FIRST DIVISION

[G.R. No. 172259. December 5, 2006.]

SPS. JAIME BENOS and MARINA BENOS , petitioners, vs . SPS.

GREGORIO LAWILAO and JANICE GAIL LAWILAO , respondents.

DECISION

YNARES-SANTIAGO , J : p

This petition for review under Rule 45 of the Rules of Court assails the December
5, 2005 Decision 1 of the Court of Appeals in CA-G.R. SP No. 78845, a rming the
Judgment 2 dated July 1, 2003 of the Regional Trial Court of Bontoc, Mountain
Province, Branch 35, in Civil Case No. 1091. The Regional Trial Court reversed the
Decision 3 dated November 14, 2002 of the Municipal Circuit Trial Court of Bauko,
Mountain Province in Civil Case No. 314, and ordered the consolidation of ownership of
subject property in the name of respondent-spouses Gregorio and Janice Gail Lawilao.
Also assailed is the March 17, 2006 Resolution 4 denying petitioners' motion for
reconsideration.
The antecedent facts are as follows:
On February 11, 1999, petitioner-spouses Jaime and Marina Benos ("the Benos
spouses") and respondent-spouses Gregorio and Janice Gail Lawilao ("the Lawilao
spouses") executed a Pacto de retro Sale 5 where the Benos spouses sold their lot
covered by Tax Declaration No. 25300 and the building erected thereon for
P300,000.00, one half of which was to be paid in cash to the Benos spouses and the
other half to be paid to the bank to pay off the loan of the Benos spouses which was
secured by the same lot and building. Under the contract, the Benos spouses could
redeem the property within 18 months from date of execution by returning the contract
price, otherwise, the sale would become irrevocable without necessity of a nal deed to
consolidate ownership over the property in the name of the Lawilao spouses.
After paying the P150,000.00, the Lawilao spouses immediately took possession
of the property and leased out the building thereon. However, instead of paying the loan
to the bank, Janice Lawilao restructured it twice. Eventually, the loan became due and
demandable.
On August 14, 2000, a son of the Benos spouses paid the bank P159,000.00
representing the principal and interest. On the same day, the Lawilao spouses also went
to the bank and offered to pay the loan, but the bank refused to accept the payment.
The Lawilao spouses then led with the Municipal Circuit Trial Court a petition 6
docketed as Civil Case No. 310 for consignation against the bank and simultaneously
deposited the amount of P159,000.00. Upon the bank's motion, the court dismissed
the petition for lack of cause of action. TEDAHI

Subsequently, the Lawilao spouses led with the Municipal Circuit Trial Court a
complaint docketed as Civil Case No. 314, for consolidation of ownership. This
complaint is the precursor of the instant petition. The Benos spouses moved to
dismiss on grounds of lack of jurisdiction and lack of cause of action but it was denied
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 and the parties went to trial.
On November 14, 2002, the Municipal Circuit Trial Court rendered judgment in
favor of the Benos spouses, the dispositive portion of which states:
IN THE LIGHT of all the foregoing considerations, for lack of legal and
factual basis to demand consolidation of ownership over the subject property, the
above-entitled case is hereby ordered dismissed.

No pronouncement as to damages on the ground that no premium should

be assessed on the right to litigate.
No costs.

SO ORDERED. 7

The Lawilao spouses appealed before the Regional Trial Court which reversed
the Municipal Circuit Trial Court and declared the ownership of the subject property
consolidated in favor of the Lawilao spouses. 8
The Benos spouses appealed to the Court of Appeals which a rmed the
Regional Trial Court on December 5, 2005. The dispositive portion of the Decision
reads:
WHEREFORE, the petition for review is DISMISSED for lack of su cient
merit. The decision rendered by the Regional Trial Court, Branch 35, Bontoc,
Mountain Province in Civil Case No. 1091 on 1 July 2003, reversing the decision
of the Municipal Circuit Trial Court of Bauko-Sabangan, Mountain Province in
(Civil Case No.) 314, is AFFIRMED.

SO ORDERED. 9

The appellate court denied petitioners' motion for reconsideration, hence, the
instant petition on the following assignment of errors:
4.0. It was error for the Regional Trial Court and, subsequently, the
Court of Appeals to rule that respondents can consolidate ownership over the
subject property.

4.1. It was likewise error for said lower courts not to have ruled that the
contract between the parties is actually an equitable mortgage. 1 0

The Benos spouses argue that consolidation is not proper because the Lawilao
spouses violated the terms of the contract by not paying the bank loan; that having
breached the terms of the contract, the Lawilao spouses cannot insist on the
performance thereof by the Benos spouses; that the contract was actually an equitable
mortgage as shown by the inadequacy of the consideration for the subject property;
and that respondent-spouses' remedy should have been for recovery of the loan or
foreclosure of mortgage.
The Lawilao spouses, on the other hand, assert that the Pacto de retro Sale
re ected the parties' true agreement; that the Benos spouses cannot vary its terms and
conditions because they did not put in issue in their pleadings its ambiguity, mistake or
imperfection as well as its failure to express the parties' true intention; that the Benos
spouses admitted its genuineness and due execution; and that the delivery of the
property to the Lawilao spouses after the execution of the contract shows that the
agreement was a sale with a right of repurchase and not an equitable mortgage. ADaSET

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 The Lawilao spouses also claim that they complied with their obligation when
they offered to pay the loan to the bank and led a petition for consignation; and that
because of the failure of the Benos spouses to redeem the property, the title and
ownership thereof immediately vested in them (Lawilao spouses).
The issue for resolution is whether the Lawilao spouses can consolidate
ownership over the subject property.
The petition is impressed with merit.
In ruling for respondents, the Court of Appeals held that: (1) the pacto de retro
sale was perfected because the parties voluntarily agreed upon the object thereof and
the price; (2) the Lawilao spouses acquired possession over the property immediately
after execution of the pacto de retro sale; (3) the pacto de retro sale does not provide
for automatic rescission in case the Lawilao spouses fail to pay the full price; (4) the
Benos spouses did not rescind the contract after the Lawilao spouses failed to pay the
P150,000.00 loan; (5) Janice Lawilao offered to pay the loan and deposited
P150,000.00 to the bank although the period for payment had expired thus, complying
with Article 1592 of the Civil Code allowing payment even after expiration of the period
as long as no demand for rescission of the contract had been made either judicially or
by a notarial act; (6) the title and ownership of the Lawilao spouses became absolute
when the Benos spouses failed to repurchase the lot within the redemption period; and
(7) the payment by the Benos spouses' son of P159,000.00 to the bank does not
amount to a repurchase as it violates Article 1616 of the Civil Code requiring the vendor
to return to the vendee the price of the sale, the expenses of the contract and other
necessary and useful expenses. 1 1
Contrary to the aforesaid ndings, the evidence shows that the Lawilao spouses
did not make a valid tender of payment and consignation of the balance of the contract
price. As correctly found by the Regional Trial Court:
As matters stand, no valid tender of payment and/or consignation of the
P150,000.00 which the Appellant (Lawilaos) still owes the Appellee (Benos) has
been effected by the former. The amount of P159,000.00 deposited with the
MCTC is in relation to Civil Case No. 310 earlier dismissed by said court, and
not to the instant action . Hence, this Court cannot automatically apply such
sum in satisfaction of the aforesaid debt of the Appellant and order the Appellee
creditor to accept the same. 1 2 (Emphasis supplied)

The Lawilao spouses did not appeal said nding, and it has become nal and
binding on them. Although they had repeatedly alleged in their pleadings that the
amount of P159,000.00 was still with the trial court which the Benos spouses could
withdraw anytime, they never made any step to withdraw the amount and thereafter
consign it. Compliance with the requirements of tender and consignation to have the
effect of payment are mandatory. Thus —
Tender of payment is the manifestation by debtors of their desire to
comply with or to pay their obligation. If the creditor refuses the tender of
payment without just cause, the debtors are discharged from the obligation by the
consignation of the sum due. Consignation is made by depositing the proper
amount to the judicial authority, before whom the tender of payment and the
announcement of the consignation shall be proved. All interested parties are
to be noti ed of the consignation . Compliance with these requisites is
mandatory . 1 3 (Emphasis supplied)

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 In the instant case, records show that the Lawilao spouses led the petition for
consignation against the bank in Civil Case No. 310 without notifying the Benos
spouses. The petition was dismissed for lack of cause of action against the bank.
Hence, the Lawilao spouses failed to prove their offer to pay the balance of the
purchase price and consignation. In fact, even before the filing of the consignation case,
the Lawilao spouses never notified the Benos spouses of their offer to pay. aEACcS

Thus, as far as the Benos are concerned, there was no full and complete payment
of the contract price, which gives them the right to rescind the contract pursuant to
Articles 1191 in relation to Article 1592 of the Civil Code, which provide:
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 ful llment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen ful llment, 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 of the
Mortgage Law.
Art. 1592. In the sale of immovable property, even though it may have
been stipulated that upon failure to pay the price at the time agreed upon the
rescission of the contract shall of right take place, the vendee may pay, even after
the expiration of the period, as long as no demand for rescission of the contract
has been made upon him either judicially or by a notarial act. After the demand,
the court may not grant him a new term.

In the instant case, while the Benos spouses did not rescind the Pacto de retro
Sale through a notarial act, they nevertheless rescinded the same in their Answer with
Counterclaim where they stated that:
14. Plaintiffs did not perform their obligation as spelled out in the
Pacto de retro Sale (ANNEX "A"), particularly the assumption of the obligation of
defendants to the Rural Bank of Bontoc. Defendants were the ones who paid their
loan through their son, ZALDY BENOS. As a result, ANNEX "A" is rendered null and
of no effect. Therefore, the VENDEE a retro who is one of plaintiffs herein cannot
consolidate her ownership over the property subject of the null and ineffective
instrument.

15. Since plaintiffs did not perform their corresponding obligation

under ANNEX "A", defendants have been all too willing to return the amount of
ON[E] HUNDRED FIFTY THOUSAND PESOS (P150,000.00) and reasonable
interest thereon to plaintiffs. But plaintiffs refused to accept the same.
With the ling of this answer, defendants pray that this serves as a notice
of tender of payment, and they shall consign the amount with the proper court as
soon as it is legally feasible. 1 4

They also prayed that the Municipal Circuit Trial Court render judgment "
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 [d]eclaring the Pacto de retro Sale rescinded or ineffective or void for lack of, or
insufficient consideration." 1 5
I n Iringan v. Court of Appeals , 1 6 we ruled that "even a crossclaim found in the
Answer could constitute a judicial demand for rescission that satis es the requirement
of the law." Similarly, the counterclaim of the Benos spouses in their answer satis ed
the requisites for the judicial rescission of the subject Pacto de retro Sale.
The Municipal Circuit Trial Court thus correctly dismissed the complaint for
consolidation of ownership led by the Lawilao spouses for their failure to comply with
the conditions of the Pacto de retro Sale. Nevertheless, it refused to declare the
rescission of the Pacto de retro Sale as prayed for in the counterclaim of the Benos
spouses, stating that:
How about the other obligations and/or rights owing to either party by
virtue of the Pacto de retro Sale? This, the court opines that it can not delve into
without overstepping the limits of his functions there being appropriate remedies.
It is hornbook in our jurisprudence that a right in law may be enforced and a
wrong way be remedied but always through the appropriate action. 1 7

The issue of rescission having been put in issue in the answer and the same
having been litigated upon without objections by the Lawilao spouses on grounds of
jurisdiction, the Municipal Circuit Trial Court should have ruled on the same and wrote
finis to the controversy. DTcACa

Thus, as a necessary consequence of its ruling that the Lawilao spouses

breached the terms of the Pacto de retro Sale, the Municipal Circuit Trial Court should
have rescinded the Pacto de retro Sale and directed the Benos spouses to return
P150,000.00 to the Lawilao spouses, pursuant to our ruling in Cannu v. Galang , 1 8 to
wit:
Petitioners maintain that inasmuch as respondents-spouses Galang were
not granted the right to unilaterally rescind the sale under the Deed of Sale with
Assumption of Mortgage, they should have rst asked the court for the rescission
thereof before they fully paid the outstanding balance of the mortgage loan with
the NHMFC. They claim that such payment is a unilateral act of rescission which
violates existing jurisprudence.

In Tan v. Court of Appeals, this court said:

. . . [T]he power to rescind obligations is implied in reciprocal ones in
case one of the obligors should not comply with what is incumbent upon
him is clear from a reading of the Civil Code provisions. However, it is
equally settled that, in the absence of a stipulation to the contrary, this
power must be invoked judicially; it cannot be exercised solely on a party's
own judgment that the other has committed a breach of the obligation.
Where there is nothing in the contract empowering the petitioner to rescind
it without resort to the courts, the petitioner's action in unilaterally
terminating the contract in this case is unjustified.
It is evident that the contract under consideration does not contain a
provision authorizing its extrajudicial rescission in case one of the parties fails to
comply with what is incumbent upon him. This being the case, respondents-
spouses should have asked for judicial intervention to obtain a judicial
declaration of rescission. Be that as it may, and considering that respondents-
spouses' Answer (with a rmative defenses) with Counterclaim seeks for the
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 rescission of the Deed of Sale with Assumption of Mortgage, it behooves the
court to settle the matter once and for all than to have the case re-litigated again
on an issue already heard on the merits and which this court has already taken
cognizance of. Having found that petitioners seriously breached the contract, we,
therefore, declare the same is rescinded in favor of respondents-spouses.
As a consequence of the rescission or, more accurately, resolution of the
Deed of Sale with Assumption of Mortgage, it is the duty of the court to require
the parties to surrender whatever they may have received from the other. The
parties should be restored to their original situation.
The record shows petitioners paid respondents-spouses the amount of
P75,000.00 out of the P120,000.00 agreed upon. They also made payments to
NHMFC amounting to P55,312.47. As to the petitioners' alleged payment to CERF
Realty of P46,616.70, except for petitioner Leticia Cannu's bare allegation, we nd
the same not to be supported by competent evidence. As a general rule, one who
pleads payment has the burden of proving it. However, since it has been admitted
in respondents-spouses' Answer that petitioners shall assume the second
mortgage with CERF Realty in the amount of P35,000.00, and that Adelina
Timbang, respondents-spouses' very own witness, testi ed that same has been
paid, it is but proper to return this amount to petitioners. The three amounts total
P165,312.47 — the sum to be returned to petitioners. AcICTS

WHEREFORE, the petition is GRANTED. The Decision dated December 5, 2005

and Resolution dated March 17, 2006 of the Court of Appeals in CA-G.R. SP No. 78845,
a rming the Judgment dated July 1, 2003 of the Regional Trial Court of Bontoc,
Mountain Province, Branch 35, in Civil Case No. 1091, are REVERSED and SET ASIDE.
The Decision dated November 14, 2002 of the Municipal Circuit Trial Court of Bauko,
Mountain Province in Civil Case No. 314 dismissing respondents' complaint for
consolidation of ownership and damages is REINSTATED WITH THE MODIFICATION
that the Pacto de retro Sale dated February 11, 1999 is declared rescinded and
petitioners are ordered to return the amount of P150,000.00 to respondents. No costs.
SO ORDERED.
Panganiban, C.J., Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.
Footnotes
1. Rollo, pp. 25-33. Penned by Associate Justice Santiago Javier Ranada and concurred in
by Associate Justices Roberto A. Barrios and Mario L. Guariña III.
2. Id. at 46-49. Penned by Pairing Judge Artemio B. Marrero.
3. Id. at 38-45. Penned by Judge James P. Kibiten.
4. Id. at 23.
5. Id. at 35-36.
6. Id. at 42.
7. Id. at 44-45.
8. Id. at 49.
9. Id. at 32.

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 10. Id. at 12.
11. Id. at 30-32.
12. Id. at 49.
13. Ramos v. Sarao, G.R. No. 149756, February 11, 2005, 451 SCRA 103, 118-119.
14. CA rollo, p. 37.
15. Id. at 38.
16. 418 Phil. 286, 296 (2001).
17. Rollo, p. 44.
18. G.R. No. 139523, May 26, 2005, 459 SCRA 80, 99-101.

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