Cruz v Filipinas Investment and Finance Corporation (Civil Procedure)
What is an action?
Ruperto G. Cruz, et. al. v. Filipinas Investment and Finance Corporation
Facts:
· Petitioner Ruperto Cruz purchased on installments one (1) unit of Isuzu
Diesel bus from Far East Motors;
· Petitioner issued a promissory note as evidence of his indebtedness to
Far East Motors;
· To secure such promissory note, chattel mortgage was instituted on the
said vehicle;
· Since no down payment was made by Cruz, an additional security was
required by Far East Motors;
· The additional security was given by plaintiff Felicidad de Reyes over
her land which at the time was mortgaged to DBP;
· Later, Far East Motors assigned all its rights and interests to the Deed of
Chattel Mortgage and Deed of Real Estate Mortgage to respondent, with due
notice of assignment to the petitioners;
· Subsequently, petitioner defaulted on the promissory note so respondent
foreclosed the chattel mortgage on the bus;
· However, the proceeds from the chattel mortgage were insufficient to
discharge fully the indebtedness;
· Preparatory to extra-judicially foreclosing the real estate mortgage on
Reyes’ land, defendant paid DBP her unpaid balance;
· Petitioner Reyes sent a letter demanding cancellation of her real estate
mortgage, but defendant did not heed so the former instituted a suit against
the latter for cancellation of said real estate mortgage;
Lower court rulings:
RTC: sustained petitioner and declared that the extrajudicial foreclosure of the
chattel mortgage on the bus barred further action against the additional security
put up by Reyes
Ratio of the lower court:
There is no controversy that, involving as it does a sale of personal property
on installments, the pertinent legal provision in this case is Article 1484 of the
Civil Code, to wit:
“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 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.
VERY IMPORTANT FACTUAL MILIEU:
*defendant brought the present appeal immediately to the Supreme Court
arguing, among others, that the law speaks of “action”, the restriction should
be confined only to the bringing of judicial suits or proceedings in court
Issue: WON the action referred in Art. 1484 is confined only to those actions
where there is a judicial suit or proceeding in court
Ruling: No, the “action” referred to in Art. 1484 is not limited to judicial
suits or proceedings.
The word ‘action’ is without a definite or exclusive meaning. It has invariably
been defined as:
“…the legal demand of one’s right, or rights;
…the lawful demand of one’s right in a court of justice;
…the legal and formal demand of one’s rights from another person or party,
made and insisted on in a court of justice;
…a claim made before a tribunal;
…an assertion in a court of justice of a right given by law;
…a demand or legal proceeding in a court of justice to secure one’s rights;
…the prosecution of some demand in a court of justice;
…the means by which men litigate with each other;
…the means that the law has provided to put the cause of action into effect;…”
Considering the purpose for which the prohibition contained in Article 1484,
the word “action” used therein may be construed as referring to any judicial or
extrajudicial proceeding by virtue of which the vendor may lawfully be
enabled to exact recovery of the supposed unsatisfied balance of the
purchasing price form the purchaser or his privy. Certainly, an extrajudicial
foreclosure of a real estate mortgage is one such proceeding.
Issues: (1) Whether Filipinas may foreclose the real estate mortgage.
Held:
should the vendee or purchaser of a personal property default in the payment
of two or more of the agreed instalments, the vendor or seller has the option
to avail of any one of these three remedies — either to exact fulfilment by the
purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage
on the purchased personal property, if one was constituted. These remedies
have been recognized as alternative, not cumulative, that the exercise of one
would bar the exercise of the others. It may also be stated that the established
rule is to the effect that the foreclosure and actual sale of a mortgaged chattel
bars further recovery by the vendor of any balance on the purchaser's
outstanding obligation not so satisfied by the sale.
Considering the purpose for which the prohibition contained in Article 1484
was intended, the word "action" used therein may be construed as referring to
any judicial or extrajudicial proceeding by virtue of which the vendor may
lawfully be enabled to exact recovery of the supposed unsatisfied balance of
the purchase price from the purchaser or his privy. Certainly, an extrajudicial
foreclosure of a real estate mortgage is one such proceeding.
Levy Hermanos, Inc. v. Gervacio
G.R. No. L-46306 October 27, 1939
Santos, J.
Facts:
Levy Hermanos, Inc. (Levy for brevity) sold to Lazaro Blas
Gervacio, a Packard car. The latter, 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 annum; to secure the payment of
the note, he mortgaged said car to Levy Gervacio failed to pay the note it
its maturity. Levy foreclosed the mortgage and the car was sold at public
auction, at which plaintiff was the highest bidder for P1,800. It brought an
action to collect the balance P1,600 and interest (note that P2,400 was the
amount due from Gervacio).
Issue:
whether or not the cash payment made by Gervacio should be
considered as an installment in order to bring the contract sued upon within
the ambit of Art. 1454-A of the old Civil Code
Held:
No. 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 order to apply the provisions of article 1454-A of the old 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 this 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 Article 1454-A and accordingly
the mortgagee is not bound by the prohibition therein contained as to the
right to the recovery of the unpaid balance.
Topic
TREATMENT OF THE INSTALLMENT PAYMENTS AS RENTALS
Case No.
September 2, 1992
Case Name
Delta Motor Sales Corporation v Niu Kim Duan
Ponente
Nocon, J.
RELEVANT FACTS
• Defendants Niu Kim Duan and Chan Fue Eng bought 3 units of
Daikin air conditioner, all valued at P19,350, from plaintiff Delta
Motor.
• Deed of Conditional Sale terms:
• Defendants pay downpayment of P774 and balance of
P18,576 paid in 24 installments
• The title to the properties shall remain with Delta until the
purchase price is fully paid
• If any 2 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
• 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
• Also contained these paragraphs:
• Paragraph 5
• If buyer fails to pay any of the
monthly installments when due, or
otherwise fail to comply with any of
the terms and conditions stipulated,
the contract shall automatically
become null and void and all sums
paid by buyer shall be considered as
rental and the seller shall be free to
take possession thereof
• Paragraph 7
• Should seller rescind this contract for
any of the reasons stipulated, the
buyer obligates himself to peacefully
deliver the property to the seller
• The 3 air conditioners were delivered and received by the
defendants. They were able to pay P6,966 but after that, they failed
to pay at least 2 monthly installments.
• As of January 6, 1977, the remaining unpaid obligation amounted to
P12,920.08. The defendants were unable to pay, even after Delta’s
collectors went to them personally.
• Delta tried to recover the properties extra-judicially, but failed to do
so. Therefore, Delta prayed for the issuance of a writ of replevin.
• Delta posted the requisite bond and succeeded in
retrieving the air conditioners.
• As of October 3, 1977, the outstanding account of the defendants is
only P6,188.29, after deducting the value of the units, interests in
arrears, cover charges, replevin bond premiums, etc.
• Because of the failure of the defendants to pay their
obligation, the P6,966 which the defendants were able to
pay through installments were treated as rentals for 2
years.
• Delta sought a judicial declaration to validly rescind the Deed of
Conditional Sale.
• RTC: Deed of Conditional Sale rescinded
• Defendants were ordered to pay Delta P6,188.29 with a
14% per annum interest
• Defendants assail the Deed of Conditional Sale, particularly
paragraphs 5 and 7, as iniquitous
• They claim that for the use of the air conditioners for a
period of 22 months, they paid rentals of P6,429.92 or 1/3
of the air conditioners
But the TC is also ordering them to pay the balance due for the repossessed
air conditioners (P6,188.29)
RATIO DECIDENDI
Issue
Ratio
WN Delta may claim the balance due of the air conditioners after
repossessing the same and having the contract rescinded – NO
• Remedies of a vendor in a sale of personal property payable in
installments:
• Exact the fulfillment of the obligation should the vendee
fail to pay
• Cancel the sale upon the vendee’s failure to pay 2 or more
installments
• Foreclose the chattel mortgage, if one has been constituted
on the property sold, upon the vendee’s failure to pay 2 or
more installments
• 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, CC)
• These remedies are alternative and NOT cumulative.
• Vendor may only choose one and once he does so, he
cannot avail of the other 2 remedies.
• ITC: Vendors already took possession of the properties through a
writ of replevin. Delta sought to have the Deed validly rescinded.
Delta chose the 2nd remedy.
• Delta is barred from exacting payment for the balance of the price
which it already repossessed.
• “It cannot have its cake and eat it too.”
On the application of the payment as rentals:
• 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 (Article 1486, CC).
• ITC: Defendants were only able to pay for 7 monthly
installments and failed to pay for 15 monthly installments.
During this period, they were using it for free.
• Under the circumstances, the treatment of the installment
payments as rentals cannot be said to be unconscionable.
RULING
Judgment SET ASIDE and complaint filed by plaintiff is DISMISSED
Tajanlangit v. Southern Motors
GR L-10789
Facts: The petitioner bought 2 tractors and a thresher for 25K from the
respondent on the condition to pay the said property in an instalment
basis.
However the petitioner failed to pay the purchase price, and subsequently
the respondent filed a case and levied the execution on the said property
sold, and subsequently bought the subject property in a public auction for
10K.
The respondent obtain another writ of execution for the real properties of
the petitioner, herein the latter filed a petition contending that the
obligation was already satisfied because the property sold was returned to
the respondent, and that the respondent was only limited to the proceeds
of the sale.
Issue: Whether or not the vendor of a movable on instalment is limited to
the proceeds of the sale.
Held: No, in the sale of movables on instalment the vendor has 3
remedies 1) Exact fulfillment of the obligation 2) Cancellation of the sale
if the buyer failed to pay 2 or more instalment and 3) To foreclose the
chattel mortgage over the good being sold if the buyer failed to pay 2 or
more instalments, but this will bar the seller from further recovery.
At the present case since the seller chooses the exact fulfilment of the
obligation the seller may still recover from the other property of the
buyer.
Topic
Remedy of rescission
Case No.
G.R. No. L-67181 November 22, 1985
Case Name
Nonato v. IAC 140 SCRA 255 (1985)
SPOUSES RESTITUTO NONATO and ESTER NONATO vs.
INTERMEDIATE APPELLATE COURT and INVESTOR'S FINANCE
CORPORATION
Ponente
ESCOLIN, J.
FACTS
• On June 28, 1976, spouses Restituto Nonato and Ester Nonato purchased
one (1) unit of Volkswagen Sakbayan from the People's Car, Inc., on
installment basis
• To secure complete payment, sps Nonato executed a promissory note
and a chattel mortgage in favor of People's Car, Inc,.
• People's Car, Inc., assigned its rights and interests over the note and
mortgage in favor of Investor's Finance Corporation (IFC).
• For failure of sps Nonato to pay two or more installments, despite
demands, the car was repossessed by IFC on March 20, 1978.
• Despite repossession, IFC demanded from the sps that they pay the
balance of the car price.
• On June 9, 1978, IFC filed before the Court of First Instance of Negros
Occidental the present complaint against sps Nonato for the latter to pay
the balance of the price of the car, with damages and attorney's fees.
• spouses Nonato defense:
− that when the company repossessed the vehicle, it had, by that
act, effectively cancelled the sale of the vehicle
− it is therefore barred from exacting recovery of the unpaid
balance of the purchase price, as mandated by the provisions of
Article 1484 of the Civil Code.
• CFI of Negros Occidental:
− decision in favor of the IFC and against the Nonatos, as follows:
− pay to the plaintiff the amount of P 17,537.60 with interest at
the rate of 14% per annum from July 28, 1976 until fully paid,
− 10% of the amount due as attorney's fees, litigation expenses in
the amount of P 133.05 plus the costs of this suit.
− No pronouncement as to other charges and damages, the same
not having been proven to the satisfaction of the Court. 1
• Intermediate Appellate Court: On appeal, affirmed the judgment.
Issue
Ratio
W/N a vendor, or his assignee, who had cancelled the sale of a motor
vehicle for failure of the buyer to pay two or more of the stipulated
installments, may also demand payment of the balance of the purchase
price.
No. 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 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.
The meaning of the aforequoted provision has been repeatedly enunciated in a
long line of cases. Thus: "…These remedies have been recognized as
alternative, not cumulative, that the exercise of one would bar the exercise
of the others.
- The respondent company had taken possession of the car upon default of
installment payments
- Sps Nonato: the company had, by that act, exercised its option to cancel
the contract of sale
- IFC: repossession of the vehicle was only for the purpose of appraising
its value and for storage and safekeeping pending full payment by the
Nonatos of the purchasing price
- The company thus denies having exercised its right to cancel the sale of
the repossessed car. The records show otherwise.
The receipt issued by the respondent company to the Nonatos when it took
possession of the vehicle states that the vehicle could be redeemed within
fifteen [15] days. This could only mean that should petitioners fail to redeem
the car within the aforesaid period by paying the balance of the purchase price,
the company would retain permanent possession of the vehicle, as it did in fact.
This was confirmed by Mr. Ernesto Carmona, the company's witness, who
testified, to wit:
ATTY. PAMPLONA:
So that Mr. Witness, it is clear now that, per your receipt and your answer, the
company will not return the unit without paying a sum of money, more
particularly the balance of the account?
WITNESS: Yes, sir.
Respondent corporation further asserts that it repossessed the vehicle merely
for the purpose of appraising its current value. The allegation is untenable, for
even after it had notified the Nonatos that the value of the car was not sufficient
to cover the balance of the purchase price, there was no attempt at all on the
part of the company to return the repossessed car,
The acts performed by the corporation are wholly consistent with the
conclusion that it had opted to cancel the contract of sale of the vehicle. It
is thus barred from exacting payment from petitioners of the balance of the
price of the vehicle which it had already repossessed. It cannot have its cake
and eat it too.
RULING
The judgment of the appellate court is hereby set aside and the complaint filed
by respondent Investors Finance Corporation against petitioner in Civil Case
No. 13852 is dismissed. No costs.
Topic
What Constitutes Foreclosure - Third Party Mortgage
Case No.
L-39806 / Jan. 27, 1983
Case Name
Ridad v. Filipinas Investment and Finance Corp.
Ponente
De Castro, J.
RELEVANT FACTS
• April 14, 1964 – plaintiffs purchased from the Supreme Sales and
Development Corporation two brand new Ford Consul Sedans complete
with accessories for P26,887.00 payable in 24 monthly installments.
o To secure payment thereof, the plaintiffs executed a promissory
note covering the purchase price and a deed of chattel mortgage
on the two vehicles, another Chevrolet car, and plaintiffs’
franchise or certificate of public convenience granted by the
defunct Public Service Commission (PSC) for the operation of
a taxi fleet.
o With the conformity of the plaintiffs, the vendor assigned its
rights, title, and interest to the above-mentioned promissory
note and chattel mortgage to defendant Filipinas Investment
and Finance Corporation.
• Due to the failure of the plaintiffs to pay their monthly installments as per
promissory note, the defendant corporation foreclosed the chattel
mortgage extrajudicially.
o At the public auction sale of the two Ford Consul cars, of which
the plaintiffs were not notified, the defendant corporation was
the highest bidder and purchaser.
o Another auction sale was held on Nov. 16, 1965, involving the
remaining properties subject of the deed of chattel mortgage
since plaintiffs’ obligation was not fully satisfied by the sale of
the aforesaid vehicles.
o At the public auction sale, the franchise of plaintiffs to operate
five units of taxicab service was sold for P8,000.00 to the
highest bidder, the defendant corporation which subsequently
sold and conveyed the same to herein defendant Jose D.
Sebastian.
♣ Sebastian filed with the PSC an application for
approval of said sale in his favor.
• Feb. 21, 1966 – plaintiffs filed an action for annulment of contract in CFI
Rizal.
o By the agreement of the parties, the case was submitted for
decision in the lower court on the basis of documentary
evidence adduced by the parties during the pre-trial conference.
♣ Court declared:
• That the chattel mortgage null and void
insofar as the taxicab franchise and the
used Chevrolet car of plaintiffs are
concerned
• The sale at public auction conducted by the
City Sheriff of Manila concerning said
taxicab franchise to be of no legal effect.
• Certificate of sale issued by the Sheriff in
favor of Filipinas Investment and Finance
Corp. concerning plaintiff’s taxicab
franchise is cancelled and set aside
o Assignment of the same to
Sebastian is void and of no legal
effect.
ISSUE AND RATIO DECIDENDI
Issue
Ratio
WoN the chattel mortgage insofar as the franchise and the subsequent sale
thereof are valid?
NO. The subsequent foreclosure was null and void.
1. Under the Art. 1484 of the CC, the vendor of personal property the
purchase price of which is payable in installments, has the right,
should the vendee default in the payment of two or more of the
agreed installments, to exact fulfillment by the purchaser of the
obligation, or to cancel the sale, or to foreclose the mortgage on the
purchased personal property, if one was constituted.
a. The remedies given by Art. 1484 to the vendor are
alternative, not cumulative.
i. The law prohibits the vendor from further
bringing action to recover the balance of the
debt not covered by the foreclosure of the
mortgage.
b. Purpose of the law is to prevent mortgagees from seizing
the mortgaged property, buying it at foreclosure sale for a
low price and then bringing suit against the mortgagor for
a deficiency judgment, otherwise, the mortgagor-buyer
would find himself without the property and still owing
practically the full amount of his original indebtedness
2. In this case, the defendant corporation elected to foreclose its
mortgage upon default by the plaintiffs in the payment of the agreed
installments.
a. Having chosen to foreclose the chattel mortgage, and
bought the purchased vehicles at the public auction as the
highest bidder, it submitted itself to the consequences of
the law as specifically mentioned, by which it is deemed
to have renounced any and all rights which it might
otherwise have under the promissory note and the chattel
mortgage as well as the payment of the unpaid balance.
3. In Levy Hermanos, Inc v. Pacific Commercial Co, the Court
sustained the nullity of the mortgage in so far as should the vendor
choose to foreclose the mortgage, he has to content himself with the
proceeds of the sale at the public auction of the chattels which were
sold on installment and mortgaged to him, and having chosen the
remedy of foreclosure, he cannot nor should he be allowed to insist
on the sale of the house and lot of the vendees.
a. To do so would be equivalent to obtaining a writ of
execution against them concerning other properties which
are separate and distinct from those which were sold in
installment.
b. This would indeed be contrary to public policy and the
very spirit and purpose of the law, limiting the vendor’s
right to foreclose the chattel mortgage only on the thing
sold.
RULING
WHEREFORE, the judgement appealed from is hereby affirmed.
NOTES
The Court also cited Cruz v. Filipinas Investment & Finance Corporation
where this Court ruled that the vendor of personal property sold on the
installment basis is precluded, after foreclosing the chattel mortgage on the
thing sold, from having a recourse against the additional security put up by a
third party to guarantee the purchaser’s performance of his obligation.
• To sustain the same would overlook the fact that if the guarantor
should be compelled to pay the balance of the purchase price, said
guarantor will in turn be entitled to recover what he has paid from
the debtor-vendee, and ultimately it will be the latter who will be
made to bear the payment of the balance of the price. Despite the
earlier foreclosure of the chattel mortgage given by him, thereby
indirectly subverting the protection given the latter.
• Consequently, the additional mortgage was ordered cancelled.
In the case of Pascual v. Universal Motors Corporation, if the vendor under
such circumstance is prohibited from having a recourse against the additional
security for reasons therein stated, there is no ground why such vendor should
not likewise be precluded from further extrajudicially foreclosing the
additional security put up by the vendees themselves.
• As in the instant case, it being tantamount to a further action that
would violate Article 1484 of the Civil Code, for there is actually no
difference between an additional security put up by the vendee
himself and such security put up by a third party insofar as how the
burden would ultimately fall on the vendee himself is concerned.
Topic
BREACH OF CONTRACT – SALE OF MOVABLES ON INSTALLMENT
– WHAT CONSTITUTES FORECLOSURE – THE “BARRING EFFECT
OF FORECLOSURE
Case No.
G.R. No. L-28074 MAY 29, 1970
Case Name
NORTHERN MOTORS V SAPINOSO
Ponente
VILLAMOR, j.
RELEVANT FACTS
1. SAPINOSO PURCHASED ON INSTALLMENT A CAR FROM
NORTHERN MOTORS (NMI) MAKING A DOWN PAYMENT
OF 2K AND EXECUTING A PROMISSORY NOTE OF 10K
FOR A TOTAL PRICE OF 12K.
2. AS SECURITY, A CHATTEL MORTGAGE WAS EXECUTED
ON THE CAR.
3. SAPINOSO FAILED TO PAY THE 1ST-5TH INSTALLMENT,
BUT WAS ABLE TO PAY THEREAFTER 3 INSTALLMENTS,
WHICH WAS APPLIED TO THE INTEREST OF THE PAST
DUE INSTALLMENT.
4. FOR FAILURE OF SAPINOSO TO PAY, NMI FILED A
COMPLAINT FOR BREACH OF CONTRACT AND ELECTED
TO EXTRAJUDICIALLY FORECLOSE THE MORTGAGE
WITH PRAYER FOR REPLEVIN AND FOR RECOVERY OF
THE UNPAID BALANCE.
5. SUBSEQUENT TO THE COMPLAINT, BUT BEFORE FILING
OF THE ANSWER, SAPINOSO MADE 2 INSTALLMENT
PAYMENTS.
6. A WRIT OF REPLEVIN WAS ISSUED ORDERING SAPINOSO
TO TURNOVER TO NMI THE CAR.
7. IN THE ANSWER OF SAPINOSO, HE ALLEGED THAT HE
ALREADY PAID FOR HALF OF THE PRINCIPAL, THAT THE
CAR WAS DEFECTIVE AND NMI FAILED TO HAVE IT
FIXED.
8. RTC HELD THAT UNDER THE CHATTEL MORTGAGE
LAW, FORECLOSURE AND RECOVERY OF UNPAID
BALANCE ARE ALTERNATIVE REMEDIES WHICH
CANNOT BE PURSUED CONJUCTIVELY. BY
FORECLOSING THE MORTGAGE, NMI RENOUNCED HIS
CLAIM TO RECOVER ON THE PROMISSORY NOTE. RTC
ORDERED NMI TO RETURN THE 2 VOLUNTARY
PAYMENTS MADE BY SAPINOSO AFTER FILING THE
COMPLAINT BECAUSE NMI HAS NO RIGHT TO RECEIVE
THE AMOUNT AFTER ELECTING FORECLOSURE.
9. NMI, IN THIS APPEAL CONTENDS THAT IT IS THE
EXERCISE AND NOT THE ELECTION OF FORECLOSURE
THAT BARS CREDITORS FROM RECOVERING UNPAID
BALANCE OF THE DEBT. THAT UNDER ART. 1484, IT
PROHIBITS “FURTHER ACTION” TO COLLECT PAYMENT
AFTER THE CREDITOR HAS FORECLOSED THE
MORTGAGE.
ISSUE AND RATIO DECIDENDI
Issue
Ratio
W/N THE FILING OF THE ACTION TO FORECLOSE BY NMI BARS
HIM FROM FURTHER ACCEPTING PAYMENTS ?
NO.
1. WHAT ART 1484 PROHIBITS IS FURTHER ACTION AGAINST THE
PURCHASE TO RECOVER ANY UNPAID BALANCE OF THE PRICE.
THE WORD ACTION MEANS ANY JUDICIAL OR EXTRA JUDICIAL
PROCEEDINGS TO COLLECT THE UNPAID BALANCE.
2. THE PAYMENT MADE BY SAPINOSO WAS VOLUNTARY AND
DID NOT RESULT TO “FURTHER ACTION” BY NMI.
RULING
WHEREFORE, …
The judgment of the lower court is hereby set aside and another one is
entered dismissing the complaint.
Topic
Sale of Immovables
Case No.
241 SCRA 165 / 1995
Case Name
Casa Filipina Realty v Office of the President
Ponente
Romero, j.
• Sometime in May or June 1984, the Sps. Sevilla agreed to purchase
from Casa Filipina Realty Corporation (CFRC) a parcel of land
with an area of about 264 sqm located in Barrio San Dionisio,
Parañaque, Metro Manila and identified as Lot 7, Block 6, Phase
IV, Casa Filipina II Subdivision for P150,480.00.
• However, the Sps. failed to pay the amortizations on time. They
wrote CFRC calling its attention to the absence of any
improvement in the subdivision and his discovery that, upon
checking with the Register of Deeds of Pasay City, the mother title
of the subdivision was under lis pendens and mortgaged to
ComSavings Bank. They requested a refund of all installment
payments made, and filed a complaint against CFRC with the
Office of Appeals, Adjudication and Legal Affairs (OAALA) of
the Human Settlements Regulatory Commission.
• The OAALA found that CFRC didn’t have the license to sell the
subdivision involved, and that it was liable for violation of Sec. 20
of Presidential Decree No. 957 "The Subdivision and
Condominium Buyers' Protective Decree” as it had failed to
develop the subdivision. The OAALA ordered CFRC to refund the
couple. This decision was affirmed by the HLURB and the OP.
o P.D. No. 947 was issued in the wake of numerous reports
that many real estate subdivision owners, developers,
operators and/or sellers "have reneged on their
representations and obligations to provide and maintain
properly subdivision roads, drainage, sewerage, water
systems, lighting systems and other basic requirements"
for the health and safety of home and lot buyer's. It was
designed to stem the tide of "fraudulent manipulations
perpetrated by unscrupulous subdivision and
condominium sellers and operators, such as failure to
deliver titles to buyers or titles free from liens and
encumbrances."
• Petitioner argues that since private respondents desisted from
paying the agreed installments, they should have notified the CFRC
of such desistance in accordance with PD 957 Sec. 23.
o Sec. 23. Non-Forfeiture of Payments. — No installment
payment made by a buyer in a subdivision or
condominium project for a lot or unit he contracted to
buy shall be forfeited in favor of the owner or developer
when the buyer, after due notice to the owner or
developer, desists from further payment due to the failure
of the owner or developer to develop the subdivision or
condominium project according to the approved plans
and within the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total
amount paid including amortization interests but
excluding delinquency interests, with interest thereon at
the legal rate.
• Moreover, since private respondents desistance from further paying
the amortization was due to litis pendentia and the mortgage of the
mother title of the subdivision, Sec. 24 should have been applied in
the case.
o Sec. 24. Failure to pay installments. — The rights of the
buyer in the event of his failure to pay the installments
due for reasons other than failure of the owner or
developer to develop the project shall be governed by
Republic Act No. 6552.
Issue
Ratio
W/N the spouses are entitled to a refund
Yes, both the OSG and the Court agree that the requirement set in Sec.
23 has been complied with, thus the spouses are entitled to a refund.
• Sec 23 requires the buyer, in this case the spouses, to notify the
developer or subdivision owner, of their intention not to remit
 further payments on the property on account of nondevelopment of
the subdivision. The spouses have notified the developers through a
letter.
• Sec 23 does not require that a notice be given first before a demand
for refund can be made. The notice and the demand can be made in
the same letter or communication, and this is what the spouses did.
Should the notice requirement provided for in Sec. 23 be construed
as required to be given before a buyer desists from further paying
amortizations as in this case, the intent of the law to protect
subdivision lot buyers will be defeated.
• Furthermore, petitioner did not only fail to develop the subdivision
it was selling but it had also encumbered the property prior to
selling the same. As the developer of the subdivision, petitioner
should have made proper arrangements with the financial
institutions to allow the release of titles to buyers upon their full
payment of the purchase price.
• Moreover, the HLURB found that petitioner had not secured a
license prior to the sale of the lot.
• The decision of the Office of the President is AFFIRMED.
CASE DIGEST: LUZON DEVELOPMENT BANK v. ANGELES
CATHERINE ENRIQUEZ
CONSOLIDATED WITH: G.R. No. 168666
FACTS: Delta Development and Management Services (Delta) entered into a
loan with Luzon Development Bank (Bank), secured by a Real Estate
Mortgage. The REM was amended to include a bigger sum loaned from the
bank. The proceeds of the loan were applied to Delta project of developing a
subdivision. It subsequently entered into a contract to sell with Angeles
Enriquez (Enriquez) over one of the subdivision lots. Enriquez was able to
pay around half of the value of the property. Subsequently, Delta was unable
to pay for the loan it took with the bank, but instead of letting the bank
foreclose on the mortgaged properties, it entered into a dacionen pago (dation
in payment) where it turned over property to the bank. The property subject
to the contract to sell with Enriquez was included in the dation. Enriquez
protested the transaction through the regional office of the HLURB. She is
asking for a refund of the purchase price pointing out that, the agreed upon
amount exceeded the limit prescribed by PD 957, or The Subdivision and
Condominium Buyer Protective Decree, and that the mortgage Delta entered
into was invalid per PD 957. The HLURB ruled in favor of Enriquez, but did
not approve a refund. Instead, it reduced the balance due for the property.
Delta appealed the ruling, and was able to get a better ruling from the
commissioner. The Office of the President affirmed the ruling. However,
when Enriquez appealed to the Court of Appeals, the CA invalidated the
dation, saying that Delta lost ownership over the property of Enriquez and
could not have validly conveyed the same. Delta and the Bank come before
the Supreme Court to question the ruling. The Bank is also asking for the
liability of Delta if it loses one of the properties to Enriquez.
ISSUES:
Was the dacion en pago valid?
Is Delta liable to the Bank should Enriquez gain ownership of the property?
HELD: The mortgage entered into by Delta and the Bank is void for violation
of PD 957. However, this does not, in any way, invalidate the dacion en
pago. The CA erred when it ruled that Delta lost ownership over the property
subject of the contract to sell. The very nature of a contract to sell is that the
ownership vests upon full payment of the purchase price. Hence there was no
impediment in the dacion. Delta cannot be held liable should Enriquez gain
ownership over the land. The effect of the dacion is that the Bank becomes a
party in the contract to sell with Enriquez, replacing Delta. Enriquez now
owes the Bank the balance of the purchase price of the property. It is the
intention of the dacion to extinguish the obligation of Delta in exchange for
properties. There are no other conditions. Also, as a financial institution, the
Bank should have exercised greater diligence. It cannot claim to be a
transferee in good faith. However, Enriquez is liable for the amount agreed
upon. The agreement was done in good faith, and Enriquez agreed to the
contract price. It cannot be challenged anymore.
FACTS:
Petitioner DELTA is a domestic corporation engaged in the business of
developing and selling real estate properties, particularly Delta Homes I in
Cavite. DELTA is owned by Ricardo De Leon. De Leon and his spouse
obtained a ₱4M loan from the BANK for the development of Delta Homes I.
To secure the loan, the spouses executed a real estate mortgage, including
Lot 4 property. Sometime in 1997, DELTA executed a Contract to Sell with
respondent Angeles Catherine Enriquez over the house and lot in Lot 4.
DELTA defaulted on its loan obligation, the BANK, instead of foreclosing
the real estate mortgage, agreed to a dation in payment. Unknown to
Enriquez, among the properties assigned to the BANK was the house and lot
of Lot 4, which is the subject of her Contract to Sell with DELTA.
Enriquez then filed a complaint against DELTA and the BANK alleging that
DELTA violated the terms of its License to Sell.
Decisions rendered by:
• HLURB:
• The Board upheld the validity of the contract to sell between
DELTA and Enriquez.
• RULING OF THE OFFICE OF THE PRESIDENT:
• The findings of fact and conclusions of law of the HLURB
Decisions was affirmed.
• RULING OF THE COURT OF APPEALS:
• The CA ruled against the validity of the dacion en pago executed in
favor of the BANK on the ground that DELTA had earlier
relinquished its ownership over Lot 4 in favor of Enriquez via the
Contract to Sell. the CA ordered DELTA to pay the corresponding
value of Lot 4 to the BANK.
ISSUE:
Whether the dacion en pago extinguished the loan obligation, such that
DELTA has no more obligations to the BANK
HELD:
DACION EN PAGO EXTINGUISHED THE LOAN OBLIGATION.
Like in all contracts, the intention of the parties to the dation in payment is
paramount and controlling. The contractual intention determines whether the
property subject of the dation will be considered as the full equivalent of the
debt and will therefore serve as full satisfaction for the debt. “The dation in
payment extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved, unless
the parties by agreement, express or implied, or by their silence, consider the
thing as equivalent to the obligation, in which case the obligation is totally
extinguished.”
In the case at bar, the Dacion en Pago executed by DELTA and the BANK
indicates a clear intention by the parties that the assigned properties would
serve as full payment for DELTA’s entire obligation.
Thus,
1 Delta Development and Management Services, Inc. is NOT
LIABLE TO PAY Luzon Development Bank the value of the
subject lot; and
2 Respondent Angeles Catherine Enriquez is ordered to PAY the
balance of the purchase price and the interests accruing thereon, to
the Luzon Development Bank.
3 The Luzon Development Bank is ordered to DELIVER a CLEAN
TITLE to Angeles Catherine Enriquez upon the latter’s full
payment of the balance of the purchase price and the accrued
interests.
Topic
Conditions of Work / Hours of Work / Regulation; Rationale
Case No.
GR No. L-4148, Jul 16, 1952
Case Name
Manila Terminal Co. Inc. v. CIR
Ponente
PARAS, C.J.
FACTS
1. September 1, 1945 – the Manila Terminal Company, Inc. undertook
the arrastre service in some of the piers in Manila's Port Area at the
request and under the control of the United States Army. The petitioner
hired some thirty men as watchmen, on twelve-hour shifts at a
compensation of P3 per day for the day shift and P6 per day for the
night shift.
2. February 1, 1946 – the petitioner began the post-war operation of the
arrastre service at the request and under the control of the Bureau of
Customs, by virtue of a contract entered into with the Philippine
Government. The watchmen of the petitioner continued in the service
with a number of substitutions and additions, their salaries having been
raised during the month of February to P4 per day for the day shift and
P6.25 per day for the night shift.
3. March 28, 1947 – letter sent by member of Manila Terminal Relief and
Mutual Aid Association (Association) to the Department of Labor,
requesting that the matter of overtime pay be investigated, but nothing
was done by the Department.
4. April 29, 1947 – six more members of the Association, filed a 5-point
demand with the Department of Labor, including overtime pay, but the
Department again failed to do anything about the matter.
5. May 24, 1947 – the petitioner instituted the system of strict eight-
hour shifts.
6. June 19, 1947 – the Association, not registered in accordance with the
provisions of Commonwealth Act No. 213, filed a petition with the
Court of Industrial Relations.
7. July 16, 1947 – the Association was organized for the first time, having
been granted certificate No. 375 by the Department of Labor.
8. July 28, 1947 – the Association filed an amended petition with the
Court of Industrial Relations praying, among others, that the
petitioner be ordered to pay to its watchmen or police force overtime
pay from the commencement of their employment.
9. On May 9, 1949 – by virtue of Customs Administrative Order No. 8l
and Executive Order No. 228 of the President of the Philippines, the
entire police force of the petitioner was consolidated with the
Manila Harbor Police of the Customs Patrol Service, a Government
agency under the exclusive control of the Commissioner of Customs and
the Secretary of Finance.
10. CIR – ordered the petitioner to pay to its police force:
a. Regular or base pay corresponding to four hours' overtime
plus 25 per cent thereof as additional overtime compensation
for the period from September 1, 1945 to May 24, 1947;
b. Additional compensation of 25 per cent to those who worked
from 6:00 p. m. to 6:00 a. m. during the same period;
c. Additional compensation of 50 per cent for work performed
on Sundays and legal holidays during the same period;
d. Additional compensation of 50 per cent for work performed
on Sundays and legal holidays from May 24, 1947 to May 9,
1949; and
e. Additional compensation of 25 per cent for work performed at
night from May 24, 1947 to May 9, 1949.
f. Any money claims after May 9, 1949, court has no
jurisdiction because it affects the Bureau of Customs, an
instrumentality of the Government having no independent
personality and which cannot be sued without the consent of
the State.
11. MR with CIR – In a separate decisive opinion, Judge Juan S. Lanting
concurred in the dismissal of other demands of the Association. With
respect to overtime compensation, Judge Lanting ruled:
a. The decision under review should be affirmed in so far as
it grants compensation for overtime on regular days (not
Sundays and legal holidays) during the period from the
date of entrance to duty to May 24, 1947, such
compensation to consist of the amount corresponding to
the four hours' overtime at the regular rate and an
additional amount of 25 per cent thereof.
b. As to the compensation for work on Sundays and legal
holidays, the petitioner should pay to its watchmen the
compensation that corresponds to the overtime (in excess of 8
hours) at the regular rate only, that is, without any additional
amount, thus modifying the decision under review
accordingly.
c. The watchmen are not entitled to night differential pay for
past services, and therefore the decision should be reversed
with respect thereto.
ISSUE/S and RATIO
Issue
Ratio
(1) W/N the Court of Industrial Relations has no jurisdiction to render a
money judgment involving obligations in arrears. CIR had JD
- The contention that the Court of Industrial Relations has no jurisdiction
to award a money judgement was already overruled by this Court in G.
R. No. L-4337, Detective &. Protective Bureau, Inc. vs. Court of
Industrial Relations and United Employees Welfare Association, decided
on December 29, 1951, in this wise: "… under Commonwealth Act No.
103 the Court is empowered to make the order for the purpose of settling
disputes between employer and employee.”
(2) W/N the agreement under which its police force were paid certain
specific wages for twelve-hour shifts, included overtime compensation is
binding. NOT binding
- The important point stressed by the petitioner is that the contract between
it and the Association upon the commencement of the employment of its
watchmen was to the effect that the latter were to work twelve hours a
day at certain rates of pay, including overtime compensation, namely, P3
per day for the day shift and P6 per day for the night shift be sinning
September 1, 1945, and P4 per day for day shift and P6.25 per day for the
night shift since February, 1946.
- In times of acute unemployment, the people, urged by the instinct of self-
preservation, go from place to place and from office to office in search
for any employment, regardless of its terms and conditions, their main
concern in the first place being admission to some work. Specially for
positions requiring no special qualifications, applicants would be good as
rejected if they ever try to be inquisitive about the hours of work or the
amount of salary, or ever attempt to dictate their terms. The petitioner's
watchmen must have railroaded themselves into their employment, so to
speak, happy in the thought that they would then have an income on which
to subsist. But, at the same time, they found themselves required to work
for twelve hours a day. True, there was an agreement to work, but can it
fairly be supposed that they had the freedom to bargain in any way, much
less to insist in the observance of the Eight-Hour Labor Law?
- Moreover, we note that after the petitioner had instituted the strict eight-
hour shifts, no reduction was made in the salaries which its watchmen
received under the twelve-hour arrangement.
- Although it may be argued that the salary for the night shift was somewhat
lessened, the fact that the rate for the day shift was increased in a sense
tends to militate against the contention that the salaries given during the
twelve-hour shifts included overtime compensation.
- Petitioner's allegation that the Association had acquiesced in the twelve-
hour shifts for more than 18 months, is not accurate, because the
watchmen involved in this case did not enter the service of the petitioner,
at one time, on September 1, 1945. As Judge Lanting found, "only one of
them entered the service of the company on said date, very few during the
rest of said month, some during the rest of that year (1945) and in 1946,
and very many in 1947, 1948 and 1949."
- Citing Detective & Protective Bureau, Inc. vs. Court of Industrial
Relations and United Employees Welfare Association:
o "It appears that the Bureau had been granting the members of
the Association, every month, two days off days in which they
rendered no service, although they received salary for the whole
month. Said Bureau contended below that the pay
corresponding to said 2-day vacation corresponded to the
wages for extra work. The court rejected the contention, quite
properly we believe, because in the contract there was no
agreement to that effect; and such agreement, if any, would
probably be contrary to the provisions of the Eight-Hour Law
(Act No. 444 sec. 6) and would be null and void ab initio.
o "It is argued here, in opposition to the payment, that until the
commencement of this litigation the members of the
Association never claimed for overtime pay. That may be true.
Nevertheless the law gives them the right to extra
compensation. And they could not be held to have impliedly
waived such extra compensation, for the obvious reason that
they could not have expressly waive it."
- The foregoing pronouncements are in point. The Association cannot be
said to have impliedly waived the right to overtime compensation,
"for the obvious reason that they could not have expressly waived it."
(3) W/N the Association is barred from recovery by estoppel and laches.
NOT barred
- The principle of estoppel and laches cannot well be invoked against the
Association. In the first place, it would be contrary to the spirit of the
 Eight-Hour Labor Law, under which, as already seen, the laborers cannot
waive their right to extra compensation. In the second place, the law
principally obligates the employer to observe it, so much so that it
punishes the employer for its violation and leaves the employee or laborer
free and blameless. In the third place, the employee or laborer is in such
a disadvantageous position as to be naturally reluctant or even
apprehensive in asserting any claim which may cause the employer to
devise a way for exercising his right to terminate the employment.
(4) W/N the nullity or invalidity of the employment contract precludes any
recovery by the Association.
NOT precluded
- The argument that the nullity or invalidity of the employment contract
precludes recovery by the Association of any overtime pay is also
untenable. The argument, based on the supposition that the parties are in
pari delicto, was in effect turned down in Gotamco Lumber Co. vs. Court
of Industrial Relations:
o "The petitioner maintains that as the overtime work had been
performed without a permit from the Department of Labor, no
extra compensation should be authorized. Several decisions of
this Court are involved. But those decisions were based on the
reasoning that as both the laborer and employer were duty
bound to secure the permit from the Department of Labor, both
were in pari delicto. However, the present law in effect imposed
that duty upon the employer (C. A. No. 444). Such employer
may not therefore be heard to plead, his own neglect as
exemption or defense.
o "The employee, in rendering extra service at the request of his
employer has a right to assume that the latter has complied with
the requirement of the law, and therefore has obtained the
required permission from the Department of Labor."
o Moreover, the Eight-Hour Law, in providing that "any
agreement or contract between the employer and the laborer or
employee contrary to the provisions of this Act shall be null and
void ab initio," (Commonwealth Act No. 444, sec. 6),
obviously intended said provision for the benefit of the laborers
or employees. The employer cannot, therefore, invoke any
violation of the Act to exempt him from liability for extra
compensation. This conclusion is further supported by the fact
that the law makes only the employer criminally liable for any
violation. It cannot be pretended that, for the employer to
commit any violation of the Eight-Hour Labor Law, the
participation or acquiescence of the employee or laborer is
indispensable, because the latter, in view of his need and desire
to live, cannot be considered as being on the same level with
the employer when it comes to the question of applying for and
accepting an employment.
(5) W/N Commonwealth Act No. 4444 does not authorize recovery of bade
overtime pay. RECOVERY allowed
- We cannot agree to the proposition, because sections 3 and 5 of
Commonwealth Act 444 expressly provides for the payment of extra
compensation in cases where overtime services are required, with the
result that the employees or laborers are entitled to collect such extra
compensation for past overtime work. To hold otherwise would be to
allow an employer to violate the law by simply, as in this case, failing to
provide for and pay overtime compensation.
- The point is stressed that the payment of the claim of the Association for
overtime pay covering a period of almost two years may lead to the
financial ruin of the petitioner, to the detriment of its employees
themselves. It is significant, however, that not all the petitioner's
watchmen would receive back overtime pay for the whole period
specified in the appealed decision, since the record shows that the great
majority of tho watchmen were admitted in 1946 and 1947, and even 1948
and 1949. At any rate, we are constrained to sustain the claim of the
Association as n matter of simple justice, consistent with the spirit and
purpose of the Eight-hour Labor Law. The petitioner, in the first place,
was required to comply with the law and should therefore be made liable
for the consequences of its violation.
- It is high time that all employers were warned that the public is
interested in the strict enforcement of the Eight-Hour Labor Law.
This was designed not only to safeguard the health and welfare of the
laborer or employee, but in a way to minimize unemployment by
forcing employers, in cases where more than 8-hour operation is
necessary, to utilize different shifts of laborers or employees working
only for eight hours each.
RULING
Wherefore, the appealed decision, in the form voted by Judge Lanting, is
affirmed, it being understood that the petitioner's watchmen will be entitled to
extra compensation only from the dates they respectively entered the service
of the petitioner, hereafter to be duly determined by the Court of Industrial
Relations. So ordered, without costs.
Case Name
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc.
Topic
Contract to Sell
Case No. | Date
GR No. L-25885 | Jan 31, 1972
Ponente
Reyes, JBL, J.
RELEVANT FACTS
• 30 April 1949: Myers Building Co., Inc. entered into a Deed of
Conditional Sale with Maritime Building Co., Inc., selling three
parcels of land in Manila for 1M. 50T was paid at the execution of
the contract, and the balance to be paid at 10T per month with 5%
interest until fully paid.
o DoCS stated that if buyer fails to pay any of the
installments due and demandable, the contract will be
annulled at the option of the seller, all payments already
made will be deemed forfeited, and seller has right to
reenter and take possession of the property.
• Maritime paid regularly for almost 2 years, but failed to pay for the
month of March 1961. Maritime’s VP, Schedler, requested a
moratorium for suspension of payments until end of 1961, citing
difficulties with business operations. Myers’ President, Parson,
refused the request.
• Maritime still did not pay until May 1961, so Myers made a demand
letter for payment of the installments which was returned unclaimed.
Myers then sent another letter cancelling the DoCS between them
and demanding the return of the properties. At the same time, Myers
demanded that Luzon Brokerage Co., Inc. (company to which
Maritime leased the properties to) pay monthly rentals of 10T +
surrender properties.
o It appears that there was a labor union case against Luzon,
and the union won and claimed 325T backwages from
Luzon. Schedler (Maritime VP) who had bought F.H.
Myers’ shares in Luzon, was promised by Myers that he
would indemnify him for the claim. However, Myers (and
his estate after he died) did not pay, so Schedler bore the
expenses from the labor union claims and decided to
withhold further payments to Myers in connection with the
DoCS.
• Luzon filed an action for interpleader against Maritime, since it was
unsure as to whom it should pay rent, and Myers filed a crossclaim
against Maritime to confirm its right to cancel the DoCS.
Meanwhile, the lease contract between Luzon and Maritime was
extended for 4 years. Decision on appeal now declared that Myers
was entitled to receive the rental payments of Luzon and Maritime
must pay damages and rentals it collected to Myers. The lower court
also refused to extend the period for paying the installments.
ISSUE AND RATIO DECIDENDI
Issue
Ratio
WON there was a breach of contract by Maritime in not paying the
installments as per the DoCS
YES.
The non-payment of the installments was designed to coerce Myers Corp. into
answering for an alleged promise of the late F.H. Myers to indemnify E.W.
Schedler, for any payments to be made to the members of the Luzon Labor
Union. However, no proof exists that Myers Co. agreed to assume the debts of
F.H. Myers. In wanting to offset Myers’ alleged debt to him against the balance
due from the DoCS, Schedler was attempting to burden Myers Co. with an
uncollectible debt, since Myers’ estate proceedings was already closed. Hence,
the suspension of payments was made with fraud or malice. Having acted in
bad faith, it was not entitled to ask the court to give it further time to make
payment and thereby erase the default or breach that it had deliberately
incurred.
In any case, it is irrelevant whether the breach was casual or serious. In
contracts to sell, where ownership is retained by the seller and is not to pass
until the full payment of the price, such payment, as we said, is a positive
suspensive condition, the failure of which is not a breach, casual or serious,
but simply an event that prevented the obligation of the vendor to convey title
from acquiring binding force, in accordance with Article 1117 of the Old Civil
Code. To argue that there was only a casual breach is to proceed from the
assumption that the contract is one of absolute sale, where non-payment is a
resolutory condition, which is not the case.
If there was, WON Myers was entitled to rescind the contract without
recoursing to judicial process
YES.
Law does not require contracting party who believes itself injured to first file
suit and wait for judgement before taking extrajudicial steps to protect its
interest. The party who deems the contract violated may consider it resolved
or rescinded, and act accordingly, without previous court action, but it
proceeds at its own risk.
Maritime additionally argues: Art. 1592, CC.
“In the sale of immovable property, even though it may have been stipulated
that upon failure to pay the price at the time agreed upon the rescission of the
contract shall of right take place, the vendee may pay, even after the expiration
of the period, as long as no demand for rescission of the contract has been
made upon him either judicially or by a notarial act. After the demand, the
court may not grant him a new term.” → arguendo, already complied with by
Myers Co. in filing the cross-claim with the lower court
This does not apply to their contract. The DoCS is not the ordinary sale
envisaged by Article 1592, transferring ownership simultaneously with the
delivery of the real property sold, but one in which the vendor retained
ownership of the immovable object of the sale, merely undertaking to convey
it provided the buyer strictly complied with the terms of the contract. In suing
to recover possession of the building from Maritime, Myers is not after the
resolution or setting aside of the contract and the restoration of the parties to
the status quo ante, as contemplated by Article 1592, but precisely enforcing
the provisions of the agreement that it is no longer obligated to part with the
ownership or possession of the property because Maritime failed to comply
with the specified condition precedent, which is to pay the installments as they
fell due.
Under contracts to sell, in case of failure of the other party to complete
payment, the Court has upheld the power of sellers to extrajudicially terminate
the operation of the contract, refuse conveyance and retain the sums or
installments already received, where such rights are expressly provided for, as
in the case at bar.
RULING
Appealed decision affirmed. Maritime Building Co. and Luzon
Brokerage Co. are ordered to surrended the premises to Myers Building Co.
Topic
Maceda Law
Case No.
141205 / May 9, 2002
Case Name
Active Realty & Dev’t Corp. v. Daroya
Ponente
Puno, J.
RELEVANT FACTS
• Petitioner entered into a Contract to Sell with Daroya, which
stipulated that the latter pay an initial downpayment then sixty
monthly installments.
• Respondent was defaulted for three monthly amortizations so
petitioner sent a notice of cancellation of their contract to sell,
effective 30 days from receipt of the letter.
• Respondent filed for specific performance before the HLURB,
seeking to compel petitioner to execute a final deed of sale after she
pays any balance that may be due from her, considering she had
already paid more than the total contract price.
• HLURB Arbiter ruled in favor of Daroya.
• HLURB Board of Commissioners reversed.
• The Office of the President found that the cancellation not valid for
not having complied with the legal requirements under the Maceda
Law. It ordered that the petitioner to refund the payment as it was
discovered that the latter had already sold the lot to another person.
ISSUE AND RATIO DECIDENDI
Issue
Ratio
WoN petitioner can be compelled to refund to the
respondent the value of the lot or to deliver a
substitute lot at the respondent's option?
Yes. Respondent is entitled to a refund.
1. The Contract to Sell is governed by the Maceda Law.
• In this case, respondents had already paid four years
worth of installments. Petitioner decided to cancel the
contract when respondent incurred delay in the payment
of three monthly amortizations and sell the to to another
buyer
• Petitioner failed to comply with the mandatory twin
requirements for a valid and effective cancellation under
the law i.e. he failed to send a notarized notice of
cancellation and refund the cash surrender value.
• 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.
..
RULING
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.
Valarao vs Court of Appeals
Facts: 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 with an area
of 1,504 square meters, for the sum of P3,225,000.00 payable under a schedule
of payment stated therein.
Stipulations:
• 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.
• Should the vendee fail to pay three (3) successive monthly
installments or anyone 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.
[Private respondent] appellant alleged that as of September, 1990, she had which was unjustifiably refused, we hold that petitioners cannot enforce the
already paid the amount of P2,028,000.00, although she admitted having failed automatic forfeiture clause of the contract.
to pay the installments due in October and November, 1990. Petitioner, Application of the Maceda Law
however, [had] tried to pay the installments due [in] the said months, including In any event, the rescission of the contract and the forfeiture of the payments
the amount due [in] the month of December, 1990 on December 30 and 31, already made could not be effected, because the case falls squarely under
1990, but was turned down by the vendors-[petitioners] thru their maid, Mary Republic Act No. 6552, 22 otherwise known as the "Maceda Law." Section 3
Gonzales, who refused to accept the payment offered. [Private respondent] of said law provides:
maintains that on previous occasions, the same maid was the one who [had] Sec. 3. In all transactions or contracts involving the sale or financing
received payments tendered by her. It appears that Mary Gonzales refused to of real estate on installment payments, including residential condominium
receive payment allegedly on orders of her employers who were not at home. apartments but excluding industrial lots, commercial buildings and sales to
[Private respondent] tried to get in touch with [petitioners] over the phone and tenants under Republic Act. Numbered Thirty-eight hundred Forty-four as
was able to talk with [Petitioner] Gloriosa Valarao who told her that she amended by Republic Act Numbered Sixty-three hundred eighty-nine, where
[would] no longer accept the payments being offered and that [private the buyer has paid at least two years of installments, the buyer is entitled to
respondent] should instead confer with her lawyer, a certain Atty. Tuazon. the following rights in case he defaults in the payment of succeeding
When all her efforts to make payment were unsuccessful, [private respondent] installments:
sought judicial action by filing this petition for consignation on January 4, (a) To pay, without additional interest, the unpaid
1991. installments due within the total grace period earned by him, which
On the other hand, vendors-[petitioners], thru counsel, sent [private is hereby fixed at the rate of one month grace period for every year
respondent] a letter dated 4 January 1991 (Exh. "C") notifying her that they of installment payments made: Provided, That this right shall be
were enforcing the provision on automatic rescission as a consequence of exercised by the buyer only once in every five years of the life of the
which the Deed of Conditional Sale [was deemed] null and void, and . . . all contract and its extensions, if any.
payments made, as well as the improvements introduced on the property, (b) If the contract is cancelled, the seller shall refund to
[were] thereby forfeited. The letter also made a formal demand on the [private the buyer the cash surrender value on the payments on the property
respondent] to vacate the property should she not heed the demand of equivalent to fifty percent of the total payments made and, after five
[petitioners] to sign a contract of lease for her continued stay in the property. years of installments, an additional five percent every year but not
In reply, [private respondent] sent a letter dated January 14, 1991 (Exh. "D"), to exceed ninety percent of the total payments made: Provided, That
denying that she [had] refused to pay the installments due [in] the months of the actual cancellation of the contract shall take place after thirty
October, November and December, and countered that it was [petitioners] who days from receipt by the buyer of the notice of cancellation or the
refused to accept payment, thus constraining her to file a petition for demand for rescission of the contract by a notarial act and upon full
consignation before the Regional Trial Court of Quezon City. payment of the cash surrender value to the buyer.
Petitioners, through counsel, sent the private respondent another letter dated Down payments, deposits or options on the contract shall
January 19, 1991 (Exh. "F"), denying the allegations of her attempts to tender be included in the computation of the total number of installments
payment on December 30 and 31, 1990, and demanding that [private made.
respondent] vacate and turnover the property and pay a monthly compensation Hence, the private respondent was entitled to a one-month grace period for
for her continued occupation of the subject property at the rate of P20,000.00, every year of installments paid, which means that she had a total grace period
until she shall have vacated the same. of three months from December 31, 1990. Indeed, to rule in favor of petitioner
Issues: 1.) Whether the Answer [— (a)] categorically indicating willingness would result in patent injustice and unjust enrichment.
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, . . . 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 turnover possession of the premises to the [petitioners], and
to pay the latter attorney's 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.
2.) Whether the action for consignation may prosper without actual
deposit [in court] of the amount due . . . [so as] to produce the effect of
payment.
Ruling:
1.) 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 or a contract to sell. 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.
2.) 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, 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.
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