Ong vs. Court of Appeals

Buyer (D) vs. Sellers (P)
GR 97347	[T]

Summary: The buyer of a property failed to make full payment on a property as agreed upon in a contract to sell. The seller now wants to rescind the contract under Article 1191 of the New Civil Code.

Rule of Law: The failure of the buyer to completely pay the purchase price is a substantial breach of his obligation which entitles the sellers to rescind their contract under Article 1191 of the New Civil Code.

Facts: By virtue of an Agreement of Purchase and Sale, buyer James Ong (D) took possession of the subject parcels of land together with the piggery, building, ricemill, residential house and other improvements thereon.

Ong (D) paid the sellers, spouses Robles (P), the initial payment of P103,499.91 together with four postdated checks for the balance. In addition, Ong (D) made payments to the bank for a loan by spouses Robles (P) as agreed upon. Subsequently, when the checks became due, these were dishonored by the bank. In addition, Ong (D) was not able to fully pay the loan of spouses Robles (P) with the bank thereby initiating a foreclosure of the mortgaged properties. The balance of this loan was paid off by selling three transformers of the rice mill with knowledge and conformity of Ong (D).

Spouses Robles (P) sent Ong (D) a demand letter asking for the return of the properties, but their demand went unheeded. So, they filed for rescission of the contract and recovery of properties with damages under Article 1191 of the New Civil Code.

Ong (D) contends that Article 1191 does not apply because he already paid spouses Robles (P) a considerable sum and has therefore substantially complied with his obligation. He cited Article 1383 instead, to the effect that where specific performance is available as a remedy, rescission may not be resorted to.

Issues: (1) Can the seller rescind a contract to sell based on Article 1191 upon failure of the buyer to make final payment? (2) Did the parties novated their original contract as to the time and manner of payment?

Ruling: Yes. The failure of petitioner to completely pay the purchase price is a substantial breach of his obligation which entitles the private respondents to rescind their contract under Article 1191 of the New Civil Code.

A careful reading of the "Agreement of Purchase and Sale" shows that it is in the nature of a contract to sell, as distinguished from a contract of sale.

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.
   —Agustin vs. Court of Appeals, 186 SCRA 375 (1990); Roque vs. Lapuz, 96 SCRA 741 (1980); Manuel vs. Rodriguez, 109 Phil. 1 (1960)

In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.
   —Article 1292 of the New Civil Code

In order for novation to take place, the concurrence of the following requisites is indispensable: (1) there must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new contract; (3) there must be the extinguishment of the old contract; and (4) there must be the validity of the new contract.
   —Reyes vs. Court of Appeals, 264 SCRA 35 (1996)

The requisites for novation are not found in this case. The subsequent acts of the parties do not demonstrate their intent to dissolve the old obligation for a new one. To repeat, novation is never presumed, there must be an express intention to novate.
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* Keywords: rescission, suspensive condition