MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY v.

BENJAMIN TUDTUD, et
al. 571 SCRA 165 (2008)

The National Airports Corporation (NAC) filed a complaint for expropriation in order to
expand the Cebu Lahug Airport. It sought to acquire, by negotiated sale or expropriation,
several lots adjoining the then existing airport which included the parcels of land owned
by the predecessors-in- interest of respondents Benjamin Tudtud et al. NAC assured the
owners that they would reacquire the land if it is no longer needed by the airport. The
Court of First Instance of Cebu granted the expropriation. No structures related to the
operation of the Cebu Lahug Airport were constructed on the land expropriated.
Respondent Lydia Adlawan (Lydia), acting as attorney-in-fact of the original owners, sent
a letter to the general manager of the petitioner Mactan Cebu International Airport
Authority (MCIAA), the new owner of the lot and demanded to repurchase the lot at the
same price paid at the time of the taking, without interest. Lydia filed a complaint before
the Regional Trial Court (RTC) of Cebu City for reconveyance and damages against the
MCIAA. The RTC of Cebu rendered judgment in favor of Tudtud et al. MCIAA appealed
to the Court of Appeals but it affirmed the RTC decision. MCIAA then filed a Motion for
Reconsideration but was denied.

ISSUE:

Whether or not Tudtud et al. are entitled for the re-conveyance of the land expropriated

HELD:

Tudtud et al.s witness respondent Justiniano Borga declared that the original owners did
not oppose the expropriation of the lot upon the assurance of the NAC that they would
reacquire it if it is no longer needed by the airport. The rights and duties between the
MCIAA and Tudtud et al are governed by Article 1190 of the Civil Code which provides:
When the conditions have for their purpose the extinguishment of an obligation to give,
the parties, upon the fulfillment of said conditions, shall return to each other what they
have received. In case of the loss, deterioration, or improvement of the thing, the
provisions which, with respect to the debtor, are laid down in the preceding article [Article
1189] shall be applied to the party who is bound to return. While the MCIAA is obliged to
re-convey Lot No. 988 to Tudtud et al., they must return to the MCIAA what they
received as just compensation for the expropriation of Lot No. 988, plus legal interest to
be computed from default, which in this case runs from the time the MCIAA complies
with its obligation to the respondents. Tudtud et al., must likewise pay the MCIAA the
necessary expenses it may have incurred in sustaining Lot No. 988 and the monetary
value of its services in managing it to the extent that Tudtud et al., were benefited
thereby. Following Article 1187 of the Civil Code, the MCIAA may keep whatever income
or fruits it may have obtained from Lot No. 988, and Tudtud et al., need not account for
the interests that the amounts they received as just compensation may have earned in
the meantime.
G.R. No. 87047 October 31, 1990
FRANCISCO LAO LIM
vs.
COURT OF APPEALS and BENITO VILLAVICENCIO DY, respondents.
FACTS:

First Ejectment Case:

Private respondent entered into a contract of lease with petitioner for a period of
three (3) years, that is, from 1976 to 1979. After the stipulated term expired,
private respondent refused to vacate the premises, hence, petitioner filed an
ejectment suit against the Lao Lim. The case was terminated by a judicially
approved compromise agreement of the parties providing in part: That the term
of the lease shall be renewed every three years retroacting from October
1979 to October 1982; after which the above-named rental shall be raised
automatically by 20% every three years for as long as defendant needed
the premises and can meet and pay the said increases, the defendant to
give notice of his intent to renew sixty (60) days before the expiration of the
term;

By reason of said compromise agreement the lease continued from 1979 to

1982, then from 1982 to 1985. On April 17, 1985, Dy advised Lao Lim that he
would no longer renew the contract effective October, 1985. 3However, on August
5, 1985, private Lao Lim informed petitioner in writing of his intention to renew
the contract of lease for another term, commencing November, 1985 to October,
1988. In reply to said letter, Dy advised private respondent that he did not agree
to a renewal of the lease contract upon its expiration in October, 1985. 5

Second Ejectment Case:

On January 15, 1986, because of private Lao Lims refusal to vacate the
premises, Dy filed another ejectment suit, this time with the Metropolitan Trial
Court of Manila in Civil Case No. 114659-CV. In its decision of September 24,
1987, said court dismissed the complaint on the grounds that (1) the lease
contract has not expired, being a continuous one the period whereof depended
upon the lessee's need for the premises and his ability to pay the rents; and (2)
the compromise agreement entered into in the aforesaid Civil Case No. 051063-
CV constitutes res judicata to the case before it.

Dy appealed to the Regional Trial Court of Manila which, in its decision of

January 28, 1988 in Civil Case No. 87-42719, affirmed the decision of the lower
court.

ISSUE:

Was the stipulation in the compromise agreement which allows the lessee to stay on the
premises as long as he needs it and can pay rents is valid?

HELD:
No, since the stipulation for as long as the defendant needed the premises and can
meet and pay said increases is a purely potestative condition because it leaves the
effectivity and enjoyment of leasehold rights to the sole and exclusive will of the
lessee.

The continuance, effectivity, and fulfillment of a contract of lease cannot be made to

depend exclusively upon the free and uncontrolled choice of the lessee between
continuing payment of the rentals or not, completely depriving the owner of any say in
the matter. Mutuality does not obtain in such a contract of lease and no equality
exists between the lessor and the lessee.

The decision of the Court of Appeals is REVERSED AND SET ASIDE. Benito Dy is
ordered to immediately vacate and return the possession of the premises and pay the
monthly rentals due thereon in accordance with the compromise agreement until he shall
have actually vacated the same. This Judgment is immediately executory.

DOCTRINE:

Potestative Condition- This can be found in Art 1182 of the NCC. A potestative
condition speaks of fulfillment of an obligation rests solely upon the will of the debtor. An
obligation which is subject to a suspensive potestative condition is non-
demandable, hence it is void. If it is the debtor himself who determines the fulfillment
of the condition, such an agreement produces no juridical effect that can be enforced,
and thus null
NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, petitioners,
vs.
THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE,
INC.
(CASURECO II), respondents.

FACTS:
1. Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company
rendering local as well as long distance telephone service in Naga City while private
respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a private
corporation established for the purpose of operating an electric power service in the
same city.
2. The parties entered into a contract for the use by petitioners in the operation of
its telephone service the electric light posts of private respondent in Naga City.
3. In consideration therefor, petitioners agreed to install, free of charge, ten (10)
telephone connections for the use by private respondent
4. Said contract also provided:
a. (a) That the term or period of this contract shall be as long as the party of the first
part has need for the electric light posts of the party of the second part it being
understood that this contract shall terminate when for any reason whatsoever, the party
of the second part is forced to stop, abandoned its operation as a public service and it
becomes necessary to remove the electric lightpost.
5. After the contract had been enforced for over ten (10) years, private respondent
filed on January 2, 1989 with the Regional Trial Court of Naga City against petitioners for
reformation of the contract with damages, on the ground that it is too one-sided in favor
of petitioners.
6. As second cause of action, private respondent alleged
a. that starting with the year 1981, petitioners have used 319 posts in the towns of
Pili, Canaman, Magarao and Milaor, Camarines Sur, all outside Naga City, without any
contract with it;
b. that at the rate of P10.00 per post, petitioners should pay private respondent for
the use thereof the total amount of P267,960.00 from 1981 up to the filing of its
complaint; and
c. that petitioners had refused to pay private respondent said amount despite
demands.
7. And as third cause of action, private respondent complained about the poor
servicing by petitioners of the ten (10) telephone units which had caused it great
inconvenience and damages to the tune of not less than P100,000.00.
8. In petitioners' answer to the first cause of action, they averred that it should be
dismissed because
a. (1) it does not sufficiently state a cause of action for reformation of contract;
b. (2) it is barred by prescription, the same having been filed more than ten (10)
years after the execution of the contract; and
c. (3) it is barred by estoppel, since private respondent seeks to enforce the
contract in the same action. Regarding the second cause of action, petitioners claimed
that private respondent had asked for telephone lines in areas outside Naga City for
which its posts were used by them.
9. And with respect to the third cause of action, petitioners claimed, that their
telephone service had been categorized by the National Telecommunication Corporation
as "very high" and of "superior quality."
10. The trial court found, as regards private respondent's first cause of action, that
while the contract appeared to be fair to both parties when it was entered into by them
during the first year of private respondent's operation and when its Board of Directors did
not yet have any experience in that business, it had become disadvantageous and unfair
to private respondent because of subsequent events and conditions, particularly the
increase in the volume of the subscribers of petitioners for more than ten (10) years
without the corresponding increase in the number of telephone connections to private
respondent free of charge.
11. The trial court concluded that while in an action for reformation of contract, it
cannot make another contract for the parties, it can, however, for reasons of justice and
equity, order that the contract be reformed to abolish the inequities therein.
12. As regards the second cause of action, the trial court held that for reason of
equity, the contract should be reformed by including therein the provision that for the use
of private respondent's posts outside Naga City, petitioners should pay a monthly rental
of P10.00 per post, the payment to start on the date this case was filed, or on January 2,
1989, and private respondent should also pay petitioners the monthly dues on its
telephone connections located outside Naga City beginning January, 1989.
13. And with respect to private respondent's third cause of action, the trial court
found the claim not sufficiently proved.
14. Petitioners appealed to respondent Court of Appeals. In the decision dated May
28, 1992, respondent court affirmed the decision of the trial court, but based on different
grounds to wit: (1) that Article 1267 of the New Civil Code is applicable and (2) that the
contract was subject to a potestative condition which rendered said condition void.

ISSUE:
Whether or not the contract was subject to a potestative condition which rendered said
contract void

RULING:
1. The Supreme Court ruled that the provision in the agreement is invalid for being
purely potestative on the part of appellant as it leaves the continued effectivity of the
aforesaid agreement to the latter's sole and exclusive will as long as plaintiff is in
operation.
2. A similar provision in a contract of lease wherein the parties agreed that the
lessee could stay on the leased premises "for as long as the defendant needed the
premises and can meet and pay said increases" was recently held by the Supreme
Court in Lim v. C.A., 191 SCRA 150, citing the much earlier case of Encarnacion v.
Baldomar, 77 Phil. 470, as invalid for being "a purely potestative condition because it
leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of
the lessee."
3. Further held the High Court in the Lim case:
a. The continuance, effectivity and fulfillment of a contract of lease cannot be made
to depend exclusively upon the free and uncontrolled choice of the lessee between
continuing the payment of the rentals or not, completely depriving the owner of any say
in the matter.
b. Mutuality does not obtain in such a contract of lease of no equality exists
between the lessor and the lessee since the life of the contract is dictated solely by the
lessee.
4. The above can also be said of the agreement between the parties in this case.
There is no mutuality and equality between them under the afore-quoted provision
thereof since the life and continuity of said agreement is made to depend as long as
appellant needs plaintiff's electric posts.
5. And this is precisely why, since 1977 when said agreement was executed and up
to 1989 when this case was finally filed by plaintiff, it could do nothing to be released
from or terminate said agreement notwithstanding that its continued effectivity has
become very disadvantageous and inequitous to it due to the expansion and increase of
appellant's telephone services within Naga City and even outside the same, without a
corresponding increase in the ten (10) telephone units being used by plaintiff free of
charge, as well as the bad and inefficient service of said telephones to the prejudice and
inconvenience of plaintiff and its customers. . . .
6. A potestative condition is a condition, the fulfillment of which depends upon the
sole will of the debtor, in which case, the conditional obligation is void. Based on this
definition, respondent court's finding that the provision in the contract, is a potestative
condition, to wit:
a. (a) That the term or period of this contract shall be as long as the party of the first
part (petitioner) has need for the electric light posts of the party of the second part
(private respondent) . . . .is correct.
7. However, it must have overlooked the other conditions in the same provision, to
wit:
a. . . . it being understood that this contract shall terminate when for any reason
whatsoever, the party of the second part (private respondent) is forced to stop,
abandoned its operation as a public service and it becomes necessary to remove the
electric light post; which are casual conditions since they depend on chance, hazard, or
the will of a third person.
8. In sum, the contract is subject to mixed conditions, that is, they depend partly on
the will of the debtor and partly on chance, hazard or the will of a third person, which do
not invalidate the aforementioned provision

Rustan Pulp vs. Intermediate Appellate Court

Consumer (D) vs. Supplier (P)
GR 70789 [T]

Summary: A paper mill started operations and accepted offers to supply raw materials
from several suppliers. One supplier executed a contract with the paper mill with a
condition that the paper mill has the right to stop accepting deliveries whenever the
supply was sufficient. The paper mill exercised that right, but continued accepting
periodic deliveries from other suppliers.

Rule of Law: When the fulfillment of the condition depends on the sole will of the debtor,
the conditional obligation shall be void.
Article 1182, Civil Code.

Facts: When Rustan Pulp & Paper Mills (D) started operations Romeo Lluch (P) offered
to supply raw materials. Rustan Pulp (D) proposed a non-exclusive contract to buy wood
pulp from Lluch (P). However, a condition in the contract gave Rustan Pulp (D) the right
to stop accepting deliveries when the supply became sufficient until such time the raw
materials are needed.

During the test run of the pulp mill, major defects on the machinery were discovered
prompting the Japanese supplier of the machinery to recommend the stoppage of the
deliveries. The suppliers were informed to stop deliveries, but were not informed as to
the reasons for the stoppage.

Lluch (P) sought to clarify the tenor of the notice as to whether stoppage of delivery or
termination of the contract of sale was intended, but Rustan Pulp (D) failed to reply. This
alleged ambiguity notwithstanding, Lluch (P) and the other suppliers resumed deliveries
after a series of talks between Lluch (P) and Romeo Vergara, the manager of Rustan
Pulp (D).

Later, Lluch (P) filed a complaint for breach of contract. The case was dismissed, but at
the same time, the court enjoined Rustan Pulp (D) to honor the contract. On appeal, the
court ruled that Rustan Pulp's (D) suspension of deliveries was not in the lawful exercise
of its rights under the contract of sale.

Issues: Is the suspension of deliveries by Rustan (D) a proper exercise of its rights
under the contract of sale?

Ruling: No. There is basis for the apprehension on the illusory resumption of deliveries
at Rustan Pulp (D) because the prerogative suggests a condition solely dependent upon
its exclusive will. The literal import of contested condition is that Rustan Pulp (D) can
stop delivery of pulp wood from Lluch (P) if the supply at the plant is sufficient as
ascertained by Rustan Pulp (D), subject to re-delivery when the need arises as
determined likewise by Rustan Pulp (D).

A purely potestative imposition of this character must be obliterated from the face of the
contract without affecting the rest of the stipulations considering that the condition
relates to the fulfillment of an already existing obligation and not to its inception (Civil
Code Annotated, by Padilla, 1987 Edition, Volume 4, Page 160).

A condition which is both potestative (or facultative) and resolutory may be valid, even
though the saving clause is left to the will of the obligor as this Court ruled in Taylor vs.
Uy Tieng Piao (43 Phil. 873). But the Taylor case, which allowed a condition for unilateral
cancellation dependent on the arrival of factory machinery, cannot be applied because
the facts relate to the birth of the undertaking and not to the fulfillment of an existing
obligation.

Heirs of Severina San Miguel vs CA

- In 1974, Respondent, Dominador San Miguel, filed a petition with the CFI to
issue title over lots in dispute which was a parcel of land originally claimed by Severina
San Miguel
- August 22, 1978, Severina filed with the Court of First Instance of Cavite a
petition for review of the decision alleging that the land registration proceedings were
fraudulently concealed by Dominador from her.
- The registration procceddings by Dominador San Miguel was declared null and
void upon petition of Severina San Miguel who was succeeded by her heirs.
- In 1987, the TCT for the land was issued in the names of petitioner.
- From 1990-1991, several writs of possession were returned unsatisfied. (For the
land to be transferred in the name of Severinas heirs.)
- To solve this problem, the heirs of Severina did not pursue the writs of
possession and demolition, and instead entered into a compromise with Dominador.
- According to the compromise, the heirs were to sell the land for P1.5M with the
TCT conditioned upon the purchase of another lot, which was not yet titled, at an
additional sum of P300K.
- It was agreed that the 300K shall be fulfilled by Dominado 2 months from the
date of the execution of sale, which is August 1993.
- 3 months after, Dominador filed a complaint with the trial court a motion to deliver
the owners copy of TCT, and admitted that he did not pay the P300K for the reason that
the petitioner failed to adduced proof of ownership.
- In time, petitioners opposed stressing the condition in the compromise
agreement.
- Since Dominador, et al. have not paid the amount of three hundred thousand
pesos (P300,000.00), then they were justified in withholding release of the certificate of
title.
Ruling of RTC:
- The trial court ruled in favor of the respondent.
- The respondent vendors are ordered to surrender to the petitioners vendees.
Ruling of CA:
- The Court of Appeals promulgated a decision denying the appeal, and affirming
the decision of the trial court.
Issue of this Case:
- Whether or not respondent shall be compelled to pay the P300K despite the
petitioners lack of evidence of ownership.
Ruling of SC:
- SC held in the negative. The respondent cannot be compelled to pay the P300k
deposit.
- Severinas heirs anchor their claim on the compromise agreement, stressing on
their freedom to stipulate and the binding effect of contracts. This argument is
misplaced. The Civil Code provides:
Under Article 1306. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient provided they are not
contrary to law, morals, good customs, public order or public policy.

- It is basic that the law is deemed written into every contract. Although a contract
is the law between the parties, the provisions of positive law which regulate contracts are
deemed written therein and shall limit and govern the relations between the parties.
- True, in contracts of sale, the vendor need not possess title to the thing sold at
the perfection of the contract. However, the vendor must possess title and must be able
to transfer title at the time of delivery. In a contract of sale, title only passes to the
vendee upon full payment of the stipulated consideration, or upon delivery of the thing
sold.

In relation to the case:

- Under the facts of the case, Severinas heirs are not in a position to transfer title.
Without passing on the question of who actually owned the land, SC noted that there is
no proof of ownership in favor of Severinas heirs.
- In fact, it is a certain Emiliano Eugenio, who holds a tax declaration over the said
land in his name. Though tax declarations do not prove ownership of the property of the
declarant, tax declarations and receipts can be strong evidence of ownership of land.
- To insist that Dominador pay the price of the untitled lot, would result in
Severinas Heirs unjust enrichment.
- The essence of a sale is the transfer of title or an agreement to transfer it for a
price actually paid or promise.
- If the sellers cant deliver the object of the sale to the buyer, such contract may
be deemed inoperative.
- Severinas heirs insist that delivery of the certificate of title is predicated on a
condition - payment of three hundred thousand pesos (P300,000.00) to cover the sale
of. SC said that it is not meritorious.
- Article 1183 also provides that:
Impossible conditions, those contrary to good customs or public policy and
those prohibited by law shall annul the obligation which depends upon them. If the
obligation is divisible, that part thereof which is not affected by the impossible or
unlawful condition shall be valid.

- Hence, the non-payment of the P300k is not a valid justification for refusal to
deliver the certificate of title.
- Besides, it was noted that the certificate of title covering the land in question
were fully paid for by Dominador, et al.
- Therefore, Severinas heirs are bound to deliver the certificate of title covering the
lots.

Ong vs. Court of Appeals, 310 SCRA 1(1999)

Facts:

Petitioner Jaime Ong and respondent spouses Miguel Robles and Alejandra Robles
executed an Agreement of Purchase and Sale respecting two parcels of land. On May
15, 1983, petitioner took possession of the subject parcels of land together with the
piggery, building, ricemill, residential house and other improvements thereon. Pursuant
to the terms of the contract, petitioner paid respondent spouses the sum of P103,499.91
by depositing it with the United Coconut Planters Bank and paid the loan of respondents
to Bank of Philippine Islands (BPI). To answer for the balance, petitioner issued 4 post-
dated checks payable to respondent spouses. When presented for payment, however,
the checks were dishonored due to insufficient funds. Petitioner promised to replace the
checks but failed to do so. To make matters worse, out of the P496,500.00 loan of
respondent spouses with the BPI, which petitioner should have paid, petitioner only
managed to dole out less than the said amount. When the bank threatened to foreclose
the respondent spouses mortgage, they sold three transformers of the rice mill to pay off
their outstanding obligation with said bank, with the knowledge and conformity of
petitioner. He, however, continued to be in possession of the two parcels of land while
private respondents were forced to use the rice mill for residential purposes. On August
2, 1985, respondent spouses, through counsel, sent petitioner a demand letter asking for
the return of the properties which was left unheeded. Subsequently, they filed with the
RTC, a complaint for rescission of contract and recovery of properties with damages.
The trial court rendered a decision in favour of private respondents which the CA
affirmed but deleted the award of exemplary damages. In affirming the decision of the
trial court, the CA noted that 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. Hence, the instant petition.

Issues:
Whether or not the contract entered into by the parties fall under those mentioned in
Article 1181?

How is Article 1191 distinguished from Article 1383?

Ruling:

A.) No. Article 1381 of the New Civil Code expressly enumerates the following
rescissible contracts:
1. Those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one fourth of the value of the things which are the object
thereof;
2. Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;
3. Those undertaken in fraud of creditors when the latter cannot in any manner collect
the claims due them;
4. Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;
5. All other contracts specially declared by law to be subject to rescission
Obviously, the contract entered into by the parties in the case at bar does not fall under
any of those mentioned by Article 1381. Consequently, Article 1383 is inapplicable.

B.) Rescission of reciprocal obligations under Article 1191 of the New Civil Code should
be distinguished from rescission of contracts under Article 1383. Although both
presuppose contracts validly entered into and subsisting and both require mutual
restitution when proper, they are not entirely identical. Article 1383 is a subsidiary action
limited to cases of rescission for lesion under Article 1381.
Rescission, as contemplated in Articles 1380- (1389), of the New Civil Code, is a
remedy granted by law to the contracting parties and even to third persons, to secure the
reparation of damages caused to them by a contract, even if this should be valid, by
restoration of things to their condition at the moment prior to the celebration of the
contract. It implies a contract, which even if initially valid, produces a lesion or a
pecuniary damage to someone.
On the other hand, Article 1191 of the New Civil Code refers to rescission applicable to
reciprocal obligations. Reciprocal obligations are those which arise from the same
cause, and in which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other. They are to be performed
simultaneously such that the performance of one is conditioned upon the simultaneous
fulfilment of the other.

Vda. De Mistica vs. Naguiat

418 SCRA 73
Art. 1182. Potestative Condition

Issue/Scope
Potestative Condition under Art. 1182 in relation to Art. 1191 of Civil Code

Facts
Predecessor-in-interest of Petitioner and herein Defendants entered into a contract to
sell in which the latter prayed the initial payment and undertake to pay the remaining by
installment within 10 years subject to 12% interest per annum
Petitioner filed a complaint for rescission alleging failure and refusal of Defendants to
pay the balance constitutes a violation of the contract which entitles her to rescind the
same
Petitioner argues that period for performance of obligation cannot be extended to 10
years because to do so would convert the obligation to purely potestative

Held
Under Art. 1191 of Civil Code, the right to rescind an obligation is predicated on
violation between parties brought about by breach of faith by one of them.
Rescission, however, is allowed only when the breach is substantial and
fundamental to the fulfillment of the obligation
In this case, no substantial breach in the Kasulatan, it was stipulated that payment
could be made even after 10 years from execution of contract, provided they will pay the
12% interest
Civil Code prohibits purely potestative, suspensive, conditional obligation that
depend on the whims of the debtor. Nowhere in the deed that payment of purchase
price is dependent whether respondents want to pay it or not, the fact that they already
made partial payment shows that parties intended to be bound by the Kasulatan

Sps. Felipe and Leticia Cannu vs Sps. Gil and Fernandina Galang and National
Home Mortgage Finance Corporation G.R. No. 139523 May 26, 2005
FACTS:
In order to buy a house and lot with an area of 150 square meters in Pulanglupa, Las
Pinas City, Gil and Fernandina Galang (herein respondents) loaned from Fortune
Savings and Loan Association (FSLA) the amount of Php 173,800.00. In order to pay it,
they mortgaged the property in favour of the Fortune Savings and Loan Association and
the National Home Mortgage Finance Corporation (NHMFC) bought the lot from FSLA.
Leticia Cannu, one of the petitioners in this case, agreed to purchase the mortgaged
property for Php 120,000.00 and to assume the balance of the mortgage obligations with
the NHMFC and the developer of the property. Several payments were made and there
was a remaining balance of Php 45,000.00. A deed of sale & assumption of mortgage
was executed between the Galang and Cannu spouses and the petitioners immediately
took possession and occupied the house and lot. Although there have been requests by
Adelina Timbang (the attorney-in-fact) and Fernandina Galang for the payment of the
balance, else the Cannu spouses would be forced to vacate the property, the Cannus
refused to do so. On May 21, 1993, Fernandina Galang paid Php 233, 957.64 as the full
payment of the remaining balance in the mortgage loan with the NHMFC. The Cannus
opposed the release of Transfer Certificate Title Number T-8505 in favour of the Galangs
insisting that the subject property had already been sold to them. A Complaint for
Specific Performance and Damages was filed praying that the Cannu spouses be
declared as owners of the house and lot involved subject to reimbursements of the
amount made by the Galang spouses in preterminating the mortgage loan with NHMFC.

ISSUES:
Whether or not the petitioners breach of obligation was substantial; whether or not there
was no substantial compliance with the obligation to pay the monthly amortization with
the NHMFC; whether or not the action for rescission was subsidiary

HELD:
The failure of the Cannus to pay the Php 45,000.00 is a substantial breach of obligation.
Under Article 1191 of the Civil Code of the Philippines, the resolution of a party to pay an
obligation is founded on a breach of faith by the other party which violates the reciprocal
obligation. The petitioners had ample amount of time to pay the amount, but despite the
demands to pay such, they did not comply with their obligation. Rescission may only
occur on breaches which are substantial in order to defeat the object of the parties in
making the agreement. Furthermore, Felipe and Leticia Cannu committed another
breach in obligation on the Deed of Sale with Assumption of Mortgage. The mortgage
obligation with the NHMFC was not formally assumed on account of the Cannus failure
to submit the requirements in order to be considered as successors-in-interest of the
involved house and lot in Pulanglupa. Article 1191, not Article 1381, is the applicable
provision in the case at bar since it is a retaliatory provision in a sense that the action is
not substantive and because it is the duty of the court to require the parties involved to
surrender whatever they may have received from the other in the resolution of the Deed
of Sale with Assumption of Mortgage. It is unjust that a party is bound to fulfil his part of
the obligation when the other does not do his part.