LEGARDA HERMANOS and JOSE LEGARDA, petitioners, vs. FELIPE SALDAÑA and CA * respondents.

Legarda Hermanos vs. Saldana

G.R. No. L-26578
January 28, 1974

FACTS:
Respondent MR. Saldana contracted with petitioner to pay in instalment the 2 parcels of lot, in Sampaloc, for Php 1,500 each a total of
Php 3,000.00 payable in 10 years with 10% interest per annum of PhP 19.83 a month.

However, Saldana paid only up to 8 years then nothing follows, thereby owing petitioner the sum of Php 1,317.72 as balance.

Petitioner Hermanos and Legarda filed action for cancellation with CFI.
Respondent Saldana argued: wrote petitioner that “his desire to build a house on the lots was prevented by the petitioners’ failure to
introduce improvements on said subdivision as there still no roads on these lots, lots were underwater; argued that no demand has
been made, so he cannot yet be in default
Petitioner Hermanos and Legarda replied: that pursuant to provision of contract to sell, all the amounts paid and improvement shall be
considered as rent, and payment for damages suffered from respondents default in payment.
Hermanos and Legarda Saldana
CFI: sustained petitioners’ cancellation of the contract CA: reversed ruling of CFI, ordered petitioners to deliver one of
the 2 lots, based on justice and equity
Hermanos and Legarda elevated case with SC.

ISSUE: WoN Hermanos action to rescind the contract due to Saldana’s default in payment is valid. --NO

RULING:
Petitioner Hermanos and Legarda averred: wanted to rescind the contract because of noncompliance/non-payment/nonfulfillment of
obligations by Saldana; that it is written in the agreement between them and Saldana, and such agreements are the law between the
parties.

Saldana averred: Both were in default since Saldana did not pay, Hermanos-Legarda did not make improvements (lots were
underwater, so effect is that, there can be no rescission.

Court ruled (with Saldana):

Under Article 1234 of the New Civil Code, “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”.

Even though it was stipulated that failure to complete the payment would result to the cancellation of the contract, it was still not
valid.

As clearly shown in the statement of account, Saldaña was able to pay one of the two said lots. Hence, under the authority of
Article 1234 of the New Civil Code, Saladaña is entitled to one of the two lots of his choice and the interest paid shall be forfeited in
favor of the petitioners. Thus, Saldana’s substantial compliance of the obligation entitles him to the transfer of ownership of one lot.
(ELAM: Obligor may recover as though there had been a strict and complete fulfilment = obligor’s payments are recognized.)

The Court finds that CA's judgment finding that of the total sum of P3,582.06 (including interests of P1,889.78) already paid by
respondent (which was more than the value of two lots), the sum applied by petitioners to the principal alone in the amount of
P1,682.28 was already more than the value of one lot of P1,500.00 and hence one of the two lots as chosen by respondent
would be considered as fully paid.

The Court's doctrine in the analogous case of J.M. Tuason & Co. Inc. vs. Javier is fully applicable to the present case, with the
respondent (Saldana) at bar being granted lesser benefits, since no rescission of contract was therein permitted.
In JM Tuason v Javier, where the buyer-appellee identically situated as herein respondent buyer had likewise defaulted in
completing the payments after having religiously paid the stipulated monthly installments for almost eight years and
notwithstanding that the seller-appellant had duly notified the buyer of the rescission of the contract to sell, the Court upheld
the lower court's judgment denying judicial confirmation of the rescission and instead granting the buyer an additional grace
period of sixty days from notice of judgment to pay all the installment payments in arrears together with the stipulated 10%
interest per annum from the date of default, apart from reasonable attorney's fees and costs, which payments, the Court
observed, would have the plaintiff-seller "recover everything due thereto, pursuant to its contract with the defendant, including
such damages as the former may have suffered in consequence of the latter's default."