Leaño vs. Court of Appeals

A contract to sell involving real property on installment is not validly cancelled without compliance with Section 3(b) of R.A. No. 6552, which requires the seller to refund the cash surrender value to the buyer.

On November 13, 1985, Hermogenes Fernando and Carmelita Leaño executed a contract to sell over a 431-square-meter lot in Bulacan, with Leaño agreeing to pay P107,750.00 via down payment and monthly amortizations over ten years. The contract reserved ownership with the seller until full payment and stipulated that failure to pay installments for ninety days beyond the grace period authorized the seller to cancel the contract and treat payments as rent. Leaño made several payments and constructed a house but defaulted after April 1, 1989, prompting Fernando to file an ejectment case.

• The Contract to Sell: Hermogenes Fernando, as vendor, and Carmelita Leaño, as vendee, executed a contract to sell involving a 431-square-meter lot in Sto. Cristo, Baliuag, Bulacan. The purchase price was P107,750.00, payable via a P10,775.00 down payment and monthly amortizations of P1,747.30 for ten years with 18% annual interest. The contract contained a cancellation clause: if 90 days elapsed after the grace period without payment of overdue installments, the vendor could cancel the contract, dispose of the land, and treat all payments and improvements as rent and liquidated damages.
• Partial Performance and Default: Leaño made several lump sum payments and constructed a house valued at P800,000.00 on the lot. Her last payment was made on April 1, 1989.
• Ejectment Case: Fernando filed an ejectment suit against Leaño. The Municipal Trial Court ordered Leaño to vacate the premises and pay P250.00 monthly compensation for use, attorney's fees, and costs. A writ of execution was issued on August 24, 1993.
• Specific Performance Suit: On September 27, 1993, Leaño filed a complaint for specific performance with preliminary injunction before the Regional Trial Court, assailing the MTC decision and depositing P18,000.00 to cover the balance. The RTC issued a preliminary injunction on November 4, 1993. On February 6, 1995, the RTC rendered judgment declaring the transaction an absolute sale and ordering Leaño to pay outstanding obligations. Upon Fernando's motion for reconsideration, the RTC increased the amount to P183,687.00, applying the contract's interest and penalty stipulations.

• Nature of the Contract: Petitioner maintained that the transaction was an absolute sale, transferring ownership upon delivery, thereby requiring judicial or notarial rescission under Article 1592 of the Civil Code before she could be evicted.
• Validity of Cancellation: Petitioner argued that there was no valid cancellation of the contract because the seller failed to pay the cash surrender value as mandated by Republic Act No. 6552.
• Delay in Payment: Petitioner asserted that she was not in delay because the ten-year period for paying the total purchase price had not yet elapsed.

• Applicability of Contract Terms: Respondent relied on the contract's stipulations, asserting that petitioner defaulted on her monthly amortizations, justifying the imposition of interest and surcharges.
• Statement of Account: Respondent maintained that the summary of account accurately reflected petitioner's outstanding obligations, which the trial court correctly adopted.

• Nature of the Contract: Whether the transaction between the parties is an absolute sale or a conditional sale.
• Cancellation of the Contract: Whether there was a proper cancellation of the contract to sell.
• Default in Payment: Whether petitioner was in delay in the payment of the monthly amortizations.

• Nature of the Contract: The transaction was a conditional sale, not an absolute sale. Ownership was reserved by the seller until full payment, as evidenced by the "subject to conditions" clause, the restriction on the buyer's right to encumber the property, and the stipulation that a deed of sale would be executed only upon complete payment. Because ownership was reserved, Article 1592 of the Civil Code, which requires judicial or notarial rescission for contracts of sale, is inapplicable.
• Cancellation of the Contract: No proper cancellation occurred. While the ejectment case served as the notice of cancellation under Section 3(b) of Republic Act No. 6552, actual cancellation requires the seller to refund the cash surrender value to the buyer. Since the cash surrender value was not paid, the contract was not actually cancelled, allowing the buyer to reinstate the contract by updating her account.
• Default in Payment: Petitioner was in delay. The contract explicitly required monthly amortizations with corresponding penalties for default. Petitioner cannot ignore this stipulation by invoking the ten-year period for the full purchase price. Under Article 1169 of the Civil Code, delay begins when one party fulfills their obligation—here, the seller allowing possession—and the other fails to comply with theirs.

• Contract to Sell vs. Contract of Sale — In a contract to sell, full payment of the purchase price is a positive suspensive condition. Failure to pay is not a breach but an event that prevents the vendor's obligation to convey title from acquiring obligatory force. Article 1592 of the Civil Code, requiring judicial or notarial rescission, does not apply to contracts to sell.
• Cancellation under R.A. No. 6552 — Actual cancellation of a contract to sell under the Realty Installment Buyer Protection Act requires: (1) thirty days from receipt by the buyer of the notice of cancellation or notarial demand for rescission; and (2) full payment of the cash surrender value to the buyer.

• "In a contract to sell real property on installments, the full payment of the purchase price is a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring any obligatory force."
• "[T]he 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."

• Rillo v. Court of Appeals, 340 Phil. 570 (1997) — Followed for the ruling that full payment in a contract to sell is a positive suspensive condition and that Article 1592 is inapplicable to such contracts.
• Manuel v. Rodriguez, 109 Phil. 1 (1960) — Followed for the principle that the act of registration is the operative act that transfers ownership over land covered by a Torrens title.

• Article 1592, Civil Code — Held inapplicable to contracts to sell where ownership is reserved by the vendor until full payment.
• Section 3(b), Republic Act No. 6552 — Applied to mandate that actual cancellation of a contract to sell requires the refund of the cash surrender value to the buyer, in addition to a 30-day notice.
• Article 1169, Civil Code — Applied to determine that the buyer was in delay for failing to pay monthly amortizations after the seller had fulfilled his obligation by allowing possession.

Davide, Jr., Puno, Kapunan, Ynares-Santiago, JJ.