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FIRST DIVISION amount to be financed, the financial charges, the total installment

payments that it must pay monthly for thirty-six (36) months, exclusive of
PCI LEASING AND FINANCE, INC., the 36% per annum late payment charges. Thus, for the Silicon High
Petitioner, Impact Graphics, GIRAFFE agreed to pay P116,878.21 monthly, and
for Oxberry Cinescan, P181.362.00 monthly. Hence, the total amount
GIRAFFE has to pay PCI LEASING for 36 months of the lease, exclusive
of monetary penalties imposable, if proper, is as indicated below:
- versus -
P116,878.21 @ month (for the Silicon High
Impact Graphics) x 36 months = P 4,207,615.56

GIRAFFE-X CREATIVE IMAGING, INC., -- PLUS--


Respondent.
P181,362.00 @ month (for the Oxberry
x------------------------------------------------------------------------------------x Cinescan) x 36 months = P 6,529,032.00
Total Amount to be paid by GIRAFFE
(or the NET CONTRACT AMOUNT) P 10,736,647.56

By the terms, too, of the Lease Agreement, GIRAFFE


DECISION undertook to remit the amount of P3,120,000.00 by way of guaranty
deposit, a sort of performance and compliance bond for the two
equipment. Furthermore, the same agreement embodied a standard
GARCIA, J.: acceleration clause, operative in the event GIRAFFE fails to pay any
rental and/or other accounts due.

On a pure question of law involving the application of Republic Act (R.A.) A year into the life of the Lease Agreement, GIRAFFE
No. 5980, as amended by R.A. No. 8556 in relation to Articles 1484 and defaulted in its monthly rental-payment obligations. And following a three-
1485 of the Civil Code, petitioner PCI Leasing and Finance, Inc. (PCI month default, PCI LEASING, through one Atty. Florecita R. Gonzales,
LEASING, for short) has directly come to this Court via this petition for addressed a formal pay-or-surrender-equipment type of demand
review under Rule 45 of the Rules of Court to nullify and set aside the letter[4] dated February 24, 1998 to GIRAFFE.
Decision and Resolution dated December 28, 1998 and February 15,
2000, respectively, of the Regional Trial Court (RTC) of Quezon City,
Branch 227, in its Civil Case No. Q-98-34266, a suit for a sum of money The demand went unheeded.
and/or personal property with prayer for a writ of replevin, thereat
instituted by the petitioner against the herein respondent, Giraffe-X Hence, on May 4, 1998, in the RTC of Quezon City, PCI
Creative Imaging, Inc. (GIRAFFE, for brevity). LEASING instituted the instant case against GIRAFFE. In its
complaint,[5] docketed in said court as Civil Case No. 98-34266 and
The facts: raffled to Branch 227[6] thereof, PCI LEASING prayed for the issuance of
a writ of replevin for the recovery of the leased property, in addition to the
On December 4, 1996, petitioner PCI LEASING and following relief:
respondent GIRAFFE entered into a Lease Agreement,[1] whereby the
former leased out to the latter one (1) set of Silicon High Impact 2. After trial, judgment be rendered in
Graphics and accessories worth P3,900,00.00 and one (1) unit favor of plaintiff [PCI LEASING] and against the
of Oxberry Cinescan 6400-10 worth P6,500,000.00. In connection with defendant [GIRAFFE], as follows:
this agreement, the parties subsequently signed two (2) separate
documents, each denominated as Lease Schedule.[2] Likewise forming a. Declaring the plaintiff
parts of the basic lease agreementwere two (2) separate documents entitled to the
denominated Disclosure Statements of Loan/Credit Transaction (Single possession of the
Payment or Installment Plan)[3] that GIRAFFE also executed for each of subject properties;
the leased equipment. These disclosure statements inter alia described
GIRAFFE, vis--vis the two aforementioned equipment, as b. Ordering the defendant to
the borrower who acknowledged the net proceeds of the loan, the net pay the balance of
rental/obligation in
the total amount It is thus GIRAFFEs posture that the aforequoted Article 1484
of P8,248,657.47 inclusive of of the Civil Code applies to its contractual relation with PCI LEASING
interest and charges thereon; because the lease agreement in question, as supplemented by the
schedules documents, is really a lease with option to buy under the
c. Ordering defendant to pay companion article, Article 1485. Consequently, so GIRAFFE argues,
plaintiff the upon the seizure of the leased equipment pursuant to the writ of replevin,
expenses of which seizure is equivalent to foreclosure, PCI LEASING has no further
litigation and cost recourse against it. In brief, GIRAFFE asserts in its Motion to Dismiss
of suit. (Words in that the civil complaint filed by PCI LEASING is proscribed by the
bracket added.) application to the case of Articles 1484 and 1485, supra, of the Civil
Code.

Upon PCI LEASINGs posting of a replevin bond, the trial court In its Opposition to the motion to dismiss, PCI LEASING
issued a writ of replevin, paving the way for PCI LEASING to secure the maintains that its contract with GIRAFFE is a straight lease without an
seizure and delivery of the equipment covered by the basic lease option to buy. Prescinding therefrom, PCI LEASING rejects the
agreement. applicability to the suit of Article 1484 in relation to Article 1485
of the Civil Code, claiming that, under the terms and conditions of the
Instead of an answer, GIRAFFE, as defendant a quo, filed basic agreement, the relationship between the parties is one between an
a Motion to Dismiss, therein arguing that the seizure of the two (2) leased ordinary lessor and an ordinary lessee.
equipment stripped PCI LEASING of its cause of action. Expounding on
the point, GIRAFFE argues that, pursuant to Article 1484 of the Civil In a decision[7] dated December 28, 1998, the trial court
Code on installment sales of personal property, PCI LEASING is barred granted GIRAFFEs motion to dismiss mainly on the interplay of the
from further pursuing any claim arising from the lease agreement and the following premises: 1) the lease agreement package, as memorialized in
companion contract documents, adding that the agreement between the the contract documents, is akin to the contract contemplated in Article
parties is in reality a lease of movables with option to buy. The given 1485 of the Civil Code, and 2) GIRAFFEs loss of possession of the
situation, GIRAFFE continues, squarely brings into applicable play leased equipment consequent to the enforcement of the writ of replevin is
Articles 1484 and 1485 of the Civil Code, commonly referred to as akin to foreclosure, the condition precedent for application of Articles
the Recto Law. The cited articles respectively provide: 1484 and 1485 [of the Civil Code]. Accordingly, the trial court dismissed
Civil Case No. Q-98-34266, disposing as follows:
ART. 1484. In a contract of sale of
personal property the price of which is payable in WHEREFORE, premises considered,
installments, the vendor may exercise any of the the defendant [GIRAFFE] having relinquished any
following remedies: claim to the personal properties subject of replevin
which are now in the possession of the plaintiff [PCI
(1) Exact fulfillment of the obligation, LEASING], plaintiff is DEEMED fully satisfied
should the vendee fail to pay; pursuant to the provisions of Articles 1484 and
1485 of the New Civil Code. By virtue of said
(2) Cancel the sale, should the vendee's provisions, plaintiff is DEEMED estopped from
failure to pay cover two or more installments; further action against the defendant, the plaintiff
having recovered thru (replevin) the personal
(3) Foreclose the chattel mortgage on property sought to be payable/leased on
the thing sold, if one has been installments, defendants being under protection of
constituted, should the vendee's failure to pay said RECTO LAW. In view thereof, this case is
cover two or more installments. In this case, he hereby DISMISSED.
shall have no further action against the
purchaser to recover any unpaid balance of the With its motion for reconsideration having been denied by the
price. Any agreement to the contrary shall be void. trial court in its resolution of February 15, 2000,[8] petitioner has directly
(Emphasis added.) come to this Court via this petition for review raising the sole legal issue
of whether or not the underlying Lease Agreement, Lease Schedules and
ART. 1485. The preceding article shall the Disclosure Statements that embody the financial leasing arrangement
be applied to contracts purporting to be leases of between the parties are covered by and subject to the consequences of
personal property with option to buy, when the Articles 1484 and 1485 of the New Civil Code.
lessor has deprived the lessee of the possession or
enjoyment of the thing.
As in the court below, petitioner contends that the financial In its previous holdings, however, the Court, taking into
leasing arrangement it concluded with the respondent represents a account the following mix: the imperatives of equity, the contractual
straight lease covered by R.A. No. 5980, the Financing Company Act, as stipulations in question and the actuations of parties vis--vis their
last amended by R.A. No. 8556, otherwise known as Financing Company contract, treated disguised transactions technically tagged as financing
Act of 1998, and is outside the application and coverage of the Recto lease, like here, as creating a different contractual relationship. Notable
Law. To the petitioner, R.A. No. 5980 defines and authorizes among the Courts decisions because of its parallelism with this case
its existence and business. is BA Finance Corporation v. Court of Appeals[10] which involved a motor
vehicle. Thereat, the Court has treated a purported financial lease as
The recourse is without merit. actually a sale of a movable property on installments and prevented
recovery beyond the buyers arrearages. Wrote the Court in BA Finance:
R.A. No. 5980, in its original shape and as amended, partakes
of a supervisory or regulatory legislation, merely providing a regulatory The transaction involved is one of a
framework for the organization, registration, and regulation of the "financial lease" or "financial leasing," where a
operations of financing companies. As couched, it does not specifically financing company would, in effect, initially
define the rights and obligations of parties to a financial leasing purchase a mobile equipment and turn around
arrangement. In fact, it does not go beyond defining commercial or to lease it to a client who gets, in addition, an
transactional financial leasing and other financial leasing concepts. Thus, option to purchase the property at the expiry of
the relevancy of Article 18 of the Civil Code which reads: the lease period. xxx.

Article 18. - In matters which are xxx xxx xxx


governed by special laws, their deficiency shall be
supplied by the provisions of this [Civil] Code. The pertinent provisions of [RA] 5980,
thus implemented, read:

Petitioner foists the argument that the Recto Law, i.e., the Civil "'Financing
Code provisions on installment sales of movable property, does not apply companies,' are primarily
to a financial leasing agreement because such agreement, by definition, organized for the purpose of
does not confer on the lessee the option to buy the property subject of extending credit facilities to
the financial lease. To the petitioner, the absence of an option-to-buy consumers either by leasing
stipulation in a financial leasing agreement, as understood under R.A. of motor vehicles, and office
No. 8556, prevents the application thereto of Articles 1484 and 1485 of machines and equipment,
the Civil Code. and other movable property."
We are not persuaded.
"'Credit' shall
The Court can allow that the underlying lease agreement has mean any loan, any contract
the earmarks or made to appear as a financial leasing,[9] a term defined to sell, or sale or contract of
in Section 3(d) of R.A. No. 8556 as - sale of property or service,
under which part or all of the
a mode of extending credit through a price is payable subsequent
non-cancelable lease contract under which the to the making of such sale or
lessor purchases or acquires, at the instance of the contract; any rental-purchase
lessee, machinery, equipment, office machines, contract; .;"
and other movable or immovable property in
consideration of the periodic payment by the lessee The foregoing provisions indicate no
of a fixed amount of money sufficient to amortize at less than a mere financing scheme extended by a
least seventy (70%) of the purchase price or financing company to a client in acquiring a motor
acquisition cost, including any incidental expenses vehicle and allowing the latter to obtain the
and a margin of profit over an obligatory period of immediate possession and use thereof pending full
not less than two (2) years during which the lessee payment of the financial accommodation that is
has the right to hold and use the leased given.
property but with no obligation or option on his part
to purchase the leased property from the owner- In the case at bench, xxx. [T]he term of
lessor at the end of the lease contract. the contract [over a motor vehicle] was for thirty
six (36) months at a "monthly rental" (P1,689.40), Considering the factual findings of both
or for a total amount of P60,821.28. The contract the court a quo and the appellate court, the only
also contained [a] clause [requiring the Lessee to logical conclusion is that the private
give a guaranty deposit in the amount of respondent did opt, as he has claimed, to
P20,800.00] xxx acquire the motor vehicle, justifying then the
application of the guarantee deposit to the
After the private respondent had paid balance still due and obligating the petitioner to
the sum of P41,670.59, excluding the guaranty recognize it as an exercise of the option by the
deposit of P20,800.00, he stopped further private respondent. The result would thereby
payments. Putting the two sums together, the entitle said respondent to the ownership and
financing company had in its hands the amount of possession of the vehicle as the buyer
P62,470.59 as against the total agreed "rentals" of thereof. We, therefore, see no reversible error in
P60,821.28 or an excess of P1,649.31. the ultimate judgment of the appellate
court.[11] (Italics in the original; underscoring
The respondent appellate court supplied and words in bracket added.)
considered it only just and equitable for the
guaranty deposit made by the private respondent to In Cebu Contractors Consortium Co. v. Court of
be applied to his arrearages and thereafter to hold Appeals,[12] the Court viewed and thus declared a financial lease
the contract terminated. Adopting the ratiocination agreement as having been simulated to disguise a simple loan with
of the court a quo, the appellate court said: security, it appearing that the financing company purchased equipment
already owned by a capital-strapped client, with the intention of leasing it
xxx In view back to the latter.
thereof, the guaranty deposit
of P20,800.00 made by the
defendant should and must In the present case, petitioner acquired the office equipment in
be credited in his favor, in the question for their subsequent lease to the respondent, with the latter
interest of fairness, justice undertaking to pay a monthly fixed rental therefor in the total amount
and equity. The plaintiff of P292,531.00, or a total of P10,531,116.00 for the whole 36 months. As
should not be allowed to a measure of good faith, respondent made an up-front guarantee deposit
unduly enrich itself at the in the amount of P3,120,000.00. The basic agreement provides that in
expense of the defendant. the event the respondent fails to pay any rental due or is in a default
xxx This is even more situation, then the petitioner shall have cumulative remedies, such as, but
compelling in this case not limited to, the following:[13]
where although the
transaction, on its face, 1. Obtain possession of the
appear ostensibly, to be a property/equipment;
contract of lease, it is
actually a financing 2. Retain all amounts paid to it. In
agreement, with the plaintiff addition, the guaranty deposit may be
financing the purchase of applied towards the payment of
defendant's automobile liquidated damages;
. The Court is constrained, in
the interest of truth and 3. Recover all accrued and unpaid
justice, to go into this aspect rentals;
of the transaction between
the plaintiff and the defendant 4. Recover all rentals for the
with all the facts and remaining term of the lease had it not
circumstances existing in been cancelled, as additional penalty;
this case, and which the
court must consider in 5. Recovery of any and all amounts
deciding the case, if it is to advanced by PCI LEASING for
decide the case according to GIRAFFEs account xxx;
all the facts. xxx.

xxx xxx xxx


6. Recover all expenses incurred in and medium enterprises and to curtail acts and practices prejudicial to
repossessing, removing, repairing and the public interest, in general, and to their clienteles, in particular. [16] As a
storing the property; and, regulated activity, financing arrangements are not meant to quench only
the thirst for profit. They serve a higher purpose, and R.A. No. 8556 has
7. Recover all damages suffered by PCI made that abundantly clear.
LEASING by reason of the default.
We stress, however, that there is nothing in R.A. No. 8556
In addition, Sec. 6.1 of the Lease Agreement states that the which defines the rights and obligations, as between each other, of the
guaranty deposit shall be forfeited in the event the respondent, for any financial lessor and the lessee. In determining the respective
reason, returns the equipment before the expiration of the lease. responsibilities of the parties to the agreement, courts, therefore, must
train a keen eye on the attendant facts and circumstances of the case in
At bottom, respondent had paid the equivalent of about a order to ascertain the intention of the parties, in relation to the law and
years lease rentals, or a total of P3,510,372.00, more or less. Throw in the written agreement. Likewise, the public interest and policy involved
the guaranty deposit (P3,120,000.00) and the respondent had made a should be considered. It may not be amiss to state that, normally,
total cash outlay of P6,630,372.00 in favor of the petitioner. The replevin- financing contracts come in a standard prepared form, unilaterally
seized leased equipment had, as alleged in the complaint, an thought up and written by the financing companies requiring only the
estimated residual value of P6,900.000.00 at the time Civil Case No. Q- personal circumstances and signature of the borrower or lessee; the
98-34266 was instituted on May 4, 1998. Adding all cash advances thus rates and other important covenants in these agreements are still largely
made to the residual value of the equipment, the total value which the imposed unilaterally by the financing companies. In other words, these
petitioner had actually obtained by virtue of its lease agreement with the agreements are usually one-sided in favor of such companies. A perusal
respondent amounts of the lease agreement in question exposes the many remedies available
to P13,530,372.00 (P3,510,372.00 + P3,120,000.00 + P6,900.000.00 to the petitioner, while there are only the standard contractual
= P13,530,372.00). prohibitions against the respondent. This is characteristic of standard
printed form contracts.
The acquisition cost for both the Silicon High Impact
Graphics equipment and the Oxberry Cinescan was, as stated in no less There is more. In the adverted February 24, 1998 demand
than the petitioners letter to the respondent dated November 11, letter[17] sent to the respondent, petitioner fashioned its claim in the
1996[14] approving in the latters favor a lease facility, alternative: payment of the full amount of P8,248,657.47, representing
was P8,100,000.00. Subtracting the acquisition cost of P8,100,000.00 the unpaid balance for the entire 36-month lease
from the total amount, i.e., P13,530,372.00, creditable to the respondent, period or the surrender of the financed asset under pain of legal action.
it would clearly appear that petitioner realized a gross To quote the letter:
income of P5,430,372.00 from its lease transaction with the respondent.
The amount of P5,430,372.00 is not yet a final figure as it does not Demand is hereby made upon you to
include the rentals in arrears, penalties thereon, and interest earned by pay in full your outstanding balance in the amount
the guaranty deposit. of P8,248,657.47 on or before March 04,
1998 OR to surrender to us the one (1) set Silicon
As may be noted, petitioners demand letter[15] fixed the High Impact Graphics and one (1) unit Oxberry
amount of P8,248,657.47 as representing the respondents rental balance Cinescan 6400-10
which became due and demandable consequent to the application of the
acceleration and other clauses of the lease agreement. Assuming, then, We trust you will give this matter your
that the respondent may be compelled to pay P8,248,657.47, then it serious and preferential attention. (Emphasis
would end up paying a total of P21,779,029.47 (P13,530,372.00 added).
+ P8,248,657.47 = P21,779,029.47) for its use - for a year and two
months at the most - of the equipment. All in all, for an investment Evidently, the letter did not make a demand for the payment of
of P8,100,000.00, the petitioner stands to make in a years time, out of the P8,248,657.47 AND the return of the equipment; only either one of
the transaction, a total of P21,779,029.47, or a net of P13,679,029.47, if the two was required. The demand letter was prepared and signed by
we are to believe its outlandish legal submission that the PCI LEASING- Atty. Florecita R. Gonzales, presumably petitioners counsel. As such, the
GIRAFFE Lease Agreement was an honest-to-goodness straight lease. use of or instead of and in the letter could hardly be treated as a simple
typographical error, bearing in mind the nature of the demand, the
A financing arrangement has a purpose which is at once amount involved, and the fact that it was made by a lawyer. Certainly
practical and salutary. R.A. No. 8556 was, in fact, precisely enacted to Atty. Gonzales would have known that a world of difference exists
regulate financing companies operations with the end in view of between and and or in the manner that the word was employed in the
strengthening their critical role in providing credit and services to small letter.
A rule in statutory construction is that the another, have frequently resorted to the device of
word "or" is a disjunctive term signifying making contracts in the form of leases either
dissociation and independence of one thing from with options to the buyer to purchase for a
other things enumerated unless the context small consideration at the end of term,
requires a different interpretation.[18] provided the so-called rent has been duly
paid, or with stipulations that if the rent
In its elementary sense, "or", as used in throughout the term is paid, title shall
a statute, is a disjunctive article indicating an thereupon vest in the lessee. It is obvious that
alternative. It often connects a series of words or such transactions are leases only in
propositions indicating a choice of either. When "or" name. The so-called rent must necessarily be
is used, the various members of the enumeration regarded as payment of the price in installments
are to be taken separately.[19] since the due payment of the agreed amount
results, by the terms of the bargain, in the transfer
The word "or" is a disjunctive term of title to the lessee.
signifying disassociation and independence of one
thing from each of the other things enumerated.[20]
In another old but still relevant case of U.S. Commercial v.
Halili,[22] a lease agreement was declared to be in fact a sale of personal
The demand could only be that the respondent need not property by installments. Said the Court:
return the equipment if it paid the P8,248,657.47 outstanding balance,
ineluctably suggesting that the respondent can keep possession of the . . . There can hardly be any question
equipment if it exercises its option to acquire the same by paying the that the so-called contracts of lease on which the
unpaid balance of the purchase price. Stated otherwise, if the respondent present action is based were veritable leases of
was not minded to exercise its option of acquiring the equipment by personal property with option to purchase, and as
returning them, then it need not pay the outstanding balance. This is the such come within the purview of the above article
logical import of the letter: that the transaction in this case is a lease in [Art. 1454-A of the old Civil Code on sale of
name only. The so-called monthly rentals are in truth monthly personal property by installment]. xxx
amortizations of the price of the leased office equipment.
Being leases of personal property with
On the whole, then, we rule, as did the trial court, that the PCI option to purchase as contemplated in the above
LEASING- GIRAFFE lease agreement is in reality a lease with an option article, the contracts in question are subject to the
to purchase the equipment. This has been made manifest by the actions provision that when the lessor in such case has
of the petitioner itself, foremost of which is the declarations made in its chosen to deprive the lessee of the enjoyment of
demand letter to the respondent. There could be no other explanation such personal property, he shall have no further
than that if the respondent paid the balance, then it could keep the action against the lessee for the recovery of any
equipment for its own; if not, then it should return them. This is clearly an unpaid balance owing by the latter, agreement to
option to purchase given to the respondent. Being so, Article 1485 of the the contrary being null and void.
Civil Code should apply.

The present case reflects a situation where the financing In choosing, through replevin, to deprive the respondent of
company can withhold and conceal - up to the last moment - its possession of the leased equipment, the petitioner waived its right to
intention to sell the property subject of the finance lease, in order that the bring an action to recover unpaid rentals on the said leased items.
provisions of the Recto Law may be circumvented. It may be, as Paragraph (3), Article 1484 in relation to Article 1485 of the Civil Code,
petitioner pointed out, that the basic lease agreement does not contain a which we are hereunder re-reproducing, cannot be any clearer.
purchase option clause. The absence, however, does not necessarily
argue against the idea that what the parties are into is not a straight
lease, but a lease with option to purchase. This Court has, to be sure, ART. 1484. In a contract of sale of
long been aware of the practice of vendors of personal property of personal property the price of which is payable in
denominating a contract of sale on installment as one of lease to prevent installments, the vendor may exercise any of the
the ownership of the object of the sale from passing to the vendee until following remedies:
and unless the price is fully paid. As this Court noted in Vda. de Jose v. xxx xxx xxx
Barrueco:[21]
Sellers desirous of making conditional (3) Foreclose the chattel mortgage on
sales of their goods, but who do not wish openly the thing sold, if one has been constituted, should
to make a bargain in that form, for one reason or
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.

ART. 1485. The preceding article shall be applied to contracts


purporting to be leases of personal property with
option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing.

As we articulated in Elisco Tool Manufacturing Corp. v. Court


of Appeals,[23] the remedies provided for in Article 1484 of the Civil Code
are alternative, not cumulative. The exercise of one bars the exercise of
the others. This limitation applies to contracts purporting to be leases of
personal property with option to buy by virtue of the same Article 1485.
The condition that the lessor has deprived the lessee of possession or
enjoyment of the thing for the purpose of applying Article 1485 was
fulfilled in this case by the filing by petitioner of the complaint for a sum of
money with prayer for replevin to recover possession of the office
equipment.[24] By virtue of the writ of seizure issued by the trial court, the
petitioner has effectively deprived respondent of their use, a situation
which, by force of the Recto Law, in turn precludes the former from
maintaining an action for recovery of accrued rentals or the recovery of
the balance of the purchase price plus interest. [25]

The imperatives of honest dealings given prominence in the


Civil Code under the heading: Human Relations, provide another reason
why we must hold the petitioner to its word as embodied in its demand
letter. Else, we would witness a situation where even if the respondent
surrendered the equipment voluntarily, the petitioner can still sue upon its
claim. This would be most unfair for the respondent. We cannot allow the
petitioner to renege on its word. Yet more than that, the very word or as
used in the letter conveys distinctly its intention not to claim both the
unpaid balance and the equipment. It is not difficult to discern why: if we
add up the amounts paid by the respondent, the residual value of the
property recovered, and the amount claimed by the petitioner as sued
upon herein (for a total of P21,779,029.47), then it would end up making
an instant killing out of the transaction at the expense of its client, the
respondent. The Recto Law was precisely enacted to prevent this kind of
aberration. Moreover, due to considerations of equity, public policy and
justice, we cannot allow this to

happen. Not only to the respondent, but those similarly situated who may
fall prey to a similar scheme.

WHEREFORE, the instant petition is DENIED and the trial


courts decision is AFFIRMED.
G.R. NO. L-23788 MAY 16, 1969 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:

UNIVERSAL MOTORS CORPORATION, PLAINTIFF-APPELLEE, VS.


DY HIAN TAT, ET AL., DEFENDANTS,
14. That in case of non-compliance or violation or default by the
DY HIAN TAT, DEFENDANT-APPELLANT. 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
TEEHANKEE AND CARREON FOR PLAINTIFF-APPELLEE. 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)
CAMACHO AND BAÑEZ FOR DEFENDANT-APPELLANT. 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 for such payment a first lien is hereby implied in favor of the
mortgagee upon the property mortgaged.
BARREDO, J.:

Appeal from the decision of the Court of First Instance of Manila in


an action of replevin, Civil Case No. 55211 of said court, the dispositive 3. Plaintiff admits that the chattel subject of the mortgage was sold by
part of which reads thus: plaintiff to defendant on installment basis; chanrobles virtual law library

IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is 4. That the parties submit this case on the question of law of whether or
hereby rendered adjudging that the plaintiff has the right of possession of not the plaintiff is entitled to the 25% attorney's fees and costs of
the Mercedes-Benz Diesel Truck in question and confirming its title collection as above stipulated.
thereto, and ordering the defendant, Dy Hian Tat, to pay to the plaintiff
the sum of P9,305.30 as and for attorney's fees and costs of collection.

WHEREFORE, it is respectfully prayed of this Honorable Court


that the parties be given twenty (20) days from the submission hereof
With costs against the defendant. within which to file their respective memorandum.

SO ORDERED.

Without filing any motion for reconsideration, appellant has come


to this Court with a lone assignment of error as follows:
In brief, the cause of action alleged in appellee's complaint is to the
effect that 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 THE TRIAL COURT ERRED IN ADJUDGING ATTORNEY'S FEES
in its favor, to the possession of the said truck or, in case said truck could IN FAVOR OF PLAINTIFF AND AGAINST DEFENDANT, IT BEING
not be recovered, to the payment of the amount of P37,221.22, plus CONTRARY TO THE PROVISIONS OF ARTICLE 1484 OF THE NEW
attorney's fees in the amount of P9,305.30 and the costs of the suit. CIVIL CODE OF THE PHILIPPINES AND THE JURISPRUDENCE
DECIDED UNDER IT.

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 Succinctly stated, the whole pose of appellant's case is that under
appellee by virtue of said writ. the above-related circumstances of this case, the lower court erred in
further sentencing him to pay the P9,305.30 of attorney's fees, after the
In due time, defendant filed an answer the statement here of the said court had already confirmed the possession and title of the truck in
details of which is not indispensable in the determination of this case. favor of appellee, considering the provisions of Article 1484 of the Civil
Suffice it to say that subsequent to the filing of said answer, the parties Code, which provides: chanrobles virtual law library
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:
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:
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:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
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;
(2) Cancel the sale, should the vendee's failure to pay cover two or more For a proper resolution of the case, the relevant query is: What remedy is
installments; elected by the plaintiff in the instant case?

(3) Foreclose the chattel mortgage on the thing sold if one has been Defendant respectfully submits that the present case is an election
constituted, should the vendee's failure to pay cover two or more of the third remedy provided in Article 1484 of the new Civil Code of the
installments. In this case, he shall have no further action against the Philippines, i.e., the judicial foreclosure of the subject chattel mortgage.
purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void.

Speaking of foreclosure of a chattel mortgage, former Justice


Moran says: "Of course a chattel mortgage may be foreclosed judicially
In support of his position, appellant cites, in his brief, the following following substantially the same procedure provided in this Rule (Rule
authorities: 70, Rules of Court), ... When the mortgagor refuses to surrender
possession of the mortgaged chattel an action of judicial foreclosure
necessarily arises, or one of replevin to secure possession as a
preliminary to the sale contemplated in Section 14 of Act No. 1508."
The settled jurisprudence under the aforequoted law is - (Moran's Comment, Vol. II, 1947 ed., pp. 250-251) And in a similar case,
this Court said, "Where ... the debtor refuses to yield the property, the
The three remedies under this article, available to the vendor who creditor must institute an action, either to effect a judicial foreclosure
has sold personal property on the installment plan, are alternative, not directly or to secure possession as a preliminary to the sale above
cumulative. In other words, if the vendor has elected to avail himself of quoted." (Bachrach Motors vs. Summers, 42 Phil. 6) Leno vs. Pestolante,
any of the remedies, he is deemed to have renounced the others. et al., G.R. L-11755, April 23, 1958; 103 Phil. 414."
(Tolentino, Civil Code of the Philippines, Vol. V, 1959 ed., p. 27 citing the
case of Pacific Commercial vs. de la Rama, O. G. August 9, 1941, p.
1224)
This may be clearly gleaned from the allegations of the complaint
as well as the prayer and that of the Stipulation of Facts submitted with
the trial court. (Record on Appeal, pp. 1-5 and 28-31)
In case the vendor elects to foreclose the mortgage, if one has
been given on the property, he is not obliged to return to the purchaser Thus, when the trial court besides confirming possession and title
the amount of the installment already paid should there be an agreement of the chattel in favor of the plaintiff awarded attorney's fees and costs of
to that effect, and it is not unconscionable. In all proceedings for the collection in an amount equal to 25% of the claims, it in effect rendered
foreclosure of chattel mortgages, executed on the chattels, which have judgment against defendant beyond and over that of the chattel of the
been sold on the installment plan, the mortgagee is limited to the mortgage in palpable violation of the provisions of Article 1484 of the new
property only in the mortgage. (Tolentino, supra, citing the cases of Civil Code of the Philippines and the authorities already decided under it.
Macondray & Co. vs. Tan, 38 O.G. 2606; Macondray & Co. vs. Ruiz, 38 (pp. 11-12, Appellant's Brief.)
O.G. 2168; Bachrach Motors Co. vs. Millan, 61 Phil. 409; Macondary vs.
Benito, et al., 62 Phil. 137; Pacific Commercial vs. De la Rama, O.G.
August 9, 1941, p. 1224, Emphasis supplied.)
We do not agree with the appellant that Article 1484 applies to the
Undoubtedly the principal object of article 1454-A was to remedy case at bar. As aptly held by His Honor, this case is for delivery of
the abuses committed in connection with the foreclosure of chattel personal property under the provisions of Rule 60 of the Rules of Court.
mortgages. This amendment prevents mortgagees from seizing the Nowhere in the stipulation of facts or even in the pleadings does it
engaged property, buying it at foreclosure for a low price and then appear that appellee has foreclosed its mortgage. Merely because a
bringing suit against the mortgagor for the deficiency judgment. The copy of the mortgage has been attached to the complaint does not make
almost invariable result of this procedure was that the mortgagor found this action one of foreclosure of a chattel mortgage. (Manila Motor Co.
himself minus the property and still owing practically the full amount of vs. Fernandez, 99 Phil. 782.) True, appellee succeeded in recovering the
the original indebtedness. Under this amendment the vendor of personal truck in question, precisely by means of the present action of replevin,
property, the purchase price of which is payable on installments, has the but surely, this case is far from being the action of foreclosure of chattel
right to cancel the sale or foreclose the mortgage if one has been given mortgage governed by Section 8 of Rule 68.
on the property, whichever right the vendor elects, he need not return to
the purchaser the amount of the installments already paid, "if there is an
agreement to that effect." Furthermore, if the vendor avails himself of the
right to foreclose the mortgage, this amendment prohibits him from We are not unmindful of the laudable purposes of Act No. 4122
bringing an action against the purchaser for the unpaid balance. 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
In other words, under this amendment, in all proceedings for the Law. It would not only be erroneous but highly unjust for Us, however, to
foreclosure of the mortgage executed on the chattels which have been apply such provision the case at bar, which in no way comes within its
sold on installment plan, the mortgagee is limited to take property contemplation. The mere fact that appellee has secured possession of
included in the mortgage. (Bachrach Motors Co. vs. Millan, 61 Phil. 409) the truck in question does not necessarily mean that it will foreclose its
[Emphasis supplied] 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
and pursues as his main argument that:
possible that appellee wanted merely to be sure that the truck is not lost At any rate it is the actual sale of the mortgaged chattel in accordance
or rendered valueless, preparatory to having it levied upon under a writ of with section 14 Act No. 1508 that would bar the creditor (who chooses to
attachment, as sanctioned by this Court in the case cited by appellant of foreclose) from recovering any unpaid balance. (Pacific Com. Co. vs. De
Southern Motors, Inc. vs. Magbanua, 100 Phil. 155: la Rama, 72 Phil. 380; Manila Motor Co. vs. Fernandez, 99 Phil. 782.)

By praying that the defendant be ordered to pay it the sum of It is true that there was a chattel mortgage on the goods sold. But
P4,690.00 together with the stipulated interest at 12 per cent per annum the Southern Motors elected to sue on the note exclusively, i.e., to exact
from 17 March until fully paid, plus ten per cent of the total amount due fulfillment of the obligation to pay. It had a right to select among the three
as attorney's fees and cost of collection, the plaintiff elected to exact the remedies established in Article 1484. In choosing to sue on the note, it
fulfillment of the obligation and not foreclose the mortgage of the truck. was not thereby limited to the proceeds of the sale, on execution of the
Otherwise, it would not have gone to court to collect the amount as mortgaged good. (Manila Trading & Supply Co. vs. Reyes, 62 Phil. 461;
prayed for in the complaint. Had it elected to foreclose the mortgage on Macondray & Co. vs. Eustaquio, 64 Phil. 446; Manila Motor Co. vs.
the truck, all that the plaintiff had to do was to cause the truck to be sold Fernandez, supra.)
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 An earlier per curiam decision of this Court is even more
parcels of land belonging to the defendant were attached shows that the controlling and practically devastates appellants posture. In the case of
plaintiff did not intend to foreclose the mortgage. Pacific Commercial Co. vs. Graciano de la Rama, 72 Phil. 380, the
defendant which had bought a car from plaintiff on installments failed to
As the plaintiff has chosen to exact the fulfillment of the pay, by reason of which, plaintiff took steps and actually started to
defendant's obligation, the former may enforce execution of the judgment extrajudicially foreclose the chattel mortgage thereon by having the
rendered in its favor on the personal and real properties of the latter not sheriff take possession of the property and proceed to sell the same. The
exempt from execution sufficient to satisfy the judgment. That part of the sheriff found the car in a repair shop, so he then and there designated
judgment depriving the plaintiff of its right to enforce judgment against the the owner of the shop as his deputy-in-charge thereof; but when the
properties of the defendant except the mortgaged truck and discharging plaintiff came to know that the car was in the shop because it had met an
the writ of attachment on his other properties is erroneous. accident, it requested the sheriff to desist from continuing with the
foreclosure. Instead, plaintiff brought an action to recover the price, plus
The same doctrine was reiterated in Tajanlangit, et al., vs. interests and costs. The defendant invoked Art. 1454-A of the old Civil
Southern Motors, Inc., et al., 101 Phil. 606, also cited by appellant. There Code. The per curiam decision held:
it was held:
... El demandado no discute los hechos probados. Sostiene, sin
Discussion. Appellants' brief elaborately explains in the nine errors embargo, que el Juzgado erro al no declarar que la demandante habia
assigned, their original two theories, although their "settlement" idea optado ya por ejecutar la hipoteca del automovil y por cancelar la venta a
appears to be somewhat modified. plazos y que, consiguientemente, el Juzgado erro al no declarar que la
demandante habia perdido ya su derecho a reclamar el saldo no pagado
What is being sought in this present action" say appellants "is to del importe del pagare. El demandado funda su teoria en lo que dispone
prohibit and forbid the appellee Sheriff of Iloilo from attaching and selling el articulo 1454-A del Codigo Civil, que ha sido introducido por la Ley No.
at public auction sale the real properties of appellants because that is 4122, que se lee como sigue:
now forbidden by our law after the chattels that have been purchased
and duly mortgaged to the vendor-mortgagee had already been ART. 1454-A. En un contrato de venta de cosa mueble pagadera a
repossessed by the same vendor-mortgagee and later on hold at public plazos, la falta de pago de dos o mas plazos confiere al vendedor
auction sale and purchased by the same at such meager sum of derecho a la resolucion de la venta o la ejucucion de la hipoteca, caso de
P10,000.00. haberse esta constituido sobre la cosa, sin reembolso al comprador de
los plazos ya pagados, si asi se hubiere
"Our law" provides, pactado.chanroblesvirtualawlibrarychanrobles virtual law library

El vendedor, sin embargo, que hubiere optado por la ejecucion de


la hipoteca no podra repetir contra el comprador para el cobro de
ART. 1484. In a contract of sale of personal property the price of cualquier saldo que hubiese resultado contra este, siendo nulo todo
which is payable in installments, the vendor may exercise any of the pacto en contrario.chanroblesvirtualawlibrarychanrobles virtual law library
following remedies:
Igual regia regira en los casos de arrendamientos de cosa mueble
con opcion de compra, cuando el arrendador hubiere optado por quitar al
arrendatario el disfrute de dicha cosa mueble.
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
De este articulo se infiere que el vendedor, despues que el
(2) Cancel the sale, should the vendee's failure to pay cover two or more comprador haya dejado de pagar dos o mas plazos y en el caso de que
installments; hublera otorgado hipoteca de la cosa vendida, puede optar (1) por
resolver la venta recobrando la cosa vendida, en cuyo caso el comprador
(3) Foreclose the chattel mortgage on the thing sold, if one has been no tendra derecho al reembolso de los plazos pagados, si asi se hubiese
constituted, should the vendee's failure to pay cover two or more estipulado; (2) o por ejecutar la hipoteca en las formas autorizadas por la
installments. In this case, he shall have no further action against the Ley de Hipoteca de Bienes Muebles, en cuyo caso el vendedor no tendra
purchaser to recover any unpaid balance of the price. Any agreement to derecho a repetir contra el comprador por el cobro de cualquier saldo
the contrary shall be void. (New Civil Code.) que hubiese resultado en contra de este, siendo nulo todo pacto en
contrario; y (3) o por cobrar simplemente el resto de la deuda. Los
Appellants would invoke the last paragraph. But there has been no remedios que confiere el articulo son alternativos y no acumulativos, de
foreclosure of the chattel mortgage nor a foreclosure sale. Therefore the modo que si se opta por uno de ellos se entiende que se ha renunciado
prohibition against further collection does not apply. a los demas.
El demandado pretende que por haberse incautado el Sheriff del
automovil siguiendo instrucciones de la demandante y encomendado su
custodia a un depositario, la demandante opto ya por ejecutar la
hipoteca y, consiguientemente, perdio su derecho a cobrar el saldo
deudor del importe del pagare. Opinamos, y asi declaramos, que la
teoria es insostenible. Cuando la ley alude a la ejecucion de la hipoteca,
como remedio que produce la renuncia a los demas, quiere decir la
ejecucion de la hipoteca con tados sus incidencias y tramites hasta su
terminacion, incluyendo, naturalmente, la venta en publica subasta de la
cosa pignorada. En el presente caso el ultimo tramite que traspara a un
tercero el titulo de la cosa hipotecada, no se ha verificado ni cumplido
aun porque el Sheriff levanto el deposito del automovil y no lo vendio en
subasta publica con forme lo requiere el articulo 14 de la Ley No. 1508.
Por esta razone el error que el demandado atribuye a la sentencia
recurida no existe. [Emphasis supplied].

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.chanroblesvirtualawlibrarychanrobles virtual
law library

Appellant raises for the first time in this appeal the issue that
appellee did not present any evidence to prove that it actually incurred
expenses by way of attorney's fees. Apart from the fact that it is too late
in the day for appellant to bring up this point, it appears that what has
been awarded to appellee is in the nature of liquidated damages. (Art.
2226, Civil Code) As these is no claim that they are iniquitous or
unconscionable, (Art. 2227, Id.) the law does not require any proof
thereof. (Civil Code of the Phil. Annotated by Paras, Vol. V., p. 754, citing
Lambert vs. Fox, 26 Phil. 588.)chanrobles virtual law library

Judgment affirmed, with costs against appellant.


Republic of the Philippines In its March 26, 2010 Decision,10 the MTCC dismissed the complaint. It
SUPREME COURT considered the annotation in the certificate of title, which was dated prior
Manila to the filing of the complaint, which showed that Citihomes had executed
the Assignment favor of UCPB, as having the legal effect of divesting
Citihomes of its interest and right over the subject property. As far as the
SECOND DIVISION MTCC was concerned, Citihomes did not have a cause of action against
Spouses Noynay.
G.R. No. 204160 September 22, 2014

SPOUSES MICHELLE M. NOYNAY and NOEL S.


NOYNAY, Petitioners, The RTC, however, reversed the ruling of the MTCC. In its September
vs. 17, 2010 Decision,11 the RTC stated that the MTCC erred in interpreting
CITIHOMES BUILDER AND DEVELOPMENT, INC., Respondent. the deed of assignment as having the effect of relinquishing all of
Citihomes’ rights over the subject property. The RTC explained that the
DECISION assignment was limited only to the installment accounts receivables due
from Spouses Noynay and did not include the transfer of title or
ownership over the property. It pointed out that Citihomes remained as
MENDOZA, J.: the registered owner of the subject property, and so it had the right to ask
for the eviction of Spouses Noynay. As to the issue of who had the better
right of possession, the RTC ordered that the records be remanded to
In this petition for review on certiorari1 under Rule 45 of the Rules of
the MTCC for the proper determination.
Court, Spouses Noel and Michelle Noynay (Spouses Noynay) assail the
July 16, 2012 Decision2 of the Court of Appeals (CA) and October 15,
2012 Resolution,3 which affirmed with modification the September 17, 20 Spouses Noynay then went to the CA. On July 16, 2012, the CA affirmed
I 0 Decision4 of the Regional Trial CoUii, Branch 21, Malolos, Bulacan ( the conclusion of the RTC that Citihomes still had the right and interest
RTCJ. Earlier, the RTC reversed the March 26, 2010 Decision5 of the over the property in its capacity as the registered owner. Moreover, the
Municipal Trial Court for Cities, San Jose Del Monte, Bulacan (MTCC). issue on who, between the parties had a better possessory right over the
which dismissed the complaint6 for unlawful detainer filed by Citihomes property, was resolved in favor of Citihomes.
Builder and Development, Inc. (Citihomes) against Spouses Noynay for
lack of cause of action.
In disposing the issue of possession, the CA primarily recognized the
relevance of Republic Act (R.A.)No. 6552, otherwise known as the Realty
The Facts: Installment Buyer Act (Maceda Law), in determining the limits of the right
to possess of Spouses Noynay in their capacity as defaulting buyers in a
realty installment scheme. Under the said law, the cancellation of a
On December 29, 2004, Citihomes and Spouses Noynay executed a
contract would only follow if the requirements set forth therein had been
contract to sell7 covering the sale of a house and lot located in San Jose
complied with, particularly the giving of a "notice of delinquency and
Del Monte, Bulacan, and covered by Transfer Certificate of Title (TCT)
cancellation of the contract" to the defaulting party and,in some cases,
No. T-43469. Under the terms of the contract, the price of the property
the payment to the buyer of the cash surrender value if at least two years
was fixed at ₱915,895.00, with a downpayment of ₱183,179.00, and the
of installments had been paid. The CA noted that Spouses Noynay failed
remaining balance to be paid in 120 equal monthly installments with an
to complete the minimum two (2) years of installment, despite the
annual interest rate of 21% commencing on February 8, 2005 and every
allegation that three (3) years of amortizations had already been paid. As
8th day of the month thereafter.
an effect, the CA pronounced that the termination of the contract was
validly effected by the expiration of the 30-day period from the time the
Subsequently, on May 12, 2005, Citihomes executed the Deed of notice of cancellation was received by Spouses Noynay. From that
Assignment of Claims and Accounts8(Assignment)in favor of United moment, the CA treated Spouses Noynay to have lost the right to
Coconut Planters Bank (UCPB) on May 12, 2005. Under the said possess the property. In addition, the CA made Spouses Noynay liable
agreement, UCPB purchased from Citihomes various accounts, including for the payment of monthly rentals from the time their possession
the account of Spouses Noynay, for a consideration of ₱100,000,000.00. became illegal.
In turn, Citihomes assigned its rights, titles, interests, and participation in
various contracts to sell with its buyers to UCPB.
Spouses Noynay moved for reconsideration, but the CA denied their
motion.
In February of 2007, Spouses Noynay allegedly started to default in their
payments. Months later, Citihomes decided to declare Spouses Noynay
Hence, this petition.
delinquent and to cancel the contract considering that nine months of
agreed amortizations were left unpaid. On December 8, 2007, the
notarized Notice of Delinquency and Cancellation of the Contract To ISSUE
Sell,9 dated November 21, 2007, was received by Spouses Noynay.
They were given 30 days within which to pay the arrears and failure to do
so would authorize Citihomes to consider the contract as cancelled. The lone issue presented for resolution is whether Citihomes has a
cause of action for ejectment against Spouses Noynay. In effect,
Spouses Noynay would have this Court determine whether Citihomes
On June 15, 2009, Citihomes sent its final demand letter asking Spouses may rightfully evict them.
Noynay to vacate the premises due to their continued failure to pay the
arrears. Spouses Noynay did not heed the demand, forcing Citihomes to
file the complaint for unlawful detainer before the MTCC on July 29, Position of Spouses Noynay
2009.
Spouses Noynay insist that by virtue of the assignment of rights which
In the said complaint, Citihomes alleged that as per Statement of Citihomes executed in favor of UCPB, Citihomes did not have a cause of
Account as of March 18, 2009, Spouses Noynay had a total arrears in action against them because it no longer had an interest over the subject
the amount of ₱272,477.00, inclusive of penalties. Thus, Citihomes property. Contrary to the findings of the CA, the monthly installments
prayed that Spouses Noynay be ordered to vacate the subject property amounting to three years were already paid, by reason of which, Section
and pay the amount of ₱8,715.97 a month as a reasonable 3(b) of the Maceda Law should apply. This means that for the
compensation for the use and occupancy to commence from January 8, cancellation to be effective, the cash surrender value should have been
2007 until Spouses Noynay vacate the same. paid first to them by Citihomes; and that because no payment was made,
it follows that no valid cancellation could also be effected. This allegedly
strengthened their right to the possession of the property even to this
day.
Position of Citihomes 2. For purposes of this ASSIGNMENT, the ASSIGNOR hereby delivers
to the ASSIGNEE, which hereby acknowledges receipt of the following
documents evidencing the ASSIGNOR’s title, right, interest, participation
Citihomes counters that it has the right to ask for the eviction of the and benefit in the assigned Installment Account Receivables listed in
petitioners in its capacity as the registered owner despite the assignment Annex "A" and made as integral part hereof.
of rights it made to UCPB. It believes that because Spouses Noynay
failed to pay at least two (2) years of installments, the cancellation
became effective upon the expiration of the 30-day periodfollowing the a) Original Contracts to Sell
receipt of the notice of delinquency and cancellation notice and without
the need for the payment of the cash surrender value under Section 3(b)
of the Maceda Law. b) Transfer Certificates of Title

Ruling of the Court 3. The ASSIGNOR, hereby irrevocably appoints the ASSIGNEE to be its
true and lawful agent or representative for it and in its name and stead,
but for such ASSIGNEE’s own benefit: (1) to sell, assign, transfer, set
Cause of action has been defined as an act or omission by which a party over, pledge, compromise or discharge the whole, or any part, of said
violates a right of another.12 It requires the existence of a legal right on assignment; (2) to do all acts and things necessary, or proper, for any
the part of the plaintiff, a correlative obligation of the defendant to respect such purpose; (3) to ask, collect, receive and sue for the moneys due, or
such right, and an act or omission of such defendant in violation of the which may grow due, upon the said Assignment; and (4) to substitute
plaintiff’s rights.13 A complaint should not be dismissed for insufficiency of one person, or more, with like powers; hereby ratifying and confirming all
cause of action if it appears clearly from the complaint and its that said agent or representative, or his substitute, or substitutes, shall
attachments that the plaintiff is entitled to relief.14 The complaint, lawfully do, by virtue hereof.16
however, may be dismissed for lack of cause of action later after
questions of fact have been resolved on the basis of stipulations,
admissions or evidence presented.15 [Emphases supplied]

Relative thereto, a plaintiff in an unlawful detainer case which seeks Clearly, the conclusion of the MTCC had factual and legal bases. Evident
recovery of the property must prove one’s legal right to evict the from the tenor of the agreement was the intent on the part of Citihomes,
defendant, a correlative obligation on the part of such defendant to as assignor, to assign all of its rights and benefits in favor of UCPB.
respect the plaintiff’s right to evict, and the defendant’s act or omission in Specifically, what Citihomes did was an assignment or transfer of all
the form of refusal to vacate upon demand when his possession contractual rights arising from various contracts to sell, including the
ultimately becomes illegal. subject contract to sell, with all the rights, obligations and benefits
appurtenant thereto in favor of UCPB for a consideration of
₱100,000,000.00. Indeed, the intent was more than just an assignment of
At first glance, the main thrust of the discussion in the lower courts is the credit. This intent to assign all rights under the contract to sell was even
issue on whether Citihomes had such right to evict Spouses Noynay. At fortified by the delivery of documents such as the pertinent contracts to
its core is the ruling of the MTCC that the right to demand the eviction of sell and the TCTs. Had it been the intent of Citihomes to assign merely
Spouses Noynay was already transferred to UCPB from the moment the its interest in the receivables due from Spouses Noynay, the tenor of the
Assignment was executed by Citihomes, which was done prior to the deed of assignment would have been couched in very specific terms.
institution of the unlawful detainer case. Thus, based on the evidence
presented during the trial, the MTCC held that Citihomes did not have a
cause of action against Spouses Noynay.The RTC held otherwise Included in those matters which were handed over to UCPB were the
justifying that Citihomes may still be the right party to evict Spouses provisions outlined in Section 6 of the Contract to Sell. In the said
Noynay in its capacity as the registered owner of the property. The CA provision, Citihomes, as the seller has been given the right to cancel the
affirmed the RTC on this point. contract to sell in cases of continuing default by Spouses Noynay, to wit:
SECTION 6. If for any reason, whatsoever, the BUYER fails to pay three
(3) consecutive monthly installments, the provision of RA No. 6552 shall
The Court, however, agrees with the MTCC. apply.

The determination of whether Citihomes has a right to ask for the eviction Where the BUYER has paid less than two (2) years of installments and
of Spouses Noynay entirely depends on the review of the Assignment of defaults in the payment of three (3) consecutive monthly installment, he
Claims and Accounts it executed in favor of UCPB. If it turns out that shall be given a grace period of not less than sixty (60) days from the
what was assigned merely covered the collectible amounts or date the installment payments became due and payable within which to
receivables due from Spouses Noynay, Citihomes would necessarily pay the installments and/or make payments in arrears together with the
have the right to demand the latter’s eviction as only an aspect of the installments corresponding to the months of the grace period. In the
contract to sell passed on to UCPB. Simply put, because an assignment event the BUYER continues to default in the payment of the installments
covered only credit dues, the relation between Citihomes as the seller within or at the expiration of the grace period herein provided, the
and Spouses Noynay as the buyer under their Contract to Sell remained. SELLER shall have the right to cancel this agreement thirty (30) days
If on the other hand, it appears that the assignment covered all of from the BUYER’s receipt of the notice of cancellation or demand for
Citihomes’ rights, obligations and benefits in favor of UCPB, the rescission by a notarial act. Thereafter, the SELLER may dispose of the
conclusion would certainly be different. residential house and lot subject of this agreement in favor of other
persons as if this agreement had never been entered into.
Under the provisions of the Assignment, it was stipulated that:
WHERE the BUYER has paid atleast two (2) years of installments and he
defaults in the payment of three (3) consecutive monthly installments, the
NOW, THEREFORE, for and in consideration of the foregoing premises, SELLER shall be entitled:
the ASSIGNOR hereby agrees as follows:

a. To pay, without additional interest, the unpaid installment


1. The ASSIGNOR hereby assigns, transfers and sets over unto the due within the total grace period earned by the BUYER which
ASSIGNEE all its rights, titles and interest in and to, excluding its is fixed at the rate of one (1) month grace period for every one
obligations under the Contract/s to Sell enumerated and described in the (1) year of installment payment made; Provided, that this right
List of Assigned Receivables which is hereto attached and marked as shall be exercised by the BUYER only once for every five (5)
Annex "A" hereof, including any and all sum of money due and payable years of the life of this agreement.
to the ASSIGNOR, the properties pertaining thereto,all replacements,
substitution, increases and accretion thereof and thereto which the
ASSIGNOR has executed with the Buyers, as defined in the Agreement, b. If this agreement is cancelled, the SELLER shall refund to
and all moneys due, or which may grow upon the sales therein set forth. the BUYER the cash surrender value of the payments
equivalent to fifty percent thereof and, after five years of
installments, an additional five percent (5%) for every year but
not to exceed ninety (90%) of the total payments made; refund to the buyer the cash surrender value of the payments on the
Provided, that the actual cancellation of this agreement shall property equivalent to fifty percent of the total payments made and, after
take place after thirty (30) days from receipt by the BUYER of five years of installments, an additional five percent every year but not to
the notice of cancellation or demand for rescission by a exceed ninety percent of the total payments made: Provided, That the
notarial act and upon full payment of the cash surrender value actual cancellation of the contract shall take place after thirty days from
to the BUYER. 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.
xxx xxx xxx

[Emphases supplied]
The BUYER, at the termination of the contract, shall promptly surrender
the said property to the SELLER, and should the former fail to comply
with the provision, on top of the remedy provided for above, the BUYER According to the lower courts, Spouses Noynay failed to complete the
hereby expressly appoints the SELLER as their duly authorized attorney- two-year minimum period of paid amortizations, thus, the cancellation of
in-fact with power and authority to open, enter and take full possession of the contract to sell no longer required the payment of the cash surrender
the property in the presence of any peace officer and to take an inventory value. This conclusion rests on the allegation that the amortization
of the equipment, furniture, merchandise and effect. In case the BUYER payments commenced only on May 31, 2005. If indeed it were true that
fails to claim the said equipment, furniture, merchandise and effects the payments started only on that date, Spouses Noynay would not have
and/or liquidate their liabilities with the SELLER within thirty (30) days completed the required two-year period to be entitled to the payment of
from the date of transfer of possession of the property to the latter, the cash surrender value. Records, however, show otherwise. The Contract
SELLER is hereby given the right to dispose of said property in a private to Sell, dated December 29, 2004, was very particular on the matter. It
or public sale and to apply the proceeds to whatever expenses it may stipulated as follows:
have incurred in line with the warehousing of the equipment, furniture,
merchandise and effects.17
SECTION 1. NOW, THEREFORE, for and in consideration of the sum of
NINE HUNDRED FIFTEEN THOUSAND EIGHT HUNDRED NINETY
The exercise of such right to cancel necessarily determines the existence FIVE PESOS ONLY, (915,895.00) Philippine Currency, inclusive of
of the right to evict Spouses Noynay. The existence of the right to evict is miscellaneous charges hereunder set forth, and of the foregoing
the first constitutive element ofthe cause of action in this unlawful premises, the SELLER hereby agrees to sell, cede and convey to the
detainer case. Considering, however, that the right to cancel was already BUYER, their heirs, administrators, and successors-in-interest, the
assigned prior to the commencement of this controversy with the aforedescribed residential house and lot or lot only under the following
execution of the Assignment, its legal consequences cannot be avoided. terms and conditions:

Well-established is the rule that the assignee is deemed subrogated to a. The amount of ONE HUNDRED EIGHTY THREE
the rights as well as to the obligations of the seller/assignor. By virtue of THOUSAND ONE HUNDRED SEVENTY NINE PESOS ONLY
the deed of assignment, the assignee is deemed subrogated to the rights (₱183,179.00), Philippine Currency, representing full
and obligations of the assignor and is bound by exactly the same downpayment shall be paid upon signing of this contract.
conditions as those which bound the assignor.18 What can be inferred
from here is the effect on the status of the assignor relative to the
relations established by a contract which has been subsequently b. The balance of the total purchase price in the amount of
assigned; that is, the assignor becomes a complete stranger to all the SEVEN HUNDRED THIRTY TWO THOUSAND SEVEN
mattersthat have been conferred to the assignee. HUNDRED SIXTEEN PESOS ONLY, (₱732,716..00),
Philippine Currency shall be paid by the BUYER in 120 equal
monthly installments in the amount of ₱14,649.31 per month
In this case, the execution of the Assignment in favor of UCPB relegated with an interest of 21% per annum to commenceon 02.08.05
Citihomes to the status of a mere stranger to the jural relations and every 8th day of the month thereafter.21
established under the contract to sell. With UCPB as the assignee, it is
clear that Citihomes has ceased to have any right to cancel the contract
to sell with Spouses Noynay. Without this right, which has been vested in Citihomes claimed that the period of the payment of the amortizations
UCPB, Citihomes undoubtedly had no cause of action against Spouses started from May 31, 2005.22 As can be gleaned from the contract to sell,
Noynay. however, it appears that the payment of the downpayment started from
the signing thereof on December 29, 2004.

This is not to say that Citihomes lost all interest over the property. To be
clear, what were assigned covered only the rights in the Contract to Sell To this end, the factual admissions made by the parties during the
and not the property rights over the house and lot, which remained preliminary conference would shed light on the matter. It must be
registered under Citihomes’ name. Considering, however, that the remembered that these judicial admissions are legally binding on the
unlawful detainer case involves mere physical or material possession of party making the admissions. Similar to pre-trial admissions in a pre-trial
the property and is independent of any claim of ownership by any of the order in ordinary civil cases, the contents of the record of a preliminary
parties,19 the invocation of ownership by Citihomes is immaterial in the conference control the subsequent course of the action, thereby, defining
just determination of the case. and limiting the issues to be tried. A contrary ruling would render useless
the proceedings during the preliminary conference and would, in fact, be
antithetical to the very purpose of a preliminary conference, which is,
Granting that the MTCC erred in ruling that Citihomes had no cause of among others, to allow the parties to admit and stipulate on a given set of
action by reason of the Assignment it made in favor of UCPB, the Court facts and to simplify the issues involved.23
still upholds the right of the Spouses Noynay to remain undisturbed in the
possession of the subject property. The reason is simple – Citihomes
failed to comply with the procedures for the proper cancellation of the The fairly recent case of Oscar Constantino v. Heirs of Oscar
contract to sell as prescribed by Maceda Law. Constantino,24 is most instructive:

In Pagtalunan v. Manzano,20 the Court stressed the importance of In Bayas, et al. v. Sandiganbayan, et al., this Court emphasized that:
complying with the provisions of the Maceda Law as to the cancellation
of contracts to sell involving realty installment schemes. There it was held Once the stipulations are reduced into writing and signed by the parties
that the cancellation of the contract by the seller must be in accordance and their counsels, they become binding on the parties who made them.
with Section 3 (b) of the Maceda Law, which requires the notarial act of They become judicial admissions of the fact or facts stipulated. Even if
rescission and the refund to the buyer of the full payment of the cash placed at a disadvantageous position, a party may not be allowed to
surrender value of the payments made on the property. The actual rescind them unilaterally, it must assume the consequences of the
cancellation of the contract takes place after thirty (30) days from receipt disadvantage.(citations omitted)
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, to wit: (b) If the contract is cancelled, the seller shall Moreover, in Alfelor v. Halasan,this Court declared that:
A party who judicially admits a fact cannot later challenge the fact as
judicial admissions are a waiver of proof; production of evidence is
dispensed with. A judicial admission also removes an admitted fact from
the field of controversy. Consequently, an admission made in the
pleadings cannot be controverted by the party making such admission
and are conclusive as to such party, and all proofs to the contrary or
inconsistent therewith should be ignored, whether objection is interposed
by the party or not. The allegations, statements or admissions contained
in a pleading are conclusive as against the pleader. A party cannot
subsequently take a position contrary of or inconsistent with what was
pleaded. (Citations omitted)

[Emphases supplied]

Here, Spouses Noynay proposed for stipulation the factual allegation that
they had been paying Citihomes the monthly amortization of the property
for more than three (3) years and only stopped payment by January 8,
2008. In the Preliminary Conference Order,25 dated January 28, 2010,
the MTCC noted the said fact as admitted, to wit:

The defendants proposed the following matters for stipulations:

1. That the defendants had already paid the plaintiff the total
amount of Php 633,000.00 – Not Admitted

2. That the defendants have beenpaying the plaintiff the


monthly amortization of the property for more than three years
and only stopped payment by January 8, 2008 – Admitted.26

xxx xxx x x x[Emphasis supplied]

Moreover, based on the Statement of Account, 27 dated March 18, 2009,


Spouses Noynay started defaulting from January 8, 2008. This shows
that prior to that date, amortizations covering the 3-year period, which
started with the downpayment, had been paid. This is consistent with the
admission of Citihomes during the preliminary conference. By its
admission that Spouses Noynay had been paying the amortizations for
three (3) years, there is no reason to doubt Spouses Noynay's
compliance with the minimum requirement of two years payment of
amortization, entitling them to the payment of the cash surrender value
provided for by law and by the contract to sell. To reiterate, Section 3(b)
of the Maceda Law requires that for an actual cancellation to take place,
the notice of cancellation by notarial act and the full payment of the cash
surrender value must be first received by the buyer. Clearly, no payment
of the cash surrender value was made to Spouses Noynay. Necessarily,
no cancellation of the contract to selI could be considered as validly
effected.

Without the valid cancellation of the contract, there is no basis to treat the
possession of the property by Spouses Noynay as illegal.1âwphi1 In
AMOSUP-PTGWO-ITF v. Decena,28 the Court essentially held that such
similar failure' to validly cancel the contract, meant that the possessor
therein, similar to Spouses Noynay in this case, remained entitled to the
possession of the property. In the said case, the Court stated:

In the parallel case of Pagtalunan v. Dela Cruz Vda. De Manzano, which


likewise originated as an action for unlawful detainer, we affirmed the
finding of the appellate court that, since the contract to sell was not
validly cancelled or rescinded under Section 3(b) of R.A. No. 6552, the
respondent therein had the right to continue occupying unmolested the
property subject thereof. WHEREFORE, the petition is GRANTED. The
July 16, 2012 Decision and October 15, 2012 Resolution of the Court of
Appeals are hereby REVERSED and SET ASIDE. The March 26, 2010
Decision of the Municipal Trial Court for Cities is REINSTATED.

SO ORDERED.
Republic of the Philippines 3. That the vendee shall be given a grace period of thirty
SUPREME COURT (30)days from the due date of any installment with
Manila 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
THIRD DIVISION notice in writing by VENDOR to VENDEE.

G.R. No. 179594 September 11, 2013 4. That the VENDOR agrees to have the existing Mortgages
on the properties subject of this sale released on or before
MANUEL UY & SONS, INC., Petitioner, May 20, 1974.
vs.
VALBUECO, INCORPORATED, Respondent. 5. That the VENDOR agrees to have the above-described
properties freed and cleared of all lessees, tenants, adverse
DECISION 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
PERALTA, J.: 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,
This is a petition for review on certiorari1 of the Court of Appeals’
the VENDOR agrees to answer and pay for all the expenses
Decision2 dated December 11, 2006 in CA-G.R. CV No. 85877, and its
incurred and to be incurred in connection with said cases until
Resolution dated September 4, 2007, denying petitioner’s motion for
the same are fully and finally terminated.
reconsideration.

6. That the VENDOR and the VENDEE agree that during the
The Court of Appeals reversed and set aside the Decision3 of the
existence of this Contract and without previous expressed
Regional Trial Court (RTC) of Manila, Branch 1, dismissing the Complaint
written permission from the other, they shall not sell, cede,
for specific performance and damages. The Court of Appeals reinstated
assign, transfer or mortgage, or in any way encumber unto
the Complaint and directed petitioner to execute deeds of absolute sale
another person or party any right, interest or equity that they
in favor of respondent after payment of the purchase price of the subject
may have in and to said parcels of land. x x x x
lots.

8. That it is understood that ownership of the properties herein


The facts, as stated by the Court of Appeals, are as follows:
conveyed shall not pass to the VENDEE until after payment of
the full purchase price; provided, however, that the VENDOR
Petitioner Manuel Uy & Sons, Inc. is the registered owner of parcels of shall allow the annotation of this Conditional Deed of Sale at
land located in Teresa, Rizal covered by Transfer Certificate of Title(TCT) the back of the titles of the above-described parcels of land in
No. 59534, covering an area of about 6,119 square meters; TCT the corresponding Registry of Deeds x xx.
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.
9. That upon full payment of the total purchase price, a Deed
59444,covering an area of about 32,047 square meters.
of Absolute Sale shall be executed in favor of the VENDEE
and the VENDOR agrees to pay the documentary stamps and
On November 29, 1973, two Conditional Deeds of Sale were executed by the science stamp tax of the Deed of Sale; while the VENDEE
petitioner, as vendor, in favor of respondent Valbueco, Incorporated, as agrees to pay the registration and other expenses for the
vendee. The first Conditional Deed of Sale4 covered TCT Nos. 59534, issuance of a new title.
59445 and 59446, and contained the following terms and conditions:
10. That it is mutually agreed that in case of litigation, the
That for and in consideration of the sum of ONE HUNDREDSIXTY- venue of the case shall be in the courts of Manila, having
FOUR THOUSAND SEVEN HUNDRED FORTY-NINE(Php164,749.00) competent jurisdiction, any other venue being expressly
PESOS, Philippine currency, the VENDOR hereby agrees to SELL, waived.5
CEDE, TRANSFER and CONVEY unto the VENDEE xx x the
aforementioned properties, payable under the following terms and
On the other hand, the second Conditional Deed of Sale6 covering Lot
conditions:
No. 59444 provides, thus:

1. The sum of FORTY-ONE THOUSAND ONE


1. The sum of FIFTY-TWO THOUSAND SEVENTY-SIXAND
HUNDREDEIGHTY-SEVEN and 25/100 (Php 41,187.25)
37/100 (Php 52,076.37) PESOS, shall be paid upon signing of
PESOS shall be paid upon signing of this conditional deed of
this conditional deed of sale; and
sale; and

2. The balance of ONE HUNDRED FIFTY-SIXTHOUSAND


2. The balance of ONE HUNDRED TWENTY-
TWO HUNDRED TWENTY-NINE and 13/100
THREETHOUSAND FIVE HUNDRED SIXTY-ONE and
(Php156,229.13) PESOS shall be paid within a period of one
75/100 (Php123,561.75) PESOS shall be paid within a period
(1) year from November 15, 1973, with interest of 12% per
of one (1) year from November 15, 1973, with interest of 12%
annum based on the balance, in the mode and manner
per annum based on the balance, in the mode and manner
specified below:
specified below:

a) January 4, 1974 – ₱20,830.55 plus interest


a) January 4, 1974 – ₱16,474.90 plus interest

b) On or before May 15, 1974 – ₱67,699.29 plus


b) On or before May 15, 1974 – ₱53,543.43 plus
interest
interest

c) On or before November 15, 1974, ₱67,699.29


c) On or before November 15, 1974 – ₱53,543.32
plus interest
plus interest
3. That the VENDEE shall be given a grace period of thirty However, respondent suspended further payment as it was not satisfied
(30) days from the due date of any installment with with the manner petitioner complied with its obligations under the
corresponding interest to be added, but should the VENDEE conditional deeds of sale. Consequently, on March 17, 1978, petitioner
fail to make such payment within the grace period, this sent respondent a letter 11 informing respondent of its intention to rescind
contract shall be deemed rescinded and without force and the conditional deeds of sale and attaching therewith the original copy of
effect after notice in writing by VENDOR to VENDEE. the respective notarial rescission.

4. That the VENDOR agrees and acknowledges that any and On November 28, 1994, respondent filed a Complaint12 for specific
all payments to be made by the VENDEE by reason of this performance and damages against petitioner with the RTC of Antipolo
presents unless hereafter advised by VENDOR to the City. However, on January 15, 1996, the case was dismissed without
contrary, shall be made in favor of and to the Philippine Trust prejudice13 for lack of interest, as respondent's counsel failed to attend
Company by way of liquidation and payment of the existing the pre-trial conference.
mortgage on the property subject of this sale.
Five years later, or on March 16, 2001, respondent again filed with the
5. That after each payment adverted to above the VENDOR RTC of Manila, Branch 1 (trial court) a Complaint14 for specific
shall issue the corresponding receipt for the amount paid by performance and damages, seeking to compel petitioner to accept the
the VENDOR to the Philippine Trust Company. balance of the purchase price for the two conditional deeds of sale and to
execute the corresponding deeds of absolute sale. Respondent
contended that its non-payment of the installments was due to the
6. That the VENDOR agrees to have the above-described following reasons:(1) Petitioner refused to receive the balance of the
property freed and cleared of all lessees, tenants, adverse purchase price as the properties were mortgaged and had to be
occupants or squatters within 100 days from the execution of redeemed first before a deed of absolute sale could be executed; (2)
this conditional deed of sale. In case of failure by the Petitioner assured that the existing mortgages on the properties would be
VENDOR to comply with this undertaking provided in this discharged on or before May 20,1974, or that petitioner did not inform it
paragraph and the VENDEE shall find it necessary to file a (respondent) that the mortgages on the properties were already released;
case or cases in court to eject the said lessees, tenants, and (3) Petitioner failed to fully eject the unlawful occupants in the area.
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 In its Answer,15 petitioner argued that the case should be dismissed, as it
the same are fully and finally terminated. was barred by prior judgment. Moreover, petitioner contended that it
could not be compelled to execute any deed of absolute sale, because
respondent failed to pay in full the purchase price of the subject lots.
7. That the VENDOR and the VENDEE agree that during the Petitioner claimed that it gave respondent a notice of notarial rescission
existence of this Contract and without previous expressed of both conditional deeds of sale that would take effect 30 days from
written permission from the other, they shall not sell, cede, receipt thereof. The notice of notarial rescission was allegedly received
assign, transfer or mortgage, or in any way encumber unto by respondent on March 17,1978. Petitioner asserted that since
another person or party any right, interest or equity that they respondent failed to pay the full purchase price of the subject lots, both
may have in and to said parcel of land. conditional deeds of sale were rescinded as of April 16, 1978; hence,
respondent had no cause of action against it.
xxxx
In its Reply,16 respondent denied that it received the alleged notice of
9. That it is understood that ownership of the property herein notarial rescission. Respondent also denied that the alleged recipient
conveyed shall not pass to the VENDEE until after payment of (one Wenna Laurenciana)17 of the letter dated March 17, 1978, which
the full purchase price, provided, however, that the VENDOR was attached to the notice of notarial rescission, was its employee.
shall allow the annotation of the Conditional Deed of Sale at Respondent stated that assuming arguendo that the notice was sent to it,
the back of the Title of the above-described parcel of land in the address (6th Floor, SGC Bldg., Salcedo Street, Legaspi Village,
the corresponding Registry of Deeds; x xx. Makati, Metro Manila) was not the given address of respondent.
Respondent contended that its address on the conditional deeds of sale
and the receipts issued by it and petitioner showed that its principal
10. That upon full payment of the total purchase price, a Deed business address was the 7th Floor, Bank of P.I. Bldg, Ayala Avenue,
of Absolute Sale shall be executed in favor of the VENDEE Makati, Rizal.
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 On August 1, 2005, the trial court rendered a Decision,18 dismissing the
issuance of a new title. complaint, as petitioner had exercised its right to rescind the contracts.
The dispositive portion of the Decision reads:

11. That it is mutually agreed that in case of litigation, the


venue of the case shall be in the courts of Manila, having WHEREFORE, premises considered, the complaint is DISMISSED for
competent jurisdiction, any other venue being expressly lack of merit.
waived.7
Claims and counterclaims for damages are also dismissed.19
Respondent was able to pay petitioner the amount of ₱275,055.558 as
partial payment for the two properties corresponding to the initial The trial court stated that the issues before it were: (1) Did petitioner
payments and the first installments of the said properties. unlawfully evade its obligation to execute the final deed of sale and to
eject the squatters/occupants on the properties; (2) Is the case barred by
At the same time, petitioner complied with its obligation under the prior judgment; and (3) Does respondent have a cause of action against
conditional deeds of sale, as follows: (1) the mortgage for TCT No. 59446 petitioner.
was released on May 18, 1984, while the mortgages for TCT Nos.
59445and 59534 were released on July 19, 1974; (2) the unlawful The trial court said that both conditional deeds of sale clearly provided
occupants of the lots covered by TCT Nos. 59444, 59534, 59445 and that "ownership x x x shall not pass to the VENDEE until after full
59446 surrendered their possession and use of the said lots in payment of the purchase price." Respondent admitted that it has not yet
consideration of the amount of ₱6,000.00 in a document9 dated fully paid the purchase price. The trial court held that the conditions in the
November 19, 1973, and they agreed to demolish their shanties on or conditional deeds of sale being suspensive, that is, its fulfillment gives
before December 7, 1973; and (3) the mortgage with Philippine Trust rise to the obligation, the reasons for the inability of respondent to fulfill
Company covering TCT No. 59444 was discharged10 in 1984. its own obligations is material, in order that the obligation of petitioner to
execute the final deeds of absolute sale will arise. The trial court stated The Court of Appeals held that the two conditional deeds of sale in this
that the evidence showed that petitioner had exercised its right to rescind case are contracts to sell. It stated that the law applicable to the said
the contract by a written notice dated March 17, 1978 and notarial acts contracts to sell on installments is R.A. No. 6552, specifically Section
both dated March15, 1978. The trial court noted that respondent denied 4thereof, as respondent paid less than two years in installments. It held
having received the notice and disclaimed knowing the recipient, Wenna that upon repeated defaults in payment by respondent, petitioner had the
Laurenciana. However, on cross-examination, respondent's witness, right to cancel the said contracts, but subject to the proper receipt of
Gaudencio Juan, who used to be respondent's Personnel Manager and respondent of the notice of cancellation or the demand for the rescission
Forester at the same time, admitted knowing Laurenciana because she of the contracts by notarial act.
was the secretary of Mr. Valeriano Bueno, respondent's president at that
time, although Laurenciana was not employed by respondent, but she
was employed by Mahogany Products Corporation, presumably one of However, the Court of Appeals found that petitioner sent the notice of
the 14 other companies being controlled by Mr. Bueno.20 notarial rescission to the wrong address. The business address of
respondent, as used in all its transactions with petitioner, was the 7th
Floor, Bank of the Philippine Islands Building, Ayala Avenue, Makati City,
The trial court held that the conditional deeds of sale were executed on but the notice of notarial rescission was sent to the wrong address at the
November 29, 1973 and were already covered by Republic Act (R.A.) 6th Floor, SGC Building, Salcedo Street, Legaspi Village, Makati, Metro
No. 6552, otherwise known as the Realty Installment Buyer Act. Under Manila. Petitioner served the notice to the address of Mahogany
Section 4 of the law, if the buyer fails to pay the installments due at the Products Corporation. It was established that the person who received
expiration of the grace period, which is not less than 60 days from the the notice, one Wenna Laurenciana, was an employee of Mahogany
date the installment became due, the seller may cancel the contract after Products Corporation and not an employee of respondent or Mr.
30 days from receipt of the buyer of the notice of cancellation or the Valeriano Bueno, the alleged president of Mahogany Products
demand for rescission of the contracts by notarial act. The trial court Corporation and respondent company.22 The appellate court stated that
found no lawful ground to grant the relief prayed for and dismissed the this cannot be construed as to have been contructively received by
complaint for lack of merit. respondent as the two corporations are two separate entities with a
distinct personality independent from each other. Thus, the Court of
Appeals held that the notarial rescission was in validly served. It stated
Respondent appealed the decision of the trial court to the Court of that it is a general rule that when service of notice is an issue, the person
Appeals, and made these assignments of error: (1) the trial court erred in alleging that the notice was served must prove the fact of service by a
holding that petitioner did not unlawfully evade executing a final deed of preponderance of evidence. In this case, the Court of Appeals held that
sale, since respondent's failure to fulfill its own obligation is material; (2) there was no evidence that the notice of cancellation by notarial act was
the trial court erred in holding that it is unbelievable and a self- actually received by respondent. Thus, for petitioner's failure to cancel
contradiction that respondent was informed of the mortgage only when it the contract in accordance with the procedure provided by law, the Court
was paying the balance of the properties; and (3) the trial court erred in of Appeals held that the contracts to sell on installment were valid and
holding that as early as November 19, 1973, petitioner had already taken subsisting, and respondent has the right to offer to pay for the balance of
necessary steps to evict the squatters/occupants through the the purchase price before actual cancellation.
intercession of the agrarian reform officer.

Petitioner's motion for reconsideration was denied for lack of merit by the
On December 11, 2006, the Court of Appeals rendered a Decision, Court of Appeals in a Resolution23 dated September 4, 2007.
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 Petitioner filed this petition raising the following issues:
purchase price of the subject lots. The dispositive portion of the Decision
reads:
I

WHEREFORE, premises considered, the August 1, 2005Decision of the


Regional Trial Court of Manila, Branch 1, in Civil Case No. 01-100411, is THE HONORABLE COURT OF APPEALS GRAVELY ERRED
hereby REVERSED and SET ASIDE. INREVERSING THE RTC DECISION AND REINSTATING
THECOMPLAINT WHEN ON ITS FACE IT HAS LONG
BEENPRESCRIBED, AS IT WAS FILED AFTER 27 YEARS AND HAS
A new one is hereby entered: REINSTATING the complaint and NOJURISDICTION (SIC).
defendant-appellee MANUEL UY & SONS INC. is hereby DIRECTED,
pursuant to Sec. 4, R. A. No. 6552, otherwise known as the Maceda Law,
to EXECUTE and DELIVER: II

(1) Deeds of Absolute Sale in favor of VALBUECO, INC.; and THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED
ANDGRAVELY ABUSED ITS DISCRETION IN
COMPELLINGPETITIONER TO EXECUTE A FINAL DEED OF
(2) Transfer Certificates of Title pertaining to Nos. 59534, ABSOLUTE SALE EVEN IF RESPONDENT JUDICIALLY ADMITTED
59445,59446 and 59444, in the name of plaintiff-appellant ITS NON-PAYMENT OF THE BALANCE OF THE DEEDS OF
VALBUECO, INC., after VALBUECO pays MANUEL UY & CONDITIONALSALE DUE SINCE 1974.
SONS, without additional interest, within thirty days from
finality of this judgment, the balance of the contract price.
III

If MANUEL UY & SONS refuses to deliver the Deeds of Absolute Sale


and the co-owner's copy of the TCTs, the Register of Deeds of Antipolo, THE HONORABLE COURT OF APPEALS GRAVELY ERRED
Rizal is hereby DIRECTED to CANCEL the latest TCTs issued derived INGRANTING THE RELIEFS PRAYED BY RESPONDENT IN
from TCT Nos. 59534, 59445, 59446 and 59444, and to ITSCOMPLAINT FOR SPECIFIC PERFORMANCE WHEN IT
WASRESPONDENT WHO BREACHED THE CONTRACT.

ISSUE new TCTS in the name of VALBUECO.


IV

Only if VALBUECO fails in the payment directed above, then defendant-


appellee MANUEL UY & SONS INC. has the opportunity to serve a valid THE HONORABLE COURT OF APPEALS COMMITTED
notice of notarial rescission. GRAVEINJUSTICE WHEN IT PENALIZED PETITIONER FOR
EXERCISINGITS LEGAL RIGHT AND DID NOT COMMIT AN
ACTIONABLEWRONG WHILE IT HEFTILY REWARDED
SO ORDERED.21 RESPONDENT, WHOBREACHED THE CONTRACT, AND ORDERED
TO PAY WITHOUTINTEREST PHP 97,998.95, WHICH IS DUE SINCE
1974 UNDER THECONTRACT, FOR FOUR (4) PARCELS OF LAND
(57,393 SQUAREMETERS), NOW WORTH HUNDRED MILLIONS.
V 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
THE HONORABLE COURT OF APPEALS GRAVELY ERRED contract by a notarial act.31
INANNULING THE NOTARIAL RESCISSION WHEN THE COMPLAINT
IS ONLY FOR SPECIFIC PERFORMANCE AND WAS NOT AN ISSUE
RAISED IN THE PLEADINGS OR DURING THETRIAL.24 In this case, respondent has paid less than two years of installments;
therefore, Section 4 of R.A. No. 6552 applies.
The main issue is whether respondent is entitled to the relief granted by
the Court of Appeals. Petitioner contends that the Court of Appeals erred The Court of Appeals held that even if respondent defaulted in its full
in directing it to execute deeds of absolute sale over the subject lots even payment of the purchase price of the subject lots, the conditional deeds
if respondent admitted non-payment of the balance of the purchase price. 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
As found by the Court of Appeals, the two conditional deeds of sale by a person employed by Mahogany Products Corporation and not the
entered into by the parties are contracts to sell, as they both contained a respondent. The Court of Appeals stated that the allegation that
stipulation that ownership of the properties shall not pass to the vendee Mahogany Products Corporation and respondent have the same
until after full payment of the purchase price. In a conditional sale, as in a President, one Valeriano Bueno, is irrelevant and has not been actually
contract to sell, ownership remains with the vendor and does not pass to proven or borne by evidence. The appellate court held that there was
the vendee until full payment of the purchase price.25 The full payment of insufficient proof that respondent actually received the notice of notarial
the purchase price partakes of a suspensive condition, and non- rescission of the conditional deeds of sale; hence, the unilateral
fulfillment of the condition prevents the obligation to sell from arising.26To rescission of the conditional deeds of sale cannot be given credence.
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. 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
Ramos v. Heruela27 held that Articles 1191 and 1592 of the Civil Answer, dated February 16, 1995, to its first Complaint filed on
Code28 are applicable to contracts of sale, while R.A. No. 6552 applies to November 28, 1994with the RTC of Antipolo City, which case was
contracts to sell. docketed as Civil Case No.94-3426, but the complaint was later
dismissed without prejudice on January15, 1996.32
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 It appears that after respondent filed its first Complaint for specific
sell. R.A. No. 6552 recognizes in conditional sales of all kinds of real performance and damages with the RTC of Antipolo City on November
estate (industrial, commercial, residential) the right of the seller to cancel 28,1994, petitioner filed an Answer and attached thereto a copy of the
the contract upon non-payment of an installment by the buyer, which is written notice dated March 17, 1978 and copies of the notarial acts of
simply an event that prevents the obligation of the vendor to convey title rescission dated March 15, 1978, and that respondent received a copy of
from acquiring binding force.29 the said Answer with the attached notices of notarial rescission.
However, to reiterate, the first Complaint was dismissed without
It also provides the right of the buyer on installments in case he defaults prejudice.
in the payment of succeeding installments30 as follows:
Five years after the dismissal of the first Complaint, respondent again
Section 3. In all transactions or contracts involving the sale or financing filed this case for specific performance and damages, this time, with the
of real estate on installment payments, including residential condominium RTC of Manila. Petitioner filed an Answer, and alleged, among others,
apartments but excluding industrial lots, commercial buildings and sales that the case was barred by prior judgment, since respondent filed a
to tenants under Republic Act Numbered Thirty-eight hundred forty-four, complaint on November 28, 1994 before the RTC of Antipolo City,
as amended by Republic Act Numbered Sixty-three hundred eighty-nine, Branch 73, against it (petitioner) involving the same issues and that the
where the buyer has paid at least two years of installments, the buyer is case, docketed as Civil Case No. 94-3426, was dismissed on January
entitled to the following rights in case he defaults in the payment of 15, 1996 for lack of interest. Respondent filed a Reply33 dated July 18,
succeeding installments: 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
(a) To pay, without additional interest, the unpaid installments that in case of litigation, the venue shall be in the courts of Manila. To
due within the total grace period earned by him which is prove its assertion, respondent attached to its Reply a copy of petitioner’s
hereby fixed at the rate of one month grace period for every Answer to the first Complaint in Civil Case No. 94-3426, which Answer
one year of installment payments made: Provided, That this included the written notice dated March 17, 1978 and two notarial acts of
right shall be exercised by the buyer only once in every five rescission, both dated March 15, 1978, of the two conditional deeds of
years of the life of the contract and its extensions, if any. 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,
(b) If the contract is canceled, the seller shall refund to the
since petitioner’s Answer included notices of notarial rescission of the
buyer the cash surrender value of the payments on the
two conditional deeds of sale. The first complaint was filed six years
property equivalent to fifty per cent of the total payments
earlier before this complaint was filed. As stated earlier, the first
made, and, after five years of installments, an additional five
complaint was dismissed without prejudice, because respondent’s
per cent every year but not to exceed ninety per cent of the
counsel failed to appear at the pre-trial. Since respondent already
total payments made: Provided, That the actual cancellation of
received notices of the notarial rescission of the conditional deeds of
the contract shall take place after thirty days from receipt by
sale, together with petitioner’s Answer to the first Complaint five years
the buyer of the notice of cancellation or the demand for
before it filed this case, it can no longer deny having received notices of
rescission of the contract by a notarial act and upon full
the notarial rescission in this case, as respondent admitted the same
payment of the cash surrender value to the buyer.
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
Down payments, deposits or options on the contract shall be included in Court of Appeals.
the computation of the total number of installment payments made.
chanrobles a law library
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
Sec. 4. In case where less than two years of installments were paid, the has paid less than two years of installments; hence, it is not entitled to a
seller shall give the buyer a grace period of not less than sixty days from refund.35
the date the installment became due.
Moreover, petitioner raises the issue of improper venue and lack of of Sale on November 15, 1974. Article 114442 of the Civil Code provides
jurisdiction of the RTC of Manila over the case. It contends that the that actions based upon a written contract must be brought within ten
complaint involved real properties in Antipolo City and cancellation of years from the time the right of action accrues. Non-fulfillment of the
titles; hence, it was improperly filed in the RTC of Manila. obligation to pay on the last due date, that is, on November 15, 1974,
would give rise to an action by the vendor, which date of reckoning may
also apply to any action by the vendee to determine his right under R.A.
Petitioner's contention lacks merit, as petitioner and respondent No. 6552. The vendee, respondent herein, filed this case on March 16,
stipulated in both Conditional Deeds of Sale that they mutually agreed 2001, which is clearly beyond the 10-year prescriptive period; hence, the
that in case of litigation, the case shall be filed in the courts of Manila. 36 action has prescribed.

Further, petitioner contends that the action has prescribed. Petitioner WHEREFORE, the petition is GRANTED. The Decision of the Court of
points out that the cause of action is based on a written contract; hence, Appeals, dated December 11, 2006, in CA-G.R. CV No. 85877 and its
the complaint should have been brought within 10 years from the time Resolution dated September 4, 2007 are REVERSED and SET ASIDE.
the right of action accrues under Article 1144 of the Civil Code. Petitioner The Decision of the Regional Trial Court of Manila, Branch I, dated
argues that it is evident on the face of the complaint and the two August 1, 2005 in Civil Case No. 01-100411, dismissing the case for lack
contracts of conditional sale that the cause of action accrued in 1974; of merit, is REINSTATED.
yet, the complaint for specific performance was filed after 27 years.
Petitioner asserts that the action has prescribed.
SO ORDERED.
The contention is meritorious.

Section 1, Rule 9 of the 1997 Rules of Civil Procedure provides:

Section 1. Defense and objections not pleaded. - Defenses and


objections not pleaded whether in a motion to dismiss or in the answer
are deemed waived. However, when it appears from the pleadings that
the court has no jurisdiction over the subject matter, that there is another
action pending between the same parties for the same cause, or that the
action is barred by a prior judgment or by statute of limitations, the court
shall dismiss the claim.37

In Gicano v. Gegato,38 the Court held:

x x x (T)rial courts have authority and discretion to dismiss an action on


the ground of prescription when the parties' pleadings or other facts on
record show it to be indeed time-barred; (Francisco v. Robles, Feb,
15,1954; Sison v. Mc Quaid, 50 O.G. 97; Bambao v. Lednicky, Jan. 28,
1961;Cordova v. Cordova, Jan. 14, 1958; Convets, Inc. v. NDC, Feb. 28,
1958;32 SCRA 529; Sinaon v. Sorongan, 136 SCRA 408); and it may do
so on the basis of a motion to dismiss (Sec. 1,f, Rule 16, Rules of Court),
or an answer which sets up such ground as an affirmative defense (Sec.
5, Rule16), or even if the ground is alleged after judgment on the merits,
as in a motion for reconsideration (Ferrer v. Ericta, 84 SCRA 705); or
even if the defense has not been asserted at all, as where no statement
thereof is found in the pleadings (Garcia v. Mathis, 100 SCRA 250;PNB
v. Pacific Commission House, 27 SCRA 766; Chua Lamco v.Dioso, et al.,
97 Phil. 821);

or where a defendant has been declared in default (PNB v. Perez, 16


SCRA 270). What is essential only, to repeat, is that the facts
demonstrating the lapse of the prescriptive period, be otherwise
sufficiently and satisfactorily apparent on the record; either in the
averments of the plaintiff's complaint, or otherwise established by the
evidence.39

Moreover, Dino v. Court of Appeals40 held:

Even if the defense of prescription was raised for the first time on appeal
in respondent's Supplemental Motion for Reconsideration of the
appellate court's decision, this does not militate against the due process
right of the petitioners. On appeal, there was no new issue of fact that
arose in connection with the question of prescription, thus it cannot be
said that petitioners were not given the opportunity to present evidence in
the trial court to meet a factual issue. Equally important, petitioners had
the opportunity to oppose the defense of prescription in their Opposition
to the Supplemental Motion for Reconsideration filed in the appellate
court and in their Petition for Review in this Court.41

In this case, petitioner raised the defense of prescription for the first time
before this Court, and respondent had the opportunity to oppose the
defense of prescription in its Comment to the petition. Hence, the Court
can resolve the issue of prescription as both parties were afforded the
opportunity to ventilate their respective positions on the matter. The
Complaint shows that the Conditional Deeds of Sale were executed on
November 29, 1973, and payments were due on both Conditional Deeds
SECOND DIVISION August 30, 1993; One Million Six Hundred Seventy
Thousand Two Hundred Twenty (P1,670,220.00)
Pesos on December 31, 1993.
SPOUSES FAUSTINO AND G.R. No. 172036
JOSEFINA GARCIA, On its due date, December 31, 1993, plaintiffs
SPOUSES MELITON GALVEZ Present: failed to pay the last installment in the amount of
AND HELEN GALVEZ, One Million Six Hundred Seventy Thousand Two
and CONSTANCIA ARCAIRA CARPIO, J., Chairperson, Hundred Twenty (P1,670,220.00)
represented by their Attorney-in-Fact BRION, Pesos. Sometime in July 1995, plaintiffs offered to
JULIANA O. MOTAS, DEL CASTILLO, pay the unpaid balance, which had already been
Petitioners, ABAD, and delayed by one and [a] half year, which defendant
PEREZ, JJ. refused to accept. On September 23, 1995,
defendant sold the same parcels of land to
- versus - intervenor Diogenes G. Bartolome for Seven Million
Seven Hundred Ninety Three Thousand
(P7,793,000.00) Pesos.
COURT OF APPEALS,
EMERLITA DE LA CRUZ, Promulgated: In order to compel defendant to accept plaintiffs
and DIOGENES G. BARTOLOME, payment in full satisfaction of the purchase price
Respondents. April 23, 2010 and, thereafter, execute the necessary document of
x--------------------------------------------------x transfer in their favor, plaintiffs filed before the RTC
a complaint for specific performance.

DECISION

CARPIO, J.: In their complaint, plaintiffs alleged that they


discovered the infirmity of the Deed of Absolute
Sale covering Lot Nos. 2776, 2767 and 2769,
G.R. No. 172036 is a petition for review[1] assailing the between their former owner Angel Abelida and
Decision[2] promulgated on 25 January 2006 as well as the defendant, the same being spurious because the
Resolution[3] promulgated on 16 March 2006 of the Court of Appeals signature of Angel Abelida and his wife were
(appellate court) in CA-G.R. CV No. 63651. The appellate court reversed falsified; that at the time of the execution of the said
and set aside the decision of Branch 23 of the Regional Trial Court of deed, said spouses were in the United States; that
Trece Martires City, Cavite (trial court) in Civil Case No. TM-622. The due to their apprehension regarding the authenticity
appellate court ordered Emerlita Dela Cruz (Dela Cruz) to return to of the document, they withheld payment of the last
spouses Faustino and Josefina Garcia, spouses Meliton and Helen installment which was supposedly due on
Galvez, and Constancia Arcaira (collectively, petitioners) the amount in December 31, 1993; that they tendered payment of
excess of one-half percent of P1,500,000. Dela Cruzs co-defendant, the unpaid balance sometime in July 1995, after
Diogenes Bartolome (Bartolome), did not incur any liability. Angel Abelida ratified the sale made in favor [of]
defendant, but defendant refused to accept their
The appellate court narrated the facts as follows: payment for no jusitifiable reason.
On May 28, 1993, plaintiffs spouses Faustino and
Josefina Garcia and spouses Meliton and Helen In her answer, defendant denied the allegation that
Galvez (herein appellees) and defendant Emerlita the Deed of Absolute Sale was spurious and
dela Cruz (herein appellant) entered into a Contract argued that plaintiffs failed to pay in full the agreed
to Sell wherein the latter agreed to sell to the purchase price on its due date despite repeated
former, for Three Million One Hundred Seventy demands; that the Contract to Sell contains a
Thousand Two Hundred Twenty (P3,170,220.00) proviso that failure of plaintiffs to pay the purchase
Pesos, five (5) parcels of land situated at Tanza, price in full shall cause the rescission of the
Cavite particularly known as Lot Nos. 47, 2768, contract and forfeiture of one-half (1/2%) percent of
2776, 2767, 2769 and covered by Transfer the total amount paid to defendant; that a notarized
Certificate of Title Nos. T-340674, T-340673, T- letter stating the indended rescission of the contract
29028, T-29026, T-29027, respectively. At the time to sell and forfeiture of payments was sent to
of the execution of the said contract, three of the plaintiffs at their last known address but it was
subject lots, namely, Lot Nos. 2776, 2767, and returned with a notation insufficient address.
2769 were registered in the name of one Angel
Abelida from whom defendant allegedly acquired Intervenor Diogenes G. Bartolome filed a complaint
said properties by virtue of a Deed of Absolute Sale in intervention alleging that the Contract to Sell
dated March 31, 1989. dated May 31, 1993 between plaintiffs and
defendant was rescinded and became ineffective
As agreed upon, plaintiffs shall make a down due to unwarranted failure of the plaintiffs to pay
payment of Five Hundred Thousand (P500,000.00) the unpaid balance of the purchase price on or
Pesos upon signing of the contract. The balance of before the stipulated date; that he became
Two Million Six Hundred Seventy Thousand Two interested in the subject parcels of land because of
Hundred Twenty (P2,670,220.00) Pesos shall be their clean titles; that he purchased the same from
paid in three installments, viz:Five Hundred defendant by virtue of an Absolute Deed of Sale
Thousand (P500,000.00) Pesos on June 30, 1993; executed on September 23, 1995 in consideration
Five Hundred Thousand (P500,000.00) Pesos on of the sum of Seven Million Seven Hundred Ninety
Three Thousand (P7,793,000.00) Pesos.[4]
The Decision of the Trial Court The appellate court likewise resolved to deny petitioners
Motion for Reconsideration for lack of merit.[7]

In its Decision dated 15 April 1999, the trial court ruled that Hence, this petition.
Dela Cruzs rescission of the contract was not valid. The trial court
applied Republic Act No. 6552 (Maceda Law) and stated that Dela Cruz
is not allowed to unilaterally cancel the Contract to Sell. The trial court Issues
found that petitioners are justified in withholding the payment of the
balance of the consideration because of the alleged spurious sale
between Angel Abelida and Emerlita Dela Cruz. Moreover, intervenor Petitioners raised the following grounds for the grant of their
Diogenes Bartolome (Bartolome) is not a purchaser in good faith petition:
because he was aware of petitioners interest in the subject parcels of
land. I. The Honorable Court of Appeals erred when
it failed to consider the provisions of Republic
The dispositive portion of the trial courts decision reads: Act 6552, otherwise known as the Maceda
ACCORDINGLY, defendant Emerlita dela Cruz is Law.
ordered to accept the balance of the purchase price
in the amount of P1,670,220.00 within ten (10) II. The Honorable Court of Appeals erred
days after the judgment of this Court in the above- when it failed to consider that Respondent
entitled case has become final and executory and Dela Cruz could not pass title over the three
to execute immediately the final deed of sale in (3) properties at the time she entered to a
favor of plaintiffs. Contract to Sell as her purported ownership
was tainted with fraud, thereby justifying
Defendant is further directed to pay plaintiffs the Petitioners Spouses Garcia, Spouses Galvez
amount of P400,000.00 as moral damages and Arcairas suspension of payment.
and P100,000.00 as exemplary damages.
III. The Honorable Court of Appeals gravely
The deed of sale executed by defendant Emerlita erred when it failed to consider that
dela Cruz in favor of Atty. Diogenes Bartolome is Respondent Dela Cruzs rescission was done
declared null and void and the amount in evident bad faith and malice on account of
of P7,793,000.00 which was paid by intervenor a second sale she entered with Respondent
Bartolome to Emerlita dela Cruz as the Bartolome for a much bigger amount.
consideration of the sale of the five (5) parcels of
land is hereby directed to be returned by Emerlita IV. The Honorable Court of Appeals erred
dela Cruz to Atty. Diogenes Bartolome within ten when it failed to declare Respondent
(10) days from the finality of judgment. Bartolome is not an innocent purchaser for
value despite the presence of evidence as to
Further, defendant is directed to pay plaintiff the his bad faith.[8]
sum of P100,000.00 as attorneys fees.

SO ORDERED.[5]

Dela Cruz and Bartolome appealed from the judgment of the The Courts Ruling
trial court.
The petition has no merit.

The Decision of the Appellate Court


Both parties admit the following: (1) the contract between petitioners and
Dela Cruz was a contract to sell; (2) petitioners failed to pay in full the
The appellate court reversed the trial courts decision and agreed purchase price of the subject property on the stipulated date;
dismissed Civil Case No. TM-622. Dela Cruzs obligation under the and (3) Dela Cruz did not want to accept petitioners offer of payment and
Contract to Sell did not arise because of petitioners undue failure to pay did not want to execute a document of transfer in petitioners favor.
in full the agreed purchase price on the stipulated date. Moreover, judicial
action for the rescission of a contract is not necessary where the contract The pertinent provisions of the contract, denominated Contract to Sell,
provides that it may be revoked and cancelled for violation of any of its between the parties read:
terms and conditions. The dispositive portion of the appellate courts
decision reads: Failure on the part of the vendees to comply with
the herein stipulation as to the terms of payment
WHEREFORE, in view of all the foregoing, the shall cause the rescission of this contract and the
appealed decision of the Regional Trial Court is payments made shall be returned to the vendees
hereby REVERSED and SET ASIDE and Civil subject however, to forfeiture in favor of the Vendor
Case No. TM-622 is, consequently, DISMISSED. equivalent to 1/2% of the total amount paid.
Defendant is however ordered to return to plaintiffs
the amount in excess of one-half (1/2%) percent of xxx
One Million Five Hundred Thousand
(P1,500,000.00) Pesos which was earlier paid by It is hereby agreed and covenanted that
plaintiffs. possession shall be retained by the VENDOR until
a Deed of Absolute Sale shall be executed by her
SO ORDERED.[6] in favor of the Vendees. Violation of this provision
shall authorize/empower the VENDOR [to] The Court shall decree the
demolish any construction/improvement without rescission claimed, unless
need of judicial action or court order. there be just cause
authorizing the fixing of a
That upon and after the full payment of the period.
balance, a Deed of Absolute Sale shall be
executed by the Vendor in favor of the Vendees.

That the duplicate original of the owners copy of


the Transfer Certificate of Title of the above subject This is understood to be
parcels of land shall remain in the possession of without prejudice to the rights
the Vendor until the execution of the Deed of of third persons who have
Absolute Sale.[9] acquired the thing, in
accordance with Articles
1385 and 1388 and the
Contracts are law between the parties, and they are bound by its Mortgage Law. (1124)
stipulations. It is clear from the above-quoted provisions that the parties
intended their agreement to be a Contract to Sell: Dela Cruz retains Pursuant to the above, the law makes it available to
ownership of the subject lands and does not have the obligation to the injured party alternative remedies such as the
execute a Deed of Absolute Sale until petitioners payment of the full power to rescind or enforce fulfillment of the
purchase price. Payment of the price is a positive suspensive condition, contract, with damages in either case if the obligor
failure of which is not a breach but an event that prevents the obligation does not comply with what is incumbent upon him.
of the vendor to convey title from becoming effective. Strictly speaking, There is nothing in this law which prohibits the
there can be no rescission or resolution of an obligation that is still non- parties from entering into an agreement that a
existent due to the non-happening of the suspensive condition.[10] Dela violation of the terms of the contract would cause
Cruz is thus not obliged to execute a Deed of Absolute Sale in petitioners its cancellation even without court intervention. The
favor because of petitioners failure to make full payment on the stipulated rationale for the foregoing is that in contracts
date. providing for automatic revocation, judicial
intervention is necessary not for purposes of
We ruled thus in Pangilinan v. Court of Appeals:[11] obtaining a judicial declaration rescinding a
contract already deemed rescinded by virtue of an
Article 1592 of the New Civil Code, requiring agreement providing for rescission even without
demand by suit or by notarial act in case the judicial intervention, but in order to determine
vendor of realty wants to rescind does not apply to whether or not the rescission was proper. Where
a contract to sell but only to contract of sale. In such propriety is sustained, the decision of the
contracts to sell, where ownership is retained by court will be merely declaratory of the revocation,
the seller and is not to pass until the full payment, but it is not in itself the revocatory act. Moreover,
such payment, as we said, is a positive suspensive the vendors right in contracts to sell with reserved
condition, the failure of which is not a breach, title to extrajudicially cancel the sale upon failure of
casual or serious, but simply an event that the vendee to pay the stipulated installments and
prevented the obligation of the vendor to convey retain the sums and installments already received
title from acquiring binding force. To argue that has long been recognized by the well-established
there was only a casual breach is to proceed from doctrine of 39 years standing. The validity of the
the assumption that the contract is one of absolute stipulation in the contract providing for automatic
sale, where non-payment is a resolutory condition, rescission upon non-payment cannot be doubted. It
which is not the case. is in the nature of an agreement granting a party
the right to rescind a contract unilaterally in case of
The applicable provision of law in instant case is breach without need of going to court. Thus,
Article 1191 of the New Civil Code which provides rescission under Article 1191 was inevitable due to
as follows: petitioners failure to pay the stipulated price within
the original period fixed in the agreement.
Art. 1191. The power to
rescind obligations is implied
in reciprocal ones, in case Petitioners justify the delay in payment by stating that they had notice
one of the obligors should that Dela Cruz is not the owner of the subject land, and that they took
not comply with what is pains to rectify the alleged defect in Dela Cruzs title. Be that as it may,
incumbent upon him. Angel Abelidas (Abelida) affidavit[12]confirming the sale to Dela Cruz only
serves to strengthen Dela Cruzs claim that she is the absolute owner of
The injured party may the subject lands at the time the Contract to Sell between herself and
choose between the petitioners was executed. Dela Cruz did not conceal from petitioners
fulfillment and the rescission that the title to Lot Nos. 2776, 2767 and 2769 still remained under
of the obligation, with the Abelidas name, and the Contract to Sell[13] even provided that
payment of damages in petitioners should shoulder the attendant expenses for the transfer
either case. He may also of ownership from Abelida to Dela Cruz.
seek rescission, even after
he has chosen fulfillment, if The trial court erred in applying R.A. 6552,[14] or the Maceda Law, to the
the latter should become present case. The Maceda Law applies to contracts of sale of real estate
impossible. on installment payments, including residential condominium apartments
but excluding industrial lots, commercial buildings and sales to
tenants. The subject lands, comprising five (5) parcels and aggregating
69,028 square meters, do not comprise residential real estate within the
contemplation of the Maceda Law.[15] Moreover, even if we apply the
Maceda Law to the present case, petitioners offer of payment to Dela
Cruz was made a year and a half after the stipulated date. This is beyond
the sixty-day grace period under Section 4 of the Maceda
Law.[16] Petitioners still cannot use the second sentence of Section 4 of
the Maceda Law against Dela Cruz for Dela Cruzs alleged failure to give
an effective notice of cancellation or demand for rescission because Dela
Cruz merely sent the notice to the address supplied by petitioners in the
Contract to Sell.

It is undeniable that petitioners failed to pay the balance of the purchase


price on the stipulated date of the Contract to Sell. Thus, Dela Cruz is
within her rights to sell the subject lands to Bartolome. Neither Dela Cruz
nor Bartolome can be said to be in bad faith.

WHEREFORE, we DENY the petition. We AFFIRM in toto the Court of


Appeals Decision promulgated on 25 January 2006 as well as the
Resolution promulgated on 16 March 2006 in CA-G.R. CV No. 63651.

Costs against petitioners.

SO ORDERED.
THIRD DIVISION Respondent] Meden Arellano under a Deed of Conditional Sale a parcel
of land situated in the District of Diliman, Q.C., covered by TCT No.
152879 with an area of 1,504 square meters, for the sum of THREE
MILLION TWO HUNDRED TWENTY FIVE THOUSAND PESOS
(P3,225,000.00) payable under a schedule of payment stated therein.
[G.R. No. 130347. March 3, 1999]
In the same Deed of Conditional Sale, the [private respondent] vendee
obligated herself to encumber by way of real estate mortgage in favor of
[petitioners] vendors her separate piece of property with the condition
that upon full payment of the balance of P2,225,000.00, the said
ABELARDO VALARAO, GLORIOSA VALARAO and CARLOS mortgage shall become null and void and without further force and
VALARAO, petitioners, vs. COURT OF APPEALS and effect. (Item No. 3, pp. 2-3 of Deed of Conditional Sale).
MEDEN A. ARELLANO, respondents.

It was further stipulated upon that should the vendee fail to pay three (3)
DECISION successive monthly installments or any one year-end lump sum payment
within the period stipulated, the sale shall be considered automatically
PANGANIBAN, J.: rescinded without the necessity of judicial action and all payments made
by the vendee shall be forfeited in favor of the vendors by way of rental
Article 1592 of the Civil Code applies only to contracts of sale, and for the use and occupancy of the property and as liquidated damages. All
not to contracts to sell or conditional sales where title passes to the improvements introduced by the vendee to the property shall belong to
vendee only upon full payment of the purchase price. Furthermore, in the vendors without any right of reimbursement. (Par. (2), Item No. 3, p. 3
order to enforce the automatic forfeiture clause in a deed of conditional of Deed of Conditional Sale).
sale, the vendors have the burden of proving a contractual breach on the
part of the vendee. [Private respondent] appellant alleged that as of September , 1990, she
had already paid the amount of [t]wo [m]illion [t]wenty-[e]ight [t]housand
(P2,028,000.00) [p]esos, although she admitted having failed to pay the
installments due in October and November, 1990. Petitioner, however,
The Case [had] tried to pay the installments due [in] the said months, including the
amount due [in] the month of December, 1990 on December 30 and 31,
1990, but was turned down by the vendors-[petitioners] thru their maid,
Mary Gonzales, who refused to accept the payment offered. [Private
Before us is a Petition for Review assailing the June 13, 1997
respondent] maintains that on previous occasions, the same maid was
Decision of the Court of Appeals (CA)[1] which reversed and set aside the
the one who [had] received payments tendered by her. It appears that
October 10, 1994 Decision[2] of the Regional Trial Court (RTC) of Quezon
Mary Gonzales refused to receive payment allegedly on orders of her
City, Branch 82. The dispositive portion of the assailed CA Decision
employers who were not at home.
reads:

[Private respondent] then reported the matter to, and sought the help of,
WHEREFORE, the decision appealed from is REVERSED and SET
the local barangay officials. Efforts to settle the controversy before the
ASIDE, and a new one is entered (1) ordering [herein private respondent]
barangay proved unavailing as vendors-[petitioners] never appeared in
to pay the amount of [o]ne [m]illion [o]ne [h]undred [n]inety [s]even
the meetings arranged by the barangay lupon.
[t]housand [p]esos (P1,197,000.00) in favor of [herein petitioners], with
legal interest thereon from December 31, 1992; (2) and directing [herein
petitioners] to execute in favor of [herein respondent], upon receipt of the [Private respondent] tried to get in touch with [petitioners] over the phone
aforesaid amount, the final and absolute deed of sale of the subject and was able to talk with [Petitioner] Gloriosa Valarao who told her that
property with all the improvements.[3] she [would] no longer accept the payments being offered and that
[private respondent] should instead confer with her lawyer, a certain Atty.
Tuazon. When all her efforts to make payment were unsuccessful,
Also assailed by petitioners is the August 21, 1997 CA Resolution
[private respondent] sought judicial action by filing this petition for
denying reconsideration.
consignation on January 4, 1991.
The aforementioned RTC Decision, which was reversed and set
aside by the CA, disposed as follows: On the other hand, vendors-[petitioners], thru counsel, sent [private
respondent] a letter dated 4 January 1991 (Exh. C) notifying her that they
WHEREFORE, premises considered, judgment is hereby rendered were enforcing the provision on automatic rescission as a consequence
declaring the aforesaid Deed of conditional Sale as automatically of which the Deed of Conditional Sale [was deemed] null and void, and
rescinded and all payments made thereunder by the [private respondent] xxx all payments made, as well as the improvements introduced on the
to the [petitioners] as forfeited in favor of the latter, by way of rentals and property, [were] thereby forfeited. The letter also made a formal demand
as liquidated damages, as well as declaring all improvements introduced on the [private respondent] to vacate the property should she not heed
on the property subject to the said Deed of Condition[al] Sale to belong to the demand of [petitioners] to sign a contract of lease for her continued
the [petitioners] without any right of reimbursement. Further, the [private stay in the property (p. 2 of Letter dated Jan. 4, 1991; Exh. C).
respondent] and all persons claiming right under her are hereby ordered
to vacate the said property and to turnover possession thereof to the In reply, [private respondent] sent a letter dated January 14, 1991 (Exh.
[petitioners]. FINALLY, the [private respondent] is hereby ordered to pay D), denying that she [had] refused to pay the installments due [in] the
to the [petitioners] the amount of P50,000.00 as attorneys fees and for months of October, November and December, and countered that it was
expenses of litigation, as well as to pay the costs of the suit. The Writ of [petitioners] who refused to accept payment, thus constraining her to file
Preliminary Injunction previously issued is hereby ordered LIFTED and a petition for consignation before the Regional Trial Court of Quezon City
DISSOLVED, and the bond posted for its issuance held liable for the docketed as Civil Case No. Q-91-7603.
satisfaction of the money judgment herein made in favor of the
[petitioners].[4]
Notwithstanding their knowledge of the filing by [private respondent] of a
consignation case against them in the Regional Trial Court of Quezon
The Facts City docketed as Civil Case No. Q-91-7603, [petitioners], through
counsel, sent the [private respondent] another letter dated January 19,
The undisputed facts of the case as narrated by the Court of 1991 (Exh. F), denying the allegations of her attempts to tender payment
Appeals are as follows: on December 30 and 31, 1990, and demanding that [private respondent]
vacate and turnover the property and pay a monthly compensation for
her continued occupation of the subject property at the rate
On September 4, 1987, spouses Abelardo and Gloriosa Valarao, thru of P20,000.00, until she shall have vacated the same.
their son Carlos Valarao as their attorney-in-fact, sold to [Private
Ruling of the Court of Appeals It is well-settled that the above-quoted provision applies only to a
contract of sale,[8] and not to a sale on installment[9] or a contract to
sell.[10] Thus, in Luzon Brokerage v. Maritime Building,[11] this Court ruled
that Art. 1592 of the new Civil Code (Art. 1504 of the old Civil Code)
In reversing the Regional Trial Court, the Court of Appeals held
requiring demand by suit or notarial act in case the vendor of realty wants
that the refusal of herein petitioners to accept the tender of payment was
to rescind does not apply to a contract to sell or promise to sell, where
unjustified. Notwithstanding the stipulation in the Deed of Conditional
title remains with the vendor until full payment of the price. The Court
Sale that the rescission of the contract shall of right take place upon the
stresses the difference between these two types of contract. In a
failure of the vendee to pay three successive monthly installments, the
contract to sell, the title over the subject property is transferred to the
appellate court observed that a judicial demand or a notarial act was still
vendee only upon the full payment of the stipulated consideration. Unlike
required pursuant to Article 1592 of the Civil Code. Thus, petitioners
in a contract of sale, the title does not pass to the vendee upon the
letter informing private respondent of the rescission of the contract did
execution of the agreement or the delivery of the thing sold.[12]
not suffice, for it was not notarized. The CA also observed that the
alleged breach of contract arising from the failure of the vendee to pay In the present case, the Deed of Conditional Sale is of the same
the monthly installments for October and November 1990 within the nature as a sale on installment or a contract to sell, which is not covered
stipulated time is rather slight and not substantial, and to authorize the by Article 1592. The aforementioned agreement provides:
automatic rescission on account thereof will work injustice to the other
party, who has paid a total of P2,028,000.00 out of a total obligation xxx
of P3,225,000.00. The rule is that rescission cannot be availed of as to
unjustly enrich one party.
Should the VENDEE fail to pay three (3) successive monthly installments
or any one year-end lump sum payment within the period stipulated
herein, this Deed of Conditional Sale shall be considered xxx
automatically rescinded without the necessity of judicial action[,] and all
The Issues
payments made by the VENDEE shall be forfeited in favor of the
VENDORS by way of rental for the use and occupancy of the property
and as liquidated damages. All improvements introduced by the
In their Memorandum before us, petitioners raise the following VENDEE to the property shall belong to the VENDORS without any right
issues:[5] of reimbursement. The VENDORS and/or their agents or representatives
shall have the right to enter the premises of the property and to eject the
VENDEE and all persons claiming right under her therefrom with the use
I Whether the Answer [-- (a)] categorically indicating willingness to accept of reasonable force if necessary.
the amount already due if the [private respondent] would update the
account, [(b)] praying that if she fail[ed] to do so immediately, xxx the
Deed of Conditional Sale be declared rescinded, pursuant to the second That upon full payment to the VENDORS of the total consideration
paragraph of Section 3 thereof, with costs against the [private of P3,225,000.00, the VENDORS shall immediately and without delay
respondent], [(c)] ordering the latter to vacate and turn over possession execute in favor of the VENDEE the final and absolute deed of sale of
of the premises to the [petitioners], and to pay the latter attorneys fees in the property and all its improvements.
the amount of P50,000.00 and the expenses of litigation [--] is
tantamount to a judicial demand and notice of rescission under Art. 1592
of the Civil Code. Petitioners-vendors unmistakably reserved for themselves the title
to the property until full payment of the purchase price by the
vendee. Clearly, the agreement was not a deed of sale, but more in the
II Whether the automatic forfeiture clause is valid and binding between nature of a contract to sell or of a sale on installments.[13] Even after the
the parties. execution of the Deed of Conditional Sale, the Torrens Certificate of Title
remained with and in the name of the vendors. In rejecting the application
of Article 1592 to a contract to sell, the Court held in Luzon
III Whether the action for consignation may prosper without actual Brokerage[14] that the full payment of the price (through the punctual
deposit [in court] of the amount due xxx [so as] to produce the effect of performance of the monthly payments) was a condition precedent to the
payment. execution of the final sale and to the transfer of the property from [the
vendor] to the [vendee]; so that there was to be no actual sale until and
unless full payment was made.

The Courts Ruling

Main Issue: Enforcement of the Automatic Forfeiture Clause


The petition[6] is devoid of merit.

As a general rule, a contract is the law between the


parties.[15] Thus, from the moment the contract is perfected, the parties
Preliminary Matter: Notarial or Judicial Demand are bound not only to the fulfillment of what has been expressly
stipulated but also to all consequences which, according to their nature,
may be in keeping with good faith, usage and law.[16] Also, the
stipulations of the contract being the law between the parties, courts
Citing Article 1592 of the Civil Code, the Court of Appeals ruled
have no alternative but to enforce them as they were agreed [upon] and
that the petitioners letter dated January 4, 1991, could not effect the
written, there being no law or public policy against the stipulated
rescission of the Deed of Conditional Sale, because the said letter was
forfeiture of payments already made.[17] However, it must be shown that
not notarized. On the other hand, petitioners argue that they made a
private respondent-vendee failed to perform her obligation, thereby giving
judicial demand, which was embodied in their Manifestation filed on May
petitioners-vendors the right to demand the enforcement of the contract.
1, 1991, and Answer submitted on July 1, 1991.[7]
We concede the validity of the automatic forfeiture clause, which
We believe, however, that the issue of whether the requirement of
deems any previous payments forfeited and the contract automatically
a judicial demand or a notarial act has been fulfilled is immaterial to the
rescinded upon the failure of the vendee to pay three successive monthly
resolution of the present case. Article 1592 of the Civil Code states:
installments or any one yearend lump sum payment. However,
petitioners failed to prove the conditions that would warrant the
ART. 1592. In the sale of immovable property, even though it may have implementation of this clause.
been stipulated that upon failure to pay the price at the time agreed upon
the rescission of the contract shall of right take place, the vendee may Both the appellate and the trial courts agree on the following:
pay, even after the expiration of the period, as long as no demand for
1. The Deed of Conditional Sale provided for
rescission of the contract has been made upon him either judicially or by
automatic rescission in case the vendee failed to
notarial act. After the demand, the court may not grant him a new term.
pay three (3) successive monthly installments or
any one yearend lump sum payment within the
stipulated period therein.
2. Each monthly installment was due at the end of the Application of the Maceda Law
month.

3. The installments for October and November 1990 were


not paid. In any event, the rescission of the contract and the forfeiture of the
payments already made could not be effected, because the case falls
4. The private respondent-vendee, Meden Arellano, went to squarely under Republic Act No. 6552,[22] otherwise known as the
the house of the petitioners-vendors on December 30, 1990. Maceda Law. Section 3 of said law provides:

5. Arellano offered to pay P48,000 (total amount of


installments due in October, November, and December 1990) to SEC. 3. In all transactions or contracts involving the sale or financing of
Mary Gonzales, the petitioners maid, but the latter refused to real estate on installment payments, including residential condominium
accept it upon instruction of petitioners. apartments but excluding industrial lots, commercial buildings and sales
to tenants under Republic Act Numbered Thirty-eight hundred Forty-four
6. Arellano returned the next day, December 31, 1990, and as amended by Republic Act Numbered Sixty-three hundred eighty-nine,
insisted on paying, but again the maid refused to accept it. 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
7. Arellano proceeded to the barangay office around 10:00 succeeding installments:
a.m. to file a case against petitioners for their refusal to accept the
payments.
(a) To pay, without additional interest, the unpaid installments due within
8. Four (4) days later, on January 4, 1991, private the total grace period earned by him, which is hereby fixed at the rate of
respondents filed a Petition for Consignation. one month grace period for every year of installment payments
made: Provided, That this right shall be exercised by the buyer only once
9. Despite the said petition, the money was nevertheless not in every five years of the life of the contract and its extensions, if any.
deposited in court.

10. Negotiations between both parties went under way, (b) If the contract is cancelled, the seller shall refund to the buyer the
culminating in the vendees filling a Motion to Deposit the entire cash surrender value of the payments on the property equivalent to fifty
balance due, which was duly opposed by the vendor, and hence percent of the total payments made and, after five years of installments,
was denied by the trial court. an additional five percent every year but not to exceed ninety percent of
the total payments made: Provided, That the actual cancellation of the
From the foregoing, it is clear that petitioners were not justified in contract shall take place after thirty days from receipt by the buyer of the
refusing to accept the tender of payment made by private respondent on notice of cancellation or the demand for rescission of the contract by a
December 30 and 31, 1990. Had they accepted it on either of said dates, notarial act and upon full payment of the cash surrender value to the
she would have paid all three monthly installments due. In other words, buyer.
there was no deliberate failure on her part to meet her responsibility to
pay.[18] The Court takes note of her willingness and persistence to do so,
Down payments, deposits or options on the contract shall be included in
and, petitioners cannot now say otherwise. The fact is: they refused to
the computation of the total number of installments made.
accept her payment and thus have no reason to demand the
enforcement of the automatic forfeiture clause. They cannot be rewarded
for their own misdeed. Hence, the private respondent was entitled to a one-month grace
period for every year of installments paid, which means that she had a
Because their maid had received monthly payments in the total grace period of three months from December 31, 1990. Indeed, to
past,[19] it is futile for petitioners to insist now that she could not have rule in favor of petitioner would result in patent injustice and unjust
accepted the aforementioned tender of payment, on the ground that she enrichment.This tribunal is not merely a court of law, but also a court of
did not have a special power of attorney to do so. Clearly, they are justice.
estopped from denying that she had such authority. Under Article 1241 of
the Civil Code, payment through a third person is valid [I]f by the WHEREFORE, the Petition is DENIED and the dispositive portion
creditors conduct, the debtor has been led to believe that the third person of the appealed Decision of the Court of Appeals is
had authority to receive the payment. hereby AFFIRMED. The CAs discussion on the need for judicial or
notarial demand is MODIFIED in accordance with this Decision. Costs
against petitioners.

Failure to Consign the Amount Due SO ORDERED.

Petitioners also maintain that the consignation was not valid because the
amount tendered was not deposited with the trial court. True, there is no
showing that she deposited the money with the proper judicial authority
which, taken together with the other requisites for a valid
consignation,[20]would have released her from her obligation to
pay. However, she does not deny her obligation and, in fact, is willing to
pay not only the three monthly installments due but also the entire
residual amount of the purchase price. Verily, she even filed a Motion to
Deposit the said entire balance with the trial court, which however denied
said motion upon opposition of the petitioners.[21]

Accordingly, we agree with the Court of Appeals that it would be


inequitable to allow the forfeiture of the amount of more than two million
pesos already paid by private respondent, a sum which constitutes two
thirds of the total consideration. Because she did make a tender of
payment which was unjustifiably refused, we hold that petitioners cannot
enforce the automatic forfeiture clause of the contract.