PCI LEASING AND FINANCE VS GIRAFFE

FACTS: Petitioner PCI LEASING and respondent GIRAFFE entered into a Lease Agreement,1 whereby the former leased out to the latter one (1) set of
Silicon High Impact Graphics and accessories worth ₱3,900,00.00 and one (1) unit of Oxberry Cinescan 6400-10 worth ₱6,500,000.00. By the terms, too, of
the Lease Agreement, GIRAFFE undertook to remit the amount of ₱3,120,000.00 by way of "guaranty deposit," a sort of performance and compliance bond
for the two equipment. Furthermore, the same agreement embodied a standard acceleration clause, operative in the event GIRAFFE fails to pay any rental
and/or other accounts due.

A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly rental-payment obligations. And following a three-month default, PCI LEASING,
through one Atty. Florecita R. Gonzales, addressed a formal pay-or-surrender-equipment type of demand letter4 dated February 24, 1998 to GIRAFFE.
However, the demand went unheeded thus PCI instituted the instant case and prayed for the issuance for the writ of replevin. The trial court issued a writ of
replevin. Giraffe filed a motion to dismiss arguing that PCI was barred from pursuing any other claim since the seizure of the 2 leased equipments because
the contract was in reality a lease with option to buy. The RTC granted the motion to dismiss ruling that it was akin to a contract covered by art. 1485 hence
can no longer pursue its claim. Petitioner foists the argument that the Recto Law, i.e., the Civil Code provisions on installment sales of movable property,
does not apply to a financial leasing agreement because such agreement, by definition, does not confer on the lessee the option to buy the property subject
of the financial lease. To the petitioner, the absence of an option-to-buy stipulation in a financial leasing agreement, as understood under R.A. No. 8556,
prevents the application thereto of Articles 1484 and 1485 of the Civil Code. Hence the case at bar.

ISSUE: Whether or not the contract was covered by Article 1485 and 1484 hence barred PCI from recovering.

HELD: We are not persuaded.

The Court can allow that the underlying lease agreement has the earmarks or made to appear as a financial leasing, a term defined in Section 3(d) of R.A.
No. 8556 as -

a mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the instance of the lessee, machinery,
equipment, … office machines, and other movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of money
sufficient to amortize at least seventy (70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an
obligatory period of not less than two (2) years during which the lessee has the right to hold and use the leased property … but with no obligation or option on
his part to purchase the leased property from the owner-lessor at the end of the lease contract.

In its previous holdings, however, the Court, taking into account the following mix: the imperatives of equity, the contractual stipulations in question and the
actuations of parties vis-à-vis their contract, treated disguised transactions technically tagged as financing lease, like here, as creating a different contractual
relationship. Notable among the Court’s decisions because of its parallelism with this case is BA Finance Corporation v. Court of Appeals which involved a
motor vehicle. Thereat, the Court has treated a purported financial lease as actually a sale of a movable property on installments and prevented recovery
beyond the buyer’s arrearages. Wrote the Court in BA Finance:

A financial lease is one where a financing company would, in effect, initially purchase a mobile equipment and turn around to lease it to a client who gets, in
addition, an option to purchase the property at the expiry of the lease period.

In the case at bar, PCI acquired the office equipments for their subsequent lease to Giraffe, with the latter undertaking to pay a monthly fixed rental for the
whole 36 months. Giraffe made a guaranty deposit. Their agreement was that in case Giraffe fails to pay any rental due, PCI will have cumulative remedies,
such as, to recover all rentals for the remaining term of the lease and recover all amounts advanced for Giraffe’s account. When PCI demanded for payment
of the balance, it made a demand for either of the choices. Either to pay the balance hence Giraffe can keep the equipment or surrender them if he cannot.
The so-called monthly rentals were in fact monthly amortizations of the price of the leased office equipment. The imperatives of equity, the contractual
stipulations and the actuations of the parties, the SC has treated a purported financial lease as actually a sale of movable property on installments and
prevented recovery. On the whole, then, we rule, as did the trial court, that the PCI LEASING- GIRAFFE lease agreement is in reality a lease with an option to
purchase the equipment. This has been made manifest by the actions of the petitioner itself, foremost of which is the declarations made in its demand letter to
the respondent. There could be no other explanation than that if the respondent paid the balance, then it could keep the equipment for its own; if not, then it
should return them. This is clearly an option to purchase given to the respondent. Being so, Article 1485 of the Civil Code should apply.

The present case reflects a situation where the financing company can withhold and conceal - up to the last moment - its intention to sell the property subject
of the finance lease, in order that the provisions of the Recto Law may be circumvented. It may be, as petitioner pointed out, that the basic "lease agreement"
does not contain a "purchase option" clause. The absence, however, does not necessarily argue against the idea that what the parties are into is not a
straight lease, but a lease with option to purchase. This Court has, to be sure, long been aware of the practice of vendors of personal property of
denominating a contract of sale on installment as one of lease to prevent the ownership of the object of the sale from passing to the vendee until and unless
the price is fully paid. Being leases of personal property with option to purchase as contemplated in the above article, the contracts in question are subject to
the provision that when the lessor in such case "has chosen to deprive the lessee of the enjoyment of such personal property," "he shall have no further
action" against the lessee "for the recovery of any unpaid balance" owing by the latter, "agreement to the contrary being null and void."

In choosing, through replevin, to deprive the respondent of possession of the leased equipment, the petitioner waived its right to bring an action to recover
unpaid rentals on the said leased items. Paragraph (3), Article 1484 in relation to Article 1485 of the Civil Code, which we are hereunder re-reproducing,
cannot be any clearer.

ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies:

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this
case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.
ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived
the lessee of the possession or enjoyment of the thing.

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

The imperatives of honest dealings given prominence in the Civil Code under the heading: Human Relations, provide another reason why we must hold the
petitioner to its word as embodied in its demand letter. The Recto Law was precisely enacted to prevent this kind of aberration. Moreover, due to
considerations of equity, public policy and justice, we cannot allow this to happen.1avvphil.zw+ Not only to the respondent, but those similarly situated who
may fall prey to a similar scheme.

WHEREFORE, the instant petition is DENIED and the trial court’s decision is AFFIRMED.

Costs against petitioner.

CASE TITLE : UNIVERSAL MOTORS CORPORATION vs. DY HIAN TAT, ET AL.

CITATION : G.R. No. L-23788 (May 16, 1969)

TOPIC : RECTO LAW

FACTS OF THE CASE:

 Appellant Dy Hian Tat bought from appellee Universal Motors Corporation a Mercedes-Benz diesel truck on an instalment basis.

 When appellant defaulted in the payment of the instalments, appellee filed an action for replevin before the CFI of Manila in order to recover
possession of said truck.

 Appellee further prayed that in event said truck could not be recovered, appellant should pay to the former not only the unpaid balance for
the sale of the truck but also the attorney’s fees and the costs of suit.

 Appellant, on the hand, admits that appellee is entitled to the possession of the said truck.

 The CFI rendered its judgment adjudging that the appellee has the right of possession over the Mercedes-Benz Diesel Truck.

 The lower court further ordered that appellant pay to appellee amounts representing attorney's fees and costs of suit.

 Appellant appealed the decision of the CFI to the Supreme Court on the ground that the awarding of attorney’s fees by the lower court erred to the
appellee is contrary to the provisions of article 1484 of the New Civil Code of the Philippines.

ISSUE(S):

1. Whether Article 1484 of the Civil Code is applicable to the case at bar; and,
2. Whether appellee is entitled to the award of attorney’s fees.

HELD:

1. As to the First Issue:

The Supreme Court say NO.

According to the Supreme Court, Article 1484 of the Civil Code does not apply to the case at bar because the present case is an action for replevin
and not a foreclosure of mortgage. Nowhere in the stipulation of facts or even in the pleadings does it appear that appellee has foreclosed its mortgage.
Merely because a copy of the mortgage has been attached to the complaint does not make this action one of foreclosure of a chattel mortgage. True,
appellee succeeded in recovering the truck in question, precisely by means of the present action of replevin, but surely, this case is far from being the action
of foreclosure of chattel mortgage.

The mere fact that appellee has secured possession of the truck in question does not necessarily mean that it will foreclose its mortgage. Indeed,
there is no showing at all that appellee is causing the sale thereof at public auction or in even preparing to do so. It is quite possible that appellee wanted
merely to be sure that the truck is not lost or rendered valueless, preparatory to having it levied upon under a writ of attachment.

2. As to the Second Issue:

The Supreme Court says YES.

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

JUDGMENT OF THE CFI AFFIRMED, WITH COSTS AGAINST APPELLANT.

 SPOUSES NOYNAY VS. CITIHOMES BUILDER AND DEVELOPMENT INC
G.R. No. 204160 | September 22, 2014

FACTS:

Petitioners Michelle and Noel Noynay and respondent Citihomes executed a contract to sell covering the sale of a house and lot. Under the terms of the
contract, the price of the property was fixed at a certain amount with a downpayment and the remaining balance was to be paid in 120 equal monthly
installments with annual interest.

Two years later, the petitioner spouses allegedly started to default on their payments. Several months later, the respondent decided to declare the petitioners
delinquent and to cancel the contract considering that nine months of agreed amortizations were left unpaid. The notarized Notice of Delinquency and
Cancellation of the Contract to Sell was received by the petitioners. They were given 30 days within which to pay the arrears and failure to do so would
authorize the respondent to consider the contract as cancelled. Respondent sent its final demand letter asking the petitioners to vacate the premises due to
their continued failure to pay the arrears.

The petitioners insist that by virtue of the monthly installments amounting to three years that they had already paid, the Maceda Law should apply in their
case. This means that for the cancellation to be effective, the cash surrender value should have been paid first to them by respondent. Respondent counters
that because the petitioners failed to pay at least 2 years of installments, the cancellation became effective upon the expiration of the 30-day period following
the receipt of the notice of delinquency and cancellation notice and without the need for the payment of the cash surrender value.

ISSUE: Whether or not the cancellation of the contract to sell was valid.

RULING:

No. It is not valid.

The Contract to Sell dated December 29, 2004 is enlightening on the matter. The amount representing the full down payment shall be paid upon signing of
the contract. Respondent claimed that the period of the payment of the amortizations started five months after. As can be gleaned from the contract to sell, it
appears however that the payment of the down payment started from the signing of the contract.

Moreover, based on the most recent statement of account, petitioners started defaulting about 3 years after from when the contract was signed. This shows
that prior to that date, amortizations covering the 3-year period starting with the down payment, had been paid. This is consistent with the admission of the
respondent during the preliminary conference. By its admission, the petitioners had been paying the amortizations for 3 years, there is no reason to doubt
their compliance with the minimum requirement of two years payment of amortization, entitling them to the payment of the cash surrender value provided for
by law and by the contract to sell.

To reiterate, the Maceda Law requires that for an actual cancellation to take place, the notice of cancellation by notarial act and the full payment of the cash
surrender value must be first received by the buyer. Clearly, no payment of the cash surrender value was made to the petitioners. Thus, no cancellation of the
contract to sell could be considered as validly effected.

MANUEL UY & SONS, INC. vs. VALBUECO, INCORPORATED, G.R. No. 179594, September 11, 2013

Facts: Petitioner is the owner of the subject lots. In 1973, two Conditional Deeds of Sale were executed by petitioner in favor of the respondent. The Deeds of
Conditional Sale provided, among others, that the purchase price shall be paid in 3 installments with interest, that the vendee be granted a grace period of 30
days from date of installment and that ownership of the properties shall not pass to the vendee until after full payment of the purchase price. Respondent was
able to pay petitioner the amount of P275,055.558 as partial payment for the two properties corresponding to the initial payments and the first installments of
the said properties.However, respondent suspended further payment as it was not satisfied with the manner petitioner complied with its obligations under the
conditional deeds of sale.Consequently, in 1978, petitioner sent respondent a letter informing respondent of its intention to rescind the conditional deeds of
sale and attaching therewith the original copy of the respective notarial rescission. In 1994, respondent filed a Complaint for specific performance and
damages against petitioner with the RTC. Such was dismissed without prejudice for lack of interest, as respondent's counsel failed to attend the pre-trial
conference.

In 2001, respondent again filed with the RTC a complaint for specific performance and damages, seeking to compel petitioner to accept the balance of
the purchase price for the two conditional deeds of sale and to execute the corresponding deeds of absolute sale. Respondent contended that its non-
payment of the instalments was due to the following reasons:(1) Petitioner refused to receive the balance of the purchase price as the properties were
mortgaged and had to be redeemed first before a deed of absolute sale could be executed; (2) Petitioner assured that the existing mortgages on the
properties would be discharged on or before May 20,1974, or that petitioner did not inform it (respondent) that the mortgages on the properties were already
released; and (3) Petitioner failed to fully eject the unlawful occupants in the area. On the other hand, Petitioner claimed that it gave respondent a notice of
notarial rescission of both conditional deeds of sale that would take effect 30 days from receipt thereof. The notice of notarial rescission was allegedly
received by respondent in 1978. Petitioner asserted that since respondent failed to pay the full purchase price of the subject lots, both conditional deeds of
sale were rescinded as of April 16, 1978; hence, respondent had no cause of action against it.

The trial court dismissed the complaint. On appeal the court of appeals reversed and set aside the RTC decision. It reinstated the complaint of
respondent, and directed petitioner to execute deeds of absolute sale in favor of respondent after payment of the balance of the purchase price of the subject
lots.

Issue: Whether or not the contracts to sell were validly rescinded.

Ruling: Yes. The contracts to sell were validly rescinded.

In Ramos v. Heruela the Court held that Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale, while R.A. No. 6552or the
Realty Installment Buyer Act applies to contracts to sell.R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial,
residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation
of the vendor to convey title from acquiring binding force. It is noteworthy that upon review of the records of this case, the Court finds that respondent had
been served a notice of the notarial rescission of the conditional deeds of sale when it was furnished with the petitioner's Answer, dated February 16, 1995, to
its first Complaint filed on November 28, 1994with the RTCbut the complaint was later dismissed without prejudice xxx.Five years after the dismissal of the
first Complaint, respondent again filed this case for specific performance in which it received the petitioner’s answer containing the notarial rescission of the
conditional sale. Since respondent already received notices of the notarial rescission of the conditional deeds of sale, together with petitioner’s Answer to the
first Complaint five years before it filed this case, it can no longer deny having received notices of the notarial rescission in this case, as respondent admitted
the same when it attached the notices of notarial rescission to its Reply in this case.

Valarao vs Court of Appeals

Facts: On September 4, 1987, spouses Abelardo and Gloriosa Valarao, thru their son Carlos Valarao as their attorney-in-fact, sold to [Private Respondent]
Meden Arellano under a Deed of Conditional Sale a parcel of land with an area of 1,504 square meters, for the sum of P3,225,000.00 payable under a
schedule of payment stated therein.

Stipulations:

 The [private respondent] vendee obligated herself to encumber by way of real estate mortgage in favor of [petitioners] vendors her separate piece
of property with the condition that upon full payment of the balance of P2,225.000.00, the said mortgage shall become null and void and without
further force and effect.
 Should the vendee fail to pay three (3) successive monthly installments or anyone year-end lump sum payment within the period stipulated, the
sale shall be considered automatically rescinded without the necessity of judicial action and all payments made by the vendee shall be forfeited in
favor of the vendors by way of rental for the use and occupancy of the property and as liquidated damages. All improvements introduced by the
vendee to the property shall belong to the vendors without any right of reimbursement.
[Private respondent] appellant alleged that as of September, 1990, she had already paid the amount of P2,028,000.00, although she admitted having failed to
pay the installments due in October and November, 1990. Petitioner, however, [had] tried to pay the installments due [in] the said months, including the
amount due [in] the month of December, 1990 on December 30 and 31, 1990, but was turned down by the vendors-[petitioners] thru their maid, Mary
Gonzales, who refused to accept the payment offered. [Private respondent] maintains that on previous occasions, the same maid was the one who [had]
received payments tendered by her. It appears that Mary Gonzales refused to receive payment allegedly on orders of her employers who were not at home.

[Private respondent] tried to get in touch with [petitioners] over the phone and was able to talk with [Petitioner] Gloriosa Valarao who told her that she [would]
no longer accept the payments being offered and that [private respondent] should instead confer with her lawyer, a certain Atty. Tuazon.

When all her efforts to make payment were unsuccessful, [private respondent] sought judicial action by filing this petition for consignation on January 4, 1991.

On the other hand, vendors-[petitioners], thru counsel, sent [private respondent] a letter dated 4 January 1991 (Exh. "C") notifying her that they were
enforcing the provision on automatic rescission as a consequence of which the Deed of Conditional Sale [was deemed] null and void, and . . . all payments
made, as well as the improvements introduced on the property, [were] thereby forfeited. The letter also made a formal demand on the [private respondent] to
vacate the property should she not heed the demand of [petitioners] to sign a contract of lease for her continued stay in the property.

In reply, [private respondent] sent a letter dated January 14, 1991 (Exh. "D"), denying that she [had] refused to pay the installments due [in] the months of
October, November and December, and countered that it was [petitioners] who refused to accept payment, thus constraining her to file a petition for
consignation before the Regional Trial Court of Quezon City.

Petitioners, through counsel, sent the private respondent another letter dated January 19, 1991 (Exh. "F"), denying the allegations of her attempts to tender
payment on December 30 and 31, 1990, and demanding that [private respondent] vacate and turnover the property and pay a monthly compensation for her
continued occupation of the subject property at the rate of P20,000.00, until she shall have vacated the same.

Issues: 1.) Whether the Answer [— (a)] categorically indicating willingness to accept the amount already due if the [private respondent] would update the
account, [(b)] praying that "if she fail[ed] to do so immediately, . . . the Deed of Conditional Sale be declared rescinded, pursuant to the second paragraph of
Section 3 thereof, with costs against the [private respondent], [(c)] ordering the latter to vacate and turnover possession of the premises to the [petitioners],
and to pay the latter attorney's fees in the amount of P50,000.00 and the expenses of litigation" [—] is tantamount to a judicial demand and notice of
rescission under Art. 1592 of the Civil Code.

2.) Whether the action for consignation may prosper without actual deposit [in court] of the amount due . . . [so as] to produce the effect of
payment.
Ruling:

1.) We believe, however, that the issue of whether the requirement of a judicial demand or a notarial act has been fulfilled is immaterial to the resolution of the
present case. Article 1592 of the Civil Code. states:

Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission
of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has
been made upon him either judicially or by notarial act. After the demand, the court may not grant him a new term.

It is well-settled that the above-quoted provision applies only to a contract of sale, 8 and not to a sale on installment or a contract to sell. In the present case,
the Deed of Conditional Sale is of the same nature as a sale on installment or a contract to sell, which is not covered by Article 1592.

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

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

Application of the Maceda Law

In any event, the rescission of the contract and the forfeiture of the payments already made could not be effected, because the case falls squarely under
Republic Act No. 6552, 22 otherwise known as the "Maceda Law." Section 3 of said law provides:

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

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

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

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

Hence, the private respondent was entitled to a one-month grace period for every year of installments paid, which means that she had a total grace period of
three months from December 31, 1990. Indeed, to rule in favor of petitioner would result in patent injustice and unjust enrichment.