a) Article 1592 of the Civil Code does not apply to a conditional sale. In Valarao v. CA, 304 SCRA 155, the Supreme Court held that Article 1592 applies only to a contract of sale and not to a Deed of Conditional Sale where the seller has reserved title to the property until full payment of the purchase price. The law applicable is the Maceda Law.
b) No, the vendor cannot rescind the contract under the circumstances. Under the Maceda Law, which is the law applicable, the seller on installment may not rescind the contract till after the lapse of the mandatory grace period of 30 days for every one year of installment payments, and only after 30 days from notice of cancellation or demand for rescission by a notarial act. In this case, the refusal of the seller to accept payment from the buyer on the 49th month was not justified because the buyer was entitled to 60 days grace period and the payment was tendered within that period. Moreover, the notice of rescission served by the seller on the buyer was not effective because the notice was not by a notarial act. Besides, the seller may still pay within 30 days from such notarial notice before rescission may be effected. All these requirements for a valid rescission were not complied with by the seller. Hence, the rescission is invalid.
No, X is not correct. In the sale of immovable property, even though it may have been stipulated, as in this case, that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act (Art.1592). Since no demand for rescission was made on Y, either judicially or by a notarial act, X cannot refuse to accept the payment offered by Y three (3) days after the expiration of the period.
1. Yes, Peter validly rescinded the contract to sell his lot to Paul for the latter’s failure to comply with the prestation to pay P1,000,000 on November 6, 2016 at 1:00pm at the residence of Peter so that Peter will execute the Deed of Absolute Sale. The recission is actually the resolution of the reciprocal obligation.
2. If Paul made a downpayment, Peter may still cancel the contract because in a contract to sell, the seller does not yet agree to transfer ownership to the buyer. The non-payment of the price in a contract to sell is not a breach for which the remedy of rescission may be availed of, but rather it is considered as a failure to comply with a positive suspensive condition which will prevent the obligation of the seller to convey title from acquiring obligatory force. (Ursal v. Court of Appeals, GR No. 142411, October 14, 2005)
The MACEDA LAW (RA 6552) is applicable to sales of immovable property on installments. The most important features are (Rillo v. CA, G.R. No. 125347, June 19, 1997):
1. After having paid installments for at least two years, the buyer is entitled to a mandatory grace period of one month for every year of installment payments made, to pay the unpaid installments without interest. If the contract is cancelled, the seller shall refund to the buyer the cash surrender value equivalent to fifty percent (50%) of the total payments made, and after five years of installments, an additional five percent (5%) every year but not to exceed ninety percent (90%) of the total payments made.
2. In case the installments paid were less than 2 years, the seller shall give the buyer a grace period of not less than 60 days. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after 30 days from receipt by the buyer of the notice of cancellation or demand for rescission by notarialact.
The RECTO LAW (Art. 1484) refers to sale of movables payable in installments and limiting the right of seller, in case of default by the buyer, to oneof three remedies:
1. Exact fulfillment;
2. Cancel the sale if two or more installments have not beenpaid;
3. Foreclose the chattel mortgage on the things sold, also in case of default of two or more installments, with no further action against the purchaser.
a. Yes, SEP can legally recover the deficiency. The prohibition against further collection under Article 1484 of the Civil Code, or the Recto Law, only applies if the seller chooses to foreclose the chattel mortgage and not when the seller opts to exact the fulfillment of the obligation (Tajanlangit v. Southern Motors, G.R. 10789, May 28, 1957). SEP chose to exact the fulfillment of the obligation by commencing a collection suit against SI. SEP did not opt to foreclose the chattel mortgage over the equipment. The machineries were sold in an execution sale and not in a foreclosure sale; hence, the prohibition against further collection does not apply.
b. Yes, SEP can commence extrajudicial proceedings to foreclose the mortgage. SEP may choose to foreclose the mortgage on Stan’s house and lot. What SEP is prohibited to do, based on the case of Cruz v. Filipinas Investment & Finance Corporation (G.R. No. L-24772, May 27, 1968), is to extrajudicially foreclose the mortgage after it has extrajudicially foreclosed the chattel mortgage on the machineries sold on installment because if such is allowed, the protection given by Article 1484 would be indirectly subverted, and public policy overturned. In this case, SEP has not foreclosed the chattel mortgage over the machineries.
I will decide in favor of Ariel and allow the reformation of the agreement. The DAS and the redemption agreement constitute an equitable mortgage and Ariel may ask for the reformation of the agreement to that of a Loan with Real Estate Mortgage as allowed by Article 1605 of the Civil Code.
The circumstances clearly show that the agreement is an equitable mortgage, such as the:
a) price of the lot was inadequate since it was only sold at P300, 000 when the prevailing market value of such was P900, 000;
b) the vendor, Ariel, remained in the actual possession of the property after the purported sale; and c) Ariel was the one who paid the real property taxes. Under the circumstances, a presumption arises under Art. 1602, CC that what was really executed was an equitable mortgage. Moreover, Art. 1603, CC provides that in case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage.
a) I will not uphold the theory of X for the nullification of the sale and for the recovery of the property on the ground that the so- called sale was only an equitable mortgage. An equitable mortgage may arise only if, in truth, the sale was one with the right of repurchase. The facts of the case state that the right to repurchase was granted after the absolute deed of sale was executed. Following the rule in Cruzo v. Carriaga (174 SCRA 330), a deed of repurchase executed independently of the deed of sale where the two stipulations are found in two instruments instead of one document, the right of repurchase would amount only to one option granted by the buyer to the seller. Since the contract cannot be upheld as a contract of sale with the right to repurchase, Art. 1602 of the Civil Code on equitable mortgage will not apply. The rule could have been different if both deeds were executed on the same occasion or date, in which case, under the ruling in spouses Claravall v. CA (190 SCRA 439), the contract may still be sustained as an equitable mortgage, given the circumstances expressed in Art. 1602. The reserved right to repurchase is then deemed an original intention.
b) If I were to decide in favor of Romeo and Y, I would not uphold the validity of the promise to sell, so as to enforce it by an action for specific performance. The promise to sell would only amount to a mere offer and, therefore, it is not enforceable unless it was sought to be exercised before a withdrawal or denial thereof.
Even assuming the facts given at the end of the case there would have been no separate consideration for such promise to sell. The contract would at most amount to an option which again may not be the basis for an action for specific performance.
An equitable mortgage arises from a transaction, regardless of its form, which results into a security, or an offer or attempt to pledge land as security for a debt or liability. Its essence is the intent of the parties to create a mortgage, lien or charge on the property sufficiently described or identified to secure an obligation, which intent must be clearly established in order that such a mortgage may exist.
Defendant’s defense that he acquired the land through an Absolute Deed of Sale and not through pactoderetro is untenable. The presumption of equitable mortgage under Art. 1602 of the Civil Code, equally applies to a contract purporting to be an absolute sale. (Art.1604, NCC) The facts and circumstances that Pedro retained possession of the Owner’s
Duplicate Copy of the Certificate of Title; that he remained in possession of the land as lessee; that he bound himself to pay the realty taxes during the period of lease, are matters collectively and strongly indicating that the Deed of Absolute Sale is an equitable mortgage. In case of doubt, the Deed of Absolute Sale should be considered as a loan with mortgage, because this juridical relation involves a lesser transmission of rights and interests.
If the transaction is proven to be an equitable mortgage, Pedro’s prayer for reformation of the instrument should be granted in accordance with Art. 1605 of the Civil Code. Thus, in case of non-payment, he may foreclose the mortgage and consolidate his ownership of the land. In that event, Juan’s counterclaim to recover possession of the land and to compel Pedro to surrender the Owner’s Duplicate Copy of the title becomes a consequential right.
Carlos is a buyer in bad faith. The notice of lispendens was still annotated at the back of the title at the time he bought the land from Bart. The uncancelled notice of lispendens operates as constructive notice of its contents as well as interests, legal or equitable, included therein. All persons are charged with the knowledge of what it contains. In an earlier case, it was held that a notice of an adverse claim remains effective and binding notwithstanding the lapse of the 30 days from its inscription in the registry. This ruling is even more applicable in a lispendens. Carlos is a transferee pendentelite insofar as Sancho’s share in the co-ownership in the land is concerned because the land was transferred to him during the pendency of the appeal.
If your answer is (a), how can the right of Pacifico as co-owner be protected? Explain.
Pacifico can protect his right as a co- owner by pursuing his appeal; asking the Court of Appeals to order the re-annotation of the lis pendens on the title of Carlos; and by invoking his right of redemption of Bart’s share under Art. 1620.