G.R. No. 80058 February 13, 1989
ERNESTO R. ANG and ROSALINDA ANG, petitioners, vs. THE COURT OF APPEALS and LEE CHUY REALTY CORP., respondents.

FACTS

Petitioners Ernesto and Rosalinda Ang owned three parcels of land in Quezon City. In December 1979, they negotiated a sale with respondent Lee Chuy Realty Corporation. The respondent issued a P50,000 check to the petitioners, transmitted with a receipt outlining the agreement’s terms. This receipt stipulated that the petitioners, as sellers, must clear the properties of all occupants and obstructions within December 1979 at their own expense. Upon completion of this clearing, the deed of sale would be executed, and the buyer would pay an additional sum. The petitioners encashed the check but returned a different, self-prepared receipt to the respondent, which notably omitted the specific deadline for clearing the property.
Subsequently, the petitioners failed to clear the properties of occupants. Instead, on January 12, 1980, they sent a letter demanding that the respondent pay the balance of the purchase price by January 24, 1980, threatening to cancel the agreement otherwise. The respondent replied, stating it had been ready to perform since December but the petitioners had not fulfilled their primary obligation to clear the land. The petitioners later sold the properties to a third party. The respondent then demanded a refund of the P50,000, and upon refusal, filed a complaint for its recovery.

ISSUE

Whether the petitioners’ failure to clear the subject properties of occupants constituted a breach of contract sufficient to warrant its resolution (rescission) in favor of the respondent.

RULING

Yes. The Supreme Court affirmed the Court of Appeals’ decision, ruling that the petitioners committed a fundamental breach that justified the resolution of the contract. The Court found that the obligation to clear the properties of occupants was a crucial and suspensive condition precedent to the respondent’s duty to pay the balance of the purchase price. The petitioners’ admitted failure to fulfill this obligation by the agreed period, or at any time, constituted a serious violation of the contract’s terms.
The legal logic rests on Article 1191 of the Civil Code, which allows a party to seek resolution of reciprocal obligations if the other is in breach. The breach must be substantial. Here, the petitioners’ non-performance was not minor; it prevented the transaction from proceeding, as the respondent could not be expected to pay for properties still occupied by others. The petitioners’ subsequent act of selling the properties to a third party confirmed their inability and unwillingness to perform, constituting another breach. Consequently, the respondent rightfully sought resolution. The effect of resolution is to restore the parties to their original positions. Therefore, the petitioners were ordered to refund the P50,000 down payment with legal interest from the date of extrajudicial demand. The petitioners’ own breach barred their counterclaim for damages.