Mila A. Reyes Vs.

Victoria Tuparan
FACTS
Petitioner Mila Reyes owns a three-storey commercial building in Valenzuela City.
Respondent, Victoria Tuparan leased a space on said building for a monthly rental of P4,
000. A close friendship developed between the two which led the respondent to invest
in petitioner's financing business. On June 20, 1988, Petitioner borrowed P2 Million from
Farmers Savings and Loan Bank (FSL Bank) and mortgaged the building and lot (subject
real properties). Reyes decided to sell the property for P6.5 Million to liquidate her loan
and finance her business. Respondent offered to conditionally buy the real properties for
P4.2 Million on installment basis without interest and to assume the bank loan. The
conditions are the following:
1. Sale will be cancelled if the petitioner can find a buyer of said properties for the
amount of P6.5 Million within the next three months. All payments made by the
respondent to the petitioner and the bank will be refunded to Tuparan with an additional
6% monthly interest.
2. Petitioner Reyes will continue using the space occupied by her drug store without
rentals for the duration of the installment payments.
3. There will be a lease for 15 years in favor of Reyes for a monthly rental of P8, 000
after full payment has been made by the defendant.
4. The defendant will undertake the renewal and payment of the fire insurance
policies of the 2 buildings, following the expiration of the current policies, up to the time
the respondent has fully paid the purchase price.
They presented the proposal for Tuparan to assume the mortgage to FSL Bank. The
bank approved on the condition that the petitioner would remain as co-maker of the
mortgage obligation. FSL Bank and and the parties executed Deed of Conditional Sale of
Real Properties wiyh Assumption of Mortgage.
Petitioner's Contention
Under their Deed of Conditional Sale, the respondent is obliged to pay a lump sum of
P1.2 Million in three fixed installments. Respondent, however defaulted in the payment
of the installments. To compensate for her delayed payments, respondent agreed to pay
petitioner monthly interest. But again, respondent failed to fulfill this obligation. The
petitioner further alleged that despite her success in finding another buyer according to
their conditional sale agreement, respondent refused to cancel their transaction. The
respondent also neglected to renew the fire insurance policy of the buildings. So the
petitioner filed a Complaint for Rescission of Contract with damages against Victoria
Tuparan.
Respondent's Answer
Respondent alleges that the deed of Conditional Sale of Real Property with Assumption
of Mortgage was actually a pure and absolute contract of sale with a term period. It
could not be considered a conditional sale because the performance of the obligation
therein did not depend upon a future and uncertain event. She also averred that she

was able to fully pay the loan and secure the release of the mortgage. Since she also
paid more than the P4.2 Million purchase price, rescission could not be resorted to since
the parties could no longer be restored to their original positions.
ISSUE
Can the Deed of Conditional Sale be Rescinded?
RULING(S)
RTC
The deed of conditional sale was a contract to sell. It was of the opinion that
although the petitioner was entitled to a rescission of the contract, it could not be
permitted because her non-payment in full of the purchase price may not be
considered as substantial and fundamental breach of the contract as to defeat the
object of the parties in entering into the contract. The RTC believed that respondent
showed her sincerity and willingness to settle her obligation. Hence, it would be more
equitable to give respondent a chance to pay the balance plus interest within a given
period of time. The court ordered the respondent to pay the petitioner the unpaid
balance of the purchase price within 30 days from the finality, failure to pay said
amount will cause automatic rescission.
CA
The CA affirmed but modified RTCs decision. They ruled that the remedy of rescission
could not apply because the respondents failure to pay the petitioner the balance of
the purchase price in the total amount of 805,000.00 was not a breach of contract, but
merely an event that prevented the seller (petitioner) from conveying title to the
purchaser (respondent). Since respondent had already paid a substantial amount of the
purchase price, it was but right and just to allow her to pay the unpaid balance of the
purchase price plus interest. The rulling of the RTC on the automatic rescission of
the Deed Of Conditional Sale is deleted.
SC
The SC agrees that the conditional sale is a contract to sell. The title and ownership of
the subject properties remains with the petitioner until the respondent fully pays the
balance of the purchase price and the assumed mortgage obligation. Without
respondents full payment, there can be no breach of contract to speak of because
petitioner has no obligation yet to turn over the title. The court agrees that a substantial
amount of the purchase price has already been paid. It is only right and just to allow
Tuparan to pay the said unpaid balance of the purchase price to Reyes. Granting that a
rescission can be permitted under Article 1191, the Court still cannot allow it for the
reason that, considering the circumstances, there was only a slight or casual breach in
the fulfillment of the obligation. The court considered fulfillment of 20% of the purchase

price is NOT a substantial breach. Unless the parties stipulated it, rescission is allowed
only when the breach of the contract is substantial and fundamental to the fulfillment of
the obligation. Whether the breach is slight or substantial is largely determined by the
attendant circumstance. As for the 6% interest, petitioner failed to substantiate her
claim that the respondent committed to pay it. Petition is denied.

In a contract to sell, title is retained by the vendor until the full payment of
the purchase price. Thus, the non-payment of the purchase price is an
event which terminates the contract to sell. Since title has not
transferred, there is no need of judicial action to terminate the
contract.
In a contract of sale, the seller conveys ownership over the property and
cannot recover it until and unless the contract is resolved or rescinded.
If the contract is silent on the manner of rescission, the seller must file
an action for rescission in court. However, it is permissible to stipulate
in the contract of sale that default by the buyer shall result to
automatic rescission without need of judicial action. Thus, it is
advisable to include an automatic rescission clause in a contract of
sale in order to avoid unnecessary litigation.