PAGTALUNAN VS DELA CRUZ

July 1974 Contract to Sell between Patricio Pagtalunan and wife of Teodoro Manzano
House and Lot costing 17,800 (P1500 as DP and P150 as monthly installment)
Immediate occupation; extrajudicial rescission in case of default after 90 days from due date of the
monthly installment; payments and improvements are considered as rentals and payment for
damages suffered; leave the premises peacefully
Dec 1979 respondent stopped paying the installments without explanation. Only 12,950 has been paid
Petitioner asserted that she became a lessee by reason of her default and she continued to possess
the property by mere tolerance of Patricio and the petitioner
1980 respondent claimed that she was paying religiously until she was informed by Patricio that hes no longer
interested in continuing the contract (refund + recover possession); agreement to suspend the payment period but
there was harassment through demolition
Feb 1997 letter to vacate which she ignored
April 1987 complaint for unlawful detainer which the MTC granted in favor of the petitioner
The MTC held that respondents failure to pay not a few installments caused the resolution or
termination of the Contract to Sell. The last payment made by respondent was on January 9, 1980
(Exh. 71). Thereafter, respondents right of possession ipso facto ceased to be a legal right, and
became possession by mere tolerance of Patricio and his successors-in-interest. Said tolerance ceased
upon demand on respondent to vacate the property.
June 1999 RTC reversed MTC decision. According to the RTC, the agreement could not be automatically
rescinded since there was delivery to the buyer. A judicial determination of rescission must be secured by
petitioner as a condition precedent to convert the possession de facto of respondent from lawful to unlawful.
CA affirmed RTC decision but applied Maceda Law (RA 6552). The CA held that the Contract to Sell was not validly
cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552, and recognized respondents right to continue occupying
unmolested the property subject of the contract to sell.
ISSUE: W/N Maceda Law is applicable? W/N there is a valid rescission?

Yes. The CA correctly ruled that R.A No. 6552, which governs sales of real estate on installment, is applicable in the
resolution of this case. This case originated as an action for unlawful detainer. Respondent is alleged to be illegally
withholding possession of the subject property after the termination of the Contract to Sell between Patricio and
respondent. It is, therefore, incumbent upon petitioner to prove that the Contract to Sell had been cancelled in
accordance with R.A. No. 6552. The Maceda Law recognizes the right of the seller to cancel the contract upon
non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to
convey title from acquiring binding force. The Court agrees with petitioner that the cancellation of the Contract to
Sell may be done outside the court particularly when the buyer agrees to such cancellation. However, such
cancellation must be done in accordance with the law.
Where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in
the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him,
which is hereby fixed at the rate of one month grace period for every one year of installment payments made:
Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its
extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the
property equivalent to fifty percent of the total payments made and, after five years of installments, an additional
five percent every year but not to exceed ninety percent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation
or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to
9
the buyer.

Petitioner claimed that there was full compliance with the law to warrant the rescission since the demand letter
made by his counsel is the notice of cancellation by notarial act which the law speaks of. As for the refund, he
already appropriated the payments as rentals.

DIEGO VS DIEGO

1993 Nicolas and Rodolfo (oral contract to sell Nicolas share as co-owner of the familys building), 250k as DP
It was agreed that the deed of sale shall be executed upon payment of the remaining balance of P250,000.00.
However, Rodolfo failed to pay the remaining balance.
Family building was leased out to third parties but the share of Nicolas was not given to him by his brother
Eduardo, the administrator of the bldg. Instead, Eduardo gave Nicolass monthly share in the rents to Rodolfo.
Despite demands and protestations by Nicolas, Rodolfo and Eduardo failed to render an accounting and remit his
share in the rents and fruits of the building, and Eduardo continued to hand them over to Rodolfo.
1997 Nicolas filed a complaint before the RTC against his two brothers; to render an accounting of all
transactions; and to give his corresponding share in the earnings
-They argued that Nicolas had no more claim in the rents in the Diego Building since he had already sold
his share to Rodolfo. Rodolfo admitted having remitted only P250,000.00 to Nicolas. He asserted that he would
pay the balance of the purchase price to Nicolas only after the latter shall have executed a deed of absolute sale.
-RTC rendered a decision in favor of the defendants ordering Nicolas to execute a deed of absolute sale in
favor of Rodolfo upon payment by the latter of the P250,000.00 balance of the agreed purchase price. The
contract of sale was already perfected as early as the year 1993 when plaintiff received the partial payment,
hence, he cannot unilaterally revoke or rescind the same. From then on, plaintiff has, therefore, ceased to be a coowner of the building and is no longer entitled to the fruits of the Diego Building.
CA decision affirmed the RTC decision in toto. The CA then proceeded to rule that since no period was stipulated
within which Rodolfo shall deliver the balance of the purchase price, it was incumbent upon Nicolas to have filed a
civil case to fix the same. But because he failed to do so, Rodolfo cannot be considered to be in delay or default.
Nicolas remaining right is to demand payment of the balance of the purchase price, provided that he first executes
a deed of absolute sale in favor of Rodolfo.
ISSUE: W/N there was a perfected contract of sale? W/N rescission under Art 1191 is applicable?
Yes. It is a settled jurisprudence that "[w]here the vendor promises to execute a deed of absolute sale upon the
completion by the vendee of the payment of the price, the contract is only a contract to sell. The aforecited
stipulation shows that the vendors reserved title to the subject property until full payment of the purchase price.
The full payment of the purchase price partakes of a suspensive condition, the nonfulfillment of which prevents
the obligation to sell from arising and thus, ownership is retained by the prospective seller without further
remedies by the prospective buyer. It does not, by itself, transfer ownership to the buyer.
The acknowledgement receipt signed by Nicolas as well as the contemporaneous acts of the parties show that they
agreed on a contract to sell, not of sale. The absence of a formal deed of conveyance is indicative of a contract to
sell.
No. This is because there was no rescission to speak of in the first place. As we earlier pointed out, in a contract to
sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. Thus,
in a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price
agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to
convey title from acquiring an obligatory force. This is entirely different from the situation in a contract of sale,
where non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a
contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the contract of sale is
rescinded and set aside. In a contract to sell, however, the vendor remains the owner for as long as the vendee has
not complied fully with the condition of paying the purchase price. If the vendor should eject the vendee for failure
to meet the condition precedent, he is enforcing the contract and not rescinding it.
The breach contemplated in Article 1191 is the obligors failure to comply with an obligation already existing,
not a failure of a condition to render binding that obligation. There can be no breach of a non-existent
obligation, which will give rise to rescission, considering that the suspensive condition has not yet happened.
The non-fulfillment of the condition is not even a breach but merely an event which prevents the vendors
obligation to convey title from acquiring binding force.
The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of
faith by the other party who violates the reciprocity between them. When the obligor cannot comply with what
is incumbent upon him, the obligee may seek rescission and in the absence of any just cause for the court to
determine the period of compliance, the court shall decree rescission.

GOTESCO PROPERTY VS EUGENIO

January of 1995 spouses Eugenio and Fajardo entered to a contract to sell with petitioner corporation involving a
parcel of land for 126k to be paid in 10 years.
Agreement to execute a final deed of sale once the purchase price has been fully paid
January 2000 No deed of sale despite full payment and numerous demands to transfer possession of the lot
May 2006 private respondents filed a complaint for specific performance or rescission with damages against the
corporation and its board of directors. (House and Land Use Regulatory Board expanded NCR filed office)
-

No improvements (water and lighting facilities) on the subdivision project, no boundary marks for the
subdivision lots, and the mother title of the lot was levied upon by the BSP w/o their knowledge
They thus prayed that GPI be ordered to execute the deed, to deliver the corresponding certificate of
title and the physical possession of the subject lot within a reasonable period, and to develop
Evergreen Executive Village; or in the alternative, to cancel and/or rescind the contract and refund
the total payments made plus legal interest starting January 2000.

Petitoners claim respondents knew beforehand that there was no technical description of the subject lot but
there was no enucmbrances on the mother title. The failure to deliver was beyond their control because while the
RTC approved of the inscription of the technical description, it was nevertheless reversed by the CA. This caused
the delay in the subdivision of the property into individual lots with individual titles.
Given the foregoing incidents, petitioners thus argued that Article 1191 of the Civil Code (Code) the
provision on which Sps. Fajardo anchor their right of rescission remained inapplicable since they were actually
willing to comply with their obligation but were only prevented from doing so due to circumstances beyond their
control.
Ruling of the administrative body in favor of the respondents. The obligation to deliver and to execute the deed
of sale had already become due and demandable from the time the purchase price has been fully paid.
Consequently, GPIs failure to meet the said obligation constituted a substantial breach of the contract which
perforce warranted its rescission.

Board of Commissioners of the administrative body and office of the president affirmed the decision of HLURBENCRFO. Violation of sec 25 of PD 957 = failure to deliver the title warranted the refund of payments to the buyer
CA ruling affirmed the ruling of the admin bodies with modifications fixing the amount to be refunded at the
prevailing market value of the property
ISSUE: W/N rescission under 1191 is proper?
Yes. It is settled that in a contract to sell, the seller's obligation to deliver the corresponding certificates of title is
simultaneous and reciprocal to the buyer's full payment of the purchase price. In this relation, Section 25 of PD
957, which regulates the subject transaction, imposes on the subdivision owner or developer the obligation to
cause the transfer of the corresponding certificate of title to the buyer upon full payment
In the present case, Sps. Fajardo claim that GPI breached the contract due to its failure to execute the deed of sale
and to deliver the title and possession over the subject lot, notwithstanding the full payment of the purchase price
made by Sps. Fajardo on January 17, 200021 as well as the latters demand for GPI to comply with the
aforementioned obligations per the letter22 dated September 16, 2002.
At this juncture, it is noteworthy to point out that rescission does not merely terminate the contract and release
the parties from further obligations to each other, but abrogates the contract from its inception and restores the
parties to their original positions as if no contract has been made. Consequently, mutual restitution, which entails
the return of the benefits that each party may have received as a result of the contract, is thus required. This
means bringing the parties back to their original status prior to the inception of the contract.
It is definite that the value of the subject property already escalated after almost two decades from the time the
petitioner paid for it. Equity and justice dictate that the injured party should be paid the market value of the lot,
otherwise, the petitioner would enrich themselves at the expense of herein the buyers.

MAGLASANG VS NORTHWESTERN UNIVERSITY

June 2004 NWU (maritime-related courses) engaged the services of petitioner GL Enterprises to install a new
integrated bridge system in Laoag City. Obsolete IBS = Modern IBS that would comply with CHED standards and
also, with the standards of International Maritime Org.
The installation of an IBS, used as the students training laboratory, was required by the Commission on Higher
Education (CHED) before a school could offer maritime transportation programs.
First contract (installation of control systems) = P3.8M PP less 1M trade in value of the old IBS less 100k discount =
2.7M and Second contract (installation of simulation rooms) = 270k
Common to both contracts are the following provisions: (1) the IBS and its components must be compliant with the
IMO and CHED standard and with manuals for simulators/major equipment; (2) the contracts may be terminated if
one party commits a substantial breach of its undertaking; and (3) any dispute under the agreement shall first be
settled mutually between the parties, and if settlement is not obtained, resort shall be sought in the courts of law.
NWU paid 1M to GL Enterprises. Also, the latter already have in their possession the old IBS of NWU with a trade in
value of 1M and so, the remaining balance is 1.97M.
Upon installation, the technicians were stopped by the respondent. This is because the materials to be used are
substandard (old, no warranty certificates, did not meet IMO and CHED standards). Thus, Northwestern demanded
compliance with the agreement and suggested that GL Enterprises meet with the formers representatives to iron
out the situation.
Sept 2004 GL Enterprises filed a complaint for breach of contract praying for the sum of 1.97M, and various
damages. Petitioner alleged that Northwestern breached the contracts by ordering the work stoppage and thus
preventing the installation of the materials for the IBS.
Respondents answer the company failed to deliver materials in accordance with the specifications. And so, it
demanded rescission.
RTC both parties at fault. NWU unduly halted the operations even if the contracts called for a completed project
to be evaluated by CHED while GL Ent delivered substandard materials. (equitable principle of mutual fault)
Invoking the equitable principle that "each party must bear its own loss," the trial court treated the contracts as
impossible of performance without the fault of either party or as having been dissolved by mutual consent.
Consequently, it ordered mutual restitution, which would thereby restore the parties to their original positions.
CA both parties appealed but thee CA ruled in favor of NWU. The CA appreciated that since the parties
essentially sought to have an IBS compliant with the CHED and IMO standards, it was GL Enterprises delivery of
defective equipment that materially and substantially breached the contracts. Although the contracts
contemplated a completed project to be evaluated by CHED, Northwestern could not just sit idly by when it was
apparent that the components delivered were substandard. Mutual restitution ordered. (Art 1191 on rescission)
ISSUE: W/N there was substantial breach? And W/N Art 1191 is applicable?
Yes. Since the contracts do not provide for a definition of substantial breach that would terminate the rights and
obligations of the parties, we apply the definition found in our jurisprudence. This Court defined in Cannu v.
Galang13 that substantial, unlike slight or casual breaches of contract, are fundamental breaches that defeat the
object of the parties in entering into an agreement. The question of whether a breach of contract is substantial
depends upon the attending circumstances. The materials delivered were less likely to pass the CHED standards,
because the navigation system to be installed might not accurately point to the true north; and the steering wheel
delivered was one that came from an automobile, instead of one used in ships. Logically, by no stretch of the
imagination could these form part of the most modern IBS compliant with the IMO and CHED standards.
Given that petitioner, without justification, supplied substandard components for the new IBS, it is thus clear that
its violation was not merely incidental, but directly related to the essence of the agreement pertaining to the
installation of an IBS compliant with the CHED and IMO standards, which is a constitutes a substantial breach. In
contrast, Northwesterns breach, if any, was characterized by the appellate court as slight or casual. By way of
negative definition, a breach is considered casual if it does not fundamentally defeat the object of the parties in
entering into an agreement. Furthermore, for there to be a breach to begin with, there must be a "failure, without
legal excuse, to perform any promise which forms the whole or part of the contract.

OPTIMUM DEVT BANK VS JOVELLANOS

April 2005 Spouses Jovellano entered into a contract to sell with Palmera Homes which involves a residential
house and lot for P1,015,000.
-took possession upon dp of 91.5k. undertake to pay 13,017 equal monthly installments for 10 years from
june 2005
August 2006 Palmera Homes assigned its rights, title and interest in the CTS in favor of the petitioner Optimum
Devt bank through a Deed of Assgnment. The bank issued a notice of delinquency and cancellation of the contract
to sell for the spouses because of the failure to pay the monthly installments despite the written and verbal
notices.
-issued a final demand letter to vacate and deliver the possession of the subject property but this was
unheeded.
Nov 2006 Optimum Bank filed a complaint for unlawful detainer before the MeTC. The decision favored the ban
by ordering the Jovellanos to vacate the premises as well as to pay a reasonable compensation for its use and
occupation. It held that Sps. Jovellanoss possession of the said property was by virtue of a Contract to Sell which
had already been cancelled for non-payment of the stipulated monthly installment payments. As such, their "rights
of possession over the subject property necessarily terminated or expired and hence, their continued possession
thereof constitute[d] unlawful detainer."
RTC appealed b/c the spouses were made to believe that a compromise agreement was being prepared (nonadmission of answer to the complaint) , MeTC jurisdiction was also questioned. The case did not merely involve
the issue of physical possession but rather, questions arising from their rights under a contract to sell which is a
matter that is incapable of pecuniary estimation and, therefore, within the jurisdiction of the RTC. RTC, however,
affirmed the decision of METC. The action does not involve the rights of the respective parties under the contract
but merely the recovery of possession by Optimum of the subject property after the spouses default.
CA - (a) the non-admission of their answer to the complaint; and (b) the jurisdiction of the MeTC over the
complaint for unlawful detainer
-Reversed RTC decision for lack of jurisdiction. It found that the controversy does not only involve the
issue of possession but also the validity of the cancellation of the Contract to Sell and the determination of the
rights of the parties thereunder as well as the governing law, among others, RA 6552.
ISSUE: W/N the METC ha jurisdiction? W/N there was a valid and effective cancellation of the Contract to Sell in
accordance with Section 4 of RA 6552?
The petition is meritorious. What is determinative of the nature of the action and the court with jurisdiction over it
are the allegations in the complaint and the character of the relief sought, not the defenses set up in an answer.
The authority granted to the MeTC to preliminarily resolve the issue of ownership to determine the issue of
possession ultimately allows it to interpret and enforce the contract or agreement between the plaintiff and the
defendant. To deny the MeTC jurisdiction over a complaint merely because the issue of possession requires the
interpretation of a contract will effectively rule out unlawful detainer as a remedy. As stated, in an action for
unlawful detainer, the defendants right to possess the property may be by virtue of a contract, express or implied;
corollarily, the termination of the defendants right to possess would be governed by the terms of the same
contract.
Interpretation of the contract between the plaintiff and the defendant is inevitable because it is the contract that
initially granted the defendant the right to possess the property; it is this same contract that the plaintiff
subsequently claims was violated or extinguished, terminating the defendants right to possess. The MeTCs ruling
on the rights of the parties based on its interpretation of their contract is, of course, not conclusive, but is merely
provisional and is binding only with respect to the issue of possession.
(2) Where he has paid less than two years in installments, Sec. 4. x x x the seller shall give the buyer a grace period
of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due
at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer
of the notice of cancellation or the demand for rescission of the contract by a notarial act.
Pertinently, since Sps. Jovellanos failed to pay their stipulated monthly installments as found by the MeTC, the
Court examines Optimums compliance with Section 4 of RA 6552, as above-quoted and highlighted, which is the
provision applicable to buyers who have paid less than two (2) years-worth of installments.

Essentially, the said provision provides for three (3) requisites before the seller may actually cancel the subject
contract: first, the seller shall give the buyer a 60-day grace period to be reckoned from the date the installment
became due; second, the seller must give the buyer a notice of cancellation/demand for rescission by notarial
act if the buyer fails to pay the installments due at the expiration of the said grace period; and third, the seller
may actually cancel the contract only after thirty (30) days from the buyers receipt of the said notice of
cancellation/demand for rescission by notarial act. In the present case, the 60-day grace period automatically
operated in favor of the buyers, Sps. Jovellanos, and took effect from the time that the maturity dates of the
installment payments lapsed. With the said grace period having expired bereft of any installment payment on the
part of Sps. Jovellanos, Optimum then issued a notarized Notice of Delinquency and Cancellation of Contract on
April 10, 2006. Finally, in proceeding with the actual cancellation of the contract to sell, Optimum gave Sps.
Jovellanos an additional thirty (30) days within which to settle their arrears and reinstate the contract, or sell or
assign their rights to another. . Essentially, the said provision provides for three (3) requisites before the seller may
actually cancel the subject contract: first, the seller shall give the buyer a 60-day grace period to be reckoned from
the date the installment became due; second, the seller must give the buyer a notice of cancellation/demand for
rescission by notarial act if the buyer fails to pay the installments due at the expiration of the said grace period;
and third, the seller may actually cancel the contract only after thirty (30) days from the buyers receipt of the said
notice of cancellation/demand for rescission by notarial act. In the present case, the 60-day grace period
automatically operated in favor of the buyers, Sps. Jovellanos, and took effect from the time that the maturity
dates of the installment payments lapsed. With the said grace period having expired bereft of any installment
payment on the part of Sps. Jovellanos, Optimum then issued a notarized Notice of Delinquency and Cancellation
of Contract on April 10, 2006. Finally, in proceeding with the actual cancellation of the contract to sell, Optimum
gave Sps. Jovellanos an additional thirty (30) days within which to settle their arrears and reinstate the contract, or
sell or assign their rights to another.
It was only after the expiration of the thirty day (30) period did Optimum treat the contract to sell as effectively
cancelled making as it did a final demand upon Sps. Jovellanos to vacate the subject property only on May 25,
2006. Thus, based on the foregoing, the Court finds that there was a valid and effective cancellation of the
Contract to Sell in accordance with Section 4 of RA 6552 and since Sps. Jovellanos had already lost their right to
retain possession of the subject property as a consequence of such cancellation, their refusal to vacate and turn
over possession to Optimum makes out a valid case for unlawful detainer as properly adjudged by the MeTC.