GR L 14300; (May, 1961) (Digest)
G.R. No. L-14300. May 30, 1961. CARLOS PELLICER, plaintiff-appellee, vs. LAUREANO RUIZ, defendant-appellant.
FACTS
Plaintiff Carlos Pellicer, owner of three parcels of land mortgaged to the Rehabilitation Finance Corporation (RFC) and the Philippine National Bank (PNB), contracted to sell the property to defendant Laureano Ruiz for P200,000. The initial contract (Exhibit I) required Ruiz to assume Pellicer’s mortgage debts and make partial payments. Ruiz failed to pay the initial P40,000 within three months, leading to a penalty payment and a subsequent deed (Exhibit F). This new deed stated Ruiz had assumed the mortgages, with PNB indicating conformity, but the RFC never signed its approval. Ruiz also executed a promissory note for the balance, agreeing to apply proceeds from any sale or loan on the property to the purchase price.
Pellicer later rescinded the contract, alleging Ruiz failed to secure full RFC conformity, exposed the property to foreclosure by not paying the mortgage creditors, and did not apply harvest proceeds or a separate loan to the purchase price. Pellicer retook possession of the land and filed an action for rescission and injunction. The trial court rescinded the contracts, ordered mutual restitution, awarded attorney’s fees to Pellicer, and made a preliminary injunction permanent.
ISSUE
Whether the defendant’s breaches of contract were sufficiently serious to justify rescission by the plaintiff.
RULING
Yes, rescission was proper. The Supreme Court affirmed the trial court’s decision. The legal logic centers on the defendant’s material breaches of contractual obligations. The contract required the defendant to assume the plaintiff’s mortgage debts with the formal consent of both the RFC and PNB. While PNB consented, the RFC’s conformity was never obtained, leaving the plaintiff exposed to liability. More critically, the defendant, after harvesting the land’s crops and obtaining a separate loan, failed to apply these proceeds to the payment of the assumed mortgage debts or the balance of the purchase price as stipulated. This failure directly increased the risk of foreclosure against the property, thereby substantially defeating the very object of the contract for the plaintiff-vendor. Such breaches are not minor but go to the root of the agreement, warranting rescission under Article 1191 of the Civil Code.
Regarding the injunction, the Court found it was prohibitory, not mandatory, as it merely ordered the defendant to desist from molesting the plaintiff’s possession. The plaintiff’s retaking of possession was acquiesced to by the defendant’s tenants and was not initially contested, and the injunction was necessary to prevent foreclosure by ensuring harvests were applied to the loans. The award of attorney’s fees was upheld based on the stipulation in the promissory note.