G.R. No.

L-18536 March 31, given address: 1642 Crisostomo Street, would like to show them to his lawyer.
1965 Sampaloc, Manila. And so, in the morning Trusting the good faith of Marella, Irineo
of May 29, 1959, Irineo Santos went to the handed over the same to the latter and
JOSE B. AZNAR, plaintiff-appellant,
above address. At this meeting, Marella thereupon, in the company of L. De Dios
vs.
agreed to buy the car for P14,700.00 on and another unidentified person,
RAFAEL YAPDIANGCO, defendant-
the understanding that the price would be proceeded to the alleged house of Marella's
appellee;
paid only after the car had been registered sister.
TEODORO SANTOS, intervenor-appellee.
in his name.
At a place on Azcarraga, Irineo Santos and
Florentino M. Guanlao for plaintiff-
Irineo Santos then fetched his father who, L. De Dios alighted from the car and
appellant.
together with L. De Dios, went to the office entered a house while their unidentified
Rafael Yapdiangco in his own behalf as
of a certain Atty. Jose Padolina where the companion remained in the car. Once
defendant-appellee.
deed of the sale for the car was executed inside, L. De Dios asked Irineo Santos to
Lorenzo Sumulong, R. B. Hilao and B. S.
in Marella's favor. The parties to the wait at the sala while he went inside a
Felipe for intervenor-appellee.
contract thereafter proceeded to the Motor room. That was the last that Irineo saw of
REGALA, J.: Vehicles Office in Quezon City where the him. For, after a considerable length of
registration of the car in Marella's name time waiting in vain for De Dios to return,
This is an appeal, on purely legal questions, was effected. Up to this stage of the Irineo went down to discover that neither
from a decision of the Court of First transaction, the purchased price had not the car nor their unidentified companion
Instance of Quezon City, Branch IV, been paid. was there anymore. Going back to the
declaring the intervenor-appellee, Teodoro house, he inquired from a woman he saw
Santos, entitled to the possession of the From the Motor Vehicles Office, Teodoro
for L. De Dios and he was told that no such
car in dispute. Santos returned to his house. He gave the
name lived or was even known therein.
registration papers and a copy of the deed
Whereupon, Irineo Santos rushed to 1642
The records before this Court disclose that of sale to his son, Irineo, and instructed
Crisostomo to see Marella. He found the
sometime in May, 1959, Teodoro Santos him not to part with them until Marella shall
house closed and Marella gone. Finally, he
advertised in two metropolitan papers the have given the full payment for the car.
reported the matter to his father who
sale of his FORD FAIRLANE 500. In the Irineo Santos and L. De Dios then
promptly advised the police authorities.
afternoon of May 28, 1959, a certain L. De proceeded to 1642 Crisostomo Street,
Dios, claiming to be a nephew of Vicente Sampaloc, Manila where the former That very same day, or on the afternoon of
Marella, went to the Santos residence to demanded the payment from Vicente May 29, 1959 Vicente Marella was able to
answer the ad. However, Teodoro Santos Marella. Marella said that the amount he sell the car in question to the plaintiff-
was out during this call and only the latter's had on hand then was short by some appellant herein, Jose B. Aznar, for
son, Irineo Santos, received and talked P2,000.00 and begged off to be allowed to P15,000.00. Insofar as the above incidents
with De Dios. The latter told the young secure the shortage from a sister are concerned, we are bound by the factual
Santos that he had come in behalf of his supposedly living somewhere on Azcarraga finding of the trial court that Jose B. Aznar
uncle, Vicente Marella, who was interested Street, also in Manila. Thereafter, he acquired the said car from Vicente Marella
to buy the advertised car. ordered L. De Dios to go to the said sister in good faith, for a valuable consideration
and suggested that Irineo Santos go with and without notice of the defect
On being informed of the above, Teodoro
him. At the same time, he requested the appertaining to the vendor's title.
Santos instructed his son to see the said
registration papers and the deed of sale
Vicente Marella the following day at his
from Irineo Santos on the pretext that he
While the car in question was thus in the If the possessor of a movable lost or of inapplicable where, as in this case, the
possession of Jose B. Aznar and while he which the owner has been unlawfully seller had no title at all.
was attending to its registration in his deprived, has acquired it in good faith at a
Vicente Marella did not have any title to the
name, agents of the Philippine public sale, the owner cannot obtain its
property under litigation because the same
Constabulary seized and confiscated the return without reimbursing the price paid
was never delivered to him. He sought
same in consequence of the report to them therefor.
ownership or acquisition of it by virtue of
by Teodoro Santos that the said car was
From this decision, Jose B. Aznar appeals. the contract. Vicente Marella could have
unlawfully taken from him.
acquired ownership or title to the subject
The issue at bar is one and simple, to wit:
In due time, Jose B. Aznar filed a complaint matter thereof only by the delivery or
Between Teodoro Santos and the plaintiff-
for replevin against Captain Rafael tradition of the car to him.
appellant, Jose B. Aznar, who has a better
Yapdiangco, the head of the Philippine
right to the possession of the disputed Under Article 712 of the Civil Code,
Constabulary unit which seized the car in
automobile? "ownership and other real rights over
question Claiming ownership of the vehicle,
property are acquired and transmitted by
he prayed for its delivery to him. In the We find for the intervenor-appellee,
law, by donation, by testate and intestate
course of the litigation, however, Teodoro Teodoro Santos.
succession, and in consequence of certain
Santos moved and was allowed to
The plaintiff-appellant accepts that the car contracts, by tradition." As interpreted by
intervene by the lower court.
in question originally belonged to and was this Court in a host of cases, by this
At the end of the trial, the lower court owned by the intervenor-appellee, Teodoro provision, ownership is not transferred by
rendered a decision awarding the disputed Santos, and that the latter was unlawfully contract merely but by tradition or delivery.
motor vehicle to the intervenor-appellee, deprived of the same by Vicente Marella. Contracts only constitute titles or rights to
Teodoro Santos. In brief, it ruled that However, the appellant contends that upon the transfer or acquisition of ownership,
Teodoro Santos had been unlawfully the facts of this case, the applicable while delivery or tradition is the mode of
deprived of his personal property by provision of the Civil Code is Article 1506 accomplishing the same (Gonzales v.
Vicente Marella, from whom the plaintiff- and not Article 559 as was held by the Rojas, 16 Phil. 51; Ocejo, Perez and Co. v.
appellant traced his right. Consequently, decision under review. Article 1506 International Bank, 37 Phil. 631, Fidelity
although the plaintiff-appellant acquired provides: and Deposit Co. v. Wilson, 8 Phil. 51;
the car in good faith and for a valuable Kuenzle & Streiff v. Wacke & Chandler, 14
consideration from Vicente Marella, the ART. 1506. Where the seller of goods has a Phil. 610; Easton v. Diaz Co., 32 Phil. 180).
said decision concluded, still the voidable title thereto, but his, title has not
been voided at the time of the sale, the For the legal acquisition and transfer of
intervenor-appellee was entitled to its
buyer acquires a good title to the goods, ownership and other property rights, the
recovery on the mandate of Article 559 of
provided he buys them in good faith, for thing transferred must be delivered,
the New Civil Code which provides:
value, and without notice of the seller's inasmuch as, according to settled
ART. 559. The possession of movable defect of title. jurisprudence, the tradition of the thing is
property acquired in good faith is a necessary and indispensable requisite in
equivalent to title. Nevertheless, one who The contention is clearly unmeritorious. the acquisition of said ownership by virtue
lost any movable or has been unlawfully Under the aforequoted provision, it is of contract. (Walter Laston v. E. Diaz & Co.
deprived thereof, may recover it from the essential that the seller should have a & the Provincial Sheriff of Albay, supra.)
person in possession of the same. voidable title at least. It is very clearly
So long as property is not delivered, the bar, for under it, the rule is to the effect transfer to another a better title than he
ownership over it is not transferred by that if the owner has lost a thing, or if he had himself" obtains in the civil as well as
contract merely but by delivery. Contracts has been unlawfully deprived of it, he has in the common law. (U.S. v. Sotelo, 28 Phil.
only constitute titles or rights to the a right to recover it, not only from the 147)
transfer or acquisition of ownership, while finder, thief or robber, but also from third
Finally, the plaintiff-appellant here
delivery or tradition is the method of persons who may have acquired it in good
contends that inasmuch as it was the
accomplishing the same, the title and the faith from such finder, thief or robber. The
intervenor-appellee who had caused the
method of acquiring it being different in our said article establishes two exceptions to
fraud to be perpetrated by his misplaced
law. (Gonzales v. Roxas, 16 Phil. 51) the general rule of irrevindicability, to wit,
confidence on Vicente Marella, he, the
when the owner (1) has lost the thing, or
In the case on hand, the car in question intervenor-appellee, should be made to
(2) has been unlawfully deprived thereof.
was never delivered to the vendee by the suffer the consequences arising therefrom,
In these cases, the possessor cannot retain
vendor as to complete or consummate the following the equitable principle to that
the thing as against the owner, who may
transfer of ownership by virtue of the effect. Suffice it to say in this regard that
recover it without paying any indemnity,
contract. It should be recalled that while the right of the owner to recover personal
except when the possessor acquired it in a
there was indeed a contract of sale property acquired in good faith by another,
public sale. (Del Rosario v. Lucena, 8 Phil.
between Vicente Marella and Teodoro is based on his being dispossessed without
535; Varela v. Finnick, 9 Phil. 482; Varela
Santos, the former, as vendee, took his consent. The common law principle that
v. Matute, 9 Phil. 479; Arenas v.
possession of the subject matter thereof by where one of two innocent persons must
Raymundo, 19 Phil. 46. Tolentino, id., Vol.
stealing the same while it was in the suffer by a fraud perpetrated by another,
II, p. 261.)
custody of the latter's son. the law imposes the loss upon the party
In the case of Cruz v. Pahati, et al., 52 O.G. who, by his misplaced confidence, has
There is no adequate evidence on record as
3053 this Court has already ruled enabled the fraud to be committed, cannot
to whether Irineo Santos voluntarily
that — be applied in a case which is covered by an
delivered the key to the car to the
express provision of the new Civil Code,
unidentified person who went with him and Under Article 559 of the new Civil Code, a
specifically Article 559. Between a common
L. De Dios to the place on Azcarraga where person illegally deprived of any movable
law principle and a statutory provision, the
a sister of Marella allegedly lived. But even may recover it from the person in
latter must prevail in this jurisdiction. (Cruz
if Irineo Santos did, it was not the delivery possession of the same and the only
v. Pahati, supra)
contemplated by Article 712 of the Civil defense the latter may have is if he has
Code. For then, it would be indisputable acquired it in good faith at a public sale, in UPON ALL THE FOREGOING, the instant
that he turned it over to the unidentified which case, the owner cannot obtain its appeal is hereby dismissed and the
companion only so that he may drive Irineo return without reimbursing the price paid decision of the lower court affirmed in full.
Santos and De Dios to the said place on therefor. In the present case, plaintiff has Costs against the appellant.
Azcarraga and not to vest the title to the been illegally deprived of his car through
said vehicle to him as agent of Vicente the ingenious scheme of defendant B to
Marella. Article 712 above contemplates enable the latter to dispose of it as if he
that the act be coupled with the intent of were the owner thereof. Plaintiff, therefore,
delivering the thing. (10 Manresa 132) can still recover possession of the car even
if it is in the possession of a third party who
The lower court was correct in applying
had acquired it in good faith from
Article 559 of the Civil Code to the case at
defendant B. The maxim that "no man can
G.R. No. 80298 April 26, 1990 The movable property in this case consists On the night of the same date, EDCA
of books, which were bought from the sought the assistance of the police in
EDCA PUBLISHING & DISTRIBUTING
petitioner by an impostor who sold it to the Precinct 5 at the UN Avenue, which forced
CORP., petitioner,
private respondents. Ownership of the their way into the store of the private
vs.
books was recognized in the private respondents and threatened Leonor Santos
THE SPOUSES LEONOR and GERARDO
respondents by the Municipal Trial with prosecution for buying stolen
SANTOS, doing business under the
Court, 1 which was sustained by the property. They seized the 120 books
name and style of "SANTOS
Regional Trial Court, 2 which was in turn without warrant, loading them in a van
BOOKSTORE," and THE COURT OF
sustained by the Court of Appeals. 3 The belonging to EDCA, and thereafter turned
APPEALS, respondents.
petitioner asks us to declare that all these them over to the petitioner. 9
Emiliano S. Samson, R. Balderrama- courts have erred and should be reversed.
Protesting this high-handed action, the
Samson, Mary Anne B. Samson for
This case arose when on October 5, 1981, private respondents sued for recovery of
petitioner.
a person identifying himself as Professor the books after demand for their return was
Cendana Santos, Delmundo & Cendana for
Jose Cruz placed an order by telephone rejected by EDCA. A writ of preliminary
private respondents.
with the petitioner company for 406 books, attachment was issued and the petitioner,
payable on delivery. 4 EDCA prepared the after initial refusal, finally surrendered the
corresponding invoice and delivered the books to the private respondents. 10 As
books as ordered, for which Cruz issued a previously stated, the petitioner was
CRUZ, J.: personal check covering the purchase price successively rebuffed in the three courts
of P8,995.65. 5 On October 7, 1981, Cruz below and now hopes to secure relief from
The case before us calls for the
sold 120 of the books to private respondent us.
interpretation of Article 559 of the Civil
Leonor Santos who, after verifying the
Code and raises the particular question of To begin with, the Court expresses its
seller's ownership from the invoice he
when a person may be deemed to have disapproval of the arbitrary action of the
showed her, paid him P1,700.00. 6
been "unlawfully deprived" of movable petitioner in taking the law into its own
property in the hands of another. The Meanwhile, EDCA having become hands and forcibly recovering the disputed
article runs in full as follows: suspicious over a second order placed by books from the private respondents. The
Cruz even before clearing of his first check, circumstance that it did so with the
Art. 559. The possession of movable
made inquiries with the De la Salle College assistance of the police, which should have
property acquired in good faith is
where he had claimed to be a dean and was been the first to uphold legal and peaceful
equivalent to a title. Nevertheless, one who
informed that there was no such person in processes, has compounded the wrong
has lost any movable or has been
its employ. Further verification revealed even more deplorably. Questions like the
unlawfully deprived thereof, may recover it
that Cruz had no more account or deposit one at bar are decided not by policemen
from the person in possession of the same.
with the Philippine Amanah Bank, against but by judges and with the use not of brute
If the possessor of a movable lost or of which he had drawn the payment force but of lawful writs.
which the owner has been unlawfully check. 7 EDCA then went to the police,
Now to the merits
deprived has acquired it in good faith at a which set a trap and arrested Cruz on
public sale, the owner cannot obtain its October 7, 1981. Investigation disclosed It is the contention of the petitioner that
return without reimbursing the price paid his real name as Tomas de la Peña and his the private respondents have not
therefor. sale of 120 of the books he had ordered established their ownership of the disputed
from EDCA to the private respondents. 8
books because they have not even begging the question. It is putting the cart to the buyer until full payment of the
produced a receipt to prove they had before the horse. Unlike in the cases purchase only if there is a stipulation to
bought the stock. This is unacceptable. invoked, it has yet to be established in the that effect. Otherwise, the rule is that such
Precisely, the first sentence of Article 559 case at bar that EDCA has been unlawfully ownership shall pass from the vendor to
provides that "the possession of movable deprived of the books. the vendee upon the actual or constructive
property acquired in good faith is delivery of the thing sold even if the
The petitioner argues that it was, because
equivalent to a title," thus dispensing with purchase price has not yet been paid.
the impostor acquired no title to the books
further proof.
that he could have validly transferred to Non-payment only creates a right to
The argument that the private respondents the private respondents. Its reason is that demand payment or to rescind the
did not acquire the books in good faith has as the payment check bounced for lack of contract, or to criminal prosecution in the
been dismissed by the lower courts, and we funds, there was a failure of consideration case of bouncing checks. But absent the
agree. Leonor Santos first ascertained the that nullified the contract of sale between stipulation above noted, delivery of the
ownership of the books from the EDCA it and Cruz. thing sold will effectively transfer
invoice showing that they had been sold to ownership to the buyer who can in turn
The contract of sale is consensual and is
Cruz, who said he was selling them for a transfer it to another.
perfected once agreement is reached
discount because he was in financial need.
between the parties on the subject matter In Asiatic Commercial Corporation v.
Private respondents are in the business of
and the consideration. According to the Ang,11 the plaintiff sold some cosmetics to
buying and selling books and often deal
Civil Code: Francisco Ang, who in turn sold them to
with hard-up sellers who urgently have to
Tan Sit Bin. Asiatic not having been paid by
part with their books at reduced prices. To Art. 1475. The contract of sale is perfected
Ang, it sued for the recovery of the articles
Leonor Santos, Cruz must have been only at the moment there is a meeting of minds
from Tan, who claimed he had validly
one of the many such sellers she was upon the thing which is the object of the
bought them from Ang, paying for the
accustomed to dealing with. It is hardly bad contract and upon the price.
same in cash. Finding that there was no
faith for any one in the business of buying
From that moment, the parties may conspiracy between Tan and Ang to
and selling books to buy them at a discount
reciprocally demand performance, subject deceive Asiatic the Court of Appeals
and resell them for a profit.
to the provisions of the law governing the declared:
But the real issue here is whether the form of contracts.
Yet the defendant invoked Article 464 12 of
petitioner has been unlawfully deprived of
xxx xxx xxx the Civil Code providing, among other
the books because the check issued by the
things that "one who has been unlawfully
impostor in payment therefor was
Art. 1477. The ownership of the thing sold deprived of personal property may recover
dishonored.
shall be transferred to the vendee upon the it from any person possessing it." We do
In its extended memorandum, EDCA cites actual or constructive delivery thereof. not believe that the plaintiff has been
numerous cases holding that the owner unlawfully deprived of the cartons of Gloco
Art. 1478. The parties may stipulate that
who has been unlawfully deprived of Tonic within the scope of this legal
ownership in the thing shall not pass to the
personal property is entitled to its recovery provision. It has voluntarily parted with
purchaser until he has fully paid the price.
except only where the property was them pursuant to a contract of purchase
purchased at a public sale, in which event It is clear from the above provisions, and sale. The circumstance that the price
its return is subject to reimbursement of particularly the last one quoted, that was not subsequently paid did not render
the purchase price. The petitioner is ownership in the thing sold shall not pass
illegal a transaction which was valid and restored to their respective situations person relying on the seller's title who buys
legal at the beginning. before the contract and mutual restitution a movable property from him would have
follows as a consequence (Article 1398, to surrender it to another person claiming
In Tagatac v. Jimenez,13 the plaintiff sold
N.C.C.). to be the original owner who had not yet
her car to Feist, who sold it to Sanchez,
been paid the purchase price therefor. The
who sold it to Jimenez. When the payment However, as long as no action is taken by
buyer in the second sale would be left
check issued to Tagatac by Feist was the party entitled, either that of annulment
holding the bag, so to speak, and would be
dishonored, the plaintiff sued to recover or of ratification, the contract of sale
compelled to return the thing bought by
the vehicle from Jimenez on the ground remains valid and binding. When plaintiff-
him in good faith without even the right to
that she had been unlawfully deprived of it appellant Trinidad C. Tagatac delivered the
reimbursement of the amount he had paid
by reason of Feist's deception. In ruling for car to Feist by virtue of said voidable
for it.
Jimenez, the Court of Appeals held: contract of sale, the title to the car passed
to Feist. Of course, the title that Feist It bears repeating that in the case before
The point of inquiry is whether plaintiff-
acquired was defective and voidable. us, Leonor Santos took care to ascertain
appellant Trinidad C. Tagatac has been
Nevertheless, at the time he sold the car to first that the books belonged to Cruz before
unlawfully deprived of her car. At first
Felix Sanchez, his title thereto had not she agreed to purchase them. The EDCA
blush, it would seem that she was
been avoided and he therefore conferred a invoice Cruz showed her assured her that
unlawfully deprived thereof, considering
good title on the latter, provided he bought the books had been paid for on delivery. By
that she was induced to part with it by
the car in good faith, for value and without contrast, EDCA was less than cautious — in
reason of the chicanery practiced on her by
notice of the defect in Feist's title (Article fact, too trusting in dealing with the
Warner L. Feist. Certainly, swindling, like
1506, N.C.C.). There being no proof on impostor. Although it had never transacted
robbery, is an illegal method of deprivation
record that Felix Sanchez acted in bad with him before, it readily delivered the
of property. In a manner of speaking,
faith, it is safe to assume that he acted in books he had ordered (by telephone) and
plaintiff-appellant was "illegally deprived"
good faith. as readily accepted his personal check in
of her car, for the way by which Warner L.
payment. It did not verify his identity
Feist induced her to part with it is illegal The above rulings are sound doctrine and
although it was easy enough to do this. It
and is punished by law. But does this reflect our own interpretation of Article 559
did not wait to clear the check of this
"unlawful deprivation" come within the as applied to the case before us.
unknown drawer. Worse, it indicated in the
scope of Article 559 of the New Civil Code?
Actual delivery of the books having been sales invoice issued to him, by the printed
xxx xxx xxx made, Cruz acquired ownership over the terms thereon, that the books had been
books which he could then validly transfer paid for on delivery, thereby vesting
. . . The fraud and deceit practiced by ownership in the buyer.
to the private respondents. The fact that he
Warner L. Feist earmarks this sale as a
had not yet paid for them to EDCA was a
voidable contract (Article 1390 N.C.C.). Surely, the private respondent did not have
matter between him and EDCA and did not
Being a voidable contract, it is susceptible to go beyond that invoice to satisfy herself
impair the title acquired by the private
of either ratification or annulment. If the that the books being offered for sale by
respondents to the books.
contract is ratified, the action to annul it is Cruz belonged to him; yet she did.
extinguished (Article 1392, N.C.C.) and the One may well imagine the adverse Although the title of Cruz was presumed
contract is cleansed from all its defects consequences if the phrase "unlawfully under Article 559 by his mere possession of
(Article 1396, N.C.C.); if the contract is deprived" were to be interpreted in the the books, these being movable property,
annulled, the contracting parties are manner suggested by the petitioner. A Leonor Santos nevertheless demanded
more proof before deciding to buy them.
It would certainly be unfair now to make
the private respondents bear the prejudice
sustained by EDCA as a result of its own
negligence.1âwphi1 We cannot see the
justice in transferring EDCA's loss to the
Santoses who had acted in good faith, and
with proper care, when they bought the
books from Cruz.

While we sympathize with the petitioner for

its plight, it is clear that its remedy is not
against the private respondents but against
Tomas de la Peña, who has apparently
caused all this trouble. The private
respondents have themselves been unduly
inconvenienced, and for merely transacting
a customary deal not really unusual in their
kind of business. It is they and not EDCA
who have a right to complain.

WHEREFORE, the challenged decision is

AFFIRMED and the petition is DENIED, with
costs against the petitioner.

Narvasa, Gancayco, Griño-Aquino and

Medialdea, JJ., concur.
G.R. No. L-55684 December 19, 1984 On September 7, 1972, petitioner filed with On July 31, 1978, the Trial Court rendered
the Court of First Instance of Rizal, Branch its Decision dismissing the Complaint
CHRYSLER PHILIPPINES
XX, Pasig, Rizal, a Complaint for Damages against Negros Navigation for lack of cause
CORPORATION, petitioner,
against Allied Brokerage Corporation, of action, but finding Sambok, Bacolod,
vs.
Negros Navigation Company and Sambok, liable for the claim of petitioner, thus:
THE HONORABLE COURT OF APPEALS
Bacolod, alleging that on October 2, 1970,
and SAMBOK MOTORS CO. PREMISES CONSIDERED, the Court
Sambok, Bacolod, ordered from petitioner
(BACOLOD), respondents, renders judgment as follows:
various automotive products worth
Reyes, Santayana, Tayao & Picazo Law P30,909.61, payable in 45 days; that on (1) The complaint against defendant
Office for petitioner. November 25, 1970, petitioner delivered Negros Navigation is dismissed for lack of
said products to its forwarding agent, Allied cause of action.
Alampay, Alvero & Alampay Law Office for Brokerage Corporation, for shipment; that
private respondent. Allied Brokerage loaded the goods on board (2) Defendant Sambok Motors Co.
the M/S Doña Florentina, a vessel owned (Bacolod) is ordered to pay plaintiff
and operated by Negros Navigation Chrysler Philippines Corporation:
MELENCIO-HERRERA, J: Company, for delivery to Sambok, Bacolod;
(a) The sum of Thirty-One Thousand Thirty
that when petitioner tried to collect from
Subject of this Petition for Review is the Seven Pesos and Fifty Six Centavos
the latter the amount of P31,037.56,
Decision of the then Court of Appeals in CA- (P31,037.56) with interest at the rate of
representing the price of the spare parts
G.R. No. 65328-R reversing the judgment twelve percent (12) per annum from
plus handling charges, Sambok, Bacolod,
of the then Court of First Instance of Rizal, January 1, 1971 until fully paid;
refused to pay claiming that it had not
Branch XX, in Civil Case No. 16624, and received the merchandise; that petitioner (b) The sum of Five Thousand Pesos as and
dismissing petitioner Chrysler Philippines also demanded the return of the for attorney's fees and expenses of
Corporation's suit for Damages against merchandise or their value from Allied litigation;
private respondent Sambok Motors Brokerage and Negros Navigation, but both
Company (Bacolod) arising from breach of denied any liability. (c) The costs of the suit.
contract.
In its Answer, Sambok, Bacolod, denied (3) The counterclaim of defendant Negros
Petitioner is a domestic corporation having received from petitioner or from any Navigation and Sambok Motors Co.
engaged in the assembling and sale of of its co-defendants, the automotive (Bacolod) are dismissed for lack of merit.
motor vehicles and other automotive products referred to in the Complaint, and The case against Negros Navigation was
products. Respondent Sambok Motors Co., professed no knowledge of having ordered dismissed for failure of petitioner and
a general partnership, during the period from petitioner said articles. Sambok, Bacolod, to file the necessary
relevant to these proceedings, was its
Upon a Joint Motion to Dismiss filed by notices and claims as conditions precedent
dealer for automotive products with offices
petitioner and Allied Brokerage, the Trial for a judicial action. 2
at Bacolod (Sambok, Bacolod) and Iloilo
(Sambok, Iloilo). The two offices were run Court. on October 23, 1975, dismissed the On the other hand, the Trial Court found
by relatives. Miguel Ng was Assistant case with prejudice against Allied that the act of Sambok, Bacolod, "in
Manager for Sambok, Bacolod, while an Brokerage for lack of cause of action, and refusing to take delivery of the shipment
elder brother, Pepito Ng, was the also dismissed the latter's counterclaim for no justifiable reason from Negros
President. 1 against petitioner. Navigation despite having received the Bill
of Lading constituted wrongful neglect or Section 18. Questions that may be raised testified to by Ernesto Ordonez, Parts Sales
refusal to accept and pay for the subject on appeal. Whether or not the appellant Representative of petitioner, 3 Sambok,
shipment, by reason of which defendant has filed a motion for new trial in the court Bacolod, and Sambok, Iloilo, are actually
Sambok Motors may be held liable for below, he may include in his assignment of one. In fact, admittedly, the order for spare
damages." errors any question of law or fact that has parts was made by the President of
been raised in the court below and which is Sambok, Pepito Ng, through its marketing
Sambok, Bacolod, appealed. On November
within the issues framed by the parties. consultant. Notwithstanding, upon receipt
26, 1980, respondent Appellate Court set
of the Bill of Lading, Sambok, Bacolod,
aside the appealed judgment and III
initiated, but did not pursue, steps to take
dismissed petitioner's Complaint, after
The Respondent Court of Appeals erred in delivery as they were advised by Negros
finding that the latter had not performed its
finding that the private respondent gave Navigation that because some parts were
part of the obligation under the contract by
the alleged instruction to the petitioner to missing. they would just be informed as
not delivering the goods at Sambok, Iloilo,
ship the automotive spare parts to Iloilo soon as the missing parts were located. 4
the place designated in the Parts Order
City and not to Bacolod City.
Form (Exhibits "A", "A-1" to "A-6"), and It was only four years later, however, or in
must, therefore, suffer the loss. In other IV 1974, when a warehouseman of Negros
words, respondent Appellate Court found. Navigation, Severino Aguarte, found in
that there was misdelivery. The Respondent Court of Appeals erred in their off-shore bodega, parts of the
finding that the defendant Negros shipment.- in question, but already
Hence, this Petition for Review on Navigation notified the private respondent deteriorated and valueless. 5
Certiorari, with the following errors of the arrival of the shipment at Bacolod
assigned to respondent Court: City. Under the circumstances, Sambok,
Bacolod, cannot be faulted for not
I V accepting or refusing to accept the
The Respondent Court of Appeals erred in shipment from Negros Navigation four
The Respondent Court of Appeals erred in
finding that the issue of misshipment or years after shipment. The evidence is clear
reversing the decision of the Trial Court
misdelivery of the automotive spare parts that Negros Navigation could not produce
that the act of the private respondent in
involved in the litigation was raised by the the merchandise nor ascertain its
refusing to take delivery of the automotive
private respondent Sambok Motors Co. whereabouts at the time Sambok, Bacolod,
spare parts that it purchased from the
(Bacolod) in the Trial Court. was ready to take delivery. Where the
petitioner after having been notified of the
seller delivers to the buyer a quantity of
shipment constitutes wrongful neglect
II goods less than he contracted to sell, the
resulting in the loss of the cargo for which
buyer may reject them. 6
The Respondent Court of Appeals erred in it should be liable in damages to the
refusing to apply the provisions of Section petitioner. From the evidentiary record, Negros
18, Rule 46 of the Revised Rules of Court Navigation was the party negligent in
To our minds, the matter of misdelivery is
quoted below, that since the question of failing to deliver the complete shipment
not the decisive factor for relieving
misshipment or misdelivery was not raised either to Sambok, Bacolod, or to Sambok,
Sambok, Bacolod, of liability herein. While
by the private respondent in the Trial Iloilo, but as the Trial Court found,
it may be that the Parts Order Form (E
Court, this issue cannot for the first time be petitioner failed to comply with the
exhibits "A", "A-1" to "A-6") specifically
raised on appeal. conditions precedent to the filing of a
indicated Iloilo as the destination, as
judicial action. Thus, in the last analysis, it
is petitioner that must shoulder the
resulting loss. The general rule that before,
delivery, the risk of loss is home by the
seller who is still the owner, under the
principle of "res petit domino", 7 is
applicable in petitioner's case.

In sum, the judgment of respondent

Appellate Court, will have to be sustained
not on the basis of misdelivery but on non-
delivery since the merchandise was never
placed in the control and possession of
Sambok, Bacolod, the vendee. 8

WHEREFORE, we hereby affirm the

Decision of the then Court of Appeals in CA-
G.R. No. 65328-R, without pronouncement
as to costs.

SO ORDERED.
G.R. No. L-21263 April 30, 1965 goodwill it sent to Tabora free of charge Appellant bought from appellee one set of
volumes 75, 76, 77 and 78 of the Philippine American Jurisprudence, including one set
LAWYERS COOPERATIVE PUBLISHING
Reports. As Tabora failed to pay he of general index, payable on installment
COMPANY, plaintiff-appellee,
monthly installments agreed upon on the plan. It was provided in the contract that
vs.
balance of the purchase price "title to and ownership of the books shall
PERFECTO A. TABORA, defendant-
notwithstanding the long time that had remain with the seller until the purchase
appellant.
elapsed, the company demanded payment price shall have been fully paid. Loss or
Paredes, Poblador, Cruz and Nazareno for of the installments due, and having failed, damage to the books after delivery to the
plaintiff-appellee. to pay the same, it commenced the present buyer shall be borne by the buyer." The
Tabora and Concon for defendant- action before the Court of First Instance of total price of the books, including the cost
appellant. Manila for the recovery of the balance of of freight, amounts to P1,682.40. Appellant
the obligation. Plaintiff also prayed that only made a down payment of P300.00
BAUTISTA ANGELO, J.: defendant be ordered to pay 25% of the thereby leaving a balance of P1,382.40.
amount due as liquidated damages, and This is now the import of the present action
On May 3, 1955, Perfecto A. Tabora bought
the cost of action. aside from liquidated damages.
from the Lawyers Cooperative Publishing
Company one complete set of American Defendant, in his answer, pleaded force Appellant now contends that since it was
Jurisprudence consisting of 48 volumes majeure as a defense. He alleged that the agreed that the title to and the ownership
with 1954 pocket parts, plus one set of books bought from the plaintiff were of the books shall remain with the seller
American Jurisprudence, General Index, burned during the fire that broke out in until the purchase price shall have been
consisting of 4 volumes, for a total price of Naga City on May 15, 1955, and since the fully paid, and the books were burned or
P1,675.50 which, in addition to the cost of loss was due to force majeure he cannot be destroyed immediately after the
freight of P6.90, makes a total of held responsible for the loss. He prayed transaction, appellee should be the one to
P1,682.40. Tabora made a partial payment that the complaint be dismissed and that bear the loss for, as a result, the loss is
of P300.00, leaving a balance of P1,382.40. he be awarded moral damages in the always borne by the owner. Moreover,
The books were duly delivered and amount of P15,000.00. even assuming that the ownership of the
receipted for by Tabora on May 15, 1955 in books were transferred to the buyer after
his law office Ignacio Building, Naga City. After due hearing, the court a
the perfection of the contract the latter
quo rendered judgment for the plaintiff. It
should not answer for the loss since the
In the midnight of the same date, however, ordered the defendant to pay the sum of
same occurred through force majeure.
a big fire broke out in that locality which P1,382.40, with legal interest thereon from
Here, there is no evidence that appellant
destroyed and burned all the buildings the filing of the complaint, plus a sum
has contributed in any way to the
standing on one whole block including at equivalent to 25% of the total amount due
occurrence of the
the law office and library of Tabora As a as liquidated damages, and the cost of
conflagration.1äwphï1.ñët
result, the books bought from the company action.
as above stated, together with Tabora's This contention cannot be sustained. While
important documents and papers, were Defendant took the case to the Court of
as a rule the loss of the object of the
burned during the conflagration. This Appeals, but the same is now before us by
contract of sale is borne by the owner or in
unfortunate event was immediately virtue of a certification issued by that Court
case of force majeure the one under
reported by Tabora to the company in a that the case involves only questions of
obligation to deliver the object is exempt
letter he sent on May 20, 1955. On May 23, law.
from liability, the application of that rule
the company replied and as a token of does not here obtain because the law on
the contract entered into on the matter after the delivery of the goods to him. In
argues against it. It is true that in the other words, the obligor agreed to assume
contract entered into between the parties any risk concerning the goods from the
the seller agreed that the ownership of the time of their delivery, which is an exception
books shall remain with it until the to the rule provided for in Article 1262 of
purchase price shall have been fully paid, our Civil Code.
but such stipulation cannot make the seller
Appellant likewise contends that the
liable in case of loss not only because such
court a quo erred in sentencing him to pay
was agreed merely to secure the
attorney's fees. This is merely the result of
performance by the buyer of his obligation
a misapprehension for what the court a
but in the very contract it was expressly
quo ordered appellant to pay is not 25% of
agreed that the "loss or damage to the
the amount due as attorney's fees, but as
books after delivery to the buyer shall be
liquidated damages, which is in line with an
borne by the buyer." Any such stipulation
express stipulation of the contract. We
is sanctioned by Article 1504 of our Civil
believe, however, that the appellant should
Code, which in part provides:
not be made to pay any damages because
(1) Where delivery of the goods has been his denial to pay the balance of the account
made to the buyer or to a bailee for the is not due to bad faith.
buyer, in pursuance of the contract and the
WHEREFORE, the decision appealed from is
ownership in the goods has been retained
modified by eliminating that portion which
by the seller merely to secure performance
refers to liquidated damages. No costs.
by the buyer of his obligations under the
contract, the goods are at the buyer's risk
from the time of such delivery.

Neither can appellant find comfort in the

claim that since the books were destroyed
by fire without any fault on his part he
should be relieved from the resultant
obligation under the rule that an obligor
should be held exempt from liability when
the loss occurs thru a fortuitous event. This
is because this rule only holds true when
the obligation consists in the delivery of a
determinate thing and there is no
stipulation holding him liable even in case
of fortuitous event. Here these
qualifications are not present. The
obligation does not refer to a determinate
thing, but is pecuniary in nature, and the
obligor bound himself to assume the loss
G.R. No. 164985 January 15, buyers who were mostly engaged in the unit of Isuzu Transit Mixer that was also
2014 construction business, to wit: delivered to the petitioners. For the two
purchases, FUCC partially paid in cash, and
FIRST UNITED CONSTRUCTORS
TO WHOM DATE OF the balance through post-dated checks, as
CORPORATION and BLUE STAR UNIT
DELIVERY DELIVERY follows:
CONSTRUCTION
CORPORATION, Petitioners,
Isuzu Dump BANK/CHECK
vs. FUCC 27 May 1992 DATE AMOUNT
Truck NO.
BAYANIHAN AUTOMOTIVE
CORPORATION, Respondent.
Isuzu Dump 23
FUCC 27 May 1992 Pilipinas Bank
DECISION November ₱360,000.00
Truck 18027379
1992
BERSAMIN, J.:
Isuzu Dump
This case concerns the applicability of the FUCC 10 June 1992 1
Truck Pilipinas Bank
legal principles of recoupment and December ₱375,000.00
compensation. 18027384
1992
Isuzu Dump
The Case FUCC 18 June 1992
Truck
Upon presentment of the checks for
Under review is the decision promulgated payment, the respondent learned that
on July 26, 2004,1 whereby the Court of Isuzu Dump FUCC had ordered the payment stopped.
Blue Star 4 July 1992
Appeals CA) affirmed the judgment Truck The respondent immediately demanded
rendered on May 14 1996 by the Regional the full settlement of their obligation from
Trial Court, Branch 107, in Quezon City Isuzu Dump the petitioners, but to no avail. Instead, the
adjudging the petitioners defendants) FUCC 8 July 1992 petitioners informed the respondent that
Truck
liable to pay to the respondent plaintiff) they were withholding payment of the
various sums of money and damages.2 The parties established a good business checks due to the breakdown of one of the
relationship, with the respondent dump trucks they had earlier purchased
Antecedents from respondent, specifically the second
extending service and repair work to the
Petitioner First United Constructors units purchased by the petitioners. The dump truck delivered on May 27, 1992.
Corporation (FUCC) and petitioner Blue respondent also practiced liberality
Due to the refusal to pay, the respondent
Star Construction Corporation (Blue Star) towards the petitioners in the latter’s
commenced this action for collection on
were associate construction firms sharing manner of payment by later on agreeing to
April 29, 1993, seeking payment of the
financial resources, equipment and payment on terms for subsequent
unpaid balance in the amount of
technical personnel on a case-to-case purchases.
₱735,000.00 represented by the two
basis. From May 27, 1992 to July 8, 1992, checks.
On September 19, 1992, FUCC ordered
they ordered six units of dump trucks from
from the respondent one unit of Hino Prime
the respondent, a domestic corporation In their answer, the petitioners averred
Mover that the respondent delivered on the
engaged in the business of importing and that they had stopped the payment on the
same date. On September 29, 1992, FUCC
reconditioning used Japan-made trucks, two checks worth ₱735,000.00 because of
again ordered from the respondent one
and of selling the trucks to interested the respondent’s refusal to repair the
second dump truck; and that they had legal interest and attorney’s fees; and The petitioners appealed, stating that they
informed the respondent of the defects in declaring the respondent liable to pay to could justifiably stop the payment of the
that unit but the respondent had refused to the petitioners the sum of ₱71,350.00 as checks in the exercise of their right of
comply with its warranty, compelling them costs of the repairs incurred by the recoupment because of the respondent’s
to incur expenses for the repair and spare petitioners. The RTC held that the refusal to settle their claim for breach of
parts. They prayed that the respondent petitioners could not avail themselves of warranty as to the purchase of the second
return the price of the defective dump truck legal compensation because the claims dump truck.
worth ₱830,000.00 minus the amounts of they had set up in the counterclaim were
In its decision promulgated on July 26,
their two checks worth ₱735,000.00, with not liquidated and demandable. The fallo of
2004,5 however, the CA affirmed the
12% per annum interest on the difference the judgment states:
judgment of the RTC. It held that the
of ₱90,000.00 from May 1993 until the
WHEREFORE, judgment is hereby remedy of recoupment could not be
same is fully paid; that the respondent
rendered: properly invoked by the petitioners
should also reimburse them the sum of
because the transactions were different;
₱247,950.00 as their expenses for the 1. Ordering defendants, jointly and
that the expenses incurred for the repair
repair of the dump truck, with 12% per severally to pay plaintiff the sum of
and spare parts of the second dump truck
annum interest from December 16, 1992, ₱360,000.00 and ₱375,000.00 with
were not a proper subject of recoupment
the date of demand, until fully paid; and interest at the legal rate of 12% per annum
because they did not arise out of the
that the respondent pay exemplary computed from February 11, 1993, which
purchase of the Hino Prime Mover and the
damages as determined to be just and is the date of the first extrajudicial demand,
Isuzu Transit Mixer; and that the
reasonable but not less than ₱500,000, and until fully paid;
petitioners’ claim could not also be the
attorney’s fees of ₱50,000 plus ₱1,000.00
2. Ordering the defendants, jointly and subject of legal compensation or set-off,
per court appearance and other litigation
severally, to pay plaintiff the sum because the debts in a set-off should be
expenses.
equivalent to 10% of the principal amount liquidated and demandable.
It was the position of the respondent that due, for attorney’s fees;
Issues
the petitioners were not legally justified in
withholding payment of the unpaid balance 3. On the counterclaim, ordering plaintiff to
The petitioners are now before the Court
of the purchase price of the Hino Prime pay defendants the sum of ₱71,350.00 with
asserting in their petition for review on
Mover and the Isuzu Transit Mixer due the interest at the legal rate of 12% per annum
certiorari that the CA erred in:
alleged defects in second dump truck computed from the date of this decision
because the purchase of the two units was until fully paid; I
an entirely different transaction from the
4. Ordering plaintiff to pay the defendants x x x NOT UPHOLDING THE RIGHT OF
sale of the dump trucks, the warranties for
attorney’s fees equivalent to 10% of the PETITIONER[S] TO RECOUPMENT UNDER
which having long expired.
amount due; PAR. (1) OF ART. 1599 OF THE CIVIL
Judgment of the RTC CODE, WHICH PROVIDES [FOR] THE
5. No pronouncement as to costs.
RIGHTS AND REMEDIES AVAILABLE TO A
On May 14, 1996, the RTC rendered its BUYER AGAINST A SELLER’S BREACH OF
SO ORDERED.4
judgment,3 finding the petitioners liable to WARRANTY.
pay for the unpaid balance of the purchase Decision of the CA
price of the Hino Prime Mover and the Isuzu II
Transit Mixer totaling ₱735,000.00 with
x x x RULING THAT PETITIONERS CANNOT The respondent counters that the counterclaim arising out of the same
AVAIL OF COMPENSATION ALLEGEDLY petitioners could not refuse to pay the transaction.7 It is the setting up of a
BECAUSE THEIR CLAIMS AGAINST balance of the purchase price of the Hino demand arising from the same transaction
RESPONDENT ARE NOT LIQUIDATED AND Prime Mover and the Isuzu Transit Mixer on as the plaintiff’s claim, to abate or reduce
DEMANDABLE. the basis of the right of recoupment under that claim.
Article 1599 of the Civil Code; that the
III The legal basis for recoupment by the
buyer’s remedy of recoupment related only
buyer is the first paragraph of Article 1599
x x x NOT HOLDING RESPONDENT LIABLE to the same transaction; and that
of the Civil Code, viz:
TO PETITIONERS FOR LEGAL INTEREST compensation was not proper because the
COMPUTED FROM THE FIRST claims of the petitioners as alleged in their Article 1599. Where there is a breach of
EXTRAJUDICIAL DEMAND, AND FOR counterclaim were not liquidated and warranty by the seller, the buyer may, at
ACTUAL EXEMPLARY DAMAGES.6 demandable. his election:

The petitioners submit that they were There is no longer any question that the (1) Accept or keep the goods and set up
justified in stopping the payment of the two petitioners were liable to the respondent against the seller, the breach of warranty
checks due to the respondent’s breach of for the unpaid balance of the purchase by way of recoupment in diminution or
warranty by refusing to repair or replace price of the Hino Prime Mover and the Isuzu extinction of the price;
the defective second dump truck earlier Transit Mixer. What remain to be resolved
are strictly legal, namely: one, whether or (2) Accept or keep the goods and maintain
purchased; that the withholding of
not the petitioners validly exercised the an action against the seller for damages for
payments was an effective exercise of their
right of recoupment through the the breach of warranty;
right of recoupment as allowed by Article
1599(1) of the Civil Code; due to the withholding of payment of the unpaid
(3) Refuse to accept the goods, and
seller’s breach of warranty that the CA’s balance of the purchase price of the Hino
maintain an action against the seller for
interpretation (that recoupment in Prime Mover and the Isuzu Transit Mixer;
damages for the breach of warranty;
diminution or extinction of price in case of and, two, whether or not the costs of the
breach of warranty by the seller should repairs and spare parts for the second (4) Rescind the contract of sale and refuse
refer to the reduction or extinction of the dump truck delivered to FUCC on May 27, to receive the goods or if the goods have
price of the same item or unit sold and not 1992 could be offset for the petitioners’ already been received, return them or offer
to a different transaction or contract of obligations to the respondent. to return them to the seller and recover the
sale) was not supported by jurisprudence; price or any part thereof which has been
Ruling
that recoupment should not be restrictively paid.
interpreted but should include the concept We affirm the decision of the CA with
When the buyer has claimed and been
of compensation or set-off between two modification.
granted a remedy in anyone of these ways,
parties who had claims arising from
1. no other remedy can thereafter be granted,
different transactions; and that the series
Petitioners could not validly resort to without prejudice to the provisions of the
of purchases and the obligations arising
recoupment against respondent second paragraph of article 1191.
therefrom, being inter-related, could be
(Emphasis supplied)
considered as a single and ongoing Recoupment (reconvencion) is the act of
transaction for all intents and purposes. rebating or recouping a part of a claim upon xxxx
which one is sued by means of a legal or
equitable right resulting from a
In its decision, the CA applied the first transit mixer they owed to (2) That both debts consists in a sum of
paragraph of Article 1599 of the Civil Code respondent.1avvphi1 Recoupment must money, or if the things due are
to this case, explaining thusly: arise out of the contract or transaction consumable, they be of the same kind, and
upon which the plaintiff’s claim is also of the same quality if the latter has
Paragraph (1) of Article 1599 of the Civil
founded.9 To be entitled to recoupment, been stated;
Code which provides for the remedy of
therefore, the claim must arise from the
recoupment in diminution or extinction of (3) That the two debts be due;
same transaction, i.e., the purchase of the
price in case of breach of warranty by the
prime mover and the transit mixer and not (4) That they be liquidated and
seller should therefore be interpreted as
to a previous contract involving the demandable;
referring to the reduction or extinction of
purchase of the dump truck. That there was
the price of the same item or unit sold and (5) That over neither of them there be any
a series of purchases made by petitioners
not to a different transaction or contract of retention or controversy, commenced by
could not be considered as a single
sale. This is more logical interpretation of third persons and communicated in due
transaction, for the records show that the
the said article considering that it talks of time to the debtor.
earlier purchase of the six dump trucks was
breach of warranty with respect to a
a separate and distinct transaction from
particular item sold by the seller. As to whether petitioners could avail
the subsequent purchase of the Hino Prime
Necessarily, therefore, the buyer’s remedy themselves of compensation, both the RTC
Mover and the Isuzu Transit Mixer.
should relate to the same transaction and and CA ruled that they could not because
Consequently, the breakdown of one of the
not to another. the claims of petitioners against
dump trucks did not grant to petitioners the
respondent were not liquidated and
Defendants-appellants’ act of ordering the right to stop and withhold payment of their
demandable.
payment on the prime mover and transit remaining balance on the last two
mixer stopped was improper considering purchases. The Court cannot uphold the CA and the
that the said sale was a different contract RTC.
2.
from that of the dump trucks earlier
Legal compensation was permissible The RTC already found that petitioners
purchased by defendants-appellants.
were entitled to the amount of ₱71,350.00
Legal compensation takes place when the
The claim of defendants-appellants for stated in their counterclaim, and the CA
requirements set forth in Article 1278 and
breach of warranty, i.e. the expenses paid concurred in the finding, stating thusly:
Article 1279 of the Civil Code are present,
for the repair and spare parts of dump
to wit: It is noteworthy that in the letter of
truck no. 2 is therefore not a proper subject
December 16, 1992 (Exh. "1") defendants
of recoupment since it does not arise out of Article 1278. Compensation shall take
were charging plaintiff only for the
the contract or transaction sued on or the place when two persons, in their own right,
following items of repair:
claim of plaintiff-appellee for unpaid are creditors and debtors of each other."
balances on the last two (2) purchases, i.
Article 1279. In order that compensation 1. Cost of repair and
e. the prime mover and the transit mixer.8 ₱46,800.00
may be proper, it is necessary: spare parts -
The CA was correct. It was improper for
(1) That each of the obligors be bound
petitioners to set up their claim for repair 2. Cost of repair and
principally, and that he be at the same time 24,550.00
expenses and other spare parts of the spare parts -
a principal creditor of the other;
dump truck against their remaining balance
on the price of the prime mover and the
 supported the finding of the two lower debtor incurs in delay, the indemnity for
courts, the Court accepts their finding. damages, there being no stipulation to the
₱71,350.00 Verily, factual findings of the trial court, contrary, shall be the payment of the
when affirmed by the CA, are conclusive on interest agreed upon, and in the absence of
Said amounts may be considered to have the Court when supported by the evidence stipulation, the legal interest, which is six
been spent for repairs covered by the on record.11 per cent per annum.
warranty period of three (3) months. While
the invoices (Exhs. "2-B" and "3-A") dated A debt is liquidated when its existence and WHEREFORE, the Court AFFIRMS the
September 26, 1992 and September 18, amount are determined.12 Accordingly, an decision promulgated on July 26, 2004 in
1992, this delay in repairs is attributable to unliquidated claim set up as a counterclaim all respects subject to the MODIFICATION
the fact that when defects were brought to by a defendant can be set off against the that petitioners are ordered, jointly and
the attention of the plaintiff in the letter of plaintiff’s claim from the moment it is severally, to pay to respondent the sum of
August 14, 1992 (Exh. "8") which was liquidated by judgment.13 Article 1290 of 1 663,650.00, plus interest of 6% per
within the warranty period, the plaintiff did the Civil Code provides that when all the annum computed from February
not respond with the required repairs and requisites mentioned in Article 1279 of the
11, 1993, the date of the first extrajudicial
actual repairs were undertaken by Civil Code are present, compensation takes
demand, until fully paid; and ORDERS the
defendants. Thereafter, the spare parts effect by operation of law, and extinguishes
petitioners to pay the costs of suit.
covered by Exhibits "2-B" and "3-A" pertain both debts to the concurrent amount. With
to the engine, which was covered by the petitioners’ expenses for the repair of the SO ORDERED.
warranty. dump truck being already established and
determined with certainty by the lower
x x x. Defendants in their letter of August courts, it follows that legal compensation
14, 1992 (Exhb. "8") demanded correction could take place because all the
of defects. In their letter of August 22, requirements were present. Hence, the
1992 (Exh. "9") they demanded amount of ₱71,350.00 should be set off
replacement. In their letter of August 27, against petitioners’ unpaid obligation of
1992 (Exh. "10"), they demanded ₱735,000.00, leaving a balance of
‘replacement/repair’. In September, 1992, ₱663,650.00, the amount petitioners still
they undertook repairs themselves (Exhs. owed to respondent.
"2-B" and "3-A") and demanded payment
for the expenses in their letter of December We deem it necessary to modify the
16, 1992 (Exh. "1"). All other items of interest rate imposed by the trial and
expenses connected with subsequent appellate courts.1âwphi1 The legal interest
breakdowns are no longer chargeable to rate to be imposed from February 11,
plaintiff which granted only a 3-month 1993, the time of the extrajudicial demand
warranty. x x x10 by respondent, should be 6% per annum in
the absence of any stipulation in writing in
Considering that preponderant evidence accordance with Article 2209 of the Civil
showing that petitioners had spent the Code, which provides:
amount of ₱71,350.00 for the repairs and
spare parts of the second dump truck Article 2209. If the obligation consists in
within the warranty period of three months the payment of a sum of money, and the
G.R. No. L-46306 October 27, No. 4122, inserted as articles 1454-A of the Undoubtedly, the law is aimed at those
1939 Civil Code, and rendered judgment in favor sales where the price is payable in several
of the defendant. Plaintiff appealed. installments, for, generally, it is in these
LEVY HERMANOS, INC., plaintiff-
cases that partial payments consist in
appellant, Article 1454-A of the Civil Code reads as
relatively small amounts, constituting thus
vs. follows:
a great temptation for improvident
LAZARO BLAS GERVACIO, defendant-
In a contract for the sale of personal purchasers to buy beyond their means.
appellee.
property payable in installments shall There is no such temptation where the
Felipe Caniblas for appellant. confer upon the vendor the right to cancel price is to be paid in cash, or, as in the
Abreu, Lichaucco and Picazo for appellee. the sale or foreclose the mortgage if one instant case, partly in cash and partly in
has been given on the property, without one term, for, in the latter case, the partial
reimbursement to the purchaser of the payments are not so small as to place
installments already paid, if there be an purchasers off their guard and delude them
agreement to this effect. to a miscalculation of their ability to pay.
MORAN, J.:
The oretically, perhaps, there is no
On February 9-4, 1938, plaintiff filed a However, if the vendor has chosen to difference between paying the price in tow
complaint in the Court of First Instance of foreclose the mortgage he shall have no installments, in so far as the size of each
Manila, which substantially recites the further action against the purchaser for the partial payment is concerned; but in actual
following facts: recovery of any unpaid balance owing by practice the difference exists, for,
the same and any agreement to the according to the regular course of business,
On March 10, 1937, plaintiff Levy contrary shall be null and void. in contracts providing for payment of the
Hermanos, Inc., sold to defendant Lazaro price in two installments, there is generally
Blas Gervacio, a Packard car. Defendant, In Macondray and Co. vs. De Santos (33
a provision for initial payment. But all these
after making the initial payment, executed Off. Gaz., 2170), we held that "in order to
considerations are immaterial, the
a promissory note for the balance of apply the provisions of article 1454-A of the
language of the law being so clear as to
P2,400, payable on or before June 15, Civil Code it must appear that there was a
require no construction at all.lâwphi1.nêt
1937, with interest at 12 per cent per contract for the sale of personal property
annum, to secure the payment of the note, payable in installments and that there has The suggestion that the cash payment
he mortgaged the car to the plaintiff. been a failure to pay two or more made in this case should be considered as
Defendant failed to pay the note it its installments." The contract, in the instant an installment in order to bring the contract
maturity. Wherefore, plaintiff foreclosed case, while a sale of personal property, is sued upon under the operation of the law,
the mortgage and the car was sold at public not, however, one on installments, but on is completely untenable. A cash payment
auction, at which plaintiff was the highest straight term, in which the balance, after cannot be considered as a payment by
bidder for P1,800. The present action is for payment of the initial sum, should be paid installment, and even if it can be so
the collection of the balance of P1,600 and in its totality at the time specified in the considered, still the law does not apply, for
interest. promissory note. The transaction is not is it requires non-payment of two or more
not, therefore, the one contemplated in Act installments in order that its provisions
Defendant admitted the allegations of the No. 4122 and accordingly the mortgagee is may be invoked. Here, only one installment
complaint, and with this admission, the not bound by the prohibition therein was unpaid.
parties submitted the case for decision. The contained as to the right to the recovery of
lower court applied, the provisions of Act the unpaid balance. Judgment is reversed, and the defendant-
appellee is hereby sentenced to pay
plaintiff-appellant the sum of P1,600 with
interest at the rate of 12 per cent per
annum from June 15, 1937, and the sum of
P52.08 with interest at the rate of 6 per
cent from the date of the filing of the
complaint, with costs in both instances
against the appellee.
 installments. Since they admit having used NOCON, J.:
[G.R. No. 61043. September 2, 1992.] the air-conditioners for twenty-two (22)
months, this means that they did not pay
DELTA MOTOR SALES fifteen (15) monthly installments on the
CORPORATION, Plaintiff-Appellee, v. said air-conditioners and were thus using Elevated to this Court by the Court of
NIU KIM DUAN and CHAN FUE the same FREE for said period — to the Appeals, in its Resolution of May 20, 1982,
ENG, Defendants-Appellants. prejudice of plaintiff-appellee. Under the on a pure question of law, 1 is the appeal
circumstances, the treatment of the therein by defendants-appellants, Niu Kim
Francisco C. Bonoan for Plaintiff- installment payments as rentals cannot be Duan and Chan Fue Eng assailing the trial
Appellee. said to be unconscionable. court’s decision promulgated on October
11, 1977, 2 which ordered them to pay
Agapito M. Joaquin, for Defendants- 2. REMEDIES OF THE VENDOR IN A SALE plaintiff-appellee, Delta Motor Sales
Appellants. OF PERSONAL PROPERTY PAYABLE IN Corporation, the amount of P6,188.29 with
INSTALLMENTS; REMEDIES ARE a 14% per annum interest which was due
ALTERNATIVE AND NOT CUMULATIVE. — on the three (3) "Daikin" air-conditioners
SYLLABUS The vendor in a sale of personal property defendants-appellants purchased from
payable in installments may exercise one plaintiff-appellee under a Deed of
of three remedies, namely, (1) exact the Conditional Sale, after the same was
fulfillment of the obligation, should the declared rescinded by the trial court. They
1. CIVIL LAW; SALES; TREATMENT OF THE
vendee fail to pay; (2) cancel the sale upon were likewise ordered to pay plaintiff-
INSTALLMENT PAYMENTS AS RENTALS;
the vendee’s failure to pay two or more appellee P1,000.00 for and as attorney’s
STIPULATION IN A CONTRACT THAT THE
installments; (3) foreclose the chattel fees.chanrobles virtual lawlibrary
INSTALLMENTS PAID SHALL NOT BE
mortgage, if one has been constituted on
RETURNED TO THE VENDEE HELD VALID
the property sold, upon the vendee’s failure The events which led to the filing of the
PROVIDED IT IS NOT UNCONSCIONABLE.
to pay two or more installments. The third case in the lower court were summarized
— Defendants-appellants cannot complain
option or remedy, however, is subject to by the Court of Appeals, as
that their downpayment of P774.00 and
the limitation that the vendor cannot follows:jgc:chanrobles.com.ph
installment payments of P5,655.92 were
recover any unpaid balance of the price and
treated as rentals — even though the total
any agreement to the contrary is void (Art. "‘On July 5, 1975, the defendants
amount of P6,429,92 which they had paid,
1484) The three (3) remedies are purchased from the plaintiff three (3) units
approximates one-third (1/3) of the cost of
alternative and NOT cumulative. If the of ‘DAIKIN’ air-conditioner all valued at
the three (3) air-conditioners. A stipulation
creditor chooses one remedy, he cannot P19,350.00 as evidenced by the Deed of
in a contract that the installments paid
avail himself of the other two. Conditional Sale, Exhibit A; that the
shall not be returned to the vendee is valid
insofar as the same may not be aforesaid deed of sale had the following
unconscionable under the circumstances is terms and conditions:chanrob1es virtual
sanctioned by Article 1486 of the New Civil 1aw library
Code. The monthly installment payable by DECISION
defendants-appellants was P774.00. The ‘(a) the defendants shall pay a down
P5,655.92 installment payments payment of P774.00 and the balance of
correspond only to seven (7) monthly P18,576.00 shall [be] paid by them in
twenty four (24) installments; (b) the title
to the properties purchased shall remain April 11, 1977, the plaintiff, by virtue of the to take possession thereof without liability
with the plaintiff until the purchase price aforesaid writ, succeeded in retrieving the for trespass or responsibility for any article
thereof is fully paid; (c) if any two properties in question: that as of October left in or attached to the
installments are not paid by the defendants 3, 1977, the outstanding account of the PROPERTY:chanrob1es virtual 1aw library
on their due dates, the whole of the defendants is only in the amount of
x x x
principal sum remaining unpaid shall P6,188.29 as shown by the computation,
become due, with interest at the rate of Exhibit F, after deducting the interests in
14% per annum: and (d) in case of a suit, arrears, cover charges, replevin bond
the defendants shall pay an amount premiums, the value of the units "7. Should SELLER rescind this contract for
equivalent to 25% of the remaining unpaid repossessed and the like; and, that in view any of the reasons stipulated in the
obligation as damages, penalty and of the failure of the defendants to pay their preceding paragraph, the BUYER, by these
attorney’s fees; that to secure the payment obligations, the amount of P6,966.00 which presents obligates himself to peacefully
of the balance of P18,576.00 the had been paid by way of installments were deliver the PROPERTY to the SELLER in
defendants jointly and severally executed treated as rentals for the units in question case of rescission, and should a suit be
in favor of the plaintiff a promissory note, for two (2) years pursuant to the provisions brought in court by the SELLER to seek
Exhibit C; that the three (3) air- of paragraph 5 of the Deed of Conditional judicial declaration of rescission and take
conditioners were delivered to and received Sale, Exhibit A.’ (pp. 5-7, Record; pp. 4-6, possession of the PROPERTY, the BUYER
by the defendants as shown by the delivery Appellant’s Brief)." chanrobles law library hereby obligates himself to pay all the
receipt, Exhibit B; that after paying the expenses to be incurred by reason of such
amount of P6,966.00, the defendants failed As above-stated, the trial court ruled in suit and in addition to pay the sum
to pay at least two (2) monthly favor of Plaintiff-Appellee. equivalent to 25% of the remaining unpaid
installments; that as of January 6, 1977, obligation as damages, penalty and
the remaining unpaid obligation of the Defendants-appellants assail the Deed of attorney’s fees;" 3
defendants amounted to P12,920.08; that Conditional Sale under which they
statements of accounts were sent to the purchased the three (3) Daikin air- Defendants-appellants claim that for the
defendants and the plaintiff’s collectors conditioners from plaintiff-appellee as use of the plaintiff-appellee’s three air-
personally went to the former to effect being contrary to law, morals, good conditioners, from July 5, 1975 4 to April
collections but they failed to do so; that custom, public order or public policy. In 11, 1977, 5 or for a period of about 22
because of the unjustified refusal of the particular, they point to the contract’s months, they, in effect, paid rentals in the
defendants to pay their outstanding paragraphs 5 and 7 as iniquitous, which amount of P6,429,92, 6 or roughly one-
account and their wrongful detention of the paragraphs state third (1/3) of the entire price of said air-
properties in question, the plaintiff tried to that:jgc:chanrobles.com.ph conditioners which was P19,350.00. They
recover the said properties extra-judicially also complain that for the said period the
but it failed to do so; that the matter was "5. Should BUYER fail to pay any of the trial court is ordering them to pay
later referred by the plaintiff to its legal monthly installments when due, or P6,188.29 as the balance due for the three
counsel for legal action; that in its verified otherwise fail to comply with any of the air-conditioners repossessed. Defendants-
complaint dated January 28, 1977, the terms and conditions herein stipulated, this appellants were likewise ordered to pay
plaintiff prayed for the issuance of a writ of contract shall automatically become null P1,000.00 as attorney’s fees when plaintiff-
replevin, which the Court granted in its and void and all sums so paid by BUYER by appellee never sought for attorney’s fees in
Order dated February 28, 1977, after the reason thereof shall be considered as rental its complaint. They satirically pointed out
plaintiff posted the requisite bond; that on and the SELLER shall then and there be free that by putting "a few touches here and
there, the same units can be sold again to enforcement of its contract with
the next imprudent customer" 7 by defendants-appellants. This is shown from
plaintiff-appellee. Thus, enforcement of the The vendor in a sale of personal property the fact that its Exhibit "F" which showed
Deed of Conditional Sale will unjustly payable in installments may exercise one the computation of the outstanding
enrich plaintiff-appellee at the expense of of three remedies, namely, (1) exact the account of defendants-appellants as of
defendants-appellants.chanrobles law fulfillment of the obligation, should the October 3, 1977 took into account "the
library : red vendee fail to pay; (2) cancel the sale upon value of the units repossessed." 14 Having
the vendee’s failure to pay two or more done so, it is barred from exacting payment
I
installments; (3) foreclose the chattel from defendants-appellants of the balance
mortgage, if one has been constituted on of the price of the three air-conditioning
the property sold, upon the vendee’s failure units which it had already repossessed. It
Defendants-appellants cannot complain to pay two or more installments. The third cannot have its cake and eat it too. 15
that their downpayment of P774.00 and option or remedy, however, is subject to
installment payments of P5,655.92 8 were the limitation that the vendor cannot WHEREFORE, the judgment of the trial
treated as rentals — even though the total recover any unpaid balance of the price and court in Civil Case No. 25578 is hereby SET
amount of P6,429,92 which they had paid, any agreement to the contrary is void (Art. ASIDE and the complaint filed by plaintiff-
approximates one-third (1/3) of the cost of 1484) 11 appellee Delta Motor Sales Corporation is
the three (3) air-conditioners. A stipulation hereby DISMISSED. No costs.
in a contract that the installments paid The three (3) remedies are alternative and
shall not be returned to the vendee is valid NOT cumulative. If the creditor chooses SO ORDERED.
insofar as the same may not be one remedy, he cannot avail himself of the
unconscionable under the circumstances is other two.chanrobles lawlibrary : rednad
sanctioned by Article 1486 of the New Civil
Code. 9 The monthly installment payable It is not disputed that the plaintiff-appellee
by defendants-appellants was P774.00. 10 had taken possession of the three air-
The P5,655.92 installment payments conditioners, through a writ of replevin
correspond only to seven (7) monthly when defendants-appellants refused to
installments. Since they admit having used extra-judicially surrender the same. This
the air-conditioners for twenty-two (22) was done pursuant to paragraphs 5 and 7
months, this means that they did not pay of its Deed of Conditional Sale when
fifteen (15) monthly installments on the defendants-appellants failed to pay at least
said air-conditioners and were thus using two (2) monthly installments, so much so
the same FREE for said period — to the that as of January 6, 1977, the total
prejudice of plaintiff-appellee. Under the amount they owed plaintiff-appellee,
circumstances, the treatment of the inclusive of interest, was P12,920.08. 12
installment payments as rentals cannot be The case plaintiff-appellee filed was to seek
said to be unconscionable. a judicial declaration that it had validly
rescinded the Deed of Conditional Sale. 13
II
Clearly, plaintiff-appellee chose the second
remedy of Article 1484 in seeking
G.R. No. L-10789 May 28, 1957 the total amount due as attorney's fees and It also denied having repossessed the
costs of collection. machineries, the truth being that they were
AMADOR TAJANLANGIT, ET
attached by the sheriff and then deposited
AL., plaintiff-appellants, Carrying out the order of execution, the
by the latter in its shop for safekeeping,
vs. sheriff levied on the same machineries and
before the sale at public auction.
SOUTHERN MOTORS, INC., ET farm implements which had been bought
AL., defendants-appellees. by the spouses; and later sold them at The case was submitted for decision mostly
public auction to the highest bidder — upon a stipulation of facts. Additional
Almacen and Almacen for appellants.
which turned out to be the Southern Motors testimony was offered together with
Diosdado Garingalao for appellees.
itself — for the total sum of P10,000. documentary evidence. Everything
BENGZON, J.: considered the court entered judgment,
As its judgment called for much more, the
saying in part;
The case. Appellants seek to reverse the Southern Motors subsequently asked and
order of Hon. Pantaleon Pelayo, Judge of obtained, an alias writ of execution; and The proceedings in Civil Case No. 2942
the Iloilo court of first instance refusing to pursuant thereto, the provincial sheriff above referred to, were had in the Court of
interfere with the alias writ of execution levied attachment on the Tajanlangits' First Instance (Branch 1) of the Province
issued in Civil Case No. 2942 pending in rights and interests in certain real and of the City of Iloilo. While this court
another sala of the same court. properties — with a view to another sale on (Branch IV) sympathizes with plaintiffs, it
execution. cannot grant, in this action, the relief
The facts. In April 1953 Amador Tajanlangit prayed for the complaint because courts of
and his wife Angeles, residents of Iloilo, To prevent such sale, the Tajanlangits
similar jurisdiction cannot invalidate the
bought, from the Southern Motors Inc. of instituted this action in the Iloilo court of
judgments and orders of each other.
Iloilo two tractors and a thresher. In first instance for the purpose among
Plaintiffs have not pursued the proper
payment for the same, they executed the others, of annulling the alias writ of
remedy. This court is without authority and
promissory note Annex A whereby they execution and all proceedings subsequent
jurisdiction to declare null and void the
undertook to satisfy the total purchase thereto. Their two main theories: (1) They
order directing the issuance of alias writ of
price of P24,755.75 in several installments had returned the machineries and farm
execution because it was made by another
(with interest) payable on stated dates implements to the Southern Motors Inc.,
court of equal rank and category (see
from May 18, 1953 December 10, 1955. the latter accepted them, and had thereby
Cabiao and Izquierdo vs. Del Rosario and
The note stipulated that if default be made settled their accounts; for that reason, said
Lim, 44 Phil., 82-186).
in the payment of interest or of any spouses did not contest the action in Civil
installment, then the total principal sum Case No. 2942; and (2) as the Southern WHEREFORE, judgement is hereby
still unpaid with interest shall at once Motors Inc. had repossessed the machines rendered dismissing the complaint with
become demandable etc. The spouse failed purchased on installment (and mortgaged) costs against plaintiffs costs against
to meet any installment. Wherefore, they the buyers were thereby relieved from plaintiffs. Let the writ of preliminiary
were sued, in the above Civil Case No. further responsibility, in view of the Recto injunction issued on August 26, 1954, be
2942, for the amount of the promissory Law, now article 1484 of the New Civil lifted.
note.1 The spouses defaulted, and the Code.
The plaintiffs reasonably brought the
court, after listening to the Southern
For answer, the company denied the matter to the Court of Appeals, but the
Motors' evidence entered Judgment for it in
alleged "settlement and understanding" latter forwarded the expediente, being of
the total sum of P24,755.75 together with
during the pendency of civil case No. 2949.
interest at 12 per cent, plus 10 per cent of
the opinion that the appeal involved the price. Any agreement to the contrary 17 March 1954 until fully paid, plus 10 per
questions of jurisdiction and/or law shall be void. (New Civil Code.) cent of the total amount due as attorney's
fees and cost of collection, the plaintiff
Discussion. Appellants' brief elaborately Appellants would invoke the last
acted to exact the fulfillment of the
explains in the nine errors assigned, their paragraph. But there has been no
obligation and not to foreclose the
original two theories although their foreclosure of the chattel mortgage nor a
mortgage on the truck. . . .
"settlement" idea appears to be somewhat foreclosure sale. Therefore the prohibition
modified. against further collection does not apply. As the plaintiff has chosen to exact the
fulfillment of the defendant's obligation,
"What is being sought in this present At any rate it is the actual sale of the
the former may enforce execution of the
action" say appellants "is to prohibit and mortgaged chattel in accordance with
judgement rendered in its favor on the
forbid the appellee Sheriff of Iloilo from section 14 Act No. 1508 that would bar the
personal and real properties of the latter
attaching and selling at public auction sale creditor (who chooses to foreclose) from
not exempt from execution sufficient to
the real properties of appellants because recovering any unpaid balance. (Pacific
satisfy the judgment. That part of the
that is now forbidden by our law after the Com. Co. vs. De la Rama, 72 Phil. 380.)
judgement depriving the plaintiff of its
chattels that have been purchased and duly (Manila Motor Co. vs. Fernandez, 99 Phil.,
right to enforce judgment against the
mortgagee had already been repossessed 782.).
properties of the defendant except the
by the same vendor-mortgagee and later
It is true that there was a chattel mortgage mortgaged truck and discharging the writ
on sold at public auction sale and
on the goods sold. But the Southern Motors of attachment on his other properties
purchased by the same at such meager
elected to sue on the note exclusively, i.e. is erroneous. (Emphasis ours.)
sum of P10,000."
to exact fulfillment of the obligation to pay.
Concerning their second theory, —
"Our law" provides, It had a right to select among the three
settlement or cancellation — appellants
remedies established in Article 1484. In
ART. 1484. In a contract of sale of personal allege that the very implements sold "were
choosing to sue on the note, it was not
property the price of which is payable in duly returned" by them, and "were duly
thereby limited to the proceeds of the sale,
installments, the vendor may exercise of received and accepted by the said vendor-
on execution, of the mortgaged good.2
the following remedies: mortgagee". Therefore they argue, "upon
In Southern Motors Inc. vs. Magbanua, the return of the same chattels and due
(1) Exact fulfillment of the obligation, acceptance of the same by the vendor-
(100 Phil., 155) a similar situation arose in
should the vendee fail to pay; mortgagee, the conditional sale is ipso
connection with the purchase on
installment of a Chevrolet truck by facto cancelled, with the right of the
(2) Cancel the sale, should the vendee's
Magbanua. Upon the latter's default, suit vendor-mortgagee to appropriate
failure to pay cover two or more
on the note was filed, and the truck levied whatever downpayment and posterior
installments;
on together with other properties of the monthly installments made by the
(3) Foreclose the chattel mortgage on the debtor. Contending that the seller was purchaser as it did happen in the present
thing sold, if one has been constituted, limited to the truck, the debtor obtained a case at bar."
should the vendee's failure to pay cover discharge of the other properties. This
The trouble with the argument is that it
two or more installments. In this case, he court said:
assumes that acceptance of the goods by
shall have no further action against the
By praying that the defendant be ordered the Southern Motors Co, with a view to
purchaser to recover any unpaid balance of
to pay the sum of P4,690 together with the "cancellation" of the sale. The company
stipulated interest at 12% per annum from denies such acceptance and cancellation,
asserting the goods, were deposited in its
shop when the sheriff attached them in
pursuance of the execution. Its assertion is
backed up by the sheriff, of whose
credibility there is no reason to doubt.
Anyway this cancellation or settlement
theory may not be heeded now, because it
would contravene the decision in Civil Case
No. 2942 above-mentioned — it would
show the Tajanlangits owned nothing to
Southern Motors Inc. Such decision is
binding upon them, unless and until they
manage to set it aside in a proper
proceeding — and this is not it.

There are other points involved in the case,

such as the authority of the judge of one
branch of a court of first instance to enjoin
proceedings in another branch of the same
court. As stated, Judge Pelayo refused to
interfere on that ground. Appellants insist
this was error on several counts. We deem
it unnecessary to deal with this procedural
aspect, inasmuch as we find that, on the
merits, plaintiffs are not entitled to the
relief demanded.

Judgment. The decision dismissing the

complaint, is affirmed, with costs against
appellants. So ordered.
G.R. No. 109966 May 31, 1999 aforementioned for a period of FIVE (5) On the same day, January 9, 1980, private
years; respondent executed a promissory note
ELISCO TOOL MANUFACTURING
reading as follows:3
CORPORATION, petitioner, That, the EMPLOYEE agree as he hereby
vs. agreed to pay the lease rental thru salary PROMISSORY NOTE
COURT OF APPEALS, ROLANDO deduction from his monthly remuneration
P60,639.00
LANTAN, and RINA in the amount as above specified for a
LANTAN, respondents. period of FIVE (5) years; FOR VALUE RECEIVED, we promise to pay
[to] the order of ELISCO TOOL MFG. CORP.
That, for the duration of the lease contract,
— SPECIAL PROJECT, at its office at
all expenses and costs of registration,
MENDOZA, J.: Napindan, Taguig, Metro Manila,
insurance, repair and maintenance,
Philippines, the sum of ONE THOUSAND
This is a petition for review of the gasoline, oil, part replacement inclusive of
TEN & 65/100 PESOS (P1,010.65),
decision1 of the Court of Appeals which all expenses necessary to maintain the
Philippine Currency, beginning January 9,
affirmed in toto the decision of the vehicle in top condition shall be for the
1980, without the necessity of notice or
Regional Trial Court of Pasig, Branch 51, account of the EMPLOYEE;
demand in accordance with the schedule of
declaring respondent spouses Rolando
That, at the end of FIVE (5) year period or payment hereto attached as an integral
Lantan and Rina Lantan owners of a 1979
upon payment of the 60th monthly rental, part hereof.
model 2-door Colt Lancer car which they
EMPLOYEE may exercise the option to
had acquired under a car plan for top In case of default, in the payment of any
purchase the motor vehicle from the
employees of the Elizalde group of installment on the stipulated due date, we
EMPLOYER and all monthly rentals shall be
companies. agree to pay as liquidated damages 2% of
applied to the payment of the full purchase
the amount due and unpaid for every thirty
The facts are as follows: price of the car and further, should
(30) days of default or fraction thereof.
EMPLOYEE desire to exercise this option
Private respondent Rolando Lantan was Where the default covers two successive
before the 5-year period lapse, he may do
employed at the Elisco Tool Manufacturing installments, the entire unpaid balance
so upon payment of the remaining balance
Corporation as head of its cash shall automatically become due and
on the five year rental unto the EMPLOYER,
department. On January 9, 1980, he payable.
it being understood however that the
entered into an agreement with the option is limited to the EMPLOYEE; It is further agreed that if upon such default
company which provided as follows:2
attorney's services are availed of, an
That, upon failure of the EMPLOYEE to pay
That, EMPLOYER is the owner of a car Colt additional sum equal to TWENTY (20%)
THREE (3) accumulated monthly rentals
Lancer 2 door, Model 1979, with Serial No. percent of the total amount due thereon,
will vest upon the EMPLOYER the full right
3403 under LTC Registration Certificate No. but in no case be less than P1,000.00 shall
to lease the vehicle to another EMPLOYEE;
0526558; be paid to holder(s) hereof as attorney's
That, in the event of resignation and or fees in addition to the legal costs provided
That, for and in consideration of a monthly dismissal from the service, the EMPLOYEE for by law. We agree to submit to the
rental of ONE THOUSAND TEN & 65/100 shall return the subject motor vehicle to jurisdiction of the proper courts of Makati,
ONLY (P1,010.65) Philippine Currency, the EMPLOYER in its compound at Metro Manila or the Province of Rizal, at the
EMPLOYER desire to lease and EMPLOYEE Kalawaan Sur, Pasig, Metro Manila in good option of the holder(s) waiving for this
accept in lease the motor vehicle working and body condition. purpose any other venue.1âwphi1.nêt
In case extraordinary inflation or deflation amount double the value of the car, which of SIXTY THOUSAND PESOS (P60,000.00)
of the currency stipulated should occur was P60,000; and that in case private which is the estimated actual value of the
before this obligation is paid in full, the respondents could not return the car, they above-described motor vehicle, plus the
value of the currency at the time of the should be held liable for the amount of accrued monthly rentals thereof with
establishment of the obligation will be the P60,000 plus the accrued monthly rentals interests at the rate of fourteen percent
basis of payment. thereof, with interest at the rate of (14%) per annum until fully paid;
14% per annum, until fully paid.
Holder(s) may accept partial payment PRAYER COMMON TO ALL CAUSES OF
Petitioner's complaint contained the
reserving his right of recourse against each ACTION
following prayer:
and all endorsers who hereby waive
1. Ordering the defendant Rolando Lantan
DEMAND PRESENTMENT and NOTICE. WHEREFORE, plaintiffs prays that
to pay the plaintiff an amount equivalent to
judgment be rendered as follows:
Acceptance by the holder(s) of payment or twenty-five percent (25%) of his
any part thereof after due date shall not be ON THE FIRST CAUSE OF ACTION outstanding obligation, for and as
considered as extending the time for the attorney's fees;
Ordering defendant Rolando Lantan to pay
payment of the aforesaid obligation or as a
the plaintiff the sum of P39,054.86 plus 2. Ordering defendants to pay the cost or
modification of any of the condition hereof.
legal interest from the date of demand until expenses of collection, repossession,
After taking possession of the car, private the whole obligation is fully paid; bonding fees and other incidental expenses
respondent installed accessories therein to be proved during the trial; and
ON THE SECOND CAUSE OF ACTION
worth P15,000.00.
3. Ordering defendants to pay the costs of
To forthwith issue a Writ of Replevin
In 1981, Elisco Tool ceased operations, as suit.
ordering the seizure of the motor vehicle
a result of which private respondent
more particularly described in paragraph 3 Plaintiff also prays for such further reliefs
Rolando Lantan was laid off. Nonetheless,
of the Complaint, from defendant Rolando as this Honorable Court may deem just and
as of December 4, 1984, private
Lantan and/or defendants Rina Lantan, equitable under the premises.
respondent was able to make payments for
John Doe, Susan Doe and other person or
the car in the total amount of P61,070.94. Upon petitioner's posting a bond in the
persons in whose possession the said
amount of P120,000, the sheriff took
On June 6, 1986, petitioner filed a motor vehicle may be found, complete with
possession of the car in question and after
complaint, entitled "replevin plus sum of accessories and equipment, and direct
five (5) days turned it over to petitioner.4
money," against private respondent deliver thereof to plaintiff in accordance
Rolando Lantan, his wife Rina, and two with law, and after due hearing to confirm In due time, private respondents filed their
other persons, identified only as John and said seizure and plaintiff's possession over answer. They claimed that the agreement
Susan Doe, before the Regional Trial Court the same; on which the complaint was based had not
of Pasig, Metro Manila. Petitioner alleged been signed by petitioner's representative,
ON THE ALTERNATIVE CAUSE OF ACTION
that private respondents failed to pay the Jose Ma. S. del Gallego, although it had
monthly rentals which, as of May 1986, In the event that manual delivery of the been signed by private respondent Rolando
totalled P39,054.86; that despite subject motor vehicle cannot be effected Lantan; that their true agreement was "to
demands, private respondents failed to for any reason, to render judgment in favor buy and sell and not lease with option to
settle their obligation thereby entitling of plaintiff and against defendant Rolando buy" the car in question at a monthly
petitioner to the possession of the car; that Lantan ordering the latter to pay the sum amortization of P1,000; and that petitioner
petitioner was ready to post a bond in an
accepted the installment payments made that the parties' agreement was one of was pushed to it by circumstances when his
by them and, in January 1986, agreed that purchase and sale. Neither was it guilty of employer folded up and sent him to the
the balance of the purchase price would be laches because, under the law, an action streets. That plaintiff was giving all the
paid on or before December 31, 1986. based on a written contract can be brought chance to defendants to pay the value of
Private respondents cited the provision of within ten (10) years from the time the the car and acquire full ownership thereof
the agreement making respondent Rolando action accrues. On August 31, 1987, the is shown by the delay in instituting the
Lantan liable for the expenses for trial court5 rendered its decision. instant case. . . .
registration, insurance, repair and
The trial court sustained private The court likewise found that the amount
maintenance, gasoline, oil and part
respondents' claim that the agreement in of P61,070.94 included a 2% penalty for
replacements, inclusive of all necessary
question was one of sale and held that the late payments for which there was no
expenses, as evidence that the transaction
latter had fully paid the price of the car stipulation in the agreement:
was one of sale. Private respondents
having paid the total amount of P61,070.94
further alleged that, in any event, . . . The agreement and defendant Rolando
aside from installing accessories in the car
petitioner had waived its rights under the Lantan's promissory note of January 9,
worth P15,000.00. Said the trial court:
agreement because of the following 1980 do not provide even for interest on
circumstances: (a) while the parties agreed Plaintiff now comes claiming ownership of the remaining balance of the purchase
that payment was to be made through the car in question and has succeeded in price of the car. This privilege extended by
salary deduction, petitioner accepted repossessing the same by virtue of the writ corporations to their top executives is
payments in cash or checks; (b) although of seizure issued in this case on July 29, considered additional emolument to them.
they agreed that upon the employee's 1986. Not content with recovering And so the reason for the lack of provision
resignation, the car should be returned to possession of the said car, plaintiff still asks for interest, much less penalty charges.
the employer, private respondent Rolando that defendants should pay it the sum of Therefore, all payments made by
Lantan was not required to do so when he P39,054.86, allegedly representing the defendant should be applied to the
resigned in September 1982; (c) petitioner rentals due on the car from the time of the principal account. Since the principal was
did not lease the vehicle to another last payment made by defendants to its only P60,639.00, the defendants have
employee after private respondent Rolando repossession thereof. This is indeed a made an overpayment of P431.94 which
Lantan had allegedly failed to pay three classic case of one having his cake and should be returned to defendant by
monthly "rentals"; and (d) petitioner failed eating it too! Under the Recto law (Arts. plaintiff.
to enforce the manner of payment under 1484 & 1485, Civil Code), the vendor who
the agreement by its acceptance of For this reason, it ordered petitioner to pay
repossesses the goods sold on
payments in various amounts and on private respondents the amount of P431.94
installments, has no right to sue the
different dates. as excess payment, as well as rentals at
vendee for the unpaid balance thereof.
the rate of P1,000 a month for depriving
In its reply, petitioner maintained that the The Court can take judicial notice of the private respondents of the use of their car,
contract between the parties was one of practice wherein executives enjoy car plans and moral damages for the worry,
lease with option to purchase and that the in progressive companies. The agreement embarrassment, and mental torture
promissory note was merely a "nominal of January 9, 1980 between the parties is suffered by them on account of the
security" for the agreement. It contended one such car plan. If defendant Rolando repossession of the car.
that the mere acceptance of the amounts Lantan failed to keep up with his
paid by private respondents and for The dispositive portion of the trial court's
amortizations on the car in question, it was
indefinite periods of time was not evidence decision reads as follows:
not because of his own liking but rather he
WHEREFORE, judgment is hereby rendered Petitioner appealed to the Court of Appeals. First. Petitioner does not deny that private
in favor of defendants and against plaintiff, On the other hand, private respondents respondent Rolando Lantan acquired the
dismissing plaintiff's complaint; declaring filed a motion for execution pending vehicle in question under a car plan for
defendants the lawful owners of that Colt appeal. In its resolution of March 9, 1989, executives of the Elizalde group of
Lancer 2-door, Model 1979 with Serial No. the Court of Appeals granted private companies. Under a typical car plan, the
3403 under Registration Certificate No. respondents' motion and, upon the filing of company advances the purchase price of a
0526558; ordering plaintiff to deliver to a bond, in the amount of P70,000.00, it car to be paid back by the employee
defendants the aforesaid motor vehicle issued a writ of execution, pursuant to through monthly deductions from his
complete with all the accessories installed which the car was delivered to private salary. The company retains ownership of
therein by defendants; should for any respondents on April 16, 1989.6 the motor vehicle until it shall have been
reason plaintiff is unable to deliver the said fully paid for.7 However, retention of
On August 26, 1992, the Court of Appeals
car to defendants, plaintiff is ordered to registration of the car in the company's
rendered its decision, affirming in toto the
pay to defendants the value of said car in name is only a form of a lien on the vehicle
decision of the trial court. Hence, the
the sum of P60,639.00 plus P15,000.00, in the event that the employee would
instant petition for review on certiorari.
the value of the accessories, plus interest abscond before he has fully paid for it.
of 12% on the said sums from August 6, Petitioner contends that the Court of There are also stipulations in car plan
1986; and sentencing plaintiff to pay Appeals erred — agreements to the effect that should the
defendants the following sums: employment of the employee concerned be
(a) in disregarding the admission in the terminated before all installments are fully
a) P12,431.94 as actual damages broken pleadings as to what documents contain paid, the vehicle will be taken by the
down as follows: the terms of the parties' agreement. employer and all installments paid shall be
1) P431.94 overpayment made by considered rentals per agreement. 8
(b) in holding that the interest stipulation
defendants to plaintiff; and in respondents' Promissory Note was not This Court has long been aware of the
valid and binding. practice of vendors of personal property of
2) P12,000.00 rental on the car in question
from August 6, 1986 to August 5, 1987, denominating a contract of sale on
(c) in holding that respondents had fully
plus the sum of P1,000.00 a month installment as one of lease to prevent the
paid their obligations.
beginning August 6, 1987 until the car is ownership of the object of the sale from
returned by plaintiff to, and is received by, It further argues that — passing to the vendee until and unless the
defendant; price is fully paid. As this Court noted
On the assumption that the Lease in Vda. de Jose v. Barrueco:9
b) the sum of P20,000.00 as moral Agreement with option to buy in this case
damages; may be treated as a sale on installments, Sellers desirous of malting conditional sales
the respondent Court of Appeals of their goods, but who do not wish openly
c) the sum of P5,000.00 as exemplary nonetheless erred in not finding that the to make a bargain in that form, for one
damages; and parties have validly agreed that the reason or another, have frequently
petitioner as seller may [i] cancel the resorted to the device of making contracts
d) the sum of P5,000.00 as attorney's fees.
contract upon the respondent's default on in the form of leases either with options to
Costs against the plaintiff. three or more installments, [ii] retake the buyer to purchase for a small
possession of the personality, and [iii] keep consideration at the end of term, provided
SO ORDERED. the so-called rent has been duly paid, or
the rents already paid.
with stipulations that if the rent throughout
the term is paid, title shall thereupon vest . . . There can hardly be any question that the latter, "agreement to the contrary
in the lessee. It is obvious that such the so-called contracts of lease on which being null and void."
transactions are leases only in name. The the present action is based were veritable
It was held that in choosing to deprive the
so-called rent must necessarily be leases of personal property with option to
defendant of possession of the leased
regarded as payment of the price in purchase, and as such come within the
vehicles, the plaintiff waived its right to
installments since the due payment of the purview of the above article [Art. 1454-A of
bring an action to recover unpaid rentals on
agreed amount results, by the terms of the the old Civil Code on sale of personal
the said vehicles.
bargain, in the transfer of title to the property by installment]. In fact the
lessee. instruments (exhibits "A" and "B") In the case at bar, although the agreement
embodying the contracts bear the heading provides for the payment by private
In an earlier case, Manila Gas Corporation
or title "Lease-Sale (Lease-Sale of respondents of "monthly rentals," the fifth
v. Calupitan, 10 which involved a lease
Transportation and/or Mechanical paragraph thereof gives them the option to
agreement of a stove and a water heater,
Equipment)." The contracts fix the value of purchase the motor vehicle at the end of
the Court said:
the vehicles conveyed to the lessee and the 5th year or upon payment of the 60th
. . . [W]e are of the opinion, and so hold, expressly refer to the remainder of said monthly rental when "all monthly rentals
that when in a so-called contract of lease value after deduction of the down payment shall be applied to the payment of the full
of personal property it is stipulated that the made by the lessee as "the unpaid balance purchase price of the car." It is clear that
alleged lessee shall pay a certain amount of the purchase price of the leased the transaction in this case is a lease in
upon signing the contract, and on or before equipment." The contracts also provide name only. The so-called monthly rentals
the 5th of every month, another specific that upon the full value (plus stipulated are in truth monthly amortizations on the
amount, by way of rental, giving the interest) being paid, the lease would price of the car.
alleged lessee the right of option to buy the terminate and title to the leased property
would be transferred to the lessee. Indeed, Second. The contract being one of sale on
said personal property before the
as the defendant-appellant points out, the installment, the Court of Appeals correctly
expiration of the period of lease, which is
inclusion of a clause waiving benefit of applied to it the following provisions of the
the period necessary for the payment of
article 1454-A of the old Civil Code is Civil Code:
the said amount at the rate of so much a
month, deducting the payments made by conclusive proof of the parties"
Art. 1484. In a contract of sale of personal
way of advance and alleged monthly understanding that they were entering into
property the price of which is payable in
rentals, and the said alleged lessee makes a lease contract with option to purchase
installments, the vendor may exercise any
the advance payment and other monthly which come within the purview of said
of the following remedies:
installments, noting in his account and in article.
the receipts issued to him that said (1) Exact fulfillment of the obligation,
Being leases of personal property with
payments are on account of the price of the should the vendee fail to pay;
option to purchase as contemplated in the
personal property allegedly leased, said
above article, the contracts in question are (2) Cancel the sale, should the vendee's
contract is one of sale on installment and
subject to the provision that when the failure to pay cover two or more
not of lease. 11
lessor in such case "has chosen to deprive installments;
In U.S. Commercial v. Halili, 12 a lease the lessee of the enjoyment of such
personal property," "he shall have no (3) Foreclose the chattel mortgage on the
agreement was declared to be in fact a sale
further action" against the lessee "for the thing sold, if one has been constituted,
of personal property by installment. Said
recovery of any unpaid balance" owing by should the vendee's failure to pay cover
the Court: 13
two or more installments. In this case, he event the car could not be delivered to Petitioner contends that the promissory
shall have no further action against the petitioner, it was prayed that private note provides for such interest payment.
purchaser to recover any unpaid balance of respondent Rolando Lantan be made to pay However, as the Court of Appeals held:
the price. Any agreement to the contrary petitioner the amount of P60,000.00, the
The promissory note in which the 2%
shall be void. "estimated actual value" of the car, "plus
monthly interest on delayed payments
accrued monthly rentals thereof with
Art. 1485. The preceding article shall be appears does not form part of the contract.
interests at the rate of fourteen percent
applied to contracts purporting to be leases There is no consideration for the
(14%) per annum until fully paid." 20 This
of personal property with option to buy, promissory note. There is nothing to show
prayer of course cannot be granted, even
when the lessor has deprived the lessee of that plaintiff advanced the purchase price
assuming that private respondents have
the possession or enjoyment of the thing. of the vehicle for Lantan so as to make the
defaulted in the payment of their
latter indebted to the former for the
The remedies provided for in Art. 1484 are obligation. This led the trial court to say
amount stated in the promissory note.
alternative, not cumulative. The exercise of that petitioner wanted to eat its cake and
Thus, as stated in the complaint: "That
one bars the exercise of the others. 14 This have it too.
sometime in January, 1980, defendant
limitation applies to contracts purporting to
Notwithstanding this impossibility in Rolando Lantan entered into an agreement
be leases of personal property with option
petitioner's choice of remedy, this case with the plaintiff for the lease of a motor
to buy by virtue of Art. 1485. 15 The
should be considered as one for specific vehicle supplied by the latter, with the
condition that the lessor has deprived the
performance, pursuant to Art. 1484(1), option to purchase at the end of the period
lessee of possession or enjoyment of the
consistent with its prayer with respect to of lease . . . ." In other words, plaintiff did
thing for the purpose of applying Art. 1485
the unpaid installments as of May 1986. In not buy the vehicle for Rolando Lantan,
was fulfilled in this case by the filing by
this view, the prayer for the issuance of a advancing the purchase price for that
petitioner of the complaint for replevin to
writ of replevin is only for the purpose of purpose. There is nothing in the complaint
recover possession of movable property.
insuring specific performance by private or in the evidence to show such
By virtue of the writ of seizure issued by
respondents. arrangement. Therefore, there was no
the trial court, the deputy sheriff seized the
indebtedness secured by a promissory note
vehicle on August 6, 1986 and thereby Both the trial court and the Court of
to speak of. There being no consideration
deprived private respondents of its Appeals correctly ruled that private
for the promissory note, the same,
use. 16 The car was not returned to private respondents could no longer be held liable
including the penalty clause contained
respondent until April 16, 1989, after two for the amounts of P39,054.86 or
thereon, has no binding effect. 21
(2) years and eight (8) months, upon P60,000.00 because private respondents
issuance by the Court of Appeals of a writ had fulfilled their part of the obligation. The There is no evidence that private
of execution. 17 agreement does not provide for the respondents received the amount of
payment of interest on unpaid monthly P60,639.00 indicated in the promissory
Petitioner prayed that private respondents
"rentals" or installments because it was note as its value. What was proven below
be made to pay the sum of P39,054.86, the
entered into in pursuance of a car plan is the fact that private respondents
amount that they were supposed to pay as
adopted by the company for the benefit of received from petitioner the 2-door Colt
of May 1986, plus interest at the legal
its deserving employees. As the trial court Lancer car which was valued at P60,000
rate. 18 At the same time, it prayed for the
correctly noted, the car plan was intended and for which private respondent Rolando
issuance of a writ of replevin or the delivery
to give additional benefits to executives of Lantan paid monthly amortizations of
to it of the motor vehicle "complete with
the Elizalde group of companies. P1,010.65 through salary deductions.
accessories and equipment." 19 In the
Indeed, as already stated, private case, hence, the award of exemplary
respondents' default in paying installments damages is justified. 23 The award of
was due to the cessation of operations of attorney's fees is likewise proper
Elizalde Steel Corporation, petitioner's considering that private respondents were
sister company. Petitioner's acceptance of compelled to incur expenses to protect
payments made by private respondents their rights. 24
through cash and checks could have been
WHEREFORE, the decision of the Court of
impelled solely by petitioner's inability to
Appeals is AFFIRMED with costs against
deduct the amortizations from private
petitioner.1âwphi1.nêt
respondent Rolando Lantan's salary which
he stopped receiving when his employment SO ORDERED.
was terminated in September 1982.
Apparently, to minimize the adverse
consequences of the termination of private
respondent's employment, petitioner
accepted even late payments. That
petitioner accepted payments from private
respondent Rolando Lantan more than two
(2) years after the latter's employment had
been terminated constitutes a waiver of
petitioner's right to collect interest upon
the delayed payments. The 2% surcharge
is not provided for in the agreement. Its
collection by the company would in fact run
counter to the purpose of providing "added
emoluments" to its deserving employees.
Consequently, the total amount of
P61,070.94 already paid to petitioner
should be considered payment of the full
purchase price of the car or the total
installments paid.

Third. Private respondents presented

evidence that they "felt bad, were worried,
embarrassed and mentally tortured" by the
repossession of the car. 22 This has not
been rebutted by petitioner. There is thus
a factual basis for the award of moral
damages. In addition, petitioner acted in a
wanton, fraudulent, reckless and
oppressive manner in filing the instant
G.R. No. 214752, March 09, 2016 default in paying any installment renders 26, 2007, and later on, a Sheriffs
the remaining balance due and payable; Return14 dated May 8, 2007 was submitted
EQUITABLE SAVINGS BANK, (NOW
and (c) respondent's failure to pay any as proof of the implementation of such
KNOWN AS THE MERGED ENTITY "BDO
installments shall give petitioner the right writ.15
UNIBANK, INC.") Petitioner,
to declare the entire obligation due and
v. ROSALINDA C. PALCES, Respondent.
payable and may likewise, at its option, x x In her defense,16 while admitting that she
DECISION x foreclose this mortgage; or file an indeed defaulted on her installments for
ordinary civil action for collection and/or January and February 2007, respondent
PERLAS-BERNABE, J.: such other action or proceedings as may be nevertheless insisted that she called
allowed under the law.6 petitioner regarding such delay in payment
Assailed in this petition for review
and spoke to a bank officer, a certain
on certiorari1 are the Decision2 dated
From September 18, 2005 to December 21, Rodrigo Dumagpi, who gave his consent
February 13, 2014 and the
2006, respondent paid the monthly thereto. Respondent then maintained that
Resolution3 dated October 8, 2014 of the
installment of P33,225.00 per month. in order to update her installment
Court of Appeals (CA) in CA-G.R. CV No.
However, she failed to pay the monthly payments, she paid petitioner the amounts
96008, which partially affirmed the
installments in January and February 2007, of P70,000.00 on March 8, 2007 and
Decision4 dated May 20, 2010 of the
thereby triggering the acceleration clause P33,000.00 on March 20, 2007, or a total
Regional Trial Court of Pasay City, Branch
contained in the Promissory Note with of P103,000.00. Despite the aforesaid
114 (RTC) in Civil Case No. 07-03 86-CFM
Chattel Mortgage7 and prompting payments, respondent was surprised when
and ordered petitioner Equitable Savings
petitioner to send a demand letter 8 dated petitioner filed the instant complaint,
Bank, now BDO Unibank, Inc. (petitioner),
February 22, 2007 to compel respondent to resulting in the sheriff taking possession of
to reimburse respondent Rosalinda C.
pay the remaining balance of the loan in the subject vehicle.17
Palces (respondent) the installments she
the amount of P664,500.00.9 As the
made in March 2007 amounting to The RTC Ruling
demand went unheeded, petitioner filed on
P103,000.00.
March 7, 2007 the instant Complaint for
The Facts Recovery of Possession with Replevin with In a Decision18 dated May 20, 2010, the
Alternative Prayer for Sum of Money and RTC ruled in petitioner's favor and,
Damages10 against respondent before the accordingly, confirmed petitioner's right
On August 15, 2005, respondent purchased RTC, praying that the court a quo: (a) issue and possession over the subject vehicle
a Hyundai Starex GRX Jumbo (subject a writ of replevin ordering the seizure of the and ordered respondent to pay the former
vehicle) through a loan granted by subject vehicle and its delivery to the amount of P15,000.00 as attorney's
petitioner in the amount of P1,196,100.00. petitioner; or (b) in the alternative as when fees as well as the costs of suit.19
In connection therewith, respondent the recovery of the subject vehicle cannot
executed a Promissory' Note with Chattel be effected, to render judgment ordering The RTC found that respondent indeed
Mortgage5 in favor of petitioner, respondent to pay the remaining balance of defaulted on her installment payments in
stating, inter alia, that: (a) respondent the loan, including penalties, charges, and January and February 2007, thus,
shall pay petitioner the aforesaid amount in other costs appurtenant thereto.11 rendering the entire balance of the loan
36-monthly installments of P33,225.00 per
amounting to P664,500.00 due and
month, beginning September 18, 2005 and Pending respondent's answer, demandable. In this relation, the RTC
every 18th of the month thereafter until full summons12 and a writ of replevin13 were observed that although respondent made
payment of the loan; (b) respondent's issued and served to her personally on April actual payments of the installments due,
such payments were all late and irregular, vehicle via a writ of replevin, petitioner The CA is mistaken on this point.
and the same were not enough to fully pay already waived its right to recover any
her outstanding obligation, considering unpaid installments, pursuant to Article Article 1484 of the Civil Code, which
that petitioner had already declared the 1484 of the Civil Code. As such, the CA governs the sale of personal properties in
entire balance of the loan due and concluded that respondent is entitled to the installments, states in full:
demandable. However, since the writ of recovery of the aforesaid amount.26 chanRoblesvirtualLawlibrary
replevin over the subject vehicle had
Article 1484. In a contract of sale of
already been implemented, the RTC merely Aggrieved, petitioner moved for partial
personal property the price of which is
confirmed petitioner's right to possess the reconsideration27 - specifically praying for
payable in installments,
same and ruled that it is no longer entitled the setting aside of the order to return the
the vendor may exercise any of the
to its alternative prayer, i.e., the payment amount of P103,000.00 to respondent -
following remedies:
of the remaining balance of the loan, which was, however, denied in a
including penalties, charges, and other Resolution28 dated October 8, 2014; hence,
(1) Exact fulfilment of the obligation,
costs appurtenant thereto.20 this petition.
should the vendee fail to pay;
The Issues Before The Court
Respondent moved for
(2) Cancel the sale, should the vendee's
reconsideration, but was denied in an
21
failure to pay cover two or more
Order22 dated August 31, 2010. The issues raised for the Court's resolution
installments;
Dissatisfied, respondent appealed 23 to the are whether or not the CA correctly: (a)
CA, contending that petitioner acted in bad ordered petitioner to return to respondent
(3) Foreclose the chattel mortgage on the
faith in seeking to recover more than what the amount of P103,000.00 representing
thing sold, if one has been constituted,
is due by attempting to collect the balance the latter's late installment payments; and
should the vendee's failure to pay cover
of the loan and, at the same time, recover (b) deleted the award of attorney's fees in
two or more installments. In this case, he
the subject vehicle.24 favor of petitioner.
shall have no further action against the
The CA Ruling The Court's Ruling purchaser to recover any unpaid balance of
the price. Any agreement to the contrary
shall be void. (Emphases and underscoring
In a Decision25 dated February 13, 2014, The petition is partly meritorious. supplied)
the CA affirmed the RTC ruling with
modification: (a) ordering petitioner to Citing Article 1484 of the Civil Code, In this case, there was no vendor-vendee
return the amount of P103,000.00 to specifically paragraph 3 thereof, the CA relationship between respondent and
respondent; and (b) deleting the award of ruled that petitioner had already waived its petitioner. A judicious perusal of the
attorney's fees in favor of petitioner for lack right to recover any unpaid installments records would reveal that respondent never
of sufficient basis. It held that while when it sought - and was granted - a writ bought the subject vehicle from petitioner
respondent was indeed liable to petitioner of replevin in order to regain possession of but from a third party, and merely sought
under the Promissory Note with Chattel the subject vehicle. As such, petitioner is financing from petitioner for its full
Mortgage, petitioner should not have no longer entitled to receive respondent's purchase price. In order to document the
accepted respondent's late partial late partial payments in the aggregate loan transaction between petitioner and
payments in the aggregate amount of amount of P103,000.00. respondent, a Promissory Note with Chattel
P103,000.00. In this regard, the CA opined Mortgage29 dated August 18, 2005 was
that by choosing to recover the subject executed wherein, inter alia, respondent
acknowledged her indebtedness to known as "The Chattel Mortgage Law," as Decision.39
petitioner in the amount of P1,196,100.00 intended. Otherwise, respondent will be
and placed the subject vehicle as a security placed in an unjust position where she is Finally, anent the issue of attorney's fees,
for the loan.30 Indubitably, a loan contract deprived of possession of the subject it is settled that attorney's fees "cannot be
with the accessory chattel mortgage vehicle while her outstanding debt remains recovered as part of damages because of
contract - and not a contract of sale of unpaid, either in full or in part, all to the the policy that no premium should be
personal property in installments - was undue advantage of petitioner - a situation placed on the right to litigate. They are not
entered into by the parties with respondent which law and equity will never permit.37 to be awarded every time a party wins a
standing as the debtor-mortgagor and suit. The power of the court to award
petitioner as the creditor-mortgagee. Further, there is nothing in the Promissory attorney's fees under Article 220840 of the
Therefore, the conclusion of the CA that Note with Chattel Mortgage that bars Civil Code demands factual, legal, and
Article 1484 finds application in this case is petitioner from receiving any late partial equitable justification. Even when a
misplaced, and thus, must be set aside. payments from respondent. If at all, claimant is compelled to litigate with third
petitioner's acceptance of respondent's late persons or to incur expenses to protect his
The Promissory Note with Chattel Mortgage partial payments in the aggregate amount rights, still, attorney's fees may not be
subject of this case expressly stipulated, of P103,000.00 will only operate to reduce awarded where no sufficient showing of
among others, that: (a) monthly her outstanding obligation to petitioner bad faith could be reflected in a party's
installments shall be paid on due date from P664,500.00 to P561,500.00. Such a persistence in a case other than an
without prior notice or demand;31 (b) in reduction in respondent's outstanding erroneous conviction of the righteousness
case of default, the total unpaid principal obligation should be accounted for when of his cause."41 In this case, suffice it to say
sum plus the agreed charges shall become petitioner conducts the impending that the CA correctly ruled that the award
immediately due and payable;32 and (c) foreclosure sale of the subject vehicle. of attorney's fees and costs of suit should
the mortgagor's default will allow the Once such foreclosure sale has been made, be deleted for lack of sufficient
mortgagee to exercise the remedies the proceeds thereof should be applied to basis.chanrobleslaw
available to it under the law. In light of the the reduced amount of respondent's
foregoing provisions, petitioner is justified outstanding obligation, and the excess of WHEREFORE, the petition is PARTLY
in filing his Complaint 33 before the RTC said proceeds, if any, should be returned to GRANTED. The Decision dated February
seeking for either the recovery of her.38 13, 2014 and the Resolution dated October
possession of the subject vehicle so that it 8, 2014 of the Court of Appeals in CA-G.R.
can exercise its rights as a mortgagee, i.e., In sum, the CA erred in ordering petitioner CV No. 96008 are hereby SET ASIDE. In
to conduct foreclosure proceedings over to return the amount of P103,000.00 to case foreclosure proceedings on the
said vehicle;34 or in the event that the respondent. In view of petitioner's prayer subject chattel mortgage has not yet been
subject vehicle cannot be recovered, to for and subsequent possession of the conducted/concluded, petitioner Equitable
compel respondent to pay the outstanding subject vehicle in preparation for its Savings Bank, now BDO Unibank, Inc.,
balance of her loan.35 Since it is undisputed foreclosure, it is only proper that petitioner is ORDERED to commence foreclosure
that petitioner had regained possession of be ordered to commence foreclosure proceedings on the subject vehicle in
the subject vehicle, it is only appropriate proceedings, if none yet has been accordance with the Chattel Mortgage
that foreclosure proceedings, if none yet conducted/concluded, over the vehicle in Law, i.e., within thirty (30) days from the
has been conducted/concluded, be accordance with the provisions of the finality of this Decision. The proceeds
commenced in accordance with the Chattel Mortgage Law, i.e., within thirty therefrom should be applied to the reduced
provisions of Act No. 1508,36 otherwise (30) days from the finality of this outstanding balance of respondent
Rosalinda C. Palces in the amount of
P561,500.00, and the excess, if any,
should be returned to her.

SO ORDERED.cralawlawlibrary
G.R. No. 130347 March 3, 1999 upon receipt of the aforesaid amount, the The Facts
final and absolute deed of sale of the
ABELARDO VALARAO, GLORIOSA The undisputed facts of the case as
subject property with all the
VALARAO and CARLOS narrated by the Court of Appeals are as
improvements. 3
VALARAO, petitioners, follows:
vs. Also assailed by petitioners is the August
On September 4, 1987, spouses Abelardo
COURT OF APPEALS and MEDEN A. 21, 1997 CA Resolution denying
and Gloriosa Valarao, thru their son Carlos
ARELLANO, respondents. reconsideration.
Valarao as their attorney-in-fact, sold to
The aforementioned RTC Decision, which [Private Respondent] Meden Arellano
was reversed and set aside by the CA, under a Deed of Conditional Sale a parcel
PANGANIBAN, J.:
disposed as follows: of land situated in the District of Diliman,
Art. 1592 of the Civil Code applies only to Q. C., covered by TCT No. 152879 with an
WHEREFORE, premises considered,
contracts of sale, and not to contracts to area of 1,504 square meters, for the sum
judgment is hereby rendered declaring the
sell or conditional sales where title passes of THREE MILLION TWO HUNDRED
aforesaid Deed of Conditional Sale as
to the vendee only upon full payment of the TWENTY FIVE THOUSAND PESOS
automatically rescinded and all payments
purchase price. Furthermore, in order to (P3,225,000.00) payable under a schedule
made thereunder by the [private
enforce the automatic forfeiture clause in a of payment stated therein.
respondent] to the [petitioners] as
deed of conditional sale, the vendors have
forfeited in favor of the latter, by way of In the same Deed of Conditional Sale, the
the burden of proving a contractual breach
rentals and as liquidated damages, as well [private respondent] vendee obligated
on the part of the vendee.
as declaring all improvements introduced herself to encumber by way of real estate
The Case on the property subject to the said Deed of mortgage in favor of [petitioners] vendors
Condition[al] Sale to belong to the her separate piece of property with the
Before us is a Petition for Review assailing [petitioners] without any right of condition that upon full payment of the
the June 13, 1997 Decision of the Court of reimbursement. Further, the [private balance of P2,225.000.00, the said
Appeals (CA) 1 which reversed and set respondent] and all persons claiming right mortgage shall become null and void and
aside the October 10, 1994 Decision 2 of under her are hereby ordered to vacate the without further force and effect. (Item No.
the Regional Trial Court (RTC) of Quezon said property and to turnover possession 3, pp. 2-3 of Deed of Conditional Sale).
City, Branch 82. The dispositive portion of thereof to the [petitioners]. FINALLY, the
the assailed CA Decision reads: It was further stipulated upon that should
[private respondent] is hereby ordered to
the vendee fail to pay three (3) successive
pay to the [petitioners] the amount of
WHEREFORE, the decision appealed from is monthly installments or anyone year-end
P50,000.00 as attorney's fees and for
REVERSED and SET ASIDE, and a new one lump sum payment within the period
expenses of litigation, as well as to pay the
is entered (1) ordering [herein private stipulated, the sale shall be considered
costs of the suit. The Writ of Preliminary
respondent] to pay the amount of [o]ne automatically rescinded without the
Injunction previously issued is hereby
[m]illion [o]ne [h]undred [n]inety [s]even necessity of judicial action and all
ordered LIFTED and DISSOLVED, and the
[t]housand [p]esos (P1,197,000.00) in payments made by the vendee shall be
bond posted for its issuance held liable for
favor of [herein petitioners], with legal forfeited in favor of the vendors by way of
the satisfaction of the money judgment
interest thereon from December 31, 1992; rental for the use and occupancy of the
herein made in favor of the
(2) and directing [herein petitioners] to property and as liquidated damages. All
[petitioners]. 4
execute in favor of [herein respondent], improvements introduced by the vendee to
the property shall belong to the vendors Atty. Tuazon. When all her efforts to make January 19, 1991 (Exh. "F"), denying the
without any right of reimbursement. (Par. payment were unsuccessful, [private allegations of her attempts to tender
(2), Item No. 3, p. 3 of Deed of Conditional respondent] sought judicial action. by filing payment on December 30 and 31, 1990,
Sale). this petition for consignation on January 4, and demanding that [private respondent]
1991. vacate and turnover the property and pay
[Private respondent] appellant alleged that
a monthly compensation for her continued
as of September, 1990, she had already On the other hand, vendors-[petitioners],
occupation of the subject property at the
paid the amount of [t]wo [m]illion thru counsel, sent [private respondent] a
rate of P20,000.00, until she shall have
[t]wenty-[e]ight [t]housand letter dated 4 January 1991 (Exh. "C")
vacated the same.
(P2,028,000.00) [p]esos, although she notifying her that they were enforcing the
admitted having failed to pay the provision on automatic rescission as a Ruling of the Court of Appeals
installments due in October and November, consequence of which the Deed of
In reversing the Regional Trial Court, the
1990. Petitioner, however, [had] tried to Conditional Sale [was deemed] null and
Court of Appeals held that the refusal of
pay the installments due [in] the said void, and . . . all payments made, as well
herein petitioners "to accept the tender of
months, including the amount due [in] the as the improvements introduced on the
payment was unjustified." Notwithstanding
month of December, 1990 on December 30 property, [were] thereby forfeited. The
the stipulation in the Deed of Conditional
and 31, 1990, but was turned down by the letter also made a formal demand on the
Sale that "the rescission of the contract
vendors-[petitioners] thru their maid, Mary [private respondent] to vacate the
shall of right take place" upon the failure of
Gonzales, who refused to accept the property should she not heed the demand
the vendee to pay three successive
payment offered. [Private respondent] of [petitioners] to sign a contract of lease
monthly installments, the appellate court
maintains that on previous occasions, the for her continued stay in the property (p. 2
observed that a judicial demand or a
same maid was the one who [had] received of Letter dated Jan. 4, 1991; Exh. "C").
notarial act was still required pursuant to
payments tendered by her. It appears that
In reply, [private respondent] sent a letter Article 1592 of the Civil Code. Thus,
Mary Gonzales refused to receive payment
dated January 14, 1991 (Exh. "D"), petitioners' letter informing private
allegedly on orders of her employers who
denying that she [had] refused to pay the respondent of the rescission of the contract
were not at home.
installments due [in] the months of did not suffice, for it was not notarized. The
[Private respondent] then reported the October, November and December, and CA also observed that "the alleged breach
matter to, and sought the help of, the local countered that it was [petitioners] who of contract arising from the failure of the
barangay officials. Efforts to settle the refused to accept payment, thus vendee to pay the monthly installments for
controversy before the barangay proved constraining her to file a petition for October and November 1990 within the
unavailing as vendors-[petitioners] never consignation before the Regional Trial stipulated time is rather slight and not
appeared in the meetings arranged by the Court of Quezon City docketed as Civil Case substantial, and to authorize the automatic
barangay lupon. No. Q-91-7603. rescission on account thereof will work
injustice to the other party, who has paid a
[Private respondent] tried to get in touch Notwithstanding their knowledge of the
total of P2,028,000.00 out of a total
with [petitioners] over the phone and was filing by [private respondent] of a
obligation of P3,225,000.00. The rule is
able to talk with [Petitioner] Gloriosa consignation case against them in the
that rescission cannot be availed of as to
Valarao who told her that she [would] no Regional Trial Court of Quezon City
unjustly enrich one party."
longer accept the payments being offered docketed as Civil Case No. Q-91-7603,
and that [private respondent] should [petitioners], through counsel, sent the The Issues
instead confer with her lawyer, a certain [private respondent] another letter dated
In their Memorandum before us, demand, which was embodied in their the execution of the agreement or the
petitioners raise the following issues: 5
Manifestation filed on May 1, 1991, and delivery of the thing sold." 12
Answer submitted on July 1,1991. 7
I Whether the Answer [— (a)] categorically In the present case, the Deed of
indicating willingness to accept the amount We believe, however, that the issue of Conditional Sale is of the same nature as a
already due if the [private respondent] whether the requirement of a judicial sale on installment or a contract to sell,
would update the account, [(b)] praying demand or a notarial act has been fulfilled which is not covered by Article 1592. The
that "if she fail[ed] to do so immediately, . is immaterial to the resolution of the aforementioned agreement provides:
. . the Deed of Conditional Sale be declared present case. Article 1592 of the Civil Code.
xxx xxx xxx
rescinded, pursuant to the second states:
paragraph of Section 3 thereof, with costs Should the VENDEE fail to pay three (3)
Art. 1592. In the sale of immovable
against the [private respondent], [(c)] successive monthly installments or any one
property, even though it may have been
ordering the latter to vacate and turnover year-end lump sum payment within the
stipulated that upon failure to pay the price
possession of the premises to the period stipulated herein, this Deed of
at the time agreed upon the rescission of
[petitioners], and to pay the latter Conditional Sale shall be considered . . .
the contract shall of right take place, the
attorney's fees in the amount of automatically rescinded without the
vendee may pay, even after the expiration
P50,000.00 and the expenses of litigation" necessity of judicial action[,] and all
of the period, as long as no demand for
[—] is tantamount to a judicial demand and payments made by the VENDEE shall be
rescission of the contract has been made
notice of rescission under Art. 1592 of the forfeited in favor of the VENDORS by way
upon him either judicially or by notarial act.
Civil Code. of rental for the use and occupancy of the
After the demand, the court may not grant
property and as liquidated damages. All
II Whether the automatic forfeiture clause him a new term.
improvements introduced by the VENDEE
is valid and binding between the parties.
It is well-settled that the above-quoted to the property shall belong to the
III Whether the action for consignation provision applies only to a contract of VENDORS without any right of
may prosper without actual deposit [in sale, 8 and not to a sale on installment 9 or reimbursement. The VENDORS and/or their
court] of the amount due . . . [so as] to a contract to sell. 10 Thus, in Luzon agents or representatives shall have the
produce the effect of payment. Brokerage v. Maritime Building, 11 this right to enter the premises of the property
Court ruled that "Art. 1592 of the new Civil and to eject the VENDEE and all persons
The Court's Ruling
Code (Art. 1504 of the old Civil Code) claiming right under her therefrom with the
The petition 6
is devoid of merit. requiring demand by suit or notarial act in use of reasonable force if necessary.
case the vendor of realty wants to rescind
Preliminary Matter: That upon full payment to the VENDORS of
does not apply to a contract to sell or
the total consideration of P3,225,000.00,
promise to sell, where title remains with
Notarial or Judicial Demand the VENDORS shall immediately and
the vendor until" full payment of the price.
without delay execute in favor of the
Citing Article 1592 of the Civil Code, the The Court stresses the difference between
VENDEE the final and absolute deed of sale
Court of Appeals ruled that the petitioners' these two types of contract. In a
of the property and all its improvements.
letter dated January 4, 1991, could not contract to sell, "the title over the subject
effect the rescission of the Deed of property is transferred to the vendee only Petitioners-vendors unmistakably reserved
Conditional Sale, because the said letter upon the full payment of the stipulated for themselves the title to the property
was not notarized. On the other hand, consideration. Unlike in a contract of sale, until full payment of the purchase price by
petitioners argue that they made a judicial the title does not pass to the vendee upon the vendee. Clearly, the agreement was
not a deed of sale, but more in he nature We concede the validity of the automatic 7. Arellano proceeded to the barangay
of a contract to sell or of a sale on forfeiture clause, which deems any office around 10:00 a.m. to file a case
installments. 13 Even after the execution of previous payments forfeited and the against petitioners for their refusal to
the Deed of Conditional Sale, the Torrens contract automatically rescinded upon the accept the payments.
Certificate of Title remained with and in the failure of the vendee to pay three
8. Four (4) days later, on January 4, 1991,
name of the vendors. In rejecting the successive monthly installments or any one
private respondents filed a Petition for
application of Article 1592 to a contract to yearend lump sum payment. However,
Consignation.
sell, the Court held in Luzon petitioners failed to prove the conditions
Brokerage 14 that "the full payment of the that would warrant the implementation of 9. Despite the said petition, the money was
price (through the punctual performance of this clause. nevertheless not deposited in court.
the monthly payments) was a condition
Both the appellate and the trial courts 10. Negotiations between both parties
precedent to the execution of the final sale
agree on the following: went under way, culminating in the
and to the transfer of the property from
[the vendor] to the [vendee]; so that there vendee's filing a Motion to Deposit the
1. The Deed of Conditional Sale provided
was to be no actual sale until and unless entire balance due, which was duly
for automatic rescission in case the vendee
full payment was to be no actual sale until opposed by the vendor, and hence was
failed to pay three (3) successive monthly
and unless full payment was made." denied by the trial court.
installments or any one yearend lump sum
payment within the stipulated period From the foregoing, it is clear that
Main Issue: Enforcement of the
therein. petitioners were not justified in refusing to
Automatic Forfeiture Clause accept the tender of payment made by
2. Each monthly installment was due at the
private respondent on December 30 and
As a general rule, a contract is the law end of the month.
31, 1990. Had they accepted it on either of
between the parties. 15 Thus, "from the
3. The installments for October and said dates, she would have paid all three
moment the contract is perfected, the
November 1990 were not paid. monthly installments due. In other words,
parties are bound not only to the fulfillment
there was no deliberate failure on her part
of what has been expressly stipulated but 4. The private respondent-vendee, Meden
to meet her responsibility to pay. 18 The
also to all consequences which, according Arellano, went to the house of the
Court takes note of her willingness and
to their nature, may be in keeping with petitioners-vendors on December 30,
persistence to do so, and, petitioners
good faith, usage and law." 16 Also, "the 1990.
cannot now say otherwise. The fact is: they
stipulations of the contract being the law
5. Arellano offered to pay P48,000 (total refused to accept her payment and thus
between the parties, courts have no
amount of installments due in October, have no reason to demand the
alternative but to enforce them as they
November, and December 1990) to Mary enforcement of the automatic forfeiture
were agreed [upon] and written, there
Gonzales, the petitioner's maid, but the clause. They cannot be rewarded for their
being no law or public policy against the
latter refused to accept it upon instruction own misdeed.
stipulated forfeiture of payments already
made." 17 However, it must be shown that of petitioners.
Because their maid had received monthly
private respondent-vendee failed to payments in the past, 19 it is futile for
6. Arellano returned the next day,
perform her obligation, thereby giving petitioners to insist now that she could not
December 31, 1990, and insisted on
petitioners-vendors the right to demand have accepted the aforementioned tender
paying, but again the maid refused to
the enforcement of the contract. of payment, on the ground that she did not
accept it.
have a special power of attorney to do so.
Clearly, they are estopped from denying Application of the Maceda Law That the actual cancellation of the contract
that she had such authority. Under Article shall take place after thirty days from
In any event, the rescission of the contract
1241 of the Civil Code, payment through a receipt by the buyer of the notice of
and the forfeiture of the payments already
third person is valid "[i]f by the creditor's cancellation or the demand for rescission of
made could not be effected, because the
conduct, the debtor has been led to believe the contract by a notarial act and upon full
case falls squarely under Republic Act No.
that the third person had authority to payment of the cash surrender value to the
6552, 22 otherwise known as the "Maceda
receive the payment." buyer.
Law." Section 3 of said law provides:
Failure to Consign the Down payments, deposits or options on the
Sec. 3. In all transactions or contracts
contract shall be included in the
Amount Due involving the sale or financing of real estate
computation of the total number of
on installment payments, including
Petitioners also maintain that the installments made.
residential condominium apartments but
consignation was not valid because the
excluding industrial lots, commercial Hence, the private respondent was entitled
amount tendered was not deposited with
buildings and sales to tenants under to a one-month grace period for every year
the trial court. True, there is no showing
Republic Act. Numbered Thirty-eight of installments paid, which means that she
that she deposited the money with the
hundred Forty-four as amended by had a total grace period of three months
proper judicial authority which, taken
Republic Act Numbered Sixty-three from December 31, 1990. Indeed, to rule
together with the other requisites for a
hundred eighty-nine, where the buyer has in favor of petitioner would result in patent
valid consignation, 20 would have released
paid at least two years of installments, the injustice and unjust enrichment. This
her from her obligation to pay. However,
buyer is entitled to the following rights in tribunal is not merely a court of law, but
she does not deny her obligation and, in
case he defaults in the payment of also a court of justice.
fact, is willing to pay not only the three
succeeding installments:
monthly installments due but also the WHEREFORE, the Petition is DENIED and
entire residual amount of the purchase (a) To pay, without additional interest, the the dispositive portion of the appealed
price. Verily, she even filed a Motion to unpaid installments due within the total Decision of the Court of Appeals is hereby
Deposit the said entire balance with the grace period earned by him, which is AFFIRMED. The CA's discussion on the need
trial court, which however denied said hereby fixed at the rate of one month grace for judicial or notarial demand is MODIFIED
motion upon opposition of the period for every year of installment in accordance with this Decision. Costs
petitioners. 21 payments made: Provided, That this right against petitioners.
shall be exercised by the buyer only once
Accordingly, we agree with the Court of SO ORDERED.
in every five years of the life of the contract
Appeals that it would be inequitable to
and its extensions, if any.
allow the forfeiture of the amount of more
than two million pesos already paid by (b) If the contract is cancelled, the seller
private respondent, a sum which shall refund to the buyer the cash
constitutes two thirds of the total surrender value on the payments on the
consideration. Because she did make a property equivalent to fifty percent of the
tender of payment which was unjustifiably total payments made and, after five years
refused, we hold that petitioners cannot of installments, an additional five percent
enforce the automatic forfeiture clause of every year but not to exceed ninety percent
the contract. of the total payments made: Provided,
G.R. No. 172036 April 23, 2010 Contract to Sell wherein the latter agreed intervenor Diogenes G. Bartolome for
to sell to the former, for Three Million One Seven Million Seven Hundred Ninety Three
SPOUSES FAUSTINO AND JOSEFINA
GARCIA, SPOUSES MELITON GALVEZ AND Hundred Seventy Thousand Two Hundred Thousand (₱7,793,000.00) Pesos.
HELEN GALVEZ, and CONSTANCIA Twenty (₱3,170,220.00) Pesos, five (5)
In order to compel defendant to accept
ARCAIRA represented by their Attorney-in- parcels of land situated at Tanza, Cavite
plaintiffs’ payment in full satisfaction of the
Fact JULIANA O. MOTAS, Petitioners, particularly known as Lot Nos. 47, 2768,
vs. purchase price and, thereafter, execute the
2776, 2767, 2769 and covered by Transfer
COURT OF APPEALS, EMERLITA DE LA necessary document of transfer in their
Certificate of Title Nos. T-340674, T-
CRUZ, and DIOGENES G. favor, plaintiffs filed before the RTC a
340673, T-29028, T-29026, T-29027,
BARTOLOME, Respondents. complaint for specific performance.
respectively. At the time of the execution
DECISION of the said contract, three of the subject In their complaint, plaintiffs alleged that
lots, namely, Lot Nos. 2776, 2767, and they discovered the infirmity of the Deed of
CARPIO, J.: 2769 were registered in the name of one Absolute Sale covering Lot Nos. 2776, 2767
Angel Abelida from whom defendant and 2769, between their former owner
G.R. No. 172036 is a petition for
allegedly acquired said properties by virtue Angel Abelida and defendant, the same
review1 assailing the
of a Deed of Absolute Sale dated March 31, being spurious because the signature of
Decision promulgated on 25 January 2006
2
1989. Angel Abelida and his wife were falsified;
as well as the Resolution3 promulgated on
16 March 2006 of the Court of Appeals that at the time of the execution of the said
As agreed upon, plaintiffs shall make a
(appellate court) in CA-G.R. CV No. 63651. deed, said spouses were in the United
down payment of Five Hundred Thousand
The appellate court reversed and set aside States; that due to their apprehension
(₱500,000.00) Pesos upon signing of the
the decision of Branch 23 of the Regional regarding the authenticity of the
contract. The balance of Two Million Six
Trial Court of Trece Martires City, Cavite document, they withheld payment of the
Hundred Seventy Thousand Two Hundred
(trial court) in Civil Case No. TM-622. The last installment which was supposedly due
Twenty (₱2,670,220.00) Pesos shall be
appellate court ordered Emerlita Dela Cruz on December 31, 1993; that they tendered
paid in three installments, viz: Five
(Dela Cruz) to return to spouses Faustino payment of the unpaid balance sometime
Hundred Thousand (₱500,000.00) Pesos
and Josefina Garcia, spouses Meliton and in July 1995, after Angel Abelida ratified
on June 30, 1993; Five Hundred Thousand
Helen Galvez, and Constancia Arcaira the sale made in favor [of] defendant, but
(₱500,000.00) Pesos on August 30, 1993;
(collectively, petitioners) the amount in defendant refused to accept their payment
One Million Six Hundred Seventy Thousand
excess of one-half percent of ₱1,500,000. for no jusitifiable reason.
Two Hundred Twenty (₱1,670,220.00)
Dela Cruz’s co-defendant, Diogenes Pesos on December 31, 1993. In her answer, defendant denied the
Bartolome (Bartolome), did not incur any
allegation that the Deed of Absolute Sale
liability. On its due date, December 31, 1993,
was spurious and argued that plaintiffs
plaintiffs failed to pay the last installment
The appellate court narrated the facts as failed to pay in full the agreed purchase
in the amount of One Million Six Hundred
follows: price on its due date despite repeated
Seventy Thousand Two Hundred Twenty
demands; that the Contract to Sell contains
(₱1,670,220.00) Pesos. Sometime in July
On May 28, 1993, plaintiffs spouses a proviso that failure of plaintiffs to pay the
1995, plaintiffs offered to pay the unpaid
Faustino and Josefina Garcia and spouses purchase price in full shall cause the
balance, which had already been delayed
Meliton and Helen Galvez (herein rescission of the contract and forfeiture of
by one and [a] half year, which defendant
appellees) and defendant Emerlita dela one-half (1/2%) percent of the total
refused to accept. On September 23, 1995,
Cruz (herein appellant) entered into a amount paid to defendant; that a notarized
defendant sold the same parcels of land to
letter stating the indended rescission of the The dispositive portion of the trial court’s of petitioners’ undue failure to pay in full
contract to sell and forfeiture of payments decision reads: the agreed purchase price on the stipulated
was sent to plaintiffs at their last known date. Moreover, judicial action for the
ACCORDINGLY, defendant Emerlita dela
address but it was returned with a notation rescission of a contract is not necessary
Cruz is ordered to accept the balance of the
"insufficient address." where the contract provides that it may be
purchase price in the amount of
revoked and cancelled for violation of any
Intervenor Diogenes G. Bartolome filed a ₱1,670,220.00 within ten (10) days after
of its terms and conditions. The dispositive
complaint in intervention alleging that the the judgment of this Court in the above-
portion of the appellate court’s decision
Contract to Sell dated May 31, 1993 entitled case has become final and
reads:
between plaintiffs and defendant was executory and to execute immediately the
rescinded and became ineffective due to final deed of sale in favor of plaintiffs. WHEREFORE, in view of all the foregoing,
unwarranted failure of the plaintiffs to pay the appealed decision of the Regional Trial
Defendant is further directed to pay
the unpaid balance of the purchase price on Court is hereby REVERSED and SET ASIDE
plaintiffs the amount of ₱400,000.00 as
or before the stipulated date; that he and Civil Case No. TM-622 is,
moral damages and ₱100,000.00 as
became interested in the subject parcels of consequently, DISMISSED. Defendant is
exemplary damages.
land because of their clean titles; that he however ordered to return to plaintiffs the
purchased the same from defendant by The deed of sale executed by defendant amount in excess of one-half (1/2%)
virtue of an Absolute Deed of Sale executed Emerlita dela Cruz in favor of Atty. percent of One Million Five Hundred
on September 23, 1995 in consideration of Diogenes Bartolome is declared null and Thousand (₱1,500,000.00) Pesos which
the sum of Seven Million Seven Hundred void and the amount of ₱7,793,000.00 was earlier paid by plaintiffs.
Ninety Three Thousand (₱7,793,000.00) which was paid by intervenor Bartolome to
SO ORDERED.6
Pesos.4 Emerlita dela Cruz as the consideration of
the sale of the five (5) parcels of land is The appellate court likewise resolved to
The Decision of the Trial Court
hereby directed to be returned by Emerlita deny petitioners’ Motion for
In its Decision dated 15 April 1999, the trial dela Cruz to Atty. Diogenes Bartolome Reconsideration for lack of merit.7
court ruled that Dela Cruz’s rescission of within ten (10) days from the finality of
Hence, this petition.
the contract was not valid. The trial court judgment.
applied Republic Act No. 6552 (Maceda Issues
Further, defendant is directed to pay
Law) and stated that Dela Cruz is not
plaintiff the sum of ₱100,000.00 as Petitioners raised the following grounds for
allowed to unilaterally cancel the Contract
attorney’s fees. the grant of their petition:
to Sell. The trial court found that
petitioners are justified in withholding the SO ORDERED.5 I. The Honorable Court of Appeals erred
payment of the balance of the
when it failed to consider the provisions of
consideration because of the alleged Dela Cruz and Bartolome appealed from
Republic Act 6552, otherwise known as the
spurious sale between Angel Abelida and the judgment of the trial court.
Maceda Law.
Emerlita Dela Cruz. Moreover, intervenor
The Decision of the Appellate Court
Diogenes Bartolome (Bartolome) is not a II. The Honorable Court of Appeals erred
purchaser in good faith because he was The appellate court reversed the trial when it failed to consider that Respondent
aware of petitioners’ interest in the subject court’s decision and dismissed Civil Case Dela Cruz could not pass title over the
parcels of land. No. TM-622. Dela Cruz’s obligation under three (3) properties at the time she entered
the Contract to Sell did not arise because to a Contract to Sell as her purported
ownership was tainted with fraud, thereby Vendor equivalent to 1/2% of the total happening of the suspensive
justifying Petitioners Spouses Garcia, amount paid. condition.10 Dela Cruz is thus not obliged to
Spouses Galvez and Arcaira’s suspension of execute a Deed of Absolute Sale in
xxx
payment. petitioners’ favor because of petitioners’
It is hereby agreed and covenanted that failure to make full payment on the
III. The Honorable Court of Appeals gravely
possession shall be retained by the stipulated date.
erred when it failed to consider that
VENDOR until a Deed of Absolute Sale shall
Respondent Dela Cruz’s "rescission" was We ruled thus in Pangilinan v. Court of
be executed by her in favor of the Vendees.
done in evident bad faith and malice on Appeals:11
Violation of this provision shall
account of a second sale she entered with
authorize/empower the VENDOR [to] Article 1592 of the New Civil Code,
Respondent Bartolome for a much bigger
demolish any construction/improvement requiring demand by suit or by notarial act
amount.
without need of judicial action or court in case the vendor of realty wants to
IV. The Honorable Court of Appeals erred order. rescind does not apply to a contract to sell
when it failed to declare Respondent but only to contract of sale. In contracts to
That upon and after the full payment of the
Bartolome is not an innocent purchaser for sell, where ownership is retained by the
balance, a Deed of Absolute Sale shall be
value despite the presence of evidence as seller and is not to pass until the full
executed by the Vendor in favor of the
to his bad faith.8 payment, such payment, as we said, is a
Vendees.
positive suspensive condition, the failure of
The Court’s Ruling
That the duplicate original of the owner’s which is not a breach, casual or serious, but
The petition has no merit. copy of the Transfer Certificate of Title of simply an event that prevented the
the above subject parcels of land shall obligation of the vendor to convey title
Both parties admit the following: (1) the from acquiring binding force. To argue that
remain in the possession of the Vendor
contract between petitioners and Dela Cruz there was only a casual breach is to
until the execution of the Deed of Absolute
was a contract to sell; (2) petitioners failed proceed from the assumption that the
Sale.9
to pay in full the agreed purchase price of contract is one of absolute sale, where non-
the subject property on the stipulated date; Contracts are law between the parties, and payment is a resolutory condition, which is
and (3) Dela Cruz did not want to accept they are bound by its stipulations. It is not the case.
petitioners’ offer of payment and did not clear from the above-quoted provisions
want to execute a document of transfer in that the parties intended their agreement The applicable provision of law in instant
petitioners’ favor. to be a Contract to Sell: Dela Cruz retains case is Article 1191 of the New Civil Code
ownership of the subject lands and does which provides as follows:
The pertinent provisions of the contract,
not have the obligation to execute a Deed
denominated Contract to Sell, between the Art. 1191. The power to rescind obligations
of Absolute Sale until petitioners’ payment
parties read: is implied in reciprocal ones, in case one of
of the full purchase price. Payment of the
the obligors should not comply with what is
Failure on the part of the vendees to price is a positive suspensive condition,
incumbent upon him.
comply with the herein stipulation as to the failure of which is not a breach but an event
terms of payment shall cause the rescission that prevents the obligation of the vendor The injured party may choose between the
of this contract and the payments made to convey title from becoming effective. fulfillment and the rescission of the
shall be returned to the vendees subject Strictly speaking, there can be no obligation, with the payment of damages in
however, to forfeiture in favor of the rescission or resolution of an obligation either case. He may also seek rescission,
that is still non-existent due to the non-
even after he has chosen fulfillment, if the been recognized by the well-established comprising five (5) parcels and aggregating
latter should become impossible. doctrine of 39 years standing. The validity 69,028 square meters, do not comprise
of the stipulation in the contract providing residential real estate within the
The Court shall decree the rescission
for automatic rescission upon non-payment contemplation of the Maceda
claimed, unless there be just cause
cannot be doubted. It is in the nature of an Law.15 Moreover, even if we apply the
authorizing the fixing of a period.
agreement granting a party the right to Maceda Law to the present case,
This is understood to be without prejudice rescind a contract unilaterally in case of petitioners’ offer of payment to Dela Cruz
to the rights of third persons who have breach without need of going to court. was made a year and a half after the
acquired the thing, in accordance with Thus, rescission under Article 1191 was stipulated date. This is beyond the sixty-
Articles 1385 and 1388 and the Mortgage inevitable due to petitioners’ failure to pay day grace period under Section 4 of the
Law. (1124) the stipulated price within the original Maceda Law.16 Petitioners still cannot use
period fixed in the agreement. the second sentence of Section 4 of the
Pursuant to the above, the law makes it Maceda Law against Dela Cruz for Dela
available to the injured party alternative Petitioners justify the delay in payment by
Cruz’s alleged failure to give an effective
remedies such as the power to rescind or stating that they had notice that Dela Cruz
notice of cancellation or demand for
enforce fulfillment of the contract, with is not the owner of the subject land, and
rescission because Dela Cruz merely sent
damages in either case if the obligor does that they took pains to rectify the alleged
the notice to the address supplied by
not comply with what is incumbent upon defect in Dela Cruz’s title. Be that as it may,
petitioners in the Contract to Sell.
him. There is nothing in this law which Angel Abelida’s (Abelida)
prohibits the parties from entering into an affidavit12 confirming the sale to Dela Cruz It is undeniable that petitioners failed to
agreement that a violation of the terms of only serves to strengthen Dela Cruz’s claim pay the balance of the purchase price on
the contract would cause its cancellation that she is the absolute owner of the the stipulated date of the Contract to Sell.
even without court intervention. The subject lands at the time the Contract to Thus, Dela Cruz is within her rights to sell
rationale for the foregoing is that in Sell between herself and petitioners was the subject lands to Bartolome. Neither
contracts providing for automatic executed. Dela Cruz did not conceal Dela Cruz nor Bartolome can be said to be
revocation, judicial intervention is from petitioners that the title to Lot in bad faith.
necessary not for purposes of obtaining a Nos. 2776, 2767 and 2769 still
WHEREFORE, we DENY the petition. We
judicial declaration rescinding a contract remained under Abelida’s name, and
AFFIRM in toto the Court of Appeals’
already deemed rescinded by virtue of an the Contract to Sell13 even provided
Decision promulgated on 25 January 2006
agreement providing for rescission even that petitioners should shoulder
as well as the Resolution promulgated on
without judicial intervention, but in order to the attendant expenses for the
16 March 2006 in CA-G.R. CV No. 63651.
determine whether or not the rescission transfer of ownership from Abelida to
was proper. Where such propriety is Dela Cruz. Costs against petitioners.
sustained, the decision of the court will be
The trial court erred in applying R.A. SO ORDERED.
merely declaratory of the revocation, but it
6552,14 or the Maceda Law, to the present
is not in itself the revocatory act. Moreover,
case. The Maceda Law applies to contracts
the vendor’s right in contracts to sell with
of sale of real estate on installment
reserved title to extrajudicially cancel the
payments, including residential
sale upon failure of the vendee to pay the
condominium apartments but excluding
stipulated installments and retain the sums
industrial lots, commercial buildings and
and installments already received has long
sales to tenants. The subject lands,
G.R. No. 230832, November 12, 2018 During his lifetime, Dominador executed a Corporation (through Renato) retained TCT
Contract of Sale in favor of Bias Mejia No. T-225549 while TCT No. T-225550 was
ROYAL PLAINS VIEW, INC. AND/OR
(Bias), father of respondent Nestor C. Mejia delivered to a person named Casimiro
RENATO
(Nestor), involving the western portion of Benitez.16
PADILLO, Petitioners, v. NESTOR C.
the subject land, consisting of 7,309 square
MEJIA, Respondent.
meters.8 The parties however, agreed to On March 23, 2005, Nestor and petitioner
DECISION reduce the area of the purchased lot to six Corporation, represented by Renato's wife,
hectares.9 Despite the sale, the title over Rosemarie Padillo, entered into a contract
J. REYES, JR., J.: the property remained in the name of denominated as Deed of Conditional Sale
Dominador married to Maria Ramones involving that said parcel of land covered
The Case
(spouses Ramones).10 The remaining by TCT No. T-225549 and registered in the
portion of the lot was sold to a certain Pablo name of Dominador.17 Under that contract,
This resolves the Petition for Review Benitez (Pablo) on February 17, 1965 petitioner Corporation bound itself to pay
on Certiorari1 questioning the through a Deed of Absolute Sale of Land.11 Nestor the sum of P8,000,000.00 of which
Decision2 dated May 26, 2016 and the P500,000.00 was for down payment. The
Resolution3 dated February 7, 2017 of the After that transaction, Bias died and he was balance was to be paid in 36 equal monthly
Court of Appeals (CA)-Cagayan de Oro survived by his son, Nestor. Sometime in installments of P208,333.30 beginning
City, in CA-GR. CV No. 03284-MIN which 2005, Nestor met petitioner Renato Padillo June 30, 2005 up to May 30, 2008.18
reversed and set aside the Decision4 dated (Renato), the President of petitioner
April 12, 2013 of the Regional Trial Court Corporation, Royal Plains View, Inc., a real The March 23, 2005 Deed of Conditional
(RTC) ofTagum City, Davao del Norte, estate company. At that time, Nestor was Sale was later revoked and a new deed was
Branch 31 that dismissed with prejudice in actual physical occupation of a parcel of executed on April 11, 2007 between Nestor
Civil Case No. 4263, for Declaration of land with an entire area of 12.3 hectares and petitioner Corporation, represented by
Nullity of the Instrument denominated as covered by OCT No. (P-1324) P-232, Renato.19 The new Deed of Conditional
Rescission of Conditional Sale, Specific registered in the name of spouses Sale20 stated that petitioner Corporation
Performance, Sums of Money, etc.5 Ramones.12 Nestor had in his possession, had paid respondent the amount of
too, of an ancient instrument denominated P1,972,000.00 and the remaining balance
The Facts as Contract of Sale executed on September was to be paid in 40 equal monthly
17, 1960 by the parties then alive installment of P150,000.00 starting on July
Subject of the present controversy is a (Dominador in favor of Blas, for the six 1, 2007 and ending in June 2010.
parcel of land in Magdum, Tagum City, hectares) and another Deed of Sale dated
Davao del Norte known as Lot No. 371 with February 17, 1965, in favor of Pablo, for It was also alleged that petitioner
an original area of 123,099 square meters, the other 6.3 hectares.13 Corporation (through Renato) and Nestor
more or less, covered by Original entered into a verbal gentlemen's
Certificate of Title (OCT) No. (P-1324) P- Renato and Nestor agreed to split the agreement that they would divide the
2326 of the Register of Deeds of the entire lot (OCT No. [P-1324] P-232) into 60,000-square meter lot (covered by TCT
Province of Davao. The late Dominador two titles resulting to the issuance of No. T-225549) into two, such that half will
Ramones (Dominador) was the registered Transfer Certificates of Title (TCT) Nos. T- be given to petitioner Corporation and the
owner of the said parcel of land.7 225549 and T-225550.14 Both titles were other half would be retained by
still under the name of spouses Nestor.21 Since petitioner Corporation
Ramones.15 As agreed upon, petitioner handled the splitting of the title, it had in
its possession TCT No. T-225549 covering On October 12, 2011, petitioners filed a Nestor to deprive Dominador's heirs of
the portion sold to Blas.22 Complaint for Declaration of Nullity of the their rights to the subject property. Thus,
Instrument denominated as Rescission of the RTC found it difficult to sympathize with
One day, Nestor asked petitioner Renato to Conditional Sale, Specific Performance, petitioners' predicament as they did not
give him the original owner's duplicate Sums of Money, etc. against respondent come to court with clean hands. Aggrieved,
copy of TCT No. T-225549.23 Petitioner Nestor and the heirs of the spouses petitioners filed an appeal with the CA.
Renato found out that Nestor had sold the Ramones, represented by Remedios Notwithstanding that Nestor was already
whole property to the spouses Harris and Ramones-Emperado, docketed with the declared in default in the RTC, the CA
Caroline Egina (spouses Egina) for the sum RTC as Civil Case No. 4263.33 Nestor did required him to file his Appellee's Brief.
of P12,000,000.00.24 As a consequence, not file an Answer.34 Hence, he was
Ruling of the Court of Appeals
eight TCTs were issued by the Register of declared in default in an Order35 dated May
Deeds of Davao del Norte in the name of 31, 2012.
the spouses Egina.25 These eight TCTs In reversing the RTC, the CA, in its
were later on cancelled and the Court On November 20, 2012, the RTC issued an Decision39 dated May 26, 2016, ruled that
reinstated the derivative titles which are Order36 dropping the heirs of the spouses from the intent of the parties, the Deed of
TCT Nos. T-225549 and T-225550. Ramones as defendants in Civil Case No. Conditional Sale entered into by them is a
Because of legal controversies besetting 4263. Petitioners were allowed to present Contract to Sell. As explicitly stated in the
TCT No. T-225549, it is now in the custody their evidence ex parte.37 contract, upon full payment of the
of the Registry of Deeds of Tagum City. 26 purchase price, Nestor would be bound to
Ruling of the RTC
execute the Deed of Absolute Sale. The CA
Renato attempted several times to contact made no doubt that the intention of the
Nestor, but the latter did not take his calls On April 12, 2013, the RTC issued a contract is to reserve the ownership of the
and simply vanished.27 Instead, Renato Decision38 dismissing petitioners' land to the seller (Nestor) until the buyers
received a document entitled "Rescission of complaint with prejudice. The RTC found (petitioners) made full payment of the
Deed of Conditional Sale"28 dated February that the whole transaction between purchase price. Since petitioners had
5, 2010 from Nestor whereby the latter petitioners and Nestor was tainted with already paid at least two years of
rescinded the April 11, 2007 Deed of badges of fraud. It ruled that respondent installments then the provisions of Republic
Conditional Sale alleging that petitioners Nestor could not have been the owner of Act (R.A.) No. 6552 or the Maceda Law
(Renato and the Corporation) had the subject property because his father's should be applied. When Nestor cancelled
defaulted in the payment of the monthly (Bias') contract with Dominador was a the contract, he failed to comply with the
installments agreed upon.29 Renato alleged conditional sale and there was yet no requirement under the Maceda Law, that is,
that since the time when TCT No. T-225549 conveyance of the same in Bias' favor. the refund of the cash surrender value.
was gone, petitioner Corporation already There was also nothing on record which
stopped its marketing business.30 Also, no shows that Dominador's OCT No. (P-1324) The CA concluded that since there was no
one who bought the individual lot had P-232 was cancelled with the issuance of valid rescission of the contract to sell,
entered the subject property yet, as they TCT Nos. T-225549 and T-225550. petitioners have not lost the statutory
were barred by respondent Petitioners, knowing that the subject grace period within which to pay. Hence,
Nestor.31 Because of this, petitioners are property was still registered in the name of the CA ordered as follows: (1) the
now facing various cases in court filed by Dominador, should not have paid a hefty petitioners may pay Nestor the amount of
some disgruntled lot buyers.32 amount to Nestor. The RTC concluded that P4,432,500.00 as balance of the purchase
there was an attempt by petitioners and price plus interest at 6% per annum from
December 2009 until full payment within 3. Not considering the entirety of the The Courts Ruling
60 days from finality of this Decision; (2) original complaint, in which the
upon payment, Nestor shall execute a Deed plaintiffs also prayed for Specific
of Absolute Sale of the land and deliver the Performance and Damages[; and] I.
certificate of title in favor of petitioners;
4. In not accepting the alternative way
and (3) in case of failure to pay within 60
to dispose the case based on the Preliminarily, we found nothing irregular
days from finality of this Decision,
principle of equity, in view of when the CA required respondent Nestor,
petitioners shall immediately vacate the
petitioner's inability to perform his who has been declared in default in the trial
premises without need of further demand,
obligation at present, that is: to pay court, to submit his appellee's brief.
and the down payment and installment
the balance of P4.4 Million. Too, the
payments thus far made by them shall
CA erred in not sustaining the While, concededly, a defending party
serve as rental for their use and enjoyment
agreement of the parties to divide declared in default loses his standing in the
of the subject property.
the property covered by TCT No. T- trial court and his right to adduce evidence
225549[.]41 and to present his defense,42 this,
Petitioners filed a Motion for
Reconsideration of the aforesaid CA however, does not impliedly suggest a loss
Petitioners prayed as follows: (1) to return
Decision. In a Resolution40 dated February of all his/her rights in the stages of the case
to them the owner's duplicate copy of TCT
7, 2017, the CA denied the said motion for after the default judgment. This can be
No.T-225549 and all its derivative titles;
lack of merit. Hence, the instant petition. clearly inferred from the wordings of
(2) to honor the Deed of Conditional Sale
Section 3, Rule 9 of the 1997 Rules of
which they entered into with respondent
The Issues Court. Thus:
Nestor; (3) should the return of TCT No. T-
225549 and its derivative titles could no SEC. 3. Default; declaration of. - If the
In their appeal with this Court, petitioners longer be possible or since they could no defending party fails to answer within the
argue that the CA erred as follows: longer pay the balance, to split the title time allowed therefor, the court shall, upon
between both of them as per their motion of the claiming party with notice to
1. [In] ordering/requiring respondent
gentlemen's agreement; (4) to order the the defending party, and proof of such
Nestor x x x who was already
return of the sum already paid for by failure, declare the defending party in
declared in default to file and
petitioners if the transaction between the default. Thereupon, the court shall proceed
thereafter admit his Appellee's
parties finds its demise; and (5) to grant to render judgment granting the claimant
Brief; and for the CA to give full
such other relief as justice and equity will such relief as his pleading may warrant,
faith and credence to Mejia's
allow. unless the court in its discretion requires
version;
the claimant to submit evidence. Such
2. By applying the provisions of [R.A. Two main issues were formed from the reception of evidence may be delegated to
No.] 6552 otherwise known as the assigned errors of the petitioners: First, the clerk of court.
Maceda Law in resolving the main the propriety of filing an appellee's brief by
issue of the original case which is respondent Nestor despite the fact that he (a) Effect of order of default. - A party in
"the nullification of that instrument was declared in default in the trial court; default shall be entitled to notice of
denominated as Rescission and and second, the propriety of the rescission subsequent proceedings but not to take
Cancellation of Deed of Conditional and cancellation of the conditional sale part in the trial.
Sale, etc."[;] executed by the parties.
It is evident from the foregoing rule that to set aside the order of
even when a defendant is already declared default.49 However, a defaulting party is In order to fully pass upon the validity and
in default, he is entitled to notice of proscribed from seeking a modification or propriety of the Rescission of the Deed of
subsequent proceedings.43 reversal of the assailed decision on the Conditional Sale executed by respondent
basis of the evidence submitted by him in Nestor, it is vital to characterize the nature
Default, therefore, is not meant to punish the CA, for if it were otherwise, he would of the agreement between the parties -
the defendant, but to enforce the prompt thereby be allowed to regain his right to whether the same is a contract of sale or a
filing of the answer to the complaint.44 Its adduce evidence, a right which he lost in contract to sell. The courts have repeatedly
existence is justified on the ground that it the trial court when he was declared in recognized the distinction between the two
is the one final expedient to induce default, and which he failed to have concepts.
defendant to join issue upon the allegations vacated.50
The ruling of the Supreme Court in Lim v.
tendered by the plaintiff, and to do so
Court of Appeals (182 SCRA 564 [1990]) is
without unnecessary delay.45 Verily, if the defaulting party appealed his
most illuminating. In the said case, a
case and filed his appellant's brief in the
contract to sell and a contract of sale were
The provision that the defaulting party process then there is no reason to
clearly and thoroughly distinguished from
cannot take part in the trial only meant that proscribe a defaulting party, who is an
each other, with the High Tribunal stressing
he/she has already lost his/her standing in appellee, from filing an appellee's brief.
that in a contract of sale, the title passes to
the trial court. In other words, the effect of There was nothing from our present rules
the buyer upon the delivery of the thing
the judgment of default is limited only to which provides that a party in default shall
sold. In a contract to sell, the ownership is
those stages in the prosecution of the case also lose his right to appeal if the judgment
reserved in the seller and is not to pass
which terminated with and included in the should be favorable to him. As such, even
until the full payment of the purchase price
judgment of the trial court on the merits.46 if he is the winning party in the court below,
is made. In the first case, non-payment of
he is not precluded to file his appellee's
the price is a negative resolutory condition;
In Lina v. Court of Appeals,47 the Court brief on the same grounds as available to
in the second case, full payment is a
discussed the remedies available to a the losing party that was declared in
positive suspensive condition. In the first
defendant declared in default, one of which default by the trial court.
case, the vendor has lost and cannot
is to appeal from the judgment under
recover the ownership of the property until
Section 1, Rule 41 of the 1997 Rules of Thus, in this case, whether or not
and unless the contract of sale is itself
Court, even if no petition to set aside the respondent Nestor (a party in default) can
resolved and set aside. In the second case,
order of default has been resorted to.48 file an appellee's brief is a question which
the title remains in the vendor if the vendee
should obviously not be decided by any
does not comply with the condition
There is no question that a defaulted party order or judgment by default of the trial
precedent of making payment at the time
may appeal from the judgment rendered court, but by the appellate court. To hold
specified in the contract.51
against him. And concomitant with the said otherwise would result to the detestable
right is the filing of the appellant's brief in consequence that the trial court has the This Court agrees with the CA that the April
order to be heard. The defaulting party can power by its default order or judgment to 11, 2007 Deed of Conditional Sale
appeal the judgment by default on the interfere with or to control the procedure in executed between the parties is a contract
ground that the plaintiff failed to prove the the appellate court. to sell. Pertinent portion of the agreement
material allegations of the complaint, or indicative that it is a contract to sell reads:
II.
that the decision is contrary to law, even
without need of the prior filing of a motion
That for and in consideration of the sum of categorical terms that where the vendor buildings and sales to tenants. A purchase
EIGHT MILLION PESOS (P8,000,000.00) promises to execute a deed of absolute sale by a company involved in the real estate
Philippine currency, receipt of which is upon the completion by the vendee of the business, just like the petitioners in this
hereby acknowledged from the VENDEE, payment of the price, the contract is only a case, of a six-hectare lot can hardly be
the VENDOR does hereby SELL, CEDE, contract to sell. The aforecited stipulation considered as residential. This is the same
TRANSFER and CONVEY unto the said shows that the vendors reserved title to the interpretation conveyed in the case
VENDEE, its heirs[,] successors, executors subject property until full payment of the of Spouses Garcia v. Court of
and assigns, the above-mentioned purchase price. Appeals,56 when this Court held that the
property subject to the terms and subject lands, comprising five parcels and
However, contrary to the findings of the
conditions herein set forth: aggregating 69,028 square meters, do not
CA, the protection55 provided under R.A.
comprise residential real estate within the
x x x x No. 6552 (Maceda Law) is not applicable.
contemplation of the Maceda Law. Moreso
Notwithstanding the parties' stipulation for
in this case where it was shown that
e. And upon full payment of the agreed installment payments, wherein the
petitioner Corporation is already engaged
consideration the Vendor shall execute the payment of the price is more than one, the
in the selling of the portions of the said lots
deed of absolute sale in favor of the parties' contract to sell does not
to individual buyers.
Vendee.52 automatically fall under the coverage of the
Maceda Law. R.A. No. 6552 provides
As worded, the Deed of Conditional Sale But this is not to say that sellers in a
exclusions for its application. Thus:
dated April 11, 2007 (which substitutes the contract to sell of industrial and commercial
earlier Deed of Conditional Sale dated Section 3. In all transactions or contracts lots are precluded to cancel the contract
March 23, 2005 except that there was involving the sale or financing of real estate when buyers defaulted in one installment.
already a down payment made) provides on installment payments, including The old case of Luzon Brokerage Co., Inc.
that upon full payment of the agreed residential condominium apartments but v. Maritime Building Co., Inc.57 made it
consideration, the vendor shall execute the excluding industrial lots, commercial clear that R.A. No. 6552 or the Maceda Law
deed of absolute sale in favor of the buildings and sales to tenants under expressly recognizes the vendor's right of
vendee.53 This stipulation evinces the Republic Act Numbered Thirty-eight cancellation of sale on installments of
intention of the parties for the vendor hundred forty-four, as amended by industrial and commercial properties with
(respondent) to reserve ownership of the Republic Act Numbered Sixty-three full retention of previous payments. In the
land and the same is not to pass until the hundred eighty-nine, where the buyer has said case, the Supreme Court En Bane
remaining balance (payable in 40 monthly paid at least two years of installments, the held:
installments) has been fully paid by the buyer is entitled to the following rights in
The enactment on September 14, 1972 by
vendee (petitioners). As fortified by this case he defaults in the payment of
Congress of Republic Act No. 6552 entitled
Court in the case of Diego v. Diego:54 succeeding installments. (Underscoring
"An Act to Provide Protection to Buyer[s] of
supplied)
It is settled jurisprudence, to the point of Real Estate on Installment Payments"
being elementary, that an agreement It is clear that the buyer's protection under which inter alia compels the seller of real
which stipulates that the seller shall R.A. No. 6552 only applies to contracts of estate on installments (but excluding
execute a deed of sale only upon or after sale of real estate on installment industrial lots, commercial
full payment of the purchase price is a payments, including residential buildings among others from the Act's
contract to sell, not a contract of sale. condominium apartments, coverage) to grant one month's grace
In Reyes v. Tuparan, this Court declared in but excluding industrial lots, commercial period for every one year of installments
made before the contract to sell may be of residential property buyers who, in the the amount of P150,000.00.61 Obviously,
cancelled for non-payment of the words of this Court, are hounded to suffer respondent Nestor used the word
installments due forecloses any the loss of their life earnings only because "rescission" in a loose sense. To say that a
overturning of this Court's long-established of an oversight or difficulty in paying one contract to sell is rescissible is quite
jurisprudence. Republic Act or two installments.59 This is not the case misplaced. Jurisprudence abounds with
6552 recognizes in conditional sales for industrial or commercial lot buyers, rulings that the remedies of rescission,
of all kinds of real estate (industrial and who, the law perceives to have deep under Articles 119162 and 159263 of the
commercial as well as residential) the non- pockets. To quote the verbatim Civil Code, are not available in contracts to
applicability of Article 1592 (1504) Civil pronouncement of this Court: sell. This Court succinctly explains:
Code to such contracts to sell on
The Act even in residential properties The respondent court did not err when it
installments and the right of the seller to
recognizes and reaffirms the vendor's right did not apply Articles 1191 and 1592 of the
cancel the contract (in accordance with the
to cancel the contract to sell upon breach Civil Code on rescission to the case at bar.
established doctrine of this Court) upon
and [nonpayment] of the stipulated The contract between the parties is not an
non-payment "which is simply an event
installments but requires a grace period absolute conveyance of real property but a
that prevents the obligation of the
after at least two years of regular contract to sell. In a contract to sell real
vendor to convey title from acquiring
installment payments (of one month for property on installments, the full payment
binding force." (Manuel v. Rodriguez, 109
every one year of installment payments of the purchase price is a positive
Phil. 1, 10, per Reyes, J.B.L.). The Act in
made, but to be exercise[d] by the buyer suspensive condition, the failure of which is
modifying the terms and application of Art.
only once in every five years of the life of not considered a breach, casual or serious,
1592 Civil Code reaffirms the vendor's
the contract) with a refund of certain but simply an event which prevented the
right to cancel unqualifiedly in the case
percentages of payments made on account obligation of the vendor to convey title
of industrial lots and commercial buildings
of the cancelled contract (starting with fifty from acquiring any obligatory force. The
(as in the case at bar) and requires a grace
percent with gradually increasing transfer of ownership and title would occur
period in other cases, particularly
percentages after five years of after full payment of the purchase price.64
residential lots, with a refund of certain
installments). In case of industrial and
percentages of payments made on account The breach contemplated in Article 1191 of
commercial properties, as in the case at
of the cancelled contract.58 (Underscoring the Civil Code is the obligor's failure to
bar, the Act recognizes and reaffirms the
supplied) comply with an obligation already extant,
Vendor's right unqualifiedly to cancel the
not a failure of a condition to render
In other words, whether the property is sale upon the buyer's default.60
binding that obligation.65 Article 1592, on
residential, commercial or industrial,
It is clear by the said provision that in case the other hand, speaks of nonpayment of
Maceda Law does not make any distinction
of industrial and commercial properties, the purchase price as a resolutory
insofar as the availability of the remedy of
the seller can unqualifiedly cancel the sale condition.66 It permits the buyer to pay,
cancellation by the seller in case of
upon the buyer's default. even after the expiration of the period, as
nonpayment of installments is concerned.
long as no demand for rescission of the
The only distinction lies on the added
A careful reading of the notarized contract has been made upon him either
protection given by the law to residential
"Rescission of Deed of Conditional Sale" judicially or by notarial act. However,
buyers, which is not enjoyed by
executed by respondent Nestor reveals Article 1592 does not apply to a contract to
commercial and industrial lot buyers.
that he availed of the remedy of rescission sell where the seller reserves the
Indeed, the Maceda Law addressed the
apparently because petitioners defaulted in ownership until full payment of the price.67
predicament of thousands upon thousands
the payment of their monthly installment in
This only lends credence to the rule that upon the buyer's default, as pronounced in until the final judgment of rescission is
rescission in its technical sense is not the earlier cited case of Luzon rendered when the law itself requires that
proper in a contract to sell. Such that Brokerage, such cancellation must be
73
he should exercise due diligence to
failure to pay the price agreed upon is not made with notice to the other party who minimize its own damages.
a mere breach, casual or serious, rather, failed to perform his end part of the
In the same manner that in unilateral
nonpayment is a condition that prevents bargain. This gives the opportunity to the
cancellation of contracts to sell, notice to
the obligation from acquiring an obligatory other party to question the cancellation
the other party is important. If the other
force.68 This is entirely different from the made on account of error, abuse or any
party perceives that the cancellation of the
situation in a contract of sale, where other grounds. Such that this time, the
contract is not proper, he/she is free to
nonpayment of the price is a negative burden of instituting an action is shifted
question and raise his/her objection to the
resolutory condition. The effects in law are from the injured party to the defaulter.
court. It is the court who will settle once
not identical. In a contract of sale, the
and for all if the cancellation is warranted.
vendor has lost ownership of the thing sold Indeed, the act of a party in treating a
Thus:
and cannot recover it, unless the contract contract as cancelled or resolved on
of sale is rescinded and set aside. In a account of infractions by the other [I]n every case where the extrajudicial
contract to sell, however, the vendor contracting party must be made known to resolution is contested only the final award
remains the owner for as long as the the other and is always provisional, being of the court of competent jurisdiction can
vendee has not complied fully with the ever subject to scrutiny and review by the conclusively settle whether the resolution
condition of paying the purchase proper court.74 Thus, in the old case was proper or not. It is in this sense that
price.69 Strictly speaking, in a contract to of University of the Philippines v. De Los judicial action will be necessary, as without
sell, there can be no rescission or Angeles,75 the Court, through Justice Jose it, the extrajudicial resolution will remain
resolution of an obligation that is still non- B.L. Reyes, underscored the necessity of contestable and subject to judicial
existent due to the non-happening of the judicial validation of unilateral rescission, invalidation, unless attack thereon should
suspensive condition.70 to wit: become barred by acquiescence, estoppel
or prescription.76
In other words, the party who deems the
Considering the foregoing, as well as the
contract violated may consider it resolved Guided by the foregoing pronouncements,
pronouncement by this Court in the Luzon
or rescinded, and act accordingly, without respondent Nestor's action in canceling
Brokerage case, it follows then that
previous court action, but it proceeds at its (through a notarized Rescission of
respondent Nestor's act of rescinding the
own risk. For it is only the final judgment Conditional Sale) the contract to sell is
Deed of Conditional Sale, or, more
of the corresponding court that will unjustified.
correctly, canceling it, is theoretically valid
conclusively and finally settle whether the
and the parties shall stand as if the
action taken was or was not correct in law. First. There was no showing that
obligation to sell never existed.71 The
But the law definitely does not require that respondent Nestor made a demand
reason is not that respondent Nestor has
the contracting party who believes itself (judicially or extrajudicially) to pay the
the power to rescind such contract, but
injured must first file suit and wait for a remaining balance at the moment
because their obligation thereunder did not
judgment before taking extrajudicial steps petitioners failed to pay the monthly
arise.72
to protect its interest. Otherwise, the party installment due for December 2009.
injured by the other's breach will have to Technically speaking, petitioners have not
However, while we recognize the seller's
passively sit and watch its damages incurred in delay, and thus, were not yet in
right to unqualifiedly cancel the contract to
accumulate during the pendency of the suit default. Under Article 1169 of the Civil
sell (of industrial or commercial properties)
Code, one incurs in delay or is in default price. Tuparan,82 this Court denied petitioner's
from the time the obligor demands the prayer for moral, temperate, liquidated or
fulfillment of the obligation from the In a normal setting, this Court would have compensatory damages, and exemplary
obligee.77 The circumstances upon which entrusted to the trial court the damages for the reason that the case
demand is no longer necessary do not determination of the proper amount to be involves a contract to sell, wherein full
obtain in the instant case. Nowhere from paid and the period within which to pay. payment of the purchase price is a positive
the contract between the parties did they However, by doing so, this Court will suspensive condition, the non-fulfillment of
stipulate on waiver of demand. merely prolong the proceedings and delay which is not a breach of contract, but
the relief that the parties are duly entitled merely an event that prevents the seller
Second. It appearing that payment was still to. As such, this Court finds it proper to set from conveying title to the
not made, there is no showing that the date wherein petitioners should tender purchaser.83 Since there was no breach of
respondent Nestor sent a notice to the amount due. Therefore, petitioners are contract in this case, there can be no
petitioners informing them that he is given a period of 60 days from finality of damages to speak of.
already canceling the contract to sell or, at this Decision80 to settle the amount of
the very least, his intent to cancel the said P4,432,500.00 representing the unpaid Petitioners, however, are not entirely fault-
contact. Then again, notice will now give balance of the P8,000,000.00 contract free. It is undisputed that petitioners were
petitioners the opportunity either to agree price, less the payments already made. remiss in their obligation to pay the
with the cancellation or question it before Damages in the form of interest pursuant remaining balance as of December 2009.
the courts. to Article 2209 of the Civil Code, viz.: Because of petitioners' failure to fully pay
the purchase price, respondent Nestor is
If the obligation consists in the payment of
Considering that the Deed of Conditional under no obligation, and may not be
a sum of money, and the debtor incurs in
Sale was not validly cancelled, it follows compelled, to convey title to petitioners
delay, the indemnity for damages, there
then that the same subsists and remains and receive the full purchase
being no stipulation to the contrary, shall
effective. price.84 Hence, their prayer for specific
be the payment of the interest agreed
performance (to deliver the title to them)
upon, and in the absence of stipulation, the
In the given case, the contract price cannot be granted.
legal interest, which is six percent per
involved is P8,000,000.00 and the
annum.
petitioners already paid the substantial The remedy of refund prayed for by
amount of P3,567,500.00 as found by the is not warranted. Article 2209 governs petitioners is also not proper. Since the
CA.78 This is almost half of the purchase transactions involving the payment of Deed of Conditional Sale remains valid and
price. Thus, for equitable consideration, indemnity in the concept of damages subsisting, the amount paid by petitioners
this Court will give leeway to petitioners to arising from delay in the discharge of cannot be returned as this option is not part
pay the balance of the unpaid purchase obligations consisting of the payment of a of the parties' stipulation under the said
price within a reasonable period of time. In sum of money.81 There was no showing Deed.
the case of Reyes v. Tuparan,79 the Court that petitioners incurred in delay. As
was likewise confronted with the situation discussed, records show that respondent The prayer of petitioners for this Court to
where there has already been payment of Nestor never made a demand for honor their gentlemen's agreement of
a substantial amount and thus, it deemed petitioners to pay. dividing the subject lots between them,
it right and just to allow the respondent since they could no longer pay the balance,
therein to settle, within a reasonable period Neither are petitioners entitled to cannot likewise be granted. Apart from the
of time, the balance of the unpaid purchase damages. In the case of Reyes v. fact that said gentlemen's agreement was
not sufficiently established by clear and 5. In case of failure of petitioners to
competent evidence, the amount paid is pay the sum as herein adjudged,
still not sufficient to cover the portion of the the Deed of Conditional Sale is
lot being prayed for. Besides, mere inability deemed cancelled and the
to pay is not a justifiable reason to renege payments they had already paid will
on one's contractual obligation. be considered rentals for the use of
the property.
WHEREFORE, the instant petition
No pronouncement as to costs.
is PARTLY GRANTED. Accordingly, the
appealed Decision dated May 26, 2016 of
SO ORDERED.
the Court of Appeals-Cagayan de Oro City
in CA-GR. CV No. 03284-MIN
is MODIFIED as follows:

1. The Complaint for the Nullification

of the document denominated as
Rescission of the Deed of
Conditional Sale is GRANTED.

2. The Deed of Conditional Sale

between the parties is
declared VALID and
SUBSISTING, and the parties are
enjoined to comply with the other
stipulations embodied therein.

3. Petitioners Royal Plains View, Inc.

and/or Renato Padillo
are ORDERED to PAY respondent
Nestor Mejia in the amount of
P4,432,500.00 as remaining
balance of the agreed purchase
price within sixty (60) days from
finality of this Decision.

4. Upon full payment of the purchase

price, respondent Nestor Mejia
shall EXECUTE the corresponding
Deed of Absolute Sale over the
property covered by TCT No. T-
225549.
G.R. No. 141205 May 9, 2002 On May 5, 1989, petitioner accepted payments in the amount
respondent’s amortization in the amount of P314,816.70, with 12% interest per
ACTIVE REALTY & DEVELOPMENT
of P40,000.00. By August 8, 1989, annum from August 26, 1991 (the date
CORPORATION, petitioner,
respondent was in default of the filing of the complaint) until
vs.
of P15,282.85 representing three (3) fully paid and to pay P10,000.00 as
NECITA G. DAROYA, represented by
monthly amortizations. Petitioner sent attorney’s fees.4
Attorney-In-Fact Shirley Daroya-
respondent a notice of cancellation2 of
Quinones, respondents. On appeal, the HLURB Board of
their contract to sell, to take effect thirty
Commissioners set aside the Arbiter’s
PUNO, J.: (30) days from receipt of the letter. It does
Decision. The Board refused to apply the
not appear from the records, however,
This is a petition for review remedies provided under the Maceda Law
when respondent received the letter.
on certiorari under Rule 45 of the Revised and instead deemed it fit to formulate an
Nonetheless, when respondent offered to
Rules of Court which seeks to reverse and "equitable" solution to the case. It ruled
pay for the balance of the contract price,
set aside the Resolution of the Court of that, as both parties were at
petitioner refused as it has allegedly sold
Appeals, dated August 3, 1999, denying fault, i.e., respondent incurred in delay in
the lot to another buyer.
due course to petitioner’s appeal for her installment payments and respondent
insufficiency of form and On August 26, 1991, respondent filed a failed to send a notarized notice of
substance.1âwphi1.nêt complaint for specific performance and cancellation, petitioner was ordered to
damages3 against petitioner before the refund to the respondent one half of
Petitioner ACTIVE REALTY & Arbitration Branch of the Housing and Land the total amount she has paid
DEVELOPMENT CORPORATION is the owner Use Regulatory Board (HLURB). It sought or P157,408.35, which was allegedly akin
and developer of Town & Country Hills to compel the petitioner to execute a final to the remedy provided under the Maceda
Executive Village in Antipolo, Rizal. On Deed of Absolute Sale in respondent’s favor Law.5
January 2, 1985, it entered into a Contract after she pays any balance that may still be
to Sell1 with respondent NECITA DAROYA, Respondent appealed to the Office of
due from her. Respondent claimed that she
a contract worker in the Middle East, the President. On June 2, 1998, then
is entitled to the final deed of sale after she
whereby the latter agreed to buy a 515 sq. Chief Presidential Counsel Renato C.
offered to pay the balance of P24,048.47,
m. lot for P224,025.00 in petitioner’s Corona, acting by authority of the
considering that she has already paid
subdivision. President, modified the Decision of the
the total sum of P314,816.76, which
HLURB as he found that it was not in
amount is P90,835.76 more than the
The contract to sell stipulated that the accord with the provisions of the Maceda
total contract price of P224,025.00.
respondent shall pay the initial amount Law. He held that as petitioner did not
of P53,766.00 upon execution of the On June 14, 1993, HLURB Arbiter Alfredo comply with the legal requisites for a valid
contract and the balance of P170,259.00 in M. Tan II found for the respondent. He cancellation of the contract, the contract to
sixty (60) monthly installments ruled that the cancellation of the contract sell between the parties subsisted and
of P4,893.35. Adding the down payment to sell was void as petitioner failed to pay concluded that respondent was entitled to
and installment payments, it would appear the cash surrender value to respondent as the lot after payment of her outstanding
that the total amount is P346,367.00, a mandated by law. However, as the subject balance. However, as the petitioner
figure higher than that stated as the lot was already sold to a third party and the disclosed that the lot was already sold to
contract price. respondent had agreed to a full refund of another person and that the actual value of
her installment payments, petitioner was the lot as of the date of the contract
ordered to refund to respondent all her was P1,700.00 per square
meter, petitioner was ordered to PETITIONER OF ITS RIGHT TO DUE decision. Its failure to submit the other
refund to the respondent the amount PROCESS. documents, like the Complaint, Answer,
of P875,000.00, the true and actual Position Papers and Appeal Memoranda of
II
value of the lot as of the date of the the parties before the HLURB, was due to
contract, with interest at 12% per THE HONORABLE COURT OF APPEALS the refusal of the Office of the President to
annum computed from August 26, ANCHORED THE DENIAL OF PETITIONER’S give them a certified true copy of these
1991 until fully paid, or to deliver a MOTION FOR RECONSIDERATION ON documents which were submitted with said
substitute lot at the choice of INCONSISTENT AND CONFLICTING Office. Third, as to the lack of Board
respondent.6 RULINGS NOT BORNE BY THE FACTS AND Resolution by petitioner corporation
THE RECORDS OF THE CASE. authorizing Atty. Rene Katigbak, its Chief
Upon denial of its motion for
Legal Counsel and Vice-President for Legal
reconsideration, petitioner assailed the On the procedural points raised, we find for Affairs, to represent it in the filing of the
Decision in the Court of Appeals. However, the petitioner. appeal, petitioner admits that this was due
its petition for review 7 was denied due
to its honest belief that such authority is
course for insufficiency in form and Our perusal of the record reveals that
not required as it was not mentioned in
substance,8 because: 1) no affidavit of petitioner substantially complied with the
Section 6(c) of Rule 43.12 To make up for
service was attached to the petition; 2) formal requirements of Rule 43 of the Rules
such omission, petitioner submitted a
except for certified true copies of the of Court.10 First, as to the non-
Secretary’s Certificate13 confirming and
decision and resolution of the Office of the attachment of the affidavit of service,
ratifying the authority of Atty. Katigbak to
President, no other material portions of the the records bear that the petition was
represent petitioner. Finally, we find that
record, as would support the allegations in accompanied by the original registry
the Court of Appeals erred in denying
the petition, were attached; and, 3) the receipts issued by the post office, showing
petitioner’s motion for reconsideration due
certification of forum-shopping was signed that the petition and its annexes were
to untimely filing as the records clearly
by the head counsel and vice-president of served upon the parties. Moreover,
show that it was filed on June 25, 1999, a
the petitioner corporation who was not respondent’s counsel of record, Atty.
day before the expiration of the period to
authorized by a Board Resolution to Sergio Guadiz, actually received a copy of
appeal granted by the Court of Appeals.14
represent petitioner. the petition.11 Second, petitioner likewise
complied with Section 6 (c) of Rule 43 In denying due course to the petition, the
Petitioner moved for reconsideration. The requiring the submission of copies of the appellate court gave premium to form and
Court of Appeals denied it on an entirely award, judgment, final order and resolution failed to consider the important rights of
new ground, i.e., for untimely filing of the appealed from. Its petition was the parties in the case at bar.15 At the very
petition for review.9 accompanied by the duplicate original of least, petitioner substantially
the appealed Decision of the Chief complied with the procedural
Petitioner now impugns the decision of the
Presidential Legal Counsel and his requirements for appeal, hence, it is best
Court of Appeals and raises the following
Resolution denying petitioner’s motion for to give due course to the petition at bar to
procedural issues:
reconsideration, the Decision of the HLURB clarify the rights and duties of a buyer in
I Board of Commissioners and that of the contracts to sell real estate on installment
HLURB arbiter. A perusal of these basis.
THE HONORABLE COURT OF APPEALS
documents will reveal that they contained
GROSSLY ERRED IN RELYING TOO MUCH The issue to be resolved is whether or not
all the relevant facts of the case from which
ON FORM RATHER THAN ON THE MERITS the petitioner can be compelled to refund
the appellate body can form its own
OF THE PETITION THEREBY DENYING to the respondent the value of the lot or to
deliver a substitute lot at respondent’s and resell the same lot to another buyer payment of P15,282.85, representing
option. with the same exigent conditions. To help three (3) monthly amortizations.
especially the low income lot buyers, the Petitioner refused to accept respondent’s
We find for the respondent and rule in the
legislature enacted R.A. No. 6552 subsequent tender of payment of the
affirmative.1âwphi1.nêt
delineating the rights and remedies of lot outstanding balance alleging that it has
The contract to sell in the case at bar is buyers and protect them from one-sided already cancelled the contract and sold the
governed by Republic Act No. 6552 -- "The and pernicious contract stipulations. subject lot to another buyer. However, the
Realty Installment Buyer Protection Act," records clearly show that the petitioner
More specifically, Section 3 of R.A. No.
or more popularly known as the Maceda failed to comply with the mandatory twin
6552 provided for the rights of the buyer in
Law -- which came into effect in September requirements for a valid and effective
case of default in the payment of
1972. Its declared public policy is to protect cancellation under the law,19 i.e., he failed
succeeding installments, where he has
buyers of real estate on installment basis to send a notarized notice of cancellation
already paid at least two (2) years of
against onerous and oppressive and refund the cash surrender value. At no
installments, thus:
conditions.16 The law seeks to address the time, from the date it gave a notice of
acute housing shortage problem in our "(a) To pay, without additional cancellation up to the time immediately
country that has prompted thousands of interest, the unpaid installments before the respondent filed the case
middle and lower class buyers of houses, due within the total grace period earned by against petitioner, did the latter exert effort
lots and condominium units to enter into all him, which is hereby fixed at the rate of to pay the cash surrender value. In fact,
sorts of contracts with private housing one month grace period for every one year the records disclose that it was only during
developers involving installment schemes. of installment payments made; x x x the preliminary hearing of the case before
Lot buyers, mostly low income earners the HLURB arbiter when petitioner offered
(b) If the contract is cancelled, the seller to pay the cash surrender value. Petitioner
eager to acquire a lot upon which to build
shall refund to the buyer the cash justifies its inaction on the ground that the
their homes, readily affix their signatures
surrender value of the payments on the respondent was always out of the country.
on these contracts, without an opportunity
property equivalent to fifty per cent of the Even then, the records are bereft of
to question the onerous provisions therein
total payments made; provided, that the evidence to show that petitioner attempted
as the contract is offered to them on a
actual cancellation of the contract shall to pay the cash surrender value to
"take it or leave it" basis.17 Most of these
take place after thirty days from receipt respondent through her last known
contracts of adhesion, drawn exclusively by
by the buyer of the notice of cancellation address. The omission is surprising
the developers, entrap innocent buyers by
or the demand for rescission of the considering that even during the times
requiring cash deposits for reservation
contract by a notarial act and upon full respondent was out of the country,
agreements which oftentimes include, in
payment of the cash surrender value petitioner has been sending her written
fine print, onerous default clauses where all
to the buyer." notices to remind her to pay her
the installment payments made will be
forfeited upon failure to pay any installment arrears through her last known
In this case, respondent has already
installment due even if the buyers had address. Clearly, had respondent not filed
paid in four (4) years a total
made payments for several years.18 Real a case demanding a final deed of sale in her
of P314,860.76 or P90,835.76 more
estate developers thus enjoy an favor, petitioner would not have lifted a
than the contract price
unnecessary advantage over lot buyers finger to give respondent what was due her
of P224,035.00. In April 1989, petitioner
who they often exploit with iniquitous – actual payment of the cash surrender
decided to cancel the contract when the
results. They get to forfeit all the value, among others. In disregard of basic
respondent incurred in delay in the
installment payments of defaulting buyers equitable principles, petitioner’s stance
would enable it to resell the property, keep payment. However, respondent can no respondent what is rightly hers, the
respondent’s installment payments, not to longer exercise this right as the subject lot petitioner was correctly ordered to refund
mention the cash surrender value which it was already sold by the petitioner to to the respondent the actual value of the
was obligated to return. The Layug20 case another buyer which lot, as admitted by the land (P875,000.00) she lost to another
cited by petitioner is inapropos. petitioner, was valued at P1,700.00 per buyer, plus interest at the rate of 12% per
In Layug, the lot buyer did not pay for the square meter. As respondent lost her annum from August 26, 1991 until fully
outstanding balance of his account and the chance to pay for the balance of paid or to deliver a substitute lot at the
Court found that notarial rescission or the P875,000.00 lot, it is only just and choice of the respondent.1âwphi1.nêt
cancellation was no longer necessary as equitable that the petitioner be ordered to
IN VIEW WHEREOF, the Decision of then
the seller has already filed in court a case refund to respondent the actual value of
Chief Presidential Legal Assistant Renato
for rescission of the contract to sell. In the the lot resold, i.e., P875,000.00, with 12%
Corona, Office of the President, dated June
case at bar, respondent offered to pay for interest per annum computed from August
2, 1998, is AFFIRMED in toto. Costs against
her outstanding balance of the contract 26, 1991 until fully paid or to deliver a
petitioner.
price but respondent refused to accept it. substitute lot at the option of the
Neither did petitioner adduce proof that the respondent. SO ORDERED.
respondent’s offer to pay was made after
On a final note, it would not be amiss to
the effectivity date stated in its notice of
stress that the HLURB Board Decision
cancellation. Moreover, there was no
ordering petitioner to refund to respondent
formal notice of cancellation or court action
one half of her total payments is not an
to rescind the contract. Given the
equitable solution as it punished the
circumstances, we find it illegal and
respondent for her delinquent payments
iniquitous that petitioner, without
but totally disregarded petitioner’s failure
complying with the mandatory legal
to comply with the mandatory requisites
requirements for canceling the contract,
for a valid cancellation of the contract to
forfeited both respondent’s land and hard-
sell. The Board failed to consider that the
earned money after she has paid for, not
Maceda law was enacted to remedy the
just the contract price, but more than the
plight of low and middle-income lot
consideration stated in the contract to
buyers, save them from the exacting
sell.
default clauses in real estate sales and
Thus, for failure to cancel the contract assure them of a home they can call their
in accordance with the procedure own. Neither would the Decision of the
provided by law, we hold that the HLURB Arbiter ordering a full refund of the
contract to sell between the parties installment payments of respondent in the
remains valid and subsisting. amount of P314,816.70 be justified as,
Following Section 3(a) of R.A. No. under the law, respondent is entitled to the
6552, respondent has the right to offer lot she purchased after payment of her
to pay for the balance of the purchase outstanding balance which she was ready
price, without interest, which she did and willing to do. Thus, to penalize the
in this case. Ordinarily, petitioner would petitioner for failing in its obligation to
have had no other recourse but to accept deliver the subject lot and to give the
G.R. No. 195619 September 5, July 14, 1998, PDB gave Chandumal a 2000 an ex parte motion to declare
2012 period of thirty (30) days from receipt Chandumal in default. On January 12,
within which to settle her installment 2001, the RTC issued an Order granting the
PLANTERS DEVELOPMENT
arrearages together with all its increments; motion of PDB.8
BANK, Petitioner,
otherwise, all her rights under the contract
vs. On February 23, 2001, Chandumal filed an
shall be deemed extinguished and
JULIE CHANDUMAL, Respondent. Urgent Motion to Set Aside Order of Default
terminated and the contract declared as
and to Admit Attached Answer. She
DECISION rescinded. Despite demand, Chandumal
maintained that she did not receive the
still failed to settle her obligation.
REYES, J.: summons and/or was not notified of the
On June 18, 1999, an action for judicial same. She further alleged that her failure
In this petition for review under Rule 45 of confirmation of notarial rescission and to file an answer within the reglementary
the Rules of Court, Planters Development delivery of possession was filed by PDB period was due to fraud, mistake or
Bank (PDB) questions the Decision1 dated against Chandumal, docketed as Civil Case excusable negligence. In her answer,
July 27, 2010 of the Court of Appeals (CA), No. LP-99-0137. PDB alleged that despite Chandumal alleged the following defenses:
as well as its Resolution2 dated February demand, Chandumal failed and/or refused (a) contrary to the position of PDB, the
16, 2011, denying the petitioner's motion to pay the amortizations as they fell due; latter did not make any demand for her to
for reconsideration in CA-G.R. CV No. hence, it caused the rescission of the pay the unpaid monthly amortization; and
82861. The assailed decision nullified the contract by means of notarial act, as (b) PDB did not tender or offer to give the
Decision3 dated May 31, 2004 of the provided in Republic Act (R.A.) No. cash surrender value of the property in an
Regional Trial Court (RTC), Las Piñas City, 6552.5 According to PDB, it tried to deliver amount equivalent to fifty percent (50%)
Branch 255 in Civil Case No. LP-99-0137. the cash surrender value of the subject of the actual total payment made, as
property, as required under R.A. No. 6552, provided for under Section 3(b) of R.A. No.
Antecedent Facts
in the amount of ₱ 10,000.00; however, 6552. Moreover, Chandumal claimed that
The instant case stemmed from a contract the defendant was unavailable for such since the total payment she made amounts
to sell a parcel of land, together with purpose.6 to ₱ 782,000.00, the corresponding cash
improvements, between BF Homes, Inc. surrender value due her should be ₱
Consequently, summons was issued and
(BF Homes) and herein respondent Julie 391,000.00.9
served by deputy sheriff Roberto T. Galing
Chandumal (Chandumal). The property
(Sheriff Galing). According to his return, Per Order10 dated August 2, 2001, the RTC
subject of the contract is located in Talon
Sheriff Galing attempted to personally denied Chandumal’s motion to set aside
Dos, Las Piñas City and covered by Transfer
serve the summons upon Chandumal on the order of default. Her motion for
Certificate of Title No. T-10779. On
July 15, 19 and 22, 1999 but it was reconsideration was also denied for lack of
February 12, 1993, BF Homes sold to PDB
unavailing as she was always out of the merit.11 Conformably, the RTC allowed PDB
all its rights, participations and interests
house on said dates. Hence, the sheriff to present its evidence ex parte.12 On May
over the contract.
caused substituted service of summons on 31, 2004, the RTC rendered a
Chandumal paid her monthly amortizations August 5, 1999 by serving the same
Decision13 in favor of PDB, the dispositive
from December 1990 until May 1994 when through Chandumal’s mother who
portion of which reads:
she began to default in her payments. In a acknowledged receipt thereof.7
Notice of Delinquency and Rescission of WHEREFORE, the foregoing considered,
For her failure to file an answer within the
Contract with Demand to Vacate4 dated judgment is hereby rendered in favor of the
prescribed period, PDB filed on April 24,
plaintiff Planters Development Bank and SO ORDERED.15 personal service and that on his fourth
against defendant Julie Chandumal as attempt, he effected the service of
PDB filed a motion for reconsideration but
follows, to wit: summons through Chandumal’s mother
it was denied by the CA in its Resolution
who is unarguably, a person of legal age
1. Declaring the notarial rescission of the dated February 16, 2011.
and with sufficient discretion. PDB also
Contract to Sell dated 03 January 1990
Hence, this petition based on the following argues that Chandumal voluntarily
made by the plaintiff per the Notice of
assignment of errors: submitted herself to the jurisdiction of the
Delinquency and Rescission of Contract
court when she filed an Urgent Motion to
with Demand to Vacate dated 14 July 1998 I Set Aside Order of Default and to Admit
as judicially confirmed and ratified;
Attached Answer.
The Honorable Court of Appeals erred in
2. Requiring the plaintiff to deposit in the reversing the decision of the trial court on For her part, Chandumal asserts that she
name of the defendant the amount of ₱ the ground of improper service of never received a copy of the summons or
10,000.00 representing the cash surrender summons; was ever notified of it and she only came
value for the subject property with the
to know of the case sometime in July or
Land Bank of the Philippines, Las Pi[ñ]as II
August 2000, but she was already in the
City Branch in satisfaction of the provisions
The decision of the trial court is valid as it United States of America by that time, and
of R.A. No. 6552; and,
duly acquired jurisdiction over the person that the CA correctly ruled that there was
3. Ordering the defendant to pay the of respondent Chandumal through no valid service of summons; hence, the
plaintiff the amount of ₱ 50,000.00 as and voluntary appearance; and RTC never acquired jurisdiction over her
by way of attorney’s fees, including the person.
III
costs of suit.
Issues
The trial court did not err in confirming and
SO ORDERED. 14
ratifying the notarial rescission of the 1. Whether there was a valid substituted
From the foregoing judgment, Chandumal subject contract to sell.16 service of summons;
appealed to the CA.
PDB contends that the RTC properly 2. Whether Chandumal voluntarily
On July 27, 2010, the CA, without ruling on acquired jurisdiction over the person of submitted to the jurisdiction of the trial
the propriety of the judicial confirmation of Chandumal.1âwphi1 According to PDB, court; and
the notarial rescission, rendered the there was proper service of summons since
3. Whether there was proper rescission by
assailed decision nullifying the RTC the sheriff complied with the proper
notarial act of the contract to sell.
decision due to invalid and ineffective procedure governing substituted service of
substituted service of summons. The summons as laid down in Section 7, Rule Our Ruling
dispositive portion of the CA decision 14 of the Rules of Court. PDB alleges that
it is clear from the sheriff’s return that The fundamental rule is that jurisdiction
provides:
there were several attempts on at least over a defendant in a civil case is acquired
WHEREFORE, premises considered, the three (3) different dates to effect personal either through service of summons or
decision of Branch 255 of the Regional Trial service within a reasonable period of nearly through voluntary appearance in court and
Court of Las Piñas City, dated May 31, a month, before he caused substituted submission to its authority. If a defendant
2004, in Civil Case No. LP-99-0137 is service of summons. The sheriff likewise has not been properly summoned, the
hereby NULLIFIED and VACATED. stated the reason for his failure to effect court acquires no jurisdiction over its
person, and a judgment rendered against relationship with the defendant is, and except that she was "out of the house",
it is null and void.17 whether said person comprehends the where she can be reached or whether he
significance of the receipt of the summons even tried to await her return. The "efforts"
Where the action is in personam18 and the
and his duty to immediately deliver it to the exerted by the sheriff clearly do not suffice
defendant is in the Philippines, service of
defendant or at least notify the defendant to justify substituted service and his failure
summons may be made through personal
of said receipt of summons, which matters to comply with the requisites renders such
service, that is, summons shall be served
must be clearly and specifically described service ineffective.26
by handing to the defendant in person a
in the Return of Summons; and (4) a
copy thereof, or if he refuses to receive and Respondent voluntarily submitted
competent person in charge, who must
sign for it, by tendering it to him.19 If the to the jurisdiction of the trial court
have sufficient knowledge to understand
defendant cannot be personally served with
the obligation of the defendant in the Despite that there was no valid substituted
summons within a reasonable time, it is
summons, its importance, and the service of summons, the Court,
then that substituted service may be
prejudicial effects arising from inaction on nevertheless, finds that Chandumal
made.20 Personal service of summons
the summons.23 These were reiterated and voluntarily submitted to the jurisdiction of
should and always be the first option, and
applied in Pascual v. Pascual,24 where the the trial court.
it is only when the said summons cannot be
substituted service of summon made was
served within a reasonable time can the Section 20, Rule 14 of the Rules of Court
invalidated due to the sheriff’s failure to
process server resort to substituted states:
specify in the return the necessary details
service.21
of the failed attempts to effect personal
Sec. 20. Voluntary appearance. – The
No valid substituted service of service which would justify resort to
defendant’s voluntary appearance in the
summons substituted service of summons.
action shall be equivalent to service of
In applying the foregoing requisites in the summons. The inclusion in a motion to
In this case, the sheriff resorted to
instant case, the CA correctly ruled that the dismiss of other grounds aside from lack of
substituted service of summons due to his
sheriff’s return failed to justify a resort to jurisdiction over the person of the
failure to serve it personally. In Manotoc v.
substituted service of summons. According defendant shall not be deemed a voluntary
Court of Appeals,22 the Court detailed the
to the CA, the Return of Summons does not appearance.
requisites for a valid substituted service of
summons, summed up as follows: (1) specifically show or indicate in detail the
When Chandumal filed an Urgent Motion to
impossibility of prompt personal service – actual exertion of efforts or any positive
Set Aside Order of Default and to Admit
the party relying on substituted service or step taken by the officer or process server
Attached Answer, she effectively submitted
the sheriff must show that the defendant in attempting to serve the summons
her person to the jurisdiction of the trial
cannot be served promptly or there is personally to the defendant. The return
court as the filing of a pleading where one
impossibility of prompt service; (2) specific merely states the alleged whereabouts of
seeks an affirmative relief is equivalent to
details in the return – the sheriff must the defendant without indicating that such
service of summons and vests the trial
describe in the Return of Summons the information was verified from a person who
court with jurisdiction over the defendant’s
facts and circumstances surrounding the had knowledge thereof.25 Indeed, the
person. Thus, it was ruled that the filing of
attempted personal service; (3) a person of sheriff’s return shows a mere perfunctory
motions to admit answer, for additional
suitable age and discretion – the sheriff attempt to cause personal service of the
time to file answer, for reconsideration of a
must determine if the person found in the summons on Chandumal. There was no
default judgment, and to lift order of
alleged dwelling or residence of defendant indication if he even asked Chandumal’s
default with motion for reconsideration is
is of legal age, what the recipient’s mother as to her specific whereabouts
considered voluntary submission to the
trial court’s jurisdiction.27 The Court notes PDB claims that it has validly rescinded the cancellation must be done in conformity
that aside from the allegation that she did contract by notarial act as provided under with the requirements therein prescribed.
not receive any summons, Chandumal’s R.A. No. 6552. Basically, PDB instituted In addition to the notarial act of rescission,
motion to set aside order of default and to Civil Case No. LP-99-0137 in order to the seller is required to refund to the buyer
admit attached answer failed to positively secure judicial confirmation of the the cash surrender value of the payments
assert the trial court’s lack of jurisdiction. rescission and to recover possession of the on the property. The actual cancellation of
In fact, what was set forth therein was the property subject of the contract. the contract can only be deemed to take
substantial claim that PDB failed to comply place upon the expiry of a thirty (30)-day
In Leaño v. Court of Appeals,30 it was held
with the requirements of R.A. No. 6552 on period following the receipt by the buyer of
that:
payment of cash surrender value,28 which the notice of cancellation or demand for
already delves into the merits of PDB’s R. A. No. 6552 recognizes in conditional rescission by a notarial act and the full
cause of action. In addition, Chandumal sales of all kinds of real estate (industrial, payment of the cash surrender value.32
even appealed the RTC decision to the CA, commercial, residential) the right of the
In this case, it is an admitted fact that PDB
an act which demonstrates her recognition seller to cancel the contract upon non-
failed to give Chandumal the full payment
of the trial court’s jurisdiction to render payment of an installment by the buyer,
of the cash surrender value. In its
said judgment. which is simply an event that prevents the
complaint,33 PDB admitted that it tried to
obligation of the vendor to convey title
Given Chandumal’s voluntary submission deliver the cash surrender value of the
from acquiring binding force. The law also
to the jurisdiction of the trial court, the subject property as required under R.A. No.
provides for the rights of the buyer in case
RTC, Las Piñas City, Branch 255, had all 6552 but Chandumal was "unavailable" for
of cancellation. Thus, Sec. 3 (b) of the law
authority to render its Decision dated May such purpose. Thus, it prayed in its
provides that:
31, 2004. The CA, therefore, erred in complaint that it be ordered to "deposit
nullifying said RTC decision and dispensing "If the contract is cancelled, the seller shall with a banking institution in the Philippines,
with the resolution of the substantial issue refund to the buyer the cash surrender for the account of Defendants (sic), the
raised herein, i.e., validity of the notarial value of the payments on the property amount of Ten Thousand Pesos (₱
rescission. Instead, however, of remanding equivalent to fifty percent of the total 10,000.00), Philippine Currency,
this case to the CA, the Court will resolve payments made and, after five years of representing the cash surrender value of
the same considering that the records of installments, an additional five percent the subject property; x x x."34 The
the case are already before us and in order every year but not to exceed ninety percent allegation that Chandumal made herself
to avoid any further delay.29 of the total payments unavailable for payment is not an excuse
made: Provided, That the actual as the twin requirements for a valid and
There is no valid rescission of the
cancellation of the contract shall take place effective cancellation under the law, i.e.,
contract to sell by notarial act
after thirty days from receipt by the buyer notice of cancellation or demand for
pursuant to Section 3(b), R.A. No.
of the notice of cancellation or the demand rescission by a notarial act and the full
6552
for rescission of the contract by a notarial payment of the cash surrender value, is
That the RTC had jurisdiction to render the act and upon full payment of the cash mandatory.35 Consequently, there was no
decision does not necessarily mean, surrender value to the buyer."31 (Citation valid rescission of the contract to sell by
however, that its ruling on the validity of omitted and emphasis ours) notarial act undertaken by PDB and the
the notarial rescission is in accord with the RTC should not have given judicial
R.A. No. 6552 recognizes the right of the confirmation over the same.
established facts of the case, the relevant
seller to cancel the contract but any such
law and jurisprudence.1âwphi1
WHEREFORE, the petition is DENIED.
The Decision dated July 27, 2010 of the
Court of Appeals, as well as its Resolution
dated February 16, 2011, denying the
Motion for Reconsideration in CA-G.R. CV
No. 82861 are AFFIRMED in so far as
there was no valid service of summons.
Further, the Court DECLARES that there
was no valid rescission of contract pursuant
to R.A. No. 6552. Accordingly, the Decision
dated May 31, 2004 of the Regional Trial
Court, Las Piñas City, Branch 255 in Civil
Case No. LP-99-0 137
is REVERSED and SET ASIDE, and is
therefore, DISMISSED for lack of merit.

SO ORDERED.
G.R. No. 189145 December 4, subject property upon a down payment of to Reopen and Set the Case for Preliminary
2013 ₱91,500.00, undertaking to pay the Conference, which the MeTC denied.
remaining balance of the contract price in
OPTIMUM DEVELOPMENT The MeTC Ruling
equal monthly installments of ₱13,107.00
BANK, Petitioner,
for a period of 10 years starting June 12, In a Decision15 dated June 8, 2007, the
vs.
2005.7 MeTC ordered Sps. Jovellanos to vacate the
SPOUSES BENIGNO V. JOVELLANOS
subject property and pay Optimum
and LOURDES R. On August 22, 2006, Palmera Homes
reasonable compensation in the amount of
JOVELLANOS, Respondents. assigned all its rights, title and interest in
₱5,000.00 for its use and occupation until
the Contract to Sell in favor of petitioner
DECISION possession has been surrendered. It held
Optimum Development Bank (Optimum)
that Sps. Jovellanos’s possession of the
PERLAS-BERNABE, J.: through a Deed of Assignment of even
said property was by virtue of a Contract to
date.8
Assailed in this petition for review on Sell which had already been cancelled for
certiorari1 are the Decision2 dated May 29, On April 10, 2006, Optimum issued a non-payment of the stipulated monthly
2009 and Resolution 3 dated August 10, Notice of Delinquency and Cancellation of installment payments. As such, their
2009 of the Court of Appeals (CA) in CA- Contract to Sell9 for Sps. Jovellanos’s "rights of possession over the subject
G.R. SP No. 104487 which reversed the failure to pay their monthly installments property necessarily terminated or expired
Decision4 dated December 27, 2007 of the despite several written and verbal and hence, their continued possession
Regional Trial Court of Caloocan City, notices.10 thereof constitute[d] unlawful detainer."16
Branch 128 (RTC) in Civil Case No. C-
In a final Demand Letter dated May 25, Dissatisfied, Sps. Jovellanos appealed to
21867 that, in turn, affirmed the
2006,11 Optimum required Sps. Jovellanos the RTC, claiming that Optimum counsel
Decision5 dated June 8, 2007 of the
to vacate and deliver possession of the made them believe that a compromise
Metropolitan Trial Court, Branch 53 of that
subject property within seven (7) days agreement was being prepared, thus their
same city (MeTC) in Civil Case No. 06-
which, however, remained unheeded. decision not to engage the services of
28830 ordering respondents-spouses
Hence, Optimum filed, on November 3, counsel and their concomitant failure to file
Benigno and Lourdes Jovellanos (Sps.
2006, a complaint for unlawful an answer.17
Jovellanos) to, inter alia, vacate the
detainer12 before the MeTC, docketed as
premises of the property subject of this They also assailed the jurisdiction of the
Civil Case No. 06-28830. Despite having
case. MeTC, claiming that the case did not
been served with summons, together with
merely involve the issue of physical
The Facts a copy of the complaint,13 Sps. Jovellanos
possession but rather, questions arising
failed to file their answer within the
On April 26, 2005, Sps. Jovellanos entered from their rights under a contract to sell
prescribed reglementary period, thus
into a Contract to Sell6 with Palmera which is a matter that is incapable of
prompting Optimum to move for the
Homes, Inc. (Palmera Homes) for the pecuniary estimation and, therefore, within
rendition of judgment.14
purchase of a residential house and lot the jurisdiction of the RTC.18
situated in Block 3, Lot 14, Villa Alegria Thereafter, Sps. Jovellanos filed their
The RTC Ruling
Subdivision, Caloocan City (subject opposition with motion to admit answer,
property) for a total consideration of questioning the jurisdiction of the court, In a Decision19 dated December 27, 2007,
₱1,015,000.00. Pursuant to the contract, among others. Further, they filed a Motion the RTC affirmed the MeTC’s judgment,
Sps. Jovellanos took possession of the holding that the latter did not err in
refusing to admit Sps. Jovellanos’ s Undaunted, Optimum moved for material possession of the property
belatedly filed answer considering the reconsideration which was denied in a involved, independent of any claim of
mandatory period for its filing. It also Resolution26 dated August 10, 2009. ownership by any of the parties involved. 29
affirmed the MeTC’s finding that the action Hence, the instant petition, submitting that
In its complaint, Optimum alleged that it
does not involve the rights of the the case is one for unlawful detainer, which
was by virtue of the April 26, 2005 Contract
respective parties under the contract but falls within the exclusive original
to Sell that Sps. Jovellanos were allowed to
merely the recovery of possession by jurisdiction of the municipal trial courts,
take possession of the subject property.
Optimum of the subject property after the and not a case incapable of pecuniary
However, since the latter failed to pay the
spouses’ default.20 estimation cognizable solely by the regional
stipulated monthly installments,
trial courts.
Aggrieved, Sps. Jovellanos moved for notwithstanding several written and verbal
reconsideration which was, however, The Court’s Ruling notices made upon them, it cancelled the
denied in a Resolution 21 dated June 27, said contract as per the Notice of
The petition is meritorious. What is
2008. Hence, the petition before the CA Delinquency and Cancellation dated April
determinative of the nature of the action
reiterating that the RTC erred in affirming 10, 2006. When Sps. Jovellanos refused to
and the court with jurisdiction over it are
the decision of the MeTC with respect to: vacate the subject property despite
the allegations in the complaint and the
repeated demands, Optimum instituted the
(a) the non-admission of their answer to character of the relief sought, not the
present action for unlawful detainer on
the complaint; and defenses set up in an answer.27
November 3, 2006, or within one year from
(b) the jurisdiction of the MeTC over the A complaint sufficiently alleges a cause of the final demand made on May 25, 2006.
complaint for unlawful detainer.22 action for unlawful detainer if it recites
While the RTC upheld the MeTC’s ruling in
that:
The CA Ruling favor of Optimum, the CA, on the other
(a) initially, possession of the property by hand, declared that the MeTC had no
In an Amended Decision23 dated May 29, jurisdiction over the complaint for unlawful
the defendant was by contract with or by
2009, the CA reversed and set aside the detainer, reasoning that the case involves
tolerance of the plaintiff;
RTC’s decision, ruling to dismiss the a matter which is incapable of pecuniary
complaint for lack of jurisdiction. It found (b) eventually, such possession became estimation – i.e., the validity of the
that the controversy does not only involve illegal upon notice by plaintiff to defendant cancellation of the Contract to Sell and the
the issue of possession but also the validity of the termination of the latter's right of determination of the rights of the parties
of the cancellation of the Contract to Sell possession; under the contract and law – and hence,
and the determination of the rights of the within the jurisdiction of the RTC. The Court
(c) thereafter, defendant remained in
parties thereunder as well as the governing disagrees. Metropolitan Trial Courts are
possession of the property and deprived
law, among others, Republic Act No. (RA) conditionally vested with authority to
plaintiff of the enjoyment thereof; and
6552.24 resolve the question of ownership raised as
(d) within one year from the last demand an incident in an ejectment case where the
Accordingly, it concluded that the subject
on defendant to vacate the property, determination is essential to a complete
matter is one which is incapable of
plaintiff instituted the complaint for adjudication of the issue of
pecuniary estimation and thus, within the
ejectment.28 possession.30 Concomitant to the
jurisdiction of the RTC.25
ejectment court’s authority to look into the
Corollarily, the only issue to be resolved in claim of ownership for purposes of
an unlawful detainer case is physical or resolving the issue of possession is its
authority to interpret the contract or governed by the terms of the same right to possess the property subject of
agreement upon which the claim is contract. said contract.36 The foregoing disposition
premised. Thus, in the case of Oronce v. aptly squares with existing jurisprudence.
Interpretation of the contract between the
CA,31 wherein the litigants’ opposing claims As the Court similarly held in the Union
plaintiff and the defendant is inevitable
for possession was hinged on whether their Bank case, the seller’s cancellation of the
because it is the contract that initially
written agreement reflected the intention contract to sell necessarily extinguished
granted the defendant the right to possess
to enter into a sale or merely an equitable the buyer’s right of possession over the
the property; it is this same contract that
mortgage, the Court affirmed the propriety property that was the subject of the
the plaintiff subsequently claims was
of the ejectment court’s examination of the terminated agreement.37
violated or extinguished, terminating the
terms of the agreement in question by
defendant’s right to possess. We ruled in Verily, in a contract to sell, the prospective
holding that, "because metropolitan trial
Sps. Refugia v. CA that – where the seller binds himself to sell the property
courts are authorized to look into the
resolution of the issue of possession hinges subject of the agreement exclusively to the
ownership of the property in controversy in
on a determination of the validity and prospective buyer upon fulfillment of the
ejectment cases, it behooved MTC Branch
interpretation of the document of title or condition agreed upon which is the full
41 to examine the bases for petitioners’
any other contract on which the claim of payment of the purchase price but
claim of ownership that entailed
possession is premised, the inferior court reserving to himself the ownership of the
interpretation of the Deed of Sale with
may likewise pass upon these issues. subject property despite delivery thereof to
Assumption of Mortgage."32 Also, in Union
the prospective buyer.38
Bank of the Philippines v. Maunlad Homes, The MeTC’s ruling on the rights of the
Inc.33 (Union Bank), citing Sps. Refugia v. parties based on its interpretation of their The full payment of the purchase price in a
CA,34 the Court declared that MeTCs have contract is, of course, not conclusive, but is contract to sell is a suspensive condition,
authority to interpret contracts in unlawful merely provisional and is binding only with the non-fulfillment of which prevents the
detainer cases, viz.:35 respect to the issue of possession. prospective seller’s obligation to convey
(Emphases supplied; citations omitted) title from becoming effective,39 as in this
The authority granted to the MeTC to
case. Further, it is significant to note that
preliminarily resolve the issue of ownership In the case at bar, the unlawful detainer
given that the Contract to Sell in this case
to determine the issue of possession suit filed by Optimum against Sps.
is one which has for its object real property
ultimately allows it to interpret and enforce Jovellanos for illegally withholding
to be sold on an installment basis, the said
the contract or agreement between the possession of the subject property is
contract is especially governed by – and
plaintiff and the defendant. To deny the similarly premised upon the cancellation or
thus, must be examined under the
MeTC jurisdiction over a complaint merely termination of the Contract to Sell between
provisions of – RA 6552, or the "Realty
because the issue of possession requires them. Indeed, it was well within the
Installment Buyer Protection Act", which
the interpretation of a contract will jurisdiction of the MeTC to consider the
provides for the rights of the buyer in case
effectively rule out unlawful detainer as a terms of the parties’ agreement in order to
of his default in the payment of succeeding
remedy. As stated, in an action for unlawful ultimately determine the factual bases of
installments. Breaking down the provisions
detainer, the defendant’s right to possess Optimum’s possessory claims over the
of the law, the Court, in the case of Rillo v.
the property may be by virtue of a contract, subject property. Proceeding accordingly,
CA,40 explained the mechanics of
express or implied; the MeTC held that Sps. Jovellanos’s non-
cancellation under RA 6552 which are
payment of the installments due had
corollarily, the termination of the based mainly on the amount of
rendered the Contract to Sell without force
defendant’s right to possess would be installments already paid by the buyer
and effect, thus depriving the latter of their
under the subject contract, to wit:41
Given the nature of the contract of the payment of the cash surrender value to the said notice of cancellation/demand for
parties, the respondent court correctly buyer. rescission by notarial act. In the present
applied Republic Act No. 6552. Known as case, the 60-day grace period
Down payments, deposits or options on the
the Maceda Law, R.A. No. 6552 recognizes automatically operated42 in favor of the
contract shall be included in the
in conditional sales of all kinds of real buyers, Sps. Jovellanos, and took effect
computation of the total number of
estate (industrial, commercial, residential) from the time that the maturity dates of the
installments made.
the right of the seller to cancel the contract installment payments lapsed. With the said
upon non-payment of an installment by the (2) Where he has paid less than two years grace period having expired bereft of any
buyer, which is simply an event that in installments, Sec. 4. x x x the seller shall installment payment on the part of Sps.
prevents the obligation of the vendor to give the buyer a grace period of not less Jovellanos,43 Optimum then issued a
convey title from acquiring binding force. It than sixty days from the date the notarized Notice of Delinquency and
also provides the right of the buyer on installment became due. If the buyer fails Cancellation of Contract on April 10, 2006.
installments in case he defaults in the to pay the installments due at the Finally, in proceeding with the actual
payment of succeeding installments, viz.: expiration of the grace period, the seller cancellation of the contract to sell,
may cancel the contract after thirty days Optimum gave Sps. Jovellanos an
(1) Where he has paid at least two years of
from receipt by the buyer of the notice of additional thirty (30) days within which to
installments,
cancellation or the demand for rescission of settle their arrears and reinstate the
(a) To pay, without additional interest, the the contract by a notarial act. (Emphasis contract, or sell or assign their rights to
unpaid installments due within the total and underscoring supplied) another.44
grace period earned by him, which is
Pertinently, since Sps. Jovellanos failed to It was only after the expiration of the thirty
hereby fixed at the rate of one month grace
pay their stipulated monthly installments day (30) period did Optimum treat the
period for every one year of installment
as found by the MeTC, the Court examines contract to sell as effectively cancelled –
payments made:
Optimum’s compliance with Section 4 of RA making as it did a final demand upon Sps.
Provided, That this right shall be exercised 6552, as above-quoted and highlighted, Jovellanos to vacate the subject property
by the buyer only once in every five years which is the provision applicable to buyers only on May 25, 2006. Thus, based on the
of the life of the contract and its who have paid less than two (2) years- foregoing, the Court finds that there was a
extensions, if any. (b) If the contract is worth of installments. Essentially, the said valid and effective cancellation of the
cancelled, the seller shall refund to the provision provides for three (3) requisites Contract to Sell in accordance with Section
buyer the cash surrender value of the before the seller may actually cancel the 4 of RA 6552 and since Sps. Jovellanos had
payments on the property equivalent to subject contract: first, the seller shall give already lost their right to retain possession
fifty per cent of the total payments made the buyer a 60-day grace period to be of the subject property as a consequence
and, after five years of installments, an reckoned from the date the installment of such cancellation, their refusal to vacate
additional five per cent every year but not became due; second, the seller must give and turn over possession to Optimum
to exceed ninety per cent of the total the buyer a notice of makes out a valid case for unlawful
payments made: cancellation/demand for rescission by detainer as properly adjudged by the
notarial act if the buyer fails to pay the MeTC.
Provided, That the actual cancellation of
installments due at the expiration of the
the contract shall take place after WHEREFORE, the petition is GRANTED. The
said grace period; and third, the seller may
cancellation or the demand for rescission of Decision dated May 29, 2009 and
actually cancel the contract only after thirty
the contract by a notarial act and upon full Resolution dated August 10, 2009 of the
(30) days from the buyer’s receipt of the
Court of Appeals in CA-G.R. SP No. 104487
are SET ASIDE. The Decision dated June 8,
2007 of Metropolitan Trial Court, Branch
53, Caloocan City in Civil Case No. 06-
28830 is hereby REINSTATED.

SO ORDERED.
G.R. No. 178584 : October 8, 2012 (respondent), allowing the latter to take On December 4, 2002, the MTC found
possession of a house and lot described as petitioner's case meritorious and, thus,
ASSOCIATED MARINE OFFICERS AND
7 STOLT MODEL, Lot 16, Block 7, in the rendered judgment9ςrνll ordering
SEAMEN'S UNION OF THE
Seamen's Village, Sitio Piela, Barangay respondent to (1) vacate the premises; (2)
PHILIPPINES PTGWO-
Paliparan, Dasmaris, Cavite, with the pay monthly rental in the amount
ITF, Petitioner, v. NORIEL
obligation to reimburse petitioner the cost of P 8,109.00 from August 1999 with legal
DECENA, Respondent.
(US$28,563)4ςrνll thereof in 180 equal interests thereon until he has actually and
DECISION monthly payments. It was stipulated in said fully paid the same; and (3) pay attorney's
contract that, in case respondent fails to fees in the amount of P 30,000.00, as well
PERLAS-BERNABE, J.: remit three (3) monthly reimbursement as the costs of suit.
payments, he shall be given a 3-month
This Petition for Review on Certiorari seeks The Ruling of the RTC
grace period within which to remit his
the reversal of the Decision1ςrνll of the
arrears, otherwise, the contract shall be On appeal (App. Civil Case No. 312-03),
Court of Appeals (CA) dated July 31, 2006,
automatically revoked or cancelled and the Regional Trial Court (RTC) of Imus,
as well as the Resolution2ςrνll dated June
respondent shall voluntarily vacate the Cavite, affirmed10ςrνll in toto the
20, 2007, which dismissed the complaint
premises without need of demand or decision of the MTC after finding that the
for unlawful detainer filed by petitioner
judicial action.5ςrνll cancellation and revocation of the contract
against respondent on the ground of
prematurity, as petitioner has not shown for failure of respondent to remit 25
Subsequently, respondent failed to pay
that it complied with the mandatory monthly reimbursement payments
twenty-five (25) monthly reimbursement
requirements for a valid and effective converted the latter's stay on the premises
payments covering the period August 1999
cancellation of the contract to sell a house to one of "mere permission"11ςrνll by
to August 2001, despite demands. Hence,
and lot. petitioner, and that respondent's refusal to
petitioner cancelled the contract and
heed the notice to vacate the premises
treated all his reimbursement payments as
The Factual Antecedents rendered his continued possession thereof
rental payments for his occupancy of the
unlawful.12ςrνll
Associated Marine Officers and Seamen's house and lot.
Union of the Philippines With respect to the issue raised by
On August 21, 2001, petitioner sent
respondent that the instant case is covered
PTGWO-ITF (petitioner) is a duly registered respondent a notice of final
by Republic Act No. 6552 (R.A. No.
labor organization engaged in an on-going demand ςrνll requiring him to fulfill his
6
6552),13ςrνll the Maceda Law, the RTC
Shelter Program, which offers residential obligation within a 30-day grace period.
ruled in the negative, ratiocinating that the
lots and fully-furnished houses to its Thereafter, on October 18, 2001, his wife
Shelter Contract Award is neither a
members-seafarers under a received a notice to vacate7ςrνll the
contract of sale nor a contract to sell.
reimbursement scheme requiring no down premises. For failure of respondent to heed
Rather, it is "more akin to a contract of
payment and no interest on the principal said notices, petitioner filed a complaint
lease with the monthly reimbursements as
sum advanced for the acquisition and before the barangay lupon and, eventually,
rentals."14ςrνll
development of the land and the a case for unlawful detainer, docketed as
construction of the house. Civil Case No. 12108ςrνll before the The Ruling of the Court of Appeals
Municipal Trial Court (MTC) of Dasmaris,
On April 27, 1995, petitioner entered into a Cavite. On petition for review (CA-G.R. SP No.
contract3ςrνll under the Shelter Program 81954) before the CA, the appellate court
with one of its members, Noriel Decena The Ruling of the MTC set aside the decision of the RTC and
entered a new The Issues prospective buyer, binds itself to sell the
judgment15ςrνll dismissing the complaint said property exclusively to the prospective
1. The Honorable Court of Appeals erred in
for unlawful detainer and restoring buyer upon fulfillment of the condition
changing the main issue to be resolved in
respondent to the peaceful possession of agreed upon, that is, full payment of the
the instant unlawful detainer case from
the subject house and lot. The CA held that purchase price.22ςrνll
who has the better right of possession to
the contract between the parties is not a
whether or not the agreement between the The Shelter Contract Award granted to
contract of lease, but a contract to sell,
parties is a contract of lease or a contract respondent expressly stipulates that "upon
which stipulates that upon full payment of
to sell, especially when the nature of the completion of payment of the amount of
the value of the house and lot, respondent
agreement between the parties was never US$28,563 representing the full value of
shall become the owner
questioned nor raised as an issue in the the House and Lot subject of the Contract
thereof.16ςrνll The issues, which involve
court a quo. Award, the UNION shall execute a Deed of
"the propriety of terminating the
Transfer and shall cause the issuance of the
relationship contracted by the parties, as 2. Even assuming that the Honorable Court
corresponding Transfer Certificate of Title
well as the demand upon [respondent] to of Appeals was correct in changing the
in favor of and in the name of the
deliver the premises and to pay unpaid main issue to be resolved, it nevertheless
AWARDEE."23ςrνll It cannot be denied,
reimbursements,"17ςrνll extend beyond erred in determining that:
therefore, that the parties herein entered
those commonly involved in unlawful
a. The agreement between the parties is into a contract to sell in the guise of a
detainer suits, thus, converting the instant
allegedly one of contract to sell when the reimbursement scheme requiring
case into one incapable of pecuniary
Housing and Land Use Regulatory Board respondent to make monthly
estimation exclusively cognizable by the
itself already made a pronouncement that reimbursement payments which are, in
RTC.18ςrνll
the Shelter Program and its contract award actuality, installment payments for the
Moreover, the appellate court faulted is not a sale of real estate. value of the subject house and lot.
petitioner for failing to comply with the
b. The action for unlawful detainer filed by While respondent occupied the subject
mandatory twin requirements for a valid
petitioner AMOSUP is allegedly premature premises, title nonetheless remained with
and effective cancellation of a contract to
especially considering that Republic Act No. petitioner. Considering, therefore, that the
sell under Section 3 (b) of R.A. No. 6552:
6552, which requires notarial notice of basis for such occupation is a contract to
(1) to send a notarized notice of
rescission, is not applicable to the case at sell the premises on installment, the
cancellation, and (2) to refund the cash
bar and, thus, the written notice of contractual relations between the parties
surrender value of the payments on the
termination previously served on the are more than that of a lessor-
property. Consequently, it held that the
respondent is already sufficient.21ςrνll lessee.24ςrνll The appellate court thus
contract to sell still subsists, at least until
correctly ruled that the Shelter Contract
properly rescinded, and the action for
The Ruling of the Court Award has not been converted into one of
ejectment filed by petitioner is
lease.
premature.19ςrνll It is basic that a contract is what the law
defines it to be, and not what it is called by Petitioner tried, albeit in vain, to mislead
Aggrieved, petitioner filed a motion for
the contracting parties. A contract to sell is the Court that the nature of the agreement
reconsideration, which was denied by the
defined as a bilateral contract whereby the between the parties, and even the validity
CA in its Resolution20ςrνll dated June 20,
prospective seller, while expressly of the termination thereof, were never
2007. Hence, petitioner is now before this
reserving the ownership of the subject raised in the trial courts. In the pre-trial
Court alleging that
property despite delivery thereof to the brief filed by respondent before the MTC,
the first issue he presented is "whether or total payments made, and, after five years Petitioner nonetheless insists on the
not the present action is a simple case of of installments, an additional five per cent inapplicability of R.A. No. 6552 in this case,
or an action for unlawful detainer or an every year but not to exceed ninety per capitalizing on the Decision28ςrνll of the
action for rescission of the Contract of cent of the total payments made: Provided, Housing and Land Use Regulatory Board in
Shelter Award which is outside of the That the actual cancellation of the contract HLURB CASE No. IV6-090902-1842
jurisdiction of the Honorable shall take place after thirty days from entitled "Seamen's Village Brotherhood
Court." ςrνll
25
receipt by the buyer of the notice of Homeowners Association, Inc. v.
cancellation or the demand for rescission of Associated Marine Officers And Seamen's
In the parallel case of Pagtalunan v. Dela
the contract by a notarial act and upon full Union of the Philippines (AMOSUP)" which
Cruz Vda. De Manzano,26ςrνll which
payment of the cash surrender value to the held that the transaction between
likewise originated as an action for unlawful
buyer. (Emphasis supplied) petitioner and the residents of Seamen's
detainer, we affirmed the finding of the
Village cannot be considered a sale within
appellate court that, since the contract to As we emphasized in Pagtalunan, "R.A. No.
the purview of Presidential Decree (P.D.)
sell was not validly cancelled or rescinded 6552, otherwise known as the Realty
No. 957.29ςrνll It should be pointed out
under Section 3(b) of R.A. No. 6552, the Installment Buyer Protection Act,
that the only issue resolved in that case is
respondent therein had the right to recognizes in conditional sales of all kinds
"whether or not the respondent (petitioner
continue occupying unmolested the of real estate (industrial, commercial,
herein) is engaged in the business of selling
property subject thereof. Section 3(b) residential) the right of the seller to cancel
real estate subdivisions, so as to fall under
reads: the contract upon non-payment of an
the ambit of P.D. 957, the resolution of
installment by the buyer, which is simply
SEC. 3. In all transactions or contracts which would determine whether or not
an event that prevents the obligation of the
involving the sale or financing of real estate respondent is required under the law to
vendor to convey title from acquiring
on installment payments, including register with (the) Office and procure a
binding force." While we agreed that the
residential condominium apartments but license to sell."30ςrνll
cancellation of a contract to sell may be
excluding industrial lots, commercial
done outside of court, however, "the Section 2(b) of P.D. 957 defines a sale as
buildings and sales to tenants under
cancellation by the seller must be in follows:chanroblesvirtuallawlibrary
Republic Act Numbered Thirty-eight
accordance with Sec. 3(b) of R.A. No.
hundred forty-four, as amended by b.) Sale or Sell "sale" or "sell" shall include
6552, which requires a notarial act of
Republic Act Numbered Sixty-three every disposition, or attempt to dispose,
rescission and the refund to the buyer of
hundred eighty-nine, where the buyer has for a valuable consideration, of a
the full payment of the cash surrender
paid at least two years of installments, the subdivision lot, including the building and
value of the payments on the
buyer is entitled to the following rights in other improvements thereon, if any, in a
property."27ςrνll In the present case, as
case he defaults in the payment of subdivision project or a condominium unit
aptly pointed out by the appellate court,
succeeding in a condominium project. "Sale" or "sell"
petitioner failed to prove that the Shelter
installments:chanroblesvirtuallawlibrary shall include a contract to sell, a contract of
Contract Award had been cancelled in
purchase and sale, an exchange, an
xxx accordance with R.A. No. 6552, which
attempt to sell, an option of sale or
would have been the basis for the illegality
(b) If the contract is canceled, the seller purchase, a solicitation of a sale, or an offer
of respondent's possession of the subject
shall refund to the buyer the cash to sell, directly or by an agent, or by a
premises. Hence, the action for ejectment
surrender value of the payments on the circular letter, advertisement or otherwise.
must necessarily fail.
property equivalent to fifty per cent of the
A privilege given to a member of a respondent had not made any subsequent multiplied by US$159 or its peso equivalent
cooperative, corporation, partnership, or reimbursement payments. Thus, for the at the time of payment.
any association and/or the issuance of a delay in his reimbursement payments, we
WHEREFORE, the Decision of the Court of
certificate or receipt evidencing or giving award interest at the rate of 6% per annum
Appeals dated July 31, 2006 and the
the right of participation in, or right to any on the unpaid balance applying Article
Resolution dated June 20, 2007 are
land in consideration of payment of the 220934ςrνll of the Civil Code, there being
hereby AFFIRMED with the
membership fee or dues, shall be deemed no stipulation in the Shelter Contract
following MODIFICATIONS:
a sale within the meaning of this definition. Award for such interest.35ςrνll For
purposes of computing the legal interest, 1. The Municipal Trial Court of Dasmaris,
A reading of the Decision in its entirety
the reckoning period should be the notice Cavite is directed to conduct a hearing,
reveals a vacillation on the part of the
of final demand, conformably with Articles within a maximum period of thirty (30)
HLURB in classifying the transaction
116936ςrνll and 158937ςrνll of the same days from receipt of this Decision, to
between petitioner and its members. While
Code, which, as found by the MTC, was determine: (a) the unpaid balance of the
the HLURB held that there is no sale as
sent by petitioner to respondent on August full value of the subject house and Jot; and
contemplated under the first paragraph of
21, 2001.38ςrνll (b) the reasonable amount of rental for the
the aforequoted provision "for the reason
subject property at present times.
that there is no valuable consideration In his Comment to the instant Petition,
involved in the transaction,"31ςrνll yet it respondent claimed that he had made 2. Within sixty (60) days from the
went on to opine that the second paragraph payments in the amount determination of the trial court of said
of the same provision "appears to have an of P 318,167.70.39ςrνll The total amount balance, respondent shall pay the amount
apparent application in the instant case for reimbursement for the subject house thereof to petitioner, with interest at six
although the same is not and lot is US$28,563, which the Shelter percent ( 6%) per annum from August 1,
clear."32ςrνll Then, in its final Contract Award requires to be paid in "180 2001 up to the date of actual payment;
disposition,33ςrνll the HLURB required equal monthly periodic reimbursements of
petitioner to secure a Certificate of US$159 or in equivalent Philippine 3. Upon payment, petitioner shall execute
Registration and License to Sell for its Currency at the time the same falls a Deed of Absolute Sale of the subject
subdivision project thereby effectively due."40ςrνll For lack of pertinent data property and deliver the transfer certificate
bringing it under the jurisdiction of said with which to determine how many months of title in favor of respondent;
office. Clearly, the argument of petitioner respondent's alleged total payment
4. In case of failure to pay within the
that respondent is not a realty installment of P 318,167.70 is equivalent to, we direct
mandated 60-day period, respondent shall
buyer that needs to be protected by the law petitioner to submit to the trial court an
immediately vacate the premises without
has no leg to stand on. accounting of the payments made by
need of further demand. Petitioner, on the
respondent particularly showing the
In the interest, however, of putting an end other hand, shall pay respondent the cash
number of months he was able to make the
to the controversy between the parties surrender value equivalent to 50% of the
required payments of US$159 or its peso
herein that had lasted for more than ten total reimbursement payments made. The
equivalent. The balance of the full value of
(10) years, as in the cited case of Shelter Contract Award shall then be
the subject premises shall then be
Pagtalunan, the Court orders respondent to deemed cancelled thirty (30) days after
computed on the basis of the following
pay his arrears and settle the balance of receipt by respondent of the full payment
formula: (180 months minus the number of
the full value of the subject premises. He of the cash surrender value. If respondent
months that respondent had already paid)
had enjoyed the use thereof since 1995. fails to vacate the premises, he shall be
After defaulting in August 1999,
charged reasonable rental in the amount
determined by the trial court.

SO ORDERED.
G.R. No. 160107 October 22, a bank teller at the Blumentritt Branch in I am an employee of BPI Family Bank and
2014 Manila. On October 30, 1987, they availed I acknowledge that BPI Family Bank has
themselves of a housing loan from BPI granted to me the above-mentioned loan in
SPOUSES JAIME SEBASTIAN AND
Family as one of the benefits extended to consideration of this relationship. In the
EVANGELINE SEBASTIAN, Petitioners,
its employees. Their loan amounted to event I leave, resign or am discharged from
vs.
₱273,000.00, and was covered by a Loan the service of BPI Family Bank or my
BPI FAMILY BANK, INC., CARMELITA
Agreement,2 whereby they agreed that the employment with BPI Family Bank is
ITAPO AND BENJAMIN
loan would be payable in 108 equal otherwise terminated, I also authorize you
HAO, Respondents.
monthly amortizations of ₱3,277.57 to apply any amount due me from BPI
DECISION starting on January 10, 1988 until Family Bank to the payment of the
December 10, 1996;3 and that the monthly outstanding principal amount of the
BERSAMIN, J.: amortizations would be deducted from his aforesaid loan and the interest accrued
monthly salary.4 To secure the payment of thereon which shall thereupon become
The protection of Republic Act No. 6552
the loan, they executed a real estate entirely due and demandable on the
(Realty Installment Buyer Protection Act)
mortgage in favor of BPI Family5 over the effective date of such discharge,
does not cover a loan extended by the
property situated in Bo. Ibayo, Marilao, resignation or termination without need of
employer to enable its employee to finance
Bulacan and covered by TCT No. T-30.827 notice of demand, and to do such other acts
the purchase of a house and lot. The law
(M) of the Register of Deeds of Bulacan.6 as may be necessary under the
protects only a buyer acquiring the
circumstances. (Bold emphasis added)
property by installment, not a borrower Apart from the loan agreement and the real
whose rights are governed by the terms of estate mortgage, Jaime signed an undated x x x x.
the loan from the employer. letter-memorandum addressed to BPI
The petitioners’ monthly loan amortizations
Family,7 stating as follows:
The Case were regularly deducted from Jaime’s
In connection with the loan extended to me monthly salary since January 10,
Under appeal is the decision promulgated
by BPI Family Bank, I hereby authorize you 1988.1âwphi1 On December 14, 1989,
on November 21, 2002,1 whereby the
to automatically deduct an amount from however, Jaime received a notice of
Court of Appeals (CA) affirmed the
my salary or any money due to me to be termination from BPI Family’s Vice
dismissal of the action for injunction filed
applied to my loan, more particularly President, Severino P.
by the petitioners against the respondents
described as follows: Coronacion, informing him that he had
8
to prevent the foreclosure of the mortgage
been terminated from employment due to
constituted on the house and lot acquired xxxx
loss of trust and confidence resulting from
out of the proceeds of the loan from
This authority is irrevocable and shall his wilful non-observance of standard
respondent BPI Family Bank (BPI Family),
continue to exist until my loan is fully paid. operating procedures and banking laws.
their employer.
I hereby declare that I have signed this Evangeline also received a notice of
Antecedents authority fully aware of the circumstances termination dated February 23,
leading to the loan extended to me by BPI 1990, telling her of the cessation of her
9
The petitioners are spouses who used to employment on the ground of
Family Bank and with full knowledge of the
work for BPI Family. At the time material to abandonment. Both notices contained a
rights, obligations, and liabilities of a
this case, Jaime was the Branch Manager demand for the full payment of their
borrower under the law.
of BPI Family’s San Francisco del Monte outstanding loans from BPI Family, viz:
Branch in Quezon City and Evangeline was
Demand is also made upon you to pay in their dismissal was still pending resolution appellee bank during the pendency of their
full whatever outstanding obligations by by the labor court; hence, there was yet no complaint for illegal dismissal with the
way of Housing Loans,Salary Loans, etc. basis for the foreclosure of the mortgaged NLRC.
that you may have with the bank. You are property; and that the property sought to
B. Appellee bank wrongfully refused to
well aware that said obligations become be foreclosed was a family dwelling in
accept the payments of appellants’
due and demandable upon your separation which they and their four children resided.
monthly amortizations.
from the service of the bank.10 (Emphasis
In its answer with counterclaim, 17 BPI
supplied.) II. THE TRIAL COUT ERRED IN DENYING
Family asserted that the loan extended to
APPELLANT’S PRAYER FOR INJUNCTION.
Immediately, the petitioners filed a the petitioners was a special privilege
complaint for illegal dismissal against BPI granted to its employees; that the privilege A. The foreclosure of appellants’ mortgage
Family in the National Labor Relations was coterminous withthe tenure of the was premature.
Commission (NLRC).11 employees with the company; and that the
foreclosure of the mortgaged property was B. Appellants are entitled to damages.20
About a year after their termination from
justified by the petitioners’ failure to pay
employment, the petitioners received a On November 21, 2002, the CA
their past due loan balance.
demand letter dated January 28, 1991 promulgated its assailed decision affirming
from BPI Family’s counsel requiring them Judgment of the RTC the judgment of the RTC in toto.21
to pay their total outstanding obligation
On June 27, 1995, the RTC rendered The petitioners then filed their motion for
amounting to ₱221,534.50.12 The demand
judgment,18 disposing thusly: reconsideration,22 in which they contended
letter stated that their entire outstanding
for the first timethat their rights under
balance had become due and demandable IN VIEW OF THE FOREGOING Republic Act No. 6552 (Realty Installment
upon their separation from BPI Family. CONSIDERATIONS, the Court hereby Buyer Protection Act) had been
They replied through their counsel on renders judgment DISMISSING the instant disregarded, considering that Section 3 of
February 12, 1991.13 case as well as defendant bank’s the law entitled them to a grace period
counterclaim withoutany pronouncement within which to settle their unpaid
In the meantime, BPI Family instituted a
as to costs. installments without interest; and that the
petition for the foreclosure of the real
estate mortgage.14 The petitioners loan agreement was in the natureof a
SO ORDERED.19
received on March 6, 1991 the notice of contract of adhesion that must be
extrajudicial foreclosure of mortgage dated Decision of the CA construed strictly against the one who
February 21, 1991. prepared it, that is, BPI Family itself.
The petitioners appealed upon the
To prevent the foreclosure of their following assignment of errors, namely: On September 18, 2003, the CA denied the
property, the petitioners filed against the petitioners’ motion for reconsideration. 23
I. THE TRIAL COURT ERRED IN FINDING
respondents their complaint for injunction
THAT APPELLEE BANK’S FORECLOSURE OF Issues
and damages with application for
THE REAL ESTATE MORTGAGE
preliminary injunction and restraining In this appeal, the petitioners submit for
CONSTITUTED ON APPELLANT’S FAMILY
order15 in the Regional Trial Court (RTC) in our consideration and resolution the
HOME WAS IN ORDER.
Malolos, Bulacan.16 They therein alleged following issues, to wit:
that their obligation was not yet due and A. Appellants cannot be consideredas
demandable considering that the legality of WHETHER OR NOT RESPONDENT COURT
terminated from their employment with
OF APPEALS GRAVELY ERRED IN
DECLARING THE FORECLOSURE OF THE brought to the attention of the lower court, five years of the life of the contract and its
REAL ESTATE MORTGAGE ON administrative agency or quasi-judicial extensions, if any.
PETITIONERS’ FAMILY HOME IN ORDER. body, need not be considered by the
(b) If the contract is cancelled, the seller
viewing court, as they cannot be raised for
WHETHER OR NOT RESPONDENT COURT shall refund to the buyer the cash
the first time at that late stage. Basic
OF APPEALS GRAVELY ERRED IN DENYING surrender value of the payments on the
considerations of fairness and due process
PETITIONERS’ MOTION FOR property equivalent to fifty percent of the
impel this rule. Any issue raised for the first
RECONSIDERATION DESPITE JUSTIFIABLE total payments made, and, after five years
time on appeal is barred by estoppel.
REASONS THEREFOR.24 of installments, an additional five per cent
The procedural misstep of the petitioners every year but not to exceed ninety per
Ruling
notwithstanding, the Court finds no cent of the total payments made; Provided,
The petition for review has no merit. substantial basis to reverse the judgments That the actual cancellation or the demand
of the lower courts. for rescission of the contract by a notarial
When the petitioners appealed the RTC act and upon full payment of the cash
decision to the CA, their appellants’ brief Republic Act No. 6552 was enacted to
surrender value to the buyer.
limited the issues to the following: protect buyers of real estate on installment
payments against onerous and oppressive Down payments, deposits or options on the
(a) Whether or not appellee bank conditions.27 The protections accorded to contract shall be included in the
wrongfully refused to accept payments by the buyers were embodied in Sections 3, 4 computation of the total number of
appellants of their monthly amortizations. and 5 of the law, to wit: installment payments made.
(b) Whether or not the foreclosure of Section 3. In all transactions or contracts, SECTION 4. In case where less than two
appellants’ real estate mortgage was involving the sale or financing of real years of installments were paid, the seller
premature.25 estateon installment payments, including shall give the buyers a grace period of not
residential condominium apartments but less than sixty days from the date the
The CA confined its resolution to these
excluding industrial lots, commercial installment become due.
issues. Accordingly, the petitioners could
buildings and sales to tenants under
not raise the applicability of Republic Act If the buyer fails to pay the installments
Republic Act Numbered Thirty-Eight
No. 6552, or the strict construction of the due at the expiration of the grace period,
hundred forty-four as amended byRepublic
loan agreement for being a contract of the seller may cancel the contract after
Act Sixty-three hundred eighty-nine, where
adhesion as issues for the first time either thirty days from receipt by the buyer of the
the buyer has paid atleast two years of
in their motion for reconsideration or in notice of cancellation or the demand for
installments, the buyer is entitled to the
their petition filed in this Court. To allow rescission of the contract by a notarial act.
following rights in case he defaults in the
them to do so would violate the adverse
payment of succeeding installments: SECTION 5. Under Section 3 and 4,the
parties’ right to fairness and due process.
As the Court held in S.C. Megaworld buyer shall have the right to sell his rights
(a) To pay, without additional interest, the
Construction and Development Corporation or assign the same to another person or to
unpaid installments due within the total
v. Parada:26 reinstate the contract by updating the
grace period earned by him which is hereby
account during the grace period and before
fixed at that rate of one month grace period
It is well-settled that no question will be actual cancellation of the contract. The
for every one year of installment payments
entertained on appeal unless it has been deed of sale or assignment shall be done
made; provided, That this right shall be
raised in the proceedings below. Points of by notarial act.
exercised by the Buyer only once in every
law, theories, issues and arguments not
Having paid monthly amortizations for two properly demandable only against the the provisions of Republic Act No. 6552
years and four months, the petitioners now seller of real estate. were inapplicable and could not be invoked
insist that they were entitled to the grace by them against BPI Family.
Thus, in Luzon Brokerage Co., Inc.
period within which to settle the unpaid
v.Maritime Building Co., Inc.,30 the Court Apart from relying on the grace period
amortizations without interest provided
held: provided in Republic Act No. 6552 to assert
under Section 3, supra.28 Otherwise, the
the prematurity of the foreclosure of the
foreclosure of the mortgaged property Congress in enacting in September 1972
mortgage,32 the petitioners argue that the
should be deemed premature inasmuch as Republic Act 6552 (the Maceda law), has
foreclosure of the mortgage was null and
their obligation was not yet due and by law which is its proper and exclusive
void because BPI Family’s acceptance of
demandable.29 province (and not that of this Court which
their late payments estopped it from
is not supposed to legislate judicially) has
The petitioners’ insistence would have been invoking sanctions against them.33 They
taken care of Justice Barredo’s concern
correct if the monthly amortizations being further argue that the printed conditions
over "the unhappy and helpless plight of
paid to BPI Family arose from a sale or appearing at the back of BPI Family’s
thousands upon thousands of subdivision
financing of real estate. In their case, official receipt,34 which the CA cited to
buyers" of residential lots.
however, the monthly amortizations affirm the validity of the foreclosure,
represented the installment payments of a The Act even in residential properties partook of a contract of adhesion that must
housing loan that BPI Family had extended recognizes and reaffirms the vendor's right be strictly construed against BPI Family as
to them as an employee’s benefit. The to cancel the contractto sell upon breach the party who prepared the same.35
monthly amortizations they were liable for and non-payment of the stipulated
The petitioners’ arguments do not
was derived from a loan transaction, not a installments but requires a grace period
persuade. To reiterate, their reliance on
sale transaction, thereby giving rise to a after at least two years of regular
Republic Act No. 6552 was misplaced
lender-borrower relationship between BPI installment payments (of one month for
because its provisions could not extend to
Family and the petitioners. It bears every one year of installment payments
a situation bereft of any seller-buyer
emphasizing that Republic Act No. 6552 made, but to be exercise by the buyer only
relationship. Hence, they could not escape
aimed to protect buyers of real estate on once in every five years of the life of the
the consequences of the maturity of their
installment payments, not borrowers or contract) with a refund of certain
obligation by invoking the grace period
mortgagors who obtained a housing loan to percentages of payments made on account
provided in Section 3, supra.
pay the costs of their purchase of real of the cancelled contract (starting with fifty
estate and used the real estate assecurity percent with gradually increasing The CA correctly found that there was basis
for their loan. The "financing of real estate percentages after five years of to declare the petitioners’ entire
in installment payments" referred to in installments). In case of industrial and outstanding loan obligation matureas to
Section 3, supra, should be construed only commercial properties, as in the case at warrant the foreclosure of their mortgage.
as a mode of payment vis-à-vis the seller bar, the Act recognizes and reaffirms the It is settled that foreclosure is valid only
of the real estate, and excluded the Vendor's right unqualifiedly to cancel the when the debtor is in default in the
concept of bank financing that was a type sale upon the buyer's default. payment of his obligation.36 Here, the
of loan. Accordingly, Sections 3, 4 and 5, records show that the petitioners were
supra, must be read as to grant certain The petitioners purchased the realestate
defaulting borrowers, a fact that the CA
rights only to defaulting buyers of real from PHILVILLE Realty,31 not from BPI
thoroughly explained in the following
estate on installment, which rights are Family. Without the buyer-seller
manner:
relationship between them and BPI Family,
Appellants insist that there was no valid testimony of appellant Jaime Sebastian, resignation or otherwise terminated from
ground for appellee bank to institute the this was done during the hearing of the his employment, the principal as well as the
foreclosure proceedings because they still case when the trial judge propounded the interest due shall become entirely due and
have a pending case for illegal dismissal question to him. Hence, this constitute (sic) demandable" (Exh. "E"). The freedom to
before the NLRC. They argue that the judicial admission. An admission, verbal or enter into contracts is protected by law and
reason for the bank’s foreclosure is their written, made by a party in the course of the courts are not quick to interfere with
dismissal from employment. As they are the trial or other proceedings in the same such freedom unless the contract is
still questioning the illegality of their case does not require proof. The admission contrary to law, morals, good customs,
dismissal, the bank has no legal basis in may be contradicted only by showing that public policy or public order. Courts are not
foreclosing the property. it was made through palpable mistake or authorized to extricate parties from the
that no such admission is made. Judicial necessary consequences of their acts, and
xxxx
admissions are those made voluntarily by a the fact that the contractual stipulations
The arguments fail to persuade Us. party, which appear on record in the may turn out to be financially
proceedings of the court. Formal acts done disadvantageous will not relieve parties
First, appellants cannot rely on the mere by a party or his attorney in court on the thereto of their obligations,
possibility that if the decision of the NLRC trial of a cause for the purpose of
will be in their favor, part of the reliefs Fifth, We cannot also buy appellants’
dispensing with proof by the opposing
prayed for would be reinstatement without argument that appellee refused to accept
party of some fact claimed by the latter to
loss of seniority and other privilege. Such the subsequent payments made by them.
be true.
argument is highly speculative. On the It is settled that an issue which was not
contrary, in a thirteen-page decision, the xxxx raised during the trial in the court below
Labor Arbiter exhaustively discussed the could not be raised for the first time on
Fourth, the terms and conditions of the
validity of appellant Jaime Sebastian’s appeal, as to do so, would be offensive to
loan agreement, promissory notes and the
termination. x x x the basic rules of fair play, justice and due
real estate mortgage contract, do not
process. Here, appellant Jaime Sebastian
xxxx partake of a contract of adhesion. It must
twice testified before the Court, first,
be noted that appellants are personnel of
during the hearing on the preliminary
Moreover, appellants appealed the Labor the bank.
injunction and on the trial proper. Nothing
Arbiter’s decision as early as January 10,
Jaime Sebastian was then a branch was mentioned about the refusal on the
1994. To date, however, nothing has been
manager while his wife Evangeline was a part of the bank to accept their subsequent
heard from appellants if they obtained a
bank teller. It is safe to conclude that they payments.
favorable judgment from the NLRC.
are familiar with the documents they
Assuming, arguendo, that appellee bank
Second, even if it turns out the appellants signed, including the conditions stated
indeed refused to accept the subsequent
werenot validly terminated from their therein. It is also presumed that they take
payment from appellants, they could have
employment, there is valid reason to ordinary care of their concerns and that
consigned the same before the Court. They
foreclose the mortgaged property. they voluntarily and knowingly signed the
failed to do so. There was no effort on their
contract.
Appellants themselves admit that they part to continue paying their obligations.
were in arrears when they made the late Appellant Jaime Sebastian, in his letter
Thus, having signed a deed of mortgage in
payments in March, 1991. While this addressed to appellee bank, even
favor of appellee bank, appellants should
admission was not in the course of the acknowledged that "in the event of
have foreseen thatwhen their principal
obligation was not paid when due, the rejected. Indeed, a finding of illegal demandable upon such termination in
mortgagee has the right to foreclose the dismissal in their favor would not accordance with Jaime’s express and
mortgage and to have the property seized automatically and exclusively result in their written commitment to BPI Family. Even if
and sold with a view to applying the reinstatement. As fittingly ruled in Bani we were to disregard this condition, their
proceeds to the payment ofthe principal Rural Bank, Inc. v. De Guzman:39 admission of default in their monthly
obligation.37 amortizations constituted an event of
"By jurisprudence derived from this
default within the context of Section 7 of
Equally notable was that Jaime’s undated provision, separation pay may [also] be
the loan agreement that produced the
letter-memorandum to BPI Family awarded to an illegally dismissed employee
same effect of rendering any outstanding
expressly stated the following: in lieu of reinstatement." Section 4(b), Rule
loan balance due and demandable. Section
I of the Rules Implementing Book VI of the
x x x In the event I leave, resign or 7 the loan agreement reads as follows:
Labor Code provides the following
amdischarged from the service of BPI
instances when the award of separation SECTION 7. EVENTS OF DEFAULT
Family Bank or my employment with BPI
pay, in lieu of reinstatement to an illegally
Family Bank is otherwise terminated, I also If any of the following Events of Default
dismissed employee, is proper: (a) when
authorize you to apply any amount due me shall have occurred and be continuing:
reinstatement is no longer possible, in
from BPI Family Bank to the payment of the
cases where the dismissed employee s a) The Borrower shall fail to pay when due
outstanding principal amount of the
position is no longer available; (b) the the Loan(s) any installment thereof, or any
aforesaid loan and the interest accrued
continued relationship between the other amount payable under this
thereon which shall there upon become
employer and the employee is no longer Agreement the Note(s) or under the
entirely due and demandable on the
viable due to the strained relations Collateral; or
effective date of such discharge,
between them; and(c) when the dismissed
resignation or termination without need of xxxx
employee opted not to be reinstated, or the
notice of demand, and to do such other acts
payment of separation benefits would be
as may be necessary under the then, and in any such event, the Bank may
for the best interest of the parties involved.
circumstances.38 by written notice to the Borrower cancel
In these instances, separation pay is the
the Commitment and/or declare all
(Bold emphasis supplied.) alternative remedy to reinstatement in
amounts owing to the Bank under this
addition to the award of backwages. The
Agreement and the Note(s), whether of
The petitioners thereby explicitly payment of separation pay and
principal, interest or otherwise, to be
acknowledged that BPI Family Bank had reinstatement are exclusive remedies. The
forthwith due and payable, whereupon all
granted the housing loan inconsideration of payment of separation pay replaces the
such amounts shall become immediately
their employer employee relationship. They legal consequences of reinstatement to an
due and payable without demand or other
were thus presumed to understand the employee who was illegally dismissed.
notice of any kind, all of which are
conditions for the grant of their housing
Nonetheless, it is noteworthy that the expressly waived by the Borrower. The
loan. Considering that the maturity of their
Labor Arbiter ultimately ruled that Jaime’s Borrower shall pay on demand by the Bank,
loan obligation did not depend on the
dismissal was valid and legal. Such ruling in respect of any amount or principal paid
legality of their termination from
affirmed the legality of the termination of in advance of stated maturity pursuant to
employment, their assertion that the
James from BPI Family’s employment. this Section 7, a prepayment penalty equal
resolution of their labor complaint for illegal
Under the circumstances, the entire unpaid to the rate mentioned in Section 2.07 (c).40
dismissal was prejudicial to the ripening of
BPI Family’s cause of action was properly balance of the housing loan extended to
him by BPI Family became due and
With demand, albeit unnecessary, having
been made on the petitioners, they were
undoubtedly in default in their obligations.

The foreclosure of a mortgage is but the

necessary consequence of the non-
payment of an obligation secured by the
mortgage.1âwphi1 Where the parties have
stipulated in their agreement, mortgage
contract and promissory note that the
mortgagee is authorized to foreclose the
mortgage upon the mortgagor's default,
the mortgagee has a clear right to the
foreclosure in case of the mortgagor's
default. Thereby, the issuance of a writ of
preliminary injunction upon the application
of the mortgagor to prevent the foreclosure
will be improper.41 As such, the lower
courts did not err in dismissing the
injunction complaint of the petitioners.

WHEREFORE, the Court DENIES the

petition for review on certiorari; AFFIRMS
the decision promulgated on November 21,
2002; and ORDERS the petitioners to pay
the costs of suit.

SO ORDERED.