AGUSTINA LIQUETTE TAN, PETITIONER, VS. COURT OF APPEALS AND SPS. MARIANO SINGSON AND VISITACION SINGSON, RESPONDENTS.

The instant petition for
review raises the main issue of whether the private respondents committed a
substantial breach of their obligation so as to warrant petitioner’s exercise
of her right to rescind the contract of sale under Article 1191 of the
Civil Code.

The antecedents of the
instant controversy had been summarized in the respondent court’s decision* as follows:

*           *           *

The evidence shows that defendants-appellants spouses (private
respondents herein) are the owners of a house and lot located at No. 34 Easter
Road, Baguio
City, and covered by T.C.T. No.
T-13826, which were then for sale.  On June 14, 1984, plaintiff-appellee together
with her agent went to see said spouses at their residence regarding the property.  After appellants had
shown appellee around the house and had conversation
about the encumbrances and/or liens on the property, the parties finally agreed
on the price of P1,800,000.00, with appellee to
advance earnest money of P200,000.00 to enable appellants to secure the
cancellation of the mortgage and lien annotated on the title of
the property and the balance of the price to be paid by appellee
on June 21, 1984.  Forthwith, appellee handed to appellants a check for
P200,000.00 and thereupon the parties
signed a receipt (Exh. A) in the following tenor:

*           *           *

In turn, appellants handed to appellee a xerox copy of the
title and other papers pertaining to the property as well as an inventory of
the furnishings of the house that are
included in the sale.  Three (3) days
thereafter, i.e., on June 17, 1984, appellee returned
to appellants’ house together with her daughter Corazon and one Ines, to ask for a reduction of the price to
P1,750,000.00 and appellants spouses agreed, and so another receipt
entitled “Agreement” (Exh. B) was signed by
the parties as follows:

*           *           *

The very same day that appellants received the earnest money of
P200,000.00, they started paying their mortgage loan with the Development Bank
of the Philippines (DBP) to clear
up the title of the subject
property.  On June 14, 1984, appellants paid the bank P30,000.00 per
receipt, Exhibit B; on June 18, 1984 another P50,000.00 (Exh.
4-c); on June 29, 1984, P20,000.00 (Exh.
4?D); and on July 5, 1984, P70,909.59 and another P19,886.60 (Exhs.
4-F and 4-G) in full payment of
the mortgage loan.  On July 9,
1984, the DBP
executed a cancellation of
mortgage, which was registered
with the Registry of Property of Baguio City in July 12,
1984.  Appellants also paid all the taxes due and in
arrears on the property.  It likewise
appears that appellants paid in full on July 17, 1984 the cost price of the 338 square meter lot
which was awarded to appellant Visitacion Singson per her townsite sale
application for said property.  And the
request of the City Sheriff of Baguio City to lift
the notice of levy in execution dated February
2, 1978 in Civil Case No. Q-10202, Pio S.
Acampado, et al. v. Mariano D. Singson,
et al., was duly annotated on
the back of TCT No. T-13826 on August
2, 1979.

On June 25, 1984,
appellee accompanied by her daughter Corazon and her
lawyer.  Atty. Vicente Quitoriano, went to
Baguio
City to inquire about the status of
the property and appellants told her that the Development Bank of the Philippines
was taking some time processing their payments and preparing the deed of
cancellation of the mortgage.  On that
occasion, the parties agreed on an extension of two (2) weeks for the execution
of the deed of sale.  Here, the parties’
respective versions on the matter parted ways. 
According to appellants, it was appellee who asked for the extension because she was not
yet ready to pay the balance of P1,550,000.00. 
On the other hand, appellee said that it was
appellants who asked for it because the title of the property was not yet cleared.  The court below believed appellee
because on said date the Development Bank had not yet executed the deed of
cancellation of mortgage, and no title has yet been issued for the driveway
although already fully paid for.

Immediately, upon execution by the DBP of the deed of cancellation
of mortgage of July 9, 1984,
appellants tried to contact appellee and/or her
daughter Corazon to come to Baguio
City for the formal execution of
the deed of sale, but to no avail. 
Instead, appellants received a telegram from Atty. Quitoriano cancelling the
sale and demanding the return of the P200,000.00 earnest money.  Appellants
countered with a letter of their
lawyer.  Atty. Tiofisto
Rodes, calling on appellee
to perform her part of the contract because “the title to the house and
lot right now suffers no imperfection or doubt. 
The levy on execution has long been lifted, the mortgage indebtedness
released, the portion of the public land used as driveway has long been awarded and fully paid for the City
of Baguio.  In short, the title can now be
transferred in your name upon execution of the contract of sale. .  Your refusal will compel Us to sue for
specific performance. . .”

Before appellants could make good their threat, appellee
“jumped the gun”, so to speak, upon them by filing in court on August 27, 1984 the case for recovery
of sum of money with damages which is now this case on appeal before Us.

In her complaint, appellee alleged that
she gave appellants spouses P200,000.00 upon their assurances that they could
transfer to her the house and lot she was buying from them free from any liens
and encumbrances, including the furnishings thereof and the adjacent lot being
used as driveway, on June 25, 1984, but that day had come and passed without
appellants being able to make good their promise, because she “discovered
to her shock and dismay that she had been dealt with in bad faith by
defendants” as the mortgage on the property was not released or cancelled and the driveway was still public
land and could not be validly transferred to her as any disposition thereof
would yet require approval by the Secretary of Agriculture and Natural
Resources.  Hence, the suit against appellants spouses for
recovery of the P200,000.00 earnest money which is, in essence and concept, one
for rescission with damages.

*           *           *

[CA Decision, pp. 1-6; Rollo, pp. 53-57.]

The Regional Trial Court which took cognizance of Civil Case No.
3709-V filed by petitioner Agustina Liquette Tan rendered a decision disposing of the case as
follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and
against defendants:

(1)  Ordering the rescission
of the contracts entered into by and
between plaintiff and the defendants, which are embodied in Exhs.
“A” or “1” and “B” or “2”;

(2)  Ordering the defendants,
spouses Mariano Singson and Visitacion
Singson to return to plaintiff the P200,000.00
earnest money given by her to defendants:

(3)  Ordering the defendants
to pay plaintiff interest at the rate of 12% per annum on the P200,000.00 from
the filing of the complaint until fully
paid:

(4)  Ordering the defendant
(sic) to pay plaintiff moral damages in the sum of P50,000.00;

(5)  Ordering the defendants
to pay plaintiff the amount of P20,000.00 as attorney’s fees; and

(6)  Ordering the defendants to pay the costs of
this suit.

SO ORDERED.  [Rollo, pp. 49-50.]

Private respondents interposed an appeal from said decision
alleging that the trial court erred

I.     .
. . in considering the consent of appellee to the
agreement was vitiated by fraud.

II.    .
. . in resolving in favor of the appellee the sole
right of rescission.

III.   .
. . in considering the adjacent lot as part of the sale agreed upon by the
parties.

IV.   .
. . in deciding the case in favor of the appellee
and awarding damages.

On August 24, 1987,
the respondent Court of Appeals promulgated a decision reversing that of the trial court, the decretal portion of which reads as follows:

WHEREFORE, the appealed decision is REVERSED and SET ASIDE and a
new one is hereby entered ordering immediately upon the finality of this
judgment appellants spouses to execute and sign an absolute deed of sale
conveying to appellee free from any lien or
encumbrance the house and lot covered by T.C.T.
No. 13826 of the Registry of Deeds of Baguio City
together with the furnishings and appliances listed in Exhibit C and the
adjacent lot used as driveway covered by the Order of Award.  Exhibit E-3 and appellee
to pay appellants spouses the sum of P1,550,000.00 plus interest at the legal
rate from the finality of this
judgment until fully paid.

SO ORDERED.  (Rollo, p. 61.)

Petitioners filed the instant petition for review on certiorari
assailing the conclusion of the respondent Court of Appeals that the private
respondents had not committed a substantial breach of their obligation and
therefore, there was no legal basis for the judgment ordering rescission of the
contract.  Petitioners maintain that
since private respondents were not prepared to convey the title to the subject
property on the date agreed upon in view of the various liens and encumbrances
thereon, the former are entitled to rescind the contract pursuant to Article
1191 of the Civil Code which states:

Art. 1191.  The power to
rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either case.  He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles 1385 and 1388
and the Mortgage Law.

After a thorough examination of the allegations contained in the
parties’ pleadings, the Court finds the instant
petition to be devoid of any merit.

That the power to rescind obligations is implied in reciprocal
ones in case one of the obligors should not comply with what is incumbent upon him is clear from a reading
of the Civil Code provisions.  However,
it is equally settled that, in the absence of a stipulation to the contrary,
this power must be invoked judicially; it cannot be exercised solely on a
party’s own judgment that the other has committed a breach of the obligation.  Where there is nothing in the contract empowering the petitioner to rescind
it without resort to the courts, the petitioners action in unilaterally
terminating the contract in this case is
unjustified [Philippine Amusement Enterprises, Inc. v. Natividad,
G.R. No. L-21876.  September 29, 1967, 21 SCRA 284.]

In this case, petitioner received on July 17, 1984 through her daughter Cora Tan Singson, a telegram from private respondent Visitacion Singson advising the
former that the papers for the
sale of the property are ready for final execution.  The parties likewise met on June 25, 1984, the day agreed upon
for the full payment of the purchase price, and they agreed on a further
extension of two weeks for the execution of the deed sale.  Despite this agreement, private respondents
suddenly received a telegram from Atty. Quitoriano,
counsel for the petitioner, unilaterally stopping the sale and demanding the
return of the earnest money paid by petitioner [Exhibit “9”, Original
Records, p. 99.]

Petitioner, in rescinding the sale, claims that a substantial
breach of the obligation has been committed by the private respondents as
indicated by the following facts proved to be existing as of the date agreed
upon for the consummation of the sale:

1.  That no title has yet
been issued by the Registry Of Deeds of the City of Baguio
in the name of either of the respondents in
connection with the 338-square meter lot where the driveway is located;

2.  That the private
respondents have not paid in full the total consideration for the said lot to
the City of Baguio because they were able to complete
the payment of the purchase price only on July 17, 1984 as found out by the
respondent court in its decision (Please see page 8 of the Court of Appeals’
decision, Annex “B”);

3.  That private respondents
have not acquired the “previous consent of the Secretary of Natural
Resources” for the said transfer to the petitioner as required by the
award;

4.  That the restrictions
indicated in the AWARD makes whatever conveyance to be made by the awardee of the lot within the prohibited period as null and
void and could cause the forfeiture of
all the payments already made as
well as the improvements introduced therein;

5.  That there are still
liens and encumbrances insofar as TCT No. T-13826 consisting of a mortgage with
the DBP and a notice of Levy and Writ
of Execution.  [Rollo,
pp. 14-15.]

Alternatively, petitioner seeks annulment of the contract on the
ground of fraud since private respondents had misrepresented to her that they
could validly convey title to the property subject of the contract which
however is encumbered with various existing liens.

1. The alleged breach of the obligation by the private respondents,
which consists in a mere delay for a few days in clearing the title to the
property, cannot be considered substantial enough to warrant rescission of the
contract.

A thorough review of the records clearly indicates that private
respondents had substantially complied with their undertaking of clearing the
title to the property which has a total land area of 886 square meters.  It must be pointed out that the subject lot
consists of private land, with an area of 548 square meters, covered by TCT No.
T-13826 and of a portion of the public land which has been awarded to the
private respondents under Townsite Sales Application
No. 7-676-A.  While TCT No. T-13826 was
subject to a mortgage in favor
of DBP, private respondents, upon receipt of the earnest money paid by
petitioner, utilized the same to settle its obligations with DBP thus enabling them to secure a cancellation of the existing
mortgage, which was duly noted in the title to the property [See Original Records, p. 94.]

It is a settled principle of law that rescission will not be
permitted for a slight or casual breach of the contract but only for such
breaches as are so substantial and fundamental as to defeat the object of the
parties in making the agreement (Universal
Food Corporation v. Court of Appeals. 
G.R. No. L-29155, May 13, 1970, 33 SCRA 1; Philippine Amusement
Enterprises, Inc. v. Natividad, supra; Roque v. Lapuz, G.R. No. L-32811, March 31, 1980, 96 SCRA
741.] A court, in determining whether rescission is warranted, must exercise its
discretion judiciously considering that the question of whether a breach of a
contract is substantial depends upon the attendant circumstances [Corpus v. Alikpala, et al., G.R. Nos. L-23720 and
L-23707, January 17, 1968,
22 SCRA 104.]

In this case, as to the lot covered by TCT No. T-13826, it is
true that as of June 25, 1984,
the date set for the execution of the final deed of sale, the mortgage lien in
favor of DBP annotated in the title has not yet been cancelled as it took DBP
some time in processing the papers relative thereto.  However, just a few days after, or on July 12, 1984, the cancellation of
the DBP mortgage was entered by the Register of Deeds and duly noted on the
title.  Time not being of the essence in
the agreement, a slight delay on the part of the private respondents in the
performance of their obligation, is not sufficient ground for the resolution of
the agreement [Biando and Espanto
v. Embestro and Bardaje,
105 Phil. 1164 (1959)], more so when the delay was not totally attributable to
them.

As to the notice of levy and execution annotated on TCT No.
T-13826, a request to lift the same had already been filed with the Register of
Deeds and duly noted on the title [Original Records, p. 95.] The fact that said
notice had not yet been cancelled by the Register of Deeds as of June
25, 1984 cannot prejudice the
sellers who must be deemed to have substantially complied with their obligation. 
The rule in this jurisdiction is that where the fulfillment of the
condition (in a conditional obligation) does not depend on the will of the
obligor, but on that of a third person, the obligor’s part of the contract is
complied with, if he does all that is in his power and it then becomes
incumbent upon the other contracting party to comply with the terms of the contract [Article 1182, Civil Code; Smith
Bell and Co. v. Sotelo Matti,
44 Phil. 874 (1922).]

On the other hand, private respondents’ interest in the public
land used as a driveway can
likewise be conveyed to petitioner although
no title has yet been issued in the name of Visitacion
Singson.  Such
portion of the public land has long
been awarded to Singson in 1972 and payment of the
purchase price thereof has already been completed as of July 17, 1984. 
The fact that the consent of the Secretary of Agriculture and Natural
Resources to the sale of the property to petitioner has not yet been secured
cannot be considered a substantial breach of private respondents’ obligation
under the contract of sale.

In Juanico and Barredo
v. American Land Commercial Co., Inc., et
al. [97 Phil. 221 (1955)], this Court had ruled that the prior approval of the Secretary of Agriculture and Natural Resources is required only in cases of sale and
encumbrance of the public land during the pendency of
the application by the purchaser and before his compliance with the
requirements of the law.  Thus:

. . . But such approval becomes unnecessary
after the purchaser had complied with
all the requirements of the law, even
if the patent has not been actually
issued, for in that case the rights
of the purchaser are already deemed vested,
the issuance of the patent being a
mere ceremony.  Thus,
“the execution and delivery of the patent after the right to it has become complete, are the mere ministerial acts of
the officers charged with that duty”. . . .  And, as it has been held, “One who has done everything which is necessary
in order to entitle him to receive a patent for public land has, even before
the patent is actually issued by the land department, a complete acquitable estate in the land which he can sell and convey,
mortgage or lease.  A fortiori
a contract to convey land made before the issuance of a patent but after final
proof has been made and the land paid for is not illegal” . . .  [At 227; Underscoring supplied.]

Here, since the land in question had already been awarded to
private respondents since 1972 and all the requirements of the law for the
purchase of public land were subsequently complied with, private respondents,
as owners of said property, can properly convey title thereto to petitioner.

Inasmuch as the private respondents are ready, willing and able
to comply with their obligation to deliver title to the property subject of the
sale and had already demanded that petitioner pay the full amount of the purchase
price, the petitioner must be considered as having incurred in delay.  This conclusion is warranted by the clear
provision of Article 1169 of the Civil Code which states:

Art. 1169.  Those obliged to
deliver or to do something incur in delay from the time the obligee
judicially or extra-judicially demands from them the fulfillment of their
obligation.

*           *           *

In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him.  From the moment one
of the parties fulfills his obligation, delay by the other begins.

It is basic that the breach of a contract gives the aggrieved
party under the law and even under general principles of fairness, the right to
rescind the contract or to ask for specific performance (Nagarmull
v. Binalbagan-Isabela Sugar Co., Inc., G.R. No.
L-22470, May 28, 1970, 33
SCRA 46.] Petitioner having failed to comply with her obligation of paying the
balance of the purchase price despite demands by private respondents, private respondents were clearly
entitled to their counterclaim for specific performance, as correctly adjudged
by the respondent court.

2. The claim that petitioner’s consent to the contract was
vitiated by fraud and, therefore, the contract in question is voidable is patently unmeritorious.  The contract
of sale is not voidable where no evidence was shown
that through insidious words or machinations under Article 1338 of the Civil
Code, the seller had induced the buyer to enter into the contract [Caram v. Laureta, Jr., G.R. No.
L-28740, February 24, 1981, 103 SCRA 7.]

In this case, the
evidence on record fully supports the finding of the appellate court that private respondents did not represent to petitioner that
the house and lot they were selling
were free from liens and encumbrances. 
Rather, they told her that the property was mortgaged to the DBP which
was why they asked her to advance P200,000.00 as earnest money so that they could settle the mortgage
indebtedness and clear up the title (Rollo, p. 60.]
The testimony of petitioner herself shows that she was furnished with xerox copies of the title, at the back of which was a
memorandum of the encumbrances on the property [TSN, September 30, 1985, p. 4.]
Further, it is undisputed that at the time petitioner entered into the
agreement in question, she was accompanied by her daughter Corazon and one Maria Lorenzo whom she could have
asked to explain the particulars of the transaction that she could not
understand (Rollo, p. 61.]

One final point.  The
decision of the respondent Court of Appeals ordered execution by private
respondents of the absolute deed of sale conveying the subject property to
petitioner and payment by petitioner of the balance of the purchase price
immediately upon finality of such judgment. 
However, under the third paragraph of Article 1191 of the Civil Code the
Court is given a discretionary power to allow a period within which a person in
default may be permitted to perform
his obligation [Kapisanan Banahaw
v. Dejarme and Alvero, 55
Phil. 339 (1930).] Considering the huge amount of money involved in this sale,
the Court, in the exercise of its sound discretion, hereby fixes a period of
ninety (90) days within which petitioner shall pay the balance of the purchase
price amounting to one million and five hundred fifty thousand pesos
(P1,550,000.00) plus interest thereon at the legal rate from finality of this
judgment until fully paid.  After such
payment has been made, the private respondents are ordered to sign and execute
the necessary absolute deed of sale in favor of petitioner.

WHEREFORE, the assailed decision of the respondent Court
of Appeals granting the counterclaim for specific performance of herein private
respondents is hereby AFFIRMED with the MODIFICATION that the petitioner is
given a period of ninety (90) days within which to pay the sum of one million
and five hundred fifty thousand pesos (P1,550,000.00) representing the balance
of the purchase price, with interest thereon at the legal rate from the
finality of this judgment until fully paid. 
The private respondents are ordered to sign and execute the absolute
deed of sale after the petitioner has completed payment of the purchase price
and the interest thereon.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr.,
Feliciano, and Bidin,
JJ., concur.

* Penned by Justice Manuel T. Reyes and concurred in by Justices Oscar R.
Victoriano and Hector C. Fule.