G.R. No.
L-23788, May 16, 1969, UNIVERSAL MOTORS for such payment a first lien is hereby implied in favor
CORPORATION, Plaintiff-Appellee, vs. DY HIAN TAT, ET
AL., defendants, DY HIAN TAT, Defendant-Appellant.
Facts:
Appellant-defendant had bought a Mercedes-Benz
Diesel truck from it on installments and defaulted in the
payment thereof, in consequence of which, it was
entitled, by virtue of the mortgage contract in its favor,
to the possession of the said truck or, in case said truck
could not be recovered, to the payment of the amount
of P37,221.22, plus attorney's fees in the amount of
P9,305.30 and the costs of the suit.
As further prayed for in the complaint, the court a
quo issued a writ of replevin and eventually possession
of the truck was delivered to appellee by virtue of said
writ.chanroblesvirtualawlibrarychanrobles virtual law
library
In due time, defendant filed an answer the
statement here of the details of which is not
indispensable in the determination of this case. Suffice
it to say that subsequent to the filing of said answer, the
parties submitted the case for decision, and the court a
quo decided the same without presentation and
reception of any evidence and solely on the basis of the
following stipulation of facts:
COME NOW the parties in the above entitled case,
assisted by their respective counsel, and to this
Honorable Court respectfully submit the following
stipulation of facts: chanrobles virtual law library
1. Defendant Dy Hian Tat admits the material
allegations of pars. 51 and 92 of the Complaint and the
fact that plaintiff is entitled to the possession of the
chattel described in par. 2 of the Complaint; chanrobles
virtual law library
2. That the following stipulation appears in the Chattel
Mortgage executed by the defendant in favor of the
plaintiff and attached to the Complaint as Annex 'A' of
said Complaint:
14. That in case of non-compliance or violation or
default by the mortgagor(s), and foreclosure or any
other legal remedy is undertaken by the mortgagee to
compel payment of his (their) obligation, the mortgagee
shall be entitled to a reasonable compensation in the
concept of attorney's fees and costs of collection in the
sum equal to twenty-five per cent (25%) of the total
amount of the indebtedness then outstanding and
unpaid by the mortgagor(s), but in no case less than
Fifty Pesos (P50.00) as well as payment of the replevin
premium bonds and costs of suit in case of court action,
which amounts said mortgagor(s) agree(s) to pay and
of the mortgagee upon the property mortgaged.
3. Plaintiff admits that the chattel subject of the
mortgage was sold by plaintiff to defendant on
installment basis; chanrobles virtual law library
4. That the parties submit this case on the question of
law of whether or not the plaintiff is entitled to the 25%
attorney's fees and costs of collection as above
stipulated.
WHEREFORE, it is respectfully prayed of this
Honorable Court that the parties be given twenty (20)
days from the submission hereof within which to file
their respective memorandum.c
Held:
We do not agree with the appellant that Article 1484
applies to the case at bar. As aptly held by His Honor,
this case is for delivery of personal property under the
provisions of Rule 60 of the Rules of Court. Nowhere in
the stipulation of facts or even in the pleadings does it
appear that appellee has foreclosed its mortgage.
Merely because a copy of the mortgage has been
attached to the complaint does not make this action
one of foreclosure of a chattel mortgage. (Manila Motor
Co. vs. Fernandez, 99 Phil. 782.) True, appellee
succeeded in recovering the truck in question, precisely
by means of the present action of replevin, but surely,
this case is far from being the action of foreclosure of
chattel mortgage governed by Section 8 of Rule
68.chanroblesvirtualawlibrarychanrobles virtual law
library
We are not unmindful of the laudable purposes of
Act No. 4122 which became Article 1454-A of the
former Civil Code. The same have been well elucidated
in many previous cases by this Court. And it is evident to
Us that Article 1484 of the new Civil Code is just an
amendment of said Article 1454-A, more popularly
known as the Recto Law. It would not only be erroneous
but highly unjust for Us, however, to apply such
provision the case at bar, which in no way comes within
its contemplation. The mere fact that appellee has
secured possession of the truck in question does not
necessarily mean that it will foreclose its mortgage.
Indeed, there is no showing at all that appellee is
causing the sale thereof at public auction or in even
preparing to do so. It is quite possible that appellee
wanted merely to be sure that the truck is not lost or
rendered valueless, preparatory to having it levied upon
under a writ of attachment, as sanctioned by this Court
in the case cited by appellant of Southern Motors, Inc.
vs. Magbanua, 100 Phil. 155:
 By praying that the defendant be ordered to pay it
the sum of P4,690.00 together with the stipulated
interest at 12 per cent per annum from 17 March until
fully paid, plus ten per cent of the total amount due as
attorney's fees and cost of collection, the plaintiff
elected to exact the fulfillment of the obligation and not
foreclose the mortgage of the truck. Otherwise, it would
not have gone to court to collect the amount as prayed
for in the complaint. Had it elected to foreclose the
mortgage on the truck, all that the plaintiff had to do
was to cause the truck to be sold at public auction
pursuant to section 14 of the Chattel Mortgage Law.
The fact that aside from the mortgaged truck another
Chevrolet truck and two parcels of land belonging to the
defendant were attached shows that the plaintiff did
not intend to foreclose the mortgage.
As the plaintiff has chosen to exact the fulfillment of
the defendant's obligation, the former may enforce
execution of the judgment 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 judgment 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.
The same doctrine was reiterated in Tajanlangit,
et al., vs. Southern Motors, Inc., et al., 101 Phil. 606, also
cited by appellant. There it was held:
Discussion. Appellants' brief elaborately explains
in the nine errors assigned, their original two theories,
although their "settlement" idea appears to be
somewhat modified.
What is being sought in this present action" say
appellants "is to prohibit and forbid the appellee Sheriff
of Iloilo from attaching and selling at public auction sale
the real properties of appellants because that is now
forbidden by our law after the chattels that have been
purchased and duly mortgaged to the vendor-
mortgagee had already been repossessed by the same
vendor-mortgagee and later on hold at public auction
sale and purchased by the same at such meager sum of
P10,000.00.chanroblesvirtualawlibrarychanrobles
virtual law library
"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 any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee
fail to pay;chanrobles virtual law library
(2) Cancel the sale, should the vendee's failure to pay
cover two or more installments;chanrobles virtual law
library
(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. (New Civil
Code.)chanrobles virtual law library
Appellants would invoke the last paragraph. But
there has been no foreclosure of the chattel mortgage
nor a foreclosure sale. Therefore the prohibition against
further collection does not apply.
At any rate it is the actual sale of the mortgaged
chattel in accordance with section 14 Act No. 1508 that
would bar the creditor (who chooses to foreclose) from
recovering any unpaid balance. (Pacific Com. Co. vs. De
la Rama, 72 Phil. 380; Manila Motor Co. vs. Fernandez,
99 Phil. 782.)
It is true that there was a chattel mortgage on the
goods sold. But the Southern Motors elected to sue on
the note exclusively, 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
proceeds of the sale, on execution of the mortgaged
good. (Manila Trading & Supply Co. vs. Reyes, 62 Phil.
461; Macondray & Co. vs. Eustaquio, 64 Phil. 446;
Manila Motor Co. vs. Fernandez, supra.)
An earlier per curiam decision of this Court is even
more controlling and practically devastates appellants
posture. In the case of Pacific Commercial Co. vs.
Graciano de la Rama, 72 Phil. 380, the defendant which
had bought a car from plaintiff on installments failed to
pay, by reason of which, plaintiff took steps and actually
started to extrajudicially foreclose the chattel mortgage
thereon by having the sheriff take possession of the
property and proceed to sell the same. The sheriff
found the car in a repair shop, so he then and there
designated the owner of the shop as his deputy-in-
charge thereof; but when the plaintiff came to know
that the car was in the shop because it had met an
accident, it requested the sheriff to desist from
continuing with the foreclosure. Instead, plaintiff
brought an action to recover the price, plus interests
and costs.
This doctrine was reiterated in Manila Motor Co. vs.
Fernandez, supra, this wise:
The lower court likewise committed a mistake in
assuming that the suit in 1940 was on of foreclosure.
The allegations with reference the said suit and the
corresponding judgment of 1941 do not contain any
suggestion in support of the assumption. Upon the
other hand, in appellee's motion to dismiss, it was
stated that the car in question was commandeered
from him by the Japanese occupation forces, thereby
indicating that, even during the war period, the
property was in appellee's possession and had not been
sold at public auction. At any rate, it is the actual sale of
the mortgaged chattel in accordance with section 14 of
Act No. 1508 that would bar the creditor (who chooses
to foreclose) from recovering any unpaid
balance (Pacific Commercial Company vs. De la Rama,
72 Phil. 380.) [Emphasis Supplied.].
We hold, therefore, that the lower court did not
err in declaring, in effect, that Article 1484 of the Civil
Code does not apply to this case because this is an
action of replevin under Rule 60 and not a foreclosure
of mortgage under Rule 68.c
G.R. No. 139233 November 11, 2005, SPOUSES
ALFREDO and BRIGIDA ROSARIO, Petitioners, vs. PCI
LEASING AND FINANCE, INC.,* Respondent.
Facts:
spouses Rosario purchased an Isuzu Elf Pick-up Utility
vehicle from CarMerchants, Inc. The transaction was
covered by a Purchase Agreement whereby the spouses
undertook to make a downpayment of ₱190,000.00 of
the total purchase price of ₱380,000.00. The spouses
then applied for a loan with PCI Leasing to pay for the
balance of ₱190,000.00.
Upon the approval of their loan application, the spouses
Rosario executed a Promissory Note3 on May 6, 1994, in
favor of PCI Leasing covering the amount of the loan
plus ₱84,008.00 as finance charges, in the total amount
of ₱274,008.00. The spouses undertook to pay the loan
in monthly installments of ₱11,417.00, payable on the
29th day of each month starting on May 29, 1994 to
April 29, 1996, at 22.10% annual interest. The spouses
Rosario also agreed that, in case of default, the
payment of the outstanding sum with interest shall
immediately become due and payable. To secure the
payment of the loan, they executed, on the same day, a
Chattel Mortgage4 in favor of PCI Leasing over the Isuzu
Elf 4BD1. The motor vehicle was delivered to the
spouses and it was registered in their names on May 16,
1994.5
Despite demands,6 the spouses Rosario failed to pay the
amortizations on their loan to PCI Leasing which, as of
November 29, 1995, amounted to ₱338,786.03,
inclusive of ₱20,000.00 attorney’s fees.7
On January 25, 1995, PCI Leasing filed a
Complaint8 against the spouses Rosario in the RTC of
Dagupan City for "Sum of Money with Damages with a
Prayer for a Writ of Replevin." The case was docketed as
CV-95-00408-D.
After PCI Leasing posted the necessary bond for the
manual delivery of the motor vehicle,9 the RTC issued
an Order10 for the issuance of a writ of replevin. On
April 21, 1995, the Sheriff11 seized the motor vehicle.
After five (5) days, without the court issuing an order
discharging the writ, the Sheriff turned over the
possession of the vehicle to PCI Leasing.12
In their Answer to the complaint, the spouses Rosario
alleged that the chattel mortgage they executed in
favor of PCI Leasing covering the motor vehicle was in
effect a contract of sale of personal property, payable in
installments to be governed by Article 148413 of the
New Civil Code of the Philippines. They further alleged
that since PCI Leasing opted to foreclose the chattel
mortgage, it was estopped from collecting the balance
of their account under the promissory note and chattel
mortgage.
The trial court rendered judgment on September 12,
1996 in favor of PCI Leasing.
The CA rendered judgment dismissing the appeal,
declaring that the spouses Rosario failed to prove their
claim that PCI Leasing had agreed to be subrogated to
the right of CarMerchants, Inc. to collect the unpaid
balance of the purchase price of the motor vehicle. The
appellate court also ruled that even if Article 1484 of
the New Civil Code were to be applied, the chattel
mortgage had not been foreclosed; hence, PCI Leasing
was not precluded from collecting the balance of the
appellants’ account. It held that the remedy of the
unpaid seller under Article 1484 of the New Civil Code is
alternative and not cumulative.
Held:
Even a cursory reading of the respondent’s complaint in
the RTC will readily show that the respondent did not
allege that it was the assignee of CarMerchants, Inc.
insofar as the right to collect the balance of the
purchase price of the vehicle from the petitioners was
concerned. Neither did the respondent adduce any
evidence that it was such assignee. The respondent
sued the petitioners for sum of money with prayer for a
writ of replevin based on the promissory note and the
chattel mortgage executed by the petitioners in its
favor.
Even assuming that the respondent is the assignee of
CarMerchants, Inc. and that Article 1484 of the New
Civil Code is applicable, it is not proscribed from suing
the petitioners for their unpaid balance. The fact of the
matter is that the respondent did not foreclose the
chattel mortgage, but opted to sue the petitioners for
the balance of their account under the promissory note,
with a plea for a writ of replevin. By securing a writ of
replevin, the respondent did not thereby foreclose the
chattel mortgage. As correctly ruled by the CA:
We rule: if there has been no foreclosure of the chattel
mortgage or a foreclosure sale, then the prohibition
against further collection of the balance of the price
does not apply. Where the remedy is not foreclosure of
the chattel mortgage, but specific performance of the
obligation to do payment, then the levy on the property
is indeed not a foreclosure of the mortgage but is
instead a levy on execution (Tanjanlangit, et al. v.
Southern Motors, Inc., L-10789, May 28, 1957; Southern
Motors v. Moscoso, 2 SCRA 168).
A creditor is not obliged to foreclose a chattel mortgage
even if there is one; precisely the law says that any of
the remedies "may" be exercised by the seller. He may
still sue for fulfillment or for cancellation of the
obligation, if he does not want to foreclose (Bachrach
Motor Co. v. Millan, 61 Phil. 409). As a matter of fact, he
may avail himself of remedy no. 1 (specific
performance) and may still ask that a real estate
mortgage be executed to secure the payment of the
obligation, in which case, and in the event of
foreclosure, there can still be recovery of the deficiency
(Manila Trading v. Jalandoni [CA]O.G., August 31, 1941,
p. 1698).
In the case before Us, that there was foreclosure of the
chattel mortgage has not been established; as a matter
of fact, this is not obvious either in the evidence having
been presented to the court. What is only apparent was
the execution of the promissory note and the chattel
mortgage.22
Anent the award of 22.10% of the total amount due as
attorney’s fees, this Court finds the same to be without
basis. The trial court awarded the
same without stating the reason therefor.23 Moreover,
as gleaned from the Statement of Account24 issued by
the respondent, the ₱338,786.03 sought to be collected
from the petitioners already inc
G.R. No. L-27645, November 28, 1969, FILIPINAS
INVESTMENT & FINANCE CORPORATION, plaintiff
appellee, vs. LOURDES V. RIDAD and LUIS
RIDAD, defendants-appellants.
Facts:
The spouses Ridad bought from the Supreme Sales &
Development Corporation, the appellee's assignor-in-
interest, a Ford Consul sedan for the total price of
P13,371.40. The sum of P1,160 was paid on delivery,
the balance of P12,211.50 being payable in twenty-four
equal monthly installments, with interest at 12% per
annum, secured by a promissory note and a chattel
mortgage on the car executed on March 19, 1964. The
spouses thereafter failed to pay five consecutive
installments on a remaining balance of P5,274.53. On
October 13, 1965 the appellee instituted a replevin suit
in the city court of Manila for the seizure of the car (par.
7 of the complaint alleged "unjustifiable failure and
refusal of the defendants . . . to surrender possession of
the . . . motor vehicle for the purpose of foreclosure"),
or the recovery of the unpaid balance in case delivery
could not be effected. The car was then seized by the
sheriff of Manila and possession thereof was awarded
to the appellee. During the progress of the case, the
appellee instituted extrajudicial foreclosure
proceedings, as a result of which, on December 22,
1965, the car was sold at public auction with the
appellee as the highest bidder and purchaser.
Meanwhile, in view of the failure of the defendants-
spouses to appear at the scheduled hearing of the case,
allegedly due to non-receipt of the summons, they were
declared in default. The default judgment ordered them
to pay to the appellee the sum of P500 as attorney's
fees, and P163.65 representing actual expenses relative
to the seizure of the car, plus costs.
Their motion to set aside his order of default and the
decision having been denied, they appealed to the
Court of First Instance of Manila.
When the case was called for pre-trial, the CFI advanced
the opinion that there was no need for the parties to
adduce evidence and that the case could be decided on
the basis of the pleadings submitted by the parties.
The trial court on September 5, 1966, rendered
judgment for the appellee
Held:
It is true that the present action is one for replevin, but
because it culminated in the foreclosure of the chattel
mortgage and the sale of the car at public auction, it is
our view that the provisions of art. 1484 of the Civil
Code (Recto Law) must govern the resolution of the
issue here presented.
This article recites that
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.
This article was reproduced from the old art. 1454-A,
which in turn was inserted by Act 4122 (Recto Law).
"Three remedies are available to the vendor who has
sold personal property on the installment plan: (1) He
may elect to exact the fulfillment of the obligation.
(Bachrach Motor Co. vs. Millan, 61 Phil. 409) (2) If the
vendee shall have failed to pay two or more
installments, the vendor may cancel the sale. (3) If the
vendee shall have failed to pay two or more
installments, the vendor may foreclose the mortgage, if
one has been given on the property. The basis of the
first option is the Civil Code. The basis of the last two
options is Act 4122 (inserted in the Spanish Civil Code as
art. 4154-A and now reproduced in arts. 1484 and
1485), amendatory of the Civil Code. And the proviso to
the right to foreclose is that if the vendor has chosen
this remedy, he shall have no further action against the
purchaser for the recovery of any unpaid balance owing
by the same. In other words, as we see it, the Act does
no more than qualify the remedy."3
The legal issue which is the core of the controversy in
the case at bar was resolved in Macondray & Co. vs.
Eustaquio,4 as follows:
The plaintiff brought the action against the defendant
to obtain the possession of an automobile mortgaged
by the latter, and to recover the balance owing upon a
note executed by him, the interest thereon, attorney's
fees, expenses of collection, and the costs. The
defendant was duly summoned, but he failed to appear
or file his answer, wherefore, he was declared in default
and the appealed judgment was rendered accordingly.
The plaintiff sold to the defendant a De Soto car, Sedan,
for the price of which, P595, he executed in its favor the
note of May 22, 1934. Under this note, the defendant
undertook to pay the car in twelve monthly
installments, with 12 per cent interests per annum, and
likewise agreed that, should he fail to pay any monthly
installment together with interest, the remaining
installments would become due and payable, and the
defendant shall pay 20 per cent upon the principal
owing as attorney's fees, expenses of collection which
the plaintiff might incur, and the costs. To guarantee
the performance of his obligations under the note, the
defendant on the same date mortgaged the purchased
car in favor of the plaintiff, and bound himself under the
same conditions stipulated in the note relative to the
monthly installments, interest, attorney's fees,
expenses of collection, and costs. The mortgage deed
was registered on June 11, 1934, in the office of the
register of deeds of the Province of Rizal. On the 22nd
of the same month, the defendant paid P43.75 upon
the first installment, and thereafter failed to pay any of
the remaining installments. In accordance with the
terms of the mortgage, the plaintiff called upon the
sheriff to take possession of the car, but the defendant
refused to yield possession thereof, whereupon, the
plaintiff brought the replevin sought and thereby
succeeded in getting possession of the car. The car was
sold at public auction to the plaintiff for P250, the latter
incurring legal expenses in the amount of P10.68.
According to the liquidation filed by the plaintiff, the
defendant was still indebted in the amount of P342.20,
interest at 12 per cent from November 20, 1934,
P110.25 as attorney's fees, and the costs.
xxx xxx xxx
In its last assignment of error plaintiff contends that
even granting that Act No. 4122 is valid, the court
should have ordered the defendant to pay at least the
stipulated interest, Attorney's fees and the costs. This
question involves the interpretation of the pertinent
portion of the law, reading: "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." This
paragraph, as its language shows, refers to the
mortgage contract executed by the parties, whereby
the purchaser mortgages the chattel sold to him on the
installment basis in order to guarantee the payment of
its price, and the words "any unpaid balance" should be
interpreted as having reference to the deficiency
judgment to which the mortgagee may be entitled
where, after the mortgaged chattel is sold at public
auction, the proceeds obtained therefrom are
insufficient to cover the full amount of the secured
obligations which, in the case at bar as shown by the
note and by the mortgage deed, include interest on the
principal, attorney's fees, expenses of collection, and the
costs. The fundamental rule which should govern the
interpretation of laws is to ascertain the intention and
meaning of the Legislature and to give effect thereto.
(Sec. 288, Code of Civil Procedure; U.S. vs. Toribio, 15
Phil. 85; U.S. vs. Navarro, 19 Phil. 134; De Jesus vs. City
of Manila, 29 Phil. 73; Borromeo vs. Mariano, 41 Phil.
322; People vs. Concepcion, 44 Phil. 126.) Were it the
intention of the Legislature to limit its meaning to the
unpaid balance of the principal, it would have so stated.
We hold, therefore, that the assignment of error is
untenable. (emphasis supplied)
In other words, under this amendment as above
interpreted, in all proceedings for the foreclosure of a
chattel mortgage, executed on chattels which have
been sold on the installment plan, the mortgagee is
limited to the property mortgaged5 and is not entitled
to attorney's fees and costs of suit.
In a subsequent case6 where the vendor in a sale of
personal property in installments, upon failure of the
vendee to pay his obligations, the vendor commenced,
through court action, to recover the unpaid balance of
the purchase price, but later, during the progress of the
action, foreclosed the chattel mortgage constituted on
the property, attorney's fees and costs of suit were
denied to the vendor. There the Supreme Court held:
Paragraph 3 of the above-quoted provision (article
1484, new Civil Code) is clear that foreclosure of the
chattel mortgage and recovery of the unpaid balance of
the price are alternative remedies and may not be
pursued conjunctively. It appearing in the case at bar
that the vendor had already foreclosed the chattel
mortgage constituted on the property and had taken
possession thereof, the lower court acted rightly in
dismissing the complaint filed for the purpose of
recovering the unpaid balance of the purchase price. By
seizing the truck and foreclosing the mortgage at the
progress of the suit, the plaintiff renounced whatever
claim it may have had under the promissory note, and
consequently, he has no more cause of action against
the promisor and the guarantor. And he has no more
right either to the costs and the attorney's fees that
would go with the suit.
This might be considered a reiteration of the ruling
in Macondray.
A scrutiny of the doctrine enunciated in the above-cited
cases will reveal that its ultimate and salutary purpose
is to prevent the vendor from circumventing the Recto
Law. Congress sought to protect the buyers on
installment who more often than not have been
victimized by sellers who, before the enactment of this
law, succeeded in unjustly enriching themselves at the
expense of the buyers, because aside from recovering
the goods sold, upon default of the buyer in the
payment of two installments, still retained for
themselves all amounts already paid, and in addition,
were adjudged entitled to damages, such as attorney's
fees, expenses of litigation and costs. Congress could
not have intended to impair much less do away with,
the right of the seller to make commercial use of his
credit against the buyer, provided the buyer is not
burdened beyond what this law allows.7
It would appear from the emphasis and precision of the
language employed in the decisions already adverted to
that in no instance whatsoever may the mortgagee
recover from the mortgagor any amount or sum after
the foreclosure of the mortgage, for, as we understand
it, the philosophy of the Recto Law is that the
underprivileged mortgagors must be afforded full
protection against the rapacity of the mortgagees.
But while we unconditionally concur in, and give our
approval to, the basic philosophy of the Recto Law, we
view with no small amount of circumspection the
implication, necessarily drawn from the above
discussion, that the mortgagee is not entitled to
protection against perverse mortgagors. Where the
mortgagor plainly refuses to deliver the chattel subject
of the mortgage upon his failure to pay two or more
installments, or if he conceals the chattel to place it
beyond the reach of the mortgagee, what then is the
mortgagee expected to do? It is part of conventional
wisdom and the rule of law that no man can take the
law into his own hands; so it is not to be supposed that
the Legislature intended that the mortgagee should
wrest or seize the chattel forcibly from the control and
possession of the mortgagor, even to the extent of
using violence which is unwarranted in law. Since the
mortgagee would enforce his rights through the means
and within the limits delineated by law, the next step in
such situations being the filing of an action for replevin
to the end that he may recover immediate possession
of the chattel and, thereafter, enforce his rights in
accordance with the contractual relationship between
him and the mortgagor as embodied in their
agreement, then it logically follows as a matter of
common sense, that the necessary expenses incurred in
the prosecution by the mortgagee of the action for
replevin so that he can regain possession of the chattel,
should be borne by the mortgagor. Recoverable
expenses would, in our view, include expenses properly
incurred in effecting seizure of the chattel and
reasonable attorney's fees in prosecuting the action for
replevin. And we declare that in this case before us, the
amounts awarded by the court a quo to the mortgagee
(appellee) are reasonable.
To the extent that our pronouncement here conflicts
with the ruling announced and followed in the cases
hereinbefore discussed, the latter must be
considered pro tanto qualified.
G.R. No. 208185, September 06, 2017, PRISCILLA
ZAFRA ORBE, Petitioner, v. FILINVEST LAND,
INC., Respondent.
Facts:
Sometime in June 2001, Orbe entered into a purchase
agreement with respondent Filinvest Land, Inc.
(Filinvest) over a 385-square-meter lot identified as Lot
1, Block 10, Phase 1, Highlands Pointe, Taytay, Rizal. The
total contract price was P2,566,795.00, payable on
installment basis.
Orbe was unable to make further payments allegedly on
account of financial difficulties.12
On October 4, 2004, Filinvest sent a notice of
cancellation,13 which was received by Orbe on October
18, 2004.
Noting that "efforts . . . to seek for a reconsideration of
said cancellation . . . proved futile," and that the parcel
had since been sold by Filinvest to a certain Ruel Ymana
"in evident bad faith,"16 Orbe filed against Filinvest a
Complaint for refund with damages dated November
13, 2007 before the HLURB Field Office.17 Orbe
emphasized that she had made payments "beginning
June, 2001 up to October, 2004."18 She further asserted
that the October 4, 2004 Notice did not amount to an
"effective cancellation by notarial act."19
In its Answer with Counterclaim, Filinvest asserted that
Orbe failed to make 24 monthly amortization
payments on her account, and thus, could not benefit
from Section 3 of Republic Act No. 6552. According to
Filinvest, the P608,648.20 paid by Orbe from June 17,
2001 to July 14, 2004 covered only the reservation fee,
down payment, and late payment charges, exclusive of
the monthly amortization payments stipulated in the
Purchase Agreement.20
In his July 25, 2008 Decision,21 Arbiter Soriano of the
HLURB Field Office ruled in favor of Orbe.
Filinvest appealed to the HLURB Board of
Commissioners. The HLURB Board of Commissioners
affirmed Arbiter Soriano's Decision.27
Filinvest then appealed to the Office of the President.31
The Office of the President sustained the conclusion
that Orbe was entitled to a 50% refund.
In its assailed October 11, 2012 Decision,37 the Court of
Appeals reversed the prior rulings of the Office of the
President, of the HLURB Board of Commissioners, and
of Arbiter Soriano; and dismissed Orbe's Complaint.
Issue: whether or not petitioner Priscilla Zafra Orbe is
entitled to a refund or to any other benefit under
Republic Act No. 6552.
Held:
Republic Act No. 6552, the Realty Installment Buyer Act
or more popularly reffered to as the Maceda Law,
named after its author, the late Sen. Ernesto Maceda,
was adopted with the purpose of "protect[ing] buyers
of real estate on installment payments against onerous
and oppressive conditions."51 It "delineat[es] the rights
and remedies of . . . buyers and protect[s] them from
one-sided and pernicious contract stipulations":52
Its declared public policy is to protect buyers of real
estate on installment basis against onerous and
oppressive conditions. 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. Most of these
contracts of adhesion, drawn exclusively by the
developers, entrap innocent buyers by requiring cash
deposits for reservation agreements which often times
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. Real estate
developers thus enjoy an unnecessary advantage over
lot buyers who[m] 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[ing] them from one-
sided and pernicious contract stipulations.53
Having been adopted with the explicit objective of
protecting buyers against what it recognizes to be
disadvantageous and onerous conditions, the Maceda
Law's provisions must be liberally construed in favor of
buyers. Within the bounds of reason, fairness, and
justice, doubts in its interpretation must be resolved in
a manner that will afford buyers the fullest extent of its
benefits.
II
Sections 3 and 4 of the Maceda Law spell out the rights
of defaulting buyers on installment payments,
depending on the extent of payments made.

Section 3 governs situations in which a buyer "has paid
at least two years of installments":
Section 3. In all transactions or contracts involving the
sale or financing of real estate on installment payments,
including residential condominium apartments but
excluding industrial lots, commercial buildings and sales
to tenants under Republic Act Numbered Thirty eight
hundred forty-four, as amended by Republic Act
Numbered Sixty-three hundred eighty-nine, where the
buyer has paid at least two years of installments, the
buyer is entitled to the following rights in case he
defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period
earned by him, which is hereby fixed at the rate of
one month grace period for every one year of
installment payments made: Provided, That this
right shall be exercised by the buyer only once in
every five years of the life of the contract and its
extensions, if any.
(b) If the contract is 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
thirty days from receipt by the buyer of the notice
of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of
the cash surrender value to the buyer.
Down payments, deposits or options on the contract
shall be included in the computation of the total
number of installment payments made.
Section 4 governs situations "where less than two years
of installments were paid":
Section 4, In case where less than two years of
installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date
the installment became due. If the buyer fails to pay the
installments due at the expiration of the grace period,
the seller may cancel the contract after thirty days from
receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act.
In both Sections 3 and 4, defaulting buyers are afforded
grace periods in which they may pay the installments
due. Should they fail to make payment within the
applicable period, cancellation of their agreement with
the seller may ensue.
III
Contrary to petitioner's allegations, she did not pay "at
least two years of installments" as to fall within the
protection of Section 3.
In a sale by installment, a buyer defers full payment of
the purchase price and ratably apportions payment
across a period. It is typified by regular, fractional
payments. It is these regular, fractional payments that
are referred to as "installments."54
Thus, when Section 3 speaks of paying "at least two
years of installments," it refers to the equivalent of the
totality of payments diligently or consistently made
throughout a period of two (2) years. Accordingly,
where installments are to be paid on a monthly basis,
paying "at least two years of installments" pertains to
the aggregate value of 24 monthly installments. As
explained in Gatchalian Realty v. Angeles:55
It should be noted that Section 3 of R.A. 6552 and
paragraph six of Contract Nos. 2271 and 2272, speak of
"two years of installments." The basis for computation
of the term refers to the installments that correspond to
the number of months of payments, and not to the
number of months that the contract is in effect as well
as any grace period that has been given. Both the law
and the contracts thus prevent any buyer who has not
been diligent in paying his monthly installments tom
unduly claiming the rights provided in Section 3 of R.A.
6552.56 (Emphasis supplied)
The phrase "at least two years of installments" refers to
value and time. It does not only refer to the period
when the buyer has been making payments, with total
disregard for the value that the buyer has actually
conveyed.57 It refers to the proportionate value of the
installments made, as well as payments having been
made for at least two (2) years.
Laws should never be so interpreted as to produce
results that are absurd or unreasonable.58 Sustaining
petitioner's contention that spe falls within Section 3's
protection just because she has been paying for more
than two (2) years goes beyond a justified, liberal
construction of the Maceda Law. It facilitates
arbitrariness, as intermittent payments of fluctuating
amounts would become permissible, so long as they
stretch for two (2) years. Worse, it condones an
absurdity. It sets a precedent that would endorse
minimal, token payments that extend for two (2) years.
A buyer could, then, literally pay loose change for two
(2) years and still come under Section 3's protection.
Reckoning payment of "at least two years of
installments" on the basis of the regular, factional
payments due from the buyer was demonstrated
in Marina Properties Corp. v. Court of Appeals.59 There,
the monthly amortization of P67,024.22 was considered
in determining the validity of the cancellation of the
contract by the seller:
We likewise uphold the finding that MARINA's
cancellation of the Contract To Buy and To Sell was
clearly illegal. Prior to MARINA's unilateral act of
rescission, H.L. CARLOS had already paid P1,810,330.70,
or more than 50% of the contract price of
P3,614,000.00. Moreover, the sum H.L. CARLOS had
disbursed amounted to more than the total of 24
installments, i.e., two years' worth of installments
computed at a monthly installment rate of P67,024.22,
inclusive of the downpayment.60
In Jestra Development and Management Corporation v.
Pacifico,61 where down payment was itself payable in
portions, this Court reckoned the monthly installment
payment for the down payment amounting to
P121,666.66, rather than the monthly amortization.
This Court justified this by referencing Section 3's
injunction that "[d]own payments, deposits or options
on the contract shall be included in the computation of
the total number of installment payments made":
The total purchase price of the property is P2,500,000.
As provided in the Reservation Application, the 30%
down payment on the purchase price or P750,000 was
to be paid in six monthly installments of P121,666.66.
Under the Contract to Sell, the 70% balance of
P1,750,000.00 on the purchase price was to be paid in
10 years through monthly installments of P34,983,
which was later increased to P39,468 in accordance
with the agreement to restructure the same.
While, under the above-quoted Section 3 of R.A. No.
6552, the down payment is included in computing the
total number of installment payments made, the proper
divisor is neither P34,983 nor P39,468, but P121,666.66,
the monthly installment on the down payment.
The P750,000 down payment was to be paid in six
monthly installments. If the down payment of P750,000
is to be deducted from the total payment of P846,600,
the remainder is only P96,600. Since respondent was
able to pay the down payment in full eleven (11)
months after the last monthly installment was due, and
the sum of P76,600 representing penalty for delay of
payment is deducted from the remaining P96,600, only
a balance of P20,000 remains.
As respondent failed to pay at least two years of
installments, he is not, under above-quoted Section 3 of
R.A. No. 6552, entitled to a refund of the cash surrender
value of his payments.62
Jestra was wrong to use the installment payments on
the down payment as divisor. It is an error to reckon the
payment of two (2) years' worth of installments on the
apportionment of the down payment because, even in
cases where the down payment is broken down into
smaller, more affordable portions, payments for it still
do not embody the ratable apportionment of the
contract price throughout the entire duration of the
contract term. Rather than the partial payments for the
down payment, it is the partition of the contract price
into monthly amortizations that manifests the ratable
apportionment across a complete contract term that is
the essence of sales on installment. The correct
standard is that which was used in Marina, not in Jestra.
Marina also correctly demonstrated how Section 3's
injunction that "[d]own payments, deposits or options
on the contract shall be included in the computation of
the total number of installment payments made" should
operate. In Marina, the total amount of P1,810,330.70
paid by the buyer was inclusive of payments for down
payment worth P1,034,200.00 and cash deposit worth
P50,000.00. In concluding that the buyer in Marina had
paid more than two (2) years' or 24 months' worth of
installments, what this Court considered was the total
amount of P1,810,330.70 and not merely the payments
on amortizations.
Following Marina, this Court reckons petitioner's
satisfaction of the requisite two (2) years' or 24 months'
worth of installments using as divisor the monthly
amortizations due from petitioner. However, this Court
notes that the mon1hly amortizations due from
petitioner were stipulated to escalate on a yearly basis.
In keeping with the need to construe the Maceda Law in
a manner favorable to the buyer, this Court uses as
basis the monthly amortizations set for the first
year, i.e., P27,936.84. With this as the divisor, it shall
appear that petitioner has only paid 21.786 months'
worth of installments. This falls short of the requisite
two (2) years' or 24 months' worth of installments.
IV
Failing to satisfy Section 3's threshold, petitioner's case
is governed by Section 4 of the Maceda Law.
Thus, she was "entitled to a grace period of not less
than sixty (60) days from the due date within which to
make [her] installment payment. [Respondent], on the
other hand, ha[d] the right to cancel the contract after
thirty (30) days from receipt by [petitioner] of the
notice of cancellation."63
For cancellations under Section 4 to be valid, three (3)
requisites must concur, First, the buyer must have been
given a 60-day grace period but failed to utilize it.
Second, the seller must have sent a notice of
cancellation or demand for rescission by notarial act
And third, the cancellation shall take effect only after 30
days of the buyer's receipt of the notice of cancellation:
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 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.64 (Emphasis in the original)
Respondent's October 4, 2004 notice indicates that
petitioner failed to utilize the 60-day grace period. It
also indicates that cancellation was to take effect "thirty
(30) days from [its] receipt":
Our records show that your account remains unpaid
despite our written request for your payment. We have
in fact given you sixty (60) days to update but you failed
to settle your account. Accordingly, please be informed
that we are now hereby canceling your account
effective thirty (30) days from receipt hereof.65
The notice of cancellation was also accompanied by a
jurat; thereby making it appear to have been a valid
notarial act:
SUBSCRIBED AND SWORN to before me this OCT 06
2004, affiant exhibiting to me Community Tax
Certificate No. 05465460 issued on February 09, 2004 at
lvfanila.66 (Emphasis supplied)
This is not, however, the valid notarial act contemplated
by the Maceda Law.
In ordinary circumstances, "[n]otarization of a private
document converts the document into a public one
making it admissible in court without further proof of its
authenticity."67 To enable this conversion, Rule 132,
Section 19 of the Revised Rules of Evidence specifically
requires that a document be "acknowledged before a
notary public."68
Rule II, Section 1 of A.M. No. 02-8-13-SC, the 2004 Rules
on Notarial Practice, defines an acknowledgement, as
follows:
SECTION 1. Acknowledgment. - "Acknowledgment"
refers to an act in which an individual on a single
occasion:
(a) appears in person before the notary public and
presents an integrally complete instrument or
document;
(b) is attested to be personally known to the notary
public or identified by the notary public through
competent evidence of identity as defined by
these Rules; and
(c) represents to the notary public that the signature
on the instrument or document was voluntarily
affixed by him for the purposes stated in the
instrument or document, declares that he has
executed the instrument or document as his free
and voluntary act and deed, and, if he acts in a
particular representative capacity, that he has the
authority to sign in that capacity.
Notarization under the Maceda Law extends beyond
converting private documents into public ones. Under
Sections 3 and 4, notarization enables the exercise of
the statutory right of unilateral cancellation by the
seller of a perfected contract. If an acknowledgement is
necessary in the customary rendition of public
documents, with greater reason should an
acknowledgement be imperative in notices of
cancellation or demands for rescission made under
Sections 3 and 4 of the Maceda Law.
Through an acknowledgement, individuals acting as
representatives declare that they are authorized to act
as such representatives. This is particularly crucial with
respect to signatories to notices of cancellation or
demands for rescission under Sections 3 and 4 of the
Maceda Law. In a great number of cases, the sellers of
real property shall be juridical persons acting through
representatives. In these cases, it is imperative that the
officer signing for the seller indicate that he or she is
duly authorized to effect the cancellation of an
otherwise perfected contract. Not all personnel are
capacitated to effect these cancellations; individuals
purporting to do so must demonstrate their specific
authority. In the case of corporations, this authority is
vested through board resolutions, or by stipulations in
the articles of incorporation or by-laws.
Respondent's notice of cancellation here was executed
by an individual identified only as belonging to
respondent's Collection Department. It was also
accompanied not by an acknowledgement, but by a
jurat.
A jurat is a distinct notarial act, which makes no
averment concerning the authority of a representative.
It is defined by Rule II, Section 6 of the 2004 Rules on
Notarial Practice, as follows:
SECTION 6. Jurat. - "Jurat" refers to an act in which an
individual on a single occasion:
(a) appears in person before the notary public and
presents an instrument or document;
(b) is personally known to the notary public or
identified by the notary public through competent
evidence of identity as defined by these Rules;
(c) signs the instrument or document in the presence
of the notary; and
(d) takes an oath or affirmation before the notary
public as to such instrument or document.
Even if respondent's notarization by jurat and not by
acknowledgement were to be condoned, respondent's
jurat was not even a valid jurat executed according to
the requirements of the 2004 Rules on Notarial
Practice.
The 2004 Rules on Notarial Practice took effect on
August 1, 2004.69 It governed respondent's October 4,
2004 notice, which was notarized on October 6, 2004.
As Rule II, Section 6 of these Rules clearly states, the
person signing the document must be "personally
known to the notary public or identified by the notary
public through competent evidence of identity."
Rule II, Section 12, in turn, defines "competent evidence
of identity." As originally worded, when the 2004 Rules
on Notarial Practice came into effect on August 1, 2004,
Rule II, Section 12 read:
Section 12. Competent Evidence of Identity. - The
phrase "competent evidence of identity" refers to the
identification of an individual based on:
(a) at least one current identification document
issued by an official agency bearing the
photograph and signature of the individual; or
(b) the oath or affirmation of one credible witness not
privy to the instrument, document or transaction
who is personally known to the notary public and
who personally knows the individual, or of two
credible witnesses neither of whom is privy to the
instrument, document or transaction who each
personally knows the individual and shows to the
notary public documentary identification.
The proof of identity used by the signatory to
respondent's notice of cancellation was a community
tax certificate, which no longer satisfies this
requirement.
Rule II, Section 12 was eventually amended by A.M. No.
02-8-13-SC. As amended, it specifically rebukes the
validity of a community tax certificate as a competent
evidence of identity:
Section 12. Competent Evidence of Identity. - The
phrase "competent evidence of identity" refers to the
identification of an individual based on:
a. at least one current identification document
issued by an official agency bearing the
photograph and signature of the individual,
such as but not limited to, passport, driver's
license, Professional Regulations Commission
ID, National Bureau of Investigation clearance,
police clearance, postal ID, voter's ID, Barangay
certification, Government Service and Insurance
System (GSIS) e-card, Social Security System
(SSS) card, Philhealth card, senior citizen card,
Overseas Workers Welfare Administration
(OWWA) ID, OFW ID, seaman's book, alien
certificate of registration/immigrant certificate
of registration, government office ID,
certification from the National Council for the
Welfare of Disabled Persons (NCWDP),
Department of Social Welfare and Development
(DSWD) certification; or
b. the oath or affirmation of one credible witness
not privy to the instrument, document or
transaction who is personally known to the
notary public and who personally knows the
individual, or of two credible witnesses neither
of whom is privy to the instrument, document
or transaction who each personally knows the
 individual and shows to the notary public
documentary identification.
Baylon v. Almo70 explained why community tax
certificates were specifically excluded as a permissible
proof of identity:
As a matter of fact, recognizing the established
unreliability of a community tax certificate in proving
the identity of a person who wishes to have his
document notarized, we did not include it in the list of
competent evidence of identity that notaries public
should use in ascertaining the identity of persons
appearing before them to have their documents
notarized.71
Marina Properties v. Court of Appeals72 was
unequivocal: "[I]n order to effect the cancellation of a
contract, a notarial cancellation must first be
had."73Realty Exchange Venture Corp. v.
Sendino74 explained, "Since R.A. 6552 mandates
cancellation by notarial act - among other requirements
before any cancellation of a contract may be effected,
petitioners' precipitate cancellation of its contract with
private respondent without observing the conditions
imposed by the said law was invalid and
improper."75 In Active Realty and Development v.
Daroya,76 where the seller "failed to send a notarized
notice of cancellation,"77 this Court decried the iniquity
foisted upon a buyer. "[W]e find it illegal and iniquitous
that petitioner, without complying with the mandatory
legal requirements for canceling the contract, forfeited
both respondent's land and hard-earned money."78
In ordinary circumstances, where notarization serves
merely to convert a private document into a public
document, notaries public have been admonished
about faithfully observing the rules governing notarial
acts: "Faithful observance and utmost respect of the
legal solemnity of an oath in an acknowledgment or
jurat is sacrosanct."79 It is with greater reason that the
diligent observance of notarial rules should be
impressed in cases concerned with a seller's exercise of
a statutory privilege through cancellations under the
Maceda Law.
Respondent's failure to diligently satisfy the imperatives
of the 2004 Rules on Notarial Practice constrains this
Court to consider its notice as an invalid notarial act.
This amounts to respondent's failure to satisfy the
second requisite for valid cancellations under Section 4,
ultimately rendering its cancellation of the purchase
agreement ineffectual.
This Court is mindful of jurisprudence in which it has
been lenient with the requirement of presenting a
competent evidence of identity before a notary public.
Galicto v. Aquino,80Coca Cola Bottlers Philippines, Inc. v.
Dela Cruz,81Victorio-Aquino v. Pacific Plans,
Inc.,82 and Reyes v. Glaucoma
Research Foundation, Inc.83 concerned verifications and
certifications of non-forum shopping in which jurats did
not indicate the required competent evidence of
identity. In these cases, this Court overlooked the
defects considering that "defective jurat in the
Verification/Certification of Non-Forum Shopping is not
a fatal defect . . . The verification is only a formal, not a
jurisdictional, requirement that the Court may
waive."84 Likewise, this Court considered it more
appropriate to not hinder the consideration of
pleadings in order that party-litigants may exhaustively
plead their cases.85
Galicto, Coca-Cola, Victorio-Aquino, and Reyes are
markedly different from the present controversy. They
merely concerned formal infractions. In contrast, this
case concerns Section 4's definite precondition for the
seller's exercise of its option to repudiate a contract. At
stake in Galicto, Coca-Cola, Victorio-Aquino,
and Reyes was the right to be heard in judicial
proceedings, a cognate of due process. What is at stake
here is different: the grant of a statutory privilege
relating to a civil contract.
To be effective, sellers' cancellations under the Maceda
Law must strictly comply with the requirements of
Sections 3 and 4. This Court clarifies here that with
respect to notices of cancellation or demands for
rescission by notarial act, an acknowledgement is
imperative. Moreover, when these are made through
representatives of juridical persons selling real
property, the authority of these representatives must
be duly demonstrated. For corporations, the
representative's authority must have either been
granted by a board resolution or existing in the seller's
articles of incorporation or by-laws.
With the Maceda Law's avowed purpose of extending
benefits to disadvantaged buyers and liberating them
from onerous and oppressive conditions, it necessarily
follows that the Maceda Law's permission for sellers to
cancel contracts becomes available only when its
conditions are heedfully satisfied. No liberal
construction of the Maceda Law can be made in favor of
the seller and at the same time burdening the buyer.
V
There being no valid cancellation, the purchase
agreement between petitioner and respondent
"remains valid and subsisting."86 However, respondent
has already sold the lot purchased by petitioner to a
certain Ruel Ymana.87
Gatchalian Realty v. Angeles88 confronted a similar
predicament. In determining the most judicious manner
of disposing of the controversy, this Court considered
the analogous cases of Olympia Housing v. Panasiatic
Travel,89Pagtalunan v. Vda. de Manzano,90Active Realty
and Development v. Daroya,91 and Associated Marine
Officers and Seamen's Union of the Philippines PTGWO-
ITF v. Decena:92
In Olympia, this Court dismissed the complaint for
recovery of possession for having been prematurely
filed without complying with the mandate of R.A. 6552.
We ordered the defaulting buyer to pay the developer
the balance as of the date of the filing of the complaint
plus 18% interest per annum computed from the day
after the date of the filing of the complaint, but within
60 days from the receipt of a copy of the decision. Upon
payment, the developer shall issue the corresponding
certificate of title in favor of the defaulting buyer, If the
defaulting buyer fails to pay the full amount, then the
defaulting buyer shall vacate the subject property
without need of demand and all payments will be
charged as rentals to the property. There was no award
for damages and attorney's fees, and no costs were
charged to the parties.
In Pagtalunan, this Court dismissed the complaint for
unlawful detainer. We also ordered the defaulting
buyer to pay the developer the balance of the purchase
price plus interest at 6% per annum from the date of
filing of the complaint up to the finality of judgment,
and thereafter, at the rate of 12% per annum. Upon
payment, the developer shall issue a Deed of Absolute
Sale of the subject property and deliver the
corresponding certificate of title in favor of the
defaulting buyer. If the defaulting buyer fails to pay the
full amount within 60 days from finality of the decision,
then the defaulting buyer should vacate the subject
property without need of demand and all payments will
be charged as rentals to the property. No costs were
charged to the parties.
In Active, this Court held that the Contract to Sell
between the parties remained valid because of the
developer's failure to send a notarized notice of
cancellation and to refund the cash surrender value.
The defaulting buyer thus had the right to offer to pay
the balance of the purchase price, and the developer
had no choice but to accept payment. However, the
defaulting buyer was unable to exercise this right
because the developer sold the subject lot. This Court
ordered the developer to refund to the defaulting buyer
the actual value of the lot with 12% interest per annum
computedfrom the date of the filing of the complaint
until fully paid, or to deliver a substitute lot at the option
of the defaulting buyer.
In Associated, this Court dismissed the complaint for
unlawful detainer. We held that the Contract to Sell
between the parties remained valid because the
developer failed to send to the defaulting buyer a
notarized notice of cancellation and to refund the cash
surrender value. We ordered the MeTC to conduct a
hearing within 30 days from receipt of the decision to
determine the unpaid balance of the full value of the
subject properties as well as the current reasonable
amount of rent for the subject properties. We ordered
the defaulting buyer to pay, within 60 days from the
trial court's determination of the amounts, the unpaid
balance of the full value of the subject properties with
interest at 6% per annum computed from the date of
sending of the notice of final demand up to the date of
actual payment. Upon payment, we ordered the
developer to execute a Deed of Absolute Sale over the
subject properties and deliver the transfer certificate of
title to the defaulting buyer. In case of failure to pay
within the mandated 60 day period, we ordered the
defaulting buyer to immediately vacate the premises
without need for further demand. The developer should
also pay the defaulting buyer the cash surrender value,
and the contract should be deemed cancelled 30 days
after the defaulting buyer's receipt of the full payment
of the cash surrender value. If the defaulting buyer
failed to vacate the premises, he should be charged
reasonable rental in the amount determined by the trial
court.93 (Emphasis supplied)
Gatchalian proceeded to, first, assert the propriety of
equitably resolving the controversy, and second,
consider the options available to the buyer. It
specifical1y noted that in the event that its subject
properties were no longer available, only two (2)
options remained: a refund or an offer of substitute
properties. It was exclusively for the buyer to choose
between these options:
We observe that this case has, from the institution of
the complaint, been pending with the courts for 10
years. As both parties prayed for the issuance of reliefs
that are just and equitable under the premises, and in
the exercise of our discretion, we resolve to dispose of
this case in an equitable manner. Considering that GRI
did not validly rescind Contracts to Sell Nos. 2271 and
2272, Angeles has two options:
1. The option to pay, within 60 days from the MeTC's
determination of the proper amounts, the unpaid
balance of the full value of the purchase price of the
subject properties plus interest at 6% per annum from
11 November 2003, the date of filing of the complaint,
up to the finality of this Decision, and thereafter, at the
rate of 6% per annum. Upon payment of the full
amount, GRI shall immediately execute Deeds of
Absolute Sale over the subject properties and deliver
the corresponding transfer certificate of title to Angeles.
In the event that the subject properties are no longer
available, GRI should offer substitute properties of equal
value. Acceptance the suitability of the substitute
properties is Angeles' sole prerogative. Should Angeles
refuse the substitute properties, GRI shall refund to
Angeles the actual value of the subject properties with
6% interest per annum computed from 11 November
2003, the date of the filing of the complaint, until fully
paid; and
2. The option to accept from GRI P574,148.40, the cash
surrender value of the subject properties, with interest
at 6% per annum, computed from 11 November 2003,
the date of the filing of the complaint, until fully paid.
Contracts to Sell Nos. 2271 and 2272 shall be deemed
cancelled 30 days after Angeles' receipt of GRI's full
payment of the cash surrender value. No rent is further
charged upon Angeles as GRI already had possession of
the subject properties on 10 October 2006.94 (Emphasis
supplied)
This case is most akin to Active. There, as in this case,
the subject property was actually sold by the seller to a
third person. Gatchalian mirrored Active in discerning
an equitable ruling in the event that its subject
properties had been sold by the seller to another
person.
It was Active that originally identified two (2) options
where a seller wrongly cancelled a contract with a
buyer and had since sold that property to a third
person, refunding the actual95 value of the lot sold plus
interest or delivering a substitute lot to the buyer:
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.96(Emphasis supplied)
In Active, the buyer managed to pay the full price of the
principal value of the lot but was still short of the total
contract price net of interest.97 Unlike the buyer
in Active, petitioner here has only made partial
payments. Thus, a full refund of the actual value of the
lot, as Active and Gatchalian ordered, is improper. In
addition, petitioner has disavowed any interest in
proceeding with the purchase.98 She has even admitted
to not having the financial capacity for this.99 The
antecedents, too, demonstrate that petitioner made no
further attempt at proceeding with the purchase.
Therefore, this Court follows Active's precedent, as it
did in Gatchalian, but makes adjustments in
consideration of the peculiarities of this case.
Considering that it did not validly cancel its contract
with petitioner and has also sold the lot to another
person, it is proper that respondent be ordered to
refund petitioner. This refund shall not be the full,
actual value of the lot resold, as was ordered
in Active and Gatchalian, lest petitioner be unjustly
enriched. Rather, it shall only be the amount actually
paid by petitioner to respondent, i.e., P608,648.20. In
view of Nacar v. Gallery Frames, this amount shall be
subject to legal interest at the rate of twelve percent
(12%) per annum reckoned from the filing of
petitioner's Complaint100 until June 30, 2013; and six
percent (6%) per annum from July 1, 2013 until fully
paid.101
WHEREFORE, the Petition for Review on Certiorari
is GRANTED.
G.R. No. 202358, November 27, 2013 GATCHALIAN
REALTY, INC., Petitioner, vs. EVELYN M.
ANGELES, Respondent.
Facts:
[Angeles] purchased a house (under Contract to Sell No.
2272) and lot (under Contract to Sell No. 2271) from
[GRI] valued at Seven Hundred Fifty Thousand Pesos
(Php 750,000.00) and Four Hundred Fifty Thousand
Pesos (Php 450,000.00), respectively, with twenty-four
percent (24%) interest per annum to be paid by
installment within a period of ten years.
The house and lot were delivered to [Angeles] in 1995.
Nonetheless, under the contracts to sell executed
between the parties, [GRI] retained ownership of the
property until full payment of the purchase price.
After sometime, [Angeles] failed to satisfy her monthly
installments with [GRI]. [Angeles] was only able to pay
thirty-five (35) installments for Contract to Sell No. 2271
and forty-eight (48) installments for Contract to Sell No.
2272. According to [GRI], [Angeles] was given at least
twelve (12) notices for payment in a span of three (3)
years but she still failed to settle her account despite
receipt of said notices and without any valid reason.
[Angeles] was again given more time to pay her dues
and likewise furnished with three (3) notices reminding
her to pay her outstanding balance with warning of
impending legal action and/or rescission of the
contracts, but to no avail. After giving a total of fifty-one
(51) months grace period for both contracts and in
consideration of the continued disregard of the
demands of [GRI], [Angeles] was served with a notice of
notarial rescission dated 11 September 2003 by
registered mail which she allegedly received on 19
September 2003 as evidenced by a registry return
receipt.
Consequently [Angeles] was furnished by [GRI] with a
demand letter dated 26 September 2003 demanding
her to pay the amount of One Hundred Twelve
Thousand Three Hundred Four Pesos and Forty Two
Centavos (Php 112,304.42) as outstanding reasonable
rentals for her use and occupation of the house and lot
as of August 2003 and to vacate the same. She was
informed in said letter that the fifty percent (50%)
refundable amount that she is entitled to has already
been deducted with the reasonable value for the use of
the properties or the reasonable rentals she incurred
during such period that she was not able to pay the
installments due her. After deducting the rentals from
the refundable amount, she still had a balance of One
Hundred Twelve Thousand Three Hundred Four Pesos
and Forty Two Centavos (Php 112,304.42) which she
was required to settle within fifteen (15) days from
receipt of the letter.
Allegedly, [Angeles] subsequently sent postal money
orders through registered mail to [GRI]. In a letter dated
27 January 2004 [Angeles] was notified by [GRI] of its
receipt of a postal money order sent by [Angeles]. More
so, she was requested to notify [GRI] of the purpose of
the payment. [Angeles] was informed that if the postal
money order was for her monthly amortization, the
same will not be accepted and she was likewise
requested to pick it up from [GRI’s] office. On 29
January 2004, another mail with a postal money order
was sent by [Angeles] to [GRI]. In her 6 February 2004
letter, [GRI] was informed that the postal money orders
were supposed to be payments for her monthly
amortization. Again, in its 8 February 2004 letter, it was
reiterated by [GRI] that the postal money orders will
only be accepted if the same will serve as payment of
her outstanding rentals and not as monthly
amortization. Four (4) more postal money orders were
sent by [Angeles] by registered mail to [GRI].
For her continued failure to satisfy her obligations with
[GRI] and her refusal to vacate the house and lot, [GRI]
filed a complaint for unlawful detainer against [Angeles]
on 11 November 2003.
Held:
Republic Act No. 6552, also known as the Maceda Law,
or the Realty Installment Buyer Protection Act, has the
declared public policy of "protecting buyers of real
estate on installment payments against onerous and
oppressive conditions."19 Section 3 of R.A. 6552
provides for the rights of a buyer who has paid at least
two years of installments but defaults in the payment of
succeeding installments. Section 3 reads:
Section 3. In all transactions or contracts involving the
sale or financing of real estate on installment payments,
including residential condominium apartments but
excluding industrial lots, commercial buildings and sales
to tenants under Republic Act Numbered Thirty-eight
hundred forty-four, as amended by Republic Act
Numbered Sixty-three hundred eighty-nine, where the
buyer has paid at least two years of installments, the
buyer is entitled to the following rights in case he
defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned by
him which is hereby fixed at the rate of one month
grace period for every one year of installment payments
made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the
contract and its extensions, if any.
(b) If the contract is 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 thirty days from receipt by the buyer of the
notice of cancellation or the demand for rescission of
the contract by a notarial act and upon full payment of
the cash surrender value to the buyer.
Down payments, deposits or options on the contract
shall be included in the computation of the total
number of installment payments made.
The sixth paragraph of the contracts between Angeles
and GRI similarly provides:
SIXTH - Should the VENDEE/S fail to pay due any
monthly installment the VENDOR shall have the right to
cancel this Contract and resell the lot/s subject matter
of this contract to another buyer, provided, however,
that where the VENDEE/S has/have already paid at least
two years of installments, the VENDEE/S will have the
right:
a) to pay without additional interest, the installments in
arrears within the total grace period earned by
him/her/them which is hereby fixed at the rate of one
(1) month grace period for every one (1) year of
installment payment made, but this right can be
exercised by the VENDEE/S only once in every five (5)
years of the life of this contract and its extension, if any,
and
b) if the contract is cancelled, the VENDOR shall refund
to the VENDEE/S the cash surrender value of the
payments made on the lot/s equivalent to fifty per cent
(50%) of the total payments made, and after five (5)
years of installment, an additional five per cent (5%)
every year but not to exceed ninety per cent (90%) of
the total payments made; Provided, that the actual
cancellation of the contract shall take place after thirty
(30) days from the receipt by the VENDEE/S of the
notice of cancellation or the demand for rescission of
the contract by a notarial act upon full payment of the
cash surrender value to the VENDEE/S; where, however,
the VENDEE/S has/have paid less than two (2) years of
installments, the VENDOR shall give the VENDEE/S [a]
grace period of sixty (60) days from the date the
installment became due; and if the VENDEE/S fail/s to
pay the installment due after the expiration of the grace
period, the VENDOR may cancel the contract after thirty
(30) days from receipt by the VENDEE/S of the notice of
cancellation or the demand for rescission of the
contract by a notarial act; and in case of cancellation
and/or rescission of this contract, all improvements on
the lot/s above-described shall be forfeited in favor of
the VENDOR, and in this connection, the VENDEE/S
obligate/s himself/herself/themselves to peacefully
vacate the premises mentioned above without
necessity of notice or demand by the VENDOR.20
We examine GRI’s compliance with the requirements of
R.A. 6552, as it insists that it extended to Angeles
considerations that are beyond what the law provides.
Grace Period
It should be noted that Section 3 of R.A. 6552 and
paragraph six of Contract Nos. 2271 and 2272, speak of
"two years of installments." The basis for computation
of the term refers to the installments that correspond
to the number of months of payments, and not to the
number of months that the contract is in effect as well
as any grace period that has been given. Both the law
and the contracts thus prevent any buyer who has not
been diligent in paying his monthly installments from
unduly claiming the rights provided in Section 3 of R.A.
6552.
The MeTC, the RTC, and the CA all found that Angeles
was able to pay 35 installments for the lot (Contract No.
2271) and 48 installments for the house (Contract No.
2272).21 Angeles thus made installment payments for
less than three years on the lot, and exactly four years
on the house.
Section 3(a) of R.A. 6552 provides that the total grace
period corresponds to one month for every one year of
installment payments made, provided that the buyer
may exercise this right only once in every five years of
the life of the contract and its extensions. The buyer’s
failure to pay the installments due at the expiration of
the grace period allows the seller to cancel the contract
after 30 days from the buyer’s receipt of the notice of
cancellation or demand for rescission of the contract by
a notarial act. Paragraph 6(a) of the contract gave
Angeles the same rights.
Both the RTC and the CA found that GRI gave Angeles
an accumulated grace period of 51 months.22 This
extension went beyond what was provided in R.A. 6552
and in their contracts.
Receipt of the Notice of Notarial Rescission
The registry return of the registered mail is prima facie
proof of the facts indicated therein.23 Angeles failed to
present contrary evidence to rebut this presumption
with competent and proper evidence. To establish its
claim of service of the notarial rescission upon Angeles,
GRI presented the affidavit of its liaison officer
Fortunato Gumahad,24 the registry receipt from the
Greenhills Post Office,25 and the registry return
receipt.26 We affirm the CA’s ruling that GRI was able to
substantiate its claim that it served Angeles the notarial
rescission sent through registered mail in accordance
with the requirements of R.A. 6552.
Amount of the Cash Surrender Value
GRI claims that it gave Angeles a refund of the cash
surrender value of both the house and the lot in the
total amount of ₱574,148.40 when it deducted the
amount of the cash surrender value from the amount of
rentals due.
For paying more than two years of installments on the
lot, Angeles was entitled to receive cash surrender
value of her payments on the lot equivalent to fifty per
cent of the total payments made. This right is provided
by Section 3(b) of R.A. 6552, as well as paragraph 6(b) of
the contract. Out of the contract price of ₱450,000,
Angeles paid GRI a total of ₱364,188.96 consisting of
₱135,000 as downpayment and ₱229,188.96 as
installments and penalties.27 The cash surrender value
of Angeles’ payments on the lot amounted to
₱182,094.48.28
For the same reasons, Angeles was also entitled to
receive cash surrender value of the payments on the
house equivalent to fifty per cent of the total payments
made. Out of the contract price of ₱750,000, Angeles
paid GRI a total of ₱784,107.84 consisting of ₱165,000
as downpayment and ₱619,107.84 as installments and
penalties.29 The cash surrender value of Angeles’
payments on the house amounted to ₱392,053.92.30
Actual Cancellation of the Contracts
There was no actual cancellation of the contracts
because of GRI’s failure to actually refund the cash
surrender value to Angeles.
Cancellation of the contracts for the house and lot was
contained in a notice of notarial rescission dated 11
September 2003.31 The registry return receipts show
that Angeles received this notice on 19 September
2003.32GRI’s demand for rentals on the properties,
where GRI offset Angeles’ accrued rentals by the
refundable cash surrender value, was contained in
another letter dated 26 September 2003.33 The registry
return receipts show that Angeles received this letter on
29 September 2003.34 GRI filed a complaint for unlawful
detainer against Angeles on 11 November 2003, 61 days
after the date of its notice of notarial rescission, and 46
days after the date of its demand for rentals. For her
part, Angeles sent GRI postal money orders in the total
amount of ₱120,000.35
The MeTC ruled that it was proper for GRI to
compensate the rentals due from Angeles’ occupation
of the property from the cash surrender value due to
Angeles from GRI. The MeTC stated that compensation
legally took effect in accordance with Article 1290 of the
Civil Code, which reads: "When all the requisites
mentioned in Article 1279 are present, compensation
takes effect by operation of law and extinguishes both
debts to the concurrent amount, even though the
creditors and debtors are not aware of the
compensation." In turn, Article 1279 of the Civil Code
provides:
In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally,
and that he be at the same time a principal creditor of
the other;
(2) That both debts consist of 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 are 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.
However, it was error for the MeTC to apply Article
1279 as there was nothing in the contracts which
provided for the amount of rentals in case the buyer
defaults in her installment payments. The rentals due to
GRI were not liquidated. GRI, in its letter to Angeles
dated 26 September 2003, unilaterally imposed the
amount of rentals, as well as an annual 10% increase
We cannot subscribe to GRI’s view that it merely
followed our ruling in Pilar Development Corporation v.
Spouses Villar37 (Pilar) when it deducted the cash
surrender value from the rentals due. In Pilar, the
developer also failed to refund the cash surrender value
to the defaulting buyer when it cancelled the Contract
to Sell through a Notice of Cancellation. It was this
Court, and not the developer, that deducted the
amount of the cash surrender value from the accrued
rentals. Moreover, the developer in Pilar did not
unilaterally impose rentals. It was the MeTC that
decreed the amount of monthly rent. Neither did the
developer unilaterally reduce the accrued rentals by the
refundable cash surrender value. The cancellation of the
contract took effect only by virtue of this Court’s
judgment because of the developer’s failure to return
the cash surrender value.
This was how we ruled in Pilar:
According to R.A. 6552, the cash surrender value, which
in this case is equivalent to fifty percent (50%) of the
total payment made by the respondent spouses, should
be returned to them by the petitioner upon the
cancellation of the contract to sell on August 31, 1998
for the cancellation to take effect. Admittedly, no such
return was ever made by petitioner. Thus, the said cash
surrender value is hereby ordered deducted from the
award owing to the petitioner based on the MeTC
judgment, and cancellation takes effect by virtue of this
judgment.
Finally, as regards the award of ₱7,000.00/month as
rental payment decreed by the MeTC for the use of the
property in question from the time the respondent
spouses obtained possession thereof up to the time
that its actual possession is surrendered or restored to
the petitioner, the Court finds the same just and
equitable to prevent the respondent spouses, who
breached their contract to sell, from unjustly enriching
themselves at the expense of the petitioner which, for
all legal intents and purposes, never ceased to be the
owner of the same property because of the
respondents’ non-fulfillment of the indispensable
condition of full payment of the purchase price, as
embodied in the parties’ contract to sell. However, as
earlier explained, this sum is to be reduced by the cash
surrender value of the payments so far made by the
spouses, and the resulting net amount still owing as
accrued rentals shall be subject to legal interest from
finality of this Decision up to the time of actual payment
thereof.38
Mandatory Twin Requirements:
Notarized Notice of Cancellation and
Refund of Cash Surrender Value
This Court has been consistent in ruling that a valid and
effective cancellation under R.A. 6552 must comply
with the mandatory twin requirements of a notarized
notice of cancellation and a refund of the cash
surrender value.
In Olympia Housing, Inc. v. Panasiatic Travel Corp.,39 we
ruled that the notarial act of rescission must be
accompanied by the refund of the cash surrender value.
x x x The actual cancellation of the contract can only be
deemed to take place upon the expiry of a 30-day
period following the receipt by the buyer of the notice
of cancellation or demand for rescission by a notarial
act and the full payment of the cash surrender value.
In Pagtalunan v. Dela Cruz Vda. De Manzano,40 we ruled
that there is no valid cancellation of the Contract to Sell
in the absence of a refund of the cash surrender value.
We stated that:
x x x 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. (Emphasis supplied)
Remedies of the Buyer
in the Absence of a Valid Cancellation of a Contract to
Sell
In view of the absence of a valid cancellation, the
Contract to Sell between GRI and Angeles remains valid
and subsisting. Apart from Olympia and Pagtalunan, we
are guided by our rulings in Active Realty &
Development Corp. v. Daroya41 (Active) and Associated
Marine Officers and Seamen’s Union of the Philippines
PTGWO-ITF v. Decena42 (Associated).
In Olympia , this Court dismissed the complaint for
recovery of possession for having been prematurely
filed without complying with the mandate of R.A. 6552.
We ordered the defaulting buyer to pay the developer
the balance as of the date of the filing of the complaint
plus 18% interest per annum computed from the day
after the date of the filing of the complaint, but within
60 days from the receipt of a copy of the decision. Upon
payment, the developer shall issue the corresponding
certificate of title in favor of the defaulting buyer. If the
defaulting buyer fails to pay the full amount, then the
defaulting buyer shall vacate the subject property
without need of demand and all payments will be
charged as rentals to the property. There was no award
for damages and attorney’s fees, and no costs were
charged to the parties.
In Pagtalunan, this Court dismissed the complaint for
unlawful detainer. We also ordered the defaulting
buyer to pay the developer the balance of the purchase
price plus interest at 6% per annum from the date of
filing of the complaint up to the finality of judgment,
and thereafter, at the rate of 12% per annum. Upon
payment, the developer shall issue a Deed of Absolute
Sale of the subject property and deliver the
corresponding certificate of title in favor of the
defaulting buyer. If the defaulting buyer fails to pay the
full amount within 60 days from finality of the decision,
then the defaulting buyer should vacate the subject
property without need of demand and all payments will
be charged as rentals to the property. No costs were
charged to the parties.
In Active, this Court held that the Contract to Sell
between the parties remained valid because of the
developer’s failure to send a notarized notice of
cancellation and to refund the cash surrender value.
The defaulting buyer thus had the right to offer to pay
the balance of the purchase price, and the developer
had no choice but to accept payment. However, the
defaulting buyer was unable to exercise this right
because the developer sold the subject lot. This Court
ordered the developer to refund to the defaulting buyer
the actual value of the lot with 12% interest per annum
computed from the date of the filing of the complaint
until fully paid, or to deliver a substitute lot at the
option of the defaulting buyer.
In Associated, this Court dismissed the complaint for
unlawful detainer. We held that the Contract to Sell
between the parties remained valid because the
developer failed to send to the defaulting buyer a
notarized notice of cancellation and to refund the cash
surrender value. We ordered the MeTC to conduct a
hearing within 30 days from receipt of the decision to
determine the unpaid balance of the full value of the
subject properties as well as the current reasonable
amount of rent for the subject properties. We ordered
the defaulting buyer to pay, within 60 days from the
trial court’s determination of the amounts, the unpaid
balance of the full value of the subject properties with
interest at 6% per annum computed from the date of
sending of the notice of final demand up to the date of
actual payment. Upon payment, we ordered the
developer to execute a Deed of Absolute Sale over the
subject properties and deliver the transfer certificate of
title to the defaulting buyer. In case of failure to pay
within the mandated 60-day period, we ordered the
defaulting buyer to immediately vacate the premises
without need for further demand. The developer should
also pay the defaulting buyer the cash surrender value,
and the contract should be deemed cancelled 30 days
after the defaulting buyer’s receipt of the full payment
of the cash surrender value. If the defaulting buyer
failed to vacate the premises, he should be charged
reasonable rental in the amount determined by the trial
court.
We observe that this case has, from the institution of
the complaint, been pending with the courts for 10
years. As both parties prayed for the issuance of reliefs
that are just and equitable under the premises, and in
the exercise of our discretion, we resolve to dispose of
this case in an equitable manner. Considering that GRI
did not validly rescind Contracts to Sell Nos. 2271 and
2272, Angeles has two options:
1. The option to pay, within 60 days from the MeTC’s
determination of the proper amounts, the unpaid
balance of the full value of the purchase price of the
subject properties plus interest at 6% per annum from
11 November 2003, the date of filing of the complaint,
up to the finality of this Decision, and thereafter, at the
rate of 6% per annum.43 Upon payment of the full
amount, GRI shall immediately execute Deeds of
Absolute Sale over the subject properties and deliver
the corresponding transfer certificate of title to Angeles.
In the event that the subject properties are no longer
available, GRI should offer substitute properties of
equal value.1âwphi1 Acceptance of the suitability of the
substitute properties is Angeles’ sole prerogative.
Should Angeles refuse the substitute properties, GRI
shall refund to Angeles the actual value of the subject
properties with 6% interest per annum44 computed
from 11 November 2003, the date of the filing of the
complaint, until fully paid; and
2. The option to accept from GRI ₱574,148.40, the cash
surrender value of the subject properties, with interest
at 6% per annum,45 computed from 11 November 2003,
the date of the filing of the complaint, until fully paid.
Contracts to Sell Nos. 2271 and 2272 shall be deemed
cancelled 30 days after Angeles’ receipt of GRI’s full
payment of the cash surrender value. No rent is further
charged upon Angeles as GRI already had possession of
the subject properties on 10 October 2006.
WHEREFORE, we DENY the petition. The Decision of the
Court of Appeals in CA-G.R. SP No. 105964 promulgated
on 11 November 2011 and the Resolution promulgated
on 19 June 2012 are AFFIRMED with MODIFICATIONS.
1. The Metropolitan Trial Court of Las Piñas City is
directed to conduct a hearing within a maximum period
of 30 days from finality of this Decision to (1) determine
Evelyn M. Angeles’ unpaid balance on Contracts to Sell
Nos. 2271 and 2272; and (2) the actual value of the
subject properties as of 11 November 2003.
2. Evelyn M. Angeles shall notify the Metropolitan Trial
Court of Las Piñas City and Gatchalian Realty, Inc. within
a maximum period of 60 days from the Metropolitan
Trial Court of Las Piñas City’s determination of the
unpaid balance whether she will pay the unpaid balance
or accept the cash surrender value.
Should Evelyn M. Angeles choose to pay the unpaid
balance, she shall pay, within 60 days from the MeTC’s
determination of the proper amounts, the unpaid
balance of the full value of the purchase price of the
subject properties plus interest at 6% per annum from
11 November 2003, the date of filing of the complaint,
up to the finality of this Decision, and thereafter, at the
rate of 6% per annum. Upon payment of the full
amount, GRI shall immediately execute Deeds of
Absolute Sale over the subject properties and deliver
the corresponding transfer certificate of title to Angeles.
In the event that the subject properties are no longer
available, GRI should offer substitute properties of
equal value. Should Angeles refuse the substitute
properties, GRI shall refund to Angeles the actual value
of the subject properties with 6 interest per annum
computed from November 2003, the date of the filing
of the complaint, until fully paid. Should Evelyn M.
Angeles choose to accept payment of the cash
surrender value, she shall receive from GRI ₱574,148.40
with interest at 6 per annum computed from November
2003, the date of the filing of the complaint, until fully
paid. Contracts to Sell Nos. 2271 and 2272 shall be
deemed cancelled 30 days after Angeles' receipt of
GRI's full payment of the cash surrender value. No rent
is further charged upon Evelyn M. Angeles.
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.
Facts:
Petitioner ACTIVE REALTY & 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 Sell1 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 petitioner’s 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 respondent’s
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 cancellation2 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 damages3 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
respondent’s 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.
On appeal, the HLURB Board of Commissioners set
aside the Arbiter’s 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.
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.
Issue: 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 respondent’s option.
Held:
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 x x
(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
respondent’s 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,
petitioner’s stance would enable it to resell the
property, keep respondent’s installment payments, not
to mention the cash surrender value which it was
obligated to return. The Layug20 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
respondent’s 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 respondent’s 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
petitioner’s 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.
G.R. No. 179594, September 11, 2013, MANUEL UY &
SONS, INC., Petitioner, vs. VALBUECO,
INCORPORATED, Respondent.
Facts:
Petitioner Manuel Uy & Sons, Inc. is the registered
owner of parcels of land located in Teresa, Rizal covered
by Transfer Certificate of Title(TCT) No. 59534, covering
an area of about 6,119 square meters; TCT No.59445,
covering an area of about 6,838 square meters; TCT No.
59446,covering an area of about 12,389 square meters;
and TCT No. 59444,covering an area of about 32,047
square meters.
On November 29, 1973, two Conditional Deeds of Sale
were executed by petitioner, as vendor, in favor of
respondent Valbueco, Incorporated, as vendee. The first
Conditional Deed of Sale4 covered TCT Nos. 59534,
59445 and 59446, and contained the following terms
and conditions:
That for and in consideration of the sum of ONE
HUNDREDSIXTY-FOUR THOUSAND SEVEN HUNDRED
FORTY-NINE(Php164,749.00) PESOS, Philippine
currency, the VENDOR hereby agrees to SELL, CEDE,
TRANSFER and CONVEY unto the VENDEE xx x the
aforementioned properties, payable under the
following terms and conditions:
1. The sum of FORTY-ONE THOUSAND ONE
HUNDREDEIGHTY-SEVEN and 25/100 (Php 41,187.25)
PESOS shall be paid upon signing of this conditional
deed of sale; and
2. The balance of ONE HUNDRED TWENTY-
THREETHOUSAND FIVE HUNDRED SIXTY-ONE and
75/100 (Php123,561.75) PESOS shall be paid within a
period of one (1) year from November 15, 1973, with
interest of 12% per annum based on the balance, in the
mode and manner specified below:
a) January 4, 1974 – ₱16,474.90 plus interest
b) On or before May 15, 1974 – ₱53,543.43 plus interest
c) On or before November 15, 1974 – ₱53,543.32 plus
interest
3. That the vendee shall be given a grace period of thirty
(30)days from the due date of any installment with
corresponding interest to be added, but should the
VENDEE fail to make such payment within the grace
period this contract shall be deemed rescinded and
without force and effect after notice in writing by
VENDOR to VENDEE.
4. That the VENDOR agrees to have the existing
Mortgages on the properties subject of this sale
released on or before May 20, 1974.
5. That the VENDOR agrees to have the above-described
properties freed and cleared of all lessees, tenants,
adverse occupants or squatters within 100 days from
the execution of this conditional deed of sale. In case of
failure by the VENDOR to comply with the undertaking
provided in this paragraph and the VENDEE shall find it
necessary to file a case or cases in court to eject the
said lessees, tenants, occupants and/or squatters from
the land, subject of this sale, the VENDOR agrees to
answer and pay for all the expenses incurred and to be
incurred in connection with said cases until the same
are fully and finally terminated.
6. That the VENDOR and the VENDEE agree that during
the existence of this Contract and without previous
expressed written permission from the other, they shall
not sell, cede, assign, transfer or mortgage, or in any
way encumber unto another person or party any right,
interest or equity that they may have in and to said
parcels of land. x x x x
8. That it is understood that ownership of the
properties herein conveyed shall not pass to the
VENDEE until after payment of the full purchase price;
provided, however, that the VENDOR shall allow the
annotation of this Conditional Deed of Sale at the back
of the titles of the above-described parcels of land in
the corresponding Registry of Deeds x xx.
9. That upon full payment of the total purchase price, a
Deed of Absolute Sale shall be executed in favor of the
VENDEE and the VENDOR agrees to pay the
documentary stamps and the science stamp tax of the
Deed of Sale; while the VENDEE agrees to pay the
registration and other expenses for the issuance of a
new title.
10. That it is mutually agreed that in case of litigation,
the venue of the case shall be in the courts of Manila,
having competent jurisdiction, any other venue being
expressly waived.5
On the other hand, the second Conditional Deed of
Sale6 covering Lot No. 59444 provides, thus:
1. The sum of FIFTY-TWO THOUSAND SEVENTY-SIXAND
37/100 (Php 52,076.37) PESOS, shall be paid upon
signing of this conditional deed of sale; and
2. The balance of ONE HUNDRED FIFTY-SIXTHOUSAND
TWO HUNDRED TWENTY-NINE and 13/100
(Php156,229.13) PESOS shall be paid within a period of
one (1) year from November 15, 1973, with interest of
12% per annum based on the balance, in the mode and
manner specified below:
a) January 4, 1974 – ₱20,830.55 plus interest
b) On or before May 15, 1974 – ₱67,699.29 plus interest
c) On or before November 15, 1974, ₱67,699.29 plus
interest
3. That the VENDEE shall be given a grace period of
thirty (30) days from the due date of any installment
with corresponding interest to be added, but should the
VENDEE fail to make such payment within the grace
period, this contract shall be deemed rescinded and
without force and effect after notice in writing by
VENDOR to VENDEE.
4. That the VENDOR agrees and acknowledges that any
and all payments to be made by the VENDEE by reason
of this presents unless hereafter advised by VENDOR to
the contrary, shall be made in favor of and to the
Philippine Trust Company by way of liquidation and
payment of the existing mortgage on the property
subject of this sale.
5. That after each payment adverted to above the
VENDOR shall issue the corresponding receipt for the
amount paid by the VENDOR to the Philippine Trust
Company.
6. That the VENDOR agrees to have the above-described
property freed and cleared of all lessees, tenants,
adverse occupants or squatters within 100 days from
the execution of this conditional deed of sale. In case of
failure by the VENDOR to comply with this undertaking
provided in this paragraph and the VENDEE shall find it
necessary to file a case or cases in court to eject the
said lessees, tenants, occupants and/or squatters from
the land, subject of this sale, the VENDOR agrees to
answer and pay for all the expenses incurred and to be
incurred in connection with said cases until the same
are fully and finally terminated.
7. That the VENDOR and the VENDEE agree that during
the existence of this Contract and without previous
expressed written permission from the other, they shall
not sell, cede, assign, transfer or mortgage, or in any
way encumber unto another person or party any right,
interest or equity that they may have in and to said
parcel of land.
xxxx
9. That it is understood that ownership of the property
herein conveyed shall not pass to the VENDEE until
after payment of the full purchase price, provided,
however, that the VENDOR shall allow the annotation of
the Conditional Deed of Sale at the back of the Title of
the above-described parcel of land in the corresponding
Registry of Deeds; x xx.
10. That upon full payment of the total purchase price,
a Deed of Absolute Sale shall be executed in favor of the
VENDEE and the VENDOR agrees to pay the
documentary stamps and the science stamp tax of the
Deed of Sale; while the VENDEE agrees to pay the
registration and other expenses for the issuance of a
new title.
11. That it is mutually agreed that in case of litigation,
the venue of the case shall be in the courts of Manila,
having competent jurisdiction, any other venue being
expressly waived.7
Respondent was able to pay petitioner the amount of
₱275,055.558 as partial payment for the two properties
corresponding to the initial payments and the first
installments of the said properties.
At the same time, petitioner complied with its
obligation under the conditional deeds of sale, as
follows: (1) the mortgage for TCT No. 59446 was
released on May 18, 1984, while the mortgages for TCT
Nos. 59445and 59534 were released on July 19, 1974;
(2) the unlawful occupants of the lots covered by TCT
Nos. 59444, 59534, 59445 and 59446 surrendered their
possession and use of the said lots in consideration of
the amount of ₱6,000.00 in a document9 dated
November 19, 1973, and they agreed to demolish their
shanties on or before December 7, 1973; and (3) the
mortgage with Philippine Trust Company covering TCT
No. 59444 was discharged10 in 1984.
However, respondent suspended further payment as it
was not satisfied with the manner petitioner complied
with its obligations under the conditional deeds of sale.
Consequently, on March 17, 1978, petitioner sent
respondent a letter 11 informing respondent of its
intention to rescind the conditional deeds of sale and
attaching therewith the original copy of the respective
notarial rescission.
On November 28, 1994, respondent filed a
Complaint12 for specific performance and damages
against petitioner with the RTC of Antipolo City.
However, on January 15, 1996, the case was dismissed
without prejudice13 for lack of interest, as respondent's
counsel failed to attend the pre-trial conference.
Five years later, or on March 16, 2001, respondent
again filed with the RTC of Manila, Branch 1 (trial court)
a Complaint14 for specific performance and damages,
seeking to compel petitioner to accept the balance of
the purchase price for the two conditional deeds of sale
and to execute the corresponding deeds of absolute
sale.
The trial court rendered a Decision,18 dismissing the
complaint, as petitioner had exercised its right to
rescind the contracts.
On December 11, 2006, the Court of Appeals rendered a
Decision, reversing and setting aside the Decision of the
trial court. It reinstated the complaint of respondent,
and directed petitioner to execute deeds of absolute
sale in favor of respondent after payment of the
balance of the purchase price of the subject lots.
Held:
As found by the Court of Appeals, the two conditional
deeds of sale entered into by the parties are contracts
to sell, as they both contained a stipulation that
ownership of the properties shall not pass to the
vendee until after full payment of the purchase price. In
a conditional sale, as in a contract to sell, ownership
remains with the vendor and does not pass to the
vendee until full payment of the purchase price.25 The
full payment of the purchase price partakes of a
suspensive condition, and non-fulfillment of the
condition prevents the obligation to sell from
arising.26To differentiate, a deed of sale is absolute
when there is no stipulation in the contract that title to
the property remains with the seller until full payment
of the purchase price.
Ramos v. Heruela27 held that Articles 1191 and 1592 of
the Civil Code28 are applicable to contracts of sale, while
R.A. No. 6552 applies to contracts to sell.
The Court of Appeals correctly held that R.A. No. 6552,
otherwise known as the Realty Installment Buyer Act,
applies to the subject contracts to sell. 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.29
It also provides the right of the buyer on installments in
case he defaults in the payment of succeeding
installments30 as follows:
Section 3. In all transactions or contracts involving the
sale or financing of real estate on installment payments,
including residential condominium apartments but
excluding industrial lots, commercial buildings and sales
to tenants under Republic Act Numbered Thirty-eight
hundred forty-four, as amended by Republic Act
Numbered Sixty-three hundred eighty-nine, where the
buyer has paid at least two years of installments, the
buyer is entitled to the following rights in case he
defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned by
him which is hereby fixed at the rate of one month
grace period for every one year of installment payments
made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the
contract and its extensions, if any.
(b) If the contract is canceled, the seller shall refund to
the buyer the cash surrender value of the payments on
the property equivalent to fifty per cent of the total
payments made, and, after five years of installments, an
additional five per cent every year but not to exceed
ninety per cent of the total payments made: Provided,
That the actual cancellation of the contract shall take
place after thirty days from receipt by the buyer of the
notice of cancellation or the demand for rescission of
the contract by a notarial act and upon full payment of
the cash surrender value to the buyer.
Down payments, deposits or options on the contract
shall be included in the computation of the total
number of installment payments made. chanrobles a
law library
Sec. 4. In case where less than two years of installments
were paid, the seller shall give the buyer a grace period
of not less than sixty days from the date the installment
became due.
If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel the
contract after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission
of the contract by a notarial act.31
In this case, respondent has paid less than two years of
installments; therefore, Section 4 of R.A. No. 6552
applies.
The Court of Appeals held that even if respondent
defaulted in its full payment of the purchase price of
the subject lots, the conditional deeds of sale remain
valid and subsisting, because there was no valid notice
of notarial rescission to respondent, as the notice was
sent to the wrong address, that is, to Mahogany
Products Corporation, and it was received by a person
employed by Mahogany Products Corporation and not
the respondent. The Court of Appeals stated that the
allegation that Mahogany Products Corporation and
respondent have the same President, one Valeriano
Bueno, is irrelevant and has not been actually proven or
borne by evidence. The appellate court held that there
was insufficient proof that respondent actually received
the notice of notarial rescission of the conditional deeds
of sale; hence, the unilateral rescission of the
conditional deeds of sale cannot be given credence.
However, upon review of the records of this case, the
Court finds that respondent had been served a notice of
the notarial rescission of the conditional deeds of sale
when it was furnished with the petitioner's Answer,
dated February 16, 1995, to its first Complaint filed on
November 28, 1994with the RTC of Antipolo City, which
case was docketed as Civil Case No.94-3426, but the
complaint was later dismissed without prejudice on
January15, 1996.32
It appears that after respondent filed its first Complaint
for specific performance and damages with the RTC of
Antipolo City on November 28,1994, petitioner filed an
Answer and attached thereto a copy of the written
notice dated March 17, 1978 and copies of the notarial
acts of rescission dated March 15, 1978, and that
respondent received a copy of the said Answer with the
attached notices of notarial rescission. However, to
reiterate, the first Complaint was dismissed without
prejudice.
Five years after the dismissal of the first Complaint,
respondent again filed this case for specific
performance and damages, this time, with the RTC of
Manila. Petitioner filed an Answer, and alleged, among
others, that the case was barred by prior judgment,
since respondent filed a complaint on November 28,
1994 before the RTC of Antipolo City, Branch 73, against
it (petitioner) involving the same issues and that the
case, docketed as Civil Case No. 94-3426, was dismissed
on January 15, 1996 for lack of interest. Respondent
filed a Reply33 dated July 18, 2001, asserting that
petitioner prayed for the dismissal of the first case filed
on November 28, 1994 (Civil Case No. 94-3426) on the
ground of improper venue as the parties agreed in the
deeds of conditional sale that in case of litigation, the
venue shall be in the courts of Manila. To prove its
assertion, respondent attached to its Reply a copy of
petitioner’s Answer to the first Complaint in Civil Case
No. 94-3426, which Answer included the written notice
dated March 17, 1978 and two notarial acts of
rescission, both dated March 15, 1978, of the two
conditional deeds of sale. Hence, respondent is deemed
to have had notice of the notarial rescission of the two
conditional deeds of sale when it received petitioner’s
Answer to its first complaint filed with the RTC of
Antipolo, since petitioner’s Answer included notices of
notarial rescission of the two conditional deeds of sale.
The first complaint was filed six years earlier before this
complaint was filed. As stated earlier, the first
complaint was dismissed without prejudice, because
respondent’s counsel failed to appear at the pre-trial.
Since respondent already received notices of the
notarial rescission of the conditional deeds of sale,
together with petitioner’s Answer to the first Complaint
five years before it filed this case, it can no longer deny
having received notices of the notarial rescission in this
case, as respondent admitted the same when it
attached the notices of notarial rescission to its Reply in
this case. Consequently, respondent is not entitled to
the relief granted by the Court of Appeals.
Under R.A. No. 6552, the right of the buyer to refund
accrues only when he has paid at least two years of
installments.34 In this case, respondent has paid less
than two years of installments; hence, it is not entitled
to a refund.35
Moreover, petitioner raises the issue of improper venue
and lack of jurisdiction of the RTC of Manila over the
case. It contends that the complaint involved real
properties in Antipolo City and cancellation of titles;
hence, it was improperly filed in the RTC of Manila.
Petitioner's contention lacks merit, as petitioner and
respondent stipulated in both Conditional Deeds of Sale
that they mutually agreed that in case of litigation, the
case shall be filed in the courts of Manila.36
Further, petitioner contends that the action has
prescribed. Petitioner points out that the cause of
action is based on a written contract; hence, the
complaint should have been brought within 10 years
from the time the right of action accrues under Article
1144 of the Civil Code. Petitioner argues that it is
evident on the face of the complaint and the two
contracts of conditional sale that the cause of action
accrued in 1974; yet, the complaint for specific
performance was filed after 27 years. Petitioner asserts
that the action has prescribed.
The contention is meritorious.