Art. 1191 Areola v.

CA (1994) FACTS:

BOYSAW V INTERPHILPROMOTIONS March 20, 1987 FACTS

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December 17, 1984: Prudential Guarantee And Assurance, Inc. issued collector's provisional receipt amounting to P1,609.65 June 29, 1985: 7 months after the issuance of petitioner Santos Areola's Personal Accident Insurance Policy, Prudential Guarantee And Assurance, Inc. unilaterally cancelled it for failing to pay his premiums through its manager Teofilo M. Malapit Shocked by the cancellation of the policy, Santos approached Carlito Ang, agent of Prudential and demanded the issuance of an official receipt. Ang told Santos that it was a mistake and assured its rectification. July 15, 1985: Santos demanded the same terms and same rate increase as when he paid the provincial receipt but Malapit insisted that the partial payment he made was exhausted and that he should pay the balance or his policy will cease to operate July 25, 1985 : Assistant Vice-President Mariano M. Ampil III apologized August 6, 1985 had filed a complaint for breach of contract with damages before the lower court August 13, 1985: Santos received through Carlito Ang the leeter of Assistant Vice-President Mariano M. Ampil III finding error on their part since premiums were not remitted Malapit, proposed to extend its lifetime to December 17, 1985 RTC: favored Santos - Prudential in Bad Faith CA: Reversed - not motivated by negligence, malice or bad faith in cancelling subject policy

- On May 1, 1961, Boysaw and manager Ketchum signed with Interphil(represented by Sarreal) a contract to engage Flash Elorde in a boxing match at Rizal Memorial Stadium on Sept 30, 1961 or not later than 30 days should a postponement be mutually agreed upon. Boysaw, according to contract, should not engage in other bouts prior to the contest.- Interphil signed Elorde to a similar agreement.- Boysaw fought and defeated Louis Avila in Nevada.- Ketchum assigned to Amado Araneta his managerial rights, who later transferred the rights to Alfredo Yulo.- Sarreal wrote to Games and Amusement Board (GAB) regarding this switch of managers because they werent notified.- GAB called for conferences and decided to schedule the Elorde-Boysaw bout on Nov 4, 1961. USA National Boxing Assoc approved.- Sarreal offered to move the fight to Oct 28 for it to be w/in the 30 day allowable postponement in the contract. Yulo refused. He was willing to approve the fight on Nov 4 provided it will be promoted by a certain Mamerto Besa.- The fight contemplated in the May 1 contract never materialized. Boysaw and Yulo sued Interphil, Sarreal and Nieto.- Boysaw was abroad when he was scheduled to take the witness stand. Lower court reset the trial. Boysaw was still absent on the later date. Court reset. On the third instance, a motion for postponement was denied.- Boysaw and Yulo moved for a new trial, but it was denied. Hence, this appeal. ISSUES 1. WON there was a violation of the May 1 contract and if so, who was guilty. 2. WON there was legal ground for postponement of the fight. 3. WON lower court erred in refusing postponement of the trial for 3rd time. 4.WON lower court erred in denying new trial 5. WON lower court erred in awarding appellees damages HELD

ISSUE: W/N the Areolas can file against damages despite the effort to rectify the cancellation HELD: YES. RTC reinstated

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Malapit's fraudulent act of misappropriating the premiums paid is beyond doubt directly imputable to Prudential Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly.

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Subsequent reinstatement could not possibly absolve Prudential there being an obvious breach of contract a contract of insurance creates reciprocal obligations for both insurer and insured Article 1191 o choice between fulfillment or rescission of the obligation in case one of the obligors fails to comply with what is incumbent upon him o entitles the injured party to payment of damages, regardless of whether he demands fulfillment or rescission of the obligation Nominal damages are "recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind, or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been or can be shown.

1. Boysaw violated the contract when he fought with Avila. Civil Code provides, thepower to rescind obligations is implied, in reciprocal ones, (as in this case) in case one of the obligors should not comply w/ what is incumbent upon him. Another violation was made in the transfers of managerial rights. These were in fact novations which, to be valid, must be consented to by Interphil. When a contract is unlawfully novated, the aggrieved creditor may not deal with thesubstitute.2. The appellees could have opted to rescind or refuse to recognize the new manager, but all they wanted was to postpone the fight owing to an injury Elorde sustained. The desire to postpone the fight is lawful and reasonable. The GAB did not act arbitrarily in acceding to the request to reset the date of the fight and Yulo himself agreed to abide by the GAB ruling. The appellees offered to move the fight w/in the 30 day period for postponement but this was refused by the appellants, notwithstanding the fact that by virtue of the appellants violations, they have forfeited any right to the enforcement of thecontract.3. The issue of denial of postponement of trial was raised in another petition for certiorari and prohibition. It cant be resurrected in this case.4. The court was correct in denying new trial. The alleged newly discovered evidence are merely clearances from clerk of court, which cant alter the result of thetrial.5. Because the appellants willfully refused to participate in the final hearing and refused to present documentary evidence, they prevented themselves from objecting to or presenting proof contrary to those adduced by the appellees.

AGUSTINA LIQUETTE TAN, petitioner, vs. COURT OF APPEALS AND SPS. MARIANO SINGSON and VISITACION SINGSON, respondents. Issue: Whether the private respondents committed a substantial breach of their obligation so as to warrant petitioner's exercise of her right to rescind the contract of sale under Article 1191 of the Civil Code. The evidence shows that defendants-appellants spouses (private respondents herein) are the owners of a house and lot located at No. 34 Easter Road, Baguio City, and covered by T.C.T. No. T-13826, which were then for sale. On June 14, 1984, plaintiff-appellee together with her agent went to see said spouses at their residence regarding the property. After appellants had shown appellee around the house and had conversation about the encumbrances and/or liens on the property, the parties finally agreed on the price of Pl,800,000.00, with appellee to advance earnest money of P200,000.00 to enable appellants to secure the cancellation of the mortgage and lien annotated on the title of the property and the balance of the price to be paid by appellee on June 21, 1984. Forthwith, appellee handed to appellants a check for P200,000.00 and thereupon the parties signed a receipt. The very same day that appellants received the earnest money of P 200,000.00, they started paying their mortgage loan with the Development Bank of the Philippines (DBP) to clear up the title of the subject property. Appellants also paid all the taxes due and in appears on the property. On June 25, 1984, appellee accompanied by her daughter Corazon and her lawyer, Atty. Vicente Quitoriano, went to Baguio City to inquire about the status of the property and appellants told her that the Development Bank of the Philippines was taking some time processing their payments and preparing the deed of cancellation of the mortgage. On that occasion, the parties agreed on an extension of two (2) weeks for the execution of the deed of sale. Here, the parties' respective versions on the matter parted ways. According to defendants-appellants, it was plaintiff who asked for the extension because she was not yet ready to pay the balance of P l,550,000.00. On the other hand, plaintiff said that it was defendants who asked for it because the title of the property was not yet cleared. Immediately, upon execution by the DBP of the deed of cancellation of mortgage of July 9, 1984, appellants tried to contact appellee and/or her daughter Corazon to come to Baguio City for the formal execution of the deed of sale, but to no avail. Instead, appellants received a telegram from Atty. Quitoriano, counsel of plaintiff, cancelling the sale and demanding the return of the P200,000.00 earnest money. Appellants countered with a letter of their lawyer, Atty. Tiofisto Rodes, calling on appellee to perform her part of the contract because "the title to the house and lot right now suffers no imperfection or doubt. Plaintiff filed in court on August 27, 1984 the case for recovery of sum of money with damages. In her complaint, plaintiff alleged that she gave defendants-appellants spouses P200,000.00 upon their assurances that they could transfer to her the house and lot she was buying from them free from any liens and encumbrances, including the furnishings thereof and the adjacent lot being used as driveway, on June 25, 1984, but that day had come and passed without appellants being able to make good their promise, because she "discovered to her shock and dismay that she had been dealt with in bad faith by defendants" as the mortgage on the property was not released or cancelled and the driveway was still public land and could not be validly transferred to her as any disposition thereof would yet require approval by the Secretary of Agriculture and Natural Resources. Hence, the suit against appellants spouses for recovery of the P200,000.00 earnest money which is, in essence and concept, one for rescission with damages.

Rulling: After a thorough examination of the allegations contained in the parties' pleadings, the Court finds the instant petition to be devoid of any merit. That 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 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 [Philippine Amusement Enterprises, Inc. v. Natividad, G.R. No. L-12876. September 29, 1967, 21 SCRA 284]. In this case, petitioner received on July 17, 1984 through her daughter Cora Tan Singson, a telegram from private respondent Visitacion Singson advising the former that the papers for the sale of the property are ready for final execution. The parties likewise met on June 25, 1984, the day agreed upon for the full payment of the purchase price, and they agreed on a further extension of two weeks for the execution of the deed of sale. Despite this agreement, 'private respondents suddenly received a telegram from Atty. Quitoriano, counsel for the petitioner, unilaterally stopping the sale and demanding the return of the earnest money paid by petitioner. Alternatively, petitioner seeks annulment of the contract on the ground of fraud since private respondents had misrepresented to her that they could validly convey title to the property subject of the contract which however is encumbered with various existing liens. The alleged breach of the obligation by the private respondents, which consists in a mere delay for a few days in clearing the title to the property, cannot be considered substantial enough to warrant rescission of the contract. A thorough review of the records clearly indicates that private respondents had substantially complied with their undertaking of clearing the title to the property which has a total land area of 886 square meters and private respondents, upon receipt of the earnest money paid by petitioner, utilized the same to settle its obligations with DBP thus enabling them to secure a cancellation of the existing mortgage, which was duly noted in the title to the property. It is a settled principle of law that rescission will not be permitted for a slight or casual breach of the contract but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement. 2. The claim that petitioner's consent to the contract was vitiated by fraud and, therefore, the contract in question is voidable is patently unmeritorious. The contract of sale is not voidable where no evidence was shown that through insidious words or machinations under Article 1338 of the Civil Code, the seller had induced the buyer to enter into the contract.

Facts:

JUANA ALMIRA, RENATO GARCIA, ROGELIO GARCIA, RODOLFO GARCIA, ROSITA GARCIA, RHODORA GARCIA, ROSALINDA GARCIA, ROLANDO GARCIA and RAFAEL GARCIA Represented in this suit by EDGARDO ALVAREZ, petitioners, vs. COURT OF APPEALS AND FEDERICO BRIONES, respondents. Facts: On July 5, 1984, petitioners, as heirs of Julio Garcia, and respondent Federico Briones entered into aKasunduan ng Pagbibilihan (Kasunduan for brevity) over the 21,460 square-meter portion for the sum of P150,000.00. Respondent paid P65,000.00 upon execution of the contract while the balance of P85,000.00 was made payable within six (6) months from the date of the execution of the instrument. Respondent willingly entered into the Kasunduan provided that the full payment of the purchase price will be made upon delivery to him of the title. Respondent took possession of the property subject of the Kasunduan and made various payments to petitioners amounting to P58,500.00. However, upon failure of petitioners to deliver to him a separate title to the property in the name of Julio Garcia, he refused to make further payments, prompting petitioners to file a civil action before the Regional Trial Court of San Pedro, Laguna, on May 13, 1991 for (a) rescission of the Kasunduan; (b) return by respondent to petitioners of the possession of the subject parcel of land; and (c) payment by respondent of damages in favor of petitioners. Petitioners alleged that respondent was bound to pay the balance of the purchase price within six (6) months from the date of the execution of the Kasunduan and upon delivery to him of TCT No. RT-1076. Petitioners claimed that they approached respondent several times to deliver TCT No. RT-1076 but respondent told them that he did not have money to pay the balance of the purchase price. Respondent, on the other hand, filed a counterclaim for damages and averred that he refused to make further payments because of petitioners failure to deliver to him a separate title in the name of Julio Garcia. Issues: (1) whether payment of the balance of the purchase price is conditioned upon delivery of a separate title in the name of Julio Garcia; (2) whether petitioners are entitled to rescind the Kasunduan for failure of respondent to complete payment of the purchase price; and (3) whether the Court of Appeals should have dismissed respondents appeal for failure to comply with Circular 28-91.

Having ruled that the kaukulang titulo ng lupang nabanggit refers to a separate title in the name of Julio Garcia, we proceed to the issue as to whether petitioners may rescind the Kasunduan pursuant to Article 1191 of the Civil Code for failure of respondent to give full payment of the balance of the purchase price. The rights of the parties are governed by the terms and the nature of the contract they enter into. Hence, although the nature of the Kasunduan was never placed in dispute by both parties, it is necessary to ascertain whether theKasunduan is a contract to sell or a contract of sale before the issue as to whether petitioners may ask for rescission of the contract may be resolved. In a contract to sell, ownership is, by agreement, reserved to the vendor and is not to pass until full payment of the purchase price; whereas, in contract of sale, title to the property passes to the vendee upon delivery of the thing sold. Non-payment by the vendee in a contract of sale entitles the vendor to demand specific performance or rescission of the contract, with damages, under Article 1191 of the Civil Code. Although both parties have consistently referred to the Kasunduan as a contract to sell, a careful reading of the provisions of the Kasunduan reveals that it is a contract of sale. A deed of sale is absolute in nature in the absence of any stipulation reserving title to the vendor until full payment of the purchase price. In such cases ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof. There is nothing in the Kasunduan which expressly provides that petitioners retain title or ownership of the property, until full payment of the purchase price. The absence of such stipulation in the Kasunduan coupled with the fact that respondent took possession of the property upon the execution of the Kasunduan indicate that the parties have contemplated a contract of absolute sale. Addressing now the issue as to whether rescission of the Kasunduan by petitioners may prosper, we rule in the negative. The power to rescind is only given to the injured party. The injured party is the party who has faithfully fulfilled his obligation or is ready and willing to perform with his obligation. In the case at bar, petitioners were not ready, willing and able to comply with their obligation to deliver a separate title in the name of Julio Garcia to respondent. Therefore, they are not in a position to ask for rescission of the Kasunduan. Moreover, respondents obligation to pay the balance of the purchase price was made subject to delivery by petitioners of a separate title in the name of Julio Garcia within six (6) months from the time of the execution of the Kasunduan, a condition with which petitioners failed to comply. Failure to comply with a condition imposed on the performance of an obligation gives the other party the option either to refuse to proceed with the sale or to waive that condition under Article 1545 of the Civil Code. Hence, it is the respondent who has the option either to refuse to proceed with the sale or to waive the performance of the condition imposed on his obligation to pay the balance of the purchase price.

Rulling: The tenor of the correspondence between petitioners and respondent shows that the parties intended that a separate title to the property in the name of Julio Garcia shall be delivered to respondent as a condition for the latters payment of the balance of the purchase price. Respondent signified his willingness to pay the balance of the purchase price but reminded petitioners of their obligation to deliver title to the property. That the parties agreed on delivery of a separate title in the name of Julio Garcia as a condition for respondents payment of the balance of the purchase price is bolstered by the fact that there was already an approved subdivision plan of the 21,460 square-meter lot years before petitioners filed an action in court for rescission.The parties evidently assumed petitioners would be able to deliver a separate title in the name of Julio Garcia to respondent within six (6) months from the time of the execution of the Kasunduan since there was already a pending petition in court for the issuance of a separate title to 21,460 square-meter lot at that time. Unfortunately, the petitioners were not able to secure a separate title in the name of Julio Garcia within the stipulated period.

DARREL CORDERO, EGMEDIO BAUTISTA, ROSEMAY BAUTISTA, MARION BAUTISTA, DANNY BOY CORDERO, LADYLYN CORDERO and BELEN CORDERO, petitioners, vs. F.S. MANAGEMENT & DEVELOPMENT CORPORATION, respondent. Facts: On or about October 27, 1994, petitioner Belen Cordero (Belen), in her own behalf and as attorney-in-fact of her co-petitioners, entered into a contract to sell with respondent, F.S. Management and Development Corporation, through its chairman Roberto P. Tolentino over five (5) parcels of land located in Nasugbu. Pursuant to the terms and conditions of the contract to sell, respondent paid earnest money in the amount ofP500,000 on October 27, 1994. She likewise paid P1,000,000 on June 30, 1995 and another P1,000,000 on July 6, 1995. No further payments were made thereafter. Petitioners thus sent respondent a demand letter dated November 28, 1996 informing her that they were revoking/canceling the contract to sell and were treating the payments already made as payment for damages suffered as a result of the breach of contract, and demanding the payment of the amount of P10 Million Pesos for actual damages suffered due to loss of income by reason thereof. Respondent ignored the demand, however. Hence, on February 21, 1997, petitioner Belen, in her own behalf and as attorney-in-fact of her co-petitioners, filed before the RTC of Paraaque a complaint for rescission of contract with damages alleging that respondent failed to comply with its obligations under the contract to sell, specifically its obligation to pay the downpayment ofP3.5 Million by April 30, 1995, and the balance within 18 months thereafter; and that consequently petitioners are entitled to rescind the contract to sell as well as demand the payment of damages. In its Answer, respondent alleged that petitioners have no cause of action considering that they were the first to violate the contract to sell by preventing access to the properties despite payment of P2.5 Million Pesos; petitioners prevented it from complying with its obligation to pay in full by refusing to execute the final contract of sale unless additional payment of legal interest is made; and petitioners refusal to execute the final contract of sale was due to the willingness of another buyer to pay a higher price. Issue: Held: Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the agreed purchase price. The full payment is a positive suspensive condition, the non-fulfillment of which is not a breach of contract but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and without force and effect. Since the obligation of petitioners did not arise because of the failure of respondent to fully pay the purchase price, Article 1191 of the Civil Code would have no application. Rayos v. Court of Appeals explained: Whether or not a contract to sell may be subject to rescission under Article 1191 of the Civil Code.
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The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force and effect. The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil Code will not apply because it presupposes an obligation already extant. There can be no rescission of an obligation that is still non-existing, the suspensive condition not having happened. The subject contract to sell clearly states that "title will be transferred by the owner (petitioners) to the buyer (respondent) upon complete payment of the agreed purchase price." Since respondent failed to fully pay the purchase price, petitioners obligation to convey title to the properties did not arise. While rescission does not apply in this case, petitioners may nevertheless cancel the contract to sell, their obligation not having arisen. This brings this Court to Republic Act No. 6552 (THE REALTY INSTALLMENT BUYER PROTECTION ACT). InRamos v. Heruela29 this Court held: Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale. In contracts to sell, RA 6552 applies. In Rillo v. Court of Appeals,30 the Court declared: x x x Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon nonpayment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. It also provides the right of the buyer on installments in case he defaults in the payment of succeeding installments x x x. [Emphasis supplied] The properties subject of the contract having been intended for commercial, and not for residential, purposes, petitioners are entitled to retain the payments already made by respondent. RA 6552 expressly recognizes the vendors right to cancel contracts to sell on installment basis industrial and commercial properties with full retention of previous payments. But even assuming that the properties were not intended for commercial or industrial purpose, since respondent paid less than two years of installments, it is not entitled to any refund. It is on this score that a modification of the challenged issuances of the appellate court is in order. Respecting petitioners claim for damages, failure to make full payment of the purchase price in a contract to sell is not really a breach, serious or otherwise, but, as priorly stated, an event that prevents the obligation of the vendor to convey title to the property from arising. Consequently, the award of damages is not warranted in this case.

Art. 1192 CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island Savings Bank, petitioners, vs. THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents. Facts: On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which mortgage was annotated on the said title the next day. The approved loan application called for a lump sum P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other property into a subdivision. On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of the contract at semi-annual installments of P3,459. Spouses were being informed by the Bank that there was no fund yet available for the release of the P63,000.00 balance. The Bank, thru its vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance. On August 13, 1965, the Monetary Board of the Central Bank, found Island Savings Bank suffering from liquidity problems, issued Resolution No. 1049, prohibiting the bank from making new loans and investments. On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the required capital to restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank. On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note, filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction for January 22, 1969. On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction, specific performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to rescind the real estate mortgage . Issues: 1. Can the action of Sulpicio M. Tolentino for specific performance prosper? 2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note? 3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage be foreclosed to satisfy said amount? Held: When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other; and when one party has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code).

The mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it constitute any defense to a decree of specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the contract by him. The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his right to collect the P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for 6 months on the supposed P80,000.00 loan, was improper considering that only P17,000.00 out of the P80,000.00 loan was released. A person cannot be legally charged interest for a non-existing debt. Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in either case. But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio M, Tolentino. Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform his reciprocal obligation to pay. Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages. Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the interest thereon. WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P 17,000.00 debt. Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt.