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

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

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

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

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

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

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

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

Article 18. - In matters which are xxx xxx xxx

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

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

xxx xxx xxx

 6. Recover all expenses incurred in
repossessing, removing, repairing and
storing the property; and,
7. Recover all damages suffered by PCI
LEASING by reason of the default.
In addition, Sec. 6.1 of the Lease Agreement states that the
guaranty deposit shall be forfeited in the event the respondent, for any
reason, returns the equipment before the expiration of the lease.
At bottom, respondent had paid the equivalent of about a
years lease rentals, or a total of P3,510,372.00, more or less. Throw in
the guaranty deposit (P3,120,000.00) and the respondent had made a
total cash outlay of P6,630,372.00 in favor of the petitioner. The replevin-
seized leased equipment had, as alleged in the complaint, an
estimated residual value of P6,900.000.00 at the time Civil Case No. Q-
98-34266 was instituted on May 4, 1998. Adding all cash advances thus
made to the residual value of the equipment, the total value which the
petitioner had actually obtained by virtue of its lease agreement with the
respondent
to P13,530,372.00 (P3,510,372.00 + P3,120,000.00 + P6,900.000.00
= P13,530,372.00).
The acquisition cost for both the Silicon High Impact
Graphics equipment and the Oxberry Cinescan was, as stated in no less
than the petitioners letter to the respondent dated November 11,
1996[14] approving in the latters favor a lease
was P8,100,000.00. Subtracting the acquisition cost of P8,100,000.00
from the total amount, i.e., P13,530,372.00, creditable to the respondent,
it would clearly appear that petitioner realized
income of P5,430,372.00 from its lease transaction with the respondent.
The amount of P5,430,372.00 is not yet a final figure as it does not
include the rentals in arrears, penalties thereon, and interest earned by
the guaranty deposit.
As may be noted, petitioners demand letter[15] fixed the
amount of P8,248,657.47 as representing the respondents rental balance
which became due and demandable consequent to the application of the
acceleration and other clauses of the lease agreement. Assuming, then,
that the respondent may be compelled to pay P8,248,657.47, then it
would end up paying a total of P21,779,029.47 (P13,530,372.00
+ P8,248,657.47 = P21,779,029.47) for its use - for a year and two
months at the most - of the equipment. All in all, for an investment
of P8,100,000.00, the petitioner stands to make in a years time, out of
the transaction, a total of P21,779,029.47, or a net of P13,679,029.47, if
we are to believe its outlandish legal submission that the PCI LEASING-
GIRAFFE Lease Agreement was an honest-to-goodness straight lease.
A financing arrangement has a purpose which is at once
practical and salutary. R.A. No. 8556 was, in fact, precisely enacted to
regulate financing companies operations with the end in view of
strengthening their critical role in providing credit and services to small
and medium enterprises and to curtail acts and practices prejudicial to
the public interest, in general, and to their clienteles, in particular. [16] As a
regulated activity, financing arrangements are not meant to quench only
the thirst for profit. They serve a higher purpose, and R.A. No. 8556 has
made that abundantly clear.
We stress, however, that there is nothing in R.A. No. 8556
which defines the rights and obligations, as between each other, of the
financial lessor and the lessee. In determining the respective
responsibilities of the parties to the agreement, courts, therefore, must
train a keen eye on the attendant facts and circumstances of the case in
order to ascertain the intention of the parties, in relation to the law and
the written agreement. Likewise, the public interest and policy involved
should be considered. It may not be amiss to state that, normally,
financing contracts come in a standard prepared form, unilaterally
thought up and written by the financing companies requiring only the
personal circumstances and signature of the borrower or lessee; the
rates and other important covenants in these agreements are still largely
imposed unilaterally by the financing companies. In other words, these
agreements are usually one-sided in favor of such companies. A perusal
amounts of the lease agreement in question exposes the many remedies available
to the petitioner, while there are only the standard contractual
prohibitions against the respondent. This is characteristic of standard
printed form contracts.
There is more. In the adverted February 24, 1998 demand
letter[17] sent to the respondent, petitioner fashioned its claim in the
facility, alternative: payment of the full amount of P8,248,657.47, representing
the unpaid balance for the entire 36-month lease
period or the surrender of the financed asset under pain of legal action.
a gross To quote the letter:
Demand is hereby made upon you to
pay in full your outstanding balance in the amount
of P8,248,657.47 on or before March 04,
1998 OR to surrender to us the one (1) set Silicon
High Impact Graphics and one (1) unit Oxberry
Cinescan 6400-10
We trust you will give this matter your
serious and preferential attention. (Emphasis
added).
Evidently, the letter did not make a demand for the payment of
the P8,248,657.47 AND the return of the equipment; only either one of
the two was required. The demand letter was prepared and signed by
Atty. Florecita R. Gonzales, presumably petitioners counsel. As such, the
use of or instead of and in the letter could hardly be treated as a simple
typographical error, bearing in mind the nature of the demand, the
amount involved, and the fact that it was made by a lawyer. Certainly
Atty. Gonzales would have known that a world of difference exists
between and and or in the manner that the word was employed in the
letter.
 A rule in statutory construction is that the
word "or" is a disjunctive term signifying
dissociation and independence of one thing from
other things enumerated unless the context
requires a different interpretation.[18]
In its elementary sense, "or", as used in
a statute, is a disjunctive article indicating an
alternative. It often connects a series of words or
propositions indicating a choice of either. When "or"
is used, the various members of the enumeration
are to be taken separately.[19]
The word "or" is a disjunctive term
signifying disassociation and independence of one
thing from each of the other things enumerated.[20]
The demand could only be that the respondent need not
return the equipment if it paid the P8,248,657.47 outstanding balance,
ineluctably suggesting that the respondent can keep possession of the
equipment if it exercises its option to acquire the same by paying the
unpaid balance of the purchase price. Stated otherwise, if the respondent
was not minded to exercise its option of acquiring the equipment by
returning them, then it need not pay the outstanding balance. This is the
logical import of the letter: that the transaction in this case is a lease in
name only. The so-called monthly rentals are in truth monthly
amortizations of the price of the leased office equipment.
On the whole, then, we rule, as did the trial court, that the PCI
LEASING- GIRAFFE lease agreement is in reality a lease with an option
to purchase the equipment. This has been made manifest by the actions
of the petitioner itself, foremost of which is the declarations made in its
demand letter to the respondent. There could be no other explanation
than that if the respondent paid the balance, then it could keep the
equipment for its own; if not, then it should return them. This is clearly an
option to purchase given to the respondent. Being so, Article 1485 of the
Civil Code should apply.
The present case reflects a situation where the financing
company can withhold and conceal - up to the last moment - its
intention to sell the property subject of the finance lease, in order that the
provisions of the Recto Law may be circumvented. It may be, as
petitioner pointed out, that the basic lease agreement does not contain a
purchase option clause. The absence, however, does not necessarily
argue against the idea that what the parties are into is not a straight
lease, but a lease with option to purchase. This Court has, to be sure,
long been aware of the practice of vendors of personal property of
denominating a contract of sale on installment as one of lease to prevent
the ownership of the object of the sale from passing to the vendee until
and unless the price is fully paid. As this Court noted in Vda. de Jose v.
Barrueco:[21]
Sellers desirous of making conditional
sales of their goods, but who do not wish openly
to make a bargain in that form, for one reason or
another, have frequently resorted to the device of
making contracts in the form of leases either
with options to the buyer to purchase for a
small consideration at the end of term,
provided the so-called rent has been duly
paid, or with stipulations that if the rent
throughout the term is paid, title shall
thereupon vest in the lessee. It is obvious that
such transactions are leases only in
name. The so-called rent must necessarily be
regarded as payment of the price in installments
since the due payment of the agreed amount
results, by the terms of the bargain, in the transfer
of title to the lessee.
In another old but still relevant case of U.S. Commercial v.
Halili,[22] a lease agreement was declared to be in fact a sale of personal
property by installments. Said the Court:
. . . There can hardly be any question
that the so-called contracts of lease on which the
present action is based were veritable leases of
personal property with option to purchase, and as
such come within the purview of the above article
[Art. 1454-A of the old Civil Code on sale of
personal property by installment]. xxx
Being leases of personal property with
option to purchase as contemplated in the above
article, the contracts in question are subject to the
provision that when the lessor in such case has
chosen to deprive the lessee of the enjoyment of
such personal property, he shall have no further
action against the lessee for the recovery of any
unpaid balance owing by the latter, agreement to
the contrary being null and void.
In choosing, through replevin, to deprive the respondent of
possession of the leased equipment, the petitioner waived its right to
bring an action to recover unpaid rentals on the said leased items.
Paragraph (3), Article 1484 in relation to Article 1485 of the Civil Code,
which we are hereunder re-reproducing, cannot be any clearer.
ART. 1484. In a contract of sale of
personal property the price of which is payable in
installments, the vendor may exercise any of the
following remedies:
xxx xxx xxx
(3) Foreclose the chattel mortgage on
the thing sold, if one has been constituted, should
 the vendee's failure to pay cover two or more
installments. In this case, he shall have no further
action against the purchaser to recover any unpaid
balance of the price. Any agreement to the contrary
shall be void.

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

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

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

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

The imperatives of honest dealings given prominence in the

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

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

WHEREFORE, the instant petition is DENIED and the trial

courts decision is AFFIRMED.
G.R. NO. L-23788 MAY 16, 1969
UNIVERSAL MOTORS CORPORATION, PLAINTIFF-APPELLEE, VS.
DY HIAN TAT, ET AL., DEFENDANTS,
DY HIAN TAT, DEFENDANT-APPELLANT.
TEEHANKEE AND CARREON FOR PLAINTIFF-APPELLEE.
CAMACHO AND BAÑEZ FOR DEFENDANT-APPELLANT.
BARREDO, J.:
Appeal from the decision of the Court of First Instance of Manila in
an action of replevin, Civil Case No. 55211 of said court, the dispositive
part of which reads thus:
IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is
hereby rendered adjudging that the plaintiff has the right of possession of
the Mercedes-Benz Diesel Truck in question and confirming its title
thereto, and ordering the defendant, Dy Hian Tat, to pay to the plaintiff
the sum of P9,305.30 as and for attorney's fees and costs of collection.
With costs against the defendant.
SO ORDERED.
In brief, the cause of action alleged in appellee's complaint is to the
effect that appellant-defendant had bought a Mercedes-Benz Diesel truck
from it on installments and defaulted in the payment thereof, in
consequence of which, it was entitled, by virtue of the mortgage contract
in its favor, to the possession of the said truck or, in case said truck could
not be recovered, to the payment of the amount of P37,221.22, plus
attorney's fees in the amount of P9,305.30 and the costs of the suit.
As further prayed for in the complaint, the court a quo issued a writ
of replevin and eventually possession of the truck was delivered to
appellee by virtue of said writ.
In due time, defendant filed an answer the statement here of the
details of which is not indispensable in the determination of this case.
Suffice it to say that subsequent to the filing of said answer, the parties
submitted the case for decision, and the court a quo decided the same
without presentation and reception of any evidence and solely on the
basis of the following stipulation of facts:
COME NOW the parties in the above entitled case, assisted by
their respective counsel, and to this Honorable Court respectfully submit
the following stipulation of facts:
1. Defendant Dy Hian Tat admits the material allegations of pars. 51 and
92 of the Complaint and the fact that plaintiff is entitled to the possession
of the chattel described in par. 2 of the Complaint;
2. That the following stipulation appears in the Chattel Mortgage
executed by the defendant in favor of the plaintiff and attached to the
Complaint as Annex 'A' of said Complaint:
14. That in case of non-compliance or violation or default by the
mortgagor(s), and foreclosure or any other legal remedy is undertaken by
the mortgagee to compel payment of his (their) obligation, the mortgagee
shall be entitled to a reasonable compensation in the concept of
attorney's fees and costs of collection in the sum equal to twenty-five per
cent (25%) of the total amount of the indebtedness then outstanding and
unpaid by the mortgagor(s), but in no case less than Fifty Pesos (P50.00)
as well as payment of the replevin premium bonds and costs of suit in
case of court action, which amounts said mortgagor(s) agree(s) to pay
and for such payment a first lien is hereby implied in favor of the
mortgagee upon the property mortgaged.
3. Plaintiff admits that the chattel subject of the mortgage was sold by
plaintiff to defendant on installment basis; chanrobles virtual law library
4. That the parties submit this case on the question of law of whether or
not the plaintiff is entitled to the 25% attorney's fees and costs of
collection as above stipulated.
WHEREFORE, it is respectfully prayed of this Honorable Court
that the parties be given twenty (20) days from the submission hereof
within which to file their respective memorandum.
Without filing any motion for reconsideration, appellant has come
to this Court with a lone assignment of error as follows:
THE TRIAL COURT ERRED IN ADJUDGING ATTORNEY'S FEES
IN FAVOR OF PLAINTIFF AND AGAINST DEFENDANT, IT BEING
CONTRARY TO THE PROVISIONS OF ARTICLE 1484 OF THE NEW
CIVIL CODE OF THE PHILIPPINES AND THE JURISPRUDENCE
DECIDED UNDER IT.
Succinctly stated, the whole pose of appellant's case is that under
the above-related circumstances of this case, the lower court erred in
further sentencing him to pay the P9,305.30 of attorney's fees, after the
said court had already confirmed the possession and title of the truck in
favor of appellee, considering the provisions of Article 1484 of the Civil
Code, which provides: chanrobles virtual law library
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.
In support of his position, appellant cites, in his brief, the following
authorities:
The settled jurisprudence under the aforequoted law is -
The three remedies under this article, available to the vendor who
has sold personal property on the installment plan, are alternative, not
cumulative. In other words, if the vendor has elected to avail himself of
any of the remedies, he is deemed to have renounced the others.
(Tolentino, Civil Code of the Philippines, Vol. V, 1959 ed., p. 27 citing the
case of Pacific Commercial vs. de la Rama, O. G. August 9, 1941, p.
1224)
In case the vendor elects to foreclose the mortgage, if one has
been given on the property, he is not obliged to return to the purchaser
the amount of the installment already paid should there be an agreement
to that effect, and it is not unconscionable. In all proceedings for the
foreclosure of chattel mortgages, executed on the chattels, which have
been sold on the installment plan, the mortgagee is limited to the
property only in the mortgage. (Tolentino, supra, citing the cases of
Macondray & Co. vs. Tan, 38 O.G. 2606; Macondray & Co. vs. Ruiz, 38
O.G. 2168; Bachrach Motors Co. vs. Millan, 61 Phil. 409; Macondary vs.
Benito, et al., 62 Phil. 137; Pacific Commercial vs. De la Rama, O.G.
August 9, 1941, p. 1224, Emphasis supplied.)
Undoubtedly the principal object of article 1454-A was to remedy
the abuses committed in connection with the foreclosure of chattel
mortgages. This amendment prevents mortgagees from seizing the
engaged property, buying it at foreclosure for a low price and then
bringing suit against the mortgagor for the deficiency judgment. The
almost invariable result of this procedure was that the mortgagor found
himself minus the property and still owing practically the full amount of
the original indebtedness. Under this amendment the vendor of personal
property, the purchase price of which is payable on installments, has the
right to cancel the sale or foreclose the mortgage if one has been given
on the property, whichever right the vendor elects, he need not return to
the purchaser the amount of the installments already paid, "if there is an
agreement to that effect." Furthermore, if the vendor avails himself of the
right to foreclose the mortgage, this amendment prohibits him from
bringing an action against the purchaser for the unpaid balance.
In other words, under this amendment, in all proceedings for the
foreclosure of the mortgage executed on the chattels which have been
sold on installment plan, the mortgagee is limited to take property
included in the mortgage. (Bachrach Motors Co. vs. Millan, 61 Phil. 409)
[Emphasis supplied]
and pursues as his main argument that:
For a proper resolution of the case, the relevant query is: What remedy is
elected by the plaintiff in the instant case?
Defendant respectfully submits that the present case is an election
of the third remedy provided in Article 1484 of the new Civil Code of the
Philippines, i.e., the judicial foreclosure of the subject chattel mortgage.
Speaking of foreclosure of a chattel mortgage, former Justice
Moran says: "Of course a chattel mortgage may be foreclosed judicially
following substantially the same procedure provided in this Rule (Rule
70, Rules of Court), ... When the mortgagor refuses to surrender
possession of the mortgaged chattel an action of judicial foreclosure
necessarily arises, or one of replevin to secure possession as a
preliminary to the sale contemplated in Section 14 of Act No. 1508."
(Moran's Comment, Vol. II, 1947 ed., pp. 250-251) And in a similar case,
this Court said, "Where ... the debtor refuses to yield the property, the
creditor must institute an action, either to effect a judicial foreclosure
directly or to secure possession as a preliminary to the sale above
quoted." (Bachrach Motors vs. Summers, 42 Phil. 6) Leno vs. Pestolante,
et al., G.R. L-11755, April 23, 1958; 103 Phil. 414."
This may be clearly gleaned from the allegations of the complaint
as well as the prayer and that of the Stipulation of Facts submitted with
the trial court. (Record on Appeal, pp. 1-5 and 28-31)
Thus, when the trial court besides confirming possession and title
of the chattel in favor of the plaintiff awarded attorney's fees and costs of
collection in an amount equal to 25% of the claims, it in effect rendered
judgment against defendant beyond and over that of the chattel of the
mortgage in palpable violation of the provisions of Article 1484 of the new
Civil Code of the Philippines and the authorities already decided under it.
(pp. 11-12, Appellant's Brief.)
We do not agree with the appellant that Article 1484 applies to the
case at bar. As aptly held by His Honor, this case is for delivery of
personal property under the provisions of Rule 60 of the Rules of Court.
Nowhere in the stipulation of facts or even in the pleadings does it
appear that appellee has foreclosed its mortgage. Merely because a
copy of the mortgage has been attached to the complaint does not make
this action one of foreclosure of a chattel mortgage. (Manila Motor Co.
vs. Fernandez, 99 Phil. 782.) True, appellee succeeded in recovering the
truck in question, precisely by means of the present action of replevin,
but surely, this case is far from being the action of foreclosure of chattel
mortgage governed by Section 8 of Rule 68.
We are not unmindful of the laudable purposes of Act No. 4122
which became Article 1454-A of the former Civil Code. The same have
been well elucidated in many previous cases by this Court. And it is
evident to Us that Article 1484 of the new Civil Code is just an
amendment of said Article 1454-A, more popularly known as the Recto
Law. It would not only be erroneous but highly unjust for Us, however, to
apply such provision the case at bar, which in no way comes within its
contemplation. The mere fact that appellee has secured possession of
the truck in question does not necessarily mean that it will foreclose its
mortgage. Indeed, there is no showing at all that appellee is causing the
sale thereof at public auction or in even preparing to do so. It is quite
possible that appellee wanted merely to be sure that the truck is not lost
or rendered valueless, preparatory to having it levied upon under a writ of
attachment, as sanctioned by this Court in the case cited by appellant of
Southern Motors, Inc. vs. Magbanua, 100 Phil. 155:
By praying that the defendant be ordered to pay it the sum of
P4,690.00 together with the stipulated interest at 12 per cent per annum
from 17 March until fully paid, plus ten per cent of the total amount due
as attorney's fees and cost of collection, the plaintiff elected to exact the
fulfillment of the obligation and not foreclose the mortgage of the truck.
Otherwise, it would not have gone to court to collect the amount as
prayed for in the complaint. Had it elected to foreclose the mortgage on
the truck, all that the plaintiff had to do was to cause the truck to be sold
at public auction pursuant to section 14 of the Chattel Mortgage Law. The
fact that aside from the mortgaged truck another Chevrolet truck and two
parcels of land belonging to the defendant were attached shows that the
plaintiff did not intend to foreclose the mortgage.
As the plaintiff has chosen to exact the fulfillment of the
defendant's obligation, the former may enforce execution of the judgment
rendered in its favor on the personal and real properties of the latter not
exempt from execution sufficient to satisfy the judgment. That part of the
judgment depriving the plaintiff of its right to enforce judgment against the
properties of the defendant except the mortgaged truck and discharging
the writ of attachment on his other properties is erroneous.
The same doctrine was reiterated in Tajanlangit, et al., vs.
Southern Motors, Inc., et al., 101 Phil. 606, also cited by appellant. There
it was held:
Discussion. Appellants' brief elaborately explains in the nine errors
assigned, their original two theories, although their "settlement" idea
appears to be somewhat modified.
What is being sought in this present action" say appellants "is to
prohibit and forbid the appellee Sheriff of Iloilo from attaching and selling
at public auction sale the real properties of appellants because that is
now forbidden by our law after the chattels that have been purchased
and duly mortgaged to the vendor-mortgagee had already been
repossessed by the same vendor-mortgagee and later on hold at public
auction sale and purchased by the same at such meager sum of
P10,000.00.
"Our law" provides,
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. (New Civil Code.)
Appellants would invoke the last paragraph. But there has been no
foreclosure of the chattel mortgage nor a foreclosure sale. Therefore the
prohibition against further collection does not apply.
At any rate it is the actual sale of the mortgaged chattel in accordance
with section 14 Act No. 1508 that would bar the creditor (who chooses to
foreclose) from recovering any unpaid balance. (Pacific Com. Co. vs. De
la Rama, 72 Phil. 380; Manila Motor Co. vs. Fernandez, 99 Phil. 782.)
It is true that there was a chattel mortgage on the goods sold. But
the Southern Motors elected to sue on the note exclusively, i.e., to exact
fulfillment of the obligation to pay. It had a right to select among the three
remedies established in Article 1484. In choosing to sue on the note, it
was not thereby limited to the proceeds of the sale, on execution of the
mortgaged good. (Manila Trading & Supply Co. vs. Reyes, 62 Phil. 461;
Macondray & Co. vs. Eustaquio, 64 Phil. 446; Manila Motor Co. vs.
Fernandez, supra.)
An earlier per curiam decision of this Court is even more
controlling and practically devastates appellants posture. In the case of
Pacific Commercial Co. vs. Graciano de la Rama, 72 Phil. 380, the
defendant which had bought a car from plaintiff on installments failed to
pay, by reason of which, plaintiff took steps and actually started to
extrajudicially foreclose the chattel mortgage thereon by having the
sheriff take possession of the property and proceed to sell the same. The
sheriff found the car in a repair shop, so he then and there designated
the owner of the shop as his deputy-in-charge thereof; but when the
plaintiff came to know that the car was in the shop because it had met an
accident, it requested the sheriff to desist from continuing with the
foreclosure. Instead, plaintiff brought an action to recover the price, plus
interests and costs. The defendant invoked Art. 1454-A of the old Civil
Code. The per curiam decision held:
... El demandado no discute los hechos probados. Sostiene, sin
embargo, que el Juzgado erro al no declarar que la demandante habia
optado ya por ejecutar la hipoteca del automovil y por cancelar la venta a
plazos y que, consiguientemente, el Juzgado erro al no declarar que la
demandante habia perdido ya su derecho a reclamar el saldo no pagado
del importe del pagare. El demandado funda su teoria en lo que dispone
el articulo 1454-A del Codigo Civil, que ha sido introducido por la Ley No.
4122, que se lee como sigue:
ART. 1454-A. En un contrato de venta de cosa mueble pagadera a
plazos, la falta de pago de dos o mas plazos confiere al vendedor
derecho a la resolucion de la venta o la ejucucion de la hipoteca, caso de
haberse esta constituido sobre la cosa, sin reembolso al comprador de
los plazos ya pagados, si asi se hubiere
pactado.chanroblesvirtualawlibrarychanrobles virtual law library
El vendedor, sin embargo, que hubiere optado por la ejecucion de
la hipoteca no podra repetir contra el comprador para el cobro de
cualquier saldo que hubiese resultado contra este, siendo nulo todo
pacto en contrario.chanroblesvirtualawlibrarychanrobles virtual law library
Igual regia regira en los casos de arrendamientos de cosa mueble
con opcion de compra, cuando el arrendador hubiere optado por quitar al
arrendatario el disfrute de dicha cosa mueble.
De este articulo se infiere que el vendedor, despues que el
comprador haya dejado de pagar dos o mas plazos y en el caso de que
hublera otorgado hipoteca de la cosa vendida, puede optar (1) por
resolver la venta recobrando la cosa vendida, en cuyo caso el comprador
no tendra derecho al reembolso de los plazos pagados, si asi se hubiese
estipulado; (2) o por ejecutar la hipoteca en las formas autorizadas por la
Ley de Hipoteca de Bienes Muebles, en cuyo caso el vendedor no tendra
derecho a repetir contra el comprador por el cobro de cualquier saldo
que hubiese resultado en contra de este, siendo nulo todo pacto en
contrario; y (3) o por cobrar simplemente el resto de la deuda. Los
remedios que confiere el articulo son alternativos y no acumulativos, de
modo que si se opta por uno de ellos se entiende que se ha renunciado
a los demas.
 El demandado pretende que por haberse incautado el Sheriff del
automovil siguiendo instrucciones de la demandante y encomendado su
custodia a un depositario, la demandante opto ya por ejecutar la
hipoteca y, consiguientemente, perdio su derecho a cobrar el saldo
deudor del importe del pagare. Opinamos, y asi declaramos, que la
teoria es insostenible. Cuando la ley alude a la ejecucion de la hipoteca,
como remedio que produce la renuncia a los demas, quiere decir la
ejecucion de la hipoteca con tados sus incidencias y tramites hasta su
terminacion, incluyendo, naturalmente, la venta en publica subasta de la
cosa pignorada. En el presente caso el ultimo tramite que traspara a un
tercero el titulo de la cosa hipotecada, no se ha verificado ni cumplido
aun porque el Sheriff levanto el deposito del automovil y no lo vendio en
subasta publica con forme lo requiere el articulo 14 de la Ley No. 1508.
Por esta razone el error que el demandado atribuye a la sentencia
recurida no existe. [Emphasis supplied].

This doctrine was reiterated in Manila Motor Co. vs. Fernandez,

supra, this wise:

The lower court likewise committed a mistake in assuming that the

suit in 1940 was on of foreclosure. The allegations with reference the
said suit and the corresponding judgment of 1941 do not contain any
suggestion in support of the assumption. Upon the other hand, in
appellee's motion to dismiss, it was stated that the car in question was
commandeered from him by the Japanese occupation forces, thereby
indicating that, even during the war period, the property was in appellee's
possession and had not been sold at public auction. At any rate, it is the
actual sale of the mortgaged chattel in accordance with section 14 of Act
No. 1508 that would bar the creditor (who chooses to foreclose) from
recovering any unpaid balance (Pacific Commercial Company vs. De la
Rama, 72 Phil. 380.) [Emphasis Supplied.].

We hold, therefore, that the lower court did not err in declaring, in
effect, that Article 1484 of the Civil Code does not apply to this case
because this is an action of replevin under Rule 60 and not a foreclosure
of mortgage under Rule 68.chanroblesvirtualawlibrarychanrobles virtual
law library

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

Judgment affirmed, with costs against appellant.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 204160 September 22, 2014
SPOUSES MICHELLE M. NOYNAY and NOEL S.
NOYNAY, Petitioners,
vs.
CITIHOMES BUILDER AND DEVELOPMENT, INC., Respondent.
DECISION
MENDOZA, J.:
In this petition for review on certiorari1 under Rule 45 of the Rules of
Court, Spouses Noel and Michelle Noynay (Spouses Noynay) assail the
July 16, 2012 Decision2 of the Court of Appeals (CA) and October 15,
2012 Resolution,3 which affirmed with modification the September 17, 20
I 0 Decision4 of the Regional Trial CoUii, Branch 21, Malolos, Bulacan (
RTCJ. Earlier, the RTC reversed the March 26, 2010 Decision5 of the
Municipal Trial Court for Cities, San Jose Del Monte, Bulacan (MTCC).
which dismissed the complaint6 for unlawful detainer filed by Citihomes
Builder and Development, Inc. (Citihomes) against Spouses Noynay for
lack of cause of action.
The Facts:
On December 29, 2004, Citihomes and Spouses Noynay executed a
contract to sell7 covering the sale of a house and lot located in San Jose
Del Monte, Bulacan, and covered by Transfer Certificate of Title (TCT)
No. T-43469. Under the terms of the contract, the price of the property
was fixed at ₱915,895.00, with a downpayment of ₱183,179.00, and the
remaining balance to be paid in 120 equal monthly installments with an
annual interest rate of 21% commencing on February 8, 2005 and every
8th day of the month thereafter.
Subsequently, on May 12, 2005, Citihomes executed the Deed of
Assignment of Claims and Accounts8(Assignment)in favor of United
Coconut Planters Bank (UCPB) on May 12, 2005. Under the said
agreement, UCPB purchased from Citihomes various accounts, including
the account of Spouses Noynay, for a consideration of ₱100,000,000.00.
In turn, Citihomes assigned its rights, titles, interests, and participation in
various contracts to sell with its buyers to UCPB.
In February of 2007, Spouses Noynay allegedly started to default in their
payments. Months later, Citihomes decided to declare Spouses Noynay
delinquent and to cancel the contract considering that nine months of
agreed amortizations were left unpaid. On December 8, 2007, the
notarized Notice of Delinquency and Cancellation of the Contract To
Sell,9 dated November 21, 2007, was received by Spouses Noynay.
They were given 30 days within which to pay the arrears and failure to do
so would authorize Citihomes to consider the contract as cancelled.
On June 15, 2009, Citihomes sent its final demand letter asking Spouses
Noynay to vacate the premises due to their continued failure to pay the
arrears. Spouses Noynay did not heed the demand, forcing Citihomes to
file the complaint for unlawful detainer before the MTCC on July 29,
2009.
In the said complaint, Citihomes alleged that as per Statement of
Account as of March 18, 2009, Spouses Noynay had a total arrears in
the amount of ₱272,477.00, inclusive of penalties. Thus, Citihomes
prayed that Spouses Noynay be ordered to vacate the subject property
and pay the amount of ₱8,715.97 a month as a reasonable
compensation for the use and occupancy to commence from January 8,
2007 until Spouses Noynay vacate the same.
In its March 26, 2010 Decision,10 the MTCC dismissed the complaint. It
considered the annotation in the certificate of title, which was dated prior
to the filing of the complaint, which showed that Citihomes had executed
the Assignment favor of UCPB, as having the legal effect of divesting
Citihomes of its interest and right over the subject property. As far as the
MTCC was concerned, Citihomes did not have a cause of action against
Spouses Noynay.
The RTC, however, reversed the ruling of the MTCC. In its September
17, 2010 Decision,11 the RTC stated that the MTCC erred in interpreting
the deed of assignment as having the effect of relinquishing all of
Citihomes’ rights over the subject property. The RTC explained that the
assignment was limited only to the installment accounts receivables due
from Spouses Noynay and did not include the transfer of title or
ownership over the property. It pointed out that Citihomes remained as
the registered owner of the subject property, and so it had the right to ask
for the eviction of Spouses Noynay. As to the issue of who had the better
right of possession, the RTC ordered that the records be remanded to
the MTCC for the proper determination.
Spouses Noynay then went to the CA. On July 16, 2012, the CA affirmed
the conclusion of the RTC that Citihomes still had the right and interest
over the property in its capacity as the registered owner. Moreover, the
issue on who, between the parties had a better possessory right over the
property, was resolved in favor of Citihomes.
In disposing the issue of possession, the CA primarily recognized the
relevance of Republic Act (R.A.)No. 6552, otherwise known as the Realty
Installment Buyer Act (Maceda Law), in determining the limits of the right
to possess of Spouses Noynay in their capacity as defaulting buyers in a
realty installment scheme. Under the said law, the cancellation of a
contract would only follow if the requirements set forth therein had been
complied with, particularly the giving of a "notice of delinquency and
cancellation of the contract" to the defaulting party and,in some cases,
the payment to the buyer of the cash surrender value if at least two years
of installments had been paid. The CA noted that Spouses Noynay failed
to complete the minimum two (2) years of installment, despite the
allegation that three (3) years of amortizations had already been paid. As
an effect, the CA pronounced that the termination of the contract was
validly effected by the expiration of the 30-day period from the time the
notice of cancellation was received by Spouses Noynay. From that
moment, the CA treated Spouses Noynay to have lost the right to
possess the property. In addition, the CA made Spouses Noynay liable
for the payment of monthly rentals from the time their possession
became illegal.
Spouses Noynay moved for reconsideration, but the CA denied their
motion.
Hence, this petition.
ISSUE
The lone issue presented for resolution is whether Citihomes has a
cause of action for ejectment against Spouses Noynay. In effect,
Spouses Noynay would have this Court determine whether Citihomes
may rightfully evict them.
Position of Spouses Noynay
Spouses Noynay insist that by virtue of the assignment of rights which
Citihomes executed in favor of UCPB, Citihomes did not have a cause of
action against them because it no longer had an interest over the subject
property. Contrary to the findings of the CA, the monthly installments
amounting to three years were already paid, by reason of which, Section
3(b) of the Maceda Law should apply. This means that for the
cancellation to be effective, the cash surrender value should have been
paid first to them by Citihomes; and that because no payment was made,
it follows that no valid cancellation could also be effected. This allegedly
strengthened their right to the possession of the property even to this
day.
Position of Citihomes
Citihomes counters that it has the right to ask for the eviction of the
petitioners in its capacity as the registered owner despite the assignment
of rights it made to UCPB. It believes that because Spouses Noynay
failed to pay at least two (2) years of installments, the cancellation
became effective upon the expiration of the 30-day periodfollowing the
receipt of the notice of delinquency and cancellation notice and without
the need for the payment of the cash surrender value under Section 3(b)
of the Maceda Law.
Ruling of the Court
Cause of action has been defined as an act or omission by which a party
violates a right of another.12 It requires the existence of a legal right on
the part of the plaintiff, a correlative obligation of the defendant to respect
such right, and an act or omission of such defendant in violation of the
plaintiff’s rights.13 A complaint should not be dismissed for insufficiency of
cause of action if it appears clearly from the complaint and its
attachments that the plaintiff is entitled to relief.14 The complaint,
however, may be dismissed for lack of cause of action later after
questions of fact have been resolved on the basis of stipulations,
admissions or evidence presented.15
Relative thereto, a plaintiff in an unlawful detainer case which seeks
recovery of the property must prove one’s legal right to evict the
defendant, a correlative obligation on the part of such defendant to
respect the plaintiff’s right to evict, and the defendant’s act or omission in
the form of refusal to vacate upon demand when his possession
ultimately becomes illegal.
At first glance, the main thrust of the discussion in the lower courts is the
issue on whether Citihomes had such right to evict Spouses Noynay. At
its core is the ruling of the MTCC that the right to demand the eviction of
Spouses Noynay was already transferred to UCPB from the moment the
Assignment was executed by Citihomes, which was done prior to the
institution of the unlawful detainer case. Thus, based on the evidence
presented during the trial, the MTCC held that Citihomes did not have a
cause of action against Spouses Noynay.The RTC held otherwise
justifying that Citihomes may still be the right party to evict Spouses
Noynay in its capacity as the registered owner of the property. The CA
affirmed the RTC on this point.
The Court, however, agrees with the MTCC.
The determination of whether Citihomes has a right to ask for the eviction
of Spouses Noynay entirely depends on the review of the Assignment of
Claims and Accounts it executed in favor of UCPB. If it turns out that
what was assigned merely covered the collectible amounts or
receivables due from Spouses Noynay, Citihomes would necessarily
have the right to demand the latter’s eviction as only an aspect of the
contract to sell passed on to UCPB. Simply put, because an assignment
covered only credit dues, the relation between Citihomes as the seller
and Spouses Noynay as the buyer under their Contract to Sell remained.
If on the other hand, it appears that the assignment covered all of
Citihomes’ rights, obligations and benefits in favor of UCPB, the
conclusion would certainly be different.
Under the provisions of the Assignment, it was stipulated that:
NOW, THEREFORE, for and in consideration of the foregoing premises,
the ASSIGNOR hereby agrees as follows:
1. The ASSIGNOR hereby assigns, transfers and sets over unto the
ASSIGNEE all its rights, titles and interest in and to, excluding its
obligations under the Contract/s to Sell enumerated and described in the
List of Assigned Receivables which is hereto attached and marked as
Annex "A" hereof, including any and all sum of money due and payable
to the ASSIGNOR, the properties pertaining thereto,all replacements,
substitution, increases and accretion thereof and thereto which the
ASSIGNOR has executed with the Buyers, as defined in the Agreement,
and all moneys due, or which may grow upon the sales therein set forth.
2. For purposes of this ASSIGNMENT, the ASSIGNOR hereby delivers
to the ASSIGNEE, which hereby acknowledges receipt of the following
documents evidencing the ASSIGNOR’s title, right, interest, participation
and benefit in the assigned Installment Account Receivables listed in
Annex "A" and made as integral part hereof.
a) Original Contracts to Sell
b) Transfer Certificates of Title
3. The ASSIGNOR, hereby irrevocably appoints the ASSIGNEE to be its
true and lawful agent or representative for it and in its name and stead,
but for such ASSIGNEE’s own benefit: (1) to sell, assign, transfer, set
over, pledge, compromise or discharge the whole, or any part, of said
assignment; (2) to do all acts and things necessary, or proper, for any
such purpose; (3) to ask, collect, receive and sue for the moneys due, or
which may grow due, upon the said Assignment; and (4) to substitute
one person, or more, with like powers; hereby ratifying and confirming all
that said agent or representative, or his substitute, or substitutes, shall
lawfully do, by virtue hereof.16
[Emphases supplied]
Clearly, the conclusion of the MTCC had factual and legal bases. Evident
from the tenor of the agreement was the intent on the part of Citihomes,
as assignor, to assign all of its rights and benefits in favor of UCPB.
Specifically, what Citihomes did was an assignment or transfer of all
contractual rights arising from various contracts to sell, including the
subject contract to sell, with all the rights, obligations and benefits
appurtenant thereto in favor of UCPB for a consideration of
₱100,000,000.00. Indeed, the intent was more than just an assignment of
credit. This intent to assign all rights under the contract to sell was even
fortified by the delivery of documents such as the pertinent contracts to
sell and the TCTs. Had it been the intent of Citihomes to assign merely
its interest in the receivables due from Spouses Noynay, the tenor of the
deed of assignment would have been couched in very specific terms.
Included in those matters which were handed over to UCPB were the
provisions outlined in Section 6 of the Contract to Sell. In the said
provision, Citihomes, as the seller has been given the right to cancel the
contract to sell in cases of continuing default by Spouses Noynay, to wit:
SECTION 6. If for any reason, whatsoever, the BUYER fails to pay three
(3) consecutive monthly installments, the provision of RA No. 6552 shall
apply.
Where the BUYER has paid less than two (2) years of installments and
defaults in the payment of three (3) consecutive monthly installment, he
shall be given a grace period of not less than sixty (60) days from the
date the installment payments became due and payable within which to
pay the installments and/or make payments in arrears together with the
installments corresponding to the months of the grace period. In the
event the BUYER continues to default in the payment of the installments
within or at the expiration of the grace period herein provided, the
SELLER shall have the right to cancel this agreement thirty (30) days
from the BUYER’s receipt of the notice of cancellation or demand for
rescission by a notarial act. Thereafter, the SELLER may dispose of the
residential house and lot subject of this agreement in favor of other
persons as if this agreement had never been entered into.
WHERE the BUYER has paid atleast two (2) years of installments and he
defaults in the payment of three (3) consecutive monthly installments, the
SELLER shall be entitled:
a. To pay, without additional interest, the unpaid installment
due within the total grace period earned by the BUYER which
is fixed at the rate of one (1) month grace period for every one
(1) year of installment payment made; Provided, that this right
shall be exercised by the BUYER only once for every five (5)
years of the life of this agreement.
b. If this agreement is cancelled, the SELLER shall refund to
the BUYER the cash surrender value of the payments
equivalent to fifty percent thereof and, after five years of
installments, an additional five percent (5%) for every year but
 not to exceed ninety (90%) of the total payments made;
Provided, that the actual cancellation of this agreement shall
take place after thirty (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.
xxx xxx xxx
The BUYER, at the termination of the contract, shall promptly surrender
the said property to the SELLER, and should the former fail to comply
with the provision, on top of the remedy provided for above, the BUYER
hereby expressly appoints the SELLER as their duly authorized attorney-
in-fact with power and authority to open, enter and take full possession of
the property in the presence of any peace officer and to take an inventory
of the equipment, furniture, merchandise and effect. In case the BUYER
fails to claim the said equipment, furniture, merchandise and effects
and/or liquidate their liabilities with the SELLER within thirty (30) days
from the date of transfer of possession of the property to the latter, the
SELLER is hereby given the right to dispose of said property in a private
or public sale and to apply the proceeds to whatever expenses it may
have incurred in line with the warehousing of the equipment, furniture,
merchandise and effects.17
The exercise of such right to cancel necessarily determines the existence
of the right to evict Spouses Noynay. The existence of the right to evict is
the first constitutive element ofthe cause of action in this unlawful
detainer case. Considering, however, that the right to cancel was already
assigned prior to the commencement of this controversy with the
execution of the Assignment, its legal consequences cannot be avoided.
Well-established is the rule that the assignee is deemed subrogated to
the rights as well as to the obligations of the seller/assignor. By virtue of
the deed of assignment, the assignee is deemed subrogated to the rights
and obligations of the assignor and is bound by exactly the same
conditions as those which bound the assignor.18 What can be inferred
from here is the effect on the status of the assignor relative to the
relations established by a contract which has been subsequently
assigned; that is, the assignor becomes a complete stranger to all the
mattersthat have been conferred to the assignee.
In this case, the execution of the Assignment in favor of UCPB relegated
Citihomes to the status of a mere stranger to the jural relations
established under the contract to sell. With UCPB as the assignee, it is
clear that Citihomes has ceased to have any right to cancel the contract
to sell with Spouses Noynay. Without this right, which has been vested in
UCPB, Citihomes undoubtedly had no cause of action against Spouses
Noynay.
This is not to say that Citihomes lost all interest over the property. To be
clear, what were assigned covered only the rights in the Contract to Sell
and not the property rights over the house and lot, which remained
registered under Citihomes’ name. Considering, however, that the
unlawful detainer case involves mere physical or material possession of
the property and is independent of any claim of ownership by any of the
parties,19 the invocation of ownership by Citihomes is immaterial in the
just determination of the case.
Granting that the MTCC erred in ruling that Citihomes had no cause of
action by reason of the Assignment it made in favor of UCPB, the Court
still upholds the right of the Spouses Noynay to remain undisturbed in the
possession of the subject property. The reason is simple – Citihomes
failed to comply with the procedures for the proper cancellation of the
contract to sell as prescribed by Maceda Law.
In Pagtalunan v. Manzano,20 the Court stressed the importance of
complying with the provisions of the Maceda Law as to the cancellation
of contracts to sell involving realty installment schemes. There it was held
that the cancellation of the contract by the seller must be in accordance
with Section 3 (b) of the Maceda Law, which requires the notarial act of
rescission and the refund to the buyer of the full payment of the cash
surrender value of the payments made on the property. The actual
cancellation of the contract takes place after thirty (30) 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, to wit: (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.
[Emphases supplied]
According to the lower courts, Spouses Noynay failed to complete the
two-year minimum period of paid amortizations, thus, the cancellation of
the contract to sell no longer required the payment of the cash surrender
value. This conclusion rests on the allegation that the amortization
payments commenced only on May 31, 2005. If indeed it were true that
the payments started only on that date, Spouses Noynay would not have
completed the required two-year period to be entitled to the payment of
cash surrender value. Records, however, show otherwise. The Contract
to Sell, dated December 29, 2004, was very particular on the matter. It
stipulated as follows:
SECTION 1. NOW, THEREFORE, for and in consideration of the sum of
NINE HUNDRED FIFTEEN THOUSAND EIGHT HUNDRED NINETY
FIVE PESOS ONLY, (915,895.00) Philippine Currency, inclusive of
miscellaneous charges hereunder set forth, and of the foregoing
premises, the SELLER hereby agrees to sell, cede and convey to the
BUYER, their heirs, administrators, and successors-in-interest, the
aforedescribed residential house and lot or lot only under the following
terms and conditions:
a. The amount of ONE HUNDRED EIGHTY THREE
THOUSAND ONE HUNDRED SEVENTY NINE PESOS ONLY
(₱183,179.00), Philippine Currency, representing full
downpayment shall be paid upon signing of this contract.
b. The balance of the total purchase price in the amount of
SEVEN HUNDRED THIRTY TWO THOUSAND SEVEN
HUNDRED SIXTEEN PESOS ONLY, (₱732,716..00),
Philippine Currency shall be paid by the BUYER in 120 equal
monthly installments in the amount of ₱14,649.31 per month
with an interest of 21% per annum to commenceon 02.08.05
and every 8th day of the month thereafter.21
Citihomes claimed that the period of the payment of the amortizations
started from May 31, 2005.22 As can be gleaned from the contract to sell,
however, it appears that the payment of the downpayment started from
the signing thereof on December 29, 2004.
To this end, the factual admissions made by the parties during the
preliminary conference would shed light on the matter. It must be
remembered that these judicial admissions are legally binding on the
party making the admissions. Similar to pre-trial admissions in a pre-trial
order in ordinary civil cases, the contents of the record of a preliminary
conference control the subsequent course of the action, thereby, defining
and limiting the issues to be tried. A contrary ruling would render useless
the proceedings during the preliminary conference and would, in fact, be
antithetical to the very purpose of a preliminary conference, which is,
among others, to allow the parties to admit and stipulate on a given set of
facts and to simplify the issues involved.23
The fairly recent case of Oscar Constantino v. Heirs of Oscar
Constantino,24 is most instructive:
In Bayas, et al. v. Sandiganbayan, et al., this Court emphasized that:
Once the stipulations are reduced into writing and signed by the parties
and their counsels, they become binding on the parties who made them.
They become judicial admissions of the fact or facts stipulated. Even if
placed at a disadvantageous position, a party may not be allowed to
rescind them unilaterally, it must assume the consequences of the
disadvantage.(citations omitted)
Moreover, in Alfelor v. Halasan,this Court declared that:
A party who judicially admits a fact cannot later challenge the fact as
judicial admissions are a waiver of proof; production of evidence is
dispensed with. A judicial admission also removes an admitted fact from
the field of controversy. Consequently, an admission made in the
pleadings cannot be controverted by the party making such admission
and are conclusive as to such party, and all proofs to the contrary or
inconsistent therewith should be ignored, whether objection is interposed
by the party or not. The allegations, statements or admissions contained
in a pleading are conclusive as against the pleader. A party cannot
subsequently take a position contrary of or inconsistent with what was
pleaded. (Citations omitted)

[Emphases supplied]

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

The defendants proposed the following matters for stipulations:

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

2. That the defendants have beenpaying the plaintiff the

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

xxx xxx x x x[Emphasis supplied]

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

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

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

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

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

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 179594 September 11, 2013
MANUEL UY & SONS, INC., Petitioner,
vs.
VALBUECO, INCORPORATED, Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari1 of the Court of Appeals’
Decision2 dated December 11, 2006 in CA-G.R. CV No. 85877, and its
Resolution dated September 4, 2007, denying petitioner’s motion for
reconsideration.
The Court of Appeals reversed and set aside the Decision3 of the
Regional Trial Court (RTC) of Manila, Branch 1, dismissing the Complaint
for specific performance and damages. The Court of Appeals reinstated
the Complaint and directed petitioner to execute deeds of absolute sale
in favor of respondent after payment of the purchase price of the subject
lots.
The facts, as stated by the Court of Appeals, are as follows:
Petitioner Manuel Uy & Sons, Inc. is the registered owner of parcels of
land located in Teresa, Rizal covered by Transfer Certificate of Title(TCT)
No. 59534, covering an area of about 6,119 square meters; TCT
No.59445, covering an area of about 6,838 square meters; TCT No.
59446,covering an area of about 12,389 square meters; and TCT No.
59444,covering an area of about 32,047 square meters.
On November 29, 1973, two Conditional Deeds of Sale were executed by
petitioner, as vendor, in favor of respondent Valbueco, Incorporated, as
vendee. The first Conditional Deed of Sale4 covered TCT Nos. 59534,
59445 and 59446, and contained the following terms and conditions:
That for and in consideration of the sum of ONE HUNDREDSIXTY-
FOUR THOUSAND SEVEN HUNDRED FORTY-NINE(Php164,749.00)
PESOS, Philippine currency, the VENDOR hereby agrees to SELL,
CEDE, TRANSFER and CONVEY unto the VENDEE xx x the
aforementioned properties, payable under the following terms and
On the other hand, the second Conditional Deed of Sale6 covering Lot
conditions:
No. 59444 provides, thus:
1. The sum of FORTY-ONE THOUSAND ONE
HUNDREDEIGHTY-SEVEN and 25/100 (Php 41,187.25)
PESOS shall be paid upon signing of this conditional deed of
sale; and
2. The balance of ONE HUNDRED TWENTY-
THREETHOUSAND FIVE HUNDRED SIXTY-ONE and
75/100 (Php123,561.75) PESOS shall be paid within a period
of one (1) year from November 15, 1973, with interest of 12%
per annum based on the balance, in the mode and manner
specified below:
a) January 4, 1974 – ₱16,474.90 plus interest
b) On or before May 15, 1974 – ₱53,543.43 plus
interest
c) On or before November 15, 1974 – ₱53,543.32
plus interest
3. That the vendee shall be given a grace period of thirty
(30)days from the due date of any installment with
corresponding interest to be added, but should the VENDEE
fail to make such payment within the grace period this contract
shall be deemed rescinded and without force and effect after
notice in writing by VENDOR to VENDEE.
4. That the VENDOR agrees to have the existing Mortgages
on the properties subject of this sale released on or before
May 20, 1974.
5. That the VENDOR agrees to have the above-described
properties freed and cleared of all lessees, tenants, adverse
occupants or squatters within 100 days from the execution of
this conditional deed of sale. In case of failure by the
VENDOR to comply with the undertaking provided in this
paragraph and the VENDEE shall find it necessary to file a
case or cases in court to eject the said lessees, tenants,
occupants and/or squatters from the land, subject of this sale,
the VENDOR agrees to answer and pay for all the expenses
incurred and to be incurred in connection with said cases until
the same are fully and finally terminated.
6. That the VENDOR and the VENDEE agree that during the
existence of this Contract and without previous expressed
written permission from the other, they shall not sell, cede,
assign, transfer or mortgage, or in any way encumber unto
another person or party any right, interest or equity that they
may have in and to said parcels of land. x x x x
8. That it is understood that ownership of the properties herein
conveyed shall not pass to the VENDEE until after payment of
the full purchase price; provided, however, that the VENDOR
shall allow the annotation of this Conditional Deed of Sale at
the back of the titles of the above-described parcels of land in
the corresponding Registry of Deeds x xx.
9. That upon full payment of the total purchase price, a Deed
of Absolute Sale shall be executed in favor of the VENDEE
and the VENDOR agrees to pay the documentary stamps and
the science stamp tax of the Deed of Sale; while the VENDEE
agrees to pay the registration and other expenses for the
issuance of a new title.
10. That it is mutually agreed that in case of litigation, the
venue of the case shall be in the courts of Manila, having
competent jurisdiction, any other venue being expressly
waived.5
1. The sum of FIFTY-TWO THOUSAND SEVENTY-SIXAND
37/100 (Php 52,076.37) PESOS, shall be paid upon signing of
this conditional deed of sale; and
2. The balance of ONE HUNDRED FIFTY-SIXTHOUSAND
TWO HUNDRED TWENTY-NINE and 13/100
(Php156,229.13) PESOS shall be paid within a period of one
(1) year from November 15, 1973, with interest of 12% per
annum based on the balance, in the mode and manner
specified below:
a) January 4, 1974 – ₱20,830.55 plus interest
b) On or before May 15, 1974 – ₱67,699.29 plus
interest
c) On or before November 15, 1974, ₱67,699.29
plus interest
 3. That the VENDEE shall be given a grace period of thirty
(30) days from the due date of any installment with
corresponding interest to be added, but should the VENDEE
fail to make such payment within the grace period, this
contract shall be deemed rescinded and without force and
effect after notice in writing by VENDOR to VENDEE.
4. That the VENDOR agrees and acknowledges that any and
all payments to be made by the VENDEE by reason of this
presents unless hereafter advised by VENDOR to the
contrary, shall be made in favor of and to the Philippine Trust
Company by way of liquidation and payment of the existing
mortgage on the property subject of this sale.
5. That after each payment adverted to above the VENDOR
shall issue the corresponding receipt for the amount paid by
the VENDOR to the Philippine Trust Company.
6. That the VENDOR agrees to have the above-described
property freed and cleared of all lessees, tenants, adverse
occupants or squatters within 100 days from the execution of
this conditional deed of sale. In case of failure by the
VENDOR to comply with this undertaking provided in this
paragraph and the VENDEE shall find it necessary to file a
case or cases in court to eject the said lessees, tenants,
occupants and/or squatters from the land, subject of this sale,
the VENDOR agrees to answer and pay for all the expenses
incurred and to be incurred in connection with said cases until
the same are fully and finally terminated.
7. That the VENDOR and the VENDEE agree that during the
existence of this Contract and without previous expressed
written permission from the other, they shall not sell, cede,
assign, transfer or mortgage, or in any way encumber unto
another person or party any right, interest or equity that they
may have in and to said parcel of land.
xxxx
9. That it is understood that ownership of the property herein
conveyed shall not pass to the VENDEE until after payment of
the full purchase price, provided, however, that the VENDOR
shall allow the annotation of the Conditional Deed of Sale at
the back of the Title of the above-described parcel of land in
the corresponding Registry of Deeds; x xx.
10. That upon full payment of the total purchase price, a Deed
of Absolute Sale shall be executed in favor of the VENDEE
and the VENDOR agrees to pay the documentary stamps and
the science stamp tax of the Deed of Sale; while the VENDEE
agrees to pay the registration and other expenses for the
issuance of a new title.
11. That it is mutually agreed that in case of litigation, the
venue of the case shall be in the courts of Manila, having
competent jurisdiction, any other venue being expressly
waived.7
Respondent was able to pay petitioner the amount of ₱275,055.558 as
partial payment for the two properties corresponding to the initial
payments and the first installments of the said properties.
At the same time, petitioner complied with its obligation under the
conditional deeds of sale, as follows: (1) the mortgage for TCT No. 59446
was released on May 18, 1984, while the mortgages for TCT Nos.
59445and 59534 were released on July 19, 1974; (2) the unlawful
occupants of the lots covered by TCT Nos. 59444, 59534, 59445 and
59446 surrendered their possession and use of the said lots in
consideration of the amount of ₱6,000.00 in a document9 dated
November 19, 1973, and they agreed to demolish their shanties on or
before December 7, 1973; and (3) the mortgage with Philippine Trust
Company covering TCT No. 59444 was discharged10 in 1984.
However, respondent suspended further payment as it was not satisfied
with the manner petitioner complied with its obligations under the
conditional deeds of sale. Consequently, on March 17, 1978, petitioner
sent respondent a letter 11 informing respondent of its intention to rescind
the conditional deeds of sale and attaching therewith the original copy of
the respective notarial rescission.
On November 28, 1994, respondent filed a Complaint12 for specific
performance and damages against petitioner with the RTC of Antipolo
City. However, on January 15, 1996, the case was dismissed without
prejudice13 for lack of interest, as respondent's counsel failed to attend
the pre-trial conference.
Five years later, or on March 16, 2001, respondent again filed with the
RTC of Manila, Branch 1 (trial court) a Complaint14 for specific
performance and damages, seeking to compel petitioner to accept the
balance of the purchase price for the two conditional deeds of sale and to
execute the corresponding deeds of absolute sale. Respondent
contended that its non-payment of the installments was due to the
following reasons:(1) Petitioner refused to receive the balance of the
purchase price as the properties were mortgaged and had to be
redeemed first before a deed of absolute sale could be executed; (2)
Petitioner assured that the existing mortgages on the properties would be
discharged on or before May 20,1974, or that petitioner did not inform it
(respondent) that the mortgages on the properties were already released;
and (3) Petitioner failed to fully eject the unlawful occupants in the area.
In its Answer,15 petitioner argued that the case should be dismissed, as it
was barred by prior judgment. Moreover, petitioner contended that it
could not be compelled to execute any deed of absolute sale, because
respondent failed to pay in full the purchase price of the subject lots.
Petitioner claimed that it gave respondent a notice of notarial rescission
of both conditional deeds of sale that would take effect 30 days from
receipt thereof. The notice of notarial rescission was allegedly received
by respondent on March 17,1978. Petitioner asserted that since
respondent failed to pay the full purchase price of the subject lots, both
conditional deeds of sale were rescinded as of April 16, 1978; hence,
respondent had no cause of action against it.
In its Reply,16 respondent denied that it received the alleged notice of
notarial rescission. Respondent also denied that the alleged recipient
(one Wenna Laurenciana)17 of the letter dated March 17, 1978, which
was attached to the notice of notarial rescission, was its employee.
Respondent stated that assuming arguendo that the notice was sent to it,
the address (6th Floor, SGC Bldg., Salcedo Street, Legaspi Village,
Makati, Metro Manila) was not the given address of respondent.
Respondent contended that its address on the conditional deeds of sale
and the receipts issued by it and petitioner showed that its principal
business address was the 7th Floor, Bank of P.I. Bldg, Ayala Avenue,
Makati, Rizal.
On August 1, 2005, the trial court rendered a Decision,18 dismissing the
complaint, as petitioner had exercised its right to rescind the contracts.
The dispositive portion of the Decision reads:
WHEREFORE, premises considered, the complaint is DISMISSED for
lack of merit.
Claims and counterclaims for damages are also dismissed.19
The trial court stated that the issues before it were: (1) Did petitioner
unlawfully evade its obligation to execute the final deed of sale and to
eject the squatters/occupants on the properties; (2) Is the case barred by
prior judgment; and (3) Does respondent have a cause of action against
petitioner.
The trial court said that both conditional deeds of sale clearly provided
that "ownership x x x shall not pass to the VENDEE until after full
payment of the purchase price." Respondent admitted that it has not yet
fully paid the purchase price. The trial court held that the conditions in the
conditional deeds of sale being suspensive, that is, its fulfillment gives
rise to the obligation, the reasons for the inability of respondent to fulfill
its own obligations is material, in order that the obligation of petitioner to
execute the final deeds of absolute sale will arise. The trial court stated
that the evidence showed that petitioner had exercised its right to rescind
the contract by a written notice dated March 17, 1978 and notarial acts
both dated March15, 1978. The trial court noted that respondent denied
having received the notice and disclaimed knowing the recipient, Wenna
Laurenciana. However, on cross-examination, respondent's witness,
Gaudencio Juan, who used to be respondent's Personnel Manager and
Forester at the same time, admitted knowing Laurenciana because she
was the secretary of Mr. Valeriano Bueno, respondent's president at that
time, although Laurenciana was not employed by respondent, but she
was employed by Mahogany Products Corporation, presumably one of
the 14 other companies being controlled by Mr. Bueno.20
The trial court held that the conditional deeds of sale were executed on
November 29, 1973 and were already covered by Republic Act (R.A.)
No. 6552, otherwise known as the Realty Installment Buyer Act. Under
Section 4 of the law, if the buyer fails to pay the installments due at the
expiration of the grace period, which is not less than 60 days from the
date the installment became due, the seller may cancel the contract after
30 days from receipt of the buyer of the notice of cancellation or the
demand for rescission of the contracts by notarial act. The trial court
found no lawful ground to grant the relief prayed for and dismissed the
complaint for lack of merit.
Respondent appealed the decision of the trial court to the Court of
Appeals, and made these assignments of error: (1) the trial court erred in
holding that petitioner did not unlawfully evade executing a final deed of
sale, since respondent's failure to fulfill its own obligation is material; (2)
the trial court erred in holding that it is unbelievable and a self-
contradiction that respondent was informed of the mortgage only when it
was paying the balance of the properties; and (3) the trial court erred in
holding that as early as November 19, 1973, petitioner had already taken
necessary steps to evict the squatters/occupants through the
intercession of the agrarian reform officer.
On December 11, 2006, the Court of Appeals rendered a Decision,
reversing and setting aside the Decision of the trial court. It reinstated the
complaint of respondent, and directed petitioner to execute deeds of
absolute sale in favor of respondent after payment of the balance of the
purchase price of the subject lots. The dispositive portion of the Decision
reads:
WHEREFORE, premises considered, the August 1, 2005Decision of the
Regional Trial Court of Manila, Branch 1, in Civil Case No. 01-100411, is
hereby REVERSED and SET ASIDE.
A new one is hereby entered: REINSTATING the complaint and
defendant-appellee MANUEL UY & SONS INC. is hereby DIRECTED,
pursuant to Sec. 4, R. A. No. 6552, otherwise known as the Maceda Law,
to EXECUTE and DELIVER:
(1) Deeds of Absolute Sale in favor of VALBUECO, INC.; and
(2) Transfer Certificates of Title pertaining to Nos. 59534,
59445,59446 and 59444, in the name of plaintiff-appellant
VALBUECO, INC., after VALBUECO pays MANUEL UY &
SONS, without additional interest, within thirty days from
finality of this judgment, the balance of the contract price.
If MANUEL UY & SONS refuses to deliver the Deeds of Absolute Sale
and the co-owner's copy of the TCTs, the Register of Deeds of Antipolo,
Rizal is hereby DIRECTED to CANCEL the latest TCTs issued derived
from TCT Nos. 59534, 59445, 59446 and 59444, and to
ISSUE new TCTS in the name of VALBUECO.
Only if VALBUECO fails in the payment directed above, then defendant-
appellee MANUEL UY & SONS INC. has the opportunity to serve a valid
notice of notarial rescission.
SO ORDERED.21
The Court of Appeals held that the two conditional deeds of sale in this
case are contracts to sell. It stated that the law applicable to the said
contracts to sell on installments is R.A. No. 6552, specifically Section
4thereof, as respondent paid less than two years in installments. It held
that upon repeated defaults in payment by respondent, petitioner had the
right to cancel the said contracts, but subject to the proper receipt of
respondent of the notice of cancellation or the demand for the rescission
of the contracts by notarial act.
However, the Court of Appeals found that petitioner sent the notice of
notarial rescission to the wrong address. The business address of
respondent, as used in all its transactions with petitioner, was the 7th
Floor, Bank of the Philippine Islands Building, Ayala Avenue, Makati City,
but the notice of notarial rescission was sent to the wrong address at the
6th Floor, SGC Building, Salcedo Street, Legaspi Village, Makati, Metro
Manila. Petitioner served the notice to the address of Mahogany
Products Corporation. It was established that the person who received
the notice, one Wenna Laurenciana, was an employee of Mahogany
Products Corporation and not an employee of respondent or Mr.
Valeriano Bueno, the alleged president of Mahogany Products
Corporation and respondent company.22 The appellate court stated that
this cannot be construed as to have been contructively received by
respondent as the two corporations are two separate entities with a
distinct personality independent from each other. Thus, the Court of
Appeals held that the notarial rescission was in validly served. It stated
that it is a general rule that when service of notice is an issue, the person
alleging that the notice was served must prove the fact of service by a
preponderance of evidence. In this case, the Court of Appeals held that
there was no evidence that the notice of cancellation by notarial act was
actually received by respondent. Thus, for petitioner's failure to cancel
the contract in accordance with the procedure provided by law, the Court
of Appeals held that the contracts to sell on installment were valid and
subsisting, and respondent has the right to offer to pay for the balance of
the purchase price before actual cancellation.
Petitioner's motion for reconsideration was denied for lack of merit by the
Court of Appeals in a Resolution23 dated September 4, 2007.
Petitioner filed this petition raising the following issues:
I
THE HONORABLE COURT OF APPEALS GRAVELY ERRED
INREVERSING THE RTC DECISION AND REINSTATING
THECOMPLAINT WHEN ON ITS FACE IT HAS LONG
BEENPRESCRIBED, AS IT WAS FILED AFTER 27 YEARS AND HAS
NOJURISDICTION (SIC).
II
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED
ANDGRAVELY ABUSED ITS DISCRETION IN
COMPELLINGPETITIONER TO EXECUTE A FINAL DEED OF
ABSOLUTE SALE EVEN IF RESPONDENT JUDICIALLY ADMITTED
ITS NON-PAYMENT OF THE BALANCE OF THE DEEDS OF
CONDITIONALSALE DUE SINCE 1974.
III
THE HONORABLE COURT OF APPEALS GRAVELY ERRED
INGRANTING THE RELIEFS PRAYED BY RESPONDENT IN
ITSCOMPLAINT FOR SPECIFIC PERFORMANCE WHEN IT
WASRESPONDENT WHO BREACHED THE CONTRACT.
IV
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVEINJUSTICE WHEN IT PENALIZED PETITIONER FOR
EXERCISINGITS LEGAL RIGHT AND DID NOT COMMIT AN
ACTIONABLEWRONG WHILE IT HEFTILY REWARDED
RESPONDENT, WHOBREACHED THE CONTRACT, AND ORDERED
TO PAY WITHOUTINTEREST PHP 97,998.95, WHICH IS DUE SINCE
1974 UNDER THECONTRACT, FOR FOUR (4) PARCELS OF LAND
(57,393 SQUAREMETERS), NOW WORTH HUNDRED MILLIONS.
 V If the buyer fails to pay the installments due at the expiration of the grace
THE HONORABLE COURT OF APPEALS GRAVELY ERRED
INANNULING THE NOTARIAL RESCISSION WHEN THE COMPLAINT
IS ONLY FOR SPECIFIC PERFORMANCE AND WAS NOT AN ISSUE
RAISED IN THE PLEADINGS OR DURING THETRIAL.24
The main issue is whether respondent is entitled to the relief granted by
the Court of Appeals. Petitioner contends that the Court of Appeals erred
in directing it to execute deeds of absolute sale over the subject lots even
if respondent admitted non-payment of the balance of the purchase price.
As found by the Court of Appeals, the two conditional deeds of sale
entered into by the parties are contracts to sell, as they both contained a
stipulation that ownership of the properties shall not pass to the vendee
until after full payment of the purchase price. In a conditional sale, as in a
contract to sell, ownership remains with the vendor and does not pass to
the vendee until full payment of the purchase price.25 The full payment of
the purchase price partakes of a suspensive condition, and non-
fulfillment of the condition prevents the obligation to sell from arising.26To
differentiate, a deed of sale is absolute when there is no stipulation in the
contract that title to the property remains with the seller until full payment
of the purchase price.
Ramos v. Heruela27 held that Articles 1191 and 1592 of the Civil
Code28 are applicable to contracts of sale, while R.A. No. 6552 applies to
contracts to sell.
The Court of Appeals correctly held that R.A. No. 6552, otherwise known
as the Realty Installment Buyer Act, applies to the subject contracts to
sell. R.A. No. 6552 recognizes in conditional sales of all kinds of real
estate (industrial, commercial, residential) the right of the seller to cancel
the contract upon non-payment of an installment by the buyer, which is
simply an event that prevents the obligation of the vendor to convey title
from acquiring binding force.29
It also provides the right of the buyer on installments in case he defaults
in the payment of succeeding installments30 as follows:
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.
chanrobles a law library
Sec. 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.
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.31
In this case, respondent has paid less than two years of installments;
therefore, Section 4 of R.A. No. 6552 applies.
The Court of Appeals held that even if respondent defaulted in its full
payment of the purchase price of the subject lots, the conditional deeds
of sale remain valid and subsisting, because there was no valid notice of
notarial rescission to respondent, as the notice was sent to the wrong
address, that is, to Mahogany Products Corporation, and it was received
by a person employed by Mahogany Products Corporation and not the
respondent. The Court of Appeals stated that the allegation that
Mahogany Products Corporation and respondent have the same
President, one Valeriano Bueno, is irrelevant and has not been actually
proven or borne by evidence. The appellate court held that there was
insufficient proof that respondent actually received the notice of notarial
rescission of the conditional deeds of sale; hence, the unilateral
rescission of the conditional deeds of sale cannot be given credence.
However, upon review of the records of this case, the Court finds that
respondent had been served a notice of the notarial rescission of the
conditional deeds of sale when it was furnished with the petitioner's
Answer, dated February 16, 1995, to its first Complaint filed on
November 28, 1994with the RTC of Antipolo City, which case was
docketed as Civil Case No.94-3426, but the complaint was later
dismissed without prejudice on January15, 1996.32
It appears that after respondent filed its first Complaint for specific
performance and damages with the RTC of Antipolo City on November
28,1994, petitioner filed an Answer and attached thereto a copy of the
written notice dated March 17, 1978 and copies of the notarial acts of
rescission dated March 15, 1978, and that respondent received a copy of
the said Answer with the attached notices of notarial rescission.
However, to reiterate, the first Complaint was dismissed without
prejudice.
Five years after the dismissal of the first Complaint, respondent again
filed this case for specific performance and damages, this time, with the
RTC of Manila. Petitioner filed an Answer, and alleged, among others,
that the case was barred by prior judgment, since respondent filed a
complaint on November 28, 1994 before the RTC of Antipolo City,
Branch 73, against it (petitioner) involving the same issues and that the
case, docketed as Civil Case No. 94-3426, was dismissed on January
15, 1996 for lack of interest. Respondent filed a Reply33 dated July 18,
2001, asserting that petitioner prayed for the dismissal of the first case
filed on November 28, 1994 (Civil Case No. 94-3426) on the ground of
improper venue as the parties agreed in the deeds of conditional sale
that in case of litigation, the venue shall be in the courts of Manila. To
prove its assertion, respondent attached to its Reply a copy of petitioner’s
Answer to the first Complaint in Civil Case No. 94-3426, which Answer
included the written notice dated March 17, 1978 and two notarial acts of
rescission, both dated March 15, 1978, of the two conditional deeds of
sale. Hence, respondent is deemed to have had notice of the notarial
rescission of the two conditional deeds of sale when it received
petitioner’s Answer to its first complaint filed with the RTC of Antipolo,
since petitioner’s Answer included notices of notarial rescission of the
two conditional deeds of sale. The first complaint was filed six years
earlier before this complaint was filed. As stated earlier, the first
complaint was dismissed without prejudice, because respondent’s
counsel failed to appear at the pre-trial. Since respondent already
received notices of the notarial rescission of the conditional deeds of
sale, together with petitioner’s Answer to the first Complaint five years
before it filed this case, it can no longer deny having received notices of
the notarial rescission in this case, as respondent admitted the same
when it attached the notices of notarial rescission to its Reply in this
case. Consequently, respondent is not entitled to the relief granted by the
Court of Appeals.
Under R.A. No. 6552, the right of the buyer to refund accrues only when
he has paid at least two years of installments.34 In this case, respondent
has paid less than two years of installments; hence, it is not entitled to a
refund.35
Moreover, petitioner raises the issue of improper venue and lack of
jurisdiction of the RTC of Manila over the case. It contends that the
complaint involved real properties in Antipolo City and cancellation of
titles; hence, it was improperly filed in the RTC of Manila.
Petitioner's contention lacks merit, as petitioner and respondent
stipulated in both Conditional Deeds of Sale that they mutually agreed
that in case of litigation, the case shall be filed in the courts of Manila. 36
of Sale on November 15, 1974. Article 114442 of the Civil Code provides
that actions based upon a written contract must be brought within ten
years from the time the right of action accrues. Non-fulfillment of the
obligation to pay on the last due date, that is, on November 15, 1974,
would give rise to an action by the vendor, which date of reckoning may
also apply to any action by the vendee to determine his right under R.A.
No. 6552. The vendee, respondent herein, filed this case on March 16,
2001, which is clearly beyond the 10-year prescriptive period; hence, the
action has prescribed.

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

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

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

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

In Gicano v. Gegato,38 the Court held:

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

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

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

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

Moreover, Dino v. Court of Appeals40 held:

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

In this case, petitioner raised the defense of prescription for the first time
before this Court, and respondent had the opportunity to oppose the
defense of prescription in its Comment to the petition. Hence, the Court
can resolve the issue of prescription as both parties were afforded the
opportunity to ventilate their respective positions on the matter. The
Complaint shows that the Conditional Deeds of Sale were executed on
November 29, 1973, and payments were due on both Conditional Deeds
 SECOND DIVISION
SPOUSES FAUSTINO AND G.R. No. 172036
JOSEFINA GARCIA,
SPOUSES MELITON GALVEZ Present:
AND HELEN GALVEZ,
and CONSTANCIA ARCAIRA CARPIO, J., Chairperson,
represented by their Attorney-in-Fact BRION,
JULIANA O. MOTAS, DEL CASTILLO,
Petitioners, ABAD, and
PEREZ, JJ.
- versus -
COURT OF APPEALS,
EMERLITA DE LA CRUZ, Promulgated:
and DIOGENES G. BARTOLOME,
Respondents. April 23, 2010
x--------------------------------------------------x
DECISION
CARPIO, J.:
G.R. No. 172036 is a petition for review[1] assailing the
Decision[2] promulgated on 25 January 2006 as well as the
Resolution[3] promulgated on 16 March 2006 of the Court of Appeals
(appellate court) in CA-G.R. CV No. 63651. The appellate court reversed
and set aside the decision of Branch 23 of the Regional Trial Court of
Trece Martires City, Cavite (trial court) in Civil Case No. TM-622. The
appellate court ordered Emerlita Dela Cruz (Dela Cruz) to return to
spouses Faustino and Josefina Garcia, spouses Meliton and Helen
Galvez, and Constancia Arcaira (collectively, petitioners) the amount in
excess of one-half percent of P1,500,000. Dela Cruzs co-defendant,
Diogenes Bartolome (Bartolome), did not incur any liability.
The appellate court narrated the facts as follows:
On May 28, 1993, plaintiffs spouses Faustino and
Josefina Garcia and spouses Meliton and Helen
Galvez (herein appellees) and defendant Emerlita
dela Cruz (herein appellant) entered into a Contract
to Sell wherein the latter agreed to sell to the
former, for Three Million One Hundred Seventy
Thousand Two Hundred Twenty (P3,170,220.00)
Pesos, five (5) parcels of land situated at Tanza,
Cavite particularly known as Lot Nos. 47, 2768,
2776, 2767, 2769 and covered by Transfer
Certificate of Title Nos. T-340674, T-340673, T-
29028, T-29026, T-29027, respectively. At the time
of the execution of the said contract, three of the
subject lots, namely, Lot Nos. 2776, 2767, and
2769 were registered in the name of one Angel
Abelida from whom defendant allegedly acquired
said properties by virtue of a Deed of Absolute Sale
dated March 31, 1989.
As agreed upon, plaintiffs shall make a down
payment of Five Hundred Thousand (P500,000.00)
Pesos upon signing of the contract. The balance of
Two Million Six Hundred Seventy Thousand Two
Hundred Twenty (P2,670,220.00) Pesos shall be
paid in three installments, viz:Five Hundred
Thousand (P500,000.00) Pesos on June 30, 1993;
Five Hundred Thousand (P500,000.00) Pesos on
August 30, 1993; One Million Six Hundred Seventy
Thousand Two Hundred Twenty (P1,670,220.00)
Pesos on December 31, 1993.
On its due date, December 31, 1993, plaintiffs
failed to pay the last installment in the amount of
One Million Six Hundred Seventy Thousand Two
Hundred Twenty (P1,670,220.00)
Pesos. Sometime in July 1995, plaintiffs offered to
pay the unpaid balance, which had already been
delayed by one and [a] half year, which defendant
refused to accept. On September 23, 1995,
defendant sold the same parcels of land to
intervenor Diogenes G. Bartolome for Seven Million
Seven Hundred Ninety Three Thousand
(P7,793,000.00) Pesos.
In order to compel defendant to accept plaintiffs
payment in full satisfaction of the purchase price
and, thereafter, execute the necessary document of
transfer in their favor, plaintiffs filed before the RTC
a complaint for specific performance.
In their complaint, plaintiffs alleged that they
discovered the infirmity of the Deed of Absolute
Sale covering Lot Nos. 2776, 2767 and 2769,
between their former owner Angel Abelida and
defendant, the same being spurious because the
signature of Angel Abelida and his wife were
falsified; that at the time of the execution of the said
deed, said spouses were in the United States; that
due to their apprehension regarding the authenticity
of the document, they withheld payment of the last
installment which was supposedly due on
December 31, 1993; that they tendered payment of
the unpaid balance sometime in July 1995, after
Angel Abelida ratified the sale made in favor [of]
defendant, but defendant refused to accept their
payment for no jusitifiable reason.
In her answer, defendant denied the allegation that
the Deed of Absolute Sale was spurious and
argued that plaintiffs failed to pay in full the agreed
purchase price on its due date despite repeated
demands; that the Contract to Sell contains a
proviso that failure of plaintiffs to pay the purchase
price in full shall cause the rescission of the
contract and forfeiture of one-half (1/2%) percent of
the total amount paid to defendant; that a notarized
letter stating the indended rescission of the contract
to sell and forfeiture of payments was sent to
plaintiffs at their last known address but it was
returned with a notation insufficient address.
Intervenor Diogenes G. Bartolome filed a complaint
in intervention alleging that the Contract to Sell
dated May 31, 1993 between plaintiffs and
defendant was rescinded and became ineffective
due to unwarranted failure of the plaintiffs to pay
the unpaid balance of the purchase price on or
before the stipulated date; that he became
interested in the subject parcels of land because of
their clean titles; that he purchased the same from
defendant by virtue of an Absolute Deed of Sale
executed on September 23, 1995 in consideration
of the sum of Seven Million Seven Hundred Ninety
Three Thousand (P7,793,000.00) Pesos.[4]
 The Decision of the Trial Court
In its Decision dated 15 April 1999, the trial court ruled that
Dela Cruzs rescission of the contract was not valid. The trial court
applied Republic Act No. 6552 (Maceda Law) and stated that Dela Cruz
is not allowed to unilaterally cancel the Contract to Sell. The trial court
found that petitioners are justified in withholding the payment of the
balance of the consideration because of the alleged spurious sale
between Angel Abelida and Emerlita Dela Cruz. Moreover, intervenor
Diogenes Bartolome (Bartolome) is not a purchaser in good faith
because he was aware of petitioners interest in the subject parcels of
land.
The dispositive portion of the trial courts decision reads:
ACCORDINGLY, defendant Emerlita dela Cruz is
ordered to accept the balance of the purchase price
in the amount of P1,670,220.00 within ten (10)
days after the judgment of this Court in the above-
entitled case has become final and executory and
to execute immediately the final deed of sale in
favor of plaintiffs.
Defendant is further directed to pay plaintiffs the
amount of P400,000.00 as moral damages
and P100,000.00 as exemplary damages.
The deed of sale executed by defendant Emerlita
dela Cruz in favor of Atty. Diogenes Bartolome is
declared null and void and the amount
of P7,793,000.00 which was paid by intervenor
Bartolome to Emerlita dela Cruz as the
consideration of the sale of the five (5) parcels of
land is hereby directed to be returned by Emerlita
dela Cruz to Atty. Diogenes Bartolome within ten
(10) days from the finality of judgment.
Further, defendant is directed to pay plaintiff the
sum of P100,000.00 as attorneys fees.
SO ORDERED.[5]
Dela Cruz and Bartolome appealed from the judgment of the
trial court.
The Decision of the Appellate Court
The appellate court reversed the trial courts decision and
dismissed Civil Case No. TM-622. Dela Cruzs obligation under the
Contract to Sell did not arise because of petitioners undue failure to pay
in full the agreed purchase price on the stipulated date. Moreover, judicial
action for the rescission of a contract is not necessary where the contract
provides that it may be revoked and cancelled for violation of any of its
terms and conditions. The dispositive portion of the appellate courts
decision reads:
WHEREFORE, in view of all the foregoing, the
appealed decision of the Regional Trial Court is
hereby REVERSED and SET ASIDE and Civil
Case No. TM-622 is, consequently, DISMISSED.
Defendant is however ordered to return to plaintiffs
the amount in excess of one-half (1/2%) percent of
One Million Five Hundred Thousand
(P1,500,000.00) Pesos which was earlier paid by
plaintiffs.
SO ORDERED.[6]
The appellate court likewise resolved to deny petitioners
Motion for Reconsideration for lack of merit.[7]
Hence, this petition.
Issues
Petitioners raised the following grounds for the grant of their
petition:
I. The Honorable Court of Appeals erred when
it failed to consider the provisions of Republic
Act 6552, otherwise known as the Maceda
Law.
II. The Honorable Court of Appeals erred
when it failed to consider that Respondent
Dela Cruz could not pass title over the three
(3) properties at the time she entered to a
Contract to Sell as her purported ownership
was tainted with fraud, thereby justifying
Petitioners Spouses Garcia, Spouses Galvez
and Arcairas suspension of payment.
III. The Honorable Court of Appeals gravely
erred when it failed to consider that
Respondent Dela Cruzs rescission was done
in evident bad faith and malice on account of
a second sale she entered with Respondent
Bartolome for a much bigger amount.
IV. The Honorable Court of Appeals erred
when it failed to declare Respondent
Bartolome is not an innocent purchaser for
value despite the presence of evidence as to
his bad faith.[8]
The Courts Ruling
The petition has no merit.
Both parties admit the following: (1) the contract between petitioners and
Dela Cruz was a contract to sell; (2) petitioners failed to pay in full the
agreed purchase price of the subject property on the stipulated date;
and (3) Dela Cruz did not want to accept petitioners offer of payment and
did not want to execute a document of transfer in petitioners favor.
The pertinent provisions of the contract, denominated Contract to Sell,
between the parties read:
Failure on the part of the vendees to comply with
the herein stipulation as to the terms of payment
shall cause the rescission of this contract and the
payments made shall be returned to the vendees
subject however, to forfeiture in favor of the Vendor
equivalent to 1/2% of the total amount paid.
xxx
It is hereby agreed and covenanted that
possession shall be retained by the VENDOR until
a Deed of Absolute Sale shall be executed by her
in favor of the Vendees. Violation of this provision
 shall authorize/empower the VENDOR [to]
demolish any construction/improvement without
need of judicial action or court order.
That upon and after the full payment of the
balance, a Deed of Absolute Sale shall be
executed by the Vendor in favor of the Vendees.
That the duplicate original of the owners copy of
the Transfer Certificate of Title of the above subject
parcels of land shall remain in the possession of
the Vendor until the execution of the Deed of
Absolute Sale.[9]
Contracts are law between the parties, and they are bound by its
stipulations. It is clear from the above-quoted provisions that the parties
intended their agreement to be a Contract to Sell: Dela Cruz retains
ownership of the subject lands and does not have the obligation to
execute a Deed of Absolute Sale until petitioners payment of the full
purchase price. Payment of the price is a positive suspensive condition,
failure of which is not a breach but an event that prevents the obligation
of the vendor to convey title from becoming effective. Strictly speaking,
there can be no rescission or resolution of an obligation that is still non-
existent due to the non-happening of the suspensive condition.[10] Dela
Cruz is thus not obliged to execute a Deed of Absolute Sale in petitioners
favor because of petitioners failure to make full payment on the stipulated
date.
We ruled thus in Pangilinan v. Court of Appeals:[11]
Article 1592 of the New Civil Code, requiring
demand by suit or by notarial act in case the
vendor of realty wants to rescind does not apply to
a contract to sell but only to contract of sale. In
contracts to sell, where ownership is retained by
the seller and is not to pass until the full payment,
such payment, as we said, is a positive suspensive
condition, the failure of which is not a breach,
casual or serious, but simply an event that
prevented the obligation of the vendor to convey
title from acquiring binding force. To argue that
there was only a casual breach is to proceed from
the assumption that the contract is one of absolute
sale, where non-payment is a resolutory condition,
which is not the case.
The applicable provision of law in instant case is
Article 1191 of the New Civil Code which provides
as follows:
Art. 1191. 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. (1124)
Pursuant to the above, the law makes it available to
the injured party alternative remedies such as the
power to rescind or enforce fulfillment of the
contract, with damages in either case if the obligor
does not comply with what is incumbent upon him.
There is nothing in this law which prohibits the
parties from entering into an agreement that a
violation of the terms of the contract would cause
its cancellation even without court intervention. The
rationale for the foregoing is that in contracts
providing for automatic revocation, judicial
intervention is necessary not for purposes of
obtaining a judicial declaration rescinding a
contract already deemed rescinded by virtue of an
agreement providing for rescission even without
judicial intervention, but in order to determine
whether or not the rescission was proper. Where
such propriety is sustained, the decision of the
court will be merely declaratory of the revocation,
but it is not in itself the revocatory act. Moreover,
the vendors right in contracts to sell with reserved
title to extrajudicially cancel the sale upon failure of
the vendee to pay the stipulated installments and
retain the sums and installments already received
has long been recognized by the well-established
doctrine of 39 years standing. The validity of the
stipulation in the contract providing for automatic
rescission upon non-payment cannot be doubted. It
is in the nature of an agreement granting a party
the right to rescind a contract unilaterally in case of
breach without need of going to court. Thus,
rescission under Article 1191 was inevitable due to
petitioners failure to pay the stipulated price within
the original period fixed in the agreement.
Petitioners justify the delay in payment by stating that they had notice
that Dela Cruz is not the owner of the subject land, and that they took
pains to rectify the alleged defect in Dela Cruzs title. Be that as it may,
Angel Abelidas (Abelida) affidavit[12]confirming the sale to Dela Cruz only
serves to strengthen Dela Cruzs claim that she is the absolute owner of
the subject lands at the time the Contract to Sell between herself and
petitioners was executed. Dela Cruz did not conceal from petitioners
that the title to Lot Nos. 2776, 2767 and 2769 still remained under
Abelidas name, and the Contract to Sell[13] even provided that
petitioners should shoulder the attendant expenses for the transfer
of ownership from Abelida to Dela Cruz.
The trial court erred in applying R.A. 6552,[14] or the Maceda Law, to the
present case. The Maceda Law applies to contracts of sale of real estate
on installment payments, including residential condominium apartments
but excluding industrial lots, commercial buildings and sales to
tenants. The subject lands, comprising five (5) parcels and aggregating
69,028 square meters, do not comprise residential real estate within the
contemplation of the Maceda Law.[15] Moreover, even if we apply the
Maceda Law to the present case, petitioners offer of payment to Dela
Cruz was made a year and a half after the stipulated date. This is beyond
the sixty-day grace period under Section 4 of the Maceda
Law.[16] Petitioners still cannot use the second sentence of Section 4 of
the Maceda Law against Dela Cruz for Dela Cruzs alleged failure to give
an effective notice of cancellation or demand for rescission because Dela
Cruz merely sent the notice to the address supplied by petitioners in the
Contract to Sell.

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

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

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

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

Costs against petitioners.

SO ORDERED.
 THIRD DIVISION
[G.R. No. 130347. March 3, 1999]
ABELARDO VALARAO, GLORIOSA VALARAO and CARLOS
VALARAO, petitioners, vs. COURT OF APPEALS and
MEDEN A. ARELLANO, respondents.
DECISION
PANGANIBAN, J.:
Article 1592 of the Civil Code applies only to contracts of sale, and
not to contracts to sell or conditional sales where title passes to the
vendee only upon full payment of the purchase price. Furthermore, in
order to enforce the automatic forfeiture clause in a deed of conditional
sale, the vendors have the burden of proving a contractual breach on the
part of the vendee.
The Case
Before us is a Petition for Review assailing the June 13, 1997
Decision of the Court of Appeals (CA)[1] which reversed and set aside the
October 10, 1994 Decision[2] of the Regional Trial Court (RTC) of Quezon
City, Branch 82. The dispositive portion of the assailed CA Decision
reads:
WHEREFORE, the decision appealed from is REVERSED and SET
ASIDE, and a new one is entered (1) ordering [herein private respondent]
to pay the amount of [o]ne [m]illion [o]ne [h]undred [n]inety [s]even
[t]housand [p]esos (P1,197,000.00) in favor of [herein petitioners], with
legal interest thereon from December 31, 1992; (2) and directing [herein
petitioners] to execute in favor of [herein respondent], upon receipt of the
aforesaid amount, the final and absolute deed of sale of the subject
property with all the improvements.[3]
Also assailed by petitioners is the August 21, 1997 CA Resolution
denying reconsideration.
The aforementioned RTC Decision, which was reversed and set
aside by the CA, disposed as follows:
WHEREFORE, premises considered, judgment is hereby rendered
declaring the aforesaid Deed of conditional Sale as automatically
rescinded and all payments made thereunder by the [private respondent]
to the [petitioners] as forfeited in favor of the latter, by way of rentals and
as liquidated damages, as well as declaring all improvements introduced
on the property subject to the said Deed of Condition[al] Sale to belong to
the [petitioners] without any right of reimbursement. Further, the [private
respondent] and all persons claiming right under her are hereby ordered
to vacate the said property and to turnover possession thereof to the
[petitioners]. FINALLY, the [private respondent] is hereby ordered to pay
to the [petitioners] the amount of P50,000.00 as attorneys fees and for
expenses of litigation, as well as to pay the costs of the suit. The Writ of
Preliminary Injunction previously issued is hereby ordered LIFTED and
DISSOLVED, and the bond posted for its issuance held liable for the
satisfaction of the money judgment herein made in favor of the
[petitioners].[4]
The Facts
The undisputed facts of the case as narrated by the Court of
Appeals are as follows:
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. (Item No. 3, pp. 2-3 of Deed of Conditional Sale).
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. (Par. (2), Item No. 3, p. 3
of Deed of Conditional Sale).
[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 (Exh. C) 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 (p. 2 of Letter dated Jan. 4, 1991; Exh. C).
In reply, [private respondent] sent a letter dated January 14, 1991 (Exh.
D), denying that she [had] 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 Regional Trial Court of Quezon City
docketed as Civil Case No. Q-91-7603.
Notwithstanding their knowledge of the filing by [private respondent] of a
consignation case against them in the Regional Trial Court of Quezon
City docketed as Civil Case No. Q-91-7603, [petitioners], through
counsel, sent the [private respondent] another letter dated January 19,
1991 (Exh. F), denying the allegations of her attempts to tender payment
on December 30 and 31, 1990, and demanding that [private respondent]
vacate and turnover the property and pay a monthly compensation for
her continued occupation of the subject property at the rate
of P20,000.00, until she shall have vacated the same.
Ruling of the Court of Appeals
In reversing the Regional Trial Court, the Court of Appeals held
that the refusal of herein petitioners to accept the tender of payment was
unjustified. Notwithstanding the stipulation in the Deed of Conditional
Sale that the rescission of the contract shall of right take place upon the
failure of the vendee to pay three successive monthly installments, the
appellate court observed that a judicial demand or a notarial act was still
required pursuant to Article 1592 of the Civil Code. Thus, petitioners
letter informing private respondent of the rescission of the contract did
not suffice, for it was not notarized. The CA also observed that the
alleged breach of contract arising from the failure of the vendee to pay
the monthly installments for October and November 1990 within the
stipulated time is rather slight and not substantial, and to authorize the
automatic rescission on account thereof will work injustice to the other
party, who has paid a total of P2,028,000.00 out of a total obligation
of P3,225,000.00. The rule is that rescission cannot be availed of as to
unjustly enrich one party.
The Issues
In their Memorandum before us, petitioners raise the following
issues:[5]
I Whether the Answer [-- (a)] categorically indicating willingness to accept
the amount already due if the [private respondent] would update the
account, [(b)] praying that if she fail[ed] to do so immediately, xxx the
Deed of Conditional Sale be declared rescinded, pursuant to the second
paragraph of Section 3 thereof, with costs against the [private
respondent], [(c)] ordering the latter to vacate and turn over possession
of the premises to the [petitioners], and to pay the latter attorneys fees in
the amount of P50,000.00 and the expenses of litigation [--] is
tantamount to a judicial demand and notice of rescission under Art. 1592
of the Civil Code.
II Whether the automatic forfeiture clause is valid and binding between
the parties.
III 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.
The Courts Ruling
The petition[6] is devoid of merit.
Preliminary Matter: Notarial or Judicial Demand
Citing Article 1592 of the Civil Code, the Court of Appeals ruled
that the petitioners letter dated January 4, 1991, could not effect the
rescission of the Deed of Conditional Sale, because the said letter was
not notarized. On the other hand, petitioners argue that they made a
judicial demand, which was embodied in their Manifestation filed on May
1, 1991, and Answer submitted on July 1, 1991.[7]
We believe, however, that the issue of whether the requirement of
a judicial demand or a notarial act has been fulfilled is immaterial to the
resolution of the present case. Article 1592 of the Civil Code states:
ART. 1592. In the sale of immovable property, even though it may have
been stipulated that upon failure to pay the price at the time agreed upon
the rescission of the contract shall of right take place, the vendee may
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
notarial act. After the demand, the court may not grant him a new term.
It is well-settled that the above-quoted provision applies only to a
contract of sale,[8] and not to a sale on installment[9] or a contract to
sell.[10] Thus, in Luzon Brokerage v. Maritime Building,[11] this Court ruled
that Art. 1592 of the new Civil Code (Art. 1504 of the old Civil Code)
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. The Court
stresses the difference between these two types of contract. In a
contract to sell, the title over the subject property is transferred to the
vendee only upon the full payment of the stipulated consideration. Unlike
in a contract of sale, the title does not pass to the vendee upon the
execution of the agreement or the delivery of the thing sold.[12]
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. The aforementioned agreement provides:
xxx
Should the VENDEE fail to pay three (3) successive monthly installments
or any one year-end lump sum payment within the period stipulated
herein, this Deed of Conditional Sale shall be considered xxx
automatically rescinded without the necessity of judicial action[,] and all
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. The VENDORS and/or their agents or representatives
shall have the right to enter the premises of the property and to eject the
VENDEE and all persons claiming right under her therefrom with the use
of reasonable force if necessary.
That upon full payment to the VENDORS of the total consideration
of P3,225,000.00, the VENDORS shall immediately and without delay
execute in favor of the VENDEE the final and absolute deed of sale of
the property and all its improvements.
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.[13] Even after the
execution of the Deed of Conditional Sale, the Torrens Certificate of Title
remained with and in the name of the vendors. In rejecting the application
of Article 1592 to a contract to sell, the Court held in Luzon
Brokerage[14] 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 [the
vendor] to the [vendee]; so that there was to be no actual sale until and
unless full payment was made.
Main Issue: Enforcement of the Automatic Forfeiture Clause
As a general rule, a contract is the law between the
parties.[15] 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.[16] 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.[17] 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.
Both the appellate and the trial courts agree on the following:
1. The Deed of Conditional Sale provided for
automatic rescission in case the vendee failed to
pay three (3) successive monthly installments or
any one yearend lump sum payment within the
stipulated period therein.
 2. Each monthly installment was due at the end of the Application of the Maceda Law
month.

3. The installments for October and November 1990 were

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

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

installments due in October, November, and December 1990) to
Mary Gonzales, the petitioners maid, but the latter refused to
accept it upon instruction of petitioners.
6. Arellano returned the next day, December 31, 1990, and
insisted on paying, but again the maid refused to accept it.
7. Arellano proceeded to the barangay office around 10:00
a.m. to file a case against petitioners for their refusal to accept the
payments.
8. Four (4) days later, on January 4, 1991, private
respondents filed a Petition for Consignation.
9. Despite the said petition, the money was nevertheless not
deposited in court.
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 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 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.

10. Negotiations between both parties went under way,
culminating in the vendees filling a Motion to Deposit the entire
balance due, which was duly opposed by the vendor, and hence
was denied by the trial court.
From the foregoing, 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.[18] 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,[19] 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
creditors conduct, the debtor has been led to believe that the third person
had authority to receive the payment.
(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.
WHEREFORE, the Petition is DENIED and the dispositive portion
of the appealed Decision of the Court of Appeals is
hereby AFFIRMED. The CAs discussion on the need for judicial or
notarial demand is MODIFIED in accordance with this Decision. Costs
against petitioners.

Failure to Consign the Amount Due SO ORDERED.

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

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

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