Planters Development Bank vs. Chandumal

Under Section 3(b) of R.A. No. 6552 (the Maceda Law), the actual cancellation of a contract to sell real estate on an installment basis requires strict compliance with two mandatory requirements: (1) a notarial act of rescission or demand for rescission, and (2) the full payment of the cash surrender value to the buyer; the seller's mere attempt or tender of payment without actual delivery to the buyer, or the buyer's unavailability, does not satisfy the statutory requirement for valid cancellation.

BF Homes, Inc. entered into a contract to sell with Julie Chandumal covering a parcel of land with improvements located in Talon Dos, Las Piñas City, covered by Transfer Certificate of Title No. T-10779. On February 12, 1993, Planters Development Bank (PDB) acquired all rights, participations, and interests under this contract from BF Homes. Chandumal religiously paid her monthly amortizations from December 1990 until May 1994, after which she began defaulting on her obligations. On July 14, 1998, PDB sent Chandumal a Notice of Delinquency and Rescission of Contract with Demand to Vacate, giving her thirty days to settle her arrearages or face rescission.

• BF Homes, Inc. and Julie Chandumal entered into a Contract to Sell dated January 3, 1990 covering a parcel of land with improvements located in Talon Dos, Las Piñas City.
• On February 12, 1993, BF Homes sold to Planters Development Bank (PDB) all its rights, participations, and interests over the contract.
• Chandumal paid monthly amortizations from December 1990 until May 1994, after which she began defaulting on her payments.
• On July 14, 1998, PDB sent Chandumal a Notice of Delinquency and Rescission of Contract with Demand to Vacate, giving her thirty days from receipt to settle her installment arrearages; otherwise, the contract would be rescinded.
• Despite demand, Chandumal failed to settle her obligation.
• On June 18, 1999, PDB filed an action for judicial confirmation of notarial rescission and delivery of possession before the RTC of Las Piñas City.
• Deputy Sheriff Roberto T. Galing attempted to personally serve summons upon Chandumal on July 15, 19, and 22, 1999, but was unsuccessful as she was allegedly always out of the house.
• On August 5, 1999, the sheriff caused substituted service of summons by serving the same through Chandumal's mother who acknowledged receipt thereof.
• Chandumal failed to file an answer within the prescribed period, prompting PDB to file an ex parte motion to declare her in default on April 24, 2000.
• On January 12, 2001, the RTC issued an Order granting the motion to declare Chandumal in default.
• On February 23, 2001, Chandumal filed an Urgent Motion to Set Aside Order of Default and to Admit Attached Answer, alleging she did not receive the summons and that her failure to answer was due to fraud, mistake, or excusable negligence.
• In her answer, Chandumal alleged that PDB did not make any demand for payment and did not tender the cash surrender value equivalent to fifty percent of the total payments made, claiming she paid P782,000.00 and was entitled to P391,000.00 cash surrender value.
• The RTC denied Chandumal's motion to set aside the order of default on August 2, 2001, and denied her motion for reconsideration.
• On May 31, 2004, the RTC rendered a Decision declaring the notarial rescission judicially confirmed, requiring PDB to deposit P10,000.00 as cash surrender value, and ordering Chandumal to pay P50,000.00 attorney's fees.
• Chandumal appealed to the CA, which nullified the RTC decision on July 27, 2010 due to invalid substituted service of summons.
• The CA denied PDB's motion for reconsideration on February 16, 2011.

• PDB contends that the RTC properly acquired jurisdiction over Chandumal through valid substituted service of summons pursuant to Section 7, Rule 14 of the Rules of Court.
• The sheriff complied with the proper procedure by attempting personal service on at least three different dates within a reasonable period of nearly a month before resorting to substituted service.
• The sheriff stated the reason for his failure to effect personal service and served the summons through Chandumal's mother, who is a person of legal age and with sufficient discretion.
• Chandumal voluntarily submitted to the jurisdiction of the court when she filed an Urgent Motion to Set Aside Order of Default and to Admit Attached Answer.
• The trial court did not err in confirming and ratifying the notarial rescission of the subject contract to sell pursuant to R.A. No. 6552.

• Chandumal asserts that she never received a copy of the summons or was ever notified of it.
• She only came to know of the case sometime in July or August 2000, but she was already in the United States by that time.
• The CA correctly ruled that there was no valid service of summons; hence, the RTC never acquired jurisdiction over her person.
• PDB failed to comply with the requirements of R.A. No. 6552 regarding the payment of cash surrender value, as she claimed the amount due was P391,000.00, not merely P10,000.00.

• Procedural Issues:
  • Whether there was a valid substituted service of summons upon Chandumal.
  • Whether Chandumal voluntarily submitted to the jurisdiction of the trial court despite the alleged defective service of summons.
• Substantive Issues:
  • Whether there was proper rescission by notarial act of the contract to sell pursuant to Section 3(b) of R.A. No. 6552.

• Procedural:
  • The Supreme Court agreed with the CA that there was no valid substituted service of summons. The sheriff's return failed to justify the resort to substituted service as it merely stated that Chandumal was "out of the house" without indicating specific details of the efforts exerted, such as asking the mother as to Chandumal's specific whereabouts, where she could be reached, or whether the sheriff tried to await her return. The return showed a mere perfunctory attempt at personal service that did not satisfy the requisites established in Manotoc v. Court of Appeals.
  • However, the Court ruled that Chandumal voluntarily submitted to the jurisdiction of the trial court. Under Section 20, Rule 14 of the Rules of Court, the filing of an Urgent Motion to Set Aside Order of Default and to Admit Attached Answer, where she sought affirmative relief and delved into the merits of the case by claiming PDB failed to comply with R.A. No. 6552, constitutes voluntary appearance equivalent to service of summons.
  • Furthermore, Chandumal's act of appealing the RTC decision to the CA demonstrates her recognition of the trial court's jurisdiction to render judgment.
• Substantive:
  • The Supreme Court ruled that there was no valid rescission of the contract to sell by notarial act pursuant to Section 3(b) of R.A. No. 6552.
  • Under R.A. No. 6552, actual cancellation of the contract requires two mandatory requirements: (1) a notarial act of rescission or demand for rescission; and (2) full payment of the cash surrender value to the buyer.
  • Actual cancellation only takes place upon the expiry of a thirty-day period following the receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and the full payment of the cash surrender value.
  • PDB admitted in its complaint that it tried to deliver the cash surrender value but Chandumal was unavailable, and it only prayed that it be ordered to deposit P10,000.00 (not the full 50% of total payments).
  • The allegation that Chandumal made herself unavailable is not an excuse; the twin requirements for valid cancellation are mandatory and not merely directory.
  • Consequently, the RTC should not have given judicial confirmation to the notarial rescission, and the Decision dated May 31, 2004 was reversed and set aside.

• Requisites for Valid Substituted Service of Summons — Based on Manotoc v. Court of Appeals, valid substituted service requires: (1) impossibility of prompt personal service; (2) specific details in the return describing the facts and circumstances of attempted personal service; (3) service upon a person of suitable age and discretion, with details regarding relationship to defendant and comprehension of the significance of receipt; and (4) in case of office service, a competent person in charge with sufficient knowledge of the obligation. The sheriff's return must show actual exertion of efforts to justify resort to substituted service, and a mere perfunctory attempt is insufficient.
• Voluntary Appearance as Equivalent to Service of Summons — Under Section 20, Rule 14 of the Rules of Court, a defendant's voluntary appearance in the action is equivalent to service of summons. Filing a motion to set aside default and admit answer, or seeking affirmative relief, constitutes voluntary submission to the court's jurisdiction, even if the defendant simultaneously alleges lack of jurisdiction.
• Mandatory Requirements for Cancellation under R.A. No. 6552 (Maceda Law) — The seller's right to cancel a contract to sell real estate on installment basis requires strict compliance with Section 3(b): (a) notice of cancellation or demand for rescission by a notarial act; and (b) full payment of the cash surrender value (50% of total payments made, increasing after five years). Actual cancellation only takes place after 30 days from receipt of notice and upon full payment of the cash surrender value. These requirements are mandatory and the seller's failure to pay the cash surrender value, even if due to the buyer's unavailability, prevents valid cancellation.

• "Personal service of summons should and always be the first option, and it is only when the said summons cannot be served within a reasonable time can the process server resort to substituted service."
• "The allegation that Chandumal made herself unavailable for payment is not an excuse as the twin requirements for a valid and effective cancellation under the law, i.e., notice of cancellation or demand for rescission by a notarial act and the full payment of the cash surrender value, is mandatory."
• "When Chandumal filed an Urgent Motion to Set Aside Order of Default and to Admit Attached Answer, she effectively submitted her person to the jurisdiction of the trial court as the filing of a pleading where one seeks an affirmative relief is equivalent to service of summons and vests the trial court with jurisdiction over the defendant’s person."

• Manotoc v. Court of Appeals, 530 Phil. 454 (2006) — Cited for the four requisites of valid substituted service of summons; established that the sheriff must show impossibility of prompt personal service and provide specific details in the return regarding the recipient's relationship to the defendant and comprehension of the summons' significance.
• Pascual v. Pascual, G.R. No. 171916, December 4, 2009, 607 SCRA 288 — Applied the Manotoc requisites and invalidated substituted service due to failure to specify necessary details in the return justifying the resort to substituted service.
• Leaño v. Court of Appeals, 420 Phil. 836 (2001) — Cited for the interpretation of Section 3(b) of R.A. No. 6552 regarding the seller's right to cancel and the requirement of refunding cash surrender value equivalent to fifty percent of total payments made.
• Olympia Housing, Inc. v. Panasiatic Travel Corp., 443 Phil. 385 (2003) — Cited for the rule that actual cancellation takes place after 30 days from receipt of notice and upon full payment of cash surrender value.
• Active Realty & Development Corp. v. Daroya, 431 Phil. 753 (2002) — Cited for the mandatory nature of the twin requirements for cancellation under R.A. No. 6552.
• Rapid City Realty and Development Corporation v. Villa, G.R. No. 184197, February 11, 2010, 612 SCRA 302 — Cited for the doctrine that filing motions to set aside default and admit answer constitutes voluntary submission to jurisdiction.
• Afdal v. Carlos, G.R. No. 173379, December 1, 2010, 636 SCRA 389 — Cited regarding the insufficiency of perfunctory attempts at personal service to justify substituted service.
• Peñoso v. Dona, G.R. No. 154018, April 3, 2007, 520 SCRA 232 — Cited for the propriety of the Supreme Court resolving the substantive issues instead of remanding to the Court of Appeals to avoid further delay.

• Section 3(b), Republic Act No. 6552 (Realty Installment Buyers Protection Act/Maceda Law) — Mandates that actual cancellation of contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and upon full payment of the cash surrender value (fifty percent of total payments made).
• Section 6, Rule 14 of the Rules of Court — Provides for personal service of summons as the primary mode of service.
• Section 7, Rule 14 of the Rules of Court — Provides for substituted service of summons only if the defendant cannot be served within a reasonable time, by leaving copies at the defendant's residence with a person of suitable age and discretion or at the defendant's office with a competent person in charge.
• Section 20, Rule 14 of the Rules of Court — States that the defendant's voluntary appearance in the action shall be equivalent to service of summons.