Layug v IAC:

MojicaDOCTRI
NE:
Even in
residential
properties, RA
6552
recognizes and
reaffirms
the
vendorsright

to cancel the
contract to sell
upon breach
and nonpayment of the
stipulatedinsta
lments.
The one who
fails to pay the
rest of the
instalments as

agreed upon is
left only to
a right to a
refund of the
cash
surrender
value of the
payments on
the
propertyequiv
alent to 50%
of the total

payments
already made.
FACTS1)
Gabuya
brought a suit
against Layug
for annulment
of the contract
and for
recovery
of damages

because Layug
failed to pay
the rest of the
instalments for
the purchase of
12 lots inIligan
City (agreed to
cost P120,000
payable in
three yearly
instalments).

Layug only
paid thefirst 2
installments
(P80,000) and
failed to pay
the last
instalment of
P40,000.
2) The TC ruled
in favour of
Gabuya. This

was affirmed by
the CA.3)
Layug is
relying on the
stipulation in
the contract a)
granting him,
as vendee, a
30days
graceperiod
within which to

pay any yearly

instalment not
paid within the
time fixed
therefor, and
b)declaring him
liable, in the
event of his
failure to pay
within the
grace period,

for interest at
thelegal rate.
He argues tha
t
the stipulatio
n indicates th
at rescission
w a s n o t envisi
oned as a
remedy
against
a failure to

pay instalmen
ts and
that such
failurewas not
a ground for
abrogating
the contract
but merely
generated
liability
forinterest at
legal rate

ISSUEWhether
or not Gabuya
had the right to
rescind the
contract and
should this
happen,
whetherLayug
should be
entitled to get
back

the ENTIRE
amount he
already paid?
HELD Yes
Gabuya could
rescind the
contract. No,
Layug should
not be entitled
to the entire
amount

healready
paid.The SC:
The grace
period
clause should
be read
conjointly with
the stipulation
on rescission,
andin such a
manner as to

give full effect.

The patent and
logical import
of both
provisions,
takentogether,
is that when
the vendee
fails to pay
any instalment
on its due

date, he
becomesentitle
d to a grace
period of 30
days to cure
default
by paying the
amount of the
instalment
plusinterest,

but that if he
should
still fail to
pay within
the grace
p e r i o d , t h e n re
scission of the
contract takes
place.Layug
cannot be
permitted to
claim that all

his payments
should be
credited tohim
in their
entirety
without
regard
whatever to
the damages
his default
mighthave

caused to
Gabuya.
R.A. 6552
governs sales
of real estate
on
installments. It
recognizes the
vendor's right
to cancelsuch
contracts upon

failure of the
vendee to
comply with
the terms of
the sale, but
imposes,chiefly
for the latter's
protection,
certain
conditions
thereon. We

have had
occasion to
rule that"even
in residential
properties the
Act" recognizes
and reaffirms
the vendor's
right to cancel
thecontract to
sell upon

breach and
nonpayment of
the stipulated
installments. ..
."The law
provides
inter alia
that "in all
transactions or
contracts invol
ving the

sale or financing
of real estate on
installment
payments,
including
residential
condominium
apartments
, ...,
15

where the buyer

has paid at least

two years of
installments
, the buyer is
entitled to the
following
rightsin case
he defaults in
the payment of
succeeding
installments:
[Grace Period]

(a) To
pay, without
additional
interest, the
unpaid
installments
due within
thetotal grace
period earned
by him which is
hereby

fixed at the
rate of
onem o n t h g r a c e
period for
every year of
installment
payments
made

:Provided ,
That this right
shall be
exercised by

the buyer
onlyo n c e i n
every five
years of the
life of the
contract and
i t s extensions
, if any;
[Refund of "
Cash Surrender
Value

"](b)
If the contract
is cancelled,
the seller shall
refund to the
buyerthe
cash surrende
r value of the
payments on t
he
p r o p e r t y equiv
alent to fifty

percent of the
total payments
made

and, afterfive
years
of installment
s
, an additional
five per cent
every year but
notto exceed
ninety per cent

of the total
payments
made;
Provided, That
theactual canc
ellation of the
contract shall
take place
after thirty
days
fromreceipt by

the buyer
of the notice of
cancellation
or the demand
for rescissionof
the contract by
a notarial act
and upon full
payment of the
cash
surrendervalue

to the buyer.In
the case at bar,
Layug had paid
two (2) annual
installments of
P40,000.00
each. He is
deemedtherefo
re, in the
words of the
law, to have "

paid at least
two years of
installments
." He
thereforehad a
grace period of
"
one month .. for
every year of
installment
payments made

," or two
(2)months
(corresponding
to the two
years of
installments
paid) within
which to pay
the
finalinstallment
.

He has thus
been left only
with the right
to a refund of
the "
cashsurrender
value of the
payments
on the
property
equivalent to
fifty percent
of thetotal

payments
made

," or
P40,000.00
(i.e., of the
total payments
of
P80,000.00).
Suchrefund will
be the
operative act

to make
effective the
cancellation of
the contract by
Gabuya,confor
mably with the
terms of the
law.