ARTICLE 1186 – CONSTRUCTIVE FULFILLMENT Sps. Galang obtained loan from Fortune Savings & Loan Assoc.
for
JOSEFINA TAYAG VS CA, ALBRIGIDO LEYVA
28 May 1975: Juan Galicia Sr. & Celerina Labuguin executed Deed of
Conveyance in favor of Leyva involving ½ portion of land
 Pay P3k upon execution of agreement, pay P10k after 10 days,
ASSUME GALICIA’S INDEBTEDNESS OF P10K TO PH VETERANS
BANK, pay P27k within one year
 Leyva paid P3k, P10k but did not pay P27k.
 Leyva paid PVB P6926.41 while the difference of the
indebtedness was paid by Celerina
Heirs of Galicia, Sr. asserted breach of conditions for Leyva’s non-
compliance
 Leyva argued: Celerina CONSTRUCTIVELY FULFILLED the
obligation when she paid PVB the difference of the obligation
 Heirs argued: Art 1186 cannot apply to them because they are
“obligees” while Art 1186 speaks of an “obligor” constructively
fulfilling the obligation
RTC & CA: in favor of Leyva
ISSUE: WON Celerina Labuguin constructively fulfilled the obligation of
Leyva by paying the remaining amount to PVB
HELD: Yes.
CA did not apply Art 1186 because the heirs are “obligees” while article
speaks of “obligor”
 BUT in RECIPROCAL OBLIGATIONS (like contract of sale, as in the
case), both parties are mutually obligors and obligees
 Any of the parties may, upon nonfulfillment by the other, rescind
the contract or seek its fulfillment
Heirs are not only obligees but also obligors with respect to the stipulation
of permitting Leyva to assumed loan with PVB
 But which they impeded with Celerina paid the balance of the
loan
Therefore, as vendors, they are supposed to execute the final DOS upon
Leyva’s full payment
ARTICLE 1991 – RESCISSION
CANNU VS GALANG, NATL HOME MORTGAGE FINANCE CORP
P173,800 to buy house and lot  to secure payment, real estate mortage
was constituted on same house and lot in favor of FSLA
 1990: NHMFC purchased mortgage loan from FSLA & Fernandina
Galang authorized atty-in-fact Timbang to sell
 Leticia Cannu agreed to buy property for P120k and assume balance
of mortgage obligations with NHMFC and CERF realty
 Cannu paid P75k on various dates
 DOS with Assumption of Mortgage Obligations was executed (P250k
was received by Sps. Galang)  Cannu took immediate possession of
house and lot but despite requests of Atty. Timbang to pay remaining
P45k, Cannu refused to pay
Cannu informed VP of NHMFC that ownership rights over land had been
transferred to them but NHMFC did not approve
 Failed to comply with mortgage obligation so Sps. Galang paid
outstanding obligation with NHMFC (as initial step in rescission of
DOS)
 Opposed release of TCT to Sps. Galang and filed COMPLAINT FOR
SPECIFIC PERFORMANCE: they be declared owners of the property
and reimbursements
RTC: in favor of Galang, CA: affirmed
ISSUE: WON there was substantial breach to warrant rescission
HELD: Yes, failure to pay P45k is substantial.
Even though it was only 18% of full consideration, still substantial.
 8 years lapsed without complying with obligation
 Fact that Cannu tendered check to Galang 7mos after filing of the
case is of no moment
Rescission of a party to an obligation under Art 1991 is predicated on a
breach of faith by the other party.
 However, this is not permitted for slight or casual breach of contract;
only substantial & fundamental as to defeat the object of the parties
in making agreement
No waiver of right to rescind on the part of Sps. Galang
 By accepting instalments, did not waive right to rescind
 Sps. Galang merely accepted payments because Cannu kept on
promising that she would pay
Re: DOS with consideration of P250k
 The agreement of parties is for only P120k
 What is really meant here is that P120k plus the mortgage obligation
with NHFMC
In the absence of stipulation of extrajudicial rescission, right to rescind
must be invoked judicially
 Contract of parties did not contain provision authorizing extrajudicial
rescission
 Sps. Galang should have asked for judicial intervention first to obtain
judicial declaration of rescission
MANUEL PAGTALUNAN VS RUFINA DELA CRUZ
19 July 74: Patricio Pagtalunan entered CONTRACT TO SELL house and lot
with Rufina Dela Cruz  R to pay P17,800 (P1500 as down, P150/mo as
instalments)
 Contract stated that in case of default for 90 days, contract would be
automatically rescinded
Manual claimed: R paid only P12,950 and stopped after Dec 79 hence, her
status as buyer was transformed to that of lessee and R continued to
occupy prop by mere tolerance
R alleged: she paid monthly instalments religiously until Patricio changed
his mind and offered to refund her payments but she refused
 P started harassing her and began demolishing house so she
suspended payment; they signed agreement re: suspension
 P started demolishing house again so she suspended until P returns
materials he took but P died
 R admitted having remaining balance of P5650
M filed complaint of unlawful detainer with MTC
 MTC in favor of Manuel by virtue of Art. 1991 CC
 RTC reversed: could not be automatically rescinded because there was
delivery to buyer, judicial determination must be had
 CA affirmed RTC: Maceda Law
Manuel: Maceda Law supports right of vendors to cancel sale without
judicial intervention, gave R beyond 6mos grace period
ISSUE: WON Maceda Law applies in this case
HELD: Yes.
RA 6552 (Maceda Law): special law enacted to protect buyers of real estate
on instalment payments against onerous & oppressive conditions
 “If contract is cancelled, seller shall refund the buyer the cash
surrender value of the payments of the prop…actual cancellation shall
take place 30 days from receipt by the buyer of the notice of
cancellation/demand for rescission of contract by notarial act and
upon full payment of CSV to buyer.”
 Cancellation of contract must be in accordance with Sec. 3(b)
 Patricio is SELLER but failed to rescind contract before he died;
Manuel also failed to cancel the contract
 Re: demand letter Manuel gave to Rufina, not the demand letter
contemplated by Maceda Law – merely made a formal demand upon
Rufine to vacate the premises, not notarized
Requisites under Maceda Law:
1. Notarial act of rescission
2. Refund to the buyer
3. Cancellation takes place after 30 days from receipt of notice
cancellation
Re: arrears – right and just to allow Rufina to pay arrears and settle the
balance of purchase price
If within 60 days from finality, Rufina fails to pay, she shall vacate the
premises and all she paid will be considered rentals.
NICOLAS DIEGO VS RODOLFO DIEGO, EDUARDO DIEGO
1993: Nicolas and Rodolfo entered into CONTRACT TO SELL covering
Nicolas’ share (P500k) as co-owner of family’s building
 R made down of P250k, agreed that DOS shall be executed upon
payment of remaining balance but R failed to pay
Meanwhile, building was leased to 3rd parties
 N’s share in the rents were not remitted by Eduardo instead, E gave
N’s shares in rents to R
 Despite demands of N, R and E failed to render accounting and remit
his share and fruits in the building
17 May 99: N filed complaint against R&E, prayed that E be ordered to
render accounting and to deliver to N his shares in rents
 Acc to R&E: N had no more claim since he already sold share,
asserted he would pay balance when N executes DOAS
RTC: N ceased to be co-owner – when he received P250k down, sale was
perfected and he should execute DOAS (contract of sale)
CA: affirmed RTC
ISSUE: WON the contracts remains legally binding and not rescinded /
WON there was substantial breach to warrant rescission
HELD:
Contract to sell, not contract of sale.
 Where vendor promises to execute a DOAS upon completion by
vendee of payment of price, indicates contract to sell
Remedy of rescission is not available in contracts to sell.
 No rescission to speak of in the first place
  In contract to sell, title remains with vendor and does not pass on to
vendee until purchase price is paid in full
 Payment of purchase price is positive suspensive condition
 Failure to pay is not mere or serious breach but situation that
prevents the obligation of vendor to convey title from acquiring
obligatory force
When R failed to fully pay purchase price, contract to sell was terminated
or cancelled.
 Non-fulfilment of condition prevents obligation to sell from arising
and ownership is retained by the seller
 R’s failure to pay is not breach of contract contemplated under Art
1991 but just an event that prevents N from being bound to convey
title
CONTRACT TO SELL vs CONTRACT OF SALE
 Sale: vendor lost ownership and can’t recover it except when contract
is rescinded
 Sell: vendor remains owner as long as vendee has not complied fully
with condition
o If vendor should eject vendee for failure to pay, he is
enforcing the contract, not rescinding it
GOTESCO PROP INC. VS EUGENIO & ANGELINA FAJARDO
24 Jan 95: Sps. Fajardo entered CONTRACT TO SELL with GPI for 100-sq.m.
lot (part of a mother title)
 Sps. Fajardo to pay P126k w/in 10 yrs; GPI to execute DOS upon full
payment
 Despite full payment on 2000, GPI failed to deliver title, DOS
Sps. Fajardo filed before Housing & Land Use Regulatory Board-Expanded
Natl Capital Region Field Ofc: specific performance or rescission of contract
with damages – violation of Sec 20, PD 957
 GPI argued: Art 1991 not applicable because they were actually willing
to comply with their obligation but only prevented by the reversal of
CA re: petition for inscription of technical description  legal
proceedings, subdivision of prop into individual lots
 HLURB-ENCRFO in favor of Fajardo; HLURB Board of Commissioners,
Fajardo; OP, Fajardo; CA affirmed
ISSUE: WON Sps. Fajardo have no right to rescind to contract considering
that GPI’s inability to comply was due to reasons beyond its control
HELD: No, they can rescind.
In a contract to sell, the seller's obligation to deliver the corresponding
certificates of title is simultaneous and reciprocal to the buyer's full
payment of the purchase price
 Section 25 of PD 957, which regulates the subject transaction, imposes
on the subdivision owner or developer the obligation to cause the
transfer of the corresponding certificate of title to the buyer upon full
payment
THERE WAS SUBSTANTIAL BREACH
 GPI acquired the subject property on March 10, 1992 through a Deed
of Partition and Exchange23 executed between it and Andres Pacheco
(Andres), the former registered owner of the property; did not bear
any technical description
 no plausible explanation was advanced by the petitioners as to why
the petition for inscription was filed only after almost eight (8) years
from the acquisition of the subject property
 Neither did petitioners sufficiently explain why GPI took no positive
action to cause the immediate filing of a new petition for inscription
within a reasonable time from notice of the July 15, 2003 CA Decision
which dismissed GPI’s earlier petition
 The decision of CA also did not attain finality yet, GPI should’ve filed
petition
 long delay in the performance of GPI's obligation from date of
demand on September 16, 2002 was unreasonable and unjustified
Mutual restitution is required in cases involving rescission under Article
1191
 bringing the parties back to their original status prior to the inception
of the contract
 cannot be denied that only GPI benefited from the contract, having
received full payment of the contract price plus interests as early as
January 17, 2000, while Sps. Fajardo remained prejudiced by the
persisting non-delivery of the subject lot despite full payment
GALILEO MAGLASANG (GL ENTERPRISES) VS NORTHWESTERN INC
UNIVERSITY
10 June 2004: NU engaged the services of a Quezon City-based firm,
petitioner GL Enterprises, to install a new IBS (most modern, acceptable to
CHED) for P2.7M
 IBS must be complaint with CHED & IMO standard
 Contract may be terminated if there’s substantial breach
NU paid P1M down to GL; balance, P1.97M
 2mos after, GL delivered materials to site but when they started
installing, NU halted operations
 NU: the equipment were substandard (old, no manuals and warranty
certs, reconditioned machines, did not meet IMO & CHED standards
 GL: NU breached the contract when it ordered GL to stop
RTC: both at fault, mutual restitution
CA: GL is guilty, delivery of substandard equipment = substantial breach,
applied Art 1991 CC
ISSUE: WON there was substantial breach on the part of GL
HELD: Yes.
Parties explicitly agreed that the materials to be delivered must be
compliant with the CHED and IMO standards and must be complete with
manuals
 the intent of the parties was to replace the old IBS in order to
obtain CHED accreditation for Northwestern’s maritime-related
courses
 thus incumbent upon GL Enterprises to supply the components that
would create an IBS that would effectively facilitate the learning of
the students
 GL Enterprises miserably failed in meeting its responsibility; did not
even refute that the equipment they delivered was substandard
 materials delivered were less likely to pass the CHED standards
GL argued NU should have made assessment only after the completion of
IBS + the materials may not have been the components to be used:
untenable
 Gyrocompass had no marker, model, serial no, bulb to help point the
true North; ordinary motor used for toys; steering wheel was that of a
car
Violation was not merely incidental, but directly related to the essence of
the agreement pertaining to the installation of an IBS compliant with the
CHED and IMO standards
OPTIMUM DEVT BANK VS SPS. BENIGNO & LOURDES JOVELLANOS
26 Apr 2005: Sps. Jovellanos entered into Contract to Sell with Palmera
Homes, Inc. for purchase of house and lot for P1.015M
 Sps. J took possession upon down & remaining balance, to be paid
on instalments
 Palmera Homes assigned all its rights to ODB through Deed of
Assignment
10 Apr 2006: ODB issued Notice of Delinquency & Cancellation of Contract
to Sell to J for failure to pay instalments despite demand
 25 May 2006: ODB required Sps J to vacate & deliver possession of
prop w/in 7 days but remained unceeded so filed complaint for
unlawful detainer
 Sps. J failed to file answer w/in reglementary period
MeTC: ordered Sps. J to vacate and pay ODB P5k compensation
RTC: affirmed
CA: reversed RTC, dismissed for lack of jurisdiction
ISSUE: WON ODB has right to rescind the contract by virtue of Art 1991
HELD: Yes.
ODB alleged that it was by virtue of the April 26, 2005 Contract to Sell that
Sps. Jovellanos were allowed to take possession of the subject property
 latter failed to pay the stipulated monthly installments,
notwithstanding several written and verbal notices made upon
them, it cancelled the said contract as per the Notice of
Delinquency and Cancellation (Apr 10, 2006)
 when Sps. Jovellanos refused to vacate the subject property
despite repeated demands, ODB instituted the present action for
unlawful detainer on November 3, 2006, or within one year from
the final demand made on May 25, 2006
In contract to sell, full payment of purchase price is suspensive condition.
Since object is real prop sold on instalment basis, Maceda Law governs:
1. seller shall give buyer 60-day grace period, reckoned from date
of instalment became due – PRESENT. 60-day grace period
automatically operated in favor of buyers and took effect from the
time that the maturity dates of instalment payments lapsed
2. seller must give buyer a notice of cancellation/demand for
rescission by notarial act – PRESENT. ODB sent letter on 10 Apr
2006 informing Sps re: rescission
3. seller may actually cancel the contract only after 30 days from
buyer’s receipt of notice – PRESENT. ODB gave Sps. J additional
30 days w/in which to settle their arrears and reinstate contract, or
sell or assign rights to another
Therefore, there was valid and effective cancellation of contract to sell in
acc with RA 6552 (Maceda Law)
FIL-ESTATE PROP INC, FIL-ESTATE NETWORK INC VS SPS. CONRADO &
MARIA RONQUILLO
Sps. Ronquillo purchased from FEPI an 82sq.m. condo unit @ Central Park
Place Tower for P5.174M
 29 Aug 97: Sps. R executed and signed Reservation Application,
deposited P200k
 Paid full down & monthly instalments until Sept 1998 when they
learned that construction works had stopped
 Sent 2 demand letters: refund with interest but was unheeded
 Filed complaint before HLURB; in favor of Sps. R  HLURB BOC
affirmed (Asian financial crisis in not fortuitous event)  CA affirmed
(substantial breach)
ISSUE: WON there was substantial breach to effect right of rescission of
Sps. Ronquillo

HELD: Yes.

Re: Asian financial crisis as fortuitous event

 NOT. A real estate enterprise engaged in pre-selling of condo units is
concededly a master in projections on commodities and currency
movements and business risks
 Cannot generalize that this was unforeseeable and beyond the control
of business corporations
 fluctuating movement of the Philippine peso in the foreign exchange
market is an everyday occurrence, and fluctuations in currency
exchange rates happen everyday, thus, not an instance of caso
fortuito

Non-performance of petitioners’ obligation entitles respondents to

rescission under Article 1191 NCC
 Section 23 of Presidential Decree No. 957, the rule governing the sale
of condominiums: “No installment payment made by a buyer in a
subdivision or condominium project for the lot or unit he contracted
to buy shall be forfeited in favor of the owner or developer when the
buyer, after due notice to the owner or developer, desists from further
payment due to the failure of the owner or developer to develop the
subdivision or condominium project according to the approved plans
and within the time limit for complying with the same”