Velarde vs.

CA
Facts:

David Raymundo (respondent) is the absolute and registered owner of a parcel of

land, together with the house and other improvements, which was under mortgage.

Raymundos father negotiated with Avelina and Mariano Velarde (petitioners) for the
sale of the parcel of land, and A Deed of Sale with Assumption of Mortgage was
executed in favor of the Velardes.

Part of the consideration of the sale was the downpayment of P800,000 and the
Velardes assumption to pay the mortgage obligations of the property in the amount
of 1,800,000.00 in favor of the Bank of the Philippine Islands.

And while their application for the assumption of the mortgage obligations is not yet
approved by the mortgagee bank, they agreed to pay the mortgage obligations on
the property with the bank in the name of Mr. David Raymundo.

It was further stated in an undertaking agreement that in the event that the Velardes
violate any of the terms and conditions of the said Deed of Assumption of Mortgage,
they agree that the downpayment of P800,000.00, plus all the payments made with
the BPI on the mortgage loan, shall be forfeited in Favor of Mr. Raymundo, as and by
way of liquidated damages, w/out necessity of notice or any judicial declaration to
that effect, and Mr. Raymundo shall resume total and complete ownership and
possession of the property, and the sale shall be deemed automatically cancelled,
signed by the Velardes.

Pursuant to said agreements, the Velardes paid BPI the monthly interest loan for
three months but stopped in paying the mortgage when informed that
their application for the assumption of mortgage was not approved.
Raymundo wrote the Velardes, informing them that their non-payment to the mortgagee bank
constituted non-performance of their obligation.
The Velardes responded and advised the vendor that they were willing to pay provided that Mr.
Raymundo:
(1) delivers actual possession of the property to them not later than January 15, 1987 for their
occupancy
(2) causes the release of title and mortgage from the BPI and make the title available and free
from any liens and encumbrances
(3) executes an absolute deed of sale in their favor free from any liens and encumbrances not
later than Jan. 21, 1987.
Raymundo sent the Velardes a notarial notice of cancellation/recission of the intended sale
of the subject property, due to the latters of the subject property allegedly due to the latters
failure to comply with the terms and conditions of the Deed of Sale with Assumption of
Mortgage and the Undertaking agreement
Consequently, the Velardes filed a complaint against Raymundo for specific performance,
nullity of cancellation, writ of possession and damages.
RTC: dismissed the complaint of the Velardes against Raymundo.
MR: granted. (different judge, because the initial RTC judge got promoted to the CA)
The court instructed the Velardes to pay the balance of P 1.8 million to Mr. Reymundo who, in
turn executed a deed of absolute sale and surrendered the disputed property to the Velardes.
CA: set aside the MR and reinstated the RTC decision, upholiding the validity of the
rescission made by Reymundo.

Issue: Whether the rescission of contract made by Reymundo is valid.

Held: Yes. There is a breach of contract because the Velardes did not merely stop paying
the mortgage obligations but they also failed to pay the balance purchase price. (1,800,000)
Their conditional offer by the Velardes cannot take the place of actual payment as would
discharge the obligation of the buyer under contract of sale.
Mr. Raymundos source of right to rescind the contract is Art. 1191 of the Civil Code predicated
on a breach of faith by the other party who violates the reciprocity between them.
Moreover, the new obligations as preconditions to the performance of the Velardes own
obligation were repudiation of an existing obligation, which was legally due and demandable
under the contract of sale.
The breach committed by the Velardes was the non-performance of a reciprocal obligation. The
mutual restitution is required to bring back the parties to their original situation prior to the
inception of the contract. The initial payment and the mortgage payments advanced by Velarde
should be returned by private respondents, lest the latter unjustly enriched at the expense of the
other. Rescission creates the obligation to return the obligation of contract. To rescind, is to
declare a contract void at its inception and to put an end to it as though it never was.
The decision of the CA is affirmed with modification that Reymundo is ordered to return to
Velarde, the amount they have received in advanced payment.