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.