Dear PAO,

I agreed to sell my land to Badong when he offered to buy it for a certain price. He made a partial payment, and the remaining balance shall be paid in two equal installments. After that, we will execute a contract of sale. We signed a contract covering the transaction, and it was also stated therein that non-payment of any installments would result in the automatic cancellation of our agreement. Unfortunately, Badong went bankrupt, so he failed to pay me. I told him that the contract was already canceled and I was going to sell the same property to Gina. Badong got furious and claimed that there was no valid rescission of our contract. He further said that rescission must be made in a duly notarized document. Is this correct?

Tailor

Dear Tailor,

The agreement which you have entered with Badong is a contract to sell. One indicia of a contract to sell is that ownership shall not pass until full payment of the price. In Fil-Estate Properties, Inc. v. Hermana Realty, Inc., GR 231936, Nov. 25, 2020, the Supreme Court, through Associate Justice Amy Lazaro-Javier, said:

“A contract to sell has been defined 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 itself to sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.’ In a contract to sell, ‘ownership is retained by the seller and is not to pass until the full payment of the price.’ Consequently, once the buyer has paid the purchase price in full, the contract to sell is converted to an absolute sale, and the buyer has the right to demand the execution of a Deed of Absolute Sale in its favor.”

Badong may have anchored his claim regarding the rescission of your contract on Article 1592 of the New Civil Code of the Philippines, which provides that: “In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term.” Unfortunately, the afore-stated provision applies to a contract of sale.

As to a contract to sell, there is no prescribed form for its rescission. This is backed by the pronouncement in Cabrera v. Ysaac, GR 166790, Nov. 19, 2014, where the Supreme Court, speaking through Associate Justice Marvic M.V. F. Leonen, stated:

“In Manuel, this court categorically stated that Article 1592 ‘does not apply to a contract to sell or promise to sell, where title remains with the vendor until fulfillment to a positive suspensive condition, such as full payment of the price.’ This court upheld that the contract to sell was validly cancelled through the non-payment of Eusebio Manuel. The same conclusion applies in this case.

“The law does not prescribe a form to rescind a contract to sell immovable property. In Manuel, the non-payment operated to cancel the contract. If mere non-payment is enough to cancel a contract to sell, the letter given to petitioner’s lawyer is also an acceptable form of rescinding the contract. The law does not require notarization for a letter to rescind a contract to sell immovable property. Notarization is only required if a contract of sale is being rescinded.”

Applying the afore-cited decision in your situation, Badong’s claim that the rescission of your contract to sell must be in a document duly notarized has no legal basis because there is no prescribed form to rescind a contract to sell. Thus, his failure to pay the remaining balance of the purchase price is sufficient grounds for the cancellation of the contract. Remember that notarization is required only in rescinding a contract of sale.

We hope that we were able to answer your queries. Please be reminded that this advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to [email protected]