Cannu v. Galang
REITERATIONFacts
The Antecedents: Petitioners-spouses Cannu agreed to buy a house and lot from respondents-spouses Galang for P120,000.00, plus assumption of the mortgage with NHMFC and the second mortgage with CERF Realty. Petitioners paid P75,000.00 of the P120,000.00 to the Galangs and made payments to NHMFC totaling P55,312.47. A Deed of Sale with Assumption of Mortgage was executed, stating a consideration of P250,000.00 and assumption of the mortgage balance. Petitioners occupied the property. Despite demands to pay the P45,000.00 balance and to formally assume the mortgage with NHMFC (which was not approved), petitioners failed to fully comply. Respondent Fernandina Galang paid the full remaining mortgage loan of P233,957.64 to NHMFC. Petitioners opposed the release of the title, insisting they were the owners. Procedural History: Petitioners filed a Complaint for Specific Performance and Damages. The RTC dismissed the complaint, finding no cause of action and ordering the rescission of the Deed of Sale with Assumption of Mortgage, with mutual restitution and damages. The Court of Appeals affirmed with modification, ordering the Galangs to return P135,000.00 to the Cannus. Petitioners' motion for reconsideration was denied. The Petition: Petitioners seek review, arguing that their breach was not substantial, that there was substantial compliance with amortization payments, that the CA failed to consider circumstances against rescission, and that rescission is a subsidiary action.
Issue(s)
Whether the petitioners' breach of the obligation to pay the balance of the purchase price was substantial. Whether the petitioners substantially complied with their obligation to pay the monthly amortizations with NHMFC. Whether the respondents-spouses Galang waived their right to rescind the contract. Whether the action for rescission under Article 1191 of the Civil Code is subsidiary.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals with modification, ordering spouses Gil and Fernandina Galang to return the partial payments made by petitioners in the amount of P165,312.47. The Court declared the Deed of Sale with Assumption of Mortgage rescinded in favor of the respondents-spouses Galang.
Ratio Decidendi
On the substantiality of the breach: The Court held that the petitioners' failure to pay the remaining balance of P45,000.00 was a substantial breach. Even if considered as 18% of the supposed P250,000.00 consideration, this percentage is substantial. This, coupled with the fact that the last payment was made 18 months before respondent Galang paid off the mortgage, indicated a clear intention to renege on their obligation. The Court emphasized that rescission is not permitted for a slight or casual breach but only for breaches that are substantial and fundamental, defeating the object of the agreement. The tender of a Manager's Check after the filing of the case was deemed insufficient as it was not accompanied by consignation. On substantial compliance with amortization payments: The Court found that the petitioners were not religious in paying the amortizations with NHMFC, making only thirty payments over three years, which were insufficient to cover arrearages, interests, and penalties. Furthermore, there was no formal assumption of the mortgage obligation with NHMFC due to the lack of approval, stemming from the petitioners' non-submission of required documents. This constituted another breach of the Deed of Sale with Assumption of Mortgage. On waiver of the right to rescind: The Court disagreed with the petitioners' claim that the respondents-spouses Galang waived their right to rescind. The acceptance of installment payments by the attorney-in-fact was considered an accommodation due to petitioners' promises to pay. However, after a considerable lapse of time and non-payment, the respondents-spouses exercised their right of rescission by paying the outstanding balance. The Court distinguished this case from Angeles v. Calasanz, noting that in Angeles, the breach was slight and the buyer had paid more than the principal obligation, unlike the present case where a significant portion of the purchase price remained unpaid. On the subsidiary nature of rescission: The Court clarified that the subsidiary character of rescission under Article 1383 of the Civil Code applies only to contracts enumerated in Article 1381, which are rescinded due to economic prejudice or lesion. The rescission in this case, based on a breach of faith violating reciprocity, falls under Article 1191, which is a principal action and not subsidiary. The Court cited Universal Food Corp. v. Court of Appeals to distinguish between rescission under Article 1191 (principal, retaliatory) and rescission under Article 1381 (subsidiary, based on prejudice). The violation of reciprocity occurred when petitioners failed to pay the balance and update their amortizations.
Main Doctrine
Rescission of a contract under Article 1191 of the Civil Code is predicated on a breach of faith that violates the reciprocity between parties, and such rescission is a principal action, not subsidiary, unlike rescission under Article 1383 which is based on economic prejudice.