Art 1591. Should the vendor have reasonable grounds to fear the loss of immovable property sold and its price, he may immediately sue for the rescission of the sale.
Should such ground not exist, the provisions of Article 1191 shall be observed. (1503)
BORBON v SERVICE-WIDE SPECIALIST:
2. PD 957, Section 23 & 2460
PD 957, Sec 23. Non-Forfeiture of Payments. – No installment payment made by a buyer in a subdivision or condominium project for a lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate.
PD 957, Sec 24. Failure to pay installments. – The rights of the buyer in the event of his failure to pay the installments due for reasons other than failure of the owner or developer to develop the project shall be governed by Republic Act No. 6552
3. RA 6552 “Maceda Law”: Sale of Residential Realty on Installment61
4. Rescission on Sale on Non-Residential Realty on Installment
Art 1191. 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.
60 CASA FILIPINAS REALTY v OP: PD 957 to stem the tide of
“fraudulent manipulations perpetrated by unscrupulous subdivision and condominium sellers and operators, such as failure to deliver titles to buyers or titles free from liens and encumbrances. Should the notice requirement in Sec 23 be construed as required to be given before a buyer desists from further paying, the intent of the law to protect subdivision lot buyers will tend to be defeated.
BRICKTOWN DEV’T v TIERRA: When a grace period is provided for in the contract of sale, it should be construed as a right, not an obligation of the debtor, and when unconditionally conferred, the grace period is effective without further need of demand either calling for the payment of the obligation or for honoring the right.
61 MCLAUGHLIN v CA: Sec 4 of RA 6552 provides: “In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of the cancellation or the demand for rescission of the contract by a notarial act.” Flores tendered the manager’s check after 17 days, which is well within the 30-day period. However, Flores did not follow tender of payment with consignation. Since McLaughlin refused to accept the tender of payment, it was incumbent upon Flores to deposit the amount in court.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)
Art 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at 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 for rescission of the contract has been made upon him either judicially or by a notarial act.
After the demand, the court may not grant him a new term. (1504a)
XIV. EXTINGUISHMENT OF THE SALE Art. 1600. Sales are extinguished by the same causes as all other obligations, by those stated in the preceding articles of this Title, and by conventional or legal redemption. (1506)
Art. 1231. Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. (1156a) A. CONVENTIONAL REDEMPTION
Conventional redemption – the vendor reserves the right to repurchase the thing sold, with the obligation of returning the price of the sale the expenses of the contract, the necessary and useful expenses made on the thing, and other payments made by reason of the sale.62
62VILLARICA v CA: The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the
Distinguished from equitable mortgage
Equitable mortgage – one which, although lacking in some formality or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as a security for debt, and contains nothing impossible or contrary to law
Badges of an equitable mortgage63
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing case, any money, fruits, or other benefit to be received by the vendees as rent or otherwise shall be considered as interest which shall be subject to the usury laws.
A contract shall be construed as an equitable mortgage when any of the circumstance in Art. 1602 is present.
Reason for the rule: To curtail the practice of creditors in making their agreement of mortgage appear in the form of a sale with pacto de retro, in order to circumvent the prohibition of pactum commissorium in pledge and mortgage (Art. 2208.
The creditor cannot appropriate the things given by
contract.
TORRES v CA: For a sale to be one a retro, it is necessary that the right be reserved in the same contract
63CLARAVALL v CA: The urgent necessity for money of the apparent vendor, the inadequacy of the consideration for the supposed sale, and the extension of the period of redemption are circumstances which are indicative that the contract is an equitable mortgage.
way of pledge or mortgage, or dispose of them.
Any stipulation to the contrary is null and void) [because in making it appear a pacto de retro sale, the creditors can do away with foreclosure proceedings]
Remedy: reformation of the instrument [must be brought within 10 years]
1) If the agreement is construed to be an equitable mortgage, any money or other benefit received as “rents,” shall be considered as “interest.”
2) Where the agreement is upheld as a pacto de retro sale, the vendor may still exercise the right within 30 days from the time the judgment becomes final.
Distinguished from option to buy64 Right of redemption Option to buy Not a separate
contract, but merely part of a main contract of sale; cannot exist unless reserved at the time of the perfection of the main contract of sale
Principal contract and may be created independent of another contract
Need not have separate consideration in order to be valid and effective
Must have a
consideration separate and distinct from purchase price
May not be beyond the 10 year period
May be beyond the 10 year period
Requires tender of payment of amount required by law, including consignment thereof if tender cannot be made effectively
May be exercised by notice
Period of redemption
Art. 1606. The right referred to in Article 1601, in the absence of an express agreement, shall last four years from the date of the contract.
Should there be an agreement, the period cannot exceed ten years.
64ADIARTE v TUMANENG: An agreement to repurchase becomes an option to buy when entered into after the time to redeem stipulated had already expired, because then the vendee a retro became the absolute owner of the thing sold, and the subsequent grant of the right to repurchase is a new agreement.
However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase. (1508a)
GENERAL RULE: Period starts running at the date of the execution of the contract.
EXCEPTION: when there is a suspensive condition.
4. when no period agreed upon
period: 4 years from the date of the contract 5. when period agreed upon65
The period is binding and it may also be extended, as long as it does not exceed 10 years. Reason for limitation: A pacto de retro is a suspension of title and it is against public interest to permit such uncertainty to continue for a long time.
Exercise of the right to redeem66
a) A vendor must manifest his right to redeem in writing. This must be accompanied with an actual or simultaneous tender of payment of the redemption price.
Redemption price – includes the amount of the sale, the expenses of the contract and other legitimate payments made by the vendee by reason of such sale, and the necessary and useful expenses made on the thing by the vendee.
b) It is only when the vendee flatly refused that tender of payment is not necessary. Consignation of the redemption price in court is not necessary to preserve the right. In the absence of the vendee a retro, the right may be exercised by filing a suit against him and consigning the amount in court.
The exercise of redemption is not limited only to the total redemption price enumerated in Art 1616 of the CC, since said legal provision is not restrictive nor 65 TAYAO v DULAY: Although the stipulation as to the period may be unclear or void, a period of redemption was agreed upon.
Thus, it is the 10-year period that applies, not the 4-year period.
BALUYOT v VENEGAS: The object of the sale cannot be repurchased during the first 10 years.
The stipulation is void and against public policy.
BANDONG v Austria : The provisions of the contract, whereby the parties undertook by express agreement to secure to the vendors a right to repurchase in the month of March of any year after the date of the contract, were valid and binding upon the parties for a period of ten years from the date of the contract but wholly without force and effect thereafter.
66 GARGOLLO v DUERO: The vendor a retro is not given the option to require the vendee a retro to remove the useful improvement, but must pay for the useful improvements introduced by the vendee a retro; otherwise, the latter may retain possession of the thing until reimbursement is made.
exclusive. It includes other stipulations which may have been agreed upon (Villanueva citing Solid Homes v. CA, 275 SCRA 267)
a. by whom exercised
Art. 1610. The creditors of the vendor cannot make use of the right of redemption against the vendee, until after they have exhausted the property of the vendor. (1512)
Art. 1611. In a sale with a right to repurchase, the vendee of a part of an undivided immovable who acquires the whole thereof in the case of article 498, may compel the vendor to redeem the whole property, if the latter wishes to make use of the right of redemption. (1513)
Art. 1612. If several persons, jointly and in the same contract, should sell an undivided immovable with a right of repurchase, none of them may exercise this right for more than his respective share.
The same rule shall apply if the person who sold an immovable alone has left several heirs, in which case each of the latter may only redeem the part which he may have acquired. (1514)
Art. 1613. In the case of the preceding article, the vendee may demand of all the vendors or co-heirs that they come to an agreement upon the purchase of the whole thing sold; and should they fail to do so, the vendee cannot be compelled to consent to a partial redemption.
(1515)
a) Who may redeem 1.Vendor
2. His heirs or assigns 3. His agent
b) The creditors of the vendor cannot make use of the right of redemption against the vendee, until after they have exhausted the property of the vendor.
b) If several persons, jointly and in the same contract, should sell an undivided immovable with a right of repurchase, none of them may exercise this right for more than his respective share. The same rule shall apply if the person who sold an immovable alone has left several heirs.
c) When the co-owners of an indivisible immovable, in order to end the co-ownership, sold their interests absolutely to the same person who previously bought the share of a co-owner subject to a right of redemption, the latter can be compelled to redeem the whole property.
b. from whom to redeem
Art. 1615. If the vendee should leave several heirs, the action for redemption cannot be brought against each of them except for his own share, whether the thing be undivided, or it has been partitioned among them.
But if the inheritance has been divided, and the thing sold has been awarded to one of the heirs, the action for redemption may be instituted against him for the whole. (1517)
Art. 1608. The vendor may bring his action against every possessor whose right is derived from the vendee, even if in the second contract no mention should have been made of the right to repurchase, without prejudice to the provisions of the Mortgage Law and the Land Registration Law with respect to third persons. (1510)
From whom to redeem 1. Vendee a retro 2. His heirs or assigns 3. His agent
c. effect of redemption
Art. 1617. If at the time of the execution of the sale there should be on the land, visible or growing fruits, there shall be no reimbursement for or prorating of those existing at the time of redemption, if no indemnity was paid by the purchaser when the sale was executed.
Should there have been no fruits at the time of the sale and some exist at the time of redemption, they shall be prorated between the redemptioner and the vendee, giving the latter the part corresponding to the time he possessed the land in the last year, counted from the anniversary of the date of the sale.
(1519a)
Art. 1618. The vendor who recovers the thing sold shall receive it free from all charges or mortgages constituted by the vendee, but he shall respect the leases which the latter may have executed in good faith, and in accordance with the custom of the place where the land is situated. (1520)
a) The vendor can eject a lessee only after the expiration of the period of lease or of the period for redemption.
b) The vendor a retro is entitled to the return of the thing with damages for the use and occupation if the same.
d. effect of non-redemption
Art. 1607. In case of real property, the consolidation of ownership in the vendee by virtue of the failure of the vendor to comply with the provisions of article 1616 shall not be recorded in the Registry of Property without a judicial order, after the vendor has been duly heard. (n)
Art. 1606. x x x
However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase.67
a) The ownership of the vendee becomes absolute and irrevocable by operation of law.
b) The vendee is not entitled to recover damages by virtue of non-redemption, notwithstanding a stipulation in the contract for payment of damages.