G.R. No. L-8086 - Pacific Tobacco Corp. vs. Lorenzana

On April 23, 1983, Spouses Isaias and Marcelina Fabrigas ("petitioners") entered into Contract to Sell No. 2482-V with respondent San Francisco Del Monte, Inc. ("Del Monte") for a residential land in Barrio Almanza, Las Piñas, Manila, known as Lot No. 9, Block No. 3 of Subdivision Plan (LRC) Psd-50064, covered by Transfer Certificate of Title No. 4980.
The purchase price was P109,200.00, with a downpayment of P30,000.00 and balance payable in monthly installments of P1,285.69 over ten years.
The contract contained an automatic cancellation clause, stipulating that a failure to pay including interest within 30 days after due date would automatically forfeit the contract without notice, with all payments treated as rentals and buyer obligated to vacate the property.

Petitioners failed to pay any installment beyond the initial P30,000.00 downpayment.
Del Monte sent four demand letters for payment of arrears; specifically, a November 9, 1983 letter demanded P8,999.00 arrears with a 15-day grace period.
A final demand letter was sent on December 7, 1983, again granting 15 days to pay and warning of contract rescission and forfeiture. Petitioners received this letter on December 23, 1983.
Del Monte considered the contract cancelled fifteen days after the final demand but did not give formal notice of cancellation.

On January 21, 1985, petitioners and Del Monte entered into Contract to Sell No. 2491-V covering the same property but with restructured terms: new purchase price of P131,642.58, downpayment of P26,328.52, and monthly installments of P2,984.60.
Petitioners made irregular payments under the new contract between March 1985 and January 1986, and additional partial payments in 1986.
Del Monte sent demand letters in early 1986 for overdue payments totaling around P26,861.40 and later letters demanding P117,631.08 in March 1988 after accounting for payments made.
Del Monte notified petitioners on March 30, 1989, that the original Contract to Sell No. 2482-V had been cancelled and demanded possession of the property.

Del Monte filed an action for recovery of possession with damages on September 28, 1990.
Petitioners contended that the first contract was valid and that the second contract was unlawfully imposed, materially altering terms without proper consent.
The Regional Trial Court ruled on January 3, 1994 that the second contract was valid and enforceable, ordered petitioners to pay the balance or vacate the property, and awarded attorney’s fees and costs.
The Court of Appeals affirmed the RTC Decision, holding that the original contract was effectively rescinded pursuant to its automatic rescission clause and that the subsequent contract was validated through ratification despite initial procedural defects.
Petitioners filed a petition for review on certiorari assailing the Court of Appeals’ rulings on the validity of rescission, the application of R.A. No. 6552 (Maceda Law), ratification of the second contract, and novation.

Whether Contract to Sell No. 2482-V was extinguished by rescission or novated by Contract to Sell No. 2491-V.
Whether the manner of rescission of Contract to Sell No. 2482-V complied with the requirements of Republic Act No. 6552.
Whether Contract to Sell No. 2491-V is valid and binding despite procedural defects and absence of petitioner Isaias Fabrigas’s consent.
Whether the automatic rescission clause in Contract to Sell No. 2482-V is valid and enforceable.
Application and effect of ratification by petitioner Isaias Fabrigas on Contract to Sell No. 2491-V.
Whether Contract to Sell No. 2491-V is a contract of adhesion and thus void or voidable.