CHAPTER 10 : REMEDIES OF THE PARTIES Caveat Emptor let the buyer beware. REMEDIES IN CASES OF MOVABLES: A.

. ORDINARY REMEDIES FOR THE SELLER: 1. Movables in General: RESCISSION of SALE

-minimum requirement is that the goods are in the possession of the seller , to prevent actual physical tussle; UNPAID SELLER includes a. an agent of the seller whom the bill of lading is endorsed; b. a consign who has himself paid; c. any other person who is in the position of the seller; Article 1525 NCC a seller is an Unpaid Seller if: -The whole price of the goods were not paid; -There was breach on the conditional payment agreed by the parties by reason of dishonor of the instrument, or the insolvency of the buyer or otherwise. RIGHT S OF AN UNPAID SELLER: -Possessory Lien -Stoppage in Transitu; -Special Right of Resale; -Special Right to Rescind; Have hierarchical application; The last two rights can be availed only if the seller has exercised the first two rights; POSSESSORY LIEN General Rule: seller is NOT BOUND to deliver the thing sold, if the buyer has NOT PAID the price; -no stipulation delivery transfers ownership; -when goods has been passed to the buyer: - US has lien on the goods; -US has the right to retain the goods; -when goods has NOT been delivered: US has a right of withholding the delivery similar to and co-extensive with his right of Lien; -Possessory is exercisable only when:

When goods delivered were not received; When the buyer failed to tender the price;

2. Sale of GOODS: a. Non-payment of Price by the Buyer SPECIFIC PERFORMANCE if ownership has not yet passed on to the buyer; MAINTAIN AN ACTION FOR THE PRICE if ownership has been passed upon the buyer; -when the price is payable on a certain day; NOTE: Defense: that the seller manifested before judgment on such actions the inability to perform the sale, or an intention not to perform it. b. WHEN BUYER WRONGFULLY REFUSES/NEGLECTS TO ACCEPT THE GOODS: ACTION FOR DAMAGES subject to the following rules: Damages covers the estimated loss directly and naturally resulting from such breach; Damage is based on the difference between the contract price and the current market price at the time the goods were ought to be accepted. Buyer shall be liable for the labor and material expenses incurred by the seller before the notice of repudiation from the buyer; Profits of the seller had the sale been consummated will be considered in awarding damages; B. SPECIAL REMEDIES OF UNPAID SELLER of GOODS. -similar to the Doctrine of Self-Help;

a. Goods have been sold without stipulation as to credit;

b. goods have been sold on credit but the term has already expired c. buyer becomes insolvent; NOTE; US right of lien is NOT AFFECTED by any sale or other disposition of the goods made by the buyer, UNLESS the seller assented thereto. a. WHEN NEGOTIABLE INSTRUMENT ARE ISSUED no sellers lien shall defeat the right of any purchaser for value and in good faith to whom the instrument were negotiated; b. WHEN PARTLY DELIVERED US may exercise the right to Lien on the remainder, UNLESS such part delivery showed an intent to waive the lien or right of retention; c.WHEN POSSESSORY LIEN IS LOST? a. delivery of goods by carrier without reserving ownership or the right to the possession thereof; b. buyer/agent lawfully obtained possession of the goods; c. by WAIVER thereof; NOTE: US does not lose his lien by reason that he has obtained judgment or decree for the price of the goods;

-from the time they are delivered to a carrier, by land, water or air; -when the carrier/bailee continued in possession of the goods until the same were rejected by the buyer, even if the seller refused to take them back! d.WHEN GOODS ARE DEEMED NO LONGER In Transit: -buyer or agent obtained the goods before their arrival at the point of registration; -carrier /baille acknowledges to the buyer/agent that he holds the goods on buyers behalf -carrier /bailee refuses to deliver the goods to the buyer or his agent; e. WHEN PART DELIVERY ALREADY MADE: - the remainder goods may be stopped in transit, unless such part delivery has been under such circumstances as to show an agreement with the buyer to give up possession of the whole of the goods; f. HOW RIGHT is EXERCISED? 1. by obtaining actual possession of the goods; 2. giving notice of sellers claim to the carrier or other bailee in whose possession the goods

US losses possessory lien upon parting physical possession of goods; with another are; remedy of STOPPAGE in TRansitu only if the buyer becomes insolvent; STOPPAGE in TRANSITU -If buyer becomes insolvent; -Seller has parted physical possession of the goods; -Pursuan to Article 1530 -Not affected by any sale or other disposition of the goods made by the buyer, unless the seller assented thereto. a. WHEN ND of Title is issued: - no sellers right of stoppage in transit shall DEFEAT the right of aby purchaser for value and in good faith to whom the instrument is negotiated; b. WHEN BUYER IS DEEMED INSOLVENT -ceased to pay his debts in the ordinary course of business; - cannot pay debts as they become due; c. WHEN GOODS are DEEMED In Transit?

Notice is either given to the person in actual possession or the principal; -if given to the principal must be given at such time and circumstances , by the exercise of reasonable diligence, to prevent a delivery to the buyer;

g. WHEN GOODS COVERED BY ND of Title -issued by the carrier or bailee; -not obliged to deliver to the US unless such document is first surrendered for cancellation; -exercised only by the US if he has exercised his rights of possessory lien or stoppage in transit;

5. SPECIAL RIGHT TO RESELL THE GOODS

a. When is RTRG exercisable? -goods are perishable in nature;

-reservation is made by the seller in case buyer defaulted; -buyer defaulted payment of the price for unreasonable time;

6. SPECIAL RIGHT TO RESCIND

a. When right is exercised? -when expressly reserved by the Seller should buyer defaulted; -buyer has defaulted payment for an unreasonable period of time; b. Effect of Exercise of Right to Rescind -seller is not liable to the buyer; -seller may recover from the buyer damages for any loss occasioned by such breach; c. Transfer of Title -made upon notice of the seller to the buyer of his intention to rescind; -intention need to be communicated to the buyer only when the issue involved a question on whether the buyer had been in default for an unreasonable time before the right of rescission was asserted;

HANLON vs. HAUSSERMAN

-seller has the right to resell when buyer fails to pay the purchase price; -if vendor is obliged to sell for less than the contract price buyer is liable for the difference; -if vendor sold for more than the contract price the breach of contract with the original buyer is damnum ansque injuria; -buyer can dispose the property wher the buyer fails to pay the price and take delivery;

KATIGBAK vs. CA
-seller may resell the property without NEED of RES CINDING it FIRST, should the buyer failed to pay and to take delivery;

C. REMEDIES OF THE BUYER

1. Failure of the Seller to Deliver b. EFFECT OF HAVING EXERCISED RIGHT OF RESALE -US is not liable to the buyer or for any profit made by such resale; -US may recover damages from the buyer for any loss occasioned by the breach of the sale; c. TRANSFER OF OWNERSHIP -new buyer acquires the title to the goods against the original buyer; -US is able to destroy or obliterate ownership of the original buyer; transfers ownership to the subsequent buyer; -US can effect his right even without judicial action; Remedy: SPECIFIC PERFORMANCE -Seller is without the option of retaining the goods on payment of damages; 2. Breach of Sellers Warranty Article 1599 CC buyer may elect the following remedies: Accept/Keep the goods and set up the beach of warranty by way of recoupment in diminution or extinction of the price against the seller; Accept/Keep the goods with an action for damages against the seller; Refuse to accept the goods with an action for damages against the seller; Rescind the sale and refuse to receive the goods; If Goods had been received , return them or offer to return to the seller and recover what he has paid; NOTE: Buyer can no longer claim any other remedy when granted already of any of these remedies, without prejudice to the buyers right to rescind, even if previously he has chosen specific performance when fulfillment has become impossible;

d. NOTICE TO DEFAULTING BUYER -essential/relevant if the right to resell is not based on perishable goods or upon an express provision of sale;

e. STANDARD OF CARE AND DISQUALIFICATION IN RESALE -required from a seller in a resale; done either by public or private sale;

Levy Hermanos vs. Gervacio

3. SUSPENSION OF PAYMENTS in ANTICIPATION OF BREACH Article 1590 buyer may suspend payment of the price until seller gives security for the return of the price when: a. possession is disturbed by a vindicatory action or foreclosure of mortgage; b. have reasonable grounds to fear of such disturbance; a. REMEDY OF BUYER PENDING SUIT -suspend payment of balance

-seller sold a car; -initial payment was made; promissory note was issued for the balance to be paid on or before the a specified date; HELD: Recto Law is not applicable; Sale was a straight sale; Seller may recover the unpaid balance of the purchase price against the buyer even when the latter shall have lost by foreclosure the subject matter of the sale; -Buyer needs to have defaulted two or more installments to allow seller to rescind or foreclose the chattel mortgage; c. Loans and Financing Transactions - RECTO Law is applicable when derived or arising from sales of movables on installments even if the underlying contract is a loan;

D. RECTO LAW : Sales of MOVABES on INSTALLMENTS

1. Coverage of the Law

-seller sold a car for 18 monthly installments; -brought an action for specific performance coupled with a writ of replevin; -also known as Act No. 4122 Installment -Issue: w/n the action taken by the finance Sales Law; company amounted to a virtual foreclosure -commonly law known as the RECTO LAW of the chattel mortgage; - amended Article 1454 of the Civil Code in -HELD: Installment Sales Law under Article 1889; 1484 is applicable even when the finance company was only an assignee of the Article 1484 in a sale of personal mortgage contract; property, seller may exercise any of the following REMEDIES: Zayas vs. Luneta Motor Company Exact Fulfillment of obligation when buyer -article 1484 would apply to a person or failed to pay installment; entity which has financed the purchase on Rescind the sale, should the buyers failure installments of a motor vehicle, WHERE , the to pay cover two or more installments; seller subsequently assigns the loan docments t Foreclose the chattel mortgage on the the financing person or entity; thing sold constituted, when buyer fail to -the nature of the transaction as a sale of pay two or more installments; personal property on installment basis REMAINS. NOTE: If seller should foreclose on the mortgage constituted on the thing sold, seller SHALL HAVE NO FURTHER action against the purchaser to recover any unpaid balance of the price; agreement to the contrary shall be VOID; Article 1454-A (RECTO LAW) In a contract of sale of personal property payable in installments, failure to pay two or more installments shall CONFER upon the VENDOR the right to ancel the sale or foreclose the mortgage if one has been given on the property, without reimbursement to the purchaser of the installments already paid, if there be an agreement to this effect. However, if the VENDOR has chosen to foreclose the mortgage, VENDOR SHALL HAVE NO FURTHER ACTION against the buyer for the recovery of the unpaid balance owing by the same, any agreement to the contrary shall be VOID. a. RATIONALE of the RECTO LAW aims to correct social and economic evil; -meant to remedy the abuses committed in connection with the foreclosure of chattel mortgages; b. WHEN is there Sale on Installments? NOTE: Where the financing transaction is NOT derived from a sale, the provisions of RECTO Law DO NOT APPLY . Pameca vs. CA held that a mortgageebank is NOT PREVENTED from recovering on a deficiency caused by the foreclosure and sale at public auction of the mortgage movable which security arose from a loan given to a mortgagor. -Article 1484 cannot be applied by analogy or by equity since the provisions apply only to sale on installments. d. Contracts to Sell Movables NOT COVERED. -rules on rescission on substantial breach does not apply since when the suspensive condition is materialized, it would extinguish the contract; thus, there will be NO CONTRACT to RESCIND. -Article 1597 would apply; -grants the seller the right to rescind the contract by giving notice of his election to do so to the buyer;

Industrial Finance vs. Ramirez

2. REMEDIES PROVIDED UNDER ARTICLE 1484

a. Nature of Remedies under Article 1484 -recognized as ALTERNATIVE, and not COMMUTATIVE;

the

-which means, the exercise of one would bar others; -cannot be applied simultaneously;

3.

REMEDY PERFORMANCE

OF

SPECIFIC

What are the REMEDIES of the SELLER?

Exact Fulfillment by the purchase of the obligation; Rescind or cancel the sale; Foreclose the mortgage on the purchased personal property, if one is instituted.

GENERAL RULE: When the seller has chosen SPECIFIC PERFORMANCE, he can NO LONGER seek for RESCISSION nor FORECLOSURE of the chattel mortgage constituted on the thing sold. EXCEPTION: Article 1191 non-defaulting party to a reciprocal obligation may ALSO SEEK RESCISSION ever after he has chosen fulfillment, if the LATTER should become IMPOSSIBLE. NOTE: Judgment in action for Specific Performance may be executed on all personal and real properties of the buyer which ARE NOT EXEMPT from execution and which are sufficient to satisfy judgment. The mere fact that the seller secured the possession of the property subject of the sale by installments DID NOT NECESSARILY mean that the seller would resort to a Foreclosure of the mortgage constituted thereon; 4. REMEDY OF RESCISSION GENERAL RULE: when chosen, seller is under the OBLIGATION to make RESTITUTION, which would include the return of any amount of the purchase price that the buyer may have paid.

Borbon vs. Service Wide Specialist

-remedies in Art. 1484 are alternative , not commutative; -creditor may not exercise any other option UNLESS the chose option proves to be ineffectual or unavailing without the creditors fault; -mere demand to surrender not heeded by the mortgagor will not amount to foreclosure; -repossession of the object by the vendormortgagee would have the effect of foreclosure; b. TWO GROUPS of BARRING CONFLICTS of REMEDIES 1. Choice of Remedies; 2. Non-recovery of any of the unpaid balance for remedies of rescission and foreclosure;

Article 1486 provides that a stipulation that the installments or rents paid shall not be returned to the vendee or lesse shall be valid insofar as te Tajanlangit vs. Southern Motors -subject matter on installment was same may not be unconscionable under the mortgaged to secure the note issued to circumstances. the seller for the balance of the purchase NOTE: price, where the seller actually chose to When the remedy of rescission is chosen, collect the note, and did not seek the rescinding party may recover foreclosure of the mortgage; DAMAGES against the party in default. -Barring effect of foreclosure does not apply; Delta Motors Sales vs. Niu Kim Duan held that a stipulation in the contract that the Southern Motors vs. Moscoso -complaint is an ordinary civil action for installments paid shall not be returned to the the recovery of the remaining unpaid vendee is VALID insofar as the same may not be UNCONSCIONABLE under the circumstances. balance due on the promissory note; -seller adopted the rules for ordinary civil Bricktown Development vs. Amor action under the Rules of Court, and not Tierra - the forfeiture of the amounts paid under the Chattel Mortgage Law; was denied even though there was a -HELD: Attaching the mortgaged stipulation in the contract as there were subject matter is NOT UNLAWFUL. several negotiations between the parties -a mortgage creditor may recover trying to amend the relationship. judgment pn the mortgage debt and cause an execution on the mortgaged property; -may cause an attachment to be issued a. When RESCISSION DEEMED CHOSEN and levied on such property; General Rule: seller is deemed to have chosen the remedy of RESCISSION and can no LONGER NOTE: Rule in Installment Sales: avail of the other two remedies under Article 1484, when he has clearly indicated to end the if the action instituted is for contract, by: SPECIFIC PERFORMANCE, and the -sending a notice of Rescission; mortgage property is subsequently -takes possession of the subject matter of attached and sold, the sale DOES NOT the sale; AMOUNT to a FORECLOSURE of the -filing of an action for rescission; MORTGAGE.

 Vda de Quiambao v. Manila buyer was the one who voluntarily the subject of the sale; -the following would suffice to seller from proceeding with Performance: the rescind same;

Motor returned bar the Specific

5. FORECLOSURE OF CHATTEL MORTGAGE CONSTITUTED ON SUBJECT PROPERTY

a. When REMEDY OF FORECLOSURE IS DEEMED CHOSEN -generally, at the time of filing an action for foreclosure; -seller can no longer resort to Specific Performance or Rescission; -FORECLOSURE IS DEEMED chosen only at the time of actual sale of the subject property at public auction pursuant to the foreclosure proceeding commenced. Universal Mortor vs. Sy Hian Tat held that there is no foreclosure when the seller filed ana action for issuance of a writ of replevin, and the actual recovery of possession of the subject property, as there was NO ACTUAL FORECLOSURE pursuant to the provisions of the Rules of Court. Industrial Finance Corp. vs. Ramirez the filing of an action denominated as REPLEVIN WITH DAMAGES, seeking for the repossession of the property, DOES NOT AMOUNT TO HAVING CHOSEN THE REMEDY OF FORECLOSURE. b. Barring Effect of Foreclosure - Foreclosure and Actual Sale at Public Auction of the Chattel Mortgage shall bar further recovery by the SELLER of any balance on the purchasers outstanding obligation not satisfied by the sale; -prior the FORECLOSURE and ACTUAL SALE at Public Auction, seller has every right to receive payments of the unpaid balance of the price from the buyer; Northern Motors vs. Sapinoso seller was no obliged to refund the amount he received prior to the actual sale at a public auction, EVEN if an action for Foreclosure had already been filed.

-held that only the taking back of property coupled with: -an unequivocal desire on its part to the contract; -for the purpose of appropriating the

b. Barring Effect of Rescission only it

comes to mortgage; the remedy of foreclosure of

Delta Motors vs. Niu Kim Duan the third option or remedy is subject to the limitation that the vendor cannot recover any unpaid balance of the price and any agreement to the contrary is VOID.; implying no such barring effect to the remedy of rescission. -recognized that when the seller takes possession of thee subject property in rescission of the sale, the seller is BARRED from recovering the balance of the price;

Article 1385 provides that even a nondefaulting party cannot seek rescission UNLESS he is in a position to return what he has received under the contract. -when the unpaid seller shall have chosen the remedy of rescission, the GENERALLY, seller cannot seek further action on the purchase price against the buyer; -when there is no stipulation to the contrary, the SELLER is then Obliged to return any portion of the purchase price he received from the buyer, although he can recover DAMAGES.

Nonato vs. IAC sellers assignee had

chosen to rescind the sale by having taken the possession of the subject motor vehicle; -seller has OPTED to cancel the sale of the vehicle; -seller is BARRED from exacting payment from the buyers of the balance of the price of the vehicle which it had already repossessed. Remedies of Rescission and Foreclosureare not the same; achieves opposite result; a. RR seeks to cancel the contract and to waive further claim on the purchase price; b. RF seeks to pursue and realize on the purchase price of the sale; NOTE: Remedy of Foreclosure under the RECTO LAW is contrary to the nature of the remedy of rescission that allows the nondefaulting party in a reciprocal obligation to recover damages, precisely to make him whole again resulting from the breach of the defaulting party;

c. Barring Effect on other Securities given for Payment of Price

Cruz vs. Filipinas Investment & Finance Corp. -seller had foreclosed the property subject to the sale; -seller then foreclosed the REM constituted on third party mortgagors contending that the prohibition in Article 1484 prohibits further action to PURCHASERS only. -HELD: Seller could not proceed to foreclosed REM. -if guarantor would be compelled to pay the purchase price, the guarantor will in turn be entitled to recover what she has paid from the debtor-vendee under Art. 2066. -ultimately, the buyer will be made to bear the balance of the price, indirectly subverting Article 1484, and public policy overturned.

Pascual vs. Universal Motors Corp. affirmed the Cruz doctrine; Ridad vs. Filipinas Investment & Finance Corp. seller is NOT precluded from further extrajudicially foreclosing the additional security the additional security put up by the buyer himself; Borbon vs. Servicewide Specialist held that when the assignee forecloses on the chattel mortgage, there can be no further recovery of the deficiency, the sellermortgagee is deemed to have renounced any right thereto.

a. What is the Barring Effect on Such Contracts? Issue: Whether the taking back of possession or enjoyment of the property leased as treated in Article 1485, carries thte concept of rescission or foreclosure? If taking back or enjoyment of the leased movable is treated as a RESCISSION: -Lessor-seller will be able to collect DAMAGES as may be warranted under the circumstances; If taking back or enjoyment of leased property is treated as FORECLOSURE : -Seller-lessor can NO LONGER collect any further amounts against the buyer-lessee although the rentals were forfeited in his favor;

-if seller-mortgagee first seeks the enforcement of the additional mortgages , guarantees or other security management, SELLER is held to have LOST by WAIVER or non-choice his lien on the chattel mortgage of Manila Gas vs. Calupita only remedies the personal property; of the seller-lessor would be Specific Performance -he may STILL LEVY on it; of Rescission; -it was held that when a purported lease d. Extent of Barring Effect current contract of personal property is determined to be jurisprudence upholds full barring effect on a CONDITIONAL SALE, and it has been shown that recovery even at the present language of Art. the buyer-lessee has NOT COMPLIED with his 1484; obligation to pay rentals due under the contract, the SELLER-LESSOR may elect between Eustaquio Doctrine limits the barring effect compliance with or rescission of the obligation only to the unpaid balance of the price; with Indemnity for DAMAGES and interest in either case. e. Perverse Buyer-Mortgagor -thus the barring effect would b equivalent to RESCISSION. Filipinas Investment vs. Ridad when a defaulting buyer-mortgagor refuses to HE Heacock Company vs. Buntal surrender the chattle to the seller to allow the Manufacturing latter to be able to proceed with foreclosure, -held that the return of the subject matter of a then the SELLER< even after actual contract of lease with option to purchase, as AN foreclosure, should BE ALLOWED to RECOVER ACT OF RESCISSION, EXPENSES and Attorneys Fees, incurred in -seller-lessor could NO LONGER obtain from the trying to obtain possession of the chattel; buyer-lessee a reimbursement of the unpaid rentals; -exception to the Barring Effect; Agustin vs. Ca where the mortgagor refuses to deliver the chattel for failure of the mortgagee to pay two or more installments, or should Mortgagor conceals the property mortgaged from the reach of the mortgagee, the expenses incurred by the latter for the prosecution in action for replevin, shall BE BORNE by the MORTGAGOR; -remedy of the seller-lessor is RESCISSION or SPECIFIC PERFORMANCE;

-seller-lessor has 8 army vehicles, value is divided into 12 equal parts; -contract provided a Waiver of the benefits provided under Article 1454-A; -BL defaulted payments and returned the vehicles to the E. LEASE WITH OPTION TO REPURCHASE SL, but refused to PAY RENTALS; HELD: Waiver is invalid because article Article 1485 1454 provides that any waiver to the contrary is void; Article 1486 stipulation that the rents paid -SL has chosen to deprive the lessee of the shall bit be returned to the lessee shall be enjoyment of such personal property, SELLERvalid insofar as the same may not be LESSOR shall have NO FURTHER ACTION, for the UNCONSCIONABLE under the circumstances. recovery of any unpaid balance. Eliso Tool vs. CA Rent must necessarily be regarded as payment of the price in installments since the due payent of the agreed amount results, by the terms of the bargain, in the TRANSFER of TITLE to the lessee. Filinvest vs. CA -buyers had inspected and tested a rock crusher; -Filinvest financed the purchase; -Rock crusher was purchase under the name of filinvest and buyers will LEASE with an Option to

US Commercial vs. Halili

Purchase, executing a REM in favor of the company; -buyers stopped paying installments; -company began extrajudicial foreclosure; -buyers commenced an ACTION to ENJOIN FORECLOSURE, ANNULMENT OF REM; -finance company opposed contending that the action should be brought to the original seller; HELD: FINANCE COMPANY OBTAINED OWNERSHIP OF the property -no ruling whether barring effect of art. 1484 -complaint was dismissed by reason of default of the buyers on their contract; NOTE: Halili and Filinvest the contract of lease with an option to buy, would amount to both a FORECLOSURE that bars al other actions of whatever nature, and NOT RESCISSION , as the seller would still be authorize to recover DAMAGES.

Article 1590 should the buyer be disturbed in the possession or ownership of the thing acquired, or should have reasonable grounds to fear such disturbance, VINDICATORY ACTION, or A FORECLOSURE OF MORTGAGE: Buyer may suspend payment until seller has caused such disturbance to cease; -UNLESS, the seller gives a SECURITY for the return of the price in a proper case; -or there was a stipulation that, NOTWITHSTANDING any contingency, the buyer shall be bound to make the payment; NOTE: A mere trespass SHALL NOT AUTHORIZE the suspension of the payment of the price;

Writ of Replevin by the seller-lessor does NOT 2. IN CASE OF produce barring effect of Art. 1484. Not every SUBDIVISION/CONDOMINIUM PROJECTS; deprivation of possession would result in producing the barring effect under Art. 1485; PD 957 Sec. 23 & 24 provides that no INSTALLMENT payments made by the BUYER in a HOWEVER when the lessor takes possession of subdivision or condominium project, SHALL BE the SUBJECT MOVABLES , the same is LEGALLY FORFEITED in favor of the owner or developer TREATED as a FORECLOSURE, and the barring when: effect shall be applicable; NOT RESCISSION. Desistance of payment was due to the fault of the developer to develop the REMEDIES IN CASES OF MOVABLES subdivision or condominium within the time limit for complying with the same. A. REMEDIES OF THE SELLER Buyer has the option to be reimbursed the total amount paid; 1. Anticipatory Breach RESCISSION of SALE, if: Filipinas Realty Corp. vs. Office of the -there is reasonable fear of loss of President PD 957 was designated to stem the IP; tide of fraudulent manipulations perpetrated by (art. 1591) unscrupulous subdivision and condominium RESCISSION under Art. 1191 sellers free from liens and encumbrances; -if there is no such reasonable fear of loss exist; Relucio vs. Brillante-Garfin held that the PD -available if there is substantial 957 vests upon the buyer the option to DEMAND breach by the buyer for failure to REIMBURSEMENT of the total amount paid, or to comply with his obligation WAIT for FURTHER development of the to pay the price; subdivision or condominium project; 2. Failure of Buyer to Pay Price -when BUYER opts to WAIT for further development of the subdivision, HE MAY NOT BE OUSTED from the subdivision;

a. Rescission under Article 1592 -failure of the buyer to pay the price in full gives the seller the option to Lim vs. De Los Santos / Consing vs. CA RESCIND the sale upon judicial or buyer has the RIGHT TO COMPEL the SELLER to notarial demand. complete the roads and other facilities of the subdivision, even when nothing to that effect is -buyer may still PAY even after the stipulated in the sale; expiration of the period, as longs as NO DEMAND OF RESCISSION of the CONTRACT NOTE: SELLER CANNOT SHIFT the burden to has been made upon him either judicially or the BUYER of providing an access to and by a notarial act. from the subdivision; b. Contracts to Sell Not Covered by a. Notice Required Under Sec. 23, PD 957 Article 1592 does NOT REQUIRE that a notice to be given first by the buyer to the seller before a DEMAND for c. Resort to Equitable Resolutions refund can made as the notice and demand can be made in the same letter/communication; 1. Suspension of Payment b. Retroactive Application of PD 957 did NOT EXPRESSLY provide for retroactivity in its

REMEDIES OF BUYER

entirety, yet the same can be plainly inferred -employment of the term cancellation from the unmistakable intent of the law that is indicates that Maceda Law covers even contract to protect the WEAK and the DISADVANTAGE; to sell residential real estate on installments; (Eugenio vs. Drilon; PNB vs. Office of the President) MOrtel vs. KASSCO non-fulfillment of the condition extinguished the contract, which means c.Right to Grace Period should be construed that the contract to sell did not take effect; as a RIGHT and NOT an OBLIGATION on the part -MAceda Law not applicable because said laws of the debtor; presuppose the existence of a valid and effective -when conferred unconditionally, the grace contract to sell a condominium; period is effective without further need of -defective ruling because: demand either calling for the payment of the Maceda Law covers contracts of sale and obligation or for honoring the right; contracts to sell; Non-fulfillment of the conditions in a C. MACEDA LAW : SALES OF REAL contract to sell , have the effect of EXTINGUISHING the contract, thus ESTATE ON INSTALLMENTS GOVERNED by the MACEDA LAW; RA 6552 entitled Realty Installment Buyer 2. Transactions EXCLUDED from Protection Buyer coverage -also known as the MACEDA LAW; -recognizes that in conditional sales of all Sales covering industrial lots; kinds of real estate, whether Industrial, Sales covering commercial buildings and Commercial, or Residential, the RIGHT OF THE commercial lots by implication; SELLER to cancel the contract upon NON Sales to tenants under the agrarian reform PAYMENT of AN INSTALLMEMNT BY THE BUYER, laws; which is simply an event that prevents the NOTE: these transactions are NOT obligation of the seller to convey title from EXCLUSIVE. acquiring binding force. (Rillo vs. CA) a. ROLE of MACEDA LAW to protect the a. Maceda Law Cannot be INVOKED by buyers of real estate on installment against the Highest Bidder in Foreclosure ONEROUS and OPPRESIVE Conditions. Proceedings because he is not the REAL PARTY to the original installment sales, and DOES Palay vs. Clave provides for automatic NOT HAVE any rights promoted under the extrajudicial rescission upon default of payment Maceda Law; without need of notice and with forfeiture of all installments paid. 3. RIGHTS GRANTED depend on whether or

not the buyer has paid less than or more than HELD: Notice of Cancellation is indispensable as two year installments; a matter of public policy; Waiver of notice is an onerous and oppressive condition imposed on At LEAST TWO YEARS INSTALLMENTS buyers of real estate on installment payments; PAID: -payment of the unpaid installments b. Retroactive Application of Maceda Law; due within the GRACE PERIOD earned by the buyer, fixed at the rate of one Siska Dev. Corp vs. Office of the President month grace period for ever one year Maceda Law apply even to contracts entered installment payments, WITHOUT into, PRIOR to the effectivity of the Maceda Law. ADDITIONAL INTEREST. Not Retroactive People Industrial Corp vs. CA; 281 SCRA 206; 1. Transactions Covered primarily residential real estate. -covers NOT ONLY sales on installments of real estate, but also FINANCING of such acquisitions; -expressly covers ALL TRANSACTIONS and CONTRACTS involving sale or financing of real estate on installment payments, including residential condominium apartments. -includes both Contract of Sale, and Contracts to Sell( notice of cancellation or demand for rescission of contract) -all encompassing that it would even cover sales or financing transaction which may not FIT into the installment concepts; -refund of the cash surrender value of the payments on the property equivalent 50% of the total payments made IF THE CONTRACT is CANCELLED; and after five years of installments, and additional 5% every year but not to exceed 90% of the total payments made; Exercise of Grace Period can be exercised only ONCE in EVERY FIVE YEARS of the LIFE OF THE CONTRACT and ITS EXTENSIONS, if any. NOTE: Down payments, deposits or options on the contract shall be INCLUDED in the COMPUTATION of the total number of installments made. 2. How cancellation of the Contract can be effected?

a. Maceda Law covers contract to Sell

-shall TAKE PLACE after 30 days from receipt a. to sell or assign his right within the grace by the buyer of the notice of cancellation or period; the demand for rescission by a notarial act, -shall be done by a notarial act; and upon full payment of the cash surrender value to the buyer; b. to pay in advance any installment or the full unpaid balance of the price, WITHOUT NOTE: Mere formal demand for the buyer INTEREST ,and be ANNOTATED in the certificate to vacate DID NOT SERVE as the same of title covering the property; requirement of notice of cancellation or demand for rescission as required by CONTRARY STIPULATIONS shall be NULL law;l and VOID Unlawful detainer -is not exempt from complying the notarial act required 7. Maceda Law cannot be availed by the by law; DEVELOPER

b. Less than 2 years Installments 8. Cancellation of Judicial Sale can only be set aside upon the return to the buyer of the Paid
-buyer shall be entitled to a grace period of 60 days from the date the installments become due; -after the expiration, SELLER may cancel the contract after 30 days from receipt of the buyer of the notice of cancellation or for the demand for rescission of the contract by a notarial act;

purchase price with SIMPLE INTEREST, together with all the sums paid out to him in improvements introduced on the property, taxes and other expenses by him; -purchaser is entitle to REIMBURSEMENT of the purchase money when VOIDED without his fault;

c. Compensation Amortization Payments

Rule

on

Leano vs. CA the default committed by the buyer in respect of the obligation COULD BE COMPENSATED by the interest and surcharges imposed upon the buyer under the contract;

d. Formula to Installment Mode

Compute

the

-include any PAYMENT made as Downpayment, or reservation fees, and divide them by the stipulated mode of payment , whether monthly, quarterly, or semi-annual or annual;

4. INTERPRETATION of GRACE PERIOD and MODE OF CANCELLATION

NOTE: Under Maceda Law, RESCISSION or CANCELLATION OF CONTRACT becomes a matter of right on the part of the SELLER once a buyer fails to avail the grace period granted to him, provided SELLER COMPLIED with the procedure under the Law. McLaughlin vs. CA two doctrines: Notarial act is applicable only to RESCISSION, but the Notice of Cancellation need not be by Notarial Act; Buyer can still PREVENT RESCISSION OR CANCELLATION of the CONTRACT within the 30 day period when rescission or cancellation is to take effect, EVEN after the grace period granted to him has expired. OTHER RIGHTS GRANTED TO THE BUYER In addition, Maceda Law provides the following right to the buyer: