Breach of Contract

Sale of movables

1. Action for price

a. When ownership has passed

Art 1595. (1) Where, under a contract of sale,

the ownership of the goods has passed to the buyer and
he wrongfully neglects
or refuses to pay for the goods according to the terms of the contract of sale,
the seller may maintain an action against him for the price of the goods.

b. When ownership has not passed

Art 1595. (2) Where, under a contract of sale,

the price is payable on a certain day,
irrespective of delivery or of transfer of title and
the buyer wrongfully neglects or refuses to pay such price,
the seller may maintain an action for the price
although the ownership in the goods has not passed.
But it shall be a defense to such an action that
the seller at any time before the judgment in such action has
manifested an inability to perform the contract of sale on his part
or an intention not to perform it.

(3) Although the ownership in the goods has not passed, if they cannot readily be resold for a
reasonable price, and if the provisions of Art 1596 (4) are not applicable, the seller may offer to deliver
the goods to the buyer, and, if the buyer refuses to receive them, may notify the buyer that the goods
are thereafter held by the seller as bailee for the buyer. Thereafter, the seller may treat the goods as the
buyer’s and may maintain an action for the price. (n)

2. Action for damages for non-acceptance

Art 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the goods
the seller may maintain an action against him for damages for non-acceptance.

The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of
events from the buyer’s breach of contract.

Where there is an available market for the goods in question,

the measure of damages is,
in the absence of special circumstances showing proximate damage of a different amount,
the difference between the contract price and the market or current price
at the time or times when the goods ought to have been accepted, or,
if no time was fixed for acceptance, then
at the time of the refusal to accept.
If, while labor or expense of material amount is necessary on the part of the seller to enable him to fulfill
his obligations under the contract of sale, the buyer repudiates the contract or notifies the seller to
proceed no further therewith, the buyer shall be liable to the seller for labor performed or expenses
made before receiving notice of the buyer’s repudiation or countermand. The profit the seller would
have made if the contract or the sale had been fully performed shall be considered in awarding the
damages. (n)

3. Rescission

Art 1597. Where the goods have not been delivered to the buyer,
and the buyer has repudiated the contract of sale,
or has manifested his inability to perform his obligations thereunder,
or has committed a breach thereof,
the seller may totally rescind the contract of sale
by giving notice of his election so to do to the buyer. (n)

Art 1593. With respect to movable property,

the rescission of the sale shall of right take place in the interest of the vendor,
if the vendee,
upon the expiration of the period fixed for the delivery of the thing,
should not have appeared to receive it,
or, having appeared [to…], he should not have tendered the price at the same time,
unless a longer period has been stipulated for its payment

4. Sale of movables on installment (Recto Law)

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 (1454a)

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
(1454a)

Art 1486. In the case referred to in the two preceding articles, a stipulation that the installments or rents
paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be
unconscionable under the circumstances. (n)

Daniel Borbon II, Francisco Borbon v Servicewide Specialists, Inc, CA (1996, Vitug, Appeal)

- Daniel and Francisco

o executed promissory note
o for 122,856
 o For installment price of Isuzu KC Cab
o In favor of Pangasinan Auto Mart
o Payable moly, 10thou + late payment charge, attys fees in case of default (25%)
o Chattel mortgage security – vehicle
- Pangasinan Auto Mart
o Assigned note to Filinvest Credit Corp
o Which assigned it to Servicewide
- Pangasinan Auto Mart delivered Isuzu crew cab, instead of KC Cab
o Borbons: agreed to Isuzu Cab minus rear body understanding that 10,000 will be
refunded; but no replacement until vehicle seized by court
- RTC: Servicewide v Borbons: replevin for foreclosure of vehicle
o Borbons: not in default bc not first guilty of non-performance || 1169
- CA: affirmed
o Borbons to pay liquidated damages, attorney’s fees
o Servicewide took note for value and in good faith
- SC:
o Borbons: no liquidated damages, attys fees || 1484, CC: vor-mee, assignee loses rt to
recover any unpaid balance of price and any agreement to the contrary, void
o When seller assigns credit to another person, assignee bound by same law
 Law applicable being 1484
o 1484 remedies
 || Nonato v IAC:
 Exact fulfilment
 Cancel sale
 Foreclose mortgage
o Remedies under 1484 alternative and exclusive, not cumulative
 Compared to
 alternative obligations
o Mere choice categorically and unequivocally made and
communicated by person entitle to exercise option concludes
parties;
o cor may not exercise any other option, unless chosen
alternative ineffectual or unavailing due to no fault on his part
 alternative remedies
o choice conclusive on parties only upon exercise of remedy
 here
 foreclosure already chosen
 plus liquidated damages and atty’s fees awarded
o ||1484: unpaid balance
 in Macondray v Eustaquio: any unpaid balance =
deficiency judgment to which the mortgagee may be
entitled to when the proceds from the auction sale are
sufficient to cover the full amount of the secured
 obligations which include interest on the principal,
attornye’s fees, expenses of collection, costs
 not limited to unpaid balance of principal
 Filipinas Investment v Ridad an exception: award of
costs and fees awarded when mor concealed chattel
o Liquidated damages must be struck down
o But attys fees OK
o MODIFIED. Liquidated damages deleted

Sps Restituto, Ester Nonato v IAC, Investor’s Finance Corp (1985, Escolin, review)

- Sps Nonato
o Bought VW Sakbayan; on installment; chattel mortgage on car
- From People’s Car, Inc
- People’s Car assigned rts and int on note to Investor’s Finance
- Sps failed to pay
- Car repossessed
- Investor’s Finance still demanded balance of car
- CFI: Investor’s v Sps: balance, damages, fees
o Nonatos: 1484: Investor’s barred from recovering balance due to cancellation of sale
o Ruled in favor of Investor’s—16thou plus int, fees, exp
- IAC: affirmed
- SC:
o 1484 applicable
o 1484 meaning
 Should the vee or purchaser of a personal property
 Default in the payment of two or more agreed installments
 The vor or seller has the option to avail of any of these 3 remedies:
 To exact fulfilment by purchaser of obligation
 Cancel sale
 Foreclose mortgage on personal property, if constituted
 Remedies recognized as alternative, not cumulative
 The exercise of one would bar the exercise of others
o Here, car repossessed
 Nonato: repossessed because sale cancelled
 Investor’s: repossessed for appraisal of value
o Receipt issued upon repossession
 Vehicle could be redeemed within 15 days
 Therefore, should Nonatos fail to redeem within period by paying balance,
company would retain permanent possession, as it, in fact, did
 Admitted by Carmona, company witness: no pay, no return
 Appraisal argument untenable
 Even after notified Nonatos of insufficiency of value of car, no attempt
to return car
o SET ASIDE. DISMISSED.
Delta Motor Sales Corp v Niu Kim Duan, Chan Fue Eng, def-ants (1992, Nocon)

- Niu, Chan purchased

o 3 DAIKIN aircon
o For 19thou
o Down payment of 774
o Balance to be paid in 24 inst
o Title to remain with Delta until full payment
o If not paid, 25% remaining unpaid due, as damages
o Promissory note to secure obligation
- Niu, Chan failed to pay 12thou balance extra-judicially
- TC: Delta: replevin, judicial declaration of rescission of Deed
o In favor of Delta
- CA referred to SC; pure question of law
- SC:
o Niu, Chan:
 Deed of Conditional Sale iniquitous
 Par 5: failure to pay: sums paid considered rental, seller may take
possession
 Par 7: damages, penalty, fees: 25% of unpaid obligation
 Paid one third of entire price for 22 months
 TC ordered them to pay six thou balance due
 Paid fees when complaint did not indicate fees
 Delta to be unjustly enriched after a few touches here and there, tada, resale
o Stipulation that installments not to be returned valid as long as not unconscionable
 Here, paid 6thou equivalent to seven moly installments for 22 mo usage
 Not unconscionable
o 1484 alternative, not cumulative—performance, cancel sale, foreclosure
 Here, Delta possessed air-con thru writ of replevin || pars 5, 7 of deed for the
judicial declaration of valid rescission
 Delta availed of second remedy: cancellation
 Shown by exhibit F: computation of outstanding account which took
into account the value of the units repossessed
 Therefore, barred from exacting payment of balance of price of air-con
units already repossessed
 Can’t have your cake and eat it, too, bro
o SET ASIDE. DISMISSED complaint

Elisco Tool Manufacturing Corp v CA, Rolando Lantan, Rina Lantan (1999, Mendoza, review)

- Lantan employee, head of cash dep’t of

- Elisco Tool
o Owned car Colt Lancer, 1979
o Leased car to Lantan
o For 1thou moly for five years
 o Lease rental deducted from salary
o At end of five years, Lantan may exercise option to purchase motor vehicle, rentals
applied to payment of full purchase price
 May exercise this right earlier, upon payment of remaining balance of five-year
rental
o Three accumulated failure to pay = er may lease to another ee
o Resignation or dismissal of ee = return of motor vehicle
- Promissory note executed
o in case of default, 2% of amt due and unpaid for every 30-day default
o 2 default, entire unpaid balance due and payable
o 20% fees
- Lantan possessed car. Accessorized ~15thou
- 1981, Elizalde Steel Corp, sister corporation of Elisco, closed down; Lantan laid off
- 1984, Lantan still paid for car. Totaled 61thou
- RTC, 1986: Elisco: replevin plus sum of money for monthly rentals of 39thou with int until fully
paid; alternatively: pay value of vehicle plus accrued rentals; fees, costs; posted bond, car taken
by sheriff; no laches bc action on written contract can be brought within ten yrs
o Lantans: true agreement: buy and sell agreement; not lease with option to buy;
 moly amortization at one thou;
 Lantan liable for expenses of registration, insurance, repair, maintenance, gas,
oil, parts, expenses, etc;
 Elisco waived rights under agreement bc accepted payments even when
terminated;
 Lantan, though terminated, not required to return car;
 no lease to another employee made after failure to pay ‘rentals’;
 Elisco failed to enforce manner of payment under agreement
o Agreement a contract of sale; Lantans fully paid price
o 1484, 85 applicable: can’t have your cake and it eat it, too—can’t have car and
payments too
o Delay in institution of action shows Elisco wanted to give opp to ee to pay for car and
acquire ownership
o Excess payment to be returned
o Dismissed
- CA: affirmed in toto; motion for execution pending appeal granted; car delivered to Lantans
- SC:
o Elisco: lease contract; promissory not binding
o Court has long been aware of practice of vendors of personalty of denominating a
contract of sale on installment as one of lease to prevent the ownership of the object of
the sale from passing to the vee until and unless the price is fully paid
 || Vda de Jose v Barrueco: sellers who do not wish to openly make a bargain in
the form of conditional sales of goods frequently resort to device of making
contracts in the form of leases with options to purchase, provided rent has been
duly paid, with stipulations that title to remain with lor. Such transactions are
leases only in name; rent must be regarded as payment in installment
  || Manila Gas Corp v Calupitan: such agreements are a contract of sale on
installment and not of lease
 || US Commercial v HAlili: lease agreement a sale of personalty by installment
 Under typical car plan, company advances purchase price of car to be paid back
by ee through moly deductions from salary; co retains ownership of vehicle as
lien on vehicle in the event that ee absconds; should ee be terminated, vehicle
will be taken by er and installments shall be considered rentals
o Clear that transaction here lease in name only
 Par 5 of agreement: option to purchase at end of year five and all moly rentals
to be applied to payment of full purchase price of car
o Therefore, 1484, 85 applicable
 Remedies alternative, not cumulative
 Here, Elisco prayed for delivery of vehicle with accessories plus 39thou
amount purportedly due as of May 86 plus 60thou actual value of car
plus monthly rentals accrued plus int
 Therefore, prayer cannot be granted
 Action one for specific performance, consistent with prayer with respect to
unpaid installments as of May 86
 39thou and 60thou no longer due because Lantans already performed
obligation. Payment of interest not stipulated in agreement
 Promissory note does not form part of the contract; no consideration
for promissory note; no showing Elisco advanced price of vehicle for
Lantan; promissory note did not secure anything
o Receipt of payments for more than 2 yrs after employment terminated = waiver of right
to collect interest upon delayed payments
o Moral damages in favor of Lantans who felt bad, worried, embarrassed warranted
o AFFIRMED

PCI Leasing and Finance, Inc v Giraffe-X Creative Imaging, Inc (2007, Garcia)

- PCI Leasing and Giraffe

o Lease agreement
 PCI to lease out
 To Giraffe,
 Silicon high impact graphics and accessories, 3.9M, Oxberry cinescan, 6.5M
 3.12M guaranty deposit ~ performance bond
 Acceleration clause in event of failure to pay
o 2 other documents: lease schedules and disclosure statements of loan/credit
transaction (single payment or installment plan)
 Used terms: borrower, net proceeds of loan, net amt to be financed
 36% per annum late payment charges
 Total value to be paid: 4.2M, 6.529M = 10.7M
- Giraffe defaulted 3 mos a year into agreement; demands unheeded
- TC: PCI Leasing v Giraffe: replevin for recovery of property + pay 8M balance
o Replevin issued
 o Giraffe: motion to dismiss: seizure = no more cause of action || 1484
o PCI: straight lease with option to buy; not gay. 1484 not applicable; ordinary lor, lee
o Dismissed. Contract falls under 1484, 85
- SC:
o PCI: arrangement a straight lease || RA 5980, as amended by 8556—financing company
act of 1998; therefore not covered by Recto Law
 Financial leasing agreement does not confer on lee option to buy property
o RA 5980 as amended
 Purpose: practical and salutary
 Enacted to regulate ops with the end in view of strengthening their
critical role in providing credit and services to small and medium
enterprises and to curtail acts and practices prejudicial to the public
interest and their clienteles
 Most financial contracts unilaterally thought up and written usually one-
sided in favor of companies
 Supervisory/regulatory legislation
 Does not define rights and obligations of parties to a financial leasing
arrangement
 Does not go beyond defining commercial or transactional financial leasing
 Therefore, || Art 18 of CC: matters governed by special laws, deficiency shall be
supplied by CC
o Agreement in question a disguised transaction
 Agreement has earmarks or made to appear as financial leasing 1
 But || jurisprudence, Court takes into acct the ff:
 Imperatives of equity
 Contractual stipulations
 Actuations of the parties vis-à-vis the contract
 || BA Finance Corp v CA: lease of motor vehicle actually a sale
o “transaction involved is one of a financial lease or financial
leasing, where a financing company would, in effect, initially
purchase a mobile equipment and turn around to lease it to a
client who gets, in addition, an option to purchase the property
at the expiry of the lease period”
o Term of the contract for 3 yrs at a monthly rental, guaranty
deposit also made
o Plaintiff should not be allowed to unduly enrich itself at the
expense of the defendant. This is even more compelling in this

1
RA 8556. Sec 3 (d)… a mode of extending credit through a non-cancelable lease contract under which the lessor
purchases or acquires, at the instance of the lessee, machinery, equipment, . . . office machines, and other
movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of
money sufficient to amortize at least seventy (70%) of the purchase price or acquisition cost, including any
incidental expenses and a margin of profit over an obligatory period of not less than two (2) years during which the
lessee has the right to hold and use the leased property ... but with no obligation or option on his part to purchase
the leased property from the owner-lessor at the end of the lease contract.
 case where although the transaction, on its face, appear
ostensibly, to be a contract of lease, it is actually a financing
agreement, with the piff financing the purchase of def’s
automobile || facts and circumstances of the case
o Guaranty deposit applied to balance still due and company to
recognize it as exercise of option to purchase
 || Cebu contractors consortium v CA: financial lease agreement
simulated to disguise simple loan with security—financing company
purchased equipment already owned by capital-strapped client, with
the intention of leasing it back to the latter
 Here:
 Office equipment acquired by PCI for subsequent lease to Giraffe
 Giraffe to pay 300thou moly
 Up-front guarantee deposit of 3.12M
 Cumulative remedies stipulated
o Possession, retention of amts paid, liquidated damages may
include guaranty; recover accrued and unpaid rentals, recover
amts advanced by PCI for giraffe’s account; recover expenses,
damages by reason of default
 Giraffe paid 6.6M
 Residual value of 6.9M
 Total value of 13.5M
 Acquisition cost: 8.1M
 PCI gross income: 5.4M, not yet final figure—no int, arrears, penalties,…
 If Giraffe pays 8M rental balance, Giraffe to pay total of 21M
 Demand letter
o Pay full outstanding balance OR surrender equipment
 Use of or not a typographical error. Letter made by
lawyer
 Or a dijunctive term; indicates alernatives
 Demand = respondent need not return equipment if it
pays 8M outstanding balance
 Suggests that Giraffe can keep equipment if it
exercises option to acquire same by paying
balance of purchase price = option to purchase
 Therefore, transaction a lease in name only
 Rentals = moly amortizations
 Therefore, outlandish that agreement an honest-to-goodness straight lease
o Recto law applicable
 Case reflects situation where financing company withholds and conceals
intention to sell property up to the last moment
 To circumvent Recto law
 Absence of purchase option clause does not argue against the idea that what
parties are into is not a straight lease, but lease with option to purchase
  || Vda de Jose v Barrueco, US Commercial v Halili
 In choosing to deprive Giraffe of possession, PCI waived right to bring action to
recover unpaid rentals
 || Elisco v CA: remedies alternative, not cumulative
o Exercise of one bars exercise of others
o Limitation applies to contracts purporting to be leases with
option to buy
 Honest dealing imperatives prominent in CC: see human relations chapter
 Unfair for person who has voluntarily surrendered property to still be
sued
 Here, payment of 8M would make total payment due 21M = instant kill
by PCI out of transaction with Giraffe
o Recto Law enacted to prevent this kind of aberration
o DENIED. TC AFFIRMED

Sale of Immovables

1. Anticipatory breach

Art 1591. Should the vor have reasonable grounds to fear the loss of immovable property sold and its
price, he may immediately sue for the rescission of the sale.

Should such ground not exist, the provisions of 1191 2 shall be observed. (1503)

2. PD 957 – 1976, regulating sale of subdivision lots and condominiums

Sec 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision or

condominium project for the 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.

Sec 24. Failure to pay installments. The rights of the buyer in the event of this failure to pay the
installments due for reasons other than the failure of the owner or developer to develop the project
shall be governed by Republic Act No. 6552.

Sec 15. Decision. The case shall be decided within thirty (30) days from the time the same is submitted
for decision. The Decision may order the revocation of the registration of the subdivision or

2
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the mortgage law
condominium project, the suspension, cancellation, or revocation of the license to sell and/or forfeiture,
in whole or in part, of the performance bond mentioned in Section 6 hereof. In case forfeiture of the
bond is ordered, the Decision may direct the provincial or city engineer to undertake or cause the
construction of roads and of other requirements for the subdivision or condominium as stipulated in the
bond, chargeable to the amount forfeited. Such decision shall be immediately executory and shall
become final after the lapse of 15 days from the date of receipt of the Decision.

Sec 16. Cease and Desist Order. Whenever it shall appear to the Authority that any person is engaged or
about to engage in any act or practice which constitutes or will constitute a violation of the provisions of
this Decree, or of any rule or regulation thereunder, it may, upon due notice and hearing as provided in
Section 13 hereof, issue a cease and desist order to enjoin such act or practices.

Sec 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.

Whenever a subdivision plan duly approved in accordance with Section 4 hereof, together with the
corresponding owner's duplicate certificate of title, is presented to the Register of Deeds for
registration, the Register of Deeds shall register the same in accordance with the provisions of the Land
Registration Act, as amended: Provided, however, that it there is a street, passageway or required open
space delineated on a complex subdivision plan hereafter approved and as defined in this Decree, the
Register of Deeds shall annotate on the new certificate of title covering the street, passageway or open
space, a memorandum to the effect that except by way of donation in favor of a city or municipality, no
portion of any street, passageway, or open space so delineated on the plan shall be closed or otherwise
disposed of by the registered owner without the requisite approval as provided under Section 22 of this
Decree.

Casa Filipina Realty v Office of the Pres, Sps Dennis, Rebecca Sevilla (1995, Romero, MR)

- Sps Sevilla purchased from Casa Filipina || contract to sell

o Purchased 264 sq m land, San Dionisio, Paranaque
o For 150thou
o Paid on installment basis, moly, for five years, 28% amort int per annum
o 36thou down payment
- Sps failed to pay on time
- Nov 5, 85 letter: sps to CFRC
o No improvements; don’t even know where lot is; overhead growth of cogon grass
o Property encumbered: mother title with ‘lis pendens’; title mortgaged to ComSavings
Bank
o Asking for refund
- Office of Appeals, Adjudication, Legal Affairs: granted refund plus interest; CFRC not licensed to
sell subdivision; assuming licensed, still liable under PD 957 due to failure to develop subdivision
- Housing and Land Use Regulatory Board: affirmed. Interest reduced to 6%
- Office of the President: dismissed, lack of merit
- SC 1: dismissed, 91
 - SC 2: MR
o Casa Filipina:
 Sps should have notified Casa Filipina of desistance
 || Sec 23, PD 957: no refund unless buyer gives notice to developer that
he will not pay due to non-development
 24 should have been applied since reason for desistance: encumbrance
 Would pay refund but not the interest
o Basis for desistance in payment not only encumbrance/reasons other than
development; also due to non-development
 Can be clearly read from Nov 85 letter: two principal grounds: non-development
and encumbrance
o Sec 23 notice requirement complied with
 Sec 23 requires buyer to notify developer or owner of intention not to remit
further payments on account of nondevelopment
 Nov 85 letter gave notice on nondevelopment and also demanded for refund
 Sec 23 does not require that notice be given first before a demand for refund
can be made—can be made at the same time
o On delay
 || 1169: obligor incurs in delay only after deman has been made
 Here, no such demand made by Casa Filipina against spouses
 Letters sent were the usual, ordinary remind letters sent by cor to dor
o PD 957
 “Subdivision and Condominium Buyers’ Protective Decree
 Issued in the wake of numerous reports of owners, developers who have
reneged on their representations and obligations to provide and maintain
subdivision roads, drainage, sewerage, waters, lighting systems, other basic
requirements
 Designed to stem the tide of fraudulent manipulations
 Therefore, should notice requirement in Sec 23 be construed as required to be
given before a buyer desists from further paying, intent of the law to protect
buyers will tend to be defeated
o Plus other circumstances
 Lot encumbered
 Casa Filipina not licensed
o DENIED. AFFIRMED. Immediately executory

Manila Banking Corp v Sps Alfredo, Celestina Rabina, Marenir Dev’t Corp (2008, Carpio-Morales, review
on certiorari)

- Owner/developer: Marenir Dev’t Corp (MDC)

o 1982: Loaned 4.56M from Manila Banking
 Secured with real estate mortgage which included
 Property in contract to sell with Amante Sibuyan
- 1985: Sibuyan assigned lot to Rabina, with conformity of MDC
- Rabina fully paid amortization payments for lot
o Asked MDC for transfer of title; MDC did not do so
- OAALA of HLURB: Rabinas: delivery of titles, annulment of mortgage, incomplete dev’t of
subdivision Reymarville Subd v Manila Banking and MDC
o Manila Banking: no jurisdiction || RA 265
o Arbiter ruled in favor of Rabinas
 Mortgage invalid and ineffective as against Rabinas
 Release mortgage
 Manila Banking cannot foreclose; damages, fees, fine
- Office of the President: dismissed for nonpayment of appeal fees
- CA: affirmed. HLURB has jurisdiction || RA 957
- SC:
o Procedurally deadz
o HLURB has jurisdiction
 ||Arranza v BF Homes
 Sec 3 of PD empowered NHA with exclusive jurisdiction to regulate real
estate trade and business
 PD 1344 issued to expand juris of NHA to include
o Unsound real estate business practices
o Claims involving refun filed by buyer against owner/developer
o Cases involving specific performance of obligations
 Jurisdiction broad enough to include complaints of annulment of mortgage
 To disassociate issue of nullity of mortgage and lodge it separately with
liquidation court would lead to inconvenience and would not aid
speedy, inexpensive administration of justice as mandated by laws
 Here: unsound real estate business practice and highly prejudicial acts
 MDC mortgaged lot to Manila Banking without knowledge and consent
of spouses, without approval of HLURB as required by PD 957
o Mortgage falls under Sec 18 prohibition of PD
 Sec 18: no mortgage on any unit or lot shall be made by the owner or developer
without prior written approval of the authority
 Sec 18 a prohibitory law and acts committed contrary to it are void ||
avowed purpose of PD (protect buyer so they do not end up still
homeless despite full payment of home lots with hard earned cash ||
Far East Bank and Trust Co v Marquez
o Manila Banking: sps have not shown proof that at the time of the mortgage, the lot was
part of a subdivision or condominium project; sps should have registered contract to
sell/deed of assignment || PD 957, Sec 17
 SC: nope
 Manila banking aware that MDC engaged in real estate dev’t
 Seller, not buyer, obligated to register contract to sell/deed of
assignment || Sec 17, PD 957
o DENIED. Affirmed
Luzon Development Bank v Angeles Enriquez;
Delta Dev’t and Management Services, Inc v Enriquez, Luzon Dev’t Bank (2011, Del Castillo, appeal)

- Developer: Delta
o Project: Delta Homes, Cavite
o Owned by De Leon, owner of Lot 4 in Delta Homes
- Luzon Development Bank
o Loaned 8M to De Leon
o De Leon mortgaged lot 4, among others, as security
 Annotated on TCT
- Delta registered with HLURB; also with license to sell
- 1997: Delta with Angeles
o Contract to sell: house and lot 4 for 615thou
o Downpayment of 114thou
o Three successive moly installments nada, owner may consider contract void without
court action
o Upon full payment, final deed of sale
- Delta defaulted loan
- Bank did not foreclose; agreed to dacion en pago
o 1998, Delta assigned, transferred properties in favor of Bank; Lot 4 included
 Not sure if title transferred, but dacion en pago not annotated
 Enriquez unaware
- 1999, HLURB: Enriquez v Delta, Bank: Delta violated terms of license to sell (excessive price, no
mortgage clearance); refund, damages, fines
o Valid purchase price
o Delta to accept 108thou payment from Enriquez
o Delta to deliver property free from encumbrances to Enriquez
o Costs, fines
- HLURB Board of Commissioners: Delta: mortgage clearance not required for mortgages
constituted on project prior registration
o Mortgage clearance required, regardless of date when mortgage secured
 Law does not distinguish
o No damages
- Office of the President: Bank: owner!
o Affirmed in toto
- CA: Bank: owner! Delta cannot transfer Lot 4 to Enriquez; or respect mortgage over 4, recognize
right to redeem
o Dacion en pago invalid as to Lot 4
o Bank has no right to redeem before delivery to Enriquez
- SC:
o Delta: contract to sell; ownership only to transfer to Enri upon full payment; Delta may
effect dacion en pago to extinguish obligation to bank
o Bank: Delta still owner || CtS; Delta may validly convey; if invalidated, loan obligation of
Delta still remains up to extent of Lot 4 value; be declared owner
o Enriquez: waived
o Mortgage void
 Delta violated Sec 18 of PD 957
 PD aims to protect innocent buyers against fraudulent real estate practices;
 Sec 18 prohibitory, acts committed contrary to it void
 Therefore, Bank and Delta cannot assert any right arising therefrom
o Contract to sell did not convey ownership
 CA in error in holding that CtS transferred ownership || nature of CtS:
ownership reserved until full payment; does not transfer ownership by itself
 Here, ownership reserved, plus Delta allowed to unilaterally rescind
 Therefore, Delta may validly transfer ownership to Bank
 BUT bank bound by CtS and must respect Enriquez’ rights
 BECAUSE
o PD 957 protects Enriquez as buyer
 PD 957, Sec 17, provides for registration of contract to
sell, deed of sale, other instruments relative to sale or
conveyance of the subdivision lots and condominium
units, whether or not price paid in full
o PD purose: protect buyers from any future unscrupulous
transactions
o Registration of contract to sell makes it binding on third parties
o Registration serves as notice to whole world that property
subject to prior right of buyer of property, and anyone who
wishes to deal with the said property will be held bound by such
prior right
 Here, CtS not registered
o BUT BANK STILL TO RESPECT CTS
o Bank not an innocent purchaser for value when it accepted Lot
4 as part of payment
 Bank knew that loan was for development of
subdivision project as indicated in promissory notes
 Lot 4 described. Can be easily inferred that Lot 4
included in subdivision
 Bank knew or should have known of possibility that
assigned properties already covered by CtS in favor of
subdivision buyers
 Bank a financial institution that should have
been aware of possibilities bc was dealing with
real estate developer. Bank should not have
been content with clean title; bank wanting in
care and prudence
 Bank required to observe more care and
prudence when dealing with registered
properties
 o || Keppel Bank Ph v Adao: bank dealing with property protected
by PD 957 bound by CtS
o Dacion en pago extinguished loan
 Lot 4 value included
 Intention of parties to dation paramount and controlling
 Here, dacion en pago instrument indicates clear intention that assigned
properties would serve as full payment for Delta’s entire obligation
o Without any reservation or condition
o Assigned properties served as full payment of Delta’s total
obligation to Bank
 Bank cannot complain if some of assigned proeprties covered by existing
contracts to sell
 Bank knew of nature of Delta’s business and properties being part of
subdivision plan
 Banks dealing with subdivision properties expected to conduct thorough
due diligence review to discover status of properties being dealt with
 Bank assumed risk
 Dacion en pago governed by law of sales
 Sales come with warranties
 Here, bank did not even point to breach of warranty
 And no express warranty in dacion either
 Implied warranty against eviction waivable and cannot be invoked if
buyer knew of risks or danger of eviction and assumed its consequences
o AFFIRMED. Modified: Delta not liable to pay Lot 4 value to bank. Bank to deliver title to
Enriquez upon latter’s payment

3. Sale of immovable on installment (Maceda Law)

RA 6552 – An Act to Provide Protection to Buyers of Real Estate on Installment Payments

Section 1. This Act shall be known as the "Realty Installment Buyer Act."

Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments
against onerous and oppressive conditions.

Section 3. In all transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as
amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least
two years of installments, the buyer is entitled to the following rights in case he defaults in the payment
of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned
by him which is hereby fixed at the rate of one month grace period for every one year of installment
payments made: Provided, That this right shall be exercised by the buyer only once in every five years of
the life of the contract and its extensions, if any.

(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty per cent of the total payments made, and, after five years
of installments, an additional five per cent every year but not to exceed ninety per cent of the total
payments made: Provided, That the actual cancellation of the contract shall take place after thirty days
from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total
number of installment payments made.lawphi1™

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.

Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to
another person or to reinstate the contract by updating the account during the grace period and before
actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act.

Section 6. The buyer shall have the right to pay in advance any installment or the full unpaid balance of
the purchase price any time without interest and to have such full payment of the purchase price
annotated in the certificate of title covering the property.

Section 7. Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3,
4, 5 and 6, shall be null and void.

Section 8. If any provision of this Act is held invalid or unconstitutional, no other provision shall be
affected thereby.lawphi1™

Section 9. This Act shall take effect upon its approval.

Approved: August 26, 1972.

Emiliano Rillo v CA, CORB Realty Investment, Corp (1997, Puno, Appeal)

- Rillo and CORB

o 1985: contract to sell, condominium unit
 61.5 sq m condo in Mandaluyong
 Price: 150thou, 75thou downpayment
 24% int per annum; arrears subj to liquidated penalty int
 Three or four mo delay -> forfeiture proceedings || Condominium Act
- Rillo failed to pay July and Aug 85
- Rillo paid Sep and Oct, and Feb the ff year (5thou only, not 7thou agreed upon)
- 17 mos after last payment, CORB informed Rillo of cancellation thru letter due to failure to pay;
willing to refund
- But Sep 87, CORB still accepted 60thou payment
- Afterwhich Rillo defaulted again
- 1988 Aug: CORB to Rillo: come to office and withdraw 100thou less unit rentals from 85 to 89;
will rescind
- But again, no rescission
- 12 March 89: compromise
o Restructured balance down to 50thou; 2thou/mo
o Real estate tax. Installments to start Apr 89
- Rillo paid only Apr, May. Then defaulted
- CORB: 155thou due
- RTC: CORB: cancellation of contract to sell; stipulated only 62thou
o CORB may not rescind; no substantial breach
- CA: reversed
o Rescission does not apply as contract not an absolute conveyance but a contract to sell
o Condominium Act (RA 4726) does not provide anything on forfeiture proceedings,
therefore, PD 957 should apply
 Failure to pay due to reasons other than nondevelopment, 6552 shall apply
o Contract to sell cancelled, ineffective ||1191, 1592. Return 158thou to Rillo
- SC:
o Rescission proper
 In contract to sell realty on installments, full payment of purchase price =
positive suspensive condition, failure of which not a breach but simply an event
which prevented obligation of vor to convey title from acquiring obligatory force
 No rescission if obligation non-existent || Luzon Brokerage
 RA 6552 correctly applied
 6552 recognizes
o right of seller to cancel contract upon non-payment of
installment by the buyer, which is simply an event that prevents
the obligation of vor to convey title from acquiring binding force
o in conditional sales of all kinds of real estate
o right of buyer in case of default in payment
 buyer pays at least two years of installments
 pay unpaid installments, without interests
 if cancelled contract, seller to refund to buyer
CSV of total payments
 buyer pays less than two years in installments
 seller to give grace pd of not less than 60 days
within w/c buyer to pay installments due
o seller may cancel after 30 days from
receipt by buyer of notice of
cancellation
 here, payments less than 2 yrs
o therefore, grace pd of not less than 60 days only
 o CORB may cancel contract 30 days from Rillo’s receipt of notice
of cancellation
 Therefore, CORB has right to cancel
o No novation
 Not presumed; must be expressly agreed to, absent which it must be shown
that new and old obligations are incompatible on every point
 Here, compromise agreement gave life to CtS; merely clarified sum owed
o No refund.
 || RA 6552, refund only available to buyer who has paid at least two yrs of
installments
o AFFIRMED. Modified: refund deleted

Abelardo Valarao, Gloriosa Valarao, Carlos Valaro v CA, Meden Arellano (1999, Panganiban)

- Seller: sps A and G thru son Carlos as atty-in-fact

- Buyer: Meden Arellano
- Object: Diliman, QC lot, 1,504 sq m, 1987
o for 3.225M
- 1990: Arellano: already paid 2M, but failed to pay installments due Oct, Nov 90
o Tried to pay amounts due in Dec but was refused by maid who previously accepted
payments anyway
- No barangay level settlement; Sps did not show up
- Over the phone, Gloriosa: no more payments to be accepted. Talk with lawyer
- 1991, TC: Arellano v Valaraos: consignation
- Valaraos, letter: rescission; improvements and payments forfeited; vacate property if contract of
lease not signed
- Arellano: did not refuse to pay; was refused
- Valaraos still denied attempts by Arellano to pay
- RTC: deed of conditional sale rescinded. Payments forfeited. Improvements belong to Valaraos
- CA: reversed. Refusal to accept tender unjustified. Demand necessary || 1592, CC,
notwithstanding stipulation that rescission shall take place upon failure to pay 3 successive moly
installments. Letter should be notarized
- SC:
o 1592 applies only to a contract of sale
 Does not apply to CtS, sale on installment
 || Luzon Brokerage v Maritime: CtS and CoS different re: transfer of title
 Here, CtS/sale on installment (deed of conditional sale)
 Title to property expressly reserved
 Therefore not covered
o Automatic forfeiture clause valid
o BUT implementation of forfeiture clause not warranted
 There was no deliberate failure to pay on part of Arellano
 Sps refused to pay
 Had they not, Arellano would have paid the three mos
 Maid estopped; accepted before
 o Rescission cannot be effected || Maceda Law
 Sec 3. At least two years of installments paid, thirty-day grace period allowed to
buyer
 30 days from Dec
 To rule otherwise = patent injustice, unjust enrichment
o AFFIRMED. DENIED.

Active Realty & Dev’t Corp v Necita Daroya, repped by atty-in-fact Daroya-Quinones (2002, Puno)

- Developer/owner/seller: Active
- Buyer: Necita Daroya, Middle East worker
- Object: 515 sq m for 224,025
o CtS: downpayment of fifty thou, balance payable in 60 mos for 4thou
o Total amount due: 346thou, higher than contract price
o 1985
- 1989 Aug: defaulted fifteen thou, = three mos
o Active sent letter: notice of cancellation, effective 30 days from receipt
- Daroya offered to pay but was refused; Active already sold lot to another
- HLURB: Daroya: compel Active to execute Deed of Absolute Sale after payment of 20thou bc
already paid 314thou—91thou more than total contract price of 224thou
o Cancellation of contract to sell void bc Active did not pay CSV || law
o BUT because lot already sold to third party and Active agreed to refund full plus int,
refund ordered
- HLURB Board: set aside. Maceda Law not applied. Resorted to more equitable solution
o Both at fault—Daroya in delay, Active did not send notarized notice of cancellation
o Refund half of what has been paid
- Office of Pres: Daroya appeal
o HLURB not in accord with Maceda law
o Legal requisites for valid cancellation of contract not complied with
o Therefore, contract subsisted
o Daroya entitled to lot after payment
- CA: denied petition and MR—procedural
- SC:
o Procedurally OK. CA wrong
 Active substantially complied with procedural requirements
o Contract to Sell still valid; not rescinded
 Maceda law applicable
 Maceda law: public policy: protect buyers of real estate on installment
basis against onerous and oppressive conditions
o Address acute housing shortage problem in country that
prompted thousands of mid and lower class buyers to enter into
all sorts of contracts with developers involving installment
schemes
  Sec 3: rights of buyers in case 2-yr worth of inst paid: pay without int,
thirty day grace period
 Here, already paid 4 years’ worth and more than contract price
 Was only in delay for 15thou v 314thou already paid
 Active also failed to comply with mandatory twin requirement for valid and
effective cancellation under the law
 No notarized notice of cancellation and refund of CSV
 Only during preliminary hearing at HLURB did Active offer to pay
o Fishy bc Active never failed to remind her of her arrears; if
Daroya did not file action, no indication that Active would have
paid CSV
o HLURB solution of half refund not equitable; totally disregarded failure of Active to
comply with mandatory requisites for valid cancellation of CtS
 HLURB failed to consider Maceda Law purpose: remedy plight of mid-low level
income buyers
 Full refund also not justified—Daroya entitled to lot after payment of balance
o AFFIRMED in toto. Costs

Isaias Fabrigas, Marcelina Fabrigas v San Francisco del Monte, Inc (2005, Tinga, appeal)

- Buyer: Sps Fabrigas

- Seller: San Francisco
- Contract:
o CtS1
o Lot 9, Subdivision plan psd 50046, registered in name of San Francisco
o For 109thou
 30thou dp
 1,286 moly, ten mos
o Should buyer fail to pay within 30 days after due date, contract forfeited and annulled
without necessity of notice to purchaser. Seller free to dispose; payments made =
rentals; buyer waives right to demand refund and agrees to vacat
- Sps took possession; failed to pay installments; five demand letters unsatisfied (with 15-day gp)
o Last letter: received Dec 23, 83, with 15-day gp
- Nov6 84, Jan 12, 85: paid 13thou, 12thou;
- Jan 21: new contract; restructured payment (CtS2)
- Mar 85-Jan 86: several irregular payments—Mar, Jul, Sep, Nov, Jan
- San Francisco demand letter, Feb 3, 86: 9 installments overdue acct = 26thou
- Sps paid 2thou installments Feb to Jul 86
- Oct 87, ten thou refused by San Francisco
- Mar 89: CtS1 cancelled –San francisco
- 90 Sep, RTC: San Francisco: recovery of possession with damages
o CtS2 valid
o Fabrigas to complete payment; if to surrender, must still pay unpaid instalments
- CA:
o Cts1 rescinded
  Automatic rescission clause valid
o Cts2 unenforceable, but valid bc subsequently ratified
- SC:
o Cts1 not validly rescinded
 Did not comply with Maceda Law, two-step process, Sec 4 (less than 2 yrs):
 Where less than two years of payments made, seller to give buyer grace
pd of not less than 60 days from due date
 If buyer fails to pay, seller may cancel after 30 days from receipt of
notice of cancellation or demand for rescission by notarial act
 Here
 More than 60 days granted
 BUT mere letter not enough—must be notarial act
 Stipulation void || Sec 7
o Cts1 novated by CtS2
 Novation can be extinctive or modificatory
 In this case
o CtS2 increased contract price = change in object, principal
condition; consideration for San Francisco’s agreement to the
new contract
o CtS2 avoided consequences of default
 CtS2 created new obligations in lieu of those of CtS1, which were
considered extinguished upon execution of CtS2
 CtS2 unenforceable, but ratified
 Entered into by wife without court or husband authority, unenforceable
 Husband remitted payments, ratified
 If it was a contract of adhesion, still valid. Contracts of adhesion not void per se
o Therefore, san Francisco may enforce CtS2
o DENIED. CA AFFIRMED. Costs.

Jestra Development and Mgt Corp v Daniel Pacifico, repped by atty-in-fact Jordan Pizarras (2007, Carpio-
Morales)

- Buyer: Pacifico
- Seller: Jestra Dev’t
- Contract: Reservation application with Fil-Estate Mktg Association for 20,000
o Object: Lot 28, Jestra Villas, Paranaque
o For 2.5M, dp of 750thou interest-free in six mos from Jul to Dec 96
o CtS with Jestra to be signed upon completion of downpayment
o Balance payable for ten years
- Pacifico requested periodic payments in more affordable amounts
- Jestra agreed but with late payment penalties
- Pacifico and Jestra execked CtS with 260thou dp balance; CtS silent as to unsettled balance of dp
o CtS: Pacifico should have paid dp by Nov, one mo ahead of reservation app date
o Installments to begin Dec
 o Moly amort increased from 34thou to 39thou
- Pacifico checks for Jan and Feb dishonored; insufficient funds
- Pacifico, March 98, to Jestra: financial difficulties. Will suspend payment during 10-mo pd;
return post-dated checks; will dispose of property to recover investment
- Jestra denied rquest. But gave him till Apr 15 to sell property. Should Pacifico fail to do so, will
reopen property for sale
- May 1, Jestra letter: cancel sale in 30 days from receipt. Received May 13
- May 27: credit and collection manager: demanded payment from Pacifico. Until Jun to settle
account; else auto-cancellation and reopening of property for sale
- Oct 98: Jestra resold property
- HLURB: Pacifico: second sale null; deliver property to him plus 11thou moly, till delivered
o Jestra liable || RA 6552: at least two years’ worth of installments paid (846thou/35thou
= 24 mos)
 Sec 3, no CSV paid;
 Sec 17: CtS not registered; reimburse 846thou plus int; damages, fees
o Pacifico no longer entitled to property since same transferred to another
- Board: deleted damages
- OP: affirmed
- CA: affirmed
- SC:
o Jestra:
 76thou of 846thou represents penalty payment and thus not part of purchase
price; exclude from determining total number of installments made
 Proper divisor: 39thou not 34thou due to restructured amort in CtS
o Proper divisor not 39thou nor 34thou
 Proper: 122thou
 Down payment included in computing total number of installment
payments made
 150 dp paid
 To be deducted from total payment of 846.6thou
 Remainder: 96.6thou
 Less 76,600 delay penalty
 Only 20thou balance remains
 Therefore, no two years’ worth of installments
 Therefore, sec 3 not applicable; sec 4 of Maceda law is
o Proper rescission || Maceda Law
 Sec 4
 Grace pd of not less than 60 days from due date
 Notice of cancellation or demand for rescission by notarial act
 || Fabrigas v San Francisco del Monte
 Here, 60 day grace pd lapsed with Pacifico’s inaction re: bouncing checks
 Jestra cancelled with notiarial notice of cancellation received May 13, 88
 Contract deemed cancelled 30 days later—Jun 12
o GRANTED. REVERSED. Set aside. Pacifico complaint dismissed.
Extinguishment of Sale

Causes

Conventional redemption

1. Distinguished from equitable mortgage

2. Distinguished from option to buy
3. Period of redemption
4. Exercise of right to redeem
a. Who can exercise
b. From whom to redeem
c. Effect of redemption
d. Effect of non-redemption

Legal redemption

1. Period to redeem
2. Instances of legal redemption