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KATIGBAK V CA (EVANGELISTA AND LUNDBERG) ver.

1
PAREDES; January 31, 1962

NATURE
Appeal by certiorari
FACTS
- Katigbak, thru Lundberg, entered into agreement with Evangelista to purchase
winch for P12,000.00, payable at P5,000.00 upon delivery and the P7,000.00 w/in 60
days. As winch needed some repairs, which could be done in shop of Lundberg, it
was stipulated that amt necessary for repairs will be advanced by Katigbak,
deductible fr initial payment. Repairs were undertaken, P2,029.85 for spare parts was
advanced by Katigbak. For one reason, sale wasnt consummated, Katigbak sued
Evangelista, Lundberg and the latter's company, for refund. The defendants filed
separate answers, Lundberg alleging non- liability for the refund since the same was
purely a personal account between Katigbak and Evangelista. Evangelista claimed
that while there was an agreement and that Katigbak advanced the payment for the
spare parts, Katigbak refused to comply with his contract to purchase; that as a
result, he was forced to sell the winch to a third person for only P10,000.00, thus
incurring a loss of P2,000.00, which amount Katigbak should be ordered to pay, plus
damages.
ISSUE
WON vendee should be liable
HELD
YES - The herein petitioner failed to take delivery of the winch, subject matter of the
contract and such failure or breach was, according to the Court of Appeals,
attributable to him, a fact which is binding upon this Court. The right to resell the
equipment, therefore, cannot be disputed. It was also found by the appellate court
that in the subsequent sale of the winch to a third party, the vendor thereof lost
P2,000.00, said difference to be borne by the supposed vendee who failed to take
delivery and/or pay the price.
KATIGBAK V CA (EVANGELISTA AND LUNDBERG) ver.2
January 31, 1962

FACTS
An advertisement for the sale of a Double Drum Carco Tractor was placed by VK
Lundberg, owner and operator of International Tractor and Equipment Co., Ltd.
Artemio Katigbak wanted to buy. Price quoted by Lundberg was P12,000. Wanting a
price reduction, Katigbak was referred to the owner of the winch, Daniel
Evangelista. Agreement was to pay P5,000 upon delivery and P7,000 within 60 days.
The condition of the sale was that the winch would be delivered in good condition.
Katigbak was apprised that the winch needed some repairs, which could be done in
the shop of Lundberg. It was then stipulated that the amount necessary for the repairs
will be advanced by Katigbak but deductible from the initial payment of P5,000.00.
The repairs were undertaken and the total of P2,029.85 for spare parts was advanced
by Katigbak for the purpose. For one reason or another, the sale was not
consummated and Katigbak sued Evangelista, Lundberg and the latter's company, for
the refund of such amount.

Lundbergs defense: Sale was between Katigbak and Evangelista. He was a stranger
to the case.

Evangelistas defense: Katigbak refused to comply with the contract to purchase, so
he was forced to sell the winch to a 3
rd
person for P10,000. Katigbak should pay the
loss of P2,000 from the original price.

RTC: Ordered Lundberg and Evangelista to pay Katigbak the P2,029.85 cost of
repairs + atty fees.

CA: Katigbak has right to refund P2,029.85 but, applying Hanlon v. Hausserman,
Evangelista had the right to resell and has the right to recover P2,000 as the
difference between the original price and the resale price.

ISSUE & RULING: WON Evangelista had the right to resell and right to recover
P2,000
YES. Applying Hanlon v Hausserman (where Hanlon failed to pay for the shares, so
the mining company had right to resell and refund the difference between the
original price and the resale price):

In case of failure of buyer to take delivery and pay the price, seller is entitled to
resell. If seller is forced to sell at lower price, buyer must pay for the difference. If
seller sells at higher price, breach becomes damnum absque injuria. There is no need
for an action of rescission by seller in such case.

Dispositive: Evangelista must pay for P2,029.85, but Katigbak must also pay P2,000,
offsetting Evangelistas obligation to P29.85. Further, Katigbak must pay P700 as
atty fee.

BORBON V SERVICEWIDE SPECIALISTS, INC
258 SCRA 634 VITUG; July 11, 1996
NATURE
Appeal from decision of CA which affirmed RTC Manila decision which confirmed
the disputed possession of a motor vehicle in favor of respondent and ordered
payment of liquidated damages
FACTS
- December 7, 1984, Daniel L. Borbon and Francisco Borbon signed a promissory
note stating
> I/We jointly and severally promised to pay Pangasinan Auto Mart, Inc.
P122,856.00 without need or notice or demand, in installments of P10,238.00
monthly for 12 months due and payable on the 7th day of each month starting
January 1985, with late payment charge of 3% per month to be added, default charge
entailing attorney's services is 25% of the total sum due and liquidated damages
amounting to 25% of the total sum due. Acceptance of payment of any installment
after due date shall not be considered as extending the time for the payment nor shall
failure to exercise any right constitute a waiver of such rights
- to secure the Promissory Note, the Borbons executed a Chattel mortgage on a brand
new Isuzu Crew Cab - December 10, 1984 - rights of Pangasinan Auto Mart, Inc. was
assigned to Filinvest Credit Corporation with notice to the Borbons
- March 21, 1985 - Filinvest Credit Corporation assigned all its rights, interest and
title over the Promissory Note and the chattel mortgage to Servicewide Specialists -
Borbons failed to comply with their obligation thus Servicewide Specialists
demanded from Borbons the payment of their installments due in January 29, 1985
by telegram
- Servicewide Specialists sent a demand letter to Borbons for them to pay their entire
obligation which, as of March 12, 1985, totaled P185,257.80 - For their defense,
Borbpns claim that what they intended to buy from Pangasinan Auto mart was a
jeepney type Isuzu Cab but through misinterpretation and machination Pangasinan
Motor Inc. delivered an Isuzu crew cabthe only available unit Borbons claim:
> they are not in default of their obligation because Pangasinan Auto Mart was the
first guilty party by not fulfilling its obligation in the contract > neither party incurs
delay if the other does not comply with his obligation [A1169 CC]
- In their appeal to this Court, petitioners merely seek a modification of the decision
of the appellate court insofar as it has upheld the award of liquidated damages and
attorney's fees in favor of Servicewide Specialists. Borbons invoke A1484 CC which
reads:
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 or 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.
ISSUE
WON A1484 CC applies to attorneys fees and liquidated damages
HELD
YES - remedies under Article 1484 of the Civil Code are not cumulative but
alternative and exclusive > Nonato vs. Intermediate Appellate Court and Investor's
Finance Corporation . . . Should the vendee or purchaser of a personal property
default in the payment of two or more of the agreed installments, the vendor or seller
has the option to avail of any of these three remedies either to exact fulfillment by
the purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on
the purchased personal property, if one was constituted. These remedies have been
recognized as alternative, not cumulative, that the exercise of on e would bar the
exercise of the others.
- The creditor may not thereafter exercise any other option, unless the chosen
alternative proves to be innefectual or unavailing due to no fault on his part. For
instance, in A1484 CC, it is only when there has been a foreclosure of the chattel
mortgage that the vendee-mortgagor would be permitted to escape from a deficiency
liability.
- A1484 CC: the vendor-mortgagee or its assignees loses any right "to recover any
unpaid balance of the price" and any "agreement to the contrary (would be) void.
> Macondray & Co. vs. Eustaquio: , we have said that the phrase "any unpaid
balance" can only mean the deficiency judgment to which the mortgagee may be
entitled to when the proceeds from the auction sale are insufficient to cover the "full
amount of the secured obligations which include interest on the principal, attorney's
fees, expenses of collection, and the costs." > Luneta Motor Co. vs. Salvador:
legislative intent is not to merely limit the proscription of any further action to the
"unpaid balance of the principal" but to all other claims that may be likewise be
called in for in the accompanying promissory note against the buyer-mortgagor or
his guarantor, including costs and attorney's fees.
> Filipinas Investment & Finance Corporation vs. Ridad: mortgagor unjustifiably
refused to surrender the chattel subject of the mortgage upon failure of two or more
installments, or if he concealed the chattel to place it beyond the reach of the
mortgagee, that thereby constrained the latter to seek court relief, the expenses
incurred for the prosecution of the case, such as attorney's fees, could rightly be
awarded.
- Given the circumstances, we must strike down the award for liquidated damages
made by the court a quo but we uphold the grant of attorney's fees which we, like the
appellate court, find it to be reasonable.
Disposition Appealed decision is MODIFIED by deleting the award for liquidated
damages; in all other respects, the judgment of the appellate court is AFFIRMED
SPOUSES NONATO V IAC (INVESTOR'S FINANCE CORP)
ESCOLIN; 1985

FACTS
- On June 28, 1976, defendant spouses Restituto Nonato and Ester Nonato purchased
one (1) unit of Volkswagen Sakbayan from the People's Car, Inc., on installment
basis. To secure complete payment, the defendants executed a promissory note and a
chattel mortgage in favor of People's Car, Inc. People's Car, Inc., assigned its rights
and interests over the note and mortgage in favor of plaintiff Investor's Finance
Corporation (FNCB) Finance). For failure of defendants to pay two or more
installments, despite demands, the car was repossessed by plaintiff on March 20,
1978.
- Despite repossession, plaintiff demanded from defendants that they pay the balance
of the price of the car. Finally, on June 9, 1978, plaintiff filed before the Court of
First Instance of Negros Occidental the present complaint against defendants for the
latter to pay the balance of the price of the car, with damages and attorney's fees.
- In their answer, the spouses Nonato alleged by way of defense that when the
company repossessed the vehicle, it had, by that act, effectively cancelled the sale of
the vehicle. It is therefore barred from exacting recovery of the unpaid balance of the
purchase price, as mandated by the provisions of Article 1484 of the Civil Code.
- The trial court as well as the appellate court ruled against the Nonatos.
ISSUE
WON the vendor, or his assignee, who had cancelled the sale of a motor vehicle for
failure of the buyer to pay two or more of the stipulated installments, may also
demand payment of the balance of the purchase price
HELD
NO Ratio A vendor or his assignee who has availed of one of the remedies under
Article 1484 of the Civil Code is barred from availing of the other remedies
mentioned therein. The choice of the vendor in the said law is alternative, not
cumulative. Reasoning - The applicable law in the case at bar, involving as it does a
sale of personal property on installment, is Article 1484 of the Civil Code which
provides: "In a contract of sale of personal property the price of which is payable
in installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendee's failure to pay cover two or more installments. In this case, he
shall have no further action against the purchaser to recover any unpaid balance
of the price. Any agreement to the contrary shall be void." - The meaning of the
aforequoted provision has been repeatedly enunciated in a long line of cases. Thus;
"Should the vendee or purchaser of a personal property default in the payment of two
or more of the agreed installments, the vendor or seller has the option to avail of any
of these three remedies - either to exact fulfillment by the purchaser of the
obligation, or to cancel the sale, or to foreclose the mortgage on the purchased
personal property, if one was constituted. These remedies have been recognized as
alternative, not cumulative, that the exercise of one would bar the exercise of the
others."
- It is not disputed that the respondent company had taken possession of the car
purchased by the Nonatos on installments. But while the Nonatos maintain that the
company had, by that act, exercised its option to cancel the contract of sale, the
company contends that the repossession of the vehicle was only for the purpose of
appraising its value and for storage and safekeeping pending full payment by the
Nonatos of the purchasing price. The company thus denies having exercised its right
to cancel the sale of the repossessed car. The records show otherwise.
- The receipt issued by the respondent company to the Nonatos when it took
possession of the vehicle states that the vehicle could be redeemed within fifteen [15]
days. This could only mean that should petitioners fail to redeem the car within the
aforesaid period by paying the balance of the purchase price, the company would
retain permanent possession of the vehicle, as it did in fact. - Indeed, the acts
performed by the corporation are wholly consistent with the conclusion that it had
opted to cancel the contract of sale of the vehicle. It is thus barred from exacting
payment from petitioners of the balance of the price of the vehicle which it had
already repossessed. It cannot have its cake and eat it too.
Disposition Decision of IAC reversed
DELTA MOTOR SALES CORP V NIU KIM DUAN
NOCON; September 2 1992
NATURE
Appeal by defendants-appellants assailing the trial courts decision
FACTS
- On July 5, 1975, the defendants purchased from the plaintiff 3 units of Daikin air
conditioner all valued at P 19,350 as evidenced by the deed of conditional sale. The
Deed of sale had the following terms and conditions: a.) defendants shall pay a down
payment of P774 and the balance of P18,576 shall be paid by them in 24
installments; b.) the title to the properties purchased shall remain with the plaintiff
until the purchase price thereof is fully paid; c.) if any 2 installments are not paid by
the defendants on their due dates, the whole of the principal sum remaining unpaid
shall become due, with interest at the rate of 14% per annum: and d.) in case of a
suit, the defendants shall pay an amount equivalent to 25% of the remaining unpaid
obligation as damages, penalty and attorneys fees; that to secure the payment of the
balance of P18,576 the defendants jointly and severally executed in favor of the
plaintiff a promissory note; that the 3 air conditioners were delivered to and received
by the defendants as shown by the delivery receipt; that after paying the amount of
P6966, the defendants failed to pay at least 2 monthly installments; that as of January
6 1977, the remaining unpaid obligation of the defendants amounted to P12,920.08;
that statements of accounts were sent to the defendants and the plaintiffs collectors
personally went to the former to effect collections but they failed to do so; that
because of the unjustified refusal of the defendants to pay their outstanding account
and their wrongful detention of the properties in question, plaintiff tried to recover
the said properties extra-judicially but it failed to do so.
- the matter was later referred by the plaintiff to its legal counsel for legal action. In
its verified complaint dated January 28 1977, the plaintiff prayed for the issuance of
a writ of replecvin, which the Court granted in its order dated February 28 1977. The
plaintiff, by virtue of the aforesaid writ, succeeded in retrieving the properties in
question. As of Octover 3 1988, the outstanding account of the defendants is only in
the amount of P6,188.29 as shown by the computation. In view of the failure of the
defendants to pay their obligations, the amount of P6966 which had been paid by
way of installments were treated as rentals for the units in question for 2 years
pursuant to the provisions of par 5 of the Deed of Conditional Sale. The trial court
ruled in favor of plaintiff-appellee.
- Defendants assail the Deed of Conditional Sale as being contrary to law, morals,
good custom, public order or public policy. IN particular, they point to the contracts
par 5 & 7 as iniquitous which paragraphs state that:
5. should buyer fail to pay any of the monthly installments when due, or otherwise
fail to comply with any of the terms and conditions herein stipulated, this contract
shall automatically become null and void and all sums so paid by buyer by reason
thereof shall be considered as rental and the seller shall then and there be free to take
possession thereof without liability for trespass or responsibility for any article left in
or attached to the property.
7. Should seller rescind this contract for any of the reasons stipulated in the
preceding paragraph, the buyer, by these presents obligates himself to peacefully
deliver the property to the seller in case of rescission and should a suit be brought in
court by seller to seek judicial declaration of rescission and take possession of the
property, the buyer hereby obligates himself to pay all the expenses to be incurred by
reason of such suit and in addition to pay the sum equivalent to 25% of the
remaining unpaid obligation as damages, penalty and attorneys fees.
- Defendants claim that for the use of the plaintiff-appellees 2 air conditioners, from
July 5 1975 to April 4 1977, or for a period of about 22 months, they, in effect, paid
rentals in the amount of P6,429.92 or roughly one-third of the entire price of said air-
conditioners which was P19,350. They also complain that for the said period the trial
court is ordering them to pay P6188.29 as the balance due for the 3 air conditioners
repossessed. They satirically pointed out that by putting a few touches here and
there, the same units can be sold again to the next imprudent customer by plaintiff
appellee (thus unjustly enriching them)
ISSUES
1. WON the terms and conditions of the Deed of Conditional Sale is
unconscionable 2. WON Delta Motor is barred from exacting payment from
defendants of the balance of the price of the 3 air-conditioners which it had already
repossessed
HELD
1. NO - A stipulation in a contract that the installments paid shall not be returned to
the vendee is valid insofar as the same may not be unconscionable under the
circumstances as sanctioned by Art 1486 of the New Civil Code. The monthly
installment payable by defendants-appellants was P774. the P5,655.92 installment
payments correspond only to 7 monthly installments. Since they admit having used
the air-conditioners for 22 months, this means that they did not pay 15 monthly
installments on the said air-conditioners and were thus using the same free for said
period to the prejudice of plaintiff-appellee. Under the circumstances, the treatment
of the installment payments as rentals cannot be said to be unconscionable.
2. YES - The vendor in a sale of personal property payable in installments may
exercise one of 3 remedies, namely a.) exact the fulfillment of the obligation, should
the vendee fail to pay b.) cancel the sale upon the vendees failure to pay two or more
installments c.) foreclose the chattel mortgage, if one has been constituted on the
property sold, upon the vendees failure to pay two or more installments. The third
option of remedy, however is subject to the limitation that the vendor cannot recover
any unpaid balance of the price and any agreement to the contrary is void. The 3
remedies are alternative and not cumulative. If the creditor chooses one remedy, he
cannot avail himself of the other two. It is not disputed that the plaintiff-appellee had
taken possession of the 3 air conditioners through a writ of replevin when
defendants- appellants refused to extra0judicially surrender the same. This was done
pursuant to par 5 and 7 of its deed of conditional sale when defendants appellants
failed t pay at least 2 monthly installments, so much so that as of January 6 1977, the
total amount they owed plaintiff-appellee, inclusive of interest, was P12,920.08. The
case plaintiff-appellee filed was to seek a judicial declaration that it had validly
rescinded the Deed of Conditional Sale. Clearly, plaintiff-appellee chose the second
remedy of Art 1484 in seeking enforcement of its contract with defendants-
appellants. This is shown from the fact that it showed the computation of the
outstanding account of defendants-appellants as of Oct 3 1977 took into account the
value of the units repossessed. Having done so, it is barred from exacting payment
from defendants-appellants of the balance of the price of the 3 air-conditioning units
which it had already repossessed.
Disposition The judgment of the trial court is set aside and the complaint filed by
Delta Motor is dismissed
ELISCO TOOL MANUFACTURING CORPORATION, petitioner, vs. COURT
OF APPEALS, ROLANDO LANTAN, and RINA LANTAN, respondents.| 31 May
1999| J. Mendoza| Paula Parungao

Facts

Rolando Lantan was employed at the Elisco Tool Manufacturing Corporation as
head of its cash department.

On 9 Janary 1980, he entered into an agreement with the company wherein he would
lease the company car for a monthly rental of P1,10.65 for a period of 5 years.

The agreement further stated that the lease rental would be made through salary
deductions of Lantan's salary for the aforementioned period and that all expenses
necessary to maintain the vehicle would be shouldered by him.

At the end of the 5 year period, Lantan may exercise the option to purchase the
vehicle and that all the monthly rentals shall be applied to the payment of the full
purchase price of the car and if he wanted to exercise the option before the lapse of
the period, he may do so upon payment of the remaining balance of the 5 year rental.

If Lantan fails to pay 3 accumulated monthly rentals, Elisco Tool had the full right to
lease the vehicle to another employee. And in case Lantan resigns, the motor vehicle
will be returned to Elico Tool.

Lantan then executed a PN in favor of Elisco Tool with respect to the monthly
rentals.

Lantan then took possession of the car and installed accessories worth P15k.

In 1981, Elisco Tool ceased operations, and Lantan was laid off. Nonetheless, as of
1984, Lantan was able to make payments for the car in the total amount of P61k.

Elisco Tool filed a complaint, "Replevin plus sum of money" against Lantan, his
wife and two other persons before RTC Pasig. Elisco alleged that Lantan failed to
pay the monthly rentals which amounted to P39k and that despite demands, Lantan
failed to settle his obligations.

The sheriff took possession of the car and turned it over to Elisco.

Lantan filed an answer claiming that the agreement on which the complaint was
based had not been signed by Elisco's representative, Gallego, although it had been
signed by Lantan. He also alleged that their true agreement was "to buy and sell and
not lease with option to buy" the car in question at a monthly amortization of P1,000.

Elisco however maintained that the contract between the parties was one of lease
with option to purchase and that the promissory note was merely a "nominal
security" for the agreement. It contended that the mere acceptance of the amounts
paid by Lantan and for indefinite periods of time was not evidence that the parties'
agreement was one of purchase and sale.

RTC held that the agreement in question was one of sale and that Lantan had fully
paid the price of the car having paid the total amount of P61,070.94 aside from
installing accessories in the car. CA affirmed the RTC.

Issue: Was the agreement one of sale or lease? SALE.

Ruling: WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
costs against petitioner. SO ORDERED.

Ratio

Lantan acquired the vehicle under a car plan of Elisco Tool. Under the said plan, the
company advances the purchase price of a car to be paid back by the employee
through monthly deductions from his salary. The company retains ownership of the
motor vehicle until it shall have been fully paid for. Retention of registration of the
car in the company's name is only a form of a lien on the vehicle in the event that the
employee would abscond before he has fully paid for it. There are also stipulations in
car plan agreements to the effect that should the employment of the employee
concerned be terminated before all installments are fully paid, the vehicle will be
taken by the employer and all installments paid shall be considered rentals per
agreement.

Vda de Jose v. Barrueco: 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.

US v. Halili: 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.

The contract being one of sale on installment, CA correctly applied Art. 1484 and
1485, CC:

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 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. This
limitation applies to contracts purporting to be leases of personal property with
option to buy by virtue of Art. 1485. 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 Elisco Tool of the complaint for replevin to
recover possession of movable property.

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 Lantan.

Lantan however could no longer be held liable because he had already fulfilled his
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.

As to the PN, CA held that the 2% monthly interest on delayed payments as stated on
the said document does not form part of the contract nor does it have any
consideration.

There is no evidence that Lantan received P60k as indicated in the PN as its value.
What was proven was that Lantan received the car valued at P60 and for which he
paid monthly amortizations.

Lantan's default in paying installments was due to the cessation of operations of
Elizalde Steel Corporation, Elisco's sister company (dunno where THAT came
from). Receiving payment even after 2 years since Lantan was terminated from
employment constitutes a waiver of their right to collect interest upon 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.

PCI Leasing and Finance, Inc. v. Giraffe-X Creative Imaging, Inc.
CASA FILIPINA REALTY V OFFICE OF THE PRES. (SEVILLA)
241 SCRA 165
ROMERO; Feb 1995
FACTS
- The Sevilla spouses agreed to purchase a parcel of land from Casa Filipina Realty
Corp (CFRC). The parties agreed in a contract to sell that the purchase price will be
paid in installments for the period of 5 years, w/ 28% amortization interest per
annum.
- The spouses failed to pay the amortizations on time. They paid penalties. - Almost a
year later, Dennis Sevilla wrote to CFRC calling its attention to the absence of any
improvement in the subdivision and his discovery that, upon checking with the
Register of Deeds, the mother title of the subdivision was under lis pendens and
mortgaged to ComSavings Bank.
- Sevilla requested a refund of all installment payments made on account of the
contract. - The Sevilla spouses filed a complaint vs. CFRC with the Office of
Appeals, Adjudication and Legal Affairs (OAALA) of the Human Settlements
Regulatory Commission. They prayed for the refund of P70,431.12 w/c was the total
amount they had paid CFRC.
- The OAALA found CFRC to be w/o license to sell the subdivision involved.
OAALA held that, even assuming that CFRC had a license to sell, it was still liable
for violation of Sec. 20 of PD No. 957 as it had failed to develop the subdivision.
The OAALA ordered CFRC to refund the Sevilla couple the said amount and
P3,000.00 as administrative fine for violation of Sec. 20 of P.D. No. 957.
- Said decision was affirmed by the Housing and Land Use Regulatory Board
(HLURB) . - CFRC appealed. The Office of the President dismissed it for lack of
merit and affirmed the decision of the HLURB. CFRC filed a MFR of the decision of
the OP but it was denied.
CFRCs claim:
1) petition should not have been dismissed as it involves the interpretation and/or
application of provisions of law as the Court has to determine whether it is Sec. 23 or
24 of P.D. No. 957 w/c should be applied in the instant case.
2) since private respondents desisted from paying the agreed installments, they
should have notified the CFRC of such desistance in accordance with Sec. 235. 3)
since private respondent's desistance from further paying the amortization was due to
litis pendentia and the mortgage of the mother title of the subdivision, Sec. 246
should have been applied in the case.
4) when the Sevillas demanded a refund of installments paid, they were already in
default, and that their said demand had 'the sound of belated and hindsight attempt to
cover up the default for which contract cancellation would be the necessary
consequence.'
ISSUES
1. WON Secs 23 and 24 of PD 957 apply in this case 2. WON the notice requirement
of Sec 23 has been complied with 3. WON the private appellees were in default
HELD
1. YES - The case falls squarely within the purview of both Secs. 23 and 24 of P.D.
No. 957. - Private respondent's refusal to continue paying the amortization is thus
based on two principal grounds: nondevelopment of the subdivision and
encumbrance of the property subject of the sale which became apparent to the buyer
only after conducting his own investigation. 2. YES - OP: petitioners claim that
appellees had failed to give the required notice before demanding for refund, is not
borne out by the evidence. Records show that ...Dennis Sevilla already gave notice to
appellant regarding, among other things, the nondevelopment of the subdivision, and
therein demanded for refund. To our mind, Section 23 does not require that a notice
be given first before a demand for refund can be made. The notice and the demand
can be made in the same letter or communication, and this is what the appellees did. -
SC: Public respondent's conclusions are hereby affirmed. This decree...was issued in
the wake of numerous reports that many real estate subdivision owners, developers,
operators and/or sellers "have reneged on their representations and obligations to
provide and maintain properly subdivision roads, drainage, sewerage, water systems,
lighting systems and other basic requirements" for the health and safety of home and
lot buyers. It was designed to stem the tide of "fraudulent manipulations perpetrated
by unscrupulous subdivision and condominium sellers and operators, such as failure
to deliver titles to buyers or titles free from liens and encumbrances." Should the
notice requirement provided for in Sec. 23 be construed as required to be given
before a buyer desists from further paying amortizations as in this case, the intent of
the law to protect subdivision lot buyers, such as private respondents, will tend to be
defeated. 3. NO - The general rule is that an obligor incurs in delay (default) only after
a demand, judicial or extrajudicial, has been made from him for the fulfillment of his
obligation. - Article 1169 CC: 'Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.' - Here, there was no such demand by the appellant.
The letters it sent to appellees were the usual remind letters that are ordinarily sent
by creditors to late-paying debtors. They are not the demand contemplated by law.

5
"SEC. 23. Non-Forfeiture of Payments. - No installment payment made by a buyer in
a subdivision or condominium project for a lot or unit he contracted to buy shall be
forfeited in favor of the owner or developer when the buyer, after due notice to the
owner or developer, desists from further payment due to the failure of the owner or
developer to develop the subdivision or condominium project according to the
approved plans and within the time limit for complying with the same. Such buyer
may, at his option, be reimbursed the total amount paid including amortization
interests but excluding delinquency interests, with interest thereon at the legal rate.
6
SEC. 24. Failure to pay installments. - The rights of the buyer in the event of his
failure to pay the installments due for reasons other than failure of the owner or
developer to develop the project shall be governed by Republic Act No. 6552."
MANILA BANKING v SPOUSES RABINA
December 16, 2008

FACTS
Marenir Development Corp (MDC), owner/developer of Reymarville Subd, a
subdivision project in QC, obtained a loan from The Manila Banking Corp (TMBC)
in the amount of P4.56M. As security, subject lot which was under a contract to sell
to Amante Sibuyan was mortgaged. Sibuyan later transferred the lot by assignment
to Celestina Rabina with conformity of MDC. Contract to sell and deed of
assignment were not registered.

Celestina fully paid all amortization payments, so she demanded transfer of title.
MDC failed to transfer. Thus, Celestina with spouse Alfredo Rabina filed for non-
delivery of titles, annulment of mortgage, and incomplete development of
subdivision project against TMBC and MDC with the Office of Appeals,
Adjudication, and Legal Affairs (OAALA) of the Housing and Land Use Regulatory
Board (HLURB).

HLURB Arbiter: Mortgage valid between TMBC and MDC but invalid as to
Celestina and the rest of the world. Moral damages awarded to Celestina against
MDC.

MDC did not appeal. TMBC appealed with HLURB Board of Commissioners, wc
affirmed Arbiter.

TMBC elevated the case to the Office of the President (OP), but paid appeal fee one
day late and filed appeal memorandum beyond the required period which was
already extended (bec TMBC assumed its 2
nd
motion for extension will be granted).
OP dismissed appeal. CA affirmed OP.

ISSUES & RULING
1) WON appeal should be dismissed
YES, appeal should be dismissed. Movant for extension should never
assume that extension will be granted. Motion for extension is not granted
as a matter of right; it is addressed to the sound discretion of the court or
govt agency.

2) WON HLURB has jurisdiction over the case
YES, HLURB has jurisdiction.

Sec 3 of PD 957 (1976) empowered the National Housing Authority (NHA)
with exclusive jurisdiction to regulate real estate trade and business.

PD 1344 (1978) expanded NHAs jurisdiction to hear and decided cases of:
1) Unsound real estate business practices;
2) Claims involving refund and any other claims filed by subdivision lot
or condominium unit buyer against the project owner, developer,
dealer, broker, or salesman; and
3) Specific performance of contractual and statutory obligations filed by
subdivision lot or condominium unit buyer against project owner,
developer, broker, or salesman.

EO 648 (1981) transferred the regulatory and quasi-judicial functions of
NHA to the Human Settlements Regulatory Commission (HSRC).

EO 90 (1986) renamed HSRC as Housing and Land Use Regulatory Board
(HLURB).

Act of MDC in mortgaging the lot to TMBC without knowledge and
consent of spouses Rabina and approval of HLURB is an unsound real
estate business practice.

3) WON the mortgage was prohibited
YES, mortgage was prohibited. Sec 18 of PD 957 states: No mortgage on
any unit or lot shall be made by the owner or developer without prior
written approval of the Authority. Xxx

Mortgage was without approval of HLURB.

4) WON it was Rabinas fault that the contract to sell and deed of assignment
were not registered
NO. It is the seller that must register the deeds with the Register of Deeds.

Sec 17 of PD 957 states: All contracts to sell, deeds of sale and other similar
instruments relative to the sale or conveyance of the subdivision lots and
condominium units, whether or not the purchase price is paid in full, shall
be registered by the seller in the Office of the Register of Deeds of the
province or city where the property is situated. Xxx

5) WON TMBC should pay damages
NO. Per Arbiters decision, it is MDC that should pay damages to Rabina.

LUZON DEVELOPMENT BANK vs. ANGELES CATHERINE ENRIQUEZ,
G.R. No. 168646, January 12, 2011;

DELTA DEVELOPMENT and MANAGEMENT SERVICES, INC. vs. ANGELES
CATHERINE ENRIQUEZ and LUZON DEVELOPMENT BANK,
G.R. No. 168666, January 12, 2011.

FACTS:

Petitioner DELTA(which is owned by Ricardo de Leon) is a domestic corporation
engaged in the business of developing and selling real estate properties loaned from
Luzon Development Bank for the express purpose of developing Delta Homes I. To
secure the loan, the spouses De Leon executed in favor of the BANK a real estate
mortgage (REM) on several of their properties, including Lot 4(which is the disputed
lot). Sometime in 1997, DELTA executed a Contract to Sell with respondent
Angeles Catherine Enriquez (Enriquez) over the house and lot in Lot 4 for the
purchase price of P614,950.00. Enriquez made a downpayment of
P114,950.00. When DELTA defaulted on its loan obligation, the BANK, instead of
foreclosing the REM, agreed to a dation in payment or a dacion en pago. The Deed
of Assignment in Payment of Debt was executed on September 30, 1998 and stated
that DELTA "assigns, transfers, and conveys and sets over to the assignee that real
estate with the building and improvements existing thereon x x x in payment of the
total obligation owing to the Bank x x x." Unknown to Enriquez, among the
properties assigned to the BANK was the house and lot of Lot 4, which is the subject
of her Contract to Sell with DELTA. The records do not bear out and the parties are
silent on whether the BANK was able to transfer title to its name. It appears,
however, that the dacion en pago was not annotated on the TCT of Lot 4.

Issues

The following are the issues raised by the two petitions:

1. Whether the Contract to Sell conveys ownership;

2. Whether the dacion en pago extinguished the loan obligation, such that DELTA
has no more obligations to the BANK;

3. Whether the BANK is entitled to damages and attorneys fees for being compelled
to litigate; and

4. What is the effect of Enriquezs failure to appeal the OPs Decision regarding her
obligation to pay the balance on the purchase price.

Our Ruling

Mortgage contract void

As the HLURB Arbiter and Board of Commissioners both found, DELTA violated
Section 18 of PD 957 in mortgaging the properties in Delta Homes I (including Lot
4) to the BANK without prior clearance from the HLURB. This point need not be
belabored since the parties have chosen not to appeal the administrative fine imposed
on DELTA for violation of Section 18.

This violation of Section 18 renders the mortgage executed by DELTA void. We
have held before that a mortgage contract executed in breach of Section 18 of [PD
957] is null and void.[61] Considering that PD 957 aims to protect innocent
subdivision lot and condominium unit buyers against fraudulent real estate
practices, we have construed Section 18 thereof as prohibitory and acts committed
contrary to it are void.[62]

Because of the nullity of the mortgage, neither DELTA nor the BANK could assert
any right arising therefrom. The BANKs loan of P8 million to DELTA has
effectively become unsecured due to the nullity of the mortgage. The said loan,
however, was eventually settled by the two contracting parties via a dation in
payment. In the appealed Decision, the CA invalidated this dation in payment on the
ground that DELTA, by previously entering into a Contract to Sell, had already
conveyed its ownership over Lot 4 to Enriquez and could no longer convey the same
to the BANK. This is error, prescinding from a wrong understanding of the nature of
a contract to sell.

Contract to sell does not transfer ownership

Both parties are correct in arguing that the Contract to Sell executed by DELTA in
favor of Enriquez did not transfer ownership over Lot 4 to Enriquez. A contract to
sell is one where the prospective seller reserves the transfer of title to the prospective
buyer until the happening of an event, such as full payment of the purchase price.
What the seller obliges himself to do is to sell the subject property only when the
entire amount of the purchase price has already been delivered to him. In other
words, the full payment of the purchase price partakes of a suspensive condition, the
non-fulfillment of which prevents the obligation to sell from arising and thus,
ownership is retained by the prospective seller without further remedies by the
prospective buyer.[63] It does not, by itself, transfer ownership to the buyer.[64]

In the instant case, there is nothing in the provisions of the contract entered into by
DELTA and Enriquez that would exempt it from the general definition of a contract
to sell. The terms thereof provide for the reservation of DELTAs ownership until
full payment of the purchase price; such that DELTA even reserved the right to
unilaterally void the contract should Enriquez fail to pay three successive monthly
amortizations.

Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez, said
ownership remained with DELTA. DELTA could then validly transfer such
ownership (as it did) to another person (the BANK). However, the transferee BANK
is bound by the Contract to Sell and has to respect Enriquezs rights thereunder. This
is because the Contract to Sell, involving a subdivision lot, is covered and protected
by PD 957. One of the protections afforded by PD 957 to buyers such as Enriquez is
the right to have her contract to sell registered with the Register of Deeds in order to
make it binding on third parties. Thus, Section 17 of PD 957 provides:

Section 17. Registration. All contracts to sell, deeds of sale, and other similar
instruments relative to the sale or conveyance of the subdivision lots and
condominium units, whether or not the purchase price is paid in full, shall be
registered by the seller in the Office of the Register of Deeds of the province or city
where the property is situated.



x x x x (Emphasis supplied.)

The purpose of registration is to protect the buyers from any future unscrupulous
transactions involving the object of the sale or contract to sell, whether the purchase
price therefor has been fully paid or not. Registration of the sale or contract to sell
makes it binding on third parties; it serves as a notice to the whole world that the
property is subject to the prior right of the buyer of the property (under a contract to
sell or an absolute sale), and anyone who wishes to deal with the said property will
be held bound by such prior right.

While DELTA, in the instant case, failed to register Enriquezs Contract to Sell with
the Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK
from its obligation to respect Enriquezs Contract to Sell. Despite the non-
registration, the BANK cannot be considered, under the circumstances, an innocent
purchaser for value of Lot 4 when it accepted the latter (together with other assigned
properties) as payment for DELTAs obligation. The BANK was well aware that the
assigned properties, including Lot 4, were subdivision lots and therefore within the
purview of PD 957. It knew that the loaned amounts were to be used for the
development of DELTAs subdivision project, for this was indicated in the
corresponding promissory notes. The technical description of Lot 4 indicates its
location, which can easily be determined as included within the subdivision
development. Under these circumstances, the BANK knew or should have known of
the possibility and risk that the assigned properties were already covered by existing
contracts to sell in favor of subdivision lot buyers. As observed by the Court in
another case involving a bank regarding a subdivision lot that was already subject of
a contract to sell with a third party:
[The Bank] should have considered that it was dealing with a property subject of a
real estate development project. A reasonable person, particularly a financial
institution x x x, should have been aware that, to finance the project, funds other than
those obtained from the loan could have been used to serve the purpose, albeit
partially. Hence, there was a need to verify whether any part of the property was
already intended to be the subject of any other contract involving buyers or potential
buyers. In granting the loan, [the Bank] should not have been content merely with a
clean title, considering the presence of circumstances indicating the need for a
thorough investigation of the existence of buyers x x x. Wanting in care and
prudence, the [Bank] cannot be deemed to be an innocent mortgagee. x x x[65]

Further, as an entity engaged in the banking business, the BANK is required to
observe more care and prudence when dealing with registered properties. The Court
cannot accept that the BANK was unaware of the Contract to Sell existing in favor of
Enriquez. In Keppel Bank Philippines, Inc. v. Adao,[66] we held that a bank dealing
with a property that is already subject of a contract to sell and is protected by the
provisions of PD 957, is bound by the contract to sell (even if the contract to sell in
that case was not registered). In the Courts words:

It is true that persons dealing with registered property can rely solely on the
certificate of title and need not go beyond it. However, x x x, this rule does not apply
to banks. Banks are required to exercise more care and prudence than private
individuals in dealing even with registered properties for their business is affected
with public interest. As master of its business, petitioner should have sent its
representatives to check the assigned properties before signing the compromise
agreement and it would have discovered that respondent was already occupying one
of the condominium units and that a contract to sell existed between [the vendee] and
[the developer]. In our view, petitioner was not a purchaser in good faith and we are
constrained to rule that petitioner is bound by the contract to sell.[67]

Bound by the terms of the Contract to Sell, the BANK is obliged to respect the same
and honor the payments already made by Enriquez for the purchase price of Lot 4.
Thus, the BANK can only collect the balance of the purchase price from Enriquez
and has the obligation, upon full payment, to deliver to Enriquez a clean title over the
subject property.[68]

Dacion en pago extinguished the loan obligation

The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez, DELTA
has the obligation to pay the BANK the corresponding value of Lot 4. According to
the BANK, the dation in payment extinguished the loan only to the extent of the
value of the thing delivered. Since Lot 4 would have no value to the BANK if it will
be delivered to Enriquez, DELTA would remain indebted to that extent.

We are not persuaded. 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.[69]

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 DELTAs entire obligation:

KNOW ALL MEN BY THESE PRESENTS:

This instrument, made and executed by and between:

x x x x

THAT, the ASSIGNOR acknowledges to be justly indebted to the ASSIGNEE in the
sum of ELEVEN MILLION EIGHT HUNDRED SEVENTY-EIGHT THOUSAND
EIGHT HUNDRED PESOS (P11,878,800.00), Philippine Currency as of August 25,
1998. Therefore, by virtue of this instrument, ASSIGNOR hereby ASSIGNS,
TRANSFERS, and CONVEYS AND SETS OVER [TO] the ASSIGNEE that real
estate with the building and improvements existing thereon, more particularly
described as follows:

x x x x

of which the ASSIGNOR is the registered owner being evidenced by TCT No. x x x
issued by the Registry of Deeds of Trece Martires City.

THAT, the ASSIGNEE does hereby accept this ASSIGNMENT IN PAYMENT OF
THE TOTAL OBLIGATION owing to him by the ASSIGNOR as above-stated;[70]

Without any reservation or condition, the Dacion stated that the assigned properties
served as full payment of DELTAs total obligation to the BANK. The BANK
accepted said properties as equivalent of the loaned amount and as full satisfaction of
DELTAs debt. The BANK cannot complain if, as it turned out, some of those
assigned properties (such as Lot 4) are covered by existing contracts to sell. As noted
earlier, the BANK knew that the assigned properties were subdivision lots and
covered by PD 957. It was aware of the nature of DELTAs business, of the location
of the assigned properties within DELTAs subdivision development, and the
possibility that some of the properties may be subjects of existing contracts to sell
which enjoy protection under PD 957. Banks dealing with subdivision properties are
expected to conduct a thorough due diligence review to discover the status of the
properties they deal with. It may thus be said that the BANK, in accepting the
assigned properties as full payment of DELTAs total obligation, has assumed the
risk that some of the assigned properties (such as Lot 4) are covered by contracts to
sell which it is bound to honor under PD 957.

A dacion en pago is governed by the law of sales.[71] Contracts of sale come with
warranties, either express (if explicitly stipulated by the parties) or implied (under
Article 1547 et seq. of the Civil Code). In this case, however, the BANK does not
even point to any breach of warranty by DELTA in connection with the Dation in
Payment. To be sure, the Dation in Payment has no express warranties relating to
existing contracts to sell over the assigned properties. As to the implied warranty in
case of eviction, it is waivable[72] and cannot be invoked if the buyer knew of the
risks or danger of eviction and assumed its consequences.[73] As we have noted
earlier, the BANK, in accepting the assigned properties as full payment of DELTAs
total obligation, has assumed the risk that some of the assigned properties are
covered by contracts to sell which must be honored under PD 957.

x x x


Balance to be paid by Enriquez

As already mentioned, the Contract to Sell in favor of Enriquez must be respected by
the BANK. Upon Enriquezs full payment of the balance of the purchase price, the
BANK is bound to deliver the title over Lot 4 to her. As to the amount of the balance
which Enriquez must pay, we adopt the OPs ruling thereon which sustained the
amount stipulated in the Contract to Sell. We will not review Enriquezs initial
claims about the supposed violation of the price ceiling in BP 220, since this issue
was no longer pursued by the parties, not even by Enriquez, who chose not to file the
required pleadings[76] before the Court. The parties were informed in the Courts
September 5, 2007 Resolution that issues that are not included in their memoranda
shall be deemed waived or abandoned. Since Enriquez did not file a memorandum in
either petition, she is deemed to have waived the said issue.

WHEREFORE, premises considered, the appealed November 30, 2004 Decision of
the Court of Appeals, as well as its June 22, 2005 Resolution in CA-G.R. SP No.
81280 are hereby AFFIRMED with the MODIFICATIONS that Delta Development
and Management Services, Inc. is NOT LIABLE TO PAY Luzon Development Bank
the value of the subject lot; and respondent Angeles Catherine Enriquez is ordered to
PAY the balance of the purchase price and the interests accruing thereon, as decreed
by the Court of Appeals, to the Luzon Development Bank, instead of Delta
Development and Management Services, Inc., within thirty (30) days from finality of
this Decision. The Luzon Development Bank is ordered to DELIVER a CLEAN
TITLE to Angeles Catherine Enriquez upon the latters full payment of the balance of
the purchase price and the accrued interests.

Rillo v. CA
VALARAO V CA (ARELLANO) ver. 1
394 SCRA 155 PANGANIBAN, J.; March 3, 1999
NATURE: Petition for review assailing the decision of the CA
FACTS
- On September 4, 1987, spouses Abelardo and Gloriosa Valarao, thru their son
Carlos Valarao as their attorney-in-fact, sold to Meden Arellano under a Deed of
Conditional Sale a parcel of land situated in Diliman, QC with an area of 1,504 sq.m,
for the sum of P3,225,000 payable under a schedule payment stated therein.
- In the same Deed of Conditional Sale, the vendee obligated herself to encumber by
way of real estate mortgage in favor of vendors her separate piece of property with
the condition that upon full payment of the balance of P2,225,000.00, the said
mortgage shall become null and void and without further force and effect. It was
further stipulated upon that should the vendee fail to pay 3 successive monthly
installments or any 1 year-end lump sum payment within the period stipulated, the
sale shall be considered automatically rescinded without the necessity of judicial
action and all payments made by the vendee shall be forfeited in favor of the vendors
by way of rental for the use and occupancy of the property and as liquidated
damages. All improvements introduced by the vendee to the property shall belong to
the vendors without any right of reimbursement.
- Arellano alleged that as of September 1990, she had already paid the amount of
P2,028,000, although she admitted having failed to pay the installments due in
October and November 1990. Arellano, however, tried to pay the installments due in
the said months, including the amount due in the month of December 1990 on
December 30&31, 1990, but was turned down by the petitioners thru their maid,
Mary Gonzales, who refused to accept the payment offered. Arellano maintains that
on previous occasions, the same maid was the one who received payments tendered
by her. It appears that Gonzales refused to receive payment allegedly on orders of
her employers who were not at home.
- Arellano then reported the matter to, and sought the help of, the local barangay
officials. Efforts to settle the controversy before the barangay proved unavailing as
petitioners never appeared in the meetings arranged by the barangay lupon. Arellano
tried to get in touch with petitioners over the phone and was able to talk with
Gloriosa Valarao who told her that she would no longer accept the payments being
offered and that Arellano should instead confer with her lawyer, a certain Atty.
Tuazon. When all her efforts to make payment were unsuccessful, Arellano sought
judicial action by filing this petition for consignation on January 4, 1991.
- On the other hand, petitioners, thru counsel, sent Arellano a letter on January 4,
1991 notifying her that they were enforcing the provision on automatic rescission as
a consequence of which the Deed of Conditional Sale was deemed null and void, and
all payments made, as well as the improvements introduced on the property, were
thereby forfeited. The letter also made a formal demand on Arellano to vacate the
property, and to sign a contract of lease for her continued stay in the property, should
she not heed the demand of petitioners.
- In reply, Arellano denied that she refused to pay the installments due in the months
of October, November and December, and countered that it was petitioners who
refused to accept payment, thus constraining her to file a petition for consignation
before the RTC of QC.
- Notwithstanding their knowledge of the consignation case against them, petitioners,
through counsel, sent the Arellano another letter denying the allegations of her
attempts to tender payment on December 30 and 31, 1990, and demanding that
Arellanovacate and turnover the property and pay a monthly compensation for her
continued occupation of the of the subject property rate of P20,000.00, until she shall
have vacated the same.
- The RTC ruled in favor of petitioners. Upon appeal, the CA reversed the RTC,
ruling that: The refusal of petitioners "to accept the tender of payment was
unjustified." The CA ordered: (1) Arellano to pay the amount of P1.197M in favor of
petitioners, with legal interest thereon from December 31, 1992; (2) and petitioners
to execute in favor of Arellano, upon receipt of the aforesaid amount, the final and
absolute deed of sale of the subject property with all the improvements.
ISSUES
1. WON the automatic forfeiture clause is valid and binding between the parties
2. WON rescission can be effected
HELD
1. YES
- We concede the validity of the automatic forfeiture clause, which deems any
previous payments forfeited and the contract automatically rescinded upon the
failure of the vendee to pay three successive monthly installments or any one
yearend lump sum payment. However, petitioners failed to prove the conditions that
would warrant the implementation of this clause.
- Both the CA and the RTC agree that the facts are as stated by Arellano. It is clear
from said facts that petitioners were not justified in refusing to accept the tender of
payment made by Arellano on December 30 and 31, 1990. Had they accepted it on
either of said dates, she would have paid all three monthly installments due. In other
words, there was no deliberate failure on her part to meet her responsibility to pay.
The Court takes notes of her willingness and persistence to do so, and, petitioners
cannot now say otherwise. The fact is: they refused to accept her payment and thus
have no reason to demand the enforcement of the automatic forfeiture clause. They
cannot be rewarded for their own misdeed.
- Because their maid had received monthly payments in the past, it is futile for
petitioners to insist now that she could have accepted the aforementioned tender of
payment, on the ground that she did not have a special power of attorney to do so.
Clearly, they are estopped from denying that she had such authority. Under Article
1241 of the Civil Code, payment through a third person is valid "If by the creditor's
conduct, the debtor has been led to believe that the third person had authority to
receive the payment."
2. NO - It would be inequitable to allow the forfeiture of the amount of more than
P2M already paid by private respondent, a sum which constitutes two thirds of the
total consideration. Because she did make a tender of payment which was
unjustifiably refused, petitioners cannot enforce the automatic forfeiture clause of the
contract. Application of the Maceda Law - The rescission of the contract and the
forfeiture of the payments already made could not be effected, because the case falls
squarely under Republic Act No. 6552, otherwise known as the "Maceda Law."
Section 3 of said law provides:
"SEC. 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 payments 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 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 percent of the total
payments made and, after five years of installments, an additional five percent every
year but not to exceed ninety percent 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 installments made."
- Hence, the private respondent was entitled to a one-month grace period for every
year of installments paid, which means that she had a total grace period of three
months from December 31, 1990. Indeed, to rule in favor of petitioner would result
in patent injustice and unjust enrichment. This tribunal is not merely a court of law,
but also a court of justice.
Disposition Petition is DENIED and the dispositive portion of the appealed decision
of the CA is AFFIRMED.
VALARAO V CA (ARELLANO) ver. 2
FACTS:
"On September 4, 1987, spouses Abelardo and Gloriosa Valarao, thru their son
Carlos Valarao as their attorney-in-fact, sold to [Private Respondent] Meden
Arellano under a Deed of Conditional Sale a parcel of land situated in the District of
Diliman, Q.C., covered by TCT No. 152879 with an area of 1,504 square meters, for
the sum of THREE MILLION TWO HUNDRED TWENTY FIVE THOUSAND
PESOS (P3,225,000.00) payable under a schedule of payment stated therein.
"In the same Deed of Conditional Sale, the [private respondent] vendee obligated
herself to encumber by way of real estate mortgage in favor of [petitioners] vendors
her separate piece of property with the condition that upon full payment of the
balance of P2,225,000.00, the said mortgage shall become null and void and without
further force and effect.
"It was further stipulated upon that should the vendee fail to pay three (3) successive
monthly installments or any one year-end lump sum payment within the period
stipulated, the sale shall be considered automatically rescinded without the necessity
of judicial action and all payments made by the vendee shall be forfeited in favor of
the vendors by way of rental for the use and occupancy of the property and as
liquidated damages. All improvements introduced by the vendee to the property shall
belong to the vendors without any right of reimbursement.
"[Private respondent] appellant alleged that as of September , 1990, she had already
paid the amount of [t]wo [m]illion [t]wenty-[e]ight [t]housand (P2,028,000.00)
[p]esos, although she admitted having failed to pay the installments due in October
and November, 1990. Petitioner, however, [had] tried to pay the installments due [in]
the said months, including the amount due [in] the month of December, 1990 on
December 30 and 31, 1990, but was turned down by the vendors-[petitioners] thru
their maid, Mary Gonzales, who refused to accept the payment offered. [Private
respondent] maintains that on previous occasions, the same maid was the one who
[had] received payments tendered by her. It appears that Mary Gonzales refused to
receive payment allegedly on orders of her employers who were not at home.
"[Private respondent] then reported the matter to, and sought the help of, the local
barangay officials. Efforts to settle the controversy before the barangay proved
unavailing as vendors-[petitioners] never appeared in the meetings arranged by the
barangay lupon.
"[Private respondent] tried to get in touch with [petitioners] over the phone and was
able to talk with [Petitioner] Gloriosa Valarao who told her that she [would] no
longer accept the payments being offered and that [private respondent] should
instead confer with her lawyer, a certain Atty. Tuazon. When all her efforts to make
payment were unsuccessful, [private respondent] sought judicial action by filing this
petition for consignation on January 4, 1991.
"On the other hand, vendors-[petitioners], thru counsel, sent [private respondent] a
letter dated 4 January 1991 notifying her that they were enforcing the provision on
automatic rescission as a consequence of which the Deed of Conditional Sale [was
deemed] null and void, and xxx all payments made, as well as the improvements
introduced on the property, [were] thereby forfeited. The letter also made a formal
demand on the [private respondent] to vacate the property should she not heed the
demand of [petitioners] to sign a contract of lease for her continued stay in the
property.

ISSUES:
1. Whether the requirement of a judicial demand or a notarial act has been fulfilled.
2. Whether the automatic forfeiture clause is valid and binding between the parties."
3. Whether the action for consignation may prosper without actual deposit [in court]
of the amount due xxx [so as] to produce the effect of payment."
Ruling:
1. Art. 1592 of the new Civil Code (Art. 1504 of the old Civil Code) requiring
demand by suit or notarial act in case the vendor of realty wants to rescind does not
apply to a contract to sell or promise to sell, where title remains with the vendor
until" full payment of the price.
In the present case, the Deed of Conditional Sale is of the same nature as a sale on
installment or a contract to
sell, which is not covered by Article 1592.
Petitioners-vendors unmistakably reserved for themselves the title to the property
until full payment of the purchase price by the vendee. Clearly, the agreement was
not a deed of sale, but more in the nature of a contract to sell or of a sale on
installments. Even after the execution of the Deed of Conditional Sale, the Torrens
Certificate of Title remained with and in the name of the vendors.
2. As a general rule, a contract is the law between the parties. Thus, "from the
moment the contract is perfected, the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all consequences which, according to
their nature, may be in keeping with good faith, usage and law." Also, "the
stipulations of the contract being the law between the parties, courts have no
alternative but to enforce them as they were agreed [upon] and written, there being
no law or public policy against the stipulated forfeiture of payments already made."
However, it must be shown that private respondent-vendee failed to perform her
obligation, thereby giving petitioners-vendors the right to demand the enforcement of
the contract.
We concede the validity of the automatic forfeiture clause, which deems any
previous payments forfeited and the contract automatically rescinded upon the
failure of the vendee to pay three successive monthly installments or any one
yearend lump sum payment. However, petitioners failed to prove the conditions that
would warrant the implementation of this clause.
It is clear that petitioners were not justified in refusing to accept the tender of
payment made by private respondent on December 30 and 31, 1990. Had they
accepted it on either of said dates, she would have paid all three monthly installments
due. In other words, there was no deliberate failure on her part to meet her
responsibility to pay. The Court takes note of her willingness and persistence to do
so, and, petitioners cannot now say otherwise. The fact is: they refused to accept her
payment and thus have no reason to demand the
enforcement of the automatic forfeiture clause. They cannot be rewarded for their
own misdeed.
Because their maid had received monthly payments in the past, it is futile for
petitioners to insist now that she could not have accepted the aforementioned tender
of payment, on the ground that she did not have a special power of attorney to do so.
Clearly, they are estopped from denying that she had such authority. Under Article
1241 of the Civil Code, payment through a third person is valid "[I]f by the creditor's
conduct, the debtor has been led to believe that the third person had authority to
receive the payment."
3. It would be inequitable to allow the forfeiture of the amount of more than two
million pesos already paid by private respondent, a sum which constitutes two thirds
of the total consideration. Because she did make a tender of payment which was
unjustifiably refused, we hold that petitioners cannot enforce the automatic forfeiture
clause of the contract.
Under the Maceda Law respondent is entitled to one month grace period for every
year of payment. She therefore has a total grace period of three months from
December 31, 1990. It would be unjust enrichment to allow petitioners to enforce the
automatic forfeiture clause.
ACTIVE REALTY & DEVT CORP V DAROYA
382 SCRA 152 PUNO; May 9, 2002
NATURE
Petition for review on certiorari
FACTS
- Petitioner, Active Realty, is the owner and developer of Town & Country Hills
Executive Village in Antipolo, Rizal. On Jan. 2, 1985, it entered into a Contract to
Sell with respondent Daroya, a contract worker in the Middle East, whereby the
latter agreed to buy a 515 sq.m. lot for P224,025 in petitioners subdivision
- The contract to sell stipulated that the respondent shall pay the initial amount of
P53,766 upon execution of the contract and the balance of P170,259 in 60 monthly
installments of P4,893.35, adding up to P346,367, an amount higher than the stated
price.
- After a few months, respondent was in default of 3 monthly amortizations,
prompting petitioner to send a notice of cancellation of their contract to sell. When
respondent offered to pay the balance, petitioner refused as it allegedly sold the lot to
another buyer.
- Respondent then filed a complaint for specific performance and for damages
against petitioner before the Arbitration Branch of thebHolusing and Land Use
Regulatory Board (HLURB), seeking the execution of a final Deed of Absolute Sale
after offering to pay the balance, considering she had already paid most of the total
sum which was already more than the stated contract price. The HLURB arbiter
ruled that since the subject lot was already sold to a third party and the respondent
agreed instead to a full refund, petitioner was ordered to refund all of respondents
payments with 12% interest per annum from the date of the filing of the complaint
plus attorneys fees.
- On appeal, the HLURB Board of Commissioners set aside the decision, instead
finding that since both parties were at fault (i.e. respondent incurred delay in
installments, petitioner failed to send notarized notice of cancellation), petitioner was
ordered to pay only half of the total amount already paid to her, akin to the remedy
provided under the Maceda Law (RA 6552)
- On appeal with the Office of the President, the decision was modified as it was
found that petitioner did not comply with the legal requisites for a valid contract and
was ordered to deliver the lot upon payment of respondents balance. However, as
the lot had been sold to a third person, petitioner was ordered to refund respondent
P875,000, the true and actual value of the lot as of the date of the contract plus 12%
p.a. or a substitute of the respondents choice. Both its petition for review and MFR
were denied, the former for insufficiency of fomr and substance, and the latter for
untimely filing. Hence this petition, impugning the CAs decision on the ff
procedural issues:
ISSUE
WON the petitioner can be compelled to refund to the respondent the value of the lot
or deliver a substitute lot at the respondents option
HELD
YES - The contract to sell in this case is governed by RA 6552 (Realty Installment
Buyer Protection Act), better known as the Maceda Law. Its declared public policy is
to protect buyers of real estate on installment basis against onerous and oppressive
conditions. Most of these contracts of adhesion (take it or leave it basis), drawn
exclusively by the developers, entrap innocent buyers by requiring cash deposits for
reservation agreements which often include, in fine print, onerous default clauses
where all the installment payment already made will be forfeited upon failure to pay
any installment, even though several, if not most payments have already been made,
thus giving real estate developers an unfair advantage over these exploited buyers. -
More specifically, Section 3 of R.A. No. 6552 provides for the rights of the buyer in
case of default in the payment of succeeding installments, where he has already paid
at least two (2) years of installments, thus:
"(a) To pay, without additional interest, the unpaid installments due within the total
grace period earned by him, which is hereby fixed at the rate of one month grace
period for every one year of installment payments made; x x x
(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to fifty per cent of the total
payments made; provided, that the actual cancellation of the contract shall take place
after thirty days from receipt by the buyer of the notice of cancellation or the demand
for rescission of the contract by a notarial act and upon full payment of the cash
surrender value to the buyer."
- in the case at bar, respondent had already paid 4 years worth of installments, which
added up to P90,000 more than the price stated in the contract. Petitioner refused to
accept respondents subsequent payment as it had already sold the lot to a third party;
however, records show that petitioner failed to comply with the mandatory twin
requirements of a valid cancellation, (1) failing to send a notarized notice of
cancellation (2) refund the cash surrender value.
- Thus, for failure to cancel the contract in accordance with the law, the contract
remained subsisting. Following RA 6552, respondent has the right to offer to pay the
balance without interest. However, since the lot had been sold to a third party, it is
only just and equitable that petitioner be ordered to refund to respondent the actual
value of the lot resold at P875,000 +12% interest p.a. from the filing of the complaint
or to deliver a substitute lot at the respondents option.
- On a final note, the HLURBs decision to grant respondent only half of the amount
paid would not be equitable as it punished respondents delinquent payments but
disregarded petitioners failure to comply with the requisites of cancellation. The
decision to refund the original price would also be inequitable since respondent is
entitled to the lot purchased, depriving her of what was rightfully hers.
Disposition Decision of the Office of the President is AFFIRMED
Spouses FABRIGAS v. SAN FRANCISCO DEL MONTE, INC.,
November 25, 2005
Facts:
Spouses Fabrigas (buyer)
San Francisco Del Monte, Inc. (seller)
Propoerty: residential land in Barrio Almanza, Las Pias, Manila
Fabrigas and Del Monte entered into a contract Contract to Sell No. 2482-V.
The spouses Fabrigas paid the downpayment and took possession of the
property but failed to make any installment payments on the balance of the
purchase price.
After numerous demands, Fabrigas remitted some payments irregularly.
Sps. Fabrigas entered into a new contract (Contract to Sell No. 2491-V) with
Del Monte for the same property restructured the terms of payment.
No other payments were made by petitioners except the amount of P10,000.00
but 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.
Del Monte sent a letter demanding the payment of accrued installments
under Contract to Sell No. 2491-V representing the payments made under the
restructured contract, or the net amount ofP117,631.08. 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.
Del Monte instituted an action for Recovery of Possession with Damages.
Spouses Fabrigas claimed 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.
The trial court upheld the validity of the Contract to Sell No. 2491-V and
ordering Spouses Fabrigas either to complete payments thereunder or to vacate
the property.
Spouses Fabrigas elevated the matter to the Court of Appeals, arguing that the
trial court should have upheld the validity and existence of Contract to Sell No.
2482-V instead and nullified Contract to Sell No. 2491-V.
CA: Contract to Sell No. 2482-V had been rescinded pursuant to the automatic
rescission clause therein

ISSUES:

Was Contract to Sell No. 2482-Vextinguished through rescission or was it
novated by the subsequent Contract to Sell No. 2491-V?

Petitioners:
o 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.
o 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.
o Section 7 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.
Court:
o Petitioners defaulted in all monthly installments. They may be credited
only with the amount of P30,000.00 paid which should be deemed
equivalent to less than two (2) years installments.
o 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.

o 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. Mere notice or letter, short of a notarial act, would
not suffice. Del Monte did not comply with the requirement of
notice of cancellation or a demand for rescission.

! 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.

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?


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.

Dispositive: 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.
JESTRA DEVT v PACIFICO
Pacifico sought to purchase a house and lot for P2.5M from Jestra Devt.
The down payment (30% of the purchase price/ P750K) was to be paid in 6
monthly instalments, fixed at P121,666K.
With still a remaining balance of P260K on the down payment, Pacifico and
Jestra executed on March 6, 1997, Contract to Sell.
Pacifico defaulted in the payment of bal for downpayment (deadline Nov 5,
1996) but he got to pay only on Nov 27, 1997. (his total payments by Dec 4,
1997 = P846,600, P76,600 of which Jestra applied as penalty charges for
the late down payment).
Re instalments due on 70%, Pacifico requested for a restructuring, which
was granted by Jestra on the condition that the interest for earlier period
would be added to the 70% balance on the purchase price. Under
restructured scheme, monthly amortizations were increased from P34,982 to
P39,468.
Pacifico issued to Jestra 12 postdated checks to cover his monthly
amortizations but these were dishonored due to insufficiency of funds.
1998, Pacifico told Jestra that due to sudden financial difficulties, he wants
to suspend his payments for 10mos and that he wanted to dispose of the
property to recover his investment + asked that the postdated checks be
returned to him.
Jestra denied Pacificos request but him until April 15, 1998 to sell the
property failing which it warned him that it would be constrained to re-open
it for sale.
Jestra sent Pacifico a notarial Notice of Cancellation, notifying him that
within 30 days after his receipt thereof, it was exercising its right to cancel
the Contract to Sell.
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 and Jestra instead sold the property to
another.
HLURB held Jestra liable for failure to comply with Section 3 of RA 6552
(Realty Installment Buyer Protection Act) requiring payment by the seller
of the cash surrender value of the buyers payments and Section 17 of PD.
957 (REGULATING THE SALE OF SUBDIVISION LOTS AND
CONDOMINIUMS) requiring it to register the Contract to Sell in the
Register of Deeds.
CA, OP affirmed
RA No. 6552 was enacted to protect buyers of real estate on installment against
onerous and oppressive conditions. While the seller has under the Act the option to
cancel the contract due to non-payment of installments, he must afford the buyer a
grace period to pay them and, if at least two years installments have already been
paid, to refund the cash surrender value of the payments.
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 RA 3844
as amended by RA 6389, 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.
(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 50% of the
total payments made, and, after 5 years of installments, an additional 5%
every year but not to exceed 90% of the total payments made: Provided,
That the actual cancellation of the contract shall take place after 30 days
from receipt by the buyer of the notice of cancellation or demand for
rescission 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.
As the records indicate, the total payments made by Pacifico amounted to P846K.
The CA, in concluding that Pacifico paid at least two years of instalments, divided
the amount of P846K by the monthly amortization P34,983 to thus result to a
quotient of 24.2 months.
Petitioner claims that the P76,600 represents penalty payment and is a separate item
to answer for its lost income as a seller due to the delay of the 30% down payment;
that the proper divisor is not P34,983 but P39,468 since the parties agreed to
restructure the amortizations, so the total installments paid would only cover 19.5
mos, so it was not obliged under RA No. 6552 to pay the cash surrender value.
SC: Neither of the parties computations is in order.
While, under Sec3 of RA 6552, the down payment is included in computing the total
number of installment payments made, the proper divisor is neither P34,983 nor
P39,468, but P121,666, the monthly installment on the down payment.
If the down payment of P750,000 is to be deducted from the total payment of
P846,600, the remainder is only P96,600. Since respondent was able to pay the down
payment in full 11 months after the last monthly installment was due, and the sum of
P76,600 representing penalty for delay of payment is deducted from the remaining
P96,600, only a balance of P20,000 remains.
As respondent failed to pay at least two years of installments, he is not, under
Section 3 of RA No. 6552, entitled to a refund of the cash surrender value. What
applies to the case instead is Section 4 of the same law:
SECTION 4. In case where less than 2 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 at the expiration of the grace
period, the seller may cancel the contract after 30 days from receipt by the
buyer of the notice of cancellation or demand for rescission by a notarial
act.
Fabrigas v. San Francisco del Monte - 2Step Process of cancellation of the contract
under Section 4: 1) seller should extend the buyer a grace period of at least 60days
from the due date of the instalment; 2) 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.
Respondent admits that under the restructured scheme, the first installment on the
70% balance of the purchase price was due on January 5, 1998. While he issued
checks to cover the same, the first two were dishonoured and he took no action
thereon, hence, the 60 days grace period lapsed. Respondent made no further
payments thereafter. Instead, he requested for suspension of payment and for time to
dispose of the property to recover his investment. Respondent admits that petitioner
was justified in canceling the contract to sell via the notarial Notice of Cancellation
which he received on May 13, 1998.
PETITION GRANTED. COMPLAINT DISMISSED.
Song Fo v. Hawaiian Phil.
DELA CRUZ V LEGASPI
98 SCRA 43 BENGZON; November 29, 1955
NATURE
Petition for review of CFI Antique decision
FACTS
- Eusebio DELA CRUZ sued Apolonio LEGASPI and his wife to compel delivery of
the parcel of land they had sold to him. It was alleged that defendants refused to
accept the payment of the P450 agreed purchase price which DELA CRUZ tendered.
Therefore, the spouses had no excuse to retain the property.
- LEGASPI spouses admitted the sale and the price but they alleged that before the
document was made, the plaintiff agreed to pay the defendants the amount of P450
right after the document is executed. Instead, plaintiff refused to do so. They claimed
that document of sale should be annulled for lack of consideration and for deceit.
- CFI ordered DELA CRUZ to pay P450 and the LEGASPI spouses to receive such
price and deliver possession of property.
ISSUE
WON the contract became null and void for lack of consideration
HELD
NO
Ratio: Subsequent non-payment of the price at the time agreed upon did not convert
the contract into one without cause or consideration: a nudum pactum. The situation
was rather one in which there is failure to pay the consideration, with its resultant
consequences. Reasoning - It cannot be denied that when the document was signed
the cause or consideration existed, and this was P450. The document specifically
said so, and this was undoubtedly the agreement. At most, there was default on his
part for failing to pay the said amount. Defendants right was to demand interest
(legal interest) for this delay OR to demand rescission in court. - NO stipulation that
failure to pay ipso facto resolves contract. - NO agreement or allegation that payment
on time was essential. - Even if contract expressly provided for automatic rescission
upon failure to pay the price, contract is still enforceable because defendants had not
made a previous demand (for rescission) on him, by suit or notarial act.
Disposition Appealed judgment is AFFIRMED.
LUZON BROKERAGE CO INC V MARITIME BUILDING CO INC
43 SCRA 93 REYES; August 18, 1972
FACTS
- On 24 March 1961, Maritime had requested a "suspension" or "moratorium" in its
monthly payments until the close of 1961, allegedly because "we are encountering
some unusual expenses with the warehouses, but this request was turned down on
29 March 1961 by the Myers Corporation advising George Schedler, the son of
Edmund Schedler, main stockholder of Maritime, that his request "can not be granted
as I have specific instructions from the Board (of Myers Co.) not to agree to any
suspension of payments under any condition".
- Schedler, on behalf of Maritime, insisted on suspending its payments alleging for
the first time that the late F. H. Myers had "agreed to indemnify and hold me
harmless from the Luzon Labor Union claims which are in litigation" and giving
notice that "my wife and I intend to withhold any further payments to the Myers
Building Co. or Estate ...". This intention was reiterated in a letter wherein it was
added that "if the Myers people will deposit in trust with Mr. C. Parsons 25,000
pesos to cover my costs to date, I will then deposit with Mr. Parsons in trust 15,000
pesos for March, April and May ...".
ISSUES
1. WON Maritimes obligation had been substantially performed in good faith 2.
WON Art1191 can be applied to the case 3. WON the stipulated forfeiture of the
monthly payments already made is a penalty, and the same should be equitably
reduced
4. WON rescission of the contract of sale is proper
HELD
1. NO - Maritime was obligated to make monthly payments to Myers Building Co.
under its contract, until the price of the building was paid in full and yet it repeatedly
refused to do so, on the pretext that the late F. H. Myers had obligated himself to
indemnify Edmund Schedler from the labor claims against the Luzon Stevedoring
Co., that Myers had sold to Schedler in a totally separate contract. - F. H. Myers was
not the vendor Myers Building corporation; moreover, he had already died and his
estate had been closed without Schedler or Maritime having filed any contingent
claim before closure of the estate proceedings, as required by Revised Rule 88, The
claims of Schedler or Maritime were, therefore, already barred, even assuming that
there was any truth to the alleged promise of the late Myers, which is not supported
by any reliable evidence. And even then, the claim was at the most payable by the
heirs of F. H. Myers, but not by the Myers corporation, which had no duty to assume
the guarantee. - The non-payment for March, April and May, 1961, due to the
corporation, was intentional and deliberate non-performance, designed to
extrajudicially force Myers corporation to grant the moratorium originally solicited
and rejected, thus constituting, as held in the main decision, dolo (in the
performance, in solvendo) and not mere culpa or negligence.
- Nor is it admissible that there had been substantial performance by it or that the
offer to deposit in trust the missing amounts were equivalent to payment. When
Maritime suspended its payments for March-May, 1961, there was a balance of
P319,300.65 on the principal of its obligation, plus interest, i.e., nearly 1/3 of the
original indebtedness. And as to the offer to deposit the payments due in trust or in
escrow, it can not be considered payment since it was a conditional tender, and
would have left the creditor (Myers corporation) unable to make use of the money
rightfully due to it.
- A tender to be valid must be unconditional; and even then, a tender alone is not a
mode of extinguishing obligations, unless followed by consignation. - For Myers to
accept the proposed deposit of the monthly payments in trust or escrow would be
equivalent to an admission on its part of the validity or truthfulness of Maritime's
claim and of Myers Corporation's liability for an obligation of an individual
stockholder. Nor is there any justification on record to warrant the disregard of the
corporate personality of Myers Building Corporation in the present case.
2. NO - Myers obligation to convey the property was expressly made subject to a
suspensive (precedent) condition of the punctual and full payment of the balance of
the purchase price. This is apparent from clauses (d) and (i) of the contract of sale
which make it crystal clear that the full payment of the price (through the punctual
performance of the monthly payments) was a condition precedent to the execution of
the final sale and to the transfer of the property from Myers to Maritime; so that
there was to be no actual sale until and unless full payment was made. - The upshot of
all these stipulations is that in seeking the ouster of Maritime for failure to pay the
price as agreed upon, Myers was not rescinding (or more properly, resolving) the
contract, but precisely enforcing it according to its express terms. In its suit Myers
was not seeking restitution to it of the ownership of the thing sold (since it was never
disposed of), such restoration being the logical consequence of the fulfillment of a
resolutory condition, express or implied (article 1190); neither was it seeking a
declaration that its obligation to sell was extinguished. What it sought was a judicial
declaration that because the suspensive condition (full and punctual payment) had
not been fulfilled, its obligation to sell to Maritime never arose or never became
effective and, therefore, it (Myers) was entitled to repossess the property object of
the contract, possession being a mere incident to its right of ownership. 3. NO -
Maritime intentionally risked the penalty by deliberately refusing to make the
monthly payments for March to May 1961, and trying to inject into its contract with
Myers corporation the totally unconnected personal promise of F. H. Myers to
indemnify it for eventual liability to the Luzon Labor Union, allegedly made on the
occasion of the sale of the Luzon Brokerage to E. Schedler by F. H. Myers, and
trying to extrajudicially force Myers corporation to assume responsibility for such
liability; - Under Article 1234 of the present Civil Code, an obligation must be
substantially performed in good faith, for such performance to stand in lieu of
payment; Maritime, on the contrary, acted with dolo or bad faith, and is not in a
position to invoke the benefits of the article. - Maritime's loss of the forfeited
payments was more than balanced by the rentals it received from the Luzon
Brokerage as lessee of the building for the corresponding periods, at a rate double the
monthly payments required of Maritime under its contract with Myers. 4. YES - Even
granting that the contract is a plain sale of real property with deferred payment of the
price, as contended by Maritime, its position will not be imposed. By Article 1592 of
the Civil Code of the Philippines, though it may have been stipulated that upon the
failure to pay the price at the time agreed upon, the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration of the period, as long
as no demand for rescission of the contract has been made upon him either judicially
or by a notarial act. After the demand, the Court may not grant him a new term.
- The answer filed by Myers in the court below to the Luzon Brokerage's complaint
for interpleader constituted in effect a judicial demand for rescission of the contract
of sale, and for repossession of the real estate sold. Hence, Maritime can not demand
further time to pay, and must conform to the rescission of the contract and the
surrender of the premises, with all the consequences stipulated in the original
contract.
Being an article specifically applicable to sales of real property, this Article 1592
controls the general principles expressed by Article 1198 on reciprocal obligations.
SEPARATE OPINION
BARREDO [dissent]
- Maritime's failure to pay the March, April and May, 1961 installments did not
constitute default in the absence of a demand in accordance with Article 1100 of the
Old Civil Code. (found in modified form in Art. 1169 of the New Civil Code)
- The sole and only demand made upon Maritime by Myers for the payment of the
March, April and May, 1961 installments was contained in the latter's letter of May
16, 1961, Myers, and importantly, for reasons which Myers evidently considered
irrelevant because it has not shown in the record any that may adversely affect
Maritime's position, this communication was not received by Maritime or returned
unclaimed. The subsequent letter of Myers to Maritime of June 5, 1961, Myers, was
no longer a demand; it was already a notification that Myers had unilaterally
cancelled the Deed in controversy.
- Assuming there was no need for demand, Maritime's failure to actually pay the
installments in question cannot be considered asa breach in bad faith (dolo). - From
the point of view of Myers, Schedler's and Senator Padilla's letters to Parsons were
not addressed to Myers, since it does not appear that Parsons was not authorized to
act for and on its behalf. Worse, they referred to matters with which Myers professed
not to have anything to do. Consequently, on the other hand, whatever Parsons said
in them for Myers should also not have any color of authority. In this sense, it would
appear that Myers had no knowledge whatsoever why Maritime did not pay. How
could it charge Maritime with bad faith?
- There has been substantial compliance and Article 1234 may be applied. - There is
no clear basis in the evidence for comparing how much Maritime had paid as rentals
with how much it had paid as installments as of June, 1961. In any event, for
purposes of equity, I do not believe We should disregard the property itself in this
comparison, hence We should not overlook that Maritime stands to lose not only the
P973,000 it had paid, but the property itself and the future rentals it is supposed to
earn therefrom, which after all, constituted part of its consideration in entering into
the contract and acquiring the property in question.
- Assuming otherwise than as above discussed, Article 1504 of the Old Civil Code is
applicable to this case. - When Myers filed its cross-claim against Maritime in its
answer to Luzon's interpleader complaint, that in a sense Myers made a judicial
demand, Maritime's offers of payment thru Schedler made to Parsons should be
considered as a substantial compliance with its obligation to pay the installments for
March, April and May, under Article 1504 of the Old Civil Code; hence it cannot be
held to have lost its right to pay subsequent installments which reason, the
cancellation of the contract by Myers on June 8, 1961 was uncalled for, unjustified
and without legal basis.
- The "Deed" in question is not a promise to sell it is a sale. - According to Justice
Laurel, in as much as the parties in such sale on installment of real proper or
immovable had provided in their agreement for an option in favor of the vendor that
in case
the vendee should fail to pay any installment, the former may either recover in action
at law the whole balance unpaid which shall be considered immediately due and
demandable or recover possession of the subject property and considering all
installments already paid as rentals, these stipulations may legally be enforced
according to their terms, considering that such stipulations are not contrary to law,
morals or public policy. Stated differently the Court held that such stipulations are
comprehended within the freedom of contract.
- Justice Laurel's opinion is at variance with Spanish authorities who appear to be
more logical. - We all know that automatic cancellation of a contract of sale resulting
in the forfeiture of all moneys already paid just because of one default in the
payment of the balance is a harsh and oppressive condition, precisely because it is
tantamount to the obnoxious pactum commissorium. For this reason, the law
explicitly gives the buyer in Article 1504 an opportunity to pay even after default so
long as the seller has not made a formal demand for cancellation thru a notary public
or in court. The very wording of the provision negates the freedom of the parties to
stipulate otherwise, since it already clearly says, "even though it may have been
stipulated that default of the payment of the price within the time agreed upon etc." It
is to me absurd to contend that not withstanding this express mandate of the law, the
partes are still free to stipulate otherwise. Indeed, from this point of view, and
independent of my discussion above of the applicability to the case of the Bayla
ruling by Justice Ozaeta, it is my position that the intended waiver of formal demand,
if any such intention can be inferred, in the provision of Paragraph (d) of the "Deed"
in question that "this deed ... shall automatically and without any further formality,
become null and void," is contrary to the letter and intent of Article 1504 as well as
public policy. It being obvious as already shown above that no demand of whatever
kind for resolution had been made upon Maritime before the letter of cancellation of
June 5, 1961, it follows necessarily that said cancellation was unwarranted and
contrary to rather than an implementation of the terms of the "Deed" in controversy.
- The stipulation providing for transfer of title only after full payment did not stamp
the transaction with the character of a mere promise to sell full payment was a
suspensive condition for the execution of the final deed as the form of tradition of
title it while non-payment was a resolutory condition with confiscation as to penalty
clause. - What renders the idea of a promise to sell with reservation more perplexing
to me is that in the Spanish law on sales, as contradistinguished from the concept of
sales American law, a contract of sale is purely consensual and does not necessarily
involve the transfer of title except when it is so stipulated or when the sale is made in
a public instrument, since the latter is in itself a form of delivery or tradition of title
over immovable property. - It was only in Manuel v Rodriguez, 109 Phil. 1, that this
Court "created" the concept of a "a contract to sell or promise to sell", where title
remains with the vendor until fulfillment to a positive suspensive condition, such as
full payment of the price. - I insist that the so-called suspensive condition affecting
the transfer of title only after full payment of the price, an admittedly licit one, does
not detract from the character of the contract here in question as a perfected contract
of sale indeed, partially consummated by the delivery of possession of "the thing"
(per Manresa). For that matter, neither does the condition that upon failure of
Maritime to pay any installment, the contract would be cancelled, all past payments
forfeited and Myers would be entitled to recover possession vary a bit the real
nature of the contract. - I would, therefore, separate the so-called suspensive
condition regarding the delivery of title as affecting solely the obligation to deliver
title which is not of immediate juridical essence in a perfected contract of sale from
the breach, allegedly committed by Maritime, of the terms of payment which is the
one that would justify the cancellation made by Myers, if such breach did occur in
legal contemplation.
- The promise to sell has a distinct connotation in Spanish, law which I feel cannot
square with the contract here in controversy. - At the risk of stating the obvious, the
concept of a sale or purchase and sale in Spanish law is defined in Article 1445 and
the moment of the perfection of such a contract is fixed in Article 1450. On the other
hand, precisely to avoid confusion of concepts, since commercial usages resort to
varied forms of transactions revolving around the juridical idea of exchanging things
for money, and it is not unusual for merchants to enter into preparatory agreements
for business and other reasons before finalizing their deals, Article 1451 lays down
specific rules regarding promises in regard to sales.
- For the purposes of Article 1504, and under the circumstances of this case, may the
cross-claim interposed by Myers in its answer to the interpleader complaint of Luzon
be deemed as the judicial demand that should foreclose any right on the part of
Maritime to continue paying under the "Deed in question?" My answer is no.
- I reiterate that the proviso of Article 1504 (1592) allowing payment by the vendee
even after he has undisputably defaulted in his obligation stipulated in the terms of
the agreement is a legislative remedy intended to temper a la Portia the harshness of
the enforcement of the condition of the parties amount to a pactum commissorium
which is generally frowned upon. Accordingly, it is my understanding that in the
application of this proviso, We should not be restricted to a literal interpretation
thereof.