Fabrigas vs San Francisco del Monte, Inc.

Facts:

On April 23, 1983, herein petitioner spouses Isaias and MarcelinaFabrigas (“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 installments of ₱1,285.69. Among the clauses in the contract is an automatic cancellation clause in case of default, which states as follows:

  1. 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 dispose 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.

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. 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, 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.Petitioner MarcelinaFabrigasremitted the amount of ₱13,000.00 to Del Monte.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. 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.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. 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.Del Monte instituted an action for Recovery of Possession with Damages against Spouses Fabrigas before the RTC, Branch 63 of Makati City. 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.The trial court rendered upholding the validity of Contract to Sell No. 2491-V and ordering Spouses Fabrigas either to complete payments thereunder or to vacate the property.Spouses Fabrigas elevated the matter to the Court of Appeals. 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.

Issue: Whether or not San Francisco Del Monte, Inc. has the right to cancel the Contract to sell without notifying petitioners.

Ruling:

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],” 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 7in relation to Section 4 of R.A. 6552.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.

Digest Credit: Mac Burdeos Camposuelo

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