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3 Cannu v. Galang
3 Cannu v. Galang
DECISION
CHICO-NAZARIO , J : p
Before Us is a Petition for Review on Certiorari which seeks to set aside the decision
1 ofthe Court of Appeals dated 30 September 1998 which a rmed with modi cation the
decision of Branch 135 of the Regional Trial Court (RTC) of Makati City, dismissing the
complaint for Speci c Performance and Damages led by petitioners, and its Resolution 2
dated 22 July 1999 denying petitioners' motion for reconsideration.
A complaint 3 for Speci c Performance and Damages was led by petitioners-
spouses Felipe and Leticia Cannu against respondents-spouses Gil and Fernandina Galang
and the National Home Mortgage Finance Corporation (NHMFC) before Branch 135 of the
RTC of Makati, on 24 June 1993. The case was docketed as Civil Case No. 93-2069.
The facts that gave rise to the aforesaid complaint are as follows:
Respondents-spouses Gil and Fernandina Galang obtained a loan from Fortune
Savings & Loan Association for P173,800.00 to purchase a house and lot located at
Pulang Lupa, Las Piñas, with an area of 150 square meters covered by Transfer Certi cate
of Title (TCT) No. T-8505 in the names of respondents-spouses. To secure payment, a real
estate mortgage was constituted on the said house and lot in favor of Fortune Savings &
Loan Association. In early 1990, NHMFC purchased the mortgage loan of respondents-
spouses from Fortune Savings & Loan Association for P173,800.00.
Respondent Fernandina Galang authorized 4 her attorney-in-fact, Adelina R. Timbang,
to sell the subject house and lot.
Petitioner Leticia Cannu agreed to buy the property for P120,000.00 and to assume
the balance of the mortgage obligations with the NHMFC and with CERF Realty 5 (the
Developer of the property). cEDIAa
It is a special condition of this contract that the Vendees shall assume and
continue with the payment of the amortization with the National Home Mortgage
Finance Corporation Inc. in the outstanding balance of P_______________, as of
__________ and shall comply with and abide by the terms and conditions of the
mortgage document dated Feb. 27, 1989 and identi ed as Doc. No. 82, Page 18,
Book VII, S. of 1989 of Notary Public for Quezon City Marites Sto. Tomas Alonzo,
as if the Vendees are the original signatories.
Petitioners immediately took possession and occupied the house and lot.
Petitioners made the following payments to the NHMFC:
Date Amount Receipt No.
Thereupon, a Complaint for Speci c Performance and Damages was led asking,
among other things, that petitioners (plaintiffs therein) be declared the owners of the
property involved subject to reimbursements of the amount made by respondents-
spouses (defendants therein) in preterminating the mortgage loan with NHMFC.
Respondent NHMFC led its Answer. 2 1 It claimed that petitioners have no cause of
action against it because they have not submitted the formal requirements to be
considered assignees and successors-in-interest of the property under litigation.
In their Answer, 2 2 respondents-spouses alleged that because of petitioners-
spouses' failure to fully pay the consideration and to update the monthly amortizations
with the NHMFC, they paid in full the existing obligations with NHMFC as an initial step in
the rescission and annulment of the Deed of Sale with Assumption of Mortgage. In their
counterclaim, they maintain that the acts of petitioners in not fully complying with their
obligations give rise to rescission of the Deed of Sale with Assumption of Mortgage with
the corresponding damages.
After trial, the lower court rendered its decision ratiocinating:
On the basis of the evidence on record, testimonial and documentary, this
Court is of the view that plaintiffs have no cause of action either against the
spouses Galang or the NHMFC. Plaintiffs have admitted on record they failed to
pay the amount of P45,000.00 the balance due to the Galangs in consideration of
the Deed of Sale With Assumption of Mortgage Obligation (Exhs. "C" and "3").
Consequently, this is a breach of contract and evidently a failure to comply with
obligation arising from contracts. . . In this case, NHMFC has not been duly
informed due to lack of formal requirements to acknowledge plaintiffs as legal
assignees, or legitimate transferees and, therefore, successors-in-interest to the
property, plaintiffs should have no legal personality to claim any right to the same
property. 2 3
A Motion for Reconsideration 2 5 was led, but same was denied. Petitioners
appealed the decision of the RTC to the Court of Appeals. On 30 September 1998, the
Court of Appeals disposed of the appeal as follows:
Obligations arising from contract have the force of law between the
contracting parties and should be complied in good faith. The terms of a written
contract are binding on the parties thereto.
Records show that upon the execution of the Contract of Sale or on July
19, 1990 plaintiffs-appellants paid defendants-appellees spouses Galang the
amount of only P40,000.00.
The next payment was made on April 6, 1991 for P15,000.00 and on
November 28, 1991, for another P15,000.00.
From 1991 until the present, no other payments were made by plaintiffs-
appellants to defendants-appellees spouses Galang.
The tender made by plaintiffs-appellants after the ling of this case, of the
Managerial Check in the amount of P278,957.00 dated January 24, 1994 cannot
be considered as an effective mode of payment.
No pronouncement as to cost. 2 6
The motion for reconsideration 2 7 led by petitioners was denied by the Court of
Appeals in a Resolution 2 8 dated 22 July 1999.
Hence, this Petition for Certiorari.
Petitioners raise the following assignment of errors:
1. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD
THAT PETITIONERS' BREACH OF THE OBLIGATION WAS SUBSTANTIAL.
Before discussing the errors allegedly committed by the Court of Appeals, it must
be stated a priori that the latter made a misappreciation of evidence regarding the
consideration of the property in litigation when it relied solely on the Deed of Sale with
Assumption of Mortgage executed by the respondents-spouses Galang and petitioners-
spouses Cannu.
As above-quoted, the consideration for the house and lot stated in the Deed of Sale
with Assumption of Mortgage is P250,000.00, plus the assumption of the balance of the
mortgage loan with NHMFC. However, after going over the record of the case, more
particularly the Answer of respondents-spouses, the evidence shows the consideration
therefor is P120,000.00, plus the payment of the outstanding loan mortgage with NHMFC,
and of the "equity" or second mortgage with CERF Realty (Developer of the property). 3 0
Nowhere in the complaint and answer of the petitioners-spouses Cannu and
respondents-spouses Galang shows that the consideration is "P250,000.00." In fact, what
is clear is that of the P120,000.00 to be paid to the latter, only P75,000.00 was paid to
Adelina Timbang, the spouses Galang's attorney-in-fact. This debunks the provision in the
Deed of Sale with Assumption of Mortgage that the amount of P250,000.00 has been
received by petitioners. SEAHID
Inasmuch as the Deed of Sale with Assumption of Mortgage failed to express the
true intent and agreement of the parties regarding its consideration, the same should not
be fully relied upon. The foregoing facts lead us to hold that the case on hand falls within
one of the recognized exceptions to the parole evidence rule. Under the Rules of Court, a
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party may present evidence to modify, explain or add to the terms of the written
agreement if he puts in issue in his pleading, among others, its failure to express the true
intent and agreement of the parties thereto. 3 1
In the case at bar, when respondents-spouses enumerated in their Answer the terms
and conditions for the sale of the property under litigation, which is different from that
stated in the Deed of Sale with Assumption with Mortgage, they already put in issue the
matter of consideration. Since there is a difference as to what the true consideration is,
this Court has admitted evidence aliunde to explain such inconsistency. Thus, the Court
has looked into the pleadings and testimonies of the parties to thresh out the discrepancy
and to clarify the intent of the parties.
As regards the computation 3 2 of petitioners as to the breakdown of the
P250,000.00 consideration, we nd the same to be self-serving and unsupported by
evidence.
On the rst assigned error, petitioners argue that the Court erred when it ruled that
their breach of the obligation was substantial.
Settled is the rule that rescission or, more accurately, resolution, 3 3 of a party to an
obligation under Article 1191 3 4 is predicated on a breach of faith by the other party that
violates the reciprocity between them. 3 5 Article 1191 reads:
Art. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the ful llment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen ful llment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
Rescission will not be permitted for a slight or casual breach of the contract.
Rescission may be had only for such breaches that are substantial and fundamental as to
defeat the object of the parties in making the agreement. 3 6 The question of whether a
breach of contract is substantial depends upon the attending circumstances 3 7 and not
merely on the percentage of the amount not paid.
In the case at bar, we nd petitioners' failure to pay the remaining balance of
P45,000.00 to be substantial. Even assuming arguendo that only said amount was left out
of the supposed consideration of P250,000.00, or eighteen (18%) percent thereof, this
percentage is still substantial. Taken together with the fact that the last payment made
was on 28 November 1991, eighteen months before the respondent Fernandina Galang
paid the outstanding balance of the mortgage loan with NHMFC, the intention of
petitioners to renege on their obligation is utterly clear. ECSHAD
Petitioners cite the case of Angeles v. Calasanz 4 6 to support their claim that
respondents-spouses waived their right to rescind. We cannot apply this case since it is
not on all fours with the case before us. First, in Angeles, the breach was only slight and
casual which is not true in the case before us. Second, in Angeles, the buyer had already
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paid more than the principal obligation, while in the instant case, the buyers (petitioners)
did not pay P45,000.00 of the P120,000.00 they were obligated to pay.
We nd petitioners' statement that there is no evidence of prejudice or damage to
justify rescission in favor of respondents-spouses to be unfounded. The damage suffered
by respondents-spouses is the effect of petitioners' failure to fully comply with their
obligation, that is, their failure to pay the remaining P45,000.00 and to update the
amortizations on the mortgage loan with the NHMFC. Petitioners have in their possession
the property under litigation. Having parted with their house and lot, respondents-spouses
should be fully compensated for it, not only monetarily, but also as to the terms and
conditions agreed upon by the parties. This did not happen in the case before us.
Citing Seva v. Berwin & Co., Inc ., 4 7 petitioners argue that no rescission should be
decreed because there is no evidence on record that respondent Fernandina Galang is
ready, willing and able to comply with her own obligation to restore to them the total
payments they made. They added that no allegation to that effect is contained in
respondents-spouses' Answer.
We find this argument to be misleading.
First, the facts obtaining in Seva case do not fall squarely with the case on hand. In
the former, the failure of one party to perform his obligation was the fault of the other
party, while in the case on hand, failure on the part of petitioners to perform their obligation
was due to their own fault.
Second, what is stated in the book of Justice Edgardo L. Paras is "[i]t (referring to
the right to rescind or resolve) can be demanded only if the plaintiff is ready, willing and
able to comply with his own obligation, and the other is not." In other words, if one party
has complied or ful lled his obligation, and the other has not, then the former can exercise
his right to rescind. In this case, respondents-spouses complied with their obligation when
they gave the possession of the property in question to petitioners. Thus, they have the
right to ask for the rescission of the Deed of Sale with Assumption of Mortgage.
On the fourth assigned error, petitioners, relying on Article 1383 of the Civil Code,
maintain that the Court of Appeals erred when it failed to consider that the action for
rescission is subsidiary.
Their reliance on Article 1383 is misplaced.
The subsidiary character of the action for rescission applies to contracts
enumerated in Article 1381 4 8 of the Civil Code. The contract involved in the case before us
is not one of those mentioned therein. The provision that applies in the case at bar is
Article 1191.
In the concurring opinion of Justice Jose B.L. Reyes in Universal Food Corp. v. Court
of Appeals, 4 9 rescission under Article 1191 was distinguished from rescission under
Article 1381. Justice J.B.L. Reyes said:
. . . The rescission on account of breach of stipulations is not predicated
on injury to economic interests of the party plaintiff but on the breach of faith by
the defendant, that violates the reciprocity between the parties. It is not a
subsidiary action, and Article 1191 may be scanned without disclosing anywhere
that the action for rescission thereunder is subordinated to anything other than
the culpable breach of his obligations by the defendant. This rescission is a
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principal action retaliatory in character, it being unjust that a party be held bound
to ful ll his promises when the other violates his. As expressed in the old Latin
aphorism: "Non servanti dem , non est des servanda ." Hence, the reparation of
damages for the breach is purely secondary. ScAIaT
From the foregoing, it is clear that rescission ("resolution" in the Old Civil Code)
under Article 1191 is a principal action, while rescission under Article 1383 is a subsidiary
action. The former is based on breach by the other party that violates the reciprocity
between the parties, while the latter is not.
In the case at bar, the reciprocity between the parties was violated when petitioners
failed to fully pay the balance of P45,000.00 to respondents-spouses and their failure to
update their amortizations with the NHMFC.
Petitioners maintain that inasmuch as respondents-spouses Galang were not
granted the right to unilaterally rescind the sale under the Deed of Sale with Assumption of
Mortgage, they should have rst asked the court for the rescission thereof before they
fully paid the outstanding balance of the mortgage loan with the NHMFC. They claim that
such payment is a unilateral act of rescission which violates existing jurisprudence.
In Tan v. Court of Appeals, 5 0 this court said:
. . . [T]he power to rescind obligations is implied in reciprocal ones in case
one of the obligors should not comply with what is incumbent upon him is clear
from a reading of the Civil Code provisions. However, it is equally settled that, in
the absence of a stipulation to the contrary, this power must be invoked judicially;
it cannot be exercised solely on a party's own judgment that the other has
committed a breach of the obligation. Where there is nothing in the contract
empowering the petitioner to rescind it without resort to the courts, the petitioner's
action in unilaterally terminating the contract in this case is unjustified.
It is evident that the contract under consideration does not contain a provision
authorizing its extrajudicial rescission in case one of the parties fails to comply with what
is incumbent upon him. This being the case, respondents-spouses should have asked for
judicial intervention to obtain a judicial declaration of rescission. Be that as it may, and
considering that respondents-spouses' Answer (with a rmative defenses) with
Counterclaim seeks for the rescission of the Deed of Sale with Assumption of Mortgage, it
behooves the court to settle the matter once and for all than to have the case re-litigated
again on an issue already heard on the merits and which this court has already taken
cognizance of. Having found that petitioners seriously breached the contract, we,
therefore, declare the same is rescinded in favor of respondents-spouses. aCSDIc
Footnotes
1. CA Rollo, pp. 50-56; Penned by Associate Justice Eugenio S. Labitoria with Associate
Justices Jesus M. Elbinias and Marina L. Buzon, concurring.
2. Id., at 77.
3. Records, pp. 1-12.
5. The records do not disclose the nature of the transaction between respondents-spouses
and CERF Realty.
19. TSN, 13 October 1994, p. 37; Answer with Affirmative Defense of NHMFC, Records, p.
29.
40. Philippine National Bank v. Relativo, G.R. No. L-5298, 29 October 1952, 92 Phil. 203,
206.
41. Rollo, p. 25.
42. TSN, 13 October 1994, p. 37.
43. Records, p. 29.
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44. TSN, 09 November 1994, p. 12.
45. Records, pp. 41-42.
46. G.R. No. L-42283, 18 March 1985, 135 SCRA 323, 332.
47. 48 Phil. 581; Civil Code of the Philippines by Paras, Vol. 4 (1994 Ed).
51. Ang v. Court of Appeals, G.R. No. 80058, 13 February 1989, 170 SCRA 286, 297.
52. Jimenez v. National Labor Relations Commission, G.R. No. 116960, 02 April 1996, 256
SCRA 84, 89.
53. TSN, 09 November 1994, p. 19.