ARTICLE 1186 – CONSTRUCTIVE FULFILLMENT  Fact that Cannu tendered check to Galang 7mos after filing of the case is of no

moment
JOSEFINA TAYAG VS CA, ALBRIGIDO LEYVA
Rescission of a party to an obligation under Art 1991 is predicated on a breach of faith
28 May 1975: Juan Galicia Sr. & Celerina Labuguin executed Deed of Conveyance in by the other party.
favor of Leyva involving ½ portion of land  However, this is not permitted for slight or casual breach of contract; only
 Pay P3k upon execution of agreement, pay P10k after 10 days, ASSUME substantial & fundamental as to defeat the object of the parties in making
GALICIA’S INDEBTEDNESS OF P10K TO PH VETERANS BANK, agreement
pay P27k within one year
 Leyva paid P3k, P10k but did not pay P27k. No waiver of right to rescind on the part of Sps. Galang
 Leyva paid PVB P6926.41 while the difference of the indebtedness was  By accepting instalments, did not waive right to rescind
paid by Celerina  Sps. Galang merely accepted payments because Cannu kept on promising that
she would pay
Heirs of Galicia, Sr. asserted breach of conditions for Leyva’s non-compliance
 Leyva argued: Celerina CONSTRUCTIVELY FULFILLED the obligation Re: DOS with consideration of P250k
when she paid PVB the difference of the obligation  The agreement of parties is for only P120k
 Heirs argued: Art 1186 cannot apply to them because they are “obligees”  What is really meant here is that P120k plus the mortgage obligation with
while Art 1186 speaks of an “obligor” constructively fulfilling the NHFMC
obligation
In the absence of stipulation of extrajudicial rescission, right to rescind must be
RTC & CA: in favor of Leyva invoked judicially
 Contract of parties did not contain provision authorizing extrajudicial rescission
ISSUE: WON Celerina Labuguin constructively fulfilled the obligation of Leyva by  Sps. Galang should have asked for judicial intervention first to obtain judicial
paying the remaining amount to PVB declaration of rescission

HELD: Yes. MANUEL PAGTALUNAN VS RUFINA DELA CRUZ

CA did not apply Art 1186 because the heirs are “obligees” while article speaks of 19 July 74: Patricio Pagtalunan entered CONTRACT TO SELL house and lot with
“obligor” Rufina Dela Cruz  R to pay P17,800 (P1500 as down, P150/mo as instalments)
 BUT in RECIPROCAL OBLIGATIONS (like contract of sale, as in the  Contract stated that in case of default for 90 days, contract would be
case), both parties are mutually obligors and obligees automatically rescinded
 Any of the parties may, upon nonfulfillment by the other, rescind the
contract or seek its fulfillment Manual claimed: R paid only P12,950 and stopped after Dec 79 hence, her status as
buyer was transformed to that of lessee and R continued to occupy prop by mere
Heirs are not only obligees but also obligors with respect to the stipulation of tolerance
permitting Leyva to assumed loan with PVB R alleged: she paid monthly instalments religiously until Patricio changed his mind
 But which they impeded with Celerina paid the balance of the loan and offered to refund her payments but she refused
 P started harassing her and began demolishing house so she suspended payment;
Therefore, as vendors, they are supposed to execute the final DOS upon Leyva’s full they signed agreement re: suspension
payment  P started demolishing house again so she suspended until P returns materials he
took but P died
ARTICLE 1991 – RESCISSION  R admitted having remaining balance of P5650
M filed complaint of unlawful detainer with MTC
CANNU VS GALANG, NATL HOME MORTGAGE FINANCE CORP  MTC in favor of Manuel by virtue of Art. 1991 CC
 RTC reversed: could not be automatically rescinded because there was delivery
Sps. Galang obtained loan from Fortune Savings & Loan Assoc. for P173,800 to buy
to buyer, judicial determination must be had
house and lot  to secure payment, real estate mortage was constituted on same house
 CA affirmed RTC: Maceda Law
and lot in favor of FSLA
Manuel: Maceda Law supports right of vendors to cancel sale without judicial
 1990: NHMFC purchased mortgage loan from FSLA & Fernandina Galang
intervention, gave R beyond 6mos grace period
authorized atty-in-fact Timbang to sell
 Leticia Cannu agreed to buy property for P120k and assume balance of ISSUE: WON Maceda Law applies in this case
mortgage obligations with NHMFC and CERF realty
 Cannu paid P75k on various dates HELD: Yes.
 DOS with Assumption of Mortgage Obligations was executed (P250k was
received by Sps. Galang)  Cannu took immediate possession of house and lot RA 6552 (Maceda Law): special law enacted to protect buyers of real estate on
but despite requests of Atty. Timbang to pay remaining P45k, Cannu refused to instalment payments against onerous & oppressive conditions
pay  “If contract is cancelled, seller shall refund the buyer the cash surrender value of
the payments of the prop…actual cancellation shall take place 30 days from
Cannu informed VP of NHMFC that ownership rights over land had been transferred receipt by the buyer of the notice of cancellation/demand for rescission of
to them but NHMFC did not approve contract by notarial act and upon full payment of CSV to buyer.”
 Failed to comply with mortgage obligation so Sps. Galang paid outstanding  Cancellation of contract must be in accordance with Sec. 3(b)
obligation with NHMFC (as initial step in rescission of DOS)  Patricio is SELLER but failed to rescind contract before he died; Manuel also
 Opposed release of TCT to Sps. Galang and filed COMPLAINT FOR failed to cancel the contract
SPECIFIC PERFORMANCE: they be declared owners of the property and  Re: demand letter Manuel gave to Rufina, not the demand letter contemplated by
reimbursements Maceda Law – merely made a formal demand upon Rufine to vacate the
premises, not notarized
RTC: in favor of Galang, CA: affirmed
Requisites under Maceda Law:
ISSUE: WON there was substantial breach to warrant rescission 1. Notarial act of rescission
2. Refund to the buyer
HELD: Yes, failure to pay P45k is substantial. 3. Cancellation takes place after 30 days from receipt of notice cancellation

Even though it was only 18% of full consideration, still substantial. Re: arrears – right and just to allow Rufina to pay arrears and settle the balance of
 8 years lapsed without complying with obligation purchase price
If within 60 days from finality, Rufina fails to pay, she shall vacate the premises and ISSUE: WON Sps. Fajardo have no right to rescind to contract considering that GPI’s
all she paid will be considered rentals. inability to comply was due to reasons beyond its control

NICOLAS DIEGO VS RODOLFO DIEGO, EDUARDO DIEGO HELD: No, they can rescind.

1993: Nicolas and Rodolfo entered into CONTRACT TO SELL covering Nicolas’ In a contract to sell, the seller's obligation to deliver the corresponding certificates of
share (P500k) as co-owner of family’s building title is simultaneous and reciprocal to the buyer's full payment of the purchase price
 R made down of P250k, agreed that DOS shall be executed upon payment of  Section 25 of PD 957, which regulates the subject transaction, imposes on the
remaining balance but R failed to pay subdivision owner or developer the obligation to cause the transfer of the
corresponding certificate of title to the buyer upon full payment
Meanwhile, building was leased to 3rd parties
 N’s share in the rents were not remitted by Eduardo instead, E gave N’s shares THERE WAS SUBSTANTIAL BREACH
in rents to R  GPI acquired the subject property on March 10, 1992 through a Deed of
 Despite demands of N, R and E failed to render accounting and remit his share Partition and Exchange23 executed between it and Andres Pacheco (Andres),
and fruits in the building the former registered owner of the property; did not bear any technical
description
17 May 99: N filed complaint against R&E, prayed that E be ordered to render  no plausible explanation was advanced by the petitioners as to why the petition
accounting and to deliver to N his shares in rents for inscription was filed only after almost eight (8) years from the acquisition of
 Acc to R&E: N had no more claim since he already sold share, asserted he the subject property
would pay balance when N executes DOAS  Neither did petitioners sufficiently explain why GPI took no positive action to
cause the immediate filing of a new petition for inscription within a reasonable
RTC: N ceased to be co-owner – when he received P250k down, sale was perfected time from notice of the July 15, 2003 CA Decision which dismissed GPI’s
and he should execute DOAS (contract of sale) earlier petition
CA: affirmed RTC  The decision of CA also did not attain finality yet, GPI should’ve filed petition
 long delay in the performance of GPI's obligation from date of demand on
ISSUE: WON the contracts remains legally binding and not rescinded / WON there September 16, 2002 was unreasonable and unjustified
was substantial breach to warrant rescission
Mutual restitution is required in cases involving rescission under Article 1191
HELD:  bringing the parties back to their original status prior to the inception of the
contract
Contract to sell, not contract of sale.  cannot be denied that only GPI benefited from the contract, having received full
 Where vendor promises to execute a DOAS upon completion by vendee of payment of the contract price plus interests as early as January 17, 2000, while
payment of price, indicates contract to sell Sps. Fajardo remained prejudiced by the persisting non-delivery of the subject
lot despite full payment
Remedy of rescission is not available in contracts to sell.
 No rescission to speak of in the first place
 In contract to sell, title remains with vendor and does not pass on to vendee until
purchase price is paid in full GALILEO MAGLASANG (GL ENTERPRISES) VS NORTHWESTERN INC
 Payment of purchase price is positive suspensive condition UNIVERSITY
 Failure to pay is not mere or serious breach but situation that prevents the
obligation of vendor to convey title from acquiring obligatory force 10 June 2004: NU engaged the services of a Quezon City-based firm, petitioner GL
Enterprises, to install a new IBS (most modern, acceptable to CHED) for P2.7M
When R failed to fully pay purchase price, contract to sell was terminated or  IBS must be complaint with CHED & IMO standard
cancelled.  Contract may be terminated if there’s substantial breach
 Non-fulfilment of condition prevents obligation to sell from arising and
ownership is retained by the seller NU paid P1M down to GL; balance, P1.97M
 R’s failure to pay is not breach of contract contemplated under Art 1991 but just  2mos after, GL delivered materials to site but when they started installing, NU
an event that prevents N from being bound to convey title halted operations
 NU: the equipment were substandard (old, no manuals and warranty certs,
CONTRACT TO SELL vs CONTRACT OF SALE reconditioned machines, did not meet IMO & CHED standards
 Sale: vendor lost ownership and can’t recover it except when contract is  GL: NU breached the contract when it ordered GL to stop
rescinded
 Sell: vendor remains owner as long as vendee has not complied fully with RTC: both at fault, mutual restitution
condition CA: GL is guilty, delivery of substandard equipment = substantial breach, applied Art
o If vendor should eject vendee for failure to pay, he is enforcing the 1991 CC
contract, not rescinding it
ISSUE: WON there was substantial breach on the part of GL
GOTESCO PROP INC. VS EUGENIO & ANGELINA FAJARDO
HELD: Yes.
24 Jan 95: Sps. Fajardo entered CONTRACT TO SELL with GPI for 100-sq.m. lot
(part of a mother title) Parties explicitly agreed that the materials to be delivered must be compliant with the
 Sps. Fajardo to pay P126k w/in 10 yrs; GPI to execute DOS upon full payment CHED and IMO standards and must be complete with manuals
 Despite full payment on 2000, GPI failed to deliver title, DOS  the intent of the parties was to replace the old IBS in order to obtain CHED
accreditation for Northwestern’s maritime-related courses
Sps. Fajardo filed before Housing & Land Use Regulatory Board-Expanded Natl  thus incumbent upon GL Enterprises to supply the components that would
Capital Region Field Ofc: specific performance or rescission of contract with damages create an IBS that would effectively facilitate the learning of the students
– violation of Sec 20, PD 957  GL Enterprises miserably failed in meeting its responsibility; did not even
 GPI argued: Art 1991 not applicable because they were actually willing to refute that the equipment they delivered was substandard
comply with their obligation but only prevented by the reversal of CA re:  materials delivered were less likely to pass the CHED standards
petition for inscription of technical description  legal proceedings, subdivision
of prop into individual lots GL argued NU should have made assessment only after the completion of IBS + the
 HLURB-ENCRFO in favor of Fajardo; HLURB Board of Commissioners, materials may not have been the components to be used: untenable
Fajardo; OP, Fajardo; CA affirmed
  Gyrocompass had no marker, model, serial no, bulb to help point the true North; HELD: Yes.
ordinary motor used for toys; steering wheel was that of a car
Re: Asian financial crisis as fortuitous event
Violation was not merely incidental, but directly related to the essence of the  NOT. A real estate enterprise engaged in pre-selling of condo units is
agreement pertaining to the installation of an IBS compliant with the CHED and IMO concededly a master in projections on commodities and currency movements
standards and business risks
 Cannot generalize that this was unforeseeable and beyond the control of
OPTIMUM DEVT BANK VS SPS. BENIGNO & LOURDES JOVELLANOS business corporations
 fluctuating movement of the Philippine peso in the foreign exchange market is
26 Apr 2005: Sps. Jovellanos entered into Contract to Sell with Palmera Homes, Inc. an everyday occurrence, and fluctuations in currency exchange rates happen
for purchase of house and lot for P1.015M everyday, thus, not an instance of caso fortuito
 Sps. J took possession upon down & remaining balance, to be paid on
instalments Non-performance of petitioners’ obligation entitles respondents to rescission under
 Palmera Homes assigned all its rights to ODB through Deed of Assignment Article 1191 NCC
 Section 23 of Presidential Decree No. 957, the rule governing the sale of
10 Apr 2006: ODB issued Notice of Delinquency & Cancellation of Contract to Sell to condominiums: “No installment payment made by a buyer in a subdivision or
J for failure to pay instalments despite demand condominium project for the lot or unit he contracted to buy shall be forfeited in
 25 May 2006: ODB required Sps J to vacate & deliver possession of prop w/in 7 favor of the owner or developer when the buyer, after due notice to the owner or
days but remained unceeded so filed complaint for unlawful detainer developer, desists from further payment due to the failure of the owner or
 Sps. J failed to file answer w/in reglementary period developer to develop the subdivision or condominium project according to the
approved plans and within the time limit for complying with the same”
MeTC: ordered Sps. J to vacate and pay ODB P5k compensation
RTC: affirmed
CA: reversed RTC, dismissed for lack of jurisdiction

ISSUE: WON ODB has right to rescind the contract by virtue of Art 1991

HELD: Yes.

ODB alleged that it was by virtue of the April 26, 2005 Contract to Sell that Sps.
Jovellanos were allowed to take possession of the subject property
 latter failed to pay the stipulated monthly installments, notwithstanding
several written and verbal notices made upon them, it cancelled the said
contract as per the Notice of Delinquency and Cancellation (Apr 10, 2006)
 when Sps. Jovellanos refused to vacate the subject property despite
repeated demands, ODB instituted the present action for unlawful detainer
on November 3, 2006, or within one year from the final demand made on
May 25, 2006

In contract to sell, full payment of purchase price is suspensive condition.

Since object is real prop sold on instalment basis, Maceda Law governs:
1. seller shall give buyer 60-day grace period, reckoned from date of
instalment became due – PRESENT. 60-day grace period automatically
operated in favor of buyers and took effect from the time that the maturity
dates of instalment payments lapsed
2. seller must give buyer a notice of cancellation/demand for rescission by
notarial act – PRESENT. ODB sent letter on 10 Apr 2006 informing Sps re:
rescission
3. seller may actually cancel the contract only after 30 days from buyer’s
receipt of notice – PRESENT. ODB gave Sps. J additional 30 days w/in
which to settle their arrears and reinstate contract, or sell or assign rights to
another

Therefore, there was valid and effective cancellation of contract to sell in acc with RA
6552 (Maceda Law)

FIL-ESTATE PROP INC, FIL-ESTATE NETWORK INC VS SPS. CONRADO

Sps. Ronquillo purchased from FEPI an 82sq.m. condo unit @ Central Park Place
Tower for P5.174M
 29 Aug 97: Sps. R executed and signed Reservation Application, deposited
P200k
 Paid full down & monthly instalments until Sept 1998 when they learned that
construction works had stopped
 Sent 2 demand letters: refund with interest but was unheeded
 Filed complaint before HLURB; in favor of Sps. R  HLURB BOC affirmed
(Asian financial crisis in not fortuitous event)  CA affirmed (substantial
breach)

ISSUE: WON there was substantial breach to effect right of rescission of Sps.
Ronquillo