G.R. No. 80479 July 28, 1989
AGUSTINA LIQUETTE TAN, petitioner, vs. COURT OF APPEALS AND SPS. MARIANO SINGSON and VISITACION SINGSON, respondents.

FACTS

Petitioner Agustina Liquette Tan agreed to buy a house and lot from respondent spouses Mariano and Visitacion Singson for P1.8 million. She paid P200,000.00 as earnest money on June 14, 1984, with the balance due on June 21, 1984. The parties later amended the price to P1.75 million. The respondents used the earnest money to pay off the mortgage on the property with the Development Bank of the Philippines (DBP). On June 25, 1984, the parties agreed to a two-week extension for the execution of the deed of sale. The petitioner claimed the extension was needed because the title was not yet cleared, while the respondents alleged it was because the petitioner was not ready with the balance.
The DBP executed the deed of cancellation of mortgage on July 9, 1984, and it was registered on July 12, 1984. The respondents also settled other liens. Upon learning the title was cleared, the respondents tried to contact the petitioner to finalize the sale but instead received a telegram from her lawyer on July 16, 1984, unilaterally rescinding the contract and demanding the return of the earnest money. The petitioner then filed a complaint for recovery of the sum and damages, alleging the respondents failed to deliver a title free from liens by the agreed date.

ISSUE

Whether the private respondents committed a substantial breach of their obligation warranting the petitioner’s rescission of the contract under Article 1191 of the Civil Code.

RULING

No. The Supreme Court affirmed the Court of Appeals’ decision, ruling that the respondents did not commit a substantial breach. The Court held that the obligation to deliver a clean title was not an essential and principal condition of the contract but merely a incidental obligation to the main object of transferring ownership. The breach, if any, was not so substantial as to defeat the very purpose of the agreement. The evidence showed the petitioner was fully aware of the existing mortgage from the outset, as she was furnished a copy of the title showing the encumbrance and advanced the earnest money specifically for its cancellation. The respondents acted in good faith by diligently using the funds to extinguish the mortgage and other liens shortly after the extended period. The petitioner’s unilateral rescission was unjustified. The Court modified the appellate decision by granting the petitioner a grace period of ninety (90) days from the finality of judgment to pay the balance of P1,550,000.00 plus legal interest, after which the respondents must execute the absolute deed of sale.