“Contracts of sale must comply with the essential requisites of Article 1318 of the New Civil Code”
One of the most common subjects of commercial transactions are sales of real or personal property.
A “contract of sale [occurs when] one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent” (Article 1458, Civil Code).
On the other hand, a sale can be made through a contract to sell, which is “’[A] bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite its delivery to the prospective buyer [of the object], commits to sell the property exclusively to the prospective buyer upon full payment of the purchase price” (Spouses Beltran v. Spouses Cangayda, G.R. 225033, August 15, 2018).
“[I]n the first case [contract of sale], the vendor has lost and cannot recover the ownership of the property until and unless the contract of sale is itself resolved and set aside. In the second case [contract to sell], the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract” (Royal Plains View, et al. v. Mejia, G.R. 230832, November 12, 2018, citing Lim v. Court of Appeals [1990]).
Contracts of sale must comply with the essential requisites of Article 1318 of the New Civil Code, as follows: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established (G.R. 225033, August 15, 2018).
“Being a consensual contract, sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment… the vendor obligates himself to transfer the ownership of and to deliver a determinate thing to the buyer who, in turn, is obligated to pay a price certain in money or its equivalent” (G.R. 225033, August 15, 2018).
The failure of either party to comply with his obligation, including the failure to pay the price agreed upon, entitles the other to rescind it or to demand performance (Article 1191, Civil Code).
However, the vendee’s failure to pay within the agreed period shall not constitute a breach of faith, so long as payment is made before the vendor demands rescission, either judicially, or by notarial act (G.R. 225033, August 15, 2018 citing Article 1592, Civil Code).
However, “[J]urisprudence abounds with rulings that the remedies of rescission, under Articles 1191 and 1592 of the Civil Code, are not available in contracts to sell. This Court succinctly explains:
The respondent court did not err when it did not apply Articles 1191 and 1592 of the Civil Code on rescission to the case at bar. The contract between the parties is not an absolute conveyance of real property but a contract to sell. In a contract to sell real property on installments, the full payment of the purchase price is a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event which prevented the obligation of the vendor to convey title from acquiring any obligatory force. The transfer of ownership and title would occur after full payment of the purchase price” (G.R. 230832, November 12, 2018).
If the sale of the real estate was by installment, will Republic Act 6552, otherwise known as the Maceda Law, apply (granting grace periods for installment payments or percentage refunds of certain payments)?
“[T]he buyer’s protection under R.A. No. 6552 only 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” (G.R. 230832, November 12, 2018).
In the case of Royal Plains View, et al. v. Mejia, the Supreme Court held that a purchase by a (real estate) company of a six-hectare lot can hardly be considered as residential.
Similarly, in the case of Spouses Garcia v. Court of Appeals, the subject lands, comprising five parcels and aggregating 69,028 square meters, is not residential real estate within the contemplation of the Maceda Law (G.R. 230832, November 12, 2018).
“But this is not to say that sellers in a contract to sell of industrial and commercial lots are precluded to cancel the contract when buyers defaulted in one installment. The old case of Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc. made it clear that R.A. No. 6552 or the Maceda Law expressly recognizes the vendor’s right of cancellation of sale on installments of industrial and commercial properties with full retention of previous payments” (G.R. 230832, November 12, 2018).
“In other words, whether the property is residential, commercial or industrial, Maceda Law does not make any distinction insofar as the availability of the remedy of cancellation by the seller in case of nonpayment of installments is concerned. The only distinction lies on the added protection [grace period and payment percentage refunds] given by the law to residential buyers, which is not enjoyed by commercial and industrial lot buyers” (G.R. 230832, November 12, 2018).
“[W]hile we recognize the seller’s right to unqualifiedly cancel the contract to sell (of industrial or commercial properties) upon the buyer’s default… such cancellation must be made with notice to the other party who failed to perform his end part of the bargain. This gives the opportunity to the other party to question the cancellation made on account of error, abuse or any other grounds. Such that this time, the burden of instituting an action is shifted from the injured party to the defaulter” (G.R. 230832, November 12, 2018).
“Thus, in the old case of University of the Philippines v. De Los Angeles, the Court, through Justice Jose B.L. Reyes, underscored the necessity of judicial validation of unilateral rescission… [I]n other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk” (G.R. 230832, November 12, 2018).
“In the same manner that in unilateral cancellation of contracts to sell, notice to the other party is important.
“If the other party perceives that the cancellation of the contract is not proper, he/she is free to question and raise his/her objection to the court. It is the court who will settle once and for all if the cancellation is warranted” (G.R. 230832, November 12, 2018).