NATURE AND FORM OF THE CONTRACT (ART.

1458-1488)

RECTO LAW AND MACEDA LAW

Jirah Grace M. Chee

GARCIA VS. COURT OF APPEALS

April 23, 2010

Facts:

On May 28, 1993, plaintiffs spouses Faustino and Josefina Garcia and spouses
Meliton and Helen Galvez (herein appellees) and defendant Emerlita dela Cruz (herein
appellant) entered into a Contract to Sell wherein the latter agreed to sell to the former,
for Three Million One Hundred Seventy Thousand Two Hundred Twenty
(P3,170,220.00) Pesos, five (5) parcels of land situated at Tanza, Cavite.

As agreed upon, plaintiffs shall make a down payment of Five Hundred Thousand
(P500,000.00) Pesos upon signing of the contract. The balance of Two Million Six
Hundred Seventy Thousand Two Hundred Twenty (P2,670,220.00) Pesos shall be paid in
three installments, viz: Five Hundred Thousand (P500,000.00) Pesos on June 30, 1993;
Five Hundred Thousand (P500,000.00) Pesos on August 30, 1993; One Million Six
Hundred Seventy Thousand Two Hundred Twenty (P1,670,220.00) Pesos on December
31, 1993.

On its due date, December 31, 1993, plaintiffs failed to pay the last installment in
the amount of One Million Six Hundred Seventy Thousand Two Hundred Twenty
(P1,670,220.00) Pesos.Sometime in July 1995, plaintiffs offered to pay the unpaid
balance, which had already been delayed by one and [a] half year, which defendant
refused to accept. On September 23, 1995, defendant sold the same parcels of land to
intervenor Diogenes G. Bartolome for Seven Million Seven Hundred Ninety Three
Thousand (P7,793,000.00) Pesos.

In order to compel defendant to accept plaintiffs payment in full satisfaction of

the purchase price and, thereafter, execute the necessary document of transfer in their
favor, plaintiffs filed before the RTC a complaint for specific performance.

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

Issue:

(1) Whether Dela Cruz should be obliged to execute a Deed of Absolute Sale in favor of Garcia.

(2) Whether the trial court erred in applying R.A. 6552, or the Maceda Law, to the present case.
Held:

(1) Contracts are law between the parties, and they are bound by its stipulations. It is clear
from the above-quoted provisions that the parties intended their agreement to be a Contract to
Sell: Dela Cruz retains ownership of the subject lands and does not have the obligation to
execute a Deed of Absolute Sale until petitioners payment of the full purchase price.

Payment of the price is a positive suspensive condition, failure of which is not a breach
but an event that prevents the obligation of the vendor to convey title from becoming
effective. Strictly speaking, there can be no rescission or resolution of an obligation that is still
non-existent due to the non-happening of the suspensive condition. 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.

(2) 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, 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 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 Cruzs alleged failure to
give an effective notice of cancellation or demand for rescission because Dela Cruz merely sent
the notice to the address supplied by petitioners in the Contract to Sell.
 LUZON DEVELOPMENT BANK v. ANGELES CATHERINE ENRIQUEZ

G.R. No. 168646

January 12, 2011

FACTS:

Delta Development and Management Services (Delta) entered into a loan with Luzon
Development Bank (Bank), secured by a Real Estate Mortgage. The Real Estate Mortgage was
amended to include a bigger sum loaned from the bank. The proceeds of the loan were applied to
Delta project of developing a subdivision. It subsequently entered into a contract to sell with
Angeles Enriquez (Enriquez) over one of the subdivision lots. Enriquez was able to pay around
half of the value of the property. Subsequently, Delta was unable to pay for the loan it took with
the bank, but instead of letting the bank foreclose on the mortgaged properties, it entered into a
dacionen pago (dation in payment) where it turned over property to the bank. The property
subject to the contract to sell with Enriquez was included in the dation. Enriquez protested the
transaction through the regional office of the HLURB. She is asking for a refund of the purchase
price pointing out that, the agreed upon amount exceeded the limit prescribed by PD 957, or The
Subdivision and Condominium Buyer Protective Decree, and that the mortgage Delta entered
into was invalid per PD 957.

The HLURB ruled in favor of Enriquez, but did not approve a refund. Instead, it reduced
the balance due for the property. Delta appealed the ruling, and was able to get a better ruling
from the commissioner. The Office of the President affirmed the ruling. However, when
Enriquez appealed to the Court of Appeals, the CA invalidated the dation, saying that Delta lost
ownership over the property of Enriquez and could not have validly conveyed the same. Delta
and the Bank come before the Supreme Court to question the ruling. The Bank is also asking for
the liability of Delta if it loses one of the properties to Enriquez.

ISSUES:

(1) Whether the Contract to Sell conveys ownership;

 (2) Whether the dacion en pago extinguished the loan obligation, such that DELTA has no
more obligations to the Bank

HELD:

(1) No. A contract to sell is one where the prospective seller reserves the transfer of title
to the prospective buyer until the happening of an event, such as full payment of the purchase
price. What the seller obliges himself to do is to sell the subject property only when the entire
amount of the purchase price has already been delivered to him. In other words, the full payment
of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents
the obligation to sell from arising and thus, ownership is retained by the prospective seller
without further remedies by the prospective buyer. It does not, by itself, transfer ownership to
the buyer.

In the instant case, there is nothing in the provisions of the contract entered into by
DELTA and Enriquez that would exempt it from the general definition of a contract to sell. The
terms thereof provide for the reservation of DELTAs ownership until full payment of the
purchase price; such that DELTA even reserved the right to unilaterally void the contract should
Enriquez fail to pay three successive monthly amortizations.

(2) Like in all contracts, the intention of the parties to the dation in payment is paramount
and controlling. The contractual intention determines whether the property subject of the dation
will be considered as the full equivalent of the debt and will therefore serve as full satisfaction
for the debt. The dation in payment extinguishes the obligation to the extent of the value of the
thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by
agreement, express or implied, or by their silence, consider the thing as equivalent to the
obligation, in which case the obligation is totally extinguished.

In the case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a
clear intention by the parties that the assigned properties would serve as full payment for
DELTAs entire obligation.
 DOLORITA C. BEATINGO v. LILIA BU GASIS

February 9, 2011

FACTS:

Petitioner Dolorita Beatingo bought a piece of land, denominated as Lot No. 7219 from
Flora G. Gasis on May 19, 1998. Petitioner went to the Register of Deeds to have the sale
registered. She, however, failed to obtain registration as she could not produce the owners
duplicate certificate of title. She, thus, filed a petition for the issuance of the owners duplicate
certificate of title but was opposed by respondent Lilia Bu Gasis, claiming that she was in
possession of the Original Certificate of Title (OCT) as she purchased the subject property from
Flora on January 27, 1999.

Petitioner filed a Complaint for Annulment and Cancellation of Sale, Reconveyance,

Delivery of Title and Damages against respondent before the Regional Trial Court. Respondent
claimed that she purchased the subject property from Flora without knowledge of the prior sale
of the same subject property to petitioner, which makes her an innocent purchaser for value.

The RTC considered the controversy as one of double sale and since the two sales that
of petitioner and that of respondent were not registered with the Registry of Property, the RTC
held that whoever was in possession had the better right. Hence, it decided in favor of
respondent.

Admittedly, the two sales were not registered with the Registry of Property. Since there
was no inscription, the next question is who, between petitioner and respondent, first took
possession of the subject property in good faith. As aptly held by the trial court, it was
respondent who took possession of the subject property and, therefore, has a better right.

Petitioner insists that, upon the execution of the public instrument (the notarized deed of
sale), she already acquired possession thereof, and thus, considering that the execution thereof
took place ahead of the actual possession by respondent of the subject property, she has a better
right.
ISSUE: Whether upon the execution of the public instrument (the notarized deed of sale),
petitioner already acquired possession.

HELD:

No. Indeed, the execution of a public instrument shall be equivalent to the delivery of the
thing that is the object of the contract. However, the Court has held that the execution of a public
instrument gives rise only to a prima facie presumption of delivery. It is deemed negated by the
failure of the vendee to take actual possession of the land sold.

In this case, though the sale was evidenced by a notarized deed of sale, petitioner
admitted that she refused to make full payment on the subject property and take actual
possession thereof because of the presence of tenants on the subject property. Clearly, petitioner
had not taken possession of the subject property or exercised acts of dominion over it despite her
assertion that she was the lawful owner thereof.

Respondent, on the other hand, showed that she purchased the subject property without
knowledge that it had been earlier sold by Flora to petitioner. She had reason to believe that there
was no defect in her title since the owners duplicate copy of the OCT was delivered to her by the
seller upon full payment of the purchase price. She then took possession of the subject property
and exercised acts of ownership by collecting rentals from the tenants who were occupying it.

COMMUNITIES CAGAYAN, INC. vs. NANOL

November 14 , 2012

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 and that
shes entitled to the cash surrender value of the payments
on the property equivalent to 50% of the total payments made under the Maceda Law.

Issues: Whether 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.

Held:
Yes. 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. In this
connection, we deem it necessary to point out that, under the Maceda Law, the actual
cancellation of a contract to sell takes place after 30 days from receipt by the buyer of the
notarized notice of cancellation, and upon full payment of the cash surrender value to the buyer.
In other words, before a contract to sell can be validly and effectively cancelled, the seller has (1)
to send a notarized notice of cancellation to the buyer and (2) to refund the cash surrender value.
Until and unless the seller complies with these twin mandatory requirements, the contract to sell
between the parties remains valid and subsisting. Thus, the buyer has the right to continue
occupying the property subject of the contract to sell, and may still reinstate the contract by
updating the account during the grace period and before the actual cancellation of the contract.

ROMAN CATHOLIC CHURCH VS. REGINO PANTE

April 11, 2012

FACTS:
The Roman Catholic Church, represented by the Archbishop of Caceres sold a 32-square
meter lot to the respondent Regino Pante, who in the belief of the Church as an actual occupant
of the lot. Terms fixed at a purchase price of P 11,200, a down payment P 1,120 and a balance
payable in three years. Subsequently, the Church sold a lot to the spouses Rubi, which included
the lot that was previously sold to the respondent Pante. Then, the spouses Rubi erected a fence
along the lot, including the lot of Pante, which blocked the access of Pante from their family
home to the municipal road. Pante instituted an action before the RTC to annul the sale between
the Church and spouses Rubi.

The Church contended that Pante misrepresented that they were the actual occupant of
the said lot. Also, the sale was a mistake that would constitute a voidable contract because Pante
made them believe that he was a qualified occupant and Pante was aware that they sell lots only
to those occupants and residents. Pante averred that they were using it as passageway from his
family home to the road, which signifies that he is really using the actual lot.

The RTC ruled in favor to the Church, for it was a misrepresentation of Pante and he
delayed in the payment of the lot for he only consigned the balance with the RTC after the
church refused to accept the payments.

Then, the respondent Pante appealed to the appellate court, which reversed the decision
of the RTC and granted the annulment of the sale. Thus, a petition by the Church was brought
before the certiorari.

ISSUE: Whether or not the sale was a voidable contract.

HELD:

No. the Supreme Court ruled that there were no misrepresentation made that would
vitiate the consent and render the contract as voidable. As consent as one of the essential
requisites of a valid contract and such consent should be free, voluntary, willful and a reasonable
understanding of the various obligations that the parties have assumed for themselves. However
if consent is given through mistake, violence, intimidation, undue influence and fraud, it would
render a contract voidable. On Article 1331 of the Civil Code, mistake could only render a
contract voidable if the following requisites concur: 1. the mistake must be either with regard to
the identity or with regard to the qualification of one of the contracting parties; and 2. the identity
or qualification must have been the principal consideration for the celebration of the contract.

In this case, there is no mistake as to the qualifications as to the policy of the Church on
selling only for those who are occupants and residents, for neither Pante nor spouses Rubi would
qualify as residents of the said 32-square meter lot, as none of them had occupied or resided on
the lot. The lot is a passageway for the respondent Pante, thus it is considered as his RIGHT OF
WAY.
Also, records show that the Parish Priest was aware that Parte was not an actual occupant and
still he allowed the sale to Pante. So, the Church cannot by any means contend that the Church
was misled by the act of Pante, that there was vitiation of consent on the said sale.

In Article 1390 of the Civil Code declares that voidable contracts are binding, unless
annulled by a proper court action. From the time the sale to Pante was made and up until it sold
the subject property to the spouses Rubi, the Church made no move to reject the contract with
Pante; it did not even return the down payment he paid. The Churchs bad faith in selling the lot
to Rubi without annulling its contract with Pante negates its claim for damages.

There was no vitiation of consent; therefore, the contract between the Church and Pante
stands valid and existing. The delay of Pante in paying the full price could not nullify the
contract, since it was a contract of sale (as correctly observed by the CA). In the terms of the
contract, it did not stipulate that the Church will retain ownership until full payment of the price.
The right to repurchase given to the Church if ever Pante fails to pay within the grace period
provided would have been unnecessary had ownership not already passed to Pante.