REFUND UNDER THE MACEDA LAW (R.A.
6552) provide a different requirement for contracts to sell which
By: Atty. JOHN A. AGBAYANI (Esq.)*
INTRODUCTION- The issue that confronts the seller
when a default occurs in a realty installment sale is the
right of the buyer to a refund if the contract to sell is
rescinded . The law requires actual payment of the cash
surrender value to the buyer to validly effect a rescission.
A mere promise to refund is not enough and any
stipulation that diminishes or negates the right to a refund
is prohibited by the law. For contracts which are in
default and had a payment of at least two years of
installments, the seller cannot resell the property until
actual refund is made because the rescission of the first
contract to sell is incomplete. Legally, the first contract
still exists and if the property is in the possession of the
first buyer, the seller has no right to file an ejectment case
against him.
A. FULL PAYMENT OF CASH SURRENDER
VALUE- For an effective cancellation to take place, the
cash surrender value shall be fully paid. The actual
cancellation of the contract can only be deemed to take
place upon the expiry of a 30-day period following the
receipt by the buyer of the notice of cancellation or
demand for rescission by a notarial act and the full
payment of the cash surrender value (Olympia Housing
vs. Panasiatic Travel 395 SCRA 298. If the buyer fails or
refuses to accept the refund, the proper process of
effecting full payment shall be pursued under Article
1249 to 1251 and Article 1256 of the New Civil Code
which define and regulate payment, tender of payment and
consignation, respectively.
B. CASH SURRENDER VALUE INCLUDE DOWN
PAYMENT, DEPOSITS & OPTIONS- Down payments,
deposits or options on the contract shall be included in the
computation of the total number of installment payments
made (Section 3-b). The cash surrender value increases
but not to exceed ninety (90%) percent of the total
payments made. If the contract is canceled, the seller shall
refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty per cent of
the total payments made, and, after five years of
installments, an additional five per cent every year but not
to exceed ninety per cent of the total payments made
(Section 4-b).
C. STIPULATION, CONVERSION OR
DIMINUTION OF CASH SURRENDER VALUE
VOID– The Law requires that the cash surrender value be
actually refunded. A mere promise to refund is not
sufficient. Treating the cash surrender value as unpaid
rentals is proscribed. In Pagtalunan vs. Manzano 533
SCRA 242, it was held that: “The provision does not
allow possession of the property by the buyer upon
execution of the contract like the instant case. Hence,
petitioner cannot insist on compliance with the
requirement by assuming that the cash surrender value
payable to the buyer had been applied to rentals of the
property after respondent failed to pay the installments
due. “ More importantly, any stipulation that diminishes
or negates the right of the buyer to the cash surrender
value is null and void. Thus Section 7 of the Law states
that: “Any stipulation in any contract hereafter entered
into contrary to the provisions of Sections 3, 4, 5 and 6,
shall be null and void.”
D. COMPLAINT FOR A COURT ORDER TO
DEPOSIT THE AMOUNT WITH A BANK IS NOT
EQUIVALENT TO ACTUAL REFUND- A mere
attempt to deliver the cash surrender value to the buyer is
not legally compliant. The law requires full payment and
actual refund of the cash surrender value. In Planters Dev.
Bank vs. Chandumal, G.R. No. 195619, September 05,
2012, the Supreme Court held that:. “Thus, it prayed in
its complaint that it be ordered to “deposit with a banking
institution in the Philippines, for the account of
Defendants (sic), the amount of Ten Thousand Pesos
(P10,000.00), Philippine Currency, representing the cash
surrender value of the subject property; x x x.” The
allegation that Chandumal made herself unavailable for
payment is not an excuse as the twin requirements for a
valid and effective cancellation under the law, i.e., notice
of cancellation or demand for rescission by a notarial act
and the full payment of the cash surrender value, is
mandatory..”
E. REMEDY IF BUYER FAILS OR REFUSES TO
ACCEPT THE REFUND- If the buyer refuses to accept
the refund, the payment shall first be tendered to him. If
he unjustifiably refuses to accept it, the amount shall be
consigned in court. Article 1256 of the New Civil Code
states that : if the creditor to whom tender of payment has
been made refuses without just cause to accept it, the
debtor shall be released from responsibility by the
consignation of the thing or sum due. Consignation alone
shall produce the same effect in the following cases:(1)
When the creditor is absent or unknown, or does not
appear at the place of payment;(2) When he is
incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to
collect;(5) When the title of the obligation has been lost.
F. EJECTMENT SUIT PREMATURE IF
CANCELLATION IS INVALID- An action for
reconveyance or unlawful detainer is not akin to a judicial
rescission. An action for recovery of possession of the
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real property can be dismissed as premature unless the
cancellation is done in accordance with law. In
Associated Marine Officers and Seamen's Union of the
Philippines - PTGWO-ITF vs. Decena , G.R. No.
178584, October 8, 2012 , it was held that : “Unless
properly cancelled, the buyer’s right to continue
occupying the property subject of the Contract to Sell is
still recognized. Lacking proof that the Shelter Contract
Award has been cancelled in accordance with R.A. 6552,
there is as yet no basis to declare respondent's possession
of the house and lot as illegal. “
G. CHALLENGING REFUNDS – Late payment
charges and novation are effective tools to cushion the
impact of the buyer’s claim for refund.
G.1 SELLER CAN DEMAND PAYMENTS OF THE
BALANCE OF THE PURCHASE PRICE PLUS
INTEREST AND CHARGES. The technical flaw that
the seller may have committed such as the lack of a
notarial rescission and actual refund to the buyer does not
excuse the buyer from paying the balance of the purchase
price, interest and penalties. If the buyer defaults, his
obligation to pay the principal, interest and other charges
under the contract still subsists. Notwithstanding the
defective notice of cancellation upon the buyer, he should
still comply with the contract . He cannot take undue
advantage of the error committed by the Seller and escape
payment of what is due under the agreement. Thus, in
Leano vs. CA, supra, the Supreme Court ordered the
buyer to pay the outstanding balance of the Contract To
Sell together with the interest and charges under the
contract even if it declared that the contract was not
validly cancelled according to R.A. 6552. Also in
Pagtalunan vs. Manzano (Ibid) , it was held that :
“Instead, the buyer should be allowed to pay the
installments or the purchase price of the property
pursuant to the contract to sell within the grace period.
However if the grace period has elapsed, the buyer should
pay interest according to Art. 2209 of the new Civil
Code.” The latter case imposed an interest rate based on
Art. 2209 of the New Civil Code because the contract did
not stipulate the interest rate.
G.2. SELLER CAN NOVATE THE CONTRACT OF
DEFAULTING BUYER- A seller can avoid the
application of refund under the law if there is a novation
of the old contract which entitled the buyer to a refund.
In Fabrigas vs Del Monte, 476 SCRA 226, the Court had
the occasion to rule that if a second contract to sell
involving the same property is executed by the parties, the
subsequent contract governs their relationship if the two
contracts cannot independently exist from each. Thus, it
was held that : “Notwithstanding the improper rescission,
the facts of the case show that Contract to Sell No. 2482-V
was subsequently novated by Contract to Sell No. 2491-V.
The execution of Contract to Sell No. 2491-V
accompanied an upward change in the contract price,
which constitutes a change in the object or principal
conditions of the contract. In entering into Contract to
Sell No. 2491-V, the parties were impelled by causes
different from those obtaining under Contract to Sell No.
2482-V. On the part of petitioners, they agreed to the
terms and conditions of Contract to Sell No. 2491-V not
only to acquire ownership over the subject property but
also to avoid the consequences of their default under
Contract No. 2482-V. On Del Monte’s end, the upward
change in price was the consideration for entering into
Contract to Sell No. 2491-V. In order that an obligation
may be extinguished by another which substitutes the
same, it is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on every
point incompatible with each other. The test of
incompatibility is whether or not the two obligations can
stand together, each one having its independent existence.
If they cannot, they are incompatible and the latter
obligation novates the first. The execution of Contract to
Sell No. 2491-V created new obligations in lieu of those
under Contract to Sell No. 2482-V, which are already
considered extinguished upon the execution of the second
contract. The two contracts do not have independent
existence for to hold otherwise would present an absurd
situation where the parties would be liable under each
contract having only one subject matter. “
CONCLUSION- Amidst some twists introduced by
jurisprudence and the application of the legal principles
of novation, estoppel and laches, the Supreme Court, in
various cases , has mandated the parties in realty
installment sale to promptly and properly exercise their
rights under the Law. Otherwise, the intended benefits
may become illusory however noble the objectives of the
Law may be. Failure to refund has a far-reaching cost to
the seller because legally the contract still subsists. As
such, the buyer has the right to pay the balance and the
seller is obligated to deliver the property. If the property
can no longer be delivered because it has been sold to
another, the seller is obliged to pay its market value or
deliver an equivalent property, at the option of the buyer.
(Active Realty vs. Daroya 382 SCRA 152).
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*Bachelor of Laws (Ll.B), San Beda College, Manila
(1978); Admitted to the Bar (1979, 18th Place).
Professor, San Beda College of Law, Manila (1994-2008)