The Supreme Court ruled that not every failure to comply with a contract term justifies its cancellation. In Nolasco v. Cuerpo, the Court held that the failure of sellers to transfer the title of land to their names within the period stipulated in the contract did not constitute a substantial breach, especially since the buyers had a contractual remedy to undertake the transfer themselves at the sellers’ expense. This decision clarifies that rescission is only warranted when a breach defeats the very purpose of the agreement, providing crucial guidance on the application of Article 1191 of the Civil Code.

Land Title Transfer Troubles: Did Sellers’ Delay Justify Contract Cancellation?

This case revolves around a Contract to Sell a 165,775-square meter parcel of land. Rogelio S. Nolasco, et al. (sellers) entered into an agreement with Celerino S. Cuerpo, et al. (buyers) for the sale of land in Rodriguez, Rizal. The contract stipulated that the sellers would transfer the land title to their names within 90 days. The buyers, however, sought to rescind the contract due to financial difficulties and the sellers’ failure to transfer the title within the agreed timeframe. The central legal question is whether the sellers’ failure to transfer the title constituted a substantial breach that would justify rescission of the Contract to Sell.

The Regional Trial Court (RTC) and the Court of Appeals (CA) both ruled in favor of the buyers, ordering the rescission of the contract and the return of payments made. The lower courts found that the sellers’ failure to transfer the title within 90 days was a substantial breach of the contract, entitling the buyers to rescind it under Article 1191 of the Civil Code. This article states the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

The Supreme Court disagreed with the lower courts’ interpretation of what constitutes a substantial breach. The Court emphasized that not every breach warrants rescission. Rescission is permitted only for substantial and fundamental violations that defeat the very object of the parties in making the agreement. The Court noted that the contract itself provided a remedy for the buyers in case the sellers failed to transfer the title. Paragraph 7 of the Contract to Sell stated that if the sellers failed to transfer the title within the prescribed period, the buyers were authorized to undertake the transfer themselves and charge the costs to the sellers’ monthly amortizations.

7. [Petitioners] shall, within ninety (90) days from the signing of [the subject contract], cause the completion of the transfer of registration of title of the property subject of [the subject contract], from Edilberta N. Santos to their names, at [petitioners’] own expense. Failure on the part of [petitioners] to undertake the foregoing within the prescribed period shall automatically authorize [respondents] to undertake the same in behalf of [petitioners] and charge the costs incidental to the monthly amortizations upon due date.

The Supreme Court reasoned that because the contract already provided a specific recourse for the buyers in case of the sellers’ failure to transfer the title, the sellers’ non-compliance did not constitute a substantial breach that would justify rescission. The buyers had a contractual remedy available to them, which they could have exercised. Building on this principle, the Court highlighted that the failure to perform an obligation must defeat the object of the parties entering into the agreement to warrant rescission.

Furthermore, the Supreme Court noted that the sellers were declared “as in default” for failing to file a pre-trial brief, and thus, could not present evidence to support their claims for cancellation of the contract and forfeiture of payments. The Court cited Peña v. Spouses Tolentino, emphasizing that a party cannot change their theory of the case on appeal. The legal theory under which the controversy was heard and decided in the trial court should be the same theory under which the review on appeal is conducted.

Indeed, the settled rule in this jurisdiction, according to Mon v. Court of Appeals, is that a party cannot change his theory of the case or his cause of action on appeal. This rule affirms that “courts of justice have no jurisdiction or power to decide a question not in issue.” Thus, a judgment that goes beyond the issues and purports to adjudicate something on which the court did not hear the parties is not only irregular but also extrajudicial and invalid. The legal theory under which the controversy was heard and decided in the trial court should be the same theory under which the review on appeal is conducted. Otherwise, prejudice will result to the adverse party. We stress that points of law, theories, issues, and arguments not adequately brought to the attention of the lower court will not be ordinarily considered by a reviewing court, inasmuch as they cannot be raised for the first time on appeal. This would be offensive to the basic rules of fair play, justice, and due process.

FAQs

What was the key issue in this case?	The key issue was whether the sellers’ failure to transfer the land title within the stipulated period constituted a substantial breach of the Contract to Sell, justifying its rescission.
What is rescission under Article 1191 of the Civil Code?	Rescission, more accurately termed resolution, is a remedy available to a party in a reciprocal obligation when the other party fails to comply with their obligations. It is predicated on a breach of faith that violates the reciprocity between the parties.
What constitutes a substantial breach?	A substantial breach is a fundamental violation that defeats the very object of the parties in entering into the agreement. It is not a slight or casual breach, but one that goes to the core of the contract.
What did the lower courts rule in this case?	Both the RTC and the CA ruled in favor of the buyers, ordering the rescission of the Contract to Sell and the return of the payments made, finding that the sellers had committed a substantial breach.
How did the Supreme Court rule?	The Supreme Court reversed the lower courts’ decisions, holding that the sellers’ failure to transfer the title was not a substantial breach because the contract provided a remedy for the buyers.
What was the contractual remedy available to the buyers?	The contract allowed the buyers to undertake the title transfer themselves at the sellers’ expense, deducting the costs from their monthly amortizations.
Why couldn’t the sellers claim cancellation and forfeiture of payments?	The sellers were declared “as in default” for failing to file a pre-trial brief and did not properly raise this claim in the lower court, thus precluding them from doing so on appeal.
What is the significance of the Peña v. Spouses Tolentino case cited by the Court?	The case underscores the principle that a party cannot change their legal theory on appeal; the review must be conducted under the same theory as the original trial to ensure fairness.

In conclusion, the Supreme Court’s decision in Nolasco v. Cuerpo serves as a crucial reminder that not every contractual breach justifies rescission. The availability of a specific contractual remedy and the failure to demonstrate a substantial breach that defeats the core purpose of the agreement are critical factors in determining whether rescission is warranted. This ruling provides valuable guidance for parties involved in contract disputes, emphasizing the importance of adhering to contractual provisions and presenting consistent legal arguments.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Rogelio S. Nolasco, et al. vs. Celerino S. Cuerpo, et al., G.R. No. 210215, December 09, 2015