Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No.

149040 July 4, 2007

EDGAR LEDONIO, petitioner, vs. CAPITOL DEVELOPMENT CORPORATION, respondent. DECISION CHICO-NAZARIO, J.: Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Revised Rules of Court praying that (1) the Decision,2 dated 20 March 2001, of the Court of Appeals in CA-G.R. CV No. 43604, affirming in toto the Decision,3 dated 6 August 1993, of the Quezon City Regional Trial Court (RTC), Branch 91, in Civil Case No. Q-90-5247, be set aside; and (2) the Complaint4 in Civil Case No. Q-90-5247 be dismissed. Herein respondent Capitol Development Corporation instituted Civil Case No. Q-90-5247 by filing a Complaint for the collection of a sum of money against herein petitioner Edgar Ledonio. In its Complaint, respondent alleged that petitioner obtained from a Ms. Patrocinio S. Picache two loans, with the aggregate principal amount of P60,000.00, and covered by promissory notes duly signed by petitioner. In the first promissory note,5 dated 9 November 1988, petitioner promised to pay to the order of Ms. Picache the principal amount of P30,000.00, in monthly installments of P3,000.00, with the first monthly installment due on 9 January 1989. In the second promissory note,6 dated 10 November 1988, petitioner again promised to pay to the order of Ms. Picache the principal amount of P30,000.00, with 36% interest per annum, on 1 December 1988. In case of default in payment, both promissory notes provide that (a) petitioner shall be liable for a penalty equivalent to 20% of the total outstanding balance; (b) unpaid interest shall be compounded or added to the balance of the principal amount and shall bear the same rate of interest as the latter; and (c) in case the creditor, Ms. Picache, shall engage the services of counsel to enforce her rights and powers under the promissory notes, petitioner shall pay as attorney's fees and liquidated damages the sum equivalent to 20% of the total amount sought to be recovered, but in no case shall the said sum be less that P10,000.00, exclusive of costs of suit. On 1 April 1989, Ms. Picache executed an Assignment of Credit7 in favor of respondent, which reads KNOW ALL MEN BY THESE PRESENTS: That I, PAT S. PICACHE of legal age and with postal address at 373 Quezon Avenue, Quezon City for and in consideration of SIXTY THOUSAND PESOS (P60,000.00) Philippine Currency, to me paid by [herein respondent] CAPITOL DEVELOPMENT CORPORATION, a corporation organized and existing under the laws of the Republic of the Philippines with principal office at 373 Quezon Avenue, Quezon City receipt whereof is hereby acknowledged have sold, transferred, assigned and conveyed and (sic) by me these presents do hereby sell, assign, transfer and convey unto the said [respondent] CAPITOL DEVELOPMENT CORPORATION, a certain debt due me from [herein petitioner] EDGAR A. LEDONIO in

the principal sum of SIXTY THOUSAND PESOS (P60,000.00) Philippine Currency, under two (2) Promissory Notes dated November 9, 1988 and November 10, 1988, respectively, photocopies of which are attached to as annexes A & B to form integral parts hereof with full power to sue for, collect and discharge, or sell and assign the same. That I hereby declare that the principal sum of SIXTY THOUSAND PESOS (P60,000.00) with interest thereon at THIRTY SIX (36%) PER CENT per annum is justly due and owing to me as aforesaid. IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of April, 1989 at Quezon City. (SGD)PAT S. PICACHE The foregoing document was signed by two witnesses and duly acknowledged by Ms. Picache before a Notary Public also on 1 April 1989. Since petitioner did not pay any of the loans covered by the promissory notes when they became due, respondent -- through its Vice President Nina P. King and its counsel King, Capuchino, Banico & Associates -sent petitioner several demand letters.8 Despite receiving the said demand letters, petitioner still failed and refused to settle his indebtedness, thus, prompting respondent to file the Complaint with the RTC, docketed as Civil Case No. Q-90-5247. In his Answer filed with the RTC, petitioner sought the dismissal of the Complaint averring that respondent had no cause of action against him. He denied obtaining any loan from Ms. Picache and questioned the genuineness and due execution of the promissory notes, for they were the result of intimidation and fraud; hence, void. He asserted that there had been no transaction or privity of contract between him, on one hand, and Ms. Picache and respondent, on the other. The assignment by Ms. Picache of the promissory notes to respondent was a mere ploy and simulation to effect the unjust enforcement of the invalid promissory notes and to insulate Ms. Picache from any direct counterclaims, and he never consented or agreed to the said assignment. Petitioner then presented his own narration of events leading to the filing of Civil Case No. Q-90-5247. According to him, on 24 February 1988, he entered into a Contract of Lease9 of real property located in Quezon City with Mission Realty & Management Corporation (MRMC), of which Ms. Picache is an incorporator and member of the Board of Directors.10 Petitioner relocated the plant and machines used in his garments business to the leased property. After a month or two, a foreign investor was interested in doing business with him and sent a representative to conduct an ocular inspection of petitioner's plant at the leased property. During the inspection, a group of Meralco employees entered the leased property to cut off the electric power connections of the plant. The event gave an unfavorable impression to the foreign investor who desisted from further transacting with petitioner. Upon verification with Meralco, petitioner discovered that there were unpaid electric bills on the leased property amounting to hundreds of thousands of pesos. These electric bills were supposedly due to the surreptitious electrical connections to the leased property. Petitioner claimed that he was never informed or advised by MRMC of the existence of said unpaid electric bills. It took Meralco considerable time to restore electric power to the leased property and only after petitioner pleaded that he was not responsible for the illegal electrical connections and/or the unpaid electric bills, for he was only a recent lessee of the leased property. Because of the work stoppage and loss of business opportunities resulting from the foregoing incident, petitioner purportedly suffered damages amounting to United States $60,000.00, for which petitioner verbally attempted to recover compensation from MRMC.

Having failed to obtain compensation from MRMC, petitioner decided to vacate and pull out his machines from the leased property but he can only do so, unhampered and uninterrupted by MRMC security personnel, if he signed, as he did, blank promissory note forms. Petitioner alleged that when he signed the promissory note forms, the allotted spaces for the principal amount of the loans, interest rates, and names of the promisee/s were in blank; and that Ms. Picache took advantage of petitioner's signatures on the blank promissory note forms by filling up the blanks. To raise even more suspicions of fraud and spuriousness of the promissory notes and their subsequent assignment to respondent, petitioner called attention to the fact that Ms. Picache is an incorporator and member of the Board of Directors of both MRMC and respondent.11 After the pre-trial conference and the trial proper, the RTC rendered a Decision12 on 6 August 1993, ruling in favor of respondent. The RTC gave more credence to respondent's version of the facts, finding that [Herein petitioner]'s disclaimer of the promissory note[s] does not inspire belief. He is a holder of a degree in Bachelor of Science in Chemical Engineering and has been a manufacturer of garments since 1979. As a matter of fact, [petitioner]'s testimony that he was made to sign blank sheets of paper is contrary to his admission in paragraphs 12 and 13 of his Answer that as a condition to his removal of his machines [from] the leased premises, he was made to sign blank promissory note forms with respect to the amount, interest and promisee. It thus appears incredulous that a businessman like [petitioner] would simply sign blank sheets of paper or blank promissory notes just [to] be able to vacate the leased premises. Moreover, the credibility of [petitioner]'s testimony leaves much to be desired. He contradicted his earlier testimony that he only met Patrocinio Picache once, which took place in the office of Mission Realty and Management Corporation, by stating that he saw Patrocinio Picache a second time when she went to his house. Likewise, his claim that the electric power in the leased premises was cut off only two months after he occupied the same is belied by his own evidence. The contract of lease submitted by [petitioner] is dated February 24, 1988 and took effect on March 1, 1988. His letter to Mission Realty and Management Corporation dated September 21, 1988, complained of the electric power disconnection that took place on September 6, 1988, that is, six (6) months after he had occupied the leased premises, and did not even give a hint of his intention to vacate the premises because of said incident. It appears that [petitioner] was already advised to pay his rental arrearages in a letter dated August 9, 1988 (Exh. "2") and was notified of the termination of the lease contract in a letter dated September 19, 1988 (Exh. "4"). However, in a letter dated September 26, 1988, [petitioner] requested for time to look for a place to transfer. The RTC also sustained the validity and enforceability of the Assignment of Credit executed by Ms. Picache in favor of respondent, even in the absence of petitioner's consent to the said assignment, based on the following reasoning The promissory notes (Exhs. "A" and "B") were assigned by Ms. Patrocinio Picache to [herein respondent] by virtue of a notarized Assignment of Credit dated April 1, 1989 for a consideration of P60,000.00 (Exh. "C"). The fact that the assignment of credit does not bear the conformity of [herein petitioner] is of no moment. In C & C Commercial Corporation vs. Philippine National Bank, 175 SCRA 1, 11, the Supreme Court held thus: "x x x Article 1624 of the Civil Code provides that 'an assignment of credits and other incorporeal rights shall be perfected in accordance with the provisions of Article 1475' which

in turn states that 'the contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.' The meeting of the minds contemplated here is that between the assignor of the credit and his assignee, there being no necessity for the consent of the debtor, contrary to petitioner's claim. It is sufficient that the assignment be brought to his knowledge in order to be binding upon him. This may be inferred from Article 1626 of the Civil Code which declares that 'the debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation.'" [Petitioner] does not deny having been notified of the assignment of credit by Patrocinio Picache to the [respondent]. Thus, [respondent] sent several demand letters to the [petitioner] in connection with the loan[s] (Exhs. "D", "E", "F" and "G"). [Petitioner] acknowledged receipt of [respondent]'s letter of demand dated June 13, 1989 (Exh. "F") and assured [respondent] that he would settle his account, as per their telephone conversation (Exhs. "H" and "9"). Such communications between [respondent] and [petitioner] show that the latter had been duly notified of the said assignment of credit. x x x. Given its aforequoted findings, the RTC proceeded to a determination of petitioner's liabilities to respondent, taking into account the provisions of the promissory notes, thus x x x Consequently, [herein respondent] is entitled to recover from [herein petitioner] the principal amount ofP30,000.00 for the promissory note dated November 9, 1988. As said note did not provide for any interest, [respondent] may only recover interest at the legal rate of 12% per annum from April 18, 1990, the date of the filing of the complaint. With respect to the promissory note dated November 10, 1988, the same provided for interest at 36% per annum and that interest not paid when due shall be added to and shall become part of the principal and shall bear the same rate of interest as the principal. Likewise, both promissory notes provided for a penalty of 20% of the total outstanding balance thereon and attorney's fees equivalent to 20% of the sum sought to be recovered in case of litigation. In Garcia vs. Court of Appeals, 167 SCRA 815, it was held that penalty interests are in the nature of liquidated damages and may be equitably reduced by the courts if they are iniquitous or unconscionable, pursuant to Articles 1229 and 2227 of the Civil Code. Considering that the promissory note dated November 10, 1988 already provided for interest at 36% per annum on the principal obligation, as well as for the capitalization of the unpaid interest, the penalty charge of 20% of the total outstanding balance of the obligation thus appears to be excessive and unconscionable. The interest charges are enough punishment for [petitioner]'s failure to comply with his obligation under the promissory note dated November 10, 1988. With respect to the attorney's fees, the court is likewise empowered to reduce the same if they are unreasonable or unconscionable, notwithstanding the express contract therefor. (Insular Bank of Asia and America vs. Spouses Salazar, 159 SCRA 133, 139). Thus, an award of P10,000.00 as and for attorney's fees appears to be enough. Consequently, the fallo of the RTC Decision reads WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the [herein respondent] and against [herein petitioner] ordering the latter as follows:

1. To pay [respondent], on the promissory note dated November 9, 1988, the amount of P30,000.00 with interest thereon at the legal rate of 12% per annum from April 18, 1990 until fully paid and a penalty of 20% on the total amount; 2. To pay [respondent], on the promissory note dated November 10, 1988, the amount of P30,000.00 with interest thereon at 36% per annum compounded at the same rate until fully paid; 3. To pay [respondent] the amount of P10,000.00, as and for attorney's fees; and 4. To pay the costs of the suit.13 Aggrieved by the RTC Decision, dated 6 August 1993, petitioner filed an appeal with the Court of Appeals, which was docketed as CA-G.R. CV No. 43604. The appellate court, in a Decision,14 dated 20 March 2001, found no cogent reason to depart from the conclusions arrived at by the RTC in its appealed Decision, dated 6 August 1993, and affirmed the latter Decision in toto. The Court of Appeals likewise denied petitioner's Motion for Reconsideration in a Resolution,15 dated 16 July 2001, stating that the grounds relied upon by petitioner in his Motion were mere reiterations of the issues and matters already considered, weighed and passed upon; and that no new matter or substantial argument was adduced by petitioner to warrant a modification, much less a reversal, of the Court of Appeals Decision, dated 20 March 2001. Comes now petitioner to this Court, via a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, raising the sole issue16 of whether or not the Court of Appeals committed grave abuse of discretion in affirming in toto the RTC Decision, dated 6 August 1993. Petitioner's main argument is that the Court of Appeals erred when it ruled that there was an assignment of credit and that there was no novation/subrogation in the case at bar. Petitioner asserts the position that consent of the debtor to the assignment of credit is a basic/essential element in order for the assignee to have a cause of action against the debtor. Without the debtor's consent, the recourse of the assignee in case of non-payment of the assigned credit, is to recover from the assignor. Petitioner further argues that even if there was indeed an assignment of credit, as alleged by the respondent, then there had been a novation of the original loan contracts when the respondent was subrogated in the rights of Ms. Picache, the original creditor. In support of said argument, petitioner invokes the following provisions of the Civil Code ART. 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect. ART. 1301. Conventional subrogation of a third person requires the consent of the original parties and the third person. According to petitioner, the assignment of credit constitutes conventional subrogation which requires the consent of the original parties to the loan contract, namely, Ms. Picache (the creditor) and petitioner (the debtor); and the third person, the respondent (the assignee). Since petitioner never gave his consent to the assignment of credit, then the subrogation of respondent in the rights of Ms. Picache as creditor by virtue of said assignment is without force and effect. This Court finds no merit in the present Petition.

Before proceeding to a discussion of the points raised by petitioner, this Court deems it appropriate to emphasize that the findings of fact of the Court of Appeals and the RTC in this case shall no longer be disturbed. It is axiomatic that this Court will not review, much less reverse, the factual findings of the Court of Appeals, especially where, as in this case, such findings coincide with those of the trial court, since this Court is not a trier of facts.17 The jurisdiction of this Court in a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless it is shown, inter alia, that: (a) the conclusion is grounded entirely on speculations, surmises and conjectures; (b) the inference is manifestly mistaken, absurd and impossible; (c) there is grave abuse of discretion; (d) the judgment is based on a misapplication of facts; (e) the findings of fact of the trial court and the appellate court are contradicted by the evidence on record and (f) the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both parties.18 None of these circumstances are present in the case at bar. After a perusal of the records, this Court can only conclude that the factual findings of the Court of Appeals, affirming those of the RTC, are amply supported by evidence and are, resultantly, conclusive on this Court.19 Therefore, the following facts are already beyond cavil: (1) petitioner obtained two loans totaling P60,000.00 from Ms. Picache, for which he executed promissory notes, dated 9 November 1988 and 10 November 1988; (2) he failed to pay any of the said loans; (3) Ms. Picache executed on 1 April 1989 an Assignment of Credit covering petitioner's loans in favor of respondent for the consideration of P60,000.00; (4) petitioner had knowledge of the assignment of credit; and (5) petitioner still failed to pay his indebtedness despite repeated demands by respondent and its counsel. Petitioner's persistent assertions that he never acquired any loan from Ms. Picache, or that he signed the promissory notes in blank and under duress, deserve scant consideration. They were already found by both the Court of Appeals and the RTC to be implausible and inconsistent with petitioner's own evidence. Now this Court turns to the questions of law raised by petitioner, all of which hinges on the contention that a conventional subrogation occurred when Ms. Picache assigned the debt, due her from the petitioner, to the respondent; and without petitioner's consent as debtor, the said conventional subrogation should be deemed to be without force and effect. This Court cannot sustain petitioner's contention and hereby declares that the transaction between Ms. Picache and respondent was an assignment of credit, not conventional subrogation, and does not require petitioner's consent as debtor for its validity and enforceability. An assignment of credit has been defined as an agreement by virtue of which the owner of a credit (known as the assignor), by a legal cause - such as sale, dation in payment or exchange or donation - and without need of the debtor's consent, transfers that credit and its accessory rights to another (known as the assignee), who acquires the power to enforce it, to the same extent as the assignor could have enforced it against the debtor.20 On the other hand, subrogation, by definition, is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes place without agreement but by operation of law because of certain acts. Conventional subrogation is that which takes place by agreement of parties.21 Although it may be said that the effect of the assignment of credit is to subrogate the assignee in the rights of the original creditor, this Court still cannot definitively rule that assignment of credit and conventional subrogation are one and the same.

A noted authority on civil law provided a discourse22 on the difference between these two transactions, to wit Conventional Subrogation and Assignment of Credits. In the Argentine Civil Code, there is essentially no difference between conventional subrogation and assignment of credit. The subrogation is merely the effect of the assignment. In fact it is expressly provided (article 769) that conventional redemption shall be governed by the provisions on assignment of credit. Under our Code, however, conventional subrogation is not identical to assignment of credit. In the former, the debtor's consent is necessary; in the latter, it is not required. Subrogation extinguishes an obligation and gives rise to a new one; assignment refers to the same right which passes from one person to another. The nullity of an old obligation may be cured by subrogation, such that the new obligation will be perfectly valid; but the nullity of an obligation is not remedied by the assignment of the creditor's right to another. (Emphasis supplied.) This Court has consistently adhered to the foregoing distinction between an assignment of credit and a conventional subrogation.23 Such distinction is crucial because it would determine the necessity of the debtor's consent. In an assignment of credit, the consent of the debtor is not necessary in order that the assignment may fully produce the legal effects. What the law requires in an assignment of credit is not the consent of the debtor, but merely notice to him as the assignment takes effect only from the time he has knowledge thereof. A creditor may, therefore, validly assign his credit and its accessories without the debtor's consent. On the other hand, conventional subrogation requires an agreement among the parties concerned the original creditor, the debtor, and the new creditor. It is a new contractual relation based on the mutual agreement among all the necessary parties.24 Article 1300 of the Civil Code provides that conventional subrogation must be clearly established in order that it may take effect. Since it is petitioner who claims that there is conventional subrogation in this case, the burden of proof rests upon him to establish the same25 by a preponderance of evidence.26 In Licaros v. Gatmaitan,27 this Court ruled that there was conventional subrogation, not just an assignment of credit; thus, consent of the debtor is required for the effectivity of the subrogation. This Court arrived at such a conclusion in said case based on its following findings We agree with the finding of the Court of Appeals that the Memorandum of Agreement dated July 29, 1988 was in the nature of a conventional subrogation which requires the consent of the debtor, Anglo-Asean Bank, for its validity. We note with approval the following pronouncement of the Court of Appeals: "Immediately discernible from above is the common feature of contracts involving conventional subrogation, namely, the approval of the debtor to the subrogation of a third person in place of the creditor. That Gatmaitan and Licaros had intended to treat their agreement as one of conventional subrogation is plainly borne by a stipulation in their Memorandum of Agreement, to wit: "WHEREAS, the parties herein have come to an agreement on the nature, form and extent of their mutual prestations which they now record herein with the express conformity of the third parties concerned" (emphasis supplied), which third party is admittedly Anglo-Asean Bank.

Had the intention been merely to confer on appellant the status of a mere "assignee" of appellee's credit, there is simply no sense for them to have stipulated in their agreement that the same is conditioned on the "express conformity" thereto of Anglo-Asean Bank. That they did so only accentuates their intention to treat the agreement as one of conventional subrogation. And it is basic in the interpretation of contracts that the intention of the parties must be the one pursued (Rule 130, Section 12, Rules of Court). xxxx Aside for the 'whereas clause" cited by the appellate court in its decision, we likewise note that on the signature page, right under the place reserved for the signatures of petitioner and respondent, there is, typewritten, the words "WITH OUR CONFORME." Under this notation, the words "ANGLOASEAN BANK AND TRUST" were written by hand. To our mind, this provision which contemplates the signed conformity of Anglo-Asean Bank, taken together with the aforementioned preambulatory clause leads to the conclusion that both parties intended that Anglo-Asean Bank should signify its agreement and conformity to the contractual arrangement between petitioner and respondent. The fact that Anglo-Asean Bank did not give such consent rendered the agreement inoperative considering that, as previously discussed, the consent of the debtor is needed in the subrogation of a third person to the rights of a creditor. None of the foregoing circumstances are attendant in the present case. The Assignment of Credit, dated 1 April 1989, executed by Ms. Picache in favor of respondent, was a simple deed of assignment. There is nothing in the said Assignment of Credit which imparts to this Court, whether literally or deductively, that a conventional subrogation was intended by the parties thereto. The terms of the Assignment of Credit only convey the straightforward intention of Ms. Picache to "sell, assign, transfer, and convey" to respondent the debt due her from petitioner, as evidenced by the two promissory notes of the latter, dated 9 November 1988 and 10 November 1988, for the consideration of P60,000.00. By virtue of the same document, Ms. Picache gave respondent full power "to sue for, collect and discharge, or sell and assign" the very same debt. The Assignment of Credit was signed solely by Ms. Picache, witnessed by two other persons. No reference was made to securing the conformeof petitioner to the transaction, nor any space provided for his signature on the said document. Perhaps more in point to the case at bar is Rodriguez v. Court of Appeals, 28 in which this Court found that The basis of the complaint is not a deed of subrogation but an assignment of credit whereby the private respondent became the owner, not the subrogee of the credit since the assignment was supported by HK $1.00 and other valuable considerations. xxxx The petitioner further contends that the consent of the debtor is essential to the subrogation. Since there was no consent on his part, then he allegedly is not bound. Again, we find for the respondent. The questioned deed of assignment is neither one of subrogation nor a power of attorney as the petitioner alleges. The deed of assignment clearly states that the private respondent became an assignee and, therefore, he became the only party entitled to collect the indebtedness. As a result of the Deed of Assignment, the plaintiff acquired all rights of the assignor including the right to sue in his own name as the legal assignee. Moreover, in assignment, the debtor's consent is not essential for the validity of the assignment (Art. 1624 in relation to Art.

1475, Civil Code), his knowledge thereof affecting only the validity of the payment he might make (Article 1626, Civil Code). Since the Assignment of Credit, dated 1 April 1989, is just as its title suggests, then petitioner's consent as debtor is not necessary in order that the assignment may fully produce legal effects. The duty to pay does not depend on the consent of the debtor; otherwise, all creditors would be prevented from assigning their credits because of the possibility of the debtors' refusal to give consent.29 Moreover, this Court had already noted previously that there does not appear to be anything in Philippine statutes or jurisprudence which prohibits a creditor, without the consent of the debtor, from making an assignment of his credit and the rights accessory thereto; and, certainly, an assignment of credit and its accessory rights does not at all obliterate the obligation of the debtor to pay, but merely puts the assignee in the place of the assignor.30 Hence, the obligation of petitioner to pay his debt subsists despite the assignment thereof; only, his obligation after he came to know of the said assignment would be to pay the debt to the respondent (the assignee), instead of Ms. Picache (the original creditor). It bears to emphasize that even if the consent of petitioner as debtor is unnecessary for the validity and enforceability of the assignment of credit, nonetheless, the petitioner must have knowledge, acquired either by formal notice or some other means, of the assignment so that he may pay the debt to the proper party, which shall now be the assignee. This much can be gathered from a reading of Article 1626 of the Civil Code providing that, "The debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation." This Court, in Sison v. Yap Tico,31 presented and adopted Manresa's analysis of Article 1626 of the Civil Code (then Article 1527 of the old Civil Code) Manresa, in commenting upon the provisions of article 1527 of the Civil Code, after discussing the articles of the Mortgage Law, says: "We have said that article 1527 deals with the individual phase or aspect which presupposes the existence of a relationship with third parties, that is, with the person of the debtor. Let us see in what way. "The above-mentioned article states that a debtor who, before having knowledge of the assignment, should pay the creditor shall be released from the obligation. "In the first place, the necessity for the notice to the debtor in order that the assignment may fully produce its legal effects may be inferred from the above. It refers to a notice and not to a petition for the consent which is not necessary. We say that the notice is not necessary in order that the legal effects may be fully produced, because if it should be omitted, such omission will not imply that the assignment will not exist legally, but that its effects will be limited to the parties thereto; at least, they will not reach the debtor. "* * * * * * * * "Let us go to the legal effects produced by the failure to give the notice. In the beginning, we have said that the contract does not lose its efficacy with respect to the parties who made it; but article 1527 determines specifically one of the consequences arising from the failure to give notice, for it evidently takes for granted that the debtor who, before having knowledge of the assignment, should pay the creditor shall be released from the obligation. So that if the creditor assigned his credit,

acting in bad faith and taking advantage of the fact that the debtor does not know anything about the assignment because the latter has not been notified, and collects its amount, the debtor shall be free from the obligation, inasmuch as it has been legally extinguished by a payment which fully redounds to his benefit. The assignee can take advantage of all civil and criminal actions against the assignor, but he can ask nothing from the debtor, because the latter did not know of the assignment, nor was he bound to know it; the assignor should blame himself for his failure to have the notice made. "* * * * * * * * "Hence, there not having been any notice to the debtor, the existence of his knowledge of the assignment should be proved by him who is interested therein; and the debtor is not bound to prove his ignorance." In a more recent case, Aquintey v. Spouses Tibong,32 this Court stated: "The law does not require any formal notice to bind the debtor to the assignee, all that the law requires is knowledge of the assignment. Even if the debtor had not been notified, but came to know of the assignment by whatever means, the debtor is bound by it." Since his consent is immaterial, the only other matter which this Court must determine is whether petitioner had knowledge of the Assignment of Credit, dated 1 April 1989, between Ms. Picache and respondent. Both the Court of Appeals and the RTC ruled in the affirmative, and so must this Court. Petitioner does not deny having knowledge of the assignment of credit by Ms. Picache to the respondent. In 1989, when petitioner's loans became overdue, it was respondent and its counsel who sent several demand letters to him. It can be reasonably presumed that petitioner received said letters for they were sent by registered mail, and the return cards were signed by petitioner's agent. Petitioner expressly acknowledged receipt of respondent's demand letter, dated 13 June 1989, to which he replied with another letter, dated 21 June 1989, stating that he would settle his account with respondent but also requesting consideration of the losses he suffered from the electric power disconnection at the property he leased from MRMC. It further appears that petitioner had never questioned why it was respondent seeking payment of the loans and not the original creditor, Ms. Picache. All these circumstances tend to establish that respondent already knew of the assignment of credit made by Ms. Picache in favor of respondent and explains his acceptance of all the demands for payment of the loans made upon him by the respondent. Finally, assuming arguendo that this Court considers petitioner a third person to the Assignment of Credit, dated 1 April 1989, the fact that the said document was duly notarized makes it legally enforceable even as to him. According to Article 1625 of the Civil Code ART. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property. Notarization converted the Assignment of Credit, dated 1 April 1989, a private document, into a public document,33 thus, complying with the mandate of the afore-quoted provision and making it enforceable even as against third persons. WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED, and the Decision, dated 20 March 2001, of the Court of Appeals in CA-G.R. CV No. 43604, affirming in toto the Decision, dated 6

August 1993, of the Quezon City Regional Trial Court, Branch 91, in Civil Case No. Q-90-5247, is hereby AFFIRMED. Costs against the petitioner. SO ORDERED. Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 97753 August 10, 1992 CALTEX (PHILIPPINES), INC., petitioner, vs. COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents. Bito, Lozada, Ortega & Castillo for petitioners. Nepomuceno, Hofilea & Guingona for private.

REGALADO, J.: This petition for review on certiorari impugns and seeks the reversal of the decision promulgated by respondent court on March 8, 1991 in CA-G.R. CV No. 23615 1 affirming with modifications, the earlier decision of the Regional Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed therein by herein petitioner against respondent bank. The undisputed background of this case, as found by the court a quo and adopted by respondent court, appears of record: 1. On various dates, defendant, a commercial banking institution, through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who deposited with herein defendant the aggregate amount of P1,120,000.00, as follows: (Joint Partial Stipulation of Facts and Statement of Issues, Original Records, p. 207; Defendant's Exhibits 1 to 280); CTD CTD Dates Serial Nos. Quantity Amount 22 Feb. 82 90101 to 90120 20 P80,000 26 Feb. 82 74602 to 74691 90 360,000 2 Mar. 82 74701 to 74740 40 160,000 4 Mar. 82 90127 to 90146 20 80,000 5 Mar. 82 74797 to 94800 4 16,000 5 Mar. 82 89965 to 89986 22 88,000 5 Mar. 82 70147 to 90150 4 16,000 8 Mar. 82 90001 to 90020 20 80,000 9 Mar. 82 90023 to 90050 28 112,000 9 Mar. 82 89991 to 90000 10 40,000 9 Mar. 82 90251 to 90272 22 88,000

 Total 280 P1,120,000 ===== ======== 2. Angel dela Cruz delivered the said certificates of time (CTDs) to herein plaintiff in connection with his purchased of fuel products from the latter (Original Record, p. 208). 3. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat Branch Manger, that he lost all the certificates of time deposit in dispute. Mr. Tiangco advised said depositor to execute and submit a notarized Affidavit of Loss, as required by defendant bank's procedure, if he desired replacement of said lost CTDs (TSN, February 9, 1987, pp. 48-50). 4. On March 18, 1982, Angel dela Cruz executed and delivered to defendant bank the required Affidavit of Loss (Defendant's Exhibit 281). On the basis of said affidavit of loss, 280 replacement CTDs were issued in favor of said depositor (Defendant's Exhibits 282-561). 5. On March 25, 1982, Angel dela Cruz negotiated and obtained a loan from defendant bank in the amount of Eight Hundred Seventy Five Thousand Pesos (P875,000.00). On the same date, said depositor executed a notarized Deed of Assignment of Time Deposit (Exhibit 562) which stated, among others, that he (de la Cruz) surrenders to defendant bank "full control of the indicated time deposits from and after date" of the assignment and further authorizes said bank to pre-terminate, set-off and "apply the said time deposits to the payment of whatever amount or amounts may be due" on the loan upon its maturity (TSN, February 9, 1987, pp. 60-62). 6. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff "as security for purchases made with Caltex Philippines, Inc." by said depositor (TSN, February 9, 1987, pp. 54-68). 7. On November 26, 1982, defendant received a letter (Defendant's Exhibit 563) from herein plaintiff formally informing it of its possession of the CTDs in question and of its decision to pre-terminate the same. 8. On December 8, 1982, plaintiff was requested by herein defendant to furnish the former "a copy of the document evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the details of Mr. Angel dela Cruz" obligation against which plaintiff proposed to apply the time deposits (Defendant's Exhibit 564). 9. No copy of the requested documents was furnished herein defendant. 10. Accordingly, defendant bank rejected the plaintiff's demand and claim for payment of the value of the CTDs in a letter dated February 7, 1983 (Defendant's Exhibit 566). 11. In April 1983, the loan of Angel dela Cruz with the defendant bank matured and fell due and on August 5, 1983, the latter set-off and applied the time deposits in question to the payment of the matured loan (TSN, February 9, 1987, pp. 130-131). 12. In view of the foregoing, plaintiff filed the instant complaint, praying that defendant bank be ordered to pay it the aggregate value of the certificates of time deposit of P1,120,000.00 plus

accrued interest and compounded interest therein at 16% per annum, moral and exemplary damages as well as attorney's fees. After trial, the court a quo rendered its decision dismissing the instant complaint. 3 On appeal, as earlier stated, respondent court affirmed the lower court's dismissal of the complaint, hence this petition wherein petitioner faults respondent court in ruling (1) that the subject certificates of deposit are non-negotiable despite being clearly negotiable instruments; (2) that petitioner did not become a holder in due course of the said certificates of deposit; and (3) in disregarding the pertinent provisions of the Code of Commerce relating to lost instruments payable to bearer. 4 The instant petition is bereft of merit. A sample text of the certificates of time deposit is reproduced below to provide a better understanding of the issues involved in this recourse. SECURITY BANK AND TRUST COMPANY 6778 Ayala Ave., Makati No. 90101 Metro Manila, Philippines SUCAT OFFICEP 4,000.00 CERTIFICATE OF DEPOSIT Rate 16% Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____ This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, Philippine Currency, repayable to said depositor 731 days. after date, upon presentation and surrender of this certificate, with interest at the rate of 16% per cent per annum. (Sgd. Illegible) (Sgd. Illegible) AUTHORIZED SIGNATURES 5 Respondent court ruled that the CTDs in question are non-negotiable instruments, nationalizing as follows: . . . While it may be true that the word "bearer" appears rather boldly in the CTDs issued, it is important to note that after the word "BEARER" stamped on the space provided supposedly for the name of the depositor, the words "has deposited" a certain amount follows. The document further provides that the amount deposited shall be "repayable to said depositor" on the period indicated. Therefore, the text of the instrument(s) themselves manifest with clarity that they are payable, not to whoever purports to be the "bearer" but only to the specified person indicated therein, the depositor. In effect, the appellee bank acknowledges its depositor Angel dela Cruz as the person who made the deposit and further engages itself to pay said depositor the amount indicated thereon at the stipulated date. 6

We disagree with these findings and conclusions, and hereby hold that the CTDs in question are negotiable instruments. Section 1 Act No. 2031, otherwise known as the Negotiable Instruments Law, enumerates the requisites for an instrument to become negotiable, viz: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. The CTDs in question undoubtedly meet the requirements of the law for negotiability. The parties' bone of contention is with regard to requisite (d) set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way back in 1982, testified in open court that the depositor reffered to in the CTDs is no other than Mr. Angel de la Cruz. xxx xxx xxx Atty. Calida: q In other words Mr. Witness, you are saying that per books of the bank, the depositor referred (sic) in these certificates states that it was Angel dela Cruz? witness: a Yes, your Honor, and we have the record to show that Angel dela Cruz was the one who cause (sic) the amount. Atty. Calida: q And no other person or entity or company, Mr. Witness? witness: a None, your Honor. 7 xxx xxx xxx Atty. Calida: q Mr. Witness, who is the depositor identified in all of these certificates of time deposit insofar as the bank is concerned?

witness: a Angel dela Cruz is the depositor. 8 xxx xxx xxx On this score, the accepted rule is that the negotiability or non-negotiability of an instrument is determined from the writing, that is, from the face of the instrument itself. 9 In the construction of a bill or note, the intention of the parties is to control, if it can be legally ascertained. 10 While the writing may be read in the light of surrounding circumstances in order to more perfectly understand the intent and meaning of the parties, yet as they have constituted the writing to be the only outward and visible expression of their meaning, no other words are to be added to it or substituted in its stead. The duty of the court in such case is to ascertain, not what the parties may have secretly intended as contradistinguished from what their words express, but what is the meaning of the words they have used. What the parties meant must be determined by what they said. 11 Contrary to what respondent court held, the CTDs are negotiable instruments. The documents provide that the amounts deposited shall be repayable to the depositor. And who, according to the document, is the depositor? It is the "bearer." The documents do not say that the depositor is Angel de la Cruz and that the amounts deposited are repayable specifically to him. Rather, the amounts are to be repayable to the bearer of the documents or, for that matter, whosoever may be the bearer at the time of presentment. If it was really the intention of respondent bank to pay the amount to Angel de la Cruz only, it could have with facility so expressed that fact in clear and categorical terms in the documents, instead of having the word "BEARER" stamped on the space provided for the name of the depositor in each CTD. On the wordings of the documents, therefore, the amounts deposited are repayable to whoever may be the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel de la Cruz is the depositor "insofar as the bank is concerned," but obviously other parties not privy to the transaction between them would not be in a position to know that the depositor is not the bearer stated in the CTDs. Hence, the situation would require any party dealing with the CTDs to go behind the plain import of what is written thereon to unravel the agreement of the parties thereto through facts aliunde. This need for resort to extrinsic evidence is what is sought to be avoided by the Negotiable Instruments Law and calls for the application of the elementary rule that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 12 The next query is whether petitioner can rightfully recover on the CTDs. This time, the answer is in the negative. The records reveal that Angel de la Cruz, whom petitioner chose not to implead in this suit for reasons of its own, delivered the CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank thereof at any time. Unfortunately for petitioner, although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery and indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment for the fuel products or as a security has been dissipated and resolved in favor of the latter by petitioner's own authorized and responsible representative himself. In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of deposit were negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products" (Emphasis ours.) 13 This admission is conclusive upon petitioner, its

protestations notwithstanding. Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. 14 A party may not go back on his own acts and representations to the prejudice of the other party who relied upon them. 15 In the law of evidence, whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it. 16 If it were true that the CTDs were delivered as payment and not as security, petitioner's credit manager could have easily said so, instead of using the words "to guarantee" in the letter aforequoted. Besides, when respondent bank, as defendant in the court below, moved for a bill of particularity therein 17 praying, among others, that petitioner, as plaintiff, be required to aver with sufficient definiteness or particularity (a) the due date or dates ofpayment of the alleged indebtedness of Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that the CTDs were delivered to it by De la Cruz as payment of the latter's alleged indebtedness to it, plaintiff corporation opposed the motion. 18 Had it produced the receipt prayed for, it could have proved, if such truly was the fact, that the CTDs were delivered as payment and not as security. Having opposed the motion, petitioner now labors under the presumption that evidence willfully suppressed would be adverse if produced. 19 Under the foregoing circumstances, this disquisition in Intergrated Realty Corporation, et al. vs. Philippine National Bank, et al. 20 is apropos: . . . Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom: The character of the transaction between the parties is to be determined by their intention, regardless of what language was used or what the form of the transfer was. If it was intended to secure the payment of money, it must be construed as a pledge; but if there was some other intention, it is not a pledge. However, even though a transfer, if regarded by itself, appears to have been absolute, its object and character might still be qualified and explained by contemporaneous writing declaring it to have been a deposit of the property as collateral security. It has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as a pledge if the debt continues in inexistence and is not discharged by the transfer, and that accordingly the use of the terms ordinarily importing conveyance of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of clear and unambiguous language or other circumstances excluding an intent to pledge. Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. 22 In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard the fact that the amount involved was not disclosed) could at the most constitute petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since, necessarily, the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually provided for.

The pertinent law on this point is that where the holder has a lien on the instrument arising from contract, he is deemed a holder for value to the extent of his lien. 23 As such holder of collateral security, he would be a pledgee but the requirements therefor and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal rights, 24 which inceptively provide: Art. 2095. Incorporeal rights, evidenced by negotiable instruments, . . . may also be pledged. The instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed. Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear in a public instrument. Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court quoted at the start of this opinion show that petitioner failed to produce any document evidencing any contract of pledge or guarantee agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right effective against and binding upon respondent bank. The requirement under Article 2096 aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be made of the date of a pledge contract, but a rule of substantive law prescribing a condition without which the execution of a pledge contract cannot affect third persons adversely. 26 On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil Code specifically declares: Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property. Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser, assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the execution of any public instrument which could affect or bind private respondent. Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely the better right over the CTDs in question. Finally, petitioner faults respondent court for refusing to delve into the question of whether or not private respondent observed the requirements of the law in the case of lost negotiable instruments and the issuance of replacement certificates therefor, on the ground that petitioner failed to raised that issue in the lower court. 28 On this matter, we uphold respondent court's finding that the aspect of alleged negligence of private respondent was not included in the stipulation of the parties and in the statement of issues submitted by them to the trial court.29 The issues agreed upon by them for resolution in this case are: 1. Whether or not the CTDs as worded are negotiable instruments. 2. Whether or not defendant could legally apply the amount covered by the CTDs against the depositor's loan by virtue of the assignment (Annex "C").

3. Whether or not there was legal compensation or set off involving the amount covered by the CTDs and the depositor's outstanding account with defendant, if any. 4. Whether or not plaintiff could compel defendant to preterminate the CTDs before the maturity date provided therein. 5. Whether or not plaintiff is entitled to the proceeds of the CTDs. 6. Whether or not the parties can recover damages, attorney's fees and litigation expenses from each other. As respondent court correctly observed, with appropriate citation of some doctrinal authorities, the foregoing enumeration does not include the issue of negligence on the part of respondent bank. An issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel. 30 Questions raised on appeal must be within the issues framed by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal. 31 Pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly raised. Thus, to obviate the element of surprise, parties are expected to disclose at a pre-trial conference all issues of law and fact which they intend to raise at the trial, except such as may involve privileged or impeaching matters. The determination of issues at a pre-trial conference bars the consideration of other questions on appeal.32 To accept petitioner's suggestion that respondent bank's supposed negligence may be considered encompassed by the issues on its right to preterminate and receive the proceeds of the CTDs would be tantamount to saying that petitioner could raise on appeal any issue. We agree with private respondent that the broad ultimate issue of petitioner's entitlement to the proceeds of the questioned certificates can be premised on a multitude of other legal reasons and causes of action, of which respondent bank's supposed negligence is only one. Hence, petitioner's submission, if accepted, would render a pre-trial delimitation of issues a useless exercise. 33 Still, even assuming arguendo that said issue of negligence was raised in the court below, petitioner still cannot have the odds in its favor. A close scrutiny of the provisions of the Code of Commerce laying down the rules to be followed in case of lost instruments payable to bearer, which it invokes, will reveal that said provisions, even assuming their applicability to the CTDs in the case at bar, are merely permissive and not mandatory. The very first article cited by petitioner speaks for itself. Art 548. The dispossessed owner, no matter for what cause it may be, may apply to the judge or court of competent jurisdiction, asking that the principal, interest or dividends due or about to become due, be not paid a third person, as well as in order to prevent the ownership of the instrument that a duplicate be issued him. (Emphasis ours.) xxx xxx xxx The use of the word "may" in said provision shows that it is not mandatory but discretionary on the part of the "dispossessed owner" to apply to the judge or court of competent jurisdiction for the issuance of a duplicate of the lost instrument. Where the provision reads "may," this word shows that it is not mandatory but discretional. 34 The word "may" is usually permissive, not mandatory. 35 It is an auxiliary verb indicating liberty, opportunity, permission and possibility. 36

Moreover, as correctly analyzed by private respondent, 37 Articles 548 to 558 of the Code of Commerce, on which petitioner seeks to anchor respondent bank's supposed negligence, merely established, on the one hand, a right of recourse in favor of a dispossessed owner or holder of a bearer instrument so that he may obtain a duplicate of the same, and, on the other, an option in favor of the party liable thereon who, for some valid ground, may elect to refuse to issue a replacement of the instrument. Significantly, none of the provisions cited by petitioner categorically restricts or prohibits the issuance a duplicate or replacement instrument sans compliance with the procedure outlined therein, and none establishes a mandatory precedent requirement therefor. WHEREFORE, on the modified premises above set forth, the petition is DENIED and the appealed decision is hereby AFFIRMED. SO ORDERED. Narvasa, C.J., Padilla and Nocon, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-30150 August 31, 1971 NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION, petitioner, vs. HONORABLE WALFRIDO DE LOS ANGELES, in his capacity as Judge of the Court of First Instance of Rizal, Branch IV (Quezon City), THE SPOUSES BASILISA ROQUE and FRANCISCO BAUTISTA; LEONILA SANCHEZ and BENJAMIN N. BONUS; AURORA SANCHEZ and BONIFACIO EUGENIO; CARMELITA SANCHEZ and FRANCISCO IGNACIO; BIENVENIDO SANCHEZ, LEONARDO SANCHEZ, ROQUE VILLAGE SUBDIVISION and THE REGISTER OF DEEDS OF QUEZON City, respondents. Carreon, Taada and Taada for petitioner. Eliseo M. Tenza and Nestor Fernandez, for private respondents.

CASTRO, J.: By the instant petition for certiorari and mandamus with preliminary injunction, the petitioner National Investment and Development Corporation (hereinafter referred to as the NIDC) impugns three orders issued by the respondent Court of First Instance of Rizal in civil case Q-8407, namely, (1) an order dated May 28, 1968 dismissing the appeal of the NIDC from that court's order dated March 31, 1967 which directed the cancellation of the annotation, on several certificates of title involved in the said case, of the assignment of mortgage rights made by the Philippine Commercial and Industrial Bank (hereinafter referred to as the PCIB), a defendant in the said civil case, in favor of the NIDC, the respondent Judge stating that since the NIDC had not been properly substituted for PCIB and latter had failed to perfect an appeal from the order of March 31, 1967, therefore, the appeal which was taken by the NIDC was ineffective, and moreover filed out of time; (2) an order dated November 9, 1968 directing the NIDC to surrender to the Register of Deeds of Quezon City the certificates of title over parcels of land involved in the said civil case which the lower court, in a judgment rendered therein which had already become final and executory, ordered reconveyed to the herein private respondents (the spouses Basilisa Roque and Francisco Bautista, Leonila Sanchez and Benjamin N. Bonus, Aurora Sanchez and Bonifacio Eugenio, Carmelita Sanchez and Francisco Ignacio, Bienvenido Sanchez, Leonardo Sanchez and Roque Village Subdivision), plaintiffs in the case below, subject, however, to the mortgage executed in favor of the PCIB by the defendant therein, Araceli W. Vda. de Del Rosario; and (3) an order dated January 27, 1969 declaring as cancelled and null and void the certificates of title involved in the mentioned civil case which were then held by the NIDC, for failure of the latter to comply with the respondent Judge's order of November 9, 1968 requiring the NIDC to surrender the said title certificates to the Register of Deeds of Quezon City. 1 The essential facts are undisputed.

Sometime in July, 1963 the private respondents herein sold several lots registered in their names to Araceli W. Vda. de Del Rosario who, after securing registration of the said lots in her name, mortgaged them to the PCIB. Del Rosario failed to complete payment of the purchase price agreed upon, for which reason, on November 17, 1964, the herein private respondents filed a complaint against her and the PCIB for reconveyance to them of the said lots or rescission of the contracts of sale executed thereon and the cancellation of the mortgages held by the PCIB. On January 25, 1965 the court a quo rendered summary judgment directing the rescission of the contracts of sale adverted to above and the reconveyance of the lots in dispute covered by TCTs 70809, 70813, 70814 and 76401 to 76472. The rescission of the purchase contracts on the lots was, however, declared to be without prejudice to the rights of the PCIB thereon which was adjudged as mortgaged in good faith. The lower court reserved for a separate hearing the parties' respective claims for damages. This decision of the trial court was appealed to this Court by del Rosario in L-24873. The appeal was, however, dismissed on September 23, 1966 because it was taken out of time. No appeal was interposed by the private respondents herein with respect to the portion of the lower court's decision in favor of the PCIB. On June 16, 1965 the PCIB foreclosed its mortgage on the lots covered by TCTs 70809, 70813 and 70814. At the auction sale, it appeared as the highest bidder; on December 2, 1965 the certificate of sale issued in its favor was duly registered. On May 4, 1966 the PCIB assigned its mortgage rights over the lots covered by TCTs 70809, 70813, 70814 and 76401 to 76472 to the NIDC, as well as its rights as highest bidder for the lots covered by the first three titles mentioned. This assignment was duly inscribed and annotated at the back of the certificates of the title concerned on May 16, 1966. On November 16, 1966 the private respondents filed with the trial court, in the same civil case Q-8407, a motion to cancel time encumbrance held by the NIDC appearing at the back of TCTs 76401 to 76472 and 70809. The private respondents alleged in their motion that del Rosario had negotiated a loan with the NIDC by virtue of which the latter assumed the payment of, and did pay, del Rosario's mortgage indebtedness to the PCIB. For this reason, and for the further reason that there was no privity of contract between them and del Rosario and the PCIB concerning the said indebtedness, the private respondents maintained that the mortgage lien of the PCIB over the lots subject of their motion was thereby discharged. They further argued that the mortgage lien has been extinguished because when it assumed payment of the indebtedness of del Rosario to the PCIB, the NIDC was aware of the respondents' claim over the lots in question which was annotated at the back of the certificates of title in dispute. Lastly, the respondents contended that their claim is superior to that of the NIDC under the provisions of articles 2242(2) and 2243 of the new Civil Code. The respondents served a copy of this motion on the NIDC. On November 19, 1966, at the hearing on the above motion, the NIDC, through counsel, having been notified thereof, entered its appearance. The respondent Judge at the said hearing gave the NIDC opportunity to file its written opposition to the motion. On December 20, 1966 the NIDC filed its written opposition, claiming that it merely stepped into the shoes of the PCIB as an assignee and that the private respondents must respect its rights as such assignee in the same manner that they would respect the rights of the PCIB the adjudication regarding which, it was alleged, had already long become final when they were acquired by the NIDC, citing article 1625 of the new Civil Code.

On January 5, 1967 the private respondents filed a rejoinder to the above opposition, furnishing the NIDC a copy of the same. On March 31, 1967 the respondent Judge issued an order granting the private respondents' motion to cancel the encumbrance of the NIDC from the certificates of title in dispute, reasoning as follows: ... There is no question that the deed of assignment in question is valid between the defendant Bank and the National Investment & Development Corporation. But this Court, however, is not inclined to sustain incumbrancer's view; first, it should have submitted the deed of assignment for approval of the Court knowing that the subject-matter of the said deed of assignment is in custodia legis, and so that the consent of all the parties plaintiffs could be taken; second, the payment of the mortgage debt of defendant Del Rosario by the National Investment & Development Corporation to the PCI Bank extinguished the plaintiff's obligation to respect the mortgage lien of the PCI Bank; and third, the NIDC could ask for reimbursement of its expenses and the amount it has paid to the PCI Bank from defendant Del Rosario. Moreover, it is more on equity and justice as well as in law that the incumbrancer should not enforce its rights against the plaintiffs who, in the first place; were not benefited by the mortgage debt incurred by defendant Del Rosario. A copy of this order was, however, not furnished the NIDC, although the PCIB was served a copy thereof. On April 22, 1967 the respondent Judge issued another order directing the NIDC to surrender the certificates of title in dispute to the Register of Deeds of Quezon City in order that its order of March 31, 1967 could be implemented. The NIDC filed a motion for reconsideration on the ground that the issuance of the order was premature for it had not yet received a copy of the court's order of March 31, 1967. The private respondents opposed the said motion. On September 19, 1967 the NIDC received a copy of the respondent court's order dated March 31, 1967. The NIDC then filed, on October 16, 1967, or 27 days from its receipt of the said order, a motion for reconsideration thereof. On January 8, 1968 the NIDC received another order from the respondent court dated December 29, 1967 denying its motion for reconsideration "for lack of merit." On January, 9 1968 the NIDC filed with the court below a notice of appeal on "purely questions of law" from the order of March 31, 1967 and an appeal bond; on January 11, 1968 it filed its record on appeal. On February 7, 1968 the private respondents filed with the lower court a motion to dismiss the appeal of the NIDC stating (a) that the appeal was filed out of time since the PCIB did not appeal from the appealed order and the NIDC had not been properly substituted for the PCIB as a party in the case (citing section 20, Rule 3 of the Rules of Court and Oria Hermanos vs. Gutierrez Hermanos, 52 Phil. 156 [1928] and Feltalino vs. Sanz , 44 Phil. [1923]); and (b) that the appeal is frivolous and dilatory because the trial court's decision ordering reconveyance to the private respondents of the lots in dispute by del Rosario had long become final and executory. The NIDC opposed this motion, contending that it had acquired the necessary personality in civil case Q-8407 by virtue of the respondents' and the lower court's recognition thereof. On May 28, 1968 the respondent Judge issued an order dismissing the appeal interposed by the NIDC for reasons substantially identical to those adduced by the private respondents in their motion to dismiss the appeal.

On July 3, 1968 the NIDC filed a motion for reconsideration of the dismissal of its appeal. This motion was denied on December 18, 1968. Meanwhile, on September 12, 1968, the NIDC received a copy of a petition of the private respondents to declare TCTs 70809, 70813, 70814 and 76401 to 76472 null and void for failure of the NIDC to surrender the certificates of title in question to the Register of Deeds of Quezon City "in order that the deeds of reconveyance executed by the Clerk of Court and orders of this Honorable Court may be given due course for registration ..." The NIDC opposed this petition, alleging that to grant it will amount to enforcement of the lower court's order of March 31, 1967 which had not yet become final and executory as the NIDC had appealed within the prescribed period. It was also pointed out by the NIDC that its motion for reconsideration of the order dismissing its appeal had not as yet been resolved. On November 9, 1968 the respondent Judge issued another order requiring the NIDC to surrender the certificates of title in dispute to the Register of Deeds of Quezon City within five days, otherwise the said certificates would be declared null and void. The NIDC filed a motion for reconsideration of this order on the ground that its motion for reconsideration of the order dismissing its appeal had not up to that time been resolved. On January 27, 1969, the NIDC received a copy of a "Manifestation" dated January 21, 1969 wherein the private respondents prayed for the cancellation of the mentioned certificates of title on the ground that the NIDC had already received a copy of the order of the respondent Judge dated December 18, 1968 denying the motion for reconsideration of the NIDC dated November 19, 1968. It turned out, however (as explained by the NIDC in one of its pleadings filed with this Court), that while the NIDC did receive on January 13, 1969 the said order dated December 18, 1968, the same was overlooked because the copy of the said order sent by the respondent Judge was stapled beneath two other orders also dated December 18, 1968. One of these orders which was stapled on top of the others, was in connection with another case (civil case 10636) involving the same parties herein. According to the NIDC, it was thought that the papers stapled beneath were mere copies of the order in the said civil case. The third order, similarly dated, was an order denying the NIDC's motion for reconsideration of the respondent Judge's order dismissing its appeal from the order of March 31, 1967. On January 30, 1969 the counsel of the NIDC went to the lower court to inquire if it had already acted upon the said "Manifestation"; and there and then he was served a copy of an order dated January 27, 1969, declaring TCTs 70809, 70813, 70814 and 76401 to 76472 null and void and cancelled. The submission of the parties for resolution by this Court involves mainly the question of whether the petitioner has legal personality to appeal the order a quo dated March 31, 1967. If the answer be in the affirmative, then the order of the respondent Judge dismissing the appeal and all subsequent orders adverse to the petitioner will not avail the private respondents any. We do not think, however, that this is the real issue that should first be resolved in order to bundle properly the contending claims of the parties. Of basic crucial importance, in our opinion, is an inquiry into, and resolution of, whether, in the first place, the lower court had jurisdiction to entertain the motion of the private respondents that led to the issuance of the order of March 31, 1967. Obviously, it will not be necessary to resolve the question posited by the parties if, from the facts which the instant petition opened for inquiry by this Court, it will be determined that the lower court was devoid of jurisdiction to take cognizance of the mentioned motion of the private respondents.

After a painstaking study of the matter, we reach the view and we so hold that the respondent Judge's assumption of jurisdiction over the private respondents' motion that led to the order of March 31, 1967 dismissing the appeal of the NIDC, is completely devoid of legal authority. The judgment of the court a quo in civil case Q-8407, on the matter of the recognition of the mortgage rights of the PCIB over the lots in question, had already become final and executory when the said bank assigned its rights to the NIDC. It had, in fact, foreclosed its mortgage rights over some of the lots and had purchased them at an auction sale before it executed the deed of assignment to the NIDC. Such being the case, the lower court no longer had jurisdiction in the said case to resolve, by a mere motion therein, issues having to do with the disposition made by the PCIB of its rights over the lots in question, which rights were then no longer in litigation as they had been adjudged with finality. An independent action, or any other appropriate remedy, securing to all the real parties in interest the proceses and due opportunities afforded by the Rules of Court will be of the essence if the private respondents, as the judicially declared owners of the lots in question by final judgment prior to the present controversy, believe that they have a right of action to cause the extinguishment by judicial fiat of the mortgage constituted over those lots on account of the assignment by the mortgagee and/or purchaser at public auction of its rights to the parcels in question. The necessity for such an independent action or other appropriate remedy becomes more patent, as a matter of due process, when it is considered that the NIDC, as assignee after a final adjudication of the rights of the PCIB over the said lots, will be the real party to be affected directly by any action which the private respondents will commence whose object is to render inutile the legal efficacy of the PCIB's assignment of its rights thereon. In such an action, the NIDC will clearly be an indispensable party, which it will be the duty of the private respondent to include as a party in the case, otherwise, it will not be bound by any adjudication which will adversely affect its rights over the lots in dispute. It would appear, however, from the facts admitted by the parties, that a valid assignment, binding upon the private respondents, has been made by the PCIB to the NIDC of its mortgage rights as well as its rights as purchaser of the lots in question. There does not appear to be anything in our statutes or jurisprudence which prohibits a creditor without the consent of the debtor from making an assignment of his credit and the rights accessory thereto; and, certainly, an assignment of credit and its accessory rights does not at all obliterate the obligation of the debtor to pay, but merely puts the assignee in the place of his assignor. Indeed, article 1634 of the new Civil Code definitely recognizes the likelihood that credits and other incorporeal rights in litigation may be assignedpendente lite, and, in such event, provides that the debtor may extinguish his obligation by making appropriate reimbursement to the assignee. 2 In other words, an assignment of credit pendente lite, contrary to the respondent Judge's opinion of March 31, 1967, under which it was construed that the mortgage rights and rights as purchaser of the PCIB over the lots in question were still in custodia legis at the time of their assignment to the NIDC, does not extinguish the credit or accessory rights assigned, but simply changes the bag into which the debtor must empty his money in payment. ACCORDINGLY, the order of the court a quo dated March 31, 1967, and its subsequent orders dated May 28, 1968, November 9, 1968 and January 27, 1969, and all related orders are hereby declared null and void and without legal effect, for having been issued without jurisdiction. The preliminary injunction issued by this Court on March 11, 1970 is hereby made permanent. No pronouncement as to costs. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 157374 August 27, 2009

HEIRS OF CAYETANO PANGAN and CONSUELO PANGAN,* Petitioners, vs. SPOUSES ROGELIO PERRERAS and PRISCILLA PERRERAS, Respondents. DECISION BRION, J.: The heirs1 of spouses Cayetano and Consuelo Pangan (petitioners-heirs) seek the reversal of the Court of Appeals (CA) decision2 of June 26, 2002, as well its resolution of February 20, 2003, in CA-G.R. CV Case No. 56590 through the present petition for review on certiorari.3 The CA decision affirmed the Regional Trial Courts (RTC) ruling4 which granted the complaint for specific performance filed by spouses Rogelio and Priscilla Perreras (respondents) against the petitioners-heirs, and dismissed the complaint for consignation instituted by Consuelo Pangan (Consuelo) against the respondents. THE FACTUAL ANTECEDENTS The spouses Pangan were the owners of the lot and two-door apartment (subject properties) located at 1142 Casaas St., Sampaloc, Manila.5 On June 2, 1989, Consuelo agreed to sell to the respondents the subject properties for the price of P540,000.00. On the same day, Consuelo received P20,000.00 from the respondents as earnest money, evidenced by a receipt (June 2, 1989 receipt)6 that also included the terms of the parties agreement. Three days later, or on June 5, 1989, the parties agreed to increase the purchase price from P540,000.00 toP580,000.00. In compliance with the agreement, the respondents issued two Far East Bank and Trust Company checks payable to Consuelo in the amounts of P200,000.00 and P250,000.00 on June 15, 1989. Consuelo, however, refused to accept the checks. She justified her refusal by saying that her children (the petitioners-heirs) coowners of the subject properties did not want to sell the subject properties. For the same reason, Consuelo offered to return the P20,000.00 earnest money she received from the respondents, but the latter rejected it. Thus, Consuelo filed a complaint for consignation against the respondents on September 5, 1989, docketed as Civil Case No. 89-50258, before the RTC of Manila, Branch 28. The respondents, who insisted on enforcing the agreement, in turn instituted an action for specific performance against Consuelo before the same court on September 26, 1989. This case was docketed as Civil Case No. 89-50259. They sought to compel Consuelo and the petitioners-heirs (who were subsequently impleaded as co-defendants) to execute a Deed of Absolute Sale over the subject properties. In her Answer, Consuelo claimed that she was justified in backing out from the agreement on the ground that the sale was subject to the consent of the petitioners-heirs who became co-owners of the property upon the

death of her husband, Cayetano. Since the petitioners-heirs disapproved of the sale, Consuelo claimed that the contract became ineffective for lack of the requisite consent. She nevertheless expressed her willingness to return theP20,000.00 earnest money she received from the respondents. The RTC ruled in the respondents favor; it upheld the existence of a perfected contract of sale, at least insofar as the sale involved Consuelos conjugal and hereditary shares in the subject properties. The trial court found that Consuelos receipt of the P20,000.00 earnest money was an "eloquent manifestation of the perfection of the contract." Moreover, nothing in the June 2, 1989 receipt showed that the agreement was conditioned on the consent of the petitioners-heirs. Even so, the RTC declared that the sale is valid and can be enforced against Consuelo; as a co-owner, she had full-ownership of the part pertaining to her share which she can alienate, assign, or mortgage. The petitioners-heirs, however, could not be compelled to transfer and deliver their shares in the subject properties, as they were not parties to the agreement between Consuelo and the respondents. Thus, the trial court ordered Consuelo to convey one-half (representing Consuelos conjugal share) plus one-sixth (representing Consuelos hereditary share) of the subject properties, and to pay P10,000.00 as attorneys fees to the respondents. Corollarily, it dismissed Consuelos consignation complaint. Consuelo and the petitioners-heirs appealed the RTC decision to the CA claiming that the trial court erred in not finding that the agreement was subject to a suspensive condition the consent of the petitioners-heirs to the agreement. The CA, however, resolved to dismiss the appeal and, therefore, affirmed the RTC decision. As the RTC did, the CA found that the payment and receipt of earnest money was the operative act that gave rise to a perfected contract, and that there was nothing in the parties agreement that would indicate that it was subject to a suspensive condition. It declared: Nowhere in the agreement of the parties, as contained in the June 2, 1989 receipt issued by [Consuelo] xxx, indicates that [Consuelo] reserved titled on [sic] the property, nor does it contain any provision subjecting the sale to a positive suspensive condition. Unconvinced by the correctness of both the RTC and the CA rulings, the petitioners-heirs filed the present appeal by certiorari alleging reversible errors committed by the appellate court. THE PETITION The petitioners-heirs primarily contest the finding that there was a perfected contract executed by the parties. They allege that other than the finding that Consuelo received P20,000.00 from the respondents as earnest money, no other evidence supported the conclusion that there was a perfected contract between the parties; they insist that Consuelo specifically informed the respondents that the sale still required the petitioners-heirs consent as co-owners. The refusal of the petitioners-heirs to sell the subject properties purportedly amounted to the absence of the requisite element of consent. Even assuming that the agreement amounted to a perfected contract, the petitioners-heirs posed the question of the agreements proper characterization whether it is a contract of sale or a contract to sell. The petitioners-heirs posit that the agreement involves a contract to sell, and the respondents belated payment of part of the purchase price, i.e., one day after the June 14, 1989 due date, amounted to the non-fulfillment of a positive suspensive condition that prevented the contract from acquiring obligatory force. In support of this contention, the petitioners-heirs cite the Courts ruling in the case of Adelfa Rivera, et al. v. Fidela del Rosario, et al.: 7

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. [Rivera], however, failed to complete payment of the second installment. The non-fulfillment of the condition rendered the contract to sell ineffective and without force and effect. [Emphasis in the original.] From these contentions, we simplify the basic issues for resolution to three questions: 1. Was there a perfected contract between the parties? 2. What is the nature of the contract between them? and 3. What is the effect of the respondents belated payment on their contract? THE COURTS RULING There was a perfected contract between the parties since all the essential requisites of a contract were present Article 1318 of the Civil Code declares that no contract exists unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation established. Since the object of the parties agreement involves properties co-owned by Consuelo and her children, the petitioners-heirs insist that their approval of the sale initiated by their mother, Consuelo, was essential to its perfection. Accordingly, their refusal amounted to the absence of the required element of consent. That a thing is sold without the consent of all the co-owners does not invalidate the sale or render it void. Article 493 of the Civil Code8 recognizes the absolute right of a co-owner to freely dispose of his pro indiviso share as well as the fruits and other benefits arising from that share, independently of the other coowners. Thus, when Consuelo agreed to sell to the respondents the subject properties, what she in fact sold was her undivided interest that, as quantified by the RTC, consisted of one-half interest, representing her conjugal share, and one-sixth interest, representing her hereditary share. The petitioners-heirs nevertheless argue that Consuelos consent was predicated on their consent to the sale, and that their disapproval resulted in the withdrawal of Consuelos consent. Yet, we find nothing in the parties agreement or even conduct save Consuelos self-serving testimony that would indicate or from which we can infer that Consuelos consent depended on her childrens approval of the sale. The explicit terms of the June 8, 1989 receipt9 provide no occasion for any reading that the agreement is subject to the petitioners-heirs favorable consent to the sale. The presence of Consuelos consent and, corollarily, the existence of a perfected contract between the parties are further evidenced by the payment and receipt of P20,000.00, an earnest money by the contracting parties common usage. The law on sales, specifically Article 1482 of the Civil Code, provides that whenever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract. Although the presumption is not conclusive, as the parties may treat the earnest money differently, there is nothing alleged in the present case that would give rise to a contrary

presumption. In cases where the Court reached a conclusion contrary to the presumption declared in Article 1482, we found that the money initially paid was given to guarantee that the buyer would not back out from the sale, considering that the parties to the sale have yet to arrive at a definite agreement as to its terms that is, a situation where the contract has not yet been perfected.10 These situations do not obtain in the present case, as neither of the parties claimed that the P20,000.00 was given merely as guarantee by the respondents, as vendees, that they would not back out from the sale. As we have pointed out, the terms of the parties agreement are clear and explicit; indeed, all the essential elements of a perfected contract are present in this case. While the respondents required that the occupants vacate the subject properties prior to the payment of the second installment, the stipulation does not affect the perfection of the contract, but only its execution. In sum, the case contains no element, factual or legal, that negates the existence of a perfected contract between the parties. The characterization of the contract can be considered irrelevant in this case in light of Article 1592 and the Maceda Law, and the petitioners-heirs payment The petitioners-heirs posit that the proper characterization of the contract entered into by the parties is significant in order to determine the effect of the respondents breach of the contract (which purportedly consisted of a one-day delay in the payment of part of the purchase price) and the remedies to which they, as the non-defaulting party, are entitled. The question of characterization of the contract involved here would necessarily call for a thorough analysis of the parties agreement as embodied in the June 2, 1989 receipt, their contemporaneous acts, and the circumstances surrounding the contracts perfection and execution. Unfortunately, the lower courts factual findings provide insufficient detail for the purpose. A stipulation reserving ownership in the vendor until full payment of the price is, under case law, typical in a contract to sell.11 In this case, the vendor made no reservation on the ownership of the subject properties. From this perspective, the parties agreement may be considered a contract of sale. On the other hand, jurisprudence has similarly established that the need to execute a deed of absolute sale upon completion of payment of the price generally indicates that it is a contract to sell, as it implies the reservation of title in the vendor until the vendee has completed the payment of the price. When the respondents instituted the action for specific performance before the RTC, they prayed that Consuelo be ordered to execute a Deed of Absolute Sale; this act may be taken to conclude that the parties only entered into a contract to sell. Admittedly, the given facts, as found by the lower courts, and in the absence of additional details, can be interpreted to support two conflicting conclusions. The failure of the lower courts to pry into these matters may understandably be explained by the issues raised before them, which did not require the additional details. Thus, they found the question of the contracts characterization immaterial in their discussion of the facts and the law of the case. Besides, the petitioners-heirs raised the question of the contracts characterization and the effect of the breach for the first time through the present Rule 45 petition. Points of law, theories, issues and arguments not brought to the attention of the lower court need not be, and ordinarily will not be, considered by the reviewing court, as they cannot be raised for the first time at the appellate review stage. Basic considerations of fairness and due process require this rule.12 At any rate, we do not find the question of characterization significant to fully pass upon the question of default due to the respondents breach; ultimately, the breach was cured and the contract revived by the respondents payment a day after the due date.1avvphi1

In cases of breach due to nonpayment, the vendor may avail of the remedy of rescission in a contract of sale. Nevertheless, the defaulting vendee may defeat the vendors right to rescind the contract of sale if he pays the amount due before he receives a demand for rescission, either judicially or by a notarial act, from the vendor. This right is provided under Article 1592 of the Civil Code: Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. [Emphasis supplied.] Nonpayment of the purchase price in contracts to sell, however, does not constitute a breach; rather, nonpayment is a condition that prevents the obligation from acquiring obligatory force and results in its cancellation. We stated in Ong v. CA13 that: In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring obligatory force. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. [Emphasis supplied.] As in the rescission of a contract of sale for nonpayment of the price, the defaulting vendee in a contract to sell may defeat the vendors right to cancel by invoking the rights granted to him under Republic Act No. 6552 or the Realty Installment Buyer Protection Act (also known as the Maceda Law); this law provides for a 60-day grace period within which the defaulting vendee (who has paid less than two years of installments) may still pay the installments due. Only after the lapse of the grace period with continued nonpayment of the amounts due can the actual cancellation of the contract take place. The pertinent provisions of the Maceda Law provide: xxxx Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four as amended by Republic Act Numbered Sixty-three hundred 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: xxxx Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than 60 days from the date the installment became due. 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 the receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by notarial act. [Emphasis supplied.] Significantly, the Court has consistently held that the Maceda Law covers not only sales on installments of real estate, but also financing of such acquisition; its Section 3 is comprehensive enough to include both

contracts of sale and contracts to sell, provided that the terms on payment of the price require at least two installments. The contract entered into by the parties herein can very well fall under the Maceda Law. Based on the above discussion, we conclude that the respondents payment on June 15, 1989 of the installment due on June 14, 1989 effectively defeated the petitioners-heirs right to have the contract rescinded or cancelled. Whether the parties agreement is characterized as one of sale or to sell is not relevant in light of the respondents payment within the grace period provided under Article 1592 of the Civil Code and Section 4 of the Maceda Law. The petitioners-heirs obligation to accept the payment of the price and to convey Consuelos conjugal and hereditary shares in the subject properties subsists. WHEREFORE, we DENY the petitioners-heirs petition for review on certiorari, and AFFIRM the decision of the Court of Appeals dated June 24, 2002 and its resolution dated February 20, 2003 in CA-G.R. CV Case No. 56590. Costs against the petitioners-heirs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 130347 March 3, 1999 ABELARDO VALARAO, GLORIOSA VALARAO and CARLOS VALARAO, petitioners, vs. COURT OF APPEALS and MEDEN A. ARELLANO, respondents.

PANGANIBAN, J.: Art. 1592 of the Civil Code applies only to contracts of sale, and not to contracts to sell or conditional sales where title passes to the vendee only upon full payment of the purchase price. Furthermore, in order to enforce the automatic forfeiture clause in a deed of conditional sale, the vendors have the burden of proving a contractual breach on the part of the vendee. The Case Before us is a Petition for Review assailing the June 13, 1997 Decision of the Court of Appeals (CA) 1 which reversed and set aside the October 10, 1994 Decision 2 of the Regional Trial Court (RTC) of Quezon City, Branch 82. The dispositive portion of the assailed CA Decision reads: WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new one is entered (1) ordering [herein private respondent] to pay the amount of [o]ne [m]illion [o]ne [h]undred [n]inety [s]even [t]housand [p]esos (P1,197,000.00) in favor of [herein petitioners], with legal interest thereon from December 31, 1992; (2) and directing [herein petitioners] to execute in favor of [herein respondent], upon receipt of the aforesaid amount, the final and absolute deed of sale of the subject property with all the improvements. 3 Also assailed by petitioners is the August 21, 1997 CA Resolution denying reconsideration. The aforementioned RTC Decision, which was reversed and set aside by the CA, disposed as follows: WHEREFORE, premises considered, judgment is hereby rendered declaring the aforesaid Deed of Conditional Sale as automatically rescinded and all payments made thereunder by the [private respondent] to the [petitioners] as forfeited in favor of the latter, by way of rentals and as liquidated damages, as well as declaring all improvements introduced on the property subject to the said Deed of Condition[al] Sale to belong to the [petitioners] without any right of reimbursement. Further, the [private respondent] and all persons claiming right under her are hereby ordered to vacate the said property and to turnover possession thereof to the [petitioners]. FINALLY, the [private respondent] is hereby ordered to pay to

the [petitioners] the amount of P50,000.00 as attorney's fees and for expenses of litigation, as well as to pay the costs of the suit. The Writ of Preliminary Injunction previously issued is hereby ordered LIFTED and DISSOLVED, and the bond posted for its issuance held liable for the satisfaction of the money judgment herein made in favor of the [petitioners]. 4 The Facts The undisputed facts of the case as narrated by the Court of Appeals are as follows: On September 4, 1987, spouses Abelardo and Gloriosa Valarao, thru their son Carlos Valarao as their attorney-in-fact, sold to [Private Respondent] Meden Arellano under a Deed of Conditional Sale a parcel of land situated in the District of Diliman, Q. C., covered by TCT No. 152879 with an area of 1,504 square meters, for the sum of THREE MILLION TWO HUNDRED TWENTY FIVE THOUSAND PESOS (P3,225,000.00) payable under a schedule of payment stated therein. In the same Deed of Conditional Sale, the [private respondent] vendee obligated herself to encumber by way of real estate mortgage in favor of [petitioners] vendors her separate piece of property with the condition that upon full payment of the balance of P2,225.000.00, the said mortgage shall become null and void and without further force and effect. (Item No. 3, pp. 2-3 of Deed of Conditional Sale). It was further stipulated upon that should the vendee fail to pay three (3) successive monthly installments or anyone year-end lump sum payment within the period stipulated, the sale shall be considered automatically rescinded without the necessity of judicial action and all payments made by the vendee shall be forfeited in favor of the vendors by way of rental for the use and occupancy of the property and as liquidated damages. All improvements introduced by the vendee to the property shall belong to the vendors without any right of reimbursement. (Par. (2), Item No. 3, p. 3 of Deed of Conditional Sale). [Private respondent] appellant alleged that as of September, 1990, she had already paid the amount of [t]wo [m]illion [t]wenty-[e]ight [t]housand (P2,028,000.00) [p]esos, although she admitted having failed to pay the installments due in October and November, 1990. Petitioner, however, [had] tried to pay the installments due [in] the said months, including the amount due [in] the month of December, 1990 on December 30 and 31, 1990, but was turned down by the vendors-[petitioners] thru their maid, Mary Gonzales, who refused to accept the payment offered. [Private respondent] maintains that on previous occasions, the same maid was the one who [had] received payments tendered by her. It appears that Mary Gonzales refused to receive payment allegedly on orders of her employers who were not at home. [Private respondent] then reported the matter to, and sought the help of, the local barangay officials. Efforts to settle the controversy before the barangay proved unavailing as vendors[petitioners] never appeared in the meetings arranged by the barangay lupon. [Private respondent] tried to get in touch with [petitioners] over the phone and was able to talk with [Petitioner] Gloriosa Valarao who told her that she [would] no longer accept the payments being offered and that [private respondent] should instead confer with her

lawyer, a certain Atty. Tuazon. When all her efforts to make payment were unsuccessful, [private respondent] sought judicial action. by filing this petition for consignation on January 4, 1991. On the other hand, vendors-[petitioners], thru counsel, sent [private respondent] a letter dated 4 January 1991 (Exh. "C") notifying her that they were enforcing the provision on automatic rescission as a consequence of which the Deed of Conditional Sale [was deemed] null and void, and . . . all payments made, as well as the improvements introduced on the property, [were] thereby forfeited. The letter also made a formal demand on the [private respondent] to vacate the property should she not heed the demand of [petitioners] to sign a contract of lease for her continued stay in the property (p. 2 of Letter dated Jan. 4, 1991; Exh. "C"). In reply, [private respondent] sent a letter dated January 14, 1991 (Exh. "D"), denying that she [had] refused to pay the installments due [in] the months of October, November and December, and countered that it was [petitioners] who refused to accept payment, thus constraining her to file a petition for consignation before the Regional Trial Court of Quezon City docketed as Civil Case No. Q-91-7603. Notwithstanding their knowledge of the filing by [private respondent] of a consignation case against them in the Regional Trial Court of Quezon City docketed as Civil Case No. Q-917603, [petitioners], through counsel, sent the [private respondent] another letter dated January 19, 1991 (Exh. "F"), denying the allegations of her attempts to tender payment on December 30 and 31, 1990, and demanding that [private respondent] vacate and turnover the property and pay a monthly compensation for her continued occupation of the subject property at the rate of P20,000.00, until she shall have vacated the same. Ruling of the Court of Appeals In reversing the Regional Trial Court, the Court of Appeals held that the refusal of herein petitioners "to accept the tender of payment was unjustified." Notwithstanding the stipulation in the Deed of Conditional Sale that "the rescission of the contract shall of right take place" upon the failure of the vendee to pay three successive monthly installments, the appellate court observed that a judicial demand or a notarial act was still required pursuant to Article 1592 of the Civil Code. Thus, petitioners' letter informing private respondent of the rescission of the contract did not suffice, for it was not notarized. The CA also observed that "the alleged breach of contract arising from the failure of the vendee to pay the monthly installments for October and November 1990 within the stipulated time is rather slight and not substantial, and to authorize the automatic rescission on account thereof will work injustice to the other party, who has paid a total of P2,028,000.00 out of a total obligation of P3,225,000.00. The rule is that rescission cannot be availed of as to unjustly enrich one party." The Issues In their Memorandum before us, petitioners raise the following issues: 5 I Whether the Answer [ (a)] categorically indicating willingness to accept the amount already due if the [private respondent] would update the account, [(b)] praying that "if she fail[ed] to do so immediately, . . . the Deed of Conditional Sale be declared rescinded, pursuant to the second paragraph of Section 3 thereof, with costs against the [private

respondent], [(c)] ordering the latter to vacate and turnover possession of the premises to the [petitioners], and to pay the latter attorney's fees in the amount of P50,000.00 and the expenses of litigation" [] is tantamount to a judicial demand and notice of rescission under Art. 1592 of the Civil Code. II Whether the automatic forfeiture clause is valid and binding between the parties. III Whether the action for consignation may prosper without actual deposit [in court] of the amount due . . . [so as] to produce the effect of payment. The Court's Ruling The petition 6 is devoid of merit. Preliminary Matter: Notarial or Judicial Demand Citing Article 1592 of the Civil Code, the Court of Appeals ruled that the petitioners' letter dated January 4, 1991, could not effect the rescission of the Deed of Conditional Sale, because the said letter was not notarized. On the other hand, petitioners argue that they made a judicial demand, which was embodied in their Manifestation filed on May 1, 1991, and Answer submitted on July 1,1991. 7 We believe, however, that the issue of whether the requirement of a judicial demand or a notarial act has been fulfilled is immaterial to the resolution of the present case. Article 1592 of the Civil Code. states: Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. After the demand, the court may not grant him a new term. It is well-settled that the above-quoted provision applies only to a contract of sale, 8 and not to a sale on installment 9 or a contract to sell. 10 Thus, in Luzon Brokerage v. Maritime Building, 11 this Court ruled that "Art. 1592 of the new Civil Code (Art. 1504 of the old Civil Code) requiring demand by suit or notarial act in case the vendor of realty wants to rescind does not apply to a contract to sell or promise to sell, where title remains with the vendor until" full payment of the price. The Court stresses the difference between these two types of contract. In a contract to sell, "the title over the subject property is transferred to the vendee only upon the full payment of the stipulated consideration. Unlike in a contract of sale, the title does not pass to the vendee upon the execution of the agreement or the delivery of the thing sold." 12 In the present case, the Deed of Conditional Sale is of the same nature as a sale on installment or a contract to sell, which is not covered by Article 1592. The aforementioned agreement provides: xxx xxx xxx Should the VENDEE fail to pay three (3) successive monthly installments or any one year-end lump sum payment within the period stipulated herein, this Deed of Conditional Sale shall be considered . . . automatically

rescinded without the necessity of judicial action[,] and all payments made by the VENDEE shall be forfeited in favor of the VENDORS by way of rental for the use and occupancy of the property and as liquidated damages. All improvements introduced by the VENDEE to the property shall belong to the VENDORS without any right of reimbursement. The VENDORS and/or their agents or representatives shall have the right to enter the premises of the property and to eject the VENDEE and all persons claiming right under her therefrom with the use of reasonable force if necessary. That upon full payment to the VENDORS of the total consideration of P3,225,000.00, the VENDORS shall immediately and without delay execute in favor of the VENDEE the final and absolute deed of sale of the property and all its improvements. Petitioners-vendors unmistakably reserved for themselves the title to the property until full payment of the purchase price by the vendee. Clearly, the agreement was not a deed of sale, but more in he nature of a contract to sell or of a sale on installments. 13 Even after the execution of the Deed of Conditional Sale, the Torrens Certificate of Title remained with and in the name of the vendors. In rejecting the application of Article 1592 to a contract to sell, the Court held in Luzon Brokerage 14 that "the full payment of the price (through the punctual performance of the monthly payments) was a condition precedent to the execution of the final sale and to the transfer of the property from [the vendor] to the [vendee]; so that there was to be no actual sale until and unless full payment was to be no actual sale until and unless full payment was made." Main Issue: Enforcement of the Automatic Forfeiture Clause As a general rule, a contract is the law between the parties. 15 Thus, "from the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all consequences which, according to their nature, may be in keeping with good faith, usage and law." 16 Also, "the stipulations of the contract being the law between the parties, courts have no alternative but to enforce them as they were agreed [upon] and written, there being no law or public policy against the stipulated forfeiture of payments already made." 17 However, it must be shown that private respondent-vendee failed to perform her obligation, thereby giving petitioners-vendors the right to demand the enforcement of the contract. We concede the validity of the automatic forfeiture clause, which deems any previous payments forfeited and the contract automatically rescinded upon the failure of the vendee to pay three successive monthly installments or any one yearend lump sum payment. However, petitioners failed to prove the conditions that would warrant the implementation of this clause. Both the appellate and the trial courts agree on the following: 1. The Deed of Conditional Sale provided for automatic rescission in case the vendee failed to pay three (3) successive monthly installments or any one yearend lump sum payment within the stipulated period therein. 2. Each monthly installment was due at the end of the month. 3. The installments for October and November 1990 were not paid.

4. The private respondent-vendee, Meden Arellano, went to the house of the petitioners-vendors on December 30, 1990. 5. Arellano offered to pay P48,000 (total amount of installments due in October, November, and December 1990) to Mary Gonzales, the petitioner's maid, but the latter refused to accept it upon instruction of petitioners. 6. Arellano returned the next day, December 31, 1990, and insisted on paying, but again the maid refused to accept it. 7. Arellano proceeded to the barangay office around 10:00 a.m. to file a case against petitioners for their refusal to accept the payments. 8. Four (4) days later, on January 4, 1991, private respondents filed a Petition for Consignation. 9. Despite the said petition, the money was nevertheless not deposited in court. 10. Negotiations between both parties went under way, culminating in the vendee's filing a Motion to Deposit the entire balance due, which was duly opposed by the vendor, and hence was denied by the trial court. From the foregoing, it is clear that petitioners were not justified in refusing to accept the tender of payment made by private respondent on December 30 and 31, 1990. Had they accepted it on either of said dates, she would have paid all three monthly installments due. In other words, there was no deliberate failure on her part to meet her responsibility to pay. 18 The Court takes note of her willingness and persistence to do so, and, petitioners cannot now say otherwise. The fact is: they refused to accept her payment and thus have no reason to demand the enforcement of the automatic forfeiture clause. They cannot be rewarded for their own misdeed. Because their maid had received monthly payments in the past, 19 it is futile for petitioners to insist now that she could not have accepted the aforementioned tender of payment, on the ground that she did not have a special power of attorney to do so. Clearly, they are estopped from denying that she had such authority. Under Article 1241 of the Civil Code, payment through a third person is valid "[i]f by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment." Failure to Consign the Amount Due Petitioners also maintain that the consignation was not valid because the amount tendered was not deposited with the trial court. True, there is no showing that she deposited the money with the proper judicial authority which, taken together with the other requisites for a valid consignation, 20 would have released her from her obligation to pay. However, she does not deny her obligation and, in fact, is willing to pay not only the three monthly installments due but also the entire residual amount of the purchase price. Verily, she even filed a Motion to Deposit the said entire balance with the trial court, which however denied said motion upon opposition of the petitioners. 21 Accordingly, we agree with the Court of Appeals that it would be inequitable to allow the forfeiture of the amount of more than two million pesos already paid by private respondent, a sum which constitutes two

thirds of the total consideration. Because she did make a tender of payment which was unjustifiably refused, we hold that petitioners cannot enforce the automatic forfeiture clause of the contract. Application of the Maceda Law In any event, the rescission of the contract and the forfeiture of the payments already made could not be effected, because the case falls squarely under Republic Act No. 6552, 22 otherwise known as the "Maceda Law." Section 3 of said law provides: Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act. Numbered Thirty-eight hundred Forty-four as amended by Republic Act Numbered Sixty-three hundred 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 year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. (b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value on the payments on the property equivalent to fifty percent of the total payments made and, after five years of installments, an additional five percent every year but not to exceed ninety percent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Down payments, deposits or options on the contract shall be included in the computation of the total number of installments made. Hence, the private respondent was entitled to a one-month grace period for every year of installments paid, which means that she had a total grace period of three months from December 31, 1990. Indeed, to rule in favor of petitioner would result in patent injustice and unjust enrichment. This tribunal is not merely a court of law, but also a court of justice. WHEREFORE, the Petition is DENIED and the dispositive portion of the appealed Decision of the Court of Appeals is hereby AFFIRMED. The CA's discussion on the need for judicial or notarial demand is MODIFIED in accordance with this Decision. Costs against petitioners. SO ORDERED. Romero, Purisima and Gonzaga-Reyes, JJ., concur. Vitug, J., abroad on official business.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 176791 November 14, 2012

COMMUNITIES CAGAYAN, INC., Petitioner, vs. SPOUSES ARSENIO (Deceased) and ANGELES NANOL AND ANYBODY CLAIMING RIGHTS UNDER THEM,Respondents. DECISION DEL CASTILLO, J.: LAWS fill the gap in a contract. This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the December 29. 2006 Decision2 and the February 12, 2007 Order3 of the Regional Trial Court (RTC), Cagayan De Oro City, Branch 18, in Civil Case No. 2005-158. Factual Antecedents Sometimes in 1994, respondent-spouses Arsenio and Angeles Nanol entered into a Contract to Sell4 with petitioner Communities Cagayan, Inc.,5 whereby the latter agreed to sell to respondent-spouses a house and Lots 17 and 196 located at Block 16, Camella Homes Subdivision, Cagayan de Oro City, 7 for the price of P368,000.00.8 Respondent-spouses, however, did not avail of petitioners inhouse financing due to its high interest rates.9 Instead, they obtained a loan from Capitol Development Bank, a sister company of petitioner, using the property as collateral.10 To facilitate the loan, a simulated sale over the property was executed by petitioner in favor of respondent-spouses.11 Accordingly, titles were transferred in the names of respondentspouses under Transfer Certificates of Title (TCT) Nos. 105202 and 105203, and submitted to Capitol Development Bank for loan processing.12 Unfortunately, the bank collapsed and closed before it could release the loan.13 Thus, on November 30, 1997, respondent-spouses entered into another Contract to Sell14 with petitioner over the same property for the same price of P368,000.00.15 This time, respondent-spouses availed of petitioners in-house financing16thus, undertaking to pay the loan over four years, from 1997 to 2001.17 Sometime in 2000, respondent Arsenio demolished the original house and constructed a three-story house allegedly valued at P3.5 million, more or less.18 In July 2001, respondent Arsenio died, leaving his wife, herein respondent Angeles, to pay for the monthly amortizations.19 On September 10, 2003, petitioner sent respondent-spouses a notarizedNotice of Delinquency and Cancellation of Contract to Sell20 due to the latters failure to pay the monthly amortizations.

In December 2003, petitioner filed before Branch 3 of the Municipal Trial Court in Cities of Cagayan de Oro City, an action for unlawful detainer, docketed as C3-Dec-2160, against respondent-spouses.21 When the case was referred for mediation, respondent Angeles offered to pay P220,000.00 to settle the case but petitioner refused to accept the payment.22 The case was later withdrawn and consequently dismissed because the judge found out that the titles were already registered under the names of respondent-spouses.23 Unfazed by the unfortunate turn of events, petitioner, on July 27, 2005, filed before Branch 18 of the RTC, Cagayan de Oro City, a Complaint for Cancellation of Title, Recovery of Possession, Reconveyance and Damages,24 docketed as Civil Case No. 2005-158, against respondent-spouses and all persons claiming rights under them. Petitioner alleged that the transfer of the titles in the names of respondent-spouses was made only in compliance with the requirements of Capitol Development Bank and that respondent-spouses failed to pay their monthly amortizations beginning January 2000.25 Thus, petitioner prayed that TCT Nos. T-105202 and T-105203 be cancelled, and that respondent Angeles be ordered to vacate the subject property and to pay petitioner reasonable monthly rentals from January 2000 plus damages.26 In her Answer,27 respondent Angeles averred that the Deed of Absolute Sale is valid, and that petitioner is not the proper party to file the complaint because petitioner is different from Masterplan Properties, Inc.28 She also prayed for damages by way of compulsory counterclaim.29 In its Reply,30 petitioner attached a copy of its Certificate of Filing of Amended Articles of Incorporation31 showing that Masterplan Properties, Inc. and petitioner are one and the same. As to the compulsory counterclaim for damages, petitioner denied the same on the ground of "lack of knowledge sufficient to form a belief as to the truth or falsity of such allegation."32 Respondent Angeles then moved for summary judgment and prayed that petitioner be ordered to return the owners duplicate copies of the TCTs.33 Pursuant to Administrative Order No. 59-2005, the case was referred for mediation.34 But since the parties failed to arrive at an amicable settlement, the case was set for preliminary conference on February 23, 2006.35 On July 7, 2006, the parties agreed to submit the case for decision based on the pleadings and exhibits presented during the preliminary conference.36 Ruling of the Regional Trial Court On December 29, 2006, the RTC rendered judgment declaring the Deed of Absolute Sale invalid for lack of consideration.37 Thus, it disposed of the case in this wise: WHEREFORE, the Court hereby declares the Deed of Absolute Sale VOID. Accordingly, Transfer Certificates of Title Nos. 105202 and 105203 in the names of the [respondents], Arsenio (deceased) and Angeles Nanol, are ordered CANCELLED. The [respondents] and any person claiming rights under them are directed to turn-over the possession of the house and lot to *petitioner+, Communities Cagayan, Inc., subject to the latters payment of their total monthly installments and the value of the new house minus the cost of the original house. SO ORDERED.38

Not satisfied, petitioner moved for reconsideration of the Decision but the Motion39 was denied in an Order40dated February 12, 2007. Issue Instead of appealing the Decision to the Court of Appeals (CA), petitioner opted to file the instant petition directly with this Court on a pure question of law, to wit: WHETHER X X X THE ACTION OF THE RTC BRANCH 18 X X X IN ORDERING THE RECOVERY OF POSSESSION BY PETITIONER subject to the latters payment of their total monthly installments and the value of the new house minus the cost of the original house IS CONTRARY TO LAW AND JURISPRUDENCE X X X.41 Petitioners Arguments Petitioner seeks to delete from the dispositive portion the order requiring petitioner to reimburse respondent-spouses the total monthly installments they had paid and the value of the new house minus the cost of the original house.42 Petitioner claims that there is no legal basis for the RTC to require petitioner to reimburse the cost of the new house because respondent-spouses were in bad faith when they renovated and improved the house, which was not yet their own.43 Petitioner further contends that instead of ordering mutual restitution by the parties, the RTC should have applied Republic Act No. 6552, otherwise known as the Maceda Law,44 and that instead of awarding respondent-spouses a refund of all their monthly amortization payments, the RTC should have ordered them to pay petitioner monthly rentals.45 Respondent Angeles Arguments Instead of answering the legal issue raised by petitioner, respondent Angeles asks for a review of the Decision of the RTC by interposing additional issues.46 She maintains that the Deed of Absolute Sale is valid.47 Thus, the RTC erred in cancelling TCT Nos. 105202 and 105203. Our Ruling The petition is partly meritorious. At the outset, we must make it clear that the issues raised by respondent Angeles may not be entertained. For failing to file an appeal, she is bound by the Decision of the RTC. Well entrenched is the rule that "a party who does not appeal from a judgment can no longer seek modification or reversal of the same. He may oppose the appeal of the other party only on grounds consistent with the judgment."48 For this reason, respondent Angeles may no longer question the propriety and correctness of the annulment of the Deed of Absolute Sale, the cancellation of TCT Nos. 105202 and 105203, and the order to vacate the property. Hence, the only issue that must be resolved in this case is whether the RTC erred in ordering petitioner to reimburse respondent-spouses the "total monthly installments and the value of the new house minus the cost of the original house."49 Otherwise stated, the issues for our resolution are: 1) Whether petitioner is obliged to refund to respondent-spouses all the monthly installments paid; and

2) Whether petitioner is obliged to reimburse respondent-spouses the value of the new house minus the cost of the original house. Respondent-spouses cash surrender on the property total payments made. are value equivalent entitled of to to the 50% of the payments the

Considering that this case stemmed from a Contract to Sell executed by the petitioner and the respondentspouses, we agree with petitioner that the Maceda Law, which governs sales of real estate on installment, should be applied. Sections 3, 4, and 5 of the Maceda Law provide for the rights of a defaulting buyer, to wit: 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 canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty percent 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. (Emphasis supplied.) Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. 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 buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act. Section 5. Under Sections 3 and 4, the buyer shall have the right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act. In this connection, we deem it necessary to point out that, under the Maceda Law, the actual cancellation of a contract to sell takes place after 30 days from receipt by the buyer of the notarized notice of cancellation,50 and upon full payment of the cash surrender value to the buyer.51 In other words, before a

contract to sell can be validly and effectively cancelled, the seller has (1) to send a notarized notice of cancellation to the buyer and (2) to refund the cash surrender value.52 Until and unless the seller complies with these twin mandatory requirements, the contract to sell between the parties remains valid and subsisting.53 Thus, the buyer has the right to continue occupying the property subject of the contract to sell,54 and may "still reinstate the contract by updating the account during the grace period and before the actual cancellation"55 of the contract. In this case, petitioner complied only with the first condition by sending a notarized notice of cancellation to the respondent-spouses. It failed, however, to refund the cash surrender value to the respondent-spouses. Thus, the Contract to Sell remains valid and subsisting and supposedly, respondent-spouses have the right to continue occupying the subject property. Unfortunately, we cannot reverse the Decision of the RTC directing respondent-spouses to vacate and turnover possession of the subject property to petitioner because respondent-spouses never appealed the order. The RTC Decision as to respondent-spouses is therefore considered final. In addition, in view of respondent-spouses failure to appeal, they can no longer reinstate the contract by updating the account. Allowing them to do so would be unfair to the other party and is offensive to the rules of fair play, justice, and due process. Thus, based on the factual milieu of the instant case, the most that we can do is to order the return of the cash surrender value. Since respondent-spouses paid at least two years of installment,56 they are entitled to receive the cash surrender value of the payments they had made which, under Section 3(b) of the Maceda Law, is equivalent to 50% of the total payments made. Respondent-spouses reimbursement made on the property. are of the entitled to improvements

Petitioner posits that Article 448 of the Civil Code does not apply and that respondent-spouses are not entitled to reimbursement of the value of the improvements made on the property because they were builders in bad faith. At the outset, we emphasize that the issue of whether respondent-spouses are builders in good faith or bad faith is a factual question, which is beyond the scope of a petition filed under Rule 45 of the Rules of Court.57 In fact, petitioner is deemed to have waived all factual issues since it appealed the case directly to this Court,58 instead of elevating the matter to the CA. It has likewise not escaped our attention that after their failed preliminary conference, the parties agreed to submit the case for resolution based on the pleadings and exhibits presented. No trial was conducted. Thus, it is too late for petitioner to raise at this stage of the proceedings the factual issue of whether respondent-spouses are ilders in bad faith. Hence, in view of the special circumstances obtaining in this case, we are constrained to rely on the presumption of good faith on the part of the respondent-spouses which the petitioner failed to rebut. Thus, respondentspouses being presumed builders in good faith, we now rule on the applicability of Article 448 of the Civil Code. As a general rule, Article 448 on builders in good faith does not apply where there is a contractual relation between the parties,59 such as in the instant case. We went over the records of this case and we note that the parties failed to attach a copy of the Contract to Sell. As such, we are constrained to apply Article 448 of the Civil Code, which provides viz: ART. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner

of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. Article 448 of the Civil Code applies when the builder believes that he is the owner of the land or that by some title he has the right to build thereon,60 or that, at least, he has a claim of title thereto.61 Concededly, this is not present in the instant case. The subject property is covered by a Contract to Sell hence ownership still remains with petitioner being the seller. Nevertheless, there were already instances where this Court applied Article 448 even if the builders do not have a claim of title over the property. Thus: This Court has ruled that this provision covers only cases in which the builders, sowers or planters believe themselves to be owners of the land or, at least, to have a claim of title thereto. It does not apply when the interest is merely that of a holder, such as a mere tenant, agent or usufructuary. From these pronouncements, good faith is identified by the belief that the land is owned; or that by some title one has the right to build, plant, or sow thereon. However, in some special cases, this Court has used Article 448 by recognizing good faith beyond this limited definition. Thus, in Del Campo v. Abesia, this provision was applied to one whose house despite having been built at the time he was still co-owner overlapped with the land of another. This article was also applied to cases wherein a builder had constructed improvements with the consent of the owner. The Court ruled that the law deemed the builder to be in good faith. In Sarmiento v. Agana, the builders were found to be in good faith despite their reliance on the consent of another, whom they had mistakenly believed to be the owner of the land.62 The Court likewise applied Article 448 in Spouses Macasaet v. Spouses Macasaet63 notwithstanding the fact that the builders therein knew they were not the owners of the land. In said case, the parents who owned the land allowed their son and his wife to build their residence and business thereon. As found by this Court, their occupation was not by mere tolerance but "upon the invitation of and with the complete approval of (their parents), who desired that their children would occupy the premises. It arose from familial love and a desire for family solidarity x x x."64 Soon after, conflict between the parties arose. The parents demanded their son and his wife to vacate the premises. The Court thus ruled that as owners of the property, the parents have the right to possession over it. However, they must reimburse their son and his wife for the improvements they had introduced on the property because they were considered builders in good faith even if they knew for a fact that they did not own the property, thus: Based on the aforecited special cases, Article 448 applies to the present factual milieu. The established facts of this case show that respondents fully consented to the improvements introduced by petitioners. In fact, because the children occupied the lots upon their invitation, the parents certainly knew and approved of the construction of the improvements introduced thereon. Thus, petitioners may be deemed to have been in good faith when they built the structures on those lots. The instant case is factually similar to Javier v. Javier. In that case, this Court deemed the son to be in good faith for building the improvement (the house) with the knowledge and consent of his father, to whom belonged the land upon which it was built. Thus, Article 448 was applied.65 In fine, the Court applied Article 448 by construing good faith beyond its limited definition. We find no reason not to apply the Courts ruling in Spouses Macasaet v. Spouses Macasaet in this case. We thus hold that Article 448 is also applicable to the instant case. First, good faith is presumed on the part of the respondentspouses. Second, petitioner failed to rebut this presumption. Third, no evidence was presented to show that petitioner opposed or objected to the improvements introduced by the respondent-spouses. Consequently,

we can validly presume that petitioner consented to the improvements being constructed. This presumption is bolstered by the fact that as the subdivision developer, petitioner must have given the respondent-spouses permits to commence and undertake the construction. Under Article 453 of the Civil Code, "it is understood that there is bad faith on the part of the landowner whenever the act was done with his knowledge and without opposition on his part." In view of the foregoing, we find no error on the part of the RTC in requiring petitioner to pay respondentspouses the value of the new house minus the cost of the old house based on Article 448 of the Civil Code, subject to succeeding discussions. Petitioner 448 and Tuatis v. Escol.66 has two pursuant options to the under ruling Article in

In Tuatis, we ruled that the seller (the owner of the land) has two options under Article 448: (1) he may appropriate the improvements for himself after reimbursing the buyer (the builder in good faith) the necessary and useful expenses under Articles 54667 and 54868 of the Civil Code; or (2) he may sell the land to the buyer, unless its value is considerably more than that of the improvements, in which case, the buyer shall pay reasonable rent.69Quoted below are the pertinent portions of our ruling in that case: Taking into consideration the provisions of the Deed of Sale by Installment and Article 448 of the Civil Code, Visminda has the following options: Under the first option, Visminda may appropriate for herself the building on the subject property after indemnifying Tuatis for the necessary and useful expenses the latter incurred for said building, as provided in Article 546 of the Civil Code. It is worthy to mention that in Pecson v. Court of Appeals, the Court pronounced that the amount to be refunded to the builder under Article 546 of the Civil Code should be the current market value of the improvement, thus: xxxx Until Visminda appropriately indemnifies Tuatis for the building constructed by the latter, Tuatis may retain possession of the building and the subject property. Under the second option, Visminda may choose not to appropriate the building and, instead, oblige Tuatis to pay the present or current fair value of the land. The P10,000.00 price of the subject property, as stated in the Deed of Sale on Installment executed in November 1989, shall no longer apply, since Visminda will be obliging Tuatis to pay for the price of the land in the exercise of Vismindas rights under Article 448 of the Civil Code, and not under the said Deed. Tuatis obligation will then be statutory, and not contractual, arising only when Visminda has chosen her option under Article 448 of the Civil Code. Still under the second option, if the present or current value of the land, the subject property herein, turns out to be considerably more than that of the building built thereon, Tuatis cannot be obliged to pay for the subject property, but she must pay Visminda reasonable rent for the same. Visminda and Tuatis must agree on the terms of the lease; otherwise, the court will fix the terms.

Necessarily, the RTC should conduct additional proceedings before ordering the execution of the judgment in Civil Case No. S-618. Initially, the RTC should determine which of the aforementioned options Visminda will choose. Subsequently, the RTC should ascertain: (a) under the first option, the amount of indemnification Visminda must pay Tuatis; or (b) under the second option, the value of the subject property vis--vis that of the building, and depending thereon, the price of, or the reasonable rent for, the subject property, which Tuatis must pay Visminda. The Court highlights that the options under Article 448 are available to Visminda, as the owner of the subject property. There is no basis for Tuatis demand that, since the value of the building she constructed is considerably higher than the subject property, she may choose between buying the subject property from Visminda and selling the building to Visminda for P502,073.00. Again, the choice of options is for Visminda, not Tuatis, to make. And, depending on Vismindas choice, Tuatis rights as a builder under Article 448 are limited to the following: (a) under the first option, a right to retain the building and subject property until Visminda pays proper indemnity; and (b) under the second option, a right not to be obliged to pay for the price of the subject property, if it is considerably higher than the value of the building, in which case, she can only be obliged to pay reasonable rent for the same. The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord with the principle of accession, i.e., that the accessory follows the principal and not the other way around. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. The landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land. The raison detre for this provision has been enunciated thus: Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing. Vismindas Motion for Issuance of Writ of Execution cannot be deemed as an expression of her choice to recover possession of the subject property under the first option, since the options under Article 448 of the Civil Code and their respective consequences were also not clearly presented to her by the 19 April 1999 Decision of the RTC. She must then be given the opportunity to make a choice between the options available to her after being duly informed herein of her rights and obligations under both.70 (Emphasis supplied.) In conformity with the foregoing pronouncement, we hold that petitioner, as landowner, has two options. It may appropriate the new house by reimbursing respondent Angeles the current market value thereof minus the cost of the old house. Under this option, respondent Angeles would have "a right of retention which negates the obligation to pay rent."71 In the alternative, petitioner may sell the lots to respondent Angeles at a price equivalent to the current fair value thereof. However, if the value of the lots is considerably more than the value of the improvement, respondent Angeles cannot be compelled to purchase the lots. She can only be obliged to pay petitioner reasonable rent. In view of the foregoing disquisition and in accordance with Depra v. Dumlao72 and Technogas Philippines Manufacturing Corporation v. Court of Appeals,73 we find it necessary to remand this case to the court of origin for the purpose of determining matters necessary for the proper application of Article 448, in relation to Articles 546 and 548 of the Civil Code.

WHEREFORE, the petition is hereby PARTIALLY GRANTED. The assailed Decision dated December 29, 2006 and the Order dated February 12, 2007 of the Regional Trial Court, Cagayan de Oro City, Branch 18, in Civil Case No. 2005-158 are hereby AFFIRMED with MODIFICATION that petitioner Communities Cagayan, Inc. is hereby ordered to RETURN the cash surrender value of the payments made by respondent-spouses on the properties, which is equivalent to 50% of the total payments made, in ccordance with Section 3(b) of Republic Act No. 6552, otherwise known as the Maceda Law. The case is hereby REMANDED to the Regional Trial Court, Cagayan de Oro City, Branch 18, for further proceedings consistent with the proper application of Articles 448, 546 and 548 of the Civil Code, as follows: 1. The trial court shall determine: a) the present or current fair value of the lots; b) the current market value of the new house; c) the cost of the old house; and d) whether the value of the lots is considerably more than the current market value of the new house minus the cost of the old house. 2. After said amounts shall have been determined by competent evidence, the trial court shall render judgment as follows: a) Petitioner shall be granted a period of 15 days within which to exercise its option under the law (Article 448, Civil Code), whether to appropriate the new house by paying to respondent Angeles the current market value of the new house minus the cost of the old house, or to oblige respondent Angeles to pay the price of the lots. The amounts to be respectively paid by the parties, in accordance with the option thus exercised by written notice to the other party and to the court, shall be paid by the obligor within 15 days from such notice of the option by tendering the amount to the trial court in favor of the party entitled to receive it. b) If petitioner exercises the option to oblige respondent Angeles to pay the price of the lots but the latter rejects such purchase because, as found by the trial court, the value of the lots is considerably more than the value of the new house minus the cost of the old house, respondent Angeles shall give written notice of such rejection to petitioner and to the trial court within 15 days from notice of petitioners option to sell the land. In that event, the parties shall be given a period of 15 days from such notice of rejection within which to agree upon the terms of the lease, and give the trial court formal written notice of the agreement and its provisos. If no agreement is reached by the parties, the trial court, within 15 days from and after the termination of the said period fixed for negotiation, shall then fix the period and terms of the lease, including the monthly rental, which shall be payable within the first five days of each calendar month. Respondent Angeles shall not make any further constructions or improvements on the building. Upon expiration of the period, or upon default by respondent Angeles in the payment of rentals for two consecutive months, petitioner shall be entitled to terminate the forced lease, to recover its land, and to have the new house removed by respondent Angeles or at the latters expense. c) In any event, respondent Angeles shall pay petitioner reasonable compensation for the occupancy of the property for the period counted from the time the Decision dated December 29, 2006 became

final as to respondent Angeles or 15 days after she received a copy of the said Decision up to the date petitioner serves notice of its option to appropriate the encroaching structures, otherwise up to the actual transfer of ownership to respondent Angeles or, in case a forced lease has to be imposed, up to the commencement date of the forced lease referred to in the preceding paragraph.1wphi1 d) The periods to be fixed by the trial court in its decision shall be nonextendible, and upon failure of the party obliged to tender to the trial court the amount due to the obligee, the party entitled to such payment shall be entitled to an order of execution for the enforcement of payment of the amount due and for compliance with such other acts as may be required by the prestation due the obligee. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 147695 September 13, 2007

MANUEL C. PAGTALUNAN, petitioner, vs. RUFINA DELA CRUZ VDA. DE MANZANO, respondent. DECISION AZCUNA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court of the Court of Appeals (CA) Decision promulgated on October 30, 2000 and its Resolution dated March 23, 2001 denying petitioners motion for reconsideration. The Decision of the CA affirmed the Decision of the Regional Trial Court (RTC) of Malolos, Bulacan, dated June 25, 1999 dismissing the case of unlawful detainer for lack of merit. The facts are as follows: On July 19, 1974, Patricio Pagtalunan (Patricio), petitioners stepfather and predecessor -in-interest, entered into a Contract to Sell with respondent, wife of Patricios former mechanic, Teodoro Manzano, whereby the former agreed to sell, and the latter to buy, a house and lot which formed half of a parcel of land, covered by Transfer Certificate of Title (TCT) No. T-10029 (now TCT No. RT59929 [T-254773]), with an area of 236 square meters. The consideration of P17,800 was agreed to be paid in the following manner: P1,500 as downpayment upon execution of the Contract to Sell, and the balance to be paid in equal monthly installments of P150 on or before the last day of each month until fully paid. It was also stipulated in the contract that respondent could immediately occupy the house and lot; that in case of default in the payment of any of the installments for 90 days after its due date, the contract would be automatically rescinded without need of judicial declaration, and that all payments made and all improvements done on the premises by respondent would be considered as rentals for the use and occupation of the property or payment for damages suffered, and respondent was obliged to peacefully vacate the premises and deliver the possession thereof to the vendor. Petitioner claimed that respondent paid only P12,950. She allegedly stopped paying after December 1979 without any justification or explanation. Moreover, in a "Kasunduan"1 dated November 18, 1979, respondent borrowedP3,000 from Patricio payable in one year either in one lump sum payment or by installments, failing which the balance of the loan would be added to the principal subject of the monthly amortizations on the land. Lastly, petitioner asserted that when respondent ceased paying her installments, her status of buyer was automatically transformed to that of a lessee. Therefore, she continued to possess the property by mere tolerance of Patricio and, subsequently, of petitioner.

On the other hand, respondent alleged that she paid her monthly installments religiously, until sometime in 1980 when Patricio changed his mind and offered to refund all her payments provided she would surrender the house. She refused. Patricio then started harassing her and began demolishing the house portion by portion. Respondent admitted that she failed to pay some installments after December 1979, but that she resumed paying in 1980 until her balance dwindled to P5,650. She claimed that despite several months of delay in payment, Patricio never sued for ejectment and even accepted her late payments. Respondent also averred that on September 14, 1981, she and Patricio signed an agreement (Exh. 2) whereby he consented to the suspension of respondents monthly payments until December 1981. However, even before the lapse of said period, Patricio resumed demolishing respondents house, prompting her to lodge a complaint with the Barangay Captain who advised her that she could continue suspending payment even beyond December 31, 1981 until Patricio returned all the materials he took from her house. This Patricio failed to do until his death. Respondent did not deny that she still owed Patricio P5,650, but claimed that she did not resume paying her monthly installment because of the unlawful acts committed by Patricio, as well as the filing of the ejectment case against her. She denied having any knowledge of the Kasunduan of November 18, 1979. Patricio and his wife died on September 17, 1992 and on October 17, 1994, respectively. Petitioner became their sole successor-in-interest pursuant to a waiver by the other heirs. On March 5, 1997, respondent received a letter from petitioners counsel dated February 24, 1997 demanding that she vacate the premises within five days on the ground that her possession had become unlawful. Respondent ignored the demand. The Punong Barangay failed to settle the dispute amicably. On April 8, 1997, petitioner filed a Complaint for unlawful detainer against respondent with the Municipal Trial Court (MTC) of Guiguinto, Bulacan praying that, after hearing, judgment be rendered ordering respondent to immediately vacate the subject property and surrender it to petitioner; forfeiting the amount of P12,950 in favor of petitioner as rentals; ordering respondent to pay petitioner the amount of P3,000 under the Kasunduan and the amount of P500 per month from January 1980 until she vacates the property, and to pay petitioner attorneys fees and the costs. On December 22, 1998, the MTC rendered a decision in favor of petitioner. It stated that although the Contract to Sell provides for a rescission of the agreement upon failure of the vendee to pay any installment, what the contract actually allows is properly termed a resolution under Art. 1191 of the Civil Code. The MTC held that respondents failure to pay not a few installments caused the resolution or termination of the Contract to Sell. The last payment made by respondent was on January 9, 1980 (Exh. 71). Thereafter, respondents right of possession ipso facto ceased to be a legal right, and became possession by mere tolerance of Patricio and his successors-in-interest. Said tolerance ceased upon demand on respondent to vacate the property. The dispositive portion of the MTC Decision reads: Wherefore, all the foregoing considered, judgment is hereby rendered, ordering the defendant: a. to vacate the property covered by Transfer Certificate of Title No. T-10029 of the Register of Deeds of Bulacan (now TCT No. RT-59929 of the Register of Deeds of Bulacan), and to surrender possession thereof to the plaintiff;

b. to pay the plaintiff the amount of P113,500 representing rentals from January 1980 to the present; c. to pay the plaintiff such amount of rentals, at P500/month, that may become due after the date of judgment, until she finally vacates the subject property; d. to pay to the plaintiff the amount of P25,000 as attorneys fees. SO ORDERED.2 On appeal, the RTC of Malolos, Bulacan, in a Decision dated June 25, 1999, reversed the decision of the MTC and dismissed the case for lack of merit. According to the RTC, the agreement could not be automatically rescinded since there was delivery to the buyer. A judicial determination of rescission must be secured by petitioner as a condition precedent to convert the possession de facto of respondent from lawful to unlawful. The dispositive portion of the RTC Decision states: WHEREFORE, judgment is hereby rendered reversing the decision of the Municipal Trial Court of Guiguinto, Bulacan and the ejectment case instead be dismissed for lack of merit.3 The motion for reconsideration and motion for execution filed by petitioner were denied by the RTC for lack of merit in an Order dated August 10, 1999. Thereafter, petitioner filed a petition for review with the CA. In a Decision promulgated on October 30, 2000, the CA denied the petition and affirmed the Decision of the RTC. The dispositive portion of the Decision reads: WHEREFORE, the petition for review on certiorari is Denied. The assailed Decision of the Regional Trial Court of Malolos, Bulacan dated 25 June 1999 and its Order dated 10 August 1999 are hereby AFFIRMED. SO ORDERED. 4 The CA found that the parties, as well as the MTC and RTC failed to advert to and to apply Republic Act (R.A.) No. 6552, more commonly referred to as the Maceda Law, which is a special law enacted in 1972 to protect buyers of real estate on installment payments against onerous and oppressive conditions. The CA held that the Contract to Sell was not validly cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552, and recognized respondents right to continue occupying unmolested the property subject of the contract to sell. The CA denied petitioners motion for reconsideration in a Resolution dated March 23, 2001. Hence, this petition for review on certiorari. Petitioner contends that:

A. Respondent Dela Cruz must bear the consequences of her deliberate withholding of, and refusal to pay, the monthly payment. The Court of Appeals erred in allowing Dela Cruz who acted in bad faith from benefiting under the Maceda Law. B. The Court of Appeals erred in resolving the issue on the applicability of the Maceda Law, which issue was not raised in the proceedings a quo. C. Assuming arguendo that the RTC was correct in ruling that the MTC has no jurisdiction over a rescission case, the Court of Appeals erred in not remanding the case to the RTC for trial.5 Petitioner submits that the Maceda Law supports and recognizes the right of vendors of real estate to cancel the sale outside of court, without need for a judicial declaration of rescission, citing Luzon Brokerage Co., Inc., v. Maritime Building Co., Inc.6 Petitioner contends that respondent also had more than the grace periods provided under the Maceda Law within which to pay. Under Sec. 37 of the said law, a buyer who has paid at least two years of installments has a grace period of one month for every year of installment paid. Based on the amount of P12,950 which respondent had already paid, she is entitled to a grace period of six months within which to pay her unpaid installments after December, 1979. Respondent was given more than six months from January 1980 within which to settle her unpaid installments, but she failed to do so. Petitioners demand to vacate was sent to respondent in February 1997. There is nothing in the Maceda Law, petitioner asserts, which gives the buyer a right to pay arrearages after the grace periods have lapsed, in the event of an invalid demand for rescission. The Maceda Law only provides that actual cancellation shall take place after 30 days from receipt of the notice of cancellation or demand for rescission and upon full payment of the cash surrender value to the buyer. Petitioner contends that his demand letter dated February 24, 1997 should be considered the notice of cancellation since the demand letter informed respondent that she had "long ceased to have any right to possess the premises in question due to [her] failure to pay without justifiable cause." In support of his contention, he citedLayug v. Intermediate Appellate Court8 which held that "the additional formality of a demand on *the sellers+ part for rescission by notarial act would appear, in the premises, to be merely circuitous and consequently superfluous." He stated that in Layug, the seller already made a written demand upon the buyer. In addition, petitioner asserts that whatever cash surrender value respondent is entitled to have been applied and must be applied to rentals for her use of the house and lot after December, 1979 or after she stopped payment of her installments. Petitioner argues that assuming Patricio accepted respondents delayed installments in 1981, such act cannot prevent the cancellation of the Contract to Sell. Installments after 1981 were still unpaid and the applicable grace periods under the Maceda Law on the unpaid installments have long lapsed. Respondent cannot be allowed to hide behind the Maceda Law. She acted with bad faith and must bear the consequences of her deliberate withholding of and refusal to make the monthly payments. Petitioner also contends that the applicability of the Maceda Law was never raised in the proceedings below; hence, it should not have been applied by the CA in resolving the case. The Court is not persuaded.

The CA correctly ruled that R.A No. 6552, which governs sales of real estate on installment, is applicable in the resolution of this case. This case originated as an action for unlawful detainer. Respondent is alleged to be illegally withholding possession of the subject property after the termination of the Contract to Sell between Patricio and respondent. It is, therefore, incumbent upon petitioner to prove that the Contract to Sell had been cancelled in accordance with R.A. No. 6552. The pertinent provision of R.A. No. 6552 reads: Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four as amended by Republic Act Numbered Sixty-three hundred 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 percent of the total payments made and, after five years of installments, an additional five percent every year but not to exceed ninety percent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.9 R.A. No. 6552, otherwise known as the "Realty Installment Buyer Protection Act," recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force.10 The Court agrees with petitioner that the cancellation of the Contract to Sell may be done outside the court particularly when the buyer agrees to such cancellation. However, the cancellation of the contract by the seller must be in accordance with Sec. 3 (b) of R.A. No. 6552, which requires a notarial act of rescission and the refund to the buyer of the full payment of the cash surrender value of the payments on the property. Actual cancellation of the contract takes place after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Based on the records of the case, the Contract to Sell was not validly cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552. First, Patricio, the vendor in the Contract to Sell, died on September 17, 1992 without canceling the Contract to Sell. Second, petitioner also failed to cancel the Contract to Sell in accordance with law.

Petitioner contends that he has complied with the requirements of cancellation under Sec. 3 (b) of R.A. No. 6552. He asserts that his demand letter dated February 24, 1997 should be considered as the notice of cancellation or demand for rescission by notarial act and that the cash surrender value of the payments on the property has been applied to rentals for the use of the house and lot after respondent stopped payment after January 1980. The Court, however, finds that the letter11 dated February 24, 1997, which was written by petitioners counsel, merely made formal demand upon respondent to vacate the premises in question within five days from receipt thereof since she had "long ceased to have any right to possess the premises x x x due to [her] failure to pay without justifiable cause the installment payments x x x." Clearly, the demand letter is not the same as the notice of cancellation or demand for rescission by a notarial actrequired by R.A No. 6552. Petitioner cannot rely on Layug v. Intermediate Appellate Court12 to support his contention that the demand letter was sufficient compliance. Layug held that "the additional formality of a demand on *the sellers+ part for rescission by notarial act would appear, in the premises, to be merely circuitous and consequently superfluous" since the seller therein filed an action for annulment of contract, which is a kindred concept of rescission by notarial act.13 Evidently, the case of unlawful detainer filed by petitioner does not exempt him from complying with the said requirement. In addition, 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. There being no valid cancellation of the Contract to Sell, the CA correctly recognized respondents right to continue occupying the property subject of the Contract to Sell and affirmed the dismissal of the unlawful detainer case by the RTC. The Court notes that this case has been pending for more than ten years. Both parties prayed for other reliefs that are just and equitable under the premises. Hence, the rights of the parties over the subject property shall be resolved to finally dispose of that issue in this case. Considering that the Contract to Sell was not cancelled by the vendor, Patricio, during his lifetime or by petitioner in accordance with R.A. No. 6552 when petitioner filed this case of unlawful detainer after 22 years of continuous possession of the property by respondent who has paid the substantial amount of P12,300 out of the purchase price of P17,800, the Court agrees with the CA that it is only right and just to allow respondent to pay her arrears and settle the balance of the purchase price. For respondents delay in the payment of the installments, the Court, in its discretion, and applying Article 220914of the Civil Code, may award interest at the rate of 6% per annum15 on the unpaid balance considering that there is no stipulation in the Contract to Sell for such interest. For purposes of computing the legal interest, the reckoning period should be the filing of the complaint for unlawful detainer on April 8, 1997. Based on respondents evidence16 of payments made, the MTC found that respondent paid a total of P12,300 out of the purchase price of P17,800. Hence, respondent still has a balance of P5,500, plus legal interest at the rate of 6% per annum on the unpaid balance starting April 8, 1997.

The third issue is disregarded since petitioner assails an inexistent ruling of the RTC on the lack of jurisdiction of the MTC over a rescission case when the instant case he filed is for unlawful detainer. WHEREFORE, the Decision of the Court of Appeals dated October 30, 2000 sustaining the dismissal of the unlawful detainer case by the RTC is AFFIRMED with the following MODIFICATIONS: 1. Respondent Rufina Dela Cruz Vda. de Manzano shall pay petitioner Manuel C. Pagtalunan the balance of the purchase price in the amount of Five Thousand Five Hundred Pesos (P5,500) plus interest at 6% per annum from April 8, 1997 up to the finality of this judgment, and thereafter, at the rate of 12% per annum; 2. Upon payment, petitioner Manuel C. Pagtalunan shall execute a Deed of Absolute Sale of the subject property and deliver the certificate of title in favor of respondent Rufina Dela Cruz Vda. de Manzano; and 3. In case of failure to pay within 60 days from finality of this Decision, respondent Rufina Dela Cruz Vda. de Manzano shall immediately vacate the premises without need of further demand, and the downpayment and installment payments of P12,300 paid by her shall constitute rental for the subject property. No costs. SO ORDERED.