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G.R. No. 108346, July 11, 2001, Third Division, Panganiban, J.
David Raymundo is the absolute and registered owner of a parcel of land, together with the
house and other improvements thereon, located at 1918 Kamias St., Dasmarias Village,
Makati. George Raymundo is Davids father who negotiated with Avelina and Mariano
Velarde for the sale of said property, which was, however, under lease. On August 8, 1986, a
Deed of Sale with Assumption of Mortgage was executed by David Raymundo, as vendor, in
favor of Avelina Velarde, as vendee. On the same date, and as part of the above-document,
Avelina Velarde, with the consent of her husband, Mariano, executed an Undertaking,
attesting and confirming the parties private understanding concerning the said mortgage
obligations to be assumed. This undertaking was signed by Avelina and Mariano Velarde and
David Raymundo.
It appears that the negotiated terms for the payment of the balance of P1.8 million was from
the proceeds of a loan that petitioners were to secure from a bank with private respondents
help. Private respondents had a standing approved credit line with the Bank of the
Philippine Islands (BPI). The parties agreed to avail of this, subject to BPIs approval of an
application for assumption of mortgage by petitioners. Pending BPIs approval o[f] the
application, petitioners were to continue paying the monthly interests of the loan secured by
a real estate mortgage. Pursuant to said agreements, petitioners paid BPI the monthly
interest on the loan secured by the aforementioned mortgage for three (3) months.
On December 15, 1986, petitioners were advised that the Application for Assumption of
Mortgage with BPI was not approved. This prompted petitioners not to make any further
payment. On January 5, 1987, private respondents, thru counsel, wrote petitioners,
informing the latter that their non-payment to the mortgage bank constitute[d] nonperformance of their obligation. In a Letter dated January 7, 1987, petitioners, thru counsel,
responded, which stated that they are willing to pay the balance in cash provided that the
private respondents comply with their conditions. On January 8, 1987, private respondents
sent petitioners a notarial notice of cancellation/rescission of the intended sale of the subject
property allegedly due to the latters failure to comply with the terms and conditions of the
Deed of Sale with Assumption of Mortgage and the Undertaking. Consequently, petitioners
filed on February 9, 1987 a Complaint against private respondents for specific performance,
nullity of cancellation, writ of possession and damages.
The case was tried and heard by then Judge Consuelo Ynares-Santiago, who dismissed the
Complaint. Thereafter, petitioners filed a Motion for Reconsideration. Meanwhile, then Judge
Ynares-Santiago was promoted to the CA and Judge Salvador S. A. Abad Santos was
assigned to the sala she vacated. In an Order dated May 15, 1991, Judge Abad Santos
granted petitioners Motion for Reconsideration and directed the parties to proceed with the
sale. He instructed petitioners to pay the balance of P1.8 million to private respondents who,
in turn, were ordered to execute a deed of absolute sale and to surrender possession of the
disputed property to petitioners.
The CA set aside the Order of Judge Abad Santos and reinstated then Judge YnaresSantiagos earlier Decision, rationalizing that the assumption of the mortgage obligation is
part of the obligation of Velarde, as vendee, under the contract. The disapproval by BPI of
the application for assumption of mortgage cannot be used as an excuse for Velardes nonpayment of the balance of the purchase price. As borne out by the evidence, Velarde had to
pay in full in case of BPIs disapproval of the application for assumption of mortgage. Thus,

the non-payment of the mortgage obligation by appellees Velarde would create a right to
demand payment or to rescind the contract, or to criminal prosecution. Upon appellees
failure, therefore, to pay the balance, the contract was properly rescinded. Consequently,
appellees Velarde having violated the contract, they have lost their right to its enforcement
and hence, cannot avail of the action for specific performance.
WON the Court of Appeals erred in holding that the non-payment of the mortgage obligation
resulted in a breach of the contract.
No. Petitioners aver that their nonpayment of private respondents mortgage obligation did
not constitute a breach of contract, considering that their request to assume the obligation
had been disapproved by the mortgagee bank. However, petitioners did not merely stop
paying the mortgage obligations; they also failed to pay the balance of the purchase price.
As admitted by both parties, their agreement mandated that petitioners should pay the
purchase price balance of P1.8 million to private respondents in case the request to assume
the mortgage would be disapproved.
Thus, on December 15, 1986, when petitioners received notice of the banks disapproval of
their application to assume respondents mortgage, they should have paid the balance of the
P1.8 million loan. Instead of doing so, petitioners sent a letter to private respondents
offering to make such payment only upon the fulfilment of certain conditions not originally
agreed upon in the contract of sale. Such conditional offer to pay cannot take the place of
actual payment as would discharge the obligation of a buyer under a contract of sale.
In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a
determinate thing, and the buyer to pay therefor a price certain in money or its equivalent.
Private respondents had already performed their obligation through the execution of the
Deed of Sale, which effectively transferred ownership of the property to petitioner through
constructive delivery. Prior physical delivery or possession is not legally required, and the
execution of the Deed of Sale is deemed equivalent to delivery.