THIRD DIVISION

[G.R. No. 115158. September 5, 1997]

EMILIA M. URACA, CONCORDIA D. CHING and ONG SENG, represented by ENEDINO H. FERRER, petitioners, vs. COURT
OF APPEALS, JACINTO VELEZ, JR., CARMEN VELEZ TING, AVENUE MERCHANDISING, INC., FELIX TING AND ALFREDO GO,
respondents.
DECISION
PANGANIBAN, J.:
Novation is never presumed; it must be sufficiently established that a valid new agreement or obligation has
extinguished or changed an existing one. The registration of a later sale must be done in good faith to entitle the
registrant to priority in ownership over the vendee in an earlier sale.
Statement of the Case
These doctrines are stressed by this Court as it resolves the instant petition challenging the December 28, 1993
Decision[1] of Respondent Court of Appeals[2] in CA-G.R. SP No. 33307, which reversed and set aside the judgment of
the Regional Trial Court of Cebu City, Branch 19, and entered a new one dismissing the petitioners complaint. The
dispositive portion of the RTC decision reads:[3]
WHEREFORE, judgment is hereby rendered:
1)
declaring as null and void the three (3) deeds of sale executed by the Velezes to Felix C. Ting, Manuel Ting and
Alfredo Go;
2)
ordering Carmen Velez Ting and Jacinto M. Velez, Jr. to execute a deed of absolute sale in favor of Concordia D.
Ching and Emilia M. Uraca for the properties in question for P1,400,000.00, which sum must be delivered by the
plaintiffs to the Velezes immediately after the execution of said contract;
3)
ordering Carmen Velez Ting and Jacinto M. Velez, Jr. to reimburse Felix C. Ting, Manuel C. Ting and Alfredo Go
whatever amount the latter had paid to the former;
4)
ordering Felix C. Ting, Manuel C. Ting and Alfredo Go to deliver the properties in question to the plaintiffs within
fifteen (15) days from receipt of a copy of this decision;
5)

ordering all the defendants to pay, jointly and severally, the plaintiffs the sum of P20,000.00 as attorneys fees.

SO ORDERED.
The Antecedent Facts
The facts narrated by the Court of Appeals are as follows:[4]
The Velezes (herein private respondents) were the owners of the lot and commercial building in question located at
Progreso and M.C. Briones Streets in Cebu City.
Herein (petitioners) were the lessees of said commercial building.[5]
On July 8, 1985, the Velezes through Carmen Velez Ting wrote a letter to herein (petitioners) offering to sell the subject
property for P1,050,000.00 and at the same time requesting (herein petitioners) to reply in three days.
On July 10, 1985, (herein petitioners) through Atty. Escolastico Daitol sent a reply-letter to the Velezes accepting the
aforesaid offer to sell.
On July 11, 1985, (herein petitioner) Emilia Uraca went to see Carmen Ting about the offer to sell but she was told by
the latter that the price was P1,400,000.00 in cash or managers check and not P1,050,000.00 as erroneously stated in
their letter-offer after some haggling. Emilia Uraca agreed to the price of P1,400,000.00 but counter-proposed that
payment be paid in installments with a down payment of P1,000,000.00 and the balance of P400,000 to be paid in 30
days. Carmen Velez Ting did not accept the said counter-offer of Emilia Uraca although this fact is disputed by Uraca.
No payment was made by (herein petitioners) to the Velezes on July 12, 1985 and July 13, 1985.
On July 13, 1985, the Velezes sold the subject lot and commercial building to the Avenue Group (Private Respondent
Avenue Merchandising Inc.) for P1,050,000.00 net of taxes, registration fees, and expenses of the sale.
At the time the Avenue Group purchased the subject property on July 13, 1985 from the Velezes, the certificate of title
of the said property was clean and free of any annotation of adverse claims or lis pendens.
On July 31, 1985 as aforestated, herein (petitioners) filed the instant complaint against the Velezes.
On August 1, 1985, (herein petitioners) registered a notice of lis pendens over the property in question with the Office
of the Register of Deeds.[6]
On October 30, 1985, the Avenue Group filed an ejectment case against (herein petitioners) ordering the latter to
vacate the commercial building standing on the lot in question.
Thereafter, herein (petitioners) filed an amended complaint impleading the Avenue Group as new defendants (after
about 4 years after the filing of the original complaint).
The trial court found two perfected contracts of sale between the Velezes and the petitioners, involving the real
property in question. The first sale was for P1,050,000.00 and the second was for P1,400,000.00. In respect to the
first sale, the trial court held that [d]ue to the unqualified acceptance by the plaintiffs within the period set by the

Velezes, there consequently came about a meeting of the minds of the parties not only as to the object certain but
also as to the definite consideration or cause of the contract.[7] And even assuming arguendo that the second sale
was not perfected, the trial court ruled that the same still constituted a mere modificatory novation which did not
extinguish the first sale. Hence, the trial court held that the Velezes were not free to sell the properties to the Avenue
Group.[8] It also found that the Avenue Group purchased the property in bad faith.[9]
Private respondents appealed to the Court of Appeals. As noted earlier, the CA found the appeal meritorious. Like the
trial court, the public respondent held that there was a perfected contract of sale of the property for P1,050,000.00
between the Velezes and herein petitioners. It added, however, that such perfected contract of sale was subsequently
novated. Thus, it ruled: Evidence shows that that was the original contract. However, the same was mutually
withdrawn, cancelled and rescinded by novation, and was therefore abandoned by the parties when Carmen Velez Ting
raised the consideration of the contract [by] P350,000.00, thus making the price P1,400,000.00 instead of the original
price of P1,050,000.00. Since there was no agreement as to the second price offered, there was likewise no meeting
of minds between the parties, hence, no contract of sale was perfected.[10] The Court of Appeals added that,
assuming there was agreement as to the price and a second contract was perfected, the later contract would be
unenforceable under the Statute of Frauds. It further held that such second agreement, if there was one, constituted a
mere promise to sell which was not binding for lack of acceptance or a separate consideration.[11]
The Issues
Petitioners allege the following errors in the Decision of Respondent Court:
I
Since it ruled in its decision that there was no meeting of the minds on the second price offered (P1,400,000.00),
hence no contract of sale was perfected, the Court of Appeals erred in not holding that the original written contract to
buy and sell for P1,050,000.00 the Velezes property continued to be valid and enforceable pursuant to Art. 1279 in
relation with Art. 1479, first paragraph, and Art. 1403, subparagraph 2 (e) of the Civil Code.
II
The Court of Appeals erred in not ruling that petitioners have better rights to buy and own the Velezes property for
registering their notice of lis pendens ahead of the Avenue Groups registration of their deeds of sale taking into
account Art. 1544, 2nd paragraph, of the Civil Code.[12]
The Courts Ruling
The petition is meritorious.
First Issue: No Extinctive Novation
The lynchpin of the assailed Decision is the public respondents conclusion that the sale of the real property in
controversy, by the Velezes to petitioners for P1,050,000.00, was extinguished by novation after the said parties
negotiated to increase the price to P1,400,000.00. Since there was no agreement on the sale at the increased price,
then there was no perfected contract to enforce. We disagree.
The Court notes that the petitioners accepted in writing and without qualification the Velezes written offer to sell at
P1,050,000.00 within the three-day period stipulated therein. Hence, from the moment of acceptance on July 10,
1985, a contract of sale was perfected since undisputedly the contractual elements of consent, object certain and
cause concurred.[13] Thus, this question is posed for our resolution: Was there a novation of this perfected contract?
Article 1600 of the Civil Code provides that (s)ales are extinguished by the same causes as all other obligations, x x
x. Article 1231 of the same Code states that novation is one of the ways to wipe out an obligation. Extinctive
novation requires: (1) the existence of a previous valid obligation; (2) the agreement of all the parties to the new
contract; (3) the extinguishment of the old obligation or contract; and (4) the validity of the new one.[14] The
foregoing clearly show that novation is effected only when a new contract has extinguished an earlier contract
between the same parties. In this light, novation is never presumed; it must be proven as a fact either by express
stipulation of the parties or by implication derived from an irreconcilable incompatibility between old and new
obligations or contracts.[15] After a thorough review of the records, we find this element lacking in the case at bar.
As aptly found by the Court of Appeals, the petitioners and the Velezes did not reach an agreement on the new price of
P1,400,000.00 demanded by the latter. In this case, the petitioners and the Velezes clearly did not perfect a new
contract because the essential requisite of consent was absent, the parties having failed to agree on the terms of the
payment. True, petitioners made a qualified acceptance of this offer by proposing that the payment of this higher sale
price be made by installment, with P1,000,000.00 as down payment and the balance of P400,000.00 payable thirty
days thereafter. Under Article 1319 of the Civil Code,[16] such qualified acceptance constitutes a counter-offer and
has the ineludible effect of rejecting the Velezes offer.[17] Indeed, petitioners counter-offer was not accepted by the
Velezes. It is well-settled that (a)n offer must be clear and definite, while an acceptance must be unconditional and
unbounded, in order that their concurrence can give rise to a perfected contract.[18] In line with this basic postulate
of contract law, a definite agreement on the manner of payment of the price is an essential element in the formation
of a binding and enforceable contract of sale.[19] Since the parties failed to enter into a new contract that could have
extinguished their previously perfected contract of sale, there can be no novation of the latter. Consequently, the first
sale of the property in controversy, by the Velezes to petitioners for P1,050,000.00, remained valid and existing.
In view of the validity and subsistence of their original contract of sale as previously discussed, it is unnecessary to
discuss public respondents theses that the second agreement is unenforceable under the Statute of Frauds and that
the agreement constitutes a mere promise to sell.
Second Issue: Double Sale of an Immovable

The foregoing holding would have been simple and straightforward. But Respondent Velezes complicated the matter
by selling the same property to the other private respondents who were referred to in the assailed Decision as the
Avenue Group.
Before us therefore is a classic case of a double sale -- first, to the petitioner; second, to the Avenue Group. Thus, the
Court is now called upon to determine which of the two groups of buyers has a better right to said property.
Article 1544 of the Civil Code provides the statutory solution:
xxx

xxx

xxx

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded
it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession;
and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.
Under the foregoing, the prior registration of the disputed property by the second buyer does not by itself confer
ownership or a better right over the property. Article 1544 requires that such registration must be coupled with good
faith. Jurisprudence teaches us that (t)he governing principle is primus tempore, potior jure (first in time, stronger in
right). Knowledge gained by the first buyer of the second sale cannot defeat the first buyers rights except where the
second buyer registers in good faith the second sale ahead of the first, as provided by the Civil Code. Such knowledge
of the first buyer does not bar her from availing of her rights under the law, among them, to register first her purchase
as against the second buyer. But in converso knowledge gained by the second buyer of the first sale defeats his
rights even if he is first to register the second sale, since such knowledge taints his prior registration with bad faith
This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first buyer;
that before the second buyer can obtain priority over the first, he must show that he acted in good faith throughout
(i.e. in ignorance of the first sale and of the first buyers rights) ---- from the time of acquisition until the title is
transferred to him by registration or failing registration, by delivery of possession.[20] (Emphasis supplied)
After a thorough scrutiny of the records of the instant case, the Court finds that bad faith tainted the Avenue Groups
purchase on July 13, 1985 of the Velezes real property subject of this case, and the subsequent registration thereof on
August 1, 1995. The Avenue Group had actual knowledge of the Velezes prior sale of the same property to the
petitioners, a fact antithetical to good faith. For a second buyer like the Avenue Group to successfully invoke the
second paragraph, Article 1544 of the Civil Code, it must possess good faith from the time of the sale in its favor until
the registration of the same. This requirement of good faith the Avenue Group sorely failed to meet. That it had
knowledge of the prior sale, a fact undisputed by the Court of Appeals, is explained by the trial court thus:
The Avenue Group, whose store is close to the properties in question, had known the plaintiffs to be the lesseeoccupants thereof for quite a time. Felix Ting admitted to have a talk with Ong Seng in 1983 or 1984 about the
properties. In the cross-examination, Manuel Ting also admitted that about a month after Ester Borromeo allegedly
offered the sale of the properties Felix Ting went to see Ong Seng again. If these were so, it can be safely assumed
that Ong Seng had consequently told Felix about plaintiffs offer on January 11, 1985 to buy the properties for
P1,000,000.00 and of their timely acceptance on July 10, 1985 to buy the same at P1,050,000.00.
The two aforesaid admissions by the Tings, considered together with Uracas positive assertion that Felix Ting met with
her on July 11th and who was told by her that the plaintiffs had transmitted already to the Velezes their decision to buy
the properties at P1,050,000.00, clinches the proof that the Avenue Group had prior knowledge of plaintiffs interest.
Hence, the Avenue Group defendants, earlier forewarned of the plaintiffs prior contract with the Velezes, were guilty of
bad faith when they proceeded to buy the properties to the prejudice of the plaintiffs.[21]
The testimony of Petitioner Emilia Uraca supports this finding of the trial court. The salient portions of her testimony
follow:
BY ATTY. BORROMEO:

(To witness)

Q According to Manuel Ting in his testimony, even if they know, referring to the Avenue Group, that you were tenants
of the property in question and they were neighbors to you, he did not inquire from you whether you were interested in
buying the property, what can you say about that?
A
It was Felix Ting who approached me and asked whether I will buy the property, both the house and the land and
that was on July 10, 1985.
ATTY BORROMEO:
Q

(To witness)

What was your reply, if any?

A
Yes, sir, I said we are going to buy this property because we have stayed for a long time there already and we
have a letter from Carmen Ting asking us whether we are going to buy the property and we have already given our
answer that we are willing to buy.
COURT: (To witness)
Q

What do you mean by that, you mean you told Felix Ting and you showed him that letter of Carmen Ting?

WITNESS:
A
We have a letter of Carmen Ting where she offered to us for sale the house and lot and I told him that I have
already agreed with Concordia Ching, Ong Seng and my self that we buy the land. We want to buy the land and the
building.[22]

We see no reason to disturb the factual finding of the trial court that the Avenue Group, prior to the registration of the
property in the Registry of Property, already knew of the first sale to petitioners. It is hornbook doctrine that findings
of facts of the trial court, particularly when affirmed by the Court of Appeals, are binding upon this Court[23] save for
exceptional circumstances[24] which we do not find in the factual milieu of the present case. True, this doctrine does
not apply where there is a variance in the factual findings of the trial court and the Court of Appeals. In the present
case, the Court of Appeals did not explicitly sustain this particular holding of the trial court, but neither did it
controvert the same. Therefore, because the registration by the Avenue Group was in bad faith, it amounted to no
inscription at all. Hence, the third and not the second paragraph of Article 1544 should be applied to this case.
Under this provision, petitioners are entitled to the ownership of the property because they were first in actual
possession, having been the propertys lessees and possessors for decades prior to the sale.
Having already ruled that petitioners actual knowledge of the first sale tainted their registration, we find no more
reason to pass upon the issue of whether the annotation of lis pendens automatically negated good faith in such
registration.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is hereby SET ASIDE and the
dispositive portion of the trial courts decision dated October 19, 1990 is REVIVED with the following MODIFICATION -the consideration to be paid under par. 2 of the disposition is P1,050,000.00 and not P1,400,000.00. No Costs.
SO ORDERED.
SECOND DIVISION
[G.R. No. 119729. January 21, 1997]
ACE-AGRO DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS and COSMOS BOTTLING CORPORATION,
respondents.
DECISION
MENDOZA, J.:
This case originated in a complaint for damages for breach of contract which petitioner filed against private
respondent. From the decision of the Regional Trial Court, Branch 72, Malabon, Metro Manila, finding private
respondent guilty of breach of contract and ordering it to pay damages, private respondent appealed to the Court of
Appeals which reversed the trial courts decision and dismissed the complaint for lack of merit. Petitioner in turn
moved for a reconsideration, but its motion was denied. Hence, this petition for review on certiorari.
The facts are as follows:
Petitioner Ace-Agro Development Corporation and private respondent Cosmos Bottling Corporation are corporations
duly organized and existing under Philippine laws. Private respondent Cosmos Bottling Corp. is engaged in the
manufacture of soft drinks. Since 1979 petitioner Ace-Agro Development Corp. (Ace-Agro) had been cleaning soft drink
bottles and repairing wooden shells for Cosmos, rendering its services within the company premises in San Fernando,
Pampanga. The parties entered into service contracts which they renewed every year. On January 18, 1990, they
signed a contract covering the period January 1, 1990 to December 31, 1990. Private respondent had earlier
contracted the services of Aren Enterprises in view of the fact that petitioner could handle only from 2,000 to 2,500
cases a day and could not cope with private respondents daily production of 8,000 cases. Unlike petitioner, Aren
Enterprises rendered service outside private respondents plant.
On April 25, 1990, fire broke out in private respondents plant, destroying, among other places, the area where
petitioner did its work. As a result, petitioners work was stopped.
On May 15, 1990, petitioner asked private respondent to allow it to resume its service, but petitioner was advised that
on account of the fire, which had practically burned all . . . old soft drink bottles and wooden shells, private
respondent was terminating their contract.
Petitioner expressed surprise at the termination of the contract and requested private respondent, on June 13, 1990, to
reconsider its decision and allow petitioner to resume its work in order to cushion the sudden impact of the
unemployment of many of [its] workers. As it received no reply from private respondent, petitioner, on June 20, 1990,
informed its employees of the termination of their employment. Petitioners memorandum [1] read:
MEMORANDUM TO : All Workers/Union Members
THRU

: Mr. Angelito B. Catalan

Local Chapter President
Bisig Manggagawa sa Ace Agro-NAFLU

This is to inform you that the Cosmos Bottling Corp. has sent a letter to Ace Agro-Development Corp. terminating our
contract with them.
However, we are still doing what we can to save our contract and resume our operations, though this might take some
time.
We will notify you whatever would be the outcome of our negotiation with them in due time.
Truly yours,
ACE AGRO-DEVELOPMENT CORP.
(Sgd.) ANTONIO L. ARQUIZA
Manager

This led the employees to file a complaint for illegal dismissal before the Labor Arbiter against petitioner and private
respondent.
On July 17, 1990, petitioner sent another letter to private respondent, reiterating its request for reconsideration. Its
letter [2] read:
COSMOS BOTTLING CORPORATION
San Isidro, MacArthur Highway
San Fernando, Pampanga
Attention: Mr. Norman P. Uy
General Services Manager
Gentlemen:
In our letter to you dated June 13, 1990 seeking your kind reconsideration of your sudden drastic decision to
terminate our mutually beneficial contract of long standing, it is more than a month now but our office has not
received a reply from you.
Our workers, who have been anxiously waiting for the resumption of the operations and who are the ones most
affected by your sudden decision, are now becoming restless due to the financial difficulties they are now suffering.
We are, therefore, again seeking for the reconsideration of your decision to help alleviate the sufferings of the
displaced workers, which we also have to consider for humanitarian reason.
Yours very truly,

ACE AGRO-DEVELOPMENT CORP.

(Sgd.) ANTONIO I. ARQUIZA
Manager
In response, private respondent advised petitioner on August 28, 1990 that the latter could resume the repair of
wooden shells under terms similar to those contained in its contract but work had to be done outside the
company premises. Private respondents letter [3] read:
MR. ANTONIO I. ARQUIZA
Manager
ACE-AGRO DEVELOPMENT CORPORATION
165 J.P. Bautista Street
Malabon, Metro Manila
Dear Mr. Arquiza:
We are pleased to inform you that COSMOS BOTTLING CORPORATION, San Fernando Plant is again accepting jobout contract for the repair of our wooden shells.
Work shall be done outside the premises of the plant and under similar terms you previously had with the
company. We intend to give you priority so please see or contact me at my office soonest for the particulars
regarding the job.
Here is looking forward to doing business with you at the earliest possible time.
(Sgd.) DANILO M. DE CASTRO
Plant General Manager
Petitioner refused the offer, claiming that to do its work outside the companys premises would make it
(petitioner) incur additional costs for transportation which will eat up the meager profits that [it] realizes from
its original contract with Cosmos. In subsequent meetings with Danilo M. de Castro, Butch Cea and Norman
Uy of Cosmos, petitioners manager, Antonio I. Arquiza, asked for an extension of the term of the contract in
view of the suspension of work. But its request was apparently turned down.
On November 7, 1990, private respondent advised petitioner that the latter could then resume its work inside
the plant in accordance with its original contract with Cosmos. Private respondents letter [4] stated:
MR. ANTONIO I. ARQUIZA
General Manager
Ace-Agro Development Corporation
165 J. P. Bautista St., Malabon
Metro Manila
Dear Mr. Arquiza:
This is to officially inform you that you can now resume the repair of wooden shells inside the plant according to
your existing contract with the Company.
Please see Mr. Ener G. Ocampo, OIC-PDGS, on your new job site in the Plant.
Very truly yours,

COSMOS BOTTLING CORPORATION

(Sgd.) MICHAEL M. ALBINO
VP-Luzon/Plant General Manager
On November 17, 1990, petitioner rejected private respondents offer, this time, citing the fact that there was a
pending labor case. Its letter [5] to private respondent stated:
Mr. Michael M. Albino
VP-Luzon/Plant General Manager
Cosmos Bottling Corporation
San Fernando, Pampanga
Dear Mr. Albino,
This is in connection with your letter dated November 7, 1990 regarding the resumption of the repair of your
wooden shells inside San Fernando, Pampanga Plant according to the existing contract with your company.
At present, there is a pending case before the Department of Labor and Employment in San Fernando,
Pampanga which was a result of the premature termination of the said existing contract with your company. In
view of that, we find it proper for us to work for the resolution of the said pending case and include in the
Compromise Agreement the matter of the resumption of the repair of wooden shells in your San Fernando,
Pampanga Plant.
Thank you very much.
Very truly yours,
ACE AGRO-DEVELOPMENT CORP.
(Sgd.) ANTONIO I. ARQUIZA
Manager
On January 3, 1991, petitioner brought this case against private respondent for breach of contract and damages
in the Regional Trial Court of Malabon. It complained that the termination of its service contract was illegal and
arbitrary and that, as a result, it stood to lose profits and to be held liable to its employees for backwages,
damages and/or separation pay.
On January 16, 1991, a decision was rendered in the labor case, finding petitioner liable for the claims of its
employees. Petitioner was ordered to reinstate the employees and pay them backwages. However, private
respondent Cosmos was absolved from the employees claims on the ground that there was no privity of
contract between them and private respondent.
On the other hand, in its decision rendered on November 21, 1991, the RTC found private respondent guilty of
breach of contract and ordered it to pay damages to petitioner. Petitioners claim for reimbursement for what it
had paid to its employees in the labor case was denied. The dispositive portion of the trial courts decision read:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff Ace-Agro Development
Corporation and against defendant Cosmos Bottling Corporation, ordering the latter to pay to the former the
following:
a) The amount of P1,008,418.01 as actual damages;
b) P100,000.00 as corrective or exemplary damages;
c) The amount of P50,000.00 as and for attorneys fees; and
d) Costs and expenses of litigation.
Defendants counterclaims are dismissed.
SO ORDERED.
Private respondent appealed to the Court of Appeals, which on December 29, 1994, reversed the trial courts
decision and dismissed petitioners complaint. The appellate court found that it was petitioner which had
refused to resume work, after failing to secure an extension of its contract. Petitioner now seeks a review of the
Court of Appeals decision.
First. Petitioner claims that the appellate court erred in ruling that respondent was justified in unilaterally
terminating the contract on account of a force majeure. Quite possibly it did not understand the appellate
courts decision, or it would not be contending that there was no valid cause for the termination of the contract
but only for its suspension. The following is what the appellate court said: [6]
Article 1231 of the New Civil Code on extinguishment of obligations does not specifically mention unilateral
termination as a mode of extinguishment of obligation but, according to Tolentino, there are other causes of
extinguishment of obligations which are not expressly provided for in this chapter (Tolentino, Civil Code of the
Phils., Vol. IV, 1986 ed., p. 273). He further said:
But in some contracts, either because of its indeterminate duration or because of the nature of the prestation
which is its object, one of the parties may free himself from the contractual tie by his own will (unilateral
extinguishment); x x x. (p. 274-275, Ibid)

And that was just what defendant-appellant did when it unilaterally terminated the agreement it had with
plaintiff-appellee by sending the May 23, 1990 letter. As per its letter, the reason given by defendant-appellant
for unilaterally terminating the agreement was because the April 25, 1990 fire practically burned all of the
softdrink bottles and wooden shells which plaintiff-appellee was working on under the agreement. What
defendant-appellant was trying to say was that the prestation or the object of their agreement had been lost
and destroyed in the above-described fire. Apparently, the defendant-appellant would like this situation to fall
within what -- according to Tolentino -- would be:
x x x (O)bligations may be extinguished by the happening of unforeseen events, under whose influence the
obligation would never have been contracted, because in such cases, the very basis upon which the existence of
the obligation is founded would be wanting.
Both parties admitted that the April 25, 1990 fire was a force majeure or unforeseen event and that the same
even burned practically all the softdrink bottles and wooden shells -- which are the objects of the agreement.
But the story did not end there.
It is true that defendant-appellant still had other bottles that needed cleaning and wooden shells that needed
repairing (pp. 110-111, orig. rec.); therefore, the suspension of the work of the plaintiff-appellee brought about
by the fire is, at best, temporary as found by the trial court . Hence, plaintiff-appellees letters of
reconsideration of the termination of the agreement addressed to defendant-appellant dated June 13, 1990 and
July 17, 1990.
It is obvious that what petitioner thought was the appellate courts ruling is merely its summary of private
respondents allegations. Precisely the appellate court does not agree with private respondent, that is why, in
the last paragraph of the above excerpt, the court says that there was no cause for terminating the contract but
at most a temporary suspension of work. The court thus rejects private respondents claim that, as a result of
the fire, the obligation of contract must be deemed to have been extinguished.
Nonetheless, the Court of Appeals found that private respondent had reconsidered its decision to terminate the
contract and tried to accommodate the request of petitioner, first, by notifying petitioner on August 28, 1990
that it could resume work provided that this was done outside the premises and, later, on November 7, 1990, by
notifying petitioner that it could then work in its premises, under the terms of their contract. However,
petitioner unjustifiably refused the offer because it wanted an extension of the contract to make up for the
period of inactivity. As the Court of Appeals said in its decision: [7]
It took defendant-appellant time to make a reply to plaintiff-appellees letters. But when it did on August 28,
1990, it granted plaintiff-appellee priority to resume its work under the terms of their agreement (but outside its
premises), and the plaintiff-appellee refused the same on the ground that working outside the defendantappellants San Fernando Plant would mean added transportation costs that would offset any profit it would
earn.
The appellee was without legal ground to refuse resumption of work as offered by the appellant, under the terms
of their above agreement. It could not legally insist on staying inside property it did not own, nor was under
lease to it . . . . In its refusal to resume its work because of the additional transportation costs to be brought
about by working outside the appellants San Fernando plant, the appellee could be held liable for damages for
breach of contract.
. . . .
Thereafter, appellant sent its November 7, 1990 letter to appellee, this time specifically stating that plaintiffappellee can now resume work in accordance with their existing agreement. This time, it could not be denied
that by the tenor of the letter, appellant was willing to honor its agreement with appellee, that it had finally
made a reconsideration of appellees plea to resume work under the contract. But again, plaintiff-appellee
refused this offer to resume work.
Why did the appellee refuse to resume work? Its November 17, 1990 letter stated that it had something to do
with the settlement of the NLRC case filed against it by its employees. But that was not the real reason. In his
cross-examination, the witness for appellee stated that its real reason for refusing to resume work with the
appellant was -- as in its previous refusal -- because it wanted an extension of the period or duration of the
contract beyond December 31, 1991, to cover the period within which it was unable to work.
The agreement between the appellee and the appellant is with a resolutory period, beginning from January 1,
1990 and ending on December 31, 1990. When the fire broke out on April 25, 1990, there resulted a suspension
of the appellees work as per agreement. But this suspension of work due to force majeure did not merit an
automatic extension of the period of the agreement between them. According to Tolentino:
The stipulation that in the event of a fortuitous event or force majeure the contract shall be deemed suspended
during the said period does not mean that the happening of any of those events stops the running of the period
the contract has been agreed upon to run. It only relieves the parties from the fulfillment of their respective
obligations during that time. If during six of the thirty years fixed as the duration of a contract, one of the
parties is prevented by force majeure to perform his obligation during those years, he cannot after the
expiration of the thirty-year period, be compelled to perform his obligation for six more years to make up for
what he failed to perform during the said six years, because it would in effect be an extension of the term of the
contract. The contract is stipulated to run for thirty years, and the period expires on the thirtieth year; the
period of six years during which performance by one of the parties is prevented by force majeure cannot be
deducted from the period stipulated.

In fine, the appellant withdrew its unilateral termination of its agreement with appellee in its letter dated
November 7, 1990. But the appellees refusal to resume work was, in effect, a unilateral termination of the
parties agreement -- an act that was without basis. When the appellee asked for an extension of the period of
the contract beyond December 31, 1990 it was, in effect, asking for a new contract which needed the consent
of defendant-appellant. The appellee might be forgiven for its first refusal (pertaining to defendant-appellants
August 28, 1990 letter), but the second refusal must be construed as a breach of contract by plaintiffappellee. . . .
The Court of Appeals was right that petitioner had no basis for refusing private respondents offer unless
petitioner was allowed to carry out its work in the company premises. That petitioner would incur additional
cost for transportation was not a good reason for its refusal. Petitioner has not shown that on August 28, 1990,
when it was notified of the private respondents offer, the latters premises had so far been restored so as to
permit petitioner to resume work there. In fact, even when petitioner was finally allowed to resume work within
the plant, it was not in the former work place but in a new one, which shows that private respondents reason for
not granting petitioners request was not just a pretext.
Nor was petitioner justified in refusing to resume work on November 7 when it was again notified by petitioner to
work. Although it cited the pending labor case as reason for turning down private respondents offer, it would
appear that the real reason for petitioners refusal was the fact that the term of the contract was expiring in two
months and its request for an extension was not granted. But, as the appellate court correctly ruled, the
suspension of work under the contract was brought about by force majeure. Therefore, the period during which
work was suspended did not justify an extension of the term of the contract. [8] For the fact is that the contract
was subject to a resolutory period which relieved the parties of their respective obligations but did not stop the
running of the period of their contract.
The truth of the matter is that while private respondent had made efforts towards accommodation, petitioner
was unwilling to make adjustments as it insisted that it cannot profitably resume operation under the same
terms and conditions [of] the terminated contract but with an outside work venue [as] transportation costs alone
will eat up the meager profit that Ace-Agro realizes from its original contract. [9] While this so- called job-out
offer of private respondent had the effect of varying the terms of the contract in the sense that it could increase
its cost, what petitioner did not seem to realize was that the change was brought about by circumstances not of
private respondents making.
Again when private respondent finally advised petitioner on November 7, 1990 to work under the strict terms of
its contract and inside the plant, petitioner thought only of its interest by insisting that the contract be extended.
Petitioners manager, Antonio I. Arquiza, testified that he tried to secure a term extension for his company but
his request was turned down because the management of private respondent wanted a new contract after the
expiration of the contract on December 31, 1990. Arquiza testified: [10]
A [Butch Cea] told me that Cosmos is agreeable to allow us to resume our operation and when I inquired about
the extension of the contract he told me that I better refer the matter to Mr. Norman Uy.
. . . .
Q

Did you see Mr. Norman Uy?

A
Yes, sir, when I went to see Mr. Norman Uy he asked me why I was there and he told me why I did not start
operation I told him that what we are expecting that Mr. Cea would give me the formal letter regarding the
resumption of the operation and honoring of contract and he said that our price was so high and if we are willing
to use said contract and when I said yes he told me that we will just send you a letter considering that another
contractor repairing our damaged shells and cleaning of dirty bottles. When I asked him that does that mean
that the meeting I had with Mr. Cea, he told me that was null and void and he told me that Mr. Cea want a
new contract.
As already stated, because the suspension of work was due to force majeure, there was no justification for
petitioners demand for an extension of the terms of the contract. Private respondent was justified in insisting
that after the expiration of the contract, the parties must negotiate a new one as they had done every year
since the start of their business relations in 1979.
Second. Petitioner slams the Court of Appeals for ruling that it was [petitioners] unjustified refusal which
finally terminated the contract between the parties. This contention is likewise without merit. Petitioner may
not be responsible for the termination of the contract, but neither is private respondent, since the question in
this case is whether private respondent is guilty of breach of contract. The trial court held that private
respondent committed a breach of contract because, even as its August 28, 1990 letter allowed petitioner to
resume work, private respondents offer was limited to the repairs of wooden shells and this had to be done
outside the companys premises. On the other hand, the final offer made on November 7, 1990, while allowing
the repair of wooden shells [to be done] inside the plant according to your contract with the company, was still
limited to the repair of the wooden shells, when the fact was that the parties contract was both for the repair of
wooden crates and for the cleaning of soft drink bottles.
But this was not the petitioners complaint. There was never an issue whether the companys offer included the
cleaning of bottles. Both parties understood private respondents offer as including the cleaning of empty soft
drink bottles and the repair of the wooden crates. Rather, the discussions between petitioner and private
respondents representatives focused first, on the insistence of petitioner that it be allowed to work inside the
company plant and, later, on its request for the extension of the life of the contract.
Petitioner claims that private respondent had a reason to want to terminate the contract and that was to give
the business to Aren Enterprises, as the latter offered its services at a much lower rate than petitioner. Aren

Enterprises rate was P2.50 per shell while petitioners rates were P4.00 and P6.00 per shell for ordinary and
super sized bottles, respectively. [11]
The contention has no basis in fact. The contract between private respondent and Aren Enterprises had been
made on March 29, 1990 - before the fire broke out. The contract between petitioner and private respondent did
not prohibit the hiring by private respondent of another service contractor. With private respondent hitting
production at 8,000 bottles of soft drinks per day, petitioner could clearly not handle the business, since it could
clean only 2,500 bottles a day. [12] These facts show that although Aren Enterprises rate was lower than
petitioners, they did not affect private respondents business relation with petitioner. Despite private
respondents contract with Aren Enterprises, private respondent continued doing business with petitioner and
would probably have done so were it not for the fire. On the other hand, Aren Enterprises could not be
begrudged for being allowed to continue rendering service even after the fire because it was doing its work
outside private respondents plant. For that matter, after the fire, private respondent on August 28, 1990
offered to let petitioner resume its service provided this was done outside the plant.
Petitioner may not be to blame for the failure to resume work after the fire, but neither is private respondent.
Since the question is whether private respondent is guilty of breach of contract, the fact that private respondent
is blameless can only lead to the conclusion that the appealed decision is correct.
WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.

SECOND DIVISION
ISAIAS F. FABRIGAS and
MARCELINA R. FABRIGAS,
Petitioners,

- versus -

SAN FRANCISCO DEL

MONTE, INC.,
Respondent.

G.R. No. 152346

Present:
PUNO, J.,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
Promulgated:
November 25, 2005

x ---------------------------------------------------------------------x

DECISION
TINGA, J.:

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 courts 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) Psd50064 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 attorneys
fees; and
4.

Ordering defendants to pay the costs of suit.

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 Pias, 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 Montes 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 Montes 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 Montes 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
July 2, 1985
September 30, 1985
November 27, 1985
January 20, 1986

P1, 328.52
P2, 600.00
P2, 600.00
P2, 600.00
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
March 10, 1986
April 9, 1986
May 13, 1986
June 6, 1986
July 14, 1986

P2, 000.00
P2, 000.00
P2, 000.00
P2, 000.00
P2, 000.00
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 Marcelinas 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?
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 Montes 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 buyers 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 Montes 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 functionsone to extinguish an existing obligation, the other to substitute
a new one in its placerequiring 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 Montes end, the upward change in price was
the consideration for entering into Contract to Sell No. 2491-V.
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 husbands 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 husbands 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 husbands 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.
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 husbands 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 husbands 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 Montes 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.

SO ORDERED.

FIRST DIVISION
[G.R. No. 147349. February 13, 2004]
MANILA INTERNATIONAL AIRPORT AUTHORITY (MIAA), petitioner, vs. ALA INDUSTRIES CORPORATION, respondent.
DECISION
PANGANIBAN, J.:
Foreseeable difficulties that occur during the Christmas season and cause a delay do not constitute a fortuitous event.
The difficulties in processing claims during that period are not acts of God that would excuse noncompliance with
judicially approved obligations.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the February 28, 2001 Decision[2] of
the Court of Appeals (CA) in CA-GR CV No. 59518. The dispositive part of the Decision reads:
WHEREFORE, the appealed final order is hereby REVERSED. The Court a quo is ordered to issue a Writ of Execution
directing the branch sheriff to enforce [Respondent] ALA Industries unpaid claim against [Petitioner] Manila
International Airport Authority (MIAA) in the total amount of P7,171,835.53.[3]
The Facts
The facts of the case are narrated by the CA as follows:
[Petitioner] MIAA conducted a public bidding for a contract involving the structural repair and waterproofing of the
International Passenger Terminal (IPT) and International Container Terminal (ICT) buildings of the Ninoy Aquino
International Airport (NAIA). Out of eleven bidders, [Respondent] ALA submitted the second lowest and most
advantageous bid. The contract was awarded to [respondent] in the amount of P32,000,000.00 when it agreed to
reduce the price from P36,000.00.[4] On June 28, 1993, the contract was executed providing, inter alia, the following
terms:
ARTICLE I
SCOPE OF WORK
1.1
The CONTRACTOR shall furnish all materials, labor, tools, plans, equipment and other services and [perform]
all operations necessary to complete the structural repair and waterproofing of IPT and ICT buildings, all in accordance
with the plans and specifications and subject to the terms and conditions of the Bid Documents. The CONTRACTOR
shall likewise be responsible for the removal, hauling, disposal of materials used in the work area including cleaning
thereof during and after completion of the work.
1.2
The CONTRACTOR guarantees and warrants the availability, quality and genuineness of all the materials it
will supply, deliver and use in the construction.
1.3
The CONTRACTOR warrants further that all works stipulated in the Contract shall be done in good and
acceptable condition and to make good at the CONTRACTORs expense any imperfections or defects which the MIAA or
its representative may discover during the progress of the work within one (1) year from and after acceptance in
writing of the said work by the MIAA, as provided in the General Conditions and Specifications.
xxx

xxx

xxx

ARTICLE IV
CONTRACT PRICE/MANNER OF PAYMENT
4.1 In consideration of the full, satisfactory and faithful performance by the CONTRACTOR of all its undertakings and
obligations defined in and provided for under this agreement, the MIAA agrees to pay the CONTRACTOR the total
amount of PESOS: THIRTY TWO MILLION [AND] 00/100 (P32,000,000.00) Philippine Currency, payable as follows:
4.1.1

Initial payment shall be made upon submission of work accomplishment of not less than 15%;

4.1.2
Subsequent payments shall be for work accomplished as measured, verified and approved by MIAA. Such
progress billings shall indicate actual work accomplishments and shall be subject to the approval of MIAA, which
approval shall not be unreasonably withheld.
4.1.3
Progress billings shall be paid by the MIAA periodically but not more than once a month within 30 calendar
days from receipt hereof.

The contract contains escalation clauses and price adjustments. [Respondent] made the necessary repairs and
waterproofing. After submission of its progress billings to [petitioner], [respondent] received partial payments.
Progress billing No. 6 remained unpaid despite repeated demands by [respondent].
On June 30, 1994, [petitioner] unilaterally rescinded the contract on the ground that [respondent] failed to complete
the project within the agreed completion date. On September 16, 1994, [petitioner] advised [respondent] of a
committee formed to determine the extent of the work done which was given until September 30, 1994 to submit its
findings. Just the same, [respondent] was not fully paid.
On October 20, 1994, [respondent] objected to the rescission made by [petitioner] and reiterated its claims. As of the
filing of the complaint for sum of money and damages on July 18, 1995, [respondent] was seeking to recover from
[petitioner] P10,376,017.00 as the latters outstanding obligation and P1,642,112.84 due from the first to [the] fifth
progress billings.
With the filing of [respondents] sur-rejoinder to [petitioners] rejoinder, the trial Court directed the parties to proceed
to arbitration on July 16, 1996. The Court a quos ruling is based on Article XXVII of the contract that provides for
arbitration.
Both parties executed a compromise agreement, assisted by their counsels, and jointly filed in court a motion for
judgment based on compromise agreement.
RTC Disposition
On November 4, 1997, the Court a quo rendered judgment approving the compromise agreement. The pertinent
portions of the compromise read as follows:
1.
As full and complete payment of its claims against [petitioner] arising from their waterproofing contract
subject of this case, [respondent] accepts [petitioner]s offer of payment in the amount of FIVE MILLION NINE
HUNDRED FORTY SIX THOUSAND TWO HUNDRED NINETY FOUR AND 31/100 (P5,946,294.31).
2.
[Petitioner] shall pay [respondent] said amount of FIVE MILLION NINE HUNDRED FORTY SIX THOUSAND TWO
HUNDRED NINETY FOUR AND 31/100 (P5,946,294.31) within a period of thirty (30) days from receipt of a copy of the
Order of the Court approving this Compromise Agreement.
3.
Failure of the [petitioner] to pay said amount to [respondent] within the period above stipulated shall entitle
the [respondent] to a writ of execution from this Honorable Court to enforce all its claims[5] pleaded in the Complaint.
4.
In consideration of the Implementation of this Compromise Agreement, [respondent] agrees to waive all its
claims against the [petitioner] as pleaded in the Complaint, and [petitioner] also agrees to waive all its claims, rights
and interests pleaded in the answer, and all such other claims that it has or may have in connection with, related to or
arising from the Waterproofing Contract subject of this case with [respondent].
Finding the aforesaid COMPROMISE AGREEMENT not to be contrary to law, moral[s], good customs, public order, and
public policy, the Court hereby approves the same and renders judgment in conformity with the terms and conditions
of the said COMPROMISE AGREEMENT, enjoining the parties to comply with the provisions thereof strictly and in good
faith without pronouncement as to costs.
SO ORDERED.
For [petitioners] failure to pay within the period above stipulated, [respondent] filed a motion for execution to enforce
its claim in the total amount of P13,118,129.84. [Petitioner] filed a comment and attributed the delays to its being a
government agency. In its effort to render [respondents] motion for execution moot and academic, [petitioner] paid
[respondent] P5,946,294.31 on February 2, 1998.
On February 16, 1998, the trial court denied [respondents] motion for execution. It also denied the motion for
reconsideration, ruling as follows:
The delay in complying with the Compromise Agreement having been satisfactorily explained by the Office of the
Government Counsel, the Motion for Reconsideration of the order denying [respondents] Motion for Execution is
denied.
SO ORDERED.[6]
Ruling of the Court of Appeals
Reversing the trial court, the CA ordered it to issue a writ of execution to enforce respondents claim to the extent of
petitioners remaining balance. The appellate court ratiocinated that a judgment rendered in accordance with a
compromise agreement was immediately executory, and that a delay of almost two months was not substantial
compliance therewith.
Hence this Petition.[7]
Issues
Petitioner raises the following issues for our consideration:
I.
Whether or not the slight delay of petitioner in complying with its obligation under the Compromise Agreement is a
valid ground for the enforcement of private respondents claim under the Complaint.

II.
Whether or not the delay of petitioner in complying with its obligation under the Compromise Agreement is justified
under the principle that no person shall be responsible for those events which could not be foreseen, or which though
foreseen, were inevitable.
III.
Whether or not private respondent is estopped from enforcing its claim under the Complaint considering that it already
enjoyed the benefits of the Compromise Agreement.[8]
The foregoing may be summed up in one issue: Whether there was a fortuitous event that excused petitioner from
complying with the terms and conditions of the judicially approved Compromise Agreement.
The Courts Ruling
The Petition has no merit.
Sole Issue:
Delay in Payment by Reason
of a Fortuitous Event
A compromise agreement is a contract whereby the parties make reciprocal concessions to resolve their differences,[9]
thus avoiding litigation[10] or putting an end to one that has already commenced.[11] Generally favored in law,[12]
such agreement is a bilateral act or transaction that is binding on the contracting parties and is expressly
acknowledged by the Civil Code as a juridical agreement between them.[13] Provided it is not contrary to law, morals,
good customs, public order or public policy,[14] it is immediately executory.[15]
Judicial Compromise
Final and Executory
In a long line of cases, we have consistently held that x x x a compromise once approved by final orders of the court
has the force of res judicata[16] between the parties and should not be disturbed except for vices of consent or
forgery. Hence, a decision on a compromise agreement is final and executory x x x.[17] Such agreement has the
force of law[18] and is conclusive between the parties.[19] It transcends its identity as a mere contract binding only
upon the parties thereto, as it becomes a judgment that is subject to execution in accordance with the Rules.[20]
Judges therefore have the ministerial and mandatory duty to implement and enforce it.[21]
To be valid, a compromise agreement is merely required by law, first, to be based on real claims; second, to be actually
agreed upon in good faith.[22] Both conditions are present in this case. The claims of the parties are valid, and the
agreement done without any fraud or vice of consent.
Without a doubt, each of the parties herein entered into Compromise Agreement freely and voluntarily. When they
carefully negotiated the terms and provisions thereof, they were adequately assisted by their respective counsels -petitioner, no less than by the Office of the Government Corporate Counsel (OGCC).[23] Each party agreed to
something that neither might have actually wanted, except for the peace that would be brought by the avoidance of a
protracted litigation. Hence, the Agreement must govern their relations.
The Christmas Season
Not a Fortuitous Event
The failure to pay on the date stipulated was clearly a violation of the Agreement. Within thirty days from receipt of
the judicial Order approving it -- on December 20, 1997 -- payment should have been made, but was not. Thus,
nonfulfillment of the terms of the compromise justified execution.[24] It is the height of absurdity for petitioner to
attribute to a fortuitous event its delayed payment. Petitioners explanation is clearly a gratuitous assertion that
borders on callousness.[25] The Christmas season cannot be cited as an act of God that would excuse a delay in the
processing of claims by a government entity that is subject to routine accounting and auditing rules.
A fortuitous event is one that cannot be foreseen or, though foreseen, is inevitable.[26] It has the following
characteristics:
x x x (a) [T]he cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his
obligations, must be independent of human will; (b) it must be impossible to foresee the event which constitutes the
caso fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner; and (d) the obligor must be free from any
participation in the aggravation of the injury resulting to the creditor.[27]
None of these elements appears in this case.
First, processing claims against the government and subjecting these to the usual accounting and auditing procedures
are certainly not only foreseeable and expectable, but also dependent upon the human will. Liquidation and payment
resulting therefrom can be deliberately delayed or speeded up.
Second, the Christmas season is not a caso fortuito, but a regularly occurring event. It is in fact foreseeable, and its
occurrence has absolutely nothing to do with the processing of claims.
Further, in order to claim exemption from liability by reason of a fortuitous event, such event should be the sole and
proximate cause of the injury to or the loss or destruction of the object of the contract[28] or compromise, which was
the payment to be made by petitioner. Certainly, this payment was not lost or destroyed, but merely delayed, thus
causing injury to respondent. Granting arguendo such loss or destruction, the Christmas season could not have been
the sole and proximate cause thereof.

Third, the occurrence of the Christmas season did not at all render impossible the normal fulfillment of the obligation
of petitioner; otherwise, few claims would ever be paid during this period. It ought to have taken appropriate
measures to ensure that a delay would be avoided. When it entered into the Agreement, it knew fully well that the 30day period for it to pay its obligation would end during the Christmas season. Thus, it cannot now be allowed to
renege on its commitment.
Fourth, petitioner cannot argue that it is free from any participation in the delay. It should have laid out on the
compromise table the problems that would be caused by a deadline falling during the Christmas season. Furthermore,
it should have explained to respondent that government accounts would be examined carefully and thoroughly to the
last detail, in strict compliance[29] with accounting and auditing rules issued by and pursuant to the constitutional
mandate of the Commission on Audit.[30]
Indeed, the liquidation of government obligations involves a long process beginning with the preparation of
disbursement vouchers; followed by the processing of requests for allotment as supported by vouchers, job orders and
requisitions; and ending with the issuance of the corresponding checks.[31] Without first securing the necessary
certification as to the availability of funds and allotment against which expenditures may be properly charged,[32] no
funds shall be disbursed; and no expenditures chargeable against any authorized allotments shall be incurred or
authorized by agency heads.
Moreover, it is important to note that under government accounting principles, no contract involving the expenditure
of public funds shall be made until there is an appropriation therefor, the unexpended balance of which, free of other
obligations, is sufficient to cover the proposed expenditure.[33] In the present case, there was already an antecedent
appropriation for the contract when petitioner entered into it. Obviously, prior planning had not taken into account the
liquidation process in the conduct of the compromise.
The sheer neglect shown by petitioner in failing to consider these matters aggravated the resulting injury suffered by
respondent. The former cannot be allowed to hide now behind its government cloak.
Fortuitous Event
Negated by Negligence
The act-of-God doctrine requires all human agencies to be excluded from creating the cause of the mischief.[34] Such
doctrine cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse
consequences of loss[35] or injury. Since the delay in payment in the present case was partly a result of human
participation -- whether from active intervention or neglect -- the whole occurrence was humanized and was therefore
outside the ambit of a caso fortuito.
Furthermore, none of the requisites we have earlier mentioned are present in this case, a fact that clearly prevents
petitioner from being excused from liability.[36] Under the rules of evidence, the burden of proving that a loss is due to
a caso fortuito rests upon the party invoking it.[37] This responsibility, it failed to discharge.
Verily, an assiduous scrutiny of the records convinces us that it was negligent,[38] and that it thereby incurred a delay
in the performance of its contractual obligation under the judicial compromise. It thus created an undue risk or injury
to respondent by failing to exercise that reasonable degree of care, precaution or vigilance that the circumstances
justly demanded,[39] and that an ordinarily prudent person would have done.[40]
Court Without Power to Alter
a Judicial Compromise
The principle of autonomy of contracts must be respected.[41] The Compromise Agreement was a contract
perfected by mere consent;[42] hence, it should have been respected. Item 3 thereof provided that failure of
petitioner to pay within the stipulated period would entitle respondent to a writ of execution to enforce all the claims
that had been pleaded by the latter in the Complaint. This provision must be upheld, because the Agreement
supplanted the Complaint itself. Although judicial approval was not required for the perfection of that Agreement once
it was granted, it could not and must not be disturbed except for vices of consent or forgery.[43]
No such infirmity can be found in the subject Compromise Agreement. Its terms are clear and leave no doubt as to
their intention. Thus, the literal meaning of its stipulations must control.[44] It must be strictly interpreted and x x x
understood as including only matters specifically determined therein or which, by necessary inference from its
wording, must be deemed included.[45]
The lower court was without power to relieve petitioner from an obligation it had voluntarily assumed, simply because
the Agreement later turned out to be unwise, disastrous or foolish.[46] It had no authority to impose upon the parties a
judgment different from or against the terms and conditions of their Compromise Agreement.[47] It could not alter a
contract by construction or make a new one for the parties; its duty is confined to the interpretation of the one which
they have made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or
read into the contract words which it does not contain.[48] It could not even set aside its judgment without declaring
in an incidental hearing that the Agreement was vitiated by any of the grounds enumerated in Article 2038 of the Civil
Code.[49] Above all, neither the Agreement nor the courts approval of it was ever questioned or assailed by the
parties.
Basic is the rule that if a party fails or refuses to abide by a compromise agreement, the other may either enforce it or
regard it as rescinded and insist upon the original demand.[50] For failure of petitioner to abide by the judicial
compromise, respondent chose to enforce it. The latters course of action was in accordance with the very stipulations
in the Agreement that the lower court could not change.[51]
Respondent is thus entitled to a writ of execution for the total amount contained in the Compromise Agreement. The
Court cannot reduce it. The partial payment made by petitioner does not at all contravene Article 1229 of the Civil
Code,[52] which is applicable only to contracts that are the subjects of litigation, not to final and executory judgments.
[53]
Estoppel Inapplicable

Petitioners attempt to put respondent in estoppel must be struck down. In estoppel, a person, who by his act or
conduct has induced another to act in a particular manner, is barred from adopting an inconsistent position, attitude or
course of conduct that thereby causes loss or injury to another.[54] No such inconsistency is present here. From the
very start, respondent was already asking the courts to enforce all its claims, pursuant to the Agreement. It has not
shown any act or conduct that would leads us to believe that by accepting petitioners partial payment, it has dropped
all claims to which it is entitled.
Certainly, an obligation may be extinguished by payment,[55] but this rule applies when the creditor receives and
acknowledges full payment[56] from the debtor. Respondent has neither acknowledged full payment nor led
petitioner to believe that it has. Lack of reservation or protest does not ipso facto constitute a waiver of claims.
Because estoppel should be applied with caution, the action that gives rise to it must be deliberate and unequivocal.
[57]
In the present case, respondent continued to pursue the execution of its total demand of P13,118,129.84, even after
receiving P5,946,294.31 from petitioner. This continued pursuit signified the formers intent not to waive its total claim.
Hence, it cannot be considered estopped from enforcing such claim.
The appellate court was correct in strictly following the Agreement by deducting the amount received by respondent
from the latters total claim. Besides, questions raised on appeal must be within the issues framed by the parties
and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal.[58] Any assertion
of equity must finally be struck down when dilatory schemes exist.[59]
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.