Inexistent obligation

Under Article 1191 of the Civil Code, when there is breach of a reciprocal obligation, the contract may be rescinded and mutual restitution may be ordered when proper. But when is there a breach of the obligation? This is answered in this case of Adela and her seven children.

Adela and her children were the registered owners of a parcel of land (lot 1083-C) with an area of 15,029 square meters and covered by TCT T-50.688. Based on a special power of attorney executed by her children authorizing her to sell, lease, mortgage, transfer and convey their rights over the property, Adela borrowed P250,000 from Manuel in the early part of 1987. To secure the loan Adela and Manuel agreed to execute a deed of real estate mortgage and a contract to sell the land. To carry out this agreement, Manuel through his lawyer drafted three documents: Deed of Real Estate Mortgage, a kasunduan (Agreement to Sell) and a Deed of Absolute Sale.

The kasunduan provided that Manuel’s children, Lita, Dely and Jim, would purchase the lot for P2,141,622.50 payable in three installments: P250,000 upon the signing of the kasunduan consisting of the amount borrowed by Adela, P750,000 on August 31, 1987 and P1,141,622.50 on December 31, 1987. The Deed of Sale was supposed to be signed by Adela upon payment of the second installment and deposit with Adela of a postdated check for the last installment. But when she signed the kasunduan, she also inadvertently signed the said Deed of Sale because the documents were stacked one on top of the other and the position where Adela’s name was typed in the kasunduan was roughly in the same location where it was typed in the Deed of Sale.

After Manuel gave the P250,000, he failed to pay the other amounts within the period stipulated. He gave Adela only P200,000 on October 30, 1987 and several amounts totaling P67,800 in the ensuing months which was received by Adela’s son. By reason of this breach, and failing to receive any more payments, Adela and her children finally sued Manuel and her children on February 18, 1993 asking that the Kasunduan be rescinded for their failure to comply with its conditions with damages pursuant to Article 1191 of the Civil Code. They also sought the annulment of the Deed of Sale signed by Adela. Can the Kasunduan be rescinded under said Article, and the Deed of Sale declared void?

Yes. The Kasunduan can be set aside but not because of a breach on the part of Manuel and her children under Article 1191.

The kasunduan is in the nature of a contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the property passes to the vendee upon delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.

Adela and her children in this case bound themselves to deliver a deed of absolute sale and clean title covering lot 1083-C after Manuel and his children have made the second installment. This promise to sell was subject to the fulfillment of the suspensive condition that Manuel’s children pay the second installment of P750,000 on August 31, 1987 and deposit a postdated check of P1,141,622.50 for the third installment. Manuel and his children however failed to pay the second installment. The non-fulfillment of the condition rendered the contract to sell ineffective and without force and effect. The breach contemplated by Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation already binding or existing, not a failure of a condition to render that obligation binding. Failure to pay in this instance is not even a breach but an event that prevents the vendor’s obligation to convey title or execute the Deed of Absolute Sale, from acquiring binding force. Hence, the agreement of the parties in this case may be set aside, not because of a breach on the part of Manuel and his children in failing to complete the second installment but because such failure prevented the obligation of Adela and her children from arising and acquiring a binding force. Since the obligation of Adela and her children to convey title has no binding force and effect, the Deed of Absolute Sale Adela executed is null and void and of no force and effect (Rivera vs. Del Rosario, G.R. 144934, January 15, 2004).

* * *

E-mail at jcson@pldtdsl.net