Angeles vs. Calasanz

Lot buyer (P) vs. Seller (D)
GR L-42283	[T]

Summary: A buyer of a property paid monthly installments for nine years, but was five months late on the installment payment due. The seller rescinded the contract and applied the installments made as rentals.

Rule of Law: The act of a party in treating a contract as canceled or resolved on account of infractions by the other is always provisional, being ever subject to scrutiny and review by the proper court.

Facts: Ursula and Tomas Calasanz (D) sold a piece of land to Buenaventura Angeles (P) and Teofila Juani covered by a contract to sell.

Angeles (P) paid a downpayment upon the execution of the contract and started paying the balance in monthly installments. Angeles (P) paid monthly installments for nine years with only a few remaining installments left to pay. Although Calasanz (D) accepted late payments before, Angeles (P) was now five months late.

Calasanz (D) demanded payment of past due accounts, but did not receive any. Eventually, Calansanz (D) canceled the said contract because Angeles (P) failed to pay the subsequent payments. Angeles (P) asked for reconsideration, but was denied.

Angeles (P) filed a case to compel the Calasanz (D) to execute in their favor the final deed of sale alleging that they have already fully paid the total price of the property. Calasanz (D) alleged in their answer that Angeles (P) violated the contract to sell when they failed to pay a monthly installment.

A provision in the contract to sell gave Calasanz (D) the right to cancel the contract and consider the amounts paid as rent for the property. However, the lower court ruled that the contract was not validly canceled and ordered Calasanz (D) to execute a final Deed of Sale in favor of Angeles (P)

Issues: Was the contract to sell validly canceled?

Ruling: No. The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when the contract itself provides was qualified by this Court in University of the Philippines v. De los Angeles, (35 SCRA 102) where we explained (paraphrased) that:

Of course, the act of a party in treating a contract as canceled or resolved on account of infractions by the other must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to bring the matter to court. Then, should the court decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed and indemnity awarded to the party prejudiced.

In short, the party who deems the contract violated many consider it resolved or rescinded without previous court action, but it proceeds at its own risk. For it is only the final judgment of the court that will conclusively and finally settle whether the action taken was or was not correct in law.

The right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute. In Universal Food Corporation vs. Court of Appeals (33 SCRA 1) the Court stated that:

The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. (Song Fo & Co. vs. Hawaiian-Philippine Co., 47 Phil. 821) The question of whether a breach of a contract is substantial depends upon the attendant circumstances. (Corpus vs. Alikpala, GR L-23707 & L-23720, January 17, 1968)

The breach of the contract alleged by Calasanz (D) is so slight considering that Angeles (P) had already paid monthly installments for almost nine years. In only a short time, the entire obligation would have been paid. To sanction the rescission made by Calasanz (D) will work injustice to Angeles (P) and unjustly enrich Calasanz (D).

Article 1234 of the Civil Code which provides that:

If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.

also militates against the unilateral act of the Calasanz (P) in cancelling the contract.
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* Keywords: rescission