G.R. No. 97347. July 6, 1999.
JAIME G. ONG, petitioner, vs. THE HONORABLE COURT OF APPEALS, SPOUSES MIGUEL K. ROBLES and ALEJANDRO M. ROBLES, respondents.

FACTS

Petitioner Jaime Ong and respondent spouses executed an “Agreement of Purchase and Sale” for two parcels of land with improvements for P2,000,000. The contract stipulated an initial payment of P600,000, part of which was to settle the spouses’ bank loan, and a balance of P1,400,000 payable in four quarterly installments. Upon execution, Ong took possession of the properties. He made partial payments but failed to fully pay the bank loan as agreed, forcing the spouses to sell assets to prevent foreclosure. For the balance, Ong issued four post-dated checks, all of which were dishonored due to insufficient funds. He promised replacement checks but never provided them.
Despite his default, Ong remained in possession and later introduced major improvements to the properties, such as constructing a fence and expanding the piggery, even after the spouses had filed a complaint for rescission and while the case was pending. The spouses demanded the return of the properties, and upon Ong’s failure to comply, filed the suit for rescission.

ISSUE

Whether the Court of Appeals correctly affirmed the rescission of the “Agreement of Purchase and Sale” and denied Ong’s claim for reimbursement of improvements.

RULING

Yes. The Supreme Court affirmed the appellate court’s decision. Rescission under Article 1191 of the Civil Code was proper due to Ong’s substantial breach of contract. He failed to pay the substantial balance of the purchase price as stipulated, a fundamental obligation in a contract of sale. His defense of novation, claiming a change in the payment manner, failed because novation is never presumed and requires clear consent of all parties to extinguish the old obligation. No such agreement was proven.
Regarding the improvements, Ong was correctly deemed a builder in bad faith. He introduced major improvements knowing he had not fully paid the purchase price and over the spouses’ objections, even while litigation was ongoing. A builder in bad faith is not entitled to reimbursement and must bear the loss. The award of exemplary damages was correctly deleted as no other form of damages was awarded to support it. The spouses were ordered to return the partial payments Ong had made.