[G.R. No. 140468.

January 16, 2003.]

OLYMPIA HOUSING, INC., petitioner, vs. PANASIATIC TRAVEL 
CORPORATION and MA. NELIDA GALVEZ-
YCASIANO, respondents.

Poblador Bautista & Reyes for petitioner.

Narciso Jimenez Gonzales Liwanag Bello Yaldez & Caluya for private
respondent.

SYNOPSIS

Petitioner and respondent Ma. Nelida Galvez-Ycasiano entered into a

Contract to Sell whereby the former agreed to sell to the latter on installment a
condominium unit. Respondent subsequently defaulted in the payment of the
monthly installment. Despite repeated demands to pay, respondent failed to
settle her obligation. Hence, petitioner rescinded the contract and thereafter filed
a complaint for Recovery of Possession. On her part, respondent interposed the
defense that she had made substantial payments of the purchase price of the
subject condominium unit. The Regional Trial Court dismissed the complaint
ruling that it was prematurely filed without complying with the mandate of
Republic Act No. 6552. The trial court found no notice of cancellation of the
demand for rescission of the contract by a notarial act and no full payment of the
cash surrender value to the respondent. On appeal, the Court of Appeals
sustained the trial court. Petitioner elevated the matter before the Supreme
Court.
The action for reconveyance filed by petitioner was predicated on an
assumption that its contract to sell executed in favor of respondent buyer had
been validly cancelled or rescinded. The Court, however, found that no such
cancellation took place at any time prior to the institution of the action for
reconveyance. What had been sent by petitioner to respondent was a letter,
dated 02 June 1988, whereby petitioner demanded payment within thirty days
from receipt thereof with the threat that if the demand was not heeded, the
contract would forthwith be cancelled or rescinded. Nor did the appellate court
erroneously ignore the "notarial rescission" attached to the complaint for
reconveyance. Apparently, the so-called "notarial rescission" was not sent to
respondent prior to the institution of the case for reconveyance but merely served
on respondent by way of an attachment to the complaint. In any case, the Court
held that a notarial rescission, standing alone, could not have validly
effected the cancellation of the contract in this case. Republic Act No. 6552,
otherwise known as the "Realty Installment Buyer Protection Act"
recognizes the right of the seller to cancel the contract, but any such
cancellation must be done in conformity with the requirements therein
prescribed. In addition to the notarial act of rescission, the seller is required to
refund to the buyer the cash surrender value of the payments on the property.
The Court denied the petition.

SYLLABUS

1. CIVIL LAW; SALES; REPUBLIC ACT NO. 6552; REALTY

INSTALLMENT BUYER PROTECTIONS ACT; CANCELLATION OF
CONTRACT IN CASE OF BUYER'S DEFAULT IN THE INSTALLMENT
PAYMENT; NOTARIAL RESCISSION ALONE COULD NOT HAVE INVALIDLY
EFFECTED THE CANCELLATION OF THE CONTRACT; CASE AT BAR. —
The action for reconveyance filed by petitioner was predicated on an assumption
that its contract to sell executed in favor of respondent buyer had been validly
cancelled or rescinded. The records would show that, indeed, no such
cancellation took place at any time prior to the institution of the action for
reconveyance. What had been sent by petitioner to respondent was a letter,
dated 02 June 1988, that read: . . . . As so aptly observed by the courts below,
the foregoing communication to the buyer merely demanded payment within
thirty (30) days from receipt thereof with the threat that if the demand were not
heeded, the contract would forthwith be cancelled or rescinded. Nor did the
appellate court erroneously ignore the "notarial rescission" attached to the
complaint for reconveyance. Apparently, the so-called "notarial rescission" was
not sent to respondents prior to the institution of the case for reconveyance but
merely served on respondents by way of an attachment to the complaint. In any
case, a notarial rescission, standing alone, could not have invalidly
effected, in this case, the cancellation of the contract.
2. ID.; ID.; ID.; ID.; REQUIREMENTS. — The governing law is Republic
Act No. 6552, otherwise known as the "Realty Installment Buyer Protection Act,''
which has become effective since 16 September 1972. Republic Act No. 6552
is a special law governing transactions that involve, subject to certain exceptions,
the sale on installment basis of real property. The law has been enacted mainly
"to protect buyers of real estate on installment payments against onerous and
oppressive conditions." Section 3 of the statute provides: . . . . The enactment
recognizes the right of the seller to cancel the contract but any such cancellation
must be done in conformity with the requirements therein prescribed. In addition
to the notarial act of rescission, the seller is required to refund to the buyer
the cash surrender value of the payments on the property. The actual
cancellation of the contract can only be deemed to take place upon the expiry of
a 30-day period following the receipt by the buyer of the notice of cancellation or
demand for rescission by a notarial act and the full payment of the cash
surrender value. cCSDaI

3. ID.; CONTRACTS; RESCISSION; ACTION FOR RESCISSION

DISTINGUISHED FROM ACTION FOR RECONVEYANCE; CASE AT BAR. —
The Court agrees with petitioner that it is not precluded from going to the
court to demand judicial rescission in lieu of a notarial act of rescission.
This much must be recognized. Thus, in Layug vs. Intermediate Appellate
Court the Court has ruled that a demand for rescission by notarial act would
appear to be merely circuitous, consequently superfluous, with the filing by the
seller of an action for annulment of contract and for recovery of damages.
Unfortunately for petitioner, it would be incorrect to apply Layug to the instant
case. Layug is basically an action for annulment of contract, a kindred concept of
rescission, whereas the instant case before the Court is one for recovery of
possession on the thesis of a prior rescission of the contract covering the
property. Not only is an action for reconveyance conceptually different from an
action for rescission but that, also, the effects that flow from an affirmative
judgment in either case would be materially dissimilar in various respects. The
judicial resolution of a contract gives rise to mutual restitution which is not
necessarily the situation that can arise in an action for reconveyance.
Additionally, in an action for rescission (also often termed as resolution), unlike in
an action for reconveyance predicated on an extrajudicial rescission (rescission
by notarial act), the Court, instead of decreeing rescission, may authorize for a
just cause the fixing of a period.
4. REMEDIAL LAW; ACTIONS; A PARTY IN LITIGATION CANNOT BE
PERMITTED TO FREELY AND SUBSTANTIALLY CHANGE THE THEORY OR
THE CAUSE OF ACTION OF HIS CASE. — Nor should a party in litigation be
permitted to freely and substantially change the theory or the cause of action of
his case that, otherwise, can put to undue disadvantage the other party by not
being accurately and timely apprised of what he is up against. The character of
an action is determined from the issues raised by the complaint, from the nature
of the right or grievance asserted, and from the relief sought in the complaint. A
change of theory can result in grave alteration of the stand theretofore taken by
the parties, and a court must not thereafter take it upon itself to assume its own
position on, or the factual and legal considerations of the case.

DECISION

VITUG, J  :
p
 The petition for review on certiorari before the Court assails the decision,
promulgated on 11 June 1999, and the resolution, promulgated on 14 October
1999, of the Court of Appeals in CA-G.R. CV Case No. 53516.
The case originated from a complaint for Recovery of Possession (Accion
Publiciana) filed by Olympia Housing, Inc., against Panasiatic Travel Corporation,
Maria Nelida Ycasiano and the latter's husband. The object in litigation is a
condominium unit sold at the price of P2,340,000.00 payable on installments at
the rate of P33,657.40 per month.
On the basis of the facts encapsulated by the trial court, it would appear
that —
"On August 8, 1984, plaintiff and defendant Ma. Nelida Galvez-
Ycasiano entered into a Contract to Sell, whereby the former agreed to
sell to the latter condominium unit no. D-12, comprising an area of
160.50 square meters, more or less, situated on the ground floor
of Olympia Condominium located at Makati, Metro Manila, covered by
Condominium Certificate of Title No. 6711, for the agreed price of
P2,340,000.00 payable in installments of P33,657.40 per month.
"The schedule of payments [were] as follows:
Date Particulars Amount
     
July 17, 1984 Reservation/Deposit P100,000.00
July 19, 1984 50% Down payment P1,070,000.00
"Balance of 50% payable in sixty (60) monthly installments
at 24% per annum base on diminishing balance.
"Monthly amortization to commence on Sept. 17
1984 .................... P33,657.40/month
"Interest of 2% is included in regular monthly amortization,
past due amortization shall bear interest of 2% per month plus
penalty charge of 2% per month.
"Pursuant to the Contract to Sell, defendant Ma. Nelida Galvez-
Ycasiano made a reservation/deposit in the amount of P100,000.00 on
July 17, 1984 and 50% down payment in the amount of P1,070,000.00
on July 19, 1984.
"Defendants made several payments in cash and thru credit
memos issued by plaintiff representing plane tickets bought by plaintiff
from defendant Panasiatic Travel Corp., which is owned by defendant
Ma. Nelida Galvez-Ycasiano, who credited/offset the amount of the said
plane tickets to defendant's account due to plaintiff.
"Plaintiff alleged that far from complying with the terms and
conditions of said Contract to Sell, defendants failed to pay the
corresponding monthly installments which as of June 2, 1988 amounted
to P1,924,345.52. Demand to pay the same was sent to defendant Ma.
Nelida Galvez-Ycasiano, but the latter failed to settle her obligation.
"For failure of defendant to pay her obligation plaintiff allegedly
rescinded the contract by a Notarial Act of Rescission.
"At present, the subject condominium unit is being occupied by
defendant Panasiatic Travel Corp., hence the suit for Recovery of
Possession (Accion Publiciana) with prayer for attorney's fees,
exemplary damages and reasonable rentals for the unit from July 28,
1988 at the rate of P32,100.00 per month until the condominium unit is
finally vacated.
"Defendant Ma. Nelida Galvez-Ycasiano, while admitting the
existence of the contract to sell, interposed the defense that she has
made substantial payments of the purchase price of the subject
condominium unit amounting to P1,964,452.82 in accordance with the
provisions of the contract to sell; that she decided to stop payment of the
purchase price in the meantime because of substantial differences
between her and the plaintiff in the computation of the balance of the
purchase price.
"xxx xxx xxx
"Evidence adduced by plaintiff such as the statement of account
of defendant Ma. Nelida Galvez-Ycasiano (Exh. 'C') has been
established by plaintiff's witness, Mrs. Isabelita Rivera, which indeed
shows that on several occasions defendant either failed to pay on time
or was completely in default in the payment of the monthly installment of
the subject condominium unit.
"It can be deduced from said documentary evidence that
defendant should start paying the installment on September 17, 1984,
but defendant paid on September 21, 1984 the amount of P51,238.00
thru credit memo. Witness claimed that a credit memo is a document
issued by Olympia Housing Inc. to Panasiatic Travel Corp. for the
amount of ticket purchased instead of paying in cash they just issued
credit memo in order that it would be offset on the monthly amortization
due to Olympia Housing Corp. She claimed that they based it on the
invoice that they [were] sending them.
"Witness further claimed that since the amount due was only
P33,657.40 what she did to the excess of P51,238.00 was to apply it to
the next installment. The next installment was due on October 12, 1984
in the amount of P26,158.00 representing the excess. It was paid thru
credit memo no. 031 on October 17, 1984. In fact, there was still an
excess of P10,081.20. The third installment was due on November 17,
1984. Defendant made partial payment because the excess payment of
P10,081.20 was applied to the third installment. The 4th installment was
due on December 17, 1984; the defendant did not pay instead she paid
on January 9, 1985 the amount of P51,619.08 in cash per O.R. No. 295.
Before this payment on January 9, 1985 defendant owed plaintiff
P59,931.81 based on the amortization. The basis [was] the unpaid
amortization due and payable plus 2% interest and 2% penalty charges
per month. After payment, the amount due was P8,312.73. The 5th
installment was due on January 17, 1985. No payment was made on the
6th, 7th, 8th installments which were due on January, February, March,
April 17, 1985 respectively. The 9th installment was due on May 17,
1985, it was not paid. Defendant made a payment on June 1985 for
P33,231.90 in cash per O.R. No. 439. The next payment was made on
June 8, 1985 for P25,574.59. After these two payments, there was still
an outstanding amount due of P32,552.44. No payment was made on
the 10th and 11th installments. The next payment was made on July 24,
1985 for P60,000.00. After this payment the outstanding amount due
was P43,881.76. She made payment on August 16, 1985 for P30,067.00
thru credit memo no. 045. After this payment the outstanding amount
due was P15,160.46. She did not on the 12th installment, instead she
paid on August 28, 1985 for P26,043.00 thru credit memo no. 046. After
this payment the outstanding amount due was P23,511.07. She did not
pay on the 13th installment, instead she paid on October 10, 1985 for
P20,830.00 thru credit memo no. 006. After this payment the outstanding
amount due was P38,728.61. She did not pay on the 14th installment,
instead payment was made on November 10, 1985 for P16,212.00 thru
credit memo no. 010. After this payment the outstanding amount due
was P58,851.83. No payments were made on the 15th, 16th and 17th
installments. She paid on January 30, 1986 for P33,657.40 in cash per
O.R. No. 842. After this payment the outstanding balance was
P138,233.23. No payment was made on the 18th and 19th installment
which fell due on February 17 and March 17, 1986. The next payment
was made on April 15, 1986 for P25,263.23. After this payment the
outstanding balance was P198,425.88. She did not pay for six (6)
consecutive months from April 17 to September 17, 1986 corresponding
to the 20th up to the 25th installment. The next payment was made on
October 14, 1986 for P82,780.33 in cash per O.R. No. 1628. After this
payment the outstanding amount due was P350,712.73. The 26th and
27th installments were not paid. She paid on November 24, 1986 for
P134,629.60. After this payment the outstanding balance was
P306,306.66. Witness claimed that the basis for the computation was
the unpaid amortization due payable for the particular period plus 2%
interest and 2% penalty charge per month. In computing the interest she
used the simple method. The 28th up to the 31st installments were not
paid. The next payment was made on April 30, 1987 for P22,213.00 thru
credit memo no. 134. After this payment the outstanding balance was
P471,317.60. The basis for this computation is the unpaid amortization
due plus 2% interest and 2% penalty charge per month. The 33rd, 34th
 and 35th installments were not paid. The next payment was made on
July 22, 1987 for P19,752.00 thru credit memo no. 146. After this
payment the outstanding balance was P664,822.78. The 36th and 37th
installments were not paid." 1
On 31 January 1995, the Regional Trial Court, Branch V, of Makati City
ruled thusly —
"WHEREFORE, premises considered, judgment is hereby
rendered as follows:
"1. As the complaint has been prematurely filed without complying with
the mandate of Republic Act No. 6552, the complaint is hereby
dismissed;
"2. That the obligation of defendant Maria Nelida Galvez Ycasiano has
now become due and demandable, said defendant is hereby
ordered to pay the sum of P4,007,473.49 as of November 30,
1994 plus 18% interest per annum, computed from 1 December
1994, but within sixty days from receipt of a copy of this decision;
"3. Upon payment thereof, for plaintiff to issue the corresponding
certificate of title in favor of defendant;
"4. In the event that said amount in full is not paid including the current
amount due including the interest sans penalties, then
immediately thereafter, without necessity of demand, the
defendants must vacate the premises and all payments will be
charged as rentals to the property.
"No award of damages and attorney's fees for any parties is being
adjudged.
"No costs." 2
Thereupon, respondents tendered the amount of P4,304,026.53 to
petitioner via Metrobank Cashier's Check No. CC008857. Petitioner refused to
accept the payment, constraining respondents to consign at the disposal of
the court a quo the check on 26 April 1995. In an order, dated 05 June 1996,
the check was allowed to be substituted by another cashier's check payable to
the Clerk of Court of the Makati Regional Trial Court. Complying with yet
another court order of 04 January 1996, respondents deposited the amount of
P4,304,026.53 with the Land Bank of the Philippines and subsequently
submitted to the court the corresponding bank book as well as the bank's
verification. 
HIETAc

Meanwhile, both parties appealed the judgment of the trial court. In its now
questioned decision of 11 June 1999, the appellate court sustained the trial court.
 The denial of the motion for reconsideration prompted petitioner to file the
instant petition for review on certiorari, raising the following assignment of errors,
to wit:
"I
"THE COURT OF APPEALS ACTED IN A MANNER NOT IN ACCORD
WITH LAW AND APPLICABLE JURISPRUDENCE OF THE SUPREME
COURT WHEN IT FAILED AND/OR REFUSED TO RULE UPON THE
EFFECT OF THE FILING OF THE COMPLAINT AND THE NOTARIAL
ACT OF RESCISSION ATTACHED THERETO VIS-Á-VIS THE
REQUIREMENTS OF R.A. 6552.
"II
"THE COURT OF APPEALS ACTED IN A MANNER NOT IN ACCORD
WITH LAW AND APPLICABLE JURISPRUDENCE OF THE SUPREME
COURT IN REFUSING TO DECREE THE RESCISSION OF THE
SUBJECT CONTRACT TO SELL ON THE GROUND THAT
PETITIONER FAILED TO PAY THE CASH SURRENDER VALUE
PRIOR TO THE FILING OF THE COMPLAINT.
"III
"THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL
COURT'S DECISION ALLOWING RESPONDENT YCASIANO TO PAY
ON HER ALREADY-DEFAULTED OBLIGATIONS AND, UPON SUCH
PAYMENT, ORDERING PETITIONER TO ISSUE THE CERTIFICATE
OF TITLE TO HER." 3
Respondents, upon the other hand, would insist that the petition should be
held devoid of merit considering that: first, the issues raised in the petition would
strike at fundamentally factual questions beyond the province of a petition for
review on certiorari with this Court; second, there was no valid rescission of the
contract to sell on account of the failure of petitioner to give notice of rescission
by notarial act, a requisite laid down in Republic Act No. 6552; third, the oft-
invoked Layug  vs. IAC  4 case would scarcely find application, it being a case for
annulment of contract, not one for the recovery of possession; fourth, no
effective rescission had taken place on account of the failure of petitioner to pay
the cash surrender value, conformably with the terms of the law; and fifth, there
being no valid rescission, the contract remained valid and subsisting, still thereby
obligating respondents to pay the outstanding balance of the purchase price.
In its Reply Brief, petitioner asseverated that, while not categorically made,
the Court, in Layug, 5 had held to be sufficiently anchored, nevertheless, an
action for judicial rescission even if no notarial act of rescission was priorly
executed and the non-payment of the cash surrender value before the filing of
the complaint. 6 Moreover, petitioner argued that while the complaint before the
trial court was denominated as one for "recovery of possession," the suit could
still be considered as a case for judicial rescission considering that the issue of
whether or not it was entitled to recover possession over the property subject
matter of the contract to sell would require, for its resolution, passing upon the
initial issue of whether or not the contract was in fact rescinded by virtue of a
notarial act. 7
The petition must be denied.
The action for reconveyance filed by petitioner was predicated on an
assumption that its contract to sell executed in favor of respondent buyer had
been validly cancelled or rescinded. The records would show that, indeed, no
such cancellation took place at any time prior to the institution of the action for
reconveyance. What had been sent by petitioner to respondent was a letter,
dated 02 June 1988, that read:
"02 June 1988
"MS. NELIDA GALVEZ
Pan Asiatic Travel Corp.
3rd Floor, S & L Building
Roxas Boulevard, Manila

"Dear Ms. Galvez:

"We have sent you many letters in the past asking you to update your
payments in accordance with the terms of our Contract to Sell dated
August 25, 1984 as follows:
     
Purchase Price, Unit No. D-12 P2,340,000.00
Terms of Payment:  
     
- July 17, 1984, Reservation/  
  Deposit 100,000.00
- July 19, 1984, 50%  
  Down payment 1,070,000.00
- balance payable in 60  
  monthly installments with  
  24% p.a. interest on diminishing balance.  
  Monthly payments to commence  
  Sept. 12, 1984 33,657.04/month
Note: Past due payments to bear interest of 2% per month plus
penalty charge of 2% per month.
"You are in default and your overdue account now stands as follows:
     
 Purchase Price P2,340,000.00
Add: Interest on  
  monthly  
  Amortizations 849,444.00
    —————
    P3,189,444.00
Add: Interest and  
  penalties on  
  overdues (Refer  
  to Exh. 'A') 679,002.34
    —————
    P3,868,446.34
Less: Payments (Refer  
  To Exh. 'B') 1,944,100.82
    —————
TOTAL DUE AND DEMANDABLE P1,924,345.52
    ==========
"Unless we receive payment in full within 30 days after service of this
notice upon you, our Contract to Sell shall be cancelled and/or
rescinded.
"Please give this matter its due attention.
"Very truly yours,
"(Sgd.) Illegible
(Type) FELIX H. LIMCAOCO, JR.
 President" 8
As so aptly observed by the courts below, the foregoing communication to
the buyer merely demanded payment within thirty (30) days from receipt thereof
with the threat that if the demand were not heeded, the contract would forthwith
be cancelled or rescinded. Nor did the appellate court erroneously ignore the
"notarial rescission" attached to the complaint for reconveyance. Apparently, the
so-called "notarial rescission" was not sent to respondents prior to the institution
of the case for reconveyance but merely served on respondents by way of an
attachment to the complaint. In any case, a notarial rescission, standing
alone, could not have invalidly effected, in this case, the cancellation of the
contract. cdasia

As the trial court elaborated in this case:

"A careful study of the evidence presented does not show a
notice of cancellation or the demand for rescission of the contract by a
notarial act. The plaintiff appears to be claiming that the June 2, 1988
letter is a notice of cancellation or a demand for rescission of the
contract by a notarial act. This could not be what the law contemplates. It
 should be a notice of cancellation or demand for rescission of the
contract by notarial act.
"Further, the law requires also full payment of the cash surrender
value to the buyer but there is no evidence adduced by the plaintiff that
they delivered to the defendant the cash surrender value. Admittedly, no
such full payment of the cash surrender value to the defendant was
made. A mere promise to return is not what the law contemplates." 9
The governing law is Republic Act No. 6552, otherwise known as the
"Realty Installment Buyer Protection Act," which has become effective since 16
September 1972. Republic Act No. 6552 is a special law governing transactions
that involve, subject to certain exceptions, the sale on installment basis of real
property. 10 The law has been enacted mainly "to protect buyers of real estate on
installment payments against onerous and oppressive conditions." 11 Section 3 of
the statute provides:
"Sec. 3. In all transactions or contracts involving the sale or
financing of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Number Thirty-eight
hundred forty-four as amended by Republic Act Numbered Sixty three
hundred eighty-nine, where the buyer has paid at least two years of
installments, the buyer is entitled to the following rights in case he
defaults in the payment of succeeding installments:
"a) To pay without additional interest, the unpaid installments due within
the total grace period earned by him, which is hereby fixed at the
rate of one month grace period for every one year of installment
payments made: Provided, That this right shall be exercised by
the buyer only once in every five years of the life of the contract
and its extensions, if any.
"b) If the contract is cancelled, the seller shall refund to the buyer the
cash surrender value of the payments on the property equivalent
to fifty per cent of the total payments made and, after five years of
installments, an additional five per cent every year but not to
exceed ninety per cent of the total payments made: Provided,
That the actual cancellation of the contract shall take place 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 and
upon full payment of the cash surrender value to the buyer.
"Down payments, deposits or options on the contract shall be
included in the computation of the total number of installments made."
The enactment recognizes the right of the seller to cancel the
contract but any such cancellation must be done in conformity with the
requirements therein prescribed. 12 In addition to the notarial act of
rescission, the seller is required to refund to the buyer the cash surrender
value of the payments on the property. 13 The actual cancellation of the
contract can only be deemed to take place upon the expiry of a 30-day
period following the receipt by the buyer of the notice of cancellation or
demand for rescission by a notarial act and the full payment of the cash
surrender value.  CAacTH

The Court agrees with petitioner that it is not precluded from going to
the court to demand judicial rescission in lieu of a notarial act of
rescission. This much must be recognized. Thus, in Layug  vs. Intermediate
Appellate Court 14 the Court has ruled that a demand for rescission by
notarial act would appear to be merely circuitous, consequently
superfluous, with the filing by the seller of an action for annulment of
contract and for recovery of damages. Unfortunately for petitioner, it would
be incorrect to apply Layug to the instant case. Layug is basically an action
for annulment of contract, a kindred concept of rescission, whereas the
instant case before the Court is one for recovery of possession on the
thesis of a prior rescission of the contract covering the property. 15 Not
only is an action for reconveyance conceptually different from an action for
rescission but that, also, the effects that flow from an affirmative judgment
in either case would be materially dissimilar in various respects.
Additionally, in an action for rescission (also often termed as resolution),
unlike in an action for reconveyance predicated on an extrajudicial
rescission (rescission by notarial act), the Court, instead of decreeing
rescission, may authorize for a just cause the fixing of a period. 16
Nor should a party in litigation be permitted to freely and substantially
change the theory or the cause of action of his case 17 that, otherwise, can put to
undue disadvantage the other party by not being accurately and timely apprised
of what he is up against. The character of an action is determined from the
issues raised by the complaint, from the nature of the right or grievance asserted,
and from the relief sought in the complaint. 18 A change of theory can result in
grave alteration of the stand theretofore taken by the parties, and a court must
not thereafter take it upon itself to assume its own position on, or the factual and
legal considerations of, the case.
 (Olympia Housing v. Panasiatic Travel Corp., G.R. No. 140468, [January 16,
|||

2003], 443 PHIL 385-400)

 [G.R. No. 147695. September 13, 2007.]

MANUEL C. PAGTALUNAN, petitioner,vs.RUFINA DELA

CRUZ VDA. DE MANZANO, respondent.

DECISION

AZCUNA, J  : p

This is a petition for review on certiorari under Rule 45 of the Rules of

Court of the Court of Appeals' (CA) Decision promulgated on October 30, 2000
and its Resolution dated March 23, 2001 denying petitioner's motion for
reconsideration. The Decision of the CA affirmed the Decision of the Regional
Trial Court (RTC) of Malolos, Bulacan, dated June 25, 1999 dismissing the case
of unlawful detainer for lack of merit.
The facts are as follows: 
TDCaSE

On July 19, 1974, Patricio Pagtalunan (Patricio),petitioner's stepfather and

predecessor-in-interest, entered into a Contract to Sell with respondent, wife of
Patricio's former mechanic, Teodoro Manzano, whereby the former agreed to
sell, and the latter to buy, a house and lot which formed half of a parcel of land,
covered by Transfer Certificate of Title (TCT) No. T-10029 (now TCT No.
RT59929 [T-254773]),with an area of 236 square meters. The consideration of
P17,800 was agreed to be paid in the following manner: P1,500 as downpayment
upon execution of the Contract to Sell, and the balance to be paid in equal
monthly installments of P150 on or before the last day of each month until fully
paid.
It was also stipulated in the contract that respondent could immediately
occupy the house and lot; that in case of default in the payment of any of the
installments for 90 days after its due date, the contract would be automatically
rescinded without need of judicial declaration, and that all payments made and all
improvements done on the premises by respondent would be considered as
rentals for the use and occupation of the property or payment for damages
suffered, and respondent was obliged to peacefully vacate the premises and
deliver the possession thereof to the vendor.  IcTEaC

Petitioner claimed that respondent paid only P12,950. She allegedly

stopped paying after December 1979 without any justification or explanation.
Moreover, in a "Kasunduan" 1 dated November 18, 1979, respondent borrowed
P3,000 from Patricio payable in one year either in one lump sum payment or by
installments, failing which the balance of the loan would be added to the principal
subject of the monthly amortizations on the land.
Lastly, petitioner asserted that when respondent ceased paying her
installments, her status of buyer was automatically transformed to that of a
lessee. Therefore, she continued to possess the property by mere tolerance of
Patricio and, subsequently, of petitioner. 
aIcTCS

On the other hand, respondent alleged that she paid her monthly
installments religiously, until sometime in 1980 when Patricio changed his mind
and offered to refund all her payments provided she would surrender the house.
She refused. Patricio then started harassing her and began demolishing the
house portion by portion. Respondent admitted that she failed to pay some
installments after December 1979, but that she resumed paying in 1980 until her
balance dwindled to P5,650. She claimed that despite several months of delay in
payment, Patricio never sued for ejectment and even accepted her late
payments.
Respondent also averred that on September 14, 1981, she and Patricio
signed an agreement (Exh. 2) whereby he consented to the suspension of
respondent's monthly payments until December 1981. However, even before the
lapse of said period, Patricio resumed demolishing respondent's house,
prompting her to lodge a complaint with the Barangay Captain who advised her
that she could continue suspending payment even beyond December 31, 1981
until Patricio returned all the materials he took from her house. This Patricio
failed to do until his death. 
IHCSET

Respondent did not deny that she still owed Patricio P5,650, but claimed
that she did not resume paying her monthly installment because of the unlawful
acts committed by Patricio, as well as the filing of the ejectment case against her.
She denied having any knowledge of the Kasunduan of November 18, 1979.
Patricio and his wife died on September 17, 1992 and on October 17,
1994, respectively. Petitioner became their sole successor-in-interest pursuant to
a waiver by the other heirs. On March 5, 1997, respondent received a letter from
petitioner's counsel dated February 24, 1997 demanding that she vacate the
premises within five days on the ground that her possession had become
unlawful. Respondent ignored the demand. The Punong Barangay failed to settle
the dispute amicably.  DTSIEc

On April 8, 1997, petitioner filed a Complaint for unlawful detainer against

respondent with the Municipal Trial Court (MTC) of Guiguinto, Bulacan praying
that, after hearing, judgment be rendered ordering respondent to immediately
vacate the subject property and surrender it to petitioner; forfeiting the amount of
P12,950 in favor of petitioner as rentals; ordering respondent to pay petitioner the
amount of P3,000 under the Kasunduan and the amount of P500 per month from
January 1980 until she vacates the property, and to pay petitioner attorney's fees
and the costs.
On December 22, 1998, the MTC rendered a decision in favor of
petitioner. It stated that although the Contract to Sell provides for a rescission of
the agreement upon failure of the vendee to pay any installment, what the
contract actually allows is properly termed a resolution under Art. 1191 of
the Civil Code. EcAHDT

The MTC held that respondent's failure to pay not a few installments
caused the resolution or termination of the Contract to Sell. The last payment
made by respondent was on January 9, 1980 (Exh. 71).Thereafter, respondent's
right of possession ipso facto ceased to be a legal right, and became possession
by mere tolerance of Patricio and his successors-in-interest. Said tolerance
ceased upon demand on respondent to vacate the property.
The dispositive portion of the MTC Decision reads:  AHacIS

Wherefore, all the foregoing considered, judgment is hereby

rendered, ordering the defendant:
a. to vacate the property covered by Transfer Certificate of Title No. T-
10029 of the Register of Deeds of Bulacan (now TCT No. RT-
59929 of the Register of Deeds of Bulacan),and to surrender
possession thereof to the plaintiff; EHSTcC

b. to pay the plaintiff the amount of P113,500 representing rentals from
January 1980 to the present;
c. to pay the plaintiff such amount of rentals, at P500/month, that may
become due after the date of judgment, until she finally vacates
the subject property;  IcCATD

d. to pay to the plaintiff the amount of P25,000 as attorney's fees.

SO ORDERED. 2  CaHcET

On appeal, the RTC of Malolos, Bulacan, in a Decision dated June 25,

1999, reversed the decision of the MTC and dismissed the case for lack of
merit. According to the RTC, the agreement could not be automatically rescinded
since there was delivery to the buyer. A judicial determination of rescission must
be secured by petitioner as a condition precedent to convert the
possession de  facto of respondent from lawful to unlawful.
The dispositive portion of the RTC Decision states:  cDECIA

WHEREFORE, judgment is hereby rendered reversing the

decision of the Municipal Trial Court of Guiguinto, Bulacan and the
ejectment case instead be dismissed for lack of merit. 3
The motion for reconsideration and motion for execution filed by petitioner
were denied by the RTC for lack of merit in an Order dated August 10, 1999.  aESTAI

Thereafter, petitioner filed a petition for review with the CA.

In a Decision promulgated on October 30, 2000, the CA denied the petition
and affirmed the Decision of the RTC. The dispositive portion of the Decision
reads: 
EaIcAS

WHEREFORE, the petition for review on certiorari is Denied. The

assailed Decision of the Regional Trial Court of Malolos, Bulacan dated
25 June 1999 and its Order dated 10 August 1999 are hereby
AFFIRMED.
SO ORDERED. 4  CcAITa

The CA found that the parties, as well as the MTC and RTC failed to
advert to and to apply Republic Act (R.A.) No. 6552, more commonly referred to
as the Maceda Law, which is a special law enacted in 1972 to protect buyers of
real estate on installment payments against onerous and oppressive conditions.
The CA held that the Contract to Sell was not validly cancelled or
rescinded under Sec. 3 (b) of R.A. No. 6552, and recognized respondent's
right to continue occupying unmolested the property subject of the
contract to sell. THaAEC

The CA denied petitioner's motion for reconsideration in a Resolution

dated March 23, 2001.
Hence, this petition for review on certiorari.
 AHCETa

Petitioner contends that:

A. Respondent Dela Cruz must bear the consequences of her
deliberate withholding of, and refusal to pay, the monthly
payment. The Court of Appeals erred in allowing Dela Cruz
who acted in bad faith from benefiting under the Maceda
Law.  HCTAEc
 B. The Court of Appeals erred in resolving the issue on the
applicability of the Maceda Law, which issue was not raised
in the proceedings a quo.
C. Assuming arguendo that the RTC was correct in ruling that the
MTC has no jurisdiction over a rescission case, the Court of
Appeals erred in not remanding the case to the RTC for
trial. 5  HIAEaC

Petitioner submits that the Maceda Law supports and recognizes the right

of vendors of real estate to cancel the sale outside of court, without need for a
judicial declaration of rescission, citing Luzon Brokerage Co., Inc.,  v. Maritime
Building Co., Inc. 6
Petitioner contends that respondent also had more than the grace periods
provided under the Maceda Law within which to pay. Under Sec. 3 7 of the said
law, a buyer who has paid at least two years of installments has a grace period of
one month for every year of installment paid. Based on the amount of P12,950
which respondent had already paid, she is entitled to a grace period of six
months within which to pay her unpaid installments after December, 1979.
Respondent was given more than six months from January 1980 within which to
settle her unpaid installments, but she failed to do so. Petitioner's demand to
vacate was sent to respondent in February 1997.  TAcSCH

There is nothing in the Maceda Law, petitioner asserts, which gives

the buyer a right to pay arrearages after the grace periods have lapsed, in
the event of an invalid demand for rescission. The Maceda Law only
provides that actual cancellation shall take place after 30 days from receipt
of the notice of cancellation or demand for rescission and upon full
payment of the cash surrender value to the buyer.
Petitioner contends that his demand letter dated February 24, 1997 should
be considered the notice of cancellation since the demand letter informed
respondent that she had "long ceased to have any right to possess the premises
in question due to [her] failure to pay without justifiable cause." In support of his
contention, he cited Layug  v. Intermediate Appellate Court 8 which held that "the
additional formality of a demand on [the seller's] part for rescission by notarial act
would appear, in the premises, to be merely circuitous and consequently
superfluous." He stated that in Layug,the seller already made a written demand
upon the buyer.  AScHCD

In addition, petitioner asserts that whatever cash surrender value

respondent is entitled to have been applied and must be applied to rentals for her
use of the house and lot after December, 1979 or after she stopped payment of
her installments.
 Petitioner argues that assuming Patricio accepted respondent's delayed
installments in 1981, such act cannot prevent the cancellation of the Contract to
Sell. Installments after 1981 were still unpaid and the applicable grace periods
under the Maceda Law on the unpaid installments have long lapsed. Respondent
cannot be allowed to hide behind the Maceda Law. She acted with bad faith and
must bear the consequences of her deliberate withholding of and refusal to make
the monthly payments.  ADaSEH

Petitioner also contends that the applicability of the Maceda Law was

never raised in the proceedings below; hence, it should not have been applied by
the CA in resolving the case.
The Court is not persuaded.  TaSEHD

The CA correctly ruled that R.A No. 6552, which governs sales of real
estate on installment, is applicable in the resolution of this case.
This case originated as an action for unlawful detainer. Respondent
is alleged to be illegally withholding possession of the subject property
after the termination of the Contract to Sell between Patricio and
respondent. It is, therefore, incumbent upon petitioner to prove that the
Contract to Sell had been cancelled in accordance with R.A. No. 6552.  THacES

The pertinent provision of R.A. No. 6552 reads:

Sec. 3. In all transactions or contracts involving the sale or
financing of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Numbered Thirty-eight
hundred forty-four as amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at least two years of
installments, the buyer is entitled to the following rights in case he
defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within
the total grace period earned by him, which is hereby fixed at the
rate of one month grace period for every one year of installment
payments made: Provided, That this right shall be exercised by
the buyer only once in every five years of the life of the contract
and its extensions, if any.  cHATSI

(b) If the contract is cancelled, the seller shall refund to the

buyer the cash surrender value of the payments on the
property equivalent to fifty percent of the total payments made
and, after five years of installments, an additional five percent
every year but not to exceed ninety percent of the total payments
made: Provided, That the actual cancellation of the contract
shall take place 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 and upon full payment of the cash
surrender value to the buyer. 9
R.A. No. 6552, otherwise known as the "Realty Installment Buyer
Protection Act," recognizes in conditional sales of all kinds of real estate
(industrial, commercial, residential) the right of the seller to cancel the contract
upon non-payment of an installment by the buyer, which is simply an event that
prevents the obligation of the vendor to convey title from acquiring binding
force. 10 The Court agrees with petitioner that the cancellation of the Contract to
Sell may be done outside the court particularly when the buyer agrees to such
cancellation. 
DcHSEa

However, the cancellation of the contract by the seller must be in

accordance with Sec. 3 (b) of R.A. No. 6552, which requires a notarial act of
rescission and the refund to the buyer of the full payment of the cash surrender
value of the payments on the property. Actual cancellation of the contract takes
place after 30 days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act and upon full payment of
the cash surrender value to the buyer.
Based on the records of the case, the Contract to Sell was not validly
cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552.  caIDSH

First, Patricio, the vendor in the Contract to Sell, died on September

17, 1992 without canceling the Contract to Sell.  ESDcIA

Second, petitioner also failed to cancel the Contract to Sell in

accordance with law.  aHSAIT

Petitioner contends that he has complied with the requirements of

cancellation under Sec. 3 (b) of R.A. No. 6552. He asserts that his demand letter
dated February 24, 1997 should be considered as the notice of cancellation or
demand for rescission by notarial act and that the cash surrender value of the
payments on the property has been applied to rentals for the use of the house
and lot after respondent stopped payment after January 1980.
The Court, however, finds that the letter 11 dated February 24, 1997, which
was written by petitioner's counsel, merely made formal demand upon
respondent to vacate the premises in question within five days from receipt
thereof since she had "long ceased to have any right to possess the
premises ...due to [her] failure to pay without justifiable cause the installment
payments ...." DHCSTa

Clearly, the demand letter is not the same as the notice of

cancellation or demand for rescission by a notarial act required by R.A No.
6552. Petitioner cannot rely on Layug  v. Intermediate Appellate Court 12 to
support his contention that the demand letter was sufficient
compliance. Layug held that "the additional formality of a demand on [the seller's]
part for rescission by notarial act would appear, in the premises, to be merely
circuitous and consequently superfluous" since the seller therein filed an action
for annulment of contract,which is a kindred concept of rescission by notarial
act. 13 Evidently, the case of unlawful detainer filed by petitioner does not exempt
him from complying with the said requirement.
In addition, Sec. 3 (b) of R.A. No. 6552 requires refund of the cash
surrender value of the payments on the property to the buyer before cancellation
of the contract. The provision does not provide a different requirement for
contracts to sell which allow possession of the property by the buyer upon
execution of the contract like the instant case. Hence, petitioner cannot insist on
compliance with the requirement by assuming that the cash surrender value
payable to the buyer had been applied to rentals of the property after respondent
failed to pay the installments due. IcCEDA

There being no valid cancellation of the Contract to Sell, the CA correctly

recognized respondent's right to continue occupying the property subject of the
Contract to Sell and affirmed the dismissal of the unlawful detainer case by the
RTC.
The Court notes that this case has been pending for more than ten years.
Both parties prayed for other reliefs that are just and equitable under the
premises. Hence, the rights of the parties over the subject property shall be
resolved to finally dispose of that issue in this case. 
cAaDCE

Considering that the Contract to Sell was not cancelled by the vendor,
Patricio, during his lifetime or by petitioner in accordance with R.A. No.
6552 when petitioner filed this case of unlawful detainer after 22 years of
continuous possession of the property by respondent who has paid the
substantial amount of P12,300 out of the purchase price of P17,800, the Court
agrees with the CA that it is only right and just to allow respondent to pay her
arrears and settle the balance of the purchase price.
For respondent's delay in the payment of the installments, the Court, in its
discretion, and applying Article 2209 14 of the Civil Code, may award interest at
the rate of 6% per annum 15 on the unpaid balance considering that there is no
stipulation in the Contract to Sell for such interest. For purposes of computing the
legal interest, the reckoning period should be the filing of the complaint for
unlawful detainer on April 8, 1997.  DEHaAS

Based on respondent's evidence 16 of payments made, the MTC found that

respondent paid a total of P12,300 out of the purchase price of P17,800. Hence,
respondent still has a balance of P5,500, plus legal interest at the rate of 6% per
annum on the unpaid balance starting April 8, 1997.
 The third issue is disregarded since petitioner assails an inexistent ruling of
the RTC on the lack of jurisdiction of the MTC over a rescission case when the
instant case he filed is for unlawful detainer. 
SAHEIc

WHEREFORE, the Decision of the Court of Appeals dated October 30,

2000 sustaining the dismissal of the unlawful detainer case by the RTC is
AFFIRMED with the following MODIFICATIONS:
1. Respondent Rufina Dela Cruz Vda. de Manzano shall pay
petitioner Manuel C. Pagtalunan the balance of the purchase
price in the amount of Five Thousand Five Hundred Pesos
(P5,500) plus interest at 6% per annum from April 8, 1997 up
to the finality of this judgment, and thereafter, at the rate of
12% per annum;  EDATSC

2. Upon payment, petitioner Manuel C. Pagtalunan shall execute a

Deed of Absolute Sale of the subject property and deliver the
certificate of title in favor of respondent Rufina Dela
Cruz Vda. de Manzano; and
3. In case of failure to pay within 60 days from finality of this
Decision, respondent Rufina Dela
Cruz Vda. de Manzano shall immediately vacate the
premises without need of further demand, and the
downpayment and installment payments of P12,300 paid by
her shall constitute rental for the subject property. 
DcITHE

No costs.
SO ORDERED.
 (Pagtalunan v. Vda. de Manzano, G.R. No. 147695, [September 13, 2007], 559
|||

PHIL 658-671)
 [G.R. No. 152346. November 25, 2005.]

ISAIAS F. FABRIGAS and MARCELINA

R. FABRIGAS, petitioners,vs.SAN FRANCISCO DEL MONTE, IN
C., respondent.

Belo Gozon Parel Asuncion & Lucila for petitioners.

Feria Feria La'O Tantoco for respondent.

SYLLABUS

 
1. CIVIL LAW; SPECIAL CONTRACTS; SALES; REPUBLIC ACT 6552;
SALE OF REAL PROPERTY THE PRICE OF WHICH IS PAYABLE IN
INSTALLMENTS; CANCELLATION OF THE CONTRACT WHERE LESS THAN
TWO YEARS INSTALLMENTS ARE PAID; PROCEDURE; CASE AT BAR. —
Petitioners defaulted in all monthly installments. They may be credited only with
the amount of P30,000.00 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.
2. ID.;OBLIGATIONS AND CONTRACTS; EXTINGUISHMENT OF
OBLIGATIONS; MODES. — Rescission, of course, is not the only mode of
extinguishing obligations. Ordinarily, obligations are also extinguished by
payment or performance, by the loss of the thing due, by the condonation or
remission of the debt, by the confusion or merger of the rights of the creditor and
debtor, by compensation, or by novation.
3. ID.;ID.;ID.;NOVATION; KINDS. — Novation, in its broad concept, may
either be extinctive or modificatory. It is extinctive when an old obligation is
terminated by the creation of a new obligation that takes the place of the former;
it is merely modificatory when the old obligation subsists to the extent it remains
compatible with the amendatory agreement.
4. ID.;ID.;ID.;ID.;EXTINCTIVE NOVATION; REQUISITES. — An extinctive
novation results either by changing the object or principal conditions (objective or
real),or by substituting the person of the debtor or subrogating a third person in
the rights of the creditor (subjective or personal).Under this mode, novation
would have dual functions — one to extinguish an existing obligation, the other to
substitute a new one in its place — requiring a conflux of four essential
requisites: (1) a previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of the old obligation; and (4)
the birth of a valid new obligation.
5. ID.;ID.;ID.;ID.;IN ORDER THAT AN OBLIGATION MAY BE
EXTINGUISHED BY ANOTHER WHICH SUBSTITUTES THE SAME, IT IS
IMPERATIVE THAT IT BE SO DECLARED IN UNEQUIVOCAL TERMS, OR
THAT THE OLD AND THE NEW OBLIGATIONS BE ON EVERY POINT
INCOMPATIBLE WITH EACH OTHER. — In order that an obligation may be
extinguished by another which substitutes the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new obligations be on
every point incompatible with each other. The test of incompatibility is whether or
not the two obligations can stand together, each one having its independent
existence. If they cannot, they are incompatible and the latter obligation novates
the first.
6. ID.; PERSONS AND FAMILY RELATIONS; PROPERTY RELATIONS
BETWEEN HUSBAND AND WIFE; CONJUGAL PARTNERSHIP; ANY REAL
PROPERTY OF THE CONJUGAL PARTNERSHIP CANNOT BE ALIENATED
BY ONE SPOUSE WITHOUT THE CONSENT OF THE OTHER. — Under
the Civil Code, the husband is the administrator of the conjugal partnership.
Unless the wife has been declared a non compos mentis or a spendthrift, or is
under civil interdiction or is confined in a leprosarium, the husband cannot
alienate or encumber any real property of the conjugal partnership without the
wife's consent. Conversely, the wife cannot bind the conjugal partnership without
the husband's consent except in cases provided by law.
7. ID.; ID.; ID.; ID.; A CONTRACT EXECUTED BY THE HUSBAND
WITHOUT THE CONSENT OF THE WIFE IS ANNULLABLE AT THE
INSTANCE OF THE WIFE. — Article 173 of the Civil Code expressly classifies a
contract executed by the husband without the consent of the wife as merely
annullable at the instance of the wife. However, there is no comparable provision
covering an instance where the wife alone has consented to a contract involving
conjugal property. Article 172 of the Civil Code, though, does not expressly
declare as void a contract entered by the wife without the husband's consent. It is
also not one of the contracts considered as void under Article 1409 of the Civil
Code.
8. ID.; OBLIGATIONS AND CONTRACTS; UNENFORCEABLE
CONTRACTS; ANY TRANSACTION INVOLVING THE CONJUGAL PROPERTY
ENTERED INTO BY THE WIFE WITHOUT THE COURT OR THE HUSBAND'S
AUTHORITY IS UNENFORCEABLE; CASE AT BAR. — While the husband is
the recognized administrator of the conjugal property under the Civil Code, there
are instances when the wife may assume administrative powers or ask for the
separation of property. . . . Where the husband is absent and incapable of
administering the conjugal property, the wife must be expressly authorized by the
husband or seek judicial authority to assume powers of administration. Thus, any
transaction entered by the wife without the court or the husband's authority is
unenforceable in accordance with Article 1317 of the Civil Code.That is the status
to be accorded Contract to Sell No. 2491-V, it having been executed by petitioner
Marcelina without her husband's conformity.
9. ID.;ID.;ID.;MAY BE RATIFIED; CASE AT BAR. — Being an
unenforceable contract, Contract to Sell No. 2491-V is susceptible to ratification.
As found by the courts below, after being informed of the execution of the
contract, the husband, petitioner Isaias Fabrigas, continued remitting payments
for the satisfaction of the obligation under Contract to Sell No. 2191-V. These
acts constitute ratification of the contract. Such ratification cleanses the contract
from all its defects from the moment it was constituted.
10. ID.;ID.;CONTRACT OF ADHESION; NATURE. — A contract of
adhesion is so-called because its terms are prepared by only one party while the
other party merely affixes his signature signifying his adhesion thereto. Such
contracts are not void in themselves. They are as binding as ordinary contracts.
Parties who enter into such contracts are free to reject the stipulations entirely.
 

DECISION

TINGA, J  : p

Before the Court is a petition for review on certiorari under Rule 45 of

the 1997 Rules of Civil Procedure, which assails the Decision of the Court of
Appeals in CA-G.R. CV No. 45203 and its Resolution therein denying petitioners'
motion for reconsideration. Said Decision affirmed the Decision dated January 3,
1994 of the Regional Trial Court (RTC),Branch 63, Makati City in Civil Case No.
90-2711 entitled San Francisco Del Monte, Inc. v. Isaias F. Fabrigas and
Marcelina R. Fabrigas.
The dispositive portion of the trial court's Decision reads:
In the light of the foregoing, the Court is convinced that plaintiff
has proven by preponderance of evidence, the allegation appearing in its
complaint and is therefore, entitled to the reliefs prayed for.
Considering, however, that defendants had already paid
P78,152.00, the Court exercising its discretion, hereby renders judgment
as follows:
1. Ordering defendant to make complete payment under the
conditions of Contract to Sell No. 2491-V dated January
21, 1985, within twenty days from receipt of this Decision,
and in the event that defendant fail or refuse to observe the
latter, defendants and all persons claiming right of
possession or occupation from defendants are ordered to
vacate and leave the premises, described as Lot No. 9
Block No. 3 of Subdivision Plan (LRC) Psd-50064 covered
by Transfer Certificate of Title No. 4980 (161653) T-1083
of the Registry of Deeds of Rizal, and to surrender
possession thereof to plaintiff or any of its authorized
representatives;
 2. That in the event that defendants chose to surrender
possession of the property, they are further ordered to pay
plaintiff P206,223.80 as unpaid installments on the land
inclusive of interests;
3. Ordering defendants to jointly and severally pay plaintiff the
amount of P10,000.00 as and for attorney's fees; and
4. Ordering defendants to pay the costs of suit.  HDacIT

SO ORDERED. 1
The following factual antecedents are matters of record.
On April 23, 1983, herein petitioner spouses Isaias and
Marcelina Fabrigas ("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
P109,200.00. 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 P30,000.00 as
downpayment and the balance within ten (10) years in monthly successive
installments of P1,285.69. 2 Among the clauses in the contract is an automatic
cancellation clause in case of default, which states as follows:
7. 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. 3
After paying P30,000.00, 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. 4 In
particular, Del Monte's third letter dated November 9, 1983 demanded the
payment of arrears in the amount of P8,999.00. 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 dated December 7, 1983, 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. 5
On November 6, 1984, petitioner Marcelina Fabrigas ("petitioner
Marcelina") remitted the amount of P13,000.00 to Del Monte. 6 On January 12,
1985, petitioner Marcelina again remitted the amount of P12,000.00. 7 A few days
thereafter, or on January 21, 1985, petitioner 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. Under the second
contract, the parties agreed on a new purchase price of P131,642.58, the amount
of P26,328.52 as downpayment and the balance to be paid in monthly
installments of P2,984.60 each. 8
Between March 1985 and January 1986, Spouses Fabrigas made irregular
payments under Contract to Sell No. 2491-V, to wit:
March 19, 1985 P1,328.52
July 2, 1985 P2,600.00
September 30, 1985 P2,600.00
November 27, 1985 P2,600.00
January 20, 1986 P2,000.00 9 
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 P26,861.40. Del Monte required petitioners to satisfy said amount
immediately in two subsequent letters dated March 5 and April 2, 1986. 10 This
prompted petitioners to pay the following amounts:
February 3, 1986 P2,000.00
March 10, 1986 P2,000.00
April 9, 1986 P2,000.00
May 13, 1986 P2,000.00
June 6, 1986 P2,000.00
July 14, 1986 P2,000.00 11 
No other payments were made by petitioners except the amount of
P10,000.00 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. On March 24, 1988, Del Monte sent a letter
demanding the payment of accrued installments under Contract to Sell No. 2491-
V in the amount of P165,759.60 less P48,128.52, representing the payments
made under the restructured contract, or the net amount of
P117,631.08. Del Monte allowed petitioners a grace period of thirty (30) days
within which to pay the amount asked to avoid rescission of the contract. 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. 12
On September 28, 1990, Del Monte instituted an action for Recovery of
Possession with Damages against Spouses Fabrigas before the RTC, Branch 63
of Makati City. The complaint alleged that Spouses Fabrigas owed Del Monte the
principal amount of P206,223.80 plus interest of 24% per annum. In their answer,
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. 13
After trial on the merits, the trial court rendered a Decision on January 3,
1994, upholding the validity of Contract to Sell No. 2491-V  and ordering
Spouses Fabrigas either to complete payments thereunder or to vacate the
property.
Aggrieved, Spouses Fabrigas elevated the matter to the Court of Appeals,
arguing that the trial court should have upheld the validity and existence
of Contract to Sell No. 2482-V instead and nullified Contract to Sell No. 2491-
V. 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. While the Court of Appeals declared Contract to Sell No. 2491-V as
merely unenforceable for having been executed without petitioner Marcelina's
signature, it upheld its validity upon finding that the contract was subsequently
ratified.
Hence, the instant petition attributing the following errors to the Court of
Appeals:
A. THE COURT OF APPEALS GRAVELY ERRED WHEN IT
IGNORED THE PROVISIONS OF R.A. NO. 6552 (THE MACEDA LAW)
AND RULED THAT CONTRACT TO SELL NO. 2482-V WAS VALIDLY
CANCELLED BY SENDING A MERE NOTICE TO THE PETITIONERS.
B. THE COURT OF APPEALS GRAVELY ERRED IN RULING
THAT THERE WAS AN IMPLIED RATIFICATION OF CONTRACT TO
SELL NO. 2491-V.
C. THE COURT OF APPEALS ERRED IN ITS APPLICATION OF
THE RULES OF NOVATION TO THE INSTANT CASE. 14
As reframed for better understanding, the questions are the following:
Was Contract to Sell No. 2482-V extinguished through rescission or was it
novated by the subsequent Contract to Sell No. 2491-V? If Contract to Sell No.
2482-V was rescinded, should the manner of rescission comply with the
requirements of Republic Act No. (R.A.) 6552? If Contract to Sell No. 2482-
V was subsequently novated by Contract to Sell No. 2491-V, are petitioners
liable for breach under the subsequent agreement?  acCTSE

Petitioners theorize that Contract to Sell No. 2482-V should remain valid

and subsisting because the notice of cancellation sent by Del Monte did not
observe the requisites under Section 3 of R.A. 6552. 15 According to petitioners,
since respondent did not send a notarial notice informing them of the cancellation
or rescission of Contract to Sell No. 2482-V and also did not pay them the cash
surrender value of the payments on the property, the Court of Appeals erred in
concluding that respondent correctly applied the automatic rescission clause
of Contract to Sell No. 2482-V. Petitioners also cite Section 7 16 of said law to
bolster their theory that the automatic rescission clause in Contract to Sell No.
2482-V is invalid for being contrary to law and public policy.
 
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], 17 " 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 P30,000.00 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 7 18 in relation to Section 4 of R.A.
6552. 19
Rescission, of course, is not the only mode of extinguishing obligations.
Ordinarily, obligations are also extinguished by payment or performance, by the
loss of the thing due, by the condonation or remission of the debt, by the
confusion or merger of the rights of the creditor and debtor, by compensation, or
by novation. 20
Novation, in its broad concept, may either be extinctive or modificatory. It is
extinctive when an old obligation is terminated by the creation of a new obligation
that takes the place of the former; it is merely modificatory when the old
obligation subsists to the extent it remains compatible with the amendatory
agreement. An extinctive novation results either by changing the object or
principal conditions (objective or real),or by substituting the person of the debtor
or subrogating a third person in the rights of the creditor (subjective or
personal).Under this mode, novation would have dual functions — one to
extinguish an existing obligation, the other to substitute a new one in its place —
requiring a conflux of four essential requisites: (1) a previous valid obligation; (2)
an agreement of all parties concerned to a new contract; (3) the extinguishment
of the old obligation; and (4) the birth of a valid new obligation. 21
Notwithstanding the improper rescission, the facts of the case show
that Contract to Sell No. 2482-V  was subsequently novated by Contract to Sell
No. 2491-V. The execution of Contract to Sell No. 2491-V  accompanied an
upward change in the contract price, which constitutes a change in the object or
principal conditions of the contract. In entering into Contract to Sell No. 2491-
V, the parties were impelled by causes different from those obtaining
under Contract to Sell No. 2482-V. On the part of petitioners, they agreed to the
terms and conditions of Contract to Sell No. 2491-V  not only to acquire
ownership over the subject property but also to avoid the consequences of their
default under Contract No. 2482-V. On Del Monte's end, the upward change in
price was the consideration for entering into Contract to Sell No. 2491-V.  DcCHTa

In order that an obligation may be extinguished by another which

substitutes the same, it is imperative that it be so declared in unequivocal terms,
or that the old and the new obligations be on every point incompatible with each
other. 22 The test of incompatibility is whether or not the two obligations can stand
together, each one having its independent existence. If they cannot, they are
incompatible and the latter obligation novates the first. 23 The execution
of Contract to Sell No. 2491-V created new obligations in lieu of those
under Contract to Sell No. 2482-V, which are already considered extinguished
upon the execution of the second contract. The two contracts do not have
independent existence for to hold otherwise would present an absurd situation
where the parties would be liable under each contract having only one subject
matter.
To dispel the novation of Contract to Sell No. 2482-V by Contract to Sell
No. 2491-V, petitioners contend that the subsequent contract is void for two
reasons: first, petitioner Isaias Fabrigas did not give his consent thereto, and
second, the subsequent contract is a contract of adhesion.
Petitioner rely on Article 172 of the Civil Code governing their property
relations as spouses. Said article states that the wife cannot bind the conjugal
partnership without the husband's consent except in cases provided by law.
Since only petitioner Marcelina executed Contract to Sell No. 2491-V, the same
is allegedly void, petitioners conclude.
Under the Civil Code, the husband is the administrator of the conjugal
partnership. 24 Unless the wife has been declared a non compos mentis or a
spendthrift, or is under civil interdiction or is confined in a leprosarium, the
husband cannot alienate or encumber any real property of the conjugal
partnership without the wife's consent. 25 Conversely, the wife cannot bind the
conjugal partnership without the husband's consent except in cases provided by
law. 26
Thus, if a contract entered into by one spouse involving a conjugal
property lacks the consent of the other spouse, as in the case at bar, is it
automatically void for that reason alone?
Article 173 27 of the Civil Code expressly classifies a contract executed by
the husband without the consent of the wife as merely annullable at the instance
of the wife. However, there is no comparable provision covering an instance
where the wife alone has consented to a contract involving conjugal property.
Article 172 of the Civil Code, though, does not expressly declare as void a
contract entered by the wife without the husband's consent. It is also not one of
the contracts considered as void under Article 1409 28 of the Civil Code.
In Felipe v. Heirs of Maximo Aldon, 29 the Court had the occasion to rule on
the validity of a sale of lands belonging to the conjugal partnership made by the
wife without the consent of the husband. Speaking through Mr. Justice Abad
Santos, the Court declared such a contract as voidable because one of the
parties is incapable of giving consent to the contract. The capacity to give
consent belonged not even to the husband alone but to both spouses. 30 In that
case, the Court anchored its ruling on Article 173 of the Civil Code which states
that contracts entered by the husband without the consent of the wife when such
consent is required, are annullable at her instance during the marriage and within
ten years from the transaction mentioned. 31
The factual milieu of the instant case, however, differs from that
in Felipe.The defect which Contract to Sell No. 2491-V suffers from is lack of
consent of the husband, who was out of the country at the time of the execution
of the contract. There is no express provision in the Civil Code governing a
situation where the husband is absent and his absence incapacitates him from
administering the conjugal partnership property. The following Civil Code
provisions, however, are illuminating:
ARTICLE 167. In case of abuse of powers of administration of the
conjugal partnership property by the husband, the courts, on petition of
the wife, may provide for receivership, or administration by the wife, or
separation of property.
ARTICLE 168. The wife may, by express authority of the husband
embodied in a public instrument, administer the conjugal partnership
property. 
EcIDaA

ARTICLE 169. The wife may also, by express authority of the

husband appearing in a public instrument, administer the latter's estate.
While the husband is the recognized administrator of the conjugal property
under the Civil Code, there are instances when the wife may assume
administrative powers or ask for the separation of property. In the
abovementioned instances, the wife must be authorized either by the court or by
the husband. Where the husband is absent and incapable of administering the
conjugal property, the wife must be expressly authorized by the husband or seek
judicial authority to assume powers of administration. Thus, any transaction
entered by the wife without the court or the husband's authority is unenforceable
in accordance with Article 1317 32 of the Civil Code.That is the status to be
accorded Contract to Sell No. 2491-V, it having been executed by petitioner
Marcelina without her husband's conformity.
Being an unenforceable contract, Contract to Sell No. 2491-V is
susceptible to ratification. As found by the courts below, after being informed of
the execution of the contract, the husband, petitioner Isaias Fabrigas, continued
remitting payments for the satisfaction of the obligation under Contract to Sell
No. 2491-V. These acts constitute ratification of the contract. Such ratification
cleanses the contract from all its defects from the moment it was constituted. The
factual findings of the courts below are beyond review at this stage.
  
Anent Del Monte's claim that Contract to Sell No. 2491-V is a contract of
adhesion, suffice it to say that assuming for the nonce that the contract is such
the characterization does not automatically render it void. A contract of adhesion
is so-called because its terms are prepared by only one party while the other
party merely affixes his signature signifying his adhesion thereto. Such contracts
are not void in themselves. They are as binding as ordinary contracts. Parties
who enter into such contracts are free to reject the stipulations entirely. 33
The Court quotes with approval the following factual observations of the
trial court, which cannot be disturbed in this case, to wit:
The Court notes that defendant, Marcelina Fabrigas, although she
had to sign contract No. 2491-V, to avoid forfeiture of her downpayment,
and her other monthly amortizations, was entirely free to refuse to
accept the new contract. There was no clear case of intimidation or
threat on the part of plaintiff in offering the new contract to her. At most,
since she was of sufficient intelligence to discern the agreement she is
entering into, her signing of Contract No. 2491-V is taken to be valid and
binding. The fact that she has paid monthly amortizations subsequent to
the execution of Contract to Sell No. 2491-V, is an indication that she
had recognized the validity of such contract. ...  34
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.
WHEREFORE, the instant Petition for Review is DENIED and the
September 28, 2001 Decision of the Court of Appeals in CA-G.R. CV No. 45203
is AFFIRMED. Costs against petitioners.
 (Spouses Fabrigas v. San Francisco Del Monte Inc., G.R. No. 152346,
|||

[November 25, 2005], 512 PHIL 627-644)