A broken promise, a hard lesson learned

Tino and Emily were former grade school seatmates. Decades of moons later, Emily sold to Tino five  parcels of land situated in Cavite City.

Tino paid P500,000 upon signing of the contract. The balance was agreed to be paid three installments. Their written agreement further contains the following provisions:

Failure of Tino to pay the purchase price in full shall cause the rescission of the contract and forfeiture of one-half percent of the total amount paid to Emily;

Emily shall retain the possession of the property until a Deed of Absolute Sale shall be executed by her in favor of the Tino; and

Upon and after the full payment of the balance, a Deed of Absolute Sale shall be executed by Emily in favor of Tino.

For reasons unknown, Tino reneged on his promise to pay the last installment.

After giving her friend several chances to honor his contractual commitment, Emily was thus constrained to send a notarized letter to Tino stating the intended rescission of the contract and forfeiture of payments he made.

One year later, Tino offered to pay the balance. She told Tino to keep his money. She also told him that she already sold the pieces of property to her former high school boyfriend, Bart.

Q: Who owns the property pending full payment of the purchase price?

A:  Emily is the owner of the pieces of property. It is clear that the parties intended their agreement to be a Contract to Sell since under the contract, Emily retains ownership of the subject lands and does not have the obligation to execute a Deed of Absolute Sale until Tino’s’ payment of the full purchase price. (see Sps. Garcia vs. CA, G.R. No. 172036, April 23, 2010)

Q: Is it necessary for necessary for Emily to execute a notarial rescission of the contract to sell?

A:Article 1592 of the New Civil Code which requires demand by suit or by notarial act in case the vendor of realty wants to rescind does not apply to a contract to sell but only to contract of sale. In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. To argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory condition, which is not the case. (see Sps. Garcia vs. CA, G.R. No. 172036, April 23, 2010, citing the case of Pangilinan v. Court of Appeals, 345 Phil. 93, 99-101 [1997])

Q: Can Emily rescind or cancel the contract to sell without court intervention?

A: Yes, she can.  Pursuant to Art. 1191 of the New Civil Code, the law makes it available to the injured party alternative remedies such as (a) the power to rescind or (b) enforce fulfillment of the contract, with damages in either case if the obligor does not comply with what is incumbent upon him.

There is nothing in this law which prohibits the parties from entering into an agreement that a violation of the terms of the contract would cause its cancellation even without court intervention.

The rationale for the foregoing is that in contracts providing for automatic revocation, judicial intervention is necessary not for purposes of obtaining a judicial declaration rescinding a contract already deemed rescinded by virtue of an agreement providing for rescission even without judicial intervention, but in order to determine whether or not the rescission was proper.

Where such propriety is sustained, the decision of the court will be merely declaratory of the revocation, but it is not in itself the revocatory act.

Moreover, the vendor’s right in contracts to sell with reserved title to extrajudicially cancel the sale upon failure of the vendee to pay the stipulated installments and retain the sums and installments already received has long been recognized by the well-established doctrine of 39 years standing.

The validity of the stipulation in the contract providing for automatic rescission upon non-payment cannot be doubted. It is in the nature of an agreement granting a party the right to rescind a contract unilaterally in case of breach without need of going to court.

Thus, rescission under Article 1191 was inevitable due to petitioners’ failure to pay the stipulated price within the original period fixed in the agreement.(Sps. Garcia vs. CA, G.R. No. 172036, April 23, 2010)

Q: Is R.A. 6552 (commonly known as the Maceda Law), applicable in this case?

A:  No. The Maceda Law applies to contracts of sale of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants. The subject lands, comprising five parcels do not comprise residential real estate within the contemplation of the Maceda Law.

Q: Did Emily acted within her rights when she sold the property to Bart?

A: Yes. It is undeniable that Tino failed to pay the balance of the purchase price on the stipulated date of the Contract to Sell. Thus, Emily is within her rights to sell the subject lands to Bart.

Ma. Soledad Deriquito-Mawis is currently the Dean of College of Law, Lyceum of the Philippines University; and President of Philippine Association of Law Schools