Active Realty & Development Corporation vs. Necita G. Daroya

Under Section 3(b) of R.A. No. 6552 (Maceda Law), a contract to sell real estate on installment basis is not validly cancelled unless the seller sends the buyer a notarized notice of cancellation and refunds the cash surrender value equivalent to fifty percent of the total payments made; absent such compliance, the contract remains valid and subsisting. Where the lot has already been sold to another, the seller must refund its actual value with 12% interest or deliver a substitute lot at the buyer’s option.

Active Realty & Development Corporation owned and developed Town & Country Hills Executive Village in Antipolo, Rizal. Necita G. Daroya, a contract worker in the Middle East, agreed to buy a 515-square-meter lot in that subdivision from Active Realty. Their transaction was a contract to sell real estate on installment, governed by R.A. No. 6552, the Realty Installment Buyer Protection Act, or Maceda Law. The Maceda Law was enacted to protect buyers of real estate on installment against onerous and oppressive conditions, particularly low- and middle-income buyers faced with contracts of adhesion and forfeiture clauses.

On January 2, 1985, Active Realty & Development Corporation entered into a Contract to Sell with Necita G. Daroya, a contract worker in the Middle East, for a 515-square-meter lot in Town & Country Hills Executive Village, Antipolo, Rizal, at P224,025.00. The contract required an initial payment of P53,766.00 upon execution and a balance of P170,259.00 in sixty monthly installments of P4,893.35. The decision notes that adding the down payment and installment payments yielded P346,367.00, a figure higher than the stated contract price.

On May 5, 1989, Active Realty accepted Daroya’s amortization of P40,000.00. By August 8, 1989, Daroya was in default of P15,282.85, representing three monthly amortizations. Active Realty sent her a notice of cancellation of the contract to sell, to take effect thirty days from receipt, although the records do not show when she received it. When Daroya thereafter offered to pay the balance of the contract price, Active Realty refused, claiming it had already sold the lot to another buyer.

On August 26, 1991, Daroya filed a complaint for specific performance and damages before the Arbitration Branch of the Housing and Land Use Regulatory Board. She sought to compel Active Realty to execute a final Deed of Absolute Sale in her favor after she paid any balance still due. She claimed entitlement to the final deed after offering to pay a balance of P24,048.47, asserting that she had already paid a total of P314,816.76, which was P90,835.76 more than the contract price of P224,025.00.

The records showed that Active Realty failed to comply with the mandatory twin requirements for a valid and effective cancellation under the Maceda Law: it did not send a notarized notice of cancellation and did not refund the cash surrender value. It made no effort to pay the cash surrender value from the time it gave notice of cancellation until immediately before Daroya filed the case; it first offered to pay that value only during the preliminary hearing before the HLURB arbiter. Active Realty justified its inaction by saying Daroya was always out of the country, but no evidence showed it attempted to pay through her last known address, even though it had sent her written notices there to remind her of installment arrears. The lot was later sold to another buyer and, as admitted by Active Realty, was valued at P1,700.00 per square meter.

• Due Process / Form Over Substance: Petitioner argued that the Court of Appeals grossly erred in relying too much on form rather than on the merits of the petition, thereby denying petitioner its right to due process.
• Inconsistent Grounds for Denial of Reconsideration: Petitioner maintained that the Court of Appeals anchored the denial of its motion for reconsideration on inconsistent and conflicting rulings not borne by the facts and records.
• Substantial Compliance with Rule 43: Petitioner argued that it substantially complied with the formal requirements of Rule 43: registry receipts showed service; respondent’s counsel received a copy; it attached the appealed decisions and resolutions; its failure to submit other documents was due to the Office of the President’s refusal to provide certified true copies; and its lack of a board resolution was cured by a Secretary’s Certificate ratifying its counsel’s authority.
• Timeliness of Motion for Reconsideration: Petitioner argued that its motion for reconsideration was timely, having been filed on June 25, 1999, a day before the expiration of the period granted by the Court of Appeals.
• Layug / Cancellation: Petitioner cited Layug in support of its cancellation position; the Court found the citation inapropos because in Layug the seller had filed a court action for rescission, while here no formal notice of cancellation or court action to rescind existed and respondent offered to pay the outstanding balance.

• Specific Performance: Respondent sought to compel petitioner to execute a final Deed of Absolute Sale in her favor after she paid any balance still due.
• Overpayment / Entitlement to Lot: Respondent claimed she was entitled to the final deed after offering to pay a balance of P24,048.47, having already paid P314,816.76, or P90,835.76 more than the contract price of P224,025.00.

• Due Process / Form Over Substance: Whether the Court of Appeals erred in denying due course to petitioner’s appeal based on technical deficiencies, thereby denying petitioner due process.
• Inconsistent Grounds for Denial of Reconsideration: Whether the Court of Appeals erred in denying petitioner’s motion for reconsideration on inconsistent and conflicting grounds not borne by the facts and records.
• Refund or Substitute Lot Under the Maceda Law: Whether petitioner can be compelled to refund to respondent the value of the lot or to deliver a substitute lot at respondent’s option.

• Due Process / Form Over Substance: Yes. The Court of Appeals erred in denying due course on technical grounds; petitioner substantially complied with Rule 43, and the appellate court gave premium to form over the parties’ substantive rights.
• Inconsistent Grounds for Denial of Reconsideration: Yes. The denial of reconsideration on untimely filing was erroneous; the motion was filed on June 25, 1999, a day before the expiration of the period granted by the Court of Appeals.
• Refund or Substitute Lot Under the Maceda Law: Yes. The contract to sell remained valid and subsisting because petitioner failed to comply with the mandatory twin requirements for valid cancellation under Section 3(b) of R.A. No. 6552; since the lot was sold to another, petitioner must refund P875,000.00 with 12% interest per annum from August 26, 1991 until fully paid or deliver a substitute lot at respondent’s option.

• Due Process / Form Over Substance: The Court found petitioner substantially complied with Rule 43. On the affidavit of service, the petition was accompanied by original registry receipts showing service, and respondent’s counsel actually received a copy. On Section 6(c), petitioner attached the duplicate original of the appealed Decision of the Chief Presidential Legal Counsel and his Resolution denying reconsideration, the HLURB Board of Commissioners Decision, and the HLURB arbiter’s Decision; these contained all relevant facts from which the appellate body could form its own decision. Its failure to submit other documents, such as the Complaint, Answer, Position Papers, and Appeal Memoranda, was due to the Office of the President’s refusal to give certified true copies. On the lack of a board resolution, petitioner believed it was not required under Section 6(c) and later submitted a Secretary’s Certificate confirming and ratifying Atty. Katigbak’s authority. The Court concluded that denying due course gave premium to form and failed to consider the important rights of the parties; at the very least, substantial compliance warranted giving due course to clarify the rights and duties of a buyer in contracts to sell real estate on installment.
• Inconsistent Grounds for Denial of Reconsideration: The Court found the Court of Appeals erred in denying petitioner’s motion for reconsideration due to untimely filing. The records clearly showed the motion was filed on June 25, 1999, a day before the expiration of the period to appeal granted by the Court of Appeals.
• Refund or Substitute Lot Under the Maceda Law: The contract to sell was governed by R.A. No. 6552, the Maceda Law, whose public policy is to protect buyers of real estate on installment against onerous and oppressive conditions. Section 3 governs a buyer who has paid at least two years of installments. Under Section 3(a), the buyer may pay the unpaid installments without additional interest within the total grace period earned, fixed at one month for every year of installment payments. Under Section 3(b), if the contract is cancelled, the seller must refund the cash surrender value equivalent to fifty percent of total payments, and actual cancellation takes place only after thirty days from receipt of a notarized notice of cancellation or demand for rescission and upon full payment of the cash surrender value. Respondent had paid for four years and had paid more than the contract price. In April 1989, petitioner decided to cancel when respondent incurred delay in paying P15,282.85, representing three monthly amortizations. Petitioner refused respondent’s subsequent tender of the outstanding balance, claiming it had already cancelled the contract and sold the lot. The records showed petitioner failed to comply with the mandatory twin requirements: it did not send a notarized notice of cancellation and did not refund the cash surrender value. It made no effort to pay the cash surrender value until the preliminary hearing before the HLURB arbiter. Its excuse that respondent was always out of the country was unsupported; no evidence showed it attempted payment through her last known address, even though it had sent notices there. The Layug case cited by petitioner was inapropos: in Layug, the buyer did not pay the outstanding balance and notarial rescission was unnecessary because the seller had filed a court action for rescission; here, respondent offered to pay but petitioner refused, no proof showed the offer was made after the effectivity date in the notice of cancellation, and there was no formal notice of cancellation or court action to rescind. Because petitioner failed to cancel the contract in accordance with law, the contract remained valid and subsisting. Following Section 3(a), respondent had the right to offer to pay the balance without interest, which she did. Ordinarily petitioner would have had no recourse but to accept payment. However, respondent could no longer exercise that right because the lot had already been sold to another buyer, valued at P1,700.00 per square meter. Since respondent lost her chance to pay for the P875,000.00 lot, it was just and equitable to order petitioner to refund the actual value of the lot resold, P875,000.00, with 12% interest per annum from August 26, 1991 until fully paid, or to deliver a substitute lot at respondent’s option. The HLURB Board’s order to refund one-half of total payments was not equitable because it punished respondent for delinquent payments while disregarding petitioner’s failure to comply with the mandatory requisites for valid cancellation. The HLURB Arbiter’s order of full refund was also not justified because respondent was entitled to the lot after paying her outstanding balance.

• Maceda Law (R.A. No. 6552) — Protection of Installment Buyers — The law declares a public policy of protecting buyers of real estate on installment against onerous and oppressive conditions, particularly low- and middle-income buyers who enter contracts of adhesion with developers. It delineates the rights and remedies of lot buyers in case of default. In this case, the Court applied the law to prevent Active Realty from forfeiting both the lot and the buyer’s payments without complying with the statutory cancellation procedure.
• Mandatory Twin Requirements for Valid Cancellation Under Section 3(b) — Where the buyer has paid at least two years of installments, the seller may cancel the contract only after (a) sending a notarized notice of cancellation or demand for rescission, and (b) refunding the cash surrender value equivalent to fifty percent of the total payments made. Actual cancellation takes place after thirty days from receipt of the notice and upon full payment of the cash surrender value. The Court found Active Realty failed both requirements, so the contract remained valid and subsisting.
• Buyer’s Right to Pay Unpaid Installments Without Additional Interest Under Section 3(a) — A buyer who has paid at least two years of installments may pay the unpaid installments without additional interest within the total grace period earned, fixed at one month for every year of installment payments. The Court held respondent had this right and exercised it by offering to pay the balance, but the right became impossible to enforce because petitioner had already sold the lot.
• Substantial Compliance with Procedural Rules — Procedural rules should not be applied so rigidly as to defeat substantive rights where the party has substantially complied and no prejudice is shown. The Court found petitioner substantially complied with Rule 43 despite technical omissions, and the Court of Appeals erred in denying due course on form alone.
• Layug Doctrine on Notarial Rescission — In Layug, notarial rescission or cancellation was no longer necessary because the seller had already filed a court action for rescission of the contract to sell. The Court distinguished Layug because here no court action for rescission was filed, respondent offered to pay the outstanding balance, and petitioner refused; the case therefore did not excuse petitioner’s noncompliance with the Maceda Law.

• "(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made; 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." — This statutory formulation defines the mandatory cancellation requirements and cash surrender value that the Court found petitioner failed to satisfy.
• "Thus, for failure to cancel the contract in accordance with the procedure provided by law, we hold that the contract to sell between the parties remains valid and subsisting." — This is the ratio decidendi on the effect of noncompliance with the Maceda Law’s cancellation requirements.
• "As respondent lost her chance to pay for the balance of the P875,000.00 lot, it is only just and equitable that the petitioner be ordered to refund to respondent the actual value of the lot resold, i.e., P875,000.00, with 12% interest per annum computed from August 26, 1991 until fully paid or to deliver a substitute lot at the option of the respondent." — This passage defines the relief granted after the lot could no longer be delivered because it had been sold to another buyer.
• "At the very least, petitioner substantially complied with the procedural requirements for appeal, hence, it is best to give due course to the petition at bar to clarify the rights and duties of a buyer in contracts to sell real estate on installment basis." — This passage explains the Court’s procedural ruling that substantial compliance warranted review on the merits.

• Yao vs. Court of Appeals, 344 SCRA 202 (2000) — Cited by the Court in support of the principle that an appellate court should not give premium to form and thereby fail to consider the important rights of the parties.
• Angeles vs. Calsanz, 135 SCRA 323 (1985) — Cited in the discussion of contracts of adhesion, where buyers readily affix their signatures without opportunity to question onerous provisions.
• Realty Exchange Venture Corporation vs. Sendino, 233 SCRA 665, 668 (1994) — Cited regarding onerous default clauses that allow developers to forfeit all installment payments upon failure to pay any installment.
• Siska Development Corporation vs. Office of the President of the Philippines, 231 SCRA 674 (1994) and Jison vs. Court of Appeals, 164 SCRA 339, 345 (1988) — Cited for the mandatory twin requirements of a valid and effective cancellation under Section 3(b) of R.A. No. 6552.
• Layug, 167 SCRA 227 (1988) — Cited by petitioner but distinguished; in Layug, notarial rescission or cancellation was unnecessary because the seller had already filed a court action for rescission, whereas here no court action was filed and the buyer offered to pay the outstanding balance.

• Section 3, R.A. No. 6552 (Maceda Law) — Provides the rights of a buyer in default who has paid at least two years of installments: under (a), to pay unpaid installments without additional interest within the total grace period fixed at one month for every year of installment payments; under (b), if the contract is cancelled, to receive a refund of the cash surrender value equivalent to fifty percent of total payments, with actual cancellation taking place only after thirty days from receipt of a notarized notice of cancellation or demand for rescission and upon full payment of the cash surrender value. The Court applied this provision to hold that petitioner’s cancellation was ineffective and the contract remained subsisting.
• Section 6(c), Rule 43, Revised Rules of Court — Requires a petition for review to be accompanied by a clearly legible duplicate original or certified true copy of the award, judgment, final order, or resolution appealed from, together with certified true copies of material portions of the record and other supporting papers, and to contain a sworn certification against forum shopping. The Court found petitioner substantially complied with this requirement.
• Rule 45, Revised Rules of Court — Governs petitions for review on certiorari to the Supreme Court. The case reached the Supreme Court through such a petition after the Court of Appeals denied due course.
• Rule 43, Revised Rules of Court — Governs appeals from quasi-judicial agencies to the Court of Appeals. The Court applied it in assessing petitioner’s compliance with the formal requirements for appeal.

Davide, Jr., C.J., Kapunan, Ynares-Santiago, and Austria-Martinez, JJ., concur.