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Velarde vs.

CA
July 11, 2001| Panganibal, J. | Effect: Mutual Restitution
PETITIONER: Sps. Mariano Velarde and Avelina Velarde
RESPONDENT: David Raymundo and George Raymundo
SUMMARY: The Raymundos executed a Deed of Sale with Assumption of Mortgage and, in relation to
this, the Velardes executed an Undertaking. BPI, the mortgage bank, denied the assumption of
mortgage. After this, the Velardes stopped paying the Raymundos debt with the bank. But aside from
stopping payment of the loan, the Velardes also stopped paying for the purchase price of the property.
This prompted the Raymundos to rescind the contract, which the Velardes contested because they
offered to pay the purchase price one month after it was due. The Court applied Article 1191 ruled that
despite such offer, the rescission was valid because the mere offer to pay or promise to pay does not
translate to an actual fulfillment of their obligation. Moreover, when they offered to pay, they also
imposed new conditions upon the Raymundos. As a result of rescission, the Court ruled that there should
be mutual restitution the Raymundos will have to return initial payment of the purchase price and the
mortgage payments to the Velardes, and the Velardes will have to return ownership of the land to the
Raymundos.
DOCTRINE: Rescission creates the obligation to return the object of the contract. It can be carried out
only when the one who demands rescission can return whatever he may be obliged to restore. To rescind
is to declare a contract void at its inception and to put an end to it as though it never was. It is not
merely to terminate it and release the parties from further obligations to each other, but to abrogate it
from the beginning and restore the parties to their relative positions as if no contract has been made.
FACTS
1. David Raymundo is the absolute and registered
owner of a parcel of land, together with a house
and other improvements thereon, located in
Dasmarinas Village, Makati. George Raymundo,
Davids father negotiated with Avelina and Mariano
Velarde for the sale of said propery, which was,
however, under lease.

non-payment to the mortgage bank constituted


non-performance of their obligation. This was
answered by the Velardes in a letter, through
counsel, stating that they were willing to pay the
balance provided that:

Raymundo will deliver actual possession of the


property to her for her immediate occupancy.
2. David and Avelina executed a Deed of Sale with
Assumption of Mortgage and an Undertaking. The
property was sold for P800,000. Avelina agreed to
assume the obligation of P1,800,000.

According to the deed and the undertaking,


Avelina would have to pay interests of the loan
until the approval of the assumption of
mortgage.

3. Pursuant to the agreement, the Velardes pid BPI


the monthly interest on the loan, secured by the
mortgage. Later, however, BPI advised them that
the Application for Assumption of Mortgage was not
approved. Thereafter, they did not make any further
payment.

4. The Raymundos informed the Velardes that their

Raymundo will cause the release of title and


mortgage from BPI and make the title available
and free from any liens and encumbrances.

Raymundo will execute an absolute deed of sale


in Avelinas favor free from any liens and
encumbrances.

5. The Raymundos sent a notarial notice of


cancellation/rescission of the intended sale of the
subject property due to the Velardes failure to
comply with the terms and conditions of the Deed
of Sale with Assumption of Mortgage and the
Undertaking.

6. The Velardes filed a complaint for specific


performance, nullity of cancellation, writ of
possession, and damages. Then Judge Consuelo

Ynares-Santiago dismissed their complaint. The


Velardes filed a Motion for Reconsideration.

7. Judge Ynares-Santiago was promoted to the CA,


so Judge Salvador Abad Santos was assigned to the
sala she vacated. Judge Abad Santos granted the
mr, and directed the parties to proceed with the
sale. He also instructed the Velardes to pay the
balance of P1.8 million to the Raymundos, who, in
turn, were ordered to execute a deed of absolute
sale and to surrender possession of the disputed
property.

8. The Raymundos appealed to the CA. The


appellate court set aside the order of Judge Abad
Santos, and reinstated the decision of Judge YnaresSantiago, dismissing the Velardes complaint. It
upheld the validity of the rescission.

of sale. In such contract, the seller obligates


himself to pay a price certain in money or its
equivalent. In this case, the Raymundos
already performed their obligation through the
execution of the Deed of Sale, which
effectively transferred ownership of the
property to Avelina Velarde through
constructive delivery. The Velardes, however,
did not perform their correlative obligation of
paying the contract price in the manner
agreed upon.

2. The Velardes claim that rescission was not


justified because they already signified their
willingness to pay the balance of the purchase price
only a little over a month from the time they were
notified of the disapproval of their application for
assumption of mortgage.

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. The breach contemplated in the said
provision is the obligors failure to comply with
an existing obligation. When the obligor
cannot comply with what is incumbent upon
it, 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 the rescission.

In this case, the Raymundos validly exercised


their right to rescind the contract, because of
the failure of the Velardes to comply with their
obligation to pay the balance of the purchase
price. Indubitably, the Velardes violated the
very essence of reciprocity in the contract of
sale.

The Velardes expressed their willingness to


pay the balance of the purchase price one
month after it became due, but such promise
was not equivalent to actual payment as
would constitute faithful compliance with their
reciprocal obligation. Moreover, the offer to
pay was conditioned upon the performance of
the Raymundos of additional burdens that
were not agreed upon in the original contract.

ISSUES:
1. W/N there was a breach of the contract - YES
2. W/N rescission was proper - YES

RULING: CA decision affirmed with modification


(only as to the amount).

RATIO:
1. The Velardes did not merely stop paying the
mortgage obligations; they also failed to pay the
balance of the purchase price. As admitted by both
parties, their agreement mandated that the
Velardes should pay the purchase price balance of
P1.8 million in case the request to assume the
mortgage would be disapproved. Thus, upon receipt
of banks disapproval of assumption of mortgage,
they should have paid the balance of P1.8 million.
Instead, they sent a letter offering to make such
payment only upon the fulfilment of certain
conditions not originally agreed upon in the
contract of sale.

Moreover, what was involved was a contract

3. Considering that the rescission of the contract is


based on Article 1191 of the Civil Code, mutual
restitution is required to bring back the parties to

their original situation prior to the inception of the


contract. Accordingly, the initial payment of
P800,000 and the corresponding mortgage
payments in the amounts of P27,225, P23,000 and

P23,925 (totaling P874,150.00) advanced by


petitioners should be returned by private
respondents, lest the latter unjustly enrich
themselves at the expense of the former.