Contract to sell vs contract of sale

3
Persida Acosta

Persida Acosta

Dear PAO,
I offered to my former neighbor my property in Laguna since I was moving to Bataan for employment. It was just a small property valued at P200,000.00. We agreed that with the initial payment of P80,000.00, the remaining balance of P120,000.00 will be paid on or before June 2014 and only upon full payment will I execute a deed of absolute sale. He was able to settle the initial payment last February 2014, but until now he has not yet paid the balance. I have already demanded from him several times to deposit the amount to my account, but he insists that I should execute first a deed of absolute sale before he turns over the money. Can I just file an action in court to cancel or rescind our contract? I am no longer interested in selling him my property because I no longer trust him. I feel that he will betray me, that once I execute such deed, he will no longer release the money. Please enlighten me.
Kevin

Dear Kevin,
It is not disputed that rescission of contracts is a remedy available under our law. It is clearly provided for under Article 1191 of the New Civil Code of the Philippines: “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”

It is worth emphasizing, however, that the remedy of rescission is not available in all types of contracts. For instance, such remedy may not be availed of by the parties in a contract to sell. As explained by the Supreme Court in Diego vs. Diego (G.R. No. 179965, February 20, 2013), reiterating its decision in Spouses Santos v. Court of Appeals (391 Phil. 739 (2000): “x x x in a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon 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. This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a contract to sell, however, the vendor remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. x x x. As petitioners correctly point out, the Court of Appeals erred when it ruled that petitioners should have judicially rescinded the contract pursuant to Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of the purchase price as a resolutory condition. It does not apply to a contract to sell. As to Article 1191, it is subordinated to the provisions of Article 1592 when applied to sales of immovable property. Neither provision is applicable in the present case. x x x” (Emphasis supplied)

Applying the foregoing in your situation, we submit that there is no need for you to file an action for rescission of contract before the court because what exists between you and your former neighbor is a contract to sell, not a contract of sale; the perfection of the contract of sale still depends on a suspensive condition, that is, the full payment by your former neighbor of the entire contract price. Accordingly, your contract is deemed terminated or cancelled the moment he fails to comply with his obligation. It should be stressed also that your former neighbor may not demand from you the execution of a deed of absolute sale, unless he has complied with his obligation of paying the remaining balance. Nevertheless, it is only just and equitable for you to return to him the amount he initially paid, less any reasonable expenses you may have sustained.


We hope that we were able to answer your queries. Please be reminded that this advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net

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3 Comments

    • Japheth Dela Torre on

      Atty Formoso and Pao should sit down and discuss their replies before posting in this column.

  1. Disagree almost to all the explanation. Let me explain when parties to a sale of realty are direct vendors and vendees the “Contract of sale” and “Contract to sell” are not known to these parties, in the case the vendor received partial payment of Ph80,000 and thereafter WHEN the vendee is READY to FULLY PAY a deed of absolute sale is prepared for the signing when the full payment simultaneous is delivered.

    Speaking of Contract of Sale and Contract to Sell these are proposals and intial receipts, escrow, deposits and conditions of the transacted realty. A licensed relator presents the contract of sale to the intended buyer and followed by the contract to sell upon agreement with escrow or deposits.

    In a Contract of Sale there are none transmissions of rights nothing conditional but can speaks of terms and conditions, it is in the Contract to Sell where the Suspensive conditions are embodied.