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Republic of the Philippines

SECOND DIVISION

G.R. No. 152346 November 25, 2005

ISAIAS F. FABRIGAS and MARCELINA R. FABRIGAS, Petitioners,

DECISION

Tinga, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, which
assails the Decision of the Court of Appeals in CA-G.R. CV No. 45203 and its Resolution therein denying
petitioners’ motion for reconsideration. Said Decision affirmed the Decision dated January 3, 1994 of the Regional
Trial Court (RTC), Branch 63, Makati City in Civil Case No. 90-2711 entitled San Francisco Del Monte, Inc. v. Isaias
F. Fabrigas and Marcelina R. Fabrigas.

The dispositive portion of the trial court’s Decision reads:

In the light of the foregoing, the Court is convinced that plaintiff has proven by preponderance of evidence, the
allegation appearing in its complaint and is therefore, entitled to the reliefs prayed for.

Considering, however, that defendants had already paid ₱78,152.00, the Court exercising its discretion, hereby
renders judgment as follows:

1. Ordering defendant to make complete payment under the conditions of Contract to Sell No. 2491-V dated
January 21, 1985, within twenty days from receipt of this Decision, and in the event that defendant fail or refuse to
observe the latter, defendants and all persons claiming right of possession or occupation from defendants are
ordered to vacate and leave the premises, described as Lot No. 9 Block No. 3 of Subdivision Plan (LRC) Psd-50064
covered by Transfer Certificate of Title No. 4980 (161653) T-1083 of the Registry of Deeds of Rizal, and to
surrender possession thereof to plaintiff or any of its authorized representatives;

2. That in the event that defendants chose to surrender possession of the property, they are further ordered to pay
plaintiff ₱206,223.80 as unpaid installments on the land inclusive of interests;

3. Ordering defendants to jointly and severally pay plaintiff the amount of ₱10,000.00 as and for attorney’s fees; and

4. Ordering defendants to pay the costs of suit.

SO ORDERED.1

The following factual antecedents are matters of record.

On April 23, 1983, herein petitioner spouses Isaias and Marcelina Fabrigas ("Spouses Fabrigas" or "petitioners")
and respondent San Francisco Del Monte, Inc. ("Del Monte") entered into an agreement, denominated as Contract
to Sell No. 2482-V, whereby the latter agreed to sell to Spouses Fabrigas a parcel of residential land situated in
Barrio Almanza, Las Piñas, Manila for and in consideration of the amount of ₱109,200.00. Said property, which is
known as Lot No. 9, Block No. 3 of Subdivision Plan (LRC) Psd-50064, is covered by Transfer Certificate of Title No.
4980 (161653) T-1083 registered in the name of respondent Del Monte. The agreement stipulated that Spouses
Fabrigas shall pay ₱30,000.00 as downpayment and the balance within ten (10) years in monthly successive
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installments of ₱1,285.69.2 Among the clauses in the contract is an automatic cancellation clause in case of default,
which states as follows:

7. Should the PURCHASER fail to make any of the payments including interest as herein provided, within 30 days
after the due date, this contract will be deemed and considered as forfeited and annulled without necessity of notice
to the PURCHASER, and said SELLER shall be at liberty to di spose of the said parcel of land to any other person
in the same manner as if this contract had never been executed. In the event of such forfeiture, all sums of money
paid under this contract will be considered and treated as rentals for the use of said parcel of land, and the
PURCHASER hereby waives all right to ask or demand the return thereof and agrees to peaceably vacate the said
premises.3

After paying ₱30,000.00, Spouses Fabrigas took possession of the property but failed to make any installment
payments on the balance of the purchase price. Del Monte sent demand letters on four occasions to remind
Spouses Fabrigas to satisfy their contractual obligation. 4 In particular, Del Monte’s third letter dated November 9,
1983 demanded the payment of arrears in the amount of ₱8,999.00. Said notice granted Spouses Fabrigas a
fifteen-day grace period within which to settle their accounts. Petitioners’ failure to heed Del Monte’s demands
prompted the latter to send a final demand letter dated December 7, 1983, granting Spouses Fabrigas another
grace period of fifteen days within which to pay the overdue amount and warned them that their failure to satisfy
their obligation would cause the rescission of the contract and the forfeiture of the sums of money already paid.
Petitioners received Del Monte’s final demand letter on December 23, 1983. Del Monte considered Contract to Sell
No. 2482-V cancelled fifteen days thereafter, but did not furnish petitioners any notice regarding its cancellation.5

On November 6, 1984, petitioner Marcelina Fabrigas ("petitioner Marcelina") remitted the amount of ₱13,000.00 to
Del Monte.6 On January 12, 1985, petitioner Marcelina again remitted the amount of ₱12,000.00. 7 A few days
thereafter, or on January 21, 1985, petitioner Marcelina and Del Monte entered into another agreement
denominated as Contract to Sell No. 2491-V, covering the same property but under restructured terms of payment.
Under the second contract, the parties agreed on a new purchase price of ₱131,642.58, the amount of ₱26,328.52
as downpayment and the balance to be paid in monthly installments of ₱2,984.60 each. 8

Between March 1985 and January 1986, Spouses Fabrigas made irregular payments under Contract to Sell No.
2491-V, to wit:

March 19, 1985 ₱1, 328.52

July 2, 1985 ₱2, 600.00

September 30, 1985 ₱2, 600.00

November 27, 1985 ₱2, 600.00

January 20, 1986 ₱2, 000.009

Del Monte sent a demand letter dated February 3, 1986, informing petitioners of their overdue account equivalent to
nine (9) installments or a total amount of ₱26,861.40. Del Monte required petitioners to satisfy said amount
immediately in two subsequent letters dated March 5 and April 2, 1986. 10 This prompted petitioners to pay the
following amounts:

February 3, 1986 ₱2, 000.00

March 10, 1986 ₱2, 000.00

April 9, 1986 ₱2, 000.00

May 13, 1986 ₱2, 000.00

June 6, 1986 ₱2, 000.00

July 14, 1986 ₱2, 000.0011

No other payments were made by petitioners except the amount of ₱10,000.00 which petitioners tendered
sometime in October 1987 but which Del Monte refused to accept, the latter claiming that the payment was intended
for the satisfaction of Contract to Sell No. 2482-V which had already been previously cancelled. On March 24, 1988,
Del Monte sent a letter demanding the payment of accrued installments under Contract to Sell No. 2491-V in the
amount of ₱165,759.60 less ₱48,128.52, representing the payments made under the restructured contract, or the
net amount of ₱117,631.08. Del Monte allowed petitioners a grace period of thirty (30) days within which to pay the
amount asked to avoid rescission of the contract. For failure to pay, Del Monte notified petitioners on March 30,
1989 that Contract to Sell No. 2482-V had been cancelled and demanded that petitioners vacate the property.12

On September 28, 1990, Del Monte instituted an action for Recovery of Possession with Damages against Spouses
Fabrigas before the RTC, Branch 63 of Makati City. The complaint alleged that Spouses Fabrigas owed Del Monte
the principal amount of ₱206,223.80 plus interest of 24% per annum. In their answer, Spouses Fabrigas claimed,
among others, that Del Monte unilaterally cancelled the first contract and forced petitioner Marcelina to execute the
second contract, which materially and unjustly altered the terms and conditions of the original contract.13

After trial on the merits, the trial court rendered a Decision on January 3, 1994, upholding the validity of Contract to
Sell No. 2491-V and ordering Spouses Fabrigas either to complete payments thereunder or to vacate the property.

Aggrieved, Spouses Fabrigas elevated the matter to the Court of Appeals, arguing that the trial court should have
upheld the validity and existence of Contract to Sell No. 2482-V instead and nullified Contract to Sell No. 2491-V.
The Court of Appeals rejected this argument on the ground that Contract to Sell No. 2482-V had been rescinded
pursuant to the automatic rescission clause therein. While the Court of Appeals declared Contract to Sell No. 2491-
V as merely unenforceable for having been executed without petitioner Marcelina’s signature, it upheld its validity
upon finding that the contract was subsequently ratified.

Hence, the instant petition attributing the following errors to the Court of Appeals:

A. THE COURT OF APPEALS GRAVELY ERRED WHEN IT IGNORED THE PROVISIONS OF R.A. NO. 6552
(THE MACEDA LAW) AND RULED THAT CONTRACT TO SELL NO. 2482-V WAS VALIDLY CANCELLED BY
SENDING A MERE NOTICE TO THE PETITIONERS.

B. THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THERE WAS AN IMPLIED RATIFICATION
OF CONTRACT TO SELL NO. 2491-V.

C. THE COURT OF APPEALS ERRED IN ITS APPLICATION OF THE RULES OF NOVATION TO THE INSTANT
CASE.14

As reframed for better understanding, the questions are the following: Was Contract to Sell No. 2482-V extinguished
through rescission or was it novated by the subsequent Contract to Sell No. 2491-V? If Contract to Sell No. 2482-
V was rescinded, should the manner of rescission comply with the requirements of Republic Act No. (R.A.) 6552?
If Contract to Sell No. 2482-V was subsequently novated by Contract to Sell No. 2491-V, are petitioners liable for
breach under the subsequent agreement?

Petitioners theorize that Contract to Sell No. 2482-V should remain valid and subsisting because the notice of
cancellation sent by Del Monte did not observe the requisites under Section 3 of R.A. 6552.15 According to
petitioners, since respondent did not send a notarial notice informing them of the cancellation or rescission
of Contract to Sell No. 2482-V and also did not pay them the cash surrender value of the payments on the property,
the Court of Appeals erred in concluding that respondent correctly applied the automatic rescission clause
of Contract to Sell No. 2482-V. Petitioners also cite Section 7 16 of said law to bolster their theory that the automatic
rescission clause in Contract to Sell No. 2482-V is invalid for being contrary to law and public policy.
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The Court of Appeals erred in ruling that Del Monte was "well within its right to cancel the contract by express grant
of paragraph 7 without the need of notifying [petitioners], 17" instead of applying the pertinent provisions of R.A. 6552.
Petitioners’ contention that none of Del Monte’s demand letters constituted a valid rescission of Contract to Sell No.
2482-V is correct.

Petitioners defaulted in all monthly installments. They may be credited only with the amount of ₱30,000.00 paid
upon the execution of Contract to Sell No. 2482-V, which should be deemed equivalent to less than two (2) years’
installments. Given the nature of the contract between petitioners and Del Monte, the applicable legal provision on
the mode of cancellation of Contract to Sell No. 2482-V is Section 4 and not Section 3 of R.A. 6552. Section 4 is
applicable to instances where less than two years installments were paid. It reads:

SECTION 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace
period of not less than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract
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.

Thus, the cancellation of the contract under Section 4 is a two-step process. First, the seller should extend the buyer
a grace period of at least sixty (60) days from the due date of the installment. Second, at the end of the grace
period, the seller shall furnish the buyer with a notice of cancellation or demand for rescission through a notarial act,
effective thirty (30) days from the buyer’s receipt thereof. It is worth mentioning, of course, that a mere notice or
letter, short of a notarial act, would not suffice.

While the Court concedes that Del Monte had allowed petitioners a grace period longer than the minimum sixty (60)-
day requirement under Section 4, it did not comply, however, with the requirement of notice of cancellation or a
demand for rescission. Instead, Del Monte applied the automatic rescission clause of the contract. Contrary,
however, to Del Monte’s position which the appellate court sustained, the automatic cancellation clause is void
under Section 718 in relation to Section 4 of R.A. 6552.19

Rescission, of course, is not the only mode of extinguishing obligations. Ordinarily, obligations are also extinguished
by payment or performance, by the loss of the thing due, by the condonation or remission of the debt, by the
confusion or merger of the rights of the creditor and debtor, by compensation, or by novation. 20

Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is
terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the
old obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation
results either by changing the object or principal conditions (objective or real), or by substituting the person of the
debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation
would have dual functions—one to extinguish an existing obligation, the other to substitute a new one in its place—
requiring a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. 21

Notwithstanding the improper rescission, the facts of the case show that Contract to Sell No. 2482-V was
subsequently novated by Contract to Sell No. 2491-V. The execution of Contract to Sell No. 2491-V accompanied
an upward change in the contract price, which constitutes a change in the object or principal conditions of the
contract. In entering into Contract to Sell No. 2491-V, the parties were impelled by causes different from those
obtaining under Contract to Sell No. 2482-V. On the part of petitioners, they agreed to the terms and conditions
of Contract to Sell No. 2491-V not only to acquire ownership over the subject property but also to avoid the
consequences of their default under Contract No. 2482-V. On Del Monte’s end, the upward change in price was the
consideration for entering into Contract to Sell No. 2491-V.

In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each
other.22 The test of incompatibility is whether or not the two obligations can stand together, each one having its
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independent existence. If they cannot, they are incompatible and the latter obligation novates the first. 23 The
execution of Contract to Sell No. 2491-V created new obligations in lieu of those under Contract to Sell No. 2482-V,
which are already considered extinguished upon the execution of the second contract. The two contracts do not
have independent existence for to hold otherwise would present an absurd situation where the parties would be
liable under each contract having only one subject matter.

To dispel the novation of Contract to Sell No. 2482-V by Contract to Sell No. 2491-V, petitioners contend that the
subsequent contract is void for two reasons: first, petitioner Isaias Fabrigas did not give his consent thereto, and
second, the subsequent contract is a contract of adhesion.

Petitioner rely on Article 172 of the Civil Code governing their property relations as spouses. Said article states that
the wife cannot bind the conjugal partnership without the husband’s consent except in cases provided by law. Since
only petitioner Marcelina executed Contract to Sell No. 2491-V, the same is allegedly void, petitioners conclude.

Under the Civil Code, the husband is the administrator of the conjugal partnership. 24 Unless the wife has been
declared a non compos mentis or a spendthrift, or is under civil interdiction or is confined in a leprosarium, the
husband cannot alienate or encumber any real property of the conjugal partnership without the wife's
consent.25 Conversely, the wife cannot bind the conjugal partnership without the husband’s consent except in cases
provided by law.26

Thus, if a contract entered into by one spouse involving a conjugal property lacks the consent of the other spouse,
as in the case at bar, is it automatically void for that reason alone?

Article 17327 of the Civil Code expressly classifies a contract executed by the husband without the consent of the
wife as merely annullable at the instance of the wife. However, there is no comparable provision covering an
instance where the wife alone has consented to a contract involving conjugal property. Article 172 of the Civil Code,
though, does not expressly declare as void a contract entered by the wife without the husband’s consent. It is also
not one of the contracts considered as void under Article 1409 28 of the Civil Code.

In Felipe v. Heirs of Maximo Aldon,29 the Court had the occasion to rule on the validity of a sale of lands belonging to
the conjugal partnership made by the wife without the consent of the husband. Speaking through Mr. Justice Abad
Santos, the Court declared such a contract as voidable because one of the parties is incapable of giving consent to
the contract. The capacity to give consent belonged not even to the husband alone but to both spouses. 30 In that
case, the Court anchored its ruling on Article 173 of the Civil Code which states that contracts entered by the
husband without the consent of the wife when such consent is required, are annullable at her instance during the
marriage and within ten years from the transaction mentioned. 31

The factual milieu of the instant case, however, differs from that in Felipe. The defect which Contract to Sell No.
2491-V suffers from is lack of consent of the husband, who was out of the country at the time of the execution of the
contract. There is no express provision in the Civil Code governing a situation where the husband is absent and his
absence incapacitates him from administering the conjugal partnership property. The following Civil Code
provisions, however, are illuminating:

ARTICLE 167. In case of abuse of powers of administration of the conjugal partnership property by the husband, the
courts, on petition of the wife, may provide for receivership, or administration by the wife, or separation of property.

ARTICLE 168. The wife may, by express authority of the husband embodied in a public instrument, administer the
conjugal partnership property.

ARTICLE 169. The wife may also, by express authority of the husband appearing in a public instrument, administer
the latter's estate.

While the husband is the recognized administrator of the conjugal property under the Civil Code, there are instances
when the wife may assume administrative powers or ask for the separation of property. In the abovementioned
instances, the wife must be authorized either by the court or by the husband. Where the husband is absent and
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incapable of administering the conjugal property, the wife must be expressly authorized by the husband or seek
judicial authority to assume powers of administration. Thus, any transaction entered by the wife without the court or
the husband’s authority is unenforceable in accordance with Article 1317 32 of the Civil Code. That is the status to be
accorded Contract to Sell No. 2491-V, it having been executed by petitioner Marcelina without her husband’s
conformity.

Being an unenforceable contract, Contract to Sell No. 2491-V is susceptible to ratification. As found by the courts
below, after being informed of the execution of the contract, the husband, petitioner Isaias Fabrigas, continued
remitting payments for the satisfaction of the obligation under Contract to Sell No. 2491-V. These acts constitute
ratification of the contract. Such ratification cleanses the contract from all its defects from the moment it was
constituted. The factual findings of the courts below are beyond review at this stage.

Anent Del Monte’s claim that Contract to Sell No. 2491-V is a contract of adhesion, suffice it to say that assuming for
the nonce that the contract is such the characterization does not automatically render it void. A contract of adhesion
is so-called because its terms are prepared by only one party while the other party merely affixes his signature
signifying his adhesion thereto. Such contracts are not void in themselves. They are as binding as ordinary
contracts. Parties who enter into such contracts are free to reject the stipulations entirely. 33

The Court quotes with approval the following factual observations of the trial court, which cannot be disturbed in this
case, to wit:

The Court notes that defendant, Marcelina Fabrigas, although she had to sign contract No. 2491-V, to avoid
forfeiture of her downpayment, and her other monthly amortizations, was entirely free to refuse to accept the new
contract. There was no clear case of intimidation or threat on the part of plaintiff in offering the new contract to her.
At most, since she was of sufficient intelligence to discern the agreement she is entering into, her signing of
Contract No. 2491-V is taken to be valid and binding. The fact that she has paid monthly amortizations subsequent
to the execution of Contract to Sell No. 2491-V, is an indication that she had recognized the validity of such contract .
. . .34

In sum, Contract to Sell No. 2491-V is valid and binding . There is nothing to prevent respondent Del Monte from
enforcing its contractual stipulations and pursuing the proper court action to hold petitioners liable for their breach
thereof.

WHEREFORE, the instant Petition for Review is DENIED and the September 28, 2001 Decision of the Court of
Appeals in CA-G.R. CV No. 45203 is AFFIRMED. Costs against petitioners.

SO ORDERED.