GR L 75364; (November, 1988) (Digest)
G.R. No. L-75364 November 23, 1988
ANTONIO LAYUG, petitioner, vs. INTERMEDIATE APPELLATE COURT and RODRIGO GABUYA, respondents.
FACTS
Petitioner Antonio Layug entered into a contract of conditional sale on October 4, 1978, to purchase twelve lots from private respondent Rodrigo Gabuya for P120,000.00, payable in three yearly installments of P40,000.00 each. The contract stipulated that failure to pay any installment when due would render the contract automatically null and void, with all sums paid considered as rentals. Layug paid the first two installments but failed to pay the third, which fell due on October 5, 1980. After several demands, Gabuya filed a suit for annulment. The trial court declared the contract cancelled and forfeited Layug’s payments as rentals. The Intermediate Appellate Court affirmed but modified the forfeiture period.
ISSUE
Whether the contract was automatically rescinded upon Layug’s failure to pay the final installment, warranting forfeiture of all payments made.
RULING
The Supreme Court affirmed the appellate court’s finding that Layug defaulted. The contract clearly fixed the due dates: the third installment was due on October 5, 1980. Layug’s claim of ambiguity was belied by his prior conduct, specifically paying interest for a late second installment, confirming his understanding of the schedule. However, the Court modified the application of the forfeiture clause. While the contract provided for automatic cancellation and forfeiture, such stipulation is a penal clause subject to judicial review for potential reduction if iniquitous or unconscionable. More critically, the transaction is governed by Republic Act No. 6552 , the Maceda Law, as it involves the sale of a residential lot on installment. Since Layug had paid at least two years of installments, the law grants him a grace period of one month for every year of installment paid—here, two months from the due date of the final installment—within which to pay. His failure to pay within this statutory grace period limited his right to a refund of the “cash surrender value,” equivalent to fifty percent of total payments made. Therefore, the contract’s cancellation is sanctioned, but it becomes effective only upon Gabuya’s payment to Layug of P40,000.00, representing half of the P80,000.00 he had paid. The automatic forfeiture clause, being contrary to this mandatory statutory right to a refund, could not be given effect.