1
1. p. 66 torcuator v Bernabe
2. p. 67 bareng v ca
3.
[SUSPENSION OF PAYMENTS]
07 SPOUSES JUANITO MAHUSAY and FRANCISCA MAHUSAY V. B.E. SAN
DIEGO, INC.
June 8, 2011 | Nachura, J. |
Doctrine: The unpaid sellers remedy is either an action to collect the balance or to
rescind the contract within the time allowed by law. Since rescission is no longer an
option considering that pets have been in possession of the properties for a
considerable period of time, substantial justice dictates that resp be entitled to receive
the unpaid balance of the purchase price, plus legal interest thereon.
Facts:
● Pets purchased several lots in Aurora Subdivision, Malabon owned by resp.
the transactions were covered by two contracts.
○ Contract to Sell No. 831 executed in May 14, 1973 for P33,000.
○ Contract to Sell No. 874 dated Aug. 1, 1975 for P197,040.
○ Plus interest of 12% per annum.
○ Both transactions payable in installments.
● Pet failed to pay the monthly amortizations since Oct. 1978 so resp was
constrained to file a case for cancellation of contracts.
● TC dismissed the case for lack of jurisdiction.
● The parties entered into a Compromise Agreement in Oct. 13, 1989 whereby
pets agreed to pay resp the remaining balance in the manner and under the
terms agreed upon by them.
○ Pets failed to comply so resp filed a complaint for SP with the RTC.
● RTC ruled in favor of resp.
● Pet appealed:
○ The Comp. Agrmnt. Was unenforceable because it was only
Francisca who signed without the consent of her husband.
● CA:
○ There is merit in the contention that the Comp. Agrmnt. Was not
valid. The Agrmnt. involved the conjugal properties of pets.
○ But pets never denied the execution of the contracts to sell and they
admitted their debts to resp.
○ Pets should pay resp the unpaid amortizations.
● CA decision became final and executory on Jan. 19, 2002. In the execution,
the parties disagreed in the computation of the amount to be paid by pets.
● Resp filed a Motion for Clarification of the CA decision.
○ Prayed for the inclusion of the penalties and interest in the
computation of unpaid amortizations, which is customary in real
estate business and complaint with the Contract to Sell, for the proper
execution and implementation of the CA decision.
● CA issued a Resolution on October 11, 2004 modifying its previous decision to
include the payment of all penalties and interest due on the unpaid
amortizations.
● Pets filed a Motion to Delete and Withdraw the Resolution.
○ A simple reading of the Motion for Clarification would show that it was
not intended to clarify but to amend the Decision to include the
payment of 12% interest/penalty per annum in the payment of the
amortizations.
○ The inclusion of 12% interest per annum is a very serious and
material amendment, because under the original Decision, petitioners
would be required to pay only P352,992.00, which is the amount of
the unpaid amortizations for the said lots; while in the Amended
Decision, they would be liable for P5,175,688.59, per computation
made by respondent.
○ The motion, ostensibly for clarification, filed by respondent more than
two (2) years after the receipt of the original Decision, should not
have been granted, according to petitioners.
● CA issued a Resolution on July 7, 2005 denying pet’s motion for lack of merit.
○ The decision has not been amended but only clarified.
● Pets filed two more motions which the CA denied on the ground that the
allegations set forth by pets were all considered and passed upon in the Oct.
11 Resolution.
Petitioners:
 Resp’s Motion for Clarification, which was belatedly filed, does not really
intend to clarify, but to reconsider, alter, and amend the original Decision of the
CA, in contravention of the principle of immutability of judgments.
Issue:
W/N the payment of all penalties and interest due on the unpaid amortizations should
be included in the judgment for specific performance.
Held:
YES. Mini explanation to ruling
● It is a settled rule is that a judgment which has acquired finality becomes
immutable and unalterable; hence, it may no longer be modified in any respect
except only to correct clerical errors or mistakes.
○ Clarification after final judgment is, however, allowed when what is
involved is a clerical error, or not a correction of an erroneous
judgment, or dispositive portion of the Decision.
● The CA committed no reversible error in its Resolution clarifying the original
Decision.
○ Resps Motion for Clarification did not really partake of the nature of a
motion for reconsideration, as to amend the Decision. There was
nothing substantial to vary, considering that the issues between the
parties were deemed resolved and laid to rest.
○ It is clear that pets do not deny the execution of the Contracts to Sell
and, in fact, admit their liability for the unpaid amortizations.
○ The persistent violations of the contracts and the continuous delay in
pets’ payments cannot simply be overlooked. There was a compelling
reason for the CA to clarify its original Decision to include the
payment of all penalties and interest due on the unpaid amortizations,
as provided in the contracts.
○ Considering that the validity of the contracts was never put in
question, and there is nothing on record to suggest that the same
may be contrary to law, morals, public order, or public policy, there is
nothing unlawful in the stipulation requiring the payment of
interest/penalty at the rate agreed upon in the contract of the parties.

● Pets are in actual/physical possession of the properties and enjoying the
beneficial use thereof, despite the payment of only P133,872.76, as of Jan. 30,
1979.
○ It would be grossly unfair for resp to be deprived of the amount it
would have received from the sale of their properties, while pets
benefited from the use and continued possession of the properties
even if no payments were made by them since Oct. 1978.
○ The fair market value of the land has tremendously increased over
the past years. It is, therefore, just, fair, and equitable that petitioners
be made to pay interest/penalty for the delay in their payments.
● The unpaid sellers remedy is either an action to collect the balance or to
rescind the contract within the time allowed by law. Since rescission is no
longer an option considering that pets have been in possession of the
properties for a considerable period of time, substantial justice dictates that
resp be entitled to receive the unpaid balance of the purchase price, plus legal
interest thereon.
Dispositive
WHEREFORE, the petition is DENIED. The Resolution of the Court of Appeals dated
September 11, 2007 is AFFIRMED with MODIFICATION. The trial court is directed to
compute the unpaid balance of the purchase price of each contract (which is the unpaid
amortization including amortizations yet to be paid until the expiration of the Contracts
to Sell) with dispatch. The legal interest to be paid on said amount is TWELVE
PERCENT (12%) per annum, which shall commence from April 18, 1990, when judicial
demand was made on petitioners. Another 12% interest per annum shall be paid on the
amount due and owing as and from the date of finality of this Decision until full payment
would have actually been made.
4. p. 62 katigbak v ca
5. p. 76 borbon v service wide
6. p. 79 nonato v iac
7. p. 79 delta motor sales v niu kim duan
8. elisco
[G.R. No. 109966. May 31, 1999]
ELISCO TOOL MANUFACTURING CORPORATION, petitioner, vs. COURT OF
APPEALS, ROLANDO LANTAN, and RINA LANTAN, respondents
DECISION
MENDOZA, J.:
This is a petition for review of the decision[1] of the Court of Appeals which
affirmed in toto the decision of the Regional Trial Court of Pasig, Branch 51, declaring
respondent spouses Rolando Lantan and Rina Lantan owners of a 1979 model 2-door
Colt Lancer car which they had acquired under a car plan for top employees of the
Elizalde group of companies.
The facts are as follows:
Private respondent Rolando Lantan was employed at the Elisco Tool
Manufacturing Corporation as head of its cash department. On January 9, 1980, he
entered into an agreement with the company which provided as follows: [2]
That, EMPLOYER is the owner of a car Colt Lancer 2 door, Model 1979, with Serial No.
3403 under LTC Registration Certificate No. 0526558;
2
That, for and in consideration of a monthly rental of ONE THOUSAND TEN & 65/100
ONLY (P1,010.65) Philippine Currency, EMPLOYER desire to lease and EMPLOYEE
accept in lease the motor vehicle aforementioned for a period of FIVE (5) years;
That, the EMPLOYEE agree as he hereby agreed to pay the lease rental thru salary
deduction from his monthly remuneration in the amount as above specified for a period
of FIVE (5) years;
That, for the duration of the lease contract, all expenses and costs of registration,
insurance, repair and maintenance, gasoline, oil, part replacement inclusive of all
expenses necessary to maintain the vehicle in top condition shall be for the account of
the EMPLOYEE;
That, at the end of FIVE (5) year period or upon payment of the 60 th monthly rental,
EMPLOYEE may exercise the option to purchase the motor vehicle from the
EMPLOYER and all monthly rentals shall be applied to the payment of the full purchase
price of the car and further, should EMPLOYEE desire to exercise this option before the
5-year period lapse, he may do so upon payment of the remaining balance on the five
year rental unto the EMPLOYER, it being understood however that the option is limited
to the EMPLOYEE;
That, upon failure of the EMPLOYEE to pay THREE (3) accumulated monthly rentals
will vest upon the EMPLOYER the full right to lease the vehicle to another EMPLOYEE;
That, in the event of resignation and or dismissal from the service, the EMPLOYEE
shall return the subject motor vehicle to the EMPLOYER in its compound at Kalawaan
Sur, Pasig, Metro Manila in good working and body condition.
On the same day, January 9, 1980, private respondent executed a promissory
note reading as follows:[3]
PROMISSORY NOTE
P60,639.00
FOR VALUE RECEIVED, we promise to pay [to] the order of ELISCO TOOL MFG.
CORP. SPECIAL PROJECT, at its office at Napindan, Taguig, Metro Manila,
Philippines, the sum of ONE THOUSAND TEN & 65/100 PESOS (P1,010.65),
Philippine Currency, beginning January 9, 1980, without the necessity of notice or
demand in accordance with the schedule of payment hereto attached as an integral part
hereof.
In case of default in the payment of any installment on the stipulated due date, we
agree to pay as liquidated damages 2% of the amount due and unpaid for every thirty
(30) days of default or fraction thereof. Where the default covers two successive
installments, the entire unpaid balance shall automatically become due and payable.
It is further agreed that if upon such default attorneys services are availed of, an
additional sum equal to TWENTY (20%) percent of the total amount due thereon, but in
no case be less than P1,000.00 shall be paid to holder(s) hereof as attorneys fees in
addition to the legal costs provided for by law. We agree to submit to the jurisdiction of
the proper courts of Makati, Metro Manila or the Province of Rizal, at the option of the
holder(s) waiving for this purpose any other venue.
In case extraordinary inflation or deflation of the currency stipulated should occur before
this obligation is paid in full, the value of the currency at the time of the establishment of
the obligation will be the basis of payment.
Holder(s) may accept partial payment reserving his right of recourse against each and
all endorsers who hereby waive DEMAND PRESENTMENT and NOTICE.
Acceptance by the holder(s) of payment or any part thereof after due date shall not be
considered as extending the time for the payment of the aforesaid obligation or as a
modification of any of the condition hereof.
After taking possession of the car, private respondent installed accessories therein
worth P15,000.00.

In 1981, Elisco Tool ceased operations, as a result of which private respondent
Rolando Lantan was laid off. Nonetheless, as of December 4, 1984, private respondent
was able to make payments for the car in the total amount of P61,070.94.
On June 6, 1986, petitioner filed a complaint, entitled replevin plus sum of money,
against private respondent Rolando Lantan, his wife Rina, and two other persons,
identified only as John and Susan Doe, before the Regional Trial Court of Pasig, Metro
Manila. Petitioner alleged that private respondents failed to pay the monthly rentals
which, as of May 1986, totalled P39,054.86; that despite demands, private respondents
failed to settle their obligation thereby entitling petitioner to the possession of the car;
that petitioner was ready to post a bond in an amount double the value of the car, which
was P60,000; and that in case private respondents could not return the car, they should
be held liable for the amount of P60,000 plus the accrued monthly rentals thereof, with
interest at the rate of 14% per annum, until fully paid.
~~~~~~~~~~
This Court has long been aware of the practice of vendors of personal property of
denominating a contract of sale on installment as one of lease to prevent the ownership
of the object of the sale from passing to the vendee until and unless the price is fully
paid. As this Court noted in Vda. de Jose v. Barrueco:[9]
Sellers desirous of making conditional sales of their goods, but who do not wish openly
to make a bargain in that form, for one reason or another, have frequently resorted to
the device of making contracts in the form of leases either with options to the buyer to
purchase for a small consideration at the end of term, provided the so-called rent has
been duly paid, or with stipulations that if the rent throughout the term is paid, title shall
thereupon vest in the lessee. It is obvious that such transactions are leases only in
name. The so-called rent must necessarily be regarded as payment of the price in
installments since the due payment of the agreed amount results, by the terms of the
bargain, in the transfer of title to the lessee.
In an earlier case, Manila Gas Corporation v. Calupitan,[10] which involved a lease
agreement of a stove and a water heater, the Court said:
. . . [W]e are of the opinion, and so hold, that when in a so-called contract of lease of
personal property it is stipulated that the alleged lessee shall pay a certain amount upon
signing the contract, and on or before the 5th of every month, another specific amount,
by way of rental, giving the alleged lessee the right of option to buy the said personal
property before the expiration of the period of lease, which is the period necessary for
the payment of the said amount at the rate of so much a month, deducting the
payments made by way of advance and alleged monthly rentals, and the said alleged
lessee makes the advance payment and other monthly installments, noting in his
account and in the receipts issued to him that said payments are on account of the
price of the personal property allegedly leased, said contract is one of sale on
installment and not of lease.[11]
In U.S. Commercial v. Halili,[12] a lease agreement was declared to be in fact
a sale of personal property by installment. Said the Court:[13]
. . . There can hardly be any question that the so-called contracts of lease on which the
present action is based were veritable leases of personal property with option to
purchase, and as such come within the purview of the above article [Art. 1454-A of the
old Civil Code on sale of personal property by installment]. In fact the instruments
(exhibits `A and `B) embodying the contracts bear the heading or title `Lease-Sale
(Lease-Sale of Transportation and/or Mechanical Equipment). The contracts fix the
value of the vehicles conveyed to the lessee and expressly refer to the remainder of
said value after deduction of the down payment made by the lessee as `the unpaid
balance of the purchase price of the leased equipment. The contracts also provide that
upon the full value (plus stipulated interest) being paid, the lease would terminate and
3
title to the leased property would be transferred to the lessee. Indeed, as the defendant-
appellant points out, the inclusion of a clause waiving benefit of article 1454-A of the old
Civil Code is conclusive proof of the parties understanding that they were entering into
a lease contract with option to purchase which come within the purview of said article.
Being leases of personal property with option to purchase as contemplated in the above
article, the contracts in question are subject to the provision that when the lessor in
such case has chosen to deprive the lessee of the enjoyment of such personal
property, he shall have no further action against the lessee for the recovery of any
unpaid balance owing by the latter, agreement to the contrary being null and void.
It was held that in choosing to deprive the defendant of possession of the leased
vehicles, the plaintiff waived its right to bring an action to recover unpaid rentals on the
said vehicles.
In the case at bar, although the agreement provides for the payment by private
respondents of monthly rentals, the fifth paragraph thereof gives them the option to
purchase the motor vehicle at the end of the 5th year or upon payment of the
60th monthly rental when all monthly rentals shall be applied to the payment of the full
purchase price of the car. It is clear that the transaction in this case is a lease in name
only. The so-called monthly rentals are in truth monthly amortizations on the price of the
car.
Second. The contract being one of sale on installment, the Court of Appeals
correctly applied to it the following provisions of the Civil Code:
ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendees failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendees 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.
The remedies provided for in Art. 1484 are alternative, not cumulative. The
exercise of one bars the exercise of the others. [14] This limitation applies to contracts
purporting to be leases of personal property with option to buy by virtue of Art.
1485.[15] The condition that the lessor has deprived the lessee of possession or
enjoyment of the thing for the purpose of applying Art. 1485 was fulfilled in this case by
the filing by petitioner of the complaint for replevin to recover possession of movable
property. By virtue of the writ of seizure issued by the trial court, the deputy sheriff
seized the vehicle on August 6, 1986 and thereby deprived private respondents of its
use.[16] The car was not returned to private respondent until April 16, 1989, after two (2)
years and eight (8) months, upon issuance by the Court of Appeals of a writ of
execution.[17]
Petitioner prayed that private respondents be made to pay the sum of P39,054.86,
the amount that they were supposed to pay as of May 1986, plus interest at the legal
rate.[18] At the same time, it prayed for the issuance of a writ of replevin or the delivery
to it of the motor vehicle complete with accessories and equipment. [19] In the event the
car could not be delivered to petitioner, it was prayed that private respondent Rolando
Lantan be made to pay petitioner the amount of P60,000.00, the estimated actual value
of the car, plus accrued monthly rentals thereof with interests at the rate of fourteen

percent (14%) per annum until fully paid.[20] This prayer of course cannot be granted,
even assuming that private respondents have defaulted in the payment of their
obligation. This led the trial court to say that petitioner wanted to eat its cake and have it
too.
Notwithstanding this impossibility in petitioners choice of remedy, this case should
be considered as one for specific performance, pursuant to Art. 1484(1), consistent with
its prayer with respect to the unpaid installments as of May 1986. In this view, the
prayer for the issuance of a writ of replevin is only for the purpose of insuring specific
performance by private respondents.
Both the trial court and the Court of Appeals correctly ruled that private
respondents could no longer be held liable for the amounts of P39,054.86 or
P60,000.00 because private respondents had fulfilled their part of the obligation. The
agreement does not provide for the payment of interest on unpaid monthly rentals or
installments because it was entered into in pursuance of a car plan adopted by the
company for the benefit of its deserving employees. As the trial court correctly noted,
the car plan was intended to give additional benefits to executives of the Elizalde group
of companies.
Petitioner contends that the promissory note provides for such interest
payment. However, as the Court of Appeals held:
The promissory note in which the 2% monthly interest on delayed payments appears
does not form part of the contract. There is no consideration for the promissory
note. There is nothing to show that plaintiff advanced the purchase price of the vehicle
for Lantan so as to make the latter indebted to the former for the amount stated in the
promissory note. Thus, as stated in the complaint: That sometime in January, 1980,
defendant Rolando Lantan entered into an agreement with the plaintiff for the lease of a
motor vehicle supplied by the latter, with the option to purchase at the end of the period
of lease . . . . In other words, plaintiff did not buy the vehicle for Rolando Lantan,
advancing the purchase price for that purpose. There is nothing in the complaint or in
the evidence to show such arrangement. Therefore, there was no indebtedness
secured by a promissory note to speak of. There being no consideration for the
promissory note, the same, including the penalty clause contained thereon, has no
binding effect.[21]
There is no evidence that private respondents received the amount of P60,639.00
indicated in the promissory note as its value. What was proven below is the fact that
private respondents received from petitioner the 2-door Colt Lancer car which was
valued at P60,000 and for which private respondent Rolando Lantan paid monthly
amortizations of P1,010.65 through salary deductions.
Indeed, as already stated, private respondents default in paying installments was
due to the cessation of operations of Elizalde Steel Corporation, petitioners sister
company. Petitioners acceptance of payments made by private respondents through
cash and checks could have been impelled solely by petitioners inability to deduct the
amortizations from private respondent Rolando Lantans salary which he stopped
receiving when his employment was terminated in September 1982. Apparently, to
minimize the adverse consequences of the termination of private respondents
employment, petitioner accepted even late payments. That petitioner accepted
payments from private respondent Rolando Lantan more than two (2) years after the
latters employment had been terminated constitutes a waiver of petitioners right to
collect interest upon the delayed payments. The 2% surcharge is not provided for in the
agreement. Its collection by the company would in fact run counter to the purpose of
providing added emoluments to its deserving employees. Consequently, the total
amount of P61,070.94 already paid to petitioner should be considered payment of the
full purchase price of the car or the total installments paid.
4
Third. Private respondents presented evidence that they felt bad, were worried,
embarrassed and mentally tortured by the repossession of the car.[22] This has not been
rebutted by petitioner. There is thus a factual basis for the award of moral damages. In
addition, petitioner acted in a wanton, fraudulent, reckless and oppressive manner in
filing the instant case, hence, the award of exemplary damages is justified. [23] The
award of attorneys fees is likewise proper considering that private respondents were
compelled to incur expenses to protect their rights. [24]
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with costs
against petitioner.
SO ORDERED.
Bellosillo (Chairman), Puno, Quisumbing and Buena, JJ., concur.
9. pci leasing
PCI LEASING AND FINANCE, INC., G.R. No. 142618
Petitioner,
Present:
PUNO, C.J., Chairperson,
- versus - *SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
GIRAFFE-X CREATIVE IMAGING, INC.,
Respondent. Promulgated:
July 12, 2007
x------------------------------------------------------------------------------------x
DECISION
GARCIA, J.:
On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE
entered into a Lease Agreement,[1] whereby the former leased out to the latter one (1)
set of Silicon High Impact Graphics and accessories worth P3,900,00.00 and one (1)
unit of Oxberry Cinescan 6400-10 worth P6,500,000.00. In connection with this
agreement, the parties subsequently signed two (2) separate documents, each
denominated as Lease Schedule.[2] Likewise forming parts of the basic lease
agreement were two (2) separate documents denominated Disclosure Statements of
Loan/Credit Transaction (Single Payment or Installment Plan)[3] that GIRAFFE also
executed for each of the leased equipment. These disclosure statements inter
alia described GIRAFFE, vis--vis the two aforementioned equipment, as
the borrower who acknowledged the net proceeds of the loan, the net amount to be
financed, the financial charges, the total installment payments that it must pay monthly
for thirty-six (36) months, exclusive of the 36% per annum late payment charges. Thus,
for the Silicon High 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:
P116,878.21 @ month (for the Silicon High
Impact Graphics) x 36 months = P 4,207,615.56

-- PLUS--
P181,362.00 @ month (for the Oxberry
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 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 acceleration clause, operative in the event GIRAFFE fails to pay any rental
and/or other accounts due.
A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly
rental-payment obligations. And following a three-month default, PCI LEASING, through
one Atty. Florecita R. Gonzales, addressed a formal pay-or-surrender-equipment type
of demand letter[4] dated February 24, 1998 to GIRAFFE.
The demand went unheeded.
Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING instituted
the instant case against GIRAFFE. In its complaint,[5] docketed in said court as Civil
Case No. 98-34266 and 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
following relief:
2. After trial, judgment be rendered in favor of plaintiff [PCI
LEASING] and against the defendant [GIRAFFE], as follows:
a. Declaring the plaintiff entitled to the possession
of the subject properties;
b. Ordering the defendant to pay the balance of
rental/obligation in the total amount
of P8,248,657.47 inclusive of interest and
charges thereon;
c. Ordering defendant to pay plaintiff the expenses
of litigation and cost of suit. (Words in
bracket added.)
Upon PCI LEASINGs posting of a replevin bond, the trial court issued a writ of
replevin, paving the way for PCI LEASING to secure the seizure and delivery of the
equipment covered by the basic lease agreement.
Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to
Dismiss, therein arguing that the seizure of the two (2) leased equipment stripped PCI
LEASING of its cause of action. Expounding on the point, GIRAFFE argues that,
pursuant to Article 1484 of the Civil Code on installment sales of personal property, PCI
LEASING is barred from further pursuing any claim arising from the lease agreement
and the companion contract documents, adding that the agreement between the parties
is in reality a lease of movables with option to buy. The given situation, GIRAFFE
continues, squarely brings into applicable play Articles 1484 and 1485 of the Civil Code,
commonly referred to as the Recto Law. The cited articles respectively provide:
ART. 1484. In a contract of sale of personal property the
price of which is payable in installments, the vendor may exercise any
of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail
to pay;
(2) Cancel the sale, should the vendee's failure to pay cover
two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if
one has been constituted, should the vendee's failure to pay cover
5
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. (Emphasis
added.)
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.
In a decision[7] dated December 28, 1998, the trial court granted GIRAFFEs
motion to dismiss mainly on the interplay of the following premises: 1) the lease
agreement package, as memorialized in the contract documents, is akin to the contract
contemplated in Article 1485 of the Civil Code, and 2) GIRAFFEs loss of possession of
the leased equipment consequent to the enforcement of the writ of replevin is akin to
foreclosure, the condition precedent for application of Articles 1484 and 1485 [of the
Civil Code]. Accordingly, the trial court dismissed Civil Case No. Q-98-34266, disposing
as follows:
WHEREFORE, premises considered, the defendant
[GIRAFFE] having relinquished any claim to the personal properties
subject of replevin which are now in the possession of the
plaintiff [PCI LEASING], plaintiff is DEEMED fully satisfied pursuant to
the provisions of Articles 1484 and 1485 of the New Civil Code. By
virtue of said provisions, plaintiff is DEEMED estopped from further
action against the defendant, the plaintiff having recovered thru
(replevin) the personal property sought to be payable/leased on
installments, defendants being under protection of said RECTO LAW.
In view thereof, this case is hereby DISMISSED.
As in the court below, petitioner contends that the financial leasing
arrangement it concluded with the respondent represents a straight lease
covered by R.A. No. 5980, the Financing Company Act, as last amended by R.A. No.
8556, otherwise known as Financing Company Act of 1998, and is outside the
application and coverage of the Recto Law. To the petitioner, R.A. No. 5980 defines
and authorizes its existence and business.
The recourse is without merit.
R.A. No. 5980, in its original shape and as amended, partakes of a supervisory
or regulatory legislation, merely providing a regulatory framework for the organization,
registration, and regulation of the operations of financing companies. As couched, it
does not specifically define the rights and obligations of parties to a financial leasing
arrangement. In fact, it does not go beyond defining commercial or transactional
financial leasing and other financial leasing concepts. Thus, the relevancy of Article 18
of the Civil Code which reads:
Article 18. - In matters which are governed by special laws,
their deficiency shall be supplied by the provisions of this [Civil] Code.
Petitioner foists the argument that the Recto Law, i.e., the Civil Code
provisions on installment sales of movable property, does not apply to a financial
leasing agreement because such agreement, by definition, does not confer on the
lessee the option to buy the property subject of the financial lease. To the petitioner, the
absence of an option-to-buy stipulation in a financial leasing agreement, as understood
under R.A. No. 8556, prevents the application thereto of Articles 1484 and 1485 of the
Civil Code.
We are not persuaded.

The Court can allow that the underlying lease agreement has the earmarks or
made to appear as a financial leasing,[9] a term defined in Section 3(d) of R.A. No. 8556
as -
a mode of extending credit through a non-cancelable lease
contract under which the lessor purchases or acquires, at the
instance of the lessee, machinery, equipment, office machines, and
other movable or immovable property in consideration of the periodic
payment by the lessee of a fixed amount of money sufficient to
amortize at least seventy (70%) of the purchase price or acquisition
cost, including any incidental expenses and a margin of profit over an
obligatoryperiod of not less than two (2) years during which the
lessee has the right to hold and use the leased property but with no
obligation or option on his part to purchase the leased property from
the owner-lessor at the end of the lease contract.
In its previous holdings, however, the Court, taking into account the following
mix: the imperatives of equity, the contractual stipulations in question and the
actuations of parties vis--vis their contract, treated disguised transactions technically
tagged as financing lease, like here, as creating a different contractual relationship.
Notable among the Courts decisions because of its parallelism with this case is BA
Finance Corporation v. Court of Appeals[10] which involved a motor vehicle. Thereat, the
Court has treated a purported financial lease as actually a sale of a movable property
on installments and prevented recovery beyond the buyers arrearages. Wrote the Court
in BA Finance:
The transaction involved is one of a "financial
lease" or "financial leasing," where a financing company would,
in effect, initially purchase a mobile equipment and turn around
to lease it to a client who gets, in addition, an option to purchase
the property at the expiry of the lease period. xxx.
xxx xxx xxx
The pertinent provisions of [RA] 5980, thus implemented,
read:
"'Financing companies,' are primarily
organized for the purpose of extending credit
facilities to consumers either by leasing of motor
vehicles, and office machines and equipment, and
other movable property."
"'Credit' shall mean any loan, any contract
to sell, or sale or contract of sale of property or
service, under which part or all of the price is
payable subsequent to the making of such sale or
contract; any rental-purchase contract; .;"
The foregoing provisions indicate no less than a mere
financing scheme extended by a financing company to a client in
acquiring a motor vehicle and allowing the latter to obtain the
immediate possession and use thereof pending full payment of the
financial accommodation that is given.
In the case at bench, xxx. [T]he term of the contract [over
a motor vehicle] was for thirty six (36) months at a "monthly rental"
(P1,689.40), or for a total amount of P60,821.28. The contract also
contained [a] clause [requiring the Lessee to give a guaranty deposit
in the amount of P20,800.00] xxx
6
After the private respondent had paid the sum of
P41,670.59, excluding the guaranty deposit of P20,800.00, he
stopped further payments. Putting the two sums together, the
financing company had in its hands the amount of P62,470.59 as
against the total agreed "rentals" of P60,821.28 or an excess of
P1,649.31.
The respondent appellate court considered it only just and
equitable for the guaranty deposit made by the private respondent to
be applied to his arrearages and thereafter to hold the contract
terminated. Adopting the ratiocination of the court a quo, the
appellate court said:
xxx In view thereof, the guaranty deposit
of P20,800.00 made by the defendant should and
must be credited in his favor, in the interest of
fairness, justice and equity. The plaintiff should
not be allowed to unduly enrich itself at the
expense of the defendant. xxx This is even
more compelling in this case where although
the transaction, on its face, appear ostensibly,
to be a contract of lease, it is actually a
financing agreement, with the plaintiff financing
the purchase of defendant's automobile . The
Court is constrained, in the interest of truth and
justice, to go into this aspect of the transaction
between the plaintiff and the defendant with all
the facts and circumstances existing in this
case, and which the court must consider in
deciding the case, if it is to decide the case
according to all the facts. xxx.
xxx xxx xxx
Considering the factual findings of both the court a quo and
the appellate court, the only logical conclusion is that the private
respondent did opt, as he has claimed, to acquire the motor
vehicle, justifying then the application of the guarantee deposit
to the balance still due and obligating the petitioner to recognize
it as an exercise of the option by the private respondent. The
result would thereby entitle said respondent to the ownership
and possession of the vehicle as the buyer thereof. We,
therefore, see no reversible error in the ultimate judgment of the
appellate court.[11] (Italics in the original; underscoring supplied and
words in bracket added.)
In Cebu Contractors Consortium Co. v. Court of Appeals,[12] the Court viewed
and thus declared a financial lease agreement as having been simulated to disguise a
simple loan with security, it appearing that the financing company purchased equipment
already owned by a capital-strapped client, with the intention of leasing it back to the
latter.
In the present case, petitioner acquired the office equipment in question for
their subsequent lease to the respondent, with the latter undertaking to pay a monthly
fixed rental therefor in the total amount of P292,531.00, or a total of P10,531,116.00 for
the whole 36 months. As a measure of good faith, respondent made an up-front
guarantee deposit in the amount of P3,120,000.00. The basic agreement provides that
in the event the respondent fails to pay any rental due or is in a default situation, then

the petitioner shall have cumulative remedies, such as, but not limited to, the
following:[13]
1. Obtain possession of the property/equipment;
2. Retain all amounts paid to it. In addition, the guaranty
deposit may be applied towards the payment of liquidated
damages;
3. Recover all accrued and unpaid rentals;
4. Recover all rentals for the remaining term of the
lease had it not been cancelled, as additional penalty;
5. Recovery of any and all amounts advanced by PCI
LEASING for GIRAFFEs account xxx;
6. Recover all expenses incurred in repossessing,
removing, repairing and storing the property; and,
7. Recover all damages suffered by PCI LEASING by
reason of the default.
In addition, Sec. 6.1 of the Lease Agreement states that the guaranty deposit
shall be forfeited in the event the respondent, for any reason, returns the
equipment before the expiration of the lease.
At bottom, respondent had paid the equivalent of about a years lease rentals,
or a total of P3,510,372.00, more or less. Throw in the guaranty
deposit (P3,120,000.00) and the respondent had made a total cash outlay
of P6,630,372.00 in favor of the petitioner. The replevin-seized leased equipment had,
as alleged in the complaint, an estimated residual value of P6,900.000.00 at the time
Civil Case No. Q-98-34266 was instituted on May 4, 1998. Adding all cash advances
thus made to the residual value of the equipment, the total value which the petitioner
had actually obtained by virtue of its lease agreement with the respondent amounts
to P13,530,372.00(P3,510,372.00 + P3,120,000.00 + P6,900.000.00
= P13,530,372.00).
The acquisition cost for both the Silicon High Impact Graphics equipment
and the Oxberry Cinescan was, as stated in no less than the petitioners letter to the
respondent dated November 11, 1996[14] approving in the latters favor a lease facility,
was P8,100,000.00. Subtracting the acquisition cost of P8,100,000.00 from the total
amount, i.e., P13,530,372.00, creditable to the respondent, it would clearly appear that
petitioner realized agross 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 include
the rentals in arrears, penalties thereon, and interest earned by the guaranty deposit.
As may be noted, petitioners demand letter[15] fixed the amount
of P8,248,657.47 as representing the respondents rental balance which became due
and demandable consequent to the application of the acceleration and other clauses of
the lease agreement. Assuming, then, that the respondent may be compelled to
pay P8,248,657.47, then it would end up paying a total
of P21,779,029.47 (P13,530,372.00 + 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
of P8,100,000.00, the petitioner stands to make in a years time, out of the transaction, a
total of P21,779,029.47, or a net of P13,679,029.47, if we are to believe its outlandish
legal submission that the PCI LEASING-GIRAFFE Lease Agreement was an honest-to-
goodness straight lease.
A financing arrangement has a purpose which is at once practical and
salutary. R.A. No. 8556 was, in fact, precisely enacted to regulate financing companies
operations with the end in view of strengthening their critical role in providing credit and
services to small and medium enterprises and to curtail acts and practices prejudicial to
7
the public interest, in general, and to their clienteles, in particular. [16] As a 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 made that abundantly clear.
We stress, however, that there is nothing in R.A. No. 8556 which defines the
rights and obligations, as between each other, of the financial lessor and the lessee. In
determining the respective responsibilities of the parties to the agreement, courts,
therefore, must train a keen eye on the attendant facts and circumstances of the case in
order to ascertain the intention of the parties, in relation to the law and the written
agreement. Likewise, the public interest and policy involved should be considered. It
may not be amiss to state that, normally, financing contracts come in a standard
prepared form, unilaterally thought up and written by the financing companies requiring
only the personal circumstances and signature of the borrower or lessee; the rates and
other important covenants in these agreements are still largely imposed unilaterally by
the financing companies. In other words, these agreements are usually one-sided in
favor of such companies. A perusal of the lease agreement in question exposes the
many remedies available to the petitioner, while there are only the standard contractual
prohibitions against the respondent. This is characteristic of standard printed form
contracts.
There is more. In the adverted February 24, 1998 demand letter[17] sent to the
respondent, petitioner fashioned its claim in the alternative: payment of the full amount
of P8,248,657.47, representing the unpaid balance for the entire 36-month lease
period or the surrender of the financed asset under pain of legal action. To quote the
letter:
Demand is hereby made upon you to pay in full your
outstanding balance in the amount of P8,248,657.47 on or before
March 04, 1998 OR to surrender to us the one (1) set Silicon High
Impact Graphics and one (1) unit Oxberry Cinescan 6400-10
We trust you will give this matter your serious and
preferential attention. (Emphasis added).
Evidently, the letter did not make a demand for the payment of
the P8,248,657.47 AND the return of the equipment; only either one of the two was
required. The demand letter was prepared and signed by Atty. Florecita R. Gonzales,
presumably petitioners counsel. As such, the 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 amount involved, and the fact that it was made by a lawyer. Certainly Atty.
Gonzales would have known that a world of difference exists between and and or in the
manner that the word was employed in the letter.
A rule in statutory construction is that the word "or" is a
disjunctive term signifying dissociation and independence of one
thing from other things enumerated unless the context requires a
different interpretation.[18]
In its elementary sense, "or", as used in a statute, is a
disjunctive article indicating an alternative. It often connects a series
of words or propositions indicating a choice of either. When "or" is
used, the various members of the enumeration are to be taken
separately.[19]
The word "or" is a disjunctive term signifying disassociation
and independence of one thing from each of the other things
enumerated.[20]
The demand could only be that the respondent need not return the equipment
if it paid the P8,248,657.47 outstanding balance, ineluctably suggesting that the
respondent can keep possession of the equipment if it exercises its option to acquire

the same by paying the unpaid balance of the purchase price. Stated otherwise, if the
respondent was not minded to exercise its option of acquiring the equipment by
returning them, then it need not pay the outstanding balance. This is the logical import
of the letter: that the transaction in this case is a lease in name only. The so-called
monthly rentals are in truth monthly amortizations of the price of the leased office
equipment.
On the whole, then, we rule, as did the trial court, that the PCI LEASING-
GIRAFFE lease agreement is in reality a lease with an option to
purchase the equipment. This has been made manifest by the actions of the petitioner
itself, foremost of which is the declarations made in its demand letter to the respondent.
There could be no other explanation than that if the respondent paid the balance, then it
could keep the equipment for its own; if not, then it should return them. This is clearly
an option to purchase given to the respondent. Being so, Article 1485 of the Civil Code
should apply.
The present case reflects a situation where the financing company can
withhold and conceal - up to the last moment - its intention to sell the property subject
of the finance lease, in order that the provisions of the Recto Law may be circumvented.
It may be, as petitioner pointed out, that the basic lease agreement does not contain a
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, long been aware of the practice of vendors of
personal property of denominating a contract of sale on installment as one of lease to
prevent the ownership of the object of the sale from passing to the vendee until and
unless the price is fully paid. As this Court noted in Vda. de Jose v. Barrueco:[21]
Sellers desirous of making conditional sales of their goods,
but who do not wish openly to make a bargain in that form, for one
reason or another, have frequently resorted to the device of
making contracts in the form of leases either with options to
the buyer to purchase for a small consideration at the end of
term, provided the so-called rent has been duly paid, or with
stipulations that if the rent throughout the term is paid, title
shall thereupon vest in the lessee. It is obvious that such
transactions are leases only in name. The so-called rent must
necessarily be regarded as payment of the price in installments
since the due payment of the agreed amount results, by the terms of
the bargain, in the transfer of title to the lessee.
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 property by installments. Said
the Court:
. . . There can hardly be any question that the so-called
contracts of lease on which the present action is based were veritable
leases of personal property with option to purchase, and as such
come within the purview of the above article [Art. 1454-A of the old
Civil Code on sale of personal property by installment]. xxx
Being leases of personal property with option to purchase as
contemplated in the above article, the contracts in question are
subject to the provision that when the lessor in such case has chosen
to deprive the lessee of the enjoyment of such personal property, he
shall have no further action against the lessee for the recovery of any
unpaid balance owing by the latter, agreement to the contrary being
null and void.
8
In choosing, through replevin, to deprive the respondent of possession of the
leased equipment, the petitioner waived its right to bring an action to recover unpaid
rentals on the said leased items. Paragraph (3), Article 1484 in relation to Article 1485
of the Civil Code, which we are hereunder re-reproducing, cannot be any clearer.
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:
xxx xxx xxx
(3) Foreclose the chattel mortgage on the thing sold, if one
has been constituted, should the vendee's failure to pay cover two or
more installments. In this case, he shall have no further action
against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void.
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.
Costs against petitioner.
SO ORDERED.
10. p. 83 casa filipina realty
11. manila banking

THE MANILA BANKING CORPORATION v. SPOUSES ALFREDO AND CELESTINA
RABINA, et al.
574 SCRA 16 (2008)
The Housing and Land Use Regulatory Board (HLURB) has the power to regulate real
estate trade and the same include complaints for annulment f mortgage.
Marenir Development Corporation (MDC), owner/developer of a subdivision project in
Quezon City obtained a loan from the Manila Banking Corporation (MBC). To secure
the payment of such loan, it forged a real estate mortgage covering real estate
properties including the lot which was subject of a Contract to Sell to Amante Sibuyan
(Sibuyan). Sibuyan transferred the lot via ―Assignment and Transfer of Rights‖ to
Celestina Rabina (Rabina), with the conformity of MDC. The said document mentioned
the Contract to Sell which MDC had executed in favor of Sibuyan.
After Rabina had fully paid the amortization payments for the lot, she asked MDC for
the transfer to her of its title. MDC, however, failed, prompting Rabina to institute a
complaint for non-delivery of titles, annulment of mortgage and incomplete development
of the subdivision project Reymarville Subdivision, against MDC before the Office of
Appeals, Adjudication and Legal Affairs (OAALA) of the Housing and Land Use
Regulatory Board (HLURB). MBC contended that the HLURB has no jurisdiction over it
by virtue of Section 29 of Republic Act 265, as amended by Executive Order No. 289.
Housing and Land Use Arbiter Cesar Manuel found in favor of the Rabina and ordered
for the payment of moral damages. Upon MBC‘s appeal, the HLURB Board of
Commissioners affirmed the Arbiter‘s decision. MBC then elevated the case to the
Office of the President (OP) but the same have been dismissed.
On elevation to the Court of Appeals, the appeal was dismissed and the CA affirmed
the Orders of the OP. Hence, this petition.
ISSUES:
Whether or not the HLURB has jurisdiction over the case at bar under Presidential
Decree 957
HELD:
The act of MDC in mortgaging the lot, without the knowledge and consent of lot
Spouses Rabina and without the approval of the HLURB, as required by P.D. 957, is
not only an unsound real estate business practice but also highly prejudicial to them.
The jurisdiction of the HLURB to regulate the real estate trade is broad enough to
include jurisdiction over complaints for annulment of mortgage. To disassociate the
issue of nullity of mortgage and lodge it separately with the liquidation court would only
cause inconvenience to the parties and would not serve the ends of speedy and
inexpensive administration of justice as mandated by the laws vesting quasi-judicial
powers in the agency.
12. Luzon dev bank v enriquez
LUZON DEVELOPMENT BANK v. ANGELES CATHERINE ENRIQUEZ
CONSOLIDATED WITH: G.R. No. 168666
FACTS: Delta Development and Management Services (Delta) entered into a loan with
Luzon Development Bank (Bank), secured by a Real Estate Mortgage. The REM was
amended to include a bigger sum loaned from the bank. The proceeds of the loan were
applied to Delta project of developing a subdivision. It subsequently entered into a
contract to sell with Angeles Enriquez (Enriquez) over one of the subdivision lots.
Enriquez was able to pay around half of the value of the property. Subsequently, Delta
was unable to pay for the loan it took with the bank, but instead of letting the bank
foreclose on the mortgaged properties, it entered into a dacionen pago (dation in
payment) where it turned over property to the bank. The property subject to the contract
to sell with Enriquez was included in the dation. Enriquez protested the transaction
9
through the regional office of the HLURB. She is asking for a refund of the purchase
price pointing out that, the agreed upon amount exceeded the limit prescribed by PD
957, or The Subdivision and Condominium Buyer Protective Decree, and that the
mortgage Delta entered into was invalid per PD 957. The HLURB ruled in favor of
Enriquez, but did not approve a refund. Instead, it reduced the balance due for the
property. Delta appealed the ruling, and was able to get a better ruling from the
commissioner. The Office of the President affirmed the ruling. However, when Enriquez
appealed to the Court of Appeals, the CA invalidated the dation, saying that Delta lost
ownership over the property of Enriquez and could not have validly conveyed the same.
Delta and the Bank come before the Supreme Court to question the ruling. The Bank is
also asking for the liability of Delta if it loses one of the properties to Enriquez.
ISSUES:
Was the dacion en pago valid?
Is Delta liable to the Bank should Enriquez gain ownership of the property?
HELD: The mortgage entered into by Delta and the Bank is void for violation of PD 957.
However, this does not, in any way, invalidate the dacion en pago. The CA erred when
it ruled that Delta lost ownership over the property subject of the contract to sell. The
very nature of a contract to sell is that the ownership vests upon full payment of the
purchase price. Hence there was no impediment in the dacion. Delta cannot be held
liable should Enriquez gain ownership over the land. The effect of the dacion is that the
Bank becomes a party in the contract to sell with Enriquez, replacing Delta. Enriquez
now owes the Bank the balance of the purchase price of the property. It is the intention
of the dacion to extinguish the obligation of Delta in exchange for properties. There are
no other conditions. Also, as a financial institution, the Bank should have exercised
greater diligence. It cannot claim to be a transferee in good faith. However, Enriquez is
liable for the amount agreed upon. The agreement was done in good faith, and
Enriquez agreed to the contract price. It cannot be challenged anymore.
ISSUE:
Whether the dacion en pago extinguished the loan obligation, such that DELTA has no
more obligations to the BANK
HELD:
DACION EN PAGO EXTINGUISHED THE LOAN OBLIGATION.
Like in all contracts, the intention of the parties to the dation in payment is paramount
and controlling. The contractual intention determines whether the property subject of
the dation will be considered as the full equivalent of the debt and will therefore serve
as full satisfaction for the debt. “The dation in payment extinguishes the obligation to the
extent of the value of the thing delivered, either as agreed upon by the parties or as
may be proved, unless the parties by agreement, express or implied, or by their silence,
consider the thing as equivalent to the obligation, in which case the obligation is totally
extinguished.”
In the case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a
clear intention by the parties that the assigned properties would serve as full payment
for DELTA’s entire obligation.
Thus,
1. Delta Development and Management Services, Inc. is NOT LIABLE TO PAY Luzon
Development Bank the value of the subject lot; and
2. Respondent Angeles Catherine Enriquez is ordered to PAY the balance of the
purchase price and the interests accruing thereon, to the Luzon Development Bank.

3. The Luzon Development Bank is ordered to DELIVER a CLEAN TITLE to Angeles
Catherine Enriquez upon the latter’s full payment of the balance of the purchase
price and the accrued interests.
13. rillo
[G.R. No. 125347. June 19, 1997]
EMILIANO RILLO, petitioner, vs. COURT OF APPEALS and CORB REALTY
INVESTMENT, CORP., respondents.
DECISION
PUNO, J.:
This is an appeal under Rule 45 of the Rules of Court to set aside the decision [1] of
the Court of Appeals in CA G.R. CV No. 39108 cancelling the "Contract to Sell"
between petitioner Emiliano Rillo and private respondent Corb Realty Investment
Corporation. It also ordered Rillo to vacate the premises subject of the contract and
Corb Realty to return 50% of P158,184.00 or P79,092.00 to Rillo.
The facts of the case are the following:
On June 18, 1985, petitioner Rillo signed a "Contract To Sell of Condominium
Unit" with private respondent Corb Realty Investment Corporation. Under the
contract, CORB REALTY agreed to sell to RILLO a 61.5 square meter condominium
unit located in Mandaluyong, Metro Manila. The contract price was P150,000.00, one
half of which was paid upon its execution, while the balance of P75,000.00 was to be
paid in twelve (12) equal monthly installments of P7,092.00 beginning July 18, 1985. It
was also stipulated that all outstanding balance would bear an interest of 24% per
annum; the installment in arrears would be subject to liquidated penalty of 1.5% for
every month of default from due date. It was further agreed that should petitioner
default in the payment of three (3) or four (4) monthly installments, forfeiture
proceedings would be governed by existing laws, particularly the Condominium Act. [2]
On July 18, 1985, RILLO failed to pay the initial monthly amortization. On August
18, 1985, he again defaulted in his payment. On September 20, 1985, he paid the first
monthly installment of P7,092.00. On October 2, 1985, he paid the second monthly
installment of P7,092.00. His third payment was on February 2, 1986 but he paid
only P5,000.00 instead of the stipulated P7,092.00.[3]
On July 20, 1987 or seventeen (17) months after RILLO's last payment, CORB
REALTY informed him by letter that it is cancelling their contract due to his failure to
settle his accounts on time. CORB REALTY also expressed its willingness to refund
RILLO's money.[4]
CORB REALTY, however, did not cancel the contract for on September 28, 1987,
it received P60,000.00 from petitioner.[5]
RILLO defaulted again in his monthly installment payment. Consequently, CORB
REALTY informed RILLO through letter that it was proceeding to rescind their
contract.[6] In a letter dated August 29, 1988, it requested RILLO to come to its office
and withdraw P102,459.35 less the rentals of the unit from July 1, 1985 to February 28,
1989.[7] Again the threatened rescission did not materialize. A "compromise" was
entered into by the parties on March 12, 1989, which stipulated the following:
"1. Restructure Outstanding Balance Down to P50,000.00
"2. Payment @ P2,000.00/Month @ 18% (Eighteen Percent)-Monthly-
To Compute No. of Installments
"3. To Pay Titling Plus Any Real Estate Tax Due
"4. Installments to start April 15, 1989."[8]
Rillo once more failed to honor their agreement. RILLO was able to pay P2,000.00
on April 25, 1989 and P2,000.00 on May 15, 1989.[9]
10
On April 3, 1990, CORB REALTY sent RILLO a statement of accounts which fixed
his total arrears, including interests and penalties, to P155,129.00. When RILLO failed
to pay this amount, CORB REALTY filed a complaint[10] for cancellation of the contract
to sell with the Regional Trial Court of Pasig.
In his answer to the complaint, RILLO averred, among others, that while he had
already paid a total of P149,000.00, CORB REALTY could not deliver to him his
individual title to the subject property; that CORB REALTY could not claim any right
under their previous agreement as the same was already novated by their new
agreement for him to pay P50,000.00 representing interest charges and other penalties
spread through twenty-five (25) months beginning April 1989; and that CORB
REALTY's claim of P155,129.99 over and above the amount he already paid has no
legal basis.[11]
At the pre-trial, the parties stipulated that RILLO's principal outstanding obligation
as of March 12, 1989 was P50,000.00 and he has paid only P4,000.00 thereof and that
the monthly amortization of P2,000.00 was to bear 18% interest per annum based on
the unpaid balance. The issues were defined as: (1) whether or not CORB REALTY
was entitled to a rescission of the contract; and (2) if not, whether or not RILLO's
current obligation to CORB REALTY amounts to P62,000.00 only inclusive of accrued
interests.[12]
The Regional Trial Court held that CORB REALTY cannot rescind the "Contract to
Sell" because petitioner did not commit a substantial breach of its terms. It found that
RILLO substantially complied with the "Contract to Sell" by paying a total
of P154,184.00. It ruled that the remedy of CORB REALTY is to file a case for specific
performance to collect the outstanding balance of the purchase price.
CORB REALTY appealed the aforesaid decision to public respondent Court of
Appeals assigning the following errors, to wit:
"THE TRIAL COURT ERRED IN DISREGARDING OTHER FACTS OF THE CASE,
INCLUDING THE FACT THAT THE CONTRACT TO SELL, AS NOVATED, CREATED
RECIPROCAL OBLIGATIONS ON BOTH PARTIES;
"THE TRIAL COURT ERRED IN DISREGARDING ARTICLE 1191 OF THE CIVIL
CODE;
"THE TRIAL COURT ERRED IN RENDERING JUDGMENT BY SIMPLY
DISREGARDING THE CASE OF ROQUE V. LAPUZ, 96 SCRA 744, AND WITHOUT
INDICATING THE APPLICABLE LAW ON THE CASE.
"THE TRIAL COURT ERRED IN RENDERING A DECISION WHICH DID NOT
COMPLETELY DISPOSE OF THE CASE."
The respondent Court of Appeals reversed the decision. It ruled: (1) that
rescission does not apply as the contract between the parties is not an absolute
conveyance of real property but is a contract to sell; (2) that the Condominium Act
(Republic Act No. 4726, as amended by R.A. 7899) does not provide anything on
forfeiture proceedings in cases involving installment sales of condominium units, hence,
it is Presidential Decree No. 957 (Subdivision and Condominium Buyers Protective
Decree) which should be applied to the case at bar. Under Presidential Decree No.
957, the rights of a buyer in the event of failure to pay installment due, other than the
failure of the owner or developer to develop the project, shall be governed by Republic
Act No. 6552 or the REALTY INSTALLMENT BUYER PROTECTION ACT also known
as the Maceda Law (enacted on September 14, 1972). The dispositive portion of its
Decision states:
"WHEREFORE, the decision appealed from is hereby SET ASIDE. The Contract to Sell
is hereby declared cancelled and rendered ineffective. Plaintiff-Appellant is hereby
ordered to return 50% of P158,184.00 or P79,092.00 to appellee who is hereby ordered
to vacate the subject premises.

"SO ORDERED."[13]
Hence, this appeal with the following assignment of errors:
"THE HONORABLE COURT OF APPEALS SERIOUSLY AND GRAVELY ERRED IN
HOLDING AND DECIDING THAT RESCISSION IS THE PROPER REMEDY ON A
PERFECTED AND CONSUMMATED CONTRACT;
"THE HONORABLE COURT OF APPEALS SERIOUSLY AND GRAVELY ERRED IN
NOT HOLDING AND DECIDING THAT THE OLD CONSUMMATED CONTRACT HAS
BEEN SUPERSEDED BY A NEW, SEPARATE, INDEPENDENT AND SUBSEQUENT
CONTRACT BY NOVATION."
The petition is without merit.
The respondent court did not err when it did not apply Articles 1191 and 1592 of
the Civil Code on rescission to the case at bar. The contract between the parties is not
an absolute conveyance of real property but a contract to sell. In a contract to sell real
property on installments, the full payment of the purchase price is a positive suspensive
condition, the failure of which is not considered a breach, casual or serious, but simply
an event which prevented the obligation of the vendor to convey title from acquiring any
obligatory force."[14] The transfer of ownership and title would occur after full payment of
the purchase price. We held in Luzon Brokerage Co., Inc. v. Maritime Building Co.,
Inc.[15] that there can be no rescission of an obligation that is still non-existent, the
suspensive condition not having happened.
Given the nature of the contract of the parties, the respondent court correctly
applied Republic Act No. 6552. Known as the Maceda Law, R.A. No. 6552 recognizes
in conditional sales of all kinds of real estate (industrial, commercial, residential) the
right of the seller to cancel the contract upon non-payment of an installment by the
buyer, which is simply an event that prevents the obligation of the vendor to convey title
from acquiring binding force.[16] It also provides the right of the buyer on installments in
case he defaults in the payment of succeeding installments, viz:
(1) Where he has paid at least two years of installments,
"(a) To pay, without additional interest, the unpaid installments due within the total
grace period earned by him, which is hereby fixed at the rate of one month grace period
for every one year of installment payments made: Provided, That this right shall be
exercised by the buyer only once in every five years of the life of the contract and its
extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to fifty per cent of the total payments
made and, after five years of installments, an additional five per cent every year but not
to exceed ninety per cent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after cancellation or the demand for
rescission of the contract by a notarial act and upon full payment of the cash surrender
value to the buyer.
Down payments, deposits or options on the contract shall be included in the
computation of the total number of installments made."
(2) Where he has paid less than two years in installments,
"Sec. 4. x x x the seller shall give the buyer a grace period of not less than sixty days
from the date the installment became due. If the buyer fails to pay the installments due
at the expiration of the grace period, the seller may cancel the contract after thirty days
from receipt by the buyer of the notice of cancellation or the demand for rescission of
the contract by a notarial act."
Petitioner RILLO paid less than two years in installment payments, hence, he is
only entitled to a grace period of not less than sixty (60) days from the due date within
which to make his installment payment. CORB REALTY, on the otherhand, has the
right to cancel the contract after thirty (30) days from receipt by RILLO of the notice of
11
cancellation. Hence, the respondent court did not err when it upheld CORB REALTY's
right to cancel the subject contract upon repeated defaults in payment by RILLO.
Petitioner further contends that the contract to sell has been novated by the
parties agreement of March 12, 1989. The contention cannot be sustained. Article 1292
of the Civil Code provides that "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." Novation is never presumed.[17]Parties to a contract must expressly agree that
they are abrogating their old contract in favor of a new one. [18] In the absence of an
express agreement, novation takes place only when the old and the new obligations are
incompatible on every point.[19] In the case at bar, the parties executed their May 12,
1989 "compromise agreement" precisely to give life to their "Contract to Sell". It merely
clarified the total sum owed by petitioner RILLO to private respondent CORB REALTY
with the view that the former would find it easier to comply with his obligations under the
Contract to Sell. In fine, the "compromise agreement" can stand together with the
Contract to Sell.
Nevertheless, we do not agree with the respondent Court so far as it ordered
private respondent CORB REALTY to refund 50% of P158,184.00 or P79,092.00 to
petitioner RILLO. Under Republic Act No. 6552, the right of the buyer to a refund
accrues only when he has paid at least two (2) years of installments. In the case at bar,
RILLO has paid less than two (2) years in installments, hence, he is not entitled to a
refund.
IN VIEW WHEREOF, the decision appealed from is AFFIRMED with the
MODIFICATION that the refund of 50% P158,184.00 or P79,092.00 made in favor of
petitioner Emiliano Rillo is deleted. No costs.
SO ORDERED.
Regalado, (Chairman), Romero, Mendoza, and Torres, Jr., JJ., concur.
14. p. 70 valarao v ca
15. p. 71 active realty
16. fabrigas
ISAIAS F. FABRIGAS and MARCELINA R. FABRIGAS,
VERSUS SAN FRANCISCO DEL MONTE, INC.,
November 25, 2005
x ---------------------------------------------------------------------x
DECISION
TINGA, J.:
The following factual antecedents are matters of record.
On April 23, 1983, herein petitioner spouses Isaias and Marcelina Fabrigas
(Spouses Fabrigas or petitioners) and respondent San Francisco Del Monte, Inc. (Del
Monte) entered into an agreement, denominated as Contract to Sell No. 2482-V,
whereby the latter agreed to sell to Spouses Fabrigas a parcel of residential land
situated in Barrio Almanza, Las Pias, Manila for and in consideration of the amount
of P109,200.00. Said property, which is known as Lot No. 9, Block No. 3 of Subdivision

Plan (LRC) Psd-50064, is covered by Transfer Certificate of Title No. 4980 (161653) T-
1083 registered in the name of respondent Del Monte. The agreement stipulated that
Spouses Fabrigas shall pay P30,000.00 as downpayment and the balance within ten
(10) years in monthly successive installments of P1,285.69.[2] Among the clauses in the
contract is an automatic cancellation clause in case of default, which states as follows:
7. Should the PURCHASER fail to make any of the
payments including interest as herein provided, within 30 days after
the due date, this contract will be deemed and considered as forfeited
and annulled without necessity of notice to the PURCHASER, and
said SELLER shall be at liberty to dispose of the said parcel of land to
any other person in the same manner as if this contract had never
been executed. In the event of such forfeiture, all sums of money paid
under this contract will be considered and treated as rentals for the
use of said parcel of land, and the PURCHASER hereby waives all
right to ask or demand the return thereof and agrees to peaceably
vacate the said premises.[3]
After paying P30,000.00, Spouses Fabrigas took possession of the property
but failed to make any installment payments on the balance of the purchase price. Del
Monte sent demand letters on four occasions to remind Spouses Fabrigas to satisfy
their contractual obligation.[4] In particular, Del Montes third letter dated November 9,
1983 demanded the payment of arrears in the amount of P8,999.00. Said notice
granted Spouses Fabrigas a fifteen-day grace period within which to settle their
accounts. Petitioners failure to heed Del Montes demands prompted the latter to send a
final demand letter dated December 7, 1983, granting Spouses Fabrigas another grace
period of fifteen days within which to pay the overdue amount and warned them that
their failure to satisfy their obligation would cause the rescission of the contract and the
forfeiture of the sums of money already paid. Petitioners received Del Montes final
demand letter on December 23, 1983. Del Monte considered Contract to Sell No. 2482-
V cancelled fifteen days thereafter, but did not furnish petitioners any notice regarding
its cancellation.[5]
On November 6, 1984, petitioner Marcelina Fabrigas (petitioner Marcelina)
remitted the amount of P13,000.00 to Del Monte.[6] On January 12, 1985, petitioner
Marcelina again remitted the amount of P12,000.00.[7] A few days thereafter, or on
January 21, 1985, petitioner Marcelina and Del Monte entered into another agreement
denominated as Contract to Sell No. 2491-V, covering the same property but under
restructured terms of payment. Under the second contract, the parties agreed on a new
purchase price of P131,642.58, the amount of P26,328.52 as downpayment and the
balance to be paid in monthly installments of P2,984.60 each.[8]
Between March 1985 and January 1986, Spouses Fabrigas made irregular
payments under Contract to Sell No. 2491-V, to wit:
March 19, 1985 P1, 328.52
July 2, 1985 P2, 600.00
September 30, 1985 P2, 600.00
November 27, 1985 P2, 600.00
January 20, 1986 P2, 000.00[9]
12
Del Monte sent a demand letter dated February 3, 1986, informing petitioners
of their overdue account equivalent to nine (9) installments or a total amount
of P26,861.40. Del Monte required petitioners to satisfy said amount immediately in two
subsequent letters dated March 5 and April 2, 1986.[10] This prompted petitioners to pay
the following amounts:
February 3, 1986 P2, 000.00
March 10, 1986 P2, 000.00
April 9, 1986 P2, 000.00
May 13, 1986 P2, 000.00
June 6, 1986 P2, 000.00
July 14, 1986 P2, 000.00[11]
No other payments were made by petitioners except the amount of P10,000.00 which
petitioners tendered sometime in October 1987 but which Del Monte refused to accept,
the latter claiming that the payment was intended for the satisfaction of Contract to Sell
No. 2482-V which had already been previously cancelled. On March 24, 1988, Del
Monte sent a letter demanding the payment of accrued installments under Contract to
Sell No. 2491-V in the amount of P165,759.60 less P48,128.52, representing the
payments made under the restructured contract, or the net amount of P117,631.08. Del
Monte allowed petitioners a grace period of thirty (30) days within which to pay the
amount asked to avoid rescission of the contract. For failure to pay, Del Monte notified
petitioners on March 30, 1989 that Contract to Sell No. 2482-V had been cancelled and
demanded that petitioners vacate the property.[12]
On September 28, 1990, Del Monte instituted an action for Recovery of
Possession with Damages against Spouses Fabrigas before the RTC, Branch 63 of
Makati City. The complaint alleged that Spouses Fabrigas owed Del Monte the principal
amount of P206,223.80 plus interest of 24% per annum. In their answer, Spouses
Fabrigas claimed, among others, that Del Monte unilaterally cancelled the first contract
and forced petitioner Marcelina to execute the second contract, which materially and
unjustly altered the terms and conditions of the original contract. [13]
ISSUES:
As reframed for better understanding, the questions are the following:
Was Contract to Sell No. 2482-V extinguished through rescission or was it novated by
the subsequent Contract to Sell No. 2491-V? If Contract to Sell No. 2482-V was
rescinded, should the manner of rescission comply with the requirements of Republic
Act No. (R.A.) 6552? If Contract to Sell No. 2482-V was subsequently novated
by Contract to Sell No. 2491-V, are petitioners liable for breach under the subsequent
agreement?
Petitioners theorize that Contract to Sell No. 2482-V should remain valid and
subsisting because the notice of cancellation sent by Del Monte did not observe the
requisites under Section 3 of R.A. 6552.[15] According to petitioners, since respondent
did not send a notarial notice informing them of the cancellation or rescission
of Contract to Sell No. 2482-V and also did not pay them the cash surrender value of
the payments on the property, the Court of Appeals erred in concluding that respondent
correctly applied the automatic rescission clause of Contract to Sell No. 2482-V.
Petitioners also cite Section 7[16] of said law to bolster their theory that the automatic

rescission clause in Contract to Sell No. 2482-V is invalid for being contrary to law and
public policy.
The Court of Appeals erred in ruling that Del Monte was well within its right to
cancel the contract by express grant of paragraph 7 without the need of notifying
[petitioners],[17]instead of applying the pertinent provisions of R.A. 6552. Petitioners
contention that none of Del Montes demand letters constituted a valid rescission
of Contract to Sell No. 2482-V is correct.
Petitioners defaulted in all monthly installments. They may be credited only
with the amount of P30,000.00 paid upon the execution of Contract to Sell No. 2482-V,
which should be deemed equivalent to less than two (2) years installments. Given the
nature of the contract between petitioners and Del Monte, the applicable legal provision
on the mode of cancellation of Contract to Sell No. 2482-V is Section 4 and not Section
3 of R.A. 6552. Section 4 is applicable to instances where less than two years
installments were paid. It reads:
SECTION 4. In case where less than two years of
installments were paid, the seller shall give the buyer a grace period
of not less than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration
of the grace period, the seller may cancel the contract after thirty
days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act.
Thus, the cancellation of the contract under Section 4 is a two-step process.
First, the seller should extend the buyer a grace period of at least sixty (60) days from
the due date of the installment. Second, at the end of the grace period, the seller shall
furnish the buyer with a notice of cancellation or demand for rescission through a
notarial act, effective thirty (30) days from the buyers receipt thereof. It is worth
mentioning, of course, that a mere notice or letter, short of a notarial act, would not
suffice.
While the Court concedes that Del Monte had allowed petitioners a grace
period longer than the minimum sixty (60)-day requirement under Section 4, it did not
comply, however, with the requirement of notice of cancellation or a demand for
rescission. Instead, Del Monte applied the automatic rescission clause of the contract.
Contrary, however, to Del Montes position which the appellate court sustained, the
automatic cancellation clause is void under Section 7 [18] in relation to Section 4 of R.A.
6552.[19]
Rescission, of course, is not the only mode of extinguishing obligations.
Ordinarily, obligations are also extinguished by payment or performance, by the loss of
the thing due, by the condonation or remission of the debt, by the confusion or merger
of the rights of the creditor and debtor, by compensation, or by novation. [20]
Novation, in its broad concept, may either be extinctive or modificatory. It is
extinctive when an old obligation is terminated by the creation of a new obligation that
takes the place of the former; it is merely modificatory when the old obligation subsists
to the extent it remains compatible with the amendatory agreement. An extinctive
novation results either by changing the object or principal conditions (objective or real),
13
or by substituting the person of the debtor or subrogating a third person in the rights of
the creditor (subjective or personal). Under this mode, novation would have dual
functionsone to extinguish an existing obligation, the other to substitute a new one in its
placerequiring a conflux of four essential requisites: (1) a previous valid obligation; (2)
an agreement of all parties concerned to a new contract; (3) the extinguishment of the
old obligation; and (4) the birth of a valid new obligation. [21]
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 Montes 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.[22] 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.[23] 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.
To dispel the novation of Contract to Sell No. 2482-V by Contract to Sell No.
2491-V, petitioners contend that the subsequent contract is void for two reasons: first,
petitioner Isaias Fabrigas did not give his consent thereto, and second, the subsequent
contract is a contract of adhesion.
Petitioner rely on Article 172 of the Civil Code governing their property
relations as spouses. Said article states that the wife cannot bind the conjugal
partnership without the husbands consent except in cases provided by law. Since only
petitioner Marcelina executed Contract to Sell No. 2491-V, the same is allegedly void,
petitioners conclude.
Under the Civil Code, the husband is the administrator of the conjugal
partnership.[24] Unless the wife has been declared a non compos mentis or a
spendthrift, or is under civil interdiction or is confined in a leprosarium, the husband
cannot alienate or encumber any real property of the conjugal partnership without the
wife's consent.[25] Conversely, the wife cannot bind the conjugal partnership without the
husbands consent except in cases provided by law.[26]
Thus, if a contract entered into by one spouse involving a conjugal property
lacks the consent of the other spouse, as in the case at bar, is it automatically void for
that reason alone?

Article 173[27] of the Civil Code expressly classifies a contract executed by the
husband without the consent of the wife as merely annullable at the instance of the
wife. However, there is no comparable provision covering an instance where the wife
alone has consented to a contract involving conjugal property. Article 172 of the Civil
Code, though, does not expressly declare as void a contract entered by the wife without
the husbands consent. It is also not one of the contracts considered as void under
Article 1409[28] of the Civil Code.
In Felipe v. Heirs of Maximo Aldon,[29] the Court had the occasion to rule on
the validity of a sale of lands belonging to the conjugal partnership made by the wife
without the consent of the husband. Speaking through Mr. Justice Abad Santos, the
Court declared such a contract as voidable because one of the parties is incapable of
giving consent to the contract. The capacity to give consent belonged not even to the
husband alone but to both
spouses.[30] In that case, the Court anchored its ruling on Article 173 of the Civil Code
which states that contracts entered by the husband without the consent of the wife
when such consent is required, are annullable at her instance during the marriage and
within ten years from the transaction mentioned.[31]
The factual milieu of the instant case, however, differs from that in Felipe. The
defect which Contract to Sell No. 2491-V suffers from is lack of consent of the husband,
who was out of the country at the time of the execution of the contract. There is no
express provision in the Civil Code governing a situation where the husband is absent
and his absence incapacitates him from administering the conjugal partnership
property. The following Civil Code provisions, however, are illuminating:
ARTICLE 167. In case of abuse of powers of administration
of the conjugal partnership property by the husband, the courts, on
petition of the wife, may provide for receivership, or administration by
the wife, or separation of property.
ARTICLE 168. The wife may, by express authority of the
husband embodied in a public instrument, administer the conjugal
partnership property.
ARTICLE 169. The wife may also, by express authority of
the husband appearing in a public instrument, administer the latter's
estate.
While the husband is the recognized administrator of the conjugal property
under the Civil Code, there are instances when the wife may assume administrative
powers or ask for the separation of property. In the abovementioned instances, the wife
must be authorized either by the court or by the husband. Where the husband is absent
and incapable of administering the conjugal property, the wife must be expressly
authorized by the husband or seek judicial authority to assume powers of
administration. Thus, any transaction entered by the wife without the court or the
husbands authority is unenforceable in accordance with Article 1317 [32] of the Civil
Code. That is the status to be accorded Contract to Sell No. 2491-V, it having been
executed by petitioner Marcelina without her husbands conformity.
Being an unenforceable contract, Contract to Sell No. 2491-V is susceptible to
ratification. As found by the courts below, after being informed of the execution of the
14
contract, the husband, petitioner Isaias Fabrigas, continued remitting payments for the
satisfaction of the obligation under Contract to Sell No. 2491-V. These acts constitute
ratification of the contract. Such ratification cleanses the contract from all its defects
from the moment it was constituted. The factual findings of the courts below are beyond
review at this stage.
Anent Del Montes claim that Contract to Sell No. 2491-V is a contract of
adhesion, suffice it to say that assuming for the nonce that the contract is such the
characterization does not automatically render it void. A contract of adhesion is so-
called because its terms are prepared by only one party while the other party merely
affixes his signature signifying his adhesion thereto. Such contracts are not void in
themselves. They are as binding as ordinary contracts. Parties who enter into such
contracts are free to reject the stipulations entirely.[33]
The Court quotes with approval the following factual observations of the trial
court, which cannot be disturbed in this case, to wit:
The Court notes that defendant, Marcelina Fabrigas, although she
had to sign contract No. 2491-V, to avoid forfeiture of her
downpayment, and her other monthly amortizations, was entirely free
to refuse to accept the new contract. There was no clear case of
intimidation or threat on the part of plaintiff in offering the new
contract to her. At most, since she was of sufficient intelligence to
discern the agreement she is entering into, her signing of Contract
No. 2491-V is taken to be valid and binding. The fact that she has
paid monthly amortizations subsequent to the execution of Contract
to Sell No. 2491-V, is an indication that she had recognized the
validity of such contract. . . .[34]
In sum, Contract to Sell No. 2491-V is valid and binding. There is nothing to
prevent respondent Del Monte from enforcing its contractual stipulations and pursuing
the proper court action to hold petitioners liable for their breach thereof.
WHEREFORE, the instant Petition for Review is DENIED and the September
28, 2001 Decision of the Court of Appeals in CA-G.R. CV No. 45203 is AFFIRMED.
Costs against petitioners.
SO ORDERED.
17. jestra v pacific
JESTRA DEVELOPMENT AND MANAGEMENT CORPORATION v. DANIEL
PONCE PACIFICO
513 SCRA 403 (2007)
Cancellation of the contract, under the law, requires that the seller should extend the
buyer a grace period of at least 60 days from the due date of the installment, and at the
end of the grace period, the seller shall furnish the buyer with a notice of cancellation or
demand for rescission.
Daniel Ponce Pacifico (Pacifico) signed a Reservation Application with Fil-Estate
Marketing Association for the purchase of a house and lot located at Paranaque, Metro
Manila and paid the reservation fee of 20,000.00. Under the Reservation Application,
upon fulfillment of the 30% down payment by Pacifico, he will sign a contract to sell with

the owner and developer of the property which is the JESTRA Development and
Management Corporation (Jestra).
Pacifico run out of funds to pay for the property, and he requested to Jestra to suspend
payment. Jestra denied his request. Pacifico filed a complaint before the Housing and
Land Use Regulatory Board (HLURB) against Jestra claiming that despite his full
payment of the down payment, Jestra failed to deliver to him the property within 90
days as provided in the contract to sell dated March 6, 1997 and Jestra instead sold the
property to another buyer in October 1998.
ISSUE:
Whether or not the act of Jestra in canceling the contract to sell agreement with Pacifico
is valid
HELD:
R.A. 6552 was enacted to protect buyers of real estate on installment against onerous
and oppressive conditions. In Fabrigas v. San Francisco del Monte,Inc., the court
described the cancellation of the contract under Section 4 of R.A. 6552 as a two-step
process. First, the seller should extend the buyer a grace period of at least 60 days
from the due date of the installment. Second, at the end of the grace period, the seller
shall furnish the buyer with a notice of cancellation or demand for rescission through a
notarial act, effective 30 days from the buyer‘s receipt thereof.
Pacifico admits that the first installment on the 70% balance of the purchase price was
due on January 5, 1998. He issued checks for it but was dishonored due to insufficiency
of funds. Pacifico was notified of the dishonor of the checks but he took no action,
hence, 60 days grace period lapsed. Pacifico made no further payments thereafter.
Instead, he requested for suspension of payment.
Also, Pacifico admits that Jestra was justified in canceling the contract to sell via the
notarial Notice of Cancellation which he received on May 13, 1998 which took effect on
June 12, 1998. Thus, the cancellation of the contract to sell of Jestra is valid.
18. manuel v valbueco
MANUEL UY & SONS, INC.
vs.
VALBUECO, INCORPORATED,
G.R. No. 179594, September 11, 2013
Facts: Petitioner is the owner of the subject lots. In 1973, two Conditional Deeds of
Sale were executed by petitioner in favor of the respondent. The Deeds of Conditional
Sale provided, among others, that the purchase price shall be paid in 3 installments
with interest, that the vendee be granted a grace period of 30 days from date of
installment and that ownership of the properties shall not pass to the vendee until after
full payment of the purchase price. Respondent was able to pay petitioner the amount
of P275,055.558 as partial payment for the two properties corresponding to the initial
payments and the first installments of the said properties.However, respondent
suspended further payment as it was not satisfied with the manner petitioner complied
with its obligations under the conditional deeds of sale.Consequently, in 1978, petitioner
sent respondent a letter informing respondent of its intention to rescind the conditional
deeds of sale and attaching therewith the original copy of the respective notarial
rescission. In 1994, respondent filed a Complaint for specific performance and
damages against petitioner with the RTC. Such was dismissed without prejudice for
lack of interest, as respondent's counsel failed to attend the pre-trial conference. In
2001, respondent again filed with the RTC a complaint for specific performance and
damages, seeking to compel petitioner to accept the balance of the purchase price for
the two conditional deeds of sale and to execute the corresponding deeds of absolute
15
sale. Respondent contended that its non-payment of the instalments was due to the
following reasons:(1) Petitioner refused to receive the balance of the purchase price as
the properties were mortgaged and had to be redeemed first before a deed of absolute
sale could be executed; (2) Petitioner assured that the existing mortgages on the
properties would be discharged on or before May 20,1974, or that petitioner did not
inform it (respondent) that the mortgages on the properties were already released; and
(3) Petitioner failed to fully eject the unlawful occupants in the area. On the other hand,
Petitioner claimed that it gave respondent a notice of notarial rescission of both
conditional deeds of sale that would take effect 30 days from receipt thereof. The notice
of notarial rescission was allegedly received by respondent in 1978. Petitioner asserted
that since respondent failed to pay the full purchase price of the subject lots, both
conditional deeds of sale were rescinded as of April 16, 1978; hence, respondent had
no cause of action against it. The trial court dismissed the complaint. On appeal the
court of appeals reversed and set aside the RTC decision. It reinstated the complaint of
respondent, and directed petitioner to execute deeds of absolute sale in favor of
respondent after payment of the balance of the purchase price of the subject lots.
Issue: Whether or not the contracts to sell were validly rescinded. Ruling: Yes. The
contracts to sell were validly rescinded. In Ramos v. Heruela the Court held that
Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale, while R.A.
No. 6552or the Realty
Installment Buyer Act applies to contracts to sell.R.A. No. 6552 recognizes in
conditional sales of all kinds of real estate (industrial, commercial, residential) the right
of the seller to cancel the contract upon non-payment of an installment by the buyer,
which is simply an event that prevents the obligation of the vendor to convey title from
acquiring binding force. It is noteworthy that upon review of the records of this case, the
Court finds that respondent had been served a notice of the notarial rescission of the
conditional deeds of sale when it was furnished with the petitioner's Answer, dated
February 16, 1995, to its first Complaint filed on November 28, 1994with the RTCbut
the complaint was later dismissed without prejudice xxx.Five years after the dismissal
of the first Complaint, respondent again filed this case for specific performance in which
it received the petitioner’s answer containing the notarial rescission of the conditional
sale. Since respondent already received notices of the notarial rescission of the
conditional deeds of sale, together with petitioner’s Answer to the first Complaint five
years before it filed this case, it can no longer deny having received notices of the
notarial rescission in this case, as respondent admitted the same when it attached the
notices of notarial rescission to its Reply in this case.
Contracts; contract to sell distinguished from contract of sale; in a contract to sell,
ownership remains with the vendor and does not pass to the vendee until full payment
of the purchase price; a deed of sale is absolute when there is no stipulation in the
contract that title to the property remains with the seller until the full payment of the
purchase price. In a conditional sale, as in a contract to sell, ownership remains with
the vendor and does not pass to the vendee until full payment of the purchase price.
The full payment of the purchase price partakes of a suspensive condition, and non-
fulfillment of the condition prevents the obligation to sell from arising. To differentiate, a
deed of sale is absolute when there is no stipulation in the contract that title to the
property remains with the seller until full payment of the purchase price. Ramos v.
Heruela held that Articles 1191 and 1592 of the Civil Code are applicable to contracts of
sale, while R.A. No. 6552 applies to contracts to sell.

19. Gatchalian realty v angeles
SECOND DIVISION
G.R. No. 202358 November 27, 2013
GATCHALIAN REALTY, INC., Petitioner,
vs.
EVELYN M. ANGELES, Respondent.
DECISION
CARPIO, J.:
The Case G.R. No. 202358 is a petition for review1 assailing the Decision2 promulgated
on 11 November 2011 as well as the Resolution3 promulgated on 19 June 2012 by the
Court of Appeals (CA) in CA-G.R. SP No. 105964. The CA reversed and set aside the 8
October 2008 Order4 of Branch 197 of the Regional Trial Court of Las Piñas City (RTC)
in Civil Case No. LP-07-0143. The CA also dismissed the unlawful detainer case filed
by Gatchalian Realty, Inc. GRI) against Evelyn M. Angeles (Angeles).
The Metropolitan Trial Court (MeTC) rendered on 28 February 2006 a decision 5 in Civil
Case No. 6809 in favor of GRI and against Angeles. In its decision6 dated 13 February
2008, the RTC set aside the decision of the MeTC and dismissed the ejectment case
filed by GRI against Angeles. The RTC reversed itself in an Order7 dated 17 June 2008,
and affirmed with modification the decision of the MeTC. The RTC denied Angeles’
Motion for Reconsideration in an Order dated 8 October 2008.
The Facts
The CA recited the facts as follows:
On 28 December 1994, [Angeles] purchased a house (under Contract to Sell No. 2272)
and lot (under Contract to Sell No. 2271) from [GRI] valued at Seven Hundred Fifty
Thousand Pesos (Php 750,000.00) and Four Hundred Fifty Thousand Pesos (Php
450,000.00), respectively, with twenty-four percent (24%) interest per annum to be paid
by installment within a period of ten years.
The house and lot were delivered to [Angeles] in 1995. Nonetheless, under the
contracts to sell executed between the parties, [GRI] retained ownership of the property
until full payment of the purchase price.
After sometime, [Angeles] failed to satisfy her monthly installments with [GRI]. [Angeles]
was only able to pay thirty-five (35) installments for Contract to Sell No. 2271 and forty-
eight (48) installments for Contract to Sell No. 2272. According to [GRI], [Angeles] was
given at least twelve (12) notices for payment in a span of three (3) years but she still
failed to settle her account despite receipt of said notices and without any valid reason.
[Angeles] was again given more time to pay her dues and likewise furnished with three
(3) notices reminding her to pay her outstanding balance with warning of impending
legal action and/or rescission of the contracts, but to no avail. After giving a total of fifty-
one (51) months grace period for both contracts and in consideration of the continued
disregard of the demands of [GRI], [Angeles] was served with a notice of notarial
rescission dated 11 September 2003 by registered mail which she allegedly received on
19 September 2003 as evidenced by a registry return receipt.
Consequently [Angeles] was furnished by [GRI] with a demand letter dated 26
September 2003 demanding her to pay the amount of One Hundred Twelve Thousand
Three Hundred Four Pesos and Forty Two Centavos (Php 112,304.42) as outstanding
reasonable rentals for her use and occupation of the house and lot as of August 2003
and to vacate the same. She was informed in said letter that the fifty percent (50%)
refundable amount that she is entitled to has already been deducted with the
reasonable value for the use of the properties or the reasonable rentals she incurred
during such period that she was not able to pay the installments due her. After
deducting the rentals from the refundable amount, she still had a balance of One
16
Hundred Twelve Thousand Three Hundred Four Pesos and Forty Two Centavos (Php
112,304.42) which she was required to settle within fifteen (15) days from receipt of the
letter.
Allegedly, [Angeles] subsequently sent postal money orders through registered mail to
[GRI]. In a letter dated 27 January 2004 [Angeles] was notified by [GRI] of its receipt of
a postal money order sent by [Angeles]. More so, she was requested to notify [GRI] of
the purpose of the payment. [Angeles] was informed that if the postal money order was
for her monthly amortization, the same will not be accepted and she was likewise
requested to pick it up from [GRI’s] office. On 29 January 2004, another mail with a
postal money order was sent by [Angeles] to [GRI]. In her 6 February 2004 letter, [GRI]
was informed that the postal money orders were supposed to be payments for her
monthly amortization. Again, in its 8 February 2004 letter, it was reiterated by [GRI] that
the postal money orders will only be accepted if the same will serve as payment of her
outstanding rentals and not as monthly amortization. Four (4) more postal money
orders were sent by [Angeles] by registered mail to [GRI].
For her continued failure to satisfy her obligations with [GRI] and her refusal to vacate
the house and lot, [GRI] filed a complaint for unlawful detainer against [Angeles] on 11
November 2003.8
The MeTC’s Ruling
The MeTC of Branch 79, Las Piñas City ruled in favor of GRI. The MeTC determined
that the case was for an unlawful detainer, and thus assumed jurisdiction. The MeTC
further held that the facts show that GRI was able to establish the validity of the
rescission:
A careful scrutiny of the evidence presented by both parties regarding payments made
clearly show that [Angeles] defaulted in the payment of the monthly installments due.
Repeated notices and warnings were given to her but she still and failed to update her
account (Exhibits "E" to "E-1" and "G" to "G-2", [GRI’s] Position Paper). This is a clear
violation of the condition of their contracts. An ample grace period, i.e., 51 months, was
granted to her by [GRI] but she still failed to pay the whole amount due as provided in
paragraph 6 of the contracts and Section 3 of RA 6552. [Angeles] has been in arrears
beyond the grace period provided under the contracts and law. The last payment
received by [GRI], which represents [Angeles’] 35th installment, was made in July 2002.
On the other hand, the last payment, which represents her 48th installment, [was]
received [by GRI] in April 1999. Thus, [GRI], as seller, can terminate or rescind the
contract by giving her the notice of notarial rescission of the contracts. The notarial
rescission of the contracts was executed on September 26, 2003 and served upon
[Angeles].9
Although the MeTC agreed with Angeles that her total payment is already more than
the contracted amount, the MeTC found that Angeles did not pay the monthly
amortizations in accordance with the terms of the contract. Interests and penalties
accumulated and increased the amount due. Furthermore, the MeTC found the monthly
rentals imposed by GRI reasonable and within the range of the prevailing rental rates in
the vicinity. Compensation between GRI and Angeles legally took effect in accordance
with Article 129010 of the Civil Code. The MeTC ruled that GRI is entitled to
₱1,060,896.39 by way of reasonable rental fee less ₱574,148.40 as of May 2005, thus
leaving a balance of ₱486,747.99 plus the amount accruing until Angeles finally vacates
the subject premises.
The dispositive portion of the MeTC’s Decision reads:
WHEREFORE, in view of the foregoing, the Court renders judgment for [GRI] and
against [Angeles] and all persons claiming rights under her, as follows:
1. Ordering [Angeles] and all persons claiming rights under her to
immediately vacate the property subject of this case situated at Blk.

3, Lot 8, Lanzones St., Phase 3-C, Gatchalian Subdivision, Las Piñas
City and surrender possession thereof to [GRI];
2. Ordering the encashment of the Postal Money Order (PMO) in the
total amount of Php 120,000.00 in favor of [GRI];
3. Ordering [Angeles] to pay [GRI] the outstanding amount of Php
486,747.99 representing reasonable monthly rentals of the subject
premises as of May 2005 less the amount of the postal money orders
[worth] Php 120,000.00 and all the monthly rentals that will accrue
until she vacates the subject premises and have possession thereof
turned over to [GRI], plus the interests due thereon at the rate of
twelve percent (12%) per annum from the time of extra-judicial
demand;
4. Ordering [Angeles] to pay [GRI] the amount of Php 20,000.00 as
attorney’s fees; and
5. Costs of suit.
[Angeles’] counterclaims are hereby dismissed for lack of merit.
SO ORDERED.11
On 21 March 2006, Angeles filed a notice of appeal with the MeTC. A week later, on 28
March 2006, Angeles filed a motion to dismiss based on lack of jurisdiction. The Las
Piñas RTC denied Angeles’ motion to dismiss in an order dated 28 July 2006.
Angeles also filed on 2 October 2006 a Petition for Certiorari with Immediate Issuance
of Temporary Restraining Order and Injunction, which was docketed as SCA Case No.
06-008.12 On 3 May 2007, Branch 201 of the Las Piñas RTC dismissed Angeles’
Petition for Certiorari for forum-shopping.13
GRI, on the other hand, filed a Motion for Execution Pending Appeal. A Writ of
Execution Pending Appeal was issued in favor of GRI on 25 August 2006, and the
properties were turned over to GRI on 10 October 2006. 14
The RTC’s Ruling
Angeles’ appeal before Branch 197 of the Las Piñas RTC initially produced a result
favorable to her. The RTC found that the case was one for ejectment. As an ejectment
court, the MeTC’s jurisdiction is limited only to the issue of possession and does not
include the title or ownership of the properties in question.
The RTC pointed out that Republic Act No. 6552 (R.A. 6552) provides that the non-
payment by the buyer of an installment prevents the obligation of the seller to convey
title from acquiring binding force. Moreover, cancellation of the contract to sell may be
done outside the court when the buyer agrees to the cancellation. In the present case,
Angeles denied knowledge of GRI’s notice of cancellation. Cancellation of the contract
must be done in accordance with Section 3 of R.A. 6552, which requires a notarial act
of rescission and refund to the buyer of the cash surrender value of the payments on
the properties. Thus, GRI cannot insist on compliance with Section 3(b) of R.A. 6552 by
applying Angeles’ cash surrender value to the rentals of the properties after Angeles
failed to pay the installments due. Contrary to the MeTC’s ruling, there was no legal
compensation between GRI and Angeles. The RTC ruled:
There being no valid cancellation of the Contract to Sell, this Court finds merit in the
appeal filed by [Angeles] and REVERSES the decision of the court a quo. This Court
recognized [Angeles’] right to continue occupying the property subject of the Contract to
Sell.
WHEREFORE, premises considered, the decision of the lower court is hereby SET
ASIDE and the ejectment case filed by [GRI] is hereby DISMISSED.
SO ORDERED.15
GRI filed a Motion for Reconsideration. The RTC issued an Order on 17 June 2008
which ruled that GRI had complied with the provisions of R.A. 6552, and had refunded
17
the cash surrender value to Angeles upon its cancellation of the contract to sell when it
deducted the amount of the cash surrender value from rentals due on the subject
properties. The RTC relied on this Court’s ruling in Pilar Development Corporation v.
Spouses Villar.16 The RTC ruled:
Applying the above Pilar ruling in the present case, the cash surrender value of the
payments made by [Angeles] shall be applied to the rentals that accrued on the
property occupied by [Angeles], which rental is fixed by this Court in the amount of
seven thousand pesos per month (₱7,000.00). The total rental payment due to
Gatchalian Realty Inc. is six hundred twenty three thousand (₱623,000.00) counted
from June 1999 to October 2006. According to R.A. 6552, the cash surrender value,
which in this case is equivalent to fifty percent (50%) of the total payment made by
[Angeles], should be returned to her by [GRI] upon cancellation of the contract to sell on
September 11, 2003. Admittedly no such return was ever made by [GRI]. Thus, the
cash surrender value, which in this case is equivalent to ₱182,094.48 for Contract to
Sell No. 2271 and ₱392,053.92 for Contract to Sell No. 2272 or a total cash surrender
value of ₱574,148.40 should be deducted from the rental payment or award owing to
[Angeles].
WHEREFORE, premises considered, the Motion for Reconsideration is hereby
GRANTED. The earlier decision dated February 13, 2008 is SET ASIDE and the
decision of the court a quo is MODIFIED to wit:
1. Ordering [Angeles] and all persons claiming rights under her to
immediately vacate the property subject of this case situated at Blk.
3, Lot 8, Lanzones St., Phase 3-C, Gatchalian Subdivision, Las Piñas
City and surrender possession thereof to [GRI];
2. Ordering the encashment of the Postal Money Order (PMO) in the
total amount of Php 120,000.00 in favor of [GRI];
3. Ordering defendant, Evelyn M. Angeles, to pay plaintiff, Gatchalian
Realty Inc., the outstanding rental amount of forty eight thousand
eight hundred fifty one pesos and sixty centavos (₱48,851.60) and
legal interest of six percent (6%) per annum, until the above amount
is paid;
4. Ordering [Angeles] to pay [GRI] the amount of Php 20,000.00 as
attorney’s fees; and
5. Costs of suit.
SO ORDERED.17
The Court of Appeals’ Ruling
The CA dismissed GRI’s complaint for unlawful detainer, and reversed and set aside
the RTC’s decision. Although the CA ruled that Angeles received the notice of notarial
rescission, it ruled that the actual cancellation of the contract between the parties did
not take place because GRI failed to refund to Angeles the cash surrender value. The
CA denied GRI’s motion for reconsideration.
GRI filed the present petition for review before this Court on 10 August 2012.
The Issues
GRI assigned the following errors of the CA:
The court a quo committed reversible error when it declared that there was no refund of
the cash surrender value in favor of [Angeles] pursuant to R.A. No. 6552; and
The court a quo erred in holding that the actual cancellation of the contract between the
parties did not take place.18
The Court’s Ruling
GRI’s petition has no merit. We affirm the ruling of the CA with modification.
Validity of GRI’s
Cancellation of the Contracts

Republic Act No. 6552, also known as the Maceda Law, or the Realty Installment Buyer
Protection Act, has the declared public policy of "protecting buyers of real estate on
installment payments against onerous and oppressive conditions."19 Section 3 of R.A.
6552 provides for the rights of a buyer who has paid at least two years of installments
but defaults in the payment of succeeding installments. Section 3 reads:
Section 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding
industrial lots, commercial buildings and sales to tenants under Republic Act Numbered
Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at least two years of installments, the
buyer is entitled to the following rights in case he defaults in the payment of succeeding
installments:
(a) To pay, without additional interest, the unpaid installments due
within the total grace period earned by him which is hereby fixed at
the rate of one month grace period for every one year of installment
payments made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the contract and its
extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the
cash surrender value of the payments on the property equivalent to
fifty per cent of the total payments made, and, after five years of
installments, an additional five per cent every year but not to exceed
ninety per cent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty days from
receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full payment of
the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the
computation of the total number of installment payments made.
The sixth paragraph of the contracts between Angeles and GRI similarly provides:
SIXTH - Should the VENDEE/S fail to pay due any monthly installment the VENDOR
shall have the right to cancel this Contract and resell the lot/s subject matter of this
contract to another buyer, provided, however, that where the VENDEE/S has/have
already paid at least two years of installments, the VENDEE/S will have the right:
a) to pay without additional interest, the installments in arrears within
the total grace period earned by him/her/them which is hereby fixed
at the rate of one (1) month grace period for every one (1) year of
installment payment made, but this right can be exercised by the
VENDEE/S only once in every five (5) years of the life of this contract
and its extension, if any, and
b) if the contract is cancelled, the VENDOR shall refund to the
VENDEE/S the cash surrender value of the payments made on the
lot/s equivalent to fifty per cent (50%) of the total payments made,
and after five (5) years of installment, an additional five per cent (5%)
every year but not to exceed ninety per cent (90%) of the total
payments made; Provided, that the actual cancellation of the contract
shall take place after thirty (30) days from the receipt by the
VENDEE/S of the notice of cancellation or the demand for rescission
of the contract by a notarial act upon full payment of the cash
surrender value to the VENDEE/S; where, however, the VENDEE/S
has/have paid less than two (2) years of installments, the VENDOR
shall give the VENDEE/S [a] grace period of sixty (60) days from the
18
date the installment became due; and if the VENDEE/S fail/s to pay
the installment due after the expiration of the grace period, the
VENDOR may cancel the contract after thirty (30) days from receipt
by the VENDEE/S of the notice of cancellation or the demand for
rescission of the contract by a notarial act; and in case of cancellation
and/or rescission of this contract, all improvements on the lot/s
above-described shall be forfeited in favor of the VENDOR, and in
this connection, the VENDEE/S obligate/s himself/herself/themselves
to peacefully vacate the premises mentioned above without necessity
of notice or demand by the VENDOR.20
We examine GRI’s compliance with the requirements of R.A. 6552, as it insists that it
extended to Angeles considerations that are beyond what the law provides.
Grace Period
It should be noted that Section 3 of R.A. 6552 and paragraph six of Contract Nos. 2271
and 2272, speak of "two years of installments." The basis for computation of the term
refers to the installments that correspond to the number of months of payments, and not
to the number of months that the contract is in effect as well as any grace period that
has been given. Both the law and the contracts thus prevent any buyer who has not
been diligent in paying his monthly installments from unduly claiming the rights provided
in Section 3 of R.A. 6552.
The MeTC, the RTC, and the CA all found that Angeles was able to pay 35 installments
for the lot (Contract No. 2271) and 48 installments for the house (Contract No.
2272).21 Angeles thus made installment payments for less than three years on the lot,
and exactly four years on the house.
Section 3(a) of R.A. 6552 provides that the total grace period corresponds to one month
for every one year of installment payments made, provided that the buyer may exercise
this right only once in every five years of the life of the contract and its extensions. The
buyer’s failure to pay the installments due at the expiration of the grace period allows
the seller to cancel the contract after 30 days from the buyer’s receipt of the notice of
cancellation or demand for rescission of the contract by a notarial act. Paragraph 6(a) of
the contract gave Angeles the same rights.
Both the RTC and the CA found that GRI gave Angeles an accumulated grace period of
51 months.22 This extension went beyond what was provided in R.A. 6552 and in their
contracts.
Receipt of the Notice of Notarial Rescission
The registry return of the registered mail is prima facie proof of the facts indicated
therein.23 Angeles failed to present contrary evidence to rebut this presumption with
competent and proper evidence. To establish its claim of service of the notarial
rescission upon Angeles, GRI presented the affidavit of its liaison officer Fortunato
Gumahad,24 the registry receipt from the Greenhills Post Office,25 and the registry
return receipt.26 We affirm the CA’s ruling that GRI was able to substantiate its claim
that it served Angeles the notarial rescission sent through registered mail in accordance
with the requirements of R.A. 6552.
Amount of the Cash Surrender Value
GRI claims that it gave Angeles a refund of the cash surrender value of both the house
and the lot in the total amount of ₱574,148.40 when it deducted the amount of the cash
surrender value from the amount of rentals due.
For paying more than two years of installments on the lot, Angeles was entitled to
receive cash surrender value of her payments on the lot equivalent to fifty per cent of
the total payments made. This right is provided by Section 3(b) of R.A. 6552, as well as
paragraph 6(b) of the contract. Out of the contract price of ₱450,000, Angeles paid GRI
a total of ₱364,188.96 consisting of ₱135,000 as downpayment and ₱229,188.96 as
 19

installments and penalties.27 The cash surrender value of Angeles’ payments on the lot TOTAL AMOUNT DUE: P 686,452.82 [sic]36
amounted to ₱182,094.48.28
For the same reasons, Angeles was also entitled to receive cash surrender value of the We cannot subscribe to GRI’s view that it merely followed our ruling in Pilar
payments on the house equivalent to fifty per cent of the total payments made. Out of Development Corporation v. Spouses Villar37 (Pilar) when it deducted the cash
the contract price of ₱750,000, Angeles paid GRI a total of ₱784,107.84 consisting of surrender value from the rentals due. In Pilar, the developer also failed to refund the
₱165,000 as downpayment and ₱619,107.84 as installments and penalties. 29 The cash cash surrender value to the defaulting buyer when it cancelled the Contract to Sell
surrender value of Angeles’ payments on the house amounted to ₱392,053.92.30 through a Notice of Cancellation. It was this Court, and not the developer, that deducted
Actual Cancellation of the Contracts the amount of the cash surrender value from the accrued rentals. Moreover, the
There was no actual cancellation of the contracts because of GRI’s failure to actually developer in Pilar did not unilaterally impose rentals. It was the MeTC that decreed the
refund the cash surrender value to Angeles. amount of monthly rent. Neither did the developer unilaterally reduce the accrued
Cancellation of the contracts for the house and lot was contained in a notice of notarial rentals by the refundable cash surrender value. The cancellation of the contract took
rescission dated 11 September 2003.31 The registry return receipts show that Angeles effect only by virtue of this Court’s judgment because of the developer’s failure to return
received this notice on 19 September 2003. GRI’s demand for rentals on the
32 the cash surrender value.
properties, where GRI offset Angeles’ accrued rentals by the refundable cash surrender This was how we ruled in Pilar:
33
value, was contained in another letter dated 26 September 2003. The registry return According to R.A. 6552, the cash surrender value, which in this case is equivalent to
receipts show that Angeles received this letter on 29 September 2003.34 GRI filed a fifty percent (50%) of the total payment made by the respondent spouses, should be
complaint for unlawful detainer against Angeles on 11 November 2003, 61 days after returned to them by the petitioner upon the cancellation of the contract to sell on August
the date of its notice of notarial rescission, and 46 days after the date of its demand for 31, 1998 for the cancellation to take effect. Admittedly, no such return was ever made
rentals. For her part, Angeles sent GRI postal money orders in the total amount of by petitioner. Thus, the said cash surrender value is hereby ordered deducted from the
₱120,000. 35 award owing to the petitioner based on the MeTC judgment, and cancellation takes
The MeTC ruled that it was proper for GRI to compensate the rentals due from Angeles’ effect by virtue of this judgment.
occupation of the property from the cash surrender value due to Angeles from GRI. The Finally, as regards the award of ₱7,000.00/month as rental payment decreed by the
MeTC stated that compensation legally took effect in accordance with Article 1290 of MeTC for the use of the property in question from the time the respondent spouses
the Civil Code, which reads: "When all the requisites mentioned in Article 1279 are obtained possession thereof up to the time that its actual possession is surrendered or
present, compensation takes effect by operation of law and extinguishes both debts to restored to the petitioner, the Court finds the same just and equitable to prevent the
the concurrent amount, even though the creditors and debtors are not aware of the respondent spouses, who breached their contract to sell, from unjustly enriching
compensation." In turn, Article 1279 of the Civil Code provides: themselves at the expense of the petitioner which, for all legal intents and purposes,
In order that compensation may be proper, it is necessary: never ceased to be the owner of the same property because of the respondents’ non-
(1) That each one of the obligors be bound principally, and that he be at the fulfillment of the indispensable condition of full payment of the purchase price, as
same time a principal creditor of the other; embodied in the parties’ contract to sell. However, as earlier explained, this sum is to be
(2) That both debts consist of a sum of money, or if the things due are reduced by the cash surrender value of the payments so far made by the spouses, and
consumable, they be of the same kind, and also of the same quality if the latter the resulting net amount still owing as accrued rentals shall be subject to legal interest
has been stated; from finality of this Decision up to the time of actual payment thereof. 38
(3) That the two debts are due; Mandatory Twin Requirements:
(4) That they be liquidated and demandable; Notarized Notice of Cancellation and
(5) That over neither of them there be any retention or controversy, Refund of Cash Surrender Value
commenced by third persons and communicated in due time to the debtor. This Court has been consistent in ruling that a valid and effective cancellation under
However, it was error for the MeTC to apply Article 1279 as there was nothing in the R.A. 6552 must comply with the mandatory twin requirements of a notarized notice of
contracts which provided for the amount of rentals in case the buyer defaults in her cancellation and a refund of the cash surrender value.
installment payments. The rentals due to GRI were not liquidated. GRI, in its letter to In Olympia Housing, Inc. v. Panasiatic Travel Corp.,39 we ruled that the notarial act of
Angeles dated 26 September 2003, unilaterally imposed the amount of rentals, as well rescission must be accompanied by the refund of the cash surrender value.
as an annual 10% increase: x x x The actual cancellation of the contract can only be deemed to take place upon the
expiry of a 30-day period following the receipt by the buyer of the notice of cancellation
RIOD COVERED NO. OF RENTALS AMOUNT DUE or demand for rescission by a notarial act and the full payment of the cash surrender
MONTHS PER MONTH value.
e to December 1999 7 11,000.00 77,000.00 In Pagtalunan v. Dela Cruz Vda. De Manzano,40 we ruled that there is no valid
cancellation of the Contract to Sell in the absence of a refund of the cash surrender
uary to December 2000 12 12,100.00 145,200.00 value. We stated that:
x x x Sec. 3 (b) of R.A. No. 6552 requires refund of the cash surrender value of the
uary to December 2001 12 13,310.00 159,720.00 payments on the property to the buyer before cancellation of the contract. The provision
uary to December 2002 12 14,641.00 175,692.02 [sic] does not provide a different requirement for contracts to sell which allow possession of
the property by the buyer upon execution of the contract like the instant case. Hence,
uary to August 2003 8 16,105.10 128,840.80 petitioner cannot insist on compliance with the requirement by assuming that the cash

surrender value payable to the buyer had been applied to rentals of the property after
respondent failed to pay the installments due. (Emphasis supplied)
Remedies of the Buyer
in the Absence of a Valid Cancellation of a Contract to Sell
In view of the absence of a valid cancellation, the Contract to Sell between GRI and
Angeles remains valid and subsisting. Apart from Olympia and Pagtalunan, we are
guided by our rulings in Active Realty & Development Corp. v. Daroya 41 (Active) and
Associated Marine Officers and Seamen’s Union of the Philippines PTGWO-ITF v.
Decena42 (Associated).
In Olympia , this Court dismissed the complaint for recovery of possession for having
been prematurely filed without complying with the mandate of R.A. 6552. We ordered
the defaulting buyer to pay the developer the balance as of the date of the filing of the
complaint plus 18% interest per annum computed from the day after the date of the
filing of the complaint, but within 60 days from the receipt of a copy of the decision.
Upon payment, the developer shall issue the corresponding certificate of title in favor of
the defaulting buyer. If the defaulting buyer fails to pay the full amount, then the
defaulting buyer shall vacate the subject property without need of demand and all
payments will be charged as rentals to the property. There was no award for damages
and attorney’s fees, and no costs were charged to the parties.
In Pagtalunan, this Court dismissed the complaint for unlawful detainer. We also
ordered the defaulting buyer to pay the developer the balance of the purchase price
plus interest at 6% per annum from the date of filing of the complaint up to the finality of
judgment, and thereafter, at the rate of 12% per annum. Upon payment, the developer
shall issue a Deed of Absolute Sale of the subject property and deliver the
corresponding certificate of title in favor of the defaulting buyer. If the defaulting buyer
fails to pay the full amount within 60 days from finality of the decision, then the
defaulting buyer should vacate the subject property without need of demand and all
payments will be charged as rentals to the property. No costs were charged to the
parties.
In Active, this Court held that the Contract to Sell between the parties remained valid
because of the developer’s failure to send a notarized notice of cancellation and to
refund the cash surrender value. The defaulting buyer thus had the right to offer to pay
the balance of the purchase price, and the developer had no choice but to accept
payment. However, the defaulting buyer was unable to exercise this right because the
developer sold the subject lot. This Court ordered the developer to refund to the
defaulting buyer the actual value of the lot with 12% interest per annum computed from
the date of the filing of the complaint until fully paid, or to deliver a substitute lot at the
option of the defaulting buyer.
In Associated, this Court dismissed the complaint for unlawful detainer. We held that
the Contract to Sell between the parties remained valid because the developer failed to
send to the defaulting buyer a notarized notice of cancellation and to refund the cash
surrender value. We ordered the MeTC to conduct a hearing within 30 days from
receipt of the decision to determine the unpaid balance of the full value of the subject
properties as well as the current reasonable amount of rent for the subject properties.
We ordered the defaulting buyer to pay, within 60 days from the trial court’s
determination of the amounts, the unpaid balance of the full value of the subject
properties with interest at 6% per annum computed from the date of sending of the
notice of final demand up to the date of actual payment. Upon payment, we ordered the
developer to execute a Deed of Absolute Sale over the subject properties and deliver
the transfer certificate of title to the defaulting buyer. In case of failure to pay within the
mandated 60-day period, we ordered the defaulting buyer to immediately vacate the
premises without need for further demand. The developer should also pay the
20
defaulting buyer the cash surrender value, and the contract should be deemed
cancelled 30 days after the defaulting buyer’s receipt of the full payment of the cash
surrender value. If the defaulting buyer failed to vacate the premises, he should be
charged reasonable rental in the amount determined by the trial court.
We observe that this case has, from the institution of the complaint, been pending with
the courts for 10 years. As both parties prayed for the issuance of reliefs that are just
and equitable under the premises, and in the exercise of our discretion, we resolve to
dispose of this case in an equitable manner. Considering that GRI did not validly
rescind Contracts to Sell Nos. 2271 and 2272, Angeles has two options:
1. The option to pay, within 60 days from the MeTC’s determination of the
proper amounts, the unpaid balance of the full value of the purchase price of
the subject properties plus interest at 6% per annum from 11 November 2003,
the date of filing of the complaint, up to the finality of this Decision, and
thereafter, at the rate of 6% per annum.43 Upon payment of the full amount,
GRI shall immediately execute Deeds of Absolute Sale over the subject
properties and deliver the corresponding transfer certificate of title to Angeles.
In the event that the subject properties are no longer available, GRI should
offer substitute properties of equal value.1âwphi1 Acceptance of the suitability
of the substitute properties is Angeles’ sole prerogative. Should Angeles
refuse the substitute properties, GRI shall refund to Angeles the actual value
of the subject properties with 6% interest per annum 44 computed from 11
November 2003, the date of the filing of the complaint, until fully paid; and
2. The option to accept from GRI ₱574,148.40, the cash surrender value of the
subject properties, with interest at 6% per annum,45 computed from 11
November 2003, the date of the filing of the complaint, until fully paid.
Contracts to Sell Nos. 2271 and 2272 shall be deemed cancelled 30 days after
Angeles’ receipt of GRI’s full payment of the cash surrender value. No rent is
further charged upon Angeles as GRI already had possession of the subject
properties on 10 October 2006.
WHEREFORE, we DENY the petition. The Decision of the Court of Appeals in CA-G.R.
SP No. 105964 promulgated on 11 November 2011 and the Resolution promulgated on
19 June 2012 are AFFIRMED with MODIFICATIONS.
1. The Metropolitan Trial Court of Las Piñas City is directed to conduct a
hearing within a maximum period of 30 days from finality of this Decision to (1)
determine Evelyn M. Angeles’ unpaid balance on Contracts to Sell Nos. 2271
and 2272; and (2) the actual value of the subject properties as of 11 November
2003.
2. Evelyn M. Angeles shall notify the Metropolitan Trial Court of Las Piñas City
and Gatchalian Realty, Inc. within a maximum period of 60 days from the
Metropolitan Trial Court of Las Piñas City’s determination of the unpaid
balance whether she will pay the unpaid balance or accept the cash surrender
value.
Should Evelyn M. Angeles choose to pay the unpaid balance, she shall pay, within 60
days from the MeTC’s determination of the proper amounts, the unpaid balance of the
full value of the purchase price of the subject properties plus interest at 6% per annum
from 11 November 2003, the date of filing of the complaint, up to the finality of this
Decision, and thereafter, at the rate of 6% per annum. Upon payment of the full amount,
GRI shall immediately execute Deeds of Absolute Sale over the subject properties and
deliver the corresponding transfer certificate of title to Angeles.
In the event that the subject properties are no longer available, GRI should offer
substitute properties of equal value. Should Angeles refuse the substitute properties,
GRI shall refund to Angeles the actual value of the subject properties with 6 interest per
 21

annum computed from November 2003, the date of the filing of the complaint, until fully
paid. Should Evelyn M. Angeles choose to accept payment of the cash surrender value,
she shall receive from GRI ₱574,148.40 with interest at 6 per annum computed from
November 2003, the date of the filing of the complaint, until fully paid. Contracts to Sell
Nos. 2271 and 2272 shall be deemed cancelled 30 days after Angeles' receipt of GRI's
full payment of the cash surrender value. No rent is further charged upon Evelyn M.
Angeles.
No costs.
SO ORDERED.