contract. In Ang v. Court of Appeals, we held that
the failure to remove and clear the subject property of all
occupants and obstructions and deliver all the pertinent papers
to the vendees for the registration and issuance of a certificate
of title in their name were not essential conditions but merely
incidental undertakings which will not permit rescission. In
Power Commercial and Industrial Corp. v. Court of Appeals,
we went a step further and considered the failure of the vendor
to eject the occupants of a lot sold as a “usual warranty against
eviction,” and not a condition that was not met, and thus,
rescission was not allowed. And, in Del Castillo v. Naguiat, we
ruled that the failure to pay in full the purchase price
stipulated in a deed of sale does not ipso facto grant the seller

108

108 SUPREME COURT REPORTS ANNOTATED

Barredo vs. Leaño

the right to rescind the agreement. In all these cases, we were

consistent in holding that rescission of a contract will not be
permitted for a slight or casual breach, but only such
substantial and fundamental breach as would defeat the very
object of the parties in making the agreement.
Same; Same; Same; Where a contract is rescinded, it is the
duty of the court to require both parties to surrender that which
they have respectively received and place each other as far as
practicable in his original situation.—Besides, in ordering
rescission, the trial court should have likewise ordered the
Barredo Spouses to return the P200,000.00 they received as
purchase price plus interests. Art. 1385 of the Civil Code
provides that “[r]escission creates the obligation to return the
things which were the object of the contract, together with
their fruits, and the price with its interest.” The vendor is
therefore obliged to return the purchase price paid to him by
the buyer if the latter rescinds the sale. Thus, where a contract
is rescinded, it is the duty of the court to require both parties
to surrender that which they have respectively received and
place each other as far as practicable in his original situation.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.

          Belo, Gozon, Elma, Parel, Asuncion & Lucila for
private respondents.

PUNO, J.:

In resolving the case at bar, we hearken back to the

time-honored principle in obligations and contracts
enunciated by this Court some 801 years ago in Song Fo
& Co. v. Hawaiian Philippine Co. that the rescission of
contracts will not be permitted for a slight or casual
breach thereof.
The factual antecedents are undisputed. Sometime in
1979, petitioners spouses Manuel and Jocelyn Barredo
(Barredo Spouses) bought a house and lot located along
Lilac Road, Pilar Village, Las Piñas, Metro Manila, with
the proceeds of a P50,000.00 loan from the Social
Security System (SSS) which was payable in 25 years
and an P88,400.00 loan from the Apex Mortgage and
Loans Corporation (Apex) which was payable in 20
years. To secure the twin

_______________

1 47 Phil. 821, 827 (1925).

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Barredo vs. Leaño

loans, they executed a first mortgage over the house and

lot in favor of SSS and a second one in favor of Apex.
On July 10, 1987, the Barredo Spouses sold their
house and lot to respondents Eustaquio and Emilda
Leaño (Leaño Spouses) by way of a Conditional Deed of
Sale with Assumption of Mortgage. The Leaño Spouses
would pay the Barredo Spouses P200,000.00,
P100,000.00 of which would be payable on July 15, 1987,
while the balance of P100,000.00 would be paid in ten
(10) equal monthly installments after the signing of the
contract. The Leaño Spouses would also assume the first
and second mortgages and pay the monthly
amortizations to SSS and Apex beginning July 1987
until both obligations are fully paid.
In accordance with the agreement, the purchase price
of P200,000.00 was paid to the Barredo Spouses who
turned over the possession of the house and lot in favor
of the Leaño Spouses. Two (2) years later, on September
4, 1989, the Barredo Spouses initiated a complaint
before the Regional Trial Court of Las Piñas seeking the
rescission of the contract on the ground that the Leaño
Spouses despite repeated demands failed to pay the
mortgage amortizations to the SSS and Apex causing the
Barredo Spouses great and irreparable damage. The
Leaño Spouses, however, answered that they were up-to-
date with their amortization payments to Apex but were
not able to pay the SSS amortizations because their
payments were refused upon the instructions of the
Barredo Spouses.
Meanwhile, allegedly in order to save their good
name, credit standing and reputation, the Barredo
Spouses took it upon themselves to settle the mortgage
loans and paid the SSS the sum of P27,494.00 on
September 11, 1989, and P41,401.91 on January 9, 1990.
The SSS issued a Release of Real Estate Mortgage Loan
on January 9, 1990. They also settled the mortgage loan
with Apex and paid the sum of P5,379.23 on October 3,
1989, and P64,000.00 on January 9, 1990. Likewise,
Apex issued a Certification of Full Payment of Loan on
January 12, 1990. They also paid the real estate
property taxes for the years 1987 up to 1990.
On October 25, 1993, the Regional Trial Court of Las
Piñas, Br. 275, ruled that the assumption of mortgage
debts of the Barredo Spouses by the Leaño Spouses “is a
very substantial condition
_______________

2 Judge Florentino M. Alumbres, presiding.

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110 SUPREME COURT REPORTS ANNOTATED

Barredo vs. Leaño

x x x x The credit standing of the (Barredo Spouses) will

be greatly prejudiced should they appear delinquent or
not paying at all. This is what the (Barredo Spouses)
feared so much, if foreclosure proceedings are resorted
3
to
because of their failure to pay their obligations.” The
trial court thus rendered judgment in favor of the
plaintiff, the Barredo Spouses—

“WHEREFORE, and in consideration of the foregoing, by

preponderance of evidence, judgment is hereby rendered in
favor of the plaintiffs and against the defendants by: (1)
declaring the Conditional Deed of Sale with Assumption of
Mortgage entered into by the plaintiffs and the defendants on
July 10, 1987, as rescinded and therefore null and void as of
this date; (2) ordering the defendants jointly and severally to
pay the sum of P15,000.00 as actual and litigation expenses,
and the sum of P25,000.00 as and by way of attorney’s fees;
and (3) to pay the costs.
4
“SO ORDERED.”

Aggrieved, the Leaño Spouses who have turned over the

possession of the subject house and lot to the Barredo
Spouses appealed to the Court of Appeals. On May 21,
2002, the appellate court reversed and set aside the
decision of the trial court on the ground that the
payments of amortization to Apex and SSS were mere
collateral matters which do not detract from5 the
condition of paying the principal consideration. The
dispositive portion of the decision reads—

“WHEREFORE, the questioned decision of the Regional Trial

Court of Las Piñas, Branch 275, is hereby REVERSED and
SET ASIDE, and another one is entered DISMISSING the
complaint for lack of cause of action, and ordering plaintiff-
appellees to:

a) execute the Deed of Absolute Sale and to deliver TCT

No. S-104634 in favor of defendants-appellants upon
full payment of the amounts of P68,895.91, P69,379.23
and P2,217.60, or a total of P140,492.74, subject to the
legal rate of interest per annum from the time said
payments were made by plaintiffs-appellees until the
same are fully paid;

_______________

3 Decision of the trial court, p. 8; Rollo, p. 39.

4 Ibid.
5 Special Twelfth Division; Decision penned by Associate Justice
Elvi John S. Asuncion and concurred in by Associate Justices Mariano
C. Del Castillo and Edgardo F. Sundiam.

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Barredo vs. Leaño

b) to vacate and/or turn over the said property to

defendants-appellants;
c) to pay attorney’s fees in the sum of P20,000.00 and
d) to pay the costs of litigation.
6
“SO ORDERED.”

On December 10, 2002, the appellate court denied the

motion for reconsideration for lack of merit. Hence, this
petition for review on certiorari on a sole assignment of
error—

CONTRARY TO THE EXPRESS FINDINGS OF THE TRIAL

COURT THAT THERE WAS SUBSTANTIAL AND
FUNDAMENTAL BREACH BY THE RESPONDENTS OF
THEIR RECIPROCAL OBLIGATIONS TO ASSUME AND
PAY THE MORTGAGE OBLIGATION OF PETITIONERS
WITH THE SSS AND APEX, THE COURT OF APPEALS
ERRED IN HOLDING THAT THE PAYMENTS OF
AMORTIZATION TO APEX AND SSS ARE MERE
COLLATERAL MATTERS AND DISMISSING
PETITIONERS’
7
COMPLAINT FOR LACK OF CAUSE OF
ACTION.

Petitioners argue that the terms of the agreement called

for the strict compliance of two (2) equally essential and
material obligations on the part of the Leaño Spouses,
namely, the payment of the P200,000.00 to them and the
payment of the mortgage amortizations to the SSS and
Apex. And, the Barredo Spouses undertook to execute
the corresponding Deed of Absolute Sale only upon the
faithful compliance by the Leaño Spouses of the
conditions set forth in their agreement. Thus, the failure
of the Leaño Spouses to pay the mortgage amortizations
to the SSS and. Apex gave rise to the right of the
Barredo Spouses to refrain from executing the deed of
sale and in fact ask for rescission, a right accorded to an
injured party.
Respondents Leaño Spouses, however, contend that
they were only obliged to assume the amortization
payments of the Barredo Spouses with the SSS and
Apex, which they did upon signing the agreement. The
contract does not stipulate as a condition the full
payment of the SSS and Apex mortgages. Granting for
argument’s sake that their failure to pay in full the
mortgage was not a full compliance of their obligation,
they could not be faulted because

_______________

6 Decision of the Court of Appeals, p. 9; Rollo, p. 29.

7 Petition, p. 6; Id., p. 13.

112
112 SUPREME COURT REPORTS ANNOTATED
Barredo vs. Leaño

their payments were not accepted by the SSS since the

Barredo Spouses failed to notify the SSS of the
assignment of their debt. In fine, the alleged breach, if
any, was only casual or slight and does not defeat the
very object of the parties in entering into the agreement.
Moreover, the Barredo Spouses were not and will never
be injured parties since if the amortizations were not
paid, it would be the Leaño Spouses who would
eventually lose the house and lot. As such, rescission
does not obtain.
We quote the pertinent provisions of the Conditional
Deed of Sale with Assumption of Mortgage—

1. ONE HUNDRED THOUSAND PESOS

(P100,000.00) Philippine Currency, shall be paid
by the VENDEES to the VENDORS on July 15,
1987.
2. The balance of ONE HUNDRED THOUSAND
PESOS (P100,000.00) Philippine Currency, shall
be paid by the VENDEES to the VENDORS in
ten (10) equal monthly installments at the
VENDORS’ residence, after the signing of this
Contract, consisting of ten (10) postdated checks
drawn against the checking account of the
VENDEES beginning August 1, 1987, and the
succeeding months x x x x until the amount is
fully paid and the checks properly encashed x x x
x
3. The VENDEES do hereby accept this Sale and
bind themselves to assume as they hereby
assume beginning on July 1, 1987, the payment
of the unpaid balance of the First Mortgage
indebtedness of the VENDORS with the Social
Security System as of June 1, 1987 x x x x and
another indebtedness of the VENDORS in a 2nd
Mortgage with the Apex Mortgage and Loans
 Corporation, as of June 1, 1987, x x x x and that
the herein VENDEES do hereby further agree to
be bound by the precise terms and conditions
therein contained.
4. That should the VENDEES well and faithfully
comply with the conditions set forth in this
Contract, then the VENDORS shall execute the
corresponding Absolute Deed of Sale over the
property herein conveyed with assumption of the
mortgages aforecited, in favor of the VENDEES
herein.

A careful reading of the pertinent provisions of the

agreement readily shows that the principal object of the
contract was the sale of the Barredo house and lot, for
which the Leaño Spouses gave a down payment of
P100,000.00 as provided, for in par. 1 of the contract,
and thereafter ten (10) equal monthly installments
amounting to another P100,000.00, as stipulated in par.
2 of the same agreement. The assumption of the
mortgages by the Leaño Spouses
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Barredo vs. Leaño

over the mortgaged property and their payment of

amortizations are just collateral matters which are
natural consequences of the sale of the said mortgaged
property.
Thus, par. 3 of the agreement provides that the Leaño
Spouses “bind themselves to assume as they hereby
assume beginning on July 1, 1987, the payment of the
unpaid balance x x x x” Hence, the Leaño Spouses
merely bound themselves to assume, which they actually
did upon the signing of the agreement, the obligations of
the Barredo Spouses with the SSS and Apex. Nowhere
in the agreement was it stipulated that the sale was
conditioned upon their full payment of the loans with
SSS and Apex. When the language 8
of the contract is
clear, it requires no9
interpretation, and its terms should
not be disturbed. The primary and elementary rule of
construction of documents is that when the words or
language thereof is clear and plain or readily
understandable by any ordinary reader thereof, there is
absolutely10
no room for interpretation or construction
anymore and 11
the literal meaning of its stipulations
shall control.
To include the full payment of the obligations with
the SSS and Apex as a condition would be to
unnecessarily stretch and put a new meaning to the
provisions of the agreement. For, as a general rule, when
the terms of an agreement have been reduced to writing,
such written agreement is deemed to contain all the
terms agreed upon and there can be, between the parties
and their successors-in-interest, no evidence of such
terms other 12
than the contents of the written
agreement. And, it is a familiar doctrine in obligations
and contracts that the parties are bound by the
stipulations, clauses, terms and conditions they have
agreed to, which is the law between them, the only
limitation being that these stipula-

_______________

8 Petrophil Corp. v. Court of Appeals, G.R. No. 122796, 10 December

2001, 371 SCRA 702.
9 Tanguilig v. Court of Appeals, G.R. No. 117190, 2 January 1997,
266 SCRA 78.
10 Leveriza v. Intermediate Appellate Court, G.R. No. 66614, 25
January 1988, 157 SCRA 282, citing San Mauricio Mining Co. v.
Ancheta, No. L-47859 & G.R. No. 57132, 10 July 1981, 105 SCRA 371,
418.
11 Article 1370, Civil Code; R & M General Merchandise, Inc. v.
Court of Appeals, G.R. No. 144189, 5 October 2001, 366 SCRA 679.
12 Llana v. Court of Appeals, G.R. No. 104802, 11 July 2001, 361
SCRA 27.
 114

114 SUPREME COURT REPORTS ANNOTATED

Barredo vs. Leaño

tions, clauses, terms and conditions are not13 contrary to

law, morals, public order or public policy. Not being
repugnant to any legal proscription, the agreement
entered into by the parties must be respected and each is
bound to 14
fulfill what has been expressly stipulated
therein.
But even if we consider the payment of the mortgage
amortizations to the SSS and Apex as a condition on
which the sale is based on, still rescission would not be
available since non-compliance with such condition
would just be a minor or casual breach thereof as it does
not defeat the very object of the parties in entering into
the contract. A cursory reading of the agreement easily
reveals that the main consideration of the sale is the
payment of P200,000.00 to the vendors within the period
agreed upon. The assumption of mortgage by the Leaño
Spouses is a natural consequence of their buying a
mortgaged property. In fact, the Barredo Spouses do not
stand to benefit from the payment of the amortizations
by the Leaño Spouses directly to the SSS and Apex
simply because the Barredo Spouses have already parted
with their property, for which they were already fully
compensated in the amount of P200,000.00.
Thus, as adverted
15
to in Song Fo & Co. v. Hawaiian
Philippine Co., we ruled that a delay in the payment
for a small quantity of molasses for some twenty (20)
days is not such a violation of an essential condition of
the contract that warrants rescission due to non-
performance. 16In Philippine Amusement Enterprise, Inc.
v. Natividad, we declined rescission for “the occasional
failure of the phonograph to operate, not frequent
enough to render it unsuitable
17
and unserviceable.” In
Laforteza v. Machuca, we said that the delay of one
month in payment was a mere casual breach that would
not entitle the respondents
18
to rescind the contract. In
Ang v. Court of Appeals, we held that the failure to
remove and clear the

_______________

13 Odyssey Park, Inc. v. Court of Appeals, G.R. No. 107992, 8

October 1997, 280 SCRA 253; Asset Privatization Trust v.
Sandiganbayan, G.R. No. 138598, 29 June 2001, 360 SCRA 437.
14 Barons Marketing Corp. v. Court of Appeals, G.R. No. 126486, 9
February 1998, 286 SCRA 96.
15 47 Phil. 821, 827 (1925).
16 No. L-21876, 29 September 1967, 21 SCRA 284.
17 G.R. No. 137552, 16 June 2000, 333 SCRA 643.
18 G.R. No. 80058, 13 February 1989, 170 SCRA 286.

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Barredo vs. Leaño

subject property of all occupants and obstructions and

deliver all the pertinent papers to the vendees for the
registration and issuance of a certificate of title in their
name were not essential conditions but merely
incidental undertakings which will not permit
rescission. In Power19Commercial and Industrial Corp. v.
Court of Appeals, we went a step further and
considered the failure of the vendor to eject the
occupants of a lot sold as a “usual warranty against
eviction,” and not a condition that was not met, and
thus, rescission
20
was not allowed. And, in Del Castillo v.
Naguiat, we ruled that the failure to pay in full the
purchase price stipulated in a deed of sale does not ipso
facto grant the seller the right to rescind the agreement.
In all these cases, we were consistent in holding that
rescission of a contract will not be permitted for a slight
or casual breach, but only such substantial and
fundamental breach as would defeat the very object of
the parties in making the agreement.
If the Barredo Spouses were really protective of their
reputation and credit standing, they should have sought
the consent, or at least notified the SSS and Apex of the
assumption by the Leaño Spouses of their indebtedness.
Besides, in ordering rescission, the trial court should
have likewise ordered the Barredo Spouses to return the
P200,000.00 they received as purchase price plus
interests. Art. 1385 of the Civil Code provides that
“[r]escission creates the obligation to return the things
which were the object of the contract, together
21
with their
fruits, and the price with its interest.” The vendor is
therefore obliged to return the purchase price 22paid to
him by the buyer if the latter rescinds the sale. Thus,
where a contract is rescinded, it is the duty of the court
to require both parties to surrender that which they
have respectively received and place24 each other as far as
practicable in his original situation.

_______________

19 G.R. No. 119745, 20 June 1997, 274 SCRA 597.

20 G.R. No. 137909, 11 December 2003, 418 SCRA 73.
21 Velarde v. Court of Appeals, G.R. No. 108346, 11 July 2001, 361
SCRA 56, citing Co v. Court of Appeals, G.R. No. 112330, 17 August
1999, 312 SCRA 528.
22 Goldenrod, Inc. v. Court of Appeals, G.R. No. 126812, 24
November 1998, 299 SCRA 141.
24 Tolentino, A., Civil Code of the Philippines, Vol. IV (1991), pp.
180-181, citing De Erquiaga, G.R. No. 47206, 27 September 1989, 178
SCRA 1.

116

116 SUPREME COURT REPORTS ANNOTATED

Occeña vs. Esponilla
 IN VIEW WHEREOF, the petition is DENIED. The
Decision of the Court of Appeals in CA-G.R. CV No.
44009 promulgated May 21, 2002, and its Resolution
therein dated December 10, 2002, are hereby
AFFIRMED. Costs against petitioners.
SO ORDERED.

       Quisumbing, Austria-Martinez, Callejo, Sr. and

Tinga, JJ., concur.

Petition denied, judgment and resolution affirmed.

Note.—Judicial action for rescission of a contract is

not necessary where the contract provides for automatic
rescission in case of breach. (Gomez vs. Court of Appeals,
340 SCRA 720 [2000])

——o0o——

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