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RAYOS vs.

COURT OF APPEALS
G.R. No. 135528, July 14, 2004
Facts:
Spouses Orlando and Mercedes Rayos (vendors), and spouses Rogelio and Venus Miranda (vendees),
executed a Deed of Sale with Assumption of Mortgage and a Contract to Sell over a property covered by
TCT No. 100156. Under the two contracts, spouses Rayos bound and obliged themselves to execute a
deed of absolute sale over the property and transfer title thereon to the Mirandas after the payment of
the full purchase price of the property, inclusive of the quarterly installments due on the Rayos’ loan
with the Philippine Savings Bank. Respondent Rogelio Miranda filed an application with the PSB to
secure the approval of his assumption of the spouses Rayos’ obligation on the loan. However, his
application was disapproved, for he had an unpaid account with the Manila Banking Corporation, but
Miranda still paid the first, second and third installment on the loan for the account of the Rayos. The
last amortization was paid by Orlando Rayos, fearing that Miranda would not be able to pay the amount.
In a letter, Rayos advised the PSB not to turn over to the Mirandas the owner’s duplicate of the title over
the subject property, even if the latter paid the last amortization, as they had not assumed the payment
of the same. The bank, therefore, refused Rogelio Miranda’s offer to pay the loan and wrote to the latter
that it was returning his check.

Rogelio Miranda then filed a complaint with the RTC of Makati against Rayos and PSB for damages with a
prayer for a writ of preliminary attachment (Civil Case No. 15639) and later filed an Amended Complaint
for specific performance with damages. Miranda contended Rayos and PSB conspired to prevent him
from paying the last quarterly payment of their loan and in refusing to turn over the owner’s duplicate of
TCT No. 100156. Unaware of the complaint, petitioner Orlando Rayos wrote respondent Rogelio Miranda
that he would release the title as soon as his payment of the last installment on their loan was refunded.
The court granted the respondent’s plea for a writ of preliminary attachment but later discharged it
granting the petitioners’motion. The court denied the respondent’s motion for reconsideration. The
plaintiff filed a complaint for damages while PSB and its officers plead for counterclaim, but both were
dismissed by the RTC for insufficiency of evidence. The RTC then ordered the plaintiff to refund to
spouses Rayos the amount paid by the latter for the last amortization and for the release to mortgage
fee, without interest. Upon receipt from Miranda, the spouses Rayos shall deliver the TCT No. 100156
and deliver the possession of the parcel of land to Miranda.

The petitioners then appealed to the CA, which affirmed with modification the decision of RTC. The
spouses Rayos appealed to the SC to reverse and set aside the CA’s ruling, asserting that the CA 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 installment of their loan from the PSB. The petitioners argue that they
had no other alternative but to pay the last installment due on their loan with the PSB, considering that
they received a demand letter from the bank coupled by its denial of the respondents’ request to
assume payment of the loan.

Issues:

Whether or not the sale of property covered by a mortgage relieves the mortgagor of his obligation.

Whether or not there was a unilateral cancellation of contract to sell when the petitioners paid for the
last amortization.
Whether or not the petitioners are faulted for refusing to execute a deed of absolute sale in favor of the
respondents and in refusing to turn over the owner’s duplicate of TCT No. 100156.

Whether or not there was a breach of obligation when the respondents refused to refund the last
amortization payment made by the petitioners.

Ruling:

The Supreme Court, speaking through Justice Callejo Sr., held that the petitioners cannot be faulted for
paying the amortization due for the last quarterly installment on their loan with the PSB. Under the
provisions of the real estate mortgage, the sale of the property covered by a mortgage does not relieve
the mortgagor of his obligation, but that both the vendee and the vendor shall be jointly and severally
liable for said mortgage obligations. The petitioner did not unilaterally cancel their contract to sell when
they paid for the last amortization, for the petitioners wrote the respondents that they were ready to
execute the deed of absolute sale and turn over the owner’s duplicate of TCT No. 100156 upon the
respondent’s remittance of the petitioner’s last amortization payment to PSB. The petitioners cannot be
faulted for refusing to execute a deed of absolute sale over the property and in refusing to turn over the
owner’s duplicate of TCT No. 100156 unless the respondents refunded the said amount, because under
the contract to sell, the respondents were obliged to pay the said amount to PSB as part of the purchase
price of the property. It cannot be argued that the respondents committed a breach of their obligation
when they refused to refund the said amount, for such payment is a positive suspensive condition and
the failure of which only prevents the obligation of the petitioners to convey the title in accordance with
Article 1184 of the Civil Code.

The petition is therefore denied. The Decision of the Court of Appeals in CA-G.R. CV No. 46727 is
affirmed, except as to the factual finding that the petitioners “usurped the payment of the last
amortization on the mortgage upon the parcel of land.” Cost against the petitioners.