Gomez vs.

CA forfeiture is allowed even in the absence of a forfeiture clause, as a reasonable compensation for the use of the subject matter of the contract. e. WHO MAY DEMAND RESCISSION - given only to the injured party; - can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. f. RESCISSION generally JUDICIAL IN NATURE based on: Art. 433 & 539 NCC that no man , even with a valid lawful cause of action, take the law into his own hands and must resort to the aid of the courts to enforce his rights. NOTE: Remedy of Rescission is NOT absolute. - 3rd paragraph of Art.1191 provides that the court shall decree the rescission claimed, unless there be just cause authorizing the fixing of the period; - Means that the injured party cannot resolve the obligation himself, and requires the confirmation of such remedy from the Court. - As for IMMOVABLES applicable is Art. 1592, which provides that, when there has been a demand made on the buyer for rescission either judicially or by a notarial act, the court may not grant him a new term. g. When Extrajudicial Rescission is Allowed -when there is an express stipulation by the parties;

Sps. Benito vs. Saquitan-Cruz held that a seller cannot unilaterally and extrajudicially RESCIND A SALE where there is NO EXPRESS STIPULAITON authorizing it; -breach must be SUBSTANTIAL and FUNDAMENTAL to the fulfillment of the obligation.

h. Rescission ACT

requires a POSITIVE

-consist of notarial or judicial demand on the part of the unpaid seller; -required from the injured party; -based on art. 1592 which does not allow automatic rescission even by express stipulation. City of Cebu vs. Heirs of Rubi -sale of REAL property; -buyer failed to pay the stipulated purchase price; -seller only sent a written DEMAND TO VACATE the premises; -HELD: does NOT AMOUNT TO a demand for rescission under Art. 1592; Co v CA buyer failed to pay the purchase price; -seller did not sue either for specific performance or for RESCISSION; -thus SELLER HAS NO RIGHT to forfeit the payments already made by the buyer as there was NO EXPRESS provision to such effect; Olympia Housing vs. Panasiatic Travel Corp -rescission to resolve a contract of sale is DISTINCT and cannot be deemed necessarily INCLUDED in an action for RECONVEYANCE, filed to recover the subject matter of the sale.

Iringan vs. CA held that a stipulation in a

sale allowing rescission under Art. 1191 is VALID, but it does not grant AUTOMATIC RESCISSION; -it must be invoked judicially. -the party entitled to rescind must apply to the Court for a decree of rescission; -the operative act which produces the resolution of the contract is the dcree of the court and not the mere act of the vendor; -requires JUDICIAL or NOTARIAL act; -letter expressing intention to rescind DOES NOT operate validly to rescind the contract.

CONTRACT OF SALE vs. CONTRACT TO SELL

1. Importance of characterization of Contract to Sell -governed by the genus sale; -governed by article 1458 -in order to determine the set of laws that govern such contract, as well the available remedies; 2. RECENT RULINGS that CONSIDER CONTRACTS TO SELL not COVERED by the GENUS SALE

Coronel vs. CA -contract to sell as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective property upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. -even after the fulfillment of the suspensive condition (payment of the purchase price), ownership WILL NOT AUTOMATICALLY transfer to the buyer although the property may have been previously delivered to the buyer; - prospective seller still has to convey title to the prospective buyer by entering into ac contract of sale; -happening of the suspensive condition DOES NOT GIVE RISE to an executory contract of sale since the obligation of the seller is to enter into a contract of sale, but merely a personal obligation to do; -cannot be subject to an action FOR SPECIFIC PERFORMANCE; IN SUM: SUPREME COURT uses the same term CONTRACT TO SELL to identify two different types of conditional contracts: 1. one embodying a bilateral-reciprocal obligations to give, but the contracts efficacy is subjected to a suspensive condition; 2. one where the primary obligations created is an obligation to do, as in to enter into a CONTRACT of SALE, subject to fulfillment of the obligation of the buyer to fully pay the purchase price.

Contract to Sell main ingredient when it shares with a conditional contract of sale, it that it contains cleary a stipulation that must amount to a suspensive condition for not every modality introduced in a sale wou;d necessarily be a condition. Heirs of San Andres vs, Rodriguez sale is considered an ABSOLUTE SALE even if it was denominated as a Deed of Conditional Sale; -contract is devoid of any proviso that the title is reserved or the right to unilaterally rescind until or unless the price is paid. NOTE: Both conditional contract of sale and a contract to sell are subject to a suspensive condition; (full payment) -main ingredient is the existence of a stipulation or agreement imposing a suspensive condition on the effectivity or demandability of the contract itself; Conditional Contract of Sale main ingredient is the obligation of the seller to transfer and deliver the subject matter.

Romero vs. Court of Appeals

-held that a perfected contract of sale may either be absolute or conditional de[ending on whether the agreement is devoid of, or subject to, or any condition on the passing of title of the thing to be conveyed or on the obligation of a party thereto. -if the potestative condition is imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving unaffected the obligation itself. -parties entered into a Deed of Conditional Sale; -provides that should the seller fail to eject the squatters from the property within 60 days from the contract date, the downpayment shall be returned to the buyer. -ejectment case was brought by seller, but judgment was rendered after the 60-day period had lapsed. -seller then offered to return to the buyer the downpayment contending that there is no contract to enforce with the non-fulfillmment of the condition imposed under the contract.

3. RULINGS CHARACTERIZING CONTRACTS TO SELL

a. Rationale for Parties Entering into contracts to Sell -to protect the seller against the buyer who intends to buy the property in installment by withholding ownership over the property until the buyer effects full payment therefor. b. On where the suspensive condition is pinned determines Nature of a sale.

RULING OF THE COURT: -seller could NEITHER SEEK RESCISSION of the contract of sale, NOR could he challenge the agreement as not being a perfected contract, -since under the agreement the seller was obliged toe vict the squatters on the property, therefore, the ejectment of the squatters was a condition, or the OPERATIVE ACT of wich sets into motion the period of the payment of the balance of the purchase price. -the sellers FAILURE to remove the squatters from the property within the stipulated period gave the buyer the RIGHT to either REFUSE To proceed with the agreement or WAIVE that condition in consonance with Art. 1545. Art. 1545-

-there must exist an agreement whether express or implied, at the time of perfection of the sale contract; -that the obligation of the seller to transfer ownership to the buyer pursuant to a sale is conditioned upon the full payment by the buyer of the purchase price. -the following two clauses must exist: a. Reservation of the ownership of the subject matter with the seller, even if there should be delivery thereof to the buyer; b. Reservation of the right of the seller to rescind the contract extrajudicially in the event the suspensive condition (usually the full payment of the purchase price) does not happen. NOTE: PREVAILING DOCTRINE

Heirs of Escanlar vs. CA distinguishes

between he demandability or efficacy of a sale from the requisites by which it is constituted as a valid contract: a. that a CONTRACT TO SELL constitutes a valid contract, but it may not wholly be demandable until the suspensive condition upon which it based, is fulfilled. -it denies the lack of consent characterization of Coronel for contracts to sell. Conditions for the agreement in making the fulfillment of the buyers obligations to pay the purchase price in full: a. Only then shall arise a demandable contract;(give rise to contract to sell); b. The obligation of the seller to sell the subject matter of the sale, shall only then arise; (gives rise to contract to sell); c. The obligation of the seller to transfer the ownership of the subject matter sold shall then arise. (gives rise to a conditional contract of sale) sale NOTE: Where the suspensive condition is pinned to, is what determines whether there is a contract to sell.

-absent any stipulation in the deed or in the meeting of minds reserving title over the property to the seller until full payment of the purchase price and giving the seller the right to unilaterally rescind the contract in case of nonpayment, makes the contract one of sale rather than a contract to sell. 1. RESERVATION SELLER of OWNERSHIP by

c. REQUISITE STIPULATION CONTRACTS to SELL

for

-critical consideration in determining the nature of a sale contract because it considers that the essence of a true contract of sale under Art. 1458 is the PASSING OF THE SUBJECT MATTER. Manuel vs. Rodriguez in a contract of sale, delivery will effectively transfer ownership of the subject matter to the buyer; -seller cannot recover ownership by the fact of non-payment of the price without rescinding the contract through a JUDICIAL ACTION. -IN A CONTRACT TO SELL delivery DOES NOT TRANSFER OWNERSHIP ; -the non-payment of the price prevents the obligation to sell from arising and thus ownership is retained by the seller without further remedies.

PADILLA vs. Sps. PAREDES the parties

agreed that:

a. seller not to alienate encumber the property; b. seller shall pay real estate taxes until property is transferred; c. execution of deed until full payment; HELD: The provisions signified that the title to the property remains in the seller until the buyer should have fully paid the purchase price which is a typical characteristic in a contact to sell.

property sold is RESERVED in the seller until full payment of the purchase price, nor there was a stipulation giving the seller the right to UNILATERALLY RESCIND the contract, the moment the buyer fails to pay within a fixed period.

3. RESERVATION of RIGHT TO EXTRAJUDICIALLY RESCIND in EVENT OF NON-FULFILLMENT OF CONDITION

DOCTRINE: A CONTRACT TO SELL must contain a clause which reserves to the seller the right to rescind the contract without need of court action in the event the buyer fails to pay the contract price. CONTRACT TO SELL -non-fulfillment of the suspensive condition provides no further remedy since the contract ipso facto would already be extinguished. -if theres previous delivery seller would still have to seek Court Action to recover possession from the buyer if the latter refuses to voluntarily return the subject matter; REASON: 1. Recovery of Possession article 539 of the civil code: -every possessor has a right to be respected un his possession; and should he be disturbed therein, he shall be protected in or restored to said possession by means established by law or by the rules of court; 2. Art. 433 actual possession under a claim of ownership raises a disputable presumption of ownership and the true owner must resort to judicial process for the recovery of the property.

ADELFA PROPERTIES vs. CA an implied

stipulation that parties never intended to pass to the purchaser ownership until full payment, is VALID, and therefore, binding and enforceable upon the parties. -a contract which contains this kind of STIPULATION, is a CONTRACT to SELL.

BABASA vs. CA a conditional sale of

Registered Land; -requires that final payment of the balance of the purchase price only when the seller was able to obtain clean titles to the properties sold; -considered as AN ABSOLUTE SALE: , because, ownership of the subject properties are passed to the BUYER by both CONSTRUCTIVE and ACTUAL DELIVERY . -constructive delivery was accomplished by the execution of the contract; -actual delivery took place when the BUYER took unconditional possession of the lots and leased to its associate company.

2. Agreement to Deed of Absolute Sale

CHUA vs. CA the absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price, especially when the seller retained possession of the certificate of title and all other documents relative to the sale until there was full payment of the purchase price. ON THE CONTRARY:

CONTRACT OF SALE -non-fulfillment of the obligation would authorize the seller to rescind the contract or to waive the condition and seek enforcement of the contract in accordance with article 1545 of N.C.C.

Dignos vs, CA did not construe the

express stipulation to be a contract to sell, since nowhere in the contract in question was there a stipulation to the effect that title to the

Article 1545 where the obligation of

either party to a contract of sale is subject to any condition which is not performed, such

party may refuse proceed with the contract or he may waive performance of the condition. IF the other party has promised that the condition should happen or be performed , such first mentioned party may also treat the non-performance of the condition as a breach of warranty. THEREFORE: The failure to find a provision in a sale contract reserving power on the part of the seller to extrajudicially rescind the contract in the event the buyer fails to pay the purchase price WOULD NOT QUALIFY the arrangement to be one of a contract to sell.

there would be unjust enrichment on the part of the seller.

5. Crux of the Distinction

Contract to Sell -reciprocal obligations created are deemed to be subject to the full payment of the price as constituting the normal suspensive condition for the obligation of the seller to deliver possession and/or transfer ownership. Contract of Sale -reciprocal obligations created are DEEMED to be subject to one another as each being a resolutory condition for the other.

4. SUBSTANTIAL BREACH ISSUE RELEVANT ONLY IN CONTRACTS OF SALE

-rescission is available only if there is a SUBSTANTIAL BREACH;

Art. 1191 power to rescind is IMPLIED in reciprocal obligations.

Heirs of Escanlar vs. CA held that in a

*Performance Stage -delivery of the subject matter DOES NOT TRANSFER OWNERSHIP to the buyer ; * Performance Stage -delivery would transfer ownership to the buyer;

sale of real property on installments, when the buyer has defaulted and the seller, instead of rescinding , ACCEPTED late payments beyond the deadline stipulated, the seller in effect waived and was ESTOPPED from exercising their right to rescind under Art. 1592 NNC.

Santos vs. CA (stark contrast)

-held that failure to pay the price agreed upon in a contract to sell is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. -

-non-fulfillment of the suspensive condition must no Court action is -RESCISSION needed to rescind, necessarily be done since Ownership JUDICIALLY; remained in the seller. -Court action is only needed for RECOVERY OF POSSESSION against the buyer; *EXECUTORY STAGE *EXECUTORY notarial -(meaning, the subject STAGE-by matter of the sale has notice of rescission NOT BEEN DELIVERED under Art. 1592; to the buyer) -same remedies with Contract of Sale for purposes of rescission: -both can

Padilla vs. Sps. Paredes held that in a

contract to sell, the acceptance of partial payment cannot be deemed a waiver of the right to cancel the contract; -it can only be considered as an act of tolerance on the part of the seller that could not modify the contract , absent any written agreement to the effect signed by the parties. Buot vs. CA held that pursuant to Art. 1188, in a contract to sell, even if the buyers did not mistakenly make partial payments, inasmuch as the suspensive condition was not fulfilled, it is only fair and just that the buyers be allowed to recover what they had paid in expectancy that the condition would happen; otherwise,

be extrajudicially;

done

GOVERNING PROVISIONS AND PRINCIPLES FOR REMEDIES OF RESCISSION AND CANCELLATION

1. PRE-MACEDA LAW PERIOD Available Remedies for Immovables: 1. Art. 1191; 2. Art. 1591; -should the vendor have reasonable grounds to fear the loss of immovable property sold and its price, he may immediately sue for rescission of the sale,; if no such grounds exist, Art. 1191 is APPLICABLE. 3. Art. 1592; A. REMEDY OF RESCISSION UNDER ART. 1191 AND 1592\- not APPLICABLE TO CONTRACTS TO SELL -because a contract to sell is constituted by a suspensive condition on the full payment of the purchase price, and that it would automatically be extinguished even without need of further action nor the remedy of rescission to extinguish the contract. (Caridad Estates vs. Santero) b. EQUITY RESOLUTIONS FOR CONTRACTS TO SELL -meaning the Court still allowed application of Art. 1191 and Art. 1592 to contracts to sell involving immovables, examples: 1. J.M. Tuazon vs. Javier buyer religiously paying his monthly installments for 8 years, with interest; -defaulted payment but still willing to pay; HELD: The court granted additional period even though DEMAND for RESCISSION had been made. 2. when the total number of installments paid showed substantial compliance /performance of the obligation as to prevent rescission thereof.( Hermanos vs. Saldana)

BASIS: Article 1234 provides that if the obligation has been substantially performed in good faith , the obligor may recover as though there had been a strict and complete fulfillment , less damages suffered by the obligee;

NOTE: While equity might tilt on the side of the buyers, the same cannot be enforced so as to overrule a positive provision of law in favor of the seller. C .FORMAL NOTICE REQUIRED TO CANCEL CONTRACTS TO SELL -must be made known to the other party and is always provisional, being subject to the scrutiny and review by the Court; the law does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. (UP vs. De los Angeles) -the practical effect of the stipulation being merely to transfer to the defaulter the initiative of instituting suit, instead of the rescinder. -whether there was notice or not ,if the factual basis for an extrajudicial rescission or cancellation is present, the Courts should decree the cancellation to become effective. NOTE: **Where there is an express stipulation in the contract to sell that default in payment shall be deemed annulment or cancellation of the contract. **Should possession had been transferred to the buyer, even in a contract to sell, judicial action is necessary, but the remedy is not RESCISSION, but for RECOVERY OF POSSESSION. Palay vs. Clave there must be at least a written notice sent to the defaulter informing the same of the rescission. -it is a matter of public policy to protect buyers of real estate on installment payments against onerous and oppressive

conditions. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on installment payments. Therefore: NOTICE OF EXTRAJUDICIAL rescission of a contrac to sale, and even cancellation to a CONTRACT TO SELL, even when the suspensive condition has not been fulfilled , require at the very least to be effective and operative, NOTICE TO THE DEFAULTING BUYER. Dignos vs. CA notice should be in a public instrument pursuant to Article 1358. Article 1358 provides that 'acts and contracts which have for their object the extinguishment of real rights over immovable property must appear in a public instrument. d. RESCISSION PRINCIPLES CONTRACTS TO SELL APPLIED TO

a. Maceda Law DOES NOT OVERCOME OTHER APPPLICABLE RULES TO CONTRATS TO SELL 1. does NOT change the time or mode of performance or IMPOSE new conditions or dispense with the stipulations regarding the binding effect of the contract; 2. does NOT WITHDRAW the remedy for its enforcement; -merely provides in aid of the remedy of rescission. 3. DO Not overcome prevailing rules when it involves a controversy say, between two buyers as to the same property bought. (Lim vs. CA) 4. RECAP OF THE RULINGS A. AT PERFECTION

Roque vs. Lapuz same ruling with Luzon Brokerage full payment of the price through the punctual performance of the monthly payments is a condition precedent to the execution of the final sale and to the transfer of the property from the owner to the proposed buyer; so that there will be no actual sale until and unless full payment is made.

1. REQUISITE CONTRACTUAL STIPULATIONS **CONTRACT TO stipulation that: SELL there must be

a. full payment of the purchase price by the buyer constitutes a suspensive condition on the obligation of the seller to sell and transfer ownership of the subject matter; **CONTRARY: What really defines a contract to sell is the express stipulation that the effectivity or demandability of the contract is subject to the happening of a suspensive condition, as distinguished from a situation where the suspensive condition modifies not he contract itself but rather only the obligation of the seller to sell and deliver the subject matter is which case it is a conditional contract of sale. b. - ownership of the subject matter shall remain with the seller until full payment of the price

Jacinto vs. Kaparaz even if it were a

contract to sell and RESOLUTION would have been the proper remedy, according to the Court, the buyer would still have been validly granted an opportunity to pay the accrued install-ments because of the third paragraph of Art. 1191 which provides that , the Court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. MACEDA LAW PERIOD -has decreed that whether it be a contract of sale or a contract to sell, the ACTUAL RESCISSION or CANCELLATION THEREOF, shall take place, 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

-specific right is granted to the seller to extrajudicially rescind or cancel the contract in case of default; **CONTRARY even in the absence of such stipulations, the contract would still be considered a contract to sell, because the absence of the deeds of conveyance covering registered land where the operative act of sale is registration of the deed of sale, NOTE: Lack of stipulation expressly reserving title to the seller inspite delivery of the subject matter to the buyer and to allow the seller to RESCIND the CONTRACT in the event the buyer fails to comply with his obligation, would not constitute the transaction into a CONTRACT to sell. 2 .STIPULATION ON EXECUTION OF DEED OF ABSOLUTE SALE -its equivalent to a CONTRACT TO SELL, because it would be equivalent to a reservation of title clause (Roque vs. Lapuz) **CONTRA not a contract to sell when nowhere in the contract is a provisio or stipulation to the effect that title to the property sold is reserved in the seller until full payment of the purchase price(Dignos vs. CA). 3. STIPULATION On the PAYMENT OF THE PRICE -in a contract to sell, PAYMENT OF THE PRICE is a suspensive condition, and failure of which is not a breach , casual or serious, but an event that prevents the oblgiation of the seller to convey title form acquiring an obligatory force. CONTRA: - cancellation cannot be effected if there has been substantial and fundamental compliance to the oblgation. B. DURING THE CONSUMMATION STAGE 1. Legal Effect of Delivery Made a. CONTRACT OF SALE -title to the property passes to the buyer upon delivery of the thing sold; b. CONTRACT TO SELL

-ownership is, by agreement, reserved in the seller and is NOT PASSED to the buyer until the full payment of the purchase price. 2. Legal Effect of Full Payment of the Price. -in a contract to sell, full payment of the price constitutes the happening of the suspensive condition which would convert it into an executory contract of sale: **if there sis previous delivery ownership is then transferred ipso jure to the buyer; **if no delivery yet, buyer is ALLOWED to demand for Specific Performance

CONTRA: Coronel vs. CA - No perfected or

executory

contract of sale; Merely gives rise to an action to enforce the obligation of the seller to enter into a contract of sale; 3. Legal Effect of Non-payment of Price a. CONTRACT OF SALE -non-payment of the price is a breach; -if substantial in nature, seller is ALLOWED TO RESCIDNT THE SALE; b. CONTRACT TO SELL -ownership is retained by the seller until full payment of the purchase price; -payment is a positive suspensive condition which is only an event that prevents theoblgiation of the vendor to convey title in accordance ti Art.1184 of the NCC CONTRA notice of rescission MUST BE MADE to effect the extinguishment of the Contract to Sell. (UP vs. De Los Angeles) -if breach is casual, it would not extinguish the contract to sell, and the Courts may extend equity rights to the buyer; C.REMEDIES AVAILABLE 1. WHEN CONDITION ON PRICE PAYMENT IS NOT FULFILLED

CONTRACT OF SALE/ Conditional

CONTRACT TO SELL

Contract of Sale a. with prior delivery: -judicial action for resolution or rescission
a. Ownership ret. by the Seller:

ci. Article 1191 in application of the doctrine on substantial breach; NOTE: The requirements of Maceda Law on grace period cash surrender value, and prescribed manner of notarial rescission or cancellation must always apply, whether it is a CONTRACT OF SALE or CONTRACT TO SELL.

-NO COURT ACTION is necessary;

b. Non-happening of the condition: -waivable by the obligee;

b. Non-happening of the conditional -prevents the contract from happening into existence;

-obligee may still seek -NO action for for Specific RESCISSION or Performance; SPECIFIC PERFORMANCE may be pursued; c. Substantial Breach c. SUBSTANTIAL RESCISSION BREACH is irrelevant; d. Express stipulation d. Express Stipulation for Forfeiture for Forfeiture -rescission may be - NO action for pursued rescission, as there would be no basis for damage which rescission is based upon;

2. LAWS APPLICABLE a. For Contract OF Sale -remedy of rescission under Article 1191 and Article 1592; b. When there is a suspensive condition may choose either RESCISSION or waiving the CONDITION under Article 1545; ======== CONTRACTS TO SELL c. Article 1184, and Article 1545 since rescission is incompatible;