G.R. No. 152346 November 25, 2005
Isaias F. Fabrigas and Marcelina R. Fabrigas, Petitioners, vs. San Francisco Del Monte, Inc., Respondent.

FACTS

Petitioners-spouses Fabrigas and respondent San Francisco Del Monte, Inc. entered into a Contract to Sell for a parcel of land in 1983. The contract contained an automatic cancellation clause upon default, stipulating forfeiture of payments as rental and waiver of the right to demand their return. The spouses paid the downpayment but subsequently defaulted on the monthly installments. Despite several demand letters from Del Monte granting grace periods, the spouses failed to pay. Del Monte deemed the first contract cancelled. Subsequently, the parties executed a second Contract to Sell in 1985 for the same property, with restructured payment terms. The spouses again defaulted on this second contract.
Del Monte filed a complaint for rescission and recovery of possession. The spouses argued the second contract was void, contending the first contract was already rescinded, leaving no object to sell, and that the husband alone signed the second contract without the wife’s consent. The Regional Trial Court ruled in favor of Del Monte, ordering the spouses to pay the unpaid balance or vacate the property and pay attorney’s fees. The Court of Appeals affirmed this decision.

ISSUE

The core issue is whether the second Contract to Sell is valid and enforceable, thereby obligating the spouses to comply with its terms or suffer the consequences of rescission.

RULING

The Supreme Court affirmed the lower courts’ decisions, upholding the validity of the second contract. The Court rejected the argument that the first contract’s rescission rendered the second contract void for lack of object. Rescission under Article 1191 of the Civil Code is a power granted to the injured party, not a self-executing event that automatically reverts ownership. Del Monte, as the seller, chose not to enforce the automatic cancellation clause of the first contract and instead accepted subsequent payments from the spouses. This conduct constituted a mutual abandonment of the first agreement and a tacit revival of the seller’s obligation to sell. The object of the sale—the land registered under Del Monte’s name—never ceased to exist. Therefore, the second contract had a valid and existing object.
Furthermore, the Court found the second contract binding on both spouses. While only the husband signed it, the wife actively participated by making substantial payments under it. This constituted implied ratification under Article 1317 of the Civil Code, curing any initial defect in her consent. Consequently, the spouses were legally bound by the second contract’s terms. Their default justified the judicial rescission granted by the trial court, including the orders for payment or ejectment.