Professional Documents
Culture Documents
Sales - Breach of Contract, Extinguishment of Sale
Sales - Breach of Contract, Extinguishment of Sale
Sale of movables
(3) Although the ownership in the goods has not passed, if they cannot readily be resold for a
reasonable price, and if the provisions of Art 1596 (4) are not applicable, the seller may offer to deliver
the goods to the buyer, and, if the buyer refuses to receive them, may notify the buyer that the goods
are thereafter held by the seller as bailee for the buyer. Thereafter, the seller may treat the goods as the
buyer’s and may maintain an action for the price. (n)
Art 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the goods
the seller may maintain an action against him for damages for non-acceptance.
The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of
events from the buyer’s breach of contract.
3. Rescission
Art 1597. Where the goods have not been delivered to the buyer,
and the buyer has repudiated the contract of sale,
or has manifested his inability to perform his obligations thereunder,
or has committed a breach thereof,
the seller may totally rescind the contract of sale
by giving notice of his election so to do to the buyer. (n)
Art 1484. In a contract of sale of personal property, the price of which is payable in installments, the
vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee’s failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee’s failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void (1454a)
Art 1485. The preceding article shall be applied to contracts purporting to be leases of personal property
with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing
(1454a)
Art 1486. In the case referred to in the two preceding articles, 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. (n)
Daniel Borbon II, Francisco Borbon v Servicewide Specialists, Inc, CA (1996, Vitug, Appeal)
Sps Restituto, Ester Nonato v IAC, Investor’s Finance Corp (1985, Escolin, review)
- Sps Nonato
o Bought VW Sakbayan; on installment; chattel mortgage on car
- From People’s Car, Inc
- People’s Car assigned rts and int on note to Investor’s Finance
- Sps failed to pay
- Car repossessed
- Investor’s Finance still demanded balance of car
- CFI: Investor’s v Sps: balance, damages, fees
o Nonatos: 1484: Investor’s barred from recovering balance due to cancellation of sale
o Ruled in favor of Investor’s—16thou plus int, fees, exp
- IAC: affirmed
- SC:
o 1484 applicable
o 1484 meaning
Should the vee or purchaser of a personal property
Default in the payment of two or more agreed installments
The vor or seller has the option to avail of any of these 3 remedies:
To exact fulfilment by purchaser of obligation
Cancel sale
Foreclose mortgage on personal property, if constituted
Remedies recognized as alternative, not cumulative
The exercise of one would bar the exercise of others
o Here, car repossessed
Nonato: repossessed because sale cancelled
Investor’s: repossessed for appraisal of value
o Receipt issued upon repossession
Vehicle could be redeemed within 15 days
Therefore, should Nonatos fail to redeem within period by paying balance,
company would retain permanent possession, as it, in fact, did
Admitted by Carmona, company witness: no pay, no return
Appraisal argument untenable
Even after notified Nonatos of insufficiency of value of car, no attempt
to return car
o SET ASIDE. DISMISSED.
Delta Motor Sales Corp v Niu Kim Duan, Chan Fue Eng, def-ants (1992, Nocon)
Elisco Tool Manufacturing Corp v CA, Rolando Lantan, Rina Lantan (1999, Mendoza, review)
PCI Leasing and Finance, Inc v Giraffe-X Creative Imaging, Inc (2007, Garcia)
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RA 8556. Sec 3 (d)… a mode of extending credit through a non-cancelable lease contract under which the lessor
purchases or acquires, at the instance of the lessee, machinery, equipment, . . . office machines, and other
movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of
money sufficient to amortize at least seventy (70%) of the purchase price or acquisition cost, including any
incidental expenses and a margin of profit over an obligatory period of not less than two (2) years during which the
lessee has the right to hold and use the leased property ... but with no obligation or option on his part to purchase
the leased property from the owner-lessor at the end of the lease contract.
case where although the transaction, on its face, appear
ostensibly, to be a contract of lease, it is actually a financing
agreement, with the piff financing the purchase of def’s
automobile || facts and circumstances of the case
o Guaranty deposit applied to balance still due and company to
recognize it as exercise of option to purchase
|| Cebu contractors consortium v CA: financial lease agreement
simulated to disguise simple loan with security—financing company
purchased equipment already owned by capital-strapped client, with
the intention of leasing it back to the latter
Here:
Office equipment acquired by PCI for subsequent lease to Giraffe
Giraffe to pay 300thou moly
Up-front guarantee deposit of 3.12M
Cumulative remedies stipulated
o Possession, retention of amts paid, liquidated damages may
include guaranty; recover accrued and unpaid rentals, recover
amts advanced by PCI for giraffe’s account; recover expenses,
damages by reason of default
Giraffe paid 6.6M
Residual value of 6.9M
Total value of 13.5M
Acquisition cost: 8.1M
PCI gross income: 5.4M, not yet final figure—no int, arrears, penalties,…
If Giraffe pays 8M rental balance, Giraffe to pay total of 21M
Demand letter
o Pay full outstanding balance OR surrender equipment
Use of or not a typographical error. Letter made by
lawyer
Or a dijunctive term; indicates alernatives
Demand = respondent need not return equipment if it
pays 8M outstanding balance
Suggests that Giraffe can keep equipment if it
exercises option to acquire same by paying
balance of purchase price = option to purchase
Therefore, transaction a lease in name only
Rentals = moly amortizations
Therefore, outlandish that agreement an honest-to-goodness straight lease
o Recto law applicable
Case reflects situation where financing company withholds and conceals
intention to sell property up to the last moment
To circumvent Recto law
Absence of purchase option clause does not argue against the idea that what
parties are into is not a straight lease, but lease with option to purchase
|| Vda de Jose v Barrueco, US Commercial v Halili
In choosing to deprive Giraffe of possession, PCI waived right to bring action to
recover unpaid rentals
|| Elisco v CA: remedies alternative, not cumulative
o Exercise of one bars exercise of others
o Limitation applies to contracts purporting to be leases with
option to buy
Honest dealing imperatives prominent in CC: see human relations chapter
Unfair for person who has voluntarily surrendered property to still be
sued
Here, payment of 8M would make total payment due 21M = instant kill
by PCI out of transaction with Giraffe
o Recto Law enacted to prevent this kind of aberration
o DENIED. TC AFFIRMED
Sale of Immovables
1. Anticipatory breach
Art 1591. Should the vor have reasonable grounds to fear the loss of immovable property sold and its
price, he may immediately sue for the rescission of the sale.
Should such ground not exist, the provisions of 11912 shall be observed. (1503)
Sec 24. Failure to pay installments. The rights of the buyer in the event of this failure to pay the
installments due for reasons other than the failure of the owner or developer to develop the project
shall be governed by Republic Act No. 6552.
Sec 15. Decision. The case shall be decided within thirty (30) days from the time the same is submitted
for decision. The Decision may order the revocation of the registration of the subdivision or
2
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
condominium project, the suspension, cancellation, or revocation of the license to sell and/or forfeiture,
in whole or in part, of the performance bond mentioned in Section 6 hereof. In case forfeiture of the
bond is ordered, the Decision may direct the provincial or city engineer to undertake or cause the
construction of roads and of other requirements for the subdivision or condominium as stipulated in the
bond, chargeable to the amount forfeited. Such decision shall be immediately executory and shall
become final after the lapse of 15 days from the date of receipt of the Decision.
Sec 16. Cease and Desist Order. Whenever it shall appear to the Authority that any person is engaged or
about to engage in any act or practice which constitutes or will constitute a violation of the provisions of
this Decree, or of any rule or regulation thereunder, it may, upon due notice and hearing as provided in
Section 13 hereof, issue a cease and desist order to enjoin such act or practices.
Sec 17. Registration. All contracts to sell, deeds of sale and other similar instruments relative to the sale
or conveyance of the subdivision lots and condominium units, whether or not the purchase price is paid
in full, shall be registered by the seller in the Office of the Register of Deeds of the province or city
where the property is situated.
Whenever a subdivision plan duly approved in accordance with Section 4 hereof, together with the
corresponding owner's duplicate certificate of title, is presented to the Register of Deeds for
registration, the Register of Deeds shall register the same in accordance with the provisions of the Land
Registration Act, as amended: Provided, however, that it there is a street, passageway or required open
space delineated on a complex subdivision plan hereafter approved and as defined in this Decree, the
Register of Deeds shall annotate on the new certificate of title covering the street, passageway or open
space, a memorandum to the effect that except by way of donation in favor of a city or municipality, no
portion of any street, passageway, or open space so delineated on the plan shall be closed or otherwise
disposed of by the registered owner without the requisite approval as provided under Section 22 of this
Decree.
Casa Filipina Realty v Office of the Pres, Sps Dennis, Rebecca Sevilla (1995, Romero, MR)
Manila Banking Corp v Sps Alfredo, Celestina Rabina, Marenir Dev’t Corp (2008, Carpio-Morales, review
on certiorari)
- Developer: Delta
o Project: Delta Homes, Cavite
o Owned by De Leon, owner of Lot 4 in Delta Homes
- Luzon Development Bank
o Loaned 8M to De Leon
o De Leon mortgaged lot 4, among others, as security
Annotated on TCT
- Delta registered with HLURB; also with license to sell
- 1997: Delta with Angeles
o Contract to sell: house and lot 4 for 615thou
o Downpayment of 114thou
o Three successive moly installments nada, owner may consider contract void without
court action
o Upon full payment, final deed of sale
- Delta defaulted loan
- Bank did not foreclose; agreed to dacion en pago
o 1998, Delta assigned, transferred properties in favor of Bank; Lot 4 included
Not sure if title transferred, but dacion en pago not annotated
Enriquez unaware
- 1999, HLURB: Enriquez v Delta, Bank: Delta violated terms of license to sell (excessive price, no
mortgage clearance); refund, damages, fines
o Valid purchase price
o Delta to accept 108thou payment from Enriquez
o Delta to deliver property free from encumbrances to Enriquez
o Costs, fines
- HLURB Board of Commissioners: Delta: mortgage clearance not required for mortgages
constituted on project prior registration
o Mortgage clearance required, regardless of date when mortgage secured
Law does not distinguish
o No damages
- Office of the President: Bank: owner!
o Affirmed in toto
- CA: Bank: owner! Delta cannot transfer Lot 4 to Enriquez; or respect mortgage over 4, recognize
right to redeem
o Dacion en pago invalid as to Lot 4
o Bank has no right to redeem before delivery to Enriquez
- SC:
o Delta: contract to sell; ownership only to transfer to Enri upon full payment; Delta may
effect dacion en pago to extinguish obligation to bank
o Bank: Delta still owner || CtS; Delta may validly convey; if invalidated, loan obligation of
Delta still remains up to extent of Lot 4 value; be declared owner
o Enriquez: waived
o Mortgage void
Delta violated Sec 18 of PD 957
PD aims to protect innocent buyers against fraudulent real estate practices;
Sec 18 prohibitory, acts committed contrary to it void
Therefore, Bank and Delta cannot assert any right arising therefrom
o Contract to sell did not convey ownership
CA in error in holding that CtS transferred ownership || nature of CtS:
ownership reserved until full payment; does not transfer ownership by itself
Here, ownership reserved, plus Delta allowed to unilaterally rescind
Therefore, Delta may validly transfer ownership to Bank
BUT bank bound by CtS and must respect Enriquez’ rights
BECAUSE
o PD 957 protects Enriquez as buyer
PD 957, Sec 17, provides for registration of contract to
sell, deed of sale, other instruments relative to sale or
conveyance of the subdivision lots and condominium
units, whether or not price paid in full
o PD purose: protect buyers from any future unscrupulous
transactions
o Registration of contract to sell makes it binding on third parties
o Registration serves as notice to whole world that property
subject to prior right of buyer of property, and anyone who
wishes to deal with the said property will be held bound by such
prior right
Here, CtS not registered
o BUT BANK STILL TO RESPECT CTS
o Bank not an innocent purchaser for value when it accepted Lot
4 as part of payment
Bank knew that loan was for development of
subdivision project as indicated in promissory notes
Lot 4 described. Can be easily inferred that Lot 4
included in subdivision
Bank knew or should have known of possibility that
assigned properties already covered by CtS in favor of
subdivision buyers
Bank a financial institution that should have
been aware of possibilities bc was dealing with
real estate developer. Bank should not have
been content with clean title; bank wanting in
care and prudence
Bank required to observe more care and
prudence when dealing with registered
properties
o || Keppel Bank Ph v Adao: bank dealing with property protected
by PD 957 bound by CtS
o Dacion en pago extinguished loan
Lot 4 value included
Intention of parties to dation paramount and controlling
Here, dacion en pago instrument indicates clear intention that assigned
properties would serve as full payment for Delta’s entire obligation
o Without any reservation or condition
o Assigned properties served as full payment of Delta’s total
obligation to Bank
Bank cannot complain if some of assigned proeprties covered by existing
contracts to sell
Bank knew of nature of Delta’s business and properties being part of
subdivision plan
Banks dealing with subdivision properties expected to conduct thorough
due diligence review to discover status of properties being dealt with
Bank assumed risk
Dacion en pago governed by law of sales
Sales come with warranties
Here, bank did not even point to breach of warranty
And no express warranty in dacion either
Implied warranty against eviction waivable and cannot be invoked if
buyer knew of risks or danger of eviction and assumed its consequences
o AFFIRMED. Modified: Delta not liable to pay Lot 4 value to bank. Bank to deliver title to
Enriquez upon latter’s payment
Section 1. This Act shall be known as the "Realty Installment Buyer Act."
Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments
against onerous and oppressive conditions.
Section 3. In all transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as
amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least
two years of installments, the buyer is entitled to the following rights in case he defaults in the payment
of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace period earned
by him which is hereby fixed at the rate of one month grace period for every one year of installment
payments made: Provided, That this right shall be exercised by the buyer only once in every five years of
the life of the contract and its extensions, if any.
(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty per cent of the total payments made, and, after five years
of installments, an additional five per cent every year but not to exceed ninety per cent of the total
payments made: Provided, That the actual cancellation of the contract shall take place after thirty days
from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the computation of the total
number of installment payments made.lawphi1™
Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel
the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act.
Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to
another person or to reinstate the contract by updating the account during the grace period and before
actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act.
Section 6. The buyer shall have the right to pay in advance any installment or the full unpaid balance of
the purchase price any time without interest and to have such full payment of the purchase price
annotated in the certificate of title covering the property.
Section 7. Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3,
4, 5 and 6, shall be null and void.
Section 8. If any provision of this Act is held invalid or unconstitutional, no other provision shall be
affected thereby.lawphi1™
Emiliano Rillo v CA, CORB Realty Investment, Corp (1997, Puno, Appeal)
Abelardo Valarao, Gloriosa Valarao, Carlos Valaro v CA, Meden Arellano (1999, Panganiban)
Active Realty & Dev’t Corp v Necita Daroya, repped by atty-in-fact Daroya-Quinones (2002, Puno)
- Developer/owner/seller: Active
- Buyer: Necita Daroya, Middle East worker
- Object: 515 sq m for 224,025
o CtS: downpayment of fifty thou, balance payable in 60 mos for 4thou
o Total amount due: 346thou, higher than contract price
o 1985
- 1989 Aug: defaulted fifteen thou, = three mos
o Active sent letter: notice of cancellation, effective 30 days from receipt
- Daroya offered to pay but was refused; Active already sold lot to another
- HLURB: Daroya: compel Active to execute Deed of Absolute Sale after payment of 20thou bc
already paid 314thou—91thou more than total contract price of 224thou
o Cancellation of contract to sell void bc Active did not pay CSV || law
o BUT because lot already sold to third party and Active agreed to refund full plus int,
refund ordered
- HLURB Board: set aside. Maceda Law not applied. Resorted to more equitable solution
o Both at fault—Daroya in delay, Active did not send notarized notice of cancellation
o Refund half of what has been paid
- Office of Pres: Daroya appeal
o HLURB not in accord with Maceda law
o Legal requisites for valid cancellation of contract not complied with
o Therefore, contract subsisted
o Daroya entitled to lot after payment
- CA: denied petition and MR—procedural
- SC:
o Procedurally OK. CA wrong
Active substantially complied with procedural requirements
o Contract to Sell still valid; not rescinded
Maceda law applicable
Maceda law: public policy: protect buyers of real estate on installment
basis against onerous and oppressive conditions
o Address acute housing shortage problem in country that
prompted thousands of mid and lower class buyers to enter into
all sorts of contracts with developers involving installment
schemes
Sec 3: rights of buyers in case 2-yr worth of inst paid: pay without int,
thirty day grace period
Here, already paid 4 years’ worth and more than contract price
Was only in delay for 15thou v 314thou already paid
Active also failed to comply with mandatory twin requirement for valid and
effective cancellation under the law
No notarized notice of cancellation and refund of CSV
Only during preliminary hearing at HLURB did Active offer to pay
o Fishy bc Active never failed to remind her of her arrears; if
Daroya did not file action, no indication that Active would have
paid CSV
o HLURB solution of half refund not equitable; totally disregarded failure of Active to
comply with mandatory requisites for valid cancellation of CtS
HLURB failed to consider Maceda Law purpose: remedy plight of mid-low level
income buyers
Full refund also not justified—Daroya entitled to lot after payment of balance
o AFFIRMED in toto. Costs
Isaias Fabrigas, Marcelina Fabrigas v San Francisco del Monte, Inc (2005, Tinga, appeal)
Jestra Development and Mgt Corp v Daniel Pacifico, repped by atty-in-fact Jordan Pizarras (2007, Carpio-
Morales)
- Buyer: Pacifico
- Seller: Jestra Dev’t
- Contract: Reservation application with Fil-Estate Mktg Association for 20,000
o Object: Lot 28, Jestra Villas, Paranaque
o For 2.5M, dp of 750thou interest-free in six mos from Jul to Dec 96
o CtS with Jestra to be signed upon completion of downpayment
o Balance payable for ten years
- Pacifico requested periodic payments in more affordable amounts
- Jestra agreed but with late payment penalties
- Pacifico and Jestra execked CtS with 260thou dp balance; CtS silent as to unsettled balance of dp
o CtS: Pacifico should have paid dp by Nov, one mo ahead of reservation app date
o Installments to begin Dec
o Moly amort increased from 34thou to 39thou
- Pacifico checks for Jan and Feb dishonored; insufficient funds
- Pacifico, March 98, to Jestra: financial difficulties. Will suspend payment during 10-mo pd;
return post-dated checks; will dispose of property to recover investment
- Jestra denied rquest. But gave him till Apr 15 to sell property. Should Pacifico fail to do so, will
reopen property for sale
- May 1, Jestra letter: cancel sale in 30 days from receipt. Received May 13
- May 27: credit and collection manager: demanded payment from Pacifico. Until Jun to settle
account; else auto-cancellation and reopening of property for sale
- Oct 98: Jestra resold property
- HLURB: Pacifico: second sale null; deliver property to him plus 11thou moly, till delivered
o Jestra liable || RA 6552: at least two years’ worth of installments paid (846thou/35thou
= 24 mos)
Sec 3, no CSV paid;
Sec 17: CtS not registered; reimburse 846thou plus int; damages, fees
o Pacifico no longer entitled to property since same transferred to another
- Board: deleted damages
- OP: affirmed
- CA: affirmed
- SC:
o Jestra:
76thou of 846thou represents penalty payment and thus not part of purchase
price; exclude from determining total number of installments made
Proper divisor: 39thou not 34thou due to restructured amort in CtS
o Proper divisor not 39thou nor 34thou
Proper: 122thou
Down payment included in computing total number of installment
payments made
150 dp paid
To be deducted from total payment of 846.6thou
Remainder: 96.6thou
Less 76,600 delay penalty
Only 20thou balance remains
Therefore, no two years’ worth of installments
Therefore, sec 3 not applicable; sec 4 of Maceda law is
o Proper rescission || Maceda Law
Sec 4
Grace pd of not less than 60 days from due date
Notice of cancellation or demand for rescission by notarial act
|| Fabrigas v San Francisco del Monte
Here, 60 day grace pd lapsed with Pacifico’s inaction re: bouncing checks
Jestra cancelled with notiarial notice of cancellation received May 13, 88
Contract deemed cancelled 30 days later—Jun 12
o GRANTED. REVERSED. Set aside. Pacifico complaint dismissed.
Extinguishment of Sale
Causes
Conventional redemption
Legal redemption
1. Period to redeem
2. Instances of legal redemption