G.R. No. 92171 ; March 13, 1991
SPOUSES ALFREDO E. GIMENEZ and PACITA GIMENEZ, petitioners, vs. THE HONORABLE COURT OF APPEALS and JOSE T. MERCADO, JR., respondents.

FACTS

On July 5, 1975, petitioners-spouses Gimenez and private respondent Jose T. Mercado, Jr. entered into a conditional contract of sale for a house and lot priced at P500,000. The buyer paid a P100,000 downpayment, with the P400,000 balance due within one year. The contract stipulated that failure to pay the full balance within the year would convert all payments into advance rentals at P5,000 per month. The buyer failed to pay the balance by July 5, 1976. The parties executed a supplemental agreement on September 7, 1977, giving Mercado until October 6, 1977 to pay the P370,000 balance plus interest, failing which he would vacate. Mercado again defaulted, making only sporadic partial payments thereafter.
By May 1980, after five years, Mercado had paid only P343,200, leaving an unpaid balance of P156,800. In September 1984, the sellers demanded payment of rental arrears and for Mercado to vacate. Upon his refusal, they filed an ejectment case. The trial court dismissed their subsequent action for annulment, ordering them to execute a deed of sale. The Court of Appeals affirmed with modification, ruling rescission was no longer available due to the sellers’ grant of extensions and acceptance of late payments.

ISSUE

Whether petitioners are entitled to rescind the conditional contract of sale under Article 1191 of the Civil Code due to private respondent’s breach.

RULING

Yes. The Supreme Court reversed the Court of Appeals and granted rescission. The legal logic is that the acceptance of late payments and grant of extensions, by themselves, do not constitute a waiver of the right to rescind upon subsequent default. The contract clearly provided for a one-year period to pay the balance, with a stipulated consequence of conversion to rental payments upon failure. Mercado repeatedly breached the contract, failing to pay within the original period, the extended period under the supplemental agreement, and subsequent extensions. His breaches were substantial and persisted for years, allowing him to occupy the property for over a decade without fulfilling his principal obligation.
The Court emphasized that requiring the sellers to execute a deed of absolute sale would unjustly penalize them for their forbearance and magnanimity in granting extensions, while rewarding the buyer’s chronic default. Under Article 1191, the injured party has a right to rescind a reciprocal obligation upon the other’s breach. Mercado’s failure to pay the purchase price within the stipulated and extended periods constituted a fundamental breach that entitled the Gimenez spouses to cancel the contract. The Court ordered Mercado to vacate the property and pay reasonable compensation for its use.