G.R. No. 37870 ; October 24, 1933
C.N. HODGES, plaintiff-appellant, vs. SALVACION LOCSIN, ET AL., defendants-appellees.

FACTS

Plaintiff C.N. Hodges sold a property to defendants-spouses Clemente M. Zulueta and Salvacion Locsin de Zulueta under a contract requiring payment in ten years. The parties later mutually rescinded that sale contract. In connection with the rescission, the defendants executed a promissory note in favor of Hodges, payable on or before December 25, 1935, with an acceleration clause making the entire obligation due upon failure to pay the annual interest. Hodges filed an action to collect the full note amount, claiming the acceleration clause was triggered by the defendants’ failure to pay interest on December 25, 1931. The defendants contended that partial payments made under the rescinded sale contract should be applied to the interest due. The trial court dismissed the action as premature.

ISSUE

Whether the action to collect the full amount of the promissory note was prematurely filed.

RULING

Yes, the action was premature. The Court held that the partial payments made by the defendants under the rescinded sale contract must be restored to them, as the rescission was by mutual agreement and not due to the vendee’s breach. Applying the legal provisions on rescission, the parties must be restored to their original condition. The amount to be restored to the defendants, with legal interest, should be applied to the interest due on the promissory note. Since this application covered the interest due for the period in question, there was no failure to pay interest that would trigger the acceleration clause. Consequently, the total amount of the note was not yet due and demandable. The appealed judgment was affirmed.

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