Tan v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioner Agustina Liquette Tan agreed to purchase a house and lot from private respondents Spouses Mariano and Visitacion Singson for P1,800,000.00, advancing P200,000.00 as earnest money. The earnest money was intended to enable the Singsons to cancel the mortgage and lien on the property. The balance was to be paid on June 21, 1984. Subsequently, the parties agreed to reduce the price to P1,750,000.00. The Singsons used the earnest money to pay off their mortgage with the Development Bank of the Philippines (DBP) and other obligations related to the property, including taxes and the purchase price of a lot used as a driveway. The DBP cancellation of mortgage was registered on July 12, 1984, and a request to lift a notice of levy on execution was annotated on August 2, 1979. On June 25, 1984, the parties agreed to a two-week extension for the execution of the deed of sale, with conflicting accounts on who requested the extension. Upon cancellation of the DBP mortgage, the Singsons attempted to contact Tan for the final execution of the deed of sale, but instead received a telegram from Tan's lawyer cancelling the sale and demanding the return of the earnest money. The Singsons' lawyer responded, asserting their readiness to transfer title and threatening suit for specific performance. Procedural History: Petitioner Tan filed a complaint for recovery of sum of money with damages, essentially seeking rescission of the contract and return of the earnest money, alleging bad faith and misrepresentation by the Singsons regarding the property's clear title. The Regional Trial Court (RTC) ruled in favor of Tan, ordering rescission, return of earnest money with interest, moral damages, attorney's fees, and costs. The Singsons appealed. The Court of Appeals (CA) reversed the RTC decision, ordering the Singsons to execute a deed of sale and Tan to pay the balance of the purchase price. The Petition: Petitioner Tan filed a petition for review on certiorari with the Supreme Court, assailing the CA's conclusion that the Singsons had not committed a substantial breach of their obligation, thereby denying her right to rescind the contract under Article 1191 of the Civil Code.
Issue(s)
Whether the private respondents committed a substantial breach of their obligation warranting rescission of the contract of sale under Article 1191 of the Civil Code. Whether the petitioner's consent to the contract was vitiated by fraud.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals with modification, ordering the petitioner to pay the balance of the purchase price within ninety (90) days from finality of the judgment, after which the private respondents shall execute the deed of sale.
Ratio Decidendi
On the issue of substantial breach and rescission: The Court held that rescission under Article 1191 of the Civil Code is not warranted for a slight or casual breach but only for breaches that are substantial and fundamental, defeating the object of the contract. In this case, the delay in clearing the title to the property, specifically the cancellation of the DBP mortgage and the lifting of the notice of levy, did not constitute a substantial breach. The cancellation of the mortgage was registered shortly after the agreed date, and the request to lift the levy had been filed. The delay was not entirely attributable to the respondents, and the essential object of the sale remained achievable. Furthermore, the conveyance of the driveway lot, though a portion of public land, was permissible as the awardee had complied with all legal requirements for purchase, even before the issuance of a formal patent. The Court reiterated that in reciprocal obligations, delay by one party begins only when the other party has fulfilled their obligation or is ready to do so. Since the respondents were ready to comply, the petitioner, by refusing to pay the balance, was the one in delay. On the issue of fraud: The Court found no merit in the claim that the petitioner's consent was vitiated by fraud. The evidence showed that the respondents disclosed the existence of the mortgage on the property and that the earnest money was to be used to clear it. The petitioner was furnished with a copy of the title, which indicated the encumbrances. Therefore, there was no misrepresentation or insidious machination that induced the petitioner to enter into the contract, as required by Article 1338 of the Civil Code. The petitioner's own testimony confirmed her awareness of the mortgage and her receipt of the title with annotations.
Main Doctrine
Rescission of a contract under Article 1191 of the Civil Code is not permitted for a slight or casual breach but only for breaches that are so substantial and fundamental as to defeat the object of the parties in making the agreement. A mere delay in clearing the title to a property, especially when the delay is not entirely attributable to the obligor and the essential object of the contract remains achievable, does not constitute a substantial breach warranting rescission. In reciprocal obligations, delay by one party begins only from the moment the other party fulfills their obligation or is ready to comply in a proper manner.