SPS. MARIANO Z. VELARDE & AVELINA D. VELARDE V. CA, DAVID A.

RAYMUNDO, &
GEORGE RAYMUNDO (VELARDE V. CA)

FACTS

David Raymundo (Private Respondent) is the absolute and registered owner of a parcel of land
with a house and other improvements. George Raymundo (Private Respondent), David’s father,
negotiated with Avelina and Mariano Velarde (Petitioners) for sale of the land which was under
lease.

David executed a deed of sale of the property with assumption of mortgage for a consideration
of P800,000 in favor of Avelina Velarde who will assume to pay the mortgage obligations on the
property amounting to P1,800,000 in favor of BPI, including interests and other charges. The
latter then executed an undertaking with her husband’s consent. It was further stated that upon
violation of terms and conditions of the deed of real estate mortgage, her P800,000
downpayment plus payments made with the Bank shall be forfeited in favor of David, to whom
total and complete ownership and possession of property shall resume. The deed of sale with
assumption of mortgage shall also be cancelled, as if it had never been executed.

The Velardes were subject to BPI’s approval of their application for assumption of mortgage.
Pursuant to the agreements, they also continued paying BPI. However, they were advised that
their application was not approved, prompting them to not make any further payment. The
Raymundos then wrote to the Velardes that their nonpayment is a nonperformance of their
obligation and eventually sent a notice of rescission of the intended sale.

The Velardes then filed a complaint against the Raymundos for specific performance, nullity of
cancellation, writ of possession, and damages. However, the RTC and CA upheld the validity of
the rescission made. Hence, this petition.

ISSUE W/N there was a breach in the contract of sale

RULING

Yes. The breach of the contract by Sps. Velarde was not because of their nonpayment of the
mortgage obligations, but because of their nonperformance of their reciprocal obligation to pay
purchase price of P1.8M under the contract of sale in case the request to assume mortgage
would be disapproved. Meanwhile, the Raymundos already performed their obligation by
executing a deed of sale which is equivalent to delivery.

Upon receiving bank disapproval, Sps. Velarde should have paid the balance of P1.8M but
instead they sent a letter to the Raymundos offering to make the payment only upon fulfillment
of conditions not in the contract of sale. The Court held that such conditional offer to pay cannot
take the place of an actual payment resulting to the discharge of a buyer’s obligation.

Thus, the Raymundos validly exercised their right to rescind based on Art. 1191 of the Civil
Code which provides that “the power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him. x x x”. When the obligor
cannot comply with what is incumbent upon him, the obligee may seek rescission. Mutual
restitution is also required to bring parties to their original state, as if no contract has been
made. The mortgage payments made by Sps. Velarde should be returned by the Raymundos.
SAN MIGUEL PROPERTIES PHILS., INC. V. SPS. ALFREDO HUANG & GRACE HUANG
(SAN MIGUEL PROPERTIES V. SPS. HUANG)

FACTS

San Miguel Properties (Petitioner) is a domestic corporation engaged in purchase & sale of real
properties. In its inventory, there are 2 parcels of land (total of 1,738 sqm) covered by TCT Nos.
PT-82395 and PT-82396. These lands were offered for sale for P52,140,000 (cash) to Atty.
Helena M. Dauz, acting for undisclosed principals Sps. Huang (Respondents). In a letter, Atty.
Dauz signified the spouses’ interest in purchasing. San Miguel refused this counter-offer.

Consequently, another counter-offer letter was made proposing P1M as earnest-deposit money
and the following conditions: (1) that the spouses be given exclusive option to purchase
property within 30 days from date of acceptance of offer; (2) during the period, they shall
negotiate on terms and conditions of purchase; San Miguel will secure Management and Board
approvals; and they shall initiate documentation upon mutual agreement; (3) if they shall not
agree, the P1M shall be refundable to the spouses upon demand. San Miguel’s Vice Pres. &
operations manager for corporate real estate conformed to this offer through affixing his
signature on the letter, accepted the earnest-deposit, and ordered the removal of the “For Sale”
sign on the properties.

When the negotiations commenced, it was agreed that an extension of 45 days (April 29, 1994
to June 13, 1994) be given to Atty. Dauz to exercise option to purchase and that within the
period an agreement was to be finalized. However, on July 7, San Miguel’s Pres. & CEO
informed Atty. Dauz that the parties failed to agree on terms and conditions of the sale despite
the extension. Thus, San Miguel was to return the P1M “earnest-deposit”.

The spouses then demanded execution of deed of sale of the properties. They attempted to
return the earnest-deposit to San Miguel but the latter refused on the ground that the former’s
option to purchase had already expired.

The spouses then filed a complaint for specific performance against San Miguel. The RTC and
CA dismissed the action. Hence, this petition.

ISSUE W/N there was a perfected contract of sale between the parties

RULING

No. It is the proof of concurrence of all essential elements of the contract of sale which
establishes the existence of a contract of sale, not the giving of earnest money. When San
Miguel accepted the spouses’ offer, the contract had not yet been perfected based on its
conditions (above stated).

For the 1st condition, its acceptance only gave rise to an option giving Sps. Huang exclusive
right to buy the properties within the period, which was not exercised for failure to agree on
terms of payment. The option to buy is separate and distinct from the contract of sale to be
entered. Art. 1479 of the Civil Code states that an accepted unilateral promise to buy / sell a
determinate thing for a price certain is binding upon the promisor only if the promise is
supported by a distinct consideration. Otherwise, the option is unenforceable.
For the 2nd condition, based on the stages of a contract of sale, the parties did not go past the
negotiation stage since they failed to agree on terms of payment within the 45-day extension,
despite the agreement on objects of the sale and the purchase price. Manner of payment of the
purchase price is an essential element before a valid and binding contract of sale can exist.
Otherwise, there is no sale. The stages are: (1) negotiation – period from the time prospective
parties indicate interest in contract to the time contract is perfected; (2) perfection – concurrence
of essential elements of sale; meeting of minds of parties as to the object and price; (3)
consummation – begins when parties perform respective undertakings under the contract.

In addition, the Court held that the P1M “earnest-deposit” was merely a deposit of what would
eventually become earnest money / downpayment should a contract of sale be made. Thus,
Sps. Huang did not give it as “earnest money” according to Art. 1482 of the Civil Code. The
amount was only a guarantee that the spouses would not back out from the sale since it is not
clear that there was a definite agreement of the price. It was not part of the purchase price nor
proof of perfection of contract of sale.