FACTS: Petitioners and respondents entered into a Contract to Sell over a parcel of land. The subject contract states that “[t]he [petitioners] shall, within ninety (90) days from the signing thereof cause the completion of the transfer of registration of title of the property subject of [the said contract], from Edilberta N. Santos to their names, at [petitioners’] own expense.”
Respondents sent petitioners a letter seeking to rescind the subject contract on the ground of financial difficulties in complying with the same. They also sought the return of the amount they had paid to petitioners.As their letter went unheeded, respondents filed a complaint for rescission before the RTC. Petitioners countered that respondents’ act is a unilateral cancellation of the subject contract as the former did not consent to it. Moreover, the ground of financial difficulties is not among the grounds provided by law to effect a valid rescission.
The RTC ruled that respondents were entitled to rescission under Article 1191 of the Civil Code.
The CA affirmed the RTC ruling that petitioners substantially breached paragraph 7 of the subject contract when they did not effect the transfer of the subject land from Edilberta N. Santos to petitioners’ names within ninety (90) days from the execution of said contract, thus, entitling respondents to rescind the same.
ISSUE: Whether the rescission of the Contract to Sell is proper.
RULING: No. There is no substantial breach of paragraph 7 on the part of petitioners that would necessitate a rescission of the subject contract.
The right of rescission under Article 1191 is predicated on a breach of faith that violates the reciprocity between the parties to the contract. This retaliatory remedy is given to the contracting party who suffers the injurious breach on the premise that it is ‘unjust that a party be held bound to fulfill his promises when the other violates his.'” Note that the rescission (or resolution) of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the very object of the parties in making the agreement.
Similarly, for a contracting party to be entitled to rescission (or resolution) in accordance with Article 1191 of the Civil Code, the other contracting party must be in substantial breach of the terms and conditions of their contract. A substantial breach of a contract, unlike slight and casual breaches thereof, is a fundamental breach that defeats the object of the parties in entering into an agreement.
Here, it cannot be said that petitioners’ failure to undertake their obligation under paragraph 7 defeats the object of the parties in entering into the subject contract, considering that the same paragraph provides respondents contractual recourse in the event of petitioners’ non-performance of the aforesaid obligation, that is, to cause such transfer themselves in behalf and at the expense of petitioners.
Hence, the Decision of the CA, affirming the RTC, was reversed and the Contract to Sell was held valid and subsisting.
