G.R. No. 137909; December 11, 2003
FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner, vs. Spouses BERNARDINO NAGUIAT and MARIA PAULINA GERONA-NAGUIAT, respondents.

FACTS

Eulalio Mistica, predecessor-in-interest of petitioner Fidela del Castillo Vda. de Mistica, entered into a “Kasulatan sa Pagbibilihan” (contract to sell) with respondent Bernardino Naguiat on April 5, 1979. The contract covered a 200-square-meter portion of Mistica’s land in Bulacan for ₱20,000. Naguiat paid a ₱2,000 downpayment and made a subsequent partial payment of ₱1,000 in 1980. The balance of ₱18,000 was payable within ten years from the contract date, with a stipulation that failure to pay within the period would obligate the buyer to pay 12% annual interest until full payment.
Naguiat failed to pay the remaining balance after 1980. Eulalio Mistica died in 1986. In 1991, petitioner, as Mistica’s heir, filed a complaint for rescission of the contract, arguing that respondents’ failure to pay the full price constituted a breach warranting rescission, and sought recovery of possession and payment of rentals.

ISSUE

Whether the petitioner has the right to rescind the contract to sell due to the respondents’ failure to pay the full purchase price within the stipulated ten-year period.

RULING

No, rescission is not warranted. The Supreme Court affirmed the Court of Appeals’ decision, denying rescission and instead ordering respondents to pay the balance with interest. The legal logic is anchored on the nature of the contractual stipulations and the principle that rescission is a remedy of last resort for a breach so substantial it defeats the very purpose of the contract.
The contract itself provided a specific remedy for non-payment within the ten-year period: the payment of 12% annual interest until full settlement. This stipulation negates the notion that time was of the essence or that the breach was fundamental. The contract did not automatically grant the seller a right to cancel upon default; it merely imposed an interest penalty, indicating the parties’ intent to continue the agreement despite delayed payment. A breach justifies rescission only when it is so central that it defeats the object of the contracting parties. Here, the breach was not substantial as the primary obligation to pay remained, merely subject to an interest charge as per their agreement.
Furthermore, the Court found that respondents had, in fact, attempted to tender payment during the wake of Eulalio Mistica in 1986, which was within the ten-year period, but petitioner refused. This tender, though refused, underscored the lack of a fundamental breach that would render the contract futile. Given these circumstances, rescission would be unduly harsh, especially considering respondents had already obtained title to the property. The proper remedy was specific performance—ordering respondents to fulfill their obligation to pay the balance plus the stipulated interest.