The private respondent executed a Deed of Sale with Assumption of Mortgage, with a balance of P1.8 million, in favor of the petitioners. Pursuant to said agreements, plaintiffs paid the bank (BPI) for three (3) months until they were advised that the Application for Assumption of Mortgage was denied. This prompted the plaintiffs not to make any further payment. Private respondent wrote the petitioners informing the non-fulfillment of the obligations. Petitioners, thru counsel responded that they are willing to pay in cash the balance subject to several conditions. Private respondents sent a notarial notice of cancellation/rescission of the Deed of Sale. Petitioners filed a complaint which was consequently dismissed by an outgoing judge but was reversed by the assuming judge in their Motion for Reconsideration. The Court of Appeals reinstated the decision to dismiss.
Whether or not there is a substantial breach of contract that would entitle its rescission.
YES. Article 1191 of the New Civil Code applies. The breach committed did not merely consist of a slight delay in payment or an irregularity; such breach would not normally defeat the intention of the parties to the contract. Here, petitioners not only failed to pay the P1.8 million balance, but they also imposed upon private respondents new obligations as preconditions to the performance of their own obligation. In effect, the qualified offer to pay was a repudiation of an existing obligation, which was legally due and demandable under the contract of sale. Hence, private respondents were left with the legal option of seeking rescission to protect their own interest.