G.R. No.
L-55684 December 19, 1984 products referred to in the Complaint, and professed no
CHRYSLER PHILIPPINES CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and SAMBOK
MOTORS CO. (BACOLOD), respondents,
Reyes, Santayana, Tayao & Picazo Law Office for petitioner.
Alampay, Alvero & Alampay Law Office for private respondent.
MELENCIO-HERRERA, J:
Subject of this Petition for Review is the Decision of the then
Court of Appeals in CA-G.R. No. 65328-R reversing the
judgment of the then Court of First Instance of Rizal, Branch XX,
in Civil Case No. 16624, and dismissing petitioner Chrysler
Philippines Corporation's suit for Damages against private
respondent Sambok Motors Company (Bacolod) arising from
breach of contract.
Petitioner is a domestic corporation engaged in the assembling
and sale of motor vehicles and other automotive products.
Respondent Sambok Motors Co., a general partnership, during
the period relevant to these proceedings, was its dealer for
automotive products with offices at Bacolod (Sambok, Bacolod)
and Iloilo (Sambok, Iloilo). The two offices were run by relatives.
Miguel Ng was Assistant Manager for Sambok, Bacolod, while
an elder brother, Pepito Ng, was the President. 1
On September 7, 1972, petitioner filed with the Court of First
Instance of Rizal, Branch XX, Pasig, Rizal, a Complaint for
Damages against Allied Brokerage Corporation, Negros
Navigation Company and Sambok, Bacolod, alleging that on
October 2, 1970, Sambok, Bacolod, ordered from petitioner
various automotive products worth P30,909.61, payable in 45
days; that on November 25, 1970, petitioner delivered said
products to its forwarding agent, Allied Brokerage Corporation,
for shipment; that Allied Brokerage loaded the goods on board
the M/S Doña Florentina, a vessel owned and operated by
Negros Navigation Company, for delivery to Sambok, Bacolod;
that when petitioner tried to collect from the latter the amount of
P31,037.56, representing the price of the spare parts plus
handling charges, Sambok, Bacolod, refused to pay claiming
that it had not received the merchandise; that petitioner also
demanded the return of the merchandise or their value from
Allied Brokerage and Negros Navigation, but both denied any
liability.
In its Answer, Sambok, Bacolod, denied having received from
petitioner or from any of its co-defendants, the automotive
knowledge of having ordered from petitioner said articles.
Upon a Joint Motion to Dismiss filed by petitioner and Allied
Brokerage, the Trial Court. on October 23, 1975, dismissed the
case with prejudice against Allied Brokerage for lack of cause of
action, and also dismissed the latter's counterclaim against
petitioner.
On July 31, 1978, the Trial Court rendered its Decision
dismissing the Complaint against Negros Navigation for lack of
cause of action, but finding Sambok, Bacolod, liable for the
claim of petitioner, thus:
PREMISES CONSIDERED, the Court renders
judgment as follows:
(1) The complaint against defendant Negros
Navigation is dismissed for lack of cause of action.
(2) Defendant Sambok Motors Co. (Bacolod) is
ordered to pay plaintiff Chrysler Philippines
Corporation:
(a) The sum of Thirty-One Thousand Thirty Seven
Pesos and Fifty Six Centavos (P31,037.56) with
interest at the rate of twelve percent (12) per annum
from January 1, 1971 until fully paid;
(b) The sum of Five Thousand Pesos as and for
attorney's fees and expenses of litigation;
(c) The costs of the suit.
(3) The counterclaim of defendant Negros
Navigation and Sambok Motors Co. (Bacolod) are
dismissed for lack of merit.
The case against Negros Navigation was dismissed for failure of
petitioner and Sambok, Bacolod, to file the necessary notices
and claims as conditions precedent for a judicial action. 2
On the other hand, the Trial Court found that the act of Sambok,
Bacolod, "in refusing to take delivery of the shipment for no
justifiable reason from Negros Navigation despite having
received the Bill of Lading constituted wrongful neglect or
refusal to accept and pay for the subject shipment, by reason of
which defendant Sambok Motors may be held liable for
damages."
Sambok, Bacolod, appealed. On November 26, 1980,
respondent Appellate Court set aside the appealed judgment
and dismissed petitioner's Complaint, after finding that the latter
had not performed its part of the obligation under the contract by
not delivering the goods at Sambok, Iloilo, the place designated
in the Parts Order Form (Exhibits "A", "A-1" to "A-6"), and must,
therefore, suffer the loss. In other words, respondent Appellate
Court found. that there was misdelivery.
Hence, this Petition for Review on Certiorari, with the following
errors assigned to respondent Court:
I
The Respondent Court of Appeals erred in finding that the issue
of misshipment or misdelivery of the automotive spare parts
involved in the litigation was raised by the private respondent
Sambok Motors Co. (Bacolod) in the Trial Court.
II
The Respondent Court of Appeals erred in refusing to apply the
provisions of Section 18, Rule 46 of the Revised Rules of Court
quoted below, that since the question of misshipment or
misdelivery was not raised by the private respondent in the Trial
Court, this issue cannot for the first time be raised on appeal.
Section 18. Questions that may be raised on appeal. Whether or
not the appellant has filed a motion for new trial in the court
below, he may include in his assignment of errors any question
of law or fact that has been raised in the court below and which
is within the issues framed by the parties.
III
The Respondent Court of Appeals erred in finding that the
private respondent gave the alleged instruction to the petitioner
to ship the automotive spare parts to Iloilo City and not to
Bacolod City.
IV
The Respondent Court of Appeals erred in finding that the
defendant Negros Navigation notified the private respondent of
the arrival of the shipment at Bacolod City.
V of Appeals in CA-G.R. No. 65328-R, without pronouncement as
The Respondent Court of Appeals erred in reversing the
decision of the Trial Court that the act of the private respondent
in refusing to take delivery of the automotive spare parts that it
purchased from the petitioner after having been notified of the
shipment constitutes wrongful neglect resulting in the loss of the
cargo for which it should be liable in damages to the petitioner.
To our minds, the matter of misdelivery is not the decisive factor
for relieving Sambok, Bacolod, of liability herein. While it may be
that the Parts Order Form (E exhibits "A", "A-1" to "A-6")
specifically indicated Iloilo as the destination, as testified to by
Ernesto Ordonez, Parts Sales Representative of
petitioner, 3 Sambok, Bacolod, and Sambok, Iloilo, are actually
one. In fact, admittedly, the order for spare parts was made by
the President of Sambok, Pepito Ng, through its marketing
consultant. Notwithstanding, upon receipt of the Bill of Lading,
Sambok, Bacolod, initiated, but did not pursue, steps to take
delivery as they were advised by Negros Navigation that
because some parts were missing. they would just be informed
as soon as the missing parts were located. 4
It was only four years later, however, or in 1974, when a
warehouseman of Negros Navigation, Severino Aguarte, found
in their off-shore bodega, parts of the shipment.- in question, but
already deteriorated and valueless. 5
Under the circumstances, Sambok, Bacolod, cannot be faulted
for not accepting or refusing to accept the shipment from Negros
Navigation four years after shipment. The evidence is clear that
Negros Navigation could not produce the merchandise nor
ascertain its whereabouts at the time Sambok, Bacolod, was
ready to take delivery. Where the seller delivers to the buyer a
quantity of goods less than he contracted to sell, the buyer may
reject them. 6
From the evidentiary record, Negros Navigation was the party
negligent in failing to deliver the complete shipment either to
Sambok, Bacolod, or to Sambok, Iloilo, but as the Trial Court
found, petitioner failed to comply with the conditions precedent
to the filing of a judicial action. Thus, in the last analysis, it is
petitioner that must shoulder the resulting loss. The general rule
that before, delivery, the risk of loss is home by the seller who is
still the owner, under the principle of "res petit domino", 7 is
applicable in petitioner's case.
In sum, the judgment of respondent Appellate Court, will have to
be sustained not on the basis of misdelivery but on non-delivery
since the merchandise was never placed in the control and
possession of Sambok, Bacolod, the vendee. 8
WHEREFORE, we hereby affirm the Decision of the then Court
to costs.
SO ORDERED.
G.R. No. L-21263 April 30, 1965
LAWYERS COOPERATIVE PUBLISHING COMPANY, plaintiff-
appellee,
vs.
PERFECTO A. TABORA, defendant-appellant.
Paredes, Poblador, Cruz and Nazareno for plaintiff-appellee.
Tabora and Concon for defendant-appellant.
BAUTISTA ANGELO, J.:
On May 3, 1955, Perfecto A. Tabora bought from the Lawyers
Cooperative Publishing Company one complete set of American
Jurisprudence consisting of 48 volumes with 1954 pocket parts,
plus one set of American Jurisprudence, General Index,
consisting of 4 volumes, for a total price of P1,675.50 which, in
addition to the cost of freight of P6.90, makes a total of
P1,682.40. Tabora made a partial payment of P300.00, leaving
a balance of P1,382.40. The books were duly delivered and
receipted for by Tabora on May 15, 1955 in his law office
Ignacio Building, Naga City.
In the midnight of the same date, however, a big fire broke out in
that locality which destroyed and burned all the buildings
standing on one whole block including at the law office and
library of Tabora As a result, the books bought from the
company as above stated, together with Tabora's important
documents and papers, were burned during the conflagration.
This unfortunate event was immediately reported by Tabora to
the company in a letter he sent on May 20, 1955. On May 23,
the company replied and as a token of goodwill it sent to Tabora
free of charge volumes 75, 76, 77 and 78 of the Philippine
Reports. As Tabora failed to pay he monthly installments agreed
upon on the balance of the purchase price notwithstanding the
long time that had elapsed, the company demanded payment of
the installments due, and having failed, to pay the same, it
commenced the present action before the Court of First
Instance of Manila for the recovery of the balance of the
obligation. Plaintiff also prayed that defendant be ordered to pay
25% of the amount due as liquidated damages, and the cost of
action.
Defendant, in his answer, pleaded force majeure as a defense.
He alleged that the books bought from the plaintiff were burned
during the fire that broke out in Naga City on May 15, 1955, and
since the loss was due to force majeure he cannot be held
responsible for the loss. He prayed that the complaint be
dismissed and that he be awarded moral damages in the
amount of P15,000.00.
After due hearing, the court a quo rendered judgment for the
plaintiff. It ordered the defendant to pay the sum of P1,382.40,
with legal interest thereon from the filing of the complaint, plus a
sum equivalent to 25% of the total amount due as liquidated
damages, and the cost of action.
Defendant took the case to the Court of Appeals, but the same
is now before us by virtue of a certification issued by that Court
that the case involves only questions of law.
Appellant bought from appellee one set of American
Jurisprudence, including one set of general index, payable on
installment plan. It was provided in the contract that "title to and
ownership of the books shall remain with the seller until the
purchase price shall have been fully paid. Loss or damage to
the books after delivery to the buyer shall be borne by the
buyer." The total price of the books, including the cost of freight,
amounts to P1,682.40. Appellant only made a down payment of
P300.00 thereby leaving a balance of P1,382.40. This is now
the import of the present action aside from liquidated damages.
Appellant now contends that since it was agreed that the title to
and the ownership of the books shall remain with the seller until
the purchase price shall have been fully paid, and the books
were burned or destroyed immediately after the transaction,
appellee should be the one to bear the loss for, as a result, the
loss is always borne by the owner. Moreover, even assuming
that the ownership of the books were transferred to the buyer
after the perfection of the contract the latter should not answer
for the loss since the same occurred through force majeure.
Here, there is no evidence that appellant has contributed in any
way to the occurrence of the conflagration.1äwphï1.ñët
This contention cannot be sustained. While as a rule the loss of
the object of the contract of sale is borne by the owner or in
case of force majeure the one under obligation to deliver the
object is exempt from liability, the application of that rule does
not here obtain because the law on the contract entered into on
the matter argues against it. It is true that in the contract entered
into between the parties the seller agreed that the ownership of
the books shall remain with it until the purchase price shall have
been fully paid, but such stipulation cannot make the seller liable
in case of loss not only because such was agreed merely to
secure the performance by the buyer of his obligation but in the
very contract it was expressly agreed that the "loss or damage
to the books after delivery to the buyer shall be borne by the
buyer." Any such stipulation is sanctioned by Article 1504 of our
Civil Code, which in part provides:
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been
retained by the seller merely to secure performance by
the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of such
delivery.
Neither can appellant find comfort in the claim that since the G.R. No. 164985 January 15, 2014
books were destroyed by fire without any fault on his part he
should be relieved from the resultant obligation under the rule FIRST UNITED CONSTRUCTORS CORPORATION and BLUE
that an obligor should be held exempt from liability when the STAR CONSTRUCTION CORPORATION,Petitioners,
loss occurs thru a fortuitous event. This is because this rule only vs.
holds true when the obligation consists in the delivery of a BAYANIHAN AUTOMOTIVE CORPORATION, Respondent.
determinate thing and there is no stipulation holding him liable
even in case of fortuitous event. Here these qualifications are
DECISION
not present. The obligation does not refer to a determinate thing,
but is pecuniary in nature, and the obligor bound himself to
assume the loss after the delivery of the goods to him. In other BERSAMIN, J.:
words, the obligor agreed to assume any risk concerning the
goods from the time of their delivery, which is an exception to This case concerns the applicability of the legal principles of
the rule provided for in Article 1262 of our Civil Code. recoupment and compensation.

Appellant likewise contends that the court a quo erred in
sentencing him to pay attorney's fees. This is merely the result
of a misapprehension for what the court a quo ordered appellant
to pay is not 25% of the amount due as attorney's fees, but as
liquidated damages, which is in line with an express stipulation
of the contract. We believe, however, that the appellant should
not be made to pay any damages because his denial to pay the
balance of the account is not due to bad faith.
The Case
Under review is the decision promulgated on July 26,
2004,1 whereby the Court of Appeals CA) affirmed the judgment
rendered on May 14 1996 by the Regional Trial Court, Branch
107, in Quezon City adjudging the petitioners defendants) liable
to pay to the respondent plaintiff) various sums of money and
damages.2

WHEREFORE, the decision appealed from is modified by Antecedents

eliminating that portion which refers to liquidated damages. No
costs. Petitioner First United Constructors Corporation (FUCC) and
petitioner Blue Star Construction Corporation (Blue Star) were
associate construction firms sharing financial resources,
equipment and technical personnel on a case-to-case basis.
From May 27, 1992 to July 8, 1992, they ordered six units of
dump trucks from the respondent, a domestic corporation
engaged in the business of importing and reconditioning used
Japan-made trucks, and of selling the trucks to interested
buyers who were mostly engaged in the construction business,
to wit:

TO WHOM
UNIT DATE OF DELIVERY
DELIVERY
Isuzu Dump Truck FUCC 27 May 1992
Isuzu Dump Truck FUCC 27 May 1992
Isuzu Dump Truck FUCC 10 June 1992
Isuzu Dump Truck FUCC 18 June 1992
Isuzu Dump Truck Blue Star 4 July 1992
Isuzu Dump Truck FUCC 8 July 1992

The parties established a good business relationship, with the

respondent extending service and repair work to the units
purchased by the petitioners. The respondent also practiced
liberality towards the petitioners in the latter’s manner of
payment by later on agreeing to payment on terms for
subsequent purchases.
On September 19, 1992, FUCC ordered from the respondent
one unit of Hino Prime Mover that the respondent delivered on
the same date. On September 29, 1992, FUCC again ordered
from the respondent one unit of Isuzu Transit Mixer that was
also delivered to the petitioners. For the two purchases, FUCC
partially paid in cash, and the balance through post-dated
checks, as follows:
BANK/CHECK NO. DATE AMOUNT
Pilipinas Bank 18027379 23 November 1992 ₱360,000.00
Pilipinas Bank 18027384 1 December 1992 ₱375,000.00
Upon presentment of the checks for payment, the respondent
learned that FUCC had ordered the payment stopped. The
respondent immediately demanded the full settlement of their
obligation from the petitioners, but to no avail. Instead, the
petitioners informed the respondent that they were withholding
payment of the checks due to the breakdown of one of the dump
trucks they had earlier purchased from respondent, specifically
the second dump truck delivered on May 27, 1992.
Due to the refusal to pay, the respondent commenced this
action for collection on April 29, 1993, seeking payment of the
unpaid balance in the amount of ₱735,000.00 represented by
the two checks.
In their answer, the petitioners averred that they had stopped
the payment on the two checks worth ₱735,000.00 because of
the respondent’s refusal to repair the second dump truck; and
that they had informed the respondent of the defects in that unit
but the respondent had refused to comply with its warranty,
compelling them to incur expenses for the repair and spare
parts. They prayed that the respondent return the price of the
defective dump truck worth ₱830,000.00 minus the amounts of
their two checks worth ₱735,000.00, with 12% per annum
interest on the difference of ₱90,000.00 from May 1993 until the
same is fully paid; that the respondent should also reimburse
them the sum of ₱247,950.00 as their expenses for the repair of
the dump truck, with 12% per annum interest from December
16, 1992, the date of demand, until fully paid; and that the
respondent pay exemplary damages as determined to be just
and reasonable but not less than ₱500,000, and attorney’s fees
of ₱50,000 plus ₱1,000.00 per court appearance and other
litigation expenses.
It was the position of the respondent that the petitioners were
not legally justified in withholding payment of the unpaid balance
of the purchase price of the Hino Prime Mover and the Isuzu
Transit Mixer due the alleged defects in second dump truck
because the purchase of the two units was an entirely different
transaction from the sale of the dump trucks, the warranties for
which having long expired.
Judgment of the RTC
On May 14, 1996, the RTC rendered its judgment,3 finding the
petitioners liable to pay for the unpaid balance of the purchase
price of the Hino Prime Mover and the Isuzu Transit Mixer
totaling ₱735,000.00 with legal interest and attorney’s fees; and
declaring the respondent liable to pay to the petitioners the sum
of ₱71,350.00 as costs of the repairs incurred by the petitioners.
The RTC held that the petitioners could not avail themselves of
legal compensation because the claims they had set up in the
counterclaim were not liquidated and demandable. The fallo of
the judgment states:
WHEREFORE, judgment is hereby rendered:
1. Ordering defendants, jointly and severally to pay
plaintiff the sum of ₱360,000.00 and ₱375,000.00
with interest at the legal rate of 12% per annum
computed from February 11, 1993, which is the date
of the first extrajudicial demand, until fully paid;
2. Ordering the defendants, jointly and severally, to
pay plaintiff the sum equivalent to 10% of the principal
amount due, for attorney’s fees;
3. On the counterclaim, ordering plaintiff to pay
defendants the sum of ₱71,350.00 with interest at the
legal rate of 12% per annum computed from the date
of this decision until fully paid;
4. Ordering plaintiff to pay the defendants attorney’s
fees equivalent to 10% of the amount due;
5. No pronouncement as to costs.
SO ORDERED.4
Decision of the CA
The petitioners appealed, stating that they could justifiably stop
the payment of the checks in the exercise of their right of
recoupment because of the respondent’s refusal to settle their
claim for breach of warranty as to the purchase of the second
dump truck.
In its decision promulgated on July 26, 2004,5 however, the CA
affirmed the judgment of the RTC. It held that the remedy of
recoupment could not be properly invoked by the petitioners
because the transactions were different; that the expenses
incurred for the repair and spare parts of the second dump truck
were not a proper subject of recoupment because they did not
arise out of the purchase of the Hino Prime Mover and the Isuzu
Transit Mixer; and that the petitioners’ claim could not also be
the subject of legal compensation or set-off, because the debts
in a set-off should be liquidated and demandable.
Issues
The petitioners are now before the Court asserting in their
petition for review on certiorari that the CA erred in:
I
x x x NOT UPHOLDING THE RIGHT OF
PETITIONER[S] TO RECOUPMENT UNDER PAR.
(1) OF ART. 1599 OF THE CIVIL CODE, WHICH
PROVIDES [FOR] THE RIGHTS AND REMEDIES
AVAILABLE TO A BUYER AGAINST A SELLER’S
BREACH OF WARRANTY.
II
x x x RULING THAT PETITIONERS CANNOT AVAIL
OF COMPENSATION ALLEGEDLY BECAUSE
THEIR CLAIMS AGAINST RESPONDENT ARE NOT
LIQUIDATED AND DEMANDABLE.
III
x x x NOT HOLDING RESPONDENT LIABLE TO
PETITIONERS FOR LEGAL INTEREST COMPUTED
FROM THE FIRST EXTRAJUDICIAL DEMAND, AND
FOR ACTUAL EXEMPLARY DAMAGES.6
The petitioners submit that they were justified in stopping the
payment of the two checks due to the respondent’s breach of
warranty by refusing to repair or replace the defective second
dump truck earlier purchased; that the withholding of payments
was an effective exercise of their right of recoupment as allowed
by Article 1599(1) of the Civil Code; due to the seller’s breach of
warranty that the CA’s interpretation (that recoupment in
diminution or extinction of price in case of breach of warranty by
the seller should refer to the reduction or extinction of the price
of the same item or unit sold and not to a different transaction or
contract of sale) was not supported by jurisprudence; that
recoupment should not be restrictively interpreted but should
include the concept of compensation or set-off between two
parties who had claims arising from different transactions; and
that the series of purchases and the obligations arising
therefrom, being inter-related, could be considered as a single
and ongoing transaction for all intents and purposes.
The respondent counters that the petitioners could not refuse to
pay the balance of the purchase price of the Hino Prime Mover
and the Isuzu Transit Mixer on the basis of the right of
recoupment under Article 1599 of the Civil Code; that the
buyer’s remedy of recoupment related only to the same
transaction; and that compensation was not proper because the
claims of the petitioners as alleged in their counterclaim were
not liquidated and demandable.
There is no longer any question that the petitioners were liable
to the respondent for the unpaid balance of the purchase price
of the Hino Prime Mover and the Isuzu Transit Mixer. What
remain to be resolved are strictly legal, namely: one, whether or
not the petitioners validly exercised the right of recoupment
through the withholding of payment of the unpaid balance of the
purchase price of the Hino Prime Mover and the Isuzu Transit
Mixer; and, two, whether or not the costs of the repairs and
spare parts for the second dump truck delivered to FUCC on
May 27, 1992 could be offset for the petitioners’ obligations to
the respondent.
Ruling
We affirm the decision of the CA with modification.
1.
Petitioners could not validly resort to recoupment against
respondent
Recoupment (reconvencion) is the act of rebating or recouping a
part of a claim upon which one is sued by means of a legal or
equitable right resulting from a counterclaim arising out of the
same transaction.7 It is the setting up of a demand arising from
the same transaction as the plaintiff’s claim, to abate or reduce
that claim.
The legal basis for recoupment by the buyer is the first
paragraph of Article 1599 of the Civil Code, viz:
Article 1599. Where there is a breach of warranty by the seller,
the buyer may, at his election:
(1) Accept or keep the goods and set up against the
seller, the breach of warranty by way of recoupment in
diminution or extinction of the price;
(2) Accept or keep the goods and maintain an action
against the seller for damages for the breach of
warranty;
(3) Refuse to accept the goods, and maintain an
action against the seller for damages for the breach of
warranty;
(4) Rescind the contract of sale and refuse to receive
the goods or if the goods have already been received,
 return them or offer to return them to the seller and
recover the price or any part thereof which has been
paid.
When the buyer has claimed and been granted a remedy in
anyone of these ways, no other remedy can thereafter be
granted, without prejudice to the provisions of the second
paragraph of article 1191. (Emphasis supplied)
xxxx
In its decision, the CA applied the first paragraph of Article 1599
of the Civil Code to this case, explaining thusly:
Paragraph (1) of Article 1599 of the Civil Code which provides
for the remedy of recoupment in diminution or extinction of price
in case of breach of warranty by the seller should therefore be
interpreted as referring to the reduction or extinction of the price
of the same item or unit sold and not to a different transaction or
contract of sale. This is more logical interpretation of the said
article considering that it talks of breach of warranty with respect
to a particular item sold by the seller. Necessarily, therefore, the
buyer’s remedy should relate to the same transaction and not to
another.
Defendants-appellants’ act of ordering the payment on the prime
mover and transit mixer stopped was improper considering that
the said sale was a different contract from that of the dump
trucks earlier purchased by defendants-appellants.
The claim of defendants-appellants for breach of warranty, i.e.
the expenses paid for the repair and spare parts of dump truck
no. 2 is therefore not a proper subject of recoupment since it
does not arise out of the contract or transaction sued on or the
claim of plaintiff-appellee for unpaid balances on the last two (2)
purchases, i. e. the prime mover and the transit mixer.8
The CA was correct. It was improper for petitioners to set up
their claim for repair expenses and other spare parts of the
dump truck against their remaining balance on the price of the
prime mover and the transit mixer they owed to
respondent.1avvphi1 Recoupment must arise out of the contract
or transaction upon which the plaintiff’s claim is founded.9To be
entitled to recoupment, therefore, the claim must arise from the
same transaction, i.e., the purchase of the prime mover and the
transit mixer and not to a previous contract involving the
purchase of the dump truck. That there was a series of
purchases made by petitioners could not be considered as a
single transaction, for the records show that the earlier purchase
of the six dump trucks was a separate and distinct transaction
from the subsequent purchase of the Hino Prime Mover and the
Isuzu Transit Mixer. Consequently, the breakdown of one of the
dump trucks did not grant to petitioners the right to stop and
withhold payment of their remaining balance on the last two
purchases.
2.
Legal compensation was permissible
Legal compensation takes place when the requirements set
forth in Article 1278 and Article 1279 of the Civil Code are
present, to wit:
Article 1278. Compensation shall take place when two persons,
in their own right, are creditors and debtors of each other."
Article 1279. In order that compensation may be proper, it is
necessary:
(1) That each of the obligors be bound principally, and
that he be at the same time a principal creditor of the
other;
(2) That both debts consists in a sum of money, or if
the things due are consumable, they be of the same
kind, and also of the same quality if the latter has
been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.
As to whether petitioners could avail themselves of
compensation, both the RTC and CA ruled that they could not
because the claims of petitioners against respondent were not
liquidated and demandable.
The Court cannot uphold the CA and the RTC.
The RTC already found that petitioners were entitled to the
amount of ₱71,350.00 stated in their counterclaim, and the CA
concurred in the finding, stating thusly:
It is noteworthy that in the letter of December 16, 1992 (Exh. "1")
defendants were charging plaintiff only for the following items of
repair:
1. Cost of repair and spare parts - ₱46,800.00
2. Cost of repair and spare parts - 24,550.00
 ₱71,350.00 absence of any stipulation in writing in accordance with Article
2209 of the Civil Code, which provides:

Said amounts may be considered to have been spent for repairs Article 2209. If the obligation consists in the payment of a sum
covered by the warranty period of three (3) months. While the of money, and the debtor incurs in delay, the indemnity for
invoices (Exhs. "2-B" and "3-A") dated September 26, 1992 and damages, there being no stipulation to the contrary, shall be the
September 18, 1992, this delay in repairs is attributable to the payment of the interest agreed upon, and in the absence of
fact that when defects were brought to the attention of the stipulation, the legal interest, which is six per cent per annum.
plaintiff in the letter of August 14, 1992 (Exh. "8") which was
within the warranty period, the plaintiff did not respond with the
WHEREFORE, the Court AFFIRMS the decision promulgated
required repairs and actual repairs were undertaken by
on July 26, 2004 in all respects subject to the MODIFICATION
defendants. Thereafter, the spare parts covered by Exhibits "2-
that petitioners are ordered, jointly and severally, to pay to
B" and "3-A" pertain to the engine, which was covered by the
respondent the sum of 1 663,650.00, plus interest of 6% per
warranty.
annum computed from February
x x x. Defendants in their letter of August 14, 1992 (Exhb. "8")
11, 1993, the date of the first extrajudicial demand, until fully
demanded correction of defects. In their letter of August 22,
paid; and ORDERS the petitioners to pay the costs of suit.
1992 (Exh. "9") they demanded replacement. In their letter of
August 27, 1992 (Exh. "10"), they demanded
‘replacement/repair’. In September, 1992, they undertook SO ORDERED.
repairs themselves (Exhs. "2-B" and "3-A") and demanded
payment for the expenses in their letter of December 16, 1992
(Exh. "1"). All other items of expenses connected with
subsequent breakdowns are no longer chargeable to plaintiff
which granted only a 3-month warranty. x x x10

Considering that preponderant evidence showing that

petitioners had spent the amount of ₱71,350.00 for the repairs
and spare parts of the second dump truck within the warranty
period of three months supported the finding of the two lower
courts, the Court accepts their finding. Verily, factual findings of
the trial court, when affirmed by the CA, are conclusive on the
Court when supported by the evidence on record.11

A debt is liquidated when its existence and amount are

determined.12 Accordingly, an unliquidated claim set up as a
counterclaim by a defendant can be set off against the plaintiff’s
claim from the moment it is liquidated by judgment.13 Article
1290 of the Civil Code provides that when all the requisites
mentioned in Article 1279 of the Civil Code are present,
compensation takes effect by operation of law, and extinguishes
both debts to the concurrent amount. With petitioners’ expenses
for the repair of the dump truck being already established and
determined with certainty by the lower courts, it follows that legal
compensation could take place because all the requirements
were present. Hence, the amount of ₱71,350.00 should be set
off against petitioners’ unpaid obligation of ₱735,000.00, leaving
a balance of ₱663,650.00, the amount petitioners still owed to
respondent.

We deem it necessary to modify the interest rate imposed by the

trial and appellate courts.1âwphi1 The legal interest rate to be
imposed from February 11, 1993, the time of the extrajudicial
demand by respondent, should be 6% per annum in the
G.R. No. L-46306 October 27, 1939
LEVY HERMANOS, INC., plaintiff-appellant,
vs.
LAZARO BLAS GERVACIO, defendant-appellee.
Felipe Caniblas for appellant.
Abreu, Lichaucco and Picazo for appellee.
MORAN, J.:
On February 9-4, 1938, plaintiff filed a complaint in the Court of
First Instance of Manila, which substantially recites the following
facts:
On March 10, 1937, plaintiff Levy Hermanos, Inc., sold to
defendant Lazaro Blas Gervacio, a Packard car. Defendant,
after making the initial payment, executed a promissory note for
the balance of P2,400, payable on or before June 15, 1937, with
interest at 12 per cent per annum, to secure the payment of the
note, he mortgaged the car to the plaintiff. Defendant failed to
pay the note it its maturity. Wherefore, plaintiff foreclosed the
mortgage and the car was sold at public auction, at which
plaintiff was the highest bidder for P1,800. The present action is
for the collection of the balance of P1,600 and interest.
Defendant admitted the allegations of the complaint, and with
this admission, the parties submitted the case for decision. The
lower court applied, the provisions of Act No. 4122, inserted as
articles 1454-A of the Civil Code, and rendered judgment in
favor of the defendant. Plaintiff appealed.
Article 1454-A of the Civil Code reads as follows:
In a contract for the sale of personal property payable
in installments shall confer upon the vendor the right
to cancel 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 he shall have no further action against the
purchaser for the recovery of any unpaid balance
owing by the same and any agreement to the contrary
shall be null and void.
In Macondray and Co. vs. De Santos (33 Off. Gaz., 2170), we
held that "in order to apply the provisions of article 1454-A of the
Civil Code it must appear that there was a contract for the sale
of personal property payable in installments and that there has
been a failure to pay two or more installments." The contract, in
the instant case, while a sale of personal property, is not,
however, one on installments, but on straight term, in which the
balance, after payment of the initial sum, should be paid in its
totality at the time specified in the promissory note. The
transaction is not is not, therefore, the one contemplated in Act
No. 4122 and accordingly the mortgagee is not bound by the
prohibition therein contained as to the right to the recovery of
the unpaid balance.
Undoubtedly, the law is aimed at those sales where the price is
payable in several installments, for, generally, it is in these
cases that partial payments consist in relatively small amounts,
constituting thus a great temptation for improvident purchasers
to buy beyond their means. There is no such temptation where
the price is to be paid in cash, or, as in the instant case, partly in
cash and partly in one term, for, in the latter case, the partial
payments are not so small as to place purchasers off their guard
and delude them to a miscalculation of their ability to pay. The
oretically, perhaps, there is no difference between paying the
price in tow installments, in so far as the size of each partial
payment is concerned; but in actual practice the difference
exists, for, according to the regular course of business, in
contracts providing for payment of the price in two installments,
there is generally a provision for initial payment. But all these
considerations are immaterial, the language of the law being so
clear as to require no construction at all.lâwphi1.nêt
The suggestion that the cash payment made in this case should
be considered as an installment in order to bring the contract
sued upon under the operation of the law, is completely
untenable. A cash payment cannot be considered as a payment
by installment, and even if it can be so considered, still the law
does not apply, for it requires non-payment of two or more
installments in order that its provisions may be invoked. Here,
only one installment was unpaid.
Judgment is reversed, and the defendant-appellee is hereby
sentenced to pay plaintiff-appellant the sum of P1,600 with
interest at the rate of 12 per cent per annum from June 15,
1937, and the sum of P52.08 with interest at the rate of 6 per
cent from the date of the filing of the complaint, with costs in
both instances against the appellee.
 [G.R. No. 61043. September 2, 1992.]
DELTA MOTOR SALES CORPORATION, Plaintiff-Appellee,
v. NIU KIM DUAN and CHAN FUE ENG, Defendants-
Appellants.
Francisco C. Bonoan for Plaintiff-Appellee.
Agapito M. Joaquin, for Defendants-Appellants.
SYLLABUS
1. CIVIL LAW; SALES; TREATMENT OF THE INSTALLMENT
PAYMENTS AS RENTALS; STIPULATION IN A CONTRACT
THAT THE INSTALLMENTS PAID SHALL NOT BE
RETURNED TO THE VENDEE HELD VALID PROVIDED IT IS
NOT UNCONSCIONABLE. — Defendants-appellants cannot
complain that their downpayment of P774.00 and installment
payments of P5,655.92 were treated as rentals — even though
the total amount of P6,429,92 which they had paid,
approximates one-third (1/3) of the cost of the three (3) air-
conditioners. A stipulation in a contract that the installments paid
shall not be returned to the vendee is valid insofar as the same
may not be unconscionable under the circumstances is
sanctioned by Article 1486 of the New Civil Code. The monthly
installment payable by defendants-appellants was P774.00. The
P5,655.92 installment payments correspond only to seven (7)
monthly installments. Since they admit having used the air-
conditioners for twenty-two (22) months, this means that they
did not pay fifteen (15) monthly installments on the said air-
conditioners and were thus using the same FREE for said
period — to the prejudice of plaintiff-appellee. Under the
circumstances, the treatment of the installment payments as
rentals cannot be said to be unconscionable.
2. REMEDIES OF THE VENDOR IN A SALE OF PERSONAL
PROPERTY PAYABLE IN INSTALLMENTS; REMEDIES ARE
ALTERNATIVE AND NOT CUMULATIVE. — The vendor in a
sale of personal property payable in installments may exercise
one of three remedies, namely, (1) exact the fulfillment of the
obligation, should the vendee fail to pay; (2) cancel the sale
upon the vendee’s failure to pay two or more installments; (3)
foreclose the chattel mortgage, if one has been constituted on
the property sold, upon the vendee’s failure to pay two or more
installments. The third option or remedy, however, is subject to
the limitation that the vendor cannot recover any unpaid balance
of the price and any agreement to the contrary is void (Art.
1484) The three (3) remedies are alternative and NOT
cumulative. If the creditor chooses one remedy, he cannot avail
himself of the other two.
DECISION
NOCON, J.:
Elevated to this Court by the Court of Appeals, in its Resolution
of May 20, 1982, on a pure question of law, 1 is the appeal
therein by defendants-appellants, Niu Kim Duan and Chan Fue
Eng assailing the trial court’s decision promulgated on October
11, 1977, 2 which ordered them to pay plaintiff-appellee, Delta
Motor Sales Corporation, the amount of P6,188.29 with a 14%
per annum interest which was due on the three (3) "Daikin" air-
conditioners defendants-appellants purchased from plaintiff-
appellee under a Deed of Conditional Sale, after the same was
declared rescinded by the trial court. They were likewise ordered
to pay plaintiff-appellee P1,000.00 for and as attorney’s
fees.chanrobles virtual lawlibrary
The events which led to the filing of the case in the lower court
were summarized by the Court of Appeals, as
follows:jgc:chanrobles.com.ph
"‘On July 5, 1975, the defendants purchased from the plaintiff
three (3) units of ‘DAIKIN’ air-conditioner all valued at
P19,350.00 as evidenced by the Deed of Conditional Sale,
Exhibit A; that the aforesaid deed of sale had the following terms
and conditions:chanrob1es virtual 1aw library
‘(a) the defendants shall pay a down payment of P774.00 and
the balance of P18,576.00 shall [be] paid by them in twenty four
(24) installments; (b) the title to the properties purchased shall
remain with the plaintiff until the purchase price thereof is fully
paid; (c) if any two installments are not paid by the defendants
on their due dates, the whole of the principal sum remaining
unpaid shall become due, with interest at the rate of 14% per
annum: and (d) in case of a suit, the defendants shall pay an
amount equivalent to 25% of the remaining unpaid obligation as
damages, penalty and attorney’s fees; that to secure the
payment of the balance of P18,576.00 the defendants jointly
and severally executed in favor of the plaintiff a promissory note,
Exhibit C; that the three (3) air-conditioners were delivered to
and received by the defendants as shown by the delivery
receipt, Exhibit B; that after paying the amount of P6,966.00, the
defendants failed to pay at least two (2) monthly installments;
that as of January 6, 1977, the remaining unpaid obligation of
the defendants amounted to P12,920.08; that statements of
accounts were sent to the defendants and the plaintiff’s
collectors personally went to the former to effect collections but
they failed to do so; that because of the unjustified refusal of the
defendants to pay their outstanding account and their wrongful
detention of the properties in question, the plaintiff tried to
recover the said properties extra-judicially but it failed to do so;
that the matter was later referred by the plaintiff to its legal
counsel for legal action; that in its verified complaint dated
January 28, 1977, the plaintiff prayed for the issuance of a writ
of replevin, which the Court granted in its Order dated February
28, 1977, after the plaintiff posted the requisite bond; that on
April 11, 1977, the plaintiff, by virtue of the aforesaid writ,
succeeded in retrieving the properties in question: that as of
October 3, 1977, the outstanding account of the defendants is
only in the amount of P6,188.29 as shown by the computation,
Exhibit F, after deducting the interests in arrears, cover charges,
replevin bond premiums, the value of the units repossessed and
the like; and, that in view of the failure of the defendants to pay
their obligations, the amount of P6,966.00 which had been paid
by way of installments were treated as rentals for the units in
question for two (2) years pursuant to the provisions of
paragraph 5 of the Deed of Conditional Sale, Exhibit A.’ (pp. 5-7,
Record; pp. 4-6, Appellant’s Brief)." chanrobles law library
As above-stated, the trial court ruled in favor of Plaintiff-
Appellee.
Defendants-appellants assail the Deed of Conditional Sale
under which they purchased the three (3) Daikin air-conditioners
from plaintiff-appellee as being contrary to law, morals, good
custom, public order or public policy. In particular, they point to
the contract’s paragraphs 5 and 7 as iniquitous, which
paragraphs state that:jgc:chanrobles.com.ph
"5. Should BUYER fail to pay any of the monthly installments
when due, or otherwise fail to comply with any of the terms and
conditions herein stipulated, this contract shall automatically
become null and void and all sums so paid by BUYER by
reason thereof shall be considered as rental and the SELLER
shall then and there be free to take possession thereof without
liability for trespass or responsibility for any article left in or
attached to the PROPERTY:chanrob1es virtual 1aw library
x x x The vendor in a sale of personal property payable in
"7. Should SELLER rescind this contract for any of the reasons
stipulated in the preceding paragraph, the BUYER, by these
presents obligates himself to peacefully deliver the PROPERTY
to the SELLER in case of rescission, and should a suit be
brought in court by the SELLER to seek judicial declaration of
rescission and take possession of the PROPERTY, the BUYER
hereby obligates himself to pay all the expenses to be incurred
by reason of such suit and in addition to pay the sum equivalent
to 25% of the remaining unpaid obligation as damages, penalty
and attorney’s fees;" 3
Defendants-appellants claim that for the use of the plaintiff-
appellee’s three air-conditioners, from July 5, 1975 4 to April 11,
1977, 5 or for a period of about 22 months, they, in effect, paid
rentals in the amount of P6,429,92, 6 or roughly one-third (1/3)
of the entire price of said air-conditioners which was
P19,350.00. They also complain that for the said period the trial
court is ordering them to pay P6,188.29 as the balance due for
the three air-conditioners repossessed. Defendants-appellants
were likewise ordered to pay P1,000.00 as attorney’s fees when
plaintiff-appellee never sought for attorney’s fees in its
complaint. They satirically pointed out that by putting "a few
touches here and there, the same units can be sold again to the
next imprudent customer" 7 by plaintiff-appellee. Thus,
enforcement of the Deed of Conditional Sale will unjustly enrich
plaintiff-appellee at the expense of defendants-
appellants.chanrobles law library : red
I
Defendants-appellants cannot complain that their downpayment
of P774.00 and installment payments of P5,655.92 8 were
treated as rentals — even though the total amount of P6,429,92
which they had paid, approximates one-third (1/3) of the cost of
the three (3) air-conditioners. A stipulation in a contract that the
installments paid shall not be returned to the vendee is valid
insofar as the same may not be unconscionable under the
circumstances is sanctioned by Article 1486 of the New Civil
Code. 9 The monthly installment payable by defendants-
appellants was P774.00. 10 The P5,655.92 installment
payments correspond only to seven (7) monthly installments.
Since they admit having used the air-conditioners for twenty-two
(22) months, this means that they did not pay fifteen (15)
monthly installments on the said air-conditioners and were thus
using the same FREE for said period — to the prejudice of
plaintiff-appellee. Under the circumstances, the treatment of the
installment payments as rentals cannot be said to be
unconscionable.
II
installments may exercise one of three remedies, namely, (1)
exact the fulfillment of the obligation, should the vendee fail to
pay; (2) cancel the sale upon the vendee’s failure to pay two or
more installments; (3) foreclose the chattel mortgage, if one has
been constituted on the property sold, upon the vendee’s failure
to pay two or more installments. The third option or remedy,
however, is subject to the limitation that the vendor cannot
recover any unpaid balance of the price and any agreement to
the contrary is void (Art. 1484) 11
The three (3) remedies are alternative and NOT cumulative. If
the creditor chooses one remedy, he cannot avail himself of the
other two.chanrobles lawlibrary : rednad
It is not disputed that the plaintiff-appellee had taken possession
of the three air-conditioners, through a writ of replevin when
defendants-appellants refused to extra-judicially surrender the
same. This was done pursuant to paragraphs 5 and 7 of its
Deed of Conditional Sale when defendants-appellants failed to
pay at least two (2) monthly installments, so much so that as of
January 6, 1977, the total amount they owed plaintiff-appellee,
inclusive of interest, was P12,920.08. 12 The case plaintiff-
appellee filed was to seek a judicial declaration that it had validly
rescinded the Deed of Conditional Sale. 13
Clearly, plaintiff-appellee chose the second remedy of Article
1484 in seeking enforcement of its contract with defendants-
appellants. This is shown from the fact that its Exhibit "F" which
showed the computation of the outstanding account of
defendants-appellants as of October 3, 1977 took into account
"the value of the units repossessed." 14 Having done so, it is
barred from exacting payment from defendants-appellants of the
balance of the price of the three air-conditioning units which it
had already repossessed. It cannot have its cake and eat it too.
15
WHEREFORE, the judgment of the trial court in Civil Case No.
25578 is hereby SET ASIDE and the complaint filed by plaintiff-
appellee Delta Motor Sales Corporation is hereby DISMISSED.
No costs.
SO ORDERED.
G.R. No. L-10789 May 28, 1957
AMADOR TAJANLANGIT, ET AL., plaintiff-appellants,
vs.
SOUTHERN MOTORS, INC., ET AL., defendants-appellees.
Almacen and Almacen for appellants.
Diosdado Garingalao for appellees.
BENGZON, J.:
The case. Appellants seek to reverse the order of Hon.
Pantaleon Pelayo, Judge of the Iloilo court of first instance
refusing to interfere with the alias writ of execution issued in Civil
Case No. 2942 pending in another sala of the same court.
The facts. In April 1953 Amador Tajanlangit and his wife
Angeles, residents of Iloilo, bought, from the Southern Motors
Inc. of Iloilo two tractors and a thresher. In payment for the
same, they executed the promissory note Annex A whereby
they undertook to satisfy the total purchase price of P24,755.75
in several installments (with interest) payable on stated dates
from May 18, 1953 December 10, 1955. The note stipulated that
if default be made in the payment of interest or of any
installment, then the total principal sum still unpaid with interest
shall at once become demandable etc. The spouse failed to
meet any installment. Wherefore, they were sued, in the above
Civil Case No. 2942, for the amount of the promissory
note.1 The spouses defaulted, and the court, after listening to
the Southern Motors' evidence entered Judgment for it in the
total sum of P24,755.75 together with interest at 12 per cent,
plus 10 per cent of the total amount due as attorney's fees and
costs of collection.
Carrying out the order of execution, the sheriff levied on the
same machineries and farm implements which had been bought
by the spouses; and later sold them at public auction to the
highest bidder — which turned out to be the Southern Motors
itself — for the total sum of P10,000.
As its judgment called for much more, the Southern Motors
subsequently asked and obtained, an alias writ of execution;
and pursuant thereto, the provincial sheriff levied attachment on
the Tajanlangits' rights and interests in certain real properties —
with a view to another sale on execution.
To prevent such sale, the Tajanlangits instituted this action in
the Iloilo court of first instance for the purpose among others, of
annulling the alias writ of execution and all proceedings
subsequent thereto. Their two main theories: (1) They had
returned the machineries and farm implements to the Southern
Motors Inc., the latter accepted them, and had thereby settled
their accounts; for that reason, said spouses did not contest the
action in Civil Case No. 2942; and (2) as the Southern Motors
Inc. had repossessed the machines purchased on installment
(and mortgaged) the buyers were thereby relieved from further
responsibility, in view of the Recto Law, now article 1484 of the
New Civil Code.
For answer, the company denied the alleged "settlement and
understanding" during the pendency of civil case No. 2949. It
also denied having repossessed the machineries, the truth
being that they were attached by the sheriff and then deposited
by the latter in its shop for safekeeping, before the sale at public
auction.
"Our law" provides,
ART. 1484. In a contract of sale of personal property
the price of which is payable in installments, the
vendor may exercise 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;

The case was submitted for decision mostly upon a stipulation

(3) Foreclose the chattel mortgage on the thing sold, if
of facts. Additional testimony was offered together with
one has been constituted, should the vendee's failure
documentary evidence. Everything considered the court entered
to pay cover two or more installments. In this case, he
judgment, saying in part;
shall have no further action against the purchaser to
recover any unpaid balance of the price. Any
The proceedings in Civil Case No. 2942 above agreement to the contrary shall be void. (New Civil
referred to, were had in the Court of First Instance Code.)
(Branch 1) of the Province and of the City of Iloilo.
While this court (Branch IV) sympathizes with
Appellants would invoke the last paragraph. But there has been
plaintiffs, it cannot grant, in this action, the relief
no foreclosure of the chattel mortgage nor a foreclosure sale.
prayed for the complaint because courts of similar
Therefore the prohibition against further collection does not
jurisdiction cannot invalidate the judgments and orders
apply.
of each other. Plaintiffs have not pursued the proper
remedy. This court is without authority and jurisdiction
to declare null and void the order directing the At any rate it is the actual sale of the mortgaged
issuance of alias writ of execution because it was chattel in accordance with section 14 Act No. 1508
made by another court of equal rank and category that would bar the creditor (who chooses to foreclose)
(see Cabiao and Izquierdo vs. Del Rosario and Lim, from recovering any unpaid balance. (Pacific Com.
44 Phil., 82-186). Co. vs.De la Rama, 72 Phil. 380.) (Manila Motor
Co. vs. Fernandez, 99 Phil., 782.).
WHEREFORE, judgement is hereby rendered
dismissing the complaint with costs against plaintiffs It is true that there was a chattel mortgage on the goods sold.
costs against plaintiffs. Let the writ of preliminiary But the Southern Motors elected to sue on the note exclusively,
injunction issued on August 26, 1954, be lifted. i.e. to exact fulfillment of the obligation to pay. It had a right to
select among the three remedies established in Article 1484. In
choosing to sue on the note, it was not thereby limited to the
The plaintiffs reasonably brought the matter to the Court of
proceeds of the sale, on execution, of the mortgaged good.2
Appeals, but the latter forwarded the expediente, being of the
opinion that the appeal involved questions of jurisdiction and/or
law In Southern Motors Inc. vs. Magbanua, (100 Phil., 155) a similar
situation arose in connection with the purchase on installment of
a Chevrolet truck by Magbanua. Upon the latter's default, suit on
Discussion. Appellants' brief elaborately explains in the nine
the note was filed, and the truck levied on together with other
errors assigned, their original two theories although their
properties of the debtor. Contending that the seller was limited
"settlement" idea appears to be somewhat modified.
to the truck, the debtor obtained a discharge of the other
properties. This court said:
"What is being sought in this present action" say appellants "is
to prohibit and forbid the appellee Sheriff of Iloilo from attaching
By praying that the defendant be ordered to pay the
and selling at public auction sale the real properties of
sum of P4,690 together with the stipulated interest at
appellants because that is now forbidden by our law after the
12% per annum from 17 March 1954 until fully paid,
chattels that have been purchased and duly mortgagee had
plus 10 per cent of the total amount due as attorney's
already been repossessed by the same vendor-mortgagee and
fees and cost of collection, the plaintiff acted to exact
later on sold at public auction sale and purchased by the same
the fulfillment of the obligation and not to foreclose the
at such meager sum of P10,000."
mortgage on the truck. . . .
 As the plaintiff has chosen to exact the fulfillment of
the defendant's obligation, the former may enforce
execution of the judgement rendered in its favor on
the personal and real properties of the latter not
exempt from execution sufficient to satisfy the
judgment. That part of the judgement depriving the
plaintiff of its right to enforce judgment against the
properties of the defendant except the mortgaged
truck and discharging the writ of attachment on his
other properties is erroneous. (Emphasis ours.)
Concerning their second theory, — settlement or cancellation —
appellants allege that the very implements sold "were duly
returned" by them, and "were duly received and accepted by the
said vendor-mortgagee". Therefore they argue, "upon the return
of the same chattels and due acceptance of the same by the
vendor-mortgagee, the conditional sale is ipso facto cancelled,
with the right of the vendor-mortgagee to appropriate whatever
downpayment and posterior monthly installments made by the
purchaser as it did happen in the present case at bar."
The trouble with the argument is that it assumes that
acceptance of the goods by the Southern Motors Co, with a
view to "cancellation" of the sale. The company denies such
acceptance and cancellation, asserting the goods, were
deposited in its shop when the sheriff attached them in
pursuance of the execution. Its assertion is backed up by the
sheriff, of whose credibility there is no reason to doubt. Anyway
this cancellation or settlement theory may not be heeded now,
because it would contravene the decision in Civil Case No. 2942
above-mentioned — it would show the Tajanlangits owned
nothing to Southern Motors Inc. Such decision is binding upon
them, unless and until they manage to set it aside in a proper
proceeding — and this is not it.
There are other points involved in the case, such as the
authority of the judge of one branch of a court of first instance to
enjoin proceedings in another branch of the same court. As
stated, Judge Pelayo refused to interfere on that ground.
Appellants insist this was error on several counts. We deem it
unnecessary to deal with this procedural aspect, inasmuch as
we find that, on the merits, plaintiffs are not entitled to the relief
demanded.
Judgment. The decision dismissing the complaint, is affirmed,
with costs against appellants. So ordered.
[G.R. No. 109966. May 31, 1999]
ELISCO TOOL MANUFACTURING
CORPORATION, petitioner, vs. COURT OF
APPEALS, ROLANDO LANTAN, and RINA
LANTAN, respondents
DECISION
MENDOZA, J.:
This is a petition for review of the decision[1] of the Court of
Appeals which affirmed in toto the decision of the Regional Trial
Court of Pasig, Branch 51, declaring respondent spouses
Rolando Lantan and Rina Lantan owners of a 1979 model 2-
door Colt Lancer car which they had acquired under a car plan
for top employees of the Elizalde group of companies.
The facts are as follows:
Private respondent Rolando Lantan was employed at the
Elisco Tool Manufacturing Corporation as head of its cash
department. On January 9, 1980, he entered into an agreement
with the company which provided as follows:[2]
That, EMPLOYER is the owner of a car Colt Lancer 2 door,
Model 1979, with Serial No. 3403 under LTC Registration
Certificate No. 0526558;
That, for and in consideration of a monthly rental of ONE
THOUSAND TEN & 65/100 ONLY (P1,010.65) Philippine
Currency, EMPLOYER desire to lease and EMPLOYEE accept
in lease the motor vehicle aforementioned for a period of FIVE
(5) years;
That, the EMPLOYEE agree as he hereby agreed to pay the
lease rental thru salary deduction from his monthly remuneration
in the amount as above specified for a period of FIVE (5) years;
That, for the duration of the lease contract, all expenses and
costs of registration, insurance, repair and maintenance,
gasoline, oil, part replacement inclusive of all expenses
necessary to maintain the vehicle in top condition shall be for
the account of the EMPLOYEE;
That, at the end of FIVE (5) year period or upon payment of the
60th monthly rental, EMPLOYEE may exercise the option to
purchase the motor vehicle from the EMPLOYER and all
monthly rentals shall be applied to the payment of the full
purchase price of the car and further, should EMPLOYEE desire
to exercise this option before the 5-year period lapse, he may do
so upon payment of the remaining balance on the five year
rental unto the EMPLOYER, it being understood however that
the option is limited to the EMPLOYEE;
That, upon failure of the EMPLOYEE to pay THREE (3)
accumulated monthly rentals will vest upon the EMPLOYER the
full right to lease the vehicle to another EMPLOYEE;
That, in the event of resignation and or dismissal from the
service, the EMPLOYEE shall return the subject motor vehicle
to the EMPLOYER in its compound at Kalawaan Sur, Pasig,
Metro Manila in good working and body condition.
On the same day, January 9, 1980, private respondent
executed a promissory note reading as follows:[3]
PROMISSORY NOTE
P60,639.00
FOR VALUE RECEIVED, we promise to pay [to] the order of
ELISCO TOOL MFG. CORP. SPECIAL PROJECT, at its office
at Napindan, Taguig, Metro Manila, Philippines, the sum of ONE
THOUSAND TEN & 65/100 PESOS (P1,010.65), Philippine
Currency, beginning January 9, 1980, without the necessity of
notice or demand in accordance with the schedule of payment
hereto attached as an integral part hereof.
In case of default in the payment of any installment on the
stipulated due date, we agree to pay as liquidated damages 2%
of the amount due and unpaid for every thirty (30) days of
default or fraction thereof. Where the default covers two
successive installments, the entire unpaid balance shall
automatically become due and payable.
It is further agreed that if upon such default attorneys services
are availed of, an additional sum equal to TWENTY (20%)
percent of the total amount due thereon, but in no case be less
than P1,000.00 shall be paid to holder(s) hereof as attorneys
fees in addition to the legal costs provided for by law. We agree
to submit to the jurisdiction of the proper courts of Makati, Metro
Manila or the Province of Rizal, at the option of the holder(s)
waiving for this purpose any other venue.
In case extraordinary inflation or deflation of the currency
stipulated should occur before this obligation is paid in full, the
value of the currency at the time of the establishment of the
obligation will be the basis of payment.
Holder(s) may accept partial payment reserving his right of
recourse against each and all endorsers who hereby waive
DEMAND PRESENTMENT and NOTICE.
Acceptance by the holder(s) of payment or any part thereof after
due date shall not be considered as extending the time for the
payment of the aforesaid obligation or as a modification of any
of the condition hereof.
After taking possession of the car, private respondent
installed accessories therein worth P15,000.00.
In 1981, Elisco Tool ceased operations, as a result of
which private respondent Rolando Lantan was laid
off. Nonetheless, as of December 4, 1984, private respondent
was able to make payments for the car in the total amount of
P61,070.94.
On June 6, 1986, petitioner filed a complaint, entitled
replevin plus sum of money, against private respondent Rolando
Lantan, his wife Rina, and two other persons, identified only as
John and Susan Doe, before the Regional Trial Court of Pasig,
Metro Manila. Petitioner alleged that private respondents failed
to pay the monthly rentals which, as of May 1986,
totalled P39,054.86; that despite demands, private respondents
failed to settle their obligation thereby entitling petitioner to the
possession of the car; that petitioner was ready to post a bond
in an amount double the value of the car, which was P60,000;
and that in case private respondents could not return the car,
they should be held liable for the amount of P60,000 plus the
accrued monthly rentals thereof, with interest at the rate of 14%
per annum, until fully paid. Petitioners complaint contained the
following prayer:
WHEREFORE, plaintiffs prays that judgment be rendered as
follows:
ON THE FIRST CAUSE OF ACTION
Ordering defendant Rolando Lantan to pay the plaintiff the sum
of P39,054.86 plus legal interest from the date of demand until
the whole obligation is fully paid;
ON THE SECOND CAUSE OF ACTION
To forthwith issue a Writ of Replevin ordering the seizure of the
motor vehicle more particularly described in paragraph 3 of the
Complaint, from defendant Rolando Lantan and/or defendants
Rina Lantan, John Doe, Susan Doe and other person or
persons in whose possession the said motor vehicle may be
found, complete with accessories and equipment, and direct
deliver thereof to plaintiff in accordance with law, and after due
hearing to confirm said seizure and plaintiffs possession over
the same;
ON THE ALTERNATIVE CAUSE OF ACTION
In the event that manual delivery of the subject motor vehicle
cannot be effected for any reason, to render judgment in favor of
plaintiff and against defendant Rolando Lantan ordering the
latter to pay the sum of SIXTY THOUSAND PESOS
(P60,000.00) which is the estimated actual value of the above-
described motor vehicle, plus the accrued monthly rentals
thereof with interests at the rate of fourteen percent (14%) per
annum until fully paid;
PRAYER COMMON TO ALL CAUSES OF ACTION
1. Ordering the defendant Rolando Lantan to pay the plaintiff an
amount equivalent to twenty-five percent (25%) of his
outstanding obligation, for and as attorneys fees;
2. Ordering defendants to pay the cost or expenses of
collection, repossession, bonding fees and other incidental
expenses to be proved during the trial; and
3. Ordering defendants to pay the costs of suit.
Plaintiff also prays for such further reliefs as this Honorable
Court may deem just and equitable under the premises.
Upon petitioners posting a bond in the amount of
P120,000, the sheriff took possession of the car in question and
after five (5) days turned it over to petitioner.[4]
In due time, private respondents filed their answer. They
claimed that the agreement on which the complaint was based
had not been signed by petitioners representative, Jose Ma. S.
del Gallego, although it had been signed by private respondent
Rolando Lantan; that their true agreement was to buy and sell
and not lease with option to buy the car in question at a monthly
amortization of P1,000; and that petitioner accepted the
installment payments made by them and, in January 1986,
agreed that the balance of the purchase price would be paid on
or before December 31, 1986. Private respondents cited the
provision of the agreement making respondent Rolando Lantan
liable for the expenses for registration, insurance, repair and
maintenance, gasoline, oil and part replacements, inclusive of
all necessary expenses, as evidence that the transaction was
one of sale. Private respondents further alleged that, in any
event, petitioner had waived its rights under the agreement
because of the following circumstances: (a) while the parties
agreed that payment was to be made through salary deduction,
petitioner accepted payments in cash or checks; (b) although
they agreed that upon the employees resignation, the car should
be returned to the employer, private respondent Rolando Lantan
was not required to do so when he resigned in September 1982;
(c) petitioner did not lease the vehicle to another employee after
private respondent Rolando Lantan had allegedly failed to pay
three monthly rentals; and (d) petitioner failed to enforce the
manner of payment under the agreement by its acceptance of
payments in various amounts and on different dates.
In its reply, petitioner maintained that the contract between
the parties was one of lease with option to purchase and that
the promissory note was merely a nominal security for the
agreement. It contended that the mere acceptance of the
amounts paid by private respondents and for indefinite periods
of time was not evidence that the parties agreement was one of
purchase and sale. Neither was it guilty of laches because,
under the law, an action based on a written contract can be
brought within ten (10) years from the time the action
accrues. On August 31, 1987, the trial court[5] rendered its
decision.
The trial court sustained private respondents claim that
the agreement in question was one of sale and held that the
latter had fully paid the price of the car having paid the total
amount of P61,070.94 aside from installing accessories in the
car worth P15,000.00. Said the trial court:
Plaintiff now comes claiming ownership of the car in question
and has succeeded in repossessing the same by virtue of the
writ of seizure issued in this case on July 29, 1986. Not content
with recovering possession of the said car, plaintiff still asks that
defendants should pay it the sum of P39,054.86, allegedly
representing the rentals due on the car from the time of the last
payment made by defendants to its repossession thereof. This
is indeed a classic case of one having his cake and eating it
too! Under the Recto law (Arts. 1484 & 1485, Civil Code), the
vendor who repossesses the goods sold on installments, has no
right to sue the vendee for the unpaid balance thereof.
The Court can take judicial notice of the practice wherein
executives enjoy car plans in progressive companies. The
agreement of January 9, 1980 between the parties is one such
car plan. If defendant Rolando Lantan failed to keep up with his
amortizations on the car in question, it was not because of his
own liking but rather he was pushed to it by circumstances when
his employer folded up and sent him to the streets. That plaintiff
was giving all the chance to defendants to pay the value of the
car and acquire full ownership thereof is shown by the delay in
instituting the instant case. . . .
The court likewise found that the amount of P61,070.94
included a 2% penalty for late payments for which there was no
stipulation in the agreement:
. . . The agreement and defendant Rolando Lantans promissory
note of January 9, 1980 do not provide even for interest on the
remaining balance of the purchase price of the car. This
privilege extended by corporations to their top executives is
considered additional emolument to them. And so the reason for
the lack of provision for interest, much less penalty
charges. Therefore, all payments made by defendant should be
applied to the principal account. Since the principal was only
P60,639.00, the defendants have made an overpayment of
P431.94 which should be returned to defendant by plaintiff.
For this reason, it ordered petitioner to pay private respondents
the amount of P431.94 as excess payment, as well as rentals at
the rate of P1,000 a month for depriving private respondents of
the use of their car, and moral damages for the worry,
embarrassment, and mental torture suffered by them on account
of the repossession of the car.
The dispositive portion of the trial courts decision reads as
follows:
WHEREFORE, judgment is hereby rendered in favor of
defendants and against plaintiff, dismissing plaintiffs complaint;
declaring defendants the lawful owners of that Colt Lancer 2-
door, Model 1979 with Serial No. 3403 under Registration
Certificate No. 0526558; ordering plaintiff to deliver to
defendants the aforesaid motor vehicle complete with all the
accessories installed therein by defendants; should for any
reason plaintiff is unable to deliver the said car to defendants,
plaintiff is ordered to pay to defendants the value of said car in
the sum of P60,639.00 plus P15,000.00, the value of the
accessories, plus interest of 12% on the said sums from August
6, 1986; and sentencing plaintiff to pay defendants the following
sums:
a) P12,431.94 as actual damages broken down as follows:
1) P431.94 overpayment made by defendants to plaintiff; and
2) P12,000.00 rental on the car in question from August 6, 1986
to August 5, 1987, plus the sum of P1,000.00 a month beginning
August 6, 1987 until the car is returned by plaintiff to, and is
received by, defendant;
b) the sum of P20,000.00 as moral damages;
c) the sum of P5,000.00 as exemplary damages; and
d) the sum of P5,000.00 as attorneys fees.
Costs against the plaintiff.
SO ORDERED.
Petitioner appealed to the Court of Appeals. On the other
hand, private respondents filed a motion for execution pending
appeal. In its resolution of March 9, 1989, the Court of Appeals
granted private respondents motion and, upon the filing of a
bond, in the amount of P70,000.00, it issued a writ of execution,
pursuant to which the car was delivered to private respondents
on April 16, 1989.[6]
On August 26, 1992, the Court of Appeals rendered its
decision, affirming in toto the decision of the trial court. Hence,
the instant petition for review on certiorari.
Petitioner contends that the Court of Appeals erred -
(a) in disregarding the admission in the pleadings as
to what documents contain the terms of the
parties agreement.
(b) in holding that the interest stipulation in
respondents Promissory Note was not valid and
binding.
(c) in holding that respondents had fully paid their
obligations.
It further argues that -
On the assumption that the Lease Agreement with option to buy
in this case may be treated as a sale on installments, the
respondent Court of Appeals nonetheless erred in not finding
that the parties have validly agreed that the petitioner as seller
may [i] cancel the contract upon the respondents default on
three or more installments, [ii] retake possession of the
personalty, and [iii] keep the rents already paid.
First. Petitioner does not deny that private respondent
Rolando Lantan acquired the vehicle in question under a car
plan for executives of the Elizalde group of companies. Under a
typical car plan, the company advances the purchase price of a
car to be paid back by the employee through monthly
deductions from his salary. The company retains ownership of
the motor vehicle until it shall have been fully paid
for.[7] However, retention of registration of the car in the
companys name is only a form of a lien on the vehicle in the
event that the employee would abscond before he has fully paid
for it. There are also stipulations in car plan agreements to the
effect that should the employment of the employee concerned
be terminated before all installments are fully paid, the vehicle
will be taken by the employer and all installments paid shall be
considered rentals per agreement.[8]
This Court has long been aware of the practice of vendors
of personal property of denominating a contract of sale on
installment as one of lease to prevent the ownership of the
object of the sale from passing to the vendee until and unless
the price is fully paid. As this Court noted in Vda. de Jose v.
Barrueco:[9]
Sellers desirous of making conditional sales of their goods, but
who do not wish openly to make a bargain in that form, for one
reason or another, have frequently resorted to the device of
making contracts in the form of leases either with options to the
buyer to purchase for a small consideration at the end of term,
provided the so-called rent has been duly paid, or with
stipulations that if the rent throughout the term is paid, title shall
thereupon vest in the lessee. It is obvious that such transactions
are leases only in name. The so-called rent must necessarily be
regarded as payment of the price in installments since the due
payment of the agreed amount results, by the terms of the
bargain, in the transfer of title to the lessee.
 In an earlier case, Manila Gas Corporation v.
Calupitan,[10] which involved a lease agreement of a stove and a
water heater, the Court said:
. . . [W]e are of the opinion, and so hold, that when in a so-called
contract of lease of personal property it is stipulated that the
alleged lessee shall pay a certain amount upon signing the
contract, and on or before the 5th of every month, another
specific amount, by way of rental, giving the alleged lessee the
right of option to buy the said personal property before the
expiration of the period of lease, which is the period necessary
for the payment of the said amount at the rate of so much a
month, deducting the payments made by way of advance and
alleged monthly rentals, and the said alleged lessee makes the
advance payment and other monthly installments, noting in his
account and in the receipts issued to him that said payments are
on account of the price of the personal property allegedly
leased, said contract is one of sale on installment and not of
lease.[11]
In U.S. Commercial v. Halili,[12] a lease agreement was
declared to be in fact a sale of personal property by
installment. Said the Court:[13]
. . . There can hardly be any question that the so-called
contracts of lease on which the present action is based were
veritable leases of personal property with option to purchase,
and as such come within the purview of the above article [Art.
1454-A of the old Civil Code on sale of personal property by
installment]. In fact the instruments (exhibits `A and `B)
embodying the contracts bear the heading or title `Lease-Sale
(Lease-Sale of Transportation and/or Mechanical Equipment).
The contracts fix the value of the vehicles conveyed to the
lessee and expressly refer to the remainder of said value after
deduction of the down payment made by the lessee as `the
unpaid balance of the purchase price of the leased equipment.
The contracts also provide that upon the full value (plus
stipulated interest) being paid, the lease would terminate and
title to the leased property would be transferred to the
lessee. Indeed, as the defendant-appellant points out, the
inclusion of a clause waiving benefit of article 1454-A of the old
Civil Code is conclusive proof of the parties understanding that
they were entering into a lease contract with option to purchase
which come within the purview of said article.
Being leases of personal property with option to purchase as
contemplated in the above article, the contracts in question are
subject to the provision that when the lessor in such case has
chosen to deprive the lessee of the enjoyment of such personal
property, he shall have no further action against the lessee for
the recovery of any unpaid balance owing by the latter,
agreement to the contrary being null and void.
It was held that in choosing to deprive the defendant of
possession of the leased vehicles, the plaintiff waived its right to
bring an action to recover unpaid rentals on the said vehicles.
In the case at bar, although the agreement provides for
the payment by private respondents of monthly rentals, the fifth
paragraph thereof gives them the option to purchase the motor
vehicle at the end of the 5th year or upon payment of the
60th monthly rental when all monthly rentals shall be applied to
the payment of the full purchase price of the car. It is clear that
the transaction in this case is a lease in name only. The so-
called monthly rentals are in truth monthly amortizations on the
price of the car.
Second. The contract being one of sale on installment, the
Court of Appeals correctly applied to it the following provisions
of the Civil Code:
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 vendees failure to
pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold,
if one has been constituted, should the vendees
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.
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.
The remedies provided for in Art. 1484 are alternative, not
cumulative. The exercise of one bars the exercise of the
others.[14] This limitation applies to contracts purporting to be
leases of personal property with option to buy by virtue of Art.
1485.[15] The condition that the lessor has deprived the lessee of
possession or enjoyment of the thing for the purpose of applying
Art. 1485 was fulfilled in this case by the filing by petitioner of
the complaint for replevin to recover possession of movable
property. By virtue of the writ of seizure issued by the trial court,
the deputy sheriff seized the vehicle on August 6, 1986 and
thereby deprived private respondents of its use.[16] The car was
not returned to private respondent until April 16, 1989, after two
(2) years and eight (8) months, upon issuance by the Court of
Appeals of a writ of execution.[17]
 Petitioner prayed that private respondents be made to pay
the sum of P39,054.86, the amount that they were supposed to
pay as of May 1986, plus interest at the legal rate.[18] At the
same time, it prayed for the issuance of a writ of replevin or the
delivery to it of the motor vehicle complete with accessories and
equipment.[19] In the event the car could not be delivered to
petitioner, it was prayed that private respondent Rolando Lantan
be made to pay petitioner the amount of P60,000.00, the
estimated actual value of the car, plus accrued monthly rentals
thereof with interests at the rate of fourteen percent (14%) per
annum until fully paid.[20] This prayer of course cannot be
granted, even assuming that private respondents have defaulted
in the payment of their obligation. This led the trial court to say
that petitioner wanted to eat its cake and have it too.
Notwithstanding this impossibility in petitioners choice of
remedy, this case should be considered as one for specific
performance, pursuant to Art. 1484(1), consistent with its prayer
with respect to the unpaid installments as of May 1986. In this
view, the prayer for the issuance of a writ of replevin is only for
the purpose of insuring specific performance by private
respondents.
Both the trial court and the Court of Appeals correctly
ruled that private respondents could no longer be held liable for
the amounts of P39,054.86 or P60,000.00 because private
respondents had fulfilled their part of the obligation.The
agreement does not provide for the payment of interest on
unpaid monthly rentals or installments because it was entered
into in pursuance of a car plan adopted by the company for the
benefit of its deserving employees. As the trial court correctly
noted, the car plan was intended to give additional benefits to
executives of the Elizalde group of companies.
Petitioner contends that the promissory note provides for
such interest payment. However, as the Court of Appeals held:
The promissory note in which the 2% monthly interest on
delayed payments appears does not form part of the
contract. There is no consideration for the promissory
note. There is nothing to show that plaintiff advanced the
purchase price of the vehicle for Lantan so as to make the latter
indebted to the former for the amount stated in the promissory
note. Thus, as stated in the complaint: That sometime in
January, 1980, defendant Rolando Lantan entered into an
agreement with the plaintiff for the lease of a motor vehicle
supplied by the latter, with the option to purchase at the end of
the period of lease . . . . In other words, plaintiff did not buy the
vehicle for Rolando Lantan, advancing the purchase price for
that purpose. There is nothing in the complaint or in the
evidence to show such arrangement. Therefore, there was no
indebtedness secured by a promissory note to speak of. There
being no consideration for the promissory note, the same,
including the penalty clause contained thereon, has no binding
effect.[21]
There is no evidence that private respondents received
the amount of P60,639.00 indicated in the promissory note as its
value. What was proven below is the fact that private
respondents received from petitioner the 2-door Colt Lancer car
which was valued at P60,000 and for which private respondent
Rolando Lantan paid monthly amortizations of P1,010.65
through salary deductions.
Indeed, as already stated, private respondents default in
paying installments was due to the cessation of operations
of Elizalde Steel Corporation, petitioners sister
company. Petitioners acceptance of payments made by private
respondents through cash and checks could have been impelled
solely by petitioners inability to deduct the amortizations from
private respondent Rolando Lantans salary which he stopped
receiving when his employment was terminated in September
1982. Apparently, to minimize the adverse consequences of the
termination of private respondents employment, petitioner
accepted even late payments. That petitioner accepted
payments from private respondent Rolando Lantan more than
two (2) years after the latters employment had been terminated
constitutes a waiver of petitioners right to collect interest upon
the delayed payments. The 2% surcharge is not provided for in
the agreement. Its collection by the company would in fact run
counter to the purpose of providing added emoluments to its
deserving employees. Consequently, the total amount of
P61,070.94 already paid to petitioner should be considered
payment of the full purchase price of the car or the total
installments paid.
Third. Private respondents presented evidence that they
felt bad, were worried, embarrassed and mentally tortured by
the repossession of the car.[22] This has not been rebutted by
petitioner. There is thus a factual basis for the award of moral
damages. In addition, petitioner acted in a wanton, fraudulent,
reckless and oppressive manner in filing the instant case,
hence, the award of exemplary damages is justified.[23] The
award of attorneys fees is likewise proper considering that
private respondents were compelled to incur expenses to
protect their rights.[24]
WHEREFORE, the decision of the Court of Appeals is
AFFIRMED with costs against petitioner.
SO ORDERED.
 G.R. No. 214752, March 09, 2016
EQUITABLE SAVINGS BANK, (NOW KNOWN AS THE
MERGED ENTITY "BDO UNIBANK, INC.") Petitioner,
v. ROSALINDA C. PALCES, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the
Decision2 dated February 13, 2014 and the Resolution3 dated
October 8, 2014 of the Court of Appeals (CA) in CA-G.R. CV
No. 96008, which partially affirmed the Decision4 dated May 20,
2010 of the Regional Trial Court of Pasay City, Branch 114
(RTC) in Civil Case No. 07-03 86-CFM and ordered petitioner
Equitable Savings Bank, now BDO Unibank, Inc. (petitioner), to
reimburse respondent Rosalinda C. Palces (respondent) the
installments she made in March 2007 amounting to
P103,000.00.
The Facts
On August 15, 2005, respondent purchased a Hyundai Starex
GRX Jumbo (subject vehicle) through a loan granted by
petitioner in the amount of P1,196,100.00. In connection
therewith, respondent executed a Promissory' Note with Chattel
Mortgage5 in favor of petitioner, stating, inter alia, that: (a)
respondent shall pay petitioner the aforesaid amount in 36-
monthly installments of P33,225.00 per month, beginning
September 18, 2005 and every 18th of the month thereafter until
full payment of the loan; (b) respondent's default in paying any
installment renders the remaining balance due and payable; and
(c) respondent's failure to pay any installments shall give
petitioner the right to declare the entire obligation due and
payable and may likewise, at its option, x x x foreclose this
mortgage; or file an ordinary civil action for collection and/or
such other action or proceedings as may be allowed under the
law.6
From September 18, 2005 to December 21, 2006, respondent
paid the monthly installment of P33,225.00 per month. However,
she failed to pay the monthly installments in January and
February 2007, thereby triggering the acceleration clause
contained in the Promissory Note with Chattel Mortgage7and
prompting petitioner to send a demand letter8 dated February
22, 2007 to compel respondent to pay the remaining balance of
the loan in the amount of P664,500.00.9 As the demand went
unheeded, petitioner filed on March 7, 2007 the instant
Complaint for Recovery of Possession with Replevin with
Alternative Prayer for Sum of Money and Damages10 against
respondent before the RTC, praying that the court a quo: (a)
issue a writ of replevin ordering the seizure of the subject
vehicle and its delivery to petitioner; or (b) in the alternative as
when the recovery of the subject vehicle cannot be effected, to
render judgment ordering respondent to pay the remaining
balance of the loan, including penalties, charges, and other
costs appurtenant thereto.11
Pending respondent's answer, summons12 and a writ of
replevin13 were issued and served to her personally on April 26,
2007, and later on, a Sheriffs Return14 dated May 8, 2007 was
submitted as proof of the implementation of such writ.15
In her defense,16 while admitting that she indeed defaulted on
her installments for January and February 2007, respondent
nevertheless insisted that she called petitioner regarding such
delay in payment and spoke to a bank officer, a certain Rodrigo
Dumagpi, who gave his consent thereto. Respondent then
maintained that in order to update her installment payments, she
paid petitioner the amounts of P70,000.00 on March 8, 2007
and P33,000.00 on March 20, 2007, or a total of P103,000.00.
Despite the aforesaid payments, respondent was surprised
when petitioner filed the instant complaint, resulting in the sheriff
taking possession of the subject vehicle.17
The RTC Ruling
In a Decision18 dated May 20, 2010, the RTC ruled in petitioner's
favor and, accordingly, confirmed petitioner's right and
possession over the subject vehicle and ordered respondent to
pay the former the amount of P15,000.00 as attorney's fees as
well as the costs of suit.19
The RTC found that respondent indeed defaulted on her
installment payments in January and February 2007, thus,
rendering the entire balance of the loan amounting to
P664,500.00 due and demandable. In this relation, the RTC
observed that although respondent made actual payments of
the installments due, such payments were all late and irregular,
and the same were not enough to fully pay her outstanding
obligation, considering that petitioner had already declared the
entire balance of the loan due and demandable. However, since
the writ of replevin over the subject vehicle had already been
implemented, the RTC merely confirmed petitioner's right to
possess the same and ruled that it is no longer entitled to its
alternative prayer, i.e., the payment of the remaining balance of
the loan, including penalties, charges, and other costs
appurtenant thereto.20
Respondent moved for reconsideration,21 but was denied in an
Order22 dated August 31, 2010. Dissatisfied, respondent
appealed23 to the CA, contending that petitioner acted in bad
faith in seeking to recover more than what is due by attempting
to collect the balance of the loan and, at the same time, recover
the subject vehicle.24
The CA Ruling
In a Decision25 dated February 13, 2014, the CA affirmed the
RTC ruling with modification: (a) ordering petitioner to return the
amount of P103,000.00 to respondent; and (b) deleting the
award of attorney's fees in favor of petitioner for lack of sufficient
basis. It held that while respondent was indeed liable to
petitioner under the Promissory Note with Chattel Mortgage,
petitioner should not have accepted respondent's late partial
payments in the aggregate amount of P103,000.00. In this
regard, the CA opined that by choosing to recover the subject
vehicle via a writ of replevin, petitioner already waived its right to
recover any unpaid installments, pursuant to Article 1484 of the
Civil Code. As such, the CA concluded that respondent is
entitled to the recovery of the aforesaid amount.26
Aggrieved, petitioner moved for partial reconsideration27 -
specifically praying for the setting aside of the order to return the
amount of P103,000.00 to respondent - which was, however,
denied in a Resolution28dated October 8, 2014; hence, this
petition.
The Issues Before The Court
The issues raised for the Court's resolution are whether or not
the CA correctly: (a) ordered petitioner to return to respondent
the amount of P103,000.00 representing the latter's late
installment payments; and (b) deleted the award of attorney's
fees in favor of petitioner.
The Court's Ruling
The petition is partly meritorious.
Citing Article 1484 of the Civil Code, specifically paragraph 3
thereof, the CA ruled that petitioner had already waived its right
to recover any unpaid installments when it sought - and was
granted - a writ of replevin in order to regain possession of the
subject vehicle. As such, petitioner is no longer entitled to
receive respondent's late partial payments in the aggregate
amount of P103,000.00.
The CA is mistaken on this point.
Article 1484 of the Civil Code, which governs the sale of
personal properties in installments, states in full:
chanRoblesvirtualLawlibrary
Article 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 fulfilment 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.
(Emphases and underscoring supplied)
In this case, there was no vendor-vendee relationship between
respondent and petitioner. A judicious perusal of the records
would reveal that respondent never bought the subject vehicle
from petitioner but from a third party, and merely sought
financing from petitioner for its full purchase price. In order to
document the loan transaction between petitioner and
respondent, a Promissory Note with Chattel Mortgage29 dated
August 18, 2005 was executed wherein, inter alia, respondent
acknowledged her indebtedness to petitioner in the amount of
P1,196,100.00 and placed the subject vehicle as a security for
the loan.30 Indubitably, a loan contract with the accessory chattel
mortgage contract - and not a contract of sale of personal
property in installments - was entered into by the parties with
respondent standing as the debtor-mortgagor and petitioner as
the creditor-mortgagee. Therefore, the conclusion of the CA that
Article 1484 finds application in this case is misplaced, and thus,
must be set aside.
The Promissory Note with Chattel Mortgage subject of this case
expressly stipulated, among others, that: (a) monthly
installments shall be paid on due date without prior notice or
demand;31 (b) in case of default, the total unpaid principal sum
plus the agreed charges shall become immediately due and
payable;32 and (c) the mortgagor's default will allow the
mortgagee to exercise the remedies available to it under the
law. In light of the foregoing provisions, petitioner is justified in
filing his Complaint33 before the RTC seeking for either the
recovery of possession of the subject vehicle so that it can
exercise its rights as a mortgagee, i.e., to conduct foreclosure
proceedings over said vehicle;34 or in the event that the subject
vehicle cannot be recovered, to compel respondent to pay the
outstanding balance of her loan.35 Since it is undisputed that
petitioner had regained possession of the subject vehicle, it is
only appropriate that foreclosure proceedings, if none yet has
been conducted/concluded, be commenced in accordance with
the provisions of Act No. 1508,36 otherwise known as "The
Chattel Mortgage Law," as intended. Otherwise, respondent will
be placed in an unjust position where she is deprived of
possession of the subject vehicle while her outstanding debt
remains unpaid, either in full or in part, all to the undue
advantage of petitioner - a situation which law and equity will
never permit.37
Further, there is nothing in the Promissory Note with Chattel
Mortgage that bars petitioner from receiving any late partial
payments from respondent. If at all, petitioner's acceptance of
respondent's late partial payments in the aggregate amount of
P103,000.00 will only operate to reduce her outstanding
obligation to petitioner from P664,500.00 to P561,500.00. Such
a reduction in respondent's outstanding obligation should be
accounted for when petitioner conducts the impending
foreclosure sale of the subject vehicle. Once such foreclosure
sale has been made, the proceeds thereof should be applied to
the reduced amount of respondent's outstanding obligation, and
the excess of said proceeds, if any, should be returned to her.38
In sum, the CA erred in ordering petitioner to return the amount
of P103,000.00 to respondent. In view of petitioner's prayer for
and subsequent possession of the subject vehicle in preparation
for its foreclosure, it is only proper that petitioner be ordered to
commence foreclosure proceedings, if none yet has been
conducted/concluded, over the vehicle in accordance with the
provisions of the Chattel Mortgage Law, i.e., within thirty (30)
days from the finality of this Decision.39
Finally, anent the issue of attorney's fees, it is settled that
attorney's fees "cannot be recovered as part of damages
because of the policy that no premium should be placed on the
right to litigate. They are not to be awarded every time a party
wins a suit. The power of the court to award attorney's fees
under Article 220840 of the Civil Code demands factual, legal,
and equitable justification. Even when a claimant is compelled to
litigate with third persons or to incur expenses to protect his
rights, still, attorney's fees may not be awarded where no
sufficient showing of bad faith could be reflected in a party's
persistence in a case other than an erroneous conviction of the
righteousness of his cause."41 In this case, suffice it to say that
the CA correctly ruled that the award of attorney's fees and
costs of suit should be deleted for lack of sufficient
basis.chanrobleslaw
WHEREFORE, the petition is PARTLY GRANTED. The
Decision dated February 13, 2014 and the Resolution dated
October 8, 2014 of the Court of Appeals in CA-G.R. CV No.
96008 are hereby SET ASIDE. In case foreclosure proceedings
on the subject chattel mortgage has not yet been
conducted/concluded, petitioner Equitable Savings Bank, now
BDO Unibank, Inc., is ORDERED to commence foreclosure
proceedings on the subject vehicle in accordance with the
Chattel Mortgage Law, i.e., within thirty (30) days from the
finality of this Decision. The proceeds therefrom should be
applied to the reduced outstanding balance of respondent
Rosalinda C. Palces in the amount of P561,500.00, and the
excess, if any, should be returned to her.
SO ORDERED.cralawlawlibrary
[G.R. No. 130347. March 3, 1999]
ABELARDO VALARAO, GLORIOSA VALARAO and CARLOS
VALARAO, petitioners, vs. COURT OF APPEALS
and MEDEN A. ARELLANO, respondents.
DECISION
PANGANIBAN, J.:
Article 1592 of the Civil Code applies only to contracts of
sale, and not to contracts to sell or conditional sales where title
passes to the vendee only upon full payment of the purchase
price. Furthermore, in order to enforce the automatic forfeiture
clause in a deed of conditional sale, the vendors have the
burden of proving a contractual breach on the part of the
vendee.
The Case
Before us is a Petition for Review assailing the June 13,
1997 Decision of the Court of Appeals (CA)[1] which reversed
and set aside the October 10, 1994 Decision [2] of the Regional
Trial Court (RTC) of Quezon City, Branch 82.The dispositive
portion of the assailed CA Decision reads:
WHEREFORE, the decision appealed from is REVERSED and
SET ASIDE, and a new one is entered (1) ordering [herein
private respondent] to pay the amount of [o]ne [m]illion [o]ne
[h]undred [n]inety [s]even [t]housand [p]esos (P1,197,000.00) in
favor of [herein petitioners], with legal interest thereon from
December 31, 1992; (2) and directing [herein petitioners] to
execute in favor of [herein respondent], upon receipt of the
aforesaid amount, the final and absolute deed of sale of the
subject property with all the improvements.[3]
Also assailed by petitioners is the August 21, 1997 CA
Resolution denying reconsideration.
The aforementioned RTC Decision, which was reversed
and set aside by the CA, disposed as follows:
WHEREFORE, premises considered, judgment is hereby
rendered declaring the aforesaid Deed of conditional Sale as
automatically rescinded and all payments made thereunder by
the [private respondent] to the [petitioners] as forfeited in favor
of the latter, by way of rentals and as liquidated damages, as
well as declaring all improvements introduced on the property
subject to the said Deed of Condition[al] Sale to belong to the
[petitioners] without any right of reimbursement. Further, the
[private respondent] and all persons claiming right under her are
hereby ordered to vacate the said property and to turnover
possession thereof to the [petitioners]. FINALLY, the [private
respondent] is hereby ordered to pay to the [petitioners] the
amount of P50,000.00 as attorneys fees and for expenses of
litigation, as well as to pay the costs of the suit. The Writ of
Preliminary Injunction previously issued is hereby ordered
LIFTED and DISSOLVED, and the bond posted for its issuance
held liable for the satisfaction of the money judgment herein
made in favor of the [petitioners].[4]
The Facts
The undisputed facts of the case as narrated by the Court
of Appeals are as follows:
On September 4, 1987, spouses Abelardo and Gloriosa
Valarao, thru their son Carlos Valarao as their attorney-in-fact,
sold to [Private Respondent] Meden Arellano under a Deed of
Conditional Sale a parcel of land situated in the District of
Diliman, Q.C., covered by TCT No. 152879 with an area of
1,504 square meters, for the sum of THREE MILLION TWO
HUNDRED TWENTY FIVE THOUSAND PESOS
(P3,225,000.00) payable under a schedule of payment stated
therein.
In the same Deed of Conditional Sale, the [private respondent]
vendee obligated herself to encumber by way of real estate
mortgage in favor of [petitioners] vendors her separate piece of
property with the condition that upon full payment of the balance
of P2,225,000.00, the said mortgage shall become null and void
and without further force and effect. (Item No. 3, pp. 2-3 of Deed
of Conditional Sale).
It was further stipulated upon that should the vendee fail to pay
three (3) successive monthly installments or any one year-end
lump sum payment within the period stipulated, the sale shall be
considered automatically rescinded without the necessity of
judicial action and all payments made by the vendee shall be
forfeited in favor of the vendors by way of rental for the use and
occupancy of the property and as liquidated damages. All
improvements introduced by the vendee to the property shall
belong to the vendors without any right of reimbursement. (Par.
(2), Item No. 3, p. 3 of Deed of Conditional Sale).
[Private respondent] appellant alleged that as of September ,
1990, she had already paid the amount of [t]wo [m]illion
[t]wenty-[e]ight [t]housand (P2,028,000.00) [p]esos, although
she admitted having failed to pay the installments due in
October and November, 1990. Petitioner, however, [had] tried to
pay the installments due [in] the said months, including the
amount due [in] the month of December, 1990 on December 30
and 31, 1990, but was turned down by the vendors-[petitioners]
thru their maid, Mary Gonzales, who refused to accept the
payment offered. [Private respondent] maintains that on
previous occasions, the same maid was the one who [had]
received payments tendered by her. It appears that Mary
Gonzales refused to receive payment allegedly on orders of her
employers who were not at home.
[Private respondent] then reported the matter to, and sought the
help of, the local barangay officials. Efforts to settle the
controversy before the barangay proved unavailing as vendors-
[petitioners] never appeared in the meetings arranged by the
barangay lupon.
[Private respondent] tried to get in touch with [petitioners] over
the phone and was able to talk with [Petitioner] Gloriosa Valarao
who told her that she [would] no longer accept the payments
being offered and that [private respondent] should instead
confer with her lawyer, a certain Atty. Tuazon. When all her
efforts to make payment were unsuccessful, [private
respondent] sought judicial action by filing this petition for
consignation on January 4, 1991.
On the other hand, vendors-[petitioners], thru counsel, sent
[private respondent] a letter dated 4 January 1991 (Exh. C)
notifying her that they were enforcing the provision on automatic
rescission as a consequence of which the Deed of Conditional
Sale [was deemed] null and void, and xxx all payments made,
as well as the improvements introduced on the property, [were]
thereby forfeited. The letter also made a formal demand on the
[private respondent] to vacate the property should she not heed
the demand of [petitioners] to sign a contract of lease for her
continued stay in the property (p. 2 of Letter dated Jan. 4, 1991;
Exh. C).
In reply, [private respondent] sent a letter dated January 14,
1991 (Exh. D), denying that she [had] refused to pay the
installments due [in] the months of October, November and
December, and countered that it was [petitioners] who refused
to accept payment, thus constraining her to file a petition for
consignation before the Regional Trial Court of Quezon City
docketed as Civil Case No. Q-91-7603.
Notwithstanding their knowledge of the filing by [private
respondent] of a consignation case against them in the Regional
Trial Court of Quezon City docketed as Civil Case No. Q-91-
7603, [petitioners], through counsel, sent the [private
respondent] another letter dated January 19, 1991 (Exh. F),
denying the allegations of her attempts to tender payment on
December 30 and 31, 1990, and demanding that [private
respondent] vacate and turnover the property and pay a monthly
compensation for her continued occupation of the subject
property at the rate of P20,000.00, until she shall have vacated
the same.
 Ruling of the Court of Appeals
In reversing the Regional Trial Court, the Court of Appeals
held that the refusal of herein petitioners to accept the tender of
payment was unjustified. Notwithstanding the stipulation in the
Deed of Conditional Sale that the rescission of the contract shall
of right take place upon the failure of the vendee to pay three
successive monthly installments, the appellate court observed
that a judicial demand or a notarial act was still required
pursuant to Article 1592 of the Civil Code. Thus, petitioners
letter informing private respondent of the rescission of the
contract did not suffice, for it was not notarized. The CA also
observed that the alleged breach of contract arising from the
failure of the vendee to pay the monthly installments for October
and November 1990 within the stipulated time is rather slight
and not substantial, and to authorize the automatic rescission on
account thereof will work injustice to the other party, who has
paid a total of P2,028,000.00 out of a total obligation
of P3,225,000.00. The rule is that rescission cannot be availed
of as to unjustly enrich one party.
The Issues
In their Memorandum before us, petitioners raise the
following issues:[5]
I Whether the Answer [-- (a)] categorically indicating willingness
to accept the amount already due if the [private respondent]
would update the account, [(b)] praying that if she fail[ed] to do
so immediately, xxx the Deed of Conditional Sale be declared
rescinded, pursuant to the second paragraph of Section 3
thereof, with costs against the [private respondent], [(c)]
ordering the latter to vacate and turn over possession of the
premises to the [petitioners], and to pay the latter attorneys fees
in the amount of P50,000.00 and the expenses of litigation [--] is
tantamount to a judicial demand and notice of rescission under
Art. 1592 of the Civil Code.
II Whether the automatic forfeiture clause is valid and binding
between the parties.
III Whether the action for consignation may prosper without
actual deposit [in court] of the amount due xxx [so as] to
produce the effect of payment.
The Courts Ruling
The petition[6] is devoid of merit.
Preliminary Matter: Notarial or Judicial Demand
Citing Article 1592 of the Civil Code, the Court of Appeals
ruled that the petitioners letter dated January 4, 1991, could not
effect the rescission of the Deed of Conditional Sale, because
the said letter was not notarized. On the other hand, petitioners
argue that they made a judicial demand, which was embodied in
their Manifestation filed on May 1, 1991, and Answer submitted
on July 1, 1991.[7]
We believe, however, that the issue of whether the
requirement of a judicial demand or a notarial act has been
fulfilled is immaterial to the resolution of the present case. Article
1592 of the Civil Code states:
ART. 1592. 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 notarial act. After the
demand, the court may not grant him a new term.
It is well-settled that the above-quoted provision applies
only to a contract of sale,[8] and not to a sale on installment[9] or
a contract to sell.[10] Thus, in Luzon Brokerage v. Maritime
Building,[11] this Court ruled that Art. 1592 of the new Civil Code
(Art. 1504 of the old Civil Code) requiring demand by suit or
notarial act in case the vendor of realty wants to rescind does
not apply to a contract to sell or promise to sell, where title
remains with the vendor until full payment of the price. The
Court stresses the difference between these two types of
contract. In a contract to sell, the title over the subject property
is transferred to the vendee only upon the full payment of the
stipulated consideration. Unlike in a contract of sale, the title
does not pass to the vendee upon the execution of the
agreement or the delivery of the thing sold.[12]
In the present case, the Deed of Conditional Sale is of the
same nature as a sale on installment or a contract to sell, which
is not covered by Article 1592. The aforementioned agreement
provides:
xxx
Should the VENDEE fail to pay three (3) successive monthly
installments or any one year-end lump sum payment within the
period stipulated herein, this Deed of Conditional Sale shall be
considered xxx automatically rescinded without the necessity of
judicial action[,] and all payments made by the VENDEE shall
be forfeited in favor of the VENDORS by way of rental for the
use and occupancy of the property and as liquidated
damages. All improvements introduced by the VENDEE to the
property shall belong to the VENDORS without any right of
reimbursement. The VENDORS and/or their agents or
representatives shall have the right to enter the premises of the
property and to eject the VENDEE and all persons claiming right
under her therefrom with the use of reasonable force if
necessary.
That upon full payment to the VENDORS of the total
consideration of P3,225,000.00, the VENDORS shall
immediately and without delay execute in favor of the VENDEE
the final and absolute deed of sale of the property and all its
improvements.
Petitioners-vendors unmistakably reserved for themselves
the title to the property until full payment of the purchase price
by the vendee. Clearly, the agreement was not a deed of sale,
but more in the nature of a contract to sell or of a sale on
installments.[13] Even after the execution of the Deed of
Conditional Sale, the Torrens Certificate of Title remained with
and in the name of the vendors. In rejecting the application of
Article 1592 to a contract to sell, the Court held in Luzon
Brokerage[14] that the full payment of the price (through the
punctual performance of the monthly payments) was a condition
precedent to the execution of the final sale and to the transfer of
the property from [the vendor] to the [vendee]; so that there was
to be no actual sale until and unless full payment was made.
Main Issue: Enforcement of the Automatic Forfeiture Clause
As a general rule, a contract is the law between the
parties.[15] Thus, from the moment the contract is perfected, the
parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all consequences which,
according to their nature, may be in keeping with good faith,
usage and law.[16] Also, the stipulations of the contract being the
law between the parties, courts have no alternative but to
enforce them as they were agreed [upon] and written, there
being no law or public policy against the stipulated forfeiture of
payments already made.[17] However, it must be shown that
private respondent-vendee failed to perform her obligation,
thereby giving petitioners-vendors the right to demand the
enforcement of the contract.
We concede the validity of the automatic forfeiture clause,
which deems any previous payments forfeited and the contract
automatically rescinded upon the failure of the vendee to pay
three successive monthly installments or any one yearend lump
sum payment. However, petitioners failed to prove the
conditions that would warrant the implementation of this clause.
Both the appellate and the trial courts agree on the
following:
1. The Deed of Conditional Sale provided for
automatic rescission in case the vendee failed to pay
three (3) successive monthly installments or any one
yearend lump sum payment within the stipulated period
therein.
2. Each monthly installment was due at the end of
the month.
3. The installments for October and November 1990
were not paid.
4. The private respondent-vendee, Meden Arellano,
went to the house of the petitioners-vendors on December
30, 1990.
5. Arellano offered to pay P48,000 (total amount of
installments due in October, November, and December
1990) to Mary Gonzales, the petitioners maid, but the
latter refused to accept it upon instruction of petitioners.
6. Arellano returned the next day, December 31,
1990, and insisted on paying, but again the maid refused
to accept it.
7. Arellano proceeded to the barangay office around
10:00 a.m. to file a case against petitioners for their
refusal to accept the payments.
8. Four (4) days later, on January 4, 1991, private
respondents filed a Petition for Consignation.
9. Despite the said petition, the money was
nevertheless not deposited in court.
10. Negotiations between both parties went under
way, culminating in the vendees filling a Motion to Deposit
the entire balance due, which was duly opposed by the
vendor, and hence was denied by the trial court.
From the foregoing, it is clear that petitioners were not
justified in refusing to accept the tender of payment made by
private respondent on December 30 and 31, 1990. Had they
accepted it on either of said dates, she would have paid all three
monthly installments due. In other words, there was no
deliberate failure on her part to meet her responsibility to
pay.[18] The Court takes note of her willingness and persistence
to do so, and, petitioners cannot now say otherwise. The fact is:
they refused to accept her payment and thus have no reason to
demand the enforcement of the automatic forfeiture
clause. They cannot be rewarded for their own misdeed.
Because their maid had received monthly payments in the
past,[19] it is futile for petitioners to insist now that she could not
have accepted the aforementioned tender of payment, on the
ground that she did not have a special power of attorney to do
so. Clearly, they are estopped from denying that she had such
authority. Under Article 1241 of the Civil Code, payment through
a third person is valid [I]f by the creditors conduct, the debtor
has been led to believe that the third person had authority to
receive the payment.
Failure to Consign the Amount Due
Petitioners also maintain that the consignation was not valid
because the amount tendered was not deposited with the trial
court. True, there is no showing that she deposited the money
with the proper judicial authority which, taken together with the
other requisites for a valid consignation,[20] would have released
her from her obligation to pay. However, she does not deny her
obligation and, in fact, is willing to pay not only the three monthly
installments due but also the entire residual amount of the
purchase price. Verily, she even filed a Motion to Deposit the
said entire balance with the trial court, which however denied
said motion upon opposition of the petitioners.[21]
Accordingly, we agree with the Court of Appeals that it
would be inequitable to allow the forfeiture of the amount of
more than two million pesos already paid by private respondent,
a sum which constitutes two thirds of the total
consideration. Because she did make a tender of payment
which was unjustifiably refused, we hold that petitioners cannot
enforce the automatic forfeiture clause of the contract.
Application of the Maceda Law
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 installments
made.
Hence, the private respondent was entitled to a one-
month grace period for every year of installments paid, which
means that she had a total grace period of three months from
December 31, 1990. Indeed, to rule in favor of petitioner would
result in patent injustice and unjust enrichment. This tribunal is
not merely a court of law, but also a court of justice.
WHEREFORE, the Petition is DENIED and the dispositive
portion of the appealed Decision of the Court of Appeals is
hereby AFFIRMED. The CAs discussion on the need for judicial
or notarial demand is MODIFIED in accordance with this
Decision. Costs against petitioners.
SO ORDERED.

In any event, the rescission of the contract and the

forfeiture of the payments already made could not be effected,
because the case falls squarely under Republic Act No.
6552,[22] otherwise known as the Maceda Law. Section 3 of said
law provides:

SEC. 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 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 cancelled, the seller shall refund to the

buyer the cash surrender value of the payments on the property
equivalent to fifty percent of the total payments made and, after
five years of installments, an additional five percent every year
but not to exceed ninety percent of the total payments

SPOUSES FAUSTINO AND G.R. No. 172036
JOSEFINA GARCIA,
SPOUSES MELITON GALVEZ Present:
AND HELEN GALVEZ,
and CONSTANCIA ARCAIRA CARPIO, J., Chairperson,
represented by their Attorney-in-Fact BRION,
JULIANA O. MOTAS, DEL CASTILLO,
Petitioners, ABAD, and
PEREZ, JJ.
- versus -
COURT OF APPEALS,
EMERLITA DE LA CRUZ, Promulgated:
and DIOGENES G. BARTOLOME,
Respondents. April 23, 2010
x---------------------------------------------
-----x
DECISION
CARPIO, J.:
G.R. No. 172036 is a petition for review[1] assailing the
Decision[2] promulgated on 25 January 2006 as well as the
Resolution[3] promulgated on 16 March 2006 of the Court of
Appeals (appellate court) in CA-G.R. CV No. 63651. The
appellate court reversed and set aside the decision of Branch 23
of the Regional Trial Court of Trece Martires City, Cavite (trial
court) in Civil Case No. TM-622. The appellate court ordered
Emerlita Dela Cruz (Dela Cruz) to return to spouses Faustino
and Josefina Garcia, spouses Meliton and Helen Galvez, and
Constancia Arcaira (collectively, petitioners) the amount in
excess of one-half percent of P1,500,000. Dela Cruzs co-
defendant, Diogenes Bartolome (Bartolome), did not incur any
liability.
The appellate court narrated the facts as follows:
On May 28, 1993, plaintiffs spouses
Faustino and Josefina Garcia and spouses
Meliton and Helen Galvez (herein appellees)
and defendant Emerlita dela Cruz (herein
appellant) entered into a Contract to Sell
wherein the latter agreed to sell to the
former, for Three Million One Hundred
Seventy Thousand Two Hundred Twenty
(P3,170,220.00) Pesos, five (5) parcels of
land situated at Tanza, Cavite particularly
known as Lot Nos. 47, 2768, 2776, 2767,
2769 and covered by Transfer Certificate of
Title Nos. T-340674, T-340673, T-29028, T-
29026, T-29027, respectively. At the time of
the execution of the said contract, three of
the subject lots, namely, Lot Nos. 2776,
2767, and 2769 were registered in the name
of one Angel Abelida from whom defendant
allegedly acquired said properties by virtue
of a Deed of Absolute Sale dated March 31,
1989.
As agreed upon, plaintiffs shall make a
down payment of Five Hundred Thousand
(P500,000.00) Pesos upon signing of the
contract. The balance of Two Million Six
Hundred Seventy Thousand Two Hundred
Twenty (P2,670,220.00) Pesos shall be paid
in three installments, viz: Five Hundred
Thousand (P500,000.00) Pesos on June 30,
1993; Five Hundred Thousand
(P500,000.00) Pesos on August 30, 1993;
One Million Six Hundred Seventy Thousand
Two Hundred Twenty (P1,670,220.00)
Pesos on December 31, 1993.
On its due date, December 31, 1993,
plaintiffs failed to pay the last installment in
the amount of One Million Six
Hundred Seventy Thousand Two Hundred
Twenty (P1,670,220.00) Pesos. Sometime
in July 1995, plaintiffs offered to pay the
unpaid balance, which had already been
delayed by one and [a] half year, which
defendant refused to accept. On September
23, 1995, defendant sold the same parcels
of land to intervenor Diogenes G. Bartolome
for Seven Million Seven Hundred Ninety
Three Thousand (P7,793,000.00) Pesos.
In order to compel defendant to accept
plaintiffs payment in full satisfaction of the
purchase price and, thereafter, execute the
necessary document of transfer in their
favor, plaintiffs filed before the RTC a
complaint for specific performance.
In their complaint, plaintiffs alleged that they
discovered the infirmity of the Deed of
Absolute Sale covering Lot Nos. 2776, 2767
and 2769, between their former owner Angel
Abelida and defendant, the same being
spurious because the signature of Angel
Abelida and his wife were falsified; that at
the time of the execution of the said deed,
said spouses were in the United States; that
due to their apprehension regarding the
authenticity of the document, they withheld
payment of the last installment which was
supposedly due on December 31, 1993; that
they tendered payment of the unpaid
balance sometime in July 1995, after Angel
Abelida ratified the sale made in favor [of]
defendant, but defendant refused to accept
their payment for no jusitifiable reason.
In her answer, defendant denied the
allegation that the Deed of Absolute Sale
was spurious and argued that plaintiffs failed
to pay in full the agreed purchase price on
its due date despite repeated demands; that
the Contract to Sell contains a proviso that
failure of plaintiffs to pay the purchase price
in full shall cause the rescission of the
contract and forfeiture of one-half (1/2%)
percent of the total amount paid to
defendant; that a notarized letter stating the
indended rescission of the contract to sell
and forfeiture of payments was sent to
plaintiffs at their last known address but it
was returned with a notation insufficient
address.
Intervenor Diogenes G. Bartolome filed a
complaint in intervention alleging that the
Contract to Sell dated May 31, 1993
between plaintiffs and defendant was
rescinded and became ineffective due to
unwarranted failure of the plaintiffs to pay
the unpaid balance of the purchase price on
or before the stipulated date; that he
became interested in the subject parcels of
land because of their clean titles; that he
purchased the same from defendant by
virtue of an Absolute Deed of Sale executed
on September 23, 1995 in consideration of
the sum of Seven Million Seven Hundred
Ninety Three Thousand (P7,793,000.00)
Pesos.[4]
The Decision of the Trial Court
In its Decision dated 15 April 1999, the trial court ruled
that Dela Cruzs rescission of the contract was not valid. The trial
court applied Republic Act No. 6552 (Maceda Law) and stated
that Dela Cruz is not allowed to unilaterally cancel the Contract
to Sell. The trial court found that petitioners are justified in
withholding the payment of the balance of the consideration
because of the alleged spurious sale between Angel Abelida
and Emerlita Dela Cruz. Moreover, intervenor Diogenes
Bartolome (Bartolome) is not a purchaser in good faith because
he was aware of petitioners interest in the subject parcels of
land.
The dispositive portion of the trial courts decision
reads:
ACCORDINGLY, defendant Emerlita dela
Cruz is ordered to accept the balance of the
purchase price in the amount
of P1,670,220.00 within ten (10) days after
the judgment of this Court in the above-
entitled case has become final and
executory and to execute immediately the
final deed of sale in favor of plaintiffs.
Defendant is further directed to pay plaintiffs
the amount of P400,000.00 as moral
damages and P100,000.00 as exemplary
damages.
The deed of sale executed by defendant
Emerlita dela Cruz in favor of Atty. Diogenes
Bartolome is declared null and void and the
amount of P7,793,000.00 which was paid by
intervenor Bartolome to Emerlita dela Cruz
as the consideration of the sale of the five
(5) parcels of land is hereby directed to be
returned by Emerlita dela Cruz to Atty.
Diogenes Bartolome within ten (10) days
from the finality of judgment.
Further, defendant is directed to pay plaintiff
the sum of P100,000.00 as attorneys fees.
SO ORDERED.[5]
Dela Cruz and Bartolome appealed from the judgment
of the trial court.
The Decision of the Appellate Court
 The appellate court reversed the trial courts decision
and dismissed Civil Case No. TM-622. Dela Cruzs obligation
under the Contract to Sell did not arise because of petitioners
undue failure to pay in full the agreed purchase price on the
stipulated date. Moreover, judicial action for the rescission of a
contract is not necessary where the contract provides that it may
be revoked and cancelled for violation of any of its terms and
conditions. The dispositive portion of the appellate courts
decision reads:
WHEREFORE, in view of all the foregoing,
the appealed decision of the Regional Trial
Court is hereby REVERSED and SET
ASIDE and Civil Case No. TM-622 is,
consequently, DISMISSED. Defendant is
however ordered to return to plaintiffs the
amount in excess of one-half (1/2%) percent
of One Million Five Hundred Thousand
(P1,500,000.00) Pesos which was earlier
paid by plaintiffs.
SO ORDERED.[6]
The appellate court likewise resolved to deny
petitioners Motion for Reconsideration for lack of merit.[7]
Hence, this petition.
Issues
Petitioners raised the following grounds for the grant
of their petition:
I. The Honorable Court of Appeals
erred when it failed to consider the
provisions of Republic Act 6552,
otherwise known as the Maceda Law.
II. The Honorable Court of Appeals
erred when it failed to consider that
Respondent Dela Cruz could not pass
title over the three (3) properties at the
time she entered to a Contract to Sell
as her purported ownership was tainted
with fraud, thereby justifying Petitioners
Spouses Garcia, Spouses Galvez and
Arcairas suspension of payment.
III. The Honorable Court of Appeals
gravely erred when it failed to consider
that Respondent Dela Cruzs rescission
was done in evident bad faith and
malice on account of a second sale
she entered with Respondent
Bartolome for a much bigger amount.
IV. The Honorable Court of Appeals
erred when it failed to declare
Respondent Bartolome is not an
innocent purchaser for value despite
the presence of evidence as to his bad
faith.[8]
The Courts Ruling
The petition has no merit.
Both parties admit the following: (1) the contract between
petitioners and Dela Cruz was a contract to sell; (2) petitioners
failed to pay in full the agreed purchase price of the subject
property on the stipulated date; and (3) Dela Cruz did not want
to accept petitioners offer of payment and did not want to
execute a document of transfer in petitioners favor.
The pertinent provisions of the contract, denominated Contract
to Sell, between the parties read:
Failure on the part of the vendees to comply
with the herein stipulation as to the terms of
payment shall cause the rescission of this
contract and the payments made shall be
returned to the vendees subject however, to
forfeiture in favor of the Vendor equivalent to
1/2% of the total amount paid.
xxx
It is hereby agreed and covenanted that
possession shall be retained by the
VENDOR until a Deed of Absolute Sale shall
be executed by her in favor of the
Vendees. Violation of this provision shall
authorize/empower the VENDOR [to]
demolish any construction/improvement
without need of judicial action or court order.
That upon and after the full payment of the
balance, a Deed of Absolute Sale shall be
 executed by the Vendor in favor of the ones, in case one of the
Vendees. obligors should not
comply with what is
That the duplicate original of the owners incumbent upon him.
copy of the Transfer Certificate of Title of the
above subject parcels of land shall remain in The injured party may
the possession of the Vendor until the choose between the
execution of the Deed of Absolute Sale.[9] fulfillment and the
rescission of the
obligation, with the
Contracts are law between the parties, and they are bound by payment of damages in
either case. He may
its stipulations. It is clear from the above-quoted provisions that
also seek rescission,
the parties intended their agreement to be a Contract to even after he has
Sell: Dela Cruz retains ownership of the subject lands and does chosen fulfillment, if the
not have the obligation to execute a Deed of Absolute Sale until latter should become
impossible.
petitioners payment of the full purchase price. Payment of the
price is a positivesuspensive condition, failure of which is not a The Court shall decree
breach but an event that prevents the obligation of the vendor to the rescission claimed,
convey title from becoming effective. Strictly speaking, there can unless there be just
cause authorizing the
be no rescission or resolution of an obligation that is still non-
fixing of a period.
existent due to the non-happening of the suspensive
condition.[10] Dela Cruz is thus not obliged to execute a Deed of
Absolute Sale in petitioners favor because of petitioners failure
to make full payment on the stipulated date.
This is understood to be
without prejudice to the
We ruled thus in Pangilinan v. Court of Appeals:[11] rights of third persons
who have acquired the
Article 1592 of the New Civil Code, requiring thing, in accordance
demand by suit or by notarial act in case the with Articles 1385 and
vendor of realty wants to rescind does not 1388 and the Mortgage
apply to a contract to sell but only to Law. (1124)
contract of sale. In contracts to sell, where
ownership is retained by the seller and is not Pursuant to the above, the law makes it
to pass until the full payment, such payment, available to the injured party alternative
as we said, is a positive suspensive remedies such as the power to rescind or
condition, the failure of which is not a enforce fulfillment of the contract, with
breach, casual or serious, but simply an damages in either case if the obligor does
event that prevented the obligation of the not comply with what is incumbent upon
vendor to convey title from acquiring binding him. There is nothing in this law which
force. To argue that there was only a casual prohibits the parties from entering into an
breach is to proceed from the assumption agreement that a violation of the terms of
that the contract is one of absolute sale, the contract would cause its cancellation
where non-payment is a resolutory even without court intervention. The
condition, which is not the case. rationale for the foregoing is that in contracts
providing for automatic revocation, judicial
The applicable provision of law in instant intervention is necessary not for purposes of
case is Article 1191 of the New Civil Code obtaining a judicial declaration rescinding a
which provides as follows: contract already deemed rescinded by virtue
of an agreement providing for rescission
Art. 1191. The power to even without judicial intervention, but in
rescind obligations is order to determine whether or not the
implied in reciprocal rescission was proper. Where such propriety
 is sustained, the decision of the court will be Cruz for Dela Cruzs alleged failure to give an effective notice of
merely declaratory of the revocation, but it is
cancellation or demand for rescission because Dela Cruz merely
not in itself the revocatory act. Moreover, the
vendors right in contracts to sell with sent the notice to the address supplied by petitioners in the
reserved title to extrajudicially cancel the Contract to Sell.
sale upon failure of the vendee to pay the
stipulated installments and retain the sums
It is undeniable that petitioners failed to pay the balance of the
and installments already received has long
been recognized by the well-established purchase price on the stipulated date of the Contract to
doctrine of 39 years standing. The validity of Sell. Thus, Dela Cruz is within her rights to sell the subject lands
the stipulation in the contract providing for to Bartolome.Neither Dela Cruz nor Bartolome can be said to be
automatic rescission upon non-payment
in bad faith.
cannot be doubted. It is in the nature of an
agreement granting a party the right to
rescind a contract unilaterally in case of
breach without need of going to court.Thus, WHEREFORE, we DENY the petition. We AFFIRM in toto the
rescission under Article 1191 was inevitable Court of Appeals Decision promulgated on 25 January 2006 as
due to petitioners failure to pay the well as the Resolution promulgated on 16 March 2006 in CA-
stipulated price within the original period
G.R. CV No. 63651.
fixed in the agreement.

Costs against petitioners.

Petitioners justify the delay in payment by stating that they had
notice that Dela Cruz is not the owner of the subject land, and SO ORDERED.
that they took pains to rectify the alleged defect in Dela Cruzs
title. Be that as it may, Angel Abelidas (Abelida)
affidavit[12] confirming the sale to Dela Cruz only serves to
strengthen Dela Cruzs claim that she is the absolute owner of
the subject lands at the time the Contract to Sell between
herself and petitioners was executed. Dela Cruz did not
conceal from petitioners that the title to Lot Nos. 2776, 2767
and 2769 still remained under Abelidas name, and the
Contract to Sell[13] even provided that petitioners should
shoulder the attendant expenses for the transfer of
ownership from Abelida to Dela Cruz.

The trial court erred in applying R.A. 6552,[14] or the Maceda

Law, to the present case. The Maceda Law applies to contracts
of sale of real estate on installment payments, including
residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants. The subject
lands, comprising five (5) parcels and aggregating 69,028
square meters, do not comprise residential real estate within the
contemplation of the Maceda Law.[15] Moreover, even if we apply
the Maceda Law to the present case, petitioners offer of
payment to Dela Cruz was made a year and a half after the
stipulated date. This is beyond the sixty-day grace period under
Section 4 of the Maceda Law.[16] Petitioners still cannot use the
second sentence of Section 4 of the Maceda Law against Dela
 [G.R. No. 141205. May 9, 2002]
ACTIVE REALTY & DEVELOPMENT
CORPORATION, petitioner, vs. NECITA G.
DAROYA, represented by Attorney-In-Fact Shirley
Daroya-Quinones, respondents.
DECISION
PUNO, J.:
This is a petition for review on certiorari under Rule 45 of
the Revised Rules of Court which seeks to reverse and set
aside the Resolution of the Court of Appeals, dated August 3,
1999, denying due course to petitioners appeal for insufficiency
of form and substance.
Petitioner ACTIVE REALTY & refund to the respondent one half of the total amount she
DEVELOPMENT CORPORATION is the owner and developer
of Town & Country Hills Executive Village in Antipolo, Rizal. On
January 2, 1985, it entered into a Contract to Sell[1] with
respondent NECITA DAROYA, a contract worker in the Middle
East, whereby the latter agreed to buy a 515 sq. m. lot
for P224,025.00 in petitioners subdivision.
The contract to sell stipulated that the respondent shall
pay the initial amount of P53,766.00 upon execution of the
contract and the balance of P170,259.00 in sixty (60) monthly
installments of P4,893.35. Adding the down payment and
installment payments, it would appear that the total amount
is P346,367.00, a figure higher than that stated as the contract
price.
On May 5, 1989, petitioner accepted respondents
amortization in the amount of P40,000.00. By August 8, 1989,
respondent was in default of P15,282.85 representing three
(3) monthly amortizations. Petitioner sent respondent a
notice of cancellation[2] of their contract to sell, to take effect
thirty (30) days from receipt of the letter. It does not appear from
the records, however, when respondent received the
letter. Nonetheless, when respondent offered to pay for the
balance of the contract price, petitioner refused as it has
allegedly sold the lot to another buyer.
On August 26, 1991, respondent filed a complaint for
specific performance and damages[3] against petitioner before
the Arbitration Branch of the Housing and Land Use Regulatory
Board (HLURB). It sought to compel the petitioner to execute a
final Deed of Absolute Sale in respondents favor after she pays
any balance that may still be due from her. Respondent claimed
that she is entitled to the final deed of sale after she offered to
pay the balance of P24,048.47, considering that she has
already paid the total sum of P314,816.76, which amount
is P90,835.76 more than the total contract price
of P224,025.00.
On June 14, 1993, HLURB Arbiter Alfredo M. Tan II found
for the respondent. He ruled that the cancellation of the contract
to sell was void as petitioner failed to pay the cash surrender
value to respondent as mandated by law.However, as the
subject lot was already sold to a third party and the respondent
had agreed to a full refund of her installment payments,
petitioner was ordered to refund to respondent all her
payments in the amount of P314,816.70, with 12% interest
per annum from August 26, 1991 (the date of the filing of
the complaint) until fully paid and to pay P10,000.00 as
attorneys fees.[4]
On appeal, the HLURB Board of Commissioners set
aside the Arbiters Decision. The Board refused to apply the
remedies provided under the Maceda Law and instead deemed
it fit to formulate an equitable solution to the case. It ruled that,
as both parties were at fault, i.e., respondent incurred in delay in
her installment payments and respondent failed to send a
notarized notice of cancellation, petitioner was ordered to
has paid or P157,408.35, which was allegedly akin to the
remedy provided under the Maceda Law.[5]
Respondent appealed to the Office of the
President. On June 2, 1998, then Chief Presidential Counsel
Renato C. Corona, acting by authority of the
President, modified the Decision of the HLURB as he found
that it was not in accord with the provisions of the Maceda
Law. He held that as petitioner did not comply with the legal
requisites for a valid cancellation of the contract, the contract to
sell between the parties subsisted and concluded that
respondent was entitled to the lot after payment of her
outstanding balance. However, as the petitioner disclosed that
the lot was already sold to another person and that the actual
value of the lot as of the date of the contract was P1,700.00 per
square meter, petitioner was ordered to refund to the
respondent the amount of P875,000.00, the true and actual
value of the lot as of the date of the contract, with interest
at 12% per annum computed from August 26, 1991 until
fully paid, or to deliver a substitute lot at the choice of
respondent.[6]
Upon denial of its motion for reconsideration, petitioner
assailed the Decision in the Court of Appeals. However, its
petition for review[7] was denied due course for insufficiency in
form and substance,[8] because: 1) no affidavit of service was
attached to the petition; 2) except for certified true copies of the
decision and resolution of the Office of the President, no other
material portions of the record, as would support the allegations
in the petition, were attached;and, 3) the certification of forum-
shopping was signed by the head counsel and vice-president of
the petitioner corporation who was not authorized by a Board
Resolution to represent petitioner.
Petitioner moved for reconsideration. The Court of
Appeals denied it on an entirely new ground, i.e., for untimely
filing of the petition for review.[9]
 Petitioner now impugns the decision of the Court of
Appeals and raises the following procedural issues:
I petitioner substantially
THE HONORABLE COURT OF APPEALS GROSSLY ERRED
IN RELYING TOO MUCH ON FORM RATHER THAN ON THE
MERITS OF THE PETITION THEREBY DENYING
PETITIONER OF ITS RIGHT TO DUE PROCESS.
II
THE HONORABLE COURT OF APPEALS ANCHORED THE
DENIAL OF PETITIONERS MOTION FOR
RECONSIDERATION ON INCONSISTENT AND
CONFLICTING RULINGS NOT BORNE BY THE FACTS AND
THE RECORDS OF THE CASE.
On the procedural points raised, we find for the petitioner.
Our perusal of the record reveals that petitioner
substantially complied with the formal requirements of Rule 43
of the Rules of Court.[10] First, as to the non-attachment of the
affidavit of service, the records bear that the petition was
accompanied by the original registry receipts issued by the post
office, showing that the petition and its annexes were served
upon the parties. Moreover, respondents counsel of record, Atty.
Sergio Guadiz, actually received a copy of the
petition.[11] Second, petitioner likewise complied with Section 6
(c) of Rule 43 requiring the submission of copies of the award,
judgment, final order and resolution appealed from. Its petition
was accompanied by the duplicate original of the appealed
Decision of the Chief Presidential Legal Counsel and his
Resolution denying petitioners motion for reconsideration, the
Decision of the HLURB Board of Commissioners and that of the
HLURB arbiter. A perusal of these documents will reveal that
they contained all the relevant facts of the case from which the
appellate body can form its own decision. Its failure to submit
the other documents, like the Complaint, Answer, Position
Papers and Appeal Memoranda of the parties before the
HLURB, was due to the refusal of the Office of the President to
give them a certified true copy of these documents which were
submitted with said Office.Third, as to the lack of Board
Resolution by petitioner corporation authorizing Atty. Rene
Katigbak, its Chief Legal Counsel and Vice-President for Legal
Affairs, to represent it in the filing of the appeal, petitioner admits
that this was due to its honest belief that such authority is not
required as it was not mentioned in Section 6(c) of Rule
43.[12] To make up for such omission, petitioner submitted a
Secretarys Certificate[13] confirming and ratifying the authority of
Atty. Katigbak to represent petitioner. Finally, we find that the
Court of Appeals erred in denying petitioners motion for
reconsideration due to untimely filing as the records clearly
show that it was filed on June 25, 1999, a day before the
expiration of the period to appeal granted by the Court of
Appeals.[14]
In denying due course to the petition, the appellate court
gave premium to form and failed to consider the important rights
of the parties in the case at bar.[15] At the very least,
complied with the procedural
requirements for appeal, hence, it is best to give due course to
the petition at bar to clarify the rights and duties of a buyer in
contracts to sell real estate on installment basis.
The issue to be resolved is whether or not the petitioner
can be compelled to refund to the respondent the value of the
lot or to deliver a substitute lot at respondents option.
We find for the respondent and rule in the affirmative.
The contract to sell in the case at bar is governed by
Republic Act No. 6552 -- The Realty Installment Buyer
Protection Act, or more popularly known as the Maceda Law --
which came into effect in September 1972. Its declared public
policy is to protect buyers of real estate on installment basis
against onerous and oppressive conditions.[16] The law seeks to
address the acute housing shortage problem in our country that
has prompted thousands of middle and lower class buyers of
houses, lots and condominium units to enter into all sorts of
contracts with private housing developers involving installment
schemes. Lot buyers, mostly low income earners eager to
acquire a lot upon which to build their homes, readily affix their
signatures on these contracts, without an opportunity to
question the onerous provisions therein as the contract is
offered to them on a take it or leave it basis. [17] Most of these
contracts of adhesion, drawn exclusively by the developers,
entrap innocent buyers by requiring cash deposits for
reservation agreements which oftentimes include, in fine print,
onerous default clauses where all the installment payments
made will be forfeited upon failure to pay any installment due
even if the buyers had made payments for several
years.[18] Real estate developers thus enjoy an unnecessary
advantage over lot buyers who they often exploit with iniquitous
results. They get to forfeit all the installment payments of
defaulting buyers and resell the same lot to another buyer with
the same exigent conditions. To help especially the low income
lot buyers, the legislature enacted R.A. No. 6552 delineating the
rights and remedies of lot buyers and protect them from one-
sided and pernicious contract stipulations.
More specifically, Section 3 of R.A. No. 6552 provided for
the rights of the buyer in case of default in the payment of
succeeding installments, where he has already paid at least two
(2) years of installments, thus:
(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; x
xx
(b) If the contract is cancelled, 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; 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.
In this case, respondent has already paid in four (4)
years a total of P314,860.76 or P90,835.76 more than the
contract price of P224,035.00. In April 1989, petitioner decided
to cancel the contract when the respondent incurred in delay in
the payment of P15,282.85, representing three (3) monthly
amortizations. Petitioner refused to accept respondents
subsequent tender of payment of the outstanding balance
alleging that it has already cancelled the contract and sold the
subject lot to another buyer. However, the records clearly show
that the petitioner failed to comply with the mandatory twin
requirements for a valid and effective cancellation under the
law,[19] i.e., he failed to send a notarized notice of cancellation
and refund the cash surrender value. At no time, from the date it
gave a notice of cancellation up to the time immediately before
the respondent filed the case against petitioner, did the latter
exert effort to pay the cash surrender value. In fact, the records
disclose that it was only during the preliminary hearing of the
case before the HLURB arbiter when petitioner offered to pay
the cash surrender value. Petitioner justifies its inaction on the
ground that the respondent was always out of the country. Even
then, the records are bereft of evidence to show that petitioner
attempted to pay the cash surrender value to respondent
through her last known address.The omission is surprising
considering that even during the times respondent was out of
the country, petitioner has been sending her written notices to
remind her to pay her installment arrears through her last known
address. Clearly, had respondent not filed a case demanding a
final deed of sale in her favor, petitioner would not have lifted a
finger to give respondent what was due her actual payment of
the cash surrender value, among others. In disregard of basic
equitable principles, petitioners stance would enable it to resell
the property, keep respondents installment payments, not to
mention the cash surrender value which it was obligated to
return. The Layug[20] case cited by petitioner is
inapropos. In Layug, the lot buyer did not pay for the
outstanding balance of his account and the Court found that
notarial rescission or cancellation was no longer necessary as
the seller has already filed in court a case for rescission of the
contract to sell. In the case at bar, respondent offered to pay for
her outstanding balance of the contract price but respondent
refused to accept it. Neither did petitioner adduce proof that the
respondents offer to pay was made after the effectivity date
stated in its notice of cancellation. Moreover, there was no
formal notice of cancellation or court action to rescind the
contract. Given the circumstances, we find it illegal and
iniquitous that petitioner, without complying with the mandatory
legal requirements for canceling the contract, forfeited both
respondents land and hard-earned money after she has paid
for, not just the contract price, but more than the consideration
stated in the contract to sell.
Thus, for failure to cancel the contract in accordance
with the procedure provided by law, we hold that the
contract to sell between the parties remains valid and
subsisting. Following Section 3(a) of R.A. No. 6552,
respondent has the right to offer to pay for the balance of
the purchase price, without interest, which she did in this
case. Ordinarily, petitioner would have had no other recourse
but to accept payment. However, respondent can no longer
exercise this right as the subject lot was already sold by the
petitioner to another buyer which lot, as admitted by the
petitioner, was valued at P1,700.00 per square meter. As
respondent lost her chance to pay for the balance of
the P875,000.00 lot, it is only just and equitable that the
petitioner be ordered to refund to respondent the actual value of
the lot resold, i.e., P875,000.00, with 12% interest per annum
computed from August 26, 1991 until fully paid or to deliver a
substitute lot at the option of the respondent.
On a final note, it would not be amiss to stress that the
HLURB Board Decision ordering petitioner to refund to
respondent one half of her total payments is not an equitable
solution as it punished the respondent for her delinquent
payments but totally disregarded petitioners failure to comply
with the mandatory requisites for a valid cancellation of the
contract to sell. The Board failed to consider that the Maceda
law was enacted to remedy the plight of low and middle-
income lot buyers, save them from the exacting default clauses
in real estate sales and assure them of a home they can call
their own. Neither would the Decision of the HLURB Arbiter
ordering a full refund of the installment payments of respondent
in the amount of P314,816.70 be justified as, under the law,
respondent is entitled to the lot she purchased after payment of
her outstanding balance which she was ready and willing to
do. Thus, to penalize the petitioner for failing in its obligation to
deliver the subject lot and to give the respondent what is rightly
hers, the petitioner was correctly ordered to refund to the
respondent the actual value of the land (P875,000.00) she lost
to another buyer, plus interest at the rate of 12% per annum
from August 26, 1991 until fully paid or to deliver a substitute lot
at the choice of the respondent.
IN VIEW WHEREOF, the Decision of then Chief
Presidential Legal Assistant Renato Corona, Office of the
President, dated June 2, 1998, is AFFIRMED in toto. Costs
against petitioner.
SO ORDERED.
G.R. No. 147695 September 13, 2007
MANUEL C. PAGTALUNAN, petitioner,
vs.
RUFINA DELA CRUZ VDA. DE MANZANO, respondent.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court of the Court of Appeals’ (CA) Decision
promulgated on October 30, 2000 and its Resolution dated
March 23, 2001 denying petitioner’s motion for reconsideration.
The Decision of the CA affirmed the Decision of the Regional
Trial Court (RTC) of Malolos, Bulacan, dated June 25, 1999
dismissing the case of unlawful detainer for lack of merit.
The facts are as follows:
On July 19, 1974, Patricio Pagtalunan (Patricio), petitioner’s
stepfather and predecessor-in-interest, entered into a Contract
to Sell with respondent, wife of Patricio’s former mechanic,
Teodoro Manzano, whereby the former agreed to sell, and the
latter to buy, a house and lot which formed half of a parcel of
land, covered by Transfer Certificate of Title (TCT) No. T-10029
(now TCT No. RT59929 [T-254773]), with an area of 236 square
meters. The consideration of P17,800 was agreed to be paid in
the following manner: P1,500 as downpayment upon execution
of the Contract to Sell, and the balance to be paid in equal
monthly installments of P150 on or before the last day of each
month until fully paid.
It was also stipulated in the contract that respondent could
immediately occupy the house and lot; that in case of default in
the payment of any of the installments for 90 days after its due
date, the contract would be automatically rescinded without
need of judicial declaration, and that all payments made and all
improvements done on the premises by respondent would be
considered as rentals for the use and occupation of the property
or payment for damages suffered, and respondent was obliged
to peacefully vacate the premises and deliver the possession
thereof to the vendor.
Petitioner claimed that respondent paid only P12,950. She
allegedly stopped paying after December 1979 without any
justification or explanation. Moreover, in a "Kasunduan"1 dated
November 18, 1979, respondent borrowed P3,000 from Patricio
payable in one year either in one lump sum payment or by
installments, failing which the balance of the loan would be
added to the principal subject of the monthly amortizations on
the land.
Lastly, petitioner asserted that when respondent ceased paying
her installments, her status of buyer was automatically
transformed to that of a lessee. Therefore, she continued to
possess the property by mere tolerance of Patricio and,
subsequently, of petitioner.
On the other hand, respondent alleged that she paid her
monthly installments religiously, until sometime in 1980 when
Patricio changed his mind and offered to refund all her
payments provided she would surrender the house. She
refused. Patricio then started harassing her and began
demolishing the house portion by portion. Respondent admitted
that she failed to pay some installments after December 1979,
but that she resumed paying in 1980 until her balance dwindled
to P5,650. She claimed that despite several months of delay in
payment, Patricio never sued for ejectment and even accepted
her late payments.
Respondent also averred that on September 14, 1981, she and
Patricio signed an agreement (Exh. 2) whereby he consented to
the suspension of respondent’s monthly payments until
December 1981. However, even before the lapse of said period,
Patricio resumed demolishing respondent’s house, prompting
her to lodge a complaint with the Barangay Captain who advised
her that she could continue suspending payment even beyond
December 31, 1981 until Patricio returned all the materials he
took from her house. This Patricio failed to do until his death.
Respondent did not deny that she still owed Patricio P5,650, but
claimed that she did not resume paying her monthly installment
because of the unlawful acts committed by Patricio, as well as
the filing of the ejectment case against her. She denied having
any knowledge of the Kasunduan of November 18, 1979.
Patricio and his wife died on September 17, 1992 and on
October 17, 1994, respectively. Petitioner became their sole
successor-in-interest pursuant to a waiver by the other heirs. On
March 5, 1997, respondent received a letter from petitioner’s
counsel dated February 24, 1997 demanding that she vacate
the premises within five days on the ground that her possession
had become unlawful. Respondent ignored the demand.
The Punong Barangay failed to settle the dispute amicably.
On April 8, 1997, petitioner filed a Complaint for unlawful
detainer against respondent with the Municipal Trial Court
(MTC) of Guiguinto, Bulacan praying that, after hearing,
judgment be rendered ordering respondent to immediately
vacate the subject property and surrender it to petitioner;
forfeiting the amount of P12,950 in favor of petitioner as rentals;
ordering respondent to pay petitioner the amount of P3,000
under the Kasunduan and the amount of P500 per month from
January 1980 until she vacates the property, and to pay
petitioner attorney’s fees and the costs.
On December 22, 1998, the MTC rendered a decision in favor of Bulacan and the ejectment case instead be dismissed
petitioner. It stated that although the Contract to Sell provides for lack of merit.3
for a rescission of the agreement upon failure of the vendee to
pay any installment, what the contract actually allows is properly The motion for reconsideration and motion for execution filed by
termed a resolution under Art. 1191 of the Civil Code. petitioner were denied by the RTC for lack of merit in an Order
dated August 10, 1999.
The MTC held that respondent’s failure to pay not a few
installments caused the resolution or termination of the Contract Thereafter, petitioner filed a petition for review with the CA.
to Sell. The last payment made by respondent was on January
9, 1980 (Exh. 71). Thereafter, respondent’s right of
In a Decision promulgated on October 30, 2000, the CA denied
possession ipso facto ceased to be a legal right, and became
the petition and affirmed the Decision of the RTC. The
possession by mere tolerance of Patricio and his successors-in-
dispositive portion of the Decision reads:
interest. Said tolerance ceased upon demand on respondent to
vacate the property.
WHEREFORE, the petition for review on certiorari is
Denied. The assailed Decision of the Regional Trial
The dispositive portion of the MTC Decision reads:
Court of Malolos, Bulacan dated 25 June 1999 and its
Order dated 10 August 1999 are hereby AFFIRMED.
Wherefore, all the foregoing considered, judgment is
hereby rendered, ordering the defendant:
SO ORDERED. 4

a. to vacate the property covered by

The CA found that the parties, as well as the MTC and RTC
Transfer Certificate of Title No. T-10029 of
failed to advert to and to apply Republic Act (R.A.) No. 6552,
the Register of Deeds of Bulacan (now TCT
more commonly referred to as the Maceda Law, which is a
No. RT-59929 of the Register of Deeds of
special law enacted in 1972 to protect buyers of real estate on
Bulacan), and to surrender possession
installment payments against onerous and oppressive
thereof to the plaintiff;
conditions.

b. to pay the plaintiff the amount

The CA held that the Contract to Sell was not validly cancelled
of P113,500 representing rentals from
or rescinded under Sec. 3 (b) of R.A. No. 6552, and recognized
January 1980 to the present;
respondent’s right to continue occupying unmolested the
property subject of the contract to sell.
c. to pay the plaintiff such amount of rentals,
at P500/month, that may become due after
The CA denied petitioner’s motion for reconsideration in a
the date of judgment, until she finally
Resolution dated March 23, 2001.
vacates the subject property;
Hence, this petition for review on certiorari.
d. to pay to the plaintiff the amount
of P25,000 as attorney’s fees.
Petitioner contends that:
SO ORDERED.2
A. Respondent Dela Cruz must bear the
consequences of her deliberate withholding of, and
On appeal, the RTC of Malolos, Bulacan, in a Decision dated
refusal to pay, the monthly payment. The Court of
June 25, 1999, reversed the decision of the MTC and dismissed
Appeals erred in allowing Dela Cruz who acted in bad
the case for lack of merit. According to the RTC, the agreement
faith from benefiting under the Maceda Law.
could not be automatically rescinded since there was delivery to
the buyer. A judicial determination of rescission must be
secured by petitioner as a condition precedent to convert the B. The Court of Appeals erred in resolving the issue
possession de facto of respondent from lawful to unlawful. on the applicability of the Maceda Law, which issue
was not raised in the proceedings a quo.
The dispositive portion of the RTC Decision states:
C. Assuming arguendo that the RTC was correct in
ruling that the MTC has no jurisdiction over a
WHEREFORE, judgment is hereby rendered reversing
rescission case, the Court of Appeals erred in not
the decision of the Municipal Trial Court of Guiguinto,
remanding the case to the RTC for trial.5
Petitioner submits that the Maceda Law supports and
recognizes the right of vendors of real estate to cancel the sale
outside of court, without need for a judicial declaration of
rescission, citing Luzon Brokerage Co., Inc., v. Maritime Building
Co., Inc.6
Petitioner contends that respondent also had more than the
grace periods provided under the Maceda Law within which to
pay. Under Sec. 37 of the said law, a buyer who has paid at
least two years of installments has a grace period of one month
for every year of installment paid. Based on the amount
of P12,950 which respondent had already paid, she is entitled to
a grace period of six months within which to pay her unpaid
installments after December, 1979. Respondent was given more
than six months from January 1980 within which to settle her
unpaid installments, but she failed to do so. Petitioner’s demand
to vacate was sent to respondent in February 1997.
There is nothing in the Maceda Law, petitioner asserts, which
gives the buyer a right to pay arrearages after the grace periods
have lapsed, in the event of an invalid demand for rescission.
The Maceda Law only provides that actual cancellation shall
take place after 30 days from receipt of the notice of
cancellation or demand for rescission and upon full payment of
the cash surrender value to the buyer.
Petitioner contends that his demand letter dated February 24,
1997 should be considered the notice of cancellation since the
demand letter informed respondent that she had "long ceased to
have any right to possess the premises in question due to [her]
failure to pay without justifiable cause." In support of his
contention, he cited Layug v. Intermediate Appellate
Court8 which held that "the additional formality of a demand on
[the seller’s] part for rescission by notarial act would appear, in
the premises, to be merely circuitous and consequently
superfluous." He stated that in Layug, the seller already made a
written demand upon the buyer.
In addition, petitioner asserts that whatever cash surrender
value respondent is entitled to have been applied and must be
applied to rentals for her use of the house and lot after
December, 1979 or after she stopped payment of her
installments.
Petitioner argues that assuming Patricio accepted respondent’s
delayed installments in 1981, such act cannot prevent the
cancellation of the Contract to Sell. Installments after 1981 were
still unpaid and the applicable grace periods under the Maceda
Law on the unpaid installments have long lapsed. Respondent
cannot be allowed to hide behind the Maceda Law. She acted
with bad faith and must bear the consequences of her deliberate
withholding of and refusal to make the monthly payments.
Petitioner also contends that the applicability of the Maceda Law
was never raised in the proceedings below; hence, it should not
have been applied by the CA in resolving the case.
The Court is not persuaded.
The CA correctly ruled that R.A No. 6552, which governs sales
of real estate on installment, is applicable in the resolution of
this case.
This case originated as an action for unlawful detainer.
Respondent is alleged to be illegally withholding possession of
the subject property after the termination of the Contract to Sell
between Patricio and respondent. It is, therefore, incumbent
upon petitioner to prove that the Contract to Sell had been
cancelled in accordance with R.A. No. 6552.
The pertinent provision of R.A. No. 6552 reads:
Sec. 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 cancelled, the seller shall
refund to the buyer the cash surrender value of
the payments on the property equivalent to fifty
percent of the total payments made and, after five
years of installments, an additional five percent every
year but not to exceed ninety percent 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.9
R.A. No. 6552, otherwise known as the "Realty Installment
Buyer Protection Act," recognizes in conditional sales of all
kinds of real estate (industrial, commercial, residential) the right
of the seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that prevents
the obligation of the vendor to convey title from acquiring
binding force.10 The Court agrees with petitioner that the
cancellation of the Contract to Sell may be done outside the
court particularly when the buyer agrees to such cancellation.
However, the cancellation of the contract by the seller must be
in accordance with Sec. 3 (b) of R.A. No. 6552, which requires a
notarial act of rescission and the refund to the buyer of the full
payment of the cash surrender value of the payments on the
property. Actual cancellation of the contract takes place after 30
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.
Based on the records of the case, the Contract to Sell was not
validly cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552.
First, Patricio, the vendor in the Contract to Sell, died on
September 17, 1992 without canceling the Contract to Sell.
Second, petitioner also failed to cancel the Contract to Sell in
accordance with law.
Petitioner contends that he has complied with the requirements
of cancellation under Sec. 3 (b) of R.A. No. 6552. He asserts
that his demand letter dated February 24, 1997 should be
considered as the notice of cancellation or demand for
rescission by notarial act and that the cash surrender value of
the payments on the property has been applied to rentals for the
use of the house and lot after respondent stopped payment after
January 1980.
The Court, however, finds that the letter11 dated February 24,
1997, which was written by petitioner’s counsel, merely made
formal demand upon respondent to vacate the premises in
question within five days from receipt thereof since she had
"long ceased to have any right to possess the premises x x x
due to [her] failure to pay without justifiable cause the
installment payments x x x."
Clearly, the demand letter is not the same as the notice of
cancellation or demand for rescission by a notarial actrequired
by R.A No. 6552. Petitioner cannot rely on Layug v.
Intermediate Appellate Court12 to support his contention that the
demand letter was sufficient compliance. Layug held that "the
additional formality of a demand on [the seller’s] part for
rescission by notarial act would appear, in the premises, to be
merely circuitous and consequently superfluous" since the seller
therein filed an action for annulment of contract, which is a
kindred concept of rescission by notarial act.13 Evidently, the
case of unlawful detainer filed by petitioner does not exempt him
from complying with the said requirement.
In addition, Sec. 3 (b) of R.A. No. 6552 requires refund of the
cash surrender value of the payments on the property to the
buyer before cancellation of the contract. The provision does not
provide a different requirement for contracts to sell which allow
possession of the property by the buyer upon execution of the
contract like the instant case. Hence, petitioner cannot insist on
compliance with the requirement by assuming that the cash
surrender value payable to the buyer had been applied to
rentals of the property after respondent failed to pay the
installments due.
There being no valid cancellation of the Contract to Sell, the CA
correctly recognized respondent’s right to continue occupying
the property subject of the Contract to Sell and affirmed the
dismissal of the unlawful detainer case by the RTC.
The Court notes that this case has been pending for more than
ten years. Both parties prayed for other reliefs that are just and
equitable under the premises. Hence, the rights of the parties
over the subject property shall be resolved to finally dispose of
that issue in this case.
Considering that the Contract to Sell was not cancelled by the
vendor, Patricio, during his lifetime or by petitioner in
accordance with R.A. No. 6552 when petitioner filed this case of
unlawful detainer after 22 years of continuous possession of the
property by respondent who has paid the substantial amount
of P12,300 out of the purchase price of P17,800, the Court
agrees with the CA that it is only right and just to allow
respondent to pay her arrears and settle the balance of the
purchase price.
For respondent’s delay in the payment of the installments, the
Court, in its discretion, and applying Article 220914 of the Civil
Code, may award interest at the rate of 6% per annum15 on the
unpaid balance considering that there is no stipulation in the
Contract to Sell for such interest. For purposes of computing the
legal interest, the reckoning period should be the filing of the
complaint for unlawful detainer on April 8, 1997.
Based on respondent’s evidence16 of payments made, the MTC
found that respondent paid a total of P12,300 out of the
purchase price of P17,800. Hence, respondent still has a
balance of P5,500, plus legal interest at the rate of 6% per
annum on the unpaid balance starting April 8, 1997.
The third issue is disregarded since petitioner assails an
inexistent ruling of the RTC on the lack of jurisdiction of the MTC
over a rescission case when the instant case he filed is for
unlawful detainer.
WHEREFORE, the Decision of the Court of Appeals dated
October 30, 2000 sustaining the dismissal of the unlawful
detainer case by the RTC is AFFIRMED with the
following MODIFICATIONS:
1. Respondent Rufina Dela Cruz Vda. de Manzano
shall pay petitioner Manuel C. Pagtalunan the balance
of the purchase price in the amount of Five Thousand
Five Hundred Pesos (P5,500) plus interest at 6% per
annum from April 8, 1997 up to the finality of this
judgment, and thereafter, at the rate of 12% per
annum;
2. Upon payment, petitioner Manuel C. Pagtalunan
shall execute a Deed of Absolute Sale of the subject
property and deliver the certificate of title in favor of
respondent Rufina Dela Cruz Vda. de Manzano; and
3. In case of failure to pay within 60 days from finality
of this Decision, respondent Rufina Dela Cruz Vda. de
Manzano shall immediately vacate the premises
without need of further demand, and the
downpayment and installment payments of P12,300
paid by her shall constitute rental for the subject
property.
No costs.
SO ORDERED.
G.R. No. 189145 December 4, 2013
OPTIMUM DEVELOPMENT BANK, Petitioner,
vs.
SPOUSES BENIGNO V. JOVELLANOS and LOURDES R.
JOVELLANOS, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the
Decision2 dated May 29, 2009 and Resolution 3 dated August
10, 2009 of the Court of Appeals (CA) in CA-G.R. SP No.
104487 which reversed the Decision4 dated December 27, 2007
of the Regional Trial Court of Caloocan City, Branch 128 (RTC)
in Civil Case No. C-21867 that, in turn, affirmed the
Decision5 dated June 8, 2007 of the Metropolitan Trial Court,
Branch 53 of that same city (MeTC) in Civil Case No. 06-28830
ordering respondents-spouses Benigno and Lourdes Jovellanos
(Sps. Jovellanos) to, inter alia, vacate the premises of the
property subject of this case.
The Facts
On April 26, 2005, Sps. Jovellanos entered into a Contract to
Sell6 with Palmera Homes, Inc. (Palmera Homes) for the
purchase of a residential house and lot situated in Block 3, Lot
14, Villa Alegria Subdivision, Caloocan City (subject property)
for a total consideration of ₱1,015,000.00. Pursuant to the
contract, Sps. Jovellanos took possession of the subject
property upon a down payment of ₱91,500.00, undertaking to
pay the remaining balance of the contract price in equal monthly
installments of ₱13,107.00 for a period of 10 years starting June
12, 2005.7
On August 22, 2006, Palmera Homes assigned all its rights, title
and interest in the Contract to Sell in favor of petitioner Optimum
Development Bank (Optimum) through a Deed of Assignment of
even date.8
On April 10, 2006, Optimum issued a Notice of Delinquency and
Cancellation of Contract to Sell9 for Sps. Jovellanos’s failure to
pay their monthly installments despite several written and verbal
notices.10
In a final Demand Letter dated May 25, 2006,11 Optimum
required Sps. Jovellanos to vacate and deliver possession of the
subject property within seven (7) days which, however,
remained unheeded. Hence, Optimum filed, on November 3,
2006, a complaint for unlawful detainer12 before the MeTC,
docketed as Civil Case No. 06-28830. Despite having been
served with summons, together with a copy of the
complaint,13 Sps. Jovellanos failed to file their answer within the
prescribed reglementary period, thus prompting Optimum to
move for the rendition of judgment.14
Thereafter, Sps. Jovellanos filed their opposition with motion to
admit answer, questioning the jurisdiction of the court, among
others. Further, they filed a Motion to Reopen and Set the Case
for Preliminary Conference, which the MeTC denied.
The MeTC Ruling
In a Decision15 dated June 8, 2007, the MeTC ordered Sps.
Jovellanos to vacate the subject property and pay Optimum
reasonable compensation in the amount of ₱5,000.00 for its use
and occupation until possession has been surrendered. It held
that Sps. Jovellanos’s possession of the said property was by
virtue of a Contract to Sell which had already been cancelled for
non-payment of the stipulated monthly installment payments. As
such, their "rights of possession over the subject property
necessarily terminated or expired and hence, their continued
possession thereof constitute[d] unlawful detainer."16
Dissatisfied, Sps. Jovellanos appealed to the RTC, claiming that
Optimum counsel made them believe that a compromise
agreement was being prepared, thus their decision not to
engage the services of counsel and their concomitant failure to
file an answer.17
They also assailed the jurisdiction of the MeTC, claiming that
the case did not merely involve the issue of physical possession
but rather, questions arising from their rights under a contract to
sell which is a matter that is incapable of pecuniary estimation
and, therefore, within the jurisdiction of the RTC.18
The RTC Ruling
In a Decision19 dated December 27, 2007, the RTC affirmed the
MeTC’s judgment, holding that the latter did not err in refusing to
admit Sps. Jovellanos’ s belatedly filed answer considering the
mandatory period for its filing. It also affirmed the MeTC’s finding
that the action does not involve the rights of the respective
parties under the contract but merely the recovery of possession
by Optimum of the subject property after the spouses’ default.20
Aggrieved, Sps. Jovellanos moved for reconsideration which
was, however, denied in a Resolution21 dated June 27, 2008.
Hence, the petition before the CA reiterating that the RTC erred
in affirming the decision of the MeTC with respect to:
(a) the non-admission of their answer to the complaint;
and
(b) the jurisdiction of the MeTC over the complaint for
unlawful detainer.22
The CA Ruling
In an Amended Decision23 dated May 29, 2009, the CA reversed
and set aside the RTC’s decision, ruling to dismiss the
complaint for lack of jurisdiction. It found that the controversy
does not only involve the issue of possession but also the
validity of the cancellation of the Contract to Sell and the
determination of the rights of the parties thereunder as well as
the governing law, among others, Republic Act No. (RA) 6552.24
Accordingly, it concluded that the subject matter is one which is
incapable of pecuniary estimation and thus, within the
jurisdiction of the RTC.25
Undaunted, Optimum moved for reconsideration which was
denied in a Resolution26 dated August 10, 2009. Hence, the
instant petition, submitting that the case is one for unlawful
detainer, which falls within the exclusive original jurisdiction of
the municipal trial courts, and not a case incapable of pecuniary
estimation cognizable solely by the regional trial courts.
The Court’s Ruling
The petition is meritorious. What is determinative of the nature
of the action and the court with jurisdiction over it are the
allegations in the complaint and the character of the relief
sought, not the defenses set up in an answer.27
A complaint sufficiently alleges a cause of action for unlawful
detainer if it recites that:
(a) initially, possession of the property by the
defendant was by contract with or by tolerance of the
plaintiff;
(b) eventually, such possession became illegal upon
notice by plaintiff to defendant of the termination of the
latter's right of possession;
(c) thereafter, defendant remained in possession of
the property and deprived plaintiff of the enjoyment
thereof; and
(d) within one year from the last demand on defendant
to vacate the property, plaintiff instituted the complaint
for ejectment.28
Corollarily, the only issue to be resolved in an unlawful detainer
case is physical or material possession of the property involved,
independent of any claim of ownership by any of the parties
involved.29
In its complaint, Optimum alleged that it was by virtue of the
April 26, 2005 Contract to Sell that Sps. Jovellanos were
allowed to take possession of the subject property. However,
since the latter failed to pay the stipulated monthly installments,
notwithstanding several written and verbal notices made upon
them, it cancelled the said contract as per the Notice of
Delinquency and Cancellation dated April 10, 2006. When Sps.
Jovellanos refused to vacate the subject property despite
repeated demands, Optimum instituted the present action for
unlawful detainer on November 3, 2006, or within one year from
the final demand made on May 25, 2006.
While the RTC upheld the MeTC’s ruling in favor of Optimum,
the CA, on the other hand, declared that the MeTC had no
jurisdiction over the complaint for unlawful detainer, reasoning
that the case involves a matter which is incapable of pecuniary
estimation – i.e., the validity of the cancellation of the Contract
to Sell and the determination of the rights of the parties under
the contract and law – and hence, within the jurisdiction of the
RTC. The Court disagrees. Metropolitan Trial Courts are
conditionally vested with authority to resolve the question of
ownership raised as an incident in an ejectment case where the
determination is essential to a complete adjudication of the
issue of possession.30 Concomitant to the ejectment court’s
authority to look into the claim of ownership for purposes of
resolving the issue of possession is its authority to interpret the
contract or agreement upon which the claim is premised. Thus,
in the case of Oronce v. CA,31 wherein the litigants’ opposing
claims for possession was hinged on whether their written
agreement reflected the intention to enter into a sale or merely
an equitable mortgage, the Court affirmed the propriety of the
ejectment court’s examination of the terms of the agreement in
question by holding that, "because metropolitan trial courts are
authorized to look into the ownership of the property in
controversy in ejectment cases, it behooved MTC Branch 41 to
examine the bases for petitioners’ claim of ownership that
entailed interpretation of the Deed of Sale with Assumption of
Mortgage."32 Also, in Union Bank of the Philippines v. Maunlad
Homes, Inc.33 (Union Bank), citing Sps. Refugia v. CA,34 the
Court declared that MeTCs have authority to interpret contracts
in unlawful detainer cases, viz.:35
The authority granted to the MeTC to preliminarily resolve the
issue of ownership to determine the issue of possession
ultimately allows it to interpret and enforce the contract or
agreement between the plaintiff and the defendant. To deny the
MeTC jurisdiction over a complaint merely because the issue of
possession requires the interpretation of a contract will
effectively rule out unlawful detainer as a remedy. As stated, in
an action for unlawful detainer, the defendant’s right to possess
the property may be by virtue of a contract, express or implied;
corollarily, the termination of the defendant’s right to possess
would be governed by the terms of the same contract.
Interpretation of the contract between the plaintiff and the
defendant is inevitable because it is the contract that initially
granted the defendant the right to possess the property; it is this
same contract that the plaintiff subsequently claims was violated
or extinguished, terminating the defendant’s right to possess.
We ruled in Sps. Refugia v. CA that – where the resolution of
the issue of possession hinges on a determination of the validity
and interpretation of the document of title or any other contract
on which the claim of possession is premised, the inferior court
may likewise pass upon these issues.
The MeTC’s ruling on the rights of the parties based on its
interpretation of their contract is, of course, not conclusive, but is
merely provisional and is binding only with respect to the issue
of possession. (Emphases supplied; citations omitted)
In the case at bar, the unlawful detainer suit filed by Optimum
against Sps. Jovellanos for illegally withholding possession of
the subject property is similarly premised upon the cancellation
or termination of the Contract to Sell between them. Indeed, it
was well within the jurisdiction of the MeTC to consider the
terms of the parties’ agreement in order to ultimately determine
the factual bases of Optimum’s possessory claims over the
subject property. Proceeding accordingly, the MeTC held that
Sps. Jovellanos’s non-payment of the installments due had
rendered the Contract to Sell without force and effect, thus
depriving the latter of their right to possess the property subject
of said contract.36 The foregoing disposition aptly squares with
existing jurisprudence. As the Court similarly held in the Union
Bank case, the seller’s cancellation of the contract to sell
necessarily extinguished the buyer’s right of possession over
the property that was the subject of the terminated agreement.37
Verily, in a contract to sell, the prospective seller binds himself
to sell the property subject of the agreement exclusively to the
prospective buyer upon fulfillment of the condition agreed upon
which is the full payment of the purchase price but reserving to
himself the ownership of the subject property despite delivery
thereof to the prospective buyer.38
The full payment of the purchase price in a contract to sell is a
suspensive condition, the non-fulfillment of which prevents the
prospective seller’s obligation to convey title from becoming
effective,39 as in this case. Further, it is significant to note that
given that the Contract to Sell in this case is one which has for
its object real property to be sold on an installment basis, the
said contract is especially governed by – and thus, must be
examined under the provisions of – RA 6552, or the "Realty
Installment Buyer Protection Act", which provides for the rights
of the buyer in case of his default in the payment of succeeding
installments. Breaking down the provisions of the law, the Court,
in the case of Rillo v. CA,40 explained the mechanics of
cancellation under RA 6552 which are based mainly on the
amount of installments already paid by the buyer under the
subject contract, to wit:41
Given the nature of the contract of the parties, the respondent
court correctly applied Republic Act No. 6552. Known as the
Maceda Law, R.A. No. 6552 recognizes in conditional sales of
all kinds of real estate (industrial, commercial, residential) the
right of the seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that prevents
the obligation of the vendor to convey title from acquiring
binding force. It also provides the right of the buyer on
installments in case he defaults in the payment of succeeding
installments, viz.:
(1) Where he has paid at least two years of 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:
period to be reckoned from the date the installment became
due; second, the seller must give the buyer a notice of
cancellation/demand for rescission by notarial act if the
buyer fails to pay the installments due at the expiration of the
said grace period; and third, the seller may actually cancel the
contract only after thirty (30) days from the buyer’s receipt of the
said notice of cancellation/demand for rescission by notarial act.
In the present case, the 60-day grace period automatically
operated42 in favor of the buyers, Sps. Jovellanos, and took
effect from the time that the maturity dates of the installment
payments lapsed. With the said grace period having expired
bereft of any installment payment on the part of Sps.
Jovellanos,43 Optimum then issued a notarized Notice of
Delinquency and Cancellation of Contract on April 10, 2006.
Finally, in proceeding with the actual cancellation of the contract
to sell, Optimum gave Sps. Jovellanos an additional thirty (30)
days within which to settle their arrears and reinstate the
contract, or sell or assign their rights to another.44

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 cancelled, 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 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 installments
made.
It was only after the expiration of the thirty day (30) period did
Optimum treat the contract to sell as effectively cancelled –
making as it did a final demand upon Sps. Jovellanos to vacate
the subject property only on May 25, 2006. Thus, based on the
foregoing, the Court finds that there was a valid and effective
cancellation of the Contract to Sell in accordance with Section 4
of RA 6552 and since Sps. Jovellanos had already lost their
right to retain possession of the subject property as a
consequence of such cancellation, their refusal to vacate and
turn over possession to Optimum makes out a valid case for
unlawful detainer as properly adjudged by the MeTC.
WHEREFORE, the petition is GRANTED. The Decision dated
May 29, 2009 and Resolution dated August 10, 2009 of the
Court of Appeals in CA-G.R. SP No. 104487 are SET ASIDE.
The Decision dated June 8, 2007 of Metropolitan Trial Court,
Branch 53, Caloocan City in Civil Case No. 06-28830 is hereby
REINSTATED.

(2) Where he has paid less than two years in installments, Sec. SO ORDERED.
4. x x x 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.
(Emphasis and underscoring supplied)

Pertinently, since Sps. Jovellanos failed to pay their stipulated

monthly installments as found by the MeTC, the Court examines
Optimum’s compliance with Section 4 of RA 6552, as above-
quoted and highlighted, which is the provision applicable to
buyers who have paid less than two (2) years-worth of
installments. Essentially, the said provision provides for three (3)
requisites before the seller may actually cancel the subject
contract: first, the seller shall give the buyer a 60-day grace
G.R. No. 204160 September 22, 2014
SPOUSES MICHELLE M. NOYNAY and NOEL S.
NOYNAY, Petitioners,
vs.
CITIHOMES BUILDER AND DEVELOPMENT,
INC., Respondent.
DECISION
MENDOZA, J.:
In this petition for review on certiorari1 under Rule 45 of the
Rules of Court, Spouses Noel and Michelle Noynay (Spouses
Noynay) assail the July 16, 2012 Decision2 of the Court of
Appeals (CA) and October 15, 2012 Resolution,3 which affirmed
with modification the September 17, 20 I 0 Decision4 of the
Regional Trial CoUii, Branch 21, Malolos, Bulacan ( RTCJ.
Earlier, the RTC reversed the March 26, 2010 Decision5 of the
Municipal Trial Court for Cities, San Jose Del Monte, Bulacan
(MTCC). which dismissed the complaint6 for unlawful detainer
filed by Citihomes Builder and Development, Inc. (Citihomes)
against Spouses Noynay for lack of cause of action.
The Facts:
On December 29, 2004, Citihomes and Spouses Noynay
executed a contract to sell7 covering the sale of a house and lot
located in San Jose Del Monte, Bulacan, and covered by
Transfer Certificate of Title (TCT) No. T-43469. Under the terms
of the contract, the price of the property was fixed at
₱915,895.00, with a downpayment of ₱183,179.00, and the
remaining balance to be paid in 120 equal monthly installments
with an annual interest rate of 21% commencing on February 8,
2005 and every 8th day of the month thereafter.
Subsequently, on May 12, 2005, Citihomes executed the Deed
of Assignment of Claims and Accounts8(Assignment)in favor of
United Coconut Planters Bank (UCPB) on May 12, 2005. Under
the said agreement, UCPB purchased from Citihomes various
accounts, including the account of Spouses Noynay, for a
consideration of ₱100,000,000.00. In turn, Citihomes assigned
its rights, titles, interests, and participation in various contracts
to sell with its buyers to UCPB.
In February of 2007, Spouses Noynay allegedly started to
default in their payments. Months later, Citihomes decided to
declare Spouses Noynay delinquent and to cancel the contract
considering that nine months of agreed amortizations were left
unpaid. On December 8, 2007, the notarized Notice of
Delinquency and Cancellation of the Contract To Sell,9 dated
November 21, 2007, was received by Spouses Noynay. They
were given 30 days within which to pay the arrears and failure to
do so would authorize Citihomes to consider the contract as
cancelled.
On June 15, 2009, Citihomes sent its final demand letter asking
Spouses Noynay to vacate the premises due to their continued
failure to pay the arrears. Spouses Noynay did not heed the
demand, forcing Citihomes to file the complaint for unlawful
detainerbefore the MTCC on July 29, 2009.
In the said complaint, Citihomes alleged that as per Statement
of Account as of March 18, 2009, SpousesNoynay had a total
arrears in the amount of ₱272,477.00, inclusive of penalties.
Thus, Citihomes prayed that Spouses Noynay be ordered to
vacate the subject property and pay the amount of ₱8,715.97 a
month as a reasonable compensation for the use and
occupancy to commence from January 8, 2007 until Spouses
Noynay vacate the same.
In its March 26, 2010 Decision,10 the MTCC dismissed the
complaint. It considered the annotation in the certificate of title,
which was dated prior to the filing of the complaint, which
showed that Citihomes had executed the Assignment favor of
UCPB, as having the legal effect of divesting Citihomes of its
interest and right over the subject property. As far as the MTCC
was concerned, Citihomes did not have a cause of action
against Spouses Noynay.
The RTC, however, reversedthe ruling of the MTCC. In its
September 17, 2010 Decision,11 the RTC stated that the MTCC
erred in interpreting the deed of assignment as having the effect
of relinquishing all of Citihomes’ rights over the subject property.
The RTC explained that the assignment was limited only to the
installment accounts receivables due from Spouses Noynay and
did not include the transfer of title or ownership over the
property. It pointed out that Citihomes remained as the
registered owner of the subject property, and so it had the right
to ask for the eviction of Spouses Noynay. As to the issue of
who had the better right of possession, the RTC ordered that the
records be remanded to the MTCC for the proper determination.
Spouses Noynay then went to the CA. On July 16, 2012, the CA
affirmed the conclusion of the RTC that Citihomes still had the
right and interest over the property in its capacity as the
registered owner. Moreover, the issue on who, between the
parties had a better possessory right over the property, was
resolved infavor of Citihomes.
In disposing the issue of possession, the CA primarily
recognized the relevance of Republic Act (R.A.)No. 6552,
otherwise known as the Realty Installment Buyer Act (Maceda
Law), in determining the limits of the right to possess of
Spouses Noynay in their capacity as defaulting buyers in a
realty installment scheme. Under the said law, the cancellation
of a contract would only follow if the requirements set forth
therein had been complied with, particularly the giving of a
"notice of delinquency and cancellation of the contract" to the
defaulting party and,in some cases, the payment to the buyer of
the cash surrender value if at least two years of installments had
been paid. The CA noted that Spouses Noynay failed to
complete the minimum two (2) years of installment, despite the
allegation that three (3) years of amortizations had already been
paid. As an effect, the CA pronounced that the termination of the
contract was validly effected by the expiration of the 30-day
period from the time the notice of cancellation was received by
Spouses Noynay. From thatmoment, the CA treated Spouses
Noynay to have lost the right to possess the property. In
addition, the CA made Spouses Noynay liable for the payment
of monthly rentals from the time their possession became illegal.
Spouses Noynay moved for reconsideration, but the CA denied
their motion.
Hence, this petition.
ISSUE
The lone issue presented for resolution is whether Citihomes
has a cause of action for ejectment against Spouses Noynay. In
effect, Spouses Noynay would have this Court determine
whether Citihomes may rightfully evict them.
Position of Spouses Noynay
Spouses Noynay insist that by virtue of the assignment of rights
which Citihomes executed in favor of UCPB, Citihomes did not
have a cause of action against them because it no longerhad an
interest over the subject property. Contrary to the findings of the
CA, the monthly installments amounting to three years were
already paid, by reason of which, Section 3(b) of the Maceda
Law should apply. This means that for the cancellation to be
effective, the cash surrender value should have been paid first
to them by Citihomes; and that because no payment was made,
it follows that no valid cancellation could also be effected.
Thisallegedly strengthened their right to the possession of the
property even to this day.
Position of Citihomes
Citihomes counters that it has the right to ask for the eviction of
the petitioners in its capacity as the registered owner despite the
assignment of rights it made to UCPB. It believes that because
Spouses Noynay failed to pay at least two (2) years of
installments, the cancellation became effective upon the
expiration of the 30-day periodfollowing the receipt of the notice
of delinquency and cancellation notice and without the need for
the payment of the cash surrender value under Section 3(b) of
the Maceda Law.
Ruling of the Court
Cause of action has been defined as an act or omission by
which a party violates a right of another.12 It requires the
existence of a legal right on the part of the plaintiff, a correlative
obligation of the defendant to respect such right, and an act or
omission of such defendant in violation of the plaintiff’s
rights.13 A complaint should not be dismissed for insufficiency of
cause of action if it appears clearly from the complaint and its
attachments that the plaintiff is entitled to relief.14 The complaint,
however, may be dismissed for lack of cause of action laterafter
questions of fact have been resolved on the basis of
stipulations, admissions or evidence presented.15
Relative thereto, a plaintiff in an unlawful detainer case which
seeks recovery of the property must prove one’s legal right to
evict the defendant, a correlative obligation on the part of such
defendant to respect the plaintiff’s right to evict, and the
defendant’s act or omission in the form of refusal to vacate upon
demand when his possession ultimately becomes illegal.
At first glance, the main thrust of the discussion in the lower
courts is the issue on whether Citihomes had suchright to evict
Spouses Noynay. At its core is the ruling of the MTCC thatthe
right to demand the eviction of Spouses Noynay was already
transferred to UCPB from the moment the Assignment was
executed by Citihomes, which was done prior to the institution of
the unlawful detainer case. Thus, based on the evidence
presented during the trial, the MTCC held that Citihomes did not
have a cause of action against Spouses Noynay.The RTC held
otherwise justifying that Citihomes may still be the right party to
evict Spouses Noynay in its capacity as the registered owner of
the property. The CA affirmed the RTC on this point.
The Court, however, agrees with the MTCC.
The determination of whether Citihomes has a right to ask for
the eviction of Spouses Noynay entirely depends on the review
of the Assignment of Claims and Accounts it executed in favor
of UCPB. If it turns out that what was assigned merely covered
the collectible amounts or receivables due from Spouses
Noynay, Citihomes would necessarily have the right to demand
the latter’s eviction asonly an aspect of the contract to sell
passed on to UCPB. Simply put, because an assignment
covered only credit dues, the relation between Citihomes as the
seller and Spouses Noynay as the buyer under their Contract to
Sell remained. If on the other hand, it appears that the
assignment covered all of Citihomes’ rights, obligations and
benefits in favor ofUCPB, the conclusion would certainly be
different.
Under the provisions of the Assignment, it was stipulated that:
NOW, THEREFORE, for and in consideration of the foregoing
premises, the ASSIGNOR hereby agrees as follows:
1. The ASSIGNOR hereby assigns, transfers and sets over unto
the ASSIGNEE all its rights, titles and interest in and to,
excluding its obligations under the Contract/s to Sellenumerated
and described in the List of Assigned Receivables which is
hereto attached and marked as Annex "A" hereof, including any
and all sum of money due and payable to the ASSIGNOR, the
properties pertaining thereto,all replacements, substitution,
increases and accretion thereof and thereto which the
ASSIGNOR has executed with the Buyers, as defined in the
Agreement, and all moneysdue, or which may grow upon the
sales therein set forth.
2. For purposes of this ASSIGNMENT, the ASSIGNOR hereby
delivers to the ASSIGNEE, which hereby acknowledges receipt
of the following documents evidencing the ASSIGNOR’s title,
right, interest, participation and benefit in the assigned
Installment Account Receivables listed in Annex "A" and made
as integral part hereof.
a) Original Contracts to Sell
b) Transfer Certificates of Title
3. The ASSIGNOR, hereby irrevocably appoints the ASSIGNEE
to be its true and lawful agent or representativefor it and in its
name and stead, but for such ASSIGNEE’s own benefit: (1) to
sell, assign, transfer, set over, pledge, compromise or discharge
the whole, or any part, of said assignment; (2) to do all acts and
things necessary, or proper, for any such purpose; (3) to ask,
collect, receive and sue for the moneys due, or which may grow
due, upon the said Assignment;and (4) to substitute one person,
or more, with like powers; hereby ratifying and confirming all that
said agent or representative, or his substitute, or substitutes,
shall lawfully do, by virtue hereof.16
[Emphases supplied]
Clearly, the conclusion of the MTCC had factual and legal
bases. Evident from the tenor of the agreement was the intent
on the part of Citihomes, as assignor, to assign all of its rights
and benefits in favor of UCPB. Specifically, what Citihomes did
was an assignment or transfer of all contractual rights arising
from various contracts to sell, including the subject contract to
sell, with all the rights, obligations and benefits appurtenant
thereto in favor of UCPB for a consideration of
₱100,000,000.00. Indeed, the intent was more than just an
assignment of credit. This intent to assign all rights under the
contract to sell was even fortified by the delivery of documents
such as the pertinent contracts to sell and the TCTs. Had it been
the intent of Citihomes to assign merely its interest in the
receivables due from Spouses Noynay, the tenor of the deed of
assignment would have been couched in very specific terms.
Included in those matters which were handed over to UCPB
were the provisions outlined in Section 6 of the Contract to Sell.
In the said provision, Citihomes, as the seller has been given
the right to cancel the contract to sell in cases of continuing
default by Spouses Noynay, to wit: SECTION 6. If for any
reason, whatsoever, the BUYER fails to pay three (3)
consecutive monthly installments, the provision of RA No. 6552
shall apply.
Where the BUYER has paid less than two (2) years of
installments and defaults in the payment of three (3)
consecutive monthly installment, he shall be given a grace
period of not less than sixty (60) days from the date the
installment payments became due and payable within which to
pay the installments and/or make payments in arrears together
with the installments corresponding to the months of the grace
period. In the event the BUYER continues to default in the
payment of the installments within or at the expiration of the
grace period herein provided, the SELLER shall have the right
to cancel this agreement thirty (30) days from the BUYER’s
receipt of the notice of cancellation or demand for rescission by
a notarial act. Thereafter, the SELLER may dispose of the
residential house and lot subject of this agreement in favor of
other persons as if this agreement had never been entered into.
WHERE the BUYER has paid atleast two (2) years of
installments and he defaults in the payment of three (3)
consecutive monthly installments, the SELLER shall be entitled:
a. To pay, without additional interest, the unpaid
installment due within the total grace period earned by
the BUYER which is fixed at the rate of one (1) month
grace period for every one (1) year of installment
payment made; Provided, that this right shall be
exercised by the BUYER only once for every five (5)
years of the life of this agreement.
b. If this agreement is cancelled, the SELLER shall
refund to the BUYER the cash surrender value of the
payments equivalent to fifty percent thereof and, after
five years of installments, an additional five percent
(5%) for every year but not to exceed ninety (90%) of
the total payments made; Provided, that the actual
cancellation of this agreement shall take place after
thirty (30) days from receipt by the BUYER of the
notice of cancellation or demand for rescission by a
notarial act and upon full payment of the cash
surrender value to the BUYER.
xxx xxx xxx
The BUYER, at the termination of the contract, shall promptly
surrender the said property to the SELLER, and should the
former fail to comply with the provision, on top of the remedy
provided for above, the BUYER hereby expressly appoints the
SELLER as their duly authorized attorney-in-fact with power and
authority to open, enter and take full possession of the property
in the presence of any peace officer and to take an inventory of
the equipment, furniture, merchandise and effect. In case the
BUYER fails to claim the said equipment, furniture, merchandise
and effects and/or liquidate their liabilities with the SELLER
within thirty (30) days from the date of transfer of possession of
the property to the latter, the SELLER is hereby given the right
to dispose of said property in a private or public sale and to
apply the proceeds to whatever expenses it may have incurred
in line with the warehousing of the equipment, furniture,
merchandise and effects.17
The exercise of such right to cancel necessarily determines the
existence of the right to evict Spouses Noynay. The existence of
the right to evict is the first constitutive element ofthe cause of
action in this unlawful detainer case. Considering,however, that
the right to cancel was already assigned prior to the
commencement of this controversy with the execution of the
Assignment, its legal consequences cannotbe avoided.
Well-established is the rule that the assignee is deemed
subrogated to the rights as well as to the obligations of the
seller/assignor. By virtue of the deed of assignment, the
assignee is deemed subrogated to the rights and obligations of
the assignor and is bound by exactly the same conditions as
those which bound the assignor.18 What can be inferred from
here is the effect on the status of the assignor relative to the
relations established by a contract which has been subsequently
assigned; that is, the assignor becomes a complete stranger to
all the mattersthat have been conferred to the assignee.
In this case, the execution of the Assignment in favor of UCPB
relegated Citihomes to the status of a mere stranger to the jural
relations established under the contractto sell. With UCPB as
the assignee, it is clear that Citihomes has ceased tohave any
right to cancel the contract to sell with Spouses Noynay. Without
this right,which has been vested in UCPB, Citihomes
undoubtedly had no cause ofaction against Spouses Noynay.
This is not to say that Citihomes lost all interest over the
property. To be clear, what were assigned covered only the
rights inthe Contract to Sell and not the property rights over the
house and lot, which remained registered under Citihomes’
name. Considering, however, that the unlawful detainer case
involves mere physical or materialpossession of the property
and is independent of any claim of ownership by any of the
parties,19 the invocation of ownership by Citihomes is immaterial
in the just determination of the case.
Granting that the MTCC erred in ruling that Citihomes had no
cause of action by reason of the Assignment it made in favor of
UCPB, the Court still upholds the right of the Spouses Noynay
to remain undisturbed in the possession of the subject property.
The reason is simple – Citihomes failed to comply with the
procedures for the proper cancellation of the contract to sell as
prescribed by Maceda Law.
In Pagtalunan v. Manzano,20 the Court stressed the importance
of complying with the provisions of the Maceda Law as to the
cancellation of contracts to sell involving realty installment
schemes. There it was held that the cancellation of the contract
by the seller must be in accordance with Section 3 (b) of the
Maceda Law, which requires the notarial act of rescission and
the refund to the buyer of the full payment of the cash surrender
value of the payments made on the property. The actual
cancellation of the contract takes place after thirty (30) 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
fullpayment of the cash surrender value to the buyer, to wit: (b)
If the contract is cancelled, the seller shall refund to the buyer
the cash surrender value of the payments on the
propertyequivalent to fifty percent of the total payments made
and, after five years of installments, an additional five percent
every year but not to exceed ninety percent 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 bya notarial act and upon full payment of the
cash surrender value to the buyer.
[Emphases supplied]
According to the lower courts, Spouses Noynay failed to
complete the two-year minimum period of paid amortizations,
thus, the cancellation of the contract to sell no longer required
the payment of the cash surrender value. This conclusion rests
on the allegation that the amortization payments commenced
only on May 31, 2005. If indeedit were true that the payments
started only on that date, Spouses Noynay would not have
completed the required two-year period to be entitled to the
payment of cash surrender value. Records, however, show
otherwise. The Contract to Sell, dated December 29, 2004, was
very particularon the matter. It stipulated as follows:
SECTION 1. NOW, THEREFORE, for and in consideration of
the sume of NINE HUNDRED FIFTEEN THOUSAND EIGHT
HUNDRED NINETY FIVE PESOS ONLY, (915,895.00)
Philippine Currency, inclusive of miscellaneous charges
hereunder set forth, and of the foregoing premises, the SELLER
hereby agrees to sell, cede and convey to the BUYER, their
heirs, administrators, and successors-in-interest, the
aforedescribed residential house and lot or lot only under the
following terms and conditions:
a. The amount of ONE HUNDRED EIGHTY THREE
THOUSAND ONE HUNDRED SEVENTY NINE
PESOS ONLY (₱183,179.00), Philippine Currency,
representing full downpayment shall be paid upon
signing of this contract.
 b. The balanceof the total purchase price in the
amount of SEVEN HUNDRED THIRTY TWO
THOUSAND SEVEN HUNDRED SIXTEEN PESOS
ONLY, (₱732,716..00), Philippine Currency shall be
paid by the BUYER in 120 equal monthly installments
in the amount of ₱14,649.31 per month with an
interest of 21% per annum to commenceon 02.08.05
and every 8th day of the month thereafter.21
Citihomes claimed that the period ofthe payment of the
amortizations started from May 31, 2005.22 As can be gleaned
from the contract to sell, however, it appears that the payment of
the downpayment started from the signing thereof on December
29, 2004.
To this end, the factual admissions made by the parties during
the preliminary conference would shed light on the matter. It
must be remembered that these judicial admissions are legally
binding on the party making the admissions. Similar to pre-trial
admissions in a pre-trial order in ordinary civil cases, the
contents of the record of a preliminary conference control the
subsequent course of the action, thereby, defining and limiting
the issues to be tried. A contrary ruling would render useless the
proceedings during the preliminary conference and would, in
fact, be antithetical to the very purpose of a preliminary
conference, which is, among others, to allow the parties to admit
and stipulate on a given set of facts and to simplify the issues
involved.23
The fairly recent case of Oscar Constantino v. Heirs of Oscar
Constantino,24 is most instructive:
In Bayas, et al. v. Sandiganbayan, et al., this Court emphasized
that:
Once the stipulations are reduced into writing and signed by the
parties and their counsels, they become binding on the parties
who made them. They become judicial admissionsof the fact or
facts stipulated. Even if placed at a disadvantageous position, a
party may not be allowed to rescind them unilaterally, it must
assume the consequences of the disadvantage.(citations
omitted)
Moreover, in Alfelor v. Halasan,this Court declared that:
A party who judicially admits a fact cannot later challenge the
fact as judicial admissions are a waiver of proof; production of
evidence is dispensed with. A judicial admissionalso removes
an admitted fact from the field of controversy. Consequently, an
admission made in the pleadings cannot be controverted by the
party making such admission and are conclusive as to such
party, and all proofs to the contrary or inconsistent therewith
should be ignored, whether objection is interposed by the party
or not. The allegations, statements or admissions contained in a
pleading are conclusive as against the pleader. A party cannot
subsequently take a position contrary of or inconsistent with
what was pleaded. (Citations omitted)
[Emphases supplied]
Here, Spouses Noynay proposed for stipulation the factual
allegation that they had been paying Citihomesthe monthly
amortization of the property for more than three (3) years and
only stopped payment by January 8, 2008. In the Preliminary
Conference Order,25 dated January 28, 2010, the MTCC noted
the said factas admitted, to wit:
The defendants proposed the following matters for stipulations:
1. That the defendants had already paid the plaintiff
the total amount of Php 633,000.00 – Not Admitted
2. That the defendants have beenpaying the plaintiff
the monthly amortization of the property for more than
three years and only stopped payment by January 8,
2008 – Admitted.26
xxx xxx x x x[Emphasis supplied]
Moreover, based on the Statement of Account,27 dated March
18, 2009, Spouses Noynay started defaulting from January 8,
2008. This shows that prior to that date, amortizations covering
the 3-year period, which started with the downpayment, had
been paid. This is consistent with the admission of Citihomes
during the preliminary conference. By its admission that
Spouses Noynay had been paying the amortizations for three
(3) years, there is no reason to doubt Spouses Noynay's
compliance with the minimum requirement of two years payment
of amortization, entitling them to the payment of the cash
surrender value provided for by law and by the contract to sell.
To reiterate, Section 3(b) of the Maceda Law requires that for an
actual cancellation to take place, the notice of cancellation by
notarial act and the full payment of the cash surrender value
must be first received by the buyer. Clearly, no payment of the
cash surrender value was made to Spouses Noynay.
Necessarily, no cancellation of the contract to selI could be
considered as validly effected.
Without the valid cancellation of the contract, there is no basis to
treat the possession of the property by Spouses Noynay as
illegal.1âwphi1 In AMOSUP-PTGWO-ITF v. Decena,28 the Court
essentially held that such similar failure' to validly cancel the
contract, meant that the possessor therein, similar to Spouses
Noynay in this case, remained entitled to the possession of the
property. In the said case, the Court stated:
In the parallel case of Pagtalunan v. Dela Cruz Vda. De
Manzano, which likewise originated as an action for unlawful
detainer, we affirmed the finding of the appellate court that, G.R. No. 178584 : October 8, 2012
since the contract to sell was not validly cancelled or rescinded
under Section 3(b) of R.A. No. 6552, the respondent therein had ASSOCIATED MARINE OFFICERS AND SEAMEN'S UNION
the right to continue occupying unmolested the property subject OF THE PHILIPPINES PTGWO-ITF, Petitioner, v. NORIEL
thereof. WHEREFORE, the petition is GRANTED. The July 16, DECENA, Respondent.
2012 Decision and October 15, 2012 Resolution of the Court of
Appeals are hereby REVERSED and SET ASIDE. The March
DECISION
26, 2010 Decision of the Municipal Trial Court for Cities is
REINSTATED.
PERLAS-BERNABE, J.:
SO ORDERED.
This Petition for Review on Certiorari seeks the reversal of the
Decision1ςrνll of the Court of Appeals (CA) dated July 31, 2006,
as well as the Resolution2ςrνll dated June 20, 2007, which
dismissed the complaint for unlawful detainer filed by petitioner
against respondent on the ground of prematurity, as petitioner
has not shown that it complied with the mandatory requirements
for a valid and effective cancellation of the contract to sell a
house and lot.

The Factual Antecedents

Associated Marine Officers and Seamen's Union of the

Philippines

PTGWO-ITF (petitioner) is a duly registered labor organization

engaged in an on-going Shelter Program, which offers
residential lots and fully-furnished houses to its members-
seafarers under a reimbursement scheme requiring no down
payment and no interest on the principal sum advanced for the
acquisition and development of the land and the construction of
the house.

On April 27, 1995, petitioner entered into a contract3ςrνll under

the Shelter Program with one of its members, Noriel Decena
(respondent), allowing the latter to take possession of a house
and lot described as 7 STOLT MODEL, Lot 16, Block 7, in the
Seamen's Village, Sitio Piela, Barangay Paliparan, Dasmaris,
Cavite, with the obligation to reimburse petitioner the cost
(US$28,563)4ςrνll thereof in 180 equal monthly payments. It was
stipulated in said contract that, in case respondent fails to remit
three (3) monthly reimbursement payments, he shall be given a
3-month grace period within which to remit his arrears,
otherwise, the contract shall be automatically revoked or
cancelled and respondent shall voluntarily vacate the premises
without need of demand or judicial action.5ςrνll

Subsequently, respondent failed to pay twenty-five (25) monthly

reimbursement payments covering the period August 1999 to
August 2001, despite demands. Hence, petitioner cancelled the
contract and treated all his reimbursement payments as rental
payments for his occupancy of the house and lot.

On August 21, 2001, petitioner sent respondent a notice of final

demand6ςrνll requiring him to fulfill his obligation within a 30-day
grace period. Thereafter, on October 18, 2001, his wife received
a notice to vacate7ςrνll the premises. For failure of respondent to
heed said notices, petitioner filed a complaint before the
barangay lupon and, eventually, a case for unlawful detainer,
docketed as Civil Case No. 12108ςrνllbefore the Municipal Trial
Court (MTC) of Dasmaris, Cavite.
The Ruling of the MTC
On December 4, 2002, the MTC found petitioner's case
meritorious and, thus, rendered judgment9ςrνllordering
respondent to (1) vacate the premises; (2) pay monthly rental in
the amount of P 8,109.00 from August 1999 with legal interests
thereon until he has actually and fully paid the same; and (3)
pay attorney's fees in the amount of P 30,000.00, as well as the
costs of suit.
The Ruling of the RTC
On appeal (App. Civil Case No. 312-03), the Regional Trial
Court (RTC) of Imus, Cavite, affirmed10ςrνll in toto the decision
of the MTC after finding that the cancellation and revocation of
the contract for failure of respondent to remit 25 monthly
reimbursement payments converted the latter's stay on the
premises to one of "mere permission"11ςrνll by petitioner, and
that respondent's refusal to heed the notice to vacate the
premises rendered his continued possession thereof
unlawful.12ςrνll
With respect to the issue raised by respondent that the instant
case is covered by Republic Act No. 6552 (R.A. No.
6552),13ςrνll the Maceda Law, the RTC ruled in the negative,
ratiocinating that the Shelter Contract Award is neither a
contract of sale nor a contract to sell. Rather, it is "more akin to
a contract of lease with the monthly reimbursements as
rentals."14ςrνll
The Ruling of the Court of Appeals
On petition for review (CA-G.R. SP No. 81954) before the CA,
the appellate court set aside the decision of the RTC and
entered a new judgment15ςrνll dismissing the complaint for
unlawful detainer and restoring respondent to the peaceful
possession of the subject house and lot. The CA held that the
contract between the parties is not a contract of lease, but a
contract to sell, which stipulates that upon full payment of the
value of the house and lot, respondent shall become the owner
thereof.16ςrνll The issues, which involve "the propriety of
terminating the relationship contracted by the parties, as well as
the demand upon [respondent] to deliver the premises and to
pay unpaid reimbursements,"17ςrνll extend beyond those
commonly involved in unlawful detainer suits, thus, converting
the instant case into one incapable of pecuniary estimation
exclusively cognizable by the RTC.18ςrνll
Moreover, the appellate court faulted petitioner for failing to
comply with the mandatory twin requirements for a valid and
effective cancellation of a contract to sell under Section 3 (b) of
R.A. No. 6552: (1) to send a notarized notice of cancellation,
and (2) to refund the cash surrender value of the payments on
the property. Consequently, it held that the contract to sell still
subsists, at least until properly rescinded, and the action for
ejectment filed by petitioner is premature.19ςrνll
Aggrieved, petitioner filed a motion for reconsideration, which
was denied by the CA in its Resolution20ςrνlldated June 20,
2007. Hence, petitioner is now before this Court alleging that
The Issues
1. The Honorable Court of Appeals erred in changing the main
issue to be resolved in the instant unlawful detainer case from
who has the better right of possession to whether or not the
agreement between the parties is a contract of lease or a
contract to sell, especially when the nature of the agreement
between the parties was never questioned nor raised as an
issue in the court a quo.
2. Even assuming that the Honorable Court of Appeals was
correct in changing the main issue to be resolved, it
nevertheless erred in determining that:
a. The agreement between the parties is allegedly one of
contract to sell when the Housing and Land Use Regulatory
Board itself already made a pronouncement that the Shelter
Program and its contract award is not a sale of real estate.
b. The action for unlawful detainer filed by petitioner AMOSUP is
allegedly premature especially considering that Republic Act No.
6552, which requires notarial notice of rescission, is not
applicable to the case at bar and, thus, the written notice of
termination previously served on the respondent is already
sufficient.21ςrνll
The Ruling of the Court
It is basic that a contract is what the law defines it to be, and not
what it is called by the contracting parties. A contract to sell is
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 said property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full payment of
the purchase price.22ςrνll
The Shelter Contract Award granted to respondent expressly
stipulates that "upon completion of payment of the amount of
US$28,563 representing the full value of the House and Lot
subject of the Contract Award, the UNION shall execute a Deed
of Transfer and shall cause the issuance of the corresponding
Transfer Certificate of Title in favor of and in the name of the
AWARDEE."23ςrνll It cannot be denied, therefore, that the
parties herein entered into a contract to sell in the guise of a
reimbursement scheme requiring respondent to make monthly
reimbursement payments which are, in actuality, installment
payments for the value of the subject house and lot.
While respondent occupied the subject premises, title
nonetheless remained with petitioner. Considering, therefore,
that the basis for such occupation is a contract to sell the
premises on installment, the contractual relations between the
parties are more than that of a lessor-lessee.24ςrνll The
appellate court thus correctly ruled that the Shelter Contract
Award has not been converted into one of lease.
Petitioner tried, albeit in vain, to mislead the Court that the
nature of the agreement between the parties, and even the
validity of the termination thereof, were never raised in the trial
courts. In the pre-trial brief filed by respondent before the MTC,
the first issue he presented is "whether or not the present action
is a simple case of or an action for unlawful detainer or an action
for rescission of the Contract of Shelter Award which is outside
of the jurisdiction of the Honorable Court."25ςrνll
In the parallel case of Pagtalunan v. Dela Cruz Vda. De
Manzano,26ςrνll which likewise originated as an action for
unlawful detainer, we affirmed the finding of the appellate court
that, since the contract to sell was not validly cancelled or
rescinded under Section 3(b) of R.A. No. 6552, the respondent
therein had the right to continue occupying unmolested the
property subject thereof. Section 3(b) reads:
SEC. 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:chanroblesvirtuallawlibrary
xxx
(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. (Emphasis supplied)
As we emphasized in Pagtalunan, "R.A. No. 6552, otherwise
known as the Realty Installment Buyer Protection Act,
recognizes in conditional sales of all kinds of real estate
(industrial, commercial, residential) the right of the seller to
cancel the contract upon non-payment of an installment by the
buyer, which is simply an event that prevents the obligation of
the vendor to convey title from acquiring binding force." While
we agreed that the cancellation of a contract to sell may be
done outside of court, however, "the cancellation by the seller
must be in accordance with Sec. 3(b) of R.A. No. 6552, which
requires a notarial act of rescission and the refund to the buyer
of the full payment of the cash surrender value of the payments
on the property."27ςrνll In the present case, as aptly pointed out
by the appellate court, petitioner failed to prove that the Shelter
Contract Award had been cancelled in accordance with R.A. No.
6552, which would have been the basis for the illegality of
respondent's possession of the subject premises. Hence, the
action for ejectment must necessarily fail.
Petitioner nonetheless insists on the inapplicability of R.A. No.
6552 in this case, capitalizing on the Decision28ςrνll of the
Housing and Land Use Regulatory Board in HLURB CASE No.
IV6-090902-1842 entitled "Seamen's Village Brotherhood
Homeowners Association, Inc. v. Associated Marine Officers
And Seamen's Union of the Philippines (AMOSUP)" which held
that the transaction between petitioner and the residents of
Seamen's Village cannot be considered a sale within the
purview of Presidential Decree (P.D.) No. 957.29ςrνll It should be
pointed out that the only issue resolved in that case is "whether
or not the respondent (petitioner herein) is engaged in the
business of selling real estate subdivisions, so as to fall under
the ambit of P.D. 957, the resolution of which would determine
whether or not respondent is required under the law to register
with (the) Office and procure a license to sell."30ςrνll
Section 2(b) of P.D. 957 defines a sale as
follows:chanroblesvirtuallawlibrary
b.) Sale or Sell "sale" or "sell" shall include every disposition, or
attempt to dispose, for a valuable consideration, of a subdivision
lot, including the building and other improvements thereon, if
any, in a subdivision project or a condominium unit in a
condominium project. "Sale" or "sell" shall include a contract to
sell, a contract of purchase and sale, an exchange, an attempt
to sell, an option of sale or purchase, a solicitation of a sale, or
an offer to sell, directly or by an agent, or by a circular letter,
advertisement or otherwise.
A privilege given to a member of a cooperative, corporation,
partnership, or any association and/or the issuance of a
certificate or receipt evidencing or giving the right of participation
in, or right to any land in consideration of payment of the
membership fee or dues, shall be deemed a sale within the
meaning of this definition.
A reading of the Decision in its entirety reveals a vacillation on
the part of the HLURB in classifying the transaction between
petitioner and its members. While the HLURB held that there is
no sale as contemplated under the first paragraph of the
aforequoted provision "for the reason that there is no valuable
consideration involved in the transaction,"31ςrνll yet it went on to
opine that the second paragraph of the same provision "appears
to have an apparent application in the instant case although the
same is not clear."32ςrνll Then, in its final disposition,33ςrνll the
HLURB required petitioner to secure a Certificate of Registration
and License to Sell for its subdivision project thereby effectively
bringing it under the jurisdiction of said office. Clearly, the
argument of petitioner that respondent is not a realty installment
buyer that needs to be protected by the law has no leg to stand
on.
1. The Municipal Trial Court of Dasmaris, Cavite is directed to
conduct a hearing, within a maximum period of thirty (30) days
from receipt of this Decision, to determine: (a) the unpaid
balance of the full value of the subject house and Jot; and (b)
the reasonable amount of rental for the subject property at
present times.
2. Within sixty (60) days from the determination of the trial court
of said balance, respondent shall pay the amount thereof to
petitioner, with interest at six percent ( 6%) per annum from
August 1, 2001 up to the date of actual payment;
3. Upon payment, petitioner shall execute a Deed of Absolute
Sale of the subject property and deliver the transfer certificate of
title in favor of respondent;

In the interest, however, of putting an end to the controversy

4. In case of failure to pay within the mandated 60-day period,
between the parties herein that had lasted for more than ten
respondent shall immediately vacate the premises without need
(10) years, as in the cited case of Pagtalunan, the Court orders
of further demand. Petitioner, on the other hand, shall pay
respondent to pay his arrears and settle the balance of the full
respondent the cash surrender value equivalent to 50% of the
value of the subject premises. He had enjoyed the use thereof
total reimbursement payments made. The Shelter Contract
since 1995. After defaulting in August 1999, respondent had not
Award shall then be deemed cancelled thirty (30) days after
made any subsequent reimbursement payments. Thus, for the
receipt by respondent of the full payment of the cash surrender
delay in his reimbursement payments, we award interest at the
value. If respondent fails to vacate the premises, he shall be
rate of 6% per annum on the unpaid balance applying Article
charged reasonable rental in the amount determined by the trial
220934ςrνll of the Civil Code, there being no stipulation in the
court.
Shelter Contract Award for such interest.35ςrνll For purposes of
computing the legal interest, the reckoning period should be the
notice of final demand, conformably with Articles 116936ςrνll and SO ORDERED.
158937ςrνll of the same Code, which, as found by the MTC, was
sent by petitioner to respondent on August 21, 2001.38ςrνll

In his Comment to the instant Petition, respondent claimed that

he had made payments in the amount
of P 318,167.70.39ςrνll The total amount for reimbursement for
the subject house and lot is US$28,563, which the Shelter
Contract Award requires to be paid in "180 equal monthly
periodic reimbursements of US$159 or in equivalent Philippine
Currency at the time the same falls due."40ςrνll For lack of
pertinent data with which to determine how many months
respondent's alleged total payment of P 318,167.70 is
equivalent to, we direct petitioner to submit to the trial court an
accounting of the payments made by respondent particularly
showing the number of months he was able to make the
required payments of US$159 or its peso equivalent. The
balance of the full value of the subject premises shall then be
computed on the basis of the following formula: (180 months
minus the number of months that respondent had already paid)
multiplied by US$159 or its peso equivalent at the time of
payment.

WHEREFORE, the Decision of the Court of Appeals dated July

31, 2006 and the Resolution dated June 20, 2007 are
hereby AFFIRMED with the following MODIFICATIONS: