G.R. No.

202358 November 27, 2013

FACTS:
● Evelyn Angeles (buyer) purchased a lot and house from Gatchalian Realty, Inc. (GRI) for P450k and
P750k, respectively. Both were payable in installments for 10 years. The house and lot were
delivered to [Angeles] in 1995. Nonetheless, under the contracts to sell executed between the parties,
[GRI] retained ownership of the property until full payment of the purchase price.
● The buyer eventually defaulted after making 35 and 48 monthly installments, respectively.
● Despite the seller’s grant of 51 months grace period, and repeated demands, the buyer still failed
to make further payments.
● The seller then sent a notarial notice of cancellation to the buyer, it also demanded payment of
rentals from the latter of P 112,304.42. The latter amount is net of the 50% Cash Surrender Value
(CSV) on the installment payments by the buyer which the seller deducted.
● In computation for the refund
● GRI claims that it gave Angeles a refund of the cash surrender value of both the house and the lot in
the total amount of ₱574,148.40 when it deducted the amount of the cash surrender value from the
amount l
● The buyer then tried making installment payments via postal money order but the seller refused; it
also demanded that the buyers vacate the subject properties, the latter refused.
● The seller thus filed an unlawful detainer suit before the MeTC.
● The MeTC ruled in favor of GRI, holding the rescission valid.
● The RTC affirmed with modifications; it ruled that the requirements of Sec. 3 of R.A. No. 6552 of
refund of the CSV of the installments made was complied with by the seller’s deduction of such CSV
from the rentals due from the buyer.
● The CA reversed; it held that no valid rescission took place given the seller’s failure to pay the CSV.

ISSUE: Was the seller’s cancellation of the contract to sell was valid? NO

RULING: There was no actual cancellation of the contracts because of GRI’s failure to actually refund
the cash surrender value to Angeles.

The Maceda Law buyers of real estate on installment who has paid at least two years of installments but
defaults in the payment of succeeding installments has the following rights:

(a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him which is hereby fixed at the rate of one month grace period for every one
year of installment payments made: Provided, That this right shall be exercised by the buyer
only once in every five years of the life of the contract and its extensions, if any.

(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of
the payments on the property equivalent to fifty per cent of the total payments made, and, after
five years of installments, an additional five per cent every year but not to exceed ninety per
cent of the total payments made: Provided, That the 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.

Mandatory Twin Requirements: Notarized Notice of Cancellation and Refund of Cash Surrender Value
This Court has been consistent in ruling that a valid and effective cancellation under R.A. 6552 must
comply with the mandatory twin requirements of a notarized notice of cancellation and a refund of
the cash surrender value.

The actual cancellation of the contract can only be deemed to take place upon the expiry of a
30-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.

GRI’s failed to actually refund the cash surrender value to the buyer. The cash surrender value of the
buyer’s payments on the lot and house amounted to P182,094.48 and P392,053.92, respectively. Legal
compensation was not applicable in this case, contrary to MeTC’s ruling. GRI cannot off-set its obligation
to pay the CSV of the buyer’s installments with the rentals due from the latter. There was nothing in the
contracts which provided for the amount of rentals in case the buyer defaults in her installment
payments; the rental amounts weren’t liquidated. Furthermore, GRI merely imposed said rentals (and
10% increase thereon) unilaterally. The ruling in Pilar, cited by GRI, is not applicable since it was this Court,
and not the developer, that deducted the amount of the cash surrender value from the accrued
rentals. Moreover, the developer in Pilar did not unilaterally impose rentals. It was the MeTC that
decreed the amount of monthly rent. Neither did the developer unilaterally reduce the accrued rentals by the
refundable cash surrender value.

***Pilar Development Corporation v. Spouses Villar (Pilar)

In view of the absence of a valid cancellation, the Contract to Sell between GRI and Angeles remains valid
and subsisting.

Considering that GRI did not validly rescind Contracts to Sell Nos. 2271 and 2272, Angeles has two
options:

1. The option to pay, within 60 days from the MeTC’s determination of the proper amounts, the unpaid
balance of the full value of the purchase price of the subject properties plus interest at 6% per annum from
11 November 2003, the date of filing of the complaint, up to the finality of this Decision, and thereafter,
at the rate of 6% per annum. Upon payment of the full amount, GRI shall immediately execute Deeds of
Absolute Sale over the subject properties and deliver the corresponding transfer certificate of title to
Angeles.

In the event that the subject properties are no longer available, GRI should offer substitute properties
of equal value. Acceptance of the suitability of the substitute properties is Angeles’ sole prerogative . Should
Angeles refuse the substitute properties, GRI shall refund to Angeles the actual value of the subject
properties with 6% interest per annum computed from 11 November 2003, the date of the filing of the
complaint, until fully paid; and

2. The option to accept from GRI ₱574,148.40, the cash surrender value of the subject properties, with
interest at 6% per annum, computed from 11 November 2003, the date of the filing of the complaint,
until fully paid. Contracts to Sell Nos. 2271 and 2272 shall be deemed canceled 30 days after Angeles’
receipt of GRI’s full payment of the cash surrender value. No rent is further charged upon Angeles as GRI
already had possession of the subject properties on 10 October 2006.

WHEREFORE, we DENY the petition.