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After 3 years of paying, do I have the right to continue to pay for the verbally-agreed rent-to-own house & lot (without Contract to Sell)?

Case/Question

After 3 years of paying, do I have the right to continue to pay for the verbally-agreed rent-to-own house and lot (without Contract to Sell)? … (this is the situation. Three years ago, my aunt sell her house and lot. Since, I don’t have cash to pay, we agreed in verbal that I pay her installment (monthly). My parents and my brothers/sisters also live in that house. We just agreed in verbal and no Contract to Sell was signed. The problem is, my aunt changed her mind. Instead of rent-own, she plan to just rent only the property (house and lot). And I disagreed because I’ve been faithfully paying here for three years. What shall I do in my situation? I’m worried she might force us to leave her property.)


Verbal Agreement House and Lot for Sale


Legal Advice/Opinion:


This legal opinion seeks to answer the following questions, to wit:
  1. Whether or not you have the right to continue paying for the verbally agreed rent to own house?
  2. Whether or not you and your family can be forced to leave her property?
On the first Query, my opinion is in the Positive. As a general rule, transactions concerning Real Property and rental for a period of at least 1 year should be in writing as expressly mandated under Article 1403 of the New Civil Code which tells:

Art. 1403. — The following contracts are unenforceable, unless they are ratified:

(1) . . .

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:
" 1. An agreement that by its terms is not to be performed within a year from the making thereof;
  2. A special promise to answer for the debt, default or miscarriage of another
  3. An agreement made in consideration of marriage, other than a mutual promise to marry;
  4. An agreement for the sale of goods, chattels or things in action, at a price not lower that 500 pesos, unless the buyer accepts and receives part of such goods and chattels, or the evidences, or some of them, of such things in action, or pay at the time some part of the entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum
  5. An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein;
  6. A representation to the credit of a third person. ”

Contracts are consensual in nature, as such, it is perfected by mere consent for as long as the requisites are present unless it is required to be in a specific form such as that which is mandated by the above-cited provision-the statute of frauds.

Failure to comply with the statute of frauds or in simple terms, to put into writing the contemplated contracts above-described renders the same "unenforceable” despite being valid. This is however not without exceptions, as aptly discussed in the case of Margarita Iñigo vs. Estate of Adriana Maloto, Gregorio L. Lira Special Administrator docketed as G.R. No. L-24384 September 28, 1967 which among others, states:

"By Article 1403 (2) (e) of the Civil Code, a verbal contract for the sale of real property is unenforceable, unless ratified. For, such contract offends the Statute of Frauds. But long accepted and well settled is the rule that the Statute of Frauds is applicable only to executory contracts — not to contracts either totally or partially performed.”

This is further propounded by the time honored case of Marta C. Ortega vs. Daniel Leonardo docketed as G.R. No. L-11311, May 28, 1958 which finds application to the present Query, as elucidated by the Supreme Court through Justice Bengzon, to wit:

"If the above means that partial performance of a sale contract occurs only when art of the purchase price is paid, it surely constitutes a defective statement of the law. American Jurisprudence in its title "Statute of Frauds" lists other acts of partial performance, such as possession, the making of improvements, rendition of services, payment of taxes, relinquishment of rights, etc.

Thus, it is stated that "The continuance in possession may, in a proper case, be sufficiently referable to the parol contract of sale to constitute a part performance thereof. There may be additional acts or peculiar circumstances which sufficiently refer the possession to the contract. Continued possession under an oral contract of sale, by one already in possession as a tenant, has been held a sufficient part performance, where accompanied by other acts which characterize the continued possession and refer it to the contract of purchase. Especially is this true where the circumstances of the case include the making of substantial, permanent, and valuable improvements." (49 American Jurisprudence — 44)

It is also stated that "The making of valuable permanent improvements on the land by the purchaser, in pursuance of the agreement and with the knowledge of the vendor, has been said to be the strongest and the most unequivocal act of part performance by which a verbal contract to sell land is taken out of the statute of frauds, and is ordinarily an important element in such part performance. Possession by the purchaser under a parol contract for the purchase of real property, together with his making valuable and permanent improvements on the property which are referable exclusively to the contract, in reliance on the contract, in the honest belief that he has a right to make them, and with the knowledge and consent or acquiescence of the vendor, is deemed a part performance of the contract. The entry into possession and the making of the improvements are held on amount to such an alteration in the purchaser's position as will warrant the court's entering a degree of specific performance." (49 American Jurisprudence p.755, 756.)

Again, it is stated that "A tender or offer of payment, declined by the vendor, has been said to be equivalent to actual payment, for the purposes of determining whether or not there has been a part performance of the contract. This is apparently true where the tender is by a purchaser who has made improvements. But the doctrine now generally accepted, that not even the payment of the purchase price, without something more, . . . is a sufficient part performance. (49 American Jurisprudence p. 772.)

Founded on the above-cited cases, it is my opinion that despite the absence of a written agreement for the sale on installment of the house, for as long as the rent to own scheme can be substantiated by oral evidence, it is safe to assume that the contract is valid and executory and therefore, enforceable.

In the event that the seller will decline the acceptance of payments, the amount to be paid may be consigned in court and a case for specific performance can be filed against the seller to compel him/her the execution of the requisite Deed of Transfer to the buyer after full payment.

Further, even if you fail to pay the installment-rents, given the assumption that the contemplated contract was a rent to own scheme, you are protected by the Maceda Law or "AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON INSTALLMENT PAYMENTS. (Rep. Act No. 6552), which among others states:

"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. ”

Consequently, per application of the foregoing citations and provisions, the second issue as to whether or not your family can be forced to leave the premises of the property, it is my opinion that the answer is in the negative.

Founded on the strength of the Maceda Law supported by the Jurisprudence above-discussed, the installment buyer, even if he fails to pay a months’ worth of installment, he is given a grace period depending on his actual period of payment, and on top of this, he is also entitled to the cash surrender value contemplated under paragraph 3 of the Maceda Law. 

It does not mean however that the Seller cannot file cases against the installment buyer, in which case, the parties can then prove their respective cases by preponderance of evidence.



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