G.R. No. 75364, 23 November1988, 167 SCRA 627


Involved in the appellate proceedings at bar is a contract for the purchase on installments by Antonio Layug of twelve (12) lots owned by Rodrigo Gabuya, situated at Barrio Bara-as, Iligan City. The contract, entered into on October 4, 1978, set the price for the lots at P120,000.00 payable in three (3) yearly installments. The contract also provided for the automatic cancellation of the contract and forfeiture of all installments thus far paid, which would be considered as rentals for the use of the lots should the vendee fail to pay any of the yearly installments when due or otherwise fail to comply with any of the terms and conditions.

Layug paid the first two annual installments, totalling P80,000.00. But he failed to pay the last installment of P40,000.00. Gabuya made several informal demands for payment; and when all these proved unavailing, he made a formal written demand therefor. When this, too, went unheeded, Gabuya finally brought suit in the Court of First Instance of Lanao del Norte for the annulment of his contract with Layug and for the recovery of damages.


Whether Gabuya had the right to rescind the contact and should this happen, whether Layug is entitled to recover the entire amount he already paid.


Gabuya can rescind the contract. Layug cannot recover the entire amount he already paid.R.A. 6552 governs sales of real estate on installments. It recognizes the vendor’s right to cancel such contracts upon failure of the vendee to comply with the terms of the sale, but imposes, chiefly for the latter’s protection, certain conditions thereon. We have had occasion to rule that “even in residential properties the Act” recognizes and reaffirms the vendor’s right to cancel the contract to sell upon breach and nonpayment of the stipulated installments. …”

The law provides inter alia that “in all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments, …, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

[Grace Period]

(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 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;

[Refund of “Cash Surrender Value”]

(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 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.

In the case at bar, Layug had paid two (2) annual installments of P40,000.00 each. He is deemed therefore, in the words of the law, to have “paid at least two years of installments.” He therefore had a grace period of “one month .. for every year of installment payments made,” or two (2) months (corresponding to the two years of installments paid) from October 5, 1980 within which to pay the final installment.

That he made no payment within this grace period is plain from the evidence. He has thus been left only with the right to a refund of the “cash surrender value of the payments on the property equivalent to fifty percent of the total payments made,” or P40,000.00 (i.e., ½ of the total payments of P80,000.00). Such refund will be the operative act to make effective the cancellation of the contract by Gabuya, conformably with the terms of the law.

*Case digest by Legine S. Ramayla, JD – 4, Andres Bonifacio College, SY 2019 – 2020