Barretto owned parcels of land which were mortgaged to UCPB. Barretto failed to pay; the properties were foreclosed. Goldenrod made an offer to Barretto that it would buy the properties and pay off the remaining balance of Barretto’s loan with UCPB. It paid Barretto 1 million pesos as part of the purchase price. The remaining balance would be paid once Barretto had consolidated the titles. On the date that Goldenrod was supposed to pay, Goldenrod asked for an extension. UCPB agreed. When the extension date arrived, Goldenrod asked for another extension. UCPB refused. Barretto successfully consolidated the titles. Goldenrod informed Barretto that it would not be able to push through with their agreement. It asked Barretto to return the 1 million pesos. Barretto did not give in to Goldenrod’s rescission. Instead, it sold the property that was part of their agreement to Asiaworld.

Issue:

Should Goldenrod be paid back the 1 million pesos?

Held:

Yes. Rescission creates the obligation to return the things which were the object of the contract together with the fruits and interest. Barretto is obliged to pay Goldenrod back because 1) Goldenrod decided to rescind the sale; 2) the transaction was called off and; 3) the property was sold to a third person. By virtue of the extrajudicial rescission of the contract to sell by Goldenrod, without opposition from Barretto, who in turn sold it to a third person, Barretto had the obligation to return the 1 million pesos plus legal interest from the date it received the notice of rescission.