G.R. No. 130347 March 3, 1999
ABELARDO VALARAO, GLORIOSA VALARAO and CARLOS VALARAO, petitioners, vs. COURT OF APPEALS and MEDEN A. ARELLANO, respondents.

FACTS

Petitioners-spouses Valarao, through their son, entered into a Deed of Conditional Sale with private respondent Meden Arellano over a parcel of land. The contract stipulated a payment schedule and included a clause for automatic rescission and forfeiture of all payments made should the vendee fail to pay three successive monthly installments. Arellano had paid a substantial portion of the purchase price but failed to pay the installments for October and November 1990. She attempted to pay these, along with the December installment, on December 30 and 31, 1990, but the petitioners’ maid, acting on their orders, refused acceptance. Arellano sought barangay intervention and contacted petitioner Gloriosa Valarao, who directed her to their lawyer and refused further payments. Subsequently, Arellano filed a petition for consignation. On January 4, 1991, petitioners sent a letter declaring the contract automatically rescinded pursuant to its terms, demanding forfeiture of payments and improvements, and requiring Arellano to vacate or sign a lease.

ISSUE

Whether the Court of Appeals erred in reversing the trial court and ordering the execution of a final deed of sale upon payment of the balance, instead of upholding the automatic rescission and forfeiture clause in the Deed of Conditional Sale.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. The legal logic rests on two key principles. First, Article 1592 of the Civil Code, which requires a judicial or notarial demand for rescission in case of breach in a contract of sale, applies only to contracts of sale where ownership transfers to the buyer upon delivery. It does not apply to contracts to sell, like the Deed of Conditional Sale in this case, where ownership is reserved by the vendor until full payment of the price. Second, while automatic rescission clauses in contracts to sell are generally valid, the vendors have the burden of proving a contractual breach by the vendee to enforce forfeiture. Here, the vendee, Arellano, was not in default. Her failure to pay the October and November installments was cured by her valid tender of payment for those months and the December installment at the end of December 1990, which the petitioners unjustifiably refused. This refusal rendered the consignation proper and relieved Arellano of any liability for default. Consequently, the petitioners could not validly enforce the automatic rescission clause, as there was no breach to trigger it. The Court of Appeals correctly ordered Arellano to pay the remaining balance and the petitioners to execute a final deed of sale.