ELISCO TOOL MANUFACTURING

Vs.
COURT OF APPEALS, ROLANDO
LANTAN
G.R. No. 109966
May 31, 1999

2. No.
AND

RINA

FACTS:
Private respondent Rolando Lantan was employed at the
Elisco Tool Mfg. Corp. On Jan. 1980, he entered into a
car plan with the company, which constitutes a lease
with option to buy for a period of 5 years. The agreement
provides that Lantan shall pay a monthly rental of P
1010.65 to be deducted from his salary or a total of P60,
639.00 at the end of 5 years. The agreement provides
that at the 60th month of payment he may exercise his
option to buy and all monthly rentals shall be applied to
the payment of the full purchase price of the car. In 1981
Elisco Tool ceased operations, and Rolando Lantan was
laid off. Nonetheless, as of December 4, 1984, private
respondent was able to make payments for the car in the
total amount of P61, 070.94.
On 1986 Elisco filed a complaint for replevin plus sum of
money against Rolando Lantan for the latters alleged
failure to pay the monthly rentals as of May 1986. Elisco
prayed for the following:
1. The payment of Lantan of the sum of the monthly
rentals due as of May 1986 plus legal interest;
2. The issuance of writ of replevin to gain possession of
the car; and
3. On the alternative, should the delivery of the car not
be possible, that Lantan be ordered to pay the actual
value of the car in the amount of 60,000 plus the
accrued monthly rentals thereof with interest until fully
paid. Both the trial court and the CA decided in favor of
Lantan, declaring the latter the lawful owner of the car
and sentencing Elisco to pay for actual damages caused
to the private respondents, thus this petition.
ISSUE:
WON the lease with option to buy is in reality an
installment sale so as to apply the Recto Law under Art.
1484.
WON Elisco is entitled to any of the remedies under Art.
1484.
HELD
1. Yes.
The agreement between Elisco and the Lantans is in
reality an installment sale of personal property. However,
the remedies under Article 1484 are alternative, not
cumulative.

There was already full payment. In the case at bar,

although the agreement provides for the payment of
monthly rentals, it also provides the option to purchase
upon the payment of the 60th monthly rental and that all
monthly rentals shall be applied to the payment of the
full purchase price of the car. Clearly the transaction is a
lease in name only and so Articles 1484 and 1485 apply.
It is noteworthy that the remedies provided for in Art.
1484 are alternative, not cumulative. The exercise of one
bars the exercise of the others. It was held that in
choosing to deprive the defendant of possession of the
leased vehicles, the plaintiff waived its right to bring an
action to recover unpaid rentals on the said vehicles.
Furthermore, both the trial court and the CA correctly
ruled that Elisco is not entitled to any of the remedies
under Art. 1484 as there has already been full payment.
The agreement does not provide for the payment of
interest on unpaid monthly "rentals" or installments. The
2% surcharge is not provided for in the agreement.
Consequently, the total amount of P 61, 070.94 already
paid is more than sufficient to cover the full purchase
price of the car which only amounts to P 60, 639.
ABELARDO VALARAO, GLORIOSA VALARAO,
CARLOS VALARAO
Vs.
COURT OF APPEALS AND MEDEN ARELLANO
G.R. No. 130347
March 3, 1999
FACTS:
Spouses Valarao, thru their son, Carlos, sold to Arellano
a parcel of land situated in Diliman, Quezon City for the
sum of 3.225 M embodied under a Deed of Conditional
Sale.
It was further stipulated upon that should Arellano fail to
pay three (3) successive monthly installments or any one
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 Arellano shall be forfeited in favor of the
spouses by way of rental for the use and occupancy of
the property and as liquidated damages. All
improvements introduced by Arellano to the property
shall belong to the spouses without any right of
reimbursement.
Arellano alleged that as of September 1990 he was
already able to pay the sum of 2.028 M although she
admitted that she failed to pay for the installments due in
October and November 1990. Arellano tried to pay but
was turned down by the spouses thru their maid.
Arellano avers that the same maid was the on who
received payments tendered by her. It appears that the
maid refused to receive the payment allegedly on orders
of her employees who were not at home. This prompted

Arellano to seek the help of barangay officials. Efforts to

settle before the barangay was unavailing, as the
spouses never appeared in meetings.

would have paid all three monthly installments. In other

words, there was no deliberate failure on Arellanos part
to meet her responsibility to pay.

Arellano sought judicial action by filing a petition for

consignation on January 4, 1991.

2. Yes.
Sec. 3, RA 6552 provides:

Spouses Valarao, thru counsel, sent Arellano a letter

dated 4 January 1991 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 xxx all payments made, as
well as the improvements introduced on the property,
were thereby forfeited. The letter also made a formal
demand on Arellano to vacate the property should she
not heed the demand of the spouses to sign a contract
of lease for her continued stay in the property.
The RTC ruled against Arellano but the Court of Appeals
reversed the decision of the trial court hence this
petition.
ISSUE:
1. WON the automatic forfeiture clause is enforceable.
2. WON RA 6552 is applicable.
HELD:
1. Yes.
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 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 against the stipulated
forfeiture of payments already made." However, it must
be shown that Arellano failed to perform her obligation,
thereby giving spouses 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, the spouses failed to prove the conditions that
would warrant the implementation of this clause.
Based on the facts of the case, the spouses were not
justified in refusing the tender of payment made by
Arellano. Had the spouses accepted the payment, she

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 eightynine, 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.
Therefore, Arellano is entitled to a one-month grace
period for every year of installment paid, which means
that she had a total grace period of three months from
December 31, 1990. Indeed, to rule in favor of the
spouses would result in patent injustice and unjust
enrichment.