G.R. No. L-67881, June 30, 1987
PILIPINAS BANK (as Successor-In-Interest to The MANUFACTURERS BANK AND TRUST COMPANY), petitioner-appellant, vs. INTERMEDIATE APPELLATE COURT and JOSE W. DIOKNO and CARMEN I. DIOKNO, respondents-appellees.

FACTS

On April 18, 1961, Hacienda Benito, Inc. (petitioner’s predecessor) and spouses Jose and Carmen Diokno (private respondents) executed a Contract to Sell over a subdivision lot. The contract contained an automatic rescission clause, stipulating that failure to pay three or more consecutive installments would render the contract automatically rescinded, with payments forfeited as liquidated damages. The Dioknos incurred arrears. From 1965 to 1973, the bank sent periodic statements of account and demand letters, and the Dioknos made partial payments and requested several extensions to settle their arrears, which the bank accepted without invoking the automatic rescission clause.
On March 27, 1974, after nearly nine years of intermittent payments and negotiations, the bank formally notified the Dioknos that the contract had been rescinded via a notarized demand, citing the automatic rescission clause. The Dioknos, who had by then secured a buyer and were prepared to pay the full balance, filed a complaint for specific performance with damages to compel the execution of a deed of absolute sale.

ISSUE

Whether the Contract to Sell was validly rescinded pursuant to its automatic rescission clause.

RULING

The Supreme Court ruled that the automatic rescission clause was validly waived by the petitioner bank. While the Court reaffirmed the doctrine from Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc. that a contractual provision for automatic rescission is legally valid and effective without judicial action, such a stipulation can be waived by the party in whose favor it operates. Waiver may be deduced from conduct indicative of an intention to renounce the right.
The bank’s conduct constituted a clear waiver. For years, it accepted late and partial payments from the Dioknos, granted multiple extensions upon their request, and continuously sent statements of account and demand letters that treated the contract as subsisting and merely sought updated payments. Crucially, throughout this prolonged period of delinquency and negotiation, the bank never invoked the automatic rescission clause or declared the contract cancelled. This consistent course of action, looking forward to receiving payments rather than treating the contract as terminated, estopped the bank from suddenly enforcing the clause in 1974. The Court affirmed the lower courts’ decisions ordering the bank to execute the deed of sale, but modified the actual damages awarded to the Dioknos to reflect the profit they would have earned from their intended resale, minus their outstanding balance with interest.