GR 101762; (July, 1993) (Digest)
G.R. No. 101762 July 6, 1993
VERMEN REALTY DEVELOPMENT CORPORATION, petitioner, vs. THE COURT OF APPEALS and SENECA HARDWARE CO., INC., respondents.
FACTS
On March 2, 1981, petitioner Vermen Realty and Development Corporation and private respondent Seneca Hardware Co., Inc. entered into an “Offsetting Agreement.” Under the agreement, Seneca Hardware would sell construction materials worth P552,000.00 to Vermen Realty. Vermen Realty would pay P276,000.00 in cash and the balance of P276,000.00 would be paid through the delivery of two residential condominium units (with a total area of 76.22 square meters) from the Vermen Pines Condominium Phase II. Pending completion of Phase II, Vermen Realty delivered possession of Phase I, Units 601 and 602, to Seneca Hardware. Seneca Hardware paid P110,151.75 in cash and delivered materials worth P219,727.00. In 1982, Vermen Realty repossessed Unit 602. In 1983, the loan for constructing Phase II was denied, and construction stopped permanently. Seneca Hardware filed a complaint for rescission of the agreement, alleging Vermen Realty stopped issuing purchase orders after April 1982, halting deliveries. Vermen Realty claimed Seneca Hardware failed to deliver ordered materials. The trial court dismissed the complaint and ordered Seneca Hardware to pay the balance for Unit 601. The Court of Appeals reversed, rescinded the agreement, and ordered Vermen Realty to return Unit 601 upon refunding Seneca Hardware, plus damages.
ISSUE
Whether the circumstances warrant the rescission (resolution) of the Offsetting Agreement.
RULING
Yes, rescission is warranted. The obligations under the agreement are reciprocal. Petitioner Vermen Realty committed a substantial breach. The stoppage of Phase II construction made it impossible for Vermen Realty to fulfill its obligation to give Seneca Hardware the option to transfer to Phase II units, a key consideration for entering the contract. Furthermore, the discontinuance of Seneca Hardware’s material deliveries resulted from Vermen Realty’s failure to issue purchase orders, which Vermen Realty failed to substantiate. The impossibility of fulfillment on petitioner’s part constitutes a substantial breach justifying rescission under Article 1191 of the Civil Code. The petition was denied, and the Court of Appeals’ decision was affirmed.