Del Castillo Vda. de Mistica v. Naguiat
REITERATIONFacts
The Antecedents: Eulalio Mistica, predecessor-in-interest of petitioner Fidela del Castillo Vda. de Mistica, owned a parcel of land. On April 5, 1979, Eulalio entered into a 'Kasulatan sa Pagbibilihan' (Contract to Sell) with respondent Bernardino Naguiat for a 200-square meter portion of the land for ₱20,000.00. Respondent paid ₱2,000.00 as downpayment and ₱1,000.00 on February 7, 1980. The remaining ₱18,000.00 was to be paid within ten years, with a stipulation for 12% annual interest if payment was not made within the agreed period. Eulalio Mistica died in October 1986. Respondent Naguiat alleged that he offered to pay the balance to petitioner in October 1986, but she refused. Respondent also claimed to have acquired the subject lot by virtue of a Free Patent Title. Procedural History: On December 4, 1991, petitioner filed a complaint for rescission, alleging breach of contract due to non-payment of the balance. She sought possession of the land, payment of rentals, and attorney's fees. Respondents contended that the contract could not be rescinded due to the stipulation on interest for delayed payment and that payment was refused when tendered. They also asserted ownership via Free Patent Title. The Regional Trial Court (RTC) dismissed the complaint, ordering respondents to pay the balance of ₱17,000.00 with 12% interest from April 5, 1989, and to return an extra 58 square meters included in their title. The Court of Appeals (CA) affirmed the RTC decision with modification, disallowing rescission and ordering payment for the extra 58 square meters instead of reconveyance. The Petition: Petitioner seeks to nullify the CA Decision and Resolution, arguing that the CA erred in disallowing rescission despite the lapse of the ten-year period and failure to pay, in ruling that rescission was no longer feasible due to the issuance of a certificate of title, and in holding that reconveyance of the extra 58 square meters was not proper.
Issue(s)
Whether the Court of Appeals erred in applying Article 1191 of the Civil Code by ruling that there was no breach of obligation despite the lapse of the stipulated period and the failure to pay. Whether the Court of Appeals erred in ruling that rescission of the contract is no longer feasible considering that a certificate of title had been issued in favor of the private respondents. Whether the Court of Appeals erred in ruling that since the 58 sq. m. portion in question is covered by a certificate of title in the names of private respondents, reconveyance is no longer feasible and proper.
Ruling
The Supreme Court affirmed the Court of Appeals' decision with modification, deleting the order for respondents to pay for the extra 58-square meter lot included in their title. The Court ruled that the failure to pay the balance within the ten-year period did not constitute a substantial breach warranting rescission, especially given the stipulation for interest on delayed payments and the refusal of tender of payment by the petitioner. The issuance of a certificate of title does not preclude equitable remedies, but reconveyance of the extra portion is not permissible in an action for rescission as it would constitute a collateral attack on the title.
Ratio Decidendi
On the First Issue (Rescission under Article 1191): The Court held that the failure of respondents to pay the balance of the purchase price within ten years from the execution of the Deed did not amount to a substantial breach that would justify rescission under Article 1191 of the Civil Code. The 'Kasulatan' stipulated that payment could be made even after ten years, provided the vendee paid 12% interest. The stipulations of the contract constitute the law between the parties, and courts must enforce them as agreed. Furthermore, the Court noted that neither Eulalio Mistica nor the petitioner made any demand for the balance within the ten-year period, and petitioner refused a tender of payment. The argument that the stipulation on interest converted the obligation into a purely potestative one, void under Article 1182, was rejected because the obligation was not dependent solely on the debtor's will, as evidenced by partial payments and the clear intent to be bound. On the Second Issue (Rescission and Certificate of Title): The Court clarified that the issuance of a certificate of title in favor of respondents does not determine the right to rescission. A certificate of title serves as evidence of ownership but does not create it. While a decree of registration is generally not subject to review after one year, equitable remedies exist for those wrongfully deprived of property. However, the CA correctly held that the propriety of the issuance of the title was not an issue determinable in the rescission proceedings. On the Third Issue (Reconveyance of Extra Portion): The Court agreed in principle that registration does not create title and that land erroneously included in a certificate of title should be reconveyed. However, Section 48 of PD 1529 prohibits collateral attacks on a certificate of title. Therefore, the cancellation or removal of the extra 58-square meter portion from respondents' title could not be ordered in an action for rescission, as this would constitute a collateral attack. The Court noted that an action for cancellation of patent and title and for reversion had already been filed by the State, making it unnecessary to pass upon the issue of reconveyance or payment for the extra lot in the present case.
Main Doctrine
The failure to pay the full purchase price stipulated in a deed of sale does not ipso facto grant the seller the right to rescind the agreement. Rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation, and not merely when the contract stipulates a penalty for delayed payment.