GR 135528; (July, 2004) (Digest)
G.R. No. 135528; July 14, 2004
SPOUSES ORLANDO A. RAYOS and MERCEDES T. RAYOS, petitioners, vs. THE COURT OF APPEALS and SPOUSES ROGELIO and VENUS MIRANDA, respondents.
FACTS
Petitioners, the Spouses Rayos, secured a loan from Philippine Savings Bank (PSB) secured by a real estate mortgage on their property. On December 26, 1985, they executed a Deed of Sale with Assumption of Mortgage over the same property in favor of respondents, the Spouses Miranda. Subsequently, on January 29, 1986, the parties executed a separate Contract to Sell for a higher price, stipulating that the sellers would execute a deed of absolute sale upon the buyers’ full payment. The respondents paid the first three quarterly loan installments to PSB. However, PSB disapproved Rogelio Miranda’s formal application to assume the loan. Meanwhile, Orlando Rayos acted as Miranda’s counsel in a separate case, leading to a dispute over attorney’s fees.
ISSUE
The core issue is whether the petitioners were justified in refusing to execute the deed of absolute sale and in paying the final loan installment themselves, thereby effectively rescinding the Contract to Sell, due to the respondents’ failure to fully pay the purchase price and assume the mortgage obligation.
RULING
The Supreme Court denied the petition and affirmed the Court of Appeals’ decision, ordering the petitioners to convey the property upon the respondents’ payment of the final installment. The legal logic centers on the nature of the Contract to Sell and the principle of substantial performance. The contract created a conditional obligation; the vendors’ duty to execute a deed of absolute sale was contingent upon the vendees’ full payment of the purchase price. The respondents’ failure to pay the last quarterly installment constituted a breach.
However, the Court found that the petitioners’ act of paying the final installment was not a valid rescission but an acknowledgment that the respondents’ obligation was merely to pay the remaining balance. The respondents had substantially performed their obligations under the contract by paying the first three installments and a significant portion of the purchase price. The disapproval of the loan assumption by PSB did not nullify the contract, as the primary obligation remained the payment of the price. Since the petitioners had, through their own subsequent actions and pleadings, demonstrated a willingness to accept the late payment of the final sum, they could not unilaterally rescind the contract. The respondents were thus entitled to specific performance upon settling the outstanding amount.