G.R. No. 125347 June 19, 1997
Emiliano Rillo, petitioner, vs. Court of Appeals and Corb Realty Investment, Corp., respondents.

FACTS

On June 18, 1985, petitioner Emiliano Rillo entered into a “Contract to Sell of Condominium Unit” with private respondent Corb Realty Investment Corporation for a condominium unit in Mandaluyong at a price of P150,000.00. He paid half upon execution, with the balance payable in twelve monthly installments of P7,092.00 beginning July 18, 1985, with 24% annual interest and a 1.5% monthly penalty for arrears. The contract stipulated that default in three or four monthly installments would trigger forfeiture proceedings under existing laws, particularly the Condominium Act. Rillo repeatedly defaulted on his payments. Despite several payments made irregularly and in partial amounts, and despite receiving letters from Corb Realty threatening cancellation in July 1987 and later in 1988, the contract was not immediately rescinded. On March 12, 1989, the parties entered into a compromise agreement restructuring Rillo’s outstanding balance to P50,000.00, payable at P2,000.00 per month with 18% interest. Rillo again defaulted after making only two payments. On April 3, 1990, Corb Realty sent a statement of accounts showing arrears of P155,129.00 and subsequently filed a complaint for cancellation of the contract. The Regional Trial Court ruled in favor of Rillo, holding no substantial breach and ordering specific performance. The Court of Appeals reversed, applying Republic Act No. 6552 (Maceda Law), cancelled the contract, ordered Rillo to vacate, and ordered Corb Realty to refund 50% of P158,184.00 to Rillo.

ISSUE

The primary issue is whether the Court of Appeals correctly applied Republic Act No. 6552 (Maceda Law) to cancel the “Contract to Sell” and order a refund, and whether the contract was novated by the subsequent compromise agreement.

RULING

The Supreme Court affirmed the Court of Appeals’ decision with modification. It held that the contract between the parties was a contract to sell, not an absolute sale, where full payment is a positive suspensive condition. Therefore, Articles 1191 and 1592 of the Civil Code on rescission do not apply. The proper governing law is Republic Act No. 6552 (Maceda Law). Since Rillo had paid less than two years of installments, he was only entitled to a grace period of not less than sixty days from the due date for payment, and Corb Realty had the right to cancel the contract after thirty days from Rillo’s receipt of a notice of cancellation. The Court further ruled that novation was not established, as the compromise agreement of March 12, 1989, was not incompatible with the original contract and was intended to give life to it, not to replace it. However, the Supreme Court modified the refund order. Under Section 4 of R.A. No. 6552 , the right to a refund of a portion of the payments (cash surrender value) accrues only when the buyer has paid at least two years of installments. Since Rillo paid less than two years, he was not entitled to any refund. The order for Corb Realty to refund P79,092.00 was therefore deleted.