GR 156627; (June, 2004) (Digest)
G.R. No. 156627 ; June 4, 2004
SPOUSES MANUEL and JOCELYN BARREDO, petitioners, vs. SPOUSES EUSTAQUIO and EMILDA LEAÑO, respondents.
FACTS
Petitioners Spouses Barredo sold a house and lot to respondents Spouses Leaño through a Conditional Deed of Sale with Assumption of Mortgage. The respondents paid the full purchase price of ₱200,000.00 and assumed the petitioners’ mortgage obligations with SSS and Apex. In 1989, the petitioners filed a complaint for rescission, alleging that the respondents failed to pay the mortgage amortizations, thereby prejudicing the petitioners’ credit standing. The respondents countered that they were current with Apex but were prevented from paying SSS upon the petitioners’ instructions.
The Regional Trial Court rescinded the contract, ruling that the assumption of mortgage was a substantial condition, the breach of which warranted rescission. The Court of Appeals reversed this decision, holding that the mortgage payments were merely collateral matters and that the respondents’ failure to pay did not constitute a fundamental breach justifying rescission.
ISSUE
Whether the respondents’ alleged failure to pay the mortgage amortizations constitutes a fundamental breach that justifies the rescission of the Conditional Deed of Sale.
RULING
The Supreme Court denied the petition and affirmed the Court of Appeals. Rescission is not permitted for a slight or casual breach; it requires a breach so substantial and fundamental as to defeat the object of the parties in entering into the agreement. The Court found that the principal object of the contract was the sale of the property, with the assumption of mortgage being an ancillary obligation. The respondents had fully paid the principal purchase price of ₱200,000.00. The petitioners, by their own actions, prevented the respondents from paying the SSS amortizations and subsequently settled all the loans themselves. This act of payment extinguished the very obligations the respondents were supposed to assume, thereby negating any substantial breach. The petitioners’ settlement of the loans, while potentially giving rise to a claim for reimbursement, did not constitute a fundamental failure of consideration that would void the entire contract of sale. The Court emphasized that rescission is a drastic remedy, and mutual restitution would be required, which the trial court failed to order. The respondents’ obligation was essentially converted into a monetary claim for the amounts advanced by the petitioners, not a ground for annulling the sale.