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SEPTEMBER 3, 2018 - 2 Hours

QUIZ QUESTIONS

In Caoili vs CA, what was the document that was used by the SC as one of the basis in concluding that
the contract between Lucinda Viola de Santiago and the Caoili spouses was a contact of sale?

Give an example of a contract of sale that must comply with the statute of frauds

How is an auction sale perfected?

In Dizon vs Dizon, why couldn’t the sheriff compel the judgement debtor to sign the supplemental
minutes of sheriff’s sale?

When may the seller bid in an auction sale?

DISCUSSION PROPER

Because sale is a consensual contract, what form is required to be executed by the parties for its
validity? If no document is executed does not mean that no contract of sale was perfected.

Caoili vs CA

What was the only written (aside from the acknowledgement receipts for partial payment, for transfer
of title, for paper works) what was that document considered by the courts as one of the proofs for
the presence of sale? Denominated addendum to the agreement dated august 8, 1990.

Because when the seller, Mrs. Santiago, failed to present to the Caoili spouses a clean
title in her name, the property was a conjugal property - the husband died, she promised to
present a clean title. She said if I cannot present a clean title within this period, I will return to
you double the amount that you have paid. But when the period arrived she failed to present a
clean title in her name. so the Caoili spouses demanded for the return of twice the amount they
paid and she said “for what contract?”, the Caoili spouses said because you (inaudible. Sorry)
twice the amount that we paid in our contract of sale. She said what document is your proof
that we have a contract of sale?

SC said The absence of the formal deed of sale does not render the formal agreement
null and void or without any effect. The provision of Article 1358 of the Civil Code on the
necessity of a public document is only for convenience, not for validity or enforceability. It does
not mean that no contract has been perfected so long as the essential requisites of consent of
the contracting parties, object, and cause of the obligation are present
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Is a contract of sale over certain real property, a parcel of land, is it required, for the validity of the
contract, that the description of the property be stated in the written copy of the contract? No. for as
long as the parties can identify the object of the contract. The failure of the parties to specify with
absolute clarity the object of a contract by including its technical description is of no moment. What is
important is that there is, in fact, an object that is determinate or at least determinable, as subject of
the contract of sale. The contract of sale under Act No. 496 is only a suggested form, it is not a
mandatory form that has to be strictly followed.

Limketkai Sons Milling, Inc. vs CA

There was a contract of sale, drafter presumably by a lawyer but it was not signed by the parties,
it was not notarized. Does it negate the existence of contract of sale? The fact that the document,
which is supposed to evidence the sale, is not signed or not notarize does not negate the existence of a
contract. The court said no. The fact that the sale still has to be signed and notarized does not mean that
the contract has already been perfected. Article 1358 is, again, only for convenience.

But there are certain contracts whose language must be in writing or at least must be evidence by a
memorandum for them, not be valid, but for them to be enforceable.

Must all sales of real property be evidence by a document in order for them to be enforceable? What
if there was a partial execution of the contract? Does the stature of fraud apply? No (answer for last
question).

In sale of movables or goods, is it necessary that the original purchase orders be presented by the
seller to the buyer before the seller can enforce payment of the price? No.

Can the buyer require the presentation of the original invoices or the original delivery receipts or the
original purchase orders before it can be bound to pay? No.

Manila Mining Corp. (MMC) vs. Tan

Tan delivered electrical supplies and electrical materials to Manila Mining. All the
supplies and materials were accepted. But when Manila mining failed to pay the balance of the
price, and Tan demanded payment, it claimed that there was no perfected contract between
them because mere delivery by Mr. Tan does not automatically give rise to the obligation to pay.
It claimed that it never consented to the sale.

The court said that in this case the purchase owner constituted accepted offers when
Tan supplied the electrical materials to MMC . Hence, it cannot evade its obligation to pay by
claiming lack of consent to the perfected contracts of sale. The invoices furnished the details of
the transactions.

But of course, the buyer has to be given reasonable opportunity to examine the things
or the fruits or the object of the sale before it is delivered. And in fact if it is a sale by description
or by sample, the thing must correspond to the description. Or if the sale by sample, the bulk
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must correspond to the sample. If it is a sale of description and sample, the bulk must
correspond not only to the sample but also to the description.

Where is a thing perfected? In the place where there was a meeting of the minds took place. If you
cannot determine the place where the meeting of the minds took place, then the place of perfection is
the place where the acceptance was.

Who bares the expenses for the execution and registration of the sale? Seller. As well as including the
goods in a deliverable sale? Seller.

AUCTION SALE

Ordinary auction sale – where people voluntarily sell items

When do you know that the sale is perfected? By the fall of the hammer

Before the fall of the hammer, can the bidder withdraw his bid? Yes. Can the seller withdraw the
items? Yes. Unless the auction is announced to be without reservation of the seller.

Can the seller bid in an auction sale? As a general rule, No it cannot. (ALWAYS ANSWER BASED ON THE
GENERAL RULE) No, unless the right to bid has been expressly reserved

If he bids or causes others to bid, the sale is considered fraudulent and the effect is of the contract will
be void with no force and effect.

Can a seller as a matter of right, reject all kind of bids? Yes,

Leoquinco v Postal Savings Bank

Postal Savings Bank posted an announcement for an auction sale of a parcel of land.
Leoquinco was one of the bidders but through the announcement of Postal Savings Bank, there
was already an express announcement that they reject any bids. The Leoquinco claim to be the
highest bidder but this bid was rejected by the Board of Directors.

Can the Leoquinco insist? No

Take Note: the owner of the property offered for sale at auction has the right to
prescribe the manner, conditions and terms of sale and where these are reasonable and
are made known to the buyer, they are binding upon them.

Sale by Sample and / or Description

a. The bulk of the goods must correspond to either or both
b. The buyer must have an opportunity to compare
c. Effect: the contract maybe rescinded at the option of the buyer
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Pacific Commercial v Ermita Market

What was the subject of the sale? Automatic Refrigerating Machine (made to
order Refrigerating Machine). Pacific delivered the refrigerating machine based exactly
on the description of Ermita but Ermita wanted to use for another purpose not fit for
the purpose it was manufactured, as a result it did not function. Now, Ermita did not
want to pay the balance of the purchase price.

Held: The fact that Ermita could not use the machine satisfactorily in the three
cold stores divisions cannot be attributed to plaintiff’s fault; the machine was strictly in
accordance with the written contract between the parties, and the defendant can
hardly honestly say that there was any deception by the plaintiff.

Sale of Personality Payable by Installments (RECTO LAW)

What is Recto Law?

There are two laws that need to know and distinguish:

RECTO (older)
-refers to Claro M. Recto
-found in Civil Code
-rights of an installment sale of personal property

MACEDA (new)
-refers to Ernesto Maceda
-found in RA 6652
-sale of real property

Take Note on Double Sales (BAR purposes)

What are the alternative remedies in case on non-payment in sale of personal property?

a. To exact fulfillment of obligation

b. Cancel the sale should the vendee fail to pay two or more installments (not months, year but
INSTALLMENTS) ; rescission has a consequence of mutual restitution
But there are instances that the Seller only issued TRUST RECEIPTS, especially on appliance
stores or dealers. So that the seller can immediately pull out the item whenever the buyer
defaulted on its installments (illegal and immoral)

c. Foreclose the chattel mortgage (if one was constituted) should the vendee fail to pay two or
more installments. But there may be no further action to recover the unpaid balance. A
contrary stipulation is void.
GR in foreclosure of mortgage: the creditor can recover deficiency
Except: This article

The remedies instituted in Recto Law are Alternative. The exercise of one bars the exercise of others.
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What if the buyer waives or agrees that in case of foreclosure he still agrees to pay the unpaid amount
of the price? The specific provision of the law, the waiver is VOID. But forfeiture of installment is not
void.

Macondray v De Santos

There was a chattel mortgage in the case at bar over a certain vehicle; one of the
conditions of the chattel mortgage was if the subject of the mortgage was damaged, Macondray
may immediately foreclosed the mortgage. The vehicle met an accident so the petitioner
immediately foreclosed the vehicle and subject for sale but the proceeds only amounted to Php
50. Macondray sued for the deficiency and De Santos invoked for the Recto Law. Was it proper
for the De Santos invoked for the Recto law?

What was secured by the chattel Mortgage? Was there a sale of personal property
here? The case mentioned that there was a promissory noted secured by the chattel mortgage,
there was no sale mentioned here.

Levy Hermanos v Gervacio

This was a sale of personal property

Recto law is applicable because the mode of payment was through a down payment and the
balance was to be paid on a certain day. It was a straight sale and there was a default on the
part of the buyer and so the seller foreclose the mortgage, sold the vehicle but the proceeds
were not enough to pay the balance of the purchase price. So seller sued for the deficiency and
buyer said that he invoked the RECTO LAW. But Recto law was not applicable.

IMPORTANT POINTS IN THE CASE OF DELA CRUZ vs ASIAN

 REMEDIES OF UNPAID SELLER OF PERSONAL PROPERTY PAYABLE IN INSTALLMENT

The instant case is covered by the so-called "Recto Law", now Art. 1484 of the New Civil Code, which
provides: "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." In this jurisdiction, the three (3) remedies provided for in the "Recto Law" are
alternative and not cumulative; the exercise of one would preclude the other remedies. Consequently,
should the vendee-mortgagor default in the payment of two or more of the agreed installments, the
vendor-mortgagee has the option to avail of any of these three (3) remedies: either to exact
fulfillment of the obligation, to cancel the sale, or to foreclose the mortgage on the purchased chattel,
if one was constituted.
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 EFFECT OF FAILURE OF VENDOR TO FORECLOSE THE MORTGAGED PROPERTY.

It is thus clear that while ASIAN eventually succeeded in taking possession of the mortgaged vehicle, it
did not pursue the foreclosure of the mortgage as shown by the fact that no auction sale of the vehicle
was ever conducted. "Under the law, the delivery of possession of the mortgaged property to the
mortgagee, the herein appellee, can only operate to extinguish appellant's liability if the appellee had
actually caused the foreclosure sale of the mortgaged property when it recovered possession thereof

It is worth noting that it is the fact of foreclosure and actual sale of the mortgaged chattel that bar
recovery by the vendor of any balance of the purchaser's outstanding obligation not satisfied by the sale
(New Civil Code, par. 3, Article 1484). As held by this Court, if the vendor desisted, on his own initiative,
from consummating the auction sale, such desistance was a timely disavowal of the remedy of
foreclosure, and the vendor can still sue for specific performance" Consequently, in the case before Us,
there being no actual foreclosure of the mortgaged property, ASIAN is correct in resorting to an ordinary
action for collection of the unpaid balance of the purchase price.

 POSSESSION OF MORTGAGED PROPERTY SHOULD BE RETURNED TO MORTGAGEE-VENDEE

UPON PAYMENT OF UNPAID BALANCE
We note however that the trial court, as well as the Court of Appeals failed to consider that the vehicle
was already in the possession of ASIAN when it directed petitioners herein to pay P184,466.67
representing the balance of the purchase price of the mortgaged property. Law and equity will not
permit ASIAN to have its cake and eat it too, so to speak. By allowing ASIAN to retain possession of the
vehicle and then directing petitioners to pay the unpaid balance would certainly result in unjust
enrichment of the former. Accordingly, the ownership and possession of the vehicle should be returned
to petitioners by ASIAN in the condition that it was when delivered to it, and if this be no longer feasible,
to deduct from the adjudged liability of petitioners the amount of P60,000.00, its corresponding
appraised value.

Dela Cruz vs Asian

Facts: On 22 September 1982, the spouses Romulo de la Cruz and Delia de la Cruz, and one Daniel
Fajardo, petitioners herein, purchased on installment basis one (1) unit Hino truck from Benter Motor
Sales Corporation (BENTER for brevity). To secure payment, they executed in favor of BENTER a chattel
mortgage over the vehicle 1 and a promissory note for P282,360.00 payable in thirty (30) monthly
installments of P9,412.00. 2 On the same date, BENTER assigned its rights and interest over the vehicle
in favor of private respondent Asian Consumer and Industrial Finance Corporation (ASIAN for brevity). 3
Although petitioners initially paid some installments they subsequently defaulted on more than two (2)
installments. Thereafter, notwithstanding the demand letter of ASIAN, 4 petitioners failed to settle their
obligation.

On 26 September 1984, by virtue of a petition for extrajudicial foreclosure of chattel mortgage, the
sheriff attempted to repossess the vehicle but was unsuccessful because of the refusal of the son of
petitioner, Rolando de la Cruz to surrender the same. Hence, the return of the sheriff that the service
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was not satisfied.

On 10 October 1984, petitioner Romulo de la Cruz brought the vehicle to the office of ASIAN and left it
there where it was inventoried and inspected.

On 27 November 1984, ASIAN filed an ordinary action with the court a quo for collection of the balance
of P196,152.99 of the purchase price, plus liquidated damages and attorney's fees.

Petitioners take exception. They nevertheless insist that he should not later be allowed to change course
midway in the process, abandon the foreclosure and shift to other remedies such as collection of the
balance, especially after having recovered the mortgaged chattel from them and while retaining
possession thereof.

Held: The instant case is covered by the so-called "Recto Law", now Art. 1484 of the New Civil Code,
which provides: "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." In this jurisdiction, the
three (3) remedies provided for in the "Recto Law" are alternative and not cumulative; the exercise of
one would preclude the other remedies. Consequently, should the vendee- mortgagor default in the
payment of two or more of the agreed installments, the vendor-mortgagee has the option to avail of
any of these three (3) remedies: either to exact fulfillment of the obligation, to cancel the sale, or to
foreclose the mortgage on the purchased chattel, if one was constituted. (Pacific Commercial Co. vs. De
la Rama)

It is thus clear that while ASIAN eventually succeeded in taking possession of the mortgaged vehicle, it
did not pursue the foreclosure of the mortgage as shown by the fact that no auction sale of the vehicle
was ever conducted. "Under the law, the delivery of possession of the mortgaged property to the
mortgagee, the herein appellee, can only operate to extinguish appellant's liability if the appellee had
actually caused the foreclosure sale of the mortgaged property when it recovered possession thereof.
Consequently, in the case before Us, there being no actual foreclosure of the mortgaged property,
ASIAN is correct in resorting to an ordinary action for collection of the unpaid balance of the purchase
price.

IMPORTANT POINTS IN THE CASE OF MAGNA INC. vs COLARINA

 COMPARISON OF MAGNA CASE & ASIAN CASE

It is clear that while ASIAN eventually succeeded in taking possession of the mortgaged vehicle, it did
not pursue the foreclosure of the mortgage as shown by the fact that no auction sale of the vehicle was
ever conducted. Under the law, the delivery of possession of the mortgaged property to the mortgagee,
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the herein appellee, can only operate to extinguish appellant's liability if the appellee had actually
caused the foreclosure sale of the mortgaged property when it recovered possession thereof.

In the case of Magna, since the vehicle is already in the possession of Magna Financial Services Group,
Inc. and it has persistently and consistently avowed that it elects the remedy of foreclosure, the Court
of Appeals, thus, ruled correctly in directing the foreclosure of the said vehicle without more.

Judge: Maybe be one of the factors that led Supreme Court to decide why Magna should foreclose the
property is that, in the case of Magna, Colarina vouluntarily surrendered the vehicle, whereas in Asian,
the buyer did not voluntarily surrender the truck. Because, I would assume that if the buyer voluntarily
surrendered the property to ASIAN, then ASIAN could have foreclosed the property. So, that’s why in
ASIAN case, the SC held that it can elect to choose the remedy of specific performance.

Magna vs Colarina

Facts: Respondent bought a Multicab from petitioner. To secure the obligation, respondent executed a
promissory note and a chattel mortgage of the vehicle in favor of the petitioner. Respondent then
defaulted in payment. Petitioner filed a complaint for foreclosure of chattel mortgage with replevin. A
writ of replevin was issued and the vehicle was turned over to Magna financial. The trial court and RTC
decided in favor of petitioner and ordered respondent to pay the unpaid balance and foreclose the
chattel mortgage. The Court of Appeals reversed the decision.

Issue: Whether MFS can avail of the two remedies, payment of unpaid balance and foreclosure of
chattel mortgage?

Held: No. Petitioner, having elected the foreclosure of chattel mortgage, is not entitled to be paid the
balance even though it did not actually foreclose the chattel mortgage. Article 1484, paragraph 3,
provides that if the vendor has availed himself of the right to foreclose the chattel mortgage, he shall
have no further action against the purchaser to recover any unpaid balance of the purchase price. Any
agreement to the contrary shall be void. In other words, in all proceedings for the foreclosure of chattel
mortgages executed on chattels which have been sold on the installment plan, the mortgagee is limited
to the property included in the mortgage. The petitioner’s prayer contains two remedies, payment of
unpaid balance and foreclosure of chattel mortgage. Such a scheme is not only irregular but is a flagrant
circumvention of the prohibition of the law. By praying for the foreclosure of the chattel, Magna
Financial Services Group, Inc. renounced whatever claim it may have under the promissory note.

IMPORTANT POINTS IN THE CASE OF ELISCO TOOL MFG. CORP vs CA

 CONTRACTS; TYPICAL COMPANY CAR PLANS

Rolando Lantan acquired the vehicle in question under a car plan for executives of the Elizalde group of
companies. Under a typical car plan, the company advances the purchase price of a car to be paid back
by the employee through monthly deductions from his salary. The company retains ownership of the
motor vehicle until it shall have been fully paid for. However, retention of registration of the car in the
company's name is only a form of a lien on the vehicle in the event that the employee would abscond
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before he has fully paid for it. There are also stipulations in car plan agreements to the effect that should
the employment of the employee concerned be terminated before all installments are fully paid, the
vehicle will be taken by the employer and all installments paid shall be considered rentals per
agreement.

 CONTRACT OF SALE ON INSTALLMENT DENOMINATED AS CONTRACT OF LEASE,

ACKNOWLEDGED; REMEDIES OF VENDOR
This Court has 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, like this case. Hence, the contract being one
of sale on installment, the Court of Appeals correctly applied Art. 1484 and 1485 of the Civil Code which
provides remedies the vendor may exercise. 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.

 SPECIFIC PERFORMANCE; ALREADY SATISFIED IN CASE AT BAR.

This case should be considered as one for specific performance, pursuant to Art. 1484(1), consistent
with its prayer with respect to the unpaid installments. The prayer for the issuance of a writ of replevin
is only for the purpose of insuring specific performance by private respondents. However, private
respondents could no longer be held liable for the payment of interest on unpaid monthly "rentals" or
installments because it was entered into in pursuance of a car plan adopted by the company for the
benefit of its deserving employees. Indeed, private respondent's default in paying installments was due
to the cessation of operations of Elizalde Steel Corporation, petitioner's sister company. Petitioner's
acceptance of payments made by private respondents through cash and checks could have been
impelled solely by petitioner's inability to deduct the amortizations from private respondent Rolando
Lantan's salary which he stopped receiving when his employment was terminated in September 1982.
Apparently, to minimize the adverse consequences of the termination of private respondent's
employment, petitioner accepted even late payments. That petitioner accepted payments from private
respondent Rolando Lantan more than two (2) years after the latter's employment had been terminated
constitutes a waiver of petitioner's right to collect interest upon the delayed payments. The 2%
surcharge is not provided for in the agreement. Its collection by the company would in fact run counter
to the purpose of providing "added emoluments" to its deserving employees. Consequently, the total
amount of P61,070.94 already paid to petitioner should be considered payment of the full purchase
price of the car or the total installments paid.

Elisco Tool and Manufacturing Corp. vs. CA

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Rolando Lantan was employed at the Elisco Tool Manufacturing Corporation as head of its cash
department. On January 9, 1980, he entered into an agreement with the company, called lease with
option to buy car within 5 years. That owner ship shall retain with the company until full payment and
all necessary expenses for maintenance shall be borne by the employee. Subsequently the company has
ceased operation and the employee was laid off. It took the company 2 years to institute proceedings.

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.

The so-called monthly rentals are in truth form monthly amortization on the price of the car. The
contract being one of sale on installment, the Court of Appeals correctly applied to it the following
provisions of the Civil Code:

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.

The remedies provided for in Art. 1484 are alternative, not cumulative. The exercise of one bars the
exercise of the others. 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.
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The employee having found to have paid more than the value of the thing P60,000 should be considered
as payment of the full purchase price. It further petitioner to pay private respondents the amount of
P431.94 as excess payment, as well as rentals at the rate of P1,000 a month for depriving private
respondents of the use of their car.

IMPORTANT POINTS IN THE CASE OF PCI vs GIRAFFE-X

 WHEN LESSOR DEPRIVES THE LESSEE OF POSSESSION OF THE LEASED EQUIPMENT

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.
DIEcHa

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.

PCI Leasing And Finance Inc vs Giraffe-X Creative Imaging Inc

Facts: PCI Leasing and Giraffe entered into a Lease Agreement whereby PCI Leasing leased several
machineries for a rent of P116, 878. 21/month for 36 months and P181, 362/month for 36 months for a
total of P10, 736, 647.56. Giraffe paid the amount of P3, 120,000 as guaranty deposit. However, after 1
year, Giraffe defaulted in its monthly-rental payment obligations. After a 3-month default, PCI
demanded a formal pay-or-surrender-equipment type but the demand went unheeded thus PCI
instituted the instant case and prayed for the issuance for the writ of replevin. The trial court issued a
writ of replevin. Giraffe filed a motion to dismiss arguing that PCI was barred from pursuing any other
claim since the seizure of the 2 leased equipments because the contract was in reality a lease with
option to buy. The RTC granted the motion to dismiss ruling that it was akin to a contract covered by art.
1485 hence can no longer pursue its claim. Hence the case at bar.

Issue: W/N the contract was covered by Art. 1485 and 1484 hence barred PCI from recovering.

Held: YES. A financial lease is one 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. In the case at bar, PCI acquired the office equipments for
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their subsequent lease to Giraffe, with the latter undertaking to pay a monthly fixed rental for the whole
36 months. Giraffe made a guaranty deposit. Their agreement was that in case Giraffe fails to pay any
rental due, PCI will have cumulative remedies, such as, to recover all rentals for the remaining term of
the lease and recover all amounts advanced for Giraffe’s account.

When PCI demanded for payment of the balance, it made a demand for either of the choices. Either to
pay the balance hence Giraffe can keep the equipment or surrender them if he cannot. The so-called
monthly rentals were in fact monthly amortizations of the price of the leased office equipment. The
imperatives of equity, the contractual stipulations and the actuations of the parties, the SC has treated a
purported financial lease as actually a sale of movable property on installments and prevented recovery.
The Lease Agreement is in reality a lease with an option to purchase the equipment. This has been made
manifest by the actions of PCI itself. In choosing replevin, PCI waived its right to bring an action to
recover unpaid rentals.

SALE OF REAL PROPERTY ON INSTALLMENTS (MACEDA LAW)

RA 6552) Realty Installment Buyer Protection Act. Applicability – Real estate bought on installment basis.

Transactions covered: sale/ financing of real estate on installment payments, including residential
condominium apartments, EXCEPT:

. Industrial lots 


. Commercial building 


. Sales to tenants under RA 3844 


Rules when the buyer has paid at least 2 years of installments. Rights of Buyers

1. To pay without additional interest the unpaid installments (cash surrender value) within the grace
period 


2. Grace period is 1 month for every year of installment payments made 
Limitation: The right can be
exercised only every 5 years 


In case of cancellation of contract of sale –

1. The seller shall refund to the buyer the cash surrender value of the payments on the property
equivalent to 50% of the total payments made.

2. After 5 years of installments, additional 5% per year, but shall not exceed 90% of total payments
made

Provided:

▪ The actual cancellation of the contract shall take place after 30 days from receipt by
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the buyer 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 buyer.

E. Sale of real property on installments (Maceda Law, RA 6652 [Realty Installment Buyer Protection
Act])
a. Applicability
The Maceda Law applies to real estate bought on installment basis.

The transactions covered by the law are sale/financing of real estate on installments,
including residential condominium apartments, except:
1. Industrial lots;
2. Commercial buildings; and
3. Sales to tenants under RA 3844.

Note: It applies to both contract of sale and contract to sell.

b. Rules when the buyer has paid at least two years of installments
After having paid installments for at least two years, the buyer is entitled to a
mandatory grace period of one for every year of installment payments made, to pay the
unpaid installments without interest.

Note: Two years of installments should be understood as 24 months of installments, and

not simply 24 months from the purchase date.
1) Rights of buyer
1. Right to update payments;
2. Right to sell or assign his rights to another person, which must be done
by a notarial act;
3. Right to reinstate the contract by updating the account during the grace
period and before actual cancellation of the contract; and
4. Right to be refunded of the cash surrender value of his payments if the
contract is cancelled.

i) In case of default payment

The buyer is entitled to a mandatory grace period of one for every year
of installment payments made, to pay the unpaid installments without
interest.
aa) Limitation
This right can only be exercised every 5 years.
Gatchalian Realty, Inc. v. Angeles
Facts:
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Angeles purchased a house and lot under a Contract to Sell from

Gatchalian payable for a period of ten years.

After 48 monthly installment payments, Angeles failed to satisfy

her monthly installments with Gatchalian.

Several demands were made by Gatchalian but the same were

continually disregarded by Angeles. Finally, Gatchalian served
Angeles with a Notice of Notarial Rescission thru registered mail.

Consequently, Angeles was furnished by Gatchalian a demand

letter demanding her to pay the outstanding reasonable rentals
for her use and occupation of the house and lot to date and to
vacate the same. She was informed in said letter that the 50%
refundable amount that she is entitled to has already been
deducted with the reasonable value for the use of the
properties.

Issues:
1. Whether or not there is a valid cancellation of the
Contract to Sell;
2. Whether or not Angeles is entitled to the benefit of
Maceda Law or RA 6552; and
3. Whether or not Angeles can be ejected for non-
payment of monthly installments?

Ruling:
1. NO. A valid and effective cancellation under RA 6552
must comply with the mandatory twin requirements of
a notarized notice of cancellation and a refund of the
cash surrender value.

Although there was a notarial rescission sent thru

registered mail but it was not accompanied by the
refund of the cash surrender value equivalent to 50% of
the total payments made.

For failure to refund the cash surrender value to the

defaulting buyer Angeles, Gatchalian cannot deduct the
same for the amount of the rentals due to Gatchalian as
there was nothing in the contract to apply
compensation under Art. 1279 of the New Civil Code.
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2. YES. Angeles is entitled to receive the cash surrender

value equivalent to 50% of the total payments made as
provided for by Section 3 (b) of RA 6552.

3. NO. In the absence of a valid cancellation of the

Contract to Sell between Gatchalian and Angeles, the
contract remains valid and existing. Thus the complaint
for unlawful detainer would be a violation of the
mandate of RA 6552.

ii) In case of cancellation of sale

If the contract is cancelled, the seller shall refund to the buyer the cash
surrender value of the payments on the property equivalent to
50% of the total payments made, and after 5 years of installments,
additional 5% per year, but shall not exceed 90% of total payments
made.

Provided:
1. The actual cancellation of the contract shall take place after 30
days from receipt by the buyer of the notice of cancellation or
the demand for rescission of the contract by a notarial act; and
2. Upon full payment of the cash surrender value to the buyer.

aa) When cancellation takes effect

Pagtalunan v. de Manzano
Facts:
Patricio, petitioner’s stepfather and predecessor-in-interest,
entered into a Contract to Sell with respondent, wife of
Patricio’s former mechanic, Teodoro Manzano, whereby the
former agreed to sell, and the latter to buy, a house and lot
which formed half of a parcel of land. The consideration of
P17,800 was agreed to be paid in the following manner: P1,500
as downpayment upon execution of the Contract to Sell, and
the balance to be paid in equal monthly installments of P150 on
or before the last day of each month until fully paid.

It was also stipulated in the contract that respondent could

immediately occupy the house and lot; that in case of default in
the payment of any of the installments for 90 days after its due
date, the contract would be automatically rescinded without
need of judicial declaration, and that all payments made and all
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improvements done on the premises by respondent would be

considered as rentals for the use and occupation of the property
or payment for damages suffered, and respondent was obliged
to peacefully vacate the premises and deliver the possession
thereof to the vendor.

Petitioner claimed that respondent paid only P12,950. She

allegedly stopped paying after December 1979 due to personal
problems with the petitioner. Petitioner asserted that when
respondent ceased paying her installments, her status of buyer
was automatically transformed to that of a lessee. Therefore,
she continued to possess the property by mere tolerance of
Patricio.

Issue:
Whether or not the respondent has the right to occupy the
premises?
Ruling:
NO. The Court agrees with petitioner that the cancellation of
the Contract to Sell may be done outside the court particularly
when the buyer agrees to such cancellation.

However, the cancellation of the contract by the seller must be

in accordance with Sec. 3.

First, the demand letter made by the petitioner to vacate the

premises does not constitute notice of cancellation. Second,
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.

Therefore, a deed of absolute sale shall be made after payment

of purchase price.

c. Rules when the buyer has paid less than two years installments
1. The buyer has at least 60 days grace period within which to pay the installment
due; and
2. After the grace period, contract may be cancelled.

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

d. Cases:
1) Where the buyer paid less than 2 years installments
Ramos v. Heruela
Facts:
The spouses Heruela paid less than two years of installments. However, there
was neither a notice of cancellation nor demand for rescission by notarial act to
the spouses Heruela.

Issue:
Whether or not there is a valid rescission?

Ruling:
NO. In Olympia Housing, Inc. v. Panasiatic Travel, Corp., the Court ruled that the
vendor could go to court to demand judicial rescission in lieu of a notarial act of
rescission. However, an action for reconveyance is not an action for rescission.
The Court explained in Olympia:

The action for reconveyance filed by petitioner was predicated on an

assumption that its contract to sell executed in favor of respondent buyer had
been validly cancelled or rescinded. The records would show that, indeed, no
such cancellation took place at any time prior to the institution of the action for
reconveyance.

Not only is an action for reconveyance conceptually different from an action for
rescission but that, also, the effects that flow from an affirmative judgment in
either case would be materially dissimilar in various respects. The judicial
resolution of a contract gives rise to mutual restitution which is not necessarily
the situation that can arise in an action for reconveyance. Additionally, in an
action for rescission (also often termed as resolution), unlike in an action for
reconveyance predicated on an extrajudicial rescission (rescission by notarial
act), the Court, instead of decreeing rescission, may authorize for a just cause
the fixing of a period.

In the present case, there being no valid rescission of the contract to sell, the
action for reconveyance is premature. Hence, the spouses Heruela have not lost
the statutory grace period within which to pay. The trial court should have fixed
the grace period to sixty days conformably with Section 4 of RA 6552.

2) Sale of subdivision lot on installments where the buyer defaulted

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Active Realty & Development Corporation v. Daroya

Facts:
Active Realty & Development Corporation entered into a Contract to Sell with
respondent Necita Daroya whereby the latter agreed to buy a 515 sq. m. lot for
P224,025.00 in petitioner’s subdivision to be paid in amortization within 5 years,
valued at P346,367.00, a figure higher than that stated as the contract price.
The buyer defaulted in three (3) monthly amortizations. Petitioner sent
respondent a notice of cancellation2 of their contract to sell. When respondent
offered to pay for the balance of the contract price, petitioner refused as it has
allegedly sold the lot to another buyer. The respondent has already paid for 4
years, which is already more than the contract price.

Issue:
Whether or not Active Realty & Development Corporation can be compelled to
refund to the Daroya the value of the lot or to deliver a substitute lot at
Daroya’s option?

Ruling:
YES. We hold that the contract to sell between the parties remains valid and
subsisting. Following Section 3(a) of R.A. No. 6552, Daroya has the right to offer
to pay for the balance of the purchase price, without interest, which she did in
this case. However since the lot has been sold to another party, it is only just
and equitable that the Active Realty & Development Corporation be ordered to
refund to Daroya the actual value of the lot resold, i.e., P875,000.00, with 12%
interest per annum.

F. PD No. 957
a. Important provisions:
1) Secs. 4, 5, 7, 18, 23, 24, 25
Section 4. Registration of Projects. The registered owner of a parcel of land who
wishes to convert the same into a subdivision project shall submit his
subdivision plan to the Authority which shall act upon and approve the same,
upon a finding that the plan complies with the Subdivision Standards' and
Regulations enforceable at the time the plan is submitted. The same procedure
shall be followed in the case of a plan for a condominium project except that, in
addition, said Authority shall act upon and approve the plan with respect to the
building or buildings included in the condominium project in accordance with
the National Building Code (R.A. No. 6541).

The subdivision plan, as so approved, shall then be submitted to the Director of

Lands for approval in accordance with the procedure prescribed in Section 44 of
the Land Registration Act (Act No. 496, as amended by R.A. No. 440): Provided,
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that it case of complex subdivision plans, court approval shall no longer be

required. The condominium plan as likewise so approved, shall be submitted to
the Register of Deeds of the province or city in which the property lies and the
same shall be acted upon subject to the conditions and in accordance with the
procedure prescribed in Section 4 of the Condominium Act (R.A. No. 4726).

The owner or the real estate dealer interested in the sale of lots or units,
respectively, in such subdivision project or condominium project shall register
the project with the Authority by filing therewith a sworn registration statement
containing the following information:

a. Name of the owner;

b. The location of the owner's principal business office, and if the owner is a
non-resident Filipino, the name and address of his agent or representative in
the Philippines is authorized to receive notice;
c. The names and addresses of all the directors and officers of the business firm,
if the owner be a corporation, association, trust, or other entity, and of all the
partners, if it be a partnership;
d. The general character of the business actually transacted or to be transacted
by the owner; and
e. A statement of the capitalization of the owner, including the authorized and
outstanding amounts of its capital stock and the proportion thereof which is
paid-up.

The following documents shall be attached to the registration statement:

a. A copy of the subdivision plan or condominium plan as approved in

accordance with the first and second paragraphs of this section.
b. A copy of any circular, prospectus, brochure, advertisement, letter, or
communication to be used for the public offering of the subdivision lots or
condominium units;
c. In case of a business firm, a balance sheet showing the amount and general
character of its assets and liabilities and a copy of its articles of incorporation or
articles of partnership or association, as the case may be, with all the
amendments thereof and existing by-laws or instruments corresponding thereto.
d. A title to the property which is free from all liens and encumbrances:
Provided, however, that in case any subdivision lot or condominium unit is
mortgaged, it is sufficient if the instrument of mortgage contains a stipulation
that the mortgagee shall release the mortgage on any subdivision lot or
condominium unit as soon as the full purchase price for the same is paid by the
buyer.
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The person filing the registration statement shall pay the registration fees
prescribed therefor by the Authority.

Thereupon, the Authority shall immediately cause to be published a notice of

the filing of the registration statement at the expense of the applicant-owner or
dealer, in two newspapers general circulation, one published in English and
another in Pilipino, once a week for two consecutive weeks, reciting that a
registration statement for the sale of subdivision lots or condominium units has
been filed in the National Housing Authority; that the aforesaid registration
statement, as well as the papers attached thereto, are open to inspection during
business hours by interested parties, under such regulations as the Authority
may impose; and that copies thereof shall be furnished to any party upon
payment of the proper fees.

The subdivision project of the condominium project shall be deemed registered

upon completion of the above publication requirement. The fact of such
registration shall be evidenced by a registration certificate to be issued to the
applicant-owner or dealer.

Section 5. License to sell. Such owner or dealer to whom has been issued a
registration certificate shall not, however, be authorized to sell any subdivision
lot or condominium unit in the registered project unless he shall have first
obtained a license to sell the project within two weeks from the registration of
such project.

The Authority, upon proper application therefor, shall issue to such owner or
dealer of a registered project a license to sell the project if, after an examination
of the registration statement filed by said owner or dealer and all the pertinent
documents attached thereto, he is convinced that the owner or dealer is of
good repute, that his business is financially stable, and that the proposed sale of
the subdivision lots or condominium units to the public would not be fraudulent.
Section 7. Exempt transactions. A license to sell and performance bond shall not
be required in any of the following transactions:

a. Sale of a subdivision lot resulting from the partition of land among co-owners
and co-heirs.
b. Sale or transfer of a subdivision lot by the original purchaser thereof and any
subsequent sale of the same lot.
c. Sale of a subdivision lot or a condominium unit by or for the account of a
mortgagee in the ordinary course of business when necessary to liquidate a
bona fide debt.
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Section 18. Mortgages. No mortgage on any unit or lot shall be made by the
owner or developer without prior written approval of the Authority. Such
approval shall not be granted unless it is shown that the proceeds of the
mortgage loan shall be used for the development of the condominium or
subdivision project and effective measures have been provided to ensure such
utilization. The loan value of each lot or unit covered by the mortgage shall be
determined and the buyer thereof, if any, shall be notified before the release of
the loan. The buyer may, at his option, pay his installment for the lot or unit
directly to the mortgagee who shall apply the payments to the corresponding
mortgage indebtedness secured by the particular lot or unit being paid for, with
a view to enabling said buyer to obtain title over the lot or unit promptly after
full payment thereto.

Section 23. Non-Forfeiture of Payments. No installment payment made by a

buyer in a subdivision or condominium project for the lot or unit he contracted
to buy shall be forfeited in favor of the owner or developer when the buyer,
after due notice to the owner or developer, desists from further payment due to
the failure of the owner or developer to develop the subdivision or
condominium project according to the approved plans and within the time limit
for complying with the same. Such buyer may, at his option, be reimbursed the
total amount paid including amortization interests but excluding delinquency
interests, with interest thereon at the legal rate.

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

Where the transaction or contract was entered into prior to the effectivity of
Republic Act No. 6552 on August 26, 1972, the defaulting buyer shall be entitled
to the corresponding refund based on the installments paid after the effectivity
of the law in the absence of any provision in the contract to the contrary.

Section 25. Issuance of Title. The owner or developer shall deliver the title of the
lot or unit to the buyer upon full payment of the lot or unit. No fee, except
those required for the registration of the deed of sale in the Registry of Deeds,
shall be collected for the issuance of such title. In the event a mortgage over the
lot or unit is outstanding at the time of the issuance of the title to the buyer, the
owner or developer shall redeem the mortgage or the corresponding portion
thereof within six months from such issuance in order that the title over any
fully paid lot or unit may be secured and delivered to the buyer in accordance
herewith.
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b. Cases:
1) Far East Bank and Trust Co. v. Marquez
Facts:
Marquez entered into a contract to sell with TSE involving a 52.5 sqm lot and a
three storey townhouse for P800,000. Later respondent was able to pay a total
of P600,000. TSE then mortgaged the whole property to Far East Bank. TSE was
unable to pay and the property was foreclosed and sold in favor of Far East Bank.

Issues:
1. Whether or not the mortgage contract violated Section 18 of PD.957,
hence void insofar as third persons are concerned; and
2. Whether or not the new buyer has a higher right between Marquez?

Ruling:
1. YES. Since TSE did not obtain prior approval from the NHA, the
mortgage is void as regarding to the property to Marquez as he has no
standing to question the validity of the other property.
2. NO. Marquez has a higher right over the property. Far East Bank and
Trust Co. cannot be considered as a buyer in good faith. He should have
considered that it was a town house that was already in progress. The
conversion of status from mortgagee to buyer will not lessen the
importance of such knowledge.

2) Tamayo v. Huang
Facts:
Huangs are registered owners of four parcels of land located in Barangay Matina,
Davao City executed a contract of "Indenture" with EAP Development
Corporation (EAP) under which EAP undertook to manage and develop said
parcels of land into a first class subdivision and sell the lots therein in, Doña
Luisa Village (the subdivision).

Tamayo entered into a contract to sell with Huang through EAP for a certain lot.
Under the contract, Tamayo was to pay upon execution P35,749.60 and the
balance, including interest at the rate of 14% per annum, in 60 monthly
installments of P4,791.40, without necessity of demand; and if Tamayo failed to
pay the installments, respondents were given the right to demand interest
thereon at the rate of 14% per annum, to be computed on the same day of the
month the installments became due. Later on the development of the
subdivision was put to stop by EAP, in effect Huang stopped paying the monthly
amortization. The Huangs sent Tamayo a demand letter, but after the reply of
the Tamayo with an explanation of stop payment the Huang was unheard of.
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After 5 years, the development was soon in progress and Tamayo offered to pay
the full purchase price, which was already rejected by the Huang. Later on the
property was sold by the Huang to another person.

Issues:
1. Whether or not Tamayo has any legal basis for stop payment; and
2. Whether or not the contract to sell between the parties is considered
rescinded?

Ruling:
1. YES. Section 23 of PD 957 requires only due notice to the owner or
developer for stopping further payments by reason of the latter’s failure
to develop the subdivision according to the approved plans and within
the time limit.

Therefore, Tamayo had the right to stop payment due to the failure of
the developer to comply with the contract. He only needed to give due
notice to the owner (Huangs) or Developer to give it effect.

2. YES. Huang sent no notarized notice or any notice of cancellation at all.

In fact, it was only after Tamayo filed on July 24, 1997 the complaint
before the HLURB that respondents offered to reimburse petitioner of
the total amount he had already paid.

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

3) Cantemprate v. CRS Realty Development Corporation

Facts:
Cantemprate were among those who filed before the HLURB a complaint for the
delivery of certificates of title against respondents CRS Realty Development
Corporation (CRS Realty), Crisanta Salvador and Cesar Casal.

CRS Realty averred that they had bought on an installment basis subdivision lots
from respondent CRS Realty and had paid in full the agreed purchase prices; but
notwithstanding the full payment and despite demands, CRS Realty failed and
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refused to deliver the corresponding certificates of title to Cantemprate. The

complaint prayed that CRS Realty be ordered to deliver the certificates of title
corresponding to the lots petitioners had purchased and paid in full and to pay
petitioners damages.

In his answer, Casal averred that despite his willingness to deliver them,
Cantemprate refused to accept the certificates of title with notice of lis pendens
covering the subdivision lots.

Ang and Cuason claimed in their answer with counterclaim that Casal remained
the registered owner of the subdivided lots when they were transferred to them
and that the failure by Cantemprate to annotate their claims on the title
indicated that they were unfounded. CRS Realty and the Heirs of Laudiza were
declared in default for failure to file their respective answers.

Issue:
Whether or not the absence of a license to sell has rendered the sales void?

Ruling:
NO. The only requisite for a contract of sale or contract to sell to exist in law is
the meeting of minds upon the thing which is the object of the contract and the
price, including the manner the price is to be paid by the vendee. Under Article
1458 of the New Civil Code, in a contract of sale, whether absolute or
conditional, one of the contracting parties obliges himself to transfer the
ownership of and deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.

In the instant case, the failure by CRS Realty to obtain a license to sell the
subdivision lots does not render the sales void on that ground alone especially
that the parties have impliedly admitted that there was already a meeting of the
minds as to the subject of the sale and price of the contract. The absence of the
license to sell only subjects CRS Realty and its officers civilly and criminally liable
for the said violation under Presidential Decree (P.D.) No. 957 and related rules
and regulations. The absence of the license to sell does not affect the validity of
the already perfected contract of sale between petitioners and respondent CRS
Realty.

As found by the Court of Appeals, in the case at bar, the requirements of

Sections 4 and 5 of P.D. [No.] 957 do not go into the validity of the contract,
such that the absence thereof would automatically render the contract null and
void. It is rather more of an administrative convenience in order to allow a more
effective regulation of the industry.