ARTICLE 1189
Also, GL enterprises did not also refute
OSMENA III vs SSS
ARTICLE 1191
Villamar vs. Mangaoil
Ayson-Simson vs. Adamos
Maglasang vs. Northwestern University
FACTS:
In compliance with the CHEDs requirement before a
school could offer maritime transportation programs,
on June 10, 2004, Northwestern University
(Northwestern), respondent, engaged the services of
GL enterprises, petitioner, to install a new Integrated
Bridge System or IBS. The parties executed two
contracts. Two months after the execution of the
contracts, GL Enterprises started delivering
materials. However, when they were installing
the components, Northwestern halted the
operations.GL enterprises requested for an
explanation. Northwestern explained that the
stoppage was because the materials and equipment
were substandard. It explained that the components
(1)were old; (2) did not have manual and warranty
certificates; (3) contained indications of being
reconditioned machines; (4) did not meet with CHED
and IMO standards.GL enterprises file a complaint for
breach of contract. The RTC rendered a decision that
both parties are at fault. However, the CA, found that
GL enterprises was the only at fault, for delivering
defective equipment that materially and substantially
breached the contracts. Applying Article 1191 of the
Civil Code, the CA declared the rescission of the
contracts.
Issue: Whether the CA gravely erred in (1) finding
substantial breach on the part of GL enterprises.
Held: The Supreme Court said that, the CA correctly
applied Article 1191, which provides thus: The power
to rescind obligations is implied in reciprocal ones, in
case of the obligorsshould 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 rescission becomes
impossible. The court shall decree the rescission,
unless there be just cause authorizing the fixing of a
period. The Supreme Court said that the two
contracts require substantial breach. Then, it went
also to cite the definition, in the case of Cannu v.
Galang, that substantial breach are fundamental
breaches that defeat the object of the parties
entering into an agreement, since the law is not
concerned with trifles. In the case at hand, it was
incumbent upon GL enterprises to supply
components that would create an IBS that would
effectively facilitate the learning of the students.
However, it miserably failed it meetings its
responsibility. It supplied substandard equipment
when it delivered components (1) were old; (2) did
not have manual and warranty certificates; (3)
contained indications of being reconditioned
machines; (4) did not meet with CHED and IMO
standards.
that it delivered defective equipment. Evidently, the
materials were not likely to pass the CHED and IMO
standards.
MILA A. REYES , Petitioner, VS. VICTORIA T.
TUPARAN, Respondent.
FACTS:
Mila A. Reyes (petitioner) filed a complaint for
Rescission of Contract with Damages against Victoria
T. Tuparan (respondent) before the RTC.In her
Complaint, petitioner alleged, among others, that she
was the registered owner of a 1,274 square meter
residential and commercial lot located in Karuhatan,
Valenzuela City, and covered by TCT No. V-4130.
Petitioner mortgaged the subject real properties to
the Farmers Savings Bank and Loan Bank, Inc. (FSL
Bank) to secure a loan. Petitioner then decided to sell
her real properties so she could liquidate her bank
loan and finance her businesses. As a gesture of
friendship, respondent verbally offered to
conditionally buy petitioner's real properties.
The parties and FSL Bank executed the corresponding
Deed of Conditional Sale of Real Properties with
Assumption of Mortgage. Due to their close personal
friendship and business relationship, both parties
chose not to reduce into writing the other terms of
their agreement mentioned in paragraph 11 of the
complaint.
Respondent, however, defaulted in the payment of
her obligations on their due dates. Instead of paying
the amounts due in lump sum on their respective
maturity dates, respondent paid petitioner in small
amounts from time to time.
Respondent countered, among others, that the
tripartite agreement erroneously designated by the
petitioner as a Deed of Conditional Sale of Real
Property with Assumption of Mortgage was actually a
pure and absolute contract of sale with a term period.
It could not be considered a conditional sale because
the acquisition of contractual rights and the
performance of the obligation therein did not depend
upon a future and uncertain event.
Respondent further averred that she successfully
rescued the properties from a definite foreclosure by
paying the assumed mortgage plus interest and other
finance charges.
The RTC handed down its decision finding that
respondent failed to pay in full the total purchase
price of the subject real properties. It stated that the
checks and receipts presented by respondent refer to
her payments of the mortgage obligation with FSL
Bank. The RTC also considered the Deed of
Conditional Sale of Real Property with Assumption of
Mortgage executed by and among the two parties
and FSL Bank a contract to sell, and not a contract of
sale.
The CA rendered its decision affirming with
modification the RTC Decision.The CA agreed with the
RTC that the contract entered into by the parties is a
contract to sell but ruled that the remedy of
rescission could not apply because the respondent's
failure to pay the petitioner the balance of the
purchase was not a breach of contract, but merely an
event that prevented the seller (petitioner) from
conveying title to the purchaser (respondent).
ISSUE: Whether the agreement is a contract to sell
and not a contract of sale.
HELD:YES.
CIVIL LAW: Contract to sell versus contract of sale
The Court agrees with the ruling of the courts below
that the subject Deed of Conditional Sale with
Assumption of Mortgage entered into by and among
the two parties and FSL Bank on November 26, 1990
is a contract to sell and not a contract of sale.
The title and ownership of the subject properties
remains with the petitioner until the respondent fully
pays the balance of the purchase price and the
assumed mortgage obligation. Thereafter, FSL Bank
shall then issue the corresponding deed of
cancellation of mortgage and the petitioner shall
execute the corresponding deed of absolute sale in
favor of the respondent.
Accordingly, the petitioner's obligation to sell the
subject properties becomes demandable only upon
the happening of the positive suspensive condition,
which is the respondent's full payment of the
purchase price. Without respondent's full payment,
there can be no breach of contract to speak of
because petitioner has no obligation yet to turn over
the title. Respondent's failure to pay in full the
purchase price is not the breach of contract
contemplated under Article 1191 of the New Civil
Code but rather just an event that prevents the
petitioner from being bound to convey title to the
respondent.
Thus, the Court fully agrees with the CA when it
resolved: "Considering, however, that the Deed of
Conditional Sale was not cancelled by Vendor Reyes
(petitioner) and that out of the total purchase price of
the subject property in the amount of ?4,200,000.00,
the remaining unpaid balance of Tuparan
(respondent) is only ?805,000.00, a substantial
amount of the purchase price has already been
paid.It is only right and just to allow Tuparan to pay
the said unpaid balance of the purchase price to
Reyes."
Granting that a rescission can be permitted under
Article 1191, the Court still cannot allow it for the
reason that, considering the circumstances, there
was only a slight or casual breach in the fulfillment of
the obligation.
Out of the P1,200,000.00 remaining balance,
respondent paid on several dates the first and second
installments of P200,000.00 each. She, however,
failed to pay the third and last installment of
P800,000.00 due on December 31, 1991.
Nevertheless, on August 31, 1992, respondent,
through counsel, offered to pay the amount of
P751,000.00, which was rejected by petitioner for the
reason that the actual balance was P805,000.00
excluding the interest charges.
Considering that out of the total purchase price of
P4,200,000.00, respondent has already paid the
substantial amount of P3,400,000.00, more or less,
leaving an unpaid balance of only P805,000.00, it is
right and just to allow her to settle, within a
reasonable period of time, the balance of the unpaid
purchase price. The Court agrees with the courts
below that the respondent showed her sincerity and
willingness to comply with her obligation when she
offered to pay the petitioner the amount of
P751,000.00.
PETITION DENIED.
PAGTALUNAN VS DELA CRUZ VDA DE MANZANO
FACTS:
This is a petition for review on certiorari under Rule
45 of the Rules of Court of the Court of Appeals (CA)
Decision promulgated on October 30, 2000 and its
Resolution dated March 23, 2001 denying petitioners
motion for reconsideration. The Decision of the CA
affirmed the Decision of the Regional Trial Court (RTC)
of Malolos, Bulacan, dated June 25, 1999 dismissing
the case of unlawful detainer for lack of merit.
On July 19, 1974, Patricio Pagtalunan (Patricio),
petitioners stepfather and predecessor-in-interest,
entered into a Contract to Sell with respondent, wife
of Patricios former mechanic, Teodoro Manzano,
whereby the former agreed to sell, and the latter to
buy, a house and lot which formed half of a parcel of
land, covered by Transfer Certificate of Title (TCT) No.
T-10029 (now TCT No. RT59929 [T-254773]), with an
area of 236 square meters. The consideration of
P17,800 was agreed to be paid in the following
manner: P1,500 as downpayment upon execution of
the Contract to Sell, and the balance to be paid in
equal monthly installments of P150 on or before the
last day of each month until fully paid.
It was also stipulated in the contract that respondent
could immediately occupy the house and lot; that in
case of default in the payment of any of the
installments for 90 days after its due date, the
contract would be automatically rescinded without
need of judicial declaration, and that all payments
made and all improvements done on the premises by
respondent would be considered as rentals for the
use and occupation of the property or payment for
damages suffered, and respondent was obliged to
peacefully vacate the premises and deliver the
possession thereof to the vendor.
Petitioner claimed that respondent paid only P12,950.
She allegedly stopped paying after December 1979
without any justification or explanation. Moreover, in
a Kasunduan dated November 18, 1979, respondent
borrowed P3,000 from Patricio payable in one year
either in one lump sum payment or by installments,
failing which the balance of the loan would be added
to the principal subject of the monthly amortizations
on the land.
Lastly, petitioner asserted that when respondent
ceased paying her installments, her status of buyer
was automatically transformed to that of a lessee.
Therefore, she continued to possess the property by
mere tolerance of Patricio and, subsequently, of
petitioner.
On the other hand, respondent alleged that she paid
her monthly installments religiously, until sometime
in 1980 when Patricio changed his mind and offered
to refund all her payments provided she would
surrender the house. She refused. Patricio then
started harassing her and began demolishing the
house portion by portion. Respondent admitted that
she failed to pay some installments after December
1979, but that she resumed paying in 1980 until her
balance dwindled to P5,650. She claimed that despite
several months of delay in payment, Patricio never
sued for ejectment and even accepted her late
payments.
Respondent also averred that on September 14,
1981, she and Patricio signed an agreement whereby
he consented to the suspension of respondents
monthly payments until December 1981. However,
even before the lapse of said period, Patricio resumed
demolishing respondents house, prompting her to
lodge a complaint with the Barangay Captain who
advised her that she could continue suspending
payment even beyond December 31, 1981 until
Patricio returned all the materials he took from her
house. This Patricio failed to do until his death.
Respondent did not deny that she still owed Patricio
P5,650, but claimed that she did not resume paying
her monthly installment because of the unlawful acts
committed by Patricio, as well as the filing of the
ejectment case against her. She denied having any
knowledge of the Kasunduan of November 18, 1979.
Patricio and his wife died on September 17, 1992 and
on October 17, 1994, respectively. Petitioner became
their sole successor-in-interest pursuant to a waiver
by the other heirs. On March 5, 1997, respondent
received a letter from petitioners counsel dated
February 24, 1997 demanding that she vacate the
premises within five days on the ground that her
possession had become unlawful. Respondent
ignored the demand. The Punong Barangay failed to
settle the dispute amicably.
On April 8, 1997, petitioner filed a Complaint for
unlawful detainer against respondent with the
Municipal Trial Court (MTC) of Guiguinto, Bulacan
praying that, after hearing, judgment be rendered
ordering respondent to immediately vacate the
subject property and surrender it to petitioner;
forfeiting the amount of P12,950 in favor of petitioner
as rentals; ordering respondent to pay petitioner the
amount of P3,000 under the Kasunduan and the
amount of P500 per month from January 1980 until
she vacates the property, and to pay petitioner
attorneys fees and the costs.
Petitioners contentions:
1. Respondent Dela Cruz must bear the
consequences of her deliberate withholding of, and
refusal to pay, the monthly payment. The Court of
Appeals erred in allowing Dela Cruz who acted in bad
faith from benefiting under the Maceda Law.
2. The Court of Appeals erred in resolving the issue
on the applicability of the Maceda Law, which issue
was not raised in the proceedings a quo.
3. Assuming arguendo that the RTC was correct in
ruling that the MTC has no jurisdiction over a
rescission case, the Court of Appeals erred in not
remanding the case to the RTC for trial.
4. Petitioner submits that the Maceda Law supports
and recognizes the right of vendors of real estate to
cancel the sale outside of court, without need for a
judicial declaration of rescission, citing Luzon
Brokerage Co., Inc., v. Maritime Building Co., Inc.
5. Petitioner contends that respondent also had more
than the grace periods provided under the Maceda
Law within which to pay. Respondent was given more
than six months from January 1980 within which to
settle her unpaid installments, but she failed to do so.
Petitioners demand to vacate was sent to respondent
in February 1997.
6. Petitioner asserts there is nothing in the Maceda
Law which gives the buyer a right to pay arrearages
after the grace periods have lapsed, in the event of
an invalid demand for rescission. The Maceda Law
only provides that actual cancellation shall take place
after 30 days from receipt of the notice of
cancellation or demand for rescission and upon full
payment of the cash surrender value to the buyer.
7. Petitioner contends that his demand letter dated
February 24, 1997 should be considered the notice of
cancellation since the demand letter informed
respondent that she had long ceased to have any
right to possess the premises in question due to [her]
failure to pay without justifiable cause. In support of
his contention, he cited Layug v. Intermediate
Appellate Court[8] which held that the additional
formality of a demand on [the sellers] part for
rescission by notarial act would appear, in the
premises, to be merely circuitous and consequently
superfluous. He stated that in Layug, the seller
already made a written demand upon the buyer.
8. Petitioner asserts that whatever cash surrender
value respondent is entitled to have been applied
and must be applied to rentals for her use of the
house and lot after December, 1979 or after she
stopped payment of her installments.
9. Petitioner argues that assuming Patricio accepted
respondents delayed installments in 1981, such act
cannot prevent the cancellation of the Contract to
Sell. Installments after 1981 were still unpaid and the
applicable grace periods under the Maceda Law on
the unpaid installments have long lapsed.
Respondent cannot be allowed to hide behind the
Maceda Law. She acted with bad faith and must bear
the consequences of her deliberate withholding of
and refusal to make the monthly payments.
10. Petitioner also contends that the applicability of
the Maceda Law was never raised in the proceedings
below; hence, it should not have been applied by the
CA in resolving the case.
ISSUE:
HELD:
MTCs ruling:
On December 22, 1998, the MTC rendered a decision
in favor of petitioner. It stated that although the
Contract to Sell provides for a rescission of the
agreement upon failure of the vendee to pay any
installment, what the contract actually allows is
properly termed a resolution under Art. 1191 of the
Civil Code.
The MTC held that respondents failure to pay not a
few installments caused the resolution or termination
of the Contract to Sell. The last payment made by
respondent was on January 9, 1980. Thereafter,
respondents right of possession ipso facto ceased to
be a legal right, and became possession by mere
tolerance of Patricio and his successors-in-interest.
Said tolerance ceased upon demand on respondent
to vacate the property.
RTCs ruling:
On appeal, the RTC of Malolos, Bulacan, in a
Decision dated June 25, 1999, reversed the decision
of the MTC and dismissed the case for lack of merit.
According to the RTC, the agreement could not be
automatically rescinded since there was delivery to
the buyer. A judicial determination of rescission must
be secured by petitioner as a condition precedent to
convert the possession de facto of respondent from
lawful to unlawful.
The motion for reconsideration and motion
for execution filed by petitioner were denied by the
RTC for lack of merit in an Order dated August 10,
1999.
Court of Appeals ruling:
In a Decision promulgated on October 30,
2000, the CA denied the petition and affirmed the
Decision of the RTC.
The CA found that the parties, as well as the MTC and
RTC failed to advert to and to apply Republic Act
(R.A.) No. 6552, more commonly referred to as the
Maceda Law, which is a special law enacted in 1972
to protect buyers of real estate on installment
payments against onerous and oppressive conditions.
The CA held that the Contract to Sell was not validly
cancelled or rescinded under Sec. 3 (b) of R.A. No.
6552, and recognized respondents right to continue
occupying unmolested the property subject of the
contract to sell.
The CA denied petitioners motion for reconsideration
in a Resolution dated March 23, 2001.
Supreme Courts ruling:
The Court is not persuaded (by petioners
contentions).
The Decision of the Court of Appeals dated October
30, 2000 sustaining the dismissal of the unlawful
detainer case by the RTC is AFFIRMED with the
following MODIFICATIONS:
1. Respondent Rufina Dela Cruz Vda. de
Manzano shall pay petitioner Manuel C. Pagtalunan
the balance of the purchase price in the amount of
Five Thousand Five Hundred Pesos (P5,500) plus
interest at 6% per annum from April 8, 1997 up to the
finality of this judgment, and thereafter, at the rate of
12% per annum;
2. Upon payment, petitioner Manuel C.
Pagtalunan shall execute a Deed of Absolute Sale of
the subject property and deliver the certificate of title
in favor of respondent Rufina Dela Cruz Vda. de
Manzano; and
3. In case of failure to pay within 60 days from finality
of this Decision, respondent Rufina Dela Cruz Vda. de
Manzano shall immediately vacate the premises
without need of further demand, and the
downpayment and installment payments of P12,300
paid by her shall constitute rental for the subject
property.
The CA correctly ruled that R.A No. 6552, which
governs sales of real estate on installment, is
applicable in the resolution of this case
This case originated as an action for unlawful
detainer. Respondent is alleged to be illegally
withholding possession of the subject property after
the termination of the Contract to Sell between
Patricio and respondent. It is, therefore, incumbent
upon petitioner to prove that the Contract to Sell had
been cancelled in accordance with R.A. No. 6552.
R.A. No. 6552 recognizes in conditional sales of all
kinds of real estate the right of the seller to cancel
the contract upon non-payment of an installment by
the buyer, which is simply an event that prevents the
obligation of the vendor to convey title from
acquiring binding force. The Court agrees with
petitioner that the cancellation of the Contract to Sell
may be done outside the court particularly when the
buyer agrees to such cancellation. However, the
cancellation of the contract by the seller must be in
accordance with Sec. 3 (b) of R.A. No. 6552, which
requires a notarial act of rescission and the refund to
the buyer of the full payment of the cash surrender
value of the payments on the property. Actual
cancellation of the contract takes place after 30 days
from receipt by the buyer of the notice of
cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of
the cash surrender value to the buyer.
Based on the records of the case, the Contract to Sell
was not validly cancelled or rescinded under Sec. 3
(b) of R.A. No. 6552. First, Patricio, the vendor in the
Contract to Sell, died on September 17, 1992 without
canceling the Contract to Sell. Second, petitioner also
failed to cancel the Contract to Sell in accordance
with law.
2. Petitioner contends that he has complied with the
requirements of cancellation under Sec. 3 (b) of R.A.
No. 6552. He asserts that his demand letter dated
February 24, 1997 should be considered as the notice
of cancellation or demand for rescission by notarial
act and that the cash surrender value of the
payments on the property has been applied to rentals
for the use of the house and lot after respondent
stopped payment after January 1980.
The Court, however, finds that the letter dated
February 24, 1997, which was written by petitioners
counsel, merely made formal demand upon
respondent to vacate the premises in question within
five days from receipt thereof since she had long
ceased to have any right to possess the premises x x
x due to [her] failure to pay without justifiable cause
the installment payments x x x.
Clearly, the demand letter is not the same as the
notice of cancellation or demand for rescission by a
notarial act required by R.A No. 6552. Petitioner
cannot rely on Layug v. Intermediate Appellate Court
to support his contention that the demand letter was
sufficient compliance. Layug held that the additional
formality of a demand on [the sellers] part for
rescission by notarial act would appear, in the
premises, to be merely circuitous and consequently
superfluous since the seller therein filed an action for
annulment of contract, which is a kindred concept of
rescission by notarial act. Evidently, the case of
unlawful detainer filed by petitioner does not exempt
him from complying with the said requirement.
3. Petitioner cannot insist on compliance with the
requirement by assuming that the cash surrender
value payable to the buyer had been applied to
rentals of the property after respondent failed to pay
the installments due.
Sec. 3 (b) of R.A. No. 6552 requires refund of the cash
surrender value of the payments on the property to
the buyer before cancellation of the contract. The
provision does not provide a different requirement for
contracts to sell which allow possession of the
property by the buyer upon execution of the contract
like the instant case.
4. There being no valid cancellation of the Contract to
Sell, the CA correctly recognized respondents right to
continue occupying the property subject of the
Contract to Sell and affirmed the dismissal of the
unlawful detainer case by the RTC.
5. The Court notes that this case has been pending
for more than ten years. Both parties prayed for
other reliefs that are just and equitable under the
premises. Hence, the rights of the parties over the
subject property shall be resolved to finally dispose of
that issue in this case.
Considering that the Contract to Sell was not
cancelled by the vendor, Patricio, during his lifetime
or by petitioner in accordance with R.A. No. 6552
when petitioner filed this case of unlawful detainer
after 22 years of continuous possession of the
property by respondent who has paid the substantial
amount of P12,300 out of the purchase price
ofP17,800, the Court agrees with the CA that it is only
right and just to allow respondent to pay her arrears
and settle the balance of the purchase price.
For respondents delay in the payment of the
installments, the Court, in its discretion, and applying
Article 2209 of the Civil Code, may award interest at
the rate of 6% per annum on the unpaid balance
considering that there is no stipulation in the
Contract to Sell for such interest. For purposes of
computing the legal interest, the reckoning period
should be the filing of the complaint for unlawful
detainer on April 8, 1997.
Based on respondents evidence of payments made,
the MTC found that respondent paid a total of
P12,300 out of the purchase price of P17,800. Hence,
respondent still has a balance of P5,500, plus legal
interest at the rate of 6% per annum on the unpaid
balance starting April 8, 1997.
6. The third issue is disregarded since petitioner
assails an inexistent ruling of the RTC on the lack of
jurisdiction of the MTC over a rescission case when
the instant case he filed is for unlawful detainer.
ISAIAS F. FABRIGAS AND MARCELINA R.
FABRIGAS VS. SAN FRANCISCO DEL MONTE,
INC.
FACTS:
Spouses Fabrigas(petitioner) and respondent San
francisco Del Monte, Inc.(Del Monte) entered into an
agreement, denominated as Contract to Sell No.
2482-V, whereby the latter agreed to sell to Spouses
Fabrigas a parcel of residential land. The said lot was
worth P109,200.00 and it was registered in the name
of respondent Del Monte. The agreement stipulated
that Spouses Fabrigas shall pay P30,000.00 as
downpayment and the balance within ten years in
monthly successive installments of P1,285.69.
After paying P30,000.00, Spouses Fabrigas took
possession of the property but failed to make any
installment payments on the balance of the purchase
price. Despite the demand letter made by Del Monte
and the grace period given still the said Spouses did
not comply with their obligations.
On January 21, 1985, petitioner Marcelina and Del
Monte entered into another agreement denominated
as Contract to Sell No. 2941-V, covering the same
property but under restructed terms of payment.
Under the second contract, the parties agreed on a
new purchase price of P131,642.58, the amount of
P26,328.52 as downpayment and the balance to be
paid in monthly installments of P2,984.60 each.
After the said deal, the petitioner made some
delinquent installments paying less than the stated
amount, to which Del Monte made a demand letter to
the petitioners. And this time they ordered the
cancellation of the Contract to Sell No. 2941-V
ISSUE: Whether or not the Contract to Sell No. 2941-V
was valid.
HELD: The Court quotes with approval the following
factual observations of the trial court, which cannot
be disturbed in this case, to wit:
The Court notes that defendant, Marcelina Fabrigas,
although she had to signcontract No. 2491-V, to avoid
forfeiture of her downpayment, and her other
monthly amortizations, was entirely free to refuse to
accept the newcontract. There was no clear case of
intimidation or threat on the part of plaintiff in
offering the new contract to her. At most, since she
was of sufficient intelligence to discern the
agreement she is entering into, her signing
of Contract No. 2491-V is taken to be valid and
binding. The fact that she has paid monthly
amortizations subsequent to the execution
of Contractto Sell No. 2491-V, is an indication that
she had recognized the validity of such contract. . . .
In sum, Contract to Sell No. 2491-V is valid and
binding. There is nothing to prevent respondent Del
Monte from enforcing its contractual stipulations and
pursuing the proper court action to hold petitioners
liable for their breach thereof.
COMMUNITIES CAGAYAN, INC., vs. SPOUSES
ARSENIO (Deceased) and ANGELES NANOL AND
ANYBODY CLAIMING RIGHTS UNDER THEM
COMMUNITIES CAGAYAN, INC.,
vs.
SPOUSES ARSENIO (Deceased) and ANGELES
NANOL AND ANYBODY CLAIMING RIGHTS
UNDER THEM
Facts:
Sometime in 1994, respondent-spouses
Arsenio and Angeles Nanol entered into a Contract to
Sell with petitioner Communities Cagayan, Inc.,
(CCI) whereby the latter agreed to sell to respondent-
spouses a house and Lots 17 and 19 located at Block
16, Camella Homes Subdivision, Cagayan de Oro
City, for the price of P368,000.00 (P368T). They
obtained a loan from Capitol Development Bank
(CDB), using the property as collateral. To facilitate
the loan, a simulated sale over the property was
executed by petitioner in favor of respondent-
spouses. Accordingly, titles (TCT Nos. 105202 and
105203) were transferred in the names of
respondent-spouses and submitted to CDB for loan
processing. The bank collapsed and closed before it
could release the loan.
On November 30, 1997, respondent-spouses
entered into another Contract to Sell with petitioner
over the same property for the same price. This time,
they availed of petitioners in-house financing thus,
undertaking to pay the loan over four years, from
1997 to 2001.
Respondent Arsenio demolished the original
house and constructed a three-story house allegedly
valued at P3.5 million, more or less. (Respondent
Arsenio died, leaving his wife, herein respondent
Angeles, to pay for the monthly amortizations.)
On September 10, 2003, petitioner sent
respondent-spouses a notarized Notice of
Delinquency and Cancellation of Contract to Sell due
to the latters failure to pay the monthly
amortizations. Petitioner filed before the Municipal
Trial Court in Cities, an action for unlawful detainer
against respondent-spouses.
In her Answer, respondent Angeles averred
that the Deed of Absolute Sale is valid.
Issues
1) Whether petitioner is obliged to refund to
respondent-spouses all the monthly installments
paid; and
2) Whether petitioner is obliged to reimburse
respondent-spouses the value of the new house
minus the cost of the original house.
Ruling
The petition is partly meritorious.
Respondent-spouses are entitled to the cash
surrender value of the payments
on the property equivalent to 50% of the total
payments made under the Maceda Law.
Respondent-spouses are entitled
to reimbursement of the improvements
made on the property.
In view of the special circumstances obtaining
in this case, we are constrained to rely on the
presumption of good faith on the part of the
respondent-spouses which the petitioner failed to
rebut. Thus, respondent-spouses being presumed
builders in good faith, we now rule on the
applicability of Article 448 of the Civil Code. Article
448 on builders in good faith does not apply where
there is a contractual relation between the
parties, such as in the instant case. We went over the
records of this case and we note that the parties
failed to attach a copy of the Contract to Sell. As
such, we are constrained to apply Article 448 of the
Civil Code, which provides viz:
ART. 448. The owner of the land on which anything
has been built, sown or planted in good faith, shall
have the right to appropriate as his own the works,
sowing or planting, after payment of the indemnity
provided for in Articles 546 and 548, or to oblige the
one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However,
the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the
building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not
choose to appropriate the building or trees after
proper indemnity. The parties shall agree upon the
terms of the lease and in case of disagreement, the
court shall fix the terms thereof.
The rule that the choice under Article 448 of
the Civil Code belongs to the owner of the land is in
accord with the principle of accession, i.e., that the
accessory follows the principal and not the other way
around. Even as the option lies with the landowner,
the grant to him, nevertheless, is preclusive. The
landowner cannot refuse to exercise either option
and compel instead the owner of the building to
remove it from the land. The raison detre for this
provision has been enunciated thus: Where the
builder, planter or sower has acted in good faith, a
conflict of rights arises between the owners, and it
becomes necessary to protect the owner of the
improvements without causing injustice to the owner
of the land. In view of the impracticability of creating
a state of forced co-ownership, the law has provided
a just solution by giving the owner of the land the
option to acquire the improvements after payment of
the proper indemnity, or to oblige the builder or
planter to pay for the land and the sower the proper
rent. He cannot refuse to exercise either option. It is
the owner of the land who is authorized to exercise
the option, because his right is older, and because,
by the principle of accession, he is entitled to the
ownership of the accessory thing.
In conformity with the foregoing
pronouncement, we hold that petitioner, as
landowner, has two options. It may appropriate the
new house by reimbursing respondent Angeles the
current market value thereof minus the cost of the
old house. Under this option, respondent Angeles
would have "a right of retention which negates the
obligation to pay rent." In the alternative, petitioner
may sell the lots to respondent Angeles at a price
equivalent to the current fair value thereof. However,
if the value of the lots is considerably more than the
value of the improvement, respondent Angeles
cannot be compelled to purchase the lots. She can
only be obliged to pay petitioner reasonable rent.