LIM VS.

COURT OF APPEALS
G.R. No. 55201, February 3, 1994

FACTS:

The deceased spouses Tan Quico and Josefa Oraa, who both died intestate left 96
hectares of land. The late spouses were survived by four children; Cresencia, Lorenzo,
Hermogenes and Elias. Elias died on May 2, 1935. Cresencia died on December 20, 1967. She
was survived by her husband, Lim Chay Sing, and children, Mariano, Jaime, Jose Jovita,
Anacoreta, Antonietta, Ruben, Benjamin and Rogelio who are now the petitioners in the case at
bench.
The Cresencia only reached the second grade of elementary school. She could not read or
write in English. On the other hand, Lorenzo is a lawyer and a CPA. Heirs of Cresencia alleged
that since the demise of the spouses Tan Quico and Josefa Oraa, the subject properties had been
administered by respondent Lorenzo. They claimed that before her death, Cresencia had
demanded their partition from Lorenzo. After Cresencia’s death, they likewise clamored for their
partition. Their effort proved fruitless.
Respondents Lorenzo and Hermogenes’ unyielding stance against partition is based on
various contentions. They cited as evidence the “Deed of Confirmation of Extra Judicial
Settlement of the Estate of Tan Quico and Josefa Oraa” and a receipt of payment. Principally,
they urge that the properties had already been partitioned, albeit, orally; and during her lifetime,
the late Cresencia had sold and conveyed all her interests in said properties to respondent
Lorenzo.

ISSUE:

Whether or not there is error or mistake in the signing of the Deed.

RULING:

There is an error in the signing of the Deed.

Article 1332 of the Civil Code provides: “When one of the parties is unable to read, or if
the contract is in a language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to the former.”
In the case at bar, the questioned Deed is written in English, a language not understood
by Cresencia an illiterate in the said language. It was prepared by the respondent Lorenzo, a
lawyer and CPA. Lorenzo did not cause the notarization of the Deed. Considering these
circumstances, the burden was on private respondents to prove that the content of the Deed was
explained to the illiterate Cresencia before she signed it. In this regard, the evidence adduced by
the respondents failed to discharge their burden.
This substantive law came into being due to the finding of the Code Commission that
there is still a fairly large number of illiterates in this country, and documents are usually drawn
up in English or Spanish. It is also in accord with our state policy of promoting social justice. It
also supplements Article 24 of the Civil Code which calls on court to be vigilant in the protection
of the rights of those who are disadvantaged in life.
 Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE vs. COURT OF
APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO
G.R. No. 108346 2001 Jul 11

FACTS:

David Raymundo is the absolute and registered owner of a parcel of land, together with
the house and other improvements thereon. Private Respondent George Raymundo is David’s
father who negotiated with plaintiffs Avelina and Mariano Velarde, the petitioners, for the sale of
said property, which was, however, under lease. On August 8, 1986, a Deed of Sale with
Assumption of Mortgage was executed by defendant David Raymundo, as vendor, in favor of
plaintiff Avelina Velarde, as vendee. It is further agreed and understood by the parties that the
capital gains tax and documentary stamps on the sale shall be for the account of the vendor;
whereas, the registration fees and transfer tax thereon shall be for the account of the vendee. On
the same date, and as part of the above-document, plaintiff Avelina Velarde, with the consent of
her husband, Mariano, executed an Undertaking.
It appears that the negotiated terms for the payment of the balance of P1.8 million was
from the proceeds of a loan that plaintiffs were to secure from a bank with defendant’s help.
Defendants had a standing approved credit line with the Bank of the Philippine Islands (BPI).
The parties agreed to avail of this, subject to BPI’s approval of an application for assumption of
mortgage by plaintiffs. Pending BPI’s approval of the application, plaintiffs were to continue
paying the monthly interests of the loan secured by a real estate mortgage. Pursuant to said
agreements, plaintiffs paid BPI the monthly interest on the loan secured by the aforementioned
mortgage for three (3) months, however, plaintiffs were advised that the Application for
Assumption of Mortgage with BPI was not approved, which prompted plaintiffs not to make any
further payment. On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the
latter that their non-payment to the mortgage bank constituted non-performance of their
obligation. Thereafter, defendants sent plaintiffs a notarial notice of cancellation/rescission of the
intended sale of the subject property allegedly due to the latter’s failure to comply with the terms
and conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking.

ISSUE:
Whether or not the Court of Appeals erred in holding that the rescission (resolution) of
the contract by private respondents was justified.

RULING:
A substantial breach of a reciprocal obligation entitles the injured party to rescind the
obligation. Rescission abrogates the contract from its inception and requires a mutual restitution
of benefits received. The breach committed by petitioners was not so much their nonpayment
of the mortgage obligations, as their nonperformance of their reciprocal obligation to pay the
purchase price under the contract of sale. Private respondents’ right to rescind the contract finds
basis in Article 1191 of the Civil Code.
 The right of rescission of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who violates the reciprocity between them. The
breach contemplated in the said provision is the obligor’s failure to comply with an existing
obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may
seek rescission and, in the absence of any just cause for the court to determine the period of
compliance, the court shall decree the rescission. The private respondents therefore validly
exercised their right to rescind the contract, because of the failure of petitioners to comply with
their obligation to pay the balance of the purchase price.
The breach committed by petitioners was the nonperformance of a reciprocal obligation,
not a violation of the terms and conditions of the mortgage contract. Therefore, the automatic
rescission and forfeiture of payment clauses stipulated in the contract does not apply. Instead,
Civil Code provisions shall govern and regulate the resolution of this controversy. Considering
that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is
required to bring back the parties to their original situation prior to the inception of the contract.

GOLDENROD, INC. vs. COURT OF APPEALS BARRETTO & SONS, INC., PIO
BARRETTO REALTY DEVELOPMENT, INC., and ANTHONY QUE
G.R. No. 126812 1998 Nov 24

FACTS:
When the term of existence of BARRETTO & SONS expired, all its assets and
liabilities including the property located in Quiapo were transferred to respondent Pio Barretto
Realty Development, Inc. Petitioner's offer to buy the property resulted in its agreement with
respondent BARRETTO REALTY that petitioner would pay P24.5 million representing the
outstanding obligations of BARRETTO REALTY with UCPB on 30 June 1988, the deadline set
by the bank for payment; and P20 million which was the balance of the purchase price of the
property to be paid in installments within a 3-year period with interest at 18% per annum.
However, petitioner did not pay UCPB the P24.5 million loan obligation of BARRETTO
REALTY on the deadline set for payment. It asked for an extension of one month or up to 31
July 1988 to settle the obligation, which the bank granted. Moreover, petitioner again requested
another extension of sixty days to pay the loan, but the bank demurred. In the meantime
BARRETTO REALTY was able to cause the reconsolidation of the forty-three titles covering
the property subject of the purchase into two titles covering Lots 1 and 2. The reconsolidation of
the titles was made pursuant to the request of petitioner in its letter to private respondents on 25
May 1988. Respondent BARRETTO REALTY allegedly incurred expenses for the
reconsolidation amounting to P250,000.00.

ISSUE:
Whether or not the petitioner's extrajudicial rescission of its agreement with private
respondents was valid.

RULING:
Under Art. 1482 of the Civil Code, whenever earnest money is given in a contract of
sale, it shall be considered as part of the purchase price and as proof of the perfection of the
contract. Petitioner clearly stated without any objection from private respondents that the earnest
money was intended to form part of the purchase price. It was an advance payment which must
be deducted from the total price. Hence, the parties could not have intended that the earnest
money or advance payment would be forfeited when the buyer should fail to pay the balance of
the price, especially in the absence of a clear and express agreement thereon. By reason of its
failure to make payment petitioner, through its agent, informed private respondents that it would
no longer push through with the sale. In other words, petitioner resorted to extrajudicial
rescission of its agreement with private respondents.
It was held in the case of University of the Philippines v. de los Angeles that the right to
rescind contracts is not absolute and is subject to scrutiny and review by the proper court. It was
held further that rescission of reciprocal contracts may be extrajudicially rescinded unless
successfully impugned in court. If the party does not oppose the declaration of rescission of the
other party, specifying the grounds therefor, and it fails to reply or protest against it, its silence
thereon suggests an admission of the veracity and validity of the rescinding party's claim. A
such, private respondents did not interpose any objection to the rescission by petitioner of the
agreement. As found by the Court of Appeals, private respondent BARRETTO REALTY even
sold Lot 2 of the subject consolidated lots to another buyer, ASIAWORLD, one day after its
President Anthony Que received the broker's letter rescinding the sale. Subsequently, on 13
October 1988 respondent BARRETTO REALTY also conveyed ownership over Lot 1 to UCPB
which, in turn, sold the same to ASIAWORLD.
Article 1385 of the Civil Code provides that rescission creates the obligation to return the
things which were the object of the contract together with their fruits and interest. Therefore, by
virtue of the extrajudicial rescission of the contract to sell by petitioner without opposition from
private respondents who, in turn, sold the property to other persons, private respondent
BARRETTO REALTY, as the vendor, had the obligation to return the earnest money of
P1,000,000.00 plus legal interest from the date it received notice of rescission from petitioner,
i.e., 30 August 1988, up to the date of the return or payment.