Contract To Sell Is Not Rescissible

Category: Sales

Contract To Sell Is Not Rescissible

In Cordero, et al. v. F.S. Management & Dev. Corp., G.R. No. 167213, October 31, 2006, the contract states that “title will be transferred by the owner to the buyer upon complete payment of the purchase price. For failure to pay, an action for rescission was filed. Is the action proper? Explain.

 Held: No. Under a contract to sell, the seller retains title to the thing to be sod until the purchaser fully pays the agreed purchase price. The full payment is a positive suspensive condition, the non-fulfillment of which is not a breach of contract but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and without force and effect. (Ayala Life Assurance, Inc. v. Ray Burton Dev. Corp., G.R. No. 163075, January 23, 2006, 479 SCRA 462).     

            Since the obligation of seller did not arise because of the failure of buyer to fully pay the purchase price, Article 1191 of the Civil Code would have no application, where rescission is not available.

             Rayos v. Court of Appeals, G.R. No. 135528, July 14, 2004, 434 SCRA 365 explained the rule thus:

             “Construing the contracts together, it is evidence that the parties executed a contract to sell and not a contract of sale. The petitioner retained ownership without further remedies by the respondents until the payment of the purchase price of the property in full. Such payment is a positive suspensive condition, failure of which is not really a breach, serious or otherwise, but an event that prevents the obligations of the petitioner to convey title from arising, in accordance with Article 1184 of the Civil Code. x x x

             The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force and effect. The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil Code will not apply because it presupposes an obligation already extant. There can be no rescission of an obligation that is still non-existing, the suspensive condition not having happened.”

             The subject contract to sell clearly states that “title will be transferred by the owner (petitioners) to the buyer (respondent) upon complete payment of the agreed purchase price.” Since respondent failed to fully pay the purchase price, petitioners’ obligation to convey title to the properties did not arise. While rescission does not apply in this case, the seller may nevertheless cancel the contract to sell, their obligation not having arisen. This brings us to Republic Ac No. 6552 (THE REALTY INSTALLMENT BUYER PROTECTION ACT). In Ramos v. Heruela, G.R. No. 145330, October 14, 2005, 473 SCRA 79, it was ruled:

             “Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale. In contracts to sell, RA 6552 applies. In Rillo v. Court of Appeals, the Court declared:

             x x x Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. It also provides the right of the buyer on installments in case he defaults in the payment of succeeding installments x x x.” (G.R. No. 125347, June 19, 1992, 274 SCRA 467).

             The properties subject of the contract having been intended for commercial, and not for residential, purposes, petitioners are entitled to retain the payments already made by the buyer. RA 6552 expressly recognizes the vendor’s right to cancel contracts to sell on installment basis industrial and commercial properties with full retention of previous payments. But even assuming that the properties were not intended for commercial or industrial purpose, since respondent paid less than two years of installments, it is not entitled to any refund.