Fabrigas v. San Francisco Del Monte, Inc.
REITERATIONFacts
The Antecedents: Spouses Isaias and Marcelina Fabrigas entered into a Contract to Sell No. 2482-V with San Francisco Del Monte, Inc. for a parcel of land. They paid a down payment and took possession but failed to pay the remaining installments. Del Monte sent multiple demand letters, and after the spouses failed to pay, Del Monte considered the contract cancelled, invoking an automatic cancellation clause. Subsequently, the spouses entered into a new agreement, Contract to Sell No. 2491-V, for the same property under restructured terms, which also resulted in payment defaults. Procedural History: San Francisco Del Monte, Inc. filed a complaint for Recovery of Possession with Damages against the Spouses Fabrigas. The Regional Trial Court (RTC) ruled in favor of Del Monte, upholding the validity of Contract to Sell No. 2491-V and ordering the spouses to either complete payments or vacate the premises. The Spouses Fabrigas appealed to the Court of Appeals, which affirmed the RTC's decision, finding that Contract to Sell No. 2482-V had been rescinded and that Contract to Sell No. 2491-V, though initially unenforceable due to lack of the husband's signature, was subsequently ratified. The Petition: The Spouses Fabrigas filed a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure. They argue that the Court of Appeals erred in upholding the cancellation of Contract to Sell No. 2482-V without complying with Republic Act No. 6552 (the Maceda Law), specifically regarding notarial notice and the refund of the cash surrender value. They also contend that the Court of Appeals erred in finding implied ratification of Contract to Sell No. 2491-V and in its application of the rules of novation. The core of their argument is that the cancellation of the first contract was invalid and that the second contract was either void or improperly ratified.
Issue(s)
Whether Contract to Sell No. 2482-V was validly cancelled by Del Monte. Whether Contract to Sell No. 2482-V was extinguished through novation by Contract to Sell No. 2491-V. Whether Contract to Sell No. 2491-V is valid and binding despite the lack of the husband's signature, and whether it is an invalid contract of adhesion.
Ruling
The Supreme Court DENIED the petition and AFFIRMED the Decision of the Court of Appeals. While the Court found that the first contract was not validly rescinded under the Maceda Law, it ruled that the first contract was nonetheless extinguished by novation upon the execution and ratification of the second contract.
Ratio Decidendi
On Issue 1: The Court ruled that Del Monte failed to validly cancel Contract to Sell No. 2482-V. Since petitioners had paid less than two years of installments, Section 4 of Republic Act No. 6552 (Maceda Law) applies, requiring a two-step process: a 60-day grace period followed by a notice of cancellation or demand for rescission by a notarial act. Del Monte's reliance on the automatic rescission clause in Paragraph 7 was misplaced because such stipulations are void under Section 7 of the Maceda Law for being contrary to public policy. A mere demand letter does not satisfy the requirement of a notarial act. Consequently, the first contract was not extinguished by rescission. On Issue 2: Despite the improper rescission, the Court held that the first contract was extinguished through novation. Novation occurs when an old obligation is terminated by the creation of a new one that takes its place. The execution of Contract to Sell No. 2491-V introduced an upward change in the purchase price and restructured the payment terms, which constitutes a change in the principal conditions of the contract. The Court applied the test of incompatibility, noting that the two contracts could not stand together as they covered the same subject matter. By entering into the second contract to avoid the consequences of default under the first, the parties effectively substituted the old obligation with a new one. On Issue 3: The Court found Contract to Sell No. 2491-V to be valid and binding through ratification. Under the Civil Code, the husband is the administrator of the conjugal partnership, and a contract entered into by the wife regarding conjugal property without the husband's consent is unenforceable under Article 1317. However, unenforceable contracts are susceptible to ratification. The Court observed that after being informed of the second contract, Isaias Fabrigas continued remitting payments to satisfy the obligations therein. This act of payment constituted implied ratification, which cleansed the contract of its defects from the moment of its execution. The Court also rejected the 'contract of adhesion' argument, stating that such contracts are not void per se and petitioners were free to reject the terms.
Main Doctrine
Under Republic Act No. 6552 (Maceda Law), the rescission of a contract to sell residential property requires a notarial act of cancellation; a mere demand letter or an automatic rescission clause is insufficient and void. However, an improperly rescinded contract may be extinguished through novation if the parties subsequently enter into a new, incompatible agreement. Furthermore, a contract involving conjugal property signed by only one spouse without the other's authority is unenforceable but may be validated through implied ratification, such as the non-signing spouse's continued remittance of payments under the new terms.