Case Summary (G.R. No. 176791)
Factual Background
- In 1994, the Nanols entered into a Contract to Sell with Communities Cagayan, Inc. for P368,000. They declined the developer’s in-house financing due to high interest and secured a bank loan from Capitol Development Bank using the property as collateral. A simulated sale transferred titles to the Nanols but the bank collapsed before loan release.
- On November 30, 1997, the parties executed a second Contract to Sell for the same price, this time under the developer’s in-house financing, with amortizations due over four years (1997–2001).
- In 2000, Arsenio demolished the original house and erected a three-story structure valued at approximately P3.5 million. Arsenio died in July 2001, leaving Angeles to service the loan.
- Following unpaid installments, Communities Cagayan sent a notarized Notice of Delinquency and Cancellation on September 10, 2003. A municipal unlawful detainer action was withdrawn when titles were discovered in the Nanols’ names.
Proceedings Below
• July 2005: Communities Cagayan filed before the RTC a Complaint for Cancellation of Title, Recovery of Possession, Reconveyance, and Damages, praying for cancellation of TCT Nos. 105202 and 105203, ejectment of the Nanols, reimbursement of installments, and damages.
• Respondent answered, asserting validity of the Deed of Absolute Sale and counterclaiming for damages. Petitioner proved corporate identity with Masterplan Properties, Inc.
• After failed mediation and preliminary conference, parties submitted on pleadings and exhibits.
• December 29, 2006: RTC declared the Deed of Absolute Sale void for lack of consideration; cancelled the titles; ordered turnover of possession “subject to payment of total monthly installments and value of the new house minus cost of the original house.”
• February 12, 2007: Motion for reconsideration denied.
Issue
Whether the RTC erred in conditioning petitioner’s recovery of possession on reimbursement to respondents of all installments paid and the value of improvements (new house minus cost of original house).
Applicable Law
• 1987 Philippine Constitution (decision in 2012)
• Republic Act No. 6552 (Maceda Law), Sections 3–5 (rights of installment buyer in case of default)
• Civil Code provisions on builders in good faith (Articles 448, 546, 548)
Court’s Analysis – Refund of Installments under Maceda Law
- The Maceda Law governs real estate sales on installment. Section 3(b) entitles a buyer who paid at least two years of installments, upon cancellation, to “refund of the cash surrender value . . . equivalent to fifty percent of the total payments made.”
- Petitioner sent the requisite notarized notice but failed to refund the cash surrender value; hence the contract to sell remained subsisting.
- The Court could not restore respondents’ right to reinstate the contract because they did not appeal the RTC decision.
- Consequently, respondents must receive 50% of their total payments as required by Section 3(b).
Court’s Analysis – Reimbursement for Improvements under Civil Code Article 448
- Article 448 applies to builders in good faith who believe they own or have title; although ordinarily inapplicable to contractual relations, the Court extends its application where the parties failed to attach the contract to sell and no trial was held to resolve the good-faith issue.
- Good faith is presumed and unrebutted here; petitioner gave no objection and, as developer, must have approved construction permits.
- Under Article 448, the landowner has two exclusive options:
a. Appropriate the improvements by reimbursing the builder for necessary and useful expenses (Articles 546 and 548), here the current market value of the new house minus the cost of the old house; or
b. Sell the land to the builder at fair value, unless its value greatly exceeds that of the improvements, in which case the builder pays reasonable rent. - This rule upholds the principle of accession and accords with Tuatis v. Escol and related jurisprudence.
Disposition and Remand
- Petition is partly g
Case Syllabus (G.R. No. 176791)
Facts
- In 1994, petitioner Communities Cagayan, Inc. entered into a Contract to Sell with spouses Arsenio and Angeles Nanol for a house and Lots 17 and 19 in Camella Homes Subdivision, Cagayan de Oro City, at a price of ₱368,000.
- The Nanols declined petitioner’s in-house financing and secured a loan from Capitol Development Bank using the property as collateral; a simulated sale was executed, and Transfer Certificates of Title (TCT) Nos. 105202 and 105203 were issued in their names.
- The bank collapsed before releasing the loan, prompting a second Contract to Sell in 1997 with petitioner for the same property and price; the Nanols availed themselves of in-house financing over four years (1997–2001).
- In 2000, Arsenio demolished the original house and constructed a three-storey residence valued at approximately ₱3.5 million.
- Arsenio died in July 2001; Angeles continued monthly amortizations.
- On September 10, 2003, petitioner sent a notarized Notice of Delinquency and Cancellation for failure to pay installments.
- In December 2003, petitioner filed an unlawful detainer action; respondent Angeles offered to pay ₱220,000 to settle, which petitioner refused. The case was dismissed when the court learned that titles were already registered in the Nanols’ names.
RTC Decision and Motion for Reconsideration
- On July 27, 2005, petitioner filed before RTC Branch 18 a Complaint for Cancellation of Title, Recovery of Possession, Reconveyance, and Damages (Civil Case No. 2005-158).
- Petitioner alleged that the title transfers were only for bank requirements and that the Nanols defaulted on payments from January 2000.
- On December 29, 2006, the RTC declared the Deed of Absolute Sale void for lack of consideration, cancelled TCT Nos. 105202 and 105203, and ordered respondents to surrender possession subject to petitioner’s payment of all installments paid and the value of the new house minus the cost of the original structure.
- Petitioner’s motion for reconsideration was denied on February 12, 2007.
Issue Presented
- Whether the RTC erred in ordering petitioner to reimburse the Nanols for all monthly installments paid and the value of the new house minus th