G.R. No. 118892 - Filipinas Broadcasting Network, Inc. vs. National Labor Relations Commission

Case Summary (G.R. No. 118892)

Factual Background

The parties executed Contract to Sell No. 2482-V on April 23, 1983, whereby San Francisco Del Monte, Inc. agreed to sell Lot No. 9, Block No. 3 (TCT No. 4980) to Isaias and Marcelina Fabrigas for P109,200.00 with a P30,000.00 downpayment and monthly installments of P1,285.69 over ten years. The contract contained an automatic cancellation clause for default. After paying the downpayment and taking possession, the Spouses Fabrigas defaulted on installment payments. Respondent sent several demand letters in 1983, culminating in a final demand received by petitioners on December 23, 1983. Respondent treated the first contract as cancelled thereafter but did not effect a notarial cancellation or pay any cash surrender value. Petitioner Marcelina later paid P13,000.00 and P12,000.00 in late 1984 and January 1985, and the parties executed Contract to Sell No. 2491-V on January 21, 1985 for the same parcel at a restructured price of P131,642.58 with increased monthly installments of P2,984.60. The spouses made irregular payments under the second contract through January 1986 and later remittances through July 1986, but substantial arrears remained. Respondent sent further demands in 1986 and 1988 and notified petitioners in 1989 to vacate for failure to pay.

Trial Court Proceedings and Judgment

Respondent instituted an action for recovery of possession with damages on September 28, 1990. After trial, the RTC rendered judgment on January 3, 1994, finding that plaintiff had proven its allegations by a preponderance of evidence. The trial court ordered defendants to complete payment under Contract to Sell No. 2491-V within twenty days or vacate the premises; if defendants surrendered possession, they were ordered to pay respondent P206,223.80 as unpaid installments inclusive of interest. The trial court also awarded P10,000.00 attorney’s fees and costs against defendants.

Court of Appeals Ruling

The Court of Appeals affirmed the trial court. It held that Contract to Sell No. 2482-V had been rescinded pursuant to its automatic rescission clause. The appellate court found Contract to Sell No. 2491-V to be initially unenforceable because it was executed without petitioner Isaias Fabrigas’s signature, but concluded that the second contract was ratified by the husband’s subsequent conduct and therefore valid and enforceable.

Issues Presented to the Supreme Court

The issues as reframed by the Supreme Court were: whether Contract to Sell No. 2482-V was extinguished by rescission or by novation effected by Contract to Sell No. 2491-V; if rescission occurred, whether the mode of rescission complied with the requisites of R.A. No. 6552; and if novation occurred, whether petitioners were liable for breach under the subsequent contract.

Petitioners’ Contentions

Petitioners contended that the purported cancellation of Contract to Sell No. 2482-V did not comply with Section 3 or Section 4 of R.A. No. 6552 because respondent did not give a notarial notice of cancellation nor pay the cash surrender value of the payments. Petitioners also argued that the automatic forfeiture clause was void under Section 7 of the Maceda Law. Concerning Contract to Sell No. 2491-V, petitioners asserted that it was void or unenforceable because petitioner Isaias did not consent to its execution and because the second contract was a contract of adhesion.

Supreme Court’s Analysis of R.A. No. 6552 and Rescission

The Court found that petitioners had paid less than two years of installments under the original contract and therefore Section 4 of R.A. No. 6552 governed the mode of cancellation. The Court explained that Section 4 requires a grace period of not less than sixty days from the due date and, thereafter, a notice of cancellation or demand for rescission by notarial act which becomes effective thirty days from receipt. The Court concluded that respondent did allow a grace period in excess of sixty days but failed to comply with the notarial-notice requirement. The Court further observed that the automatic cancellation clause is void under Section 7 insofar as it conflicts with Sections 3, 4, 5 and 6 of the Maceda Law.

Doctrine of Novation and Its Application

The Court proceeded to analyze novation as an alternative mode of extinguishment. It reiterated that novation extinguishes an old obligation by the creation of a new one where the object or principal conditions change and where four requisites coexist: a previous valid obligation, agreement of all parties to the new contract, extinguishment of the old obligation, and the birth of a valid new obligation (Article 1292; Article 1231 cited). Applying these principles, the Court held that Contract to Sell No. 2491-V effected an upward change in price and materially altered the principal conditions of the first contract. The Court found the two obligations incompatible and incapable of independent concurrent existence. Consequently, the second contract novated and extinguished the first.

Spousal Consent, Enforceability and Ratification

Addressing the absence of petitioner Isaias’s signature, the Court examined the Civil Code provisions on conjugal administration, including Articles 165, 172 and 173, and Article 1317 on authority to contract for another. The Court reasoned that a contract entered by the wife alone involving conjugal property without the husband’s authority is unenforceable, not void, and therefore is susceptible to ratification. The Court found as a fact, supported by the lower courts, that the husband thereafter continued remitting payments under the second contract after being informed of its execution. The Court held that such conduct amounted to ratification, which cured the defect and rendered Contract to Sell No. 2491-V binding from its inception.

Contract of Adhesion and Voluntariness

The Court rejected petitioners’ contention that Contract to Sell No. 2491-V was void as a contract of adhesion. The Court observed, adopting the trial court’s factual findings, that petitioner Marcelina was free to refuse the restructured contract, that there was no clear coercion or intimidation, and that subsequent payments evidenced recognition of the agreement. The Court reiterated that contracts of adhesion are not void per se.

Supreme Court Disposition and Relief

The Supreme Court denied the petition for review and affirmed the Court of Appeals Decision in CA-G.R. CV No. 45203 dated September 28, 2001. The Court held that, although respondent improperly invoked rescission under the Maceda Law, the execution and subsequent ratification of Contract to Sell No. 2491-V resulted in novation that extinguished Contract to Sell No. 2482-V, and that petitioners were bound by the second contract. Costs were awarded against petitioners.

Legal Basis and Reasoning

The Court’s disposition rested on

Case Syllabus (G.R. No. 118892)

Parties and Procedural Posture

Isaias F. Fabrigas and Marcelina R. Fabrigas were the petitioners who filed the petition for review under Rule 45 challenging the Court of Appeals' Decision in CA-G.R. CV No. 45203 and its denial of their motion for reconsideration.
San Francisco Del Monte, Inc. was the respondent and plaintiff in the underlying action for recovery of possession with damages before the Regional Trial Court, Branch 63, Makati City, Civil Case No. 90-2711.
The petition sought review of the Court of Appeals' affirmation of the RTC Decision dated January 3, 1994 that validated Contract to Sell No. 2491-V and ordered petitioners to complete payments or vacate the property.
The Supreme Court adjudicated the petition and rendered the Decision now under summary.

Key Factual Allegations

On April 23, 1983, petitioners and respondent executed Contract to Sell No. 2482-V for Lot No. 9, Block No. 3, Subdivision Plan (LRC) Psd-50064 covered by TCT No. 4980 for P109,200.00 with a P30,000.00 downpayment and monthly installments of P1,285.69 for ten years.
Petitioners took possession after the downpayment but thereafter defaulted on monthly installments and received repeated demand letters from respondent in 1983.
Respondent issued a final demand dated December 7, 1983, received by petitioners on December 23, 1983, and thereafter considered Contract to Sell No. 2482-V cancelled under its automatic forfeiture clause without a notarial notice.
Petitioner Marcelina made payments of P13,000.00 on November 6, 1984 and P12,000.00 on January 12, 1985, and on January 21, 1985 entered into Contract to Sell No. 2491-V with respondent for the same property at a new purchase price of P131,642.58 with P26,328.52 downpayment and installments of P2,984.60.
Petitioners thereafter made irregular payments under Contract No. 2491-V between March 1985 and January 1986 and additional payments in 1986 and attempted to tender P10,000.00 in October 1987 which respondent refused to accept.
On September 28, 1990, respondent filed the action for recovery of possession alleging arrears and claiming P206,223.80 plus interest, which culminated in the RTC judgment ordering completion of payment or vacation and awarding P10,000.00 attorney's fees.

Contractual Provisions

Contract to Sell No. 2482-V contained an automatic cancellation clause that declared the contract forfeited and treated prior payments as rentals if the purchaser defaulted for more than thirty days after due date.
Contract to Sell No. 2491-V restructured the sale with a higher purchase price, a new downpayment, and larger monthly installments and was executed only by petitioner Marcelina.
The parties invoked an automatic forfeiture clause in the first contract and subsequent mutual agreement embodied in the second contract as competing modes of extinguishment.

Issues Presented

Whether Contract to Sell No. 2482-V was extinguished by rescission or novated by Contract to Sell No. 2491-V.
Whether rescission, if it occurred, complied with the requisites of R.A. No. 6552.
Whether Contract to Sell No. 2491-V was enforceable despite alleged lack of the husband’s consent and allegations of adhesion, and whether petitioners remained liable under it.

Parties' Contentions

Petitioners contended that Contract No. 2482-V remained valid because respondent failed to comply with Section 3 or Section 4 of R.A. 6552 by not sending a notarial notice and by not paying the cash surrender value, and that the automatic rescission clause was void under Section 7.
Petitioners further contended that Contract No. 2491-V was void or unenforceable because petitioner Isaias did not give consent and because the contract was a contract of adhesion.
Respondent maintained that it validly cancelled the first contract under the automatic clause and that the second contract was valid and, in any event, ratified by subsequent payments.

Statutory Framework

R.A. No. 6552 was the governing statute on installment sales, particularly Section 3, Section 4, and Section 7 addressing buyer rights, modes of cancellation, and nullity of contrary stipulations.
The Court relied on Civil Code provisions including Article 1231 on modes of extinguishing obligations and Article 1292 on novation