FACTS:

On December 29, 2004, Citihomes and Spouses Noynay executed a contract to sell covering the sale of a house and lot located in San Jose Del Monte, Bulacan, and covered by TCT No. T-43469. 

Under the terms of the contract, the price of the property was fixed at ₱915,895.00, with a downpayment of ₱183,179.00, and the remaining balance to be paid in 120 equal monthly installments with an annual interest rate of 21% commencing on February 8, 2005 and every 8th day of the month thereafter.

Subsequently, on May 12, 2005, Citihomes executed the Deed of Assignment of Claims and Accounts in favor of UCPB on May 12, 2005. Under the said agreement, UCPB purchased from Citihomes various accounts, including the account of Spouses Noynay. In turn, Citihomes assigned its rights, titles, interests, and participation in various contracts to sell with its buyers to UCPB.

In February of 2007, Spouses Noynay allegedly started to default in their payments. Months later, Citihomes decided to declare Spouses Noynay delinquent and to cancel the contract considering that nine months of agreed amortizations were left unpaid. 

On December 8, 2007, the notarized Notice of Delinquency and Cancellation of the Contract To Sell, dated November 21, 2007, was received by Spouses Noynay. They were given 30 days within which to pay the arrears and failure to do so would authorize Citihomes to consider the contract as cancelled.

On June 15, 2009, Citihomes sent its final demand letter asking Spouses Noynay to vacate the premises due to their continued failure to pay the arrears. Spouses Noynay did not heed the demand, forcing Citihomes to file the complaint for unlawful detainer, praying that Spouses Noynay be ordered to vacate the subject property and pay a reasonable compensation for the use and occupancy to commence from January 8, 2007 until Spouses Noynay vacate the same.

The MTCC dismissed the complaint. Stating that the annotation in the certificate of title pertaining to the Assignment in favor of UCPB divested Citihomes of its interest and right over the subject property. As far as the MTCC was concerned, Citihomes did not have a cause of action against Spouses Noynay.

The RTC, however, reversed the ruling of the MTCC.

On appeal, the CA affirmed the conclusion of the RTC that Citihomes still had the right and interest over the property in its capacity as the registered owner.

ISSUE:

Whether Citihomes failed to comply with the procedures for the proper cancellation of the contract to sell as prescribed by Maceda Law.

RULING:

Granting that the MTCC erred in ruling that Citihomes had no cause of action by reason of the Assignment it made in favor of UCPB, the Court still upholds the right of the Spouses Noynay to remain undisturbed in the possession of the subject property. The reason is simple – Citihomes failed to comply with the procedures for the proper cancellation of the contract to sell as prescribed by Maceda Law.

In Pagtalunan v. Manzano, the Court stressed the importance of complying with the provisions of the Maceda Law as to the cancellation of contracts to sell involving realty installment schemes. There it was held that the cancellation of the contract by the seller must be in accordance with Section 3 (b) of the Maceda Law, which requires the notarial act of rescission and the refund to the buyer of the full payment of the cash surrender value of the payments made on the property.

The actual cancellation of the contract takes place after thirty (30) 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, to wit: 

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

Spouses Noynay started defaulting from January 8, 2008. This shows that prior to that date, amortizations covering the 3-year period, which started with the downpayment, had been paid. 

Spouses Noynay had been paying the amortizations for three (3) years, there is no reason to doubt Spouses Noynay’s compliance with the minimum requirement of two years payment of amortization, entitling them to the payment of the cash surrender value provided for by law and by the contract to sell. 

To reiterate, Section 3(b) of the Maceda Law requires that for an actual cancellation to take place, the notice of cancellation by notarial act and the full payment of the cash surrender value must be first received by the buyer. 

Clearly, no payment of the cash surrender value was made to Spouses Noynay. Necessarily, no cancellation of the contract to selI could be considered as validly effected.

Without the valid cancellation of the contract, there is no basis to treat the possession of the property by Spouses Noynay as illegal.