IRENE P. RELUCIO, PETITIONER, VS. ZEIDA B. BRILLANTE­-GARFIN AND COURT OF APPEALS, RESPONDENTS.

 On 22 October 1979, private respondent Zeida B. Brillante-Garfin filed a
complaint in the lower court for specific performance with damages against
petitioner Irene P. Relucio, to compel the latter
to:  (a) execute, in compliance with the
Contract to Buy and Sell in question, a final deed of sale in favor of
the former over two (2) residential subdivision lots in the Mariano Village
Subdivision, Naga City; and (b) construct paved roads on the northern and southern sides
of the lots, as well as “necessary facilities, improvements,
infrastructures and other forms of development of the subdivision area.”
Private respondent alleged that the lots, which have a total contract price of P10,800.00, have already been paid
for, as she had already paid P200.00 as down payment, and had subsequently
completed payment of 128 equal monthly installments of P89.45 each amounting to
P11,450.00; that as the law allows the charging of interest only as monetary
interest or as compensatory interest, none of which have obtained in her case,
as she had never incurred in delay in the payment of installments due, the
stipulated interest of six percent (6%) per annum on the outstanding balance is
null and void; and that the amount of P650.00 representing overpayment be
returned to her.

Petitioner resisted the complaint, maintaining that private
respondent, contrary to the latter’s allegations, is obliged to pay interest on
the installment payments of the unpaid outstanding balance even if paid on
their “due dates” per schedule of payments; that private respondent
had actually been in arrears in the amount of P4,269.40, representing such
interest as of June 1979, which therefore entitled petitioner to cancel the
contract in question.  Petitioner then
prayed for judicial affirmance of her Notarial Notice of Cancellation over the said contract in
question.

The lower court ordered petitioner:

“1.  To execute a deed of
absolute sale of the two lots described in the complaint in favor of the
plaintiff to enable the latter to secure the corresponding certificate of title
in her name within thirty (30) days from the finality of this Decision;

2.   To construct or cause
the construction of roads on the Northern and Southern sides of the said two
lots in accordance with the contract, if any, and in conformity with the City
of Naga planning ordinance relative to this case;

3.   The return to the
plaintiff the excess payment of P650.00, plus 6% interest per annum from the
date of the filing of the complaint; and

To pay to the plaintiff attorney’s fees in the sum of P1,000.00 and
the costs of suit.”^[1]

The Court of Appeals affirmed in A.C.-G.R. CV No. 03184 by a
Decision^[2]
dated 17 July 1986.

Petitioner now comes to this Court, arguing that she has the
right to rescind the contract for private respondent’s continued refusal to pay
the monthly installments on the contract price.

Two issues are presented for resolution in this petition:  (1) whether or not private respondent has
fully paid the stipulated price in the contract so as to be entitled lawfully
to demand the execution of a deed of absolute sale in her favor.  This issue in turn will depend on the
question of whether or not petitioner may validly charge interest on
installment payments, notwithstanding that private respondent had been prompt
in her monthly payments; and (2) whether or not petitioner’s notice of
cancellation was valid and effective.

Examination of the record shows that the questioned Contract to
Buy and Sell the subdivision lots provided for payment by private respondent of
the sum of P200.00 as downpayment, and that “the
balance [of P10,600.00] shall be paid in 180 monthly installments at P89.45 per
month, including interest rate at six percent (6%) per annum, until the
purchase price is fully paid.”^[3]
This stipulation clearly specified that an interest charge of six percent (6%)
per annum was included in the monthly installment price:  private respondent could not have helped
noticing that P89.45 multiplied by 180 monthly installments equals P16,101.00,
and not P10,600.00.  The contract
price of P10,800.00 may thus be seen to be the cash price of the
subdivision lots, that is, the amount payable if the price of the lots were to
be paid in cash and in full at the execution of the
contract; it is not the amount that the vendor will have received in the
aggregate after fifteen (15) years if the vendee shall have religiously paid
the monthly installments.  The installment
price, upon the other hand, of the subdivision lots — the sum total of
the monthly installments (i.e., P16,101.00) — typically, as in the instant case, has an interest
component which compensates the vendor for waiting fifteen (15) years before
receiving the total principal amount of P10,600.00. 
Economically or financially, P10,600.00 delivered in full today is simply
worth much more than a long series of
small payments totalling, after fifteen (15) years,
P10,600.00.  For the vendor, upon
receiving the full cash price, could have deposited that amount in a
bank, for instance, and earned interest income which at six percent (6%) per
year and for fifteen (15) years, would precisely total P5,501.00 (the
difference between the installment price of P16,101.00 — and the cash price of
P10,600.00–).  To suppose, as private respondent argues, that
mere prompt payment of the monthly installments as they fell due would obviate
application of the interest charge of six percent (6%) per annum, is to ignore
that simple economic fact.  That
economic fact is, of course, recognized by law, which authorizes the payment of
interest when contractually stipulated for by the parties^[4]
or when implied in recognized commercial custom or usage.

Vendor and vendee are legally free to stipulate for the payment
of either the cash price of a subdivision lot or its installment
price.  Should the vendee opt to
purchase a subdivision lot via the installment payment system, he is in effect
paying interest on the cash price, whether the fact and rate of such interest
payment is disclosed in the contract or not. 
The contract for the purchase and sale of a piece of land on the
installment payment system in the case at bar is not only quite lawful; it also
reflects a very wide spread usage or custom in our
present day commercial life.

Applying the
foregoing analysis to the case at
bar:  when private respondent started
paying monthly installments in September 1968, the initial P89.45 was apportioned between the principal and
the interest, with P53.00^[5]
being allocated to service the interest charge and P36.45^[6] being credited to the principal.  During the succeeding monthly payments, however, as the outstanding balance
on the principal gradually declined, the interest component (in absolute terms)
correspondingly fell while the component credited to the principal increased proportionately,
thus amortizing the balance of the principal purchase price as that balance
gradually declined.^[7]
This explains petitioner’s theory of declining balance, which unfortunately was
not appreciated by both the trial and appellate courts.

Despite private respondent’s failure to fully pay the stipulated
price of the two lots in question, petitioner, however, could not validly
rescind the contract not being lawfully
entitled to do so.  Petitioner failed to
rebut private respondents’ allegations that the former had failed to introduce
required improvements in the subdivision; the former’s
bare allegation that the improvements have already been donated to the city
government was not accepted by the trial court. 
Section 23 of Presidential Decree No. 957, otherwise known as The Subdivision and Condominium Buyers’
Protective Decree, provides:

“Section 23.  Non-forfeiture
of Payments. — ­No installment payment made by the buyer in a
subdivision or condominium project for the lot or unit he contracted
to buy shall be forfeited in favor of the owner or developer when the buyer,
after due notice to the owner or developer desists from further payment
due to the failure of the owner or developer to develop the subdivision or
condominium project according to the approved plans and within the time limit
for complying with the same.  Such buyer
may, at his option, be reimbursed the total amount paid…” (Underscoring
supplied)

In this respect, the trial court was correct in holding that
petitioner could not rescind the contract. 
As the law vests upon the buyer the option to demand reimbursement of
the total amount paid, or to wait for further development of the subdivision,
private respondent who opted for the latter alternative by waiting for the
proper development of the site, may not be ousted from the subdivision.^[8]

ACCORDINGLY, the Court Resolved to GRANT the Petition due
course and to SET ASIDE and NULLIFY the Decision of the Court of Appeals.  In lieu thereof, a new Decision is hereby
RENDERED requiring —

1. the petitioner to complete the necessary improvements and
developments in the subdivision area in accordance with the approved
subdivision plans and applicable provisions of P.D. No. 957 as well as
applicable implementing administrative regulations and City of Naga zoning ordinances, if any;

2. private respondent immediately to resume paying installment
payments under her Contract to Buy and Sell with petitioner, subject to her
right to proceed against petitioner should petitioner fail again to comply with
her obligations under P.D. No. 957; and

3. petitioner to execute the Deed of Absolute Sale when private
respondent shall have fully paid the purchase price in accordance with the
mentioned Contract to Buy and Sell.

No pronouncement as to costs.

SO ORDERED.

Fernan, C.J., (Chairman), Gutierrez,
Jr., and Cortes, JJ., concur.

Bidin, J., No part.  I participated in the appealed decision.

^[1]
Rollo, pp. 26-27.

^[2]
Ponente, Sison, PV, J.

^[3]
Rollo, p. 24.

^[4]
Article 1956 of the Civil Code authorizes payment of interest in a contract of
loan when expressly stipulated in writing. 
In the case at bar, the financial situation is no different from that
obtaining had private respondent buyer borrowed P10,600.00 from a bank, and
used that amount to pay the cash price of the two (2) lots to petitioner, and
repaying the loan from the bank by installments over fifteen (15) years with
six percent (6%) interest per
annum. Petitioner vendor has in effect herself financed the purchase of the two
(2) lots on the installment plan.

^[5]
P10,600.00 x 0.06 x 1/12 = P53.00.

^[6]
P89.45 – P53.00 = P36.45.

^[7]
In partial illustration:

^[8]
Antipolo Realty Corporation v. National
Housing Authority, 153 SCRA  399 (1987).