Velarde v. CASUMMARY OF DOCTRINE:Failure to pay the price in the manner prescribed by the contract constitutes a substantial breach of contractA substantial breach of contract entitles injured party to rescind the obligation.Rescission abrogates the contract from its inception and requires mutual restitution of benefits.FACTS:David Raymundo is the owner of a parcel of land together with the house and other improvements erected uponit.The property was mortgaged to the Bank of the Philippine Islands (BPI) for P1.8M through aDeed of RealEstate Mortgage (DREM).

George Raymundo, David’s father, negotiated the sale of the property to spouses Avelina and Mariano Velarde.The parties executed aDeed of Sale with Assumption of Mortgage (DSAM)where the Velardes agreed,inter alia,to:1.Pay Raymundo P800,000.002.Assume the obligation to repay the mortgage worth P1.8M3.Strictly and faithfully comply with all terms and conditions of the mortgage agreement with BPI4.Pay interests and other charges for late payment levied by the Bank (all in all, to treat the mortgage as if it were originally signed and executed by them)Avelina Velarde also executed anUndertaking further stating,inter alia,that:1.While her application for assumption of mortgage obligations on the property was still being processed, she will still pay the mortgage obligationsin the name of the owner Raymundo2. should she violate any of the terms and conditions of theDREM, she agrees to (1)forfeit in favorof David Raymundo the P800T plus all payments made to BPI as liquidated damages withoutnecessity of judicial declaration; (2) Raymundo’sresumption of total ownershipof the property;and (3) automatic cancellation of theDSAMHowever, Velarde’s application for assumption of mortgage obligations was not approved.From then on, the Velardes stopped payment of the mortgage loanIn response, Raymundo wrote to the Velardes stating that their nonpayment of the mortgage constitutednonperformance of their obligation.Velardes replied through a letter stating their willingness to pay the balanceProvided that Raymundo:1.deliver actual possession of the property for Velardes’ immediate occupancy;2.cause the release of the title and mortgage from BPI and make the title available free from anyliens and encumbrances; and3.execute an absolute deed of sale in Avelina Velarde’s favorRaymundo then sent the Velardes aNotice of Cancellation/Rescission of the Intended Saleon the groundsof failure to comply with the terms and conditions of theDSAMandUndertaking The Velardes filed a Complaint for:1.Specific performance (enforcement of the DSAM);2.Nullity of Cancellation;3.Issuance of a writ of possession; and4.DamagesJudge Ynares-Santiago of the RTC of Makati dismissed the complaint, but a new judge granted the Motion forReconsideration after Justice Ynares-Santiago was promoted to the CAThe new judge ruled in favor of the Velardes, ordering them to pay the P1.8M and ordering Raymundo to executea deed of absolute sale and to surrender possession of the property

 Raymundo appealed to the CA, which ruled in favor of him, finding that:1.the nonpayment of the mortgage resulted in a breach of contract2.that the rescission of the contract was, therefore, justified3.that the letter giving new conditions was an attempt to novate, which requires a new agreementbetween the parties.ISSUES:I.W/N there was a Breach of Contract.HELD: YES. Velardes’ failure to perform their correlative obligation (payment of the balance of P1.8M) resulted in abreach.Petitioners allege that disapproval of their application to assume obligation of the mortgageextinguished their obligation to pay the monthly amortizations, which then devolved uponRaymundo again.Failure to pay the mortgage would not have been a problem if they paid the balance of thepurchase price amounting to P1.8M, as agreed upon in the event the application is disapproved.Thus, when the application was disapproved, they should have proceeded to pay Raymundo thebalance of P1.8MThe breach was not the nonpayment of the mortgage, but the nonperformance of theirreciprocal obligation to pay the price under the contract of sale 

Their conditional offer to pay cannot take the place of actual payment that would discharge a buyer’s obligation under a contract of saleIn acontract of sale,seller obligates itself to transfer ownership and deliver a determinate thing,and thebuyer obligates itself to pay aprice certainin money or its equivalentWhen Raymundo executed theDSAM, his obligation has already been performed throughconstructive delivery, where prior physical delivery is not legally required.  Deed of Sale isdeemed equivalent to deliveryPetitioners did not only fail to perform their correlative obligation, they also tried to compelRaymundo to perform obligations beyond those stipulated in the contract before fulfilling theirown.II.W/N the breach was substantial enough to justify the rescission of the contract.HELD: YES. The Velardes, in failing to pay the purchase price under the contract of sale, violated the very essenceof reciprocity in the contract of sale.LEGAL BASIS:Article 1191 of the Civil Code:The power to rescind obligations is implied in reciprocal ones in case one of the obligorsshould not comply with what in incumbent upon him.The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages ineither case. He may also seek rescission even after he has chosen fulfillment, if the latter should become possibleSince it is established that the Velardes violated the reciprocity of the contract of sale, the right of rescission under Article 1191 was validly exercisedThis right is predicated on a breach of faithWhile it is true that they expressed their willingness to pay the price one month after it became due,this does not constitute faithful compliance of their reciprocal obligation, especially considering the “offer” was made conditional.Petitioners tried to invoke the cases of Song Fo,Zepeda v. CAandTan v. CAThe court held that the facts of this case are distinguishable from the other cases because thoseinvolved only delays of a few days and the buyers’ offers to pay were unconditional and accepted by thesellerIII.W/N the payments were forfeitedHELD: NO. Rescission requires mutual restitution.Since the breach consisted of the nonperformance of reciprocal obligation, and not a breach of themortgage contract, what applies are the Civil Code provisions and not the automatic rescission andforfeiture clause of the Undertaking.Rescission under the Civil Code required mutual restitution to bring back the parties to their originalsituations prior to the inception of the contractThe payments of P800T and monthly amortizations must be returned, lest one party enrich itself in theexpense of the other (Principle of Unjust Enrichment)This is becauseto rescind is to declare the contract void, to put an end to it as if it never was,and not merely to terminate it and release the parties from further obligations to each other.

SAN MIGUEL PROPERTIES PHILS., INC. v SPOUSES ALFREDO and GRACE HUANG, G. R. No. 137290, 31 July 2000

posted in land titles and deeds casesMendoza, J. delivered the decision of the Court.

Nature of the Case:     A petition for review for a decision of the Court of Appeals which reversed the decision of the RTC dismissing the complaint brought by the Huangs against San Miguel Properties for enforcement of a contract of sale.

Facts:   San Miguel Properties offered two parcels of land for sale and the offer was made to an agent of the respondents. An “earnest-deposit” of P1 million was offered by the respondents and was accepted by the petitioner’s authorized officer subject to certain terms.

Petitioner, through its executive officer, wrote the respondent’s lawyer that because ethe parties failed to agree on the terms and conditions of the sale despite the extension granted by the petitioner, the latter was returning the “earnest-deposit”.

The respondents demanded execution of a deed of sale covering the properties and attempted to return the “earnest-deposit” but petitioner refused on the ground that the option to purchase had already expired.

A complaint for specific performance was filed against the petitioner and the latter filed a motion to dismiss the complaint because the alleged “exclusive option” of the respondents lacked a consideration separate and distinct from the purchase price and was thus unenforceable; the complaint did not allege a cause of action because there was no “meeting of the mind” between the parties and therefore the contact of sale was not perfected.

The trial court granted the petitioner’s motion and dismissed the action. The respondents filed a motion for reconsideration but were denied by the trial court. The respondents elevated the matter to the Court of Appeals and the latter reversed the decision of the trial court and held that a valid contract of sale had been complied with.

Petitioner filed a motion for reconsideration but was denied.

Issue:   WON there was a perfected contract of sale between the parties

Ruling:            The decision of the appellate court was reversed and the respondents’ complaint was dismissed.

Ratio Decidendi:         It is not the giving of earnest money , but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale.

The P1 million “earnest-deposit” could not have been given as earnest money because at the time when petitioner accepted the terms of respondents’ offer, their contract had not yet been perfected. This is evident from the following conditions attached by respondents to their letter.The first condition for an option period of 30 days sufficiently shows that a sale was never perfected. As petitioner correctly points out, acceptance of this condition did not give rise to a perfected sale but merely to an option or an accepted unilateral promise on the part of respondents to buy the subject properties within 30 days from the date of acceptance of the offer. Such option giving respondents the exclusive right to buy the properties within the period agreed upon is separate and distinct from the contract of sale which the parties may enter. All that respondents had was just the option to buy the properties which privilege was not, however, exercised by them because there was a failure to agree on the terms of payment. No contract of sale may thus be enforced by respondents.

Even the option secured by respondents from petitioner was fatally defective. Under the second paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor only if the promise is supported by a distinct consideration. Consideration in an option contract may be anything of value, unlike in sale where it must be the price certain in money or its equivalent. There is no showing here of any consideration for the option. Lacking any proof of such consideration, the option is unenforceable.

Equally compelling as proof of the absence of a perfected sale is the second condition that, during the option period, the parties would negotiate the terms and conditions of the

purchase. The stages of a contract of sale are as follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof.In the present case, the parties never got past the negotiation stage. The alleged “indubitable evidence” of a perfected sale cited by the appellate court was nothing more than offers and counter-offers which did not amount to any final arrangement containing the essential elements of a contract of sale. While the parties already agreed on the real properties which were the objects of the sale and on the purchase price, the fact remains that they failed to arrive at mutually acceptable terms of payment, despite the 45-day extension given by petitioner.

 Atty. Gomez vs CA

Facts:

Atty. Gomez et al applied for registration of several lots before RTCSaid lots were involved in Government vs Abran case where SC declared ConsolacionGomez as the owner. Teodoro and Luis (Consolacion’s father and son) inherited the lots.When Teodoro died, Luis executed a Quitclaim in favor of the Gomezes.In 1981, RTC adjudicated the lots in favor of the Gomezes. Subsequently, RTC issued anorder directing the Chief of the General Land Registration Office to issue thecorresponding decrees of registration over the lots.In 1984, Perez, Chief of the Division of Original Registration, Land RegistrationCommission (now known as the National Land Titles and Deeds RegistrationAdministration), submitted a report to the RTC stating that the Lots were already covered by homestead patents issued in 1928 and 1929 and registered under the Land RegistrationAct. Perez then recommended that the 1981 order be set aside.The Gomezes opposed the report, pointing out that no opposition was raised by theBureau of Lands during the registration proceedings and the 1981 decision should beimplemented because it had long become final and executor.RTC then set aside its earlier decision.CA affirmed the new decision of RTC holding that 1) prior to the issuance of the decreeof registration, RTC Judge has still the power and control over the decision he rendered;2) The finality of an adjudication of land in a registration or cadastral case takes placeonly after the expiration of the one-year period after entry of the final decree ofregistrationGomez et al argued that 1) under Sec 30 and 32 of PD 1529, the 5 Aug 1981 decisionhaving become final, it may no longer be reopened, reviewed, much less, set aside;2) Perez has no alternative but to issue the decrees of registration because his duty is purely ministerial; 3)"the law of the case" is the decision in Gov’t v. Abran, which heldthat the lands adjudicated to Consolacion Gomez were not public lands thus, they could not have been acquired by holders of homestead titles as against them; 4) by sustaining the 5 Aug 1981 decision, the homestead title holders may still vindicate their rights by filing a separate civil action for cancellation of titles and for reconveyance in a court of ordinary civil jurisdiction

Issue: Would finality of the decision adjudicating the land to the Gomezes bar the RTC from setting it aside?Held:NO. Adjudication of land in a cadastral or land registration proceeding does not become final, in the sense of incontrovertibility, until after the expiration of 1 year after the entry of the final decree of registration. As long as a final decree has not been entered by theLand Registration Commission and the period of 1 year has not elapsed from date of entry of the decree, the title is not finally adjudicated and the decision in the registration proceeding continues to be under the control and sound discretion of the court renderingit. Duty of the land registration officials to issue the decree is NOT purely ministerial. Ifland registration officials are in doubt upon any point in relation to the preparation and issuance of the decree, it is their duty to refer the matter to the court. They act, in this respect, as officials of the court. The lots were not private lands of Consolacion Gomez when homestead patents were issued over them in 1928-1929.Gov’t vs. Abran, is not "the law of the case." It was promulgated only on 31 Dec 1931.The Gomezes can be the ones to vindicate their rights instead. If they are the true owner,they may bring an action to have the ownership or title to land judicially settled

 Regina Dizon et al v. CA and Overland Express Lines, Inc.G.R. No. 122544 January 28, 1999Martinez, J.FACTS:

Overland Express Lines, Inc. entered into a Contract of Lease with Option to Buy with petitionersinvolving a 1,755.80 square meter parcel of land situated at corner

MacArthur Highway and South“H” Street, Diliman, Quezon City. The term of the lease was for 1 year commencing from May 16,1974 up to May 15, 1975. During this period, Overland Express Lines was granted an option topurchase for the amount of P3,000.00 per square meter. Thereafter, the lease shall be on a permonth basis with a monthly rental of P3,000.00.

For failure of Overland Express Lines to pay the increased rental of P8,000.00 per month effective June 1976, petitioners filed an action for ejectment against it. The lower court rendered judgmentordering Overland Express Lines to vacate the leased premises and to pay the sum of P624,000.00representing rentals in arrears and/or as damages in the form of reasonable compensation for theuse and occupation of the premises during the period of illegal detainer from June 1976 to November1982 at the monthly rental of P8,000.00, less payments made, plus 12% interest per annum fromNovember 18, 1976, the date of filing of the complaint, until fully paid, the sum of P8,000.00 amonth starting December 1982, until Overland Express Lines fully vacates the premises, and to payP20,000.00 as and by way of attorney’s fees.

ISSUE:WON Over land  Express   L ines  ac tua l l y  pa id   the  a l l eged  P300 ,000 .00   to  F ide la  D i zon ,as representative (agent) of petitioners in consideration of the optionHELD:No.CA opined that the payment by Overland Express Lines of P300,000.00 as partial payment for theleased property, which petitioners accepted (through Alice A. Dizon) and for which an official receiptwas issued, was the operative act that gave rise to a perfected contract of sale, and that for failureof petitioners to deny receipt thereof, Overland Express Lines can therefore assume that Alice A.Dizon, acting as agent of petitioners, was authorized by them to receive the money in their behalf.CA went further by stating that in fact, what was entered into was a “conditional contract of sale”wherein ownership over the leased property shall not pass to the Overland Express Lines until it hasfully paid the purchase price. Since Overland Express Lines did not consign to the court the balanceof the purchase price and continued to occupy the subject premises, it had the obligation to pay theamount of P1,700.00 in monthly rentals until full payment of the purchase price.

In an attempt to resurrect the lapsed option, Overland Express Lines gave P300,000.00 to petitioners(thru Alice A. Dizon) on the erroneous presumption that the said amount tendered would constitute aperfected contract of sale pursuant to the contract of lease with option to buy. There was no validconsent by the petitioners (as co-owners of the leased premises) on the supposed sale entered intoby Alice A. Dizon, as petitioners’ alleged agent, and Overland Express Lines. The basis for agency isrepresentation and a person dealing with an agent is put upon inquiry and must discover upon hisperil the authority of the agent. As provided in Article 1868 of the New Civil Code, there was noshowing that petitioners consented to the act of Alice A. Dizon nor authorized her to act on theirbehalf with regard to her transaction with private respondent. The most prudent thing privaterespondent should have done was to ascertain the extent of the authority of Alice A. Dizon. Beingnegligent in this regard, private respondent cannot seek relief on the basis of a supposed agency.

Every  pe rson dea l i ng  w i th  an  agent   i s   pu t  upon   inqu i ry and  mus t  d i scover  upon  h i s  pe r i l   t heauthority of the agent. If he does not make such inquiry, he is chargeable with knowledge of theagent’s authority, and his ignorance of that authority will not be any excuse. Persons dealing with anassumed agency, whether the assumed agency be a general or special one, are bound at their peril,if they would hold the principal, to ascertain not only the fact of the agency but also the nature andextent of the authority, and in case either is controverted, the burden of proof is upon them toestablish it