SPS. RAYOS vs CA and SPS.

MIRANDA
G.R. No. 135528 July 14, 2004

FACTS: Orlando A. Rayos, a practicing lawyer, and his wife, petitioner Mercedes T. Rayos, secured a short-
term loan from the Philippine Savings Bank (PSB) payable within a period of one (1) year in quarterly
installments of P29,190.28, the first quarterly payment to start on March 24, 1986. The loan was evidenced
by a promissory note. To secure the payment of the loan, the petitioners-spouses executed, on the same
date, a Real Estate Mortgage over their property in Las Pias. On December 26, 1985, the petitioners, as
vendors, and the respondents, Spouses Miranda, as vendees, executed a Deed of Sale with Assumption of
Mortgage over the subject property for the price of P214,000.00. However, on January 29, 1986, the
petitioners-spouses, likewise, executed a Contract to Sell the said property in favor of the respondents for
P250,000.00. The petitioners obliged themselves to execute a deed of absolute sale over the property in
favor of the respondents upon the full payment of the purchase price thereof. Respondent Rogelio Miranda
filed an application dated May 4, 1986 with the PSB to secure the approval of his assumption of the
petitioners' obligation on the loan. The PSB disapproved his application. Nevertheless, respondent Rogelio
Miranda paid the three quarterly installments. Petitioner Orlando Rayos then received a Letter dated
November 27, 1986 from the PSB, reminding him that his loan with the bank would mature on December
24, 1986, and that it expected him to pay his loan on or before the said date. Fearing that the respondents
would not be able to pay the amount due, petitioner Orlando Rayos paid and advised the PSB not to turn
over to the respondents the owner's duplicate of the title over the subject property, even if the latter paid
the last quarterly installment on the loan, as they had not assumed the payment of the same. On December
24, 1986, respondent Rogelio Miranda arrived at the PSB to pay the last installment on the petitioners. He
informed the bank that the petitioners had executed a deed of sale with assumption of mortgage in their
favor, and that he was paying the balance of the loan, conformably to said deed. On the other hand, the bank
informed the respondent that it was not bound by said deed and that the petitioners had earlier paid the
amount of P27,981.41 on the loan. The bank refused respondent Rogelio Miranda's offer to pay the loan.
Respondent Rogelio Miranda filed a complaint alleging that the petitioners and the PSB conspired to
prevent him from paying the last quarterly payment of the petitioners' loan with the bank, despite the
existence of the deed of sale with assumption of mortgage executed by him and the petitioners. The trial
court ordered plaintiff Rogelio Miranda to refund to spouses Orlando and Mercedes T. Rayos the total sum
of P29,069.45 and Spouses Orlando and Mercedes T. Rayos to deliver to Rogelio Miranda Transfer
Certificate of Title and, deliver to Rogelio Miranda the possession of the parcel of land described in the said
title. CA affirmed. The petitioners asserts that the Court of Appeals erred in not finding that the respondents
first committed a breach of their contract to sell upon their failure to pay the amount due for the last
quarterly installment of their loan from the PSB.

ISSUE: Whether or not there was a breach of contract on the part of the respondents. Whether or not the parties
executed a contract to sell instead of a contract of sale.

HELD: NO and YES.

Under the two contracts executed, the petitioners bound and obliged themselves to execute a deed of absolute
sale over the property and transfer title thereon to the respondents after the payment of the full purchase price
of the property, inclusive of the quarterly installments due on the petitioners' loan with the PSB.

Construing the contracts together, it is evident that the parties executed a contract to sell and not a contract of
sale. The petitioners retained ownership without further remedies by the respondents until the payment of the
purchase price of the property in full. Such payment is a positive suspensive condition, failure of which is not
really a breach, serious or otherwise, but an event that prevents the obligation of the petitioners to convey title
from arising, in accordance with Article 1184 of the Civil Code.

In Lacanilao v. Court of Appeals: It is well established that where the seller promised to execute a deed of
absolute sale upon completion of payment of the purchase price by the buyer, the agreement is a contract to
sell. In contracts to sell, where ownership is retained by the seller until payment of the price in full, such payment
is a positive suspensive condition, failure of which is not really a breach but an event that prevents the obligation
of the vendor to convey title in accordance with Article 1184 of the Civil Code.

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.

However, the respondents may reinstate the contract to sell by paying the P29,223.67, and the petitioners may
agree thereto and accept the respondents' late payment.

DARREL CORDERO Et Al vs F.S. MANAGEMENT & DEVELOPMENT CORPORATION

G.R. No. 167213 October 31, 2006

Belen Cordero, 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 (FSMDC) over five (5) parcels of land located in
Batangas. Pursuant to the terms and conditions of the contract, FSMDC paid earnest money. No further payments
were made thereafter. Cordero sent FSMDC a demand letter, revoking the contract to sell and treating the payments
already made as payment for damages suffered. FSMDC likewise demanded the payment for actual damages
suffered due to loss of income.

Cordero thereafter filed before the Regional Trial Court of Paraaque a complaint for rescission of contract with
damages alleging FSMDC failed to comply with its obligations under the contract to sell; and that consequently
entitled to rescind the contract to sell as well as demand the payment of damages. FSMDC, on the other hand,
alleged that Cordero has no cause of action considering that they were the first to violate the contract to sell. It was
Cordero who prevented FSMDC 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. Moreover, Corderos refusal to execute the
final contract of sale was due to the willingness of another buyer to pay a higher price.

The RTC issued its decision, finding in favor of Cordero et al. and ordered FSMDC to pay damages and attorneys
fees. The Court of Appeals affirmed the decision of the lower court and denied their motion for reconsideration.

ISSUE:
Whether or not contract to sell may be subject to rescission under Article 1191 of the Civil Code

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 Cordero et al. did not arise because of the failure of FSMDC to fully pay the purchase price,
Article 1191 of the Civil Code would have no application.

The non-fulfillment by the FSMDC of his obligation to pay, which is a suspensive condition to the obligation of
the Cordero et al. 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.