425 426 LAW ON SALES
CHAPTER 11 contract. Such remedy in rescissible contracts is subsidiary in
REMEDIES OF RESCISSION AND
CANCELLATION FOR SALES OF
IMMOVABLES:
CONTRACT OF SALE VERSUS CONTRACT
TO SELL
Previously, the differences between the remedy of rescission
as it pertained to contracts of sale, and the effects of cancellation
or extinguishment due to non-fulfillment of a suspensive condition
in contracts to sell, seemed well-defined. With the passage of the
Maceda Law which had lumped together both remedies of rescis-
sion and cancellation into a uniform procedural straight-jacket
when it comes to sale and financing contracts involving residential
real estates, even the Supreme Court has began to blur what used
to be different remedies, and, in the process, has almost made
indistinguishable the substantive differences between a contract
of sale and a contract to sell involving immovables.
In addition, the study of the remedies of rescission and
cancellation would also place in focus the issue of whether
contracts to sell are within the definition of “sale” under Article
1458 of the Civil Code.
REMEDY OF RESCISSION OR RESOLUTION
1. Remedy of “Rescission” Not Covered
This chapter does not cover the remedy of “rescission” when
it pertains to rescissible contracts defined under Articles 1381 et
seq. of the Civil Code, where economic damage or lesion is the
main basis for allowing the rescission of what otherwise is a valid
425
nature and cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the
damage sustained.1 Such characterization has no application to
the remedy of “rescission” under Article 1191 of the Civil Code,
which remedy is principal in nature and the legal premise of which
is substantial breach of contract.
On the other hand, the principles that rescission of
rescissible contracts creates the obligation to return the things
which were the object of the contract, together with the fruits, and
the price with its interest, and that consequently, such rescission
can be carried out only when he who demands rescission can
return whatever he may be obliged to restore,2 apply equally to
rescission covered by Article 1191.
The point being made is this: Before a party employs in legal
argument a principle of rescission to bolster his case, he has
to be sure which of the remedies of rescission he is invoking.
Justice J.B.L. Reyes had pointed out the distinctions between
the two types of rescissions in his concurring opinion in Universal
Food Corp. v. Court of Appeals,3 thus —
The rescission on account of breach of stipulations
is not predicated on injury to economic interests of the
party plaintiff but on the breach of faith by the defendant,
that violates the reciprocity between the parties. It is not
a subsidiary action, and Article 1191 may be scanned
without disclosing anywhere that the action for rescission
thereunder is subordinated to anything other than the
culpable breach of his obligation by the defendant. This
rescission is a principal action retaliatory in character,
it being unjust that a party be held bound to fulfill his
promises when the other violates his. As expressed in
the old Latin aphorism: “Non servanti fidem, non est
fides servanda.” Hence, the reparation of damages for
the breach is purely secondary.4
1
Art. 1382, Civil Code.
2
Art. 1385, Civil Code.
3
33 SCRA 22 (1970).
4
Ibid, at pp. 22-23. Reiterated in Iringan v. Court of Appeals, 366 SCRA 41 (2001).
 REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
He also distinguished rescission under Article 1191 from
the remedy of rescission for rescissible contracts, thus: “On
the contrary, in the rescission by reason of lesion or economic
prejudice, the cause of action is subordinated to the existence
of that prejudice, because it is the raison d’ etre as well as the
measure of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot be
maintained or continued, as expressly provided in Articles 1383
and 1384. But the operation of these two articles is limited to the
cases of rescission for lesion enumerated in Article 1381 of the
Civil Code of the Philippines, and does not apply to cases under
Article 1191.”5
The eminent jurist explained the apparent confusion between
the two types of remedies: “It is probable that the petitioner’s
confusion arose from the defective technique of the new Code
that terms both instances as ‘rescission’ without distinctions
between them; unlike the previous Spanish Civil Code of 1889,
that differentiated ‘resolution’ for breach of stipulations from
‘rescission’ by reason of lesion or damage. But the terminological
vagueness does not justify confusing one case with the other,
considering that patent difference in causes and results of either
action.”6
In another case,7 the Court has held that the prescriptive
period applicable to rescission or resolution under Article 1191
and 1592 is found in Article 1144 which provides that the action
upon a written contract should be brought within ten (10) years
from the rights of action accrue, and not the four (4) year period
provided for rescissible contracts.8
a. When Principles of Rescission for Rescissible
Contract Applied to Resolution of Sale
On the basis of the clear distinctions between the two
remedies of rescission and resolution, the author takes exceptions
5
Ibid, at p. 23.
6
Ibid, at p. 23. Difference between remedies of resolution and rescission reiterated
in Ong v. Court of Appeals, 310 SCRA 1 (1999).
7
Iringan v. Court of Appeals, 366 SCRA 41 (2001).
8
Art. 1389, Civil Code.
427 428 LAW ON SALES
to the ruling in Suria v. Intermediate Appellate Court,9 which
involved a “Deed of Sale with Mortgage,” where the mortgage
was constituted to secure the payment of the purchase price.
The sellers sought to rescind the contract of sale (instead of
foreclosing) by reason of the failure of the buyer to pay the
balance of the purchase price secured by the mortgage contract.
In ruling that the sellers could not avail of the remedy of
rescission under Article 1191, Suria held that since a contract
of sale obligates the seller to transfer the ownership of and to
deliver a determinate thing to the buyer, and the buyer in turn is
obligated to pay a price certain in money or its equivalent, then
by the execution of the deed of mortgage, the buyer was deemed
to have fulfilled his end of the bargain: “The payments on an
installment basis secured by the execution of a mortgage took
the place of a cash payment. In other words, the relationship
between the parties is no longer one of buyer and seller because
the contract of sale has been perfected and consummated. It
is already one of a mortgagor and a mortgagee.”10 The ruling,
although taking note of Justice J.B.L. Reyes’ reasoning in
Universal Food Corp., went on to conclude that the situation is
“different” and held that the remedy of rescission under Article
1384 of the Civil Code is merely subsidiary in the absence of
legal remedies available to the seller, such as foreclosure.
The reasoning fails to take into consideration that the
mortgage contract was merely a subsidiary contract, and
could not exist without principal contractual obligation (i.e., the
obligation to pay the price), which was part and parcel of the
contract of sale entered into between the parties. The mortgage
contract therefore was only meant to secure, not to replace, the
obligation of the buyer to pay the purchase price.
b. When Rescission Should Have Been Applied
The decision in Uy v. Court of Appeals,11 demonstrates an
instance when the remedy of rescission or resolution was not
9
151 SCRA 661 (1987).
10
Ibid, at p. 667.
11
314 SCRA 69 (1999).
 REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
applied by the Court, when it seemed the more appropriate
solution to the issues raised.
In Uy, a contract of sale covered the purchase of eight (8)
residential lots, and it was determined that three (3) of the lots
delivered were subject to landslide and could not be used for the
construction of residential building. The trial court held that the
rescission effected by the buyer was not the appropriate remedy
since in such a case the seller had delivered and did not commit
any breach of his obligation, and the buyer-NHA did not suffer
any injury by the performance thereof. The Court held —
The cancellation, therefore, was not a rescission
under Article 1191. Rather, the cancellation was based
on the negation of the cause arising from the realization
that the lands, which were the object of the sale, were
not suitable for housing.
Cause is the essential reason which moves the
contracting parties to enter into it. In other words,
the cause is the immediate, direct and proximate
reason which justifies the creation of an obligation
through the will of the contracting parties. Cause,
which is the essential reason for the contract, should
be distinguished from motive, which is the particular
reason of a contracting party which does not affect the
other party. x x x.
Ordinarily, a party’s motive for entering into the
contract do not affect the contract. However, when the
motive predetermines the cause, the motive may be
regarded as the cause ... x x x.
Accordingly, we hold that the NHA was justified
in canceling the contract. The realization of the
mistake as regards the quality of the land resulted in
the negation of the motive/cause thus rendering the
contract inexistent ... [under] Article 1318 of the Civil
Code [defining the essential requisite of contracts].12
Perhaps the better solution would have been to allow
rescission on the ground that it violated the warranty on the
12
Ibid, at pp. 82-85.
429 430 LAW ON SALES
indicated use of the subject matter. The facts did indicate that
“NHA would not have entered into the contract were the lands
not suitable for housing. In other words, the quality of the land
was an implied condition for the NHA to enter into the contract.”
Under Article 1545 of the Civil Code, where the obligation of the
party to a contract of sale is subject to any condition which is
not performed, the other party may refuse to proceed with the
contract or he may waive performance of the condition; if the
other party promised that the condition should happen or be
performed, the other party may also treat the non-performance
of the condition as a breach of warranty, which would entitle the
other party to rescind. Rescission may have also been justified
for breach of warranty against hidden defects.
2. Remedy of “Rescission” Covered
The remedy of rescission covered by this chapter is that
referred to in Article 1191 of the Civil Code, thus:
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.
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.
In the sales of immovables on installments, a specific
remedy of rescission is provided for under Article 1592 of the
Civil Code, thus —
ART. 1592. In the sale of immovable property, even
though it may have been stipulated that upon failure to
 REMEDIES OF RESCISSION 431
AND CANCELLATION FOR IMMOVABLES
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.
Article 1592 has been construed to apply to all sales of
immovables even when there is no stipulation on automatic
rescission, because of the use of the phrase “even though.”13
Two other laws have varied the power to rescind covered in
Article 1191 when it comes to immovables, namely, the Maceda
Law and Section 23 of Pres. Decree No. 957, which have been
covered in more details in the previous chapter.
a. Nature of the Remedy of Rescission or Resolution
The Supreme Court has ruled in one case,14 that “to rescind”
is to declare a contract void at its inception and to put on end to it
as though it never was; it is not merely to terminate the contract
and release the parties from further obligations to each other,
but to abrogate it from the beginning and to restore the parties to
their relative positions as if no contract had been made.
In another case,15 the Court held that the right of rescission
of a party to an obligation under Article 1191 is predicated on
a breach of faith by the other party that violates the reciprocity
between them.16 In yet another case,17 it held that the breach
contemplated in Article 1191 is the obligor’s failure to comply
with an obligation already extant, and does not cover the failure
of a condition to render binding that obligation. Ironically, in one
case,18 the Court characterized the failure of a party to comply
13
Jacinto v. Kaparaz, 209 SCRA 246 (1992).
14
Laforteza v. Machuca, 333 SCRA 643 (2000), citing Ocampo v. Court of Appeals,
233 SCRA 551 (1994).
15
Romero v. Court of Appeals, 250 SCRA 223 (1995).
16
Uy v. Court of Appeals, 314 SCRA 69 (1999); Velarde v. Court of Appeals, 361
SCRA 56 (2001).
17
Odyssey Park, Inc. v. Court of Appeals, 280 SCRA 253, 260 (1997).
18
Gil v. Court of Appeals, 411 SCRA 18 (2003).
432 LAW ON SALES
with his obligation in reciprocal contracts as the happening of “a
resolutory condition for which the remedy is either rescission or
specific performance under Article 1191 of the New Civil Code.” It
had been generally understood that the happening of a resolutory
condition ipso facto extinguishes the contract without need of the
exercise of any remedy of rescission.19
b. Rescission Must Be Based on Substantial Breach
The power to rescind under Article 1191 is based only on
substantial breach, pursuant to the principle laid down in Article
1234 which states that “[I]f the obligation has been substantially
performed in good faith, the obligor may recover as though there
has been a strict and complete fulfillment, less damages suffered
by the obligee.”
Even when there is substantial breach as to allow the
rightful party to rescind, and in fact he does rescind the contract,
it is within the power of the courts to fix a period to allow the
defaulting party an opportunity to comply with his obligation. This
is especially so when the breach constitutes mere negligence
(culpa) as distinguished from fraud or malice (dolo) which is
defined as a “conscious and intentional design to evade the
normal fulfillment of existing obligations.”20
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc.,21
held that when the buyer in not paying the balance of the
purchase price had acted in bad faith, such buyer would not be
entitled to ask the courts to give it further time to make payment
and thereby erase the default or breach that it had deliberately
incurred: “To do otherwise would be to sanction a deliberate and
reiterated infringement of the contractual obligations incurred
... an attitude repugnant to the stability and obligatory force of
contracts.”22
19
This ruling would perhaps find basis under Article 1545 which provides that
“Where the ownership in the thing has not passed, the buyer may treat the fulfillment by
the seller of his obligation to deliver the same as described and as warranted expressly
or by implication in the contract of sale as a condition of the obligation of the buyer to
perform his promise to accept and pay for the thing.”
20
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 (1972).
21
43 SCRA 93 (1972).
22
Ibid, at p. 101.
 REMEDIES OF RESCISSION 433
AND CANCELLATION FOR IMMOVABLES
c. Restitution as Consequence of Rescission
The last paragraph in Article 1191 cross-refers to Articles
1385 and 1388 which apply to rescissible contracts. Under Article
1385, the employment of the remedy of rescission “creates
the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interests;
consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore.”23
The same article also provides that rescission shall not take
place when the things which are the object of the contract are
legally in the possession of third persons who did not act in bad
faith and that indemnity for damages may be demanded from the
person causing the loss.24 On the other hand, under Article 1388,
whoever acquires in bad faith the things alienated in fraud of
creditors, shall indemnify the latter for damages suffered by them
on account of the alienation, whenever it should be impossible
for him to return them.
Consequently, the primary consequence of an effective
exercise of the remedy of rescission or resolution would be
mutual restitution.
d. When Forfeiture of Payments Allowed in Rescission
The effect of restitution in the remedy of rescission may be
stipulated against, and such stipulation would be enforceable to
the extent that it is reasonable.
Early on in The Manila Racing Club v. The Manila Jockey
Club,25 the Court held that a provision in the contract providing for
forfeiture of the amounts paid in a contract of sale is valid being
in the nature of a penal clause (now governed by Article 1226)
and within the ambit of the freedom of the parties to stipulate
23
See also Supercars Management & Dev. Corp. v. Flores, 446 SCRA 34 (2004).
24
“Under Article 1385 of the Civil Code, rescission creates the obligation to return
the things which were the object of the contract but such rescission can only be carried out
when the one who demands rescission can return whatever he may be obliged to restore.
This principal has been applied to rescission of reciprocal obligations under Article 1191
of the Civil Code.” Co v. Court of Appeals, 312 SCRA 528 (1999).
25
69 Phil. 55 (1939).
434 LAW ON SALES
in a contract (now governed by Article 1306), since “[i]n its
double purpose of insuring compliance with the contract and of
otherwise measuring beforehand the damages which may result
from non-compliance, it is not contrary to law, morals or public
order because it was voluntarily and knowingly agreed upon.”26
Parenthetically, Article 1486 now provides that in the sale
of personal property on installments, “a stipulation that the
installments or rents paid shall not be returned to the vendee
or lessee shall be valid insofar as the same may not be
unconscionable under the circumstances.”
Thus, Pangilinan v. Court of Appeals,27 held: “The seller’s right
in a contract to sell with reserved title to extrajudicially cancel the
sale upon failure of the buyer to pay the stipulated installments and
retain the sums and installments already received has long been
recognized by the well-established doctrine of 39 years standing.”
Nevertheless, it should be noted that the Court may still allow,
as in its decision in Gomez v. Court of Appeals,28 such forfeiture
even in the absence of a forfeiture clause, as a reasonable
compensation for the use of the subject matter of the contract.
e. Who May Demand Rescission
Since rescission is predicated on a breach of faith by the
other party that violates the reciprocity between them, Uy v. Court
of Appeals,29 held that the power to rescind, therefore, is given
only to the injured party.
In addition, Laforteza v. Machuca,30 held that when rescission
of a contract of sale is based on Article 1191, mutual restitution is
required to bring back the parties to their original situation prior
to the inception of the contract; and that consequently, rescission
can be carried out only when the one who demands rescission
can return whatever he may be obliged to restore.31
26
Ibid, at p. 57.
27
279 SCRA 590 (1997).
28
340 SCRA 720 (2000).
29
314 SCRA 69 (1999).
30
333 SCRA 643 (2000).
31
Ibid, citing Co v. Court of Appeals, 312 SCRA 528 (1999). Also Supercars
Management & Dev. Corp. v. Flores, 446 SCRA 34 (2004).
 REMEDIES OF RESCISSION 435
AND CANCELLATION FOR IMMOVABLES
f. Rescission Generally Judicial in Nature
In a true contract of sale, a provision granting the non-
defaulting party a right to rescind would be superfluous because
such remedy is inherent in a contract of sale under Article 1191;
consequently, the specification in the contract that in case of
breach, the other party has a right to rescind does not generally
confer any additional right. Nonetheless, whether express or
implied, the remedy of rescission is inherently judicial in nature,32
in accordance with the general principle that “No man may, even
one with a valid and lawful cause of action, take the law into his
own hands and must resort to the aid of the courts to enforce his
rights.”33
The remedy of rescission in reciprocal contracts is not
absolute, since the third paragraph of Article 1191 which provides
that the courts “shall decree the rescission claimed, unless there
be just cause authorizing the fixing of the period,” has been the
statutory basis by which the Court has held that the injured party
himself cannot resolve the obligation,34 and requires confirmation
of such remedy by the courts.35 In the case of immovables, the
general provisions of Article 1191 should give way to the particular
provisions of Article 1592 which provides that when there has
been a demand made on the buyer for rescission either judicially
or by a notarial act, “the court may not grant him a new term.”36
g. When Extrajudicial Rescission Allowed
To the general principle that rescission must be exercised
judicially, the Court has recognized the validity and effectivity of
an express stipulation by the parties to a reciprocal contract that
rescission in case of default by one party, may be resorted to by
the other party extrajudicially.
32
Ocejo, Perez & Co. v. International Banking Corp., 37 Phil. 631 (1918); Republic
v. Hospital de San Juan de Dios, 84 Phil. 820 (1949); De la Rama Steamship Co. v. Tan,
G.R. No. 8784, May 21, 1956, 99 Phil. 1034 Unrep. (1956).
33
See Arts. 433 and 539, Civil Code.
34
TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES,
Vol. IV, p. 171 (1973). Angeles v. Calasanz, 135 SCRA 323 (1985).
35
Gaboya v. Cui, 38 SCRA 85 (1971); Luzon Brokerage Co., Inc. v. Maritime
Building Co., Inc., 43 SCRA 95 (1972).
36
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305 (1978).
436 LAW ON SALES
Earlier, Froilan v. Pan Oriental Shipping Co.,37 held that
“there is nothing in the law that prohibits the parties from entering
into an agreement that violation of the terms of the contract would
cause cancellation thereof, even without court intervention.”38
Curiously enough though, the contract in Froilan did not expressly
give to the mortgagee the right to cancel the agreement, and
the only relevant provision granted the mortgagee the power to
rescind the contract “as it may see fit in case of breach of the
terms thereof by the mortgagor,” which ordinarily would still mean
seeking remedy of rescission through court action.
Since Article 1191 makes available to the injured either of
the alternative remedies to rescind or to enforce fulfillment of
the contract, with damages in either case, if the obligor does
not comply with what is incumbent upon him, then Pangilinan v.
Court of Appeals,39 has held that —
... There is nothing in this law which prohibits the
parties from entering into an agreement that a violation
of the terms of the contract would cause its cancellation
even without court intervention. The rationale for the
foregoing is that in contracts providing for automatic
revocation, judicial intervention is necessary not for
purposes of obtaining a judicial declaration rescinding
a contract already deemed rescinded by virtue of an
agreement providing for rescission without judicial
intervention, but in order to determine whether or
not the rescission was proper. Where such propriety
is sustained, the decision of the court will be merely
declaratory of the revocation, but it is not in itself the
revocatory act. ...40
In contrast, Iringan v. Court of Appeals,41 provides for the
legal consequences when there is no contractual clause allowing
extrajudicial rescission. In that decision, the Court held that a
37
12 SCRA 276 (1964).
38
Ibid, at p. 286.
39
279 SCRA 590 (1997).
40
Ibid, at pp. 597-598. Reiterated in Gomez v. Court of Appeals, 340 SCRA 720
(2000).
41
366 SCRA 41 (2001).
 REMEDIES OF RESCISSION 437
AND CANCELLATION FOR IMMOVABLES
stipulation in a sale allowing rescission under Article 1191 is valid,
but it does not grant “automatic rescission,” since rescission must
be invoked judicially, and the courts are granted power to deny
rescission should there be grounds which justify the allowance of
a term for the performance of the obligation, thus —
Consequently, even if the right to rescind is made
available to the injured party, the obligation is not ipso
facto erased by the failure of the other party to comply
with what is incumbent upon him. The party entitled
to rescind should apply to the court for a decree of
rescission. The right cannot be exercised solely on a
party’s own judgment that the other committed a breach
of the obligation. The operative act which produces the
resolution of the contract is the decree of the court
and not the mere act of the vendor. Since a judicial or
notarial act is required by law for a valid rescission to
take place, the letter written by respondent declaring
his intention to rescind did not operate to validly rescind
the contract.42
The essence of the doctrine has been reiterated in Spouses
Benito v. Saquitan-Ruiz,43 where the Court held that a seller can-
not unilaterally and extrajudicially rescind a sale where there is
no express stipulation authorizing it; and that unilateral rescis-
sion will not be judicially favored or allowed if the breach is not
substantial and fundamental to the fulfillment of the obligation.44
h. Rescission Requires Positive Act
Rescission is a remedy that would have no automatic
application, even when the factual basis therefor (substantial
breach) be present in the situation. Being primarily a remedy,
rescission requires a positive act on the part of the injured party,
since it is legally possible that he may waive rescission and
proceed with specific performance. This principle is affirmed
in the language of Article 1592 that does not allow automatic
42
Ibid, at p. 48.
43
394 SCRA 250 (2002).
44
Reiterated in Heirs of Jesus M. Mascuñana v. Court of Appeals, 461 SCRA 186
(2005).
438 LAW ON SALES
rescission to take place even by stipulation, and mandates
a positive act of notarial or judicial demand on the part of the
unpaid seller.
In City of Cebu v. Heirs of Candido Rubi,45 involving a sale
of real property, when the buyer failed to pay the stipulated
purchase price in accordance with the terms of the contract, but
the seller did not give a notice of rescission, and the only notice
given to the buyer was a demand to vacate the premises, the
Court held that such written demand did not amount to a demand
for rescission under Article 1592.
Co v. Court of Appeals,46 ruled that although the failure
of the buyer to pay the balance of the purchase price was
a breach of her obligation under Article 1191, nevertheless,
since the seller did not sue for either specific performance nor
rescission, then the seller would have no right, without any
express provision to that effect, to forfeit the payments already
made by the buyer.
On the other hand, rescission to resolve a contract of
sale should be distinguished from, and cannot be deemed
necessarily included in, an action for reconveyance filed to
recover possession of the subject matter of the sale. Thus,
Olympia Housing v. Panasiatic Travel Corp.,47 held that in the
sale of real property, the seller is not precluded from going to
the courts to demand judicial rescission in lieu of a notarial act
of rescission; however, such action would be different from
an action for reconveyance of possession; and that although
judicial resolution of a contract would in turn give rise to mutual
restitution, it would not necessarily arise when the action filed
was for reconveyance. In addition, the Court held that in an
action for rescission, unlike in an action for reconveyance
predicated on an extrajudicial rescission (rescission by notarial
act), the court, instead of decreeing rescission, may authorize
for a just cause the fixing of a period.48
45
306 SCRA 408 (1999).
46
312 SCRA 528 (1999).
47
395 SCRA 298 (2003).
48
Reiterated in Ramos v. Heruela, 473 SCRA 79 (2005).
 REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
CONTRACT OF SALE VERSUS CONTRACT TO SELL
Since this chapter will employ the differences between a
contract of sale and a contract to sell to evaluate the evolving
characterization of the remedies of rescission or resolution
and cancellation, it would be worthwhile to discuss briefly what
clearly were the agreed differences between the two types of
sale contracts.
1. Importance of Proper Characterization
of Contract to Sell
It is the author’s position that both a contract of sale and a
contract to sell may be governed by the genus “sale” as defined
by Article 1458 of the Civil Code, as a contract where “one of the
contracting parties obligates himself to transfer the ownership of
and to deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent;” especially when the
article also provides that “[a] contract of sale may be absolute
or conditional.” In addition, under Article 1479, a provision in the
Title on Sale, it is expressly recognized that “[a] promise to buy
and sell a determinate thing for a price certain is reciprocally
demandable,” which obviously covers a contract to sell.
The importance of characterizing contracts to sell as species
of the genus “sale” under Article 1458 is to determine the set
of laws that govern such contracts, including the appropriate
remedies available to the contracting parties. Consequently, if
contracts to sell fall within the same genus as contracts of sale,
then the rules and principles applicable to contracts of sale would
also apply to contracts to sell, except as modified by the fact that
contracts to sell are primarily subject to suspensive conditions,
and therefore must be governed by the doctrines pertaining to
conditional contracts. For example, in the application of the rules
on double sales, it has been generally held that they have no
applications to contracts to sell.49
49
Mendoza v. Kalaw, 42 Phil. 236 (1921); Lim v. Court of Appeals, 162 SCRA 564
(1990); Cheng v. Genato, 300 SCRA 722 (1998); San Lorenzo Dev. Corp. v. Court of
Appeals, 449 SCRA 99 (2005).
439 440 LAW ON SALES
It cannot be denied, however, that there is a class of
“contracts to sell” that do not fall within the genus sale as defined
under Article 1458, when the underlying primary obligation is not
an obligation “to give” (i.e., to transfer ownership and delivery
possession of the subject matter), but rather an obligation “to
do,” which constitutes essentially of an obligation “to enter into
a contract of sale.” Such contracts to sell can also fall within the
definition of “mutual promise to buy and sale” under Article 1479
of the Civil Code.
As discussed hereunder, the Supreme Court itself has not
definitively decided on the proper classification of contracts to sell,
which has led to conflicting rulings on important issues related to
such contracts, mainly on the appropriate remedies available to
parties in cases of “breach.”
2. Recent Rulings that Consider Contracts to Sell
Not Covered by the Genus Sale
To jumpstart the discussions on the matter, it may be
appropriate to look at recent pronouncements of the Court that
indicate that it has not yet clearly pinned down the essence of
contracts to sell.
In Coronel v. Court of Appeals,50 the Court, through Justice
Melo, held that a contract to sell “may not be considered a
contract of sale because the first essential element is lacking,”
which is consent or meeting of the minds, “that is, consent to
transfer ownership in exchange for the price,”51 thus —
... In a contract to sell, the prospective seller
explicitly reserves the transfer of title to the prospective
buyer, meaning, the prospective seller does not as yet
agree or consent to transfer ownership of the property
subject of the contract to sell until the happening of
an event, which for present purposes we shall take
as the full payment of the purchase price. What the
seller agrees or obliges himself to do is to fulfill his
50
263 SCRA 15 (1996).
51
Ibid, at p. 26.
 REMEDIES OF RESCISSION 441
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promise to sell the subject property when the entire
amount of the purchase price is delivered to him. In
other words, the full payment of the purchase price
partakes of a suspensive condition, the non-fulfillment
of which prevents the obligation to sell from arising and
thus, ownership is retained by the prospective seller
without further remedies by the prospective buyer...
Stated positively, upon the fulfillment of the suspensive
condition which is the full payment of the purchase
price, the prospective seller’s obligation to sell the
subject property by entering into a contract of sale
with the prospective buyer becomes demandable as
provided in Article 1479 of the Civil Code...52
Coronel therefore defined a “contract to sell” as “a bilateral
contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to sell the said
property exclusively to the prospective buyer upon fulfillment of
the condition agreed upon, that is, full payment of the purchase
price.”53 Under such ruling, even upon the fulfillment of the
suspensive condition (i.e., the full payment of the purchase
price), ownership will not automatically transfer to the buyer
although the property may have been previously delivered to
the buyer, since the prospective seller still has to convey title
to the prospective buyer by entering into a contract of sale.54
Accordingly, the happening of the suspensive condition does not
give rise to an executory contract of sale subject to an action
for specific performance, since the obligation of the “seller” is to
enter into a contract of sale, merely a personal obligation “to do”
which cannot be the subject of an action for specific performance.
Ironically, only a few days before the Coronel decision, the
Court in Philippine National Bank v. Court of Appeals,55 held
that —
52
Ibid, at pp. 26-27; emphasis supplied.
53
Ibid, at p. 27. Reiterated in Edrada v. Ramos, 468 SCRA 597 (2005).
54
Ibid, at p. 28. Reiterated in Hulst v. PR Builders, Inc., 532 SCRA 74 (2007);
Castillo v. Reyes, 539 SCRA 193 (2007).
55
262 SCRA 464 (1996).
442 LAW ON SALES
A contract to sell is akin to a conditional sale where
the efficacy or obligatory force of the vendor’s obliga-
tion to transfer title is subordinated to the happening of
a future and uncertain event so that if the suspensive
condition does not take place, the parties would stand
as if the conditional obligation had never existed. ...
If it were not full payment of the purchase price upon
which depends the passing of title from the vendor to
the vendee, it may be some other condition or condi-
tions that have been stipulated and must be fulfilled be-
fore the contract is converted from a contract to sell or
at the most an executory sale into an executed one.56
More telling is the ruling in David v. Tiongson,57 where the
Court, in spite of the finding that underlying agreement was a
contract to sell (i.e., brought about by the stipulation that the
deed of sale and corresponding title would be issued only after
full payment), held explicitly that there was a perfected contract,
and granted the remedy of specific performance. To a great
extent, David denies the characterization under Coronel that
upon fulfillment of the suspensive condition, there is no contract
of sale upon which an action for specific performance may be
interposed.
In Gomez v. Court of Appeals,58 the Court clearly treated a
contract to sell as within the same genus as a contract of sale,
when it held that —
To be sure, a contract of sale may either be abso-
lute or conditional. One form of conditional sales is
what is now popularly termed as “Contract to Sell,”
where ownership or title is retained until the fulfill-
ment of a positive suspensive condition normally the
payment of the purchase price in the manner agreed
upon. x x x.59
56
Ibid, at pp. 477-478. Reiterated in Almocera v. Ong, 546 SCRA 164 (2008).
57
313 SCRA 63 (1999).
58
340 SCRA 720 (2000).
59
Reiterated in Demafelis v. Court of Appeals, 538 SCRA 305 (2007); Villador, Jr.
v. Zaballa, 545 SCRA 325 (2008).
 REMEDIES OF RESCISSION
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For a contract, like a contract to sell, involves a
meeting of minds between two persons whereby one
binds himself, with respect to the other, to give some-
thing or to render some service. Contracts, in general,
are perfected by mere consent, which is manifested
by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the
contract. The offer must be certain and the accep-
tance absolute. x x x.60
Leaño v. Court of Appeals,61 held that in a contract to sell real
property on installments, the full payment of the purchase price is
a positive condition, and that “[t]he transfer of ownership and title
would occur after full payment of the price.”62 In Carrascoso, Jr. v.
Court of Appeals,63 the Court held that if the suspensive condition
is fulfilled, the contract of sale is thereby perfected, such that if
there had already been previous delivery of the property subject
of the sale to the buyer, ownership thereto automatically transfers
to the buyer by operation of law, without any further at having to
be performed by the seller.
The foregoing rulings all point to one thing: that the Supreme
Court uses the same term “contract to sell” to identify two different
types of conditional contracts — one where the underlying
contract embodies bilateral-reciprocal real obligations to give,
but that the contract’s efficacy is subjected to a suspensive
condition; and the other, where the primary obligations created
is an obligation to do, i.e., to enter into a contract of sale,
subject to fulfillment of the obligation of the buyer to fully pay
the purchase price. The confusing, use of terms has thereby
undermined the jurisprudential rules pertaining to the remedies
available to the parties.
60
Ibid, at pp. 727-729,citing Galang v. Court of Appeals, 225 SCRA 37 (1993). Also
Villamaria, Jr. v. Court of Appeals, 487 SCRA 571 (2006).
61
369 SCRA 36 (2001).
62
Ibid, at p. 44.
63
477 SCRA 666 (2005).
443 444 LAW ON SALES
3. Rulings Characterizing Contracts to Sell
a. Rationale for Parties Entering into Contracts to Sell
Coronel v. Court of Appeals,64 explains the rationale on why
parties would opt to enter into a contract to sell instead of a con-
tract of sale, in that “a contract to sell ... is most commonly en-
tered into so as to protect the seller against a buyer who intends
to buy the property in installment by withholding ownership over
the property until the buyer effects full payment therefor.”65
It should be noted, nonetheless, that even in a true contract
of sale or a conditional contract of sale, transfer of ownership
to the buyer may be expressly withheld even when delivery is
effected by the seller. Although the principle is that what the seller
decides to do at consummation stage should not change the
essential characterization of the contract at the point of perfection,
the Court has often employed the actuations of the parties during
consummation to characterize what the contract essentially was
at the point of perfection.
b. “On Where” the Suspensive Condition Is
Pinned Determines Nature of a Sale
The main ingredient of a contract to sell, which it shares
with a conditional contract of sale, is that it contains clearly a
stipulation that must amount to a suspensive condition, for not
every modality introduced in a sale contract would necessarily
be a condition.
For example, Heirs of San Andres v. Rodriguez,66 held
that a sale, even when denominated as a “Deed of Conditional
Sale,” should still be construed to be an absolute sale where the
contract is devoid of any proviso that title is reserved or the right
to unilaterally rescind until or unless the price is paid. The Court
held that the stipulation that the “payment of full consideration
based on a survey shall be due and payable in five (5) years from
64
263 SCRA 15, 30 (1996).
65
Ibid, at pp. 30-31. Reiterated in Cebu v. Heirs of Candido Rubi, 306 SCRA 408
(1999).
66
332 SCRA 769 (2000).
 REMEDIES OF RESCISSION
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the execution of a formal deed of sale,” was not a condition which
affected the efficacy of the contract of sale; it merely provided the
manner by which the full consideration is to be computed and the
time when it is to be paid.
On the other hand, Gonzales v. Heirs of Thomas and
Paula Cruz,67 held that the provision in the contract that the
lessee-buyer shall be obliged to purchase the property only if
the lessor-seller is able to obtain separate title to the property in
his name, was a conditional obligation to purchase the land and
governed by Article 1181 of the Civil Code, which provides that
“In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition.”
The Court held that the underlying contract was a contract to sell,
and consequently “[t]he obligatory force of a conditional obligation
is subordinated to the happening of a future and uncertain event,
so that if that event does not take place, the parties would stand
as if the conditional obligation had never existed.”68
Therefore, both a conditional contract of sale and a contract
to sell are subject to a suspensive condition, which usually takes
the form of the full payment of the purchase price by the buyer.
According to a line of decisions, the main ingredient in a contract
to sell is the existence of a stipulation or agreement imposing
a suspensive condition on the effectivity or demandability of
the contract itself, and not just on the obligation of the seller to
transfer and deliver the subject matter, for in the latter case, it
would amount to a conditional contract of sale.
Thus, in Romero v. Court of Appeals,69 the Court held that
a perfected contract of sale (as distinguished from a contract to
sell) may either be absolute or conditional depending on whether
the agreement is devoid of, or subject to, any condition on the
passing of title of the thing to be conveyed or on the obligation of
a party thereto. It held that the term “condition” in the context of
67
314 SCRA 585, 597 (1999).
68
Ibid, at p. 601, citing Rose Packing Company, Inc. v. Court of Appeals, 167 SCRA
309 (1988) per Paras, J.; Gaite v. Fonacier, 2 SCRA 831 (1961).
69
250 SCRA 223 (1995).
445 446 LAW ON SALES
a perfected contract of sale pertains in reality to the compliance by
one party of an undertaking the fulfillment of which would beckon
in turn the demandability of the reciprocal prestation of the other
party. It also held that where the so-called “potestative condition” is
imposed not on the birth of the obligation but on its fulfillment, only
the condition is avoided leaving unaffected the obligation itself.
In Romero the parties entered into a “Deed of Conditional
Sale” with the provision that should the seller fail to eject the
squatters from the property within 60 days from the contract date,
the downpayment shall be returned to the buyer. An ejectment
case was brought by seller, but judgment was rendered after the
60-day period had lapsed. The seller then offered to return to the
buyer the downpayment contending that there is no contract to
enforce with the non-fulfillment of the condition imposed under
the contract.
The Court held that the seller could neither seek rescission
of the contract of sale, nor could he challenge the agreement as
not being duly perfected contract. It distinguished between one
situation where the condition is imposed on an obligation of a party
which is not complied with, the other party may either refuse to
proceed or waive said condition;70 from the other situation where
the condition is imposed upon the perfection of the contract itself,
the failure of such condition would prevent the juridical relation
itself from coming into existence. Since under the agreement, the
seller was obliged to evict the squatters on the property, therefore
the ejectment of the squatters was a condition, the operative act
of which sets into motion the period of the payment of the balance
of the purchase price. The seller’s failure to remove the squatters
from the property within the stipulated period gave the buyer the
right to either refuse to proceed with the agreement or waive that
condition in consonance with Article 1545 of the Civil Code.71
In Heirs of Pedro Escanlar v. Court of Appeals,72 where the
sale contract contained the stipulation “this Contract of Sale of
70
Art. 1545, Civil Code.
71
Reiterated in Lim v. Court of Appeals, 263 SCRA 569 (1996); Babasa v. Court of
Appeals, 309 SCRA 532 (1998); and Caoili v. Court of Appeals, 314 SCRA 345 (1999).
72
281 SCRA 176 (1997).
 REMEDIES OF RESCISSION
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rights, interests and participations shall become effective only
upon the approval by the Honorable Court,” it was held that the
non-happening of the condition did not affect the validity of the
contract itself, thus —
There has arisen here a confusion in the concepts of
validity and the efficacy of a contract. Under Art. 1318
of the Civil Code, the essential requisites of a contract
are: consent of the contracting parties; object certain
which is the subject matter of the contract and cause
of the obligation which is established. Absent one of
the above, no contract can arise. Conversely, where
all are present, the result is a valid contract. However,
some parties introduce various kinds of restrictions or
modalities, the lack of which will not, however, affect
the validity of the contract.
In the instant case, the Deed of Sale, complying
as it does with the essential requisites, is a valid one.
However, it did not bear the stamp of approval of the
court. This notwithstanding, the contract’s validity was
not affected. ... In other words, only the effectivity and
not the validity of the contract is affected.73
Heirs of Pedro Escanlar distinguishes between the
demandability or efficacy of a sale from the requisites by which it
is constituted as a valid contract; that a contract to sell constitutes
a “valid contract,” but it may not be wholly demandable until the
suspensive condition upon which it based is fulfilled. To a great
extent, it denies the “lack of consent” characterization of Coronel
for contracts to sell.
Coronel itself recognized the distinction between a contract
to sell and a conditional contract of sale along these lines, thus —
A contract to sell ... may not even be considered
as a conditional contract of sale where the seller may
likewise reserve title to the property subject of the sale
until the fulfillment of a suspensive condition, because
in a conditional contract of sale, the first element of
73
Ibid, at p. 190.
447 448 LAW ON SALES
consent is present, although it is conditioned upon the
happening of a contingent event which may or may not
occur. If the suspensive condition is not fulfilled, the
perfection of the contract of sale is completely abated.
... However, if the suspensive condition is fulfilled, the
contract of sale is thereby perfected, such that if there
had already been previous delivery of the property
subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law
without any further act having to be performed by the
seller.
In a contract to sell, upon the fulfillment of the
suspensive condition which is the full payment of
the purchase price, ownership will not automatically
transfer to the buyer although the property may have
been previously delivered to him. The prospective
seller still has to convey title to the prospective buyer
by entering into a contract of absolute sale.74
The usual form of such an agreement is making the fulfillment
of the buyer’s obligation to pay in full the purchase price as the
condition upon which:
(a) Only then shall arise a demandable sale
contract;
(b) The obligation of the seller “to sell” the
subject matter of the shall only then arise;
or
(c) The obligation of the seller to transfer the
ownership of the subject matter sold shall
then arise.
It would seem from Coronel, that from the standpoint of
perfection it is not the existence of a clause “reserving ownership
with the seller even when there would be delivery of the subject
74
Ibid, at pp. 27-28, citing Homesite and Housing Corp. v. Court of Appeals, 133
SCRA 777 (1984). See also Santos v. Court of Appeals, 337 SCRA 67 (2000); Abesamis
v. Court of Appeals, 361 SCRA 328 (2001); Almira v. Court of Appeals, 399 SCRA 351
(2003); Vidal, Jr. v. Tayamen, 531 SCRA 147 (2007); Hulst v. PR Builders, Inc., 532
SCRA 74 (2007).
 REMEDIES OF RESCISSION 449
AND CANCELLATION FOR IMMOVABLES
matter to the buyer” that determines whether there is a contract
to sell, but to where the suspensive condition (i.e., full payment
of the purchase) is pinned to: the first two above-enumerated
conditions would give rise to a contract to sell, while the third type
of condition would give rise to a conditional contract of sale.
c. Requisite Stipulations for Contracts to Sell
There is another line of decisions, that seems to be the
main school of thought, which holds that what determines
whether a sale contract is a “contract to sell” is that there must
exist an agreement, whether express or implied, at the time of
perfection of the sale contract, that the obligation of the seller to
transfer ownership to the buyer pursuant to a sale (even when
physical possession may have been effected) is conditioned
upon the full payment by the buyer of the purchase price. The
existence of such agreement as an integral component of a
contract to sell, lies in locating the existence of two (2) clauses,
namely:
(a) Reservation of the ownership of the subject
matter with the seller, even if there should
be delivery thereof to the buyer; and
(b) Reservation of the right of the seller to
rescind the contract extrajudicially in the
event the suspensive condition (usually the
full payment of the purchase price) does not
happen.
The prevailing doctrine therefore is that absent any
stipulation in the deed or in the meeting of minds reserving title
over the property to the seller until full payment of the purchase
price and giving the seller the right to unilaterally rescind the
contract is case of non-payment, makes the contract one of sale
rather than a contract to sell.75
75
Tugaba v. Vda. De Leon, 132 SCRA 722 (1984); Dignos v. Court of Appeals, 158
SCRA 375 (1988); Topacio v. Court of Appeals, 211 SCRA 291 (1992); Almira v. Court of
Appeals, 399 SCRA 351 (2003); Vda. De Mistica v. Naguiat, 418 SCRA 73 (2003); Valdez
v. Court of Appeals, 439 SCRA 55 (2004); Blas v. Angeles-Hutalla, 439 SCRA 273 (2004);
Portic v. Cristobal, 456 SCRA 577 (2005).
450 LAW ON SALES
(1) Reservation of Ownership by Seller
The existence or non-existence of the “reservation of
ownership with seller” clause, has been a critical consideration for
the Court in determining the nature of a sale contract because it
considers that the essence of a true contract of sale under Article
1458 is the “passing of ownership of the subject matter.” Thus,
the Court has often ruled that in a contract of sale, ownership over
the subject matter generally passes to the buyer as a result of the
tradition thereof; whereas, in a contract to sell, the delivery of the
subject matter does not pass ownership to the buyer even though
he possesses the same, under the stipulation that ownership
shall pass only upon full payment of the purchase price;76 and
that the remedies available to the seller would depend on this
particular point.
Thus, Manuel v. Rodriguez,77 held that in a contract of sale,
delivery will effectively transfer ownership of the subject matter
to the buyer, and the seller cannot recover ownership by the
fact of non-payment of the price without rescinding the contract
through judicial action. On the other hand, in a contract to sell,
since delivery does not transfer ownership to the buyer, the non-
payment of the purchase price prevents the obligation to sell
from arising and thus ownership is retained by the seller without
further remedies.78
In Padilla v. Spouses Paredes,79 where the contract between
the parties provided that: (a) the sellers agree not to alienate,
encumber, or in any manner to modify the right of title to said
property; (b) the sellers shall pay real estate taxes thereon until
it has been transferred to the buyer; (c) that on the full payment
of the purchase price of the property, the sellers will execute
and deliver a deed conveying to the buyer the title in fee simple
free from all liens and encumbrances; the Court held that said
76
Valarao v. Court of Appeals, 304 SCRA 155 (1999); Universal Robina Sugar
Milling Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002); Chua v. Court of Appeals,
401 SCRA 54 (2003); Demafelis v. Court of Appeals, 538 SCRA 305 (2007); Castillo v.
Reyes, 539 SCRA 193 (2007); Villador, Jr. v. Zaballa, 545 SCRA 325 (2008).
77
109 Phil. 1 (1960).
78
Ong v. Court of Appeals, 310 SCRA 1 (1999).
79
328 SCRA 434 (2000).
 REMEDIES OF RESCISSION
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provisions signify that the title to the property remains in the
sellers until the buyer should have fully paid the purchase price,
which is a typical characteristic of a contract to sell.
In other cases,80 even in the absence of such express
stipulation, when it is clearly evidenced that the seller did not
intend to transfer title to the buyer until full payment of the
purchase price, the contract was still deemed to be a contract
to sell.
It must be noted, however, that in the natural course of
things, a positive agreement or stipulation to such effect must
accompany the perfection of a sale, since delivery or tradition
by itself (pursuant to a valid sale) would transfer ownership
without need of express stipulation to that effect. To illustrate,
in City of Cebu v. Heirs of Candido Rubi,81 the Court held that
the agreement between the buyer and seller that the offer
and acceptance was for a bid price to be paid in cash, not in
staggered payments, taken together with the fact that there was
no expressed or apparent intent to reserve ownership over the lot
until full payment was made, lead to no other conclusion that the
parties entered into a contract of sale and not a contract to sell.
Nevertheless, the Supreme Court has also ruled otherwise,
in the sense that by the subsequent acts or omissions of the
parties and not by an express reservation clause, it is possible
to derive such situation to determine that the contract between
them is a contract to sell.
In Adelfa Properties, Inc. v. Court of Appeals,82 two features
convinced the Court that the parties never intended to transfer
ownership to petitioner except upon full payment of the purchase
price: “Firstly, the exclusive option to purchase, although it pro-
vided for automatic rescission of the contract and partial forfei-
ture of the amount already paid in case of default, does not men-
tion that petitioner is obliged to return possession or ownership
80
City of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999); Santos v. Court of
Appeals, 337 SCRA 67 (2000).
81
306 SCRA 408 (1999).
82
240 SCRA 575 (1995). See also Ong v. Court of Appeals, 240 SCRA 565, 576-
577 (1995).
451 452 LAW ON SALES
of the property as a consequence of non-payment. There is no
stipulation anent reversion or reconveyance of the property to
herein private respondents in the event that the petitioner does
not comply with its obligation. With the absence of such a stipu-
lation, although there is a provision on the remedies available to
the parties in case of breach, it may legally be inferred that the
parties never intended to transfer ownership to the petitioner pri-
or to completion of payment of the purchase price.”83 The Court
further held that “[I]n effect, there was an implied agreement that
ownership shall not pass to the purchaser until he had fully paid
the price. Article 1478 of the Civil Code does not require that
such a stipulation be expressly made. Consequently, an implied
stipulation to that effect is considered valid and therefore, bind-
ing and enforceable between the parties. It should be noted that
under the law and jurisprudence, a contract which contains this
kind of stipulation is considered a contract to sell.”84
On the other hand, Babasa v. Court of Appeals,85 ruled that
a “Conditional Sale of Registered Lands,” which required the
final payment of the balance of the purchase price only when
the seller is able to obtain clean titles to the properties sold
within twenty (20) months from the date of the sale, was still an
absolute sale, and not a contract to sell, because “In the instant
case, ownership over [the subject properties] passed to [Vendee]
both by constructive and actual delivery. Constructive delivery
was accomplished upon the execution of the contract ... without
reservation of title on the part of the [Vendor] while actual delivery
was made when [Vendee] took unconditional possession of the
lots and leased them to its associate company.”86
The Court has equated stipulations (which are looked into
at the perfection stage of the contract) with actual transfer of
ownership, which dwells into the performance of the obligations
under a contract. What should determine the nature of the contract,
and therefore the available remedies in case of breach, should
83
240 SCRA 575, 577.
84
Ibid, at p. 577.
85
290 SCRA 532 (1998).
86
Ibid, at p. 540. Also Buot v. Court of Appeals, 357 SCRA 846 (2001).
 REMEDIES OF RESCISSION 453
AND CANCELLATION FOR IMMOVABLES
be the existence or non-existence of the requisite stipulations at
the time of perfection, and not by what the parties do or fail to do
during performance stage.
To illustrate, in Santos v. Court of Appeals, in characterizing
87
the contract, the Court held that “Article 1458 ... expressly obliges
the vendor to transfer ownership of the thing sold as an essential
element of a contract of sale. This is because the transfer
of ownership in exchange for a price paid or promised is the
very essence of a contract of sale. ... When the circumstances
categorically and clearly show that no valid transfer of ownership
was made by the vendors to the vendee, their agreement cannot
be deemed a contract of sale, but merely a contract to sell, where
ownership is reserved by the vendor and is not to pass until full
payment of the purchase price, which constitutes a positive
suspensive condition.”88
The test employed by the Court seems to be an after-the-
fact (i.e., after perfection) determination of whether the seller has
by tradition transferred ownership to the buyer. Tradition does
not determine the nature of the contract, but is pursued only as
a consequence of the contract. If seller refuses to deliver in spite
of a clear obligation to do so, that would be a breach that should
entitle the buyer to rescind the contract. On the other hand,
when there is an express stipulation that seller will not transfer
ownership until buyer shall have fully paid the purchase price, the
refusal of the seller to effect tradition until the buyer shall have
complied with his own obligation, would not authorize the buyer
to rescind the contract for then there would be no breach.
(2) Agreement as to Deed of Absolute Sale
In a number of decisions, the Supreme Court has considered
as an important factor whether there is a stipulation or promise
that the seller shall execute a deed of absolute sale upon
completion of payment of the purchase price by the buyer, or
whether the agreement between the parties is embodied in a
private document. In other words, such situations are treated as
87
337 SCRA 67 (2000).
88
Ibid, at pp. 75-76.
454 LAW ON SALES
equivalent to reservation of title in the name of the seller until the
buyer shall have completed the payment of the price.
Thus, in Chua v. Court of Appeals,89 the Court held that “[t]he
absence of a formal deed of conveyance is a strong indication
that the parties did not intend immediate transfer of ownership,
but only a transfer after full payment of the purchase price,”90
especially when the seller retained possession of the certificate
of title and all other documents relative to the sale until there was
full payment of the purchase price.
The present rule therefore is the absence of a formal deed of
conveyance is taken as a strong consideration that the underlying
agreement is a contract to sell, since there is a strong indication
that the parties did not intend to immediately transfer title, but
only a transfer after full payment of the price.91
However, there are also cases where the Court did not
consider such factor as determinative. For example, in Dignos v.
Court of Appeals,92 where there was an express stipulation that
the sellers would execute a final deed of absolute sale in favor
of the buyer upon payment of the balance of the purchase price,
the contract was still construed not to be a contract to sell, since
nowhere in the contract in question was there a stipulation to the
effect that title to the property sold is reserved in the seller until
full payment of the purchase price, nor was there a stipulation
giving the seller the right to unilaterally rescind the contract the
moment the buyer fails to pay within a fixed period.93
Closely connected with the lack of a formal deed of sale to
evidence the sale is when only a receipt is issued by the seller to
the buyer, for partial payment of the price. Thus, in Chua v. Court
of Appeals,94 the Court held that when the meeting of the minds
89
401 SCRA 54 (2003).
90
Ibid, at p. 67.
91
Manuel v. Rodriguez, 109 Phil. 1 (1960); Roque v. Lapuz, 96 SCRA 741 (1980);
Alfonso v. Court of Appeals, 186 SCRA 400 (1990); Lacanilao v. Court of Appeals, 262
SCRA 486 (1996); David v. Tiongson, 313 SCRA 63 (1999); Rayos v. Court of Appeals,
434 SCRA 365 (2004); Cruz v. Fernando, 477 SCRA 173 (2005).
92
158 SCRA 375 (1988).
93
Same ruling in Jacinto v. Kaparaz, 209 SCRA 246 (1992).
94
401 SCRA 54 (2003).
 REMEDIES OF RESCISSION 455
AND CANCELLATION FOR IMMOVABLES
of the parties is evidenced merely by a receipt which provided
that the earnest money shall be forfeited in case the buyer fails
to pay the balance of the purchase price on the stipulated sale,
that would indicate that the agreement between the parties was
a contract to sell: “This is in the nature of a stipulation reserving
ownership in the seller until full payment of the purchase price.
This is also similar to giving the seller the right to rescind
unilaterally the contract the moment the buyer fails to pay within
a fixed period.”95
(3) Reservation of Right to Extrajudicially Rescind in
Event of Non-Fulfillment of Condition
Although it seems established in our jurisdiction that in
order to find a sale contract to be a true “contract to sale,” it must
contain a clause which reserves to the seller the right to rescind
the contract without need of court action in the event the buyer
fails to pay the purchase price as agreed upon, such a doctrinal
requirement appears incongruent to the nature of a contract to
sell, as one where the contract itself is subject to a suspensive
condition.
In a contract to sell, where the suspensive condition has
not been fulfilled, no further remedy is necessary since ipso
jure the contract would have already been extinguished by non-
happening of the condition. However, if there has been previous
delivery of the subject matter to the buyer, although seller has
by reservation retained ownership over the subject matter, since
the seller still cannot take the law into his own hands, the seller
would still have to seek court action to recover possession from
the buyer if the latter refuses to voluntarily return the subject
matter. However, such action is not for rescission but actually
merely a recovery of possession. Article 539 of the Civil Code
provides that “[e]very possessor has a right to be respected in
his possession; and should he be disturbed therein he shall be
protected in or restored to said possession by means established
by the laws and the Rules of Court.” In turn, Article 433 provides
that “[a]ctual possession under a claim of ownership raises a
95
Ibid, at p. 67.
456 LAW ON SALES
disputable presumption of ownership [and] [t]he true owners
must resort to judicial process for the recovery of the property.”
On the other hand, in a contract of sale, the non-fulfillment
of the condition would authorize the seller to rescind the contract
or to waive the condition and seek enforcement of the contract, in
accordance with Article 1545 of the Civil Code. Thus, in Babasa
v. Court of Appeals,96 the Court held that when the obligation
of the buyer to fully pay the purchase price was made subject
to the condition that the seller first delivers the clean title over
the parcel bought within twenty (20) months from the signing
of the contract, such condition was imposed merely on the
performance of the obligation, as distinguished from a condition
imposed on the perfection of the contract. The non-happening
of the condition merely granted the buyer the right to rescind
the contract or even to waive it and enforce performance on the
part of the seller, all in consonance with Art. 1545 which provides
that “[w]here the obligation of either party to a contract of sale is
subject to any condition which is not performed, such party may
refuse to proceed with the contract or he may waive performance
of the condition. If the other party has promised that the condition
should happen or be performed, such first mentioned party may
also treat the non-performance of the condition as a breach of
warranty.”
Dignos v. Court of Appeals,97 which involved a “Deed of
Conditional Sale” over a parcel of land, what was executed was a
private instrument, which among others provided, that the sellers
would execute a final deed of absolute sale in favor of the buyer
upon payment of the balance of the purchase price. In holding
that the contract was not a contract to sell, but a contract of sale,
the Court held that “a deed of sale is absolute in nature although
denominated as a ‘Deed of Conditional Sale,’ where nowhere in
the contract in question is a proviso or stipulation to the effect
that title to the property sold is reserved in the vendor until full
payment of the purchase price, nor is there a stipulation giving the
vendor the right to unilaterally rescind the contract the moment
96
290 SCRA 532 (1998).
97
158 SCRA 375 (1988).
 REMEDIES OF RESCISSION
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the vendees fails to pay within a fixed period.98 Somehow, the
logic of such ruling sounds unconvincing when taken from the
essence of a true contract to sell.
A contract to sell, precisely because it constitutes a contract
subject to a suspensive condition, does not require a specific
stipulation that the seller (who is the obligee) has the right to
“rescind” or more properly to terminate the contract when the
condition does not happen, since such effect is ipso jure, and
any express stipulation granting such right is superfluous. It is
in fact in a contract of sale that such a stipulation must appear,
otherwise, the seller cannot extrajudicially rescind the contract
and has to go to court for such remedy. In other words, contrary
to the ratiocination in Dignos, the absence of such provision
granting the seller the right to rescind extrajudicially should be
interpreted to mean that the contract is a contract to sell, and the
presence of that provision would indicate that it is a contract of
sale.
In Topacio v. Court of Appeals,99 the Court, in determining
whether the contract is one of sale or a contract to sell, held
that “[n]owhere in the transaction is it indicated that BPI [seller]
reserved its title on the property nor did it provide for any
automatic rescission in case of default. So when petitioner failed
to pay the balance of 5875,000.00 despite several extensions
given by private respondent, the latter could not validly rescind
the contract without complying with the provision of Article 1592
or Article 1191 on notarial or judicial rescission respectively.”100
The author would agree with Topacio in that if there is no
provision reserving title with the seller, it would be construed as
a contract of sale, because without such reservation, and the
subject property is delivered to the buyer, it would produce the
effect of tradition and there is no suspensive condition to talk
about. What seems enigmatic in Topacio are the discussions of
the Court on the effect of earnest money in determining whether
the contract is one of sale or contract to sell, thus —
98
Ibid, at p. 382; emphasis supplied; citing Luzon Brokerage Co., Inc. v. Maritime
Building Co., Inc., 86 SCRA 305 (1978); Tabuga v. Vda. de Leon, 132 SCRA 722 (1984).
99
211 SCRA 291 (1992).
100
Ibid, at p. 295.
457 458 LAW ON SALES
The payment by the petitioner of 5375,000.00 on
November 28, 1991 which respondent accepted, and
for which an official receipt was issued x x x was the
operative act that gave rise to a perfected contract of
sale between the parties. Article 1482 of the Civil Code
provides: x x x…
Earnest money is something of value to show that
the buyer was really in earnest, and given to the seller to
bind the bargain. Under the Civil Code, earnest money
is considered part of the purchase price and as proof of
the perfection of the contract. The 5375,000.00 given
by petitioner representing 30% of the purchase price is
earnest money...
Based on the aforecited article the parties have
agreed on the object of the contract which is the house
and lot ... and even before November 27, 1985 (the
date petitioner sent his letter together with the 30%
downpayment), the parties have agreed on the price
which is 51,250,000.00.101
The impression one gets from the afore-quoted discussions
in Topacio is the implication that a contract of sale is one that
is perfected because the parties have agreed on the three (3)
elements to constitute a valid sale: subject matter and the price
and its mode of payment; whereas, a contract to sell is not a
perfected contract. Such implication is misleading, for both a
contract of sale and a contract to sell are perfected contracts;
although the first is binding and demandable, the latter is binding
but with obligations subject to suspensive conditions. And just
because earnest money has been given, does not determine
whether it is a contract of sale or a contract to sell, for indeed
even in a contract to sell a substantial portion of the purchase
price may have been paid, but that alone does not convert it into
a contract of sale.
Therefore, in the subsequent decision in Philippine National
Bank v. Court of Appeals,102 the Court held that provision of
101
Ibid, at pp. 294-295.
102
262 SCRA 464, 482-483 (1996).
 REMEDIES OF RESCISSION 459
AND CANCELLATION FOR IMMOVABLES
Article 1482 on earnest money gives no more than a disputable
presumption, and when the letter agreements between the
parties do not contain the substantial condition precedents,
do not lead to the conclusion that there was a contract to sell
at all.
In any event, as previously discussed above, the failure to
find a provision in a sale contract reserving power on the part of
the seller to extrajudicially rescind the contract in the event the
buyer fails to pay the purchase price would not qualify arrange-
ment to be one of contract to sell.
4. Substantial Breach Issue Relevant Only
in Contracts of Sale
In a contract of sale, rescission can be availed of only in
case there has been substantial breach; whereas, in a contract
to sell, the doctrine of substantial breach has no application,
since the non-happening of the condition by whatever means or
reason, substantial or not, ipso jure prevents the obligation to sell
from arising.
Thus, in Heirs of Pedro Escanlar v. Court of Appeals,103 the
Court held that in a sale of real property on installments, when
the buyer has defaulted and the seller, instead of rescinding,
accepted late payments beyond the deadline stipulated, the
seller in effect waived and was estopped from exercising their
right to rescind under Article 1592 of the Civil Code.
This is in stark contrast to the ruling of the Court under the
same situation pertaining to contracts to sell, in Santos v. Court
of Appeals,104 where it held that “[f]ailure to pay the price agreed
upon in a contract to sell 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.”105
103
281 SCRA 176, 193-194 (1997).
104
337 SCRA 67 (2000).
105
Ibid, at p. 77.
460 LAW ON SALES
In Padilla v. Spouses Paredes,106 the Court held that in a
contract to sell, the acceptance of partial payment cannot be
deemed a waiver of the right to cancel the contract; at best, it can
only be considered as an act of tolerance on the part of the seller
that could not modify the contract, absent any written agreement
to the effect signed by the parties.
In Buot v. Court of Appeals,107 the Court held that pursuant
to the second paragraph of Article 1188 of the Civil Code, in a
contract to sell, even if the buyers did not mistakenly make partial
payments, inasmuch as the suspensive condition was not fulfilled,
it is only fair and just that the buyers be allowed to recover what
they had paid in expectancy that the condition would happen;
otherwise, there would be unjust enrichment on the part of the
seller.
It should be noted however, that the non-fulfillment of the
condition, which would bring about breach of a contract of sale or
cancellation of the contract to sell, should be distinguished from
the “pendency” of the happening of the condition. For example,
in Adalin v. Court of Appeals,108 the Court held liable the seller
who re-sold the subject matter during the time when the condition
had not yet been fulfilled, holding that nothing in the law justifies
the seller to undertake a radical change of posture to justify
the re-selling of the property previously sold under a Contract
of Conditional Sale, to hold that pending the happening of the
condition, that the contract “was dependent on the sellers not
changing their minds about selling the property.”109
5. Crux of the Distinction
In a rather simplistic manner of considering the issue, and
apart from a contract to sell which embodies only the primary
obligation of the seller to “enter into a contract of sale,” the author
would dare say that a contract of sale and a contract to sell are
the opposite ways of approaching the very same sale transaction
106
328 SCRA 434 (2000).
107
357 SCRA 846 (2001).
108
280 SCRA 536 (1997).
109
Ibid, at p. 554.
 REMEDIES OF RESCISSION
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at the executory stage, with respect to the obligation to transfer
ownership of the subject matter.
The contract of sale is basically one where the reciprocal
obligations created are deemed to be subject to one another as
each being the resolutory condition for the other. That is why
Article 1191 provides that the “power to rescind” is implied in
reciprocal obligations. As Tolentino aptly observed:
This article recognizes an implied or tacit resolu-
tory condition in reciprocal obligations. It is a condition
imposed exclusively by law, even if there is no corre-
sponding agreement between the parties.110
On the other hand, a contract to sell is one where the
reciprocal obligations created are deemed to be subject to the
full payment of the purchase price as constituting the normal
suspensive condition for the obligation of the seller to deliver
possession and/or transfer ownership; although it is possible
that the suspensive condition may take other form rather than its
reference to the full payment of the purchase price.
Therefore, the manner and effect of extinguishment of
obligations subject to conditions should make both the contract
of sale and the contract to sell basically the same since in an
obligation subject to a suspensive condition, the non-happening
thereof prevents the obligation from arising, whereas in an
obligation subject to a resolutory condition, the happening thereof
extinguishes in almost like manner the obligation as if it never
arose. However, such seeming similarity between the two types
of sale contracts is clear only when both are compared in their
perfection stages, when no obligation has been performed.
When, however, performance stage is reached (i.e., when
the subject matter of the sale has been delivered by the seller to
the buyer), a contract of sale assumes different consequences
from a contract to sell. In a contract of sale, delivery would
transfer ownership to the buyer, and therefore rescission must
110
COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE
170 (1973).
461 462 LAW ON SALES
necessarily be done judicially since only the courts can grant the
remedy of recalling ownership that has passed to the buyer and
reverting it to the seller. On the other hand, in a contract to sell,
by express agreement, delivery of the subject matter does not
transfer ownership to the buyer, and therefore when the condition
is not fulfilled (i.e., non-payment of the purchase price) no court
intervention is needed to “rescind” the contract since ownership
has remained with the seller. If court intervention is necessary,
it is not for the rescission of the contract, but for the recovery of
the possession from the buyer who is not entitled thereto, and
refuses to voluntarily return the subject matter of the sale.
In their executory stages (i.e., the subject matter of sale has
not been delivered to the buyer), there is no practical difference in
remedies available to the innocent party in both a contract of sale
and a contract to sell for purposes of rescission, since both can be
done extrajudicially: in a contract of sale, by mere notarial notice
of rescission under Article 1592 the contract may be rescinded; in
a contract to sell, mere notice of cancellation would be sufficient
under Supreme Court rulings.111 When performance stage has
been reached, generally, court action is necessary to rescind a
contract of sale; whereas, no such court action is necessary to
rescind a contract to sell.
GOVERNING PROVISIONS AND PRINCIPLES FOR REMEDIES
OF RESCISSION AND CANCELLATION
1. Pre-Maceda Law Period
Prior to the passage of the Maceda Law, the legal provisions
governing the remedies of parties covering sales of immovables
were Articles 1191, 1591 and 1592 of the Civil Code.
Although Article 1191 provides for the power of rescission in
reciprocal contracts in general, it is Articles 1591 and 1592 which
specifically govern the power to rescind contracts of sale covering
immovables. Article 1591 states that “[s]hould the vendor have
reasonable grounds to fear the loss of immovable property sold
PHILIPPINES, Vol. IV, p. 111
University of the Philippines v. De los Angeles, 35 SCRA 103 (1970); Palay, Inc.
v. Clave, 124 SCRA 638 (1983); Cheng v. Genato, 300 SCRA 722 (1998).
 REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
and its price, he may immediately sue for the rescission of the
sale;” otherwise, if no such grounds exist, the provisions of Article
1191 must be observed.
As discussed above, Article 1592 provides that even when
automatic rescission may have been expressly stipulated,
nonetheless, the buyer may still remove the default by payment
of what is due as long as no demand for rescission of the contract
has been made upon him either judicially or by notarial act.
Therefore, Article 1592 contains the principle that the remedy of
rescission requires the taking of a positive act on the part of the
non-defaulting party.
Although Article 1592 provides that “[a]fter the demand, the
court may not grant him a new term,” the Supreme Court has, in a
few instances and on grounds of equity, given the buyer reprieve,
even after the seller had given notarial demand for rescission.
In one case,112 the Court held that Article 1592 allows the
buyer of an immovable property to pay as long as no demand
for rescission has been made, and the consignation, of the
balance of the purchase price before the trial court operated as
full payment, which resulted in the extinguishment of the buyer’s
obligation under the contract of sale.
a. Remedy of Rescission under Articles 1191 and 1592
Have No Application to Contracts to Sell
Articles 1191 and 1592, which require rescission either by
judicial action, or notarial act, do not apply to contracts to sell.113
Likewise, the remedy of rescission under Articles 1380 et seq.
have no application to a contract to sell, not being included within
the enumerated contracts therein, nor is lesion or damage the
basis upon which remedy can be sought under a contract to
sell.114
112
Province of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008).
113
Pangilinan v. Court of Appeals, 279 SCRA 590 (1997); Valarao v. Court of
Appeals, 304 SCRA 155 (1999); Padilla v. Spouses Paredes, 328 SCRA 434 (2000);
Gomez v. Court of Appeals, 340 SCRA 720 (2000).
114
Ong v. Court of Appeals, 310 SCRA 1 (1999).
463 464 LAW ON SALES
In the early cases of Caridad Estates, Inc. v. Santero,115 and
Manuel v. Rodriguez,116 the Court had held that then Article 1504
(now Article 1592) applied only to a contract of sale of immovable,
and had no application to a contract to sell. In making such ruling,
Manuel held that the contention of the buyer that the seller —
... had no right to cancel the contract as there was
only a “casual breach” is likewise untenable. In contracts
to sell, where ownership is retained by the seller and
is not to pass until the full payment of the price, such
payment, as we said, is a positive suspensive condition,
the failure of which is not a breach, casual or serious,
but simply an event that prevented the obligation of
the vendor to convey title from acquiring binding force
in accordance with Article 1117 of the Old Civil Code
[now Article 1184]. To argue that there was only a casual
breach is to proceed from the assumption that the
contract is one of absolute sale, where non-payment is
a resolutory condition, which is not the case [here].117
The reasoning in Manuel is to the effect that since a contract
to sell is constituted by a suspensive condition on the full payment
of the price, the non-payment of the price would automatically,
even without the need of further action nor of the remedy of
rescission, extinguish the contract.
Under the New Civil Code, Ong v. Court of Appeals,118
discussed the rationale on why the remedy of rescission cannot
apply to a contract to sell, thus:
“In a contract of sale, the title to the property passes
to the vendee upon the delivery of the thing sold;
while in a contract to sell, ownership is, by agreement,
115
71 Phil. 114 (1940).
116
109 Phil. 1 (1960).
117
Ibid, at p. 10.
118
310 SCRA 1 (1999). The application of the Maceda Law never figured in the
resolution of the case perhaps because it was never invoked by the buyers. Also, the
subject matter of the purchase constituted of residential areas, piggery and a ricemill.
Likewise, the facts did indicate that formal demands were made upon buyers and
eventually a case to recover possession where the grace period provided by the Maceda
Law was never invoked.
 REMEDIES OF RESCISSION 465 466 LAW ON SALES
AND CANCELLATION FOR IMMOVABLES

reserved in the vendor and is not to pass to the vendee
until full payment of the purchase price. In a contract
to sell, the payment of the purchase price is a positive
suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents
the obligation of the vendor to convey title from
acquiring an obligatory force. ... The non-fulfillment of
the condition of full payment rendered the contract to
sell ineffective and without force and effect.119 It must
be stressed that the breach contemplated in Article
1191 of the New Civil Code is the obligor’s failure to
comply with an obligation already extant, not a failure
of a condition to render binding that obligation. Failure
to pay, in this instance, is not even a breach but merely
an event which prevents the vendor’s obligation to
convey title from acquiring biding force.”120
b. Equity Resolution for Contracts to Sell
Prior to the applicability of the Maceda Law, although the
principle of substantial breach and the remedies of rescission
found in Articles 1191 and 1592 have no application to contracts
to sell involving immovable, the Supreme Court has on occasion
applied them, under the principle of equity.
In J.M. Tuazon Co., Inc. v. Javier,121 where the buyer had
religiously been paying his monthly installments for eight years,
with interests, but even after default he was willing and had
offered to pay all the arrears, the Court granted additional period
of 60 days from receipt of judgment for the buyer to make all
installment payments in arrears plus interests, although demand
for rescission had already been made.
In Legarda Hermanos v. Saldana,122 although the buyer
clearly defaulted in the payment of his installments on a contract
119
Also Odyssey Park, Inc. v. Court of Appeals, 280 SCRA 253 (1997).
120
Ibid, at p. 10. Same ruling as in Luzon Brokerage Co., Inc. v. Maritime Building
Co., Inc., 46 SCRA 381 (1972); Rillo v. Court of Appeals, 274 SCRA 461 (1997); Cheng
v. Genato, 300 SCRA 722 (1998); Gonzales v. Heirs of Thomas and Paula Cruz, 314
SCRA 585 (1999); Padilla v. Spouses Paredes, 328 SCRA 434 (2000); Santos v. Court of
Appeals, 337 SCRA 67 (2000).
121
31 SCRA 829 (1970).
122
55 SCRA 324 (1974).
to sell covering two parcels of land, the Court nevertheless
awarded ownership over one of the two (2) lots jointly purchased
by the buyer, when it found that the total amount of installments
paid, although not enough to cover the purchase price of the two
lots, were enough to cover fully the purchase price of one lot. The
Court deemed that there was substantial performance insofar as
one of the lots concerned as to prevent rescission thereof.
In both J.M. Tuazon Co. and Legarda Hermanos, the Court
acknowledged the “impropriety” of applying Article 1592, but that
there would be denial of “substantial justice” for the leeway given
to the buyers pursuant to Article 1234 of the Civil Code which
provides that “[i]f the obligation has been substantially performed
in good faith, the obligor may recover as though there had been
a strict and complete fulfillment, less damages suffered by the
oblige.” Reliance upon Article 1234 was misplaced for it embodies
the concept of “casual breach” (which would not authorized the
exercise of the remedy of rescission) from “substantial breach,”
both concepts of which are inapplicable to a contract to sell, for
the non-happening of the condition, whether casual or substantial,
is not a breach but prevents the obligations from arising, or more
accurately, extinguishes the underlying contract as though it
never existed.
In spite of previous decisions applying equity reasoning for
treating a contract to sell as a contract of sale when the subject
matters involve residential real estate, sometimes the Court still
adhered to the strict rule that substantial compliance will not be
a basis to save a buyer who has failed to pay the contract price
in a contract to sell.
In Lacanilao v. Court of Appeals,123 which involved a verbal
contract to sell a residential lot, the Court found the transaction
to be a contract to sell “where ownership is retained by the seller
until payment of the price in full, such payment is a positive
suspensive condition, failure of which is not really a breach but an
event that prevents the obligation of the vendor to convey title in
accordance with Article 1184 of the Civil Code.”124 The Court also
123
262 SCRA 486 (1996).
124
Ibid, at p. 490.
 REMEDIES OF RESCISSION 467
AND CANCELLATION FOR IMMOVABLES
referred to Article 1545 which provides that “where the obligation
of either party to a contract of sale is subject to any condition
which is not performed, such party may refuse to proceed with
the contract or he may waive performance of the condition.”125
To the author, the application of the principle of equity was
inappropriate in Lacanilao because not a single centavo had
been paid by the buyers pursuant to the alleged verbal sale.
The Court took into account the fact that the buyers have been
occupying the lot as lessees for almost three (3) decades, for
which they could have obtained a right of first refusal or could have
consigned the purchase price in court when the seller allegedly
refused to execute the deed of sale in their favor. However, it held
that: “This Court, while aware of its equity jurisdiction, is first and
foremost a court of law. Hence, while equity might tilt on the side
of the [buyers], the same cannot be enforced so as to overrule a
positive provision of law in favor of the [seller].”126
In Rillo v. Court of Appeals,127 the Court recognized that
since the contract between the parties was a contract to sell
covering non-residential immovables, it ruled that in such case
the applicable law is the Maceda Law which 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 seller to convey title from
acquiring binding force. It also provides the buyer on installments
in case he defaults in the payment of succeeding installments.
This was the same ruling in Odyssey Park, Inc. v. Court of
Appeals,128 which covered a contract to sell commercial lots.
The foregoing rulings show the accommodating attitude
of the Supreme Court to buyers of residential real estate who
have exhibited a measure of good faith in complying with their
obligation to pay the purchase price even under a contract to
sell, as to go beyond form and accompanying rules on the effects
125
Ibid, at pp. 490-491.
126
Ibid, at p. 491.
127
274 SCRA 461 (1997).
128
280 SCRA 253 (1997).
468 LAW ON SALES
of non-happening of the suspensive condition to achieve equity
based on the circumstances present in a case; whereas, in the
case where the subject matter is commercial or industrial real
estate, the Court has maintained a stern adherence to the form
chosen by the parties for their contract, i.e., a contract to sell, and
implement the accompanying legal effects concomitant with such
form of sale.
c. Formal Notice Required to Cancel Contracts to Sell
Although legal provisions requiring notarial rescission, such
as Article 1592, have no application to contracts to sell involving
real property, nevertheless, the Court has required as a minimum
procedural rule for the “rescission” (i.e., cancellation) of a contract
to sell that at least notice be given by the seller to the buyer.
University of the Philippines v. De los Angeles,129 mentions
such requirement for the “rescission” of a contract to sell to be
“effective,” thus —
Of course, it must be understood that the act of a
party in treating a contract as cancelled or resolved
on account of infractions by the other contracting
party must be made known to the other and is always
provisional, being ever subject to scrutiny and review
by the proper court. If the other party denies the
rescission is justified, it is free to resort to judicial
action in its own behalf, and bring the matter to court.
Then, should the court, after due hearing, decide that
the resolution of the contract was not warranted, the
responsible party will be sentenced to damages; in the
contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.
In 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. For it is only the final judgment
of the corresponding court that will conclusively and
finally settle whether the action taken was or was not
129
35 SCRA 103 (1970).
 REMEDIES OF RESCISSION
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correct in law. But the law definitely does not require
that the contracting party who believes itself injured
must first file suit and wait for a judgment before taking
extrajudicial steps to protect its interest. Otherwise,
the party injured by the other’s breach will have to
passively sit and watch its damages accumulate during
the pendency of the suit until the final judgment of
rescission is rendered when the law itself requires that
he should exercise due diligence to minimize its own
damages...”130
University of the Philippines therefore did not question the
validity of the power to rescind a contract of sale extrajudicially
when stipulated, or the power to cancel or resolve a contract to
sell when the condition of payment of the purchase price is not
fulfilled. What it did stress was that the factual bases for either
rescission or cancellation may not be present to warrant the
exercise of either such remedies, and the same is always subject
to the final determination of a court of law. It further held that
the fears expressed that a stipulation providing for a unilateral
rescission in case of breach of contract may render nugatory the
general rule requiring judicial action and lead to abuse, is met
by the fact that “in case of abuse or error by the rescinder, the
other party is not barred from questioning in court such abuse
or error, the practical effect of the stipulation being merely to
transfer to the defaulter the initiative of instituting suit, instead of
the rescinder.”131
However, no amount of reading of University of the Philippines
explains the basis of why it held that in the cancellation of a
contract to sell, “the act of a party treating a contract as canceled
or resolved ... must be made known to the other.” The only
pronouncement that University of the Philippines explained was
that every act of rescission or cancellation would be provisional
unless the courts decree the existence of a factual basis for such
extrajudicial act. But nowhere did the decision explain why notice
to the other party was essential, other than perhaps the implied
130
Ibid, at p. 107; emphasis supplied.
131
Ibid, at p. 108; emphasis supplied.
469 470 LAW ON SALES
fairness to allow the other party the right to question in court the
propriety of the act of the seller. Nevertheless, whether there was
notice or not, if the factual basis for an extrajudicial rescission or
cancellation is present, the courts should decree the cancellation
to have become effective.
Indeed, in a contract to sell, as the Court itself held in a later
case of Torralba v. De los Angeles,132 on the contention of the
buyer that the seller should have resorted to a judicial decree
rescinding the contract to sell before awarding the lot to another
buyer —
This contention is untenable. The contract executed
by the petitioner and the PHHC expressly provided that
the contract shall be deemed annulled and cancelled
and the PHHC shall be at liberty to take possession
of said property and dispose the same to any other
person upon default of the petitioner to pay the install-
ments due. Hence, there was no contract to rescind
in court because from the moment the petitioner de-
faulted in the timely payment of the installments, the
contract between the parties was deemed ipso facto
rescinded.133
Torralba thus correctly expressed the principle that the non-
fulfillment of the condition ipso facto cancels or resolves a contract
to sell so that there is legally nothing else to do at that point.134 So
that notice to the defaulting party cannot be the operative act to
make the cancellation or resolution of a contract to sell valid and
effective. However, the facts of Torralba still show that despite
its pronouncements notice was given by the seller to the buyer
before “rescinding” the contract to sell.
One cannot say that Torralba decided as it did because es-
sentially even possession of the subject property, although the
covering contract was a contract to sell, had not been transferred
to the buyer; and that had possession been transferred to the
132
96 SCRA 69 (1980).
133
Ibid, at p. 76; emphasis supplied.
134
Reiterated in AFP Mutual Benefit Asso. v. Court of Appeals, 364 SCRA 768
(2001).
 REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
buyer, even in a contract to sell, judicial action is necessary to re-
cover the property from the buyer. But even then, the court action
is not one really to rescind, but for recovery of possession, and
certainly notice is not required to have such a cause of action.
Lim v. Court of Appeals,135 expressly applied the University
of the Philippines ruling as allowing the seller “to consider the
contract to sell between them terminated for non-payment of the
stipulated consideration,”136 and the only risk involved is that the
courts may not affirm the factual basis upon which to base the
non-happening of the suspensive condition.
In Palay, Inc. v. Clave,137 a “Contract to Sell” a piece of
land expressly provided that the contract shall be automatically
rescinded upon default in payment of any monthly installment
after the lapse of 90 days from the expiration of the grace period
of one month, without need of notice and with forfeiture of all
installments paid. For failure of the buyer to pay installments due,
the seller treated the contract as canceled without notice to the
buyer. In ruling that the cancellation was void because of lack of
notice, the Court held —
Well settled is the rule, as held in previous
jurisprudence, that judicial action for rescission of a
contract is not necessary where the contract provides
that it may be revoked and cancelled for violation of
any of its terms and condition. However, even in the
cited cases, there was at least a written notice sent
to the defaulter informing him of the rescission. As
stressed in University of the Philippines vs. Walfrido de
los Angeles the act of a party in treating a contract as
cancelled should be made known to the other.138
The reasoning of Palay, Inc. on why notice of cancellation
of a contract to sell by virtue of non-fulfillment of the suspensive
condition must be given to the other party seems to be either of
two things as aforequoted: first, it has always been the practice;
135
182 SCRA 564 (1990).
136
Ibid, at p. 572.
137
124 SCRA 638 (1983).
138
Ibid, at p. 644.
471 472 LAW ON SALES
and second, it was so decreed in University of the Philippines.
The first reasoning is unacceptable because a usage or practice
without legal or logical basis should be abandoned. The second
is unsupported by any reasoning found in University of the
Philippines.
The other legal basis of Palay, Inc. in mandating notice to
the other party is that even under the Maceda Law, notice of
cancellation is required to be given to the buyer by notarial act.
But then, as discussed below, the Maceda Law, is an aberration of
what otherwise would be established principles of cancellation in
contracts to sell. For cases covered by Maceda Law, such notice
to the other party is required simply and peculiarly because such
special law requires it. However, for cases not covered by the
Maceda Law, and especially on the general principles governing
the effects of non-fulfillment of the suspensive condition in
a contract to sell, why should the provisions of a special and
peculiar law govern?
The contract to sell in Palay, Inc. expressly waived notice on
the part of the buyer in case the seller should seek to rescind or
cancel the contract. In disallowing such waiver, the Court held —
The contention that private respondent had waived
his right to be notified under paragraph 6 of the
contract is neither (sic) meritorious because it was
a contract of adhesion, a standard form of petitioner
corporation, and private respondent had no freedom
to stipulate. A waiver must be certain and unequivocal,
and intelligently made; such waiver follows only where
liberty of choice has been fully accorded. Moreover,
it is a matter of public policy to protect buyers of real
estate on installment payments against onerous and
oppressive conditions. Waiver of notice is one such
onerous and oppressive condition to buyers of real
estate on installment payments.139
In one swoop, Palay, Inc. had decreed that a waiver of notice
in a contract of adhesion is void; and even when not contained in
139
Ibid, at pp. 646-647; emphasis supplied.
 REMEDIES OF RESCISSION 473
AND CANCELLATION FOR IMMOVABLES
a contract of adhesion, such waiver is invalid for being contrary to
public policy when it covers real estate sold on installment basis.
Cheng v. Genato,140 reiterated the ruling that —
Even assuming in gratia argumenti that ... [there
was] default ... in their Contract to Sell, the execution by
[seller] of the affidavit to annul the contract is not even
called for. For with or without the aforesaid affidavit
their non-payment to complete the full downpayment
of the purchase price ipso facto avoids their contract to
sell, it being subjected to a suspensive condition. When
a contract is subject to a suspensive condition, its birth
or effectivity can take place only if and when the even
which constitutes the condition happens or is fulfilled.
If the suspensive condition does not take place, the
parties would stand as if the condition obligation had
never existed.
Nevertheless, [seller] is not relieved from the giving
of a notice, verbal or written, to the [buyers] for his
decision to rescind their contract. In many cases,
even though we upheld the validity of a stipulation in
a contract to sell authorizing automatic rescission for
a violation of its terms and condition, at least a written
notice must be sent to the defaulter informing him of
the same. The act of a party in treating a contract as
cancelled should be made known to the other. For such
act is always provisional. It is always subject to the
scrutiny and review by the courts in case the alleged
defaulter brings the matter to the proper courts. ...
This rule validates, both in equity and justice,
contracts such as the one at bar, in order to avoid and
prevent the defaulting party from assuming the offer
as still in effect due to the obligee’s tolerance for such
non-fulfillment. Resultantly, litigations of this sort shall
be prevented and the relations among would-be parties
may be preserved ...141
140
300 SCRA 722 (1998).
141
Ibid, at pp. 735-737; emphasis supplied. The application of the doctrine of prior
notice of cancellation of contracts to sell has been applied to movables in Visayan Sawmill
Co., Inc. v. Court of Appeals, 219 SCRA 378 (1993).
474 LAW ON SALES
So, there we have it (for now, at least): notice of extrajudicial
rescission of a contract of sale and even cancellation of a
contract to sell even when the suspensive condition has not
been fulfilled, require at the very least to be effective or operative,
notice to the defaulting buyer. This doctrine has since then been
consistently adhered to in cases subsequent cases for all types
of immovables.142
What form of notice is required for the declaration of
cancellation of a contract to sell? We take our cue from what
the Court held in Dignos v. Court of Appeals,143 that such notice
should be in a public instrument pursuant to the provision of Article
1358 of the Civil Code which requires “that acts and contracts
which have for their object the extinguishment of real rights over
immovable property must appear in a public document.”144
d. Rescission Principles Applied to Contracts to Sell
By the nature of a contract to sell, the remedy of rescission
is irrelevant to contracts to sell because the non-fulfillment of
the suspensive condition of full payment of the purchase price
prevents a contract of sale from even materializing, and therefore
there is really nothing to resolve or rescind. And certainly, any
stipulation authorizing the seller to “rescind” the contract to sell in
the event the buyer fails to fully pay the purchase price is a mere
surplusage.
To illustrate, in Luzon Brokerage Co., Inc. v. Maritime
Building Co., Inc.,145 the “Deed of Conditional Sale,” ruled to be a
contract to sell, provided only —
(d) ... that should the Vendee fail to pay any of the
monthly installments, when due, or otherwise fail to
comply with any of the terms and conditions herein
stipulated, then this Deed of Conditional Sale shall
automatically and without any further formality, become
142
See Jison v. Court of Appeals, 164 SCRA 339 (1988); Ocampo v. Court of
Appeals, 233 SCRA 551, 561-562 (1994).
143
158 SCRA 375 (1988).
144
Ibid, at p. 384.
145
43 SCRA 95 (1972).
 REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
null and void, and all sums so paid by the Vendee by
reason thereof, shall be considered as rentals and the
Vendor shall then and there be free to enter into the
premises, take possession thereof or sell the properties
to any other party.146
Strictly speaking the afore-quoted provision did not create a
right of automatic rescission because even without such clause,
the non-payment of the installments would ipso jure result in the
obligation to sell not arising at all. The only additional right that
the provision did create was the right of forfeiture of payments
previously made. On the insistence by the buyer that the seller
could not extrajudicially rescind or resolve the contract but must
first seek recourse to the courts, Luzon Brokerage held that —
The distinction between contracts of sale and
contracts to sell with reserved title has been recognized
by this Court in repeated decisions upholding the
power of the promissor under contracts to sell in case
of failure of the other party to complete payment, to
extrajudicially terminate the operation of the contract,
refuse conveyance and retain the sums or installments
already received, where such rights are expressly
provided for, as in the case at bar.147
A reading of the afore-quoted reasoning would imply that
even the right to “rescind” a contract to sell where ownership has
been retained by the seller, would have to be expressly reserved
in the deed in order to be binding. Such a conclusion does not
correspond with the nature of a contract to sell. In the resolution
denying the first motion for reconsideration, the Court ruled that
“in a contract to sell, the full payment of the price through the
punctual performance of the monthly payments is a condition
precedent to the execution of the final sale and to the transfer of
the property from the owner to the proposed buyer; so that there
will be no actual sale until and unless full payment is made.”148
The emphasized quotation imply therefore that upon full payment
146
Ibid, at p. 98.
147
Ibid, at pp. 104-105; emphasis supplied.
148
46 SCRA 381, 387 (1972).
475 476 LAW ON SALES
of the price, there automatically arises a contract of sale which
may be enforced by an action for specific performance.
Roque v. Lapuz,149 reiterated the Luzon Brokerage ruling
that “in a contract to sell, the full payment of the price through
the punctual performance of the monthly payments is a condition
precedent to the execution of the final sale and to the transfer of
the property from the owner to the proposed buyer; so that there
will be no actual sale until and unless full payment is made.”150 The
contract having been construed as a contract to sell, Roque held
that the provisions of Article 1592 had no application. Amazingly
however, the Court held that “Art. 1191 of the New Civil Code is
the applicable provision where the obligee ... elects to rescind or
cancel his obligation to delivery the ownership.” However, since
the Court found that only 4 out of 116 monthly installments were
ever paid, and since the buyer has long been in default, it refused
to grant the buyer the benefit of the period under Article 1191.
Roque therefore has brought us to a critical junction:
substantial compliance or whether there has been good faith or
bad faith on the part of the buyer in defaulting in the payment of the
purchase price is and should be irrelevant when the agreement
on hand is one of contract to sell, thus —
... We hold that the contract between the petitioner
and the respondent was a contract to sell where the
ownership or title is retained by the seller and is not to
pass until the full payment of the price, such payment
being a positive suspensive condition and failure of
which is not a breach, casual or serious, but simply
an event that prevented the obligation of the vendor to
convey title from acquiring binding force.151
Under such premise, it seemed wrong for Roque to thereafter
hold that “We agree with the respondent Court of Appeals that
Article 1191 of the New Civil Code is the applicable provision
where the obligee, like petitioner herein, elects to rescind or
149
96 SCRA 741 (1980).
150
Ibid, at p. 755.
151
Ibid, at p. 757; emphasis supplied.
 REMEDIES OF RESCISSION 477
AND CANCELLATION FOR IMMOVABLES
cancel his obligation to deliver the ownership of the two lots in
question for failure of the respondent to pay in full the purchase
price,” and then implied that had the buyer substantially paid the
purchase price, the Court would have upheld the new 90 day
period granted by the Court of Appeals.152
In addition, Roque ruled out the granting of new period
pursuant to Article 1191 on the basis that the buyer has introduced
substantial improvements on the lots since “to grant the same
would place the vendor at the mercy of the buyer who can easily
construct substantial improvement on the land but beyond the
capacity of the vendor to reimburse in case he elects to rescind
the contract by reason of the vendee’s default or deliberate refusal
to pay or continue paying the purchase price of the land.”153
The “mixing-up” of doctrinal pronouncements was glaringly
displayed subsequently in Angeles v. Calasanz,154 which also
involved a contract to sell a parcel of land, where the issue was
the validity of the provision providing for automatic cancellation on
failure of the buyer to comply with the installments terms thereof.
The buyer insisted that the provision insofar as it provided that
in case of specified breaches of its terms, the sellers have the
right to declare the contract canceled and of no effect, to be void,
because it granted the sellers an absolute and automatic right
of rescission. Clearly, the reference to the remedy of rescission
was not relevant at all to the contract to sell, but nevertheless,
the Court plunged deep into the doctrinal pronouncements on
rescission, and despite the fact that the contract at issue was a
contract to sell, held that the breach of the contract adverted to
by the seller —
... is so slight and casual when we consider that apart
from the initial downpayment of 5392.00 the plaintiffs-
appellee had already paid the monthly installments
for a period of almost nine (9) years. In other words,
in only a short time, the entire obligation would have
152
This particular ruling in Roque was reiterated in Alfonso v. Court of Appeals, 186
SCRA 400 (1990).
153
Ibid, at p. 760.
154
135 SCRA 323 (1985).
478 LAW ON SALES
been paid x x x to sanction the rescission made by the
defendants-appellants will work injustice to (sic) the
plaintiffs-appellees.155
In effect, justice and equity had been the bases to erode
the fundamental nature of a contract to sell, and make doctrinal
pronouncements pertaining to contracts of sale applicable to
it. The remedy of rescission and all its accompanying doctrinal
baggages have been expressly made applicable to contracts to
sell. It was downhill from that time on.156
On the other hand, Gimenez v. Court of Appeals,157 refused
to grant any further reprieve to a buyer who had not paid the
balance of the purchase price of the house and lot he bought
under a contract to sell, in spite of several extension granted
to him in the past by the seller when he had failed to meet the
deadlines, thus —
Requiring the sellers to execute a deed of absolute
sale in favor of Mercado would penalize the former
for their magnanimity in granting the latter extensions
of time to complete payment of the price of the sale
(which he never did), and reward his defaults and
contractual breaches, while continuing to enjoy the
petitioner’s property.158
Jacinto v. Kaparaz,159 in determining whether the seller had
a right to rescind an agreement involving the sale of a parcel of
land, held —
Vital to the resolution of the controversy is the
determination of the true nature of the questioned
agreement. Is it a contract of sale or a contract to sell?
The two are not, of course, the same. In the latter
case, ownership is retained by the seller and is not to
pass until full payment of the price. Such payment is
155
Ibid, at p. 331.
156
Joseph & Sons Enterprises, Inc. v. Court of Appeals, 143 SCRA 663 (1986);
Dignos v. Court of Appeals, 158 SCRA 375 (1988).
157
195 SCRA 205 (1991).
158
Ibid, at p. 210.
159
209 SCRA 246 (1992).
 REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
a positive suspensive condition the failure of which is
not a breach, casual or serious, but simply an event
that prevents the obligation of the vendor to convey
title from acquiring binding force. In such a situation, to
argue that there was only a casual breach is to proceed
from the assumption that the contract is one of absolute
sale, where non-payment is a resolution question.
Otherwise stated, as capsulized in Luzon Brokerage
Co., Inc. vs. Maritime Building Co., Inc., “there can
be no rescission or resolution of an obligation as yet
non-existent, because the suspensive condition did not
happen.’”...160
So once in a while, the Court recognizes the fundamental
difference between a contract of sale and a contract to sell, and
doctrinal pronouncements having to do with rescission are not
made to apply to the latter. But where is one to put one’s self, in
this confusion of Supreme Court pronouncements?
What ruined it for Jacinto is the fact that it took the same
position of Dignos that the absence in the contract of a reservation
on the part of the seller the right to unilaterally rescind the contract
the moment the vendee fails to pay within the fixed period,
indicated that it is a contract of sale and not a contract to sell,
leading to what the author considers an erroneous conclusion
that express reservation of the power to rescind is essential in a
contract to sell arrangement.
But then Jacinto went on to say that even if it were a contract
to sell and resolution would have been the proper remedy,
according to the Court, the buyer would still have been validly
granted an opportunity to pay the accrued installments because
of the third paragraph of Article 1191 which provides that “The
Court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.” The paragraph talks
of rescission, and legally, when the suspensive condition has
not been fulfilled, not even the courts can make the obligation
effective.
160
Ibid, at pp. 254-255.
479 480 LAW ON SALES
2. Maceda Law Period161
The Maceda Law has further blurred the basic distinction
between a contract of sale and a contract to sell, at least in the
specific types of residential real estate and condominium units
covered by said law. By legislative injunctions, the Maceda Law
has decreed that whether it be a contract of sale or a contract
to sell, the actual rescission or cancellation thereof shall take
place “thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a
notarial act.”
In Siska Dev’t. Corp. v. Office of the President of the Phils.,162
on the contention that the application of the Maceda Law to a
contract to sell that had been entered into prior its enactment
would constitute a violation of the non-impairment clause of the
Constitution, the Court held that the “[i]mpairment is anything that
diminishes the efficacy of the contract. There is an impairment if
a subsequent law changes the terms of a contract between the
parties, imposes new conditions, dispenses with those agreed
upon or withdraws remedies for the enforcement of the rights of
the parties.”163
a. Maceda Law Does Not Overcome Other
Applicable Rules to Contracts to Sell
More importantly, Siska Dev’t Corp. provided for the proper
application of the provisions of the Maceda Law with respect to
the other rules pertaining to contracts of sale, when it held that
“[t]he requirement of notice of the rescission under the Maceda
Law does not change the time or mode of performance or impose
new conditions or dispense with the stipulations regarding the
binding effect of the contract. Neither does it withdraw the
remedy for its enforcement. At most, it merely provides for a
procedure in aid of the remedy of rescission.”164
161
The discussions on the operative aspects of the Maceda Law are found in the
previous Chapter 10.
162
231 SCRA 674 (1994).
163
Ibid, at p. 680.
164
Ibid, emphasis supplied.
 REMEDIES OF RESCISSION 481
AND CANCELLATION FOR IMMOVABLES
For example, Boston Bank of the Philippines v. Manalo,165
held that the protective mantle of the Maceda Law to buyers of
residential real estate would not serve to validate a contract to
sell which is void for failure of the parties to agree on the manner
of payment of the purchase price, thus: “Republic Act No. 6552
applies only to a perfected contract to sell and not to a contract
with no binding and enforceable effect.”166
Another example would be the case of Lim v. Court of
Appeals,167 where the issue was who between two “buyers” of
the same property had preference of the same subject matter,
the Court ruled against the first buyer under a contract to sell, and
in favor of the second buyer under a contract of sale under the
well-established doctrine that the rules on double sale have no
application to favor a buyer under a contract to sell. The decision
was arrived at even when the facts showed that there was never
any notarial cancellation of the first sale as mandated under the
Maceda Law, and in fact without reference to the Maceda Law.
This shows that the rules under the Maceda Law are applicable
only to issues of rescission between the seller and the buyer, and
do not overcome prevailing rules when it involves a controversy,
say between two buyers as to the same property bought.
The other issue that pertains to the application of the Maceda
Law when it comes to contract to sell involving residential real
estate and condominium units is whether the Supreme Court
would apply the “substantial breach” doctrine under Article 1191,
and would grant the buyer an opportunity to cure the defect even
when notarial notice of cancellation has been effected and the
30-day requisite period has expired.
In Siska Dev’t. Corp., the Court not only reaffirmed the
necessity of notice of cancellation in contracts to sell, but also the
applicability of the doctrine that prohibits “rescission” for casual
or slight breaches even involving contracts to sell.168
165
482 SCRA 108 (2006).
166
Ibid, at p. 140.
167
182 SCRA 564 (1990).
168
Reiterated in Liu v. Loy, Jr., 405 SCRA 316 (2003).
482 LAW ON SALES
In Rillo v. Court of Appeals,169 which involved a contract
to sell a residential condominium unit, where the buyer had
defaulted on the payment of the amortization payments despite
several chances given to him by the seller, the Court re-affirmed
its protective mode only for a buyer who in good faith has sought
to fulfill his obligation to pay the price. Particularly, on the issue
on whether the seller could rescind the contract to sell when the
buyer had not committed substantial breach under Article 1191,
the Court held that the applicable law in resolving the issue would
be the Maceda Law, and since the buyer has paid less than two
years of installment, he could only have availed of the 60-day
grace period, and having failed in that, the seller had a right to
cancel the contract, which it did by the filing of the judicial action
for rescission.
RECAP OF THE RULINGS
An outline survey of Supreme Court decisions covering the
bases of determining whether a sale is one of contract of sale or a
contract to sell would often show contradictory pronouncements
on the matter, thus:
A. AT PERFECTION:
1. Requisite Contractual Stipulations — In a contract to
sell, there must be a stipulation that:
(a) Full payment of the purchase price by the buyer
constitutes a suspensive condition on the obligation
of the seller to sell and transfer ownership of the
subject matter;170
(b) Accompanied by stipulations or agreements that:
• ownership of the subject matter shall
remain with the seller until full payment
of the price; and
169
274 SCRA 461 (1997).
170
Heirs of San Andres v. Rodriguez, 332 SCRA 769 (2000).
 REMEDIES OF RESCISSION 483
AND CANCELLATION FOR IMMOVABLES
• specific right is granted to the seller
to extrajudicially rescind or cancel the
contract in case of default.171
The lack of stipulation expressly reserving title to the seller
in spite delivery of the subject matter to the buyer would not
constitute the transaction into a contract to sell.172
The lack of a stipulation allowing the seller to rescind the
contract in the event the buyer fails to comply with his obligation
to pay the purchase price clearly prevents the contract from being
classified as a contract to sell. 173
Contra to (a): What really defines a contract to sell is the
express stipulation that the effectivity or demandability of the
contract is subject to the happening of a suspensive condition
(usually full payment of the price), as distinguished from a situ-
ation where the suspensive condition modifies not the contract
itself but rather only the obligation of the seller to sell and deliver
the subject matter, in which case it is a conditional contract of
sale.174
Contra to (b): The Court has also ruled that even in
the absence of such stipulations, the contract would still be
considered a contract to sell, because of the absence of deeds
of conveyance covering registered land where the operative act
of sale is registration of the deed of sale.175
171
Vda. De Mistica v. Naguiat, 418 SCRA 73 (2003); Valdez v. Court of Appeals,
439 SCRA 55 (2004); Blas v. Angeles-Hutalla, 439 SCRA 273 (2004).
172
Coronel v. Court of Appeals, 263 SCRA 15 (1996); David v. Tiongson, 313 SCRA
63 (1999); Gomez v. Court of Appeals, 340 SCRA 720 (2000); Villanueva, Jr. v. Court of
Appeals, 487 SCRA 571 (2006); Demafelis v. Court of Appeals, 538 SCRA 305 (2007);
Villador, Jr. v. Zaballa, 545 SCRA 325 (2008).
173
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 95 (1972);
Jacinto v. Kaparaz, 209 SCRA 246 (1992); Topacio v. Court of Appeals, 211 SCRA 219
(1992); Adelfa Properties, Inc. v. Court of Appeals, 240 SCRA 575 (1995); Ong v. Court
of Appeals, 240 SCRA 565 (1995); Babasa v. Court of Appeals, 290 SCRA 532 (1998);
Almira v. Court of Appeals, 399 SCRA 351 (2003).
174
Romero v. Court of Appeals, 250 SCRA 223 (1995); Coronel v. Court of Appeals,
263 SCRA 15, 27 (1996); Heirs of Pedro Escanlar v. Court of Appeals, 281 SCRA 176
(1997); Almocera v. Ong, 546 SCRA 164 (2008).
175
Roque v. Lapuz, 96 SCRA 741 (1980).
484 LAW ON SALES
➣ But See Contra Rulings in Dignos v. Court of
Appeals;176 and in Portic v. Cristobal,177 which held
that registration does not vest title, but when the
contract to sell expressly reserves title with the
seller until full payment of the purchase price.
2. Stipulation on Execution of Deed of Absolute Sale
— When there is a stipulation or promise that the seller
shall execute a deed of absolute sale upon completion
of payment of the purchase price by the buyer, the
agreement is a contract to sell, because it would be
equivalent to reservation of title clause.178
Contra: Where there is an express stipulation that
the sellers would execute a final deed of absolute sale
in favor of the buyer upon payment of the balance of the
purchase price, the contract would still not be a contract
to sell, where nowhere in the contract in question is a
proviso or stipulation to the effect that title to the property
sold is reserved in the seller until full payment of the
purchase price, nor is there a stipulation giving the seller
the right to unilaterally rescind the contract the moment
the buyer fails to pay within a fixed period.179
3. Stipulation on the Payment of Price — In contract
to sell, payment of the price is a suspensive condition,
failure of which is not a breach, casual or serious, but an
event that prevents the obligation of the seller to convey
title from acquiring obligatory force.180
176
158 SCRA 375 (1988).
177
456 SCRA 659 (2005).
178
Roque v. Lapuz, 96 SCRA 741 (1980); Lacanilao v. Court of Appeals, 262
SCRA 486 (1996); Padilla v. Spouses Paredes, 328 SCRA 434 (2000); Rayos v. Court of
Appeals, 434 SCRA 365 (2004); Cruz v. Fernando, 477 SCRA 173 (2005).
179
Dignos v. Court of Appeals, 158 SCRA 375 (1988).
180
Salazar v. Court of Appeals, 258 SCRA 325 (1996); Lacanilao v. Court of Appeals,
262 SCRA 486 (1996); Rillo v. Court of Appeals, 274 SCRA 461 (1997); Odyssey Park,
Inc. v. Court of Appeals, 280 SCRA 253 (1997); Ong v. Court of Appeals, 310 SCRA 1
(1999); Blas v. Angeles-Hutalla, 439 SCRA 273 (2004); Cruz v. Fernando, 477 SCRA 173
(2005).
 REMEDIES OF RESCISSION 485
AND CANCELLATION FOR IMMOVABLES
Contra: If there has been substantial compliance
with the obligation to pay the price, then cancellation
cannot be effected, for unilateral rescission will not
be judicially favored or allowed if the breach is not
substantial and fundamental to the fulfillment of the
obligation.181
B. DURING CONSUMMATION STAGE
1. Legal Effect of Delivery Made — In contract of sale,
the title to the property passes to the buyer upon the
delivery of the thing sold; whereas, in a contract to sell,
ownership is, by agreement, reserved in the seller and is
not to pass to the buyer until full payment of the purchase
price.182
2. Legal Effect of Full Payment of Price — In a contract to
sell, full payment of the price constitutes the happening
of the condition which would convert it into an executory
contract of sale,183 thus:
(a) If delivery of the subject matter had previously been
made, then ownership is transferred ipso jure to the
buyer.184
(b) If delivery of the subject matter has not been made,
then it allows the buyer to demand for specific
performance.185
Contra: There is still no perfected or executory
contract of sale; it merely gives rise to an action to
enforce the obligation of the seller to enter into a contract
of sale; there is no transfer of ownership to buyer even
181
Spouses Benito v. Saquitan-Ruiz, 394 SCRA 250 (2002); Heirs of Jesus M.
Mascuñana v. Court of Appeals, 461 SCRA 186 (2005).
182
Salazar v. Court of Appeals, 258 SCRA 325 (1996); Universal Robina Sugar
Milling Corp. v. Heirs of Angel Teves, 389 SCRA 3167 (2002); Chua v. Court of Appeals,
401 SCRA 54 (2002); Vidal, Sr. v. Tayamen, 531 SCRA 147 (2007); Hulst v. PR Builders,
Inc., 532 SCRA 74 (2007); Castillo v. Reyes, 539 SCRA 193 (2007).
183
Philippine National Bank v. Court of Appeals, 262 SCRA 464 (1996).
184
Leaño v. Court of Appeals, 369 SCRA 36 (2001); Carrascoso, Jr. v. Court of
Appeals, 477 SCRA 666 (2005).
185
David v. Tiongson, 313 SCRA 63 (1999).
486 LAW ON SALES
when delivery was previously made; and much less can
there be demand to deliver the subject matter when no
contract of sale has been executed.186
3. Legal Effect of Non-Payment of Price —
(a) In contract of sale, the non-payment of the purchase
price is a breach, and when substantial in nature,
would allow the seller to rescind the sale.
(b) In contract to sell, where ownership is retained by
the seller until payment of the price in full, such
payment is a positive suspensive condition, failure
of which is not really a breach but an event that
prevents the obligation of the vendor to convey title
in accordance with Article 1184 of the Civil Code.”187
Contra to (b):
(i) Even when the basis for the breach of the
condition is present, a notice of “rescission” or
cancellation must be made on buyer to effect
the extinguishment of the contract to sell.188
➢ But see contra ruling in Torralba v. De los
Angeles.189
(ii) In residential real estate, when the non-payment
of the purchase price constitute merely a casual
breach, it would not extinguish the contract to
sell, and the courts may extend equity rights to
the buyer.
186
Coronel v. Court of Appeals, 263 SCRA 15, 27 (1996); Abesamis v. Court of
Appeals, 361 SCRA 328 (2001); Hulst v. PR Builders, Inc., 532 SCRA 74 (2007).
187
Lacanilao v. Court of Appeals, 262 SCRA 486 (1996); Odyssey Park, Inc. v.
Court of Appeals, 280 SCRA 253 (1997); Vidal, Sr. v. Tayamen, 531 SCRA 147 (2007);
Hulst v. PR Builders, Inc., 532 SCRA 74 (2007).
188
University of the Philippines v. De los Angeles, 35 SCRA 103 (1970); Palay,
Inc. v. Clave, 124 SCRA 638 (1983); Jison v. Court of Appeals, 164 SCRA 339 (1988);
Siska Development Corp. v. Office of the President, 231 SCRA 674 (1994); Ocampo v.
Court of Appeals, 233 SCRA 551 (1994); Spouses Benito v. Saquitan-Ruiz, 394 SCRA
250 (2002).
189
96 SCRA 69 (1980).
 REMEDIES OF RESCISSION 487
AND CANCELLATION FOR IMMOVABLES
C. REMEDIES AVAILABLE:
1. When Condition on Price Payment Not Fulfilled:
(a) In contract of sale, if seller had delivered the subject
matter previously without reserving title, it would
mean that ownership has been transferred to the
buyer, and seller cannot recover ownership until
and unless the contract is resolved or rescinded by
court action.
Whereas in contract to sell, since ownership was
retained by the seller by express reservation
until full payment of the price, and the contract is
extinguished, then no action is necessary other
than recovery of possession in case buyer refuses
to voluntarily deliver.190
(b) In conditional contract of sale, the non-happening
of the condition may be waived by the obligee who
may still seek specific performance.
Whereas, in contract to sell, the non-happening of
the condition prevents the contract from coming into
existence (i.e., extinguishes the contract) and con-
sequently neither rescission or specific performance
may be pursued.191
(c) In conditional contract of sale, the basis of rescission
must be substantial breach.
Whereas, in a contract to sell, the issue of breach is
completely irrelevant.192
(d) In contract of sale and conditional contract of sale,
rescission may be pursued with forfeiture of the
190
The Caridad Estates, Inc. v. Santero, 71 Phil. 114 (1940); Manuel v. Rodriguez,
109 Phil. 1 (1960); Salazar v. Court of Appeals, 258 SCRA 325 (1996); Pangilinan v. Court
of Appeals, 279 SCRA 590 (1997); Vidal, Sr. v. Tayamen, 531 SCRA 147 (2007); Hulst v.
PR Builders, Inc., 532 SCRA 74 (2007).
191
Romero v. Court of Appeals, 250 SCRA 223 (1995); Lim v. Court of Appeals, 263
SCRA 569 (1996).
192
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 (1972).
488 LAW ON SALES
amounts paid when that has been expressly pro-
vided for.
Whereas, in contract to sell, it becomes imperative
that the amounts paid must be returned and there
would be no basis upon which to retain them since
there was no breach upon which a claim of damage
may be interposed.193
Contra to (d): Based on equity principles, the
doctrine of substantial breach to allow rescission and
court discretion under Article 1191 have been made
to apply to contracts to sell involving residential im-
movables.194
➣ But see contrary ruling in Lacanilao v. Court
of Appeals.195
Even when the suspensive condition has not
happened, which would extinguish thereby
the contract to sell, nevertheless, such
extinguishment can only have legal effect if
notice of cancellation is given to the buyer.196
➣ But see contrary ruling in Torralba v. De los
Angeles.197
2. Laws Applicable – In contract of sale, the applicable
rules are found in Articles 1191 and 1592 providing
for the remedy of rescission, but when there is a
suspensive condition, Article 1545 allows the seller to
choose between rescission or waiving the condition;
whereas, in contract to sell, the remedies of rescission
193
The Manila Racing Club v. The Manila Jockey Club, 69 Phil. 55 (1939).
194
J.M. Tuazon Co., Inc. v. Javier, 31 SCRA 829 (1970); Legarda Hermanos v.
Saldana, 55 SCRA 3246 (1974); Siska Dev. Corp. v. Office of the President, 231 SCRA
674 (1994).
195
262 SCRA 486 (1996).
196
University of the Philippines v. De los Angeles, 35 SCRA 103 (1970); Palay, Inc.
v. Clave, 124 SCRA 638 (1983); Siska Dev. Corp. v. Office of the President, 231 SCRA
674 (1994).
197
96 SCRA 69 (1980).