G.R. No. 202358 - Gatchalian Realty, Inc. vs. Angeles

Case Summary (G.R. No. 202358)

Factual Background and Contractual Relationship

On 28 December 1994, respondent Evelyn M. Angeles purchased a house and lot from petitioner Gatchalian Realty, Inc. (GRI) under separate contracts to sell, with total prices of Php 750,000.00 for the house and Php 450,000.00 for the lot, payable in installments over ten years, at 24% interest per annum. Delivery of the property occurred in 1995, but ownership was retained by GRI until full payment was made. Angeles made partial payments, covering 35 installments for the lot and 48 for the house, but eventually defaulted on the monthly amortizations. GRI claims it issued multiple notices demanding payment and a notarial rescission of the contracts dated 11 September 2003, which Angeles allegedly received on 19 September 2003. Subsequently, GRI demanded payment for reasonable rental value of the properties occupied by Angeles since she failed to settle her obligations. Angeles responded by sending postal money orders, which GRI refused to accept as monthly installment payments. Due to non-payment and refusal to vacate, GRI filed an unlawful detainer complaint.

Judicial Proceedings and Rulings on Unlawful Detainer

The Metropolitan Trial Court (MeTC) initially ruled in favor of GRI, affirming the validity of the contract rescission and ordering Angeles to vacate the premises and pay outstanding rentals and attorney’s fees. The MeTC also accepted compensation by deducting from Angeles’s refundable cash surrender value (CSV) the reasonable rental fees GRI imposed, considering them lawful under Article 1290 of the Civil Code as compensation for mutual debts. Angeles appealed, questioning the jurisdiction and validity of rescission.

The Regional Trial Court (RTC) reversed the MeTC decision, holding that the case was for ejectment, which was not under MeTC's jurisdiction, and found that the cancellation of the contracts was invalid as Angeles denied receipt of the notice of cancellation. The RTC ruled that GRI failed to comply with the mandatory requirements under Republic Act No. 6552 (RA 6552), particularly regarding the refund of the cash surrender value, thus upholding Angeles’s right to stay.

Upon reconsideration, the RTC partially reversed its ruling, recognizing that GRI had complied with RA 6552 by deducting the CSV from rentals due. It assessed reasonable monthly rentals and ordered Angeles to pay outstanding balances and vacate the property.

Court of Appeals (CA) Ruling

The CA dismissed GRI’s unlawful detainer complaint, ruling that although GRI sent the notice of notarial rescission that Angeles received, actual cancellation of the contract did not occur because GRI failed to refund the cash surrender value to Angeles. The CA affirmed Angeles’s right to possess the property and denied the motion for reconsideration filed by GRI. This ruling became the basis for the petition before the Supreme Court.

Legal Issues Presented

Whether GRI complied with the mandatory requirements of RA 6552 for valid cancellation of the contracts, particularly the refund of the cash surrender value;
Whether the actual cancellation of the contracts took place;
Whether GRI validly imposed rental charges and offset them against Angeles’s refunds prior to judicial determination.

Applicable Law: RA 6552 (Maceda Law)

RA 6552 protects buyers of real estate installment contracts by prescribing that when the buyer has paid at least two years of installments but defaults, the buyer is entitled either to additional months of grace period proportional to payments made or, upon cancellation, to the refund of a cash surrender value equivalent to 50% (increasing over time) of total payments made. Cancellation requires a notarized notice and refund of the cash surrender value to take effect.

Grace Period and Payment History

Angeles paid less than three years of installments on the lot and exactly four years for the house. Under Section 3(a) of RA 6552 and Paragraph 6(a) of the contracts, she was entitled to a grace period computed proportionally to installment payments but allowed only once every five years. The parties agreed to rights consistent with RA 6552. GRI extended a 51-month grace period, exceeding statutory and contractual provisions, but Angeles still failed to settle due amounts.

Service and Receipt of Notarial Rescission Notice

GRI provided evidence of proper service of the notarized notice of rescission through registered mail and registry return receipts, establishing prima facie receipt by Angeles. Angeles failed to rebut this presumption effectively. Thus, the notice requirement under RA 6552 was complied with.

Cash Surrender Value and Refund Controversy

Angeles was entitled to refund of the cash surrender value, amounting to Php 574,148.40, representing 50% of total payments made on both house and lot. GRI claimed to have refunded this amount by deducting it from rentals allegedly due from Angeles. However, the Supreme Court held that unilateral imposition of rental amounts by GRI was improper since there was no prior judicial determination of liquidated rental amounts. Compensation under Article 1290 of the Civil Code was inapplicable because one of the debts—the rentals—was not liquidated or demandable.

Validity of Contract Cancellation and Jurisprudence

The Supreme Court reaffirmed that RA 6552 requires two mandatory prerequisites for valid cancellation: (1) a notarized notice of cancellation duly received by the buyer, and (2) full payment of the cash surrender value to the buyer. This Court has consistently ruled that failure to return the cash surrender value renders cancellation ineffective, and the contract remains valid and subsisting. Prior cases cited include

Olympia Housing, Inc. v. Panasiatic Travel Corp.
Pagtalunan v. Dela Cruz Vda. De Manzano
Active Realty & Development Corp. v. Daroya
Associated Marine Officers and Seamen’s Union v. Decena
Pilar Development Corporation v. Spouses Villar

These cases establish the buyer’s right to cure defaults or to be refunded the cash surrender value before cancellation takes effect.

Remedies and Options for the Parties

Since cancellation was invalid due to the lack of refund of cash surrender value,

Case Syllabus (G.R. No. 202358)

Background and Procedural History

Gatchalian Realty, Inc. (GRI) filed an unlawful detainer case against Evelyn M. Angeles after alleging default on installment payments for a house and lot purchased under two Contracts to Sell dated 28 December 1994.
The purchase price was Php 750,000.00 for the house and Php 450,000.00 for the lot, payable in installments over ten years with 24% annual interest.
Although possession of the properties was delivered in 1995, ownership was retained by GRI until full payment was made.
Angeles paid 35 installments for the lot and 48 installments for the house, but subsequently defaulted.
GRI sent at least twelve notices and then three additional reminders demanding payment before serving a notice of notarial rescission dated 11 September 2003, which Angeles allegedly received on 19 September 2003.
GRI demanded Php 112,304.42 representing outstanding reasonable rentals and asked Angeles to vacate the property.
Angeles sent postal money orders intended as monthly amortization payments, which GRI refused to accept unless applied to the rental arrears.
The Metropolitan Trial Court (MeTC) ruled in favor of GRI, recognizing the validity of the rescission and awarding GRI possession and rental fees less the cash surrender value.
Angeles appealed to the Regional Trial Court (RTC), which initially ruled in her favor, dismissing the ejectment case and recognizing her right to possession.
The RTC reversed itself on motion for reconsideration, affirming the rescission with modification, ordering Angeles to vacate and pay rental arrears, less the cash surrender value deducted.
The Court of Appeals (CA) reversed the RTC, dismissing GRI’s unlawful detainer case for failure to validly rescind the contracts due to the absence of refund of the cash surrender value.
GRI filed a petition for review before the Supreme Court.

Facts

Angeles purchased house and lot from GRI under contracts with retention of ownership by GRI until full payment.
Angeles defaulted on monthly installments with payments insufficient to fully satisfy the contracts.
GRI issued multiple notices over three years and gave Angeles a 51-month grace period.
After continued default, GRI sent a notarial notice of rescission and a demand letter for outstanding reasonable rentals.
Angeles sent postal money orders intended for amortization payments, which were refused since the contracts had been rescinded.
GRI filed an unlawful detainer complaint 61 days after serving the notice of rescission.

Issues

Whether GRI validly rescinded the Contracts to Sell per the requirements of Republic Act No. 6552 (R.A. 6552 or Maceda Law).
Whether GRI properly refunded Angeles the cash surrender value of payments made.
Whether Angeles lawfully remained in possession pending valid cancellation or rescission of contracts.
Proper computation and application of rental fees, contractual obligations, penalties, and interest.
The legal effect of GRI unilaterally applying the supposed refundable cash surrender value against claimed rental arrears.

Applicable Law: Republic Act No. 6552 (Maceda Law)

Designed to protect buyers of real estate on installment payments from onerous conditions.
Section 3 allows buyers who have paid at least two years of installments certain rights upon default:
- (a) One month grace period for every year of installment payments made, exercisable once every five years.
- (b) Right to cancellation wherein the seller must refund the cash surrender value, which is 50% of total payments made for up to five years