GR 152346; (November, 2005) (Digest)
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. After paying the downpayment, petitioners failed to make any installment payments. Respondent sent several demand letters, with a final letter dated December 7, 1983, granting a 15-day grace period and warning of rescission and forfeiture. Petitioners received this on December 23, 1983. Respondent deemed the contract cancelled 15 days later but did not send a notice of cancellation. Subsequently, the parties executed a second Contract to Sell in 1985 covering the same property under restructured terms. Petitioners again defaulted. Respondent filed an action for rescission and recovery of possession.
ISSUE
The primary issue is whether the first Contract to Sell was validly rescinded, rendering the second contract void, and whether the automatic cancellation clause is valid under applicable law.
RULING
The Supreme Court affirmed the lower courts’ decisions, ruling in favor of the respondent. The Court held that the first contract was validly rescinded. The automatic cancellation clause, which provided for forfeiture of payments without notice, was declared void for being contrary to law and public policy. The governing law at the time was Presidential Decree No. 957 (The Subdivision and Condominium Buyers’ Protective Decree). Section 23 of PD 957 explicitly requires a notarial act of rescission and grants the buyer a 30-day period from receipt of such notice to pay. Respondent’s mere internal decision to cancel the contract, without the requisite notarial notice, did not constitute a valid rescission under the decree.
However, the Court found that petitioners, through their subsequent actions, effectively ratified the cancellation and waived any defect in the procedure. By entering into a second Contract to Sell in 1985, which superseded the first, petitioners acknowledged the termination of the original agreement and accepted the new terms. This novation extinguished the old obligation. Petitioners’ default under the second, valid contract justified the action for rescission and recovery of possession. The Court also noted that the husband alone signed the second contract, but the wife’s subsequent acceptance of benefits constituted implied ratification, making it binding on the conjugal partnership.