G.R. No.

202358 November 27, 2013

GATCHALIAN REALTY, INC., Petitioner,

vs.
EVELYN M. ANGELES, Respondent.

DECISION

CARPIO, J.:

1 2
The Case G.R. No. 202358 is a petition for review assailing the Decision promulgated on 11 November 2011 as well as the
3
Resolution promulgated on 19 June 2012 by the Court of Appeals (CA) in CA-G.R. SP No. 105964. The CA reversed and set aside the 8
4
October 2008 Order of Branch 197 of the Regional Trial Court of Las Pias City (RTC) in Civil Case No. LP-07-0143. The CA also dismissed
the unlawful detainer case filed by Gatchalian Realty, Inc. GRI) against Evelyn M. Angeles (Angeles).

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The Metropolitan Trial Court (MeTC) rendered on 28 February 2006 a decision in Civil Case No. 6809 in favor of GRI and against
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Angeles. In its decision dated 13 February 2008, the RTC set aside the decision of the MeTC and dismissed the ejectment case filed by
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GRI against Angeles. The RTC reversed itself in an Order dated 17 June 2008, and affirmed with modification the decision of the MeTC.
The RTC denied Angeles Motion for Reconsideration in an Order dated 8 October 2008.

The Facts

The CA recited the facts as follows:

On 28 December 1994, [Angeles] purchased a house (under Contract to Sell No. 2272) and lot (under Contract to Sell No. 2271) from
[GRI] valued at Seven Hundred Fifty Thousand Pesos (Php 750,000.00) and Four Hundred Fifty Thousand Pesos (Php 450,000.00),
respectively, with twenty-four percent (24%) interest per annum to be paid by installment within a period of ten years.

The house and lot were delivered to [Angeles] in 1995. Nonetheless, under the contracts to sell executed between the parties, [GRI]
retained ownership of the property until full payment of the purchase price.

After sometime, [Angeles] failed to satisfy her monthly installments with [GRI]. [Angeles] was only able to pay thirty-five (35)
installments for Contract to Sell No. 2271 and forty-eight (48) installments for Contract to Sell No. 2272. According to [GRI], [Angeles]
was given at least twelve (12) notices for payment in a span of three (3) years but she still failed to settle her account despite receipt of
said notices and without any valid reason. [Angeles] was again given more time to pay her dues and likewise furnished with three (3)
notices reminding her to pay her outstanding balance with warning of impending legal action and/or rescission of the contracts, but to
no avail. After giving a total of fifty-one (51) months grace period for both contracts and in consideration of the continued disregard of
the demands of [GRI], [Angeles] was served with a notice of notarial rescission dated 11 September 2003 by registered mail which she
allegedly received on 19 September 2003 as evidenced by a registry return receipt.

Consequently [Angeles] was furnished by [GRI] with a demand letter dated 26 September 2003 demanding her to pay the amount of
One Hundred Twelve Thousand Three Hundred Four Pesos and Forty Two Centavos (Php 112,304.42) as outstanding reasonable rentals
for her use and occupation of the house and lot as of August 2003 and to vacate the same. She was informed in said letter that the fifty
percent (50%) refundable amount that she is entitled to has already been deducted with the reasonable value for the use of the
properties or the reasonable rentals she incurred during such period that she was not able to pay the installments due her. After
deducting the rentals from the refundable amount, she still had a balance of One Hundred Twelve Thousand Three Hundred Four Pesos
and Forty Two Centavos (Php 112,304.42) which she was required to settle within fifteen (15) days from receipt of the letter.

Allegedly, [Angeles] subsequently sent postal money orders through registered mail to [GRI]. In a letter dated 27 January 2004 [Angeles]
was notified by [GRI] of its receipt of a postal money order sent by [Angeles]. More so, she was requested to notify [GRI] of the purpose
of the payment. [Angeles] was informed that if the postal money order was for her monthly amortization, the same will not be accepted
and she was likewise requested to pick it up from *GRIs+ office. On 29 January 2004, another mail with a postal money order was sent
by [Angeles] to [GRI]. In her 6 February 2004 letter, [GRI] was informed that the postal money orders were supposed to be payments for
her monthly amortization. Again, in its 8 February 2004 letter, it was reiterated by [GRI] that the postal money orders will only be
accepted if the same will serve as payment of her outstanding rentals and not as monthly amortization. Four (4) more postal money
orders were sent by [Angeles] by registered mail to [GRI].
For her continued failure to satisfy her obligations with [GRI] and her refusal to vacate the house and lot, [GRI] filed a complaint for
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unlawful detainer against [Angeles] on 11 November 2003.

The MeTCs Ruling

The MeTC of Branch 79, Las Pias City ruled in favor of GRI. The MeTC determined that the case was for an unlawful detainer, and thus
assumed jurisdiction. The MeTC further held that the facts show that GRI was able to establish the validity of the rescission:

A careful scrutiny of the evidence presented by both parties regarding payments made clearly show that [Angeles] defaulted in the
payment of the monthly installments due. Repeated notices and warnings were given to her but she still and failed to update her
account (Exhibits "E" to "E-1" and "G" to "G-2", *GRIs+ Position Paper). This is a clear violation of the condition of their contracts. An
ample grace period, i.e., 51 months, was granted to her by [GRI] but she still failed to pay the whole amount due as provided in
paragraph 6 of the contracts and Section 3 of RA 6552. [Angeles] has been in arrears beyond the grace period provided under the
contracts and law. The last payment received by *GRI+, which represents *Angeles+ 35th installment, was made in July 2002. On the
other hand, the last payment, which represents her 48th installment, [was] received [by GRI] in April 1999. Thus, [GRI], as seller, can
terminate or rescind the contract by giving her the notice of notarial rescission of the contracts. The notarial rescission of the contracts
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was executed on September 26, 2003 and served upon [Angeles].

Although the MeTC agreed with Angeles that her total payment is already more than the contracted amount, the MeTC found that
Angeles did not pay the monthly amortizations in accordance with the terms of the contract. Interests and penalties accumulated and
increased the amount due. Furthermore, the MeTC found the monthly rentals imposed by GRI reasonable and within the range of the
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prevailing rental rates in the vicinity. Compensation between GRI and Angeles legally took effect in accordance with Article 1290 of the
Civil Code. The MeTC ruled that GRI is entitled to 1,060,896.39 by way of reasonable rental fee less 574,148.40 as of May 2005, thus
leaving a balance of 486,747.99 plus the amount accruing until Angeles finally vacates the subject premises.

The dispositive portion of the MeTCs Decision reads:

WHEREFORE, in view of the foregoing, the Court renders judgment for [GRI] and against [Angeles] and all persons claiming rights under
her, as follows:

1. Ordering [Angeles] and all persons claiming rights under her to immediately vacate the property subject of this case
situated at Blk. 3, Lot 8, Lanzones St., Phase 3-C, Gatchalian Subdivision, Las Pias City and surrender possession
thereof to [GRI];

2. Ordering the encashment of the Postal Money Order (PMO) in the total amount of Php 120,000.00 in favor of [GRI];

3. Ordering [Angeles] to pay [GRI] the outstanding amount of Php 486,747.99 representing reasonable monthly rentals
of the subject premises as of May 2005 less the amount of the postal money orders [worth] Php 120,000.00 and all
the monthly rentals that will accrue until she vacates the subject premises and have possession thereof turned over to
[GRI], plus the interests due thereon at the rate of twelve percent (12%) per annum from the time of extra-judicial
demand;

4. Ordering *Angeles+ to pay *GRI+ the amount of Php 20,000.00 as attorneys fees; and

5. Costs of suit.

*Angeles+ counterclaims are hereby dismissed for lack of merit.

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SO ORDERED.

On 21 March 2006, Angeles filed a notice of appeal with the MeTC. A week later, on 28 March 2006, Angeles filed a motion to dismiss
based on lack of jurisdiction. The Las Pias RTC denied Angeles motion to dismiss in an order dated 28 July 2006.

Angeles also filed on 2 October 2006 a Petition for Certiorari with Immediate Issuance of Temporary Restraining Order and Injunction,
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which was docketed as SCA Case No. 06-008. On 3 May 2007, Branch 201 of the Las Pias RTC dismissed Angeles Petition for
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Certiorari for forum-shopping.
GRI, on the other hand, filed a Motion for Execution Pending Appeal. A Writ of Execution Pending Appeal was issued in favor of GRI on
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25 August 2006, and the properties were turned over to GRI on 10 October 2006.

The RTCs Ruling

Angeles appeal before Branch 197 of the Las Pias RTC initially produced a result favorable to her. The RTC found that the case was one
for ejectment. As an ejectment court, the MeTCs jurisdiction is limited only to the issue of possession and does not include the title or
ownership of the properties in question.

The RTC pointed out that Republic Act No. 6552 (R.A. 6552) provides that the non-payment by the buyer of an installment prevents the
obligation of the seller to convey title from acquiring binding force. Moreover, cancellation of the contract to sell may be done outside
the court when the buyer agrees to the cancellation. In the present case, Angeles denied knowledge of GRIs notice of cancellation.
Cancellation of the contract must be done in accordance with Section 3 of R.A. 6552, which requires a notarial act of rescission and
refund to the buyer of the cash surrender value of the payments on the properties. Thus, GRI cannot insist on compliance with Section
3(b) of R.A. 6552 by applying Angeles cash surrender value to the rentals of the properties after Angeles failed to pay the installments
due. Contrary to the MeTCs ruling, there was no legal compensation between GRI and Angeles. The RTC ruled:

There being no valid cancellation of the Contract to Sell, this Court finds merit in the appeal filed by [Angeles] and REVERSES the
decision of the court a quo. This Court recognized *Angeles+ right to continue occupying the property subject of the Contract to Sell.

WHEREFORE, premises considered, the decision of the lower court is hereby SET ASIDE and the ejectment case filed by [GRI] is hereby
DISMISSED.

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SO ORDERED.

GRI filed a Motion for Reconsideration. The RTC issued an Order on 17 June 2008 which ruled that GRI had complied with the provisions
of R.A. 6552, and had refunded the cash surrender value to Angeles upon its cancellation of the contract to sell when it deducted the
amount of the cash surrender value from rentals due on the subject properties. The RTC relied on this Courts ruling in Pilar
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Development Corporation v. Spouses Villar. The RTC ruled:

Applying the above Pilar ruling in the present case, the cash surrender value of the payments made by [Angeles] shall be applied to the
rentals that accrued on the property occupied by [Angeles], which rental is fixed by this Court in the amount of seven thousand pesos
per month (7,000.00). The total rental payment due to Gatchalian Realty Inc. is six hundred twenty three thousand (623,000.00)
counted from June 1999 to October 2006. According to R.A. 6552, the cash surrender value, which in this case is equivalent to fifty
percent (50%) of the total payment made by [Angeles], should be returned to her by [GRI] upon cancellation of the contract to sell on
September 11, 2003. Admittedly no such return was ever made by [GRI]. Thus, the cash surrender value, which in this case is equivalent
to 182,094.48 for Contract to Sell No. 2271 and 392,053.92 for Contract to Sell No. 2272 or a total cash surrender value of
574,148.40 should be deducted from the rental payment or award owing to [Angeles].

WHEREFORE, premises considered, the Motion for Reconsideration is hereby GRANTED. The earlier decision dated February 13, 2008 is
SET ASIDE and the decision of the court a quo is MODIFIED to wit:

1. Ordering [Angeles] and all persons claiming rights under her to immediately vacate the property subject of this case
situated at Blk. 3, Lot 8, Lanzones St., Phase 3-C, Gatchalian Subdivision, Las Pias City and surrender possession
thereof to [GRI];

2. Ordering the encashment of the Postal Money Order (PMO) in the total amount of Php 120,000.00 in favor of [GRI];

3. Ordering defendant, Evelyn M. Angeles, to pay plaintiff, Gatchalian Realty Inc., the outstanding rental amount of
forty eight thousand eight hundred fifty one pesos and sixty centavos (48,851.60) and legal interest of six percent
(6%) per annum, until the above amount is paid;

4. Ordering *Angeles+ to pay *GRI+ the amount of Php 20,000.00 as attorneys fees; and

5. Costs of suit.

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SO ORDERED.
The Court of Appeals Ruling

The CA dismissed GRIs complaint for unlawful detainer, and reversed and set aside the RTCs decision. Although the CA ruled that
Angeles received the notice of notarial rescission, it ruled that the actual cancellation of the contract between the parties did not take
place because GRI failed to refund to Angeles the cash surrender value. The CA denied GRIs motion for reconsideration.

GRI filed the present petition for review before this Court on 10 August 2012.

The Issues

GRI assigned the following errors of the CA:

The court a quo committed reversible error when it declared that there was no refund of the cash surrender value in favor of [Angeles]
pursuant to R.A. No. 6552; and

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The court a quo erred in holding that the actual cancellation of the contract between the parties did not take place.

The Courts Ruling

GRIs petition has no merit. We affirm the ruling of the CA with modification.

Validity of GRIs
Cancellation of the Contracts

Republic Act No. 6552, also known as the Maceda Law, or the Realty Installment Buyer Protection Act, has the declared public policy of
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"protecting buyers of real estate on installment payments against onerous and oppressive conditions." Section 3 of R.A. 6552 provides
for the rights of a buyer who has paid at least two years of installments but defaults in the payment of succeeding installments. Section
3 reads:

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.

The sixth paragraph of the contracts between Angeles and GRI similarly provides:

SIXTH - Should the VENDEE/S fail to pay due any monthly installment the VENDOR shall have the right to cancel this Contract and resell
the lot/s subject matter of this contract to another buyer, provided, however, that where the VENDEE/S has/have already paid at least
two years of installments, the VENDEE/S will have the right:

a) to pay without additional interest, the installments in arrears within the total grace period earned by him/her/them
which is hereby fixed at the rate of one (1) month grace period for every one (1) year of installment payment made,
 but this right can be exercised by the VENDEE/S only once in every five (5) years of the life of this contract and its
extension, if any, and

b) if the contract is cancelled, the VENDOR shall refund to the VENDEE/S the cash surrender value of the payments
made on the lot/s equivalent to fifty per cent (50%) of the total payments made, and after five (5) years of installment,
an additional five per cent (5%) every year but not to exceed ninety per cent (90%) of the total payments made;
Provided, that the actual cancellation of the contract shall take place after thirty (30) days from the receipt by the
VENDEE/S of the notice of cancellation or the demand for rescission of the contract by a notarial act upon full
payment of the cash surrender value to the VENDEE/S; where, however, the VENDEE/S has/have paid less than two (2)
years of installments, the VENDOR shall give the VENDEE/S [a] grace period of sixty (60) days from the date the
installment became due; and if the VENDEE/S fail/s to pay the installment due after the expiration of the grace period,
the VENDOR may cancel the contract after thirty (30) days from receipt by the VENDEE/S of the notice of cancellation
or the demand for rescission of the contract by a notarial act; and in case of cancellation and/or rescission of this
contract, all improvements on the lot/s above-described shall be forfeited in favor of the VENDOR, and in this
connection, the VENDEE/S obligate/s himself/herself/themselves to peacefully vacate the premises mentioned above
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without necessity of notice or demand by the VENDOR.

We examine GRIs compliance with the requirements of R.A. 6552, as it insists that it extended to Angeles considerations that are
beyond what the law provides.

Grace Period

It should be noted that Section 3 of R.A. 6552 and paragraph six of Contract Nos. 2271 and 2272, speak of "two years of installments."
The basis for computation of the term refers to the installments that correspond to the number of months of payments, and not to the
number of months that the contract is in effect as well as any grace period that has been given. Both the law and the contracts thus
prevent any buyer who has not been diligent in paying his monthly installments from unduly claiming the rights provided in Section 3 of
R.A. 6552.

The MeTC, the RTC, and the CA all found that Angeles was able to pay 35 installments for the lot (Contract No. 2271) and 48
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installments for the house (Contract No. 2272). Angeles thus made installment payments for less than three years on the lot, and
exactly four years on the house.

Section 3(a) of R.A. 6552 provides that the total grace period corresponds to one month for every one year of installment payments
made, provided that the buyer may exercise this right only once in every five years of the life of the contract and its extensions. The
buyers failure to pay the installments due at the expiration of the grace period allows the seller to cancel the contract after 30 days
from the buyers receipt of the notice of cancellation or demand for rescission of the contract by a notarial act. Paragraph 6(a) of the
contract gave Angeles the same rights.

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Both the RTC and the CA found that GRI gave Angeles an accumulated grace period of 51 months. This extension went beyond what
was provided in R.A. 6552 and in their contracts.

Receipt of the Notice of Notarial Rescission

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The registry return of the registered mail is prima facie proof of the facts indicated therein. Angeles failed to present contrary
evidence to rebut this presumption with competent and proper evidence. To establish its claim of service of the notarial rescission upon
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Angeles, GRI presented the affidavit of its liaison officer Fortunato Gumahad, the registry receipt from the Greenhills Post Office, and
26
the registry return receipt. We affirm the CAs ruling that GRI was able to substantiate its claim that it served Angeles the notarial
rescission sent through registered mail in accordance with the requirements of R.A. 6552.

Amount of the Cash Surrender Value

GRI claims that it gave Angeles a refund of the cash surrender value of both the house and the lot in the total amount of 574,148.40
when it deducted the amount of the cash surrender value from the amount of rentals due.

For paying more than two years of installments on the lot, Angeles was entitled to receive cash surrender value of her payments on the
lot equivalent to fifty per cent of the total payments made. This right is provided by Section 3(b) of R.A. 6552, as well as paragraph 6(b)
of the contract. Out of the contract price of 450,000, Angeles paid GRI a total of 364,188.96 consisting of 135,000 as downpayment
27 28
and 229,188.96 as installments and penalties. The cash surrender value of Angeles payments on the lot amounted to 182,094.48.

For the same reasons, Angeles was also entitled to receive cash surrender value of the payments on the house equivalent to fifty per
cent of the total payments made. Out of the contract price of 750,000, Angeles paid GRI a total of 784,107.84 consisting of 165,000
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as downpayment and 619,107.84 as installments and penalties. The cash surrender value of Angeles payments on the house
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amounted to 392,053.92.

Actual Cancellation of the Contracts

There was no actual cancellation of the contracts because of GRIs failure to actually refund the cash surrender value to Angeles.

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Cancellation of the contracts for the house and lot was contained in a notice of notarial rescission dated 11 September 2003. The
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registry return receipts show that Angeles received this notice on 19 September 2003. GRIs demand for rentals on the properties,
where GRI offset Angeles accrued rentals by the refundable cash surrender value, was contained in another letter dated 26 September
33 34
2003. The registry return receipts show that Angeles received this letter on 29 September 2003. GRI filed a complaint for unlawful
detainer against Angeles on 11 November 2003, 61 days after the date of its notice of notarial rescission, and 46 days after the date of
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its demand for rentals. For her part, Angeles sent GRI postal money orders in the total amount of 120,000.

The MeTC ruled that it was proper for GRI to compensate the rentals due from Angeles occupation of the property from the cash
surrender value due to Angeles from GRI. The MeTC stated that compensation legally took effect in accordance with Article 1290 of the
Civil Code, which reads: "When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law
and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation." In
turn, Article 1279 of the Civil Code provides:

In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That both debts consist of a sum of money, or if the things due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;

(3) That the two debts are due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due
time to the debtor.

However, it was error for the MeTC to apply Article 1279 as there was nothing in the contracts which provided for the amount of rentals
in case the buyer defaults in her installment payments. The rentals due to GRI were not liquidated. GRI, in its letter to Angeles dated 26
September 2003, unilaterally imposed the amount of rentals, as well as an annual 10% increase:

PERIOD COVERED NO. OF RENTALS AMOUNT DUE

MONTHS PER MONTH

June to December 1999 7 11,000.00 77,000.00

January to December 2000 12 12,100.00 145,200.00

January to December 2001 12 13,310.00 159,720.00

January to December 2002 12 14,641.00 175,692.02 [sic]

January to August 2003 8 16,105.10 128,840.80

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TOTAL AMOUNT DUE: P 686,452.82 [sic]
 37
We cannot subscribe to GRIs view that it merely followed our ruling in Pilar Development Corporation v. Spouses Villar (Pilar) when it
deducted the cash surrender value from the rentals due. In Pilar, the developer also failed to refund the cash surrender value to the
defaulting buyer when it cancelled the Contract to Sell through a Notice of Cancellation. It was this Court, and not the developer, that
deducted the amount of the cash surrender value from the accrued rentals. Moreover, the developer in Pilar did not unilaterally impose
rentals. It was the MeTC that decreed the amount of monthly rent. Neither did the developer unilaterally reduce the accrued rentals by
the refundable cash surrender value. The cancellation of the contract took effect only by virtue of this Courts judgment because of the
developers failure to return the cash surrender value.

This was how we ruled in Pilar:

According to R.A. 6552, the cash surrender value, which in this case is equivalent to fifty percent (50%) of the total payment made by
the respondent spouses, should be returned to them by the petitioner upon the cancellation of the contract to sell on August 31, 1998
for the cancellation to take effect. Admittedly, no such return was ever made by petitioner. Thus, the said cash surrender value is
hereby ordered deducted from the award owing to the petitioner based on the MeTC judgment, and cancellation takes effect by virtue
of this judgment.

Finally, as regards the award of 7,000.00/month as rental payment decreed by the MeTC for the use of the property in question from
the time the respondent spouses obtained possession thereof up to the time that its actual possession is surrendered or restored to the
petitioner, the Court finds the same just and equitable to prevent the respondent spouses, who breached their contract to sell, from
unjustly enriching themselves at the expense of the petitioner which, for all legal intents and purposes, never ceased to be the owner of
the same property because of the respondents non-fulfillment of the indispensable condition of full payment of the purchase price, as
embodied in the parties contract to sell. However, as earlier explained, this sum is to be reduced by the cash surrender value of the
payments so far made by the spouses, and the resulting net amount still owing as accrued rentals shall be subject to legal interest from
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finality of this Decision up to the time of actual payment thereof.

Mandatory Twin Requirements:

Notarized Notice of Cancellation and
Refund of Cash Surrender Value

This Court has been consistent in ruling that a valid and effective cancellation under R.A. 6552 must comply with the mandatory twin
requirements of a notarized notice of cancellation and a refund of the cash surrender value.

39
In Olympia Housing, Inc. v. Panasiatic Travel Corp., we ruled that the notarial act of rescission must be accompanied by the refund of
the cash surrender value.

x x x 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.

40
In Pagtalunan v. Dela Cruz Vda. De Manzano, we ruled that there is no valid cancellation of the Contract to Sell in the absence of a
refund of the cash surrender value. We stated that:

x x x 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. Hence, 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. (Emphasis supplied)

Remedies of the Buyer

in the Absence of a Valid Cancellation of a Contract to Sell

In view of the absence of a valid cancellation, the Contract to Sell between GRI and Angeles remains valid and subsisting. Apart from
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Olympia and Pagtalunan, we are guided by our rulings in Active Realty & Development Corp. v. Daroya (Active) and Associated Marine
42
Officers and Seamens Union of the Philippines PTGWO-ITF v. Decena (Associated).

In Olympia , this Court dismissed the complaint for recovery of possession for having been prematurely filed without complying with the
mandate of R.A. 6552. We ordered the defaulting buyer to pay the developer the balance as of the date of the filing of the complaint
plus 18% interest per annum computed from the day after the date of the filing of the complaint, but within 60 days from the receipt of
a copy of the decision. Upon payment, the developer shall issue the corresponding certificate of title in favor of the defaulting buyer. If
the defaulting buyer fails to pay the full amount, then the defaulting buyer shall vacate the subject property without need of demand
and all payments will be charged as rentals to the property. There was no award for damages and attorneys fees, and no costs were
charged to the parties.

In Pagtalunan, this Court dismissed the complaint for unlawful detainer. We also ordered the defaulting buyer to pay the developer the
balance of the purchase price plus interest at 6% per annum from the date of filing of the complaint up to the finality of judgment, and
thereafter, at the rate of 12% per annum. Upon payment, the developer shall issue a Deed of Absolute Sale of the subject property and
deliver the corresponding certificate of title in favor of the defaulting buyer. If the defaulting buyer fails to pay the full amount within 60
days from finality of the decision, then the defaulting buyer should vacate the subject property without need of demand and all
payments will be charged as rentals to the property. No costs were charged to the parties.

In Active, this Court held that the Contract to Sell between the parties remained valid because of the developers failure to send a
notarized notice of cancellation and to refund the cash surrender value. The defaulting buyer thus had the right to offer to pay the
balance of the purchase price, and the developer had no choice but to accept payment. However, the defaulting buyer was unable to
exercise this right because the developer sold the subject lot. This Court ordered the developer to refund to the defaulting buyer the
actual value of the lot with 12% interest per annum computed from the date of the filing of the complaint until fully paid, or to deliver a
substitute lot at the option of the defaulting buyer.

In Associated, this Court dismissed the complaint for unlawful detainer. We held that the Contract to Sell between the parties remained
valid because the developer failed to send to the defaulting buyer a notarized notice of cancellation and to refund the cash surrender
value. We ordered the MeTC to conduct a hearing within 30 days from receipt of the decision to determine the unpaid balance of the
full value of the subject properties as well as the current reasonable amount of rent for the subject properties. We ordered the
defaulting buyer to pay, within 60 days from the trial courts determination of the amounts, the unpaid balance of the full value of the
subject properties with interest at 6% per annum computed from the date of sending of the notice of final demand up to the date of
actual payment. Upon payment, we ordered the developer to execute a Deed of Absolute Sale over the subject properties and deliver
the transfer certificate of title to the defaulting buyer. In case of failure to pay within the mandated 60-day period, we ordered the
defaulting buyer to immediately vacate the premises without need for further demand. The developer should also pay the defaulting
buyer the cash surrender value, and the contract should be deemed cancelled 30 days after the defaulting buyers receipt of the full
payment of the cash surrender value. If the defaulting buyer failed to vacate the premises, he should be charged reasonable rental in
the amount determined by the trial court.

We observe that this case has, from the institution of the complaint, been pending with the courts for 10 years. As both parties prayed
for the issuance of reliefs that are just and equitable under the premises, and in the exercise of our discretion, we resolve to dispose of
this case in an equitable manner. Considering that GRI did not validly rescind Contracts to Sell Nos. 2271 and 2272, Angeles has two
options:

1. The option to pay, within 60 days from the MeTCs determination of the proper amounts, the unpaid balance of the full
value of the purchase price of the subject properties plus interest at 6% per annum from 11 November 2003, the date of filing
43
of the complaint, up to the finality of this Decision, and thereafter, at the rate of 6% per annum. Upon payment of the full
amount, GRI shall immediately execute Deeds of Absolute Sale over the subject properties and deliver the corresponding
transfer certificate of title to Angeles.

In the event that the subject properties are no longer available, GRI should offer substitute properties of equal
value.1wphi1 Acceptance of the suitability of the substitute properties is Angeles sole prerogative. Should Angeles refuse the
substitute properties, GRI shall refund to Angeles the actual value of the subject properties with 6% interest per
44
annum computed from 11 November 2003, the date of the filing of the complaint, until fully paid; and

2. The option to accept from GRI 574,148.40, the cash surrender value of the subject properties, with interest at 6% per
45
annum, computed from 11 November 2003, the date of the filing of the complaint, until fully paid. Contracts to Sell Nos. 2271
and 2272 shall be deemed cancelled 30 days after Angeles receipt of GRIs full payment of the cash surrender value. No rent is
further charged upon Angeles as GRI already had possession of the subject properties on 10 October 2006.

WHEREFORE, we DENY the petition. The Decision of the Court of Appeals in CA-G.R. SP No. 105964 promulgated on 11 November 2011
and the Resolution promulgated on 19 June 2012 are AFFIRMED with MODIFICATIONS.
 1. The Metropolitan Trial Court of Las Pias City is directed to conduct a hearing within a maximum period of 30 days from
finality of this Decision to (1) determine Evelyn M. Angeles unpaid balance on Contracts to Sell Nos. 2271 and 2272; and (2) the
actual value of the subject properties as of 11 November 2003.

2. Evelyn M. Angeles shall notify the Metropolitan Trial Court of Las Pias City and Gatchalian Realty, Inc. within a maximum
period of 60 days from the Metropolitan Trial Court of Las Pias Citys determination of the unpaid balance whether she will
pay the unpaid balance or accept the cash surrender value.

Should Evelyn M. Angeles choose to pay the unpaid balance, she shall pay, within 60 days from the MeTCs determination of the proper
amounts, the unpaid balance of the full value of the purchase price of the subject properties plus interest at 6% per annum from 11
November 2003, the date of filing of the complaint, up to the finality of this Decision, and thereafter, at the rate of 6% per annum. Upon
payment of the full amount, GRI shall immediately execute Deeds of Absolute Sale over the subject properties and deliver the
corresponding transfer certificate of title to Angeles.

In the event that the subject properties are no longer available, GRI should offer substitute properties of equal value. Should Angeles
refuse the substitute properties, GRI shall refund to Angeles the actual value of the subject properties with 6 interest per annum
computed from November 2003, the date of the filing of the complaint, until fully paid. Should Evelyn M. Angeles choose to accept
payment of the cash surrender value, she shall receive from GRI 574,148.40 with interest at 6 per annum computed from November
2003, the date of the filing of the complaint, until fully paid. Contracts to Sell Nos. 2271 and 2272 shall be deemed cancelled 30 days
after Angeles' receipt of GRI's full payment of the cash surrender value. No rent is further charged upon Evelyn M. Angeles.

No costs.

SO ORDERED.
G.R. No. 204160 September 22, 2014

SPOUSES MICHELLE M. NOYNAY and NOEL S. NOYNAY, Petitioners,

vs.
CITIHOMES BUILDER AND DEVELOPMENT, INC., Respondent.

DECISION

MENDOZA, J.:

1
In this petition for review on certiorari under Rule 45 of the Rules of Court, Spouses Noel and Michelle Noynay (Spouses Noynay) assail
2 3
the July 16, 2012 Decision of the Court of Appeals (CA) and October 15, 2012 Resolution, which affirmed with modification the
4
September 17, 20 I 0 Decision of the Regional Trial CoUii, Branch 21, Malolos, Bulacan ( RTCJ. Earlier, the RTC reversed the March 26,
5 6
2010 Decision of the Municipal Trial Court for Cities, San Jose Del Monte, Bulacan (MTCC). which dismissed the complaint for unlawful
detainer filed by Citihomes Builder and Development, Inc. (Citihomes) against Spouses Noynay for lack of cause of action.

The Facts:

7
On December 29, 2004, Citihomes and Spouses Noynay executed a contract to sell covering the sale of a house and lot located in San
Jose Del Monte, Bulacan, and covered by Transfer Certificate of Title (TCT) No. T-43469. Under the terms of the contract, the price of
the property was fixed at 915,895.00, with a downpayment of 183,179.00, and the remaining balance to be paid in 120 equal
monthly installments with an annual interest rate of 21% commencing on February 8, 2005 and every 8th day of the month thereafter.

8
Subsequently, on May 12, 2005, Citihomes executed the Deed of Assignment of Claims and Accounts (Assignment)in favor of United
Coconut Planters Bank (UCPB) on May 12, 2005. Under the said agreement, UCPB purchased from Citihomes various accounts, including
the account of Spouses Noynay, for a consideration of 100,000,000.00. In turn, Citihomes assigned its rights, titles, interests, and
participation in various contracts to sell with its buyers to UCPB.

In February of 2007, Spouses Noynay allegedly started to default in their payments. Months later, Citihomes decided to declare Spouses
Noynay delinquent and to cancel the contract considering that nine months of agreed amortizations were left unpaid. On December 8,
9
2007, the notarized Notice of Delinquency and Cancellation of the Contract To Sell, dated November 21, 2007, was received by Spouses
Noynay. They were given 30 days within which to pay the arrears and failure to do so would authorize Citihomes to consider the
contract as cancelled.

On June 15, 2009, Citihomes sent its final demand letter asking Spouses Noynay to vacate the premises due to their continued failure to
pay the arrears. Spouses Noynay did not heed the demand, forcing Citihomes to file the complaint for unlawful detainerbefore the
MTCC on July 29, 2009.

In the said complaint, Citihomes alleged that as per Statement of Account as of March 18, 2009, SpousesNoynay had a total arrears in
the amount of 272,477.00, inclusive of penalties. Thus, Citihomes prayed that Spouses Noynay be ordered to vacate the subject
property and pay the amount of 8,715.97 a month as a reasonable compensation for the use and occupancy to commence from
January 8, 2007 until Spouses Noynay vacate the same.

10
In its March 26, 2010 Decision, the MTCC dismissed the complaint. It considered the annotation in the certificate of title, which was
dated prior to the filing of the complaint, which showed that Citihomes had executed the Assignment favor of UCPB, as having the legal
effect of divesting Citihomes of its interest and right over the subject property. As far as the MTCC was concerned, Citihomes did not
have a cause of action against Spouses Noynay.

11
The RTC, however, reversedthe ruling of the MTCC. In its September 17, 2010 Decision, the RTC stated that the MTCC erred in
interpreting the deed of assignment as having the effect of relinquishing all of Citihomes rights over the subject property. The RTC
explained that the assignment was limited only to the installment accounts receivables due from Spouses Noynay and did not include
the transfer of title or ownership over the property. It pointed out that Citihomes remained as the registered owner of the subject
property, and so it had the right to ask for the eviction of Spouses Noynay. As to the issue of who had the better right of possession, the
RTC ordered that the records be remanded to the MTCC for the proper determination.
Spouses Noynay then went to the CA. On July 16, 2012, the CA affirmed the conclusion of the RTC that Citihomes still had the right and
interest over the property in its capacity as the registered owner. Moreover, the issue on who, between the parties had a better
possessory right over the property, was resolved infavor of Citihomes.

In disposing the issue of possession, the CA primarily recognized the relevance of Republic Act (R.A.)No. 6552, otherwise known as the
Realty Installment Buyer Act (Maceda Law), in determining the limits of the right to possess of Spouses Noynay in their capacity as
defaulting buyers in a realty installment scheme. Under the said law, the cancellation of a contract would only follow if the
requirements set forth therein had been complied with, particularly the giving of a "notice of delinquency and cancellation of the
contract" to the defaulting party and,in some cases, the payment to the buyer of the cash surrender value if at least two years of
installments had been paid. The CA noted that Spouses Noynay failed to complete the minimum two (2) years of installment, despite
the allegation that three (3) years of amortizations had already been paid. As an effect, the CA pronounced that the termination of the
contract was validly effected by the expiration of the 30-day period from the time the notice of cancellation was received by Spouses
Noynay. From thatmoment, the CA treated Spouses Noynay to have lost the right to possess the property. In addition, the CA made
Spouses Noynay liable for the payment of monthly rentals from the time their possession became illegal.

Spouses Noynay moved for reconsideration, but the CA denied their motion.

Hence, this petition.

ISSUE

The lone issue presented for resolution is whether Citihomes has a cause of action for ejectment against Spouses Noynay. In effect,
Spouses Noynay would have this Court determine whether Citihomes may rightfully evict them.

Position of Spouses Noynay

Spouses Noynay insist that by virtue of the assignment of rights which Citihomes executed in favor of UCPB, Citihomes did not have a
cause of action against them because it no longerhad an interest over the subject property. Contrary to the findings of the CA, the
monthly installments amounting to three years were already paid, by reason of which, Section 3(b) of the Maceda Law should apply.
This means that for the cancellation to be effective, the cash surrender value should have been paid first to them by Citihomes; and that
because no payment was made, it follows that no valid cancellation could also be effected. Thisallegedly strengthened their right to the
possession of the property even to this day.

Position of Citihomes

Citihomes counters that it has the right to ask for the eviction of the petitioners in its capacity as the registered owner despite the
assignment of rights it made to UCPB. It believes that because Spouses Noynay failed to pay at least two (2) years of installments, the
cancellation became effective upon the expiration of the 30-day periodfollowing the receipt of the notice of delinquency and
cancellation notice and without the need for the payment of the cash surrender value under Section 3(b) of the Maceda Law.

Ruling of the Court

12
Cause of action has been defined as an act or omission by which a party violates a right of another. It requires the existence of a legal
right on the part of the plaintiff, a correlative obligation of the defendant to respect such right, and an act or omission of such
13
defendant in violation of the plaintiffs rights. A complaint should not be dismissed for insufficiency of cause of action if it appears
14
clearly from the complaint and its attachments that the plaintiff is entitled to relief. The complaint, however, may be dismissed for
15
lack of cause of action laterafter questions of fact have been resolved on the basis of stipulations, admissions or evidence presented.

Relative thereto, a plaintiff in an unlawful detainer case which seeks recovery of the property must prove ones legal right to evict the
defendant, a correlative obligation on the part of such defendant to respect the plaintiffs right to evict, and the defendants act or
omission in the form of refusal to vacate upon demand when his possession ultimately becomes illegal.

At first glance, the main thrust of the discussion in the lower courts is the issue on whether Citihomes had suchright to evict Spouses
Noynay. At its core is the ruling of the MTCC thatthe right to demand the eviction of Spouses Noynay was already transferred to UCPB
from the moment the Assignment was executed by Citihomes, which was done prior to the institution of the unlawful detainer case.
Thus, based on the evidence presented during the trial, the MTCC held that Citihomes did not have a cause of action against Spouses
Noynay.The RTC held otherwise justifying that Citihomes may still be the right party to evict Spouses Noynay in its capacity as the
registered owner of the property. The CA affirmed the RTC on this point.

The Court, however, agrees with the MTCC.

The determination of whether Citihomes has a right to ask for the eviction of Spouses Noynay entirely depends on the review of the
Assignment of Claims and Accounts it executed in favor of UCPB. If it turns out that what was assigned merely covered the collectible
amounts or receivables due from Spouses Noynay, Citihomes would necessarily have the right to demand the latters eviction asonly an
aspect of the contract to sell passed on to UCPB. Simply put, because an assignment covered only credit dues, the relation between
Citihomes as the seller and Spouses Noynay as the buyer under their Contract to Sell remained. If on the other hand, it appears that the
assignment covered all of Citihomes rights, obligations and benefits in favor ofUCPB, the conclusion would certainly be different.

Under the provisions of the Assignment, it was stipulated that:

NOW, THEREFORE, for and in consideration of the foregoing premises, the ASSIGNOR hereby agrees as follows:

1. The ASSIGNOR hereby assigns, transfers and sets over unto the ASSIGNEE all its rights, titles and interest in and to, excluding its
obligations under the Contract/s to Sellenumerated and described in the List of Assigned Receivables which is hereto attached and
marked as Annex "A" hereof, including any and all sum of money due and payable to the ASSIGNOR, the properties pertaining
thereto,all replacements, substitution, increases and accretion thereof and thereto which the ASSIGNOR has executed with the Buyers,
as defined in the Agreement, and all moneysdue, or which may grow upon the sales therein set forth.

2. For purposes of this ASSIGNMENT, the ASSIGNOR hereby delivers to the ASSIGNEE, which hereby acknowledges receipt of the
following documents evidencing the ASSIGNORs title, right, interest, participation and benefit in the assigned Installment Account
Receivables listed in Annex "A" and made as integral part hereof.

a) Original Contracts to Sell

b) Transfer Certificates of Title

3. The ASSIGNOR, hereby irrevocably appoints the ASSIGNEE to be its true and lawful agent or representativefor it and in its name and
stead, but for such ASSIGNEEs own benefit: (1) to sell, assign, transfer, set over, pledge, compromise or discharge the whole, or any
part, of said assignment; (2) to do all acts and things necessary, or proper, for any such purpose; (3) to ask, collect, receive and sue for
the moneys due, or which may grow due, upon the said Assignment;and (4) to substitute one person, or more, with like powers; hereby
16
ratifying and confirming all that said agent or representative, or his substitute, or substitutes, shall lawfully do, by virtue hereof.

[Emphases supplied]

Clearly, the conclusion of the MTCC had factual and legal bases. Evident from the tenor of the agreement was the intent on the part of
Citihomes, as assignor, to assign all of its rights and benefits in favor of UCPB. Specifically, what Citihomes did was an assignment or
transfer of all contractual rights arising from various contracts to sell, including the subject contract to sell, with all the rights,
obligations and benefits appurtenant thereto in favor of UCPB for a consideration of 100,000,000.00. Indeed, the intent was more than
just an assignment of credit. This intent to assign all rights under the contract to sell was even fortified by the delivery of documents
such as the pertinent contracts to sell and the TCTs. Had it been the intent of Citihomes to assign merely its interest in the receivables
due from Spouses Noynay, the tenor of the deed of assignment would have been couched in very specific terms.

Included in those matters which were handed over to UCPB were the provisions outlined in Section 6 of the Contract to Sell. In the said
provision, Citihomes, as the seller has been given the right to cancel the contract to sell in cases of continuing default by Spouses
Noynay, to wit: SECTION 6. If for any reason, whatsoever, the BUYER fails to pay three (3) consecutive monthly installments, the
provision of RA No. 6552 shall apply.

Where the BUYER has paid less than two (2) years of installments and defaults in the payment of three (3) consecutive monthly
installment, he shall be given a grace period of not less than sixty (60) days from the date the installment payments became due and
payable within which to pay the installments and/or make payments in arrears together with the installments corresponding to the
months of the grace period. In the event the BUYER continues to default in the payment of the installments within or at the expiration
of the grace period herein provided, the SELLER shall have the right to cancel this agreement thirty (30) days from the BUYERs receipt
of the notice of cancellation or demand for rescission by a notarial act. Thereafter, the SELLER may dispose of the residential house and
lot subject of this agreement in favor of other persons as if this agreement had never been entered into.

WHERE the BUYER has paid atleast two (2) years of installments and he defaults in the payment of three (3) consecutive monthly
installments, the SELLER shall be entitled:

a. To pay, without additional interest, the unpaid installment due within the total grace period earned by the BUYER which is
fixed at the rate of one (1) month grace period for every one (1) year of installment payment made; Provided, that this right
shall be exercised by the BUYER only once for every five (5) years of the life of this agreement.

b. If this agreement is cancelled, the SELLER shall refund to the BUYER the cash surrender value of the payments equivalent to
fifty percent thereof and, after five years of installments, an additional five percent (5%) for every year but not to exceed
ninety (90%) of the total payments made; Provided, that the actual cancellation of this agreement shall take place after thirty
(30) days from receipt by the BUYER of the notice of cancellation or demand for rescission by a notarial act and upon full
payment of the cash surrender value to the BUYER.

xxx xxx xxx

The BUYER, at the termination of the contract, shall promptly surrender the said property to the SELLER, and should the former fail to
comply with the provision, on top of the remedy provided for above, the BUYER hereby expressly appoints the SELLER as their duly
authorized attorney-in-fact with power and authority to open, enter and take full possession of the property in the presence of any
peace officer and to take an inventory of the equipment, furniture, merchandise and effect. In case the BUYER fails to claim the said
equipment, furniture, merchandise and effects and/or liquidate their liabilities with the SELLER within thirty (30) days from the date of
transfer of possession of the property to the latter, the SELLER is hereby given the right to dispose of said property in a private or public
sale and to apply the proceeds to whatever expenses it may have incurred in line with the warehousing of the equipment, furniture,
17
merchandise and effects.

The exercise of such right to cancel necessarily determines the existence of the right to evict Spouses Noynay. The existence of the right
to evict is the first constitutive element ofthe cause of action in this unlawful detainer case. Considering,however, that the right to
cancel was already assigned prior to the commencement of this controversy with the execution of the Assignment, its legal
consequences cannotbe avoided.

Well-established is the rule that the assignee is deemed subrogated to the rights as well as to the obligations of the seller/assignor. By
virtue of the deed of assignment, the assignee is deemed subrogated to the rights and obligations of the assignor and is bound by
18
exactly the same conditions as those which bound the assignor. What can be inferred from here is the effect on the status of the
assignor relative to the relations established by a contract which has been subsequently assigned; that is, the assignor becomes a
complete stranger to all the mattersthat have been conferred to the assignee.

In this case, the execution of the Assignment in favor of UCPB relegated Citihomes to the status of a mere stranger to the jural relations
established under the contractto sell. With UCPB as the assignee, it is clear that Citihomes has ceased tohave any right to cancel the
contract to sell with Spouses Noynay. Without this right,which has been vested in UCPB, Citihomes undoubtedly had no cause ofaction
against Spouses Noynay.

This is not to say that Citihomes lost all interest over the property. To be clear, what were assigned covered only the rights inthe
Contract to Sell and not the property rights over the house and lot, which remained registered under Citihomes name. Considering,
however, that the unlawful detainer case involves mere physical or materialpossession of the property and is independent of any claim
19
of ownership by any of the parties, the invocation of ownership by Citihomes is immaterial in the just determination of the case.

Granting that the MTCC erred in ruling that Citihomes had no cause of action by reason of the Assignment it made in favor of UCPB, the
Court still upholds the right of the Spouses Noynay to remain undisturbed in the possession of the subject property. The reason is
simple Citihomes failed to comply with the procedures for the proper cancellation of the contract to sell as prescribed by Maceda Law.

20
In Pagtalunan v. Manzano, the Court stressed the importance of complying with the provisions of the Maceda Law as to the
cancellation of contracts to sell involving realty installment schemes. There it was held that the cancellation of the contract by the seller
must be in accordance with Section 3 (b) of the Maceda Law, which requires the notarial act of rescission and the refund to the buyer of
the full payment of the cash surrender value of the payments made on the property. The actual cancellation of the contract takes place
after thirty (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 fullpayment of the cash surrender value to the buyer, to wit: (b) If the contract is cancelled, the seller shall refund to the
buyer the cash surrender value of the payments on the propertyequivalent 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 bya notarial act and upon full payment of the cash surrender value to the buyer.

[Emphases supplied]

According to the lower courts, Spouses Noynay failed to complete the two-year minimum period of paid amortizations, thus, the
cancellation of the contract to sell no longer required the payment of the cash surrender value. This conclusion rests on the allegation
that the amortization payments commenced only on May 31, 2005. If indeedit were true that the payments started only on that date,
Spouses Noynay would not have completed the required two-year period to be entitled to the payment of cash surrender value.
Records, however, show otherwise. The Contract to Sell, dated December 29, 2004, was very particularon the matter. It stipulated as
follows:

SECTION 1. NOW, THEREFORE, for and in consideration of the sume of NINE HUNDRED FIFTEEN THOUSAND EIGHT HUNDRED NINETY
FIVE PESOS ONLY, (915,895.00) Philippine Currency, inclusive of miscellaneous charges hereunder set forth, and of the foregoing
premises, the SELLER hereby agrees to sell, cede and convey to the BUYER, their heirs, administrators, and successors-in-interest, the
aforedescribed residential house and lot or lot only under the following terms and conditions:

a. The amount of ONE HUNDRED EIGHTY THREE THOUSAND ONE HUNDRED SEVENTY NINE PESOS ONLY (183,179.00),
Philippine Currency, representing full downpayment shall be paid upon signing of this contract.

b. The balanceof the total purchase price in the amount of SEVEN HUNDRED THIRTY TWO THOUSAND SEVEN HUNDRED
SIXTEEN PESOS ONLY, (732,716..00), Philippine Currency shall be paid by the BUYER in 120 equal monthly installments in the
amount of 14,649.31 per month with an interest of 21% per annum to commenceon 02.08.05 and every 8th day of the month
21
thereafter.

22
Citihomes claimed that the period ofthe payment of the amortizations started from May 31, 2005. As can be gleaned from the
contract to sell, however, it appears that the payment of the downpayment started from the signing thereof on December 29, 2004.

To this end, the factual admissions made by the parties during the preliminary conference would shed light on the matter. It must be
remembered that these judicial admissions are legally binding on the party making the admissions. Similar to pre-trial admissions in a
pre-trial order in ordinary civil cases, the contents of the record of a preliminary conference control the subsequent course of the
action, thereby, defining and limiting the issues to be tried. A contrary ruling would render useless the proceedings during the
preliminary conference and would, in fact, be antithetical to the very purpose of a preliminary conference, which is, among others, to
23
allow the parties to admit and stipulate on a given set of facts and to simplify the issues involved.

24
The fairly recent case of Oscar Constantino v. Heirs of Oscar Constantino, is most instructive:

In Bayas, et al. v. Sandiganbayan, et al., this Court emphasized that:

Once the stipulations are reduced into writing and signed by the parties and their counsels, they become binding on the parties who
made them. They become judicial admissionsof the fact or facts stipulated. Even if placed at a disadvantageous position, a party may
not be allowed to rescind them unilaterally, it must assume the consequences of the disadvantage.(citations omitted)

Moreover, in Alfelor v. Halasan,this Court declared that:

A party who judicially admits a fact cannot later challenge the fact as judicial admissions are a waiver of proof; production of evidence is
dispensed with. A judicial admissionalso removes an admitted fact from the field of controversy. Consequently, an admission made in
the pleadings cannot be controverted by the party making such admission and are conclusive as to such party, and all proofs to the
contrary or inconsistent therewith should be ignored, whether objection is interposed by the party or not. The allegations, statements
or admissions contained in a pleading are conclusive as against the pleader. A party cannot subsequently take a position contrary of or
inconsistent with what was pleaded. (Citations omitted)

[Emphases supplied]
Here, Spouses Noynay proposed for stipulation the factual allegation that they had been paying Citihomesthe monthly amortization of
25
the property for more than three (3) years and only stopped payment by January 8, 2008. In the Preliminary Conference Order, dated
January 28, 2010, the MTCC noted the said factas admitted, to wit:

The defendants proposed the following matters for stipulations:

1. That the defendants had already paid the plaintiff the total amount of Php 633,000.00 Not Admitted

2. That the defendants have beenpaying the plaintiff the monthly amortization of the property for more than three years and
26
only stopped payment by January 8, 2008 Admitted.

xxx xxx x x x[Emphasis supplied]

27
Moreover, based on the Statement of Account, dated March 18, 2009, Spouses Noynay started defaulting from January 8, 2008. This
shows that prior to that date, amortizations covering the 3-year period, which started with the downpayment, had been paid. This is
consistent with the admission of Citihomes during the preliminary conference. By its admission that Spouses Noynay had been paying
the amortizations for three (3) years, there is no reason to doubt Spouses Noynay's compliance with the minimum requirement of two
years payment of amortization, entitling them to the payment of the cash surrender value provided for by law and by the contract to
sell. To reiterate, Section 3(b) of the Maceda Law requires that for an actual cancellation to take place, the notice of cancellation by
notarial act and the full payment of the cash surrender value must be first received by the buyer. Clearly, no payment of the cash
surrender value was made to Spouses Noynay. Necessarily, no cancellation of the contract to selI could be considered as validly
effected.

Without the valid cancellation of the contract, there is no basis to treat the possession of the property by Spouses Noynay as
28
illegal.1wphi1 In AMOSUP-PTGWO-ITF v. Decena, the Court essentially held that such similar failure' to validly cancel the contract,
meant that the possessor therein, similar to Spouses Noynay in this case, remained entitled to the possession of the property. In the
said case, the Court stated:

In the parallel case of Pagtalunan v. Dela Cruz Vda. De Manzano, which likewise originated as an action for unlawful detainer, we
affirmed the finding of the appellate court that, since the contract to sell was not validly cancelled or rescinded under Section 3(b) of
R.A. No. 6552, the respondent therein had the right to continue occupying unmolested the property subject thereof. WHEREFORE, the
petition is GRANTED. The July 16, 2012 Decision and October 15, 2012 Resolution of the Court of Appeals are hereby REVERSED and SET
ASIDE. The March 26, 2010 Decision of the Municipal Trial Court for Cities is REINSTATED.

SO ORDERED.
G.R. No. 182963 June 3, 2013

SPOUSES DEO AGNER and MARICON AGNER, Petitioners,

vs.
BPI FAMILY SAVINGS BANK, INC., Respondent.

DECISION

PERALTA, J.:

1 2
This is a petition for review on certiorari assailing the April 30, 2007 Decision and May 19, 2008 Resolution of the Court of Appeals in
3
CAG.R. CV No. 86021, which affirmed the August 11, 2005 Decision of the Regional Trial Court, Branch 33, Manila City.

On February 15, 2001, petitioners spouses Deo Agner and Maricon Agner executed a Promissory Note with Chattel Mortgage in favor of
Citimotors, Inc. The contract provides, among others, that: for receiving the amount of Php834, 768.00, petitioners shall pay Php
17,391.00 every 15th day of each succeeding month until fully paid; the loan is secured by a 2001 Mitsubishi Adventure Super Sport;
4
and an interest of 6% per month shall be imposed for failure to pay each installment on or before the stated due date.

On the same day, Citimotors, Inc. assigned all its rights, title and interests in the Promissory Note with Chattel Mortgage to ABN AMRO
5
Savings Bank, Inc. (ABN AMRO), which, on May 31, 2002, likewise assigned the same to respondent BPI Family Savings Bank, Inc.

For failure to pay four successive installments from May 15, 2002 to August 15, 2002, respondent, through counsel, sent to petitioners a
demand letter dated August 29, 2002, declaring the entire obligation as due and demandable and requiring to pay Php576,664.04, or
6
surrender the mortgaged vehicle immediately upon receiving the letter. As the demand was left unheeded, respondent filed on
October 4, 2002 an action for Replevin and Damages before the Manila Regional Trial Court (RTC).

7 8
A writ of replevin was issued. Despite this, the subject vehicle was not seized. Trial on the merits ensued. On August 11, 2005, the
Manila RTC Br. 33 ruled for the respondent and ordered petitioners to jointly and severally pay the amount of Php576,664.04 plus
interest at the rate of 72% per annum from August 20, 2002 until fully paid, and the costs of suit.

Petitioners appealed the decision to the Court of Appeals (CA), but the CA affirmed the lower courts decision and, subsequently, denied
the motion for reconsideration; hence, this petition.

Before this Court, petitioners argue that: (1) respondent has no cause of action, because the Deed of Assignment executed in its favor
did not specifically mention ABN AMROs account receivable from petitioners; (2) petitioners cannot be considered to have defaulted in
payment for lack of competent proof that they received the demand letter; and (3) respondents remedy of resorting to both actions of
9
replevin and collection of sum of money is contrary to the provision of Article 1484 of the Civil Code and the Elisco Tool Manufacturing
10
Corporation v. Court of Appeals ruling.

The contentions are untenable.

With respect to the first issue, it would be sufficient to state that the matter surrounding the Deed of Assignment had already been
considered by the trial court and the CA. Likewise, it is an issue of fact that is not a proper subject of a petition for review under Rule 45.
An issue is factual when the doubt or difference arises as to the truth or falsehood of alleged facts, or when the query invites calibration
of the whole evidence, considering mainly the credibility of witnesses, existence and relevancy of specific surrounding circumstances,
11
their relation to each other and to the whole, and the probabilities of the situation. Time and again, We stress that this Court is not a
trier of facts and generally does not weigh anew evidence which lower courts have passed upon.

As to the second issue, records bear that both verbal and written demands were in fact made by respondent prior to the institution of
12
the case against petitioners. Even assuming, for arguments sake, that no demand letter was sent by respondent, there is really no
need for it because petitioners legally waived the necessity of notice or demand in the Promissory Note with Chattel Mortgage, which
they voluntarily and knowingly signed in favor of respondents predecessor-in-interest. Said contract expressly stipulates:

In case of my/our failure to pay when due and payable, any sum which I/We are obliged to pay under this note and/or any other
obligation which I/We or any of us may now or in the future owe to the holder of this note or to any other party whether as principal or
guarantor x x x then the entire sum outstanding under this note shall, without prior notice or demand, immediately become due and
payable. (Emphasis and underscoring supplied)
A provision on waiver of notice or demand has been recognized as legal and valid in Bank of the Philippine Islands v. Court of
13
Appeals, wherein We held:

The Civil Code in Article 1169 provides that one incurs in delay or is in default from the time the obligor demands the fulfillment of the
obligation from the obligee. However, the law expressly provides that demand is not necessary under certain circumstances, and one of
these circumstances is when the parties expressly waive demand. Hence, since the co-signors expressly waived demand in the
14
promissory notes, demand was unnecessary for them to be in default.

15
Further, the Court even ruled in Navarro v. Escobido that prior demand is not a condition precedent to an action for a writ of replevin,
since there is nothing in Section 2, Rule 60 of the Rules of Court that requires the applicant to make a demand on the possessor of the
property before an action for a writ of replevin could be filed.

Also, petitioners representation that they have not received a demand letter is completely inconsequential as the mere act of sending it
would suffice. Again, We look into the Promissory Note with Chattel Mortgage, which provides:

All correspondence relative to this mortgage, including demand letters, summonses, subpoenas, or notifications of any judicial or
extrajudicial action shall be sent to the MORTGAGOR at the address indicated on this promissory note with chattel mortgage or at the
address that may hereafter be given in writing by the MORTGAGOR to the MORTGAGEE or his/its assignee. The mere act of sending any
correspondence by mail or by personal delivery to the said address shall be valid and effective notice to the mortgagor for all legal
purposes and the fact that any communication is not actually received by the MORTGAGOR or that it has been returned unclaimed to
the MORTGAGEE or that no person was found at the address given, or that the address is fictitious or cannot be located shall not excuse
16
or relieve the MORTGAGOR from the effects of such notice. (Emphasis and underscoring supplied)

The Court cannot yield to petitioners denial in receiving respondents demand letter. To note, their postal address evidently remained
unchanged from the time they executed the Promissory Note with Chattel Mortgage up to time the case was filed against them. Thus,
17
the presumption that "a letter duly directed and mailed was received in the regular course of the mail" stands in the absence of
satisfactory proof to the contrary.

18
Petitioners cannot find succour from Ting v. Court of Appeals simply because it pertained to violation of Batas Pambansa Blg. 22 or the
Bouncing Checks Law. As a higher quantum of proof that is, proof beyond reasonable doubt is required in view of the criminal nature
of the case, We found insufficient the mere presentation of a copy of the demand letter allegedly sent through registered mail and its
corresponding registry receipt as proof of receiving the notice of dishonor.

Perusing over the records, what is clear is that petitioners did not take advantage of all the opportunities to present their evidence in
the proceedings before the courts below. They miserably failed to produce the original cash deposit slips proving payment of the
monthly amortizations in question. Not even a photocopy of the alleged proof of payment was appended to their Answer or shown
during the trial. Neither have they demonstrated any written requests to respondent to furnish them with official receipts or a
statement of account. Worse, petitioners were not able to make a formal offer of evidence considering that they have not marked any
19
documentary evidence during the presentation of Deo Agners testimony.

Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of proving it; the burden rests on the defendant to
20
prove payment, rather than on the plaintiff to prove non-payment. When the creditor is in possession of the document of credit, proof
21
of non-payment is not needed for it is presumed. Respondent's possession of the Promissory Note with Chattel Mortgage strongly
22
buttresses its claim that the obligation has not been extinguished. As held in Bank of the Philippine Islands v. Spouses Royeca:

x x x The creditor's possession of the evidence of debt is proof that the debt has not been discharged by payment. A promissory note in
the hands of the creditor is a proof of indebtedness rather than proof of payment. In an action for replevin by a mortgagee, it is prima
facie evidence that the promissory note has not been paid. Likewise, an uncanceled mortgage in the possession of the mortgagee gives
23
rise to the presumption that the mortgage debt is unpaid.

Indeed, when the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been
24
extinguished by payment devolves upon the debtor who offers such defense to the claim of the creditor. The debtor has the burden of
25
showing with legal certainty that the obligation has been discharged by payment.

Lastly, there is no violation of Article 1484 of the Civil Code and the Courts decision in Elisco Tool Manufacturing Corporation v. Court of
26
Appeals.
In Elisco, petitioner's complaint contained the following prayer:

WHEREFORE, plaintiffs pray that judgment be rendered as follows:

ON THE FIRST CAUSE OF ACTION

Ordering defendant Rolando Lantan to pay the plaintiff the sum of 39,054.86 plus legal interest from the date of demand until the
whole obligation is fully paid;

ON THE SECOND CAUSE OF ACTION

To forthwith issue a Writ of Replevin ordering the seizure of the motor vehicle more particularly described in paragraph 3 of the
Complaint, from defendant Rolando Lantan and/or defendants Rina Lantan, John Doe, Susan Doe and other person or persons in whose
possession the said motor vehicle may be found, complete with accessories and equipment, and direct deliver thereof to plaintiff in
accordance with law, and after due hearing to confirm said seizure and plaintiff's possession over the same;

PRAYER COMMON TO ALL CAUSES OF ACTION

1. Ordering the defendant Rolando Lantan to pay the plaintiff an amount equivalent to twenty-five percent (25%) of his
outstanding obligation, for and as attorney's fees;

2. Ordering defendants to pay the cost or expenses of collection, repossession, bonding fees and other incidental expenses to
be proved during the trial; and

3. Ordering defendants to pay the costs of suit.

27
Plaintiff also prays for such further reliefs as this Honorable Court may deem just and equitable under the premises.

The Court therein ruled:

The remedies provided for in Art. 1484 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 Art. 1485. The condition that
the lessor has deprived the lessee of possession or enjoyment of the thing for the purpose of applying Art. 1485 was fulfilled in this case
by the filing by petitioner of the complaint for replevin to recover possession of movable property. By virtue of the writ of seizure issued
by the trial court, the deputy sheriff seized the vehicle on August 6, 1986 and thereby deprived private respondents of its use. The car
was not returned to private respondent until April 16, 1989, after two (2) years and eight (8) months, upon issuance by the Court of
Appeals of a writ of execution.

Petitioner prayed that private respondents be made to pay the sum of 39,054.86, the amount that they were supposed to pay as of
May 1986, plus interest at the legal rate. At the same time, it prayed for the issuance of a writ of replevin or the delivery to it of the
motor vehicle "complete

with accessories and equipment." In the event the car could not be delivered to petitioner, it was prayed that private respondent
Rolando Lantan be made to pay petitioner the amount of 60,000.00, the "estimated actual value" of the car, "plus accrued monthly
rentals thereof with interests at the rate of fourteen percent (14%) per annum until fully paid." This prayer of course cannot be granted,
even assuming that private respondents have defaulted in the payment of their obligation. This led the trial court to say that petitioner
28
wanted to eat its cake and have it too.

In contrast, respondent in this case prayed:

(a) Before trial, and upon filing and approval of the bond, to forthwith issue a Writ of Replevin ordering the seizure of the
motor vehicle above-described, complete with all its accessories and equipments, together with the Registration Certificate
thereof, and direct the delivery thereof to plaintiff in accordance with law and after due hearing, to confirm the said seizure;

(b) Or, in the event that manual delivery of the said motor vehicle cannot be effected to render judgment in favor of plaintiff
and against defendant(s) ordering them to pay to plaintiff, jointly and severally, the sum of 576,664.04 plus interest and/or
late payment charges thereon at the rate of 72% per annum from August 20, 2002 until fully paid;
 (c) In either case, to order defendant(s) to pay jointly and severally:

(1) the sum of 297,857.54 as attorneys fees, liquidated damages, bonding fees and other expenses incurred in the
seizure of the said motor vehicle; and

(2) the costs of suit.

29
Plaintiff further prays for such other relief as this Honorable Court may deem just and equitable in the premises.

Compared with Elisco, the vehicle subject matter of this case was never recovered and delivered to respondent despite the issuance of a
writ of replevin. As there was no seizure that transpired, it cannot be said that petitioners were deprived of the use and enjoyment of
the mortgaged vehicle or that respondent pursued, commenced or concluded its actual foreclosure. The trial court, therefore, rightfully
granted the alternative prayer for sum of money, which is equivalent to the remedy of "exacting fulfillment of the obligation." Certainly,
30
there is no double recovery or unjust enrichment to speak of.1wphi1

All the foregoing notwithstanding, We are of the opinion that the interest of 6% per month should be equitably reduced to one percent
(1%) per month or twelve percent (12%) per annum, to be reckoned from May 16, 2002 until full payment and with the remaining
outstanding balance of their car loan as of May 15, 2002 as the base amount.

Settled is the principle which this Court has affirmed in a number of cases that stipulated interest rates of three percent (3%) per month
31
and higher are excessive, iniquitous, unconscionable, and exorbitant. While Central Bank Circular No. 905-82, which took effect on
January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing
in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would
32
either enslave their borrowers or lead to a hemorrhaging of their assets. Since the stipulation on the interest rate is void for being
contrary to morals, if not against the law, it is as if there was no express contract on said interest rate; thus, the interest rate may be
33
reduced as reason and equity demand.

WHEREFORE, the petition is DENIED and the Court AFFIRMS WITH MODIFICATION the April 30, 2007 Decision and May 19, 2008
Resolution of the Court of Appeals in CA-G.R. CV No. 86021. Petitioners spouses Deo Agner and Maricon Agner are ORDERED to pay,
jointly and severally, respondent BPI Family Savings Bank, Inc. ( 1) the remaining outstanding balance of their auto loan obligation as of
May 15, 2002 with interest at one percent ( 1 o/o) per month from May 16, 2002 until fully paid; and (2) costs of suit.

SO ORDERED.
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) separate documents, each
2
denominated as Lease Schedule. Likewise forming parts of the basic lease agreement were two (2) separate documents denominated
3
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--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 type of demand
4
letter dated February 24, 1998 to GIRAFFE.

The demand went unheeded.

5
Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING instituted the instant case against GIRAFFE. In its complaint, docketed
6
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 LEASINGs 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 GIRAFFEs 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 GIRAFFEs 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) GIRAFFEs 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--vis their contract, treated disguised transactions technically tagged as
financing lease, like here, as creating a different contractual relationship. Notable among the Courts decisions because of its parallelism
10
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 buyers
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 reversible
11
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 petitioner shall
13
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 GIRAFFEs 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 years 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 than the
14
petitioners letter to the respondent dated November 11, 1996 approving in the latters 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.

15
As may be noted, petitioners demand letter fixed the amount of 8,248,657.47 as representing the respondents "rental" balance
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 years 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, in
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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.

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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 petitioners 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 from
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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
19
propositions indicating a choice of either. When "or" is used, the various members of the enumeration are to be taken separately.

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

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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
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the complaint for a sum of money with prayer for replevin to recover possession of the office equipment. By virtue of the writ of
seizure issued by the trial court, the petitioner has effectively deprived respondent of their use, a situation which, by force of the Recto
Law, in turn precludes the former from maintaining an action for recovery of "accrued rentals" or the recovery of the balance of the
25
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 courts decision is AFFIRMED.

Costs against petitioner.

SO ORDERED.