GR 171076; (August, 2012) (Digest)
G.R. No. 171076 ; August 1, 2012
Goldloop Properties Inc., Petitioner, vs. Government Service Insurance System, Respondent.
FACTS
Petitioner Goldloop and respondent GSIS entered into a Memorandum of Agreement (MOA) wherein Goldloop would renovate an existing building and construct a condominium on a portion of GSIS-owned land. Goldloop undertook to pay GSIS a guaranteed amount in installments over four years. An Addendum was later executed, which, due to Goldloop’s delay in its initial payments, stipulated that Goldloop would advance certain project expenses. These advances would be credited as payment for its first and part of its second guaranteed installments. Construction, however, was halted because the City Mayor of Pasig refused to issue the necessary building permits, citing GSIS’s alleged unpaid real estate taxes. GSIS maintained its tax exemption under its charter. Despite Goldloop’s assurances and performance of preparatory works, GSIS sent a notice of rescission, terminating the MOA due to Goldloop’s alleged failure to pay the guaranteed amount.
ISSUE
Whether GSIS validly rescinded the MOA based on Goldloop’s failure to pay the guaranteed amount.
RULING
No, GSIS’s rescission was invalid. The Court affirmed the Court of Appeals’ reversal of the RTC and ruled that GSIS was not entitled to unilaterally rescind the contract. The legal logic centers on the nature of reciprocal obligations and the conditions for valid rescission under Article 1191 of the Civil Code. Rescission requires a breach of a principal obligation so substantial as to defeat the object of the contract. Here, Goldloop’s failure to make the cash installment payments was not a culpable breach. The Addendum expressly provided that Goldloop’s advancement of specified project expenses would be credited as “full payment of its first guaranteed installment and partial payment of the second guaranteed installment.” By performing these advances, Goldloop substantially complied with its payment obligation for the specified period. The impediment to the project’s continuation—the non-issuance of building permits due to a tax dispute between GSIS and the local government—was not attributable to Goldloop’s fault. GSIS’s own letter acknowledged the need to defer the project until this external issue was resolved. Therefore, GSIS could not declare Goldloop in breach for non-payment when the parties had agreed on an alternative mode of payment through the Addendum and when the project’s suspension was due to a cause not imputable to Goldloop. The rescission, being baseless, was ineffectual.