Pryce Properties Corp. vs. Nolasco

A seller of real property on installment may not validly cancel a contract under Section 4 of RA 6552 without serving a notice of cancellation or demand for rescission by a notarial act—specifically, an acknowledgment, not a jurat—upon the defaulting buyer, and the failure to do so entitles the buyer to an equitable refund of payments made.

Narciso R. Nolasco, Jr. sought to purchase three subdivision lots in Cagayan de Oro City from Pryce Properties Corporation (now Pryce Corporation) under an installment arrangement. The transaction was governed by Republic Act No. 6552, the Realty Installment Buyer Protection Act (the Maceda Law), which prescribes the rights and remedies of buyers and sellers in real estate installment transactions, including the conditions under which a seller may cancel a contract for the buyer's default. The dispute arose from the parties' divergent understandings of whether a written contract to sell had been perfected, whether Pryce had validly rescinded the arrangement, and whether Nolasco was entitled to a refund of his deposit payments.

In 1995, Narciso R. Nolasco, Jr. purchased three lots located in Cagayan de Oro City from Pryce Properties Corporation (now Pryce Corporation). That same year, Nolasco deposited a total of ₱393,435.00 through check payments in favor of Pryce. Pryce did not deliver to Nolasco copies of the lots' certificates of title or their sales agreement. When Nolasco finally received the sales agreement, he found it contained unacceptable conditions and conveyed his objections to Pryce. Since he had not yet signed the sales agreement, Nolasco maintained that there was no meeting of the minds between him and Pryce. Despite demands for a refund of his deposit payments, Pryce failed to comply.

Pryce countered that the transaction was a contract to sell, not a contract of sale, and that Nolasco could not yet be issued certificates of title. Pryce alleged that Nolasco was furnished a copy of the Contract to Sell as early as November 8, 1995, which he signed, and that he even requested an amended Contract to Sell to reflect a new amortization schedule. Pryce asserted that under RA 6552 (the Maceda Law), Nolasco was not entitled to a refund since he failed to complete payments within the grace period, resulting in the forfeiture of his deposits and the rescission of the contract to sell.

During pre-trial, the parties stipulated on several facts, including that Nolasco had not signed a contract to sell with Pryce, that he had made various reservation fees and downpayments totaling approximately ₱393,000.00, and that he wrote Pryce in September 1997 stating he was no longer proceeding with the contract and withdrawing his deposit. The parties also stipulated that Nolasco was unable to secure a loan from Landbank of the Philippines to finance the lots, and that Pryce sent a letter dated December 5, 1998 informing Nolasco that he had failed to pay installment payments since October 1995 and giving him sixty days or until February 5, 1999 to pay, failing which Pryce would be constrained to rescind the contract consistent with Section 4 of RA 6552. Nolasco filed his Complaint for recovery of a sum of money on January 22, 1999, before the lapse of the sixty-day grace period. Pryce filed its Answer with Counterclaims on June 11, 1999, more than four months after the grace period had lapsed.

The RTC found that a perfected contract of sale existed and ordered Pryce to refund ₱393,435.00 with 12% interest from the filing of the case. The CA affirmed with modification, characterizing the contract as a contract to sell but upholding Nolasco's entitlement to a refund because Pryce did not validly cancel the contract under RA 6552.

• Implied Agreement to the Contract to Sell: Petitioner maintained that Nolasco impliedly agreed to the unsigned Contract to Sell and that the provisions thereof, including the automatic cancellation clause, should govern the parties' relationship.
• Applicability of RA 6552 and Valid Rescission: Petitioner argued that RA 6552 applies and that Nolasco was not entitled to a refund because there was a valid rescission of the Contract to Sell when Pryce sent Nolasco its December 5, 1998 letter and raised the affirmative defense to deny Nolasco's claim for refund in its Answer with Counterclaims before the RTC.
• Forfeiture of Deposit Payments: Petitioner posited that Nolasco had forfeited his deposit payments in favor of Pryce by failing to complete payments within the grace period.

• Procedural Impropriety: Respondent alleged that petitioner raised questions of fact, failed to interpose any question of law, and did not claim any of the exceptions favoring a generally-prohibited factual review under Rule 45.
• Entitlement to Refund: While admitting that he entered into a contract to sell with Pryce, respondent asserted that the CA correctly found that he did not sign a written Contract to Sell and that he is entitled to a refund of the down payments he made to Pryce.

• Validity of Rescission: Whether the contract between Pryce and Nolasco was rescinded in accordance with RA 6552.
• Entitlement to Refund: Whether petitioner Pryce should refund respondent Nolasco.

• Validity of Rescission: No. The contract was not validly rescinded because Pryce failed to comply with the mandatory requisites of Section 4 of RA 6552, particularly the requirement of a notice of cancellation or demand for rescission by a notarial act.
• Entitlement to Refund: Yes. In the absence of a valid rescission, the contract remained subsisting, and Nolasco was entitled to an equitable refund of his deposit payments pursuant to Section 6 of RA 6552 and jurisprudential equity considerations.

• Validity of Rescission: Section 4 of RA 6552 requires four conditions before a seller may validly cancel a contract where the buyer has paid less than two years of installments: (1) the buyer has paid less than two years of installments; (2) the seller gives the buyer a sixty-day grace period reckoned from the date the installment became due; (3) if the buyer fails to pay after the grace period, the seller must give the buyer a notice of cancellation or demand for rescission by notarial act; and (4) the seller may actually cancel the contract only after thirty days from the buyer's receipt of the notarial notice. Pryce complied with the first and second requisites through its December 5, 1998 letter giving Nolasco sixty days to pay. However, Pryce failed to meet the last two conditions: there was no notice of notarial rescission served upon Nolasco, and therefore thirty days could not have lapsed from a non-existent service. The written Contract to Sell Pryce relied upon was ineffectual for two reasons. First, its stipulations conflicted with RA 6552 by deeming mere "service" by registered mail as sufficient, rather than "receipt" by the buyer, rendering those stipulations null and void under Section 7 of RA 6552. Second, Nolasco never signed the Contract to Sell. Moreover, Pryce's Answer with Counterclaims could not be deemed a notarial rescission under RA 6552. A notarial rescission requires an acknowledgment—a notarial act in which the executor declares the instrument to be his or her act or deed—not a jurat, which merely certifies that the document was subscribed and sworn to. Pryce's Answer was notarized through a jurat, not an acknowledgment. Furthermore, the affiant presented a Community Tax Certificate (cedula) as competent evidence of identity, which was condemned in Orbe vs. Filinvest Land, Inc. as impermissible proof of identity for notarial purposes. The December 5, 1998 letter itself was merely a demand letter, not a notice of cancellation by notarial act, and its language was conditional ("we will be constrained to rescind"), not an unequivocal act of rescission. The Answer with Counterclaims was filed more than four months after the grace period lapsed, and nothing in the pleading provided clear and positive notification to Nolasco that Pryce was rescinding the contract.

• Entitlement to Refund: In the absence of a lawful rescission, the contract remains valid and subsisting. While the right to claim a refund is not explicitly mentioned in RA 6552, equity considerations have filled this legal vacuum, as declared in Orbe vs. Filinvest Land, Inc. In that case, the seller failed to validly cancel the contract through a notarial act, and the Court ordered the refund of amounts actually paid by the buyer on equitable grounds. The Court also noted that Section 6 of RA 6552 grants the defaulting buyer the right to pay in advance any installment or the full unpaid balance of the purchase price at any time without interest. The Court summarized that a defaulting buyer of real property on installments, whether or not he or she has paid two years of installments, has three common legal remedies in the absence of a valid rescission: (a) pay in advance any installment at any time without interest; (b) pay the full unpaid balance of the purchase price at any time without interest and have such payment annotated in the certificate of title; or (c) claim an equitable refund of prior payments and/or deposits. Since Nolasco was firm in his choice to claim a refund, the courts below were correct in directing the refund. The interest rate was modified pursuant to Nacar vs. Gallery Frames, imposing 12% per annum from January 22, 1999 to June 30, 2013, and 6% per annum from July 1, 2013 until fully paid.

• Notarial Rescission under RA 6552 (Maceda Law) — Section 4 of RA 6552 requires four conditions before a seller may validly cancel a contract where the buyer has paid less than two years of installments: (1) the buyer has paid less than two years of installments; (2) the seller gives the buyer a sixty-day grace period from the date the installment became due; (3) the seller gives the buyer a notice of cancellation or demand for rescission by notarial act if the buyer fails to pay after the grace period; and (4) the seller may actually cancel the contract only after thirty days from the buyer's receipt of the notarial notice. The Court applied this doctrine to hold that Pryce failed to comply with the third and fourth requisites, rendering its attempted rescission invalid.

• Acknowledgment vs. Jurat in Notarial Practice — An acknowledgment is the act of one who has executed a deed in going before a competent officer or court and declaring it to be his or her act or deed; it covers written deeds and acts and recognizes representative capacity. A jurat is that part of an affidavit in which the notary certifies that the document was subscribed and sworn to by the executor; it confirms affidavits and pleadings and does not recognize representative capacities. A notarial rescission under RA 6552 requires an acknowledgment, not a jurat. The Court held that Pryce's Answer with Counterclaims, notarized through a jurat, did not constitute a valid notarial act of rescission.

• Equitable Refund for Defaulting Buyer — In the absence of a valid rescission of a contract governed by RA 6552, the contract remains valid and subsisting. A defaulting buyer who has not received a valid notarial notice of rescission is entitled to an equitable refund of prior payments and/or deposits, even though this remedy is not explicitly stated in RA 6552. The Court relied on Orbe vs. Filinvest Land, Inc. to justify the refund on equitable grounds.

• Invalidity of Contractual Stipulations Contrary to RA 6552 — Under Section 7 of RA 6552, any stipulation in a contract contrary to the provisions of Sections 3, 4, 5, and 6 is null and void. The Court applied this to strike down the stipulations in Pryce's written Contract to Sell that deemed mere service by registered mail as sufficient proof of service, rather than receipt by the buyer as required by Section 4.

• "A notarial rescission contemplated under RA 6552 is a unilateral cancellation by a seller of a perfected contract thereunder acknowledged by a notary public and accompanied by competent evidence of identity." — This passage defines the specific notarial requirement for rescission under the Maceda Law, distinguishing it from ordinary demand letters and pleadings notarized by jurat.

• "Rescission unmakes a contract. Necessarily, the rights and obligations emanating from a rescinded contract are extinguished. Being a mode of nullifying contracts and their correlative rights and obligations, rescission thus must be conveyed in an unequivocal manner and couched in unmistakable terms." — This articulates the rationale for the strict notice requirement: parties must be able to determine their contractual status without guesswork, map out causes of action, and estimate prescriptive periods.

• "In the absence of a lawful rescission of a contract governed by RA 6552, the same remains valid and subsisting." — This establishes the consequence of a failed rescission: the contract continues to bind the parties, and the buyer retains remedies including equitable refund.

• Orbe vs. Filinvest Land, Inc., 817 Phil. 934 (2017) — Controlling precedent. The Court relied extensively on Orbe for the requirements of notarial rescission under RA 6552, the distinction between acknowledgment and jurat, the impermissibility of cedulas as competent evidence of identity, and the equitable basis for refunding a defaulting buyer's payments when the seller fails to validly cancel the contract.

• Nacar vs. Gallery Frames, 716 Phil. 267 (2013) — Applied to determine the proper legal interest rates on the monetary award: 12% per annum from the date of judicial demand until June 30, 2013, and 6% per annum from July 1, 2013 until fully paid.

• Baylon vs. Almo, 578 Phil. 238 (2008) — Cited through Orbe for the proposition that Community Tax Certificates (cedulas) are impermissible proof of identity for notarial purposes due to their unreliability and the ease of securing their issuance.

• Eastern Shipping Lines, Inc. vs. Court of Appeals, 304 Phil. 236 (1994) — Cited as the basis for the CA's computation of interest on the monetary award, subsequently modified by the Supreme Court in light of Nacar.

• Section 4, Republic Act No. 6552 (Maceda Law) — Governs the remedies of a seller when the buyer has paid less than two years of installments: requires a sixty-day grace period, a notice of cancellation or demand for rescission by notarial act, and a thirty-day waiting period from the buyer's receipt of the notarial notice before actual cancellation. Applied to hold that Pryce failed to comply with the notarial act and thirty-day waiting period requisites.

• Section 6, Republic Act No. 6552 (Maceda Law) — Grants the buyer the right to pay in advance any installment or the full unpaid balance of the purchase price at any time without interest and to have such payment annotated in the certificate of title. The Court noted this provision in enumerating the defaulting buyer's remedies and confirmed that Nolasco's choice to claim a refund was proper.

• Section 7, Republic Act No. 6552 (Maceda Law) — Declares null and void any stipulation in a contract contrary to the provisions of Sections 3, 4, 5, and 6. Applied to invalidate the stipulations in Pryce's written Contract to Sell that dispensed with the requirement of receipt by the buyer and deemed mere service by registered mail as sufficient.

• Section 1, Rule II, A.M. No. 02-8-13-SC (2004 Rules on Notarial Practice) — Defines "acknowledgment" as the notarial act covering instruments or documents where the individual represents that the signature was voluntarily affixed and declares execution as his or her free and voluntary act and deed, including in a representative capacity. Applied to distinguish acknowledgment from jurat and to hold that Pryce's Answer with Counterclaims, notarized by jurat, did not satisfy the notarial rescission requirement.

• Section 6, Rule II, A.M. No. 02-8-13-SC (2004 Rules on Notarial Practice) — Defines "jurat" as the notarial act in which an individual appears before the notary, signs the instrument in the notary's presence, and takes an oath or affirmation. Applied to show that a jurat does not recognize representative capacity and is insufficient for a notarial act of rescission by a juridical person.

• Article 1482, Civil Code — Cited by the RTC in finding a perfected contract of sale; the CA later characterized the transaction as a contract to sell instead.

• Article 1191, Civil Code — Cited by the RTC in declaring Nolasco entitled to a refund of payments made.

• Justice Amy C. Hernando (Ponente)
• Justice Estela M. Perlas-Bernabe (Chairperson)
• Justice Jose Midas P. Inting
• Justice Charlotte M. Delos Santos