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Remedy on Rescission (Resolution) longer one of the buyer and seller

because the contract of sale has been


The remedy of rescission covered by this chapter is that perfected and consummated.
referred to in Article 1191 of the Civil Code thus;

Article 1191: b. When rescission should have applied:


The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with - A party can rescind a contract when
what is incumbent upon him. the other party fails to comply with
his legal obligation.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment - The cause is the immediate, direct
of damages in either case. He may also seek rescission, and proximate reason which justifies
even after he has chosen fulfillment, if the latter should the creation of an obligation
become impossible. through the will of the contracting
parties
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period. 2. Nature of the Remedy of Rescission:

This is understood to be without prejudice to the rights - The Supreme Court has ruled in once,
of third persons who have acquired the thing, in that “To rescind is to declare a contract
accordance with Articles 1385 and 1388 and the void in its inception and to put an end
Mortgage Law. to it as though it never were”.

Article 1592 of the Civil Code provides a SPECIFIC form of a. Rescission Generally Judicial in Nature:
rescission for sales of immovable on installments thus;
- No man may, even one with a valid and
In the sale of immovable property, even though it may lawful cause of action, take the law into his own
have been stipulated that upon failure to pay the price at hands and must resort to the aid of the courts.
the time agreed upon the rescission of the contract shall
of right take place, the vendee may pay, even after the
expiration of the period, as long as no demand of (1) When extrajudicial rescission is allowed
rescission of the contract has been made upon him either
judicially or by a notarial act. After the demand, the court - The court has recognized the validity
may not grant him a new term. and effectivity of an express stipulation
by the parties to a reciprocal that
rescission in case of default by one party
a. When Principles of Rescission for Rescissible
Contracts Applied to Resolution: maybe restored by the other party extra
judicially.

- The payments on an installment basis


secured by the execution of a b. Who may demand rescission?
mortgage took the place of a cash
payment. In other words the - Rescission is predicated on a breach of
relationship between the parties is no faith by the other party that violates the
reciprocity between them, the power to rescind Contract to Sell
therefore, is given only to the injured party.
• title is retained by the vendor until full
payment of the purchase price.
c. Rescission must be based on substantial
breach; But Courts has power to grant reprieve • The non-payment of the purchase is the
event which terminates the contract to
sell.
- Article 1234: “If the obligation has been
substantially performed in good faith, the • No need for judicial action to terminate
obligor may recover as though there has been a the contract since the title has not been
strict and complete fulfillment, less damages transferred.
suffered by the oblige”.
Contract of Sale
d. Rescission Requires a Positive Act • The seller conveys ownership over the
property and cannot recover it until and
- Requires a positive act on the part of unless the contract is resolved or
the injured party, since it is legally possible that rescinded.
he may waive rescission and proceed with
• There is need for judicial action for the
specific performance.
termination of the contract but the
parties may stipulate for an automatic
e. Restitution as a consequence of rescission rescission without need of judicial
action.
- Article 1385: The employment of the Both contact of sale and contract to sell may be
remedy of rescission “ creates the obligation to governed by the genus sale.
return the things which were the object of the
contract, together with their fruits and the price In the case of Gomez v CA: contract to sell is
with its interests; consequently, it can be carried classified as a form of conditional sale wherein
out only when he who demands rescission can the ownership or title is retained until the
return whatever he may be obliged to restore”. fulfilment of a positive suspensive condition
normally the payment of the purchase price in
the manner agreed upon.
(1.) When forfeiture of Payments Allowed in
The Supreme Court uses the term contract to sell
Rescission
to identify two different types of conditional
contracts:
- A stipulation that the installments or  Obligations to give- contract’s efficacy is
rents paid shall not be return to the vendee or subjected to a suspensive condition
lessee shall be valid insofar as the same may not (contract of sale)
be unconscionable under the circumstances.  Obligations to do- to enter into a
contract of sale, subject to the fulfilment
of the obligation of the buyer to fully pay
Contract of sale vs Contract to sell
the purchase price. (Contract to sell)
Importance of Proper characterization of
Contract to Sell
Rulings characterizing contracts to sell Requisite stipulations for contracts to sell

 Contracts to sell is most commonly entered  Reservation of the ownership of the


into so as to protect the seller against a subject matter with the seller, even if
buyer who intends to buy the property in there should be delivery thereof to the
instalment by withholding ownership over buyer; and
the property until the buyer effects full o Contract of sale: ownership
payment. over the subject matter
generally passes to the buyer as
“On Where” the suspensive condition is pinned a result of the tradition.
determines nature of a sale o Contract to sell: the delivery if
 The conditional contract of sale and contract the subject matter does not pass
to sell are both subject to suspensive ownership to the buyer even
condition, which usually takes the form of though he possess the same,
the full payment of the purchase price by the under the stipulation that
buyer. ownership shall pass only upon
 Contract to sell- existence of a stipulation or the full payment of the purchase
agreement imposing a suspensive condition price.
on the effectivity or demandability of the o There must be an express
contracts itself, and not just on the stipulation that the seller will
obligation of the seller to transfer and not transfer ownership until the
deliver the subject matter (latter case is buyer shall have fully paid the
conditional contract of sale) purchase price.
 Distinction between a contract to sell and
Agreement as to Deed of Absolute Sale
conditional contract of sale:
o Conditional contract of sale: the o Present rule: absence of a formal deed
first element of consent is present, of conveyance is taken as a strong
although it is conditioned upon the consideration that the underlying
happening of a contingent event agreement is a contract to sell, since
which may or may not occur. If the there is a strong indication that the
suspensive condition is not fulfilled, parties did not intend to immediately
the perfection of the contract of sale transfer title, but only transfer after full
is perfectly abated null and void. If payment of the price.
the suspensive condition is fulfilled,
the contract of sale is perfected. Reservation of the right of the seller to rescind
o Contract to sell: upon the fulfilment the contract extrajudicially in the event the
of the suspensive condition (full suspensive condition (usually the full payment
payment of the purchase price) if the purchase price) does not happen.
ownership will not automatically o Contract of sale
transfer to the buyer although the  The non-fulfilment of the condition
property may have been previously would authorize the seller rescind
delivered to him. The prospective the contract or to waive the
seller has to convey title to the condition and seek enforcement of
prospective buyer by entering into a the contract in accordance with Art.
contract of absolute sale. 1545 NCC.
 Stipulation of the right to rescind or
terminate the contract is needed but
not finding such provision would not o Acceptance of partial payment
qualify the arrangement to be one of cannot be deemed a waiver of
contracts to sell. the right to cancel the contract,
it can be considered as an act of
o Contract to Sell tolerance in the part of the
 If the suspensive condition has not seller that could not modify the
been fulfilled: no further remedy is contract, absent any written
necessary since ipso jure the agreement to the effect signed
contract would have already been by the parties.
extinguished by the non-happening
of the condition.
Crux of the distinction
 If there has been previous delivery
Manner and effect of extinguishment
of the subject matter to the buyer,
although the seller has by  Contract of Sale
reservation retained ownership over o Reciprocal obligations are
the subject: seller would still have to deemed to be subject to one
seek court action to recover another as each being the
possession from the buyer. (Not resolutory condition for the
rescission but merely a recovery of other.
possession)  Contract to sell
 Does not require a specific o Reciprocal obligations created
stipulation that the seller has the are deemed to be subject to the
right to rescind or terminate the full payment of the purchase
contract when the condition does price as constituting the normal
not happen. suspensive condition for the
obligation of the seller to deliver
Substantial breach issue relevant only relevant possession and/or transfer of
only in contracts of sale ownership.
Performance stage (when the subject matter of
 Contract of Sale
the sale has been delivered by the seller to the
o Rescission can be availed of only
case there has been substantial buyer)
breach  Contract of Sale
o Non-payment of the price is a o Delivery would transfer
negative resolutory condition. ownership to the buyer, and
 Contract to sell therefore rescission must
o Doctrine of substantial breach necessarily be done judicially
has no application, since the since only the courts can grant
non-happening of the condition the remedy of recalling
by whatever means or reason, ownership that has passed to
substantial or not, ipso jure the buyer and reverting it to the
prevents the obligation to sell seller.
from arising. o Court action is necessary
o Situation that prevents the  Contract to sell
obligation of the vendor to o Delivery of the subject matter
convey title from acquiring an des not transfer ownership to
obligatory force. the buyer, and therefore when
the condition is not fulfilled but even after default he was
(non-payment of the purchase willing and had offered to pay all
price) no court intervention is the arrears, the Court granted
needed to “rescind the contract additional period although
since ownership has remained demand for rescission had
with the seller. already been made.
o Court action is not necessary • The forgoing ruling shows the
accommodating attitude of the
Supreme Court to buyers of
Executory stages (subject matter of the sale has residential estate who have
not been delivered to the buyer) exhibited a measure of good
faith in complying with their
Note: both can be done extrajudicially
obligation to pay the purchase
 Contract of sale price even under a contract to
o Mere notarial notice of sell.
rescission under Article 1592 the b. Formal Notice Required to Cancel
contract may be rescinded. Contracts to Sell
 Contract to sell  University of the Philippines v. De
o Mere notice of cancellation Los Angeles
would be sufficient “it must be understood that the act of a
party in treating a contract as cancelled
Governing Provisions and Principles for or resolved on account of infractions by
Remedies of Rescission and Cancellation the other contracting party must be
made known to the other and is always
Pre-Maceda Law Period
provisional, being ever subject to
a. Remedy of Rescission under Articles scrutiny and review by the proper court…
1191 and 1592 have no application to Then, should the court, after due
contracts to sell hearing, decide that the resolution of the
 Article 1592: ownership is retained contract was not warranted, the
by the seller and is not passed until responsible party will be sentenced to
the full payment of the price positive damages; in the contrary case, the
suspensive condition failure of resolution will be affirmed, and the
which is not a breach, casual or consequent indemnity awarded to the
serious but simply an event that party prejudiced.”
prevented the obligation of the
vendor to convey title from
 Cheng v. Genato
acquiring binding force. Non-
payment of the price would “Nevertheless, [seller] is not relieved
automatically, even without the from the giving of a notice, verbal or
need of further action nor the written, to the [buyers] for his decision to
remedy of rescission, extinguish the rescind their contract. In many cases,
contract.
even though we upheld the validity of a
b. Equity resolution for contracts to sell
stipulation in a contract to sell
• JM Tuason v Javier: Where the
authorizing automatic rescission for a
buyer had religiously been
paying his monthly instalments violation of its terms and condition, at
for eight years, with interests, least a written notice must be sent to the
defaulter informing him of the same. The and transfer ownership of the
act of a party in treating a contract as subject matter;
cancelled should be made known to the
other.” Contra: what really defines a
contract to sell is the express
** this rule validates, both in equity and justice,
stipulation that the effectivity or
in order to avoid and prevent the defaulting
demandability of the contract is
party from assuming the offer as still in effect
subject to the happening of a
due to the obligee’s tolerance for such non-
suspensive condition.
fulfillment. Resultantly, litigations of this sort
shall be prevented and the relations among
b. Accompanied by stipulations or
would-be parties may be preserved.
agreements that:
Rescission Principles Applied to Contracts to  Ownership of the
Sell subject matter shall
remain with the seller
The remedy of rescission is irrelevant to until full payment of the
contracts to sell because the non-fulfillment of price; AND
the suspensive condition of full payment of the
 Specific right is granted
purchase price prevents a contract of sale from
to the seller to
even materializing, and therefore there is really
extrajudicially rescind or
nothing to resolve or rescind.
cancel the contract in
Luzon Brokerage Co., Inc. v. Maritime Building case of default.
Co., Inc.  Stipulation on
Execution of Deed of
“in a contract to sell, the full payment of the price Absolute Sale in
through the punctual performance of the contract to sell –
monthly payments is a condition precedent to 2. A stipulation or promise that the
the execution of the final sale and to the transfer seller shall execute a deed of
of the property from the owner to the proposed absolute sale upon completion of
buyer; so that there will be no actual sale until payment by the purchase price by
and unless full payment is made.” the buyer. It would be equivalent to
Recap of the Rulings: reservation of title clause.

Bases of determining whether a sale is a one of Contra: where there is an


contract of sale or a contract to sell (outline express stipulation that the
survey of Supreme Court decisions). sellers would execute a final
A. At Perfection deed of absolute sale in favor of
1. Requisite Contractual Stipulations in the buyer upon payment of the
contract to sell – balance of the purchase price,
a. Full payment of the purchase the contract would still not be a
price by the buyer constitutes a contract to sell, where nowhere
suspensive condition on the in the contract in question is a
obligation of the seller to sell proviso or stipulation to the
effect that the title to the
property sold is reserved on the which would convert it into an
seller until full payment of the executory contract of sale, thus:
purchase price, nor is there a a. Delivery of the subject
stipulation giving the seller the matter previously been
right to unilaterally rescind the made – ownership is
contract the moment the buyer transferred ipso jure to the
fails to pay within a fixed period. buyer.
b. Delivery of the subject
3. Stipulation on Payment of Price in matter has not been made –
contract to sell – it allows the buyer to
In contract to sell, payment of demand for specific
the price is a suspensive condition, performance.
failure of which is not a breach, casual
or serious, but an event that prevents Contra: there is still no
the obligation of the seller to convey perfected or executory
title from acquiring obligatory force. contract of sale; it merely
gives rise to an action to
Contra: if there has been enforce the obligation of the
substantial compliance with the seller to enter into a
obligation to pay the price, then contract of sale; there is no
cancellation cannot be effected, transfer of ownership to
for unilateral rescission will not buyer even when delivery
be judicially favored or allowed if was previously made; and
the breach is not substantial and much less can there be
fundamental to the fulfillment of demand to deliver the
the obligation. subject matter when no
B. During Consummation Stage contract of sale has been
1. Legal Effect of Delivery Made – executed.
 Contract of Sale – the title to 3. Legal Effect of Non-Payment of Price
the property passes to the  Contract of Sale – the non-
buyer upon the delivery of payment of the purchase
the thing sold; price is a breach and when
 Contract to Sell – ownership substantial in nature, would
is, by agreement, reserved allow the seller to rescind
in the seller and is not to the sale.
pass to the buyer until full  Contract to Sell – where
payment of the purchase ownership is retained by the
price. seller until payment of the
2. Legal Effect of Full Payment of Price price in full, such payment is
– a positive suspensive
In a contract to sell, full payment condition, failure of which is
of the price constitutes the not really a breach but an
happening of the condition event that prevents the
obligation of the vendor to
convey title in accordance  Contract to sell – the
with Article 1184 of the Civil non-happening of the
Code. condition prevents the
Art. 1184. The condition that some contract from coming
event happen at a determinate into existence and
time shall extinguish the obligation
as soon as the time expires or if it
consequently neither
has become indubitable that the rescission or specific
event will not take place. performance may be
C. Remedies Available: pursued.
1. When condition on price payment c. Breach
not fulfilled:  Conditional contract of
a. Delivery of the subject matter sale – the basis of
 Contract of sale – if rescission must be
seller had delivered the substantial breach.
subject matter  Contract to sell – the
previously without issue of breach is
reserving title, it would completely irrelevant.
mean that ownership d. Amounts paid
has been transferred to  Contract of sale and
the buyer, and seller conditional contract of
cannot recover sale – rescission may be
ownership until and pursued with forfeiture
unless the contract is of the amounts paid
resolved or rescinded by when that has been
court action. expressly provided for.
 Contract to sell – since  Contract to sell – it
ownership was retained becomes imperative
by the seller by express that the amounts paid
reservation until full must be returned and
payment of the price, there would be no basis
and the contract is upon which to retain
extinguished, then no them since there was no
action is necessary breach upon which a
other than recovery of claim of damage may be
possession in case buyer interposed.
refuses to voluntarily
deliver.
b. Non-happening of the condition
 Contract of sale – non-
happening of the
condition may be
waived by the obligee
who may still seek
specific performance.