Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 193577 September 7, 2011

ANTONIO FRANCISCO, substituted by his heirs: NELIA E.S. FRANCISCO, EMILIA F. BERTIZ, REBECCA E.S.
FRANCISCO, ANTONIO E.S. FRANCISCO, JR., SOCORRO F. FONTANILLA, and JOVITO E.S.
FRANCISCO, Petitioners,
vs.
CHEMICAL BULK CARRIERS, INCORPORATED, Respondent.

DECISION

CARPIO, J.:

The Case

1 2 3
This is a petition for review of the 31 May 2010 Decision and 31 August 2010 Resolution of the Court of Appeals in CA G.R.
4
CV No. 63591. In its 31 May 2010 Decision, the Court of Appeals set aside the 21 August 1998 Decision of the Regional Trial
of Pasig City, Branch 71 (trial court), and ordered petitioner Antonio Francisco (Francisco) to pay respondent Chemical Bulk
Carriers, Incorporated (CBCI) ₱1,119,905 as actual damages. In its 31 August 2010 Resolution, the Court of Appeals denied
Francisco’s motion for reconsideration.

The Facts

Since 1965, Francisco was the owner and manager of a Caltex station in Teresa, Rizal. Sometime in March 1993, four persons,
including Gregorio Bacsa (Bacsa), came to Francisco’s Caltex station and introduced themselves as employees of CBCI. Bacsa
offered to sell to Francisco a certain quantity of CBCI’s diesel fuel.

After checking Bacsa’s identification card, Francisco agreed to purchase CBCI’s diesel fuel. Francisco imposed the following
conditions for the purchase: (1) that Petron Corporation (Petron) should deliver the diesel fuel to Francisco at his business
address which should be properly indicated in Petron’s invoice; (2) that the delivery tank is sealed; and (3) that Bacsa should issue
a separate receipt to Francisco.

5
The deliveries started on 5 April 1993 and lasted for ten months, or up to 25 January 1994. There were 17 deliveries to
Francisco and all his conditions were complied with.

In February 1996, CBCI sent a demand letter to Francisco regarding the diesel fuel delivered to him but which had been paid for
by CBCI. CBCI demanded that Francisco pay CBCI ₱1,053,527 for the diesel fuel or CBCI would file a complaint against him
6

in court. Francisco rejected CBCI’s demand.

On 16 April 1996, CBCI filed a complaint for sum of money and damages against Francisco and other unnamed
7
defendants. According to CBCI, Petron, on various dates, sold diesel fuel to CBCI but these were delivered to and received by
Francisco. Francisco then sold the diesel fuel to third persons from whom he received payment. CBCI alleged that Francisco
acquired possession of the diesel fuel without authority from CBCI and deprived CBCI of the use of the diesel fuel it had paid
for. CBCI demanded payment from Francisco but he refused to pay. CBCI argued that Francisco should have known that since
only Petron, Shell and Caltex are authorized to sell and distribute petroleum products in the Philippines, the diesel fuel came
8 9 10 11
from illegitimate, if not illegal or criminal, acts. CBCI asserted that Francisco violated Articles 19, 20, 21, and 22 of the Civil
Code and that he should be held liable. In the alternative, CBCI claimed that Francisco, in receiving CBCI’s diesel fuel, entered
into an innominate contract of do ut des (I give and you give) with CBCI for which Francisco is obligated to pay CBCI
₱1,119,905, the value of the diesel fuel. CBCI also prayed for exemplary damages, attorney’s fees and other expenses of litigation.

12 13
On 20 May 1996, Francisco filed a Motion to Dismiss on the ground of forum shopping. CBCI filed its Opposition. In an
14
Order dated 15 November 1996, the trial court denied Francisco’s motion.

15
Thereafter, Francisco filed his Answer. Francisco explained that he operates the Caltex station with the help of his family
because, in February 1978, he completely lost his eyesight due to sickness. Francisco claimed that he asked Jovito, his son, to
look into and verify the identity of Bacsa, who introduced himself as a radio operator and confidential secretary of a certain Mr.
Inawat (Inawat), CBCI’s manager for operations. Francisco said he was satisfied with the proof presented by Bacsa. When asked
to explain why CBCI was selling its fuel, Bacsa allegedly replied that CBCI was in immediate need of cash for the salary of its
daily paid workers and for petty cash. Francisco maintained that Bacsa assured him that the diesel fuel was not stolen property
and that CBCI enjoyed a big credit line with Petron. Francisco agreed to purchase the diesel fuel offered by Bacsa on the
following conditions:

1) Defendant [Francisco] will not accept any delivery if it is not company (Petron) delivered, with his name and address as
shipping point properly printed and indicated in the invoice of Petron, and that the product on the delivery tank is sealed; [and]
2) Although the original invoice is sufficient evidence of delivery and payment, under ordinary course of business, defendant still
required Mr. Bacsa to issue a separate receipt duly signed by him acknowledging receipt of the amount stated in the invoice, for
16
and in behalf of CBCI.

During the first delivery on 5 April 1993, Francisco asked one of his sons to verify whether the delivery truck’s tank was properly
sealed and whether Petron issued the invoice. Francisco said all his conditions were complied with. There were 17 deliveries
made from 5 April 1993 to 25 January 1994 and each delivery was for 10,000 liters of diesel fuel at ₱65,865. Francisco
17

maintained that he acquired the diesel fuel in good faith and for value. Francisco also filed a counterclaim for exemplary
damages, moral damages and attorney’s fees.

In its 21 August 1998 Decision, the trial court ruled in Francisco’s favor and dismissed CBCI’s complaint. The dispositive
portion of the trial court’s 21 August 1998 Decision reads:

WHEREFORE, Judgment is hereby rendered:

1. Dismissing the complaint dated March 13, 1996 with costs.

2. Ordering plaintiff (CBCI), on the counterclaim, to pay defendant the amount of ₱100,000.00 as moral damages and
₱50,000.00 as and by way of attorney’s fees.

18
SO ORDERED.

19
CBCI appealed to the Court of Appeals. CBCI argued that Francisco acquired the diesel fuel from Petron without legal ground
because Bacsa was not authorized to deliver and sell CBCI’s diesel fuel. CBCI added that Francisco acted in bad faith because he
should have inquired further whether Bacsa’s sale of CBCI’s diesel fuel was legitimate.

In its 31 May 2010 Decision, the Court of Appeals set aside the trial court’s 21 August 1998 Decision and ruled in CBCI’s favor.
The dispositive portion of the Court of Appeals’ 31 May 2010 Decision reads:

IN VIEW OF THE FOREGOING, the assailed decision is hereby REVERSED and SET ASIDE. Antonio Francisco is
ordered to pay Chemical Bulk Carriers, Incorporated the amount of ₱1,119,905.00 as actual damages.

20
SO ORDERED.

21
On 15 January 2001, Francisco died. Francisco’s heirs, namely: Nelia E.S. Francisco, Emilia F. Bertiz, Rebecca E.S. Francisco,
Antonio E.S. Francisco, Jr., Socorro F. Fontanilla, and Jovito E.S. Francisco (heirs of Francisco) filed a motion for
22 23
substitution. The heirs of Francisco also filed a motion for reconsideration. In its 31 August 2010 Resolution, the Court of
Appeals granted the motion for substitution but denied the motion for reconsideration.

Hence, this petition.

The Ruling of the Trial Court

The trial court ruled that Francisco was not liable for damages in favor of CBCI because the 17 deliveries were covered by
original and genuine invoices. The trial court declared that Bacsa, as confidential secretary of Inawat, was CBCI’s authorized
representative who received Francisco’s full payment for the diesel fuel. The trial court stated that if Bacsa was not authorized,
CBCI should have sued Bacsa and not Francisco. The trial court also considered Francisco a buyer in good faith who paid in full
for the merchandise without notice that some other person had a right to or interest in such diesel fuel. The trial court pointed
out that good faith affords protection to a purchaser for value. Finally, since CBCI was bound by the acts of Bacsa, the trial court
ruled that CBCI is liable to pay damages to Francisco.

The Ruling of the Court of Appeals

The Court of Appeals set aside the trial court’s 21 August 1998 Decision and ruled that Bacsa’s act of selling the diesel fuel to
Francisco was his personal act and, even if Bacsa connived with Inawat, the sale does not bind CBCI.

The Court of Appeals declared that since Francisco had been in the business of selling petroleum products for a considerable
number of years, his blindness was not a hindrance for him to transact business with other people. With his condition and
experience, Francisco should have verified whether CBCI was indeed selling diesel fuel and if it had given Bacsa authority to do
so. Moreover, the Court of Appeals stated that Francisco cannot feign good faith since he had doubts as to the authority of Bacsa
yet he did not seek confirmation from CBCI and contented himself with an improvised receipt. Francisco’s failure to verify
Bacsa’s authority showed that he had an ulterior motive. The receipts issued by Bacsa also showed his lack of authority because it
was on a plain sheet of bond paper with no letterhead or any indication that it came from CBCI. The Court of Appeals ruled that
Francisco cannot invoke estoppel because he was at fault for choosing to ignore the tell-tale signs of petroleum diversion and for
not exercising prudence.

The Court of Appeals also ruled that CBCI was unlawfully deprived of the diesel fuel which, as indicated in the invoices, CBCI
had already paid for. Therefore, CBCI had the right to recover the diesel fuel or its value from Francisco. Since the diesel fuel
can no longer be returned, the Court of Appeals ordered Francisco to give back the actual amount paid by CBCI for the diesel
fuel.
The Issues

The heirs of Francisco raise the following issues:

I. WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING THAT DEFENDANT ANTONIO FRANCISCO
EXERCISED THE REQUIRED DILIGENCE OF A BLIND PERSON IN THE CONDUCT OF HIS BUSINESS; and

II. WHETHER ON THE BASIS OF THE FACTUAL FINDINGS OF THE COURT OF APPEALS AND THE TRIAL
COURT AND ADMITTED FACTS, IT CAN BE CONCLUDED THAT THE PLAINTIFF APPROVED EXPRESSLY
24
OR TACITLY THE TRANSACTIONS.

The Ruling of the Court

The petition has no merit.

Required Diligence of a Blind Person

The heirs of Francisco argue that the Court of Appeals erred when it ruled that Francisco was liable to CBCI because he failed to
exercise the diligence of a good father of a family when he bought the diesel fuel. They argue that since Francisco was blind, the
standard of conduct that was required of him was that of a reasonable person under like disability. Moreover, they insist that
Francisco exercised due care in purchasing the diesel fuel by doing the following: (1) Francisco asked his son to check the identity
of Bacsa; (2) Francisco required direct delivery from Petron; (3) Francisco required that he be named as the consignee in the
invoice; and (4) Francisco required separate receipts from Bacsa to evidence actual payment.

Standard of conduct is the level of expected conduct that is required by the nature of the obligation and corresponding to the
25
circumstances of the person, time and place. The most common standard of conduct is that of a good father of a family or that
26
of a reasonably prudent person. To determine the diligence which must be required of all persons, we use as basis the abstract
27
average standard corresponding to a normal orderly person.

However, one who is physically disabled is required to use the same degree of care that a reasonably careful person who has the
28
same physical disability would use. Physical handicaps and infirmities, such as blindness or deafness, are treated as part of the
circumstances under which a reasonable person must act. Thus, the standard of conduct for a blind person becomes that of a
reasonable person who is blind.

We note that Francisco, despite being blind, had been managing and operating the Caltex station for 15 years and this was not a
hindrance for him to transact business until this time. In this instance, however, we rule that Francisco failed to exercise the
standard of conduct expected of a reasonable person who is blind. First, Francisco merely relied on the identification card of
Bacsa to determine if he was authorized by CBCI. Francisco did not do any other background check on the identity and authority
29
of Bacsa. Second, Francisco already expressed his misgivings about the diesel fuel, fearing that they might be stolen property, yet
he did not verify with CBCI the authority of Bacsa to sell the diesel fuel. Third, Francisco relied on the receipts issued by Bacsa
30
which were typewritten on a half sheet of plain bond paper. If Francisco exercised reasonable diligence, he should have asked
for an official receipt issued by CBCI. Fourth, the delivery to Francisco, as indicated in Petron’s invoice, does not show that
CBCI authorized Bacsa to sell the diesel fuel to Francisco. Clearly, Francisco failed to exercise the standard of conduct expected
of a reasonable person who is blind.

Express or Tacit Approval of the Transaction

The heirs of Francisco argue that CBCI approved expressly or tacitly the transactions. According to them, there was apparent
authority for Bacsa to enter into the transactions. They argue that even if the agent has exceeded his authority, the principal is
31
solidarily liable with the agent if the former allowed the later to act as though he had full powers. They insist CBCI was not
unlawfully deprived of its property because Inawat gave Bacsa the authority to sell the diesel fuel and that CBCI is bound by such
action. Lastly, they argue that CBCI should be considered in estoppel for failure to act during the ten month period that deliveries
were being made to Francisco.

32
The general principle is that a seller without title cannot transfer a better title than he has. Only the owner of the goods or one
33
authorized by the owner to sell can transfer title to the buyer. Therefore, a person can sell only what he owns or is authorized to
34
sell and the buyer can, as a consequence, acquire no more than what the seller can legally transfer.

Moreover, the owner of the goods who has been unlawfully deprived of it may recover it even from a purchaser in good
35
faith. Thus, the purchaser of property which has been stolen from the owner has been held to acquire no title to it even though
he purchased for value and in good faith.

The exception from the general principle is the doctrine of estoppel where the owner of the goods is precluded from denying the
36
seller’s authority to sell. But in order that there may be estoppel, the owner must, by word or conduct, have caused or allowed it
to appear that title or authority to sell is with the seller and the buyer must have been misled to his damage. 1avvphi1
37

In this case, it is clear that Bacsa was not the owner of the diesel fuel. 1âwphi1 Francisco was aware of this but he claimed that
Bacsa was authorized by CBCI to sell the diesel fuel. However, Francisco’s claim that Bacsa was authorized is not supported by
any evidence except his self-serving testimony. First, Francisco did not even confirm with CBCI if it was indeed selling its diesel
fuel since it is not one of the oil companies known in the market to be selling petroleum products. This fact alone should have
put Francisco on guard. Second, it does not appear that CBCI, by some direct and equivocal act, has clothed Bacsa with the
indicia of ownership or apparent authority to sell CBCI’s diesel fuel. Francisco did not state if the identification card presented by
Bacsa indicated that he was CBCI’s agent or a mere employee. Third, the receipt issued by Bacsa was typewritten on a half sheet
of plain bond paper. There was no letterhead or any indication that it came from CBCI. We agree with the Court of Appeals that
this was a personal receipt issued by Bacsa and not an official receipt issued by CBCI. Consequently, CBCI is not precluded by
its conduct from denying Bacsa’s authority to sell. CBCI did not hold out Bacsa or allow Bacsa to appear as the owner or one
with apparent authority to dispose of the diesel fuel.

Clearly, Bacsa cannot transfer title to Francisco as Bacsa was not the owner of the diesel fuel nor was he authorized by CBCI to
sell its diesel fuel. CBCI did not commit any act to clothe Bacsa with apparent authority to sell the diesel fuel that would have
misled Francisco. Francisco, therefore, did not acquire any title over the diesel fuel. Since CBCI was unlawfully deprived of its
property, it may recover from Francisco, even if Francisco pleads good faith.

WHEREFORE, we DENY the petition. We AFFIRM the 31 May 2010 Decision and 31 August 2010 Resolution of the Court
of Appeals.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 143573 January 30, 2009

ADORACION ROSALES RUFLOE, ALFREDO RUFLOE and RODRIGO RUFLOE, Petitioners,

vs.
LEONARDA BURGOS, ANITA BURGOS, ANGELITO BURGOS, AMY BURGOS, ELVIRA DELOS REYES and
JULIAN C. TUBIG, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

Under consideration is this petition for review under Rule 45 of the Rules of Court seeking the reversal and setting aside of the
1 2
Decision dated January 17, 2000 of the Court of Appeals (CA) in CA-G.R. CV. No. 49939, and its Resolution dated June 9,
2000, denying petitioners’ motion for reconsideration.

3
The assailed decision reversed and set aside the February 10, 1995 decision of the Regional Trial Court (RTC) at Muntinlupa,
4
Metro Manila, Branch 276, in its Civil Case No. 90-359, an action for Declaration of Nullity of Contract and Cancellation of
Transfer Certificate of Titles and Damages, commenced by the petitioners against herein respondents.

The factual antecedents are as follows:

Petitioner Adoracion Rufloe is the wife of Angel Rufloe, now deceased, while co-petitioners Alfredo and Rodrigo are their
children. During the marriage of Adoracion and Angel, they acquired a 371-square meter parcel of land located at Barangay
Bagbagan, Muntinlupa, and covered by Transfer Certificate of Title (TCT) No. 406851 which is the subject of the present
controversy.

Sometime in 1978, respondent Elvira Delos Reyes forged the signatures of Adoracion and Angel in a Deed of Sale dated
September 8, 1978 to make it appear that the disputed property was sold to her by the spouses Rufloe. On the basis of the said
deed of sale, Delos Reyes succeeded in obtaining a title in her name, TCT No. S-74933.

Thus, in November 1979, the Rufloes filed a complaint for damages against Delos Reyes with the RTC of Pasay City alleging that
the Deed of Sale was falsified as the signatures appearing thereon were forged because Angel Rufloe died in 1974, which was four
5
(4) years before the alleged sale in favor of Delos Reyes. The complaint was docketed as Civil Case No. M-7690. They also filed
a notice of adverse claim on November 5, 1979.

On December 4, 1984, during the pendency of Civil Case No. M-7690, Delos Reyes sold the subject property to respondent
siblings Anita, Angelina, Angelito and Amy (Burgos siblings). A new title, TCT No. 135860, was then issued in their names.

On December 12, 1985, the Burgos siblings, in turn, sold the same property to their aunt, Leonarda Burgos. However, the sale in
favor of Leonarda was not registered. Thus, no title was issued in her name. The subject property remained in the name of the
Burgos siblings who also continued paying the real estate taxes thereon.

6
On February 6, 1989, the RTC of Pasay City, Branch 108, rendered its decision in Civil Case No. M-7690 declaring that the
Deed of Sale in favor of Delos Reyes was falsified as the signatures of the spouses Rufloe had been forged. The trial court ruled
that Delos Reyes did not acquire ownership over the subject property. Said decision had become final and executory.
Such was the state of things when, on February 8, 1990, in the RTC of Muntinlupa, the Rufloes filed their complaint for
Declaration of Nullity of Contract and Cancellation of Transfer Certificate of Titles against respondents Leonarda and the Burgos
siblings, and Delos Reyes. In their complaint, docketed as Civil Case No. 90-359, the Rufloes basically alleged that inasmuch as
7
the Deed of Sale in favor of Delos Reyes was falsified, no valid title was ever conveyed to the Burgos siblings. The Burgos siblings
executed a simulated deed of sale in favor of Leonarda knowing fully well that their title was a nullity.

In their common "Answer," respondents maintained that they bought the property in good faith after they were shown a genuine
copy of the title of the disputed property by Delos Reyes. They also insisted that they were innocent purchasers in good faith and
8
for value.

On February 10, 1995, the trial court rendered a decision declaring that Leonarda and the Burgos siblings were not innocent
purchasers for value and did not have a better right to the property in question than the true and legal owners, the Rufloes. The
trial court also held that the subsequent conveyance of the disputed property to Leonarda by the Burgos siblings was simulated to
make it appear that Leonarda was a buyer in good faith. The trial court then directed the Register of Deeds of Makati, Rizal to
reinstate the title of the spouses Rufloe, and to cancel all other titles subsequent to the said title particularly TCT No. S-74933
9
issued to Delos Reyes and TCT No. 135860 issued to the Burgos siblings.

Respondents interposed an appeal to the CA, whereat the appellate recourse was docketed as CA-G.R. CV. No. 49939.

As stated at the threshold hereof, the CA, in its decision dated January 17, 2000, reversed and set aside that of the trial court,
declaring in the process that respondents were purchasers in good faith and for value. In so ruling, the CA explained:

Measured by this yardstick, defendants-appellants [herein respondents] are purchasers in good faith and for value. Amado Burgos
bought the subject property (for his children Anita, Angelina, Angelito and Amy) free from any lien or encumbrance or any
notice of adverse claim annotated thereto. He was presented with a clean title already in the name of the seller. If a person
purchases a piece of land on the assurance that the seller’s title thereto is valid, he should not run the risk of being told later that
his acquisition was ineffectual after all. If we were to void a sale of property covered by a clean and unencumbered torrens title,
public confidence in the Torrens System would be eroded and transactions would have to be attended by complicated and
inconclusive investigations and uncertain proof of ownership. The consequences would be that land conflicts could proliferate
10
and become more abrasive, if not violent. (Words in bracket ours).

Their motion for reconsideration having been denied by the CA in its equally challenged resolution of June 9, 2000, petitioners
are now with us via the present recourse, faulting the CA as follows:

A. THE HONORABLE COURT OF APPEALS DECIDED THIS CASE IN A WAY NOT IN ACCORD WITH THE
APPLICABLE DECISIONS OF THE HONORABLE SUPREME COURT.

B. THERE ARE SPECIAL AND IMPORTANT REASONS THAT REQUIRE A REVIEW OF THE CA DECISION.

C. THE HONORABLE CA ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF

JURISDICTION WHEN IT COUNTERMANDED THE FINDINGS OF THE REGIONAL TRIAL COURT EVEN ON
POINTS AND QUESTIONS OF CREDIBILITY.

D. THE CA JUDGMENT THAT REVERSED THE RTC DECISION IS NOT SUPPORTED BY THE EVIDENCE ON
RECORD AND IS CONTRARY TO ESTABLISHED PRECEDENTS LAID DOWN BY THE HONORABLE SUPREME
COURT.

E. THE CA ERRED IN LAW IN PRACTICALLY HOLDING THAT A DEAD MAN ANGEL RUFLOE (ANGEL
NEVER SIGNED) VALIDLY DISPOSED OF HIS PROPERTY (A HOUSE AND LOT COVERED BY A TCT
THROUGH A FALSIFIED DEED OF SALE) AFTER HIS DEATH FOUR (4) YEARS BEFORE THE EXECUTION OF
THE DEED.

F. THE CA ERRED IN LAW IN HOLDING ANITA, ANGELINA, AMY AND ANGELITO BURGOS AND THEIR
SUCCESOR-IN-INTEREST (THEIR AUNT) LEONARDA BURGOS ARE BUYERS IN GOOD FAITH.

G. THE CA IGNORED THE PLAIN PROVISIONS OF THE CIVIL CODE THAT "IN ALL CONTRACTUAL,
PROPERTY OR OTHER RELATIONS, WHEN ONE OF THE PARTIES IS AT A DISADVANTAGE ON ACCOUNT
OF HIS MORAL DEPENDENCE, IGNORANCE, INDIGENCE, MENTAL WEAKNESS, TENDER AGE OR OTHER
11
HANDICAP, THE COURT MUST BE VIGILANT FOR HIS PROTECTION."

In a gist, the issues to be resolved are (1) whether the sale of the subject property by Delos Reyes to the Burgos siblings and the
subsequent sale by the siblings to Leonarda were valid and binding; and (2) whether respondents were innocent purchasers in
good faith and for value despite the forged deed of sale of their transferor Delos Reyes.

The issues necessitate an inquiry into the facts. While, as a rule, factual issues are not within the province of this Court,
nonetheless, in light of the conflicting factual findings of the two (2) courts below, an examination of the facts obtaining in this case
is in order.

The Rufloes aver that inasmuch as the Deed of Sale purportedly executed by them in favor of Delos Reyes was a forgery, she
could not pass any valid right or title to the Burgos siblings and Leonarda. The Rufloes also contend that since the Burgos siblings
and Leonarda acquired the subject property with notice that another person has a right to or interest in such property, they
cannot be considered innocent purchasers in good faith and for value.
For their part, the Burgos siblings and Leonarda insist that their title is valid and binding. They maintain that under the Torrens
System, a person dealing with registered land may safely rely on the correctness on the certificate of title without the need of
further inquiry. For this reason, the Court cannot disregard the right of an innocent third person who relies on the correctness of
the certificate of title even if the sale is void.

We find merit in the petition.

The issue concerning the validity of the deed of sale between the Rufloes and Delos Reyes had already been resolved with finality
in Civil Case No. M-7690 by the RTC of Pasay City which declared that the signatures of the alleged vendors, Angel and
12
Adoracion Rufloe, had been forged. It is undisputed that the forged deed of sale was null and void and conveyed no title. It is a
well-settled principle that no one can give what one does not have, nemo dat quod non habet. One can sell only what one owns or
13
is authorized to sell, and the buyer can acquire no more right than what the seller can transfer legally. Due to the forged deed of
sale, Delos Reyes acquired no right over the subject property which she could convey to the Burgos siblings. All the transactions
subsequent to the falsified sale between the spouses Rufloe and Delos Reyes are likewise void, including the sale made by the
Burgos siblings to their aunt, Leonarda.

We now determine whether respondents Burgos siblings and Leonarda Burgos were purchasers in good faith. It has been
14
consistently ruled that a forged deed can legally be the root of a valid title when an innocent purchaser for value intervenes.

An innocent purchaser for value is one who buys the property of another without notice that some other person has a right to or
interest in it, and who pays a full and fair price at the time of the purchase or before receiving any notice of another person’s
15
claim. The burden of proving the status of a purchaser in good faith and for value lies upon one who asserts that status.
This onus probandi cannot be discharged by mere invocation of the ordinary presumption of good faith. 16

As a general rule, every person dealing with registered land, as in this case, may safely rely on the correctness of the certificate of
title issued therefor and will in no way oblige him to go beyond the certificate to determine the condition of the property.
However, this rule admits of an unchallenged exception:

… a person dealing with registered land has a right to rely on the Torrens certificate of title and to dispense with the need of
inquiring further except when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious
man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts
to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. The presence of anything
which excites or arouses suspicion should then prompt the vendee to look beyond the certificate and investigate the title of the
vendor appearing on the face of said certificate. One who falls within the exception can neither be denominated an innocent
17
purchaser for value nor a purchaser in good faith and, hence, does not merit the protection of the law.

The circumstances surrounding this case point to the absolute lack of good faith on the part of respondents. The evidence shows
18
that the Rufloes caused a notice of adverse claim to be annotated on the title of Delos Reyes as early as November 5, 1979. The
annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property, and serves
as a notice and warning to third parties dealing with said property that someone is claiming an interest on the same or may have a
better right than the registered owner thereof. Despite the notice of adverse claim, the Burgos siblings still purchased the property
in question.

19
Too, at the time the Burgos siblings bought the subject property on December 4, 1984, Civil Case No. M-7690, an action for
20
damages, and Criminal Case No. 10914-P, for estafa, filed by the Rufloes against Delos Reyes, were both pending before the
RTC of Pasay City. This circumstance should have alerted the Burgos siblings as to the validity of Delos Reyes’ title and her
authority and legal right to sell the property.

Equally significant is the fact that Delos Reyes was not in possession of the subject property when she sold the same to the Burgos
siblings. It was Amado Burgos who bought the property for his children, the Burgos siblings. Amado was not personally
acquainted with Delos Reyes prior to the sale because he bought the property through a real estate broker, a certain Jose Anias,
and not from Delos Reyes herself. There was no showing that Amado or any of the Burgos siblings exerted any effort to
personally verify with the Register of Deeds if Delos Reyes’ certificate of title was clean and authentic. They merely relied on the
title as shown to them by the real estate broker. An ordinarily prudent man would have inquired into the authenticity of the
certificate of title, the property’s location and its owners. Although it is a recognized principle that a person dealing with registered
land need not go beyond its certificate of title, it is also a firmly established rule that where circumstances exist which would put a
purchaser on guard and prompt him to investigate further, such as the presence of occupants/tenants on the property offered for
sale, it is expected that the purchaser would inquire first into the nature of possession of the occupants, i.e., whether or not the
occupants possess the land in the concept of an owner. Settled is the rule that a buyer of real property that is in the possession of
a person other than the seller must be wary and should investigate the rights of those in possession. Otherwise, without such
21
inquiry, the buyer can hardly be regarded as a buyer in good faith.

In the same vein, Leonarda cannot be categorized as a purchaser in good faith. Since it was the Rufloes who continued to have
actual possession of the property, Leonarda should have investigated the nature of their possession.

We cannot ascribe good faith to those who have not shown any diligence in protecting their rights. Respondents had knowledge
of facts that should have led them to inquire and investigate in order to acquaint themselves with possible defects in the title of the
seller of the property.1avvphi1.zw+ However, they failed to do so. Thus, Leonarda, as well as the Burgos siblings, cannot take
cover under the protection the law accords to purchasers in good faith and for value. They cannot claim valid title to the property.

Moreover, the defense of indefeasibility of a Torrens title does not extend to a transferee who takes it with notice of a flaw in the
title of his transferor. To be effective, the inscription in the registry must have been made in good faith. A holder in bad faith of a
22
certificate of title is not entitled to the protection of the law, for the law cannot be used as a shield for fraud.
We quote with approval the following findings of the trial court showing that the sale between the Burgos siblings and Leonarda is
simulated:

1. The sale was not registered, a circumstance which is inconceivable in a legitimate transfer. A true vendee would not brook any
delay in registering the sale in his favor. Not only because registration is the operative act that effects property covered by the
Torrens System, but also because registration and issuance of new title to the transferee, enable this transferee to assume
domiciliary and possessory rights over the property. These benefits of ownership shall be denied him if the titles of the property
shall remain in the name of vendor. Therefore, it is inconceivable as contrary to behavioral pattern of a true buyer and the
empirical knowledge of man to assume that a buyer who invested on the property he bought would be uninvolved and not
endeavor to register the property he bought. The nonchalance of Leonarda amply demonstrates the pretended sale to her, and
the evident scheme of her brother Amado who invested on the property he bought.

2. Despite the sale of property to Leonarda, the sellers continued paying taxes on the property from the time they acquired it
from Elvira in 1984 up to the present or a period of ten years. The tax payment receipts remained in the name of Anita and her
siblings, (Exhibits "16" to "16-H"). On the other hand, Leonarda does not even pretend to have paid any tax on the land she
allegedly bought in 1985. Even the Tax Declaration issued in 1988, three years after the sale to her (Leonarda) is still in the name
of her nieces and nephew. These circumstances can only account for the fact that her nieces and nephew remained the owners of
the land and continued paying taxes thereon.

3. Leonarda never exercised the attributes of ownership. Far from it, she vested the exercise of domiciliary and possessory rights
in her brother Amado the father of Anita, Angelina, Angelito and Amy, by constituting him with full power including the
ejectment of plaintiffs, to defend and to enter a compromise of any case he may file. She allowed the children of Amado to
remain as the registered owners of the property without pressing for its transfer to her.

4. And, this simulated sale is the handiwork of Amado who apparently acted advisedly to make it appear that his sister Leonarda
as the second transferee of the property is an innocent purchaser for value. Since he or his children could not plausibly assume
the stance of a buyer in good faith from the forger Elvira Delos Reyes, knowing of Elvira’s defective title, Amado hoped that the
entry of his sister Leonarda, might conjure the image and who might pass off as an innocent purchaser, specially considering that
the notice of adverse claim of the Plaintiffs which was annotated in Elvira’s title was not, strangely enough, NOT carried over in
the title of his children, who were made to appear as the sellers to their Aunt Leonarda. It was a neat chicanery of Amado to bring
the property out of the reach of Plaintiffs thru a series of transfers involving a third party, to make her appear as an innocent
purchaser for value. His sister could be manipulated to evict or oust the real owners from their own property thru a documentary
manipulation. Unfortunately, his scheme has not passed unnoticed by a discerning and impartial evaluator, like this court. The
Municipal Court of Muntinlupa in Civil Case No. 17446 has even established that Amado’s children Anita and others are buyers
in bad faith who knew of the defective title of their transferor Elvira Delos Reyes, the forger, as aforestated.

These circumstances taken altogether would show that the sale, which occurred between Leonarda and the Burgos siblings, was
simply a scheme designed to cleanse the title passed on to them by the forger Delos Reyes. Respondents had to resort to this
strategy because they were fully aware that their title, having originated from the forged deed of sale of Delos Reyes, was not a
clean and valid title. The trial court explained, thus:

And, this simulated sale is the handiwork of Amado who apparently acted advisedly to make it appear that his sister Leonarda as
the second transferee of the property is an innocent purchaser for value. Since he or his children could not plausibly assume the
stamp of a buyer in good faith from the forger Elvira Delos Reyes, knowing Elvira’s defective title, Amado had hoped that the
entry of his sister Leonarda, might conjure the image and might pass off as an innocent purchaser. xxx. It was a neat chicanery of
Amado to bring the property out of the reach of plaintiffs [herein petitioners] thru a series of transfers involving a third party, to
make her appear as an innocent purchaser for value. Unfortunately, his scheme has not passed unnoticed by a discerning and
23
impartial evaluator, like this Court. (Words in bracket ours)

Patently, the Burgos siblings were not innocent purchasers for value and the simulated sale to Leonarda did not remove the
defect in their title.

Accordingly, we sustain the trial court’s award of ₱20,000.00 as moral damages, ₱50,000.00 as exemplary damages, and
24
P50,000.00 as attorney’s fees.

However, the actual damages in the amount of ₱134,200.00 should be deleted. In view of this Court’s ruling that the property
rightfully belongs to petitioners and must be restored to them, there is no more basis for the award of said actual damages to the
Rufloes.

WHEREFORE, the petition for review is hereby GRANTED. The assailed decision and resolution of the Court of Appeals in
CA-G.R. CV. No. 49939 are REVERSED and SET ASIDE. Accordingly, the decision of the trial court is hereby REVIVED,
except the award of actual damages which must be deleted.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 154450 July 28, 2008

JOSEPH L. SY, NELSON GOLPEO and JOHN TAN, Petitioners,

vs.
NICOLAS CAPISTRANO, JR., substituted by JOSEFA B. CAPISTRANO, REMEDIOS TERESITA B. CAPISTRANO and
MARIO GREGORIO B. CAPISTRANO; NENITA F. SCOTT; SPS. JUANITO JAMILAR and JOSEFINA JAMILAR; SPS.
MARIANO GILTURA and ADELA GILTURA, Respondents.

RESOLUTION

NACHURA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision of the Court of Appeals (CA) dated
July 23, 2002 in CA-G.R. CV No. 53314.

The case originated from an action for reconveyance of a large tract of land in Caloocan City before the Regional Trial Court
(RTC), Branch 129, Caloocan City, entitled Nicolas Capistrano, Jr. v. Nenita F. Scott, Spouses Juanito and Josefina Jamilar,
Joseph L. Sy, Nelson Golpeo and John Tan, and the Register of Deeds, Caloocan City. Said case was docketed as Civil Case No.
C-15791.

The antecedents are as follows:

Sometime in 1980, Nenita Scott (Scott) approached respondent Nicolas Capistrano, Jr. (Capistrano) and offered her services to
help him sell his 13,785 square meters of land covered by Transfer Certificate of Title (TCT) No. 76496 of the Register of Deeds
of Caloocan City. Capistrano gave her a temporary authority to sell which expired without any sale transaction being made. To his
shock, he discovered later that TCT No. 76496, which was in his name, had already been cancelled on June 24, 1992 and a new
one, TCT No. 249959, issued over the same property on the same date to Josefina A. Jamilar. TCT No. 249959 likewise had
already been cancelled and replaced by three (3) TCTs (Nos. 251524, 251525, and 251526), all in the names of the Jamilar
spouses. TCT Nos. 251524 and 251526 had also been cancelled and replaced by TCT Nos. 262286 and 262287 issued to
Nelson Golpeo and John B. Tan, respectively.

Upon further inquiries, Capistrano also discovered the following:

1. The cancellation of his TCT No. 76496 and the issuance of TCT No. 249959 to Jamilar were based upon two (2) deeds of
sale, i.e., a "Deed of Absolute Sale" purportedly executed by him in favor of Scott on March 9, 1980 and a "Deed of Absolute
Sale" allegedly executed by Scott in favor of Jamilar on May 17, 1990.

2. The supposed 1980 sale from him to Scott was for ₱150,000.00; but despite the lapse of more than 10 years thereafter, the
alleged 1990 sale from Scott to Jamilar was also for ₱150,000.00.

3. Both deeds were presented for registration simultaneously on June 24, 1992.

4. Although the deed in favor of Scott states that it was executed on March 9, 1980, the annotation thereof at the back of TCT
No. 76496 states that the date of the instrument is March 9, 1990.

5. Even if there was no direct sale from Capistrano to Jamilar, the transfer of title was made directly to the latter. No TCT was
issued in favor of Scott.

6. The issuance of TCT No. 249959 in favor of Jamilar was with the help of Joseph Sy, who provided for (sic) money for the
payment of the capital gains tax, documentary stamps, transfer fees and other expenses of registration of the deeds of sale.

7. On July 8, 1992, an Affidavit of Adverse Claim was annotated at the back of Jamilar’s TCT No. 249959 at the instance of Sy,
Golpeo, and Tan under a Contract to Sell in their favor by the Jamilar spouses. Said contract was executed sometime in May,
1992 when the title to the property was still in the name of Capistrano.

8. Around July 28, 1992, upon request of the Jamilar spouses, TCT No. 249959 was cancelled and three (3) new certificates of
title (TCT Nos. 251524, 251525, and 251526) all in the name of Jamilar on the basis of an alleged subdivision plan (No. Psd-13-
011917) without Capistrano’s knowledge and consent as registered owner. The notice of adverse claim of Sy, Golpeo, and Tan
was carried over to the three new titles.

9. Around August 18, 1992, Sy, Golpeo, and Tan filed Civil Case No. C-15551 against the Jamilars and another couple, the
Giltura spouses, for alleged violations of the Contract to Sell. They caused a notice of lis pendens to be annotated on the three (3)
TCTs in Jamilar’s name. Said civil case, however, was not prosecuted.

10. On January 26, 1993, a Deed of Absolute Sale was executed by the Jamilars and the Gilturas, in favor of Golpeo and Tan.
Thus, TCT Nos. 251524 and 251526 were cancelled and TCT Nos. 262286 and 262287 were issued to Golpeo and Tan,
1
respectively. TCT No. 251525 remained in the name of Jamilar.
Thus, the action for reconveyance filed by Capistrano, alleging that his and his wife’s signatures on the purported deed of absolute
sale in favor of Scott were forgeries; that the owner’s duplicate copy of TCT No. 76496 in his name had always been in his
possession; and that Scott, the Jamilar spouses, Golpeo, and Tan were not innocent purchasers for value because they all
participated in defrauding him of his property. Capistrano claimed ₱1,000,000.00 from all defendants as moral damages,
₱100,000.00 as exemplary damages; and ₱100,000.00 as attorney’s fees.

In their Answer with Counterclaim, the Jamilar spouses denied the allegations in the complaint and claimed that Capistrano had
no cause of action against them, as there was no privity of transaction between them; the issuance of TCT No. 249959 in their
names was proper, valid, and legal; and that Capistrano was in estoppel. By way of counterclaim, they sought ₱50,000.00 as actual
damages, ₱50,000.00 as moral damages, ₱50,000.00 as exemplary damages, and ₱50,000.00 as attorney’s fees.

In their Answer, Sy, Golpeo, and Tan denied the allegations in the complaint and alleged that Capistrano had no cause of action
against them; that at the time they bought the property from the Jamilars and the Gilturas as unregistered owners, there was
nothing in the certificates of title that would indicate any vice in its ownership; that a buyer in good faith of a registered realty need
not look beyond the Torrens title to search for any defect; and that they were innocent purchasers of the land for value. As
counterclaim, they sought ₱500,000.00 as moral damages and ₱50,000.00 as attorney’s fees.

In her Answer with Cross-claim, Scott denied the allegations in the complaint and alleged that she had no knowledge or any
actual participation in the execution of the deeds of sale in her favor and the Jamilars’; that she only knew of the purported
conveyances when she received a copy of the complaint; that her signatures appearing in both deeds of sale were forgeries; that
when her authority to sell the land expired, she had no other dealings with it; that she never received any amount of money as
alleged consideration for the property; and that, even if she were the owner, she would never have sold it at so low a price.

By way of Cross-claim against Sy, Golpeo, Tan, and the Jamilars, Scott alleged that when she was looking for a buyer of the
property, the Jamilars helped her locate the property, and they became conversant with the details of the ownership and other
particulars thereof; that only the other defendants were responsible for the seeming criminal conspiracy in defrauding Capistrano;
that in the event she would be held liable to him, her other co-defendants should be ordered to reimburse her of whatever
amount she may be made to pay Capistrano; that she was entitled to ₱50,000.00 as moral damages and ₱50,000.00 as attorney’s
fees from her co-defendants due to their fraudulent conduct.

Later, Sy, Golpeo, and Tan filed a third-party complaint against the Giltura spouses who were the Jamilars’ alleged co-vendors of
the subject property.

Thereafter, trial on the merits ensued.

Subsequently, the trial court decided in favor of Capistrano. In its Decision dated May 7, 1996, adopting the theory of Capistrano
as presented in his memorandum, the trial court rendered judgment as follows:

1. Declaring plaintiff herein as the absolute owner of the parcel of land located at the Tala Estate, Bagumbong, Caloocan City and
covered by TCT No. 76496;

2. Ordering defendant Register of Deeds to cause the cancellation of TCT No. 251525 registered in the name of defendant
Josefina Jamilar;

3. Ordering defendant Register of Deeds to cause the cancellation of TCT Nos. 262286 and 262287 registered in the names of
defendants Nelson Golpeo and John B. Tan;

4. Ordering defendant Register of Deeds to cause the issuance to plaintiff of three (3) new TCTs, in replacement of the aforesaid
TCTs Nos. 251525, 262286 and 262287;

5. Ordering all the private defendants in the above-captioned case to pay plaintiff, jointly and severally, the reduced amount of
₱400,000.00 as moral damages;

6. Ordering all the private defendants in the above-captioned case to pay to plaintiff, jointly and severally, the reduced sum of
₱50,000.00 as exemplary damages;

7. Ordering all the private defendants in the above-captioned case to pay plaintiff’s counsel, jointly and severally, the reduced
amount of ₱70,000.00 as attorney’s fees, plus costs of suit;

8. Ordering the dismissal of defendants Sy, Golpeo and Tan’s Cross-Claim against defendant spouses Jamilar;

9. Ordering the dismissal of defendants Sy, Golpeo and Tan’s Third-Party Complaint against defendant spouses Giltura; and

10. Ordering the dismissal of the Counterclaims against plaintiff.

2
SO ORDERED.

On appeal, the CA, in its Decision dated July 23, 2002, affirmed the Decision of the trial court with the modification that the
Jamilar spouses were ordered to return to Sy, Golpeo, and Tan the amount of ₱1,679,260.00 representing their full payment for
the property, with legal interest thereon from the date of the filing of the complaint until full payment.
Hence, this petition, with petitioners insisting that they were innocent purchasers for value of the parcels of land covered by TCT
Nos. 262286 and 262287. They claim that when they negotiated with the Jamilars for the purchase of the property, although the
title thereto was still in the name of Capistrano, the documents shown to them – the court order directing the issuance of a new
owner’s duplicate copy of TCT No. 76496, the new owner’s duplicate copy thereof, the tax declaration, the deed of absolute sale
between Capistrano and Scott, the deed of absolute sale between Scott and Jamilar, and the real estate tax receipts – there was
nothing that aroused their suspicion so as to compel them to look beyond the Torrens title. They asseverated that there was
nothing wrong in financing the cancellation of Capistrano’s title and the issuance of titles to the Jamilars because the money they
spent therefor was considered part of the purchase price they paid for their property.

In their Comment, the heirs of Capistrano, who were substituted after the latter’s death, reiterated the factual circumstances which
should have alerted the petitioners to conduct further investigation, thus –

(a) Why the "Deed of Absolute Sale" supposedly executed by Capistrano had remained unregistered for so long, i.e., from March
9, 1980 up to June 1992, when they were negotiating with the Jamilars and the Gilturas for their purchase of the subject property;

(b) Whether or not the owner’s copy of Capistrano’s certificate of title had really been lost;

(c) Whether Capistrano really sold his property to Scott and whether Scott actually sold it to the Jamilars, which matters were
easily ascertainable as both Capistrano and Scott were still alive and their names appear on so many documents;

(d) Why the consideration for both the March 9, 1980 sale and the May 17, 1990 sale was the same (₱150,000.00), despite the
lapse of more than 10 years;

(e) Why the price was so low (₱10.88 per square meter, both in 1980 and in 1990) when the petitioners were willing to pay and
actually paid ₱150.00 per square meter in May 1992; and

3
(f) Whether or not both deeds of sale were authentic.

In addition, the heirs of Capistrano pointed out that petitioners entered into negotiations over the property, not with the
registered owner thereof, but only with those claiming ownership thereof based on questionable deeds of sale.

The petition should be denied. The arguments proffered by petitioners all pertain to factual issues which have already been
passed upon by both the trial court and the CA.

Findings of facts of the CA are final and conclusive and cannot be reviewed on appeal, as long as they are based on substantial
evidence. While, admittedly, there are exceptions to this rule such as: (a) when the conclusion is a finding grounded entirely on
speculations, surmises or conjectures; (b) when the inference made is manifestly mistaken, absurd or impossible; (c) when there is
grave abuse of discretion; (d) when the judgment is based on a misapprehension of facts; (e) when the findings of facts are
conflicting; (f) when the CA, in making its findings, went beyond the issues of the case and the same were contrary to the
4
admissions of both the appellant and appellee. Not one of these exceptional circumstances is present in this case.

First. The CA was correct in upholding the finding of the trial court that the purported sale of the property from Capistrano to
Scott was a forgery, and resort to a handwriting expert was not even necessary as the specimen signature submitted by Capistrano
during trial showed marked variance from that found in the deed of absolute sale. The technical procedure utilized by
handwriting experts, while usually helpful in the examination of forged documents, is not mandatory or indispensable to the
5
examination or comparison of handwritings.

By the same token, we agree with the CA when it held that the deed of sale between Scott and the Jamilars was also forged, as it
noted the stark differences between the signatures of Scott in the deed of sale and those in her handwritten letters to Capistrano.

Second. In finding that the Jamilar spouses were not innocent purchasers for value of the subject property, the CA properly held
that they should have known that the signatures of Scott and Capistrano were forgeries due to the patent variance of the signatures
in the two deeds of sale shown to them by Scott, when Scott presented to them the deeds of sale, one allegedly executed by
Capistrano in her favor covering his property; and the other allegedly executed by Scott in favor of Capistrano over her property,
the ₱40,000.00 consideration for which ostensibly constituted her initial and partial payment for the sale of Capistrano’s property
to her.

The CA also correctly found the Gilturas not innocent purchasers for value, because they failed to check the veracity of the
allegation of Jamilar that he acquired the property from Capistrano.

In ruling that Sy was not an innocent purchaser for value, we share the observation of the appellate court that Sy knew that the
title to the property was still in the name of Capistrano, but failed to verify the claim of the Jamilar spouses regarding the transfer
of ownership of the property by asking for the copies of the deeds of absolute sale between Capistrano and Scott, and between
Scott and Jamilar. Sy should have likewise inquired why the Gilturas had to affix their conformity to the contract to sell by asking
for a copy of the deed of sale between the Jamilars and the Gilturas. Had Sy done so, he would have learned that the Jamilars
claimed that they purchased the property from Capistrano and not from Scott.

We also note, as found by both the trial court and the CA, Tan’s testimony that he, Golpeo and Sy are brothers, he and Golpeo
having been adopted by Sy’s father. Tan also testified that he and Golpeo were privy to the transaction between Sy and the
Jamilars and the Gilturas, as shown by their collective act of filing a complaint for specific performance to enforce the contract to
sell.1avvphi1
Also noteworthy – and something that would have ordinarily aroused suspicion – is the fact that even before the supposed
execution of the deed of sale by Scott in favor of the Jamilars, the latter had already caused the subdivision of the property into
nine (9) lots, with the title to the property still in the name of Capistrano.

Notable likewise is that the owner’s duplicate copy of TCT No. 76496 in the name of Capistrano had always been in his
possession since he gave Scott only a photocopy thereof pursuant to the latter’s authority to look for a buyer of the property. On
the other hand, the Jamilars were able to acquire a new owner’s duplicate copy thereof by filing an affidavit of loss and a petition
for the issuance of another owner’s duplicate copy of TCT No. 76496. The minimum requirement of a good faith buyer is that
6
the vendee of the real property should at least see the owner’s duplicate copy of the title. A person who deals with registered land
through someone who is not the registered owner is expected to look beyond the certificate of title and examine all the factual
circumstances thereof in order to determine if the vendor has the capacity to transfer any interest in the land. He has the duty to
7
ascertain the identity of the person with whom he is dealing and the latter’s legal authority to convey.

Finally, there is the questionable cancellation of the certificate of title of Capistrano which resulted in the immediate issuance of a
certificate of title in favor of the Jamilar spouses despite the claim that Capistrano sold his property to Scott and it was Scott who
sold the same to the Jamilars.

In light of the foregoing disquisitions, based on the evidence on record, we find no error in the findings of the CA as to warrant a
discretionary judicial review by this Court.

WHEREFORE, the petition is DENIED DUE COURSE for failure to establish reversible error on the part of the Court of
Appeals. Costs against petitioners.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 142618 July 12, 2007

PCI LEASING AND FINANCE, INC., Petitioner,

vs.
GIRAFFE-X CREATIVE IMAGING, INC., Respondent.

DECISION

GARCIA, J.:

On a pure question of law involving the application of Republic Act (R.A.) No. 5980, as amended by R.A. No. 8556¸ in relation
to Articles 1484 and 1485 of the Civil Code, petitioner PCI Leasing and Finance, Inc. (PCI LEASING, for short) has directly
come to this Court via this petition for review under Rule 45 of the Rules of Court to nullify and set aside the Decision and
Resolution dated December 28, 1998 and February 15, 2000, respectively, of the Regional Trial Court (RTC) of Quezon City,
Branch 227, in its Civil Case No. Q-98-34266, a suit for a sum of money and/or personal property with prayer for a writ of
replevin, thereat instituted by the petitioner against the herein respondent, Giraffe-X Creative Imaging, Inc. (GIRAFFE, for
brevity).

The facts:

1
On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a Lease Agreement, 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. In connection with this agreement, the parties subsequently signed two (2)
2
separate documents, each denominated as Lease Schedule. Likewise forming parts of the basic lease agreement were two (2)
3
separate documents denominated Disclosure Statements of Loan/Credit Transaction (Single Payment or Installment Plan) that
GIRAFFE also executed for each of the leased equipment. These disclosure statements inter alia described GIRAFFE, vis-à-vis
the two aforementioned equipment, as the "borrower" who acknowledged the "net proceeds of the loan," the "net amount to be
financed," the "financial charges," the "total installment payments" that it must pay monthly for thirty-six (36) months, exclusive of
the 36% per annum "late payment charges." Thus, for the Silicon High Impact Graphics, GIRAFFE agreed to pay ₱116,878.21
monthly, and for Oxberry Cinescan, ₱181.362.00 monthly. Hence, the total amount GIRAFFE has to pay PCI LEASING for 36
months of the lease, exclusive of monetary penalties imposable, if proper, is as indicated below:

P116,878.21 @ month (for the Silicon High

Impact Graphics) x 36 months = P 4,207,615.56

-- PLUS--
 P181,362.00 @ month (for the Oxberry
Cinescan) x 36 months = P 6,529,032.00

Total Amount to be paid by GIRAFFE

(or the NET CONTRACT AMOUNT) P 10,736,647.56

By the terms, too, of the Lease Agreement, GIRAFFE 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
4
type of demand letter dated February 24, 1998 to GIRAFFE.

The demand went unheeded.

Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING instituted the instant case against GIRAFFE. In its
5 6
complaint, docketed in said court as Civil Case No. 98-34266 and raffled to Branch 227 thereof, PCI LEASING prayed for the
issuance of a writ of replevin for the recovery of the leased property, in addition to the following relief:

2. After trial, judgment be rendered in favor of plaintiff [PCI LEASING] and against the defendant [GIRAFFE], as follows:

a. Declaring the plaintiff entitled to the possession of the subject properties;

b. Ordering the defendant to pay the balance of rental/obligation in the total amount of ₱8,248,657.47 inclusive of interest and
charges thereon;

c. Ordering defendant to pay plaintiff the expenses of litigation and cost of suit…. (Words in bracket added.)

Upon PCI LEASING’s posting of a replevin bond, the trial court issued a writ of replevin, paving the way for PCI LEASING to
secure the seizure and delivery of the equipment covered by the basic lease agreement.

Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to Dismiss, therein arguing that the seizure of the two (2)
leased equipment stripped PCI LEASING of its cause of action. Expounding on the point, GIRAFFE argues that, pursuant to
Article 1484 of the Civil Code on installment sales of personal property, PCI LEASING is barred from further pursuing any
claim arising from the lease agreement and the companion contract documents, adding that the agreement between the parties is
in reality a lease of movables with option to buy. The given situation, GIRAFFE continues, squarely brings into applicable play
Articles 1484 and 1485 of the Civil Code, commonly referred to as the Recto Law. The cited articles respectively provide:

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

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or
more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void. (Emphasis added.)

ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy,
when the lessor has deprived the lessee of the possession or enjoyment of the thing.

It is thus GIRAFFE’s posture that the aforequoted Article 1484 of the Civil Code applies to its contractual relation with PCI
LEASING because the lease agreement in question, as supplemented by the schedules documents, is really a lease with option to
buy under the companion article, Article 1485. Consequently, so GIRAFFE argues, upon the seizure of the leased equipment
pursuant to the writ of replevin, which seizure is equivalent to foreclosure, PCI LEASING has no further recourse against it. In
brief, GIRAFFE asserts in its Motion to Dismiss that the civil complaint filed by PCI LEASING is proscribed by the application
to the case of Articles 1484 and 1485, supra, of the Civil Code.

In its Opposition to the motion to dismiss, PCI LEASING maintains that its contract with GIRAFFE is a straight lease without an
option to buy. Prescinding therefrom, PCI LEASING rejects the applicability to the suit of Article 1484 in relation to Article
1485 of the Civil Code, claiming that, under the terms and conditions of the basic agreement, the relationship between the parties
is one between an ordinary lessor and an ordinary lessee.

7
In a decision dated December 28, 1998, the trial court granted GIRAFFE’s motion to dismiss mainly on the interplay of the
following premises: 1) the lease agreement package, as memorialized in the contract documents, is akin to the contract
contemplated in Article 1485 of the Civil Code, and 2) GIRAFFE’s loss of possession of the leased equipment consequent to the
enforcement of the writ of replevin is "akin to foreclosure, … the condition precedent for application of Articles 1484 and 1485
[of the Civil Code]." Accordingly, the trial court dismissed Civil Case No. Q-98-34266, disposing as follows:

WHEREFORE, premises considered, the defendant [GIRAFFE] having relinquished any claim to the personal properties
subject of replevin which are now in the possession of the plaintiff [PCI LEASING], plaintiff is DEEMED fully satisfied pursuant
to the provisions of Articles 1484 and 1485 of the New Civil Code. By virtue of said provisions, plaintiff is DEEMED estopped
from further action against the defendant, the plaintiff having recovered thru (replevin) the personal property sought to be
payable/leased on installments, defendants being under protection of said RECTO LAW. In view thereof, this case is hereby
DISMISSED.

8
With its motion for reconsideration having been denied by the trial court in its resolution of February 15, 2000, petitioner has
directly come to this Court via this petition for review raising the sole legal issue of whether or not the underlying Lease
Agreement, Lease Schedules and the Disclosure Statements that embody the financial leasing arrangement between the parties
are covered by and subject to the consequences of Articles 1484 and 1485 of the New Civil Code.

As in the court below, petitioner contends that the financial leasing arrangement it concluded with the respondent represents a
straight lease covered by R.A. No. 5980, the Financing Company Act, as last amended by R.A. No. 8556, otherwise known as
Financing Company Act of 1998, and is outside the application and coverage of the Recto Law. To the petitioner, R.A. No. 5980
defines and authorizes its existence and business.

The recourse is without merit.

R.A. No. 5980, in its original shape and as amended, partakes of a supervisory or regulatory legislation, merely providing a
regulatory framework for the organization, registration, and regulation of the operations of financing companies. As couched, it
does not specifically define the rights and obligations of parties to a financial leasing arrangement. In fact, it does not go beyond
defining commercial or transactional financial leasing and other financial leasing concepts. Thus, the relevancy of Article 18 of the
Civil Code which reads:

Article 18. - In matters which are governed by … special laws, their deficiency shall be supplied by the provisions of this [Civil]
Code.

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.

We are not persuaded.

9
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
10
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:

The transaction involved … is one of a "financial lease" or "financial leasing," where a financing company would, in effect, initially
purchase a mobile equipment and turn around to lease it to a client who gets, in addition, an option to purchase the property at
the expiry of the lease period. xxx.

xxx xxx xxx

The pertinent provisions of [RA] 5980, thus implemented, read:

"'Financing companies,' … are primarily organized for the purpose of extending credit facilities to consumers … either by … leasing
of motor vehicles, … and office machines and equipment, … and other movable property."

"'Credit' shall mean any loan, … any contract to sell, or sale or contract of sale of property or service, … under which part or all of
the price is payable subsequent to the making of such sale or contract; any rental-purchase contract; ….;"
The foregoing provisions indicate no less than a mere financing scheme extended by a financing company to a client in acquiring
a motor vehicle and allowing the latter to obtain the immediate possession and use thereof pending full payment of the financial
accommodation that is given.

In the case at bench, xxx. [T]he term of the contract [over a motor vehicle] was for thirty six (36) months at a "monthly rental" …
(P1,689.40), or for a total amount of P60,821.28. The contract also contained [a] clause [requiring the Lessee to give a guaranty
deposit in the amount of P20,800.00] xxx

After the private respondent had paid the sum of P41,670.59, excluding the guaranty deposit of P20,800.00, he stopped further
payments. Putting the two sums together, the financing company had in its hands the amount of P62,470.59 as against the total
agreed "rentals" of P60,821.28 or an excess of P1,649.31.

The respondent appellate court considered it only just and equitable for the guaranty deposit made by the private respondent to
be applied to his arrearages and thereafter to hold the contract terminated. Adopting the ratiocination of the court a quo, the
appellate court said:

xxx In view thereof, the guaranty deposit of P20,800.00 made by the defendant should and must be credited in his favor, in the
interest of fairness, justice and equity. The plaintiff should not be allowed to unduly enrich itself at the expense of the defendant.
xxx This is even more compelling in this case where although the transaction, on its face, appear ostensibly, to be a contract of
lease, it is actually a financing agreement, with the plaintiff financing the purchase of defendant's automobile …. The Court is
constrained, in the interest of truth and justice, to go into this aspect of the transaction between the plaintiff and the defendant …
with all the facts and circumstances existing in this case, and which the court must consider in deciding the case, if it is to decide
the case according to all the facts. xxx.

xxx xxx xxx

Considering the factual findings of both the court a quo and the appellate court, the only logical conclusion is that the private
respondent did opt, as he has claimed, to acquire the motor vehicle, justifying then the application of the guarantee deposit to the
balance still due and obligating the petitioner to recognize it as an exercise of the option by the private respondent. The result
would thereby entitle said respondent to the ownership and possession of the vehicle as the buyer thereof. We, therefore, see no
11
reversible error in the ultimate judgment of the appellate court. (Italics in the original; underscoring supplied and words in
bracket added.)

12
In Cebu Contractors Consortium Co. v. Court of Appeals, the Court viewed and thus declared a financial lease agreement as
having been simulated to disguise a simple loan with security, it appearing that the financing company purchased equipment
already owned by a capital-strapped client, with the intention of leasing it back to the latter.

In the present case, petitioner acquired the office equipment in question for their subsequent lease to the respondent, with the
latter undertaking to pay a monthly fixed rental therefor in the total amount of ₱292,531.00, or a total of ₱10,531,116.00 for the
whole 36 months. As a measure of good faith, respondent made an up-front guarantee deposit in the amount of ₱3,120,000.00.
The basic agreement provides that in the event the respondent fails to pay any rental due or is in a default situation, then the
13
petitioner shall have cumulative remedies, such as, but not limited to, the following:

1. Obtain possession of the property/equipment;

2. Retain all amounts paid to it. In addition, the guaranty deposit may be applied towards the payment of "liquidated damages";

3. Recover all accrued and unpaid rentals;

4. Recover all rentals for the remaining term of the lease had it not been cancelled, as additional penalty;

5. Recovery of any and all amounts advanced by PCI LEASING for GIRAFFE’s account xxx;

6. Recover all expenses incurred in repossessing, removing, repairing and storing the property; and,

7. Recover all damages suffered by PCI LEASING by reason of the default.

In addition, Sec. 6.1 of the Lease Agreement states that the guaranty deposit shall be forfeited in the event the respondent, for any
reason, returns the equipment before the expiration of the lease.

At bottom, respondent had paid the equivalent of about a year’s lease rentals, or a total of ₱3,510,372.00, more or less. Throw in
the guaranty deposit (₱3,120,000.00) and the respondent had made a total cash outlay of ₱6,630,372.00 in favor of the petitioner.
The replevin-seized leased equipment had, as alleged in the complaint, an estimated residual value of ₱6,900.000.00 at the time
Civil Case No. Q-98-34266 was instituted on May 4, 1998. Adding all cash advances thus made to the residual value of the
equipment, the total value which the petitioner had actually obtained by virtue of its lease agreement with the respondent amounts
to ₱13,530,372.00 (₱3,510,372.00 + ₱3,120,000.00 + ₱6,900.000.00 = ₱13,530,372.00).

The acquisition cost for both the Silicon High Impact Graphics equipment and the Oxberry Cinescan was, as stated in no less
14
than the petitioner’s letter to the respondent dated November 11, 1996 approving in the latter’s favor a lease facility, was
₱8,100,000.00. Subtracting the acquisition cost of ₱8,100,000.00 from the total amount, i.e., ₱13,530,372.00, creditable to the
respondent, it would clearly appear that petitioner realized a gross income of ₱5,430,372.00 from its lease transaction with the
respondent. The amount of ₱5,430,372.00 is not yet a final figure as it does not include the rentals in arrears, penalties thereon,
and interest earned by the guaranty deposit.

As may be noted, petitioner’s demand letter fixed the amount of ₱8,248,657.47 as representing the respondent’s "rental" balance
15

which became due and demandable consequent to the application of the acceleration and other clauses of the lease agreement.
Assuming, then, that the respondent may be compelled to pay ₱8,248,657.47, then it would end up paying a total of
₱21,779,029.47 (₱13,530,372.00 + ₱8,248,657.47 = ₱21,779,029.47) for its use - for a year and two months at the most - of the
equipment. All in all, for an investment of ₱8,100,000.00, the petitioner stands to make in a year’s time, out of the transaction, a
total of ₱21,779,029.47, or a net of ₱13,679,029.47, if we are to believe its outlandish legal submission that the PCI LEASING-
GIRAFFE Lease Agreement was an honest-to-goodness straight lease.

A financing arrangement has a purpose which is at once practical and salutary. R.A. No. 8556 was, in fact, precisely enacted to
regulate financing companies’ operations with the end in view of strengthening their critical role in providing credit and services to
small and medium enterprises and to curtail acts and practices prejudicial to the public interest, in general, and to their clienteles,
16
in particular. As a regulated activity, financing arrangements are not meant to quench only the thirst for profit. They serve a
higher purpose, and R.A. No. 8556 has made that abundantly clear.

We stress, however, that there is nothing in R.A. No. 8556 which defines the rights and obligations, as between each other, of the
financial lessor and the lessee. In determining the respective responsibilities of the parties to the agreement, courts, therefore,
must train a keen eye on the attendant facts and circumstances of the case in order to ascertain the intention of the parties, in
relation to the law and the written agreement. Likewise, the public interest and policy involved should be considered. It may not
be amiss to state that, normally, financing contracts come in a standard prepared form, unilaterally thought up and written by the
financing companies requiring only the personal circumstances and signature of the borrower or lessee; the rates and other
important covenants in these agreements are still largely imposed unilaterally by the financing companies. In other words, these
agreements are usually one-sided in favor of such companies. A perusal of the lease agreement in question exposes the many
remedies available to the petitioner, while there are only the standard contractual prohibitions against the respondent. This is
characteristic of standard printed form contracts.

17
There is more. In the adverted February 24, 1998 demand letter sent to the respondent, petitioner fashioned its claim in the
alternative: payment of the full amount of ₱8,248,657.47, representing the unpaid balance for the entire 36-month lease period or
the surrender of the financed asset under pain of legal action. To quote the letter:

Demand is hereby made upon you to pay in full your outstanding balance in the amount of P8,248,657.47 on or before March
04, 1998 OR to surrender to us the one (1) set Silicon High Impact Graphics and one (1) unit Oxberry Cinescan 6400-10…

We trust you will give this matter your serious and preferential attention. (Emphasis added).

Evidently, the letter did not make a demand for the payment of the ₱8,248,657.47 AND the return of the equipment; only either
one of the two was required. The demand letter was prepared and signed by Atty. Florecita R. Gonzales, presumably petitioner’s
counsel. As such, the use of "or" instead of "and" in the letter could hardly be treated as a simple typographical error, bearing in
mind the nature of the demand, the amount involved, and the fact that it was made by a lawyer. Certainly Atty. Gonzales would
have known that a world of difference exists between "and" and "or" in the manner that the word was employed in the letter.

A rule in statutory construction is that the word "or" is a disjunctive term signifying dissociation and independence of one thing
18
from other things enumerated unless the context requires a different interpretation.

In its elementary sense, "or", as used in a statute, is a disjunctive article indicating an alternative. It often connects a series of words
or propositions indicating a choice of either. When "or" is used, the various members of the enumeration are to be taken
19
separately.

The word "or" is a disjunctive term signifying disassociation and independence of one thing from each of the other things
20
enumerated.

The demand could only be that the respondent need not return the equipment if it paid the ₱8,248,657.47 outstanding balance,
ineluctably suggesting that the respondent can keep possession of the equipment if it exercises its option to acquire the same by
paying the unpaid balance of the purchase price. Stated otherwise, if the respondent was not minded to exercise its option of
acquiring the equipment by returning them, then it need not pay the outstanding balance. This is the logical import of the letter:
that the transaction in this case is a lease in name only. The so-called monthly rentals are in truth monthly amortizations of the
price of the leased office equipment.

On the whole, then, we rule, as did the trial court, that the PCI LEASING- GIRAFFE lease agreement is in reality a lease with an
option to purchase the equipment. This has been made manifest by the actions of the petitioner itself, foremost of which is the
declarations made in its demand letter to the respondent. There could be no other explanation than that if the respondent paid
the balance, then it could keep the equipment for its own; if not, then it should return them. This is clearly an option to purchase
given to the respondent. Being so, Article 1485 of the Civil Code should apply.

The present case reflects a situation where the financing company can withhold and conceal - up to the last moment - its intention
to sell the property subject of the finance lease, in order that the provisions of the Recto Law may be circumvented. It may be, as
petitioner pointed out, that the basic "lease agreement" does not contain a "purchase option" clause. The absence, however, does
not necessarily argue against the idea that what the parties are into is not a straight lease, but a lease with option to purchase. This
Court has, to be sure, long been aware of the practice of vendors of personal property of denominating a contract of sale on
installment as one of lease to prevent the ownership of the object of the sale from passing to the vendee until and unless the price
21
is fully paid. As this Court noted in Vda. de Jose v. Barrueco:

Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one
reason or another, have frequently resorted to the device of making contracts in the form of leases either with options to the
buyer to purchase for a small consideration at the end of term, provided the so-called rent has been duly paid, or with stipulations
that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases
only in name. The so-called rent must necessarily be regarded as payment of the price in installments since the due payment of
the agreed amount results, by the terms of the bargain, in the transfer of title to the lessee.

22
In another old but still relevant case of U.S. Commercial v. Halili, a lease agreement was declared to be in fact a sale of personal
property by installments. Said the Court:

. . . There can hardly be any question that the so-called contracts of lease on which the present action is based were veritable
leases of personal property with option to purchase, and as such come within the purview of the above article [Art. 1454-A of the
old Civil Code on sale of personal property by installment]. xxx

Being leases of personal property with option to purchase as contemplated in the above article, the contracts in question are
subject to the provision that when the lessor in such case "has chosen to deprive the lessee of the enjoyment of such personal
property," "he shall have no further action" against the lessee "for the recovery of any unpaid balance" owing by the latter,
"agreement to the contrary being null and void."

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

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

xxx xxx xxx

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or
more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void.

ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy,
when the lessor has deprived the lessee of the possession or enjoyment of the thing.

23
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
24
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
25
"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. Else, we would witness a situation where
even if the respondent surrendered the equipment voluntarily, the petitioner can still sue upon its claim. This would be most
unfair for the respondent. We cannot allow the petitioner to renege on its word. Yet more than that, the very word "or" as used in
the letter conveys distinctly its intention not to claim both the unpaid balance and the equipment. It is not difficult to discern why:
if we add up the amounts paid by the respondent, the residual value of the property recovered, and the amount claimed by the
petitioner as sued upon herein (for a total of ₱21,779,029.47), then it would end up making an instant killing out of the
transaction at the expense of its client, the respondent. The Recto Law was precisely enacted to prevent this kind of aberration.
Moreover, due to considerations of equity, public policy and justice, we cannot allow this to happen. 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.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC
G.R. No. L-28074 May 29, 1970

NORTHERN MOTORS, INC., plaintiff-appellant,

vs.
CASIANO SAPINOSO and "JOHN DOE", defendants-appellees.

Sycip, Salazar, Luna, Manalo & Feliciano for plaintiff-appellant.

David F. Barrera for defendants-appellees.

VILLAMOR, J.:

Direct appeal on questions of law from the portion of the judgment of the Court of First Instance of Manila, Branch XXII, in its
Civil Case No. 66199, ordering the plaintiff to pay defendant Casiano Sapinoso the sum of P1,250.00.

The facts of this case are as follows:

On June 4, 1965, Casiano Sapinoso purchased from Northern Motors, Inc. an Opel Kadett car for the price of P12,171.00,
making a down payment and executing a promissory note for the balance of P10,540.00 payable in installments with interest at
12% per annum, as follows: P361.00 on July 5, 1965, and P351.00 on the 5th day of each month beginning August, 1965, up to
and including December, 1967. To secure the payment of the promissory note, Sapinoso executed in favor of Northern Motors,
Inc. a chattel mortgage on the car. The mortgage contract provided, among others, that upon default by the mortgagor in the
payment of any part of the principal or interest due, the mortgagee may elect any of the following remedies: (a) sale of the car by
the mortgagee; (b) cancellation of the contract of sale; (c) extrajudicial foreclosure; (d) judicial foreclosure; (e) ordinary civil action
to exact fulfillment of the mortgage contract. It was further stipulated that "[w]hichever remedy is elected by the mortgagee, the
mortgagor expressly waives his right to reimbursement by the mortgagee of any and all amounts on the principal and interest
already paid by him."

Sapinoso failed to pay the first installment of P361.00 due on July 5, 1965, and the second, third, fourth and fifth installments of
P351.00 each due on the 5th day of August, September, October and November, 1965, respectively. Several payments were,
however, made by Sapinoso, to wit: P530.52 on November 21, 1965, P480.00 on December 21, 1965, and P400.00 on April 30,
1966. The first and third payments aforesaid were applied to accrued interest up to April 17, 1966, while the second payment was
applied partly (P158.10) to interest, and partly (P321.90) to the principal, thereby reducing the balance unpaid to P10,218.10.

The vendee-mortgagor having failed to make further payments, Northern Motors, Inc. filed the present complaint on July 22,
1966, against Sapinoso and a certain person whose name, identity and address were still unknown to the plaintiff, hence
denominated in the complaint as "John Doe." In its complaint, Northern Motors, Inc. stated that it was availing itself of the option
given it under the mortgage contract of extrajudicially foreclosing the mortgage, and prayed that a writ of replevin be issued upon
its filing of a bond for the seizure of the car and for its delivery to it; that after hearing, the plaintiff be adjudged to have the rightful
possession and ownership of the car; that in default of delivery, the defendants be ordered to pay the plaintiff the sum of
P10,218.10 with interest, at 12% per annum from April 18, 1966, until full payment of the said sum, as well as an amount
equivalent to 25% of the sum due as and for attorney's fees and expenses of collection, and the costs of the suit. Plaintiff also
prayed for such other remedy as might be deemed just and equitable in the premises.

Subsequent to the commencement of the action, but before the filing of his answer, defendant Sapinoso made two payments on
the promissory note, the first on August 22, 1966, for P500.00, and the second on September 27, 1966, for P750.00. In the
meantime, on August 9, 1966, upon the plaintiff's filing of a bond, a writ of replevin was issued by the court. On October 20,
1966, copies of the summons, complaint and annexes thereto were served on defendant Sapinoso by the sheriff who executed the
seizure warrant by seizing the car from defendant Sapinoso on the same date, and turning over its possession to the plaintiff on
October 25, 1966.

On November 12, 1966, defendant Sapinoso filed an answer admitting the allegations in the complaint with respect to the sale to
him of the car, the terms thereof, the execution of the promissory note and of the chattel mortgage contract, and the options open
to the plaintiff under the said contract. He alleged, however, that he had paid the total sum of P4,230.52, leaving a balance of only
P5,987.58; that upon demand he immediately surrendered the possession of the car to the plaintiff's representative; and that the
value of the car was only about P5,000.00, and not P10,000.00 as alleged in the complaint. As special defenses the said defendant
alleged that he failed to pay the installments due because the car was defective, and the plaintiff failed to have it fixed although he
had repeatedly called the plaintiff's attention thereto, hence, the defendant had to procrastinate in his payments in order to move
the plaintiff to repair the car; and that although the car could not be used, he paid P700.00 to the plaintiff upon the latter's
assurance that the car would be fixed, but that instead of having the car fixed, the plaintiff, in bad faith, filed the present
complaint. The defendant prayed that the complaint be dismissed and that the plaintiff be ordered to return the car to him. He
stated in his prayer that he would be very much willing to pay the car in a compromise agreement between him and the plaintiff.

After trial, the court a quo, in its decision dated April 4, 1967, held that defendant Sapinoso having failed to pay more than two
(2) installments, plaintiff-mortgagee acquired the right to foreclose the chattel mortgage, which it could avail of — as it has done in
the present case — by filing an action of replevin to secure possession of the mortgaged car as a preliminary step to the foreclosure
sale contemplated in the Chattel Mortgage Law; and that the foreclosure of the chattel mortgage and the recovery of the unpaid
balance of the price are alternative remedies which may not be pursued conjunctively, so that in availing itself of its right to
foreclose the chattel mortgage, the plaintiff thereby renounced whatever claim it may have had on the promissory note, and,
therefore, the plaintiff has no more right to the collection of the attorney's fees stipulated in the promissory note, and should
return to defendant Sapinoso the sum of P1,250.00 which the plaintiff had received from the latter after having filed the present
case on July 22, 1966, and elected to foreclose the chattel mortgage. The dispositive portion of the decision reads:

WHEREFORE, the Court finds that the plaintiff has the right to the possession of the OPEL KADETT two-door station wagon
Model 3464-91.5, with engine No.
10-0354333, and the delivery thereof to the plaintiff is hereby ratified and confirmed but said party is sentenced to pay to the
defendant the sum of P1,250, with legal interest on P500 from August 22, 1966 and or P750 from September 27, 1966, until fully
paid, without any pronouncement as to costs.

In this appeal plaintiff-appellant claims that the court a quo erred in ordering it to reimburse to defendant-appellee Sapinoso the
sum of P1,250.00 which the latter had paid. It contends that under Article 1484 of the Civil Code it is the exercise, not the
mere election, of the remedy of foreclosure that bars the creditor from recovering the unpaid balance of the debt; that what the
said Article 1484 prohibits is "further action" to collect payment of the deficiency after the creditor has foreclosed the mortgage;
and that in paying plaintiff-appellant the sum of P1,250.00 before defendant-appellee Sapinoso filed his answer, and in not filing a
counterclaim for the recovery thereof, the said defendant-appellee in effect renounced whatever right he might have had to
recover the said amount.

The appeal is meritorious.

In issuing a writ of replevin, and, after trial, in upholding plaintiff-appellant's right to the possession of the car, and ratifying and
confirming its delivery to the said plaintiff-appellant, the court below correctly considered the action as one of replevin to secure
possession of the mortgaged vehicle as a preliminary step to this foreclosure sale contemplated in Section 14 of Act No. 1508
(Bachrach Motor Co. vs. Summers, 42 Phil., 3; Seño vs. Pestolante, G.R. No. L-11755, April 23, 1958). The said court however
erred in concluding that the legal effect of the filing of the action was to bar plaintiff-appellant from accepting further payments on
the promissory note. That the ultimate object of the action is the foreclosure of the chattel mortgage, is of no moment, for it is the
fact of foreclosure and actual sale of the mortgaged chattel that bar further recovery by the vendor of any balance on the
purchaser's outstanding obligation not satisfied by the sale. (Manila Motor Co., Inc. vs. Fernandez, 99 Phil., 782, 786; Bachrach
Motor Co. vs. Millan, 61 Phil., 409; Manila Trading & Supply Co. vs. Reyes, 62 Phil. 461, 471; Cruz et al. vs. Filipinas
Investment & Finance Corporation, G.R. No. L-24772, May 27, 1968 [23 SCRA 791, 796].) In any event, what Article 1484(3)
prohibits is "further action against the purchaser to recover any unpaid balance of the price;" and although this Court has
construed the word "action" in said Article 1484 to mean "any judicial or extrajudicial proceeding by virtue of which the vendor
may lawfully be enabled to exact recovery of the supposed unsatisfied balance of the purchase price from the purchaser or his
privy" (Cruz, et al. vs. Filipinas Investment & Finance Corporation, supra), there is no occasion at this stage to apply the restrictive
provision of the said article, because there has not yet been a foreclosure sale resulting in a deficiency. The payment of the sum of
P1,250.00 by defendant-appellee Sapinoso was a voluntary act on his part and did not result from a "further action" instituted by
plaintiff-appellant. If the mortgage creditor, before the actual foreclosure sale, is not precluded from recovering the unpaid
balance of the price although he has filed an action of replevin for the purpose of extrajudicial foreclosure, or if a mortgage
creditor who has elected to foreclose but who subsequently desists from proceeding with the auction sale, without gaining any
advantage or benefit, and without causing any disadvantage or harm to the vendee-mortgagor, is not barred from suing on the
unpaid account (Radiowealth, Inc. vs. Lavin, et al., G.R. No. L-18563, April 27, 1963 [7 SCRA 804, 807]), there is no reason why
a mortgage creditor should be barred from accepting, before a foreclosure sale, payments voluntarily tendered by the debtor-
mortgagor who admits a subsisting indebtedness.

PREMISES CONSIDERED, the judgment appealed from is modified by setting aside the portion thereof which orders plaintiff-
appellant to pay defendant-appellee Sapinoso the sum of P1,250.00, with costs in this instance against the said defendant-
appellee.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando and Teehankee, JJ., concur.

Barredo, J., concurs in the result.

Castro, J., is on leave.

THIRD DIVISION

G.R. No. 164136 January 25, 2006

CARLOS R. TAMAYO, Petitioner,

vs.
MILAGROS HUANG, JOSEFINO HUANG, HUANG SUI SIN, MIGUEL HUANG and IAP TONG HA, Respondents

DECISION

CARPIO MORALES, J.:

On August 14, 1978, respondents Huang Sui Sin, Josefino Huang, Miguel Huang and Milagros Huang, four of five registered
owners of four parcels of land located in Barangay Matina, Davao City and covered by Transfer Certificates of Title Nos. T-
20694, T-20704, T-20717 and a portion of TCT No. T-20729, executed a contract of "Indenture" with EAP Development
Corporation (EAP) under which EAP undertook to manage and develop said parcels of land into a first class subdivision and sell
1
the lots therein in consideration for which EAP would retain 55% percent of the sales proceeds. The parcels of land were later
known as Doña Luisa Village (the subdivision).
 2
On or about April 30, 1981, Carlos R. Tamayo (petitioner) entered into a contract to sell (the contract) with respondents through
their Attorney-in-Fact and Manager, EAP, for the purchase of Lot No. 15, Block No. 11 (the lot) of the subdivision, covered by
TCT No. T-74582 (a transfer from TCT-20717) with an area of 1,424 square meters at P170.00 per square meter or for the total
price of P242,080.00.

Under the contract, petitioner was to pay upon execution P35,749.60 and the balance, including interest at the rate of 14% per
annum, in 60 monthly installments of P4,791.40, without necessity of demand; and if petitioner failed to pay the installments,
respondents were given the right to demand interest thereon at the rate of 14% per annum, to be computed on the same day of
the month the installments became due.

Petitioner did make the down payment alright and paid monthly installments up to June 1982 after which he stopped paying. At
that time, petitioner had paid a total of P59,706.60.

In the meantime, as EAP had abandoned the development of the subdivision, respondents filed on June 27, 1985 a complaint
against EAP for rescission of their "Indenture" contract before the Regional Trial Court (RTC) of Davao, docketed as Civil Case
3
No. 17625.

4
More than five years after the parties executed the contract on April 30, 1981, respondents appear to have sent petitioner a letter
5
demanding payment of the lot, for in a letter dated December 24, 1986 addressed to respondents, petitioner stated that he
intentionally desisted from paying further monthly installments due to non-development of the subdivision as agreed upon in the
contract.

Nothing had been heard from the parties until January 2, 1991 when, after noting that the development of the subdivision was in
6
progress, petitioner issued Prudential Bank Check No. 023014 dated January 2, 1991 in the amount of P270,527.00 purportedly
7
representing full payment of the purchase price of the lot, for which he was issued a receipt.

Respondents immediately returned the check to petitioner, however, by letter of January 9, 1991, they claiming that their
employee had committed a mistake in receiving it. Respondents’ letter bearing the check was returned unopened, drawing
8
respondents to return it again, by letter dated February 28, 1991 addressed to and received by petitioner’s son.

9
Petitioner later filed a complaint on July 24, 1997 against respondents, for specific performance and delivery of title with
damages, before the Housing and Land Use Regulatory Board (HLURB), Region XI, Davao City, the subject of the petition at
bar, anchoring his rights under Presidential Decree No. 957 (the subdivision and condominium buyers’ protective decree).

In his complaint before the HLURB, petitioner posited that from the execution of the contract up to the time he sent his above-
said letter dated December 24, 1986, respondents failed to develop the subdivision, in support of which he submitted the January
10
31, 1990 decision of Branch 14 of the RTC Davao City in Civil Case No. 17625 rescinding the "Indenture" forged by
11
respondents and EAP for the latter’s failure to develop the subdivision. Petitioner also submitted a Certification dated
November 24, 1997 of the President of Homeowners Association of the subdivision that the entrance road of the subdivision
connecting to the Quimpo Boulevard was concreted only about two years earlier, and that as of said date, the drainage system was
not completed and some of the roads were not yet concreted.

12
In their Answer to the complaint, respondents averred that the EAP stopped the development of the subdivision only by the end
of 1983; petitioner had no factual or legal basis for not paying his monthly installment beginning July 1982 since the development
of the subdivision was then in progress; the contract was deemed rescinded on April 30, 1986 five (5) years after its execution,
and if petitioner wanted to go on with the purchase of the lot, it would be under terms different from those executed in the
contract; petitioner was not entitled to the provisions of Republic Act No. 6552 (the realty installment buyer act) as the therein
prescribed condition of two-year continuous payment of monthly installments for entitlement to rights thereunder was not
complied with; and if petitioner had any right at all, it was only to a refund of what he had already paid.

In the interim, petitioner consigned on September 4, 1997 with the HLURB two checks, one dated August 29, 1997, and the
13
other dated September 2, 1997, in the amounts of P270,000.00 and P527.00, respectively.

14
By a Counter-Manifestation, respondents informed that they were refusing to accept petitioner’s checks as these were issued and
consigned long after the expiration of the contract on April 30, 1986.

15
By Decision of February 16, 1998, HLRUB Arbiter Atty. Joselito F. Melchor dismissed petitioner’s complaint, holding that
payment by tender and consignation was not legally effected, the check dated January 9, 1991 having been sent back to
petitioner’s son, and the consignation of the two checks dated 1997 having failed to meet the requirements set forth by law for a
valid consignation.

And so the HLURB decision disposed:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered ordering:

1. The DISMISSAL of the instant case for lack of merit.

2. The complainant to immediately pay in full his account with the payment of corresponding interest and penalty under the
terms and conditions of his contract with the respondents. In the event cancellation procedures of the contract between the
parties have already been effected by respondents in accordance with RA 6552, the respondent shall give the complainant a grace
period of not less than sixty days from finality of this judgment to pay his unpaid obligations as stated above. Failure on the part of
the complainant to pay said unpaid obligations at the expiration of the grace period, the respondents may cancel the contract after
thirty days from receipt by the complainant of the notice of cancellation or demand for rescission of the contract by notarial act;

3. The complainant to pay respondents the amount of P100,000.00 as damages because of former’s breach of obligation
and P50,000.00 as attorney’s fee; and

4. The complainant to pay the cost of litigation.

16
SO ORDERED. (Underscoring supplied)

Petitioner thereupon filed a petition for review before the HLURB Board of Commissioners questioning the award of damages
and attorney’s fee to respondents, and praying that respondents be ordered to receive the amount of P270,527.00 consigned with
the HLURB Davao City and execute the final deed of sale and deliver the title.

By Decision of August 25, 1998, the HLURB Board of Commissioners affirmed the Arbiter’s decision, but deleted the award to
respondents of damages and costs.

Respondents appealed the HLURB Board of Commissioners’ decision to the Office of the President (OP).

During the pendency of the appeal before the OP, respondents filed on October 13, 2000 a "Manifestation and
17
Motion," averring for the first time that on April 1997, they sold the disputed lot to one Nene Abijar in whose favor a "Deed of
18
Absolute Sale" was executed on November 2, 1997, and to whom was issued on November 11, 1997 TCT No. T-292279 which
19
cancelled respondents’ TCT No. T-74582. The records disclose that on September 3, 2001, Abijar oddly filed an Answer with
Counter-claim against petitioner and Cross-claim against respondents in HLURB REM-A-980316-0042 before the HLURB
20
Davao after the said case had been resolved by the HLURB Davao and while it was on appeal before the OP.

By Decision of December 12, 2001, the OP upheld the HLURB finding that there was no effective cancellation of the contract,
but nevertheless ruled that Abijar’s right as an innocent purchaser for value must be accorded preference over that of petitioner,
21
without prejudice to the right of petitioner to recover what he had paid under the contract. Thus the OP held:

x x x M[s]. Abijar, three (3) months before the appellee[-herein petitioner] instituted the present action, bought the property from
the appellants[-herein respondents] apparently without notice that some other person has a right to, or has interest over the same.
Fact is, M[s]. Abijar was able to register title to the property under h[er] name, and there appears nothing in h[er] title which
indicates any encumbrance, lien or inchoate right which may subsequently defeat h[er] right thereto. A person dealing with a
registered land is not, as a rule, required to go behind the register to determine the condition of the property, and is only charged
with notice of the burdens on the property which are noted on the face of the register or certificate of title [Radiowealth Finance
Company v. Manuelito S. Palileo, 197 SCRA 245]. It thus strikes us as rather unconscionable, if not legally impossible, to take
the literal application of RA 6552. Otherwise, we shall be asking the appellants to surrender the subject property to the appellee
after its sale to, and registration under the name of, M[s]. Abijar. If that would be the case, then our judgment would run counter
to the doctrine on the efficacy and conclusiveness of the certificate of title which the Torrens system seeks to ensure and
22
protect. (Underscoring supplied)

The OP thus reversed the decision of the HLURB Board of Commissioners, the dispositive portion of which reads:

WHEREFORE, premises considered judgment is hereby MODIFIED to wit:

1) Ordering appellants[-herein respondents] to refund to appellee the amount of P59,706.00, the sum total of the amortizations
paid by the appellee, with legal interest from the date of conveyance by appellants of the subject parcel of land to Mr. Nene
Abijar;

2) Ordering the release to appellee Carlos R. Tamayo of the amount of P270,537.00 which he consigned to the HLURB; and

3) Ordering the appellants[-herein respondents] to pay to HLURB the amount of P 20,000 as administrative fine.

SO ORDERED. (Underscoring supplied)

23
His motion for reconsideration having been denied by Order of June 17, 2003, petitioner filed a petition for review with the
appellate court before which he argued, inter alia, that the OP erred in applying equity in favor of Abijar who was not a party to
the case.

24
By decision rendered on January 23, 2004, the appellate court dismissed the petition for lack of merit. Petitioner’s motion for
reconsideration having been denied by resolution of June 29, 2004, he filed the present petition.

It is not disputed that EAP, acting as the Attorney-in-Fact and Manager of respondents, totally abandoned the development of the
25 26
subdivision in 1983, thus prompting respondents to continue development thereof on May 22, 1985 and to even file a
complaint to rescind its contract of "Indenture" with EAP which the RTC Davao granted.

Paragraph 8 of the contract between petitioner and respondents through EAP provides:

Eight. – SUBDIVISION IMPROVEMENTS: - To insure the beauty of the subdivision in line with the modern trend of urban
development, EAP Development Corporation hereby obligates itself to provide the subdivision with:
(a) Concrete Paved road or asphalt when price of cement becomes prohibitive

(b) Concrete curbs and gutters

(c) Underground drainage system

(d) Water distribution system

(e) Electrical lighting system

(f) 24 hour Security Guard Service

x x x x (Underscoring supplied)

The subdivision and condominium buyers’ protective decree directs every owner and developer of real property to provide the
necessary facilities, improvements, infrastructures and other forms of development, failure to carry out which is sufficient cause
for the buyer to suspend payment, and any sums of money already paid shall not be forfeited.

Sections 20 and 23 of P.D. 957 of the same decree further direct as follows:

Sec. 20. Time of Completion. - Every owner or developer shall construct and provide the facilities, improvements, infrastructures
and other forms of development, including water supply and lighting facilities, which are offered and indicated in the approved
subdivision or condominium plans, brochures, prospectus, printed matters, letters or in any form of advertisement, within one
year from the date of the issuance of the license for the subdivision or condominium project or such other period of time as may
be fixed by the Authority. (Underscoring supplied)

Sec. 23. Non-Forfeiture of Payments. – No installment payment made by a buyer in a subdivision or condominium project for
the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the
owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or
condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at
his option, be reimbursed the total amount paid including amortization interest but excluding delinquency interests, with interest
thereon at the legal rate. (Underscoring supplied)

In case the developer of a subdivision or condominium fails in its obligation under Section 20, Section 23 gives the buyer the
27
option to demand reimbursement of the total amount paid, or to wait for further development of the subdivision, and when the
buyer opts for the latter alternative, he may suspend payment of installments until such time that the owner or developer had
28
fulfilled its obligation to him.

From petitioner’s earlier-mentioned letter of December 24, 1986, he made clear his intention not to seek reimbursement of the
total amount he had already paid but to comply with his obligation to pay the balance in full upon completion of the development
of the subdivision.

xxxx

Please be informed that I int[en]tionally stopped paying my monthly installment because I could not see any development in your
subdivision, like concrete road, electrical facilities, drainage and water among others as stipulated in our contract. Under existing
laws, I understand I can suspend my payment pending your completion of the subdivision facilities as agreed in our contract. I’ll
only resume payment if you complete the development of the subdivision.

x x x x (Underscoring supplied)

The claim-advice of petitioner notwithstanding, respondents were mum about it. Such silence suggests an admission of the
29
veracity and validity of petitioner’s claim.

Respondents nevertheless claim that the contract was "deemed rescinded" five years after its execution on April 30, 1981.
Respondents’ demand for payment of the unpaid balance sometime between the period of April 30, 1986 to December 24, 1986
betrays such claim, however. In any event, it puts them in estoppel.

As for respondents’ position that before petitioner could lawfully withhold his monthly payments, he needed to secure previous
clearance from the HLURB following Section 23 of Rule VI of the Rules implementing the subdivision and condominium
buyers’ protective decree, law and jurisprudence are not on their side.

Section 23 of PD 957 -- the law upon which the Implementing Rule cited was based -- requires only due notice to the owner or
developer for stopping further payments by reason of the latter’s failure to develop the subdivision according to the approved
plans and within the time limit. x x x

To be valid, an administrative rule or regulation must conform, not contradict, the provisions of the enabling law. An
implementing rule or regulation cannot modify, expand, or subtract from the law it is intended to implement. Any rule that is not
consistent with the statute itself is null and void. x x x
Section 23 of Rule VI of the Implementing Rules cannot rise higher than Section 23 of PD 957, which is the source of its
authority. For that matter, PD 957 would have expressly required the written approval of the HLURB before any stoppage of
amortization payments if it so intended, in the same manner that the decree specifically mandates written consent or approval by
the NHA (now the HLURB) in Section 18.

xxxx

Apropos, to require clearance from the HLURB before stopping payment would not be in keeping with the intent of the law to
protect innocent buyers of lots or homes from scheming subdivision developers. To give full effect to such intent, it would be
fitting to treat the right to stop payment to be immediately effective upon giving due notice to the owner or developer or upon
filing a complaint before the HLURB against the erring developer. Such course of action would be without prejudice to the
subsequent determination of its propriety and consequences, should the suspension of payment subsequently be found
30
improper. (Italics supplied)

Section 4 of the realty installment act directs as follows in case a buyer defaults in the payment of succeeding installments where
he has paid less than two years of installments, as in petitioner’s case:

SECTION 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less
than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty
days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.
(Underscoring supplied)

As noted earlier, petitioner, by letter of December 24, 1986, informed respondents that he desisted from further paying monthly
installments and that he would resume payment if the development of the subdivision had been completed. Yet respondents sent
no notarized notice or any notice of cancellation at all. In fact, it was only after petitioner filed on July 24, 1997 the complaint
before the HLURB that respondents offered to reimburse petitioner of the total amount he had already paid.

The contract not having been cancelled in accordance with law, it has remained valid and subsisting. It was, therefore, within
petitioner’s right to maintain his option to await the completion of the development of and introduction of improvements in the
subdivision and thereafter, upon full payment of the purchase price, without interest, compel respondents to execute a deed of
absolute sale.

The decision of the OP, however, which passed upon the sale of the lot to Abijar whom it found to be a buyer in good faith and
for value – basis of its ruling that petitioner can no longer exercise above-said right, which decision was deemed affirmed too by
the appellate court, does not lie. For, the subsequent sale was brought to light by respondents only while their appeal was pending
before the OP, and as correctly argued by petitioner, Abijar was not a party to the case. Parenthetically, the records of the case do
not bear whether the deed of absolute sale in favor of Abijar was in fact registered, and TCT No. T-74582 in the name of
respondents was indeed cancelled and TCT No. T-292279 in the name of Abijar was issued in its stead. As petitioner points out,
what was appended to the records of the OP was a plain uncertified photocopy of TCT No. T-292279.

The decision of the OP which was deemed affirmed by the appellate court ordering a full refund of the installment payments of
petitioner in the amount of P59,706.00 and the release to petitioner of the amount of P270,537.00 he had consigned does not lie
too, for under the law, petitioner is entitled to the lot he contracted to purchase after payment of the outstanding balance which
31
he was ready and willing to do.

If the sale of the lot to Abijar is eventually declared valid, respondents should refund petitioner its actual value as resold to Abijar,
to bear 12% interest per annum computed from the date of such sale until fully paid or deliver a substitute lot at the option of
petitioner. So this Court instructs in Active Realty and Development Corporation v. Daroya: 32

In the case at bar, respondent offered to pay for her outstanding balance of the contract price but respondent refused to accept it.
Neither did petitioner adduce proof that the respondent's offer to pay was made after the effectivity date stated in its notice of
cancellation. Moreover, there was no formal notice of cancellation or court action to rescind the contract. Given the
circumstances, we find it illegal and iniquitous that petitioner, without complying with the mandatory legal requirements for
canceling the contract, forfeited both respondent's land and hard-earned money after she has paid for, not just the contract
price, but more than the consideration stated in the contract to sell .

Thus, for failure to cancel the contract in accordance with the procedure provided by law, we hold that the contract to sell
between the parties remains valid and subsisting. Following Section 3(a) of R.A. No. 6552, respondent has the right to offer to pay
for the balance of the purchase price, without interest, which she did in this case. Ordinarily, petitioner would have had no other
recourse but to accept payment. However, respondent can no longer exercise this right as the subject lot was already sold by the
petitioner to another buyer which lot, as admitted by the petitioner, was valued at P1,700.00 per square meter. As respondent lost
her chance to pay for the balance of the P875,000.00 lot, it is only just and equitable that the petitioner be ordered to refund to
respondent the actual value of the lot resold, i.e., P875,000.00, with 12% interest per annum computed from August 26, 1991
until fully paid or to deliver a substitute lot at the option of the respondent. (Italics in the original; underscoring supplied)

This Court, not being a trier of facts, thus resolves to remand the case to the HLURB for a proper determination of the
respective rights of the parties vis a vis the alleged sale of the lot to Abijar in accordance with the foregoing discussions.
WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE. The case is REMANDED to the
Housing and Land Use Regulatory Board of Davao City for further proceedings in accordance with the directive in the
immediately preceding paragraph.

SO ORDERED.

CONCHITA CARPIO MORALES

Associate Justice

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 201167 February 27, 2013

GOTESCO PROPERTIES, INC., JOSE C. GO, EVELYN GO, LOURDES G. ORTIGA, GEORGE GO, and VICENTE
GO, Petitioners,
vs.
SPOUSES EUGENIO and ANGELINA FAJARDO, Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the July 22, 2011 Decision and February
1

2
29, 2012 Resolution of the Court of Appeals (CA) in CA-G.R. SP No. 112981, which affirmed with modification the August 27,
3
2009 Decision of the Office of the President (OP).

The Facts

4
On January 24, 1995, respondent-spouses Eugenio and Angelina Fajardo (Sps. Fajardo) entered into a Contract to Sell (contract)
with petitioner-corporation Gotesco Properties, Inc. (GPI) for the purchase of a 100-square meter lot identified as Lot No. 13,
Block No.6, Phase No. IV of Evergreen Executive Village, a subdivision project owned and developed by GPI located at Deparo
Road, Novaliches, Caloocan City. The subject lot is a portion of a bigger lot covered by Transfer Certificate of Title (TCT) No.
5
244220 (mother title).

Under the contract, Sps. Fajardo undertook to pay the purchase price of ₱126,000.00 within a 10-year period, including interest
at the rate of nine percent (9%) per annum. GPI, on the other hand, agreed to execute a final deed of sale (deed) in favor of Sps.
Fajardo upon full payment of the stipulated consideration. However, despite its full payment of the purchase price on January 17,
6 7
2000 and subsequent demands, GPI failed to execute the deed and to deliver the title and physical possession of the subject lot.
Thus, on May 3, 2006, Sps. Fajardo filed before the Housing and Land Use Regulatory Board-Expanded National Capital
8
Region Field Office (HLURBENCRFO) a complaint for specific performance or rescission of contract with damages against GPI
and the members of its Board of Directors namely, Jose C. Go, Evelyn Go, Lourdes G. Ortiga, George Go, and Vicente Go
(individual petitioners), docketed as HLURB Case No. REM-050306-13319.

9 10
Sps. Fajardo averred that GPI violated Section 20 of Presidential Decree No. 957 (PD 957) due to its failure to construct and
provide water facilities, improvements, infrastructures and other forms of development including water supply and lighting
facilities for the subdivision project. They also alleged that GPI failed to provide boundary marks for each lot and that the mother
title including the subject lot had no technical description and was even levied upon by the Bangko Sentral ng Pilipinas (BSP)
without their knowledge. They thus prayed that GPI be ordered to execute the deed, to deliver the corresponding certificate of
title and the physical possession of the subject lot within a reasonable period, and to develop Evergreen Executive Village; or in
the alternative, to cancel and/or rescind the contract and refund the total payments made plus legal interest starting January 2000.

For their part, petitioners maintained that at the time of the execution of the contract, Sps. Fajardo were actually aware that GPI's
certificate of title had no technical description inscribed on it. Nonetheless, the title to the subject lot was free from any liens or
11 12
encumbrances. Petitioners claimed that the failure to deliver the title to Sps. Fajardo was beyond their control because while
13
GPI's petition for inscription of technical description (LRC Case No. 4211) was favorably granted by the Regional Trial Court of
14
Caloocan City, Branch 131 (RTC-Caloocan), the same was reversed by the CA; this caused the delay in the subdivision of the
property into individual lots with individual titles. Given the foregoing incidents, petitioners thus argued that Article 1191 of the
Civil Code (Code) – the provision on which Sps. Fajardo anchor their right of rescission – remained inapplicable since they were
actually willing to comply with their obligation but were only prevented from doing so due to circumstances beyond their control.
Separately, petitioners pointed out that BSP's adverse claim/levy which was annotated long after the execution of the contract had
already been settled.

The Ruling of the HLURB-ENCRFO

15
On February 9, 2007, the HLURB-ENCRFO issued a Decision in favor of Sps. Fajardo, holding that GPI’s obligation to
execute the corresponding deed and to deliver the transfer certificate of title and possession of the subject lot arose and thus
became due and demandable at the time Sps. Fajardo had fully paid the purchase price for the subject lot. Consequently, GPI’s
failure to meet the said obligation constituted a substantial breach of the contract which perforce warranted its rescission. In this
regard, Sps. Fajardo were given the option to recover the money they paid to GPI in the amount of ₱168,728.83, plus legal
interest reckoned from date of extra-judicial demand in September 2002 until fully paid. Petitioners were likewise held jointly and
solidarily liable for the payment of moral and exemplary damages, attorney's fees and the costs of suit.

The Ruling of the HLURB Board of Commissioners

16
On appeal, the HLURB Board of Commissioners affirmed the above ruling in its August 3, 2007 Decision, finding that the
failure to execute the deed and to deliver the title to Sps. Fajardo amounted to a violation of Section 25 of PD 957 which
therefore, warranted the refund of payments in favor of Sps. Fajardo.

The Ruling of the OP

17
On further appeal, the OP affirmed the HLURB rulings in its August 27, 2009 Decision. In so doing, it emphasized the
mandatory tenor of Section 25 of PD 957 which requires the delivery of title to the buyer upon full payment and found that GPI
unjustifiably failed to comply with the same.

The Ruling of the CA

On petition for review, the CA affirmed the above rulings with modification, fixing the amount to be refunded to Sps. Fajardo at
the prevailing market value of the property pursuant to the ruling in Solid Homes v. Tan (Solid Homes).
18 19

The Petition

Petitioners insist that Sps. Fajardo have no right to rescind the contract considering that GPI's inability to comply therewith was
due to reasons beyond its control and thus, should not be held liable to refund the payments they had received. Further, since the
individual petitioners never participated in the acts complained of nor found to have acted in bad faith, they should not be held
liable to pay damages and attorney's fees.

The Court's Ruling

The petition is partly meritorious.

A. Sps. Fajardo’s right to rescind

It is settled that in a contract to sell, the seller's obligation to deliver the corresponding certificates of title is simultaneous and
20
reciprocal to the buyer's full payment of the purchase price. In this relation, Section 25 of PD 957, which regulates the subject
transaction, imposes on the subdivision owner or developer the obligation to cause the transfer of the corresponding certificate of
title to the buyer upon full payment, to wit:

Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the
lot or unit. No fee, except those required for the registration of the deed of sale in the Registry of Deeds, shall be collected for the
issuance of such title. In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer,
the owner or developer shall redeem the mortgage or the corresponding portion thereof within six months from such issuance in
order that the title over any fully paid lot or unit may be secured and delivered to the buyer in accordance herewith. (Emphasis
supplied.)

In the present case, Sps. Fajardo claim that GPI breached the contract due to its failure to execute the deed of sale and to deliver
the title and possession over the subject lot, notwithstanding the full payment of the purchase price made by Sps. Fajardo on
21 22
January 17, 2000 as well as the latter’s demand for GPI to comply with the aforementioned obligations per the letter dated
September 16, 2002. For its part, petitioners proffer that GPI could not have committed any breach of contract considering that
its purported non-compliance was largely impelled by circumstances beyond its control i.e., the legal proceedings concerning the
subdivision of the property into individual lots. Hence, absent any substantial breach, Sps. Fajardo had no right to rescind the
contract.

The Court does not find merit in petitioners’ contention.

A perusal of the records shows that GPI acquired the subject property on March 10, 1992 through a Deed of Partition and
23
Exchange executed between it and Andres Pacheco (Andres), the former registered owner of the property. GPI was issued TCT
24
No. 244220 on March 16, 1992 but the same did not bear any technical description. However, no plausible explanation was
25
advanced by the petitioners as to why the petition for inscription (docketed as LRC Case No. 4211) dated January 6, 2000, was
filed only after almost eight (8) years from the acquisition of the subject property.

Neither did petitioners sufficiently explain why GPI took no positive action to cause the immediate filing of a new petition for
inscription within a reasonable time from notice of the July 15, 2003 CA Decision which dismissed GPI’s earlier petition based
on technical defects, this notwithstanding Sps. Fajardo's full payment of the purchase price and prior demand for delivery of title.
GPI filed the petition before the RTC-Caloocan, Branch 122 (docketed as LRC Case No. C-5026) only on November 23,
2006, following receipt of the letter dated February 10, 2006 and the filing of the complaint on May 3, 2006, alternatively
26 27

seeking refund of payments. While the court a quo decided the latter petition for inscription in its favor, there is no showing that
28
the same had attained finality or that the approved technical description had in fact been annotated on TCT No. 244220, or even
that the subdivision plan had already been approved.

29
Moreover, despite petitioners’ allegation that the claim of BSP had been settled, there appears to be no cancellation of the
30
annotations in GPI’s favor. Clearly, the long delay in the performance of GPI's obligation from date of demand on September
16, 2002 was unreasonable and unjustified. It cannot therefore be denied that GPI substantially breached its contract to sell with
Sps. Fajardo which thereby accords the latter the right to rescind the same pursuant to Article 1191 of the Code, viz:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law.

B. Effects of rescission

At this juncture, it is noteworthy to point out that rescission does not merely terminate the contract and release the parties from
further obligations to each other, but abrogates the contract from its inception and restores the parties to their original positions as
31
if no contract has been made. Consequently, mutual restitution, which entails the return of the benefits that each party may have
32
received as a result of the contract, is thus required. To be sure, it has been settled that the effects of rescission as provided for in
Article 1385 of the Code are equally applicable to cases under Article 1191, to wit:

xxxx

Mutual restitution is required in cases involving rescission under Article 1191.1âwphi1 This means bringing the parties back to
their original status prior to the inception of the contract. Article 1385 of the Civil Code provides, thus:

ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits,
and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he
may be obligated to restore.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third
persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

This Court has consistently ruled that this provision applies to rescission under Article 1191:

Since Article 1385 of the Civil Code expressly and clearly states that "rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price with its interest," the Court finds no justification to sustain
33
petitioners’ position that said Article 1385 does not apply to rescission under Article 1191. x x x (Emphasis supplied; citations
omitted.)

In this light, it cannot be denied that only GPI benefited from the contract, having received full payment of the contract price plus
interests as early as January 17, 2000, while Sps. Fajardo remained prejudiced by the persisting non-delivery of the subject lot
despite full payment. As a necessary consequence, considering the propriety of the rescission as earlier discussed, Sps. Fajardo
must be able to recover the price of the property pegged at its prevailing market value consistent with the Court’s pronouncement
in Solid Homes, viz:
34

Indeed, there would be unjust enrichment if respondents Solid Homes, Inc. & Purita Soliven are made to pay only the purchase
price plus interest. It is definite that the value of the subject property already escalated after almost two decades from the time the
petitioner paid for it. Equity and justice dictate that the injured party should be paid the market value of the lot, otherwise,
respondents Solid Homes, Inc. & Purita Soliven would enrich themselves at the expense of herein lot owners when they sell the
same lot at the present market value. Surely, such a situation should not be countenanced for to do so would be contrary to
reason and therefore, unconscionable. Over time, courts have recognized with almost pedantic adherence that what is
inconvenient or contrary to reason is not allowed in law. (Emphasis supplied.)

On this score, it is apt to mention that it is the intent of PD 957 to protect the buyer against unscrupulous developers, operators
35
and/or sellers who reneged on their obligations. Thus, in order to achieve this purpose, equity and justice dictate that the injured
party should be afforded full recompense and as such, be allowed to recover the prevailing market value of the undelivered lot
which had been fully paid for.1âwphi1

C. Moral and exemplary damages, attorney’s fees and costs of suit

Furthermore, the Court finds that there is proper legal basis to accord moral and exemplary damages and attorney's fees,
including costs of suit. Verily, GPI’s unjustified failure to comply with its obligations as above-discussed caused Sps. Fajardo
serious anxiety, mental anguish and sleepless nights, thereby justifying the award of moral damages. In the same vein, the payment
of exemplary damages remains in order so as to prevent similarly minded subdivision developers to commit the same
transgression. And finally, considering that Sps. Fajardo were constrained to engage the services of counsel to file this suit, the
award of attorney’s fees must be likewise sustained.

D. Liability of individual Petitioners

However, the Court finds no basis to hold individual petitioners solidarily liable with petitioner GPI for the payment of damages
in favor of Sps. Fajardo since it was not shown that they acted maliciously or dealt with the latter in bad faith. Settled 1s the rule
that in the absence of malice and bad faith, as in this case, officers of the corporation cannot be made personally liable for
liabilities of the corporation which, by legal fiction, has a personality separate and distinct from its officers, stockholders, and
36
members.

WHEREFORE, the assailed July 22, 2011 Decision and February 29, 2012 Resolution of the Court of Appeals in CA-G.R. SP
No. 112981 are hereby AFFIRMED WITH MODIFICATION, absolving individual petitioners Jose C. Go, Evelyn Go,
Lourdes G. Ortiga, George Go, and Vicente Go from personal liability towards respondent-spouses Eugenio and Angelina
Fajardo.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 182720 March 2, 2010

G.G. SPORTSWEAR MFG. CORP., Petitioner,

vs.
WORLD CLASS PROPERTIES, INC., Respondent.

DECISION

BRION, J.:

Through its petition for review on certiorari, the petitioner G.G. Sportswear Mfg. Corp. (GG Sportswear) seeks to reverse the
1 2
December 19, 2007 decision and the January 2, 2008 resolution of the Court of Appeals (CA) denying: (1) the rescission of its
Reservation Agreement with the respondent, World Class Properties, Inc. (World Class) and (2) a refund of the payments made
pursuant to this Agreement.

The facts, as culled from the records, are briefly summarized below.

World Class is the owner/developer of Global Business Tower (now Antel Global Corporate Center), an office condominium
project located on Julia Vargas Avenue and Jade Drive, Ortigas Center, Pasig City slated for completion on December 15, 1998.

GG Sportswear, a domestic corporation, offered to purchase the 38th floor penthouse unit and 16 parking slots for 32 cars in
World Class's condominium project for the discounted, pre-selling price of ₱89,624,272.82. After GG Sportswear paid the
₱500,000.00 reservation fee, the parties, on May 15, 1996, signed a Reservation Agreement (Agreement) that provides for the
3

schedule of payments, including the stipulated monthly installments on the down payment and the balance on the purchase price,
4
as follows:

Item Amount to be paid Monthly Installment Duration

20% Down Payment ₱ 17,924,854.56 ₱ 1,742,485.45 May 1996 to Feb 1997
less: 500,000.00
(Reservation Fee)
₱ 17,424,854.56
60% Payment 53,774,563.69 1,792,485.45 Mar 1997 to Aug 1999
20% Final Payment 17,924,854.56 Upon turn-over
TOTAL PRICE ₱ 89,624,272.82

Based on the Agreement, the contract to sell pertaining to the entire 38th floor Penthouse unit and the parking slots would be
5
executed upon the payment of thirty percent (30%) of the total purchase price. It also stipulated that all its provisions would be
deemed incorporated in the contract to sell and other documents to be executed by the parties thereafter. The Agreement also
specified that the failure of the buyer to pay any of the installments on the stipulated date would give the developer the right either
to: (1) charge 3% interest per month on all unpaid receivables, or (2) rescind and cancel the Agreement without the need of any
6
court action and, upon cancellation, automatically forfeit the reservation fee and other payments made by the buyer.

From May to December 1996, GG Sportswear timely paid the installments due; the eight monthly installment
payments amounted to a total of ₱19,717,339.50, or 21% of the total contract price.

7
In a letter dated January 30, 1997, GG Sportswear requested the return of the outstanding postdated checks it previously
delivered to World Class because it (GG Sportswear) intended to replace these old checks with new ones from the corporation’s
new bank. World Class acceded, but suggested the execution of a new Reservation Agreement to reflect the arrangement
8
involving the replacement checks, with the retention of the other terms and conditions of the old Agreement. GG Sportswear did
not object to the execution of a new Reservation Agreement, but requested that World Class defer the deposit of the replacement
9
checks for 90 days. World Class denied this request, contending that a deferment would delay the subsequent monthly
10
installment payments. It likewise demanded that GG Sportswear immediately pay its overdue January 1997 installment to avoid
11 12
the penalties provided in the Agreement.

On March 5, 1997, GG Sportswear delivered the replacement checks and paid the January 1997 installment payment which had
been delayed by two months. World Class in turn issued a second Reservation Agreement, which it transmitted to GG
Sportswear for the latter’s conformity. World Class also sent GG Sportswear a provisional Contract to Sell, which stated that the
13

condominium project would be ready for turnover to the buyer not later than December 15, 1998.

14
GG Sportswear did not sign the second Reservation Agreement. Instead, it sent a letter to World Class, requesting that its check
dated April 24, 1997 be deposited on May 15, 1997 because it was experiencing financial difficulties. When World Class rejected
GG Sportswear’s request, GG Sportswear sent another letter informing World Class that the second Reservation Agreement was
incomplete because it did not expressly provide the time of completion of the condominium unit. World Class countered that
15

the provisional Contract to Sell it previously submitted to GG Sportswear expressly provided for the completion date (December
16
15, 1998) and insisted that GG Sportswear pay its overdue account.

On June 10, 1997, GG Sportswear filed a Complaint with the Housing and Land Use Regulatory Board (HLURB) claiming a
17

refund of the installment payments made to World Class because it was dissatisfied with the completion date found in the
Contract to Sell.

18
In its Answer, World Class countered that: (1) it is not guilty of breach of contract since it is the petitioner that committed a
breach; (2) the complaint is an afterthought since GG Sportswear is suffering from financial difficulties; (3) the petitioner’s
dissatisfaction with the expected date of completion of the unit as indicated in the proposed Contract to Sell is not a valid and
sufficient ground for refund; (4) a refund is justified only in cases where the owner/developer fails to develop the project within
the specified period of time under Presidential Decree (P.D.) No. 957, which period has not yet arrived; and (5) the petitioner
19

was already in default when it filed the complaint and therefore came to court with unclean hands.

On September 12, 2005, HLURB Arbiter Atty. Dunstan T. San Vicente (Arbiter) rendered a decision rescinding the
20

Agreement, after finding that World Class violated Sections 4 and 5 of P.D. No. 957 by entering into the Agreement without the
required Certificate of Registration and License to Sell (CR/LS). He also implied that a refund is proper in this case under
21

Article 1416 of the Civil Code. As a consequence, he ordered World Class to refund the amount of ₱19,717,339.50 paid by GG
Sportswear with 6% legal interest thereon, and to pay 10% of the principal amount as attorney’s fees. He likewise found World
Class administratively liable and ordered it to pay a fine of ₱10,000.00.

World Class appealed to the HLURB Board of Commissioners (Board). On January 31, 2006, the Board modified the Arbiter’s
decision by ruling that the Agreement could no longer be rescinded for lack of a CR/LS because World Class had already been
22
issued a License to Sell on August 1, 1996, or before the complaint was filed. Notwithstanding this pronouncement, the Board
still awarded a refund in GG Sportswear’s favor. The Board reasoned that World Class had only until August 1998 to complete
the project under its first License to Sell. However, World Class, by its own actions, impliedly admitted that it would be incapable
of completing its project by this time; it repackaged the project and had applied for and been issued a new License to Sell, which
23
granted World Class until December 1999 to complete the project. In essence, the Board equated World Class’s "incapability"
to finish the project within the time specified in its first License to Sell with a developer’s "failure to develop" a condominium
24
project – an omission sanctioned under P.D. No. 957 and entitled a buyer to a refund of all payments made.

In its decision of September 11, 2006, the Office of the President (OP) denied World Class’s appeal by quoting extensively from
25

26
the Arbiter’s decision. The OP subsequently denied World Class’s motion for reconsideration in its November 13, 2006 order.

27
In its petition for review before the CA, World Class essentially argued that the OP committed a grave abuse of discretion when
it upheld the Board’s ruling that GG Sportswear was entitled to a refund.

The CA, in its decision of December 19, 2007, reversed the OP decision and denied GG Sportswear’s prayers for rescission of
28

the Agreement and refund of the payments made. It explained that the OP should have given weight to the Board’s modified
finding that "the absence of the certificate of registration and license to sell no longer existed at the time of the filing of the
complaint and could no longer be used as basis to demand rescission." Since GG Sportswear never appealed this finding, it had
already attained finality and must bind the OP.

On the awarded refund, the CA held that the OP erroneously based GG Sportswear’s right to recovery of payments on Article
29
1416 of the Civil Code (as what the Arbiter’s decision suggested), which entitles a plaintiff to recover the amounts paid under a
contract that violates mandatory or prohibitory laws. Since World Class already had a CR/LS when GG Sportswear filed its
complaint, GG Sportswear could no longer demand rescission and refund under Sections 4 and 5 of P.D. No. 957.
The appellate court also found no merit in GG Sportswear’s argument that it was entitled to rescind the Agreement and demand
a refund because World Class failed to provide a Contract to Sell for the subject units. Under the Agreement, the Contract to Sell
would be executed only upon payment of thirty (30%) of the total value of the sale; since GG Sportswear had only paid 21% of
the total contract price, it could not demand the execution of the Contract to Sell. The CA likewise denied GG Sportswear’s
30
motion for reconsideration.

Hence, GG Sportswear filed with this Court the present petition for review on certiorari, claiming that the CA erred when: (1) it
31

relied heavily on the Board’s finding that the Agreement could no longer be rescinded because the CR/LS had already been
issued at the time the complaint was filed, which was a mere obiter dictum; and (2) it held that GG Sportswear was not entitled to
the execution of a Contract to Sell because it had not yet paid 30% of the total value of the sale.

THE RULING OF THE COURT

We find the petition devoid of merit.

The Board ruling that the Agreement could not be rescinded based on lack of a CR/LS had already attained finality.

32
We explained the concept of an obiter dictum in Villanueva v. Court of Appeals by saying:

It has been held that an adjudication on any point within the issues presented by the case cannot be considered as obiter dictum,
and this rule applies to all pertinent questions, although only incidentally involved, which are presented and decided in the regular
course of the consideration of the case, and led up to the final conclusion, and to any statement as to matter on which the
decision is predicated. Accordingly, a point expressly decided does not lose its value as a precedent because the disposition of the
case is, or might have been, made on some other ground, or even though, by reason of other points in the case, the result reached
might have been the same if the court had held, on the particular point, otherwise than it did. A decision which the case could
have turned on is not regarded as obiter dictum merely because, owing to the disposal of the contention, it was necessary to
consider another question, nor can an additional reason in a decision, brought forward after the case has been disposed of on one
ground, be regarded as dicta. So, also, where a case presents two (2) or more points, any one of which is sufficient to determine
the ultimate issue, but the court actually decides all such points, the case as an authoritative precedent as to every point decided,
and none of such points can be regarded as having the status of a dictum, and one point should not be denied authority merely
because another point was more dwelt on and more fully argued and considered, nor does a decision on one proposition make
statements of the court regarding other propositions dicta. [emphasis supplied.]
33

The Board’s pronouncement in its January 31, 2006 decision – that the Agreement could no longer be rescinded because the
CR/LS had already been issued at the time the complaint was filed – cannot be considered a mere obiter dictum because it
touched upon a matter squarely raised by World Class in its petition for review, specifically, the issue of whether GG Sportswear
was entitled to a refund on the ground that it did not have a CR/LS at the time the parties entered into the Agreement.

With this ruling, the Board reversed the Arbiter’s ruling on this particular issue, expressly stating that "the absence of the
certificate of registration and license to sell no longer existed at the time of the filing of the complaint and could no longer be used
as basis to demand rescission." This ruling became final when GG Sportswear chose not to file an appeal with the OP. Thus, even
if the Board ultimately awarded a refund to GG Sportswear based entirely on another ground, the Board’s ruling on the non-
rescissible character of the Agreement is binding on the parties.

Consequently, the OP had no jurisdiction to revert to the Arbiter’s earlier declaration that the Agreement was void due to World
Class’s lack of a CR/LS, a finding that clearly contradicted the Board’s final and executory ruling.

There was no breach on the part of World Class to justify the rescission and refund.

GG Sportswear likewise has no legal basis to demand either the rescission of the Agreement or the refund of payments it made to
World Class under the Agreement.

Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the
34 35
fulfillment of the obligation. Whether the breach is slight or substantial is largely determined by the attendant circumstances.

GG Sportswear anchors its claim for rescission on two grounds: (a) its dissatisfaction with the completion date; and (b) the lack of
a Contract to Sell. As to the first ground, World Class makes much of the fact that the completion date is not indicated in the
Agreement, maintaining that this lack of detail renders the Agreement void on the ground that the intention of the parties cannot
be ascertained. We disagree with this contention.

In the first place, GG Sportswear cannot claim that it did not know the time-frame for the project’s completion when it entered
into the Agreement with World Class. As World Class points out, it is absurd and unbelievable that Mr. Gidwani, the president
of GG Sportswear and an experienced businessman, did not have an idea of the expected completion date of the condominium
project before he bought the condominium units for ₱89,624,272.82. Even assuming that GG Sportswear was not aware of the
exact completion date, we note that GG Sportswear signed the Agreement despite the Agreement’s omission to expressly state a
specific completion date. This directly implies that a specific completion date was not a material consideration for GG Sportswear
when it executed the Agreement. Thus, even if we believe GG Sportswear’s contention that it was dissatisfied with the completion
date subsequently indicated in the provisional Contract to Sell, we cannot consider this dissatisfaction a breach so substantial as to
render the Agreement rescissible. The grant, too, to World Class of a first License to Sell up to August 1998 and a second
License to Sell up to December 1999, to our mind, served as a clear notice of when the project was to be completed. As we
discussed above, the initial lack of a License to Sell is not a basis to cancel the Agreement and has in fact effectively been cured
even if it may be considered an initial defect.
Moreover, the provisional Contract to Sell that accompanied the second Reservation Agreement explicitly provided that the
condominium project would be ready for turnover no later than December 15, 1998, a clear expression of the project’s
completion date. While GG Sportswear claims dissatisfaction with this completion date, it never alleged that the given December
15, 1998 completion date violates the completion date previously agreed upon by the parties. In fact, nowhere does GG
Sportswear allege that the parties ever agreed upon an earlier completion date. We therefore find no reason for GG Sportswear
to be dissatisfied with the indicated completion date. Even if it had been unhappy with the completion date, this ground, standing
alone, is not sufficient basis to rescind the Agreement; unhappiness is a state of mind, not a defect available in law as a basis to
rescind a contract.

As a last point on this topic, we cannot help but view with suspicion GG Sportswear’s decision to question the second Reservation
Agreement’s lack of an express completion date as this question only came up after World Class had rejected GG Sportswear’s
request to defer the deposit of its check in light of the financial difficulties it was then encountering. Also by this time, GG
Sportswear had already defaulted on its monthly installment payments to World Class. Under these circumstances, we are more
inclined to believe World Class’s contention that GG Sportswear’s complaint was simply an attempt to evade its obligations to
World Class under the Agreement. This is a ploy we cannot accept.

On the second ground, we note that the Agreement expressly provides that GG Sportswear shall be entitled to a Contract to Sell
36
only upon its payment of at least 30% of the total contract price. Since GG Sportswear had only paid 21% of the total contract
price, World Class’s obligation to execute a Contract to Sell had not yet arisen. Accordingly, GG Sportswear had no basis to
claim that World Class breached this obligation.

Even if we apply Article 1191 of the Civil Code, which provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what
is incumbent upon him. x x x x.

no reason still exists to rescind the contract. Under the Agreement, World Class’s obligation was to finish the project and turn
over the purchased units to GG Sportswear on or before the completion date. Notably, at the time GG Sportswear filed its
complaint on June 10, 1997, the agreed completion date of December 15, 1998, or even August 1998, the date appearing on
World Class’s first License to Sell, was still a long way out. In other words, when GG Sportswear filed its complaint, World Class
had not yet breached its obligation, and rescission under this provision of the Civil Code was premature.

Rescission of contracts of sale of commercial condominium units on installment is governed by P.D. No. 957.

Neither can GG Sportswear find recourse through P.D. No. 957, or the "Subdivision and Condominium Buyers’ Protective
Decree." This law covers all sales and purchases of subdivision or condominium units, and provides that the buyer’s installment
payments shall not be forfeited in favor of the developer or owner if the latter fails to develop the subdivision or condominium
project. Section 23 of P.D. No. 957 provides:

Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision or condominium project for
the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the
owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or
condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at
his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest
thereon at the legal rate. [Emphasis supplied.]

Upon the developer’s failure to develop, the buyer may choose either: (1) to continue with the contract but suspend payments
until the developer complies with its obligation to finish the project; or (2) to cancel the contract and demand a refund of all
payments made, excluding delinquency interests. Notably, a buyer’s cause of action against a developer for failure to develop
ripens only when the developer fails to complete the project on the lapse of the completion period stated on the sale contract or
the developer’s License to Sell.

To recall, the completion date of the Antel Global Corporate Center was either in August 1998 (based on World Class's first
License to Sell), on December 15, 1998 (based on the provisional Contract to Sell), or on December 1999 (based on World
Class’s second License to Sell). At the time GG Sportswear filed its complaint against World Class on June 10, 1997, the Antel
37
Global Corporate Center was still in the course of development and none of these projected completion dates had arrived.
Hence, any complaint for refund was premature.

Significantly, World Class completed the project in August 1999, or within the time period granted by the HLURB for the
completion of the condominium project under the second License to Sell. This completion, undertaken while the case was
pending before the Arbiter, rendered the issue of World Class’s failure to develop the condominium project moot and
academic.1avvphi1

As a side note, we observe that GG Sportswear, not World Class, substantially breached its obligations under the Agreement
when it was remiss in the timely payment of its obligations, such that its January 1997 installment was paid only in March 1997, or
two months after due date. GG Sportswear did not pay the succeeding installment dated April 1997 (presumably for February
1997) until it had filed its complaint in June 1997. A substantial breach of a reciprocal obligation, like failure to pay the price in
the manner prescribed by the contract, entitles the injured party to rescind the obligation. Under this contractual term, it was
38

World Class, not GG Sportswear, which had the ground to demand the rescission of the Agreement, as well as the prerogative to
secure the forfeiture of all the payments already made by GG Sportswear. However, whether the Agreement between World
Class and Sportswear should now be rescinded is a question we do not decide, as this is not a matter before us.
The lack of a Certificate of Registration/License to Sell merely subjects the developer to administrative sanctions.

On a final note, we choose to reiterate, for the benefit of the HLURB, our ruling in Co Chien v. Sta. Lucia Realty &
39
Development, Inc., that the requirements of Sections 4 and 5 of P.D. No. 957 are intended merely for administrative
convenience in order to allow for a more effective regulation of the industry and do not go into the validity of the contract such
that the absence thereof would automatically render the contract null and void. We said:

A review of the relevant provisions of P.D. 957 reveals that while the law penalizes the selling of subdivision lots and
condominium units without prior issuance of a Certificate of Registration and License to Sell by the HLURB, it does not provide
that the absence thereof will automatically render a contract, otherwise validly entered, void. The penalty imposed by the decree
is the general penalty provided for the violation of any of its provisions. It is well-settled in this jurisdiction that the clear language
of the law shall prevail. This principle particularly enjoins strict compliance with provisions of law which are penal in nature, or
when a penalty is provided for the violation thereof. With regard to P.D. 957, nothing therein provides for the nullification of a
contract to sell in the event that the seller, at the time the contract was entered into, did not possess a certificate of registration and
license to sell. Absent any specific sanction pertaining to the violation of the questioned provisions (Sections 4 and 5), the general
penalties provided in the law shall be applied. The general penalties for the violation of any provisions in P.D. 957 are provided
for in Sections 38 and 39. As can clearly be seen in the cited provisions, the same do not include the nullification of contracts that
are otherwise validly entered.

xxxx

The lack of certificate and registration, without more, while penalized under the law, is not in and of itself sufficient to render a
40
contract void. (Emphasis supplied.)

We see no reason to depart from this ruling, and so hold that the Arbiter erred in declaring the Agreement void due to the
absence of a CR/LS at the time the Agreement was executed.

WHEREFORE, we DENY the present petition for review on certiorari and AFFIRM the assailed CA Decision and Resolution
dated December 19, 2007 and January 2, 2008, respectively. Accordingly, the complaint of G.G. Sportswear Mfg. Corp. is
DISMISSED. Costs against petitioner G.G. Sportswear Mfg. Corp.

SO ORDERED.

ARTURO D. BRION
Associate Justice

FIRST DIVISION

G.R. No. 141205 May 9, 2002

ACTIVE REALTY & DEVELOPMENT CORPORATION, petitioner,

vs.
NECITA G. DAROYA, represented by Attorney-In-Fact Shirley Daroya-Quinones, respondents.

PUNO, J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court which seeks to reverse and set aside the
Resolution of the Court of Appeals, dated August 3, 1999, denying due course to petitioner’s appeal for insufficiency of form and
substance.1âwphi1.nêt

Petitioner ACTIVE REALTY & DEVELOPMENT CORPORATION is the owner and developer of Town & Country Hills
1
Executive Village in Antipolo, Rizal. On January 2, 1985, it entered into a Contract to Sell with respondent NECITA DAROYA,
a contract worker in the Middle East, whereby the latter agreed to buy a 515 sq. m. lot for P224,025.00 in petitioner’s subdivision.

The contract to sell stipulated that the respondent shall pay the initial amount of P53,766.00 upon execution of the contract and
the balance of P170,259.00 in sixty (60) monthly installments of P4,893.35. Adding the down payment and installment payments,
it would appear that the total amount is P346,367.00, a figure higher than that stated as the contract price.

On May 5, 1989, petitioner accepted respondent’s amortization in the amount of P40,000.00. By August 8, 1989, respondent
2
was in default of P15,282.85 representing three (3) monthly amortizations. Petitioner sent respondent a notice of cancellation of
their contract to sell, to take effect thirty (30) days from receipt of the letter. It does not appear from the records, however, when
respondent received the letter. Nonetheless, when respondent offered to pay for the balance of the contract price, petitioner
refused as it has allegedly sold the lot to another buyer.

3
On August 26, 1991, respondent filed a complaint for specific performance and damages against petitioner before the
Arbitration Branch of the Housing and Land Use Regulatory Board (HLURB). It sought to compel the petitioner to execute a
final Deed of Absolute Sale in respondent’s favor after she pays any balance that may still be due from her. Respondent claimed
that she is entitled to the final deed of sale after she offered to pay the balance of P24,048.47, considering that she has already
paid the total sum of P314,816.76, which amount is P90,835.76 more than the total contract price of P224,025.00.
On June 14, 1993, HLURB Arbiter Alfredo M. Tan II found for the respondent. He ruled that the cancellation of the contract to
sell was void as petitioner failed to pay the cash surrender value to respondent as mandated by law. However, as the subject lot
was already sold to a third party and the respondent had agreed to a full refund of her installment payments, petitioner was
ordered to refund to respondent all her payments in the amount of P314,816.70, with 12% interest per annum from August 26,
4
1991 (the date of the filing of the complaint) until fully paid and to pay P10,000.00 as attorney’s fees.

On appeal, the HLURB Board of Commissioners set aside the Arbiter’s Decision. The Board refused to apply the remedies
provided under the Maceda Law and instead deemed it fit to formulate an "equitable" solution to the case. It ruled that, as both
parties were at fault, i.e., respondent incurred in delay in her installment payments and respondent failed to send a notarized
notice of cancellation, petitioner was ordered to refund to the respondent one half of the total amount she has paid
5
or P157,408.35, which was allegedly akin to the remedy provided under the Maceda Law.

Respondent appealed to the Office of the President. On June 2, 1998, then Chief Presidential Counsel Renato C. Corona, acting
by authority of the President, modified the Decision of the HLURB as he found that it was not in accord with the provisions of
the Maceda Law. He held that as petitioner did not comply with the legal requisites for a valid cancellation of the contract, the
contract to sell between the parties subsisted and concluded that respondent was entitled to the lot after payment of her
outstanding balance. However, as the petitioner disclosed that the lot was already sold to another person and that the actual value
of the lot as of the date of the contract was P1,700.00 per square meter, petitioner was ordered to refund to the respondent the
amount of P875,000.00, the true and actual value of the lot as of the date of the contract, with interest at 12% per annum
6
computed from August 26, 1991 until fully paid, or to deliver a substitute lot at the choice of respondent.

Upon denial of its motion for reconsideration, petitioner assailed the Decision in the Court of Appeals. However, its petition for
7 8
review was denied due course for insufficiency in form and substance, because: 1) no affidavit of service was attached to the
petition; 2) except for certified true copies of the decision and resolution of the Office of the President, no other material
portions of the record, as would support the allegations in the petition, were attached; and, 3) the certification of forum-shopping
was signed by the head counsel and vice-president of the petitioner corporation who was not authorized by a Board Resolution to
represent petitioner.

Petitioner moved for reconsideration. The Court of Appeals denied it on an entirely new ground, i.e., for untimely filing of the
9
petition for review.

Petitioner now impugns the decision of the Court of Appeals and raises the following procedural issues:

THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN RELYING TOO MUCH ON FORM RATHER
THAN ON THE MERITS OF THE PETITION THEREBY DENYING PETITIONER OF ITS RIGHT TO DUE
PROCESS.

II

THE HONORABLE COURT OF APPEALS ANCHORED THE DENIAL OF PETITIONER’S MOTION FOR
RECONSIDERATION ON INCONSISTENT AND CONFLICTING RULINGS NOT BORNE BY THE FACTS AND
THE RECORDS OF THE CASE.

On the procedural points raised, we find for the petitioner.

Our perusal of the record reveals that petitioner substantially complied with the formal requirements of Rule 43 of the Rules of
10
Court. First, as to the non-attachment of the affidavit of service, the records bear that the petition was accompanied by the
original registry receipts issued by the post office, showing that the petition and its annexes were served upon the parties.
11
Moreover, respondent’s counsel of record, Atty. Sergio Guadiz, actually received a copy of the petition. Second, petitioner
likewise complied with Section 6 (c) of Rule 43 requiring the submission of copies of the award, judgment, final order and
resolution appealed from. Its petition was accompanied by the duplicate original of the appealed Decision of the Chief
Presidential Legal Counsel and his Resolution denying petitioner’s motion for reconsideration, the Decision of the HLURB
Board of Commissioners and that of the HLURB arbiter. A perusal of these documents will reveal that they contained all the
relevant facts of the case from which the appellate body can form its own decision. Its failure to submit the other documents, like
the Complaint, Answer, Position Papers and Appeal Memoranda of the parties before the HLURB, was due to the refusal of the
Office of the President to give them a certified true copy of these documents which were submitted with said Office. Third, as to
the lack of Board Resolution by petitioner corporation authorizing Atty. Rene Katigbak, its Chief Legal Counsel and Vice-
President for Legal Affairs, to represent it in the filing of the appeal, petitioner admits that this was due to its honest belief that
12
such authority is not required as it was not mentioned in Section 6(c) of Rule 43. To make up for such omission, petitioner
13
submitted a Secretary’s Certificate confirming and ratifying the authority of Atty. Katigbak to represent petitioner. Finally, we
find that the Court of Appeals erred in denying petitioner’s motion for reconsideration due to untimely filing as the records
clearly show that it was filed on June 25, 1999, a day before the expiration of the period to appeal granted by the Court of
14
Appeals.

In denying due course to the petition, the appellate court gave premium to form and failed to consider the important rights of the
15
parties in the case at bar. At the very least, petitioner substantially complied with the procedural requirements for appeal, hence,
it is best to give due course to the petition at bar to clarify the rights and duties of a buyer in contracts to sell real estate on
installment basis.
The issue to be resolved is whether or not the petitioner can be compelled to refund to the respondent the value of the lot or to
deliver a substitute lot at respondent’s option.

We find for the respondent and rule in the affirmative.1âwphi1.nêt

The contract to sell in the case at bar is governed by Republic Act No. 6552 -- "The Realty Installment Buyer Protection Act," or
more popularly known as the Maceda Law -- which came into effect in September 1972. Its declared public policy is to protect
16
buyers of real estate on installment basis against onerous and oppressive conditions. The law seeks to address the acute housing
shortage problem in our country that has prompted thousands of middle and lower class buyers of houses, lots and condominium
units to enter into all sorts of contracts with private housing developers involving installment schemes. Lot buyers, mostly low
income earners eager to acquire a lot upon which to build their homes, readily affix their signatures on these contracts, without an
17
opportunity to question the onerous provisions therein as the contract is offered to them on a "take it or leave it" basis. Most of
these contracts of adhesion, drawn exclusively by the developers, entrap innocent buyers by requiring cash deposits for
reservation agreements which oftentimes include, in fine print, onerous default clauses where all the installment payments made
18
will be forfeited upon failure to pay any installment due even if the buyers had made payments for several years. Real estate
developers thus enjoy an unnecessary advantage over lot buyers who they often exploit with iniquitous results. They get to forfeit
all the installment payments of defaulting buyers and resell the same lot to another buyer with the same exigent conditions. To
help especially the low income lot buyers, the legislature enacted R.A. No. 6552 delineating the rights and remedies of lot buyers
and protect them from one-sided and pernicious contract stipulations.

More specifically, Section 3 of R.A. No. 6552 provided for the rights of the buyer in case of default in the payment of succeeding
installments, where he has already paid at least two (2) years of installments, thus:

"(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby
fixed at the rate of one month grace period for every one year of installment payments made; x x x

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property
equivalent to fifty per cent of the total payments made; provided, that the actual cancellation of the contract shall take place
after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial
act and upon full payment of the cash surrender value to the buyer."

In this case, respondent has already paid in four (4) years a total of P314,860.76 or P90,835.76 more than the contract price
of P224,035.00. In April 1989, petitioner decided to cancel the contract when the respondent incurred in delay in the payment
of P15,282.85, representing three (3) monthly amortizations. Petitioner refused to accept respondent’s subsequent tender of
payment of the outstanding balance alleging that it has already cancelled the contract and sold the subject lot to another buyer.
However, the records clearly show that the petitioner failed to comply with the mandatory twin requirements for a valid and
effective cancellation under the law, i.e., he failed to send a notarized notice of cancellation and refund the cash surrender value.
19

At no time, from the date it gave a notice of cancellation up to the time immediately before the respondent filed the case against
petitioner, did the latter exert effort to pay the cash surrender value. In fact, the records disclose that it was only during the
preliminary hearing of the case before the HLURB arbiter when petitioner offered to pay the cash surrender value. Petitioner
justifies its inaction on the ground that the respondent was always out of the country. Even then, the records are bereft of evidence
to show that petitioner attempted to pay the cash surrender value to respondent through her last known address. The omission is
surprising considering that even during the times respondent was out of the country, petitioner has been sending her written
notices to remind her to pay her installment arrears through her last known address. Clearly, had respondent not filed a case
demanding a final deed of sale in her favor, petitioner would not have lifted a finger to give respondent what was due her – actual
payment of the cash surrender value, among others. In disregard of basic equitable principles, petitioner’s stance would enable it
to resell the property, keep respondent’s installment payments, not to mention the cash surrender value which it was obligated to
return. The Layug case cited by petitioner is inapropos. In Layug, the lot buyer did not pay for the outstanding balance of his
20

account and the Court found that notarial rescission or cancellation was no longer necessary as the seller has already filed in court
a case for rescission of the contract to sell. In the case at bar, respondent offered to pay for her outstanding balance of the
contract price but respondent refused to accept it. Neither did petitioner adduce proof that the respondent’s offer to pay was
made after the effectivity date stated in its notice of cancellation. Moreover, there was no formal notice of cancellation or court
action to rescind the contract. Given the circumstances, we find it illegal and iniquitous that petitioner, without complying with the
mandatory legal requirements for canceling the contract, forfeited both respondent’s land and hard-earned money after she has
paid for, not just the contract price, but more than the consideration stated in the contract to sell.

Thus, for failure to cancel the contract in accordance with the procedure provided by law, we hold that the contract to sell
between the parties remains valid and subsisting. Following Section 3(a) of R.A. No. 6552, respondent has the right to offer to pay
for the balance of the purchase price, without interest, which she did in this case. Ordinarily, petitioner would have had no other
recourse but to accept payment. However, respondent can no longer exercise this right as the subject lot was already sold by the
petitioner to another buyer which lot, as admitted by the petitioner, was valued at P1,700.00 per square meter. As respondent lost
her chance to pay for the balance of the P875,000.00 lot, it is only just and equitable that the petitioner be ordered to refund to
respondent the actual value of the lot resold, i.e., P875,000.00, with 12% interest per annum computed from August 26, 1991
until fully paid or to deliver a substitute lot at the option of the respondent.

On a final note, it would not be amiss to stress that the HLURB Board Decision ordering petitioner to refund to respondent one
half of her total payments is not an equitable solution as it punished the respondent for her delinquent payments but totally
disregarded petitioner’s failure to comply with the mandatory requisites for a valid cancellation of the contract to sell. The Board
failed to consider that the Maceda law was enacted to remedy the plight of low and middle-income lot buyers, save them from the
exacting default clauses in real estate sales and assure them of a home they can call their own. Neither would the Decision of the
HLURB Arbiter ordering a full refund of the installment payments of respondent in the amount of P314,816.70 be justified as,
under the law, respondent is entitled to the lot she purchased after payment of her outstanding balance which she was ready and
willing to do. Thus, to penalize the petitioner for failing in its obligation to deliver the subject lot and to give the respondent what
is rightly hers, the petitioner was correctly ordered to refund to the respondent the actual value of the land (P875,000.00) she lost
to another buyer, plus interest at the rate of 12% per annum from August 26, 1991 until fully paid or to deliver a substitute lot at
the choice of the respondent.1âwphi1.nêt

IN VIEW WHEREOF, the Decision of then Chief Presidential Legal Assistant Renato Corona, Office of the President, dated
June 2, 1998, is AFFIRMED in toto. Costs against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 109703 July 5, 1994

REALTY EXCHANGE VENTURE CORPORATION AND/OR MAGDIWANG, REALTY CORPORATION, petitioner,

vs.
LUCINA S. SENDINO and the OFFICE OF THE EXECUTIVE SECRETARY, Office of the President, Malacañang,
Manila, respondents.

Siruelo, Muyco & Associates Law Office for petitioner.

Sisenando Villaluz, Jr. for private respondent.

KAPUNAN, J.:

Private respondent Lucina C. Sendino entered into a reservation agreement with Realty Exchange Venture, Inc. (REVI) for a
1
120-square meter lot in Raymondville Subdivision in Sucat, Paranaque for P307,800.00 as its purchase price. She paid
P1,000.00 as partial reservation fee on January 15, 1989 and completed payment of this fee on January 20, 1989 by paying
2
P4,000.00.

3
On July 18, 1989, private respondent paid REVI P16,600.00 as full downpayment on the purchase price. However, she was
advised by REVI to change her co-maker, which she agreed, asking for an extension of one month to do so.

For alleged non-compliance with the requirement of submission of the appropriate documents under the terms of the original
4
agreement, REVI, through its Vice-President for Marketing, informed respondent of the cancellation of the contract on the 31st
5
of July 1989.

On April 20, 1990, private respondent filed a complaint for Specific Performance against REVI with the office of Appeals,
Adjudication and Legal Affairs (OAALA) of the Housing and Land Use Regulatory Board (HLURB) asking that respondent be
ordered:

1. To comply and continue with the sale of the house and lot, Block 4, Lot 17 at the Raymondville Subdivision, Sucat Road,
Paranaque, Metro Manila;

2. To pay complainant actual, nominal and moral damages, the amount of which will be proved in the hearing;

3. To pay complainant attorney's fee in the sum of P10,000.00;

4. To pay complainant exemplary damages in the sum of P10,000.00 to set an example and to avoid a repetition of such illegal
6
and unsound business practices of the respondent.

This petition was amended on August 17, 1990 by impleading petitioners Magdiwang Realty Corporation (MRC) which appeared
to be the registered owner of the subject lot as per TCT No. 76023.

On April 3, 1991 the HLURB, whose authority to hear and decide the complaint was challenged by REVI in its
7
answer, rendered its judgment in favor of private respondent and ordered petitioners to continue with the sale of the house and
lot and to pay private respondent P5,000 as moral damages, P5,000 as exemplary damages and P6,000 as attorney's fees and costs
8
of the suit. An appeal from this decision was taken to the HLURB OAALA Arbiter, which affirmed the Board's decision. The
decision of the OAALA Arbiter was appealed to the Office of the President, herein public respondent.

On January 7, 1993, the public respondent rendered its decision dismissing the petitioners' appeal. Motion for reconsideration of
the decision was denied by the public respondent on January 26, 1993. Consequently petitioners come before this Court, in this
petition, which the Court resolves to treat as a petition for certiorari, raising the following issues:
I

PUBLIC RESPONDENT COMMITTED SERIOUS ERROR IN DECLARING THAT THE HOUSING AND LAND USE
REGULATORY BOARD HAS QUASI-JUDICIAL FUNCTIONS, NOTWITHSTANDING ABSENCE OF EXPRESS
GRANT BY EXECUTIVE ORDER NO. 90 OF DECEMBER 17, 1986 WHICH CREATED IT. AND EVEN IF THE
HLURB HAS QUASI-JUDICIAL FUNCTIONS, PUBLIC RESPONDENT LIKEWISE SERIOUSLY ERRED IN
DECLARING THAT THE BOARD OF COMMISSIONERS IS ALLOWED TO SIT IN A DECISION TO RENDER
JUDGMENT AND TO DELEGATE ITS QUASI-JUDICIAL AUTHORITY TO A SUBORDINATE OFFICE.

II

PUBLIC RESPONDENT GRAVELY ABUSED ITS DISCRETION IN DECLARING THAT THE LOT SUBJECT OF
THE CONTRACT SOUGHT TO BE ENFORCED IS PARAPHERNAL DESPITE ADMISSION OF ITS CONJUGAL
NATURE.

III

PUBLIC RESPONDENT GRAVELY ABUSED ITS DISCRETION IN DECLARING THAT ONLY NOTARIAL
NOTICE OF RESCISSION MAY VALIDLY CANCEL A RESERVATION AGREEMENT PURSUANT TO REPUBLIC
ACT NO. 6552.

As the first and third issues raised by the petitioners strike at the core of the case at bench, this Court deems it appropriate to
initially dispose of the issue of private respondent's capacity to bring her complaint before the HLURB-OAALA.

9
It is settled that rules of procedure are as a matter of course construed liberally in proceedings before administrative bodies. In
the instant case, the original suit for specific performance and damages was filed by the private respondent with the HLURB-
OAALA, an administrative body not hamstrung by the strict procedural technicalities of the Rules of Court. Under the
circumstances, it was certainly appropriate for the HLURB-OAALA to have acted on the substantive questions relating to the
validity of petitioners' unilateral rescission of the contract without unduly concerning itself with a mere procedural slip, the non-
joinder of private petitioner's husband in the original complaint before the HLURB. Moreover, since petitioners participated in
the administrative proceedings without objecting to or raising the procedural infirmity, they were certainly estopped from raising it
on appeal before the Office of the President and before this Court.

Proceeding to the principal issues raised by the petitioner, while E.O. 85 dated 12 December 1986 abolished the Ministry of
Human Settlements (MHS), it is patently clear from a reading of its provisions that the said executive order did not abolish the
Human Settlements Regulatory Commission (HSRC) which continued to exercise its powers and functions even after the
Ministry of Human Settlements ceased to exist. In spite of the Aquino Government's stated intention of eradicating what it
considered the vestiges of the previous regime, it was not its intention to create a vacuum by abolishing those juridical entities,
agencies, corporations, etc., attached to or supervised by the MHS, which performed vital administrative functions. Pertinently,
Section 3 of E.O. 85 mandates that:

. . . The final disposition and final organizational alignment or attachment of the juridical entities, agencies, corporations and
councils attached to, or under the administrative supervision of the MHS including their respective existing projects,
appropriations and other assets shall be subject to subsequent enactments by the President.

Pursuant to this provision therefore, the President subsequently issued Executive Order No. 90, series of 1986, recognizing the
Human Settlements Regulatory Commission (renamed the HLURB) as one of the principal housing agencies of the government.
Prior to this, Executive Order No. 648 in 1981 transferred all the functions of the National Housing Authority (pursuant to
Presidential Decrees Nos. 957, 1216 and 1344) to the Human Settlements Regulatory Commission (HSRC) consolidating all
regulatory functions relating to land use and housing development in a single entity. Being the sole regulatory body for housing
10

11
and land development, the renamed body, the HLURB, would have been reduced to a functionally sterile entity if, as the
petitioner contends, it lacked the powers exercised by its predecessor which included the power to settle disputes concerning land
use and housing development and acquisition. Moreover, this Court has had the occasion to definitively rule on the question as to
whether or not the Housing and Land Use Regulatory Board could exercise the same quantum of judicial or quasi-judicial powers
possessed by the HSRC under the Ministry of Human Settlements in the exercise of its regulatory functions when it held,
in United Housing Corporation vs. Hon. Dayrit that:12

As explicitly provided by law, jurisdiction over actions for specific performance of contractual and statutory obligations filed by
buyers of subdivision lot or condominium unit against the owner or developer, is vested exclusively in the HSRC, Section 1 of
PD 1344, in no uncertain terms, provides:

Sec. 1. In the exercise of its functions to regulate real estate trade and business and in addition to its powers provided for in
Presidential Decree No. 957, the National Housing Authority shall have exclusive jurisdiction to hear and decide cases of the
following nature:

A. Unsound real estate business practices;

B. Claims involving refund and any other claims filed by subdivision lot or condominium unit buyer against the project owner,
developer, dealer, broker or salesman; and

C. Cases involving specific performance of contractual and statutory obligations filed by buyers of subdivision lot or
condominium unit against the owner, developer, dealer, broker or salesman. (Emphasis Ours)
This is reinforced by section 8 of EO 648 (otherwise known as the Charter of the Human Settlements Regulatory Commission)
which took effect on February 7, 1981, thus:

Sec. 8. Transfer of Functions. — The Regulatory functions of the National Housing Authority pursuant to Presidential Decree
Nos. 957, 1216, 1344 and other related laws are hereby transferred to the Human Settlements Regulatory Commission. . . .
Among the regulatory functions are . . . (11) Hear and decide cases of unsound real estate business practices, claims involving
refund filed against project owners, developers, dealers, brokers, or salesmen and cases of specific performance (Emphasis Ours).

Private respondents reliance, therefore, on sections 1 and 8 of the Judiciary Reorganization Act of 1980 is untenable. Thus, as
correctly pointed out by petitioner, section 19, paragraph 6 of said law is material to the issue of where jurisdiction lies, and We
quote:

Sec. 19. . . .

(6) In all other cases not within the exclusive jurisdiction of any court, tribunal, persons or body exercising judicial or quasi-
judicial functions.

xxx xxx xxx

Neither can We accede to private respondents' claim that resort to the courts is justified under section 41 of PD 957 specifically
under the phrase "legal remedies that may be available to aggrieved subdivision lot buyers."

There is no question that a statute may vest exclusive original jurisdiction in an administrative agency over certain disputes and
controversies falling within the agency's special expertise. The constitutionality of such grant of exclusive jurisdiction to the
National Housing Authority (now Housing and Land Use Regulatory Board) over cases involving the sale of lots in commercial
subdivisions was upheld in Tropical Homes Inc. v. National Housing Authority (152 SCRA 540 [1987]) and again sustained in a
later decision in Antipolo Realty Corporation v. National Housing Authority (153 SCRA 399 [1987]) where We restated that the
National Housing Authority (now HLURB) shall have exclusive jurisdiction to regulate the real estate trade and business in
accordance with the terms of PD No. 957 which defines the quantum of judicial or quasi-judicial powers of said agency. 13

Clearly, therefore, the HLURB properly exercised its jurisdiction over the case filed by the petitioners with its adjudicative body,
the OAALA, in ordering petitioners to comply with their obligations arising from the Reservation Agreement. In general, the
quantum of judicial or quasi-judicial powers which an administrative agency may exercise is defined in the agency's enabling act.
In view of the Court's pronouncement in United Housing Corporation vs. Hon. Dayrit, supra, recognizing the HLURB as the
successor agency of the HSRC's powers and functions, it therefore follows that the transfer of such functions from the NHA to
the HRSC effected by Section 8 of E.O. 648, series of 1981, thereby resulted in the acquisition by the HLURB of adjudicatory
powers which included the power to "(h)ear and decide cases of unsound real estate business practices . . . and cases of specific
14
performance." Obviously, in the exercise of its powers and functions, the HLURB must interpret and apply contracts,
15
determine the rights of the parties under these contracts, and award damages whenever appropriate. We fail to see how the
HSRC — which possessed jurisdiction over the actions for specific performance for contractual and statutory obligations filed by
buyers of subdivision lots against developers — had suddenly lots its adjudicatory powers by the mere fiat of a change in name
through E.O. 90. One thrust of the multiplication of administrative agencies is that the interpretation of such contracts and
16
agreements and the determination of private rights under these agreements is no longer a uniquely judicial function. The
absence of any provision, express or implied, in E.O. 90, repealing those quasi-judicial powers inherited by the HSRC from the
National Housing Authority, furthermore militates against petitioners' position on the question.

Going to petitioners' contention that the decision of the OAALA should have been rendered by the Board of Commissioners
sitting en banc, we find ample authority — both in the statutes and in jurisprudence-justifying the Board's act of dividing itself into
divisions of three. Under Section 5 of E.O. 648 which defines the powers and duties of the Commission, the Board is specifically
mandated to "(a)dopt rules of procedure for the conduct of its business" and perform such functions necessary for the effective
accomplishment of (its) above mentioned functions." Since nothing in the provisions of either E.O. 90 or E.O. 648 denies or
withholds the power or authority to delegate adjudicatory functions to a division, we cannot see how the Board, for the purpose of
effectively carrying out its administrative responsibilities and quasi-judicial powers as a regulatory body should be denied the
power, as a matter of practical administrative procedure, to constitute its adjudicatory boards into various divisions. After all, the
power conferred upon an administrative agency to issue rules and regulations necessary to carry out its functions has been held "to
be an adequate source of authority to delegate a particular function, unless by express provision of the Act or by implication it has
17
been withheld." The practical necessity of establishing a procedure whereby cases are decided by three (3) Commissioners
furthermore assumes greater significance when one notes that the HLURB, as constituted, only has four (4) full time
commissioners and five (5) part time commissioners to deal with all the functions, administrative, adjudicatory, or otherwise,
entrusted to
18
it. As the Office of the President noted in its February 26, 1993 Resolution denying petitioners' Motion for Reconsideration, "it
is impossible and very impractical to gather the four (4) full time and five (5) part time commissioners (together) just to decide a
case." Considering that its part time commissioners act merely in an ex-officio capacity, requiring a majority of the Board to sit en
banc on each and every case brought before it would result in an administrative nightmare. 19

Finally, petitioners' assertion that RA 6552 is inapplicable in the instant case because the said law does not apply to cases of
reservation agreements finds no merit in the case at bench in view of Section 24 of P.D. 957 which provides:

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

20
As the Solicitor General correctly pointed out, RA 6552 makes no distinction between "option" and "sale" which, under P.D. 957
also includes "an exchange or attempt to sell, an option of sale or purchase, a solicitation of a sale or an offer to sell
 21
directly." This all-embracing definition virtually includes all transactions concerning land and housing acquisition, including
reservation agreements. Since R.A. 6552 mandates cancellation by notarial
act — among other requirements — before any cancellation of a contract may be effected, petitioners' precipitate cancellation of its
contract with private respondent without observing the conditions imposed by the said law was invalid and improper.

In fine, the HLURB-OAALA acted within the scope of its authority in ordering petitioners to comply and continue with the sale
of the house and lot subject of the contract between the original parties. It cannot be gainsaid that the quasi-judicial functions
exercised by the body are necessary incidents to the proper exercise of its powers and functions under E.O. 90 and the laws
enacted delineating the scope of authority of its Board of Commissioners. Denying the body those functions so necessary in
carrying out its power to regulate housing and land use results in its effective emasculation as an important regulatory body in an
area vital to the national economy.

The acute housing shortage problem has prompted thousands of middle and lower class buyers of houses and lots and
condominium units to enter into all sorts of agreements with private housing developers involving all manner of installment
schemes under contracts drawn exclusively by these developers. Many of these virtual contracts of adhesion entrap innocent
buyers by requiring cash deposits under reservation agreements which include, sometimes in the fine print, default clauses
guaranteeing huge monetary windfalls for the developers in the event that their buyers (oftentimes for the flimsiest of reasons)
default by failing to come up with certain requirements. While the Court can take judicial notice of this pernicious practice, it can
only hope that future legislation would address the need to protect the innocent middle or lower class home purchaser. In the
case of the individual victim, this Court can only go to the extent of awarding such damages as may be proper under the peculiar
circumstances of the cases brought before it.

WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of merit. Costs against petitioners.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 167452 January 30, 2007

JESTRA DEVELOPMENT AND MANAGEMENT CORPORATION, Petitioner,

vs.
DANIEL PONCE PACIFICO, represented by his attorney-in-fact Jordan M. Pizarras, Respondent.

DECISION

CARPIO MORALES, J.:

1
On June 5, 1996, Daniel Ponce Pacifico (Pacifico) signed a Reservation Application with Fil-Estate Marketing Association for the
purchase of a house and lot located at Lot 28, Block 3, Phase II, Jestra Villas, Barangay La Huerta, Municipality of Parañaque,
Metro Manila (the property), and paid the reservation fee of P20,000.

Under the Reservation Application, the total purchase price of the property was P2,500,000, and the down payment equivalent to
30% of the purchase price or P750,000 was to be paid interest-free in six monthly installments due every fifth of the month
starting July 1996 until December 1996. As the P20,000 reservation fee formed part of the down payment, the monthly
installment on the down payment was fixed at P121,666.66.

Also under the Reservation Application, upon full payment of the 30% down payment by Pacifico, he was to sign a contract to sell
with the owner and developer of the property, Joprest Development and Management Corporation (now Jestra Development and
Management Corporation, hereafter Jestra). And the 70% balance on the purchase price or P1,750,000 was to be payable in 10
years, to bear interest at 21% per annum, at a monthly installment of P34,982.50. When the payment of the installments on the
70% balance should commence, the Reservation Application was silent.

Unable to comply with the schedule of payments, Pacifico requested Jestra to allow him to make periodic payments on the down
2
payment "in an amount that he could afford," to which Jestra acceded provided that late payment penalties/surcharges are paid.

With still a remaining balance of P260,000 on the down payment, Pacifico and Jestra executed on March 6, 1997, Contract to
3
Sell No. 83 over the property. The said contract was silent on the unsettled balance on the down payment.

Under the Contract to Sell, Pacifico should have had on November 5, 1996, or one month prior to the deadline stated under the
Reservation Application, fully paid the 30% down payment, and that the 120 monthly installments for the 70% balance or P1,750
should have had commenced on December 7, 1996, viz:

SECTION 2. TERMS OF PAYMENT. The PURCHASER agrees to pay the aforecited purchase price [of P2,500,000.00] in
the following manner, namely:
2.1 The total amount of SEVEN HUNDRED FIFTY THOUSAND PESOS ONLY (P750,000.00) Philippine Currency as
down payment on or before November 5, 1996.

2.2 The balance of ONE MILLION SEVEN HUNDTED FIFTY THOUSAND PESOS ONLY (P1,750,00.00), Philippine
Currency, shall be paid in One Hundred Twenty (120) equal monthly installments at THIRTY FOUR THOUSAND NINE
HUNDRED EIGHT THREE PESOS ONLY (P34,983.00) Philippine Currency, to commence on December 7, 1996, with
interest at the rate of Twenty One Percent (21%) per annum. The PURCHASER shall issue One Hundred Twenty (120)
postdated checks in favor of the OWNER/DEVELOPER for each of the monthly installments, which checks shall be delivered
to the latter upon signing of this CONTRACT. The PURCHASER shall be subject to the pre-qualification requirements of
COCOLIFE for the Mortgage Redemption Insurance (MRI) and the Building Insurance on the UNIT. Interest re-pricing shall
be effected on the 6th Year, to commence on December 7, 2001.

x x x x (Underscoring supplied)

4
By letter of November 12, 1997, Pacifico requested Jestra that "the balance be restructured" in light of the "present business
condition."

By November 27, 1997, Pacifico had fully paid the 30% down payment, and by December 4, 1997, he had paid a total
of P846,600, P76,600 of which Jestra applied as penalty charges for the belated settlement of the down payment.

By letter of December 11, 1997, Jestra, through counsel, sent Pacifico a final demand for the payment
5
of P444,738.88 representing the total of 11 installments due on the 70% balance of the purchase price, inclusive of 21% interest
per annum and add-on interest at the rate of P384.81 per day, counted from January 7, 1997. Further, Jestra demanded the
payment of P73,750 representing "penalties for the [belated settlement of the] down payment." And it reminded Pacifico that "as
provided in Section 5 of the said contract, [Jestra] reserves its right to automatically cancel or rescind the same on account of [his]
6
failure/refusal to comply with the terms thereof."

Pacifico later requested Jestra, by letter of November 12, 1997, for a restructuring of his unsettled obligation. His request was
granted on the condition that the interest for the period from December 1996 to November 1997 amounting to P224,396.37
would be added to the 70% balance on the purchase price; and that Pacifico issue 12 postdated checks beginning each year to
cover his amortization payments.

In light of the restructured scheme, the monthly amortization on the 70% balance was from P34,982.50 increased to P39,468, to
commence on January 5, 1998.

Pacifico thus issued to Jestra 12 postdated Security Bank checks to cover his monthly amortizations from January to December
7
1998. The checks for January and February 1998 were, however, dishonored due to insufficiency of funds.

By letter of March 24, 1998, Pacifico informed Jestra that due to sudden financial difficulties, he was suspending payment of his
8
obligation during the 10-month period, and that he wanted to dispose of the property to recover his investment. And he
requested that the postdated checks he issued be returned to him.

9
Jestra, by letter of March 31, 1998, denied Pacifico’s request to suspend payment and for the return of the postdated checks. It,
however, gave him until April 15, 1998 to sell the property failing which it warned him that it would be constrained to re-open it
for sale.

Thereafter, Jestra sent Pacifico a notarial Notice of Cancellation, dated May 1, 1998, notifying him that it was, within 30 days after
his receipt thereof, exercising its right to cancel the Contract to Sell. Pacifico received the notice on May 13, 1998.

In a separate move, Jestra through its Credit and Collection Manager sent Pacifico a letter dated May 27, 1998, demanding
payment of the total amount of P209,377.75 covering monthly amortizations from January 30 to May 30, 1998 inclusive of
penalties. And it gave him until June 1, 1998 to settle his account, failing which the Contract to Sell would be automatically
10
cancelled and it would re-open the property for sale.

On February 24, 1999, Pacifico filed a complaint before the Housing and Land Use Regulatory Board (HLURB) against Jestra,
docketed as HLURB Case No. REM-122499-10378, claiming that despite his full payment of the down payment, Jestra failed to
deliver to him the property within 90 days as provided in the Contract to Sell dated March 6, 1997, and Jestra instead sold the
11
property to another buyer in October of 1998.

Pacifico further claimed in his complaint that upon learning of the double sale, he, through his lawyer, demanded that Jestra
deliver the property to him but it failed to do so without just and valid cause.

Pacifico thus prayed that, among others things, judgment be rendered declaring the second sale a nullity, ordering Jestra to deliver
the property to him and to pay him P11,000 a month from July 1997 until delivery.

12
By Decision of March 15, 2000, the Housing and Land Use Arbiter held Jestra liable for failure to comply with Section 3 of
Republic Act (RA) No. 6552 (Realty Installment Buyer Protection Act) requiring payment by the seller of the cash surrender
value of the buyer’s payments and Section 17 of Presidential Decree No. 957 (REGULATING THE SALE OF SUBDIVISION
LOTS AND CONDOMINIUMS, PROVIDING PENALTIES FOR VIOLATIONS THEREOF) requiring it to register the
Contract to Sell in the Office of the Register of Deeds.
The Arbiter found that while Pacifico had paid a total amount of P846,600 which is "more or less equivalent to 24 monthly
13
installments under the contract to sell . . . wherein the monthly amortization is P34,983," he could no longer demand the
delivery of the property, its title having already been transferred in the name of another buyer.

Thus the Arbiter disposed:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the complainant and ordering respondent:

1. To pay and/or reimburse to the complainant the total payments made amounting to Eight Hundred Forty Six Thousand Six
Hundred Pesos (P846,600.00) with interest thereon at twelve percent (12%) per annum to be computed from the filing of the
complaint on 24 February 1999 until fully paid; and

2. To pay complainant the amount of Fifty Thousand Pesos (P50,000.00) as damages and attorney’s fees plus the costs of
14
litigation. (Underscoring supplied)

On appeal, the Board of Commissioners of the HLURB modified the decision of the Arbiter by deleting the award of P50,000
damages and ordering Jestra to pay P20,000 as attorney’s fees and P10,000 administrative fine for failure to register the Contract
to Sell in the Office of the Register of Deeds.

15
By Resolution of January 27, 2003, the HLURB Board of Commissioners denied Jestra’s motion for reconsideration.

16
By Order of December 9, 2003, the Office of the President (OP), to which the case was elevated, adopted "by reference the
17
findings of facts and conclusions of law" contained in the HLURB Board Resolution of January 27, 2003. And by Order dated
March 18, 2004, it denied Jestra’s motion for reconsideration.

18
On Jestra’s petition for review under Rule 43 of the Rules of Court, the Court of Appeals (CA), by Decision dated January 31,
2005, affirmed the Orders of the OP.

19
Its motion for reconsideration having been denied by CA Resolution of March 16, 2005, Jestra (hereafter petitioner) comes
before this Court on a petition for review, faulting the appellate court for:

I. . . . adopting the OP’s conclusion that penalty payments should be included in computing the total number of installment
payments made by a buyer (in relation to the payment of a cash surrender value upon cancellation of a contract to sell) in spite of
its exclusion from the items to be included in computing the two (2) years installment payments as provided in RA 6552

II. . . . adopting the OP’s conclusion that petitioner failed to deliver possession of the subject property to respondent upon his full
payment of the downpayment [sic] and that petitioner’s act of canceling the contract to sell was unconscionable despite being
allowed under RA 6552.

RA No. 6552 was enacted to protect buyers of real estate on installment against onerous and oppressive conditions. While the
seller has under the Act the option to cancel the contract due to non-payment of installments, he must afford the buyer a grace
period to pay them and, if at least two years installments have already been paid, to refund the cash surrender value of the
payments. Thus Section of the Act provides:

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

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

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

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

As the records indicate, the total payments made by Pacifico (hereafter respondent) amounted to P846,600. The appellate court,
in concluding that respondent paid at least two years of installments, adopted the formula used by the HLURB by dividing the
amount of P846,600 by the monthly amortization of P34,983 to thus result to a quotient of 24.2 months.

Petitioner contests the computation, however. It claims that the amount of P76,600 represents penalty payment and is a separate
20
item to answer for its lost income as a seller due to the delay in the payment of the 30% down payment. It thus submits that the
amount of P76,600 does not form part of the purchase price and should thus be excluded in determining the total number of
installments made.
Petitioner likewise claims that the proper divisor is not P34,983 but P39,468 since the parties agreed to restructure the
amortizations owing to respondent’s inability to comply with the schedule of payments previously agreed upon in the Contract to
Sell, and that if respondent’s total payments less the penalty is to be divided by P39,468, the total installments paid would only
cover 19.5 months, hence, it was not obliged under RA No. 6552 to pay the cash surrender value of such total payments.

This Court finds that neither of the parties’ computations is in order.

The total purchase price of the property is P2,500,000. As provided in the Reservation Application, the 30% down payment on
the purchase price or P750,000 was to be paid in six monthly installments of P121,666.66. Under the Contract to Sell, the 70%
balance of P1,750,000.00 on the purchase price was to be paid in 10 years through monthly installments of P34,983, which was
later increased to P39,468 in accordance with the agreement to restructure the same.

While, under the above-quoted Section 3 of RA No. 6552, the down payment is included in computing the total number of
installment payments made, the proper divisor is neither P34,983 nor P39,468, but P121,666.66, the monthly installment on the
down payment.

The P750,000 down payment was to be paid in six monthly installments. If the down payment of P750,000 is to be deducted
from the total payment of P846,600, the remainder is only P96,600. Since respondent was able to pay the down payment in full
eleven (11) months after the last monthly installment was due, and the sum of P76,600 representing penalty for delay of payment
is deducted from the remaining P96,600, only a balance of P20,000 remains.

As respondent failed to pay at least two years of installments, he is not, under above-quoted Section 3 of RA No. 6552, entitled to
a refund of the cash surrender value of his payments. What applies to the case instead is Section 4 of the same law, viz:

SECTION 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less
than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty
days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial
act. (Underscoring supplied)

In Fabrigas v. San Francisco del Monte, Inc., this Court described the cancellation of the contract under Section 4 as a two-step
21

process. First, the seller should extend the buyer a grace period of at least sixty (60) days from the due date of the installment.
Second, at the end of the grace period, the seller shall furnish the buyer with a notice of cancellation or demand for rescission
through a notarial act, effective thirty (30) days from the buyer's receipt thereof.

Respondent admits that under the restructured scheme, the first installment on the 70% balance of the purchase price was due on
January 5, 1998. While he issued checks to cover the same, the first two were dishonored due to insufficiency of funds.

While respondent was notified of the dishonor of the checks, he took no action thereon, hence, the 60 days grace period lapsed.
Respondent made no further payments thereafter. Instead, he requested for suspension of payment and for time to dispose of the
property to recover his investment.

Respondent admits that petitioner was justified in canceling the contract to sell via the notarial Notice of Cancellation which he
22
received on May 13, 1998. The contract was deemed cancelled 30 days from May 13, 1998 or on June 12, 1998.

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution dated January 31, 2005 and March 16, 2005
of the Court of Appeals are hereby REVERSED and SET ASIDE. The complaint of respondent, Daniel Ponce Pacifico, is
DISMISSED.1avvphi1.net

SO ORDERED.

CONCHITA CARPIO MORALES

Associate Justice

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 166458 February 14, 2008

MR. SERGIO VILLADAR, JR. & MRS. CARLOTA A. VILLADAR, petitioners,

vs.
ELDON ZABALA and SAMUEL ZABALA, SR.,* respondents.

DECISION

QUISUMBING, J.:
 1
Petitioners Mr. and Mrs. Sergio Villadar, Jr. appeal the Decision dated November 28, 2003 of the Court of Appeals in CA-G.R.
2
SP No. 71439 and the Resolution dated December 1, 2004, denying the motion for reconsideration. The Court of Appeals had
3
reversed the Decision dated April 15, 2002 of the Regional Trial Court (RTC), Branch 58, Cebu City in Civil Case No. CEB-
27050, and ordered petitioners to surrender possession of portions of Lot Nos. 5095-A and 5095-B to respondents Eldon Zabala
and Samuel Zabala, Sr.

The antecedent facts are as follows:

Respondent Samuel Zabala, Sr. was the owner of Lot No. 5095 covered by Transfer Certificate of Title (TCT) No.
4
78269, located at San Nicolas, Cebu City, and comprising 438 square meters. On January 13, 1995, Samuel, Sr., together with
his wife Maria Luz Zabala, sold one-half of Lot No. 5095 to his mother-in-law Estelita Villadar for P75,000 on installment basis.
5
Except for a note of partial payment of P6,500, no contract was executed nor was there an agreement on when Estelita shall pay
all installments.

On February 28, 1997, Samuel, Sr. sold the other half of Lot No. 5095 to respondent Eldon Zabala. Lot No. 5095 was
6
subdivided and upon cancellation of TCT No. 78269, Lot No. 5095-A under TCT No. 145182 was registered in Eldon's name.
7
Lot No. 5095-B under TCT No. 145183 was registered in Samuel, Sr.'s name.

8
On April 20, 1997, Estelita made an additional payment of P22,500, leaving a balance of only P36,500 after deducting all
previous payments. Later, however, the spouses Samuel, Sr. and Maria Luz decided to cancel the sale after a confrontation with
Estelita at the Office of the Barangay Captain of Barangay Basak, San Nicolas, Cebu City.

Samuel, Sr. together with his son Samuel Zabala, Jr. also filed a complaint for ejectment with the Office of the Lupong
Tagapamayapa of Barangay Basak against Estelita's son, petitioner Sergio Villadar, Jr., who occupied one of the houses that stood
on the property. On June 14, 1998, said office issued to Samuel, Sr. a certificate to file action after petitioner Sergio Villadar, Jr.
failed to appear for conciliation.

9
On October 27, 1998, Eldon and Samuel, Sr. filed a Complaint for unlawful detainer against petitioners Sergio Villadar, Jr. and
his wife Carlota Alimurung before the Municipal Trial Court in Cities (MTCC), Branch 8, Cebu City. In their complaint, they
alleged that they own Lot Nos. 5095-A and 5095-B, and that in the latter part of 1986, they allowed petitioners to stay in a vacant
store on the lot out of pity, subject to the condition that petitioners would leave once respondents need the premises for the use
of their own families. In January 1998, they demanded that petitioners vacate the store because they needed the store for the use
of their children but petitioners refused to leave.

10
In their Answer, petitioners claimed that one-half of Lot No. 5095 was sold on installment to Sergio Villadar, Jr.'s mother,
Estelita Villadar, on January 13, 1995 for P75,000; that on January 13, 1995, Estelita made a downpayment of P6,500 and had an
unpaid balance of only P36,500 as of April 20, 1997; that by virtue of the sale, Estelita became the owner of the premises where
their house stood; that they derive their title from Estelita who promised and agreed to give them one-half of one-half of Lot No.
5095 after she has fully paid the price and obtained a separate title in her name; that they constructed a residential house, which
now straddles Lot Nos. 5095-A and 5095-B because of respondents' wrongful subdivision of Lot No. 5095; that Estelita tried to
tender the balance of the purchase price, but Samuel, Sr. unjustifiably refused to receive the payment; that because of such
refusal, Estelita and Sergio Villadar, Jr. sought the intervention of the Lupon Authority of Barangay Basak, San Nicolas, Cebu
City but no settlement was reached; that assuming that they and Estelita are adjudged to have an inferior right over one-half of the
lot, they are builders in good faith and they should be allowed to retain the lot until they are paid or reimbursed the amount
of P80,000, which is the value of the house they built on the premises.

11
On August 27, 2001, the MTCC dismissed the complaint. The MTCC ruled that petitioners could not be deprived of their
possession of the disputed portion because one-half of Lot No. 5095 had already been sold in 1995 to Estelita Villadar, who was
the source of petitioners' right to possess it. The dispositive portion of the decision states:

WHEREFORE, upon the premises, judgment is hereby rendered against [p]laintiffs and this case is DISMISSED; [de]fendants
are hereby granted to recover the costs of this litigation in the sum of P10,000.00 from [p]laintiffs who are hereby directed to pay
the same.

12
SO ORDERED.

Respondents Eldon and Samuel, Sr. appealed to the RTC which affirmed the MTCC's ruling.

Upon appeal, the Court of Appeals in a Decision dated November 28, 2003 reversed the rulings of the MTCC and RTC. The
Court of Appeals ruled that although there was an oral agreement between Samuel Zabala, Sr. and Estelita Villadar for the sale of
one-half of Lot No. 5095, Samuel Zabala, Sr. had reserved title to the property in his name until full payment of the purchase
price had been made by Estelita. The pertinent portions of the Court of Appeals' decision state:

xxxx

It is undisputed that … there was a verbal agreement between petitioner Samuel Zabala, Sr. and the respondents for the sale of
Lot No. 50[95]-B for P75,000.00 on January 13, 1995. The sale of Lot No. 5095-B, although not in writing, had been perfected
as the parties had agreed upon the object of the contract, which was Lot 5095-B, and the price, which was P75,000.00 (Article
1475, Civil Code of the Philippines). Similarly, We sustain the validity of the oral sale as no written form is really required for the
validity of a contract of sale (Article 1483, Civil Code of the Philippines). But, as correctly observed by the trial court, the term or
manner of payment of the purchase price had not been agreed upon by the parties in which case petitioner Samuel Zabala, Jr.
should seek the intervention of the court to fix the period when Estelita vda. De Villadar should pay in full the consideration of
the sale. Where the period has been fixed by the court and Estelita refused to pay the remaining balance of P36,500.00, that
would be the opportune time for petitioner Samuel Zabala, Sr. to cause the rescission of the oral contract. As it is, however,
petitioner Samuel Zabala, Sr. could not rescind or cancel the contract on the ground that Estelita failed to pay the remaining
balance of the purchase price because he had no cause for cancellation or rescission yet in view of fact that no period had been
agreed upon by him and Estelita when the P36,500.00 should be paid. Thus, unless the contract of sale is rescinded, it remains to
be valid.

On a different light, however, We note and We are inclined to believe, based on the evidence submitted to Us and in
determining the intentions of petitioner Samuel Zabala, Sr. and the respondents spouses, that the sale, being one on installment
basis, petitioner Samuel Zabala, [Sr.] had reserved title to the property in his name until full payment of the purchase price had
been made by Estelita. This explains why title of Lot No. 5095-B, specifically TCT No. 145183, was registered in his name when
Lot No. 5095 was divided into two lots and Estelita had not sought the registration of the lot in her name. Although respondents
occupied the store or house on the common boundary of [Lot Nos.] 50[95]-A and 50[95]-B, their occupation or possession did
not constitute delivery of the land subject of the oral contract of sale so as to have effectively transferred ownership thereof to
Estelita. Therefore, even assuming that respondents were the ones who constructed the house or store on Lot No. 50[95]-B, they
had no right to construct any structure thereon because their mother, Estelita, did not own the land until she had fully paid the
consideration of the sale.

As no right was acquired by the respondents better than the right pertaining to Estelita, the occupancy and possession by the
respondents of the subject land was merely tolerated by the owner, herein plaintiff-petitioner Samuel Zabala, Sr. Similarly,
respondents did not have the right to possess or occupy that portion of the land belonging to petitioner Eldon Zabala. Their
occupation with respect to that portion was, likewise, merely tolerated by the owner and, thus, it was the duty of the respondents
to surrender possession thereof upon demand by petitioner Eldon. From July 23, 1998 then, when a formal demand (Rollo, p.
63) was made upon the respondents to vacate the premises, the possession of the respondents had become unlawful and they
were subject to ejectment.

Respondents could not claim that they were builders in good faith of the house. From their allegations in their Answer with
Counterclaim (par. 2.3), respondent Sergio Villadar, Jr. knew and admitted that Lot No. 5095-B was not yet fully paid and a
separate title thereto had not yet been issued in the name of Estelita (Rollo, p. 55) from whom he and his wife allegedly derived
their title. Being builders in bad faith, they cannot, as a matter of right, recover the value of the house or the improvements
thereon, if any, from the petitioners, much less retain possession of the premises (Article 449, Civil Code of the Philippines).
Respondents have no right, whatsoever, except the right to be reimbursed for necessary expenses which they had incurred for the
preservation of both portions of [Lot] Nos. 50[95]-A and 50[95]-B (Article 452, Civil Code of the Philippines) occupied by them.

WHEREFORE, in view of the foregoing, the petition is GIVEN DUE COURSE. The Decision dated April 15, 2002 of the
Regional Trial Court, Branch 58, Cebu City affirming the Decision dated August 27, 2001 of the Municipal Trial Court in Cities,
Branch 8, Cebu City, is hereby REVERSED and SET ASIDE, and another one entered ordering defendants-respondents to
surrender the physical and material possession of that portion of Lot No. 50[95]-A and Lot No. 50[95]-B upon which their house
was constructed to petitioners Samuel Zabala, Sr. and Eldon Zabala.

13
SO ORDERED.

On December 1, 2004, the Court of Appeals likewise denied petitioners' motion for reconsideration. Hence, this petition.

Petitioners raise the following issues in their Memorandum:

I.

WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN GIVING DUE COURSE TO RESPONDENTS'
PETITION FOR REVIEW AND RENDERING A DECISION THERE[O]N, INSTEAD OF DISMISSING THE SAME
FOR VIOLATION OF SEC. 2(d) OF RULE 42 OF THE 1997 RULES OF CIVIL PROCEDURE.

II.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OF JURISDICTION, AND MISAPPREHENSION OF FACTS, IN RULING
THAT THERE WAS NO DELIVERY OF POSSESSION TO ESTELITA VILLADAR OF THE ½ PORTION OF LOT
[NO.] 5095 SOLD TO HER IN PETITIONERS' EXH. "1" BY RESPONDENT SAMUEL ZABALA[,] SR. AND WIFE,
WHICH IS THE RECEIPT DATED JANUARY 13, 1995 OF THE PARTIAL PAYMENT OF ESTELITA VILLADAR
OF ITS CONSIDERATION ADMITTED BY RESPONDENT SAMUEL ZABALA SR. [SIC]

III.

WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN HOLDING THAT ESTELITA VILLADAR DID
NOT OWN THE LAND WHERE HER AND PETITIONERS' HOUSES STAND BECAUSE SHE HAD NOT FULLY
PAID THE CONSIDERATION OF THE SALE.

IV.

WHETHER OR NOT THE HON. COURT OF APPEALS' HOLDING. . . THAT PETITIONERS' OCCUPANCY OF
THE ½ PREMISES OF LOT [NO.] 5095 WAS BY MERE TOLERANCE OF THE RESPONDENTS [WAS RIGHT].
V.

WHETHER OR NOT PETITIONERS ARE EJECTIBLE [SIC] FROM THE PREMISES OF LOT [NO.] 5095.

VI.

ASSUMING THAT THEY ARE, WHETHER OR NOT THE HON. COURT OF APPEALS' HOLDING [WAS] RIGHT
THAT PETITIONERS WERE NOT BUILDERS IN GOOD FAITH OF THEIR RESIDENTIAL HOUSE IN THE
PREMISES AT A COST OF P80,000.00 (P.3. CA'S DECISION - ANNEX "A", PETITION); HENCE NOT
REIMBURSABLE FOR SAID EXPENSES THEREOF, AND HAVE NO RIGHT OF RETENTION.

VII.

WHETHER THE COURT A QUO WAS RIGHT OR NOT IN NOT DISMISSING OUTRIGHTLY THE
[RESPONDENTS'] COMPLAINT, FOR NON-COMPLIANCE WITH THE KATARUNGANG
PAMBARANGAY LAW AND THIS HON. COURT'S ADM. CIR. NO. 14-93, AND RULE 16, SEC. 1 (j) OF THE 1997
RULES OF CIVIL PROCEDURE.

VIII.

WHETHER OR NOT THE RESPONDENTS' COMPLAINT AT THE COURT A QUO IS DISMISSABLE UNDER
THE RULING OF THE SUPREME COURT IN THE CASE OF SARM[I]ENTO V. COURT OF APPEALS, G.R. NO.
14
116192, NOV. 16, 1995, ON THE GROUND THAT IT IS NOT COGNIZABLE BY THE SAID COURT.

Essentially, the main issue for our resolution is whether the appellate court erred in reversing the RTC's ruling that the
respondents can not validly eject petitioners.

Petitioners argue that Estelita owns one-half of Lot No. 5095 and that their possession of the disputed portion was based on their
agreement with Estelita, not upon respondents' tolerance. Petitioners also add that they cannot be summarily ejected from the
disputed portion without first resolving the ownership of the land sold to Estelita in an accion publiciana. 15

Respondents counter that since Estelita failed to pay the full price within two years, Samuel, Sr., who reserved his title until full
payment, retained ownership. Respondents insist that petitioners must vacate upon demand since their possession is merely
16
tolerated and they have no better right than Estelita.

17
Prefatorily, we restate a now settled doctrine. Where the issue of possession in an unlawful detainer suit is closely intertwined
with the issue of ownership, as in this case, the MTCC can provisionally resolve the issue of ownership for the sole purpose of
18
determining the issue of possession. The judgment, however, is not conclusive in any action involving title or ownership and will
19
not bar an action between the same parties respecting title to the land or building.

After carefully examining the records of this case, we are constrained to reverse the appellate court's decision. First, we find
erroneous and without factual basis the appellate court's conclusion that Samuel, Sr. reserved his title to the land he sold to
Estelita. Rather, the RTC aptly ruled that no evidence proved that Samuel, Sr. reserved his title. In respondents'
20 21 22 23
complaint, position paper and joint affidavit with the MTCC, and even in their petition for review before the Court of
Appeals, respondents never alleged that Samuel, Sr. reserved his title. While the price was payable on installment, there was no
agreement between Estelita and Samuel, Sr. that the latter reserved his title, conditioning the transfer of ownership upon full
24
payment of the price.

Patently therefore, the oral contract was a contract of sale, not a contract to sell. It is in a contract to sell that ownership is,
by agreement, reserved in the seller and is not to pass to the buyer until full payment of the purchase price. Notably, the Court
25

of Appeals stated that unless rescinded, the perfected contract of sale remains valid. Incidentally, this statement reveals the
26

inconsistency of the Court of Appeals in finding that Samuel, Sr. reserved his title and also saying that the transaction was
a contract of sale. Worse, despite the parties' common submission that the sale was between Estelita and Samuel, Sr., the Court of
Appeals misappreciated that it was between petitioners and Samuel, Sr. 27

We also note respondents' inconsistent positions as this case was tried and appealed. Their complaint was silent on the sale to
Estelita. As they appealed to the RTC, respondents advanced a new but erroneous theory that the sale to Estelita was actually an
"oral agreement to sell," such that by agreement ownership was reserved by seller Samuel, Sr. Respondents soon abandoned that
28 29

theory in their petition before the Court of Appeals and argued that the "sale agreement" in 1995 with Estelita was immaterial in
30
this case. Now before us, respondents resurrect their contention in the RTC and echo the appellate court's error that Samuel, Sr.
reserved his title.

Second, the records belie respondents' allegation that Estelita's installments were payable in two years. We note that on April 20,
31
1997, or more than two years after Estelita's initial payment of P6,500 on January 13, 1995, Maria Luz accepted Estelita's
32
additional payment of P22,500.

33
Anent Samuel, Sr.'s decision to cancel the sale and refusal to receive Estelita's payment of the balance of the price, we find that
34
Samuel, Sr. neither notified Estelita by notarial act that he was rescinding the sale nor did he sue in court to rescind the sale. In
addition, the records do not show Samuel, Sr.'s compliance with the requirements of the Realty Installment Buyer Protection Act
- that actual cancellation takes place after 30 days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by notarial act and upon full payment of the cash surrender value to the buyer, which in this case is 50%
35
of Estelita's total payments for more than two years.
Thus, under the circumstances, Estelita's claim of ownership is valid, absent a valid rescission or cancellation of the contract of
sale. Hence, she was properly within her rights when she allowed petitioners to occupy part of the land she bought upon her
36
promise to sell it to them. Relatedly, respondents now concede that the land sold to Estelita is Lot No. 5095-B, but the disputed
portion straddles Lot Nos. 5095-B and 5095-A.

While Samuel, Sr. is the registered owner of Lot No. 5095-B, he has no cause to eject petitioners for alleged unlawful detainer
since a finding of unlawfulness of petitioners' possession of the disputed portion depends upon the rescission of the contract of
37
sale between Samuel, Sr. and Estelita. We hasten to add that rescission is not even absolute for the court may fix a period within
38
which Estelita, if she is found in default, may be permitted to comply with her obligation.

As regards Lot No. 5095-A, we find respondent Eldon's detainer suit premature for failure to exhaust all administrative
39 40 41
remedies. As aptly pointed out by petitioners, Eldon did not comply with Section 412 of the Local Government Code (LGC),
which sets forth a pre-condition to the filing of complaints in court, to wit:

SECTION 412. Conciliation. - (a) Pre-condition to filing of complaint in court. - No complaint, petition, action, or proceeding
involving any matter within the authority of the lupon shall be filed or instituted directly in court or any other government office
for adjudication, unless there has been a confrontation between the parties before the lupon chairman or the pangkat, and that no
conciliation or settlement has been reached as certified by the lupon secretary or pangkat secretary as attested to by the lupon or
pangkat chairman or unless the settlement has been repudiated by the parties thereto.

xxxx

Conformably with said Section 412, the MTCC should have dismissed Eldon's complaint. For our part, this Court is without
authority to refuse to give effect to, and wipe off the statute books, Section 412 of the LGC insofar as this case and other cases
42
governed by the Rules on Summary Procedure are concerned.

Moreover, we are unconvinced of Eldon's claim that "out of pity" he also allowed petitioners to stay on the disputed portion in
1986 because he only bought what is now Lot No. 5095-A in 1997.

WHEREFORE, we GRANT the petition and SET ASIDE the assailed Decision dated November 28, 2003 and Resolution
dated December 1, 2004 of the Court of Appeals in CA-G.R. SP No. 71439. The appellate court erred in reversing the RTC's
Order to respect petitioners' possession of the disputed property. Respondents' unlawful detainer complaint is
hereby DISMISSED, without prejudice to any appropriate suit between the parties respecting title to the disputed portion.

Costs against respondents.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 172036 April 23, 2010

SPOUSES FAUSTINO AND JOSEFINA GARCIA, SPOUSES MELITON GALVEZ AND HELEN GALVEZ, and
CONSTANCIA ARCAIRA represented by their Attorney-in-Fact JULIANA O. MOTAS, Petitioners,
vs.
COURT OF APPEALS, EMERLITA DE LA CRUZ, and DIOGENES G. BARTOLOME, Respondents.

DECISION

CARPIO, J.:

1 2
G.R. No. 172036 is a petition for review assailing the Decision promulgated on 25 January 2006 as well as the
3
Resolution promulgated on 16 March 2006 of the Court of Appeals (appellate court) in CA-G.R. CV No. 63651. The appellate
court reversed and set aside the decision of Branch 23 of the Regional Trial Court of Trece Martires City, Cavite (trial court) in
Civil Case No. TM-622. The appellate court ordered Emerlita Dela Cruz (Dela Cruz) to return to spouses Faustino and Josefina
Garcia, spouses Meliton and Helen Galvez, and Constancia Arcaira (collectively, petitioners) the amount in excess of one-half
percent of ₱1,500,000. Dela Cruz’s co-defendant, Diogenes Bartolome (Bartolome), did not incur any liability.

The appellate court narrated the facts as follows:

On May 28, 1993, plaintiffs spouses Faustino and Josefina Garcia and spouses Meliton and Helen Galvez (herein appellees) and
defendant Emerlita dela Cruz (herein appellant) entered into a Contract to Sell wherein the latter agreed to sell to the former, for
Three Million One Hundred Seventy Thousand Two Hundred Twenty (₱3,170,220.00) Pesos, five (5) parcels of land situated at
Tanza, Cavite particularly known as Lot Nos. 47, 2768, 2776, 2767, 2769 and covered by Transfer Certificate of Title Nos. T-
340674, T-340673, T-29028, T-29026, T-29027, respectively. At the time of the execution of the said contract, three of the
subject lots, namely, Lot Nos. 2776, 2767, and 2769 were registered in the name of one Angel Abelida from whom defendant
allegedly acquired said properties by virtue of a Deed of Absolute Sale dated March 31, 1989.
As agreed upon, plaintiffs shall make a down payment of Five Hundred Thousand (₱500,000.00) Pesos upon signing of the
contract. The balance of Two Million Six Hundred Seventy Thousand Two Hundred Twenty (₱2,670,220.00) Pesos shall be
paid in three installments, viz: Five Hundred Thousand (₱500,000.00) Pesos on June 30, 1993; Five Hundred Thousand
(₱500,000.00) Pesos on August 30, 1993; One Million Six Hundred Seventy Thousand Two Hundred Twenty (₱1,670,220.00)
Pesos on December 31, 1993.

On its due date, December 31, 1993, plaintiffs failed to pay the last installment in the amount of One Million Six Hundred
Seventy Thousand Two Hundred Twenty (₱1,670,220.00) Pesos. Sometime in July 1995, plaintiffs offered to pay the unpaid
balance, which had already been delayed by one and [a] half year, which defendant refused to accept. On September 23, 1995,
defendant sold the same parcels of land to intervenor Diogenes G. Bartolome for Seven Million Seven Hundred Ninety Three
Thousand (₱7,793,000.00) Pesos.

In order to compel defendant to accept plaintiffs’ payment in full satisfaction of the purchase price and, thereafter, execute the
necessary document of transfer in their favor, plaintiffs filed before the RTC a complaint for specific performance.

In their complaint, plaintiffs alleged that they discovered the infirmity of the Deed of Absolute Sale covering Lot Nos. 2776, 2767
and 2769, between their former owner Angel Abelida and defendant, the same being spurious because the signature of Angel
Abelida and his wife were falsified; that at the time of the execution of the said deed, said spouses were in the United States; that
due to their apprehension regarding the authenticity of the document, they withheld payment of the last installment which was
supposedly due on December 31, 1993; that they tendered payment of the unpaid balance sometime in July 1995, after Angel
Abelida ratified the sale made in favor [of] defendant, but defendant refused to accept their payment for no jusitifiable reason.

In her answer, defendant denied the allegation that the Deed of Absolute Sale was spurious and argued that plaintiffs failed to pay
in full the agreed purchase price on its due date despite repeated demands; that the Contract to Sell contains a proviso that failure
of plaintiffs to pay the purchase price in full shall cause the rescission of the contract and forfeiture of one-half (1/2%) percent of
the total amount paid to defendant; that a notarized letter stating the indended rescission of the contract to sell and forfeiture of
payments was sent to plaintiffs at their last known address but it was returned with a notation "insufficient address."

Intervenor Diogenes G. Bartolome filed a complaint in intervention alleging that the Contract to Sell dated May 31, 1993
between plaintiffs and defendant was rescinded and became ineffective due to unwarranted failure of the plaintiffs to pay the
unpaid balance of the purchase price on or before the stipulated date; that he became interested in the subject parcels of land
because of their clean titles; that he purchased the same from defendant by virtue of an Absolute Deed of Sale executed on
September 23, 1995 in consideration of the sum of Seven Million Seven Hundred Ninety Three Thousand (₱7,793,000.00)
4
Pesos.

The Decision of the Trial Court

In its Decision dated 15 April 1999, the trial court ruled that Dela Cruz’s rescission of the contract was not valid. The trial court
applied Republic Act No. 6552 (Maceda Law) and stated that Dela Cruz is not allowed to unilaterally cancel the Contract to Sell.
The trial court found that petitioners are justified in withholding the payment of the balance of the consideration because of the
alleged spurious sale between Angel Abelida and Emerlita Dela Cruz. Moreover, intervenor Diogenes Bartolome (Bartolome) is
not a purchaser in good faith because he was aware of petitioners’ interest in the subject parcels of land.

The dispositive portion of the trial court’s decision reads:

ACCORDINGLY, defendant Emerlita dela Cruz is ordered to accept the balance of the purchase price in the amount of
₱1,670,220.00 within ten (10) days after the judgment of this Court in the above-entitled case has become final and executory and
to execute immediately the final deed of sale in favor of plaintiffs.

Defendant is further directed to pay plaintiffs the amount of ₱400,000.00 as moral damages and ₱100,000.00 as exemplary
damages.

The deed of sale executed by defendant Emerlita dela Cruz in favor of Atty. Diogenes Bartolome is declared null and void and
the amount of ₱7,793,000.00 which was paid by intervenor Bartolome to Emerlita dela Cruz as the consideration of the sale of
the five (5) parcels of land is hereby directed to be returned by Emerlita dela Cruz to Atty. Diogenes Bartolome within ten (10)
days from the finality of judgment.

Further, defendant is directed to pay plaintiff the sum of ₱100,000.00 as attorney’s fees.

5
SO ORDERED.

Dela Cruz and Bartolome appealed from the judgment of the trial court.

The Decision of the Appellate Court

The appellate court reversed the trial court’s decision and dismissed Civil Case No. TM-622. Dela Cruz’s obligation under the
Contract to Sell did not arise because of petitioners’ undue failure to pay in full the agreed purchase price on the stipulated date.
Moreover, judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and
cancelled for violation of any of its terms and conditions. The dispositive portion of the appellate court’s decision reads:
WHEREFORE, in view of all the foregoing, the appealed decision of the Regional Trial Court is hereby REVERSED and SET
ASIDE and Civil Case No. TM-622 is, consequently, DISMISSED. Defendant is however ordered to return to plaintiffs the
amount in excess of one-half (1/2%) percent of One Million Five Hundred Thousand (₱1,500,000.00) Pesos which was earlier
paid by plaintiffs.

6
SO ORDERED.

7
The appellate court likewise resolved to deny petitioners’ Motion for Reconsideration for lack of merit.

Hence, this petition.

Issues

Petitioners raised the following grounds for the grant of their petition:

I. The Honorable Court of Appeals erred when it failed to consider the provisions of Republic Act 6552, otherwise known as the
Maceda Law.

II. The Honorable Court of Appeals erred when it failed to consider that Respondent Dela Cruz could not pass title over the
three (3) properties at the time she entered to a Contract to Sell as her purported ownership was tainted with fraud, thereby
justifying Petitioners Spouses Garcia, Spouses Galvez and Arcaira’s suspension of payment.

III. The Honorable Court of Appeals gravely erred when it failed to consider that Respondent Dela Cruz’s "rescission" was done
in evident bad faith and malice on account of a second sale she entered with Respondent Bartolome for a much bigger amount.

IV. The Honorable Court of Appeals erred when it failed to declare Respondent Bartolome is not an innocent purchaser for
8
value despite the presence of evidence as to his bad faith.

The Court’s Ruling

The petition has no merit.

Both parties admit the following: (1) the contract between petitioners and Dela Cruz was a contract to sell; (2) petitioners failed to
pay in full the agreed purchase price of the subject property on the stipulated date; and (3) Dela Cruz did not want to accept
petitioners’ offer of payment and did not want to execute a document of transfer in petitioners’ favor.

The pertinent provisions of the contract, denominated Contract to Sell, between the parties read:

Failure on the part of the vendees to comply with the herein stipulation as to the terms of payment shall cause the rescission of
this contract and the payments made shall be returned to the vendees subject however, to forfeiture in favor of the Vendor
equivalent to 1/2% of the total amount paid.

xxx

It is hereby agreed and covenanted that possession shall be retained by the VENDOR until a Deed of Absolute Sale shall be
executed by her in favor of the Vendees. Violation of this provision shall authorize/empower the VENDOR [to] demolish any
construction/improvement without need of judicial action or court order.

That upon and after the full payment of the balance, a Deed of Absolute Sale shall be executed by the Vendor in favor of the
Vendees.

That the duplicate original of the owner’s copy of the Transfer Certificate of Title of the above subject parcels of land shall
9
remain in the possession of the Vendor until the execution of the Deed of Absolute Sale.

Contracts are law between the parties, and they are bound by its stipulations. It is clear from the above-quoted provisions that the
parties intended their agreement to be a Contract to Sell: Dela Cruz retains ownership of the subject lands and does not have the
obligation to execute a Deed of Absolute Sale until petitioners’ payment of the full purchase price. Payment of the price is a
positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey
title from becoming effective. Strictly speaking, there can be no rescission or resolution of an obligation that is still non-existent
10
due to the non-happening of the suspensive condition. Dela Cruz is thus not obliged to execute a Deed of Absolute Sale in
petitioners’ favor because of petitioners’ failure to make full payment on the stipulated date.

We ruled thus in Pangilinan v. Court of Appeals: 11

Article 1592 of the New Civil Code, requiring demand by suit or by notarial act in case the vendor of realty wants to rescind does
not apply to a contract to sell but only to contract of sale. In contracts to sell, where ownership is retained by the seller and is not
to pass until the full payment, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach,
casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. To
argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-
payment is a resolutory condition, which is not the case.
The applicable provision of law in instant case is Article 1191 of the New Civil Code which provides as follows:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what
is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The Court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles
1385 and 1388 and the Mortgage Law. (1124)

Pursuant to the above, the law makes it available to the injured party alternative remedies such as the power to rescind or enforce
fulfillment of the contract, with damages in either case if the obligor does not comply with what is incumbent upon him. There is
nothing in this law which prohibits the parties from entering into an agreement that a violation of the terms of the contract would
cause its cancellation even without court intervention. The rationale for the foregoing is that in contracts providing for automatic
revocation, judicial intervention is necessary not for purposes of obtaining a judicial declaration rescinding a contract already
deemed rescinded by virtue of an agreement providing for rescission even without judicial intervention, but in order to determine
whether or not the rescission was proper. Where such propriety is sustained, the decision of the court will be merely declaratory
of the revocation, but it is not in itself the revocatory act. Moreover, the vendor’s right in contracts to sell with reserved title to
extrajudicially cancel the sale upon failure of the vendee to pay the stipulated installments and retain the sums and installments
already received has long been recognized by the well-established doctrine of 39 years standing. The validity of the stipulation in
the contract providing for automatic rescission upon non-payment cannot be doubted. It is in the nature of an agreement granting
a party the right to rescind a contract unilaterally in case of breach without need of going to court. Thus, rescission under Article
1191 was inevitable due to petitioners’ failure to pay the stipulated price within the original period fixed in the agreement.

Petitioners justify the delay in payment by stating that they had notice that Dela Cruz is not the owner of the subject land, and that
12
they took pains to rectify the alleged defect in Dela Cruz’s title. Be that as it may, Angel Abelida’s (Abelida) affidavit confirming
the sale to Dela Cruz only serves to strengthen Dela Cruz’s claim that she is the absolute owner of the subject lands at the time the
Contract to Sell between herself and petitioners was executed. Dela Cruz did not conceal from petitioners that the title to Lot
13
Nos. 2776, 2767 and 2769 still remained under Abelida’s name, and the Contract to Sell even provided that petitioners should
shoulder the attendant expenses for the transfer of ownership from Abelida to Dela Cruz.

14
The trial court erred in applying R.A. 6552, or the Maceda Law, to the present case. The Maceda Law applies to contracts of
sale of real estate on installment payments, including residential condominium apartments but excluding industrial lots,
commercial buildings and sales to tenants. The subject lands, comprising five (5) parcels and aggregating 69,028 square meters,
15
do not comprise residential real estate within the contemplation of the Maceda Law. Moreover, even if we apply the Maceda
Law to the present case, petitioners’ offer of payment to Dela Cruz was made a year and a half after the stipulated date. This is
16
beyond the sixty-day grace period under Section 4 of the Maceda Law. Petitioners still cannot use the second sentence of Section
4 of the Maceda Law against Dela Cruz for Dela Cruz’s alleged failure to give an effective notice of cancellation or demand for
rescission because Dela Cruz merely sent the notice to the address supplied by petitioners in the Contract to Sell.

It is undeniable that petitioners failed to pay the balance of the purchase price on the stipulated date of the Contract to Sell. Thus,
Dela Cruz is within her rights to sell the subject lands to Bartolome. Neither Dela Cruz nor Bartolome can be said to be in bad
faith.

WHEREFORE, we DENY the petition. We AFFIRM in toto the Court of Appeals’ Decision promulgated on 25 January 2006
as well as the Resolution promulgated on 16 March 2006 in CA-G.R. CV No. 63651.

Costs against petitioners.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 130347 March 3, 1999

ABELARDO VALARAO, GLORIOSA VALARAO and CARLOS VALARAO, petitioners,

vs.
COURT OF APPEALS and MEDEN A. ARELLANO, respondents.
PANGANIBAN, J.:

Art. 1592 of the Civil Code applies only to contracts of sale, and not to contracts to sell or conditional sales where title passes to
the vendee only upon full payment of the purchase price. Furthermore, in order to enforce the automatic forfeiture clause in a
deed of conditional sale, the vendors have the burden of proving a contractual breach on the part of the vendee.

The Case

1
Before us is a Petition for Review assailing the June 13, 1997 Decision of the Court of Appeals (CA) which reversed and set
2
aside the October 10, 1994 Decision of the Regional Trial Court (RTC) of Quezon City, Branch 82. The dispositive portion of
the assailed CA Decision reads:

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new one is entered (1) ordering [herein
private respondent] to pay the amount of [o]ne [m]illion [o]ne [h]undred [n]inety [s]even [t]housand [p]esos (P1,197,000.00) in
favor of [herein petitioners], with legal interest thereon from December 31, 1992; (2) and directing [herein petitioners] to execute
in favor of [herein respondent], upon receipt of the aforesaid amount, the final and absolute deed of sale of the subject property
3
with all the improvements.

Also assailed by petitioners is the August 21, 1997 CA Resolution denying reconsideration.

The aforementioned RTC Decision, which was reversed and set aside by the CA, disposed as follows:

WHEREFORE, premises considered, judgment is hereby rendered declaring the aforesaid Deed of Conditional Sale as
automatically rescinded and all payments made thereunder by the [private respondent] to the [petitioners] as forfeited in favor of
the latter, by way of rentals and as liquidated damages, as well as declaring all improvements introduced on the property subject to
the said Deed of Condition[al] Sale to belong to the [petitioners] without any right of reimbursement. Further, the [private
respondent] and all persons claiming right under her are hereby ordered to vacate the said property and to turnover possession
thereof to the [petitioners]. FINALLY, the [private respondent] is hereby ordered to pay to the [petitioners] the amount of
P50,000.00 as attorney's fees and for expenses of litigation, as well as to pay the costs of the suit. The Writ of Preliminary
Injunction previously issued is hereby ordered LIFTED and DISSOLVED, and the bond posted for its issuance held liable for
the satisfaction of the money judgment herein made in favor of the
4
[petitioners].

The Facts

The undisputed facts of the case as narrated by the Court of Appeals are as follows:

On September 4, 1987, spouses Abelardo and Gloriosa Valarao, thru their son Carlos Valarao as their attorney-in-fact, sold to
[Private Respondent] Meden Arellano under a Deed of Conditional Sale a parcel of land situated in the District of Diliman, Q.
C., covered by TCT No. 152879 with an area of 1,504 square meters, for the sum of THREE MILLION TWO HUNDRED
TWENTY FIVE THOUSAND PESOS (P3,225,000.00) payable under a schedule of payment stated therein.

In the same Deed of Conditional Sale, the [private respondent] vendee obligated herself to encumber by way of real estate
mortgage in favor of [petitioners] vendors her separate piece of property with the condition that upon full payment of the balance
of P2,225.000.00, the said mortgage shall become null and void and without further force and effect. (Item No. 3, pp. 2-3 of
Deed of Conditional Sale).

It was further stipulated upon that should the vendee fail to pay three (3) successive monthly installments or 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. (Par. (2), Item No. 3, p. 3 of Deed of Conditional Sale).

[Private respondent] appellant alleged that as of September, 1990, she had already paid the amount of [t]wo [m]illion [t]wenty-
[e]ight [t]housand (P2,028,000.00) [p]esos, although she admitted having failed to pay the installments due in October and
November, 1990. Petitioner, however, [had] tried to pay the installments due [in] the said months, including the amount due [in]
the month of December, 1990 on December 30 and 31, 1990, but was turned down by the vendors-[petitioners] thru their maid,
Mary Gonzales, who refused to accept the payment offered. [Private respondent] maintains that on previous occasions, the same
maid was the one who [had] received payments tendered by her. It appears that Mary Gonzales refused to receive payment
allegedly on orders of her employers who were not at home.

[Private respondent] then reported the matter to, and sought the help of, the local barangay officials. Efforts to settle the
controversy before the barangay proved unavailing as vendors-[petitioners] never appeared in the meetings arranged by the
barangay lupon.

[Private respondent] tried to get in touch with [petitioners] over the phone and was able to talk with [Petitioner] Gloriosa Valarao
who told her that she [would] no longer accept the payments being offered and that [private respondent] should instead confer
with her lawyer, a certain Atty. Tuazon. When all her efforts to make payment were unsuccessful, [private respondent] sought
judicial action. by filing this petition for consignation on January 4, 1991.
On the other hand, vendors-[petitioners], thru counsel, sent [private respondent] a letter dated 4 January 1991 (Exh. "C") notifying
her that they were enforcing the provision on automatic rescission as a consequence of which the Deed of Conditional Sale [was
deemed] null and void, and . . . all payments made, as well as the improvements introduced on the property, [were] thereby
forfeited. The letter also made a formal demand on the [private respondent] to vacate the property should she not heed the
demand of [petitioners] to sign a contract of lease for her continued stay in the property (p. 2 of Letter dated Jan. 4, 1991; Exh.
"C").

In reply, [private respondent] sent a letter dated January 14, 1991 (Exh. "D"), denying that she [had] refused to pay the
installments due [in] the months of October, November and December, and countered that it was [petitioners] who refused to
accept payment, thus constraining her to file a petition for consignation before the Regional Trial Court of Quezon City docketed
as Civil Case No. Q-91-7603.

Notwithstanding their knowledge of the filing by [private respondent] of a consignation case against them in the Regional Trial
Court of Quezon City docketed as Civil Case No. Q-91-7603, [petitioners], through counsel, sent the [private respondent]
another letter dated January 19, 1991 (Exh. "F"), denying the allegations of her attempts to tender payment on December 30 and
31, 1990, and demanding that [private respondent] vacate and turnover the property and pay a monthly compensation for her
continued occupation of the subject property at the rate of P20,000.00, until she shall have vacated the same.

Ruling of the Court of Appeals

In reversing the Regional Trial Court, the Court of Appeals held that the refusal of herein petitioners "to accept the tender of
payment was unjustified." Notwithstanding the stipulation in the Deed of Conditional Sale that "the rescission of the contract shall
of right take place" upon the failure of the vendee to pay three successive monthly installments, the appellate court observed that a
judicial demand or a notarial act was still required pursuant to Article 1592 of the Civil Code. Thus, petitioners' letter informing
private respondent of the rescission of the contract did not suffice, for it was not notarized. The CA also observed that "the
alleged breach of contract arising from the failure of the vendee to pay the monthly installments for October and November 1990
within the stipulated time is rather slight and not substantial, and to authorize the automatic rescission on account thereof will
work injustice to the other party, who has paid a total of P2,028,000.00 out of a total obligation of P3,225,000.00. The rule is that
rescission cannot be availed of as to unjustly enrich one party."

The Issues
5
In their Memorandum before us, petitioners raise the following issues:

I Whether the Answer [— (a)] categorically indicating willingness to accept the amount already due if the [private respondent]
would update the account, [(b)] praying that "if she fail[ed] to do so immediately, . . . 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.

II Whether the automatic forfeiture clause is valid and binding between the parties.

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

The Court's Ruling

6
The petition is devoid of merit.

Preliminary Matter:

Notarial or Judicial Demand

Citing Article 1592 of the Civil Code, the Court of Appeals ruled that the petitioners' letter dated January 4, 1991, could not effect
the rescission of the Deed of Conditional Sale, because the said letter was not notarized. On the other hand, petitioners argue that
they made a judicial demand, which was embodied in their Manifestation filed on May 1, 1991, and Answer submitted on July
7
1,1991.

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.

8 9
It is well-settled that the above-quoted provision applies only to a contract of sale, and not to a sale on installment or a contract
to sell. Thus, in Luzon Brokerage v. Maritime Building, this Court ruled that "Art. 1592 of the new Civil Code (Art. 1504 of
10 11

the old Civil Code) requiring demand by suit or notarial act in case the vendor of realty wants to rescind does not apply to a
contract to sell or promise to sell, where title remains with the vendor until" full payment of the price. The Court stresses the
difference between these two types of contract. In a contract to sell, "the title over the subject property is transferred to the vendee
only upon the full payment of the stipulated consideration. Unlike in a contract of sale, the title does not pass to the vendee upon
12
the execution of the agreement or the delivery of the thing sold."

In the present case, the Deed of Conditional Sale is of the same nature as a sale on installment or a contract to sell, which is not
covered by Article 1592. The aforementioned agreement provides:

xxx xxx xxx

Should the VENDEE fail to pay three (3) successive monthly installments or any one year-end lump sum payment within the
period stipulated herein, this Deed of Conditional Sale shall be considered . . . automatically rescinded without the necessity of
judicial action[,] and all payments made by the VENDEE shall be forfeited in favor of the VENDORS by way of rental for the
use and occupancy of the property and as liquidated damages. All improvements introduced by the VENDEE to the property
shall belong to the VENDORS without any right of reimbursement. The VENDORS and/or their agents or representatives shall
have the right to enter the premises of the property and to eject the VENDEE and all persons claiming right under her therefrom
with the use of reasonable force if necessary.

That upon full payment to the VENDORS of the total consideration of P3,225,000.00, the VENDORS shall immediately and
without delay execute in favor of the VENDEE the final and absolute deed of sale of the property and all its improvements.

Petitioners-vendors unmistakably reserved for themselves the title to the property until full payment of the purchase price by the
vendee. Clearly, the agreement was not a deed of sale, but more in he nature of a contract to sell or of a sale on
13
installments. Even after the execution of the Deed of Conditional Sale, the Torrens Certificate of Title remained with and in the
name of the vendors. In rejecting the application of Article 1592 to a contract to sell, the Court held in Luzon Brokerage that14

"the full payment of the price (through the punctual performance of the monthly payments) was a condition precedent to the
execution of the final sale and to the transfer of the property from [the vendor] to the [vendee]; so that there was to be no actual
sale until and unless full payment was to be no actual sale until and unless full payment was made."

Main Issue: Enforcement of the

Automatic Forfeiture Clause

15
As a general rule, a contract is the law between the parties. Thus, "from the moment the contract is perfected, the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all consequences which, according to their
16
nature, may be in keeping with good faith, usage and law." Also, "the stipulations of the contract being the law between the
parties, courts have no alternative but to enforce them as they were agreed [upon] and written, there being no law or public policy
17
against the stipulated forfeiture of payments already made." However, it must be shown that private respondent-vendee failed to
perform her obligation, thereby giving petitioners-vendors the right to demand the enforcement of the contract.

We concede the validity of the automatic forfeiture clause, which deems any previous payments forfeited and the contract
automatically rescinded upon the failure of the vendee to pay three successive monthly installments or any one yearend lump sum
payment. However, petitioners failed to prove the conditions that would warrant the implementation of this clause.

Both the appellate and the trial courts agree on the following:

1. The Deed of Conditional Sale provided for automatic rescission in case the vendee failed to pay three (3) successive monthly
installments or any one yearend lump sum payment within the stipulated period therein.

2. Each monthly installment was due at the end of the month.

3. The installments for October and November 1990 were not paid.

4. The private respondent-vendee, Meden Arellano, went to the house of the petitioners-vendors on December 30, 1990.

5. Arellano offered to pay P48,000 (total amount of installments due in October, November, and December 1990) to Mary
Gonzales, the petitioner's maid, but the latter refused to accept it upon instruction of petitioners.

6. Arellano returned the next day, December 31, 1990, and insisted on paying, but again the maid refused to accept it.

7. Arellano proceeded to the barangay office around 10:00 a.m. to file a case against petitioners for their refusal to accept the
payments.

8. Four (4) days later, on January 4, 1991, private respondents filed a Petition for Consignation.

9. Despite the said petition, the money was nevertheless not deposited in court.

10. Negotiations between both parties went under way, culminating in the vendee's filing a Motion to Deposit the entire balance
due, which was duly opposed by the vendor, and hence was denied by the trial court.
From the foregoing, it is clear that petitioners were not justified in refusing to accept the tender of payment made by private
respondent on December 30 and 31, 1990. Had they accepted it on either of said dates, she would have paid all three monthly
18
installments due. In other words, there was no deliberate failure on her part to meet her responsibility to pay. The Court takes
note of her willingness and persistence to do so, and, petitioners cannot now say otherwise. The fact is: they refused to accept her
payment and thus have no reason to demand the enforcement of the automatic forfeiture clause. They cannot be rewarded for
their own misdeed.

19
Because their maid had received monthly payments in the past, it is futile for petitioners to insist now that she could not have
accepted the aforementioned tender of payment, on the ground that she did not have a special power of attorney to do so.
Clearly, they are estopped from denying that she had such authority. Under Article 1241 of the Civil Code, payment through a
third person is valid "[i]f by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive
the payment."

Failure to Consign the

Amount Due

Petitioners also maintain that the consignation was not valid because the amount tendered was not deposited with the trial court.
True, there is no showing that she deposited the money with the proper judicial authority which, taken together with the other
20
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
21
motion upon opposition of the petitioners.

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

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
22
case falls squarely under Republic Act No. 6552, otherwise known as the "Maceda Law." Section 3 of said law provides:

Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act. Numbered
Thirty-eight hundred Forty-four as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has
paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the 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. This tribunal is not merely a court of law, but also a court of justice.

WHEREFORE, the Petition is DENIED and the dispositive portion of the appealed Decision of the Court of Appeals is hereby
AFFIRMED. The CA's discussion on the need for judicial or notarial demand is MODIFIED in accordance with this Decision.
Costs against petitioners.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 170115 February 19, 2008

PROVINCE OF CEBU, petitioner,
vs.
HEIRS OF RUFINA MORALES, NAMELY: FELOMINA V. PANOPIO, NENITA VILLANUEVA, ERLINDA V.
ADRIANO and CATALINA V. QUESADA, respondents.

DECISION

YNARES-SANTIAGO, J.:

1
This is a petition for review on certiorari of the Decision of the Court of Appeals dated March 29, 2005 in CA-G.R. CV No.
53632, which affirmed in toto the Decision of the Regional Trial Court of Cebu City, Branch 6, in Civil Case No. CEB-11140 for
2

3
specific performance and reconveyance of property. Also assailed is the Resolution dated August 31, 2005 denying the motion
for reconsideration.

4
On September 27, 1961, petitioner Province of Cebu leased in favor of Rufina Morales a 210-square meter lot which formed
part of Lot No. 646-A of the Banilad Estate. Subsequently or sometime in 1964, petitioner donated several parcels of land to the
City of Cebu. Among those donated was Lot No. 646-A which the City of Cebu divided into sub-lots. The area occupied by
5
Morales was thereafter denominated as Lot No. 646-A-3, for which Transfer Certificate of Title (TCT) No. 30883 was issued in
favor of the City of Cebu.

On July 19, 1965, the city sold Lot No. 646-A-3 as well as the other donated lots at public auction in order to raise money for
infrastructure projects. The highest bidder for Lot No. 646-A-3 was Hever Bascon but Morales was allowed to match the highest
6
bid since she had a preferential right to the lot as actual occupant thereof. Morales thus paid the required deposit and partial
7
payment for the lot.

In the meantime, petitioner filed an action for reversion of donation against the City of Cebu docketed as Civil Case No. 238-BC
before Branch 7 of the then Court of First Instance of Cebu. On May 7, 1974, petitioner and the City of Cebu entered into a
8
compromise agreement which the court approved on July 17, 1974. The agreement provided for the return of the donated lots
to petitioner except those that have already been utilized by the City of Cebu. Pursuant thereto, Lot No. 646-A-3 was returned to
9
petitioner and registered in its name under TCT No. 104310.

10
Morales died on February 20, 1969 during the pendency of Civil Case No. 238-BC. Apart from the deposit and down payment,
she was not able to make any other payments on the balance of the purchase price for the lot.

On March 11, 1983, one of the nieces of Morales, respondent Catalina V. Quesada, wrote to then Cebu Governor Eduardo R.
Gullas asking for the formal conveyance of Lot No. 646-A-3 to Morales’ surviving heirs, in accordance with the award earlier
11
made by the City of Cebu. This was followed by another letter of the same tenor dated October 10, 1986 addressed to Governor
12
Osmundo G. Rama.

The requests remained unheeded thus, Quesada, together with the other nieces of Morales namely, respondents Nenita
Villanueva and Erlinda V. Adriano, as well as Morales’ sister, Felomina V. Panopio, filed an action for specific performance and
reconveyance of property against petitioner, which was docketed as Civil Case No. CEB-11140 before Branch 6 of the Regional
13
Trial Court of Cebu City. They also consigned with the court the amount of P13,450.00 representing the balance of the
14
purchase price which petitioner allegedly refused to accept.

15
Panopio died shortly after the complaint was filed.

Respondents averred that the award at public auction of the lot to Morales was a valid and binding contract entered into by the
City of Cebu and that the lot was inadvertently returned to petitioner under the compromise judgment in Civil Case No. 238-BC.
They alleged that they could not pay the balance of the purchase price during the pendency of said case due to confusion as to
whom and where payment should be made. They thus prayed that judgment be rendered ordering petitioner to execute a final
16
deed of absolute sale in their favor, and that TCT No. 104310 in the name of petitioner be cancelled.

Petitioner filed its answer but failed to present evidence despite several opportunities given thus, it was deemed to have waived its
17
right to present evidence.

On March 6, 1996, the trial court rendered judgment, the dispositive part of which reads:

WHEREFORE, judgment is rendered in favor of the plaintiffs and against the defendant Province of Cebu, hereby directing the
latter to convey Lot 646-A-3 to the plaintiffs as heirs of Rufina Morales, and in this connection, to execute the necessary deed in
favor of said plaintiffs.

No pronouncement as to costs.

18
SO ORDERED.

In ruling for the respondents, the trial court held thus:

[T]he Court is convinced that there was already a consummated sale between the City of Cebu and Rufina Morales. There was
the offer to sell in that public auction sale. It was accepted by Rufina Morales with her bid and was granted the award for which
she paid the agreed downpayment. It cannot be gainsaid that at that time the owner of the property was the City of Cebu. It has
the absolute right to dispose of it thru that public auction sale. The donation by the defendant Province of Cebu to Cebu City was
not voided in that Civil Case No. 238-BC. The compromise agreement between the parties therein on the basis of which
judgment was rendered did not provide nullification of the sales or disposition made by the City of Cebu. Being virtually
successor-in-interest of City of Cebu, the defendant is bound by the contract lawfully entered into by the former. Defendant did
not initiate any move to invalidate the sale for one reason or another. Hence, it stands as a perfectly valid contract which
defendant must respect. Rufina Morales had a vested right over the property. The plaintiffs being the heirs or successors-in-
interest of Rufina Morales, have the right to ask for the conveyance of the property to them. While it may be true that the title of
the property still remained in the name of the City of Cebu until full payment is made, and this could be the reason why the lot in
question was among those reverted to the Province, the seller’s obligation under the contract was, for all legal purposes,
19
transferred to, and assumed by, the defendant Province of Cebu. It is then bound by such contract.

Petitioner appealed to the Court of Appeals which affirmed the decision of the trial court in toto. Upon denial of its motion for
reconsideration, petitioner filed the instant petition under Rule 45 of the Rules of Court, alleging that the appellate court erred in:

FINDING THAT RUFINA MORALES AND RESPONDENTS, AS HER HEIRS, HAVE THE RIGHT TO EQUAL THE
BID OF THE HIGHEST BIDDER OF THE SUBJECT PROPERTY AS LESSEES THEREOF;

FINDING THAT WITH THE DEPOSIT AND PARTIAL PAYMENT MADE BY RUFINA MORALES, THE SALE
WAS IN EFFECT CLOSED FOR ALL LEGAL PURPOSES, AND THAT THE TRANSACTION WAS PERFECTED
AND CONSUMMATED;

FINDING THAT LACHES AND/OR PRESCRIPTION ARE NOT APPLICABLE AGAINST RESPONDENTS;

FINDING THAT DUE TO THE PENDENCY OF CIVIL CASE NO. 238-BC, PLAINTIFFS WERE NOT ABLE TO PAY
THE AGREED INSTALLMENTS;

AFFIRMING THE DECISION OF THE TRIAL COURT IN FAVOR OF THE RESPONDENTS AND AGAINST THE
20
PETITIONERS.

The petition lacks merit.

The appellate court correctly ruled that petitioner, as successor-in-interest of the City of Cebu, is bound to respect the contract of
sale entered into by the latter pertaining to Lot No. 646-A-3. The City of Cebu was the owner of the lot when it awarded the same
to respondents’ predecessor-in-interest, Morales, who later became its owner before the same was erroneously returned to
petitioner under the compromise judgment. The award is tantamount to a perfected contract of sale between Morales and the
City of Cebu, while partial payment of the purchase price and actual occupation of the property by Morales and respondents
effectively transferred ownership of the lot to the latter. This is true notwithstanding the failure of Morales and respondents to pay
the balance of the purchase price.

Petitioner can no longer assail the award of the lot to Morales on the ground that she had no right to match the highest bid during
the public auction. Whether Morales, as actual occupant and/or lessee of the lot, was qualified and had the right to match the
highest bid is a foregone matter that could have been questioned when the award was made. When the City of Cebu awarded the
lot to Morales, it is assumed that she met all qualifications to match the highest bid. The subject lot was auctioned in 1965 or
more than four decades ago and was never questioned. Thus, it is safe to assume, as the appellate court did, that all requirements
for a valid public auction sale were complied with.

A sale by public auction is perfected "when the auctioneer announces its perfection by the fall of the hammer or in other
21
customary manner". It does not matter that Morales merely matched the bid of the highest bidder at the said auction sale. The
contract of sale was nevertheless perfected as to Morales, since she merely stepped into the shoes of the highest bidder.

Consequently, there was a meeting of minds between the City of Cebu and Morales as to the lot sold and its price, such that each
22
party could reciprocally demand performance of the contract from the other. A contract of sale is a consensual contract and is
perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From
that moment, the parties may reciprocally demand performance subject to the provisions of the law governing the form of
contracts. The elements of a valid contract of sale under Article 1458 of the Civil Code are: (1) consent or meeting of the minds;
23
(2) determinate subject matter; and (3) price certain in money or its equivalent. All these elements were present in the
transaction between the City of Cebu and Morales.

There is no merit in petitioner’s assertion that there was no perfected contract of sale because no "Contract of Purchase and Sale"
was ever executed by the parties. As previously stated, a contract of sale is a consensual contract that is perfected upon a meeting
of minds as to the object of the contract and its price. Subject to the provisions of the Statute of Frauds, a formal document is not
24
necessary for the sale transaction to acquire binding effect. For as long as the essential elements of a contract of sale are proved
to exist in a given transaction, the contract is deemed perfected regardless of the absence of a formal deed evidencing the same.

Similarly, petitioner erroneously contends that the failure of Morales to pay the balance of the purchase price is evidence that
there was really no contract of sale over the lot between Morales and the City of Cebu. On the contrary, the fact that there was an
agreed price for the lot proves that a contract of sale was indeed perfected between the parties. Failure to pay the balance of the
purchase price did not render the sale inexistent or invalid, but merely gave rise to a right in favor of the vendor to either demand
25
specific performance or rescission of the contract of sale. It did not abolish the contract of sale or result in its automatic
invalidation.
As correctly found by the appellate court, the contract of sale between the City of Cebu and Morales was also partially
consummated. The latter had paid the deposit and downpayment for the lot in accordance with the terms of the bid award. She
first occupied the property as a lessee in 1961, built a house thereon and was continuously in possession of the lot as its owner
until her death in 1969. Respondents, on the other hand, who are all surviving heirs of Morales, likewise occupied the property
26
during the latter’s lifetime and continue to reside on the property to this day.

The stages of a contract of sale are as follows: (1) negotiation, covering the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the
concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract
and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the
27
contract of sale, culminating in the extinguishment thereof. In this case, respondents’ predecessor had undoubtedly commenced
performing her obligation by making a down payment on the purchase price. Unfortunately, however, she was not able to
complete the payments due to legal complications between petitioner and the city.

Thus, the City of Cebu could no longer dispose of the lot in question when it was included as among those returned to petitioner
pursuant to the compromise agreement in Civil Case No. 238-BC. The City of Cebu had sold the property to Morales even
though there remained a balance on the purchase price and a formal contract of sale had yet to be executed. Incidentally, the
failure of respondents to pay the balance on the purchase price and the non-execution of a formal agreement was sufficiently
explained by the fact that the trial court, in Civil Case No. 238-BC, issued a writ of preliminary injunction enjoining the city from
further disposing the donated lots. According to respondents, there was confusion as to the circumstances of payment considering
28
that both the city and petitioner had refused to accept payment by virtue of the injunction. It appears that the parties simply
mistook Lot 646-A-3 as among those not yet sold by the city.

The City of Cebu was no longer the owner of Lot 646-A-3 when it ceded the same to petitioner under the compromise
agreement in Civil Case No. 238-BC. At that time, the city merely retained rights as an unpaid seller but had effectively
transferred ownership of the lot to Morales. As successor-in-interest of the city, petitioner could only acquire rights that its
predecessor had over the lot. These rights include the right to seek rescission or fulfillment of the terms of the contract and the
29
right to damages in either case.

In this regard, the records show that respondent Quesada wrote to then Cebu Governor Eduardo R. Gullas on March 11, 1983,
asking for the formal conveyance of Lot 646-A-3 pursuant to the award and sale earlier made by the City of Cebu. On October
10, 1986, she again wrote to Governor Osmundo G. Rama reiterating her previous request. This means that petitioner had
known, at least as far back as 1983, that the city sold the lot to respondents’ predecessor and that the latter had paid the deposit
and the required down payment. Despite this knowledge, however, petitioner did not avail of any rightful recourse to resolve the
matter.

Article 1592 of the Civil Code pertinently provides:

Article 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. (Underscoring supplied)

Thus, respondents could still tender payment of the full purchase price as no demand for rescission had been made upon them,
either judicially or through notarial act. While it is true that it took a long time for respondents to bring suit for specific
performance and consign the balance of the purchase price, it is equally true that petitioner or its predecessor did not take any
action to have the contract of sale rescinded. Article 1592 allows the vendee to pay as long as no demand for rescission has been
30
made. The consignation of the balance of the purchase price before the trial court thus operated as full payment, which resulted
in the extinguishment of respondents’ obligation under the contract of sale.

Finally, petitioner cannot raise the issue of prescription and laches at this stage of the proceedings. Contrary to petitioner’s
assignment of errors, the appellate court made no findings on the issue because petitioner never raised the matter of prescription
and laches either before the trial court or Court of Appeals. It is basic that defenses and issues not raised below cannot be
31
considered on appeal. Thus, petitioner cannot plead the matter for the first time before this Court.

WHEREFORE, in view of the foregoing, the petition is hereby DENIED and the decision and resolution of the Court of
Appeals in CA-G.R. CV No. 53632 are AFFIRMED.

SO ORDERED.

FIRST DIVISION

G.R. No. 140468 January 16, 2003

OLYMPIA HOUSING, INC., petitioner,

vs.
PANASIATIC TRAVEL CORPORATION and MA. NELIDA GALVEZ-YCASIANO, respondents.

VITUG, J.:

The petition for review on certiorari before the Court assails the decision, promulgated on 11 June 1999, and the resolution,
promulgated on 14 October 1999, of the Court of Appeals in CA-G.R. CV Case No. 53516.
The case originated from a complaint for Recovery of Possession (Accion Publiciana) filed by Olympia Housing, Inc., against
Panasiatic Travel Corporation, Maria Nelida Ycasiano and the latter's husband. The object in litigation is a condominium unit
sold at the price of P2,340,000.00 payable on installments at the rate of P33,657.40 per month.

On the basis of the facts encapsulated by the trial court, it would appear that —

"On August 8, 1984, plaintiff and defendant Ma. Nelida Galvez-Ycasiano entered into a Contract to Sell, whereby the former
agreed to sell to the latter condominium unit no. D-12, comprising an area of 160.50 square meters, more or less, situated on the
ground floor of Olympia Condominium located at Makati, Metro Manila, covered by Condominium Certificate of Title No.
6711, for the agreed price of P2,340,000.00 payable in installments of P33,657.40 per month.

"The schedule of payments [were] as follows:

Date Particulars Amount

July 17, 1984 Reservation/Deposit P100,000.00
July 19, 1984 50% Down payment P1,070,000.00

"Balance of 50% payable in sixty (60) monthly installments at 24% per annum base on diminishing balance.

"Monthly amortization to commence on Sept. 17 1984 .................... P33,657.40/month

"Interest of 2% is included in regular monthly amortization, past due amortization shall bear interest of 2% per month plus
penalty charge of 2% per month.

"Pursuant to the Contract to Sell, defendant Ma. Nelida Galvez-Ycasiano made a reservation/deposit in the amount of
P100,000.00 on July 17, 1984 and 50% down payment in the amount of P1,070,000.00 on July 19, 1984.

"Defendants made several payments in cash and thru credit memos issued by plaintiff representing plane tickets bought by
plaintiff from defendant Panasiatic Travel Corp., which is owned by defendant Ma. Nelida Galvez-Ycasiano, who credited/offset
the amount of the said plane tickets to defendant's account due to plaintiff.

"Plaintiff alleged that far from complying with the terms and conditions of said Contract to Sell, defendants failed to pay the
corresponding monthly installments which as of June 2, 1988 amounted to P1,924,345.52. Demand to pay the same was sent to
defendant Ma. Nelida Galvez-Ycasiano, but the latter failed to settle her obligation.

"For failure of defendant to pay her obligation plaintiff allegedly rescinded the contract by a Notarial Act of Rescission.

"At present, the subject condominium unit is being occupied by defendant Panasiatic Travel Corp., hence the suit for Recovery of
Possession (Accion Publiciana) with prayer for attorney's fees, exemplary damages and reasonable rentals for the unit from July
28, 1988 at the rate of P32,100.00 per month until the condominium unit is finally vacated.

"Defendant Ma. Nelida Galvez-Ycasiano, while admitting the existence of the contract to sell, interposed the defense that she has
made substantial payments of the purchase price of the subject condominium unit amounting to P1,964,452.82 in accordance
with the provisions of the contract to sell; that she decided to stop payment of the purchase price in the meantime because of
substantial differences between her and the plaintiff in the computation of the balance of the purchase price.

"xxx xxx xxx

"Evidence adduced by plaintiff such as the statement of account of defendant Ma. Nelida Galvez-Ycasiano (Exh. 'C') has been
established by plaintiff's witness, Mrs. Isabelita Rivera, which indeed shows that on several occasions defendant either failed to pay
on time or was completely in default in the payment of the monthly installment of the subject condominium unit.

"It can be deduced from said documentary evidence that defendant should start paying the installment on September 17, 1984,
but defendant paid on September 21, 1984 the amount of P51,238.00 thru credit memo. Witness claimed that a credit memo is a
document issued by Olympia Housing Inc. to Panasiatic Travel Corp. for the amount of ticket purchased instead of paying in
cash they just issued credit memo in order that it would be offset on the monthly amortization due to Olympia Housing Corp.
She claimed that they based it on the invoice that they [were] sending them.

"Witness further claimed that since the amount due was only P33,657.40 what she did to the excess of P51,238.00 was to apply it
to the next installment. The next installment was due on October 12, 1984 in the amount of P26,158.00 representing the excess.
It was paid thru credit memo no. 031 on October 17, 1984. In fact, there was still an excess of P10,081.20. The third installment
was due on November 17, 1984. Defendant made partial payment because the excess payment of P10,081.20 was applied to the
third installment. The 4th installment was due on December 17, 1984; the defendant did not pay instead she paid on January 9,
1985 the amount of P51,619.08 in cash per O.R. No. 295. Before this payment on January 9, 1985 defendant owed plaintiff
P59,931.81 based on the amortization. The basis [was] the unpaid amortization due and payable plus 2% interest and 2% penalty
charges per month. After payment, the amount due was P8,312.73. The 5th installment was due on January 17, 1985. No
payment was made on the 6th, 7th, 8th installments which were due on January, February, March, April 17, 1985 respectively.
The 9th installment was due on May 17, 1985, it was not paid. Defendant made a payment on June 1985 for P33,231.90 in cash
per O.R. No. 439. The next payment was made on June 8, 1985 for P25,574.59. After these two payments, there was still an
outstanding amount due of P32,552.44. No payment was made on the 10th and 11th installments. The next payment was made
on July 24, 1985 for P60,000.00. After this payment the outstanding amount due was P43,881.76. She made payment on August
16, 1985 for P30,067.00 thru credit memo no. 045. After this payment the outstanding amount due was P15,160.46. She did not
on the 12th installment, instead she paid on August 28, 1985 for P26,043.00 thru credit memo no. 046. After this payment the
outstanding amount due was P23,511.07. She did not pay on the 13th installment, instead she paid on October 10, 1985 for
P20,830.00 thru credit memo no. 006. After this payment the outstanding amount due was P38,728.61. She did not pay on the
14th installment, instead payment was made on November 10, 1985 for P16,212.00 thru credit memo no. 010. After this
payment the outstanding amount due was P58,851.83. No payments were made on the 15th, 16th and 17th installments. She paid
on January 30, 1986 for P33,657.40 in cash per O.R. No. 842. After this payment the outstanding balance was P138,233.23. No
payment was made on the 18th and 19th installment which fell due on February 17 and March 17, 1986. The next payment was
made on April 15, 1986 for P25,263.23. After this payment the outstanding balance was P198,425.88. She did not pay for six (6)
consecutive months from April 17 to September 17, 1986 corresponding to the 20th up to the 25th installment. The next
payment was made on October 14, 1986 for P82,780.33 in cash per O.R. No. 1628. After this payment the outstanding amount
due was P350,712.73. The 26th and 27th installments were not paid. She paid on November 24, 1986 for P134,629.60. After this
payment the outstanding balance was P306,306.66. Witness claimed that the basis for the computation was the unpaid
amortization due payable for the particular period plus 2% interest and 2% penalty charge per month. In computing the interest
she used the simple method. The 28th up to the 31st installments were not paid. The next payment was made on April 30, 1987
for P22,213.00 thru credit memo no. 134. After this payment the outstanding balance was P471,317.60. The basis for this
computation is the unpaid amortization due plus 2% interest and 2% penalty charge per month. The 33rd, 34th and 35th
installments were not paid. The next payment was made on July 22, 1987 for P19,752.00 thru credit memo no. 146. After this
1
payment the outstanding balance was P664,822.78. The 36th and 37th installments were not paid."

On 31 January 1995, the Regional Trial Court, Branch V, of Makati City ruled thusly —

"WHEREFORE, premises considered, judgment is hereby rendered as follows:

"1. As the complaint has been prematurely filed without complying with the mandate of Republic Act No. 6552, the complaint is
hereby dismissed;

"2. That the obligation of defendant Maria Nelida Galvez Ycasiano has now become due and demandable, said defendant is
hereby ordered to pay the sum of P4,007,473.49 as of November 30, 1994 plus 18% interest per annum, computed from 1
December 1994, but within sixty days from receipt of a copy of this decision;

"3. Upon payment thereof, for plaintiff to issue the corresponding certificate of title in favor of defendant;

"4. In the event that said amount in full is not paid including the current amount due including the interest sans penalties, then
immediately thereafter, without necessity of demand, the defendants must vacate the premises and all payments will be charged as
rentals to the property.

"No award of damages and attorney's fees for any parties is being adjudged.

2
"No costs."

Thereupon, respondents tendered the amount of P4,304,026.53 to petitioner via Metrobank Cashier's Check No. CC008857.
Petitioner refused to accept the payment, constraining respondents to consign at the disposal of the court a quo the check on 26
April 1995. In an order, dated 05 June 1996, the check was allowed to be substituted by another cashier's check payable to the
Clerk of Court of the Makati Regional Trial Court. Complying with yet another court order of 04 January 1996, respondents
deposited the amount of P4,304,026.53 with the Land Bank of the Philippines and subsequently submitted to the court the
corresponding bank book as well as the bank's verification.

Meanwhile, both parties appealed the judgment of the trial court. In its now questioned decision of 11 June 1999, the appellate
court sustained the trial court.

The denial of the motion for reconsideration prompted petitioner to file the instant petition for review on certiorari, raising the
following assignment of errors, to wit:

"I

"THE COURT OF APPEALS ACTED IN A MANNER NOT IN ACCORD WITH LAW AND APPLICABLE
JURISPRUDENCE OF THE SUPREME COURT WHEN IT FAILED AND/OR REFUSED TO RULE UPON THE
EFFECT OF THE FILING OF THE COMPLAINT AND THE NOTARIAL ACT OF RESCISSION ATTACHED
THERETO VIS-Á-VIS THE REQUIREMENTS OF R.A. 6552.

"II

"THE COURT OF APPEALS ACTED IN A MANNER NOT IN ACCORD WITH LAW AND APPLICABLE
JURISPRUDENCE OF THE SUPREME COURT IN REFUSING TO DECREE THE RESCISSION OF THE SUBJECT
CONTRACT TO SELL ON THE GROUND THAT PETITIONER FAILED TO PAY THE CASH SURRENDER
VALUE PRIOR TO THE FILING OF THE COMPLAINT.

"III
"THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT'S DECISION ALLOWING
RESPONDENT YCASIANO TO PAY ON HER ALREADY-DEFAULTED OBLIGATIONS AND, UPON SUCH
3
PAYMENT, ORDERING PETITIONER TO ISSUE THE CERTIFICATE OF TITLE TO HER."

Respondents, upon the other hand, would insist that the petition should be held devoid of merit considering that: first, the issues
raised in the petition would strike at fundamentally factual questions beyond the province of a petition for review
on certiorari with this Court; second, there was no valid rescission of the contract to sell on account of the failure of petitioner to
give notice of rescission by notarial act, a requisite laid down in Republic Act No. 6552; third, the oft-invoked Layug vs.
IAC case would scarcely find application, it being a case for annulment of contract, not one for the recovery of
4

possession; fourth, no effective rescission had taken place on account of the failure of petitioner to pay the cash surrender value,
conformably with the terms of the law; and fifth, there being no valid rescission, the contract remained valid and subsisting, still
thereby obligating respondents to pay the outstanding balance of the purchase price.

In its Reply Brief, petitioner asseverated that, while not categorically made, the Court, in Layug, had held to be sufficiently
5

anchored, nevertheless, an action for judicial rescission even if no notarial act of rescission was priorly executed and the non-
6
payment of the cash surrender value before the filing of the complaint. Moreover, petitioner argued that while the complaint
before the trial court was denominated as one for "recovery of possession," the suit could still be considered as a case for judicial
rescission considering that the issue of whether or not it was entitled to recover possession over the property subject matter of the
contract to sell would require, for its resolution, passing upon the initial issue of whether or not the contract was in fact rescinded
7
by virtue of a notarial act.

The petition must be denied.

The action for reconveyance filed by petitioner was predicated on an assumption that its contract to sell executed in favor of
respondent buyer had been validly cancelled or rescinded. The records would show that, indeed, no such cancellation took place
at any time prior to the institution of the action for reconveyance. What had been sent by petitioner to respondent was a letter,
dated 02 June 1988, that read:

"02 June 1988

"MS. NELIDA GALVEZ

Pan Asiatic Travel Corp.
3rd Floor, S & L Building
Roxas Boulevard, Manila

"Dear Ms. Galvez:

"We have sent you many letters in the past asking you to update your payments in accordance with the terms of our Contract to
Sell dated August 25, 1984 as follows:

Purchase Price, Unit No. D-12 P2,340,000.00

Terms of Payment:
- July 17, 1984, Reservation/ Deposit 100,000.00
- July 19, 1984, 50% Down payment 1,070,000.00
- balance payable in 60 monthly installments
with 24% p.a. interest on diminishing
balance. Monthly payments to commence
Sept. 12, 1984 33,657.04/month

Note: Past due payments to bear interest of 2% per month plus penalty charge of 2% per month.

"You are in default and your overdue account now stands as follows:

Purchase Price P2,340,000.00

Add: Interest on
Monthly Amortizations 849,444.00
P3,189,444.00
Add: Interest and
penalties on overdues (Refer to
Exh. 'A') 679,002.34
P3,868,446.34
Less: Payments (Refer To Exh. 'B') 1,944,100.82
TOTAL DUE AND DEMANDABLE P1,924,345.52

"Unless we receive payment in full within 30 days after service of this notice upon you, our Contract to Sell shall be cancelled
and/or rescinded.
"Please give this matter its due attention.

"Very truly yours,

"(Sgd.) Illegible

(Type) FELIX H. LIMCAOCO, JR.

8
"President"

As so aptly observed by the courts below, the foregoing communication to the buyer merely demanded payment within thirty (30)
days from receipt thereof with the threat that if the demand were not heeded, the contract would forthwith be cancelled or
rescinded. Nor did the appellate court erroneously ignore the "notarial rescission" attached to the complaint for reconveyance.
Apparently, the so-called "notarial rescission" was not sent to respondents prior to the institution of the case for reconveyance but
merely served on respondents by way of an attachment to the complaint. In any case, a notarial rescission, standing alone, could
not have invalidly effected, in this case, the cancellation of the contract.

As the trial court elaborated in this case:

"A careful study of the evidence presented does not show a notice of cancellation or the demand for rescission of the contract by a
notarial act. The plaintiff appears to be claiming that the June 2, 1988 letter is a notice of cancellation or a demand for rescission
of the contract by a notarial act. This could not be what the law contemplates. It should be a notice of cancellation or demand for
rescission of the contract by notarial act.

"Further, the law requires also full payment of the cash surrender value to the buyer but there is no evidence adduced by the
plaintiff that they delivered to the defendant the cash surrender value. Admittedly, no such full payment of the cash surrender
9
value to the defendant was made. A mere promise to return is not what the law contemplates."

The governing law is Republic Act No. 6552, otherwise known as the "Realty Installment Buyer Protection Act," which has
become effective since 16 September 1972. Republic Act No. 6552 is a special law governing transactions that involve, subject to
10
certain exceptions, the sale on installment basis of real property. The law has been enacted mainly "to protect buyers of real
11
estate on installment payments against onerous and oppressive conditions." Section 3 of the statute 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 Number
Thirty-eight hundred forty-four as amended by Republic Act Numbered Sixty three hundred eighty-nine, where the buyer has
paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding
installments:

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

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

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

The enactment recognizes the right of the seller to cancel the contract but any such cancellation must be done in conformity with
12
the requirements therein prescribed. In addition to the notarial act of rescission, the seller is required to refund to the buyer the
13
cash surrender value of the payments on the property. The actual cancellation of the contract can only be deemed to take place
upon the expiry of a 30-day period following the receipt by the buyer of the notice of cancellation or demand for rescission by a
notarial act and the full payment of the cash surrender value.

The Court agrees with petitioner that it is not precluded from going to the court to demand judicial rescission in lieu of a notarial
act of rescission. This much must be recognized. Thus, in Layug vs. Intermediate Appellate Court the Court has ruled that a
14

demand for rescission by notarial act would appear to be merely circuitous, consequently superfluous, with the filing by the seller
of an action for annulment of contract and for recovery of damages. Unfortunately for petitioner, it would be incorrect to
apply Layug to the instant case. Layug is basically an action for annulment of contract, a kindred concept of rescission, whereas
the instant case before the Court is one for recovery of possession on the thesis of a prior rescission of the contract covering the
15
property. Not only is an action for reconveyance conceptually different from an action for rescission but that, also, the effects
that flow from an affirmative judgment in either case would be materially dissimilar in various respects. The judicial resolution of
a contract gives rise to mutual restitution which is not necessarily the situation that can arise in an action for reconveyance.
Additionally, in an action for rescission (also often termed as resolution), unlike in an action for reconveyance predicated on an
extrajudicial rescission (rescission by notarial act), the Court, instead of decreeing rescission, may authorize for a just cause the
16
fixing of a period.

17
Nor should a party in litigation be permitted to freely and substantially change the theory or the cause of action of his case that,
otherwise, can put to undue disadvantage the other party by not being accurately and timely apprised of what he is up against. The
 character of an action is determined from the issues raised by the complaint, from the nature of the right or grievance asserted,
18
and from the relief sought in the complaint. A change of theory can result in grave alteration of the stand theretofore taken by
the parties, and a court must not thereafter take it upon itself to assume its own position on, or the factual and legal considerations
of, the case.

WHEREFORE, all premises considered, the instant petition is DENIED and the appealed decision is AFFIRMED. No costs.

SO ORDERED.

522 Phil. 133

AZCUNA, J.:
[1] [2]
Challenged in this petition for review on certiorari is the Decision dated February 21, 2001 rendered by the Court of Appeals
[3]
(CA) in CA-G.R. CV No. 60071 setting aside the decision of the Regional Trial Court (RTC) of Pasig City, Branch 266, in Civil
Case No. 64903 entitled "Romeo R. Cucueco vs. Platinum Philippines Inc., Youth Educational Plans, Inc., and Ernesto L. Salas."
[4]
This case is rooted in the complaint filed by respondent Romeo R. Cucueco against petitioners Platinum Philippines Inc., Youth
Educational Plans, Inc., and Ernesto L. Salas for specific performance and damages pursuant to an alleged contract of sale
[5]
executed by them for the purchase of a condominium unit in Valle Verde, Pasig City.
The antecedent facts are as follows:

Plaintiff-appellant [herein respondent] alleged in his complaint that sometime in July 1993, being the lessee and present occupant
of the said condominium unit, he verbally offered to buy the same from the defendants-appellants [herein petitioners], free from
any lien or encumbrance in two(2) installments of P2,000,000.00.

This was made into a formal offer in writing, the salient conditions of which are: (1) Plaintiff-appellant will issue a check for
P100,000.00 as earnest money; (2) Plaintiff will also issue a post-dated check for P1,900,000.00 encashable on 30 September.
1993 on the condition that he will stop paying rental(s) for the said unit after 30 September 1993; and (3) That in case the
defendants-appellants still had an outstanding loan (with the said unit as collateral/security) with the bank of less than
P2,000,000.00, as of 31 December 1993, plaintiff-appellant shall assume the said loan and pay the defendants-appellants the
difference from the remaining P2,000,000.00.

Plaintiff-appellant claims that the defendants-appellants duly accepted his offer- the checks he issued in favor of the defendants-
appellants were accepted and encashed. However, he was surprised to receive a letter from the defendants-appellants where the
due date for the second installment was changed to 23 September 1993. Despite earnest efforts, both parties failed to settle the
said difference amicably. Apparently, the plaintiff-appellant felt he was on the short end of the bargain since he stood to forfeit the
initial P2,000,000.00 he has paid in favor of the defendants-appellants as provided in their agreement. The refusal of the
defendants-appellants to return the said initial payment thus prompted the plaintiff-appellant to file a case for specific
performance of the said sale and claim of damages for the injury he suffered as a result of the defendants-appellants' unjust refusal
to comply with their obligation.

In the main, plaintiff-appellant argued before the lower court that there was a perfected sale between them, as based on the facts
he alleged Based on such perfected sale, plaintiff-appellant maintains that he may validly demand of the defendants-appellants to
execute the necessary deed of sale and other documents transferring ownership and title over the property in his favor.

On the other hand, defendants-appellants denied the substantial allegations of the plaintiff-appellant and asserted during trial that
the plaintiff-appellant has already forfeited his initial downpayment of P2,000,000.00 as based on the terms and conditions agreed
upon, to wit:

1. The terms of payment is only for two installments...payable on 1 August 1993 and the balance payable on 30 September 1993.

2. To ensure performance, (the) parties herein further agreed that in case of non-compliance on the part of the plaintiff, all
installments made shall be forfeited in favor of the defendants;

3. Ownership over subject property is retained by defendants and is not to pass until full payment of the purchase price.

Defendants-appellants counter the plaintiff-appellant's contention, stating they never accepted the plaintiff-appellant's offer to pay
the remaining balance only on 31 December 1993. Their letter of 23 September 1993 undoubtedly contained their non-
acceptance of the plaintiff-appellant's offer. Along with this, they maintain that the very fact that the plaintiff-appellant went to the
defendants-appellants to negotiate the due date of the final payment belies the plaintiff-appellant's assertion that there was any sale
perfected between them. They further submit as evidence the want of consent to the plaintiff-appellant's offer as shown by the
[6]
absence of their signature of conformity on the letter sent to them.
The trial court found that under the circumstances, the essential element of consent to the contract was lacking as indicated by the
failure of the parties to agree on a definite date when full payment of the purchase price should be made by respondent. As a
result, the court ruled against the existence of a perfected contract of sale between the parties and ordered petitioners to return
the Two Million Pesos (P2,000,000) they received from respondent as downpayment for the condominium unit and to likewise
pay respondent interest, moral damages and attorney's fees. For his part, respondent was directed to pay petitioners rentals in
arrears for the use of the unit in the amount of Eighteen Thousand Pesos (P18,000) per month commencing in July 1993.
Unsatisfied, both parties appealed the decision to the CA.

The CA, on the other hand, differed from the conclusion of the trial court and ruled that there was, in this instance, a perfected
 contract of sale despite the fact that the parties never agreed on the date of payment of the remaining balance of the purchase
price. Accordingly, the CA reversed and set aside the judgment of the RTC in its Decision dated February 21, 2001, the
dispositive portion of which reads:

WHEREFORE, premises considered, the judgment of the Regional Trial Court of Pasig City, Branch 226, in Civil Case No.
64903 is hereby REVERSED and SET ASIDE and a new one is RENDERED as follows:

1. Plaintiff-appellant ROMEO R. CUCUECO is hereby ordered to pay the defendants-appellants the balance of the purchase price
in the amount of P2,000,000.00 with 6% interest per annum starting from 21 October 1993 until full payment, for the sale of Unit
17, Block 3, Casa Verde Townhouse, Valle Verde, Pasig City as covered by TCT No. PT-80413 registered with the Registry of
Deeds of Pasig City.

2. Defendants-appellants, PLATINUM PLANS PHILIPPINES, INC. is hereby ordered to execute and deliver the sufficient Deed
of Sale of the said property in favor of said plaintiff-appellant, as well as any other pertinent document necessary for the transfer
of ownership and title of the said property to the plaintiff-appellant, after full payment of the balance purchase price plus interest
has been made by the plaintiff-appellant in their favor.

[7]
SO ORDERED.
Hence, this petition which assigns the following errors:

I.

THE HONORABLE COURT OF APPEALS SERIOUSLY MISAPPREHENDED THE FACTS OF THE CASE AND
GROSSLY MISAPPRECIATED THE EVIDENCE, AND THUS COMMITTED PATENT ERROR WHEN IT RULED
THAT THERE WAS A PERFECTED CONTRACT OF SALE OVER THE SUBJECT PROPERTY.

II.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT FOUND THAT THE PRIVATE
RESPONDENT'S BREACH OF THE CONTRACT WAS NOT SUBSTANTIAL AS TO WARRANT THE RESCISSION
THEREOF.

III.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED AGAINST THE PETITIONERS'
FORFEITURE OF THE PRIVATE RESPONDENT'S 1ST INSTALLMENT.

IV.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED THE DECISION OF THE
REGIONAL TRIAL COURT INSOFAR AS THE TRIAL COURT'S ORDER DIRECTED THE PRIVATE
RESPONDENT TO PAY BACK RENTALS IN THE AMOUNT OF PI 8,000.00 PER MONTH COMMENCING FROM
JULY 1993
The petition has merit.

The primary issue in this case centers upon a determination of the true nature of the agreement of the parties concerning the
condominium unit. In brief, petitioners claim that the parties merely entered into a contract to sell while respondent insists that it
was already a perfected contract of sale. It is therefore critical to ascertain whether the parties intended to enter into a contract of
sale or a contract to sell as these two contracts produce very different effects under the law.

To begin with, a contract of sale is defined under Article 1458 of the Civil Code as follows:

By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its equivalent.
In a contract of sale, the vendor cannot recover ownership of the thing sold until and unless the contract itself is resolved and set
[8]
aside. On this score, it is significant to note that the resolution or rescission of a contract of sale is further circumscribed by
Article 1592 of the Civil Code which provides:

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 a notarial act. After the demand, the
court may not grant him a new term. (Emphasis supplied.)
The demand mentioned above refers to that made, upon the vendee to agree to the resolution of the contract. A party who fails
to invoke judicially or by notarial act the resolution of the contract of sale would be prevented from blocking the consummation
[9]
of the same in light of the precept that mere failure to fulfill that contract does not operate ipso facto as its rescission.

On the other hand, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the
ownership of the subject property despite its delivery to the prospective buyer, commits to sell the property exclusively to the
prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. Full payment in this
context is deemed a positive suspensive condition. It bears stressing that ownership of the property offered for sale is reserved in
the seller and is not to pass to the buyer until such condition has been fulfilled.
As a result, if the party contracting to sell, because of non-compliance with the suspensive condition stipulated, seeks to eject the
[10]
would-be buyer from the land object of the agreement, the former is enforcing the contract and not resolving it. The failure to
[11]
make payment is not a breach of the contract but an event that prevented the obligation to convey the title from materializing.

Based on the foregoing distinctions, a contract to sell may not be considered as a contract of sale because the first essential
element of consent to a transfer of ownership is lacking in the former. Since the prospective seller in a contract to sell explicitly
reserves the transfer of title to the prospective buyer, the prospective seller does not as yet unequivocally agree or consent to a
transfer ownership of the property subject of the contract to sell. On the happening of an event, that is, the full payment of the
purchase price, the obligation then arises to execute a contract of sale that alone will transfer such ownership.

In its decision, the CA characterized the transaction as a straight sale and ruled that the failure of the parties to agree with respect
to the manner of payment did not negate the existence of a perfected contract of sale between them, explaining as follows:

Apparently, the lower court relied upon the time element regarding the payment of the balance of the purchase price. We
consider, however, that first, the object and the total amount of the purchase price has been agreed upon. It was error on the part
of the lower court to consider any form or manner of payment since under the present circumstances, and based upon the Levy
Hermanos' definition of what a sale on installment is, the agreement between the parties to this case would constitute a simple
"straight sale." Such manner of payment as discussed by the lower court, to Our mind, would find pertinent application in the
realm of installment sales. Thus, being a case of straight sale, the manner of payment- which must be construed here as being
made in cash- has no bearing in the present case. The mode of payment is cash and there is no subsequent installment to speak
[12]
of. Being such, the performance of the contract will not necessarily affect the validity of the perfected contract of sale.
[13]
However, the reliance of the CA upon Levy Hermanos, Inc. vs. Gervacio is misplaced because the factual circumstances as well
as the issues raised therein are not on all fours with those in the present case. Levy Hermanos involved a collection suit to recover
the balance of the purchase price in a sale of personal property after the vendee already paid partly in cash and partly on term by
way of a promissory note that was secured with a mortgage over the property. Since the vendee failed to pay the note upon its
maturity, the vendor was constrained to foreclose on the mortgage. The proceeds from the foreclosure sale, however, were
insufficient to discharge the note, prompting the vendor to seek judicial recourse.

In Levy Hermanos, there was no question as to the intent and nature of the agreement entered into by the parties. Clearly, it was
a contract of sale which immediately vested unto the vendee the ownership of the personal property subject of the transaction.
[14]
The issue posed in that case, rather, pertained to the applicability of Article 1454-A of the old Civil Code regarding the right of
the vendor to recover the remaining balance of the purchase price when such vendor has previously exercised the right to
foreclose the subject property. In resolving the issue, this Court delineated the difference between an installment sale and a
"straight" sale and declared that the transaction between the parties in that case was a "straight" sale not falling within the purview of
Section 1454-A of the old Civil Code.

In the present case, it was unnecessary for the CA to distinguish whether the transaction between the parties was an installment
sale or a straight sale. In the first place, there is no valid and enforceable contract to speak of. It was error for the appellate court
to rely upon Article 1482 of the Civil Code in concluding that the earnest money given "would be considered as part of the
[15]
purchase price and proof of the perfection of the contract." This Court has emphasized that it is the proof of the concurrence of
all the essential elements of the contract of sale, and not the giving of earnest money, which establishes the existence of a
[16]
perfected sale.

As correctly pointed out by the trial court, the fact that respondent delivered to petitioners and petitioners accepted part of the
downpayment on the price cannot be considered as proof of the perfection of the contract as they had not agreed on how and
when the balance was to be paid. Respondent admitted as much during his cross-examination on August 12, 1996, to wit:

Court: Do I understand from you that after all in regard to writing, there was no consummated agreement in regards to the terms
and period of payment?

A: None, your Honor.

Court: So there was no definite period when the full payment...

A: No, your honor. There is a definite agreement as to the period of payment, your Honor, but apparently there is a
misunderstanding or both parties alleged different date, that's why...

Court: That's why my question is, there was no definite time frame agreed upon by you and the defendant as to when the last
payment of full payment will be made?

A: Based on my letter...

Court: No, between you ..."yung definite na pinagkasunduan ninyo. Yung proposal n'yo that was rejected by the defendant." My
question is, there was nothing definite in regard to specific date when the full payment may be made, because your proposal was
rejected, isn't it?

A: Yes, your Honor, it was rejected.

Court: Alright, to clarify, what was the date you proposed?

A: December 30, your Honor.

Court: What was the counter date made by the defendant?

A: The last payment, your Honor, they asked me to pay October 19... October 15 and October 31.

xxx

Court: And you did not agree in regard to the dates fixed by defendants?

A: Yes, your Honor, I did not agree.

xxx

Q: Do you recall having gone to the office of defendant corporation on November 4, 1993?

A: Yes, ma'm.

Q: What was the purpose of your visit to the office of defendant corporation?

A: To remind them of my proposal that the balance. I will only pay it on December 30.

Q: Was there any negotiation on the payment of the balance of the purchase price of the unit?

A: They insists (sic) on that I will pay it earlier, ma'm.

Q: But you did not agree to the payment?

A: Yes, ma'm.

Q: Were you not given another period within which you could pay the balance instead of December 30, 1993?

A: They gave me a period earlier than December 30 but I did not accept.

Q: Are you saying that in the negotiation, you just went to tell the defendant corporation that you are not acceeding (sic) to their
proposal of an earlier payment?
.[17]
A: Yes, ma'm (Emphasis supplied.)
Significantly, neither side has been able to produce any written evidence documenting the actual terms of their agreement,
specifically the date of full payment of the purchase price. The evidence adduced during the trial showed that the respective offers
and counter-offers made by the parties were not accepted by the other party. The trial court properly found that there was no
[18]
meeting of the minds in this case considering the acceptance of the offer was not absolute and unconditional. This further
confirmed the absence of the contractual element of consent.
[19]
In a number of cases, this Court has held that before a valid and binding contract of sale can exist, the manner of payment of
the purchase price must first be established. The manner of payment affects the essential validity of the sale notwithstanding that
the object and purchase price may have previously been agreed upon. Although not an express statutory requirement, the minds
[20]
of the parties must meet on the terms or manner of payment of the price, otherwise, there is no sale. An agreement on the
manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on
[21]
the price

Secondly, the reservation of the title in the name of petitioners indicates the intention of the parties to enter, at most, into a
contract to sell. The CA already found that "there was an express stipulation regarding the reservation of title of the property
[22]
made by the seller until full payment of the price agreed upon." Indeed, this finding is supported by the records of this case and
[23]
admitted by respondent himself. Both parties understood that the documents conveying title over the unit shall be executed
only upon completing payment of the purchase price. Otherwise, even prior to the belated tender by respondent of the remaining
balance, he would have demanded that petitioners draw in his favor the necessary deed of absolute sale. Where the seller
promises to execute a deed of absolute sale upon completion of payment of the purchase price by the buyer, the agreement is
unequivocally a contract to sell. [24]

Be that as it may, the intention of the parties to enter into a contract to sell did not effectively translate into an enforceable
[25]
obligation in view of their failure to agree on the contract's actual terms. As in a contract of sale, it is important that there be a
stipulation on the period within which the payment would become due and demandable, the absence of which would justify the
conclusion that there was no consent to the contract proposed.

The Court, in this instance, cannot step in to cure the deficiency by fixing the period of the obligation pursuant to either Article
[26] [27]
1191 [which, incidentally, applies only to contracts of sale] or Article 1197 of the Civil Code. In the first place, respondent did
not pray for this relief when he filed his complaint for specific performance seeking to compel petitioners to receive the balance
of the purchase price and to transfer title of the property in his name. He instead claimed that the parties had previously fixed the
period of the obligation on December 31, 1993.

Secondly, respondent impliedly admits in his pleadings below that he was in default when he tendered payment on August 4,
1994, or almost eight months after the above-stated deadline. Even as he acknowledges that petitioners made several demands
upon him to complete payment, respondent argues that his belated tender of payment was still acceptable considering that
petitioners did not validly rescind by judicial or notarial act their perfected contract. This, however, applies only to a contract of
sale.
[28]
Thirdly, the Court cannot arbitrarily set a period different from the term probably contemplated by the parties. In the present
case, both parties submit that the due date of the final payment had been sometime in 1993; they only differ with respect to the
exact month and day. For this reason, the Court would have no basis for granting to respondent an extension of time within which
to pay his outstanding balance well beyond the contemplated period.

Furthermore, assuming that there was a perfected contract to sell, the Court would not be inclined to interfere with the decision
of petitioners to extra-judicially terminate the operation of their contract. Article 1592 of the Civil Code which requires that prior
demand upon the respondent be made by judicial or notarial act so as to rescind the contract would be inapplicable in this case as
the provision contemplates only contracts of sale. Rather, the contract to sell would be rendered ineffective and without force and
effect by the non-fulfillment of respondent's obligation to pay, which is a suspensive condition to the obligation of petitioners to
[29]
sell and deliver the title to the property. The parties stand as if the conditional obligation had never existed. There can be no
[30]
rescission of an obligation that is still non-existent, the suspensive condition not having as yet occurred.

This is not to say that petitioners can treat the agreement as cancelled without serving notice to respondent of their decision to do
so. The act of a party in treating a contract as cancelled should be made known to the other party because this act is subject to
[31]
scrutiny and review by the courts in case the alleged defaulter brings the matter for judicial determination. This point was
[32]
explained in University of the Philippines v. De Los Angeles, thus:

It is understood that the act of a party in treating a contract as rescinded or cancelled or resolved on account of infractions by the
other contracting party must be made known to the other and is always provisional, being ever subject to the scrutiny and review
by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and
bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted,
the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent
indemnity awarded to the party prejudiced.

In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that
the contracting party who believes itself injured must first file suit and wait for a judgment before taking extra-judicial steps to
protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate
during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that [it] should
exercise due diligence to minimize its own damages.
In the present case, petitioners repeatedly reminded respondent in writing to pay the outstanding balance of the purchase price of
the unit, always with a warning that his failure to do so would result in the cancellation of their agreement and the forfeiture of the
[33]
downpayment already made. Finally, because of respondent's continuing default in his obligation, petitioners served notice of
[34]
their decision to rescind the contract in a letter dated September 23, 1994. Under such circumstances, the cancellation by
petitioners of the purported contract is reasonable and valid. However, the forfeiture of the downpayment is unwarranted as
respondent never acceded to the same.

Considering that the agreement of the parties did not ripen into a binding and enforceable contract meaning it did not acquire any
obligatory force either for the transfer of the ownership of the property or the rendition of payments as part of the purchase price
due to the absence of the essential element of consent, the Court is precluded from finding any cause of action that would warrant
the granting of the reliefs prayed for in respondent's complaint. Accordingly, the initial payment of Two Million Pesos
(P2,000,000) advanced by respondent should be returned by petitioners lest the latter unjustly enrich themselves at the expense of
the former. In the same vein, considering that respondent has been in continuous possession of the subject unit beginning July of
1993, the award of back rentals in favor of petitioners is likewise proper, but the award of moral damages and attorney's fees
should be deleted for lack of sufficient basis.

WHEREFORE, the petition is GRANTED and the assailed Decision dated February 21, 2001 rendered by the Court of
Appeals (CA) in CA-G.R. CV No. 60071 is REVERSED and SET ASIDE. Accordingly, the Decision dated May 18, 1998 of the
Regional Trial Court of Pasig City, Branch 266, in Civil Case No, 64903 is REINSTATED.

However, moral damages and attorney's fees awarded are DELETED for lack of basis.

No costs.

SO ORDERED.