PEDRO MOLINA

THIRD DIVISION

[ G. R. No. 125755, February 24, 2003 ]

PEDRO MOLINA, PETITIONER-APPELLANT, VS. HON. COURT OF APPEALS AND SPOUSES MARGARITO M. FLORES AND NERISA HERRERA, RESPONDENTS-APPELLEES.

D E C I S I O N

CARPIO MORALES, J.:

His motion for reconsideration having been denied, petitioner brought the present petition for review on certiorari to set aside the decision of April 30, 1996 of the Court of Appeals^[1] in CA-G.R. CV No. 46107 which reversed the April 4, 1994 decision of the Regional Trial Court of Cavite, Branch 15^[2] in Civil Case No. NC-325 in favor of petitioner.

Petitioner Pedro Molina and his siblings Felisa, Felix and Tomas Molina were co-owners of a parcel of land in Naic, Cavite registered in their names under TCT No. T-44010 of the Registry of Deeds of Cavite.^[3]

On April 23, 1984, petitioner, by Deed of Absolute Sale,^[4] conveyed to his sister Felisa his share in the co-owned property. The sale was not, however, registered.

The siblings subsequently entered into an agreement wherein they partitioned the property as follows:

Lot No. 98-A-1 with an area of 92 square m. for FELIX MOLINA;

Lot No. 98-A-2 with an area of 92 square m. for PEDRO MOLINA;

Lot No. 98-A-3 with an area of 92 square m. for FELISA MOLINA;

Lot No. 98-A-4 with an area of 92 square m. for TOMAS MOLINA;

Lot No. 98-A-5 with an area of 43 square m. as the RIGHT OF WAY;^[5]

More than four years after petitioner executed the Deed of Sale conveying his share of the property to his sister Felisa or on June 13, 1988, upon the request of Felisa, he executed another Deed of Absolute Sale^[6] in lieu of the first covering the same share in favor of Felisa’s son private respondent Margarito Flores and his wife private respondent Nerisa Herrera. The pertinent provisions of the second Deed are reproduced hereunder:

x x x
That the Vendor is the absolute owner in fee simple of a ¼ portion of a parcel of land, situated in the Poblacion, Naic, Cavite, Philippines, known as and more specifically described as follows:

x x x
That for and in consideration of the sum of EIGHT THOUSAND PESOS ONLY (P8,000.00) Philippine Currency, receipt of which in full is hereby acknowledged by theVendor from the Vendee, the Vendor hereby sells, transfers and conveys and by these presents have (sic) sold, transferred and conveyed unto the above named Vendee, her (sic) heirs and assigns the (1/4) square meters (sic) portion of the above described parcel of land, free from all kinds of liens and encumbrances whatsoever. (Underscoring supplied).

x x x

TCT No. T-170585^[7] in the name of respondent spouses covering petitioner’s share in the co-owned property was accordingly issued.

On September 5, 1990, petitioner filed an action for reformation of instrument and/or annulment of document and title with reconveyance and damages before the Regional Trial Court of Cavite, alleging that the Deed of Absolute Sale in favor of respondent spouses does not express the true will and intention of the parties.

Respondent spouses maintained that their acquisition of petitioner’s share was valid, legal and binding.^[8]

After trial, finding for petitioner, the trial court ordered the annulment of the Deed of Absolute Sale, disposing as follows:

Wherefore, this Court finds merit in plaintiff’s complaint and hereby orders:

1. The annulment of the contract, Absolute Deed of Sale dated June 13, 1988 among and between the plaintiff and the defendants which is null and void;
   
2. The cancellation of TCT No. 170585 of the Register of Deeds of Cavite Province at Trece Martires City; and
   
3. The defendants to pay plaintiff reasonable attorney’s fees of P5,000.00.

Plus costs of suit.

SO ORDERED.^[9]

Upon recourse to the Court of Appeals, the trial court’s decision was reversed and the complaint of petitioner was dismissed, hence the present petition anchored on the following assigned errors:

1. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT HOLDING THAT THE DEED OF SALE DO (sic) NOT EXPRESS THE TRUE INTENT AND AGREEMENT OF THE PARTIES;
   
2. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT FINDING THE TRANSACTION TO BE AN EQUITABLE MORTGAGE AND NOT A DEED OF SALE AND THEREFORE TRANSCENDS THE CORRECT APPLICATION OF ART. 1602 OF THE CIVIL CODE;
   
3. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT HOLDING THAT THE ALLEGED SALE WAS NOT A CONSUMATED (sic) CONTRACT OF SALE;
   
4. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT FINDING THAT THE PETITIONER WAS DEFRAUDED BY FELISA MOLINA IN SIGNING THE SIMULATED AND FICTITIOUS DEED OF SALE.^[10]

Petitioner contends that he signed the Deed of Absolute Sale through the misrepresentations of his sister Felisa who made him believe that what he was signing was only a receipt evidencing his indebtedness to her^[11] which, by his own admission, he had incurred on several occasions; that Felisa took advantage of his lack of sufficient education and knowledge of English to defraud him into selling his property; and that parol evidence should be admitted to prove the real nature of the transaction which he claims was one of an equitable mortgage.

Petitioner calls attention to the consideration given for his property, P8,000.00, which he claims is inadequate, and to his regular receipt of rentals being paid by the lessee of the premises, one Erlinda de Guzman which circumstances are allegedly badges of equitable mortgage. Thus he cites Articles 1602 and 1604 of the Civil Code which provide:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to usury laws (Emphasis supplied).

Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

In issue then is whether the parties intended the Deed of Absolute Sale in favor of respondent to be an equitable mortgage.

An equitable mortgage is defined as one which, although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to chargereal property as security for a debt, and contains nothing impossible or contrary to law.^[12]

The intention of the parties to an agreement is shown not necessarily by the terminology used therein but by all the surrounding circumstances, such as the relative situation of the parties at the time, the attitude, acts, conduct, declarations of the parties, the negotiations between them leading to the deed, and generally, all pertinent facts having a tendency to fix and determine the real nature of their design and understanding.^[13]

For the presumption of an equitable mortgage to arise under Art. 1602, two (2) requisites must concur: (a) that the parties entered into a contract denominated as a contract of sale, and (b) that their intention was to secure an existing debt by way of a mortgage.^[14]

In the case at bar, the second requisite is conspicuously absent. Consider the following testimony of petitioner himself:

Q:	In connection with that issue, do you remember how much you owed your sister?
A:	Yes, your Honor.
Q:	How much?
A:	Ten thousand (P10,000.00) pesos, your Honor.
Q:	Do you have any copy of that agreement of your loan?
A:	None, sir.
Q:	How did you receive that amount of money?
A:	Little by little, sir. Month by month (buwan buwan), sir.
Q:	And how long did you receive that amount of ten thousand (P10,000.00) pesos?
A:	Ten months. Every month, I was allowed to received (sic) P1,000.00.
Q:	You did not put up any collateral to your loan? Did you?
A:	None, your Honor. (Emphasis and underscoring supplied).[15]

That the alleged loan was received in installments of P1,000.00 per month for ten months or a total of P10,000.00 in fact indicates that the transaction was not one of a loan but of sale on installment.

The alleged inadequacy of the price harped upon by petitioner does not by itself support the conclusion that the property was not at all sold or that the contract was one of a loan.^[16]

In any event, no proof was presented to show that the value of the 92 sq. m. property located in Naic, Cavite was, at the time the Deed was executed in 1988, considerably higher than the therein stated purchase price P8,000.00.

As for petitioner’s continued receipt of rentals due on the property from its current lessee this Court finds the same as did the appellate court, to be a gesture of generosity, kinship and leniency from his relatives, he being jobless and without visible means of support.^[17]

Petitioner argues, nevertheless, that assuming arguendo that a contract of sale was entered into, it was not consummated as the entire purchase price was not paid.^[18] Assuming that to be so albeit, by the Deed in question petitioner acknowledged receipt of the P8,000.00 purchase price, it does not by itself bar the transfer of the ownership or possession of the property, much less dissolve the contract of sale.^[19] The contract remains but the payment of the price is a resolutory condition, and the remedy of the seller is to exact fulfillment or, in case of a substantial breach, to rescind the contract under Article 1191 of the Civil Code^[20] which provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

That petitioner, prior to the execution of the impugned Deed, signed receipts identically denominated as “Kasunduan” under which he acknowledged receiving sums of money as payment for his property, which receipts were worded in the vernacular and could not have been mistaken or misunderstood for anything else other than as evidence of the sale of his property, seals the case against him. It confirms this Court’s earlier observation that the transaction indicated was one of sale on installment. Thus each of the receipts – Kasunduan^[21] provides:

Ako si PEDRO MOLINA, balo, may sapat na gulang, Pilipino, naninirahan sa Naik, Kabite, ay tumanggap ng halagang one thousand (P1,000) sa aking kapatid na si FELISA S. MOLINA bilang tanda na ipinagbibili ko sa kanya ang aking kaparte sa lupang minana naming sa aming mga magulang, nakilala bilang Lote Numero 98-A na may titulo Numero T-44010 na nasa Kalye ZAMORA NAIK, KABITE, x x x

Additionally, petitioner affixed his signature on the Deed after its contents were sufficiently explained to him in the vernacular, which was witnessed by two other persons of legal age and duly acknowledged before a notary public. Ironically, petitioner’s own witness, Nemecio Molina, who was likewise a witness to the execution of the Deed, belied his claim of having no knowledge of the contents of the subject instrument when he took the witness stand:

Q:	Now, before the said document was signed by the parties, do you know what was done by the Notary Public, Mariano Villanueva?
A:	Yes, sir.
Q:	What was done by Notary Public Mariano Villanueva before the parties signed the document?
A:	He read the document to Pedro Molina.
Q:	In what vernacular did Atty. Villanueva use the reading of the document, Tagalog or English?
A:	In English, your Honor.
Q:	You mean to say that Notary Public Mariano Villanueva was reading the contents of the sale of the document which is in English?
A:	Yes, sir.
Q:	And that is all what (sic) Atty. Villanueva did before he required the parties to sign?
A:	He told her secretary to translate it in Tagalog.[22] (Underscoring supplied).

More. Another witness to the document, Atty. Edwina Mendoza, testified that prior to the execution of the Deed, the parties thereto approached her “to tell [her] that sometime in the future, they will have to execute a deed of conveyance because they are entering to (sic) this kind of transaction,”^[23] adding that when petitioner was informed that he would actually be selling his property, the latter readily acceded.^[24]

In fine, this Court finds that the parties to the Deed were fully aware of its contents and meaning, and that there were no acts done or events that occurred prior to, simultaneous to, or after the execution of the Deed that would indicate the intention of any of the parties to have been otherwise than to sell the property to respondent spouses.

WHEREFORE, the Petition is hereby DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 46107 dated April 30, 1996 is hereby AFFIRMED.

SO ORDERED.

Puno, (Chairman), Panganiban, and Sandoval-Gutierrez, JJ., concur.
Corona, J., on leave.

---

^[1] Records at 93-102.

^[2] Id. at 103-109.

^[3] Exhibit “A,” Records at 53.

^[4] Exhibit “2,” Records at 28.

^[5] Rollo at 7.

^[6] Exhibit “3,” Records at 29.

^[7] Exhibit “C,” Records at 55.

^[8] Records at 13.

^[9] Records at 109.

^[10] Rollo at 6.

^[11] TSN, January 24, 1991 at 9.

^[12] Matanguihan v. Court of Appeals, 275 SCRA 381, 390 (1997) (citation omitted).

^[13] Reyes v. Court of Appeals, 339 SCRA 97, 103 (2000)

^[14] Reyes, 339 SCRA 104.

^[15] TSN, January 24, 1991 at 13.

^[16] Cachola, Sr. v. Court of Appeals, 208 SCRA 496, 501 (1992).

^[17] Records at 101.

^[18] Rollo at 17.

^[19] Ocampo v. Court of Appeals, 233 SCRA 551, 560 (1994).

^[20] Villaflor v. Court of Appeals, 280 SCRA 297, 339 (1997) (citation omitted).

^[21] Exhibits “1,” “1-A” – “I” at 18-27.

^[22] TSN, March 20, 1991 at 9.

^[23] TSN, October 23, 1991 at 16.

^[24] Id. at 18.

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Source: Supreme Court E-Library | Date created: December 04, 2008
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VICENTE ONG LIM SING,

THIRD DIVISION

[ G.R. NO. 168115, June 08, 2007 ]

VICENTE ONG LIM SING, JR.,PETITIONER, VS. FEB LEASING & FINANCE CORPORATION, RESPONDENT.

DECISION

NACHURA, J.:

This is a petition for review on certiorari assailing the Decision^[1] dated March 15, 2005 and the Resolution^[2] dated May 23, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 77498.

The facts are as follows:

On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a lease^[3] of equipment and motor vehicles with JVL Food Products (JVL). On the same date, Vicente Ong Lim Sing, Jr. (Lim) executed an Individual Guaranty Agreement^[4] with FEB to guarantee the prompt and faithful performance of the terms and conditions of the aforesaid lease agreement. Corresponding Lease Schedules with Delivery and Acceptance Certificates^[5] over the equipment and motor vehicles formed part of the agreement. Under the contract, JVL was obliged to pay FEB an aggregate gross monthly rental of One Hundred Seventy Thousand Four Hundred Ninety-Four Pesos (P170,494.00).

JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in arrears, including penalty charges and insurance premiums, amounted to Three Million Four Hundred Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos (P3,414,468.75). On August 23, 2000, FEB sent a letter to JVL demanding payment of the said amount. However, JVL failed to pay.^[6]

On December 6, 2000, FEB filed a Complaint^[7] with the Regional Trial Court of Manila, docketed as Civil Case No. 00-99451, for sum of money, damages, and replevin against JVL, Lim, and John Doe.

In the Amended Answer,^[8] JVL and Lim admitted the existence of the lease agreement but asserted that it is in reality a sale of equipment on installment basis, with FEB acting as the financier. JVL and Lim claimed that this intention was apparent from the fact that they were made to believe that when full payment was effected, a Deed of Sale will be executed by FEB as vendor in favor of JVL and Lim as vendees.^[9] FEB purportedly assured them that documenting the transaction as a lease agreement is just an industry practice and that the proper documentation would be effected as soon as full payment for every item was made. They also contended that the lease agreement is a contract of adhesion and should, therefore, be construed against the party who prepared it, i.e., FEB.

In upholding JVL and Lim's stance, the trial court stressed the contradictory terms it found in the lease agreement. The pertinent portions of the Decision dated November 22, 2002 read:

A profound scrutiny of the provisions of the contract which is a contract of adhesion at once exposed the use of several contradictory terms. To name a few, in Section 9 of the said contract – disclaiming warranty, it is stated that the lessor is not the manufacturer nor the latter's agent and therefore does not guarantee any feature or aspect of the object of the contract as to its merchantability. Merchantability is a term applied in a contract of sale of goods where conditions and warranties are made to apply. Article 1547 of the Civil Code provides that unless a contrary intention appears an implied warranty on the part of the seller that he has the right to sell and to pass ownership of the object is furnished by law together with an implied warranty that the thing shall be free from hidden faults or defects or any charge or encumbrance not known to the buyer.

In an adhesion contract which is drafted and printed in advance and parties are not given a real arms' length opportunity to transact, the Courts treat this kind of contract strictly against their architects for the reason that the party entering into this kind of contract has no choice but to accept the terms and conditions found therein even if he is not in accord therewith and for that matter may not have understood all the terms and stipulations prescribed thereat. Contracts of this character are prepared unilaterally by the stronger party with the best legal talents at its disposal. It is upon that thought that the Courts are called upon to analyze closely said contracts so that the weaker party could be fully protected.

Another instance is when the alleged lessee was required to insure the thing against loss, damage or destruction.

In property insurance against loss or other accidental causes, the assured must have an insurable interest, 32 Corpus Juris 1059.

x x x x

It has also been held that the test of insurable interest in property is whether the assured has a right, title or interest therein that he will be benefited by its preservation and continued existence or suffer a direct pecuniary loss from its destruction or injury by the peril insured against. If the defendants were to be regarded as only a lessee, logically the lessor who asserts ownership will be the one directly benefited or injured and therefore the lessee is not supposed to be the assured as he has no insurable interest.

There is also an observation from the records that the actual value of each object of the contract would be the result after computing the monthly rentals by multiplying the said rentals by the number of months specified when the rentals ought to be paid.

Still another observation is the existence in the records of a Deed of Absolute Sale by and between the same parties, plaintiff and defendants which was an exhibit of the defendant where the plaintiff sold to the same defendants one unit 1995 Mitsubishi L-200 STRADA DC PICK UP and in said Deed, The Court noticed that the same terms as in the alleged lease were used in respect to warranty, as well as liability in case of loss and other conditions. This action of the plaintiff unequivocally exhibited their real intention to execute the corresponding Deed after the defendants have paid in full and as heretofore discussed and for the sake of emphasis the obscurity in the written contract cannot favor the party who caused the obscurity.

Based on substantive Rules on Interpretation, if the terms are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the evident intention of the parties, their contemporaneous and subsequent acts shall be principally considered. If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void.^[10]

Thus, the court concluded with the following disposition:

In this case, which is held by this Court as a sale on installment there is no chattel mortgage on the thing sold, but it appears amongst the Complaint's prayer, that the plaintiff elected to exact fulfillment of the obligation.

For the vehicles returned, the plaintiff can only recover the unpaid balance of the price because of the previous payments made by the defendants for the reasonable use of the units, specially so, as it appears, these returned vehicles were sold at auction and that the plaintiff can apply the proceeds to the balance. However, with respect to the unreturned units and machineries still in the possession of the defendants, it is this Court's view and so hold that the defendants are liable therefore and accordingly are ordered jointly and severally to pay the price thereof to the plaintiff together with attorney's fee and the costs of suit in the sum of Php25,000.00.

SO ORDERED.^[11]

On December 27, 2002, FEB filed its Notice of Appeal.^[12] Accordingly, on January 17, 2003, the court issued an Order^[13] elevating the entire records of the case to the CA. FEB averred that the trial court erred:

1. When it ruled that the agreement between the Parties-Litigants is one of sale of personal properties on installment and not of lease;
   
2. When it ruled that the applicable law on the case is Article 1484 (of the Civil Code) and not R.A. No. 8556;
   
3. When it ruled that the Plaintiff-Appellant can no longer recover the unpaid balance of the price because of the previous payments made by the defendants for the reasonable use of the units;
   
4. When it failed to make a ruling or judgment on the Joint and Solidary Liability of Vicente Ong Lim, Jr. to the Plaintiff-Appellant.^[14]

On March 15, 2005, the CA issued its Decision^[15] declaring the transaction between the parties as a financial lease agreement under Republic Act (R.A.) No. 8556.^[16] The fallo of the assailed Decision reads:

WHEREFORE, the instant appeal is GRANTED and the assailed Decision dated 22 November 2002 rendered by the Regional Trial Court of Manila, Branch 49 in Civil Case No. 00-99451 is REVERSED and SET ASIDE, and a new judgment is hereby ENTERED ordering appellees JVL Food Products and Vicente Ong Lim, Jr. to solidarily pay appellant FEB Leasing and Finance Corporation the amount of Three Million Four Hundred Fourteen Thousand Four Hundred Sixty Eight Pesos and 75/100 (Php3,414,468.75), with interest at the rate of twelve percent (12%) per annum starting from the date of judicial demand on 06 December 2000, until full payment thereof. Costs against appellees.

SO ORDERED.^[17]

Lim filed the instant Petition for Review on Certiorari under Rule 45 contending that:

I

THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO CONSIDER THAT THE UNDATED COMPLAINT WAS FILED BY SATURNINO J. GALANG, JR., WITHOUT ANY AUTHORITY FROM RESPONDENT'S BOARD OF DIRECTORS AND/OR SECRETARY'S CERTIFICATE.

II

THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO STRICTLY APPLY SECTION 7, RULE 18 OF THE 1997 RULES OF CIVIL PROCEDURE AND NOW ITEM 1, A(8) OF A.M. NO. 03-1-09 SC (JUNE 8, 2004).

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT DISMISSING THE APPEAL FOR FAILURE OF THE RESPONDENT TO FILE ON TIME ITS APPELLANT'S BRIEF AND TO SEPARATELY RULE ON THE PETITIONER'S MOTION TO DISMISS.

IV

THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT THE CONTRACT BETWEEN THE PARTIES IS ONE OF A FINANCIAL LEASE AND NOT OF A CONTRACT OF SALE.

V

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PAYMENTS PAID BY THE PETITIONER TO THE RESPONDENT ARE "RENTALS" AND NOT INSTALLMENTS PAID FOR THE PURCHASE PRICE OF THE SUBJECT MOTOR VEHICLES, HEAVY MACHINES AND EQUIPMENT.

VI

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PREVIOUS CONTRACT OF SALE INVOLVING THE PICK-UP VEHICLE IS OF NO CONSEQUENCE.

VII

THE HONORABLE COURT OF APPEALS FAILED TO TAKE INTO CONSIDERATION THAT THE CONTRACT OF LEASE, A CONTRACT OF ADHESION, CONCEALED THE TRUE INTENTION OF THE PARTIES, WHICH IS A CONTRACT OF SALE.

VIII

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PETITIONER IS A LESSEE WITH INSURABLE INTEREST OVER THE SUBJECT PERSONAL PROPERTIES.

IX

THE HONORABLE COURT OF APPEALS ERRED IN CONSTRUING THE INTENTIONS OF THE COURT A QUO IN ITS USAGE OF THE TERM MERCHANTABILITY.^[18]

We affirm the ruling of the appellate court.

First, Lim can no longer question Galang's authority as FEB's authorized representative in filing the suit against Lim. Galang was the representative of FEB in the proceedings before the trial court up to the appellate court. Petitioner never placed in issue the validity of Galang's representation before the trial and appellate courts. Issues raised for the first time on appeal are barred by estoppel. Arguments not raised in the original proceedings cannot be considered on review; otherwise, it would violate basic principles of fair play.^[19]

Second, there is no legal basis for Lim to question the authority of the CA to go beyond the matters agreed upon during the pre-trial conference, or in not dismissing the appeal for failure of FEB to file its brief on time, or in not ruling separately on the petitioner's motion to dismiss.

Courts have the prerogative to relax procedural rules of even the most mandatory character, mindful of the duty to reconcile both the need to speedily put an end to litigation and the parties' right to due process. In numerous cases, this Court has allowed liberal construction of the rules when to do so would serve the demands of substantial justice and equity.^[20] In Aguam v. Court of Appeals, the Court explained:

The court has the discretion to dismiss or not to dismiss an appellant's appeal. It is a power conferred on the court, not a duty. The "discretion must be a sound one, to be exercised in accordance with the tenets of justice and fair play, having in mind the circumstances obtaining in each case." Technicalities, however, must be avoided. The law abhors technicalities that impede the cause of justice. The court's primary duty is to render or dispense justice. "A litigation is not a game of technicalities." "Lawsuits unlike duels are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts." Litigations must be decided on their merits and not on technicality. Every party litigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the unacceptable plea of technicalities. Thus, dismissal of appeals purely on technical grounds is frowned upon where the policy of the court is to encourage hearings of appeals on their merits and the rules of procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override substantial justice. It is a far better and more prudent course of action for the court to excuse a technical lapse and afford the parties a review of the case on appeal to attain the ends of justice rather than dispose of the case on technicality and cause a grave injustice to the parties, giving a false impression of speedy disposal of cases while actually resulting in more delay, if not a miscarriage of justice.^[21]

Third, while we affirm that the subject lease agreement is a contract of adhesion, such a contract is not void per se. It is as binding as any ordinary contract. A party who enters into an adhesion contract is free to reject the stipulations entirely.^[22] If the terms thereof are accepted without objection, then the contract serves as the law between the parties.

In Section 23 of the lease contract, it was expressly stated that:

SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE

23.1. The LESSOR and the LESSEE agree this instrument constitute the entire agreement between them, and that no representations have been made other than as set forth herein. This Agreement shall not be amended or altered in any manner, unless such amendment be made in writing and signed by the parties hereto.

Petitioner's claim that the real intention of the parties was a contract of sale of personal property on installment basis is more likely a mere afterthought in order to defeat the rights of the respondent.

The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance Certificates is, in point of fact, a financial lease within the purview of R.A. No. 8556. Section 3(d) thereof defines "financial leasing" as:

[A] mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles, appliances, business and office machines, and other movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least seventy (70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an obligatory period of not less than two (2) years during which the lessee has the right to hold and use the leased property with the right to expense the lease rentals paid to the lessor and bears the cost of repairs, maintenance, insurance and preservation thereof, but with no obligation or option on his part to purchase the leased property from the owner-lessor at the end of the lease contract.

FEB leased the subject equipment and motor vehicles to JVL in consideration of a monthly periodic payment of P170,494.00. The periodic payment by petitioner is sufficient to amortize at least 70% of the purchase price or acquisition cost of the said movables in accordance with the Lease Schedules with Delivery and Acceptance Certificates. "The basic purpose of a financial leasing transaction is to enable the prospective buyer of equipment, who is unable to pay for such equipment in cash in one lump sum, to lease such equipment in the meantime for his use, at a fixed rental sufficient to amortize at least 70% of the acquisition cost (including the expenses and a margin of profit for the financial lessor) with the expectation that at the end of the lease period the buyer/financial lessee will be able to pay any remaining balance of the purchase price."^[23]

The allegation of petitioner that the rent for the use of each movable constitutes the value of the vehicle or equipment leased is of no moment. The law on financial lease does not prohibit such a circumstance and this alone does not make the transaction between the parties a sale of personal property on installment. In fact, the value of the lease, usually constituting the value or amount of the property involved, is a benefit allowed by law to the lessor for the use of the property by the lessee for the duration of the lease. It is recognized that the value of these movables depreciates through wear and tear upon use by the lessee. In Beltran v. PAIC Finance Corporation,^[24] we stated that:

Generally speaking, a financing company is not a buyer or seller of goods; it is not a trading company. Neither is it an ordinary leasing company; it does not make its profit by buying equipment and repeatedly leasing out such equipment to different users thereof. But a financial lease must be preceded by a purchase and sale contract covering the equipment which becomes the subject matter of the financial lease. The financial lessor takes the role of the buyer of the equipment leased. And so the formal or documentary tie between the seller and the real buyer of the equipment, i.e., the financial lessee, is apparently severed. In economic reality, however, that relationship remains. The sale of the equipment by the supplier thereof to the financial lessor and the latter's legal ownership thereof are intended to secure the repayment over time of the purchase price of the equipment, plus financing charges, through the payment of lease rentals; that legal title is the upfront security held by the financial lessor, a security probably superior in some instances to a chattel mortgagee's lien.^[25]

Fourth, the validity of Lease No. 27:95:20 between FEB and JVL should be upheld. JVL entered into the lease contract with full knowledge of its terms and conditions. The contract was in force for more than four years. Since its inception on March 9, 1995, JVL and Lim never questioned its provisions. They only attacked the validity of the contract after they were judicially made to answer for their default in the payment of the agreed rentals.

It is settled that the parties are free to agree to such stipulations, clauses, terms, and conditions as they may want to include in a contract. As long as such agreements are not contrary to law, morals, good customs, public policy, or public order, they shall have the force of law between the parties.^[26] Contracting parties may stipulate on terms and conditions as they may see fit and these have the force of law between them.^[27]

The stipulation in Section 14^[28] of the lease contract, that the equipment shall be insured at the cost and expense of the lessee against loss, damage, or destruction from fire, theft, accident, or other insurable risk for the full term of the lease, is a binding and valid stipulation. Petitioner, as a lessee, has an insurable interest in the equipment and motor vehicles leased. Section 17 of the Insurance Code provides that the measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof. It cannot be denied that JVL will be directly damnified in case of loss, damage, or destruction of any of the properties leased.

Likewise, the stipulation in Section 9.1 of the lease contract that the lessor does not warrant the merchantability of the equipment is a valid stipulation. Section 9.1 of the lease contract is stated as:

9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE LESSOR IS NOT THE MANUFACTURER OR SUPPLIER OF THE EQUIPMENT NOR THE AGENT OF THE MANUFACTURER OR SUPPLIER THEREOF. THE LESSEE HEREBY ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT AND THE SUPPLIER THEREOF AND THAT THERE ARE NO WARRANTIES, CONDITIONS, TERMS, REPRESENTATION OR INDUCEMENTS, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, MADE BY OR ON BEHALF OF THE LESSOR AS TO ANY FEATURE OR ASPECT OF THE EQUIPMENT OR ANY PART THEREOF, OR AS TO ITS FITNESS, SUITABILITY, CAPACITY, CONDITION OR MERCHANTABILITY, NOR AS TO WHETHER THE EQUIPMENT WILL MEET THE REQUIREMENTS OF ANY LAW, RULE, SPECIFICATIONS OR CONTRACT WHICH PROVIDE FOR SPECIFIC MACHINERY OR APPARATUS OR SPECIAL METHODS.^[29]

In the financial lease agreement, FEB did not assume responsibility as to the quality, merchantability, or capacity of the equipment. This stipulation provides that, in case of defect of any kind that will be found by the lessee in any of the equipment, recourse should be made to the manufacturer. "The financial lessor, being a financing company, i.e., an extender of credit rather than an ordinary equipment rental company, does not extend a warranty of the fitness of the equipment for any particular use. Thus, the financial lessee was precisely in a position to enforce such warranty directly against the supplier of the equipment and not against the financial lessor. We find nothing contra legem or contrary to public policy in such a contractual arrangement."^[30]

Fifth, petitioner further proffers the view that the real intention of the parties was to enter into a contract of sale on installment in the same manner that a previous transaction between the parties over a 1995 Mitsubishi L-200 Strada DC-Pick-Up was initially covered by an agreement denominated as a lease and eventually became the subject of a Deed of Absolute Sale.

We join the CA in rejecting this view because to allow the transaction involving the pick-up to be read into the terms of the lease agreement would expand the coverage of the agreement, in violation of Article 1372 of the New Civil Code. ^[31] The lease contract subject of the complaint speaks only of a lease. Any agreement between the parties after the lease contract has ended is a different transaction altogether and should not be included as part of the lease. Furthermore, it is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall control. No amount of extrinsic aid is necessary in order to determine the parties' intent.^[32]

WHEREFORE, in the light of all the foregoing, the petition is DENIED. The Decision of the CA in CA-G.R. CV No. 77498 dated March 15, 2005 and Resolution dated May 23, 2005 are AFFIRMED. Costs against petitioner.

SO ORDERED.

Ynares-Santiago, (Chairperson) Austria-Martinez, and Chico-Nazario, JJ., conur.

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^[1] Rollo, pp. 72-104.

^[2] Id. at pp. 106-107.

^[3] Lease No. 27:95:20; id. at pp. 121-126.

^[4] Id. at pp. 127-128.

^[5] Id. at pp. 129-144.

^[6] Id. at p. 148.

^[7] Id. at pp. 146-155.

^[8] Id. at pp. 156-171.

^[9] Id. at p. 159.

^[10] Id. at pp. 218-220.

^[11] Id. at p. 222.

^[12] Id. at pp. 223-224.

^[13] Id. at p. 225.

^[14] Id. at p. 87.

^[15] Penned by Associate Justice Celia C. Librea-Leagogo.

^[16] An Act Amending Republic Act No. 5980, as amended, otherwise known as The Financing Company Act.

^[17] Rollo, pp. 101-102.

^[18] Id. at pp. 41-42.

^[19] Cruz v. Fernando, Sr., G.R. No. 145470, December 9, 2005, 477 SCRA 182, 183.

^[20] Barnes v. Padilla, G. R. No. 160753, June 28, 2005, 461 SCRA 539.

^[21] G.R. No. 137672, May 31, 2000, 332 SCRA 789, 790.

^[22] Fabrigas v. San Francisco Del Monte, Inc., G.R. No. 152346, November 25, 2005, 476 SCRA 263.

^[23] Beltran v. PAIC Finance Corporation, G.R. No. 83113, May 19, 1992, 209 SCRA 118.

^[24] Id.

^[25] Id. at pp. 118-119.

^[26] Herrera v. Petrophil Corporation, G.R. No. L-48349, December 29, 1986, 146 SCRA 389.

^[27] Philippine Communications Satellite Corporation v. Globe Telecom, Inc., G.R. No. 147324, May 25, 2004, 429 SCRA 153.

^[28] Rollo, p. 123.

^[29] Id. at pp. 122-123.

^[30] Beltran v. PAIC Finance Corporation, supra, p. 119.

^[31] Article 1372. However general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree.

^[32] Inter-Asia Services Corp. (International) v. Court of Appeals, G.R. No. 106427, October 21, 1996, 263 SCRA 417.

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HEIRS OF PAULINO ATIENZA

SECOND DIVISION

[ G.R. No. 180665, August 11, 2010 ]

HEIRS OF PAULINO ATIENZA, NAMELY, RUFINA L. ATIENZA, ANICIA A. IGNACIO, ROBERTO ATIENZA, MAURA A. DOMINGO, AMBROCIO ATIENZA, MAXIMA ATIENZA, LUISITO ATIENZA, CELESTINA A. GONZALES, REGALADO ATIENZA AND MELITA A. DELA CRUZ PETITIONERS, VS. DOMINGO P. ESPIDOL, RESPONDENT.

D E C I S I O N

ABAD, J.:

This case is about the legal consequences when a buyer in a contract to sell on installment fails to make the next payments that he promised.

The Facts and the Case
Petitioner Heirs of Paulino Atienza, namely, Rufina L. Atienza, Anicia A. Ignacio, Roberto Atienza, Maura A. Domingo, Ambrocio Atienza, Maxima Atienza, Luisito Atienza, Celestina A. Gonzales, Regalado Atienza and Melita A. Dela Cruz (collectively, the Atienzas)^[1] own a 21,959 square meters of registered agricultural land at Valle Cruz, Cabanatuan City.^[2]  They acquired the land under an emancipation patent^[3] through the government's land reform program.^[4]

On August 12, 2002 the Atienzas and respondent Domingo P. Espidol entered into a contract called Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad (contract to sell land with a down payment) covering the property.^[5]  They agreed on a price of P130.00 per square meter or a total of P2,854,670.00, payable in three installments: P100,000.00 upon the signing of the contract; P1,750,000.00 in December 2002, and the remaining P974,670.00 in June 2003. Respondent Espidol paid the Atienzas P100,000.00 upon the execution of the contract and paid P30,000.00 in commission to the brokers.

When the Atienzas demanded payment of the second installment of P1,750,000.00 in December 2002, however, respondent Espidol could not pay it.  He offered to pay the Atienzas P500.000.00 in the meantime,^[6] which they did not accept.  Claiming that Espidol breached his obligation, on February 21, 2003 the Atienzas filed a complaint^[7] for the annulment of their agreement with damages before the Regional Trial Court (RTC) of Cabanatuan City in Civil Case 4451.

In his answer,^[8] respondent Espidol admitted that he was unable to pay the December 2002 second installment, explaining that he lost access to the money which he shared with his wife because of an injunction order issued by an American court in connection with a domestic violence case that she filed against him.^[9]  In his desire to abide by his obligation, however, Espidol took time to travel to the Philippines to offer P800,000.00 to the Atienzas.

Respondent Espidol also argued that, since their contract was one of sale on installment, his failure to pay the installment due in December 2002 did not amount to a breach.  It was merely an event that justified the Atienzas' not to convey the title to the property to him. The non-payment of an installment is not a legal ground for annulling a perfected contract of sale. Their remedy was to bring an action for specific performance.  Moreover, Espidol contended that the action was premature since the last payment was not due until June 2003.

In a decision^[10] dated January 24, 2005, the RTC ruled that, inasmuch as the non-payment of the purchase price was not considered a breach in a contract to sell on installment but only an event that authorized the vendor not to convey title, the proper issue was whether the Atienzas were justified in refusing to accept respondent Espidol's offer of an amount lesser than that agreed upon on the second installment.

The trial court held that, although respondent's legal problems abroad cannot justify his failure to comply with his contractual obligation to pay an installment, it could not be denied that he made an honest effort to pay at least a portion of it.  His traveling to the Philippines from America showed his willingness and desire to make good on his obligation.  His good faith negated any notion that he intended to renege on what he owed.  The Atienzas brought the case to court prematurely considering that the last installment was not then due.

Furthermore, said the RTC, any attempt by the Atienzas to cancel the contract would have to comply with the provisions of Republic Act (R.A.) 6552 or the Realty Installment Buyer Protection Act (R.A. 6552), particularly the giving of the required notice of cancellation, that they omitted in this case.  The RTC thus declared the contract between the parties valid and subsisting and ordered the parties to comply with its terms and conditions.

On appeal,^[11] the Court of Appeals (CA) affirmed the decision of the trial court.^[12]  Not satisfied, the Atienzas moved for reconsideration.^[13]  They argued that R.A. 6552 did not apply to the case because the land was agricultural and respondent Espidol had not paid two years worth of installment that the law required for coverage.  And, in an apparent shift of theory, the Atienzas now also impugn the validity of their contract to sell, claiming that, since the property was covered by an emancipation patent, its sale was prohibited and void.  But the CA denied the motion for reconsideration, hence, the present petition.^[14]

Questions Presented
The questions presented for resolution are:

1. Whether or not the Atienzas could validly sell to respondent Espidol the subject land which they acquired through land reform under Presidential Decree 27^[15] (P.D. 27);

2. Whether or not the Atienzas were entitled to the cancellation of the contract to sell they entered into with respondent Espidol on the ground of the latter's failure to pay the second installment when it fell due; and

3. Whether or not the Atienzas' action for cancellation of title was premature absent the notarial notice of cancellation required by R.A. 6552.

The Court's Rulings
One.  That the Atienzas brought up the illegality of their sale of subject land only when they filed their motion for reconsideration of the CA decision is not lost on this Court.  As a rule, no question will be entertained on appeal unless it was raised before the court below.  This is but a rule of fairness.^[16]

Nonetheless, in order to settle a matter that would apparently undermine a significant policy adopted under the land reform program, the Court cannot simply shirk from the issue.  The Atienzas' title shows on its face that the government granted title to them on January 9, 1990 by virtue of P.D. 27.  This law explicitly prohibits any form of transfer of the land granted under it except to the government or by hereditary succession to the successors of the farmer beneficiary.

Upon the enactment of Executive Order 228^[17] in 1987, however, the restriction ceased to be absolute.  Land reform beneficiaries were allowed to transfer ownership of their lands provided that their amortizations with the Land Bank of the Philippines (Land Bank) have been paid in full.^[18]  In this case, the Atienzas' title categorically states that they have fully complied with the requirements for the final grant of title under P.D. 27.  This means that they have completed payment of their amortization with Land Bank.  Consequently, they could already legally transfer their title to another.

Two.  Regarding the right to cancel the contract for non-payment of an installment, there is need to initially determine if what the parties had was a contract of sale or a contract to sell.  In a contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold.  In a contract to sell, on the other hand, the ownership is, by agreement, retained by the seller and is not to pass to the vendee until full payment of the purchase price.  In the contract of sale, the buyer's non-payment of the price is a negative resolutory condition; in the contract to sell, the buyer's full payment of the price is a positive suspensive condition to the coming into effect of the agreement.  In the first case, the seller has lost and cannot recover the ownership of the property unless he takes action to set aside the contract of sale.  In the second case, the title simply remains in the seller if the buyer does not comply with the condition precedent of making payment at the time specified in the contract.^[19]  Here, it is quite evident that the contract involved was one of a contract to sell since the Atienzas, as sellers, were to retain title of ownership to the land until respondent Espidol, the buyer, has paid the agreed price.  Indeed, there seems no question that the parties understood this to be the case.^[20]

Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in December 2002.  That payment, said both the RTC and the CA, was a positive suspensive condition failure of which was not regarded a breach in the sense that there can be no rescission of an obligation (to turn over title) that did not yet exist since the suspensive condition had not taken place.  And this is correct so far.  Unfortunately, the RTC and the CA concluded that should Espidol eventually pay the price of the land, though not on time, the Atienzas were bound to comply with their obligation to sell the same to him.

But this is error.  In the first place, since Espidol failed to pay the installment on a day certain fixed in their agreement, the Atienzas can afterwards validly cancel and ignore the contract to sell because their obligation to sell under it did not arise. Since the suspensive condition did not arise, the parties stood as if the conditional obligation had never existed.^[21]

Secondly, it was not a pure suspensive condition in the sense that the Atienzas made no undertaking while the installments were not yet due.  Mr. Justice Edgardo L. Paras gave a fitting example of suspensive condition: "I'll buy your land for P1,000.00 if you pass the last bar examinations."  This he said was suspensive for the bar examinations results will be awaited.  Meantime the buyer is placed under no immediate obligation to the person who took the examinations.^[22]

Here, however, although the Atienzas had no obligation as yet to turn over title pending the occurrence of the suspensive condition, it was implicit that they were under immediate obligation not to sell the land to another in the meantime.  When Espidol failed to pay within the period provided in their agreement, the Atienzas were relieved of any obligation to hold the property in reserve for him.

The ruling of the RTC and the CA that, despite the default in payment, the Atienzas remained bound to this day to sell the property to Espidol once he is able to raise the money and pay is quite unjustified.  The total price was P2,854,670.00.  The Atienzas decided to sell the land because petitioner Paulino Atienza urgently needed money for the treatment of his daughter who was suffering from leukemia.^[23]  Espidol paid a measly P100,000.00 in down payment or about 3.5% of the total price, just about the minimum size of a broker's commission.  Espidol failed to pay the bulk of the price, P1,750,000.00, when it fell due four months later in December 2002.  Thus, it was not such a small default as to justify the RTC and the CA's decision to continue to tie up the Atienzas to the contract to sell upon the excuse that Espidol tried his honest best to pay.

Although the Atienzas filed their action with the RTC on February 21, 2003, four months before the last installment of P974,670.00 fell due in June 2003, it cannot be said that the action was premature.  Given Espidol's failure to pay the second installment of P1,750,000.00 in December 2002 when it was due, the Atienzas' obligation to turn over ownership of the property to him may be regarded as no longer existing.^[24]  The Atienzas had the right to seek judicial declaration of such non-existent status of that contract to relieve themselves of any liability should they decide to sell the property to someone else.  Parenthetically, Espidol never offered to settle the full amount of the price in June 2003, when the last installment fell due, or during the whole time the case was pending before the RTC.

Three. Notice of cancellation by notarial act need not be given before the contract between the Atienzas and respondent Espidol may be validly declare non-existent.  R.A. 6552 which mandated the giving of such notice does not apply to this case.  The cancellation envisioned in that law pertains to extrajudicial cancellation or one done outside of court,^[25] which is not the mode availed of here.  The Atienzas came to court to seek the declaration of its obligation under the contract to sell cancelled.  Thus, the absence of that notice does not bar the filing of their action.

Since the contract has ceased to exist, equity would, of course, demand that, in the absence of stipulation, the amount paid by respondent Espidol be returned, the purpose for which it was given not having been attained;^[26] and considering that the Atienzas have consistently expressed their desire to refund the P130,000.00 that Espidol paid.^[27]

WHEREFORE, the Court GRANTS the petition and REVERSES and SETS ASIDE the August 31, 2007 decision and November 5, 2007 resolution of the Court of Appeals in CA-G.R. CV 84953. The Court declares the Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad between petitioner Heirs of Paulino Atienza and respondent Domingo P. Espidol dated August 12, 2002 cancelled and the Heirs' obligation under it non-existent.  The Court directs petitioner Heirs of Atienza to reimburse the P130,000.00 down payment to respondent Espidol.

SO ORDERED.

Carpio, (Chairperson), Nachura, Peralta, and Mendoza, JJ., concur.

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^[1] Petitioners are the heirs of Paulino Atienza, the original plaintiff in this case, who died on September 7, 2007. Please see: Certificate of Death, rollo, p. 84 and October 13, 2008 Resolution of this Court, id. at 97.

^[2]  Covered by Transfer Certificate of Title T-3971.

^[3]  Emancipation Patent 416698.

^[4]  Records, pp. 73-74.

^[5]  Id. at 5-7.

^[6]  Respondent claimed that the amount offered was P800,000.00.

^[7]  Rollo, pp. 56-59.

^[8]  Id. at 60-66.

^[9]  TSN, June 4, 2004, pp. 7-8.

^[10]  Rollo, pp. 70-79.

^[11]  Docketed as CA-G.R. CV 84953.

^[12] Rollo, pp. 34-44.  Penned by Associate Justice Myrna Dimaranan Vidal, with Associate Justices Jose L. Sabio, Jr. and Jose C. Reyes, Jr. concurring.

^[13]  Id. at 45-51.

^[14]  Id. at 9-33.

^[15] Decreeing the Emancipation of Tenants From the Bondage of the Soil, Transferring to Them the Ownership of the Land They Till and Providing the Instruments and Mechanism Therefor.

^[16] Bacsasar v. Civil Service Commission, G.R. No. 180853, January 20, 2009, 576 SCRA 787, 793; Jacot v. Dal, G.R. No. 179848, November 27, 2008, 572 SCRA 295, 311.

^[17] Declaring Full Land Ownership to Qualified Farmer Beneficiaries Covered by P.D. 27: Determining the Value of Remaining Unvalued Rice and Corn Lands Subject to P.D. 27; and Providing for the Manner of Payment by the Farmer Beneficiary and Mode of Compensation to the Landowner, issued on July 17, 1987.

^[18]  Section 6, E.O. 228.

^[19] Lim v. Court of Appeals, G.R. No. 85733, February 23, 1990, 182 SCRA 564, 570, citing Sing Yee v. Santos, 47 O.G. 6372; Chua v. Court of Appeals, 449 Phil. 25, 41-42 (2003).

^[20]  Rollo, p. 67.

^[21]  See: Valenzuela v. Kalayaan Development & Industrial Corporation, G.R. No. 163244, June 22, 2009, 590 SCRA 380, 389-390; Ayala Life Assurance, Inc. v. Ray Burton Development Corporation, G.R. No. 163075, January 23, 2006, 479 SCRA 462, 470.

^[22]  Paras IV, CIVIL CODE OF THE PHILIPPINES ANNOTATED, 179-180 (1994 Edition).

^[23]  TSN, December 16, 2003, p. 36.

^[24] See: Ong v. Court of Appeals, 369 Phil. 243, 253-254 (1999); Cordero v. F.S. Management & Development Corporation, G.R. No. 167213, October 31, 2006, 506 SCRA 451, 463.

^[25] Pagtalunan v. Dela Cruz Vda. de Manzano, G.R. No. 147695, September 13, 2007, 533 SCRA 242, 249, 253.

^[26]  See: Manuel v. Rodriguez, Sr., 109 Phil. 1, 12 (1960).

^[27]  Rollo, pp. 17, 29; CA rollo, p. 26.

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ABELARDO VALARAO

THIRD DIVISION

[ G.R. No. 130347, March 03, 1999 ]

ABELARDO VALARAO, GLORIOSA VALARAO AND CARLOS VALARAO, PETITIONERS, VS. COURT OF APPEALS AND MEDEN A. ARELLANO, RESPONDENTS.

D E C I S I O N

PANGANIBAN, J.:

Article 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 any one year-end lump sum payment within the period stipulated, the sale shall be considered automatically rescinded without the necessity of judicial action and all payments made by 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 xxx 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-91-7603, [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, xxx 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 turn over 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 xxx [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:

"x x x

"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 xxx 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 the 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 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 filling 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 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.

"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, (Chairman), Purisima, and Gonzaga-Reyes, JJ., concur.
Vitug, J., on official business abroad.

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^[1] Seventeenth Division composed of the Chairman and ponente, J. Fermin A. Martin Jr.; and the members, JJ. Ruben T. Reyes and Omar U. Amin, concurring.

^[2] Penned by Judge Salvador C. Ceguera.

^[3] CA Decision, p. 18; rollo, p. 47.

^[4] RTC Decision, p. 13; rollo, p. 72.

^[5] Petitioners' Memorandum, p. 9; rollo, p. 195.

^[6] The case was deemed submitted for resolution on November 19, 1998, when this Court received the private respondent's Memorandum. Petitioners' Memorandum was filed earlier, on November 12, 1998.

^[7] Petitioners' Memorandum, p. 10; rollo, p. 196.

^[8] Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. V, 1992 ed., p. 138. See also Vitug, Compendium of Civil Law and Jurisprudence, 1st ed., pp. 433-434.

^[9] Roque v. Lapuz, 96 SCRA 741, March 31, 1980; Caridad Estates v. Santero, 71 Phil. 114, December 19, 1940.

^[10] Manuel v. Rodriguez, 109 Phil. 9, July 27, 1960; Albea v. Inquimboy, 86 Phil. 476, May 29, 1950; Joseph & Sons Enterprises, Inc. v. Court of Appeals, 143 SCRA 663, August 29, 1986; Alfonso v. Court of Appeals, 186 SCRA 400, June 8, 1990; Adelfa Properties, Inc. v. Court of Appeals, 240 SCRA 565, January 25, 1995; Ayala y Compania v. Joseph Arcache, 53 Off. Gazette, January 31, 1956; Quibir v. La Orden, 49 Off. Gazette 4857, July 15, 1953.

^[11] 46 SCRA 381, August 18, 1972, per Reyes, J.B.L., J.

^[12] Dawson v. Register of Deeds of Quezon City, GR No. 120600, September 22, 1998, per Panganiban, J.; Coronel v. Court of Appeals, 263 SCRA 15, October 7, 1996; Salazar v. Court of Appeals, 258 SCRA 317, July 5, 1996; Jacinto v. Kaparas, 209 SCRA 246, May 22, 1992; Pingol v. Court of Appeals, 226 SCRA 118, September 6, 1993; Dignos v. Court of Appeals, 158 SCRA 375, February 29, 1998; Taguba v. De Leon, 132 SCRA 722, October 23, 1984.

^[13] See Rillo v. Court of Appeals, 274 SCRA 461, June 19, 1997; Roque v. Lapuz, supra.

^[14] Supra.

^[15] Article 1306, Civil Code; Philippine Telegraph and Telephone Company v. NLRC, 272 SCRA 596, May 23, 1997; Banana Growers Collective at Puyod Farms v. NLRC, 276 SCRA 544, July 31, 1997; Cha v. Court of Appeals, 277 SCRA 690, August 18, 1997.

^[16] Pangilinan v. Court of Appeals, 279 SCRA 590, September 29, 1997, per Torres, J.

^[17] Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., supra; citing Manila Racing Club v. Manila Jockey Club, 69 Phil. 57, October 28, 1939.

^[18] CA Decision, pp. 16, 18; rollo, pp. 45, 47.

^[19] RTC Decision, p. 10; rollo, p. 69.

^[20] "Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. xxx.

Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation. xxx

Art. 1258. Consignation shall be made by depositing the thing due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases. xxx"

^[21] CA rollo, p. 41.

^[22] "An Act to Provide Protection to Buyers of Real Estate on Installment Payments."

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