civ digest _1308-1379_

CIVIL LAW REVIEW DIGESTS – Balane Alcisso, Antonio, Arriola, Cajucom, Calalang, Claudio, Escueta, Fajardo, Imperial, Juaquino, Martin, Martinez, Mendoza, Noel, Plazo Raso, Rosales, Sia, Siron, Venzuela

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ARTICLE 1308

SAMPAGUITA BUILDERS v PNB

Mini digest: Sampaguita loaned money from PNB. PNB unilaterally increased rates of interest in the loan w/o informing Sampaguita. PNB claimed they were authorized to do it as there was a clause in the agreement that they may do so. Besides, Usury law was no longer in force = SC said NO! PNB cannot do so; it will violate mutuality of contracts under 1308. Besides, SC may intervene when amount of interest is unconscionable. Facts: Sampaguita secured a loan from PNB in an aggregate amount of 8M pesos, mortgaging the properties of Sampaguita’s president and chairman of the board. Sampaguita also executed several promissory notes due on different dates (payment dates). The first promissory note had 19.5% interest rate. The 2nd and 3rd had 21.5%. a uniform clause therein permitted PNB to increase the rate “within the limits allowed by law at any time depending on whatever policy it may adopt in the future x x x,” without even giving prior notice to petitioners. There was also a clause in the promissory note that stated that if the same is not paid 2 years after release then it shall be converted to a medium term loan – and the interest rate for such loan would apply. Later on, Sampaguita defaulted on its payments and failed to comply with obligations on promissory notes. Sampaguita thus requested for a 90 day extension to pay the loan. Again they defaulted, so they asked for loan restructuring. It partly paid the loan and promised to pay the balance later on. AGAIN they failed to pay so PNB extrajudicially foreclosed the mortgaged properties. It was sold for 10M. PNB claimed that Sampaguita owed it 12M so they filed a case in court asking sampaguita to pay for deficiency. RTC found that Sampaguita was automatically entitled to the debt relief package of PNB and ruled that the latter had no cause of action against the former. CA reversed, saying Sampaguita was not entitled, thus ordered them to pay the deficiency – Appeal = Went to SC. Sampaguita claims the loan was bloated so they don’t really owe PNB anymore, but it just overcharged them! Issues/Ruling: W/N the loan accounts are bloated: YES. There is no deficiency; there is actually an overpayment of more than 3M based on the computation of the SC. Whether PNB could unilaterally increase interest rates: NO Ratio: Sampaguita’s accessory duty to pay interest did not give PNB unrestrained freedom to charge any rate other than that which was agreed upon. No interest shall be due, unless expressly stipulated in writing. It would be the zenith of farcicality to specify and agree upon rates that could be subsequently upgraded at whim by only one party to the agreement.

The “unilateral determination and imposition” of increased rates is “violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code.” One‐sided impositions do not have the force of law between the parties, because such impositions are not based on the parties’ essential equality. Although escalation clauses are valid in maintaining fiscal stability and retaining the value of money on long‐term contracts, giving respondent an unbridled right to adjust the interest independently and upwardly would completely take away from petitioners the “right to assent to an important modification in their agreement” and would also negate the element of mutuality in their contracts. The clause cited earlier made the fulfillment of the contracts “dependent exclusively upon the uncontrolled will” of respondent and was therefore void. Besides, the pro forma promissory notes have the character of a contract d’adhésion, “where the parties do not bargain on equal footing, the weaker party’s [the debtor’s] participation being reduced to the alternative ‘to take it or leave it.’” Circular that lifted the ceiling of interest rates of usury law did not authorize either party to unilaterally raise the interest rate without the other’s consent. the interest ranging from 26 percent to 35 percent in the statements of account ‐‐ “must be equitably reduced for being iniquitous, unconscionable and exorbitant.” Rates found to be iniquitous or unconscionable are void, as if it there were no express contract thereon. Above all, it is undoubtedly against public policy to charge excessively for the use of money. It cannot be argued that assent to the increases can be implied either from the June 18, 1991 request of petitioners for loan restructuring or from their lack of response to the statements of account sent by respondent. Such request does not indicate any agreement to an interest increase; there can be no implied waiver of a right when there is no clear, unequivocal and decisive act showing such purpose. Besides, the statements were not letters of information sent to secure their conformity; and even if we were to presume these as an offer, there was no acceptance. No one receiving a proposal to modify a loan contract, especially interest ‐‐ a vital component ‐‐ is “obliged to answer the proposal.” Besides, PNB did not comply with its own stipulation that should the loan not be paid 2 years after release of money then it shall be converted to a medium term loan. *Court applied 12% interest rate instead for being a forbearance of money (there were some pieces of evidence presented by PNB in court that sampaguita objected to. Lower courts overruled the objections but SC said the objections were correct and the


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evidence should not have been admitted. i.e. contract wasn’t signed by the parties, a part of the contract wasn’t properly annexed/no reference was made in the main contract.) In addition to the preceding discussion, it is then useless to labor the point that the increase in rates violates the impairment clause of the Constitution, because the sole purpose of this provision is to safeguard the integrity of valid contractual agreements against unwarranted interference by the State in the form of laws. Private individuals’ intrusions on interest rates is governed by statutory enactments like the Civil Code

ARTICLE 1311

MANDARIN VILLA v CA

FACTS:

In the evening of October 19, 1989, private respondent De Jesus, a practicing lawyer and businessman, hosted a dinner for his friends at Mandarin Villa Seafoods Village Greenhills, Mandaluyong City. After the dinner, the waiter handed to him the bill in the amount of P2658.50. De Jesus offered to pay the bill through his credit card issued by Philippine Commercial Credit Card Inc. (BANKARD). This card was accepted by the waiter. Ten minutes later, the waiter returned and audibly informed De Jesus that his card had expired. De Jesus argued that his card had yet to expire on September 1990, as embossed on its face. The waiter was unmoved thus De Jesus and two of his guests approached the restaurant’s cashier who again passed the credit card over the verification computer. The same information was produced (Card Expired). De Jesus and his two guests returned to their table and one of the guests (Professor Lirag) uttered “ Cloddy (Clodualdo De Jesus) may problema ba? Baka kailangang maghugas na kami ng pinggan?” De Jesus left the restaurant and got his BPI Express Credit Card from his card and offered it to pay their bill. This was accepted and honored by the cashier after verification.

Subsequently, De Jesus filed a suit for damages for his humiliation and embarrassment.

TC ruled in De Jesus’ favor and awarded moral and exemplary damages and attorney’s fees and litigation expenses.

Mandarin and Bankard appealed to CA and CA held that Mandarin is solely responsible for damages in favor of De Jesus.

ISSUE:

1. Whether petitioner is bound to accept payment by means of credit card

RULING: YES

Mandarin Villa Seafood Village is affiliated with BANKARD. Mandarin and BANKARD entered into agreement which states that

The MERCHANT shall honor validly issued PCCCI credit cards presented by their corresponding holders in the purchase of goods and/or services supplied by it provided that the card expiration date has not elapsed and the card number does not appear on the latest cancellation bulletin of lost, suspended and canceled PCCCI credit cards and, no signs of tampering, alterations or irregularities appear on the face of the credit card.

While De Jesus may not be a party to the said agreement, the above‐quoted stipulation conferred a favor upon DE Jesus, a holder of credit card validly issued by BANKARD. This stipulation is a stipulation pour auturi and under Article 1311 of the Civil Code, De Jesus may demand its fulfillment provided he communicated his acceptance to Mandarin before its revocations. IN the case at bar, De Jesus’ offer to pay by means of his BANKARD credit card constitutes not only as an acceptance of the said stipulation but also an explicit communication of his acceptance to the obligor.

In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood Village stating that "Bankard is accepted here. This representation is conclusive upon the petitioner which it cannot deny or disprove as against De Jesus, the party relying thereon. Mandarin, therefore, cannot disclaim its obligation to accept De Jesus' BANKARD credit card without violating the equitable principle of estoppel.

UY v CA

Facts:

W. Uy and R. Roxas are agents with power to sell 8 parcels of land by the owners thereof. Under such power, they offered to sell the lands, located in Benguet to National Housing Authority (NHA) to be utilized and developed as a housing project.

On Valentines day of 1989, the NHA Board passed a Resolution approving the acquisition of said lands, with an area of 31.8231 hectares, at the cost of P23.867 million, pursuant to


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which the parties executed a series of Deeds of Absolute Sale covering the subject lands. Of the 8 parcels of land, however, only 5 were paid for by the NHA.1

On 1991, the NHA issued a new Resolution cancelling thesale over the 3 parcels of land. The NHA, through Resolution 2394, subsequently offered the amount ofP1.225 million to the landowners as daños perjuicios.

Aggrieved at the loss of a sale, March 1992, Uy and Roxas filed before the RTC Quezon City a Complaint for Damagesa gainst NHA and its General Manager Robert Balao. After trial, the RTC rendered a decision declaring thecancellation of the contract to be justified. To the glee of Uy and Roxas, the trial court still awarded damages to plaintiffs2.

Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court and entered a new one dismissing the complaint. It held that since there was “sufficient justifiable basis” in cancelling the sale,“it saw no reason” for the award of damages. 3

Issue:

w/n the award of damages were proper.

Held:

The Supreme Court denied the petition and affirmed the CA.

Action must be prosecuted in the name of a party whose right is sought to be enforced. The Petitioners are not the real parties.

The SC held that cases construing the real party‐in‐interestp rovision can be more easily understood if it is borne in mind that the true meaning of real party‐in‐interest may be summarized as follows: An action shall be prosecuted in the name of the party who, by the substantive law, has the right sought to be enforced. In this case, Uy et al are not the proper parties to advance the case.4

1 A report NHA received from the DENR confirmed that the remaining area is located at an notorious landsl ide area and therefore, not suitable for development into a housing project.

2 In th esum of P1.255 million, the same amount initially offered by NHA to petitioners as damages. 3 The Court of Appeals found noted that petitioners were mere attorneys‐in‐fact and, therefore, not the real parties‐in‐interest in the action before the trial court. This is a side REM issue. 4 Section 2, Rule 3 of the Rules of Court requires that every action must be prosecuted and defended in the name of the real party‐in‐interest. The real party‐in‐interest is the party who stands to be benefited orinjured by the judgment or the party entitled to the avails of the suit. “Interest,” within the meaning of therule, means material

Actions submitted by an attorney‐in‐fact in his name and not in the name of his principal must be dismissed

Where the action is brought by an attorney‐in‐fact of a land owner in his name, (as in our presentaction) and not in the name of his principal, the action was properly dismissed5

Pertinent Civil Law Provision: Article 1311

The primary question: do petitioners, under substantive law, possess the right they seek to enforce? The SC responded in the negative..

The applicable substantive law in this case is Article 1311 of the Civil Code6

The SC found that the Petitioners are not parties to the contract of sale between their principals and NHA. They are mere agents of the owners of the land subject of the sale. As agents, they only render some service or do something in representation or on behalf of their principals. The rendering of such service did not make them parties to the contracts of sale executed in behalf of the latter. Since a contract may be violated only by the parties thereto as against each other, the real parties‐in‐interest, either as plaintiff or defendant, in an action upon that contract must, generally, either be parties to said contract.

Neither has there been any allegation, much less proof, that petitioners are the heirs of their principals.

Are petitioners assignees to the rights under the contracts of sale? In McMicking vs. Banco Español‐Filipino, the SC held that the rule requiring every action to be prosecuted in the name of the real party‐in‐interest.7

interest, an interest in the issue and to be affected by the decree, as distinguished frommere interest in the question involved, or a mere incidental interest. 5 Citing Ferrer vs. Villamor, 60 SCRA406 [1974]; Marcelo vs. de Leon, 105 Phil. 1175 because the rule is that every action must be prosecuted inthe name of the real parties‐in‐interest

6 Contracts take effect only between the parties, their assigns, and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation, or by provision of law. x x x. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.

7 x x x recognizes the assignments of rights of action and also recognizes that when one has a right of action assigned to him he is then the real party in interest and may maintain an action upon such claim or right. The purpose of [this rule] is to require the plaintiff to be the real party in interest, or, in other words, he must be the person to whom the proceeds of the action shall belong, and to prevent actions by persons who have no interest in the result of the same. xxx


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The SC thought otherwise. Petitioners have not shown that they are assignees of their principals to the subject contracts. While they alleged that they made advances and that they suffered loss of commissions, they have not established any agreement granting them “the right to receive payment and out of the proceeds to reimburse for advances and commissions before turning the balance over to the principal.”

Finally, it does not appear that petitioners are beneficiaries of a stipulation pour autrui under the second paragraph of Article 1311 of the Civil Code. Indeed, there is no stipulation in any of the Deeds of Absolute Sale “clearly and deliberately” conferring a favor to any third person.

That petitioners did not obtain their commissions or recoup their advances because of the non‐performance of the contract did not entitle them to file the action below against respondent NHA.

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.8

8 Agents rendering service in behalf of parties do not render them parties to the contract of sale Petitioners are not parties to the contract of sale between their principals and NHA. They are mere agents of the owners of the land subject of the sale. As agents, they only render some service or do something in representation or on behalf of their principals. The rendering of such service did not make them parties to the contracts of sale executed in behalf of the latter. Since a contract may be violated only by the parties thereto as against each other, the real parties‐in‐interest, either as plaintiff or defendant, in an action upon that


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ARTICLE 1324

SANCHES v RIGOS(Bayona)

FACTS:

In an instrument entitled "Option to Purchase," executed on April 3, 1961, defendant‐appellant Severina Rigos "agreed, promised and committed ... to sell" to plaintiff‐appellee Nicolas Sanchez for the sum of P1,510.00 within two (2) years from said date, a parcel of land situated in the barrios of Abar and Sibot, San Jose, Nueva Ecija. It was agreed that said option shall be deemed "terminated and elapsed," if “Sanchez shall fail to exercise his right to buy the property" within the stipulated period. On March 12, 1963, Sanchez deposited the sum of Pl,510.00 with the CFI of Nueva Ecija and filed an action for specific performance and damages against Rigos for the latter’s refusal to accept several tenders of payment that Sanchez made to purchase the subject land.

Defendant Rigos contended that the contract between them was only “a unilateral promise to sell, and the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and void." Plaintiff Sanchez, on the other hand, alleged in his compliant that, by virtue of the option under consideration, "defendant agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option. The lower court rendered judgment in favor of Sanchez and ordered Rigos to accept the sum Sanchez judicially consigned, and to execute in his favor the requisite deed of conveyance. The Court of Appeals certified the case at bar to the Supreme Court for it involves a question purely of law.

ISSUE: Was there a contract to buy and sell between the parties or only a unilateral promise to sell?

HELD:

The Supreme Court affirmed the lower court’s decision. The instrument executed in 1961 is not a "contract to buy and sell," but merely granted plaintiff an "option" to buy, as indicated by its own title "Option to Purchase." The option did not impose upon plaintiff Sanchez the obligation to purchase defendant Rigos' property. Rigos "agreed, promised and committed" herself to sell the land to Sanchez for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land. The lower court

relied upon Article 1354 of the Civil Code when it presumed the existence of said consideration, but the said Article only applies to contracts in general.

However, it is not Article 1354 but the Article 1479 of the same Code which is controlling in the case at bar because the latter’s 2nd paragraph refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." Since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale. Upon mature deliberation, the Court reiterates the doctrine laid down in the Atkins case and deemed abandoned or modified the view adhered to in the Southwestern Company case


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ANG YU v CA

Facts: Ang Yu (buyers) are tenants/lessees of the residential and commercial properties owned by Co Unjieng (vendors). On several occasions, defendants informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the same. Respondents offered to sell the property for P6M, and plaintiffs counter‐offered to buy for P5M. Plaintiffs asked the respondents to put the offer in writing, in which the respondents acceded. Upon receipt of the offer, plaintiffs asked the respondents to specify the terms and conditions of the offer to sell. Since no response was made by the respondents, plaintiffs were compelled to file a complaint against respondents compelling them to sell the property. The lower court decided in favor or the respondents reasoning that since parties did not agree upon the terms and conditions of the proposed sale, hence there was not contract of sale at all. Further, it ruled that if the respondents decide to sell the proper for P11M or lower, then plaintiffs have the right of first refusal. Aggrieved by the decision, plaintiffs appealed to CA. The Court of Appeals affirmed the decision of the lower court with modification: that there was no meeting of the minds between the parties concerning the sale of the property. Absent such requirement, the claim for specific performance will not lie. Appellants’ demand for actual, moral and exemplary damages will likewise fail as there exists no justifiable ground for its award.” CA however granted the plaintiffs the right of first refusal even if the offer price exceeds P11M. Plaintiffs appealed to the Supreme court but was denied for being insufficient in form and substance. While plaintiff asked the SC for reconsideration, respondents transferred the properties in question to respondent Buen Realty and Development Corporation for P15M. Buen Realty after the properties came into its possession and after the titles had been issued under its name, plaintiffs were asked to vacate the premises. Plaintiffs brought the matter to the trial court to enforce the decision rendered by the CA that plaintiffs has the right of first refusal. The lower court ordered respondents to sell the property to plaintiffs for P15M. Respondents appealed to CA. The CA reversed the judgment of the lower court declaring that it has no force and effect. Hence this appeal for certiorari.

Issue:

WON petitioners can demand specific performance to compel the respondents to sell to them the property

Held:

No. What the petitioners have been granted is just a mere ‘right of first refusal’. In the law on sales, the so‐called “right of first refusal” is an innovative juridical relation. Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal concept, be brought within the purview of an option under the second paragraph of Article 1479, or possibly of an offer under Article 1319 of the same Code. An option or an offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. It is not to say, however, that the right of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given,


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for instance, the circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for damages.

The final judgment in Civil Case No. 87‐41058, it must be stressed, has merely accorded a “right of first refusal” in favor of petitioners. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an action for damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to respect the registration of the lis pendens in Civil Case No. 87‐41058 are matters that must be independently addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87‐41058, cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership and possession of the property, without first being duly afforded its day in court.

EQUATORIAL v MAYFAIR (Capocyan)

FACTS: Carmelo (Petitioner) owned a 2‐storey bldg in Recto, Manila. In 1967 and 1969, he entered into 2 separate CONTRACTS OF LEASE with Mayfair for the lease of 2 portions of the the bldg which the latter used as a motion picture theater known as MAXIM and MIRAMAR THEATER. Both lease contracts contained an identically worded paragraph 8 which reads:

“If the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30‐days exclusive option to purchase the same.

In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale hereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof.”

In 1974 Carmelo informed Mayfair that they wanted to sell the entire property ( and that a certain JOSE ARANETA was offering to buy the whole property for 1.2M USD. They also asked Mayfair if they wanted to buy the property for P6‐7M.

Mayfair replied stating par 8 of their contract and communicating his willingness to purchase the entire property. Carmelo did not reply.

In 1978, Carmelo sold the property to Equitorial or P11.3M. This prompted Mayfair to file a case for specific performance and annulment of the sale.

RTC – Ruled in favor of Carmelo stating, among other things, that paragraph 8 of the contract is an “option clause” (under Art 1324) which is not supported by a separate consideration. Under Art 1352, “Contracts without cause or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good custom, public order or public policy.” Therefore contracts without consideration produce no effect.

CA – Reversed the CA saying that paragraph 8 is not an “option contract/clause” under 1324 but a “right of first refusal” under 1479, which does not need a separate distinct consideration.

ISSUE: W/N paragraph 8 is an option contract/ clause which needs a separate consideration. NO, its a right of first refusal.

RATIO: Article 1324 speaks of an "offer" made by an offeror which the offeree may or may not accept within a certain period. Under this article, the offer may be withdrawn by the offeror before the expiration of the period and while the offeree has not yet accepted the offer. However, the offer cannot be withdrawn by the offeror within the period if a consideration has been promised or given by the offeree in exchange for the privilege of being given that period within which to accept the offer. The consideration is distinct from the price which is part of the offer. The contract that arises is known as option. In the case of Beaumont the SC, defined an option as follows: "A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of buying from or selling to B, certain securities or properties within a limited time at a specified price."

Article 1479, second paragraph, on the other hand, contemplates of an "accepted unilateral promise to buy or to sell a determinate thing for a price within (which) is binding upon the promisee if the promise is supported by a consideration distinct from the price." That "unilateral promise to buy or to sell a determinate thing for a price certain" is called an offer. An "offer", in laws, is a proposal to enter into a contract..

Based on the foregoing discussion, it is evident that the provision granting Mayfair "30‐days exclusive option to purchase" the leased premises is NOT AN OPTION. Although the provision is certain as to the object (the sale of the leased premises) the price for which the object is to be sold is not stated in the provision. Otherwise stated, the questioned stipulation is not by itself, an "option" or the "offer to sell" because the clause does not specify the price for the subject property.

Although the provision giving Mayfair "30‐days exclusive option to purchase" cannot be legally categorized as an option, it is, nevertheless, a valid and binding stipulation. What the trial court failed to appreciate was the intention of the parties behind the questioned proviso.


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The provision in question is not of the pro‐forma type customarily found in a contract of lease. Even appellees have recognized that the stipulation was incorporated in the two Contracts of Lease at the initiative and behest of Mayfair. Evidently, the stipulation was intended to benefit and protect Mayfair in its rights as lessee in case Carmelo should decide, during the term of the lease, to sell the leased property. This intention of the parties is achieved in two ways in accordance with the stipulation. The first is by giving Mayfair "30‐days exclusive option to purchase" the leased property. The second is, in case Mayfair would opt not to purchase the leased property, "that the purchaser (the new owner of the leased property) shall recognize the lease and be bound by all the terms and conditions thereof."

In other words, paragraph 8 of the two Contracts of lease, particularly the stipulation giving Mayfair "30‐days exclusive option to purchase the (leased premises)," was meant to provide Mayfair the opportunity to purchase and acquire the leased property in the event that Carmelo should decide to dispose of the property. In order to realize this intention, the implicit obligation of Carmelo once it had decided to sell the leased property, was not only to notify Mayfair of such decision to sell the property, but, more importantly, to make an offer to sell the leased premises to Mayfair, giving the latter a fair and reasonable opportunity to accept or reject the offer, before offering to sell or selling the leased property to third parties. The right vested in Mayfair is analogous to the right of first refusal, which means that Carmelo should have offered the sale of the leased premises to Mayfair before offering it to other parties, or, if Carmelo should receive any offer from third parties to purchase the leased premises, then Carmelo must first give Mayfair the opportunity to match that offer.

Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to which the requirement of distinct consideration indispensable in an option contract, has no application, respondent appellate court also addressed the claim of Carmelo and Equatorial that assuming arguendo that the option is valid and effective, it is impossible of performance because it covered only the leased premises and not the entire Claro M. Recto property, while Carmelo's offer to sell pertained to the entire property in question.

*Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. **Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

BIBLE BAPTIST CHURCH v CA

Facts:

Petitioner Baptist Church entered into a contract of lease with private respondent spouses Villanueva, the latter being the registered owners of the property. The pertinent stipulations in the lease contract were:

x x x

8. That the LESSEE has the option to buy the leased premises during the Fifteen (15) years of the lease. If the LESSEE decides to purchase the premises the terms will be: A) A selling Price of One Million Eight Hundred Thousand Pesos (P1.8 million), Philippine Currency. B) A down payment agreed upon by both parties. C) The balance of the selling price may be paid at the rate of One Hundred Twenty Thousand Pesos (P120,000.00), Philippine Currency, per year.

x x x

The foregoing stipulations of the lease contract are the subject of the present controversy. Petitioner Baptist Church paid an initial P84,000 rental payment. This was disputed by petitioners as the consideration for the option to buy the property.

Issue: Whether or not the option to buy was founded upon a consideration

Ruling: NO.

Under Article 1479 of the Civil Code, it is provided:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract. For an option contract to be valid and enforceable against the promissor, there must be a separate and distinct consideration that supports it.


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First, petitioners cannot insist that the P84,000 they paid in order to release the Villanuevas' property from the mortgage should be deemed the separate consideration to support the contract of option. It must be pointed out that said amount was in fact apportioned into monthly rentals spread over a period of one year, at P7,000 per month. Thus, for the entire period of June 1985 to May 1986, petitioner Baptist Church's monthly rent had already been paid for, such that it only again commenced paying the rentals in June 1986. This is shown by the testimony of petitioner Pastor Belmonte where he states that the P84,000 was advance rental equivalent to monthly rent of P7,000 for one year, such that for the entire year from 1985 to 1986 the Baptist Church did not pay monthly rent. The consideration contemplated to support an option contract need not be monetary. Actual cash need not be exchanged for the option. However, by the very nature of an option contract, as defined in Article 1479, the same is an onerous contract for which the consideration must be something of value, although its kind may vary.

An option contract needs to be supported by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of the contract of option. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause.

VILLEGAS v CA

Facts:

The Reyes Family were the owners of the subject property, which they inherited the property from their father, Dr. Lorenzo C. Reyes. Villegas and Sanchez were the lessees of the property since 1959. Petitioner‐lessees owned the building and improvements constructed on the property.

The Administrative Committee of the heirs of Dr. Lorenzo C. Reyes informed petitioner‐lessees that the heirs have decided to sell the property. After replying, the Administrative Committee informed petitioner‐lessees of their receipt of notice of the P4,000,000 bid price. The Administrative Committee wrote that they requested petitioner‐lessees to increase their bid for the property but the latter failed to make another offer so the heirs have decided to sell to another buyer who offered a higher price. Nevertheless, the Administrative Committee indicated in the letter that they would wait for a reply. Petitioner‐lessees were willing to make a nominal increase to their bid price of P4,000,000 but the Administrative Committee sent a letter to petitioner‐lessees replied that they have an offer of P5 Million. A conference was held, but the parties did not come into an agreement. Eventually, petitioner‐

lessees have finally accepted the asking price of P5,000,000.00, but without payment of taxes and other costs.

However at this time, only 75% share thereof, were still interested in selling their shares. They also rejected the offer of petitioner‐lessees, as they wanted the purchase price to be net sales. Eventually, respondent‐heirs sold their 75% undivided interest in the property for P3,825,000 to Lita Sy. The other heirs sold the remaining 25% portion of the property to Villegas.

Petitioner‐lessees filed an action against respondent‐heirs and Spouses Sy which the RTC dismissed. This was affirmed by the CA. During this period, the Spouses Sy filed a complaint for Specific Performance against the heirs of Villegas, which the RTC granted. This was affirmed by the CA.

Issue:

1. Whether the contract of sale between respondent‐heirs and Lita Sy violated the right of first refusal of petitioner‐lessees (relevant issue)

2. Whether Lita Sy, as co‐owner of the property, validly and seasonably exercised her right to redeem the 25% undivided interest in the property, which undivided interest the other co‐owners had sold to Atanacio M. Villegas and Agripino M. Villegas

Ruling:

1. NO. A right of first refusal is a contractual grant, not of the sale of a property, but of the first priority to buy the property in the event the owner sells the same. The exercise of the right of first refusal is dependent not only on the owner’s eventual intention to sell the property but also on the final decision of the owner as regards the terms of the sale including the price.

When a lease contains a right of first refusal, the lessor has the legal duty to the lessee not to sell the leased property to anyone at any price until after the lessor has made an offer to sell the property to the lessee and the lessee has failed to accept it. Only after the lessee has failed to exercise his right of first priority could the lessor sell the property to other buyers under the same terms and conditions offered to the lessee, or under terms and conditions more favorable to the lessor.


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The records show that the heirs of Dr. Lorenzo C. Reyes did recognize the right of first refusal of petitioner‐lessees over the property. This is clear from the letter dated 19 May 1988 informing petitioner‐lessees that the property they were leasing is for sale. There was an exchange of letters between the Administrative Committee and petitioner‐lessees evidencing the offer and counter‐offer of both parties.

Where a time is stated in an offer for its acceptance, the offer is terminated at the expiration of the time given for its acceptance. The offer may also be terminated when the person to whom the offer is made either rejects the offer outright or makes a counter‐offer of his own.

The offer of P5,000,000 already lapsed when petitioner‐lessees failed to accept it within the period granted. The offer was superseded by the new offer of respondent‐heirs during the conference. However, it appears from the records that no settlement was reached between the parties during their conference. Even petitioner‐lessees’ witness Miranda testified that petitioner‐lessees did not indicate their offer for the property in their letter but instead requested for a conference with all the heirs of Dr. Lorenzo C. Reyes.

Petitioner‐lessees admit that there was an ongoing negotiation for the sale of the property. Precisely, the P5,000,000 price for the property indicated by the Administrative Committee in the letter was superseded by the subsequent offer of respondent‐heirs during the conference. Thus, the letter of petitioner‐lessees is merely another counter‐offer for the property in their continuing negotiation for the property. When petitioner‐lessees opted not to respond to this offer, respondent‐heirs had the right to sell the property to other buyers.

Petitioner‐lessees already exercised their right of first refusal when they refused to respond to the latest offer of respondent‐heirs, which amounted to a rejection of the offer. Upon petitioner‐lessees’ failure to respond to this latest offer of respondent‐heirs, the latter could validly sell the property to other buyers under the same terms and conditions offered to petitioner‐lessees.

2. NO. The records reveal that Lita Sy received the complaint for Annulment of Deed of Sale/Title, Specific Performance, and Consignation of Rentals with Damages filed by petitioner‐lessees. On the same date, Lita Sy also received together with the complaint the Deed of Sale of the 25% portion of the property.

Lita Sy and the other defendants in that case filed their answer. In their answer, Lita Sy invoked her right to redeem the property.

The ruled however, that there was no valid and effective offer to redeem the 25% undivided interest in the property. Although Lita Sy invoked her right to redeem the property in the answer filed with the RTC Branch 2, she failed to consign in court the redemption price. Well‐settled is the rule that a formal offer to redeem must be accompanied by a valid tender of the redemption price and that the filing of a judicial action, plus the consignation of the redemption price within the period of redemption, is equivalent to a formal offer to redeem. Only by such means can the buyer become certain that the offer to redeem is one made seriously and in good faith. A buyer can not be expected to entertain an offer of redemption without attendant evidence that the redemptioner can, and is willing to, accomplish the repurchase immediately. While consignation of the tendered price is not always necessary because legal redemption is not made to discharge a pre‐existing debt, a valid tender is indispensable, for the reasons already stated. Of course, consignation of the price would remove all controversy as to the petitioner's ability to pay at the proper time.

In this case, Lita Sy failed to consign in court the redemption price when she invoked her right to redeem the 25% portion of the property in the answer filed with the RTC Branch 2. The evidence does not show that Lita Sy ever tendered the redemption price to the Villegas brothers. Considering that there was no tender of the redemption price, nor was there consignation of the redemption price, we hold that there was no valid exercise of the right of redemption.

EULOGIO v SPOUSES APELES(Kim Claudio)

Facts: In 1979, Sps. Apeles leased their house and lot in QC to Arturo Eulogio, Enrico’s father. Upon his father’s death, Enrico succeeded as lessee. He used the property as his residence and place of business. He was engaged in buying and selling imported cars. On 1987, Sps. Apeles and Eulogio allegedly entered into a contract of lease with an option to purchase involving the said property. According to the contract, Atty. Luz Apeles was authorized to enter in behalf of her husband Clemente. The contract gave Enrico before the expiration of the three‐year lease period the option to purchase the property for a price not exceeding P1.5million. Before the expiration, Enrico exercised his option to purchase by communicating verbally and in writing to Luz but the spouses ignored his manifestation. This prompted Enrico to seek the help of the barangay to enforce his right to purchase the subject property, but despite several notices, the spouses failed to appear before the barangay for settlement proceedings. Hence, it issued to Enrico a Certificate to File Action. Enrico filed a case with the RTC claiming his right based on paragraph 5 of the Contract of Lease with Option to Purchase vesting him the right to acquire ownership of the subject


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property after paying the agreed amount of consideration. He testified for himself as the sole witness. On the other hand, the spouses denied that Luz signed the contract claiming that the signature of Luz therein is a forgery. They presented some specimens of her signature to show the difference. They also established by documentary evidence that Luz was out of the country at the time of the execution of the contract. In rebuttal, Enrico said that Luz signed the contract upon returning to the Philippines and that she took it with her and upon returning it to him, it was already notarized. The RTC ruled in favor of Enrico. The spouses appealed to the CA which granted their appeal. Enrico filed an MR but was denied. Hence, this case. Issue: W/N the option to purchase was enforceable. NO W/N the CA erred in disturbing the factual findings of the RTC as regards the contract. NO Held: The Contract with an Option to Purchase remains unenforceable. An option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the former’s property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of the property the right to sell or demand a sale. An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, i.e., the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. It is also sometimes called an "unaccepted offer" and is sanctioned by Article 1479 of the Civil Code: Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract. For an option contract to be valid and enforceable against the promissor, there must be a separate and distinct consideration that supports it. In this case, there was none. As to the other issue, Enrico’s insistence on the infallibility of the findings of the RTC seriously impairs the discretion of the appellate tribunal to make independent determination of the merits of the case appealed before it. Certainly, the Court of Appeals cannot swallow hook, line, and sinker the factual conclusions of the trial court without crippling the very office of review. Although we have indeed held that the factual findings of the trial courts are to be accorded great weight and respect, they are not absolutely conclusive upon the appellate court. However, it must be noted that in an appeal via Rule 41 to the CA, the parties may raise both questions of fact and law.


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ARTICLE 1345

PAYONGAYONG v CA

Facts:

Eduardo Mendoza was the registered owner of a two hundred square meter parcel of land situated in Barrio San Bartolome, Caloocan. Mendoza mortgaged the parcel of land to the Meralco Employees Savings and Loan Association (MESALA) to secure a loan in the amount of P81,700.00. Mendoza then executed a Deed of Sale with Assumption of Mortgage over the parcel of land together with all the improvements thereon (hereinafter referred to as the property) in favor of the Payongayong spouses in consideration of P50,000.00. It is stated in the deed that the Payongayongs bound themselves to assume payment of the balance of the mortgage indebtedness of Mendoza to MESALA. Mendoza, without the knowledge of the spouses, mortgaged the same property to MESALA to secure a loan in the amount of P758,000.00, and was duly annotated in Mendoza’s title. Thereafter, Mendoza executed a Deed of Absolute Sale over still the same property in favor of the private respondents Salvador spouses, in consideration of P50,000.00. The sale was again duly annotated in Mendoza’s title. MESALA, on its part, issued a Cancellation of Mortgage acknowledging that for sufficient and valuable consideration which it received from Mendoza, it was cancelling and releasing the real estate mortgage over the property which was annotated on Mendoza’s title. The Salvador spouses then caused the cancellation of Mendoza’s title and was issued a transfer certificate of title in their own name.

Upon knowledge of the property’s sale to the Salvador spouses, the Payongayongs filed a complaint for annulment of deed of absolute sale and transfer certificate of title with recovery of possession and damages before the RTC of Quezon City. The Payongayongs’ complaint alleged that the spouses Mendoza maliciously sold to the Salvadors the property which was priorly sold to them and that the Salvadors acted in bad faith in acquiring it, the latter having had knowledge of the existence of the Deed of Absolute Sale with Assumption of Mortgage between them (Payongayongs) and Mendoza. The RTC ruled in favor of the Salvadors and CA affirmed the same.

Issue:

Whether or not the deed of sale executed by Eduardo Mendoza in favor of the Salvador spouses was simulated and therefore null and void?

Ruling:

No. The Salvadors did not only rely upon Mendoza’s title. Rosalia personally inspected the property and verified with the Registry of Deeds of Quezon City if Mendoza was indeed the registered owner. Given this factual backdrop, the Salavadors did indeed purchase the property in good faith and accordingly acquired valid and indefeasible title thereto.

The law is thus in the Salvadors’ favor. Article 1544 of the Civil Code so provides:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

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.

There being double sale of an immovable property, as the above‐quoted provision instructs, ownership shall be transferred (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who presents the oldest title, provided there is good faith.

Simulation occurs when an apparent contract is a declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purpose of deception, the appearance of a juridical act which does not exist or is different from that which was really executed. Its requisites are: a) an outward declaration of will different from the will of the parties; b) the false appearance must have been intended by mutual agreement; and c) the purpose is to deceive third persons.

The basic characteristic then of a simulated contract is that it is not really desired or intended to produce legal effects or does not in any way alter the juridical situation of the parties.

The cancellation of Mendoza’s certificate of title over the property and the procurement of one in its stead in the name of respondents, which acts were directed towards the fulfillment of the purpose of the contract, unmistakably show the parties’ intention to give effect to their agreement. The claim of simulation does not thus lie.


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ARTICLE 1354

LAW v OLYMPIC SAWMILL

Plaintiff loaned P10,000.00, without interest, to defendant. The loan became due but was not paid, with the debtors asking for an extension of three months. The parties executed another loan document. Payment of the P10,000.00 was extended but the obligation was increased by P6,000.00 as follows:

That the sum of SIX THOUSAND PESOS (P6,000.00), Philippine currency shall form part of the principal obligation to answer for attorney's fees, legal interest, and other cost incident thereto to be paid unto the creditor and his successors in interest upon the termination of this agreement.

Defendants again failed to pay and plaintiff instituted this collection case. Defendants admitted the P10,000.00 principal obligation, but claimed that the additional P6,000.00 constituted usurious interest. An Order was issued by the Trial Court allowing both parties to submit a Motion for Summary Judgment. The Trial Court rendered decision ordering defendants to pay plaintiff "the amount of P10,000.00 plus the further sum of P6,000.00 by way of liquidated damages . . . with legal rate of interest on both amounts. Defendants appealed. ISSUE: w/n the amount of P6,000 was illegal? NO. Under Article 1354 of the Civil Code, in regards to the agreement of the parties relative to the P6,000.00 obligation, "it is presumed that it exists and is lawful, unless the debtor proves the contrary". No evidentiary hearing having been held, it has to be concluded that defendants had not proven that the P6,000.00 obligation was illegal. Confirming the Trial Court's finding, we view the P6,000.00 obligation as liquidated damages suffered by plaintiff, representing loss of interest income, attorney's fees and incidentals. Defendants claim that the P6,000.00 constituted usurious interest. They insist the claim of usury should have been deemed admitted by plaintiff as it was "not denied specifically and under oath" as required by the Usury Law. However, the SC held that the rule does not apply to a case, as in the present case, where the defendant, not the plaintiff, who is alleging usury. It only applies where a complaint is filed against an entity which has committed usury, for the recovery of the usurious interest paid. Moreover, usury has been legally non‐existent. Interest can now be charged as lender and borrower may agree upon.


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ARTICLE 1403

ORTEGA v LEONARDO

Facts: Plaintiff and defendant claimed right of ownership over a parcel of land located in San Andres, Manila before the Rural Progress Administration (government). During the investigation of such conflicting interests, defendant asked plaintiff to desist from pressing her claim and definitely promised that if and when he succeeded in getting title to the lot, he would sell to her a portion thereof with an area of 55.60 sqm at P25.00 per sqm, provided she paid for the surveying and subdivision of the lot and provided further that after he acquired title, she could continue holding the lot as tenant by paying a monthly rental of P10.00 until said portion shall have been segregated and the purchase price fully paid. The plaintiff accepted defendant's offer, and desisted from further claiming the lot. The defendant finally acquired title thereto. The plaintiff, according to the agreement, caused the survey and segregation of the portion which defendant had promised to sell incurring expenses for subdivision. Plaintiff continued paying rentals and introduced improvements over the said lot. After the plan of the lot segregation was approved, plaintiff tendered to defendant the purchase price which the latter refused to accept without any cause or reason. Issue: Whether the oral agreement to sell the lot to plaintiff is enforceable. Held: YES. as exception to the general rule because of partial performance. Ratio: “The continuance in possession may, in a proper case, be sufficiently referable to the parol contract of sale to constitute a part performance thereof. There may be additional acts or peculiar circumstances which sufficiently refer the possession to the contract. Continued possession under an oral contract of sale, by one already in possession as a tenant, has been held a sufficient part performance, where accompanied by other acts which characterize the continued possession and refer it to the contract of purchase. Especially is this true where the circumstances of the case include the making of substantial, permanent, and valuable improvements." (49 American Jurisprudence — 44) "The making of valuable permanent improvements on the land by the purchaser, in pursuance of the agreement and with the knowledge of the vendor, has been said to be the strongest and the most unequivocal act of part performance by which a verbal contract to sell land is taken out of the statute of frauds, and is ordinarily an important element in such part performance. Possession by the purchaser under a parol contract for the purchase of real property, together with his making valuable and permanent improvements on the property which are referable exclusively to the contract, in reliance on the contract, in the

honest belief that he has a right to make them, and with the knowledge and consent or acquiescence of the vendor, is deemed a part performance of the contract. The entry into possession and the making of the improvements are held on amount to such an alteration in the purchaser's position as will warrant the court's entering a degree of specific performance." (49 American Jurisprudence p.755, 756.) It would appear that the complaint in this case described several circumstance indicating partial performance: relinquishment of rights continued possession, building of improvements, tender of payment plus the surveying of the lot at plaintiff's expense and the payment of rentals. Hence, as there was partial performance, the principle excluding parol contracts for the sale of realty, does not apply.

CARBONEL v PONCIO

FACTS:

Carbonnel purchased Poncio’s land for an initial payment of P247.26 with the balance payable upon execution of the deed of sale and assumed Poncio’s mortgage with the Republic Savings Bank. In a document written in Batanes dialect, they agreed that Poncio would continue staying in said land for one year. However, Poncio sold the same property to the Infantes. Carbonnel sued Poncio and the Infantes for the annulment of the sale, for her to be declared owner of the land, for Poncio to execute the deed of sale, for the Register of Deeds of Rizal to issue the corresponding title, and for defendants pay damages.

Defendants filed an MTD on the ground that Carbonnel's claim was unenforceable under the Statute of Frauds. MTD denied. In their Answer, the Infantes alleged that they purchased the land in question in good faith, for value, and without knowledge of the alleged sale to Carbonnel, and that her claim was unenforceable under the Statute of Frauds. In his Answer, Poncio alleged that he had consistently turned down several offers made by Carbonnel at P15/sqm; that Mrs. Infante, likewise, tried to buy the land; that he was advised by Carbonnel that should she decide to buy the property , she would allow him to remain in the property for one year; that Carbonnel then induced him sign a document "relying upon the statement of Carbonnel that the document was a permit for him to remain in the premises in the event that Poncio decided to sell the property to Carbonnel at P20/sqm"; that Mrs. Infante improved her offer and he agreed to sell to her the land and its improvements; and that Carbonnel's action is barred by the Statute of Frauds.

During trial, Carbonnel introduced witness Meonada, who said that he typed the document signed by the 3 of them which stated that Poncio would be allowed to stay in the land bought by Carbonnel. Carbonnel also testified that that day Poncio told her that he wanted to sell his property, that after both agreed on its price, he said that his lot is mortgaged to the Republic


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Savings Bank; and that at noon time, on the same day, he came back stating that both would "go to the bank to pay the balance in arrears." At this juncture, defense counsel moved to strike out the statement of the witness, invoking, in support of the motion, the Statute of Frauds. After an extended discussion, the parties agreed to submit memoranda and the hearing was suspended.

The CFI dismissed the complaint on the ground that the cause of action was unenforceable under the Statute of Frauds. The appellate court affirmed. The SC reversed and remanded.

ISSUE: W/N the Statute of Frauds is applicable?

RULING: NO.

RATIO:

It is well settled in this jurisdiction that the Statute of Frauds is applicable only to executory contracts, not to contracts that are totally or partially performed. In the words of former Chief Justice Moran: "The reason is simple. In executory contracts there is a wide field for fraud because unless they be in writing there is no palpable evidence of the intention of the contracting parties. The statute has precisely been enacted to prevent fraud." However, if a contract has been totally or partially performed, the exclusion of parol evidence would promote fraud or bad faith, for it would enable the defendant to keep the benefits already denied by him from the transaction in litigation, and, at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby.

For obvious reasons, it is not enough for a party to allege partial performance in order to hold that there has been such performance and to render a decision declaring that the Statute of Frauds is inapplicable. But neither is such party required to establish such partial performance by documentary proof before he could have the opportunity to introduce oral testimony on the transaction. Indeed, such oral testimony would usually be unnecessary if there were documents proving partial performance. Thus, the rejection of any and all testimonial evidence on partial performance, would nullify the rule that the Statute of Frauds is inapplicable to contracts which have been partly executed, and lead to the very evils that the statute seeks to prevent.

The true basis of the doctrine of part performance according to the overwhelming weight of authority, is that it would be a fraud upon the plaintiff if the defendant were permitted to escape performance of his part of the oral agreement after he has permitted the plaintiff to perform in reliance upon the agreement. The oral contract is enforced in harmony with the principle that courts of equity will not allow the statute of frauds to be used as an instrument of fraud. In other words, the doctrine of part performance was established for the same purpose for which, the statute of frauds itself was enacted, namely, for the prevention of fraud,

and arose from the necessity of preventing the statute from becoming an agent of fraud for it could not have been the intention of the statue to enable any party to commit a fraud with impunity.

When the party concerned has pleaded partial performance, such party is entitled to a reasonable chance to; establish by parol evidence the truth of this allegation, as well as the contract itself. "The recognition of the exceptional effect of part performance in taking an oral contract out of the statute of frauds involves the principle that oral evidence is admissible in such cases to prove both the contract and the part performance of the contract."

Upon submission of the case for decision on the merits, the Court should determine whether said allegation is true, bearing in mind that parol evidence is easier to concoct and more likely to be colored or inaccurate than documentary evidence. If the evidence of record fails to prove clearly that there has been partial performance, then the Court should apply the Statute of Frauds, if the cause of action involved falls within the purview thereof. If the Court is, however, convinced that the obligation in question has been partly executed and that the allegation of partial performance was not resorted to as a devise to circumvent the Statute, then the same should not be applied.

Apart from the foregoing, there are also other circumstances indicating that Carbonnel's claim might not be entirely devoid of factual basis. For instance, Poncio admitted in his Answer that Carbonnel had offered several times to purchase his land. There is also the document signed by Poncio written in Batanes dialect, which, according to Carbonnel's uncontradicted evidence, is the one spoken by, Poncio, he being a native of said region. The document states that Poncio would stay in the land sold by him to Carbonnel for one year, free of charge, and that, if he cannot find a place where to transfer his house thereon, he may remain in said lot under such terms as may be agreed upon. Incidentally, the allegation in Poncio's answer to the effect that he signed the document under the belief that it "was a permit for him to remain in the premises in the event" that "he decided to sell the property" to Carbonnel at P20 a sq. m." is, on its face, somewhat difficult to believe. Indeed, if he had not decided as yet to sell the land to Carbonnel, who, had never increased her offer of P15 a square meter, there was no reason for Poncio to get said, Permit from her. Upon the other hand, if Carbonnel intended to mislead Poncio, she would have caused the document to be drafted, probably in English, instead of taking the trouble of seeing to it that it was written precisely in his native dialect, the Batanes. Moreover, Poncio's signature on the document suggests that he is neither illiterate nor so ignorant as to sign a document without reading its contents, apart from the fact that Meonada had read the document to him and given him a copy thereof, before he signed thereon, according to Meonada's uncontradicted testimony.

Then, also, defendants say in their brief:

The only allegation in Carbonnel's complaint that bears any relation to her claim that there has been partial performance of the supposed contract of sale, is the


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notation of the sum of P247.26 in the bank book of Poncio. It does not prove the fact that said amount was the purchase price of the property in question. For all we knew, the sum of P247.26 which Carbonnel claims to have paid to the Republic Savings Bank for the account of the defendant, assuming that the money paid to the Republic Savings Bank came from the plaintiff, was the result of some usurious loan or accommodation, rather than earnest money or part payment of the land. Neither is a competent or satisfactory evidence to prove the conveyance on the land in question the fact that the bank book account of Poncio happens to be in the possession of the Carbonnel.

How shall we know why Poncio's bank deposit book is in Carbonnel's possession or whether there is any relation between the P247.26 entry therein and the partial payment of P247.26 allegedly made by Carbonnel to Poncio on account of the price of his land, if we do not allow Carbonnel to explain it on the witness stand? Without expressing any opinion on the merits of Carbonnel's claim, it is clear, therefore, that she is entitled, legally as well as from the viewpoint of equity, to an opportunity to introduce parol evidence in support of her allegations.

BABAO v PEREZ

Facts:

Celestina Perez is the owner of a 156‐hectare parcel of land. When Celestina’s niece married Santiago Babao, it was alleged that on 1924, Santiago and Celestina had a verbal agreement where Santiago was bound to do the following: to improve the land(156 hectares) of Celestina by leveling, clearing, planting fruits and other crops; to act as the administrator of the land and all expenses for labor and materials will be at his cost. In return, Celestina is bound to convey to Santiago or his wife(Celestina’s niece) ½ of the land, with all the improvements after the death of Celestina. Santiago alleged that he was able to clear the land and plant the crops in the span of 23 years.

However, shortly before Celestina’s death, she(Celestina) sold the land to another party through her attorney‐in‐fact(Leovigildo). Thus, Santiago filed this complaint alleging the sale of the land as fraudulent and fictitious and in violation of the oral agreement. He prays to recover the ½ land or the expenses he incurred in improving the land. Respondents, however, denied the claim and among others claimed that by virtue of the statute of frauds, the oral agreement cannot be given credence. The trial court allowed parole evidence to be introduced to substantiate the agreement. This is now appealed to the Court to determine if parole evidence could be introduced. Issue:

Whether the verbal agreement falls within the Statute of Frauds despite partial performance. Held:

Yes, the statute, formerly incorporated as Section 21 of Rule 123 of our Rules of

Court, is now found in Article 1403 of the new Civil Code, which provides, in so far as pertinent to this case, as follows:

In the following cases an agreement hereafter made shall be enforceable by action unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged or by his agent, evidence therefore, of the agreement cannot be received without the writing, or secondary evidence of its contents; (a) An agreement that by its terms is not to be performed within a year from the making thereof.

(e) An agreement . . . for the sale of real property or of an interest therein.

In order to remove the oral agreement from the statute of frauds, the agreement

must be for less than a year as provided in Art. 1403 (a) [at present in Art. 1403 (2)(a)]. In the case at bar, it is clear that the undertaking as alleged in the agreement cannot be done in a period of one (1) year as in fact alleged by Santiago that it took him 23 years to perform his obligation.

However, Santiago additionally contends that performance of the contract also remove it from the statute of frauds. In answering such contention, SC said that contracts which by their terms are not to be performed within one year, may be taken out of the statute through performance by one party thereto. However, it is required in such case the complete performance within the year by one party. In this case, Santiago was not able to completely perform the contract within a year from its perfection but it took him many years (23 years) before the agreement was performed. Nothing less than full performance by one party will suffice and if anything remains to be done after the expiration of the year besides the mere payment of money, the statute will apply. It is not therefore correct to state that Santiago Babao has fully complied with his part within the year from the alleged contract in question.

The went on and said that assuming that partial performance may suffice, Santiago’s cause will still not prosper. Since this is a sale of real property, it must be noted that this statute is one based on equity. It is based on equitable estoppel or estoppel by conduct. It operates only under certain specified conditions and when adequate relief of law is unavailable (49 Am. Jur., Statute of Frauds, Section 422, p. 727). And one of the requisites that need be present is that the agreement relied on must be certain, definite, clear, unambiguous and unequivocal in its terms before the statute may operate. In the case at bar, the alleged agreement was vague for it does not specify how many hectares was to be planted to coconuts, how many to rice and corn, and what portion to bananas and bamboo trees.


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Having reached the conclusion that all the parol evidence of appellee was submitted in violation of the Statute of Frauds, or of the rule which prohibits testimony against deceased persons, we find unnecessary to discuss the other issues raised in appellants' brief. The case is dismissed, with costs against appellee.

CABAGUE v AUXILIO

Facts:

In the justice of the peace court of Basud, Camarines Norte, Felipe Cabague and his son Geronimo sued the defendant Matias Auxilio and his daughter Socorro to recover damages resulting from defendants' refusal to carry out the previously agreed marriage between Socorro and Geronimo.

The complaint alleged, in short: (a) that defendants promised such marriage to plaintiffs, provided the latter would improve the defendants' house in Basud and spend for the wedding feast and the needs of the bride; (b) that relying upon such promises plaintiffs made the improvement and spent P700; and (c) that without cause defendants refused to honor their pledged word.

The defendants moved to dismiss, arguing that the contract was oral, unenforceable under the rule of evidence hereinbefore mentioned. And the court dismissed the case. On appeal to the Court of First Instance, the plaintiffs reproduced their complaint and defendants reiterated their motion to dismiss. From an order of dismissal this appeal was perfected in due time and form.

It should be observed preliminarily that, under the former rules of procedure, when the complaint did not state whether the contract sued on was in writing or not, the statute of frauds could be no ground for demurrer. Under the new Rules "defendant may now present a motion to dismiss on the ground that the contract was not in writing, even if such fact is not apparent on the face of the complaint. The fact may be proved by him." (Moran Rules of Court 2d ed. p. 139 Vol. I.)

Issue:

According to the Rules of Court parol evidence is not admissible to prove an agreement made upon the consideration of marriage other than a mutual promise to marry. This litigation calls for application of that rule.

Court’s Ruling:

There is no question here that the transaction was not in writing. The only issue is whether it may be proved in court.

Wherefore this expediente will be returned to the lower court for further proceedings in accordance with this opinion. So ordered.

Rationale:

The understanding between the plaintiffs on one side and the defendants on the other, really involves two kinds of agreement. One, the agreement between Felipe Cabague and the defendants in consideration of the marriage of Socorro and Geronimo. Another, the agreement between the two lovers, as "a mutual promise to marry". For breach of that mutual promise to marry, Geronimo may sue Socorro for damages. This is such action, and evidence of such mutual promise is admissible. However Felipe Cabague's action may not prosper, because it is to enforce an agreement in consideration of marriage. Evidently as to Felipe Cabague and Matias Auxilio this action could not be maintained on the theory of "mutual promise to marry". Neither may it be regarded as action by Felipe against Socorro "on a mutual promise to marry."

Consequently, we declare that Geronimo may continue his action against Socorro for such damages as may have resulted from her failure to carry out their mutual matrimonial promises.

Paras, C.J., Pablo, Padilla, Montemayor, Jugo, Bautista Angelo and Labrador, JJ., concur.


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ARTICLE 1409

LA’O v REPUBLIC (De Castro)

I. FACTS: GSIS is the registered owner of 3 parcels of land in Ermita with an area of around 821 m2, a 5‐storey building and improvements. GSIS and the RP, through the Office of the Government Corporate Counsel (OGCC), entered into 2 contracts:

1. A "lease‐purchase" agreement on June 22, 1978 where GSIS agreed to transfer the property to the OGCC for P1.5 million, payable in equal yearly amortization‐lease rentals of P100,000 for a period of 15 years. On December 22, 1980, petitioner offered to purchase the property.

2. On May 10, 1982, GSIS and petitioner executed a second "lease‐purchase" agreement. GSIS agreed to sell the same property to petitioner for P2,000,000, with a down payment of P200,000 and the balance payable within a period of 15 years at 12% interest per annum, compounded yearly. Under this second contract, GSIS obligated itself to construct for the OGCC a 3‐storey building on the Manila Bay reclaimed area OR to make available another property acceptable to the OGCC, to be conveyed to the RP under the same or mutually acceptable terms as those of the first contract. In the meantime, the OGCC was allowed to continue occupying the second to the fifth floors of the building at an annual rental of P100,000, payable to petitioner. Furthermore, petitioner was entitled to lease out the ground floor and collect the corresponding rentals.

Pres. Marcos and the Board of Trustees of GSIS approved the contract by signing their signatures on the same.

In 1989, after the overthrow of Marcos (in 1986), respondents filed before the RTC of Manila a complaint against petitioner alleging that:

Upon petitioner’s behest and representations, then Pres. Marcos directed the transfer of the property to petitioner. By reason of insidious machinations, the RP, through the OGCC, was forced, intimidated and coerced to execute a waiver of its rights and interests to the property, and the BOT of the GSIS was likewise constrained to approve the offer of petitioner and to execute the 2nd Lease‐Purchase Agreement.

The 2nd Lease‐Purchase Agreement is burdensome and grossly disadvantageous to the RP. Notwithstanding that the property was already valued then at or about P10,000,000.00, they

were sold for only P2,000,000.00, and, worse yet, payable on a fifteen‐year installment basis. Furthermore, the agreement obligated the GSIS to provide an office and parking space equivalent to a 3‐storey office building at its new building in the Manila Bay Area or some other acquired properties to house its offices. The value of this obligation of the GSIS to the Republic, at the moment is worth at least (P20,000,000.00).

Since the terms of [the] second agreement are manifestly and grossly disadvantageous to the government the contract is contrary to law, being violative of RA 3019, and the public officers responsible thereof are liable under Section 3(g) of [RA 3019]. Considering that the cause or consideration of the second contract is contrary to law, the same is void (Art. 1352, Civil Code). Also, it was contended that the 2nd agreement was not yet approved by the president; yet was taken possession of and leased to 3rd parties with rent and profits obtained.

Considering the 2nd lease agreement to be void, petitioner should pay for the office space he had been occupying and to account for and to return to the Republic, though the OGCC, all moneys he unjustly received, including those received from such tenant‐lessees as rentals, with interest at the legal rate until fully paid. Nullification of the contract was sought.

RTC ruled in favor of respondents and declared the 2nd lease‐purchase agreement null and void. It also ordered the forfeiture in favor of respondents of the purchase price paid by petitioner to GSIS as well as the rentals received by petitioner. The CA affirmed.

II. ISSUE: WON the 2nd contract valid as claimed by petitioner, or null and void as decided by the RTC and affirmed by the CA

III. HELD: YES, Null and void. Decision affirmed.

IV. RATIO: The second contract was null and void ab initio for being in contravention of Section 3(e) and (g) of RA 3019, otherwise known as the "Anti‐Graft and Corrupt Practices Act". Both the trial and appellate courts found that the second contract gave petitioner unwarranted benefits and was grossly disadvantageous to the government. Under Article 1409(7) of the Civil Code, the contract was null and void from the beginning.

The Agreement between [petitioner] and the GSIS which is the subject of the instant case had in fact transferred the economic benefits which the Republic used to enjoy to [petitioner]. At the end of [15] years, [petitioner] shall become the absolute owner of the subject property upon full payment of the [15] yearly amortizations. At bottom, however, is the fact that, at least for the first [five] years of the [Agreement], [petitioner] shall not be shelling out of his own pocket the yearly amortization since the same shall be covered by the annual rental coming from the OGCC and the other tenants thereof. In the meantime, the


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Republic, thru the OGCC, shall not only be appropriating additional funds for its annual rental but worse, it was stripped of the opportunity to become the absolute owner of the subject property. Add to this the difference between consideration and the market value of the property (approx. 5‐8 million).

On this respect, [respondents’] assertion that the subject Agreement is at the behest of [petitioner] and is grossly disadvantageous to the Republic had become self‐evident. Some economic implications: the Republic would need to appropriate additional funds to pay for its rentals and abandon the chance of becoming the owner of the subject property which it uses for governmental purposes and the fact that the subject property was negotiated by the government via a losing proposition.


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ARTICLE 1411

YU BUN GUAN v ONG

FACTS

Yu Bun and Elvira were married on April 30, 1961 according to Chinese rites. On April 17, 1968 Elvira purchased a parcel of land using her own separate personal funds so the title to the property was issued and registered in her name.

Later on, sometime in 1992, after more than 30 years of marriage and with three children, Yu Bun was able to convince Elvira, through repeated importunings, to execute a Deed of Sale of her property in his favor. Yu Bun promised Elvira that he would construct a commercial building on the property for the benefit of their children. He suggested that the property should be in his name alone so that Elvira would not be involved in the loan with the bank. The consideration of the transfer of the property in his name consisted of his promise to construct a commercial building for the benefit of their children to whom he will in turn, execute a Deed of Absolute Sale, and to pay the loan he had obtained from the bank. Because of Yu Bun’s glib assurances, Elvira signed a “Deed of Absolute Sale” in his favor with the ostensible consideration of P200,000 which Yu Bun did not actually pay. So a new title was issued in the name of Yu Bun alone. But to insure that Yu Bun would comply with his promise, Elvira did not deliver the owner’s copy of the TCT to Yu Bun.

From then on, marital trouble worsened as Yu Bun would insist on delivering to him the owner’s copy of the title which Elvira would ask Yu Bun to comply with his promise. The marital spat was aggravated by Yu Bun’s promiscuity, volcanic temper and other vicious vices until he finally abandoned Elvira and their children.

Yu Bun then fraudulently tried to obtain a new owner’s title by filing a petition in court alleging that the original title was lost. When Elvira learned about this scheme, she filed an adverse claim and asked the Court to declare the Deed of Sale she signed null and void and Yu Bun’s title be cancelled. Yu Bun however contended that Elvira should not be granted the relief she was praying for because she was equally at fault (in pari delicto) in the execution of the said Deed of Sale.

ISSUE

w/n Yu Bun was correct?

RULING:

No. The rule of “in pari delicto” applies to cases where the nullity arises from the illegality of the consideration or the purpose of the contract. In this case, the nullity of the deed arises not because of the illegality of the consideration but because the stated consideration had in fact not been paid and therefore the said deed is fictitious, simulated, inexistent and produces no effect whatsoever for lack of consideration.

In the present case, it is clear from the factual findings of both lower courts that the Deed of Sale was completely simulated and, hence, void and without effect. No portion of the P200,000 consideration stated in the Deed was ever paid. And, from the facts of the case, it is clear that neither party had any intention whatsoever to pay that amount.

Instead, the Deed of Sale was executed merely to facilitate the transfer of the property to petitioner pursuant to an agreement between the parties to enable him to construct a commercial building and to sell the Juno property to their children. Being merely a subterfuge, that agreement cannot be taken as the consideration for the sale.

“In pari delicto” does not apply to inexistent contract due to lack of consideration or other essential requisites. It applies only to existing contracts with illegal consideration (Yu Bun Guan vs. Ong G.R. No. 144735 October 18, 2001.)

Thus, the Deed of Sale being simulated and contrary to public policy is without effect . The Supreme Court in a related case, held that “ the Deed of Sale that was executed , was made merely to facilitate the transfer of the property to petitioner pursuant to an agreement is void and without effect . Being merely a subterfuge , that agreement cannot be taken as a consideration for the sale

It is also quite obvious that the Court of Appeals did not err in ordering the cancellation of TCT No. 181033, because the Deed of Absolute Sale transferring ownership to petitioner was completely simulated, void and without effect. In fact, there was no legal basis for the issuance of the certificate itself.1âwphi1.nêt

WHEREFORE, the Petition is hereby DENIED and the assailed. Decision AFFIRMED.


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civ digest _1308-1379_

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