Communities Cagayan, Inc. vs. Nanol

In a Contract to Sell involving real estate on installment payments, the seller must comply with the twin mandatory requirements of the Maceda Law (RA 6552)—sending a notarized notice of cancellation and refunding the cash surrender value—before the contract can be validly cancelled; furthermore, Article 448 of the Civil Code applies to builders in good faith who introduced improvements with the landowner's knowledge and consent, giving the landowner the option to appropriate the improvements after payment of indemnity or to oblige the builder to purchase the land or pay reasonable rent if the land value is considerably more than the improvements.

• Sometime in 1994, respondent-spouses Arsenio and Angeles Nanol entered into a Contract to Sell with petitioner Communities Cagayan, Inc. (formerly Masterplan Properties, Inc.) for a house and Lots 17 and 19 located at Block 16, Camella Homes Subdivision, Cagayan de Oro City, for the price of P368,000.00.
• Respondent-spouses did not avail of petitioner's in-house financing due to high interest rates; instead, they obtained a loan from Capitol Development Bank, a sister company of petitioner, using the property as collateral.
• To facilitate the loan, a simulated sale was executed transferring titles to respondent-spouses under Transfer Certificates of Title Nos. 105202 and 105203, which were submitted to the bank; however, the bank collapsed before releasing the loan.
• On November 30, 1997, respondent-spouses entered into another Contract to Sell with petitioner over the same property for the same price of P368,000.00, this time availing of in-house financing with a four-year payment period from 1997 to 2001.
• In 2000, respondent Arsenio demolished the original house and constructed a three-story house allegedly valued at P3.5 million.
• In July 2001, respondent Arsenio died, leaving his wife Angeles to pay the monthly amortizations.
• On September 10, 2003, petitioner sent a notarized Notice of Delinquency and Cancellation of Contract to Sell due to failure to pay monthly amortizations beginning January 2000.
• In December 2003, petitioner filed an action for unlawful detainer against respondent-spouses, which was dismissed because the titles were already registered in the names of the respondents.
• On July 27, 2005, petitioner filed a Complaint for Cancellation of Title, Recovery of Possession, Reconveyance and Damages before the RTC, alleging the transfer of titles was merely simulated for bank loan purposes and that respondents failed to pay amortizations.

• The RTC erred in ordering petitioner to reimburse respondent-spouses the total monthly installments paid and the value of the new house minus the cost of the original house, claiming there is no legal basis for such reimbursement.
• Respondent-spouses were builders in bad faith when they renovated and improved the house, which was not yet their own, and therefore should not be entitled to reimbursement for improvements.
• The RTC should have applied Republic Act No. 6552 (the Maceda Law) and ordered respondent-spouses to pay monthly rentals instead of awarding a full refund of all amortization payments.
• The requirement to pay the value of the new house constitutes unjust enrichment in favor of respondents who defaulted on their obligations.

• The Deed of Absolute Sale is valid, and petitioner is not the proper party to file the complaint because it is different from Masterplan Properties, Inc.
• The RTC erred in cancelling Transfer Certificates of Title Nos. 105202 and 105203 because the sale was valid and supported by consideration.
• Respondent Angeles prayed for damages by way of compulsory counterclaim for the wrongful filing of the action.

• Procedural Issues:
  • Whether respondent Angeles can raise issues regarding the validity of the Deed of Absolute Sale and the cancellation of titles despite her failure to file an appeal from the RTC Decision.
• Substantive Issues:
  • Whether petitioner is obliged to refund to respondent-spouses all the monthly installments paid under the Contract to Sell, or only the cash surrender value under the Maceda Law.
  • Whether petitioner is obliged to reimburse respondent-spouses the value of the new house minus the cost of the original house, and whether Article 448 of the Civil Code applies to the improvements made by respondent-spouses.

• Procedural:
  • The Supreme Court ruled that respondent Angeles is bound by the RTC Decision for failing to file an appeal; she can no longer seek modification or reversal of the judgment or question the propriety of the annulment of the Deed of Absolute Sale, the cancellation of the titles, and the order to vacate the property.
• Substantive:
  • The Maceda Law (Republic Act No. 6552) applies to contracts to sell involving real estate on installment payments. Under Section 3(b), respondent-spouses are entitled to the cash surrender value equivalent to 50% of the total payments made, not a full refund of all installments, since they paid at least two years of installments.
  • Before a contract to sell can be validly and effectively cancelled, the seller must comply with twin mandatory requirements: (1) send a notarized notice of cancellation to the buyer, and (2) refund the cash surrender value to the buyer. Actual cancellation takes place only after 30 days from receipt of the notice and upon full payment of the cash surrender value.
  • Article 448 of the Civil Code applies to builders in good faith even where there is a contractual relation between the parties, particularly when the landowner consented to the improvements. Good faith is presumed on the part of respondent-spouses, and petitioner failed to rebut this presumption or show opposition to the construction.
  • Under Article 448, petitioner as landowner has two options: (1) appropriate the new house by reimbursing respondent Angeles the current market value thereof minus the cost of the old house, or (2) sell the lots to respondent Angeles at the current fair value; if the value of the lots is considerably more than the value of the new house minus the cost of the old house, respondent Angeles cannot be compelled to purchase the lots and can only be obliged to pay reasonable rent.
  • The case is remanded to the RTC to determine the current fair value of the lots, the current market value of the new house, the cost of the old house, and whether the land value is considerably more than the improvement value, and for petitioner to exercise its option under Article 448.

• Maceda Law (Republic Act No. 6552) — Governs sales of real estate on installment payments, mandating that before a contract to sell can be validly cancelled, the seller must send a notarized notice of cancellation and refund the cash surrender value (50% of total payments if at least two years paid, increasing by 5% per year thereafter up to 90%); actual cancellation occurs only after 30 days from receipt of notice and upon full payment of the cash surrender value.
• Article 448 of the Civil Code (Builders in Good Faith) — Traditionally applies when builders believe they are owners or have a claim of title, but extends to cases where builders constructed improvements with the landowner's knowledge and consent; grants the landowner the option to appropriate the improvements after payment of indemnity or to oblige the builder to purchase the land or pay reasonable rent if the land value is not considerably more than the improvements.
• Principle of Accession — The accessory follows the principal; the landowner's right is older and entitled to ownership of the accessory thing, hence the choice under Article 448 belongs exclusively to the landowner, who cannot refuse to exercise either option.

• "Laws fill the gap in a contract."
• "A party who does not appeal from a judgment can no longer seek modification or reversal of the same. He may oppose the appeal of the other party only on grounds consistent with the judgment."
• "Before a contract to sell can be validly and effectively cancelled, the seller has (1) to send a notarized notice of cancellation to the buyer and (2) to refund the cash surrender value to the buyer."
• "The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent."

• Raquel-Santos v. Court of Appeals — Cited for the rule that a party who does not appeal from a judgment is bound by it and cannot seek its modification.
• Active Realty & Development Corp. v. Daroya — Cited for the twin mandatory requirements for valid cancellation of a contract to sell under the Maceda Law.
• Pagtalunan v. Dela Cruz Vda. de Manzano — Cited for the rule that actual cancellation of a contract takes place after 30 days from receipt of notarized notice and upon full payment of the cash surrender value.
• Tuatis v. Escol — Cited for the two options available to a landowner under Article 448 of the Civil Code and the necessity of remanding the case for the landowner to exercise such option.
• Spouses Macasaet v. Spouses Macasaet — Cited for the application of Article 448 to builders who knew they were not owners but built with the landowner's consent and invitation, extending the definition of good faith beyond mere belief of ownership.
• Pecson v. Court of Appeals — Cited for the rule that the amount to be refunded to the builder under Article 546 should be the current market value of the improvement.
• Depra v. Dumlao and Technogas Philippines Manufacturing Corporation v. Court of Appeals — Cited for the procedure of remanding cases to determine values necessary for the proper application of Article 448.

• Republic Act No. 6552 (Maceda Law), Sections 3, 4, and 5 — Provide for the rights of buyers in sales of real estate on installment payments, including grace periods, cash surrender value, and conditions for cancellation.
• Article 448 of the Civil Code — Governs the rights and obligations of landowners and builders in good faith.
• Article 453 of the Civil Code — Provides that bad faith is imputed to the landowner when the construction was done with his knowledge and without opposition.
• Article 546 of the Civil Code — Governs the right of possessors in good faith to retain the thing until reimbursed for necessary and useful expenses, and the landowner's option to pay expenses or the increase in value.
• Article 548 of the Civil Code — Governs expenses for pure luxury or mere pleasure.
• Rule 45 of the Rules of Court — Governs petitions for review on certiorari to the Supreme Court on questions of law.