Page |1
ARTICLE 1931 aside fromMFI, such as the Africa Trading.However, in September
METROPOLITAN FABRICS, INC., ET AL. V. PROSPERITY
CREDIT RESOURCES, INC. ET AL.,
FACTS:
Metropolitan Fabrics, Incorporated (MFI), a family
corporation, owned a 5.8hectare industrial compound at No. 685
Tandang Sora Avenue, Novaliches, Quezon City which was covered by
TCT No. 241597.Pursuant to a P2 million, 10-year 14% per annum
loan agreement with Manphil Investment Corporation (Manphil) dated
April 6, 1983, the said lot was subdivided into11 lots, with Manphil
retaining four lots as mortgage security.
The other seven lots, now covered by TCT Nos. 317699 and
317702 to 317707, were released to MFI. In July 1984, MFI sought
from PCRI a loan in the amount of P3,443,330.52, the balance of the
cost of its boiler machine, to prevent its repossession by the seller.
PCRI, also family-owned corporation licensed since 1980 to engage in
money lending, was represented by Domingo Ang (Domingo) its
president, and his son Caleb, vice-president. The parties knew each
other because they belonged to the same familyassociation, the Lioc
Kui Tong Fraternity.
On the basis only of his interview with Enrique, feedback from
the stockholders and the Chinese community, as well as information
given by his own father Domingo, and without further checking on the
background of Enrique and his business and requiring him to submit a
company profile and a feasibility study of MFI, Caleb recommended
the approval of the P3.44 million with an interest ranging from 24% to
26% per annum and a term of between five and ten years (Decision, p.
5).
According to the court, it sufficed for Caleb that Enrique was a
well-respected Chinese businessman, that he was the presidentof their
Chinese family association, and that he had other personal businesses
1984, the first amortization check bounced for insufficient fund due to
MFIs continuing business losses. It was then that the appellees
allegedly learnedthat PCRI had filled up the 24 blank checks with
dates and amounts that reflected a 35%interest rate per annum, instead
of just 24%, and a two year repayment period, instead of10 years.
On September 4, 1986, Enrique received a Notice of Sheriffs
Sale dated August 29, 1986, announcing the auction of the seven lots
on September 24, 1986 due to unpaid indebtedness of P10.5 million.
Vicky (daughter of owner of MFI, because their father went into a
coma because of intense pressure from the foreclosure) insisted that
prior to the auction notice, they never received any statement or
demand letter from the defendants to pay P10.5 million, nor did the
defendants inform them of the intended foreclosure.
ISSUES: Was the Mortgage Contract VOID?
HELD:
No. As the records show, petitioners really agreed to mortgage
their properties as security for their loan, and signed the deed of
mortgage for the purpose. Thereafter, they delivered the TCTs of the
properties subject of the mortgage to respondents. Consequently,
petitioners contention of absence of consent had no firm moorings. It
remained unproved. To begin with, they neither alleged nor established
that they had been forced or coerced to enter into the mortgage. Also,
they had freely and voluntarily applied for the loan, executed the
mortgage contract and turned over the TCTs of their properties. And,
lastly, contrary to their modified defense of absence of consent,
Vicky Angs testimony tended at best to prove the vitiation of their
consent through insidious words, machinations or

misrepresentations amounting to fraud, which showed that the
contract was voidable.
Where the consent was given through fraud, the contract was
voidable, not void ab initio. This is because a voidable or annullable
contract is existent, valid and binding, although it can be annulled due
to want of capacity or because of the vitiated consent of one of the
parties. Article 1390, in relation to Article 1391 of the Civil Code,
provides that if the consent of the contracting parties was obtained
through fraud, the contract is considered voidable and may be annulled
within four years from the time of the discovery of the fraud.
According to Article 1338 of the Civil Code, there is fraud
when one of the contracting parties, through insidious words or
machinations, induces the other to enter into the contract that,
without the inducement, he would not have agreed to. Yet, fraud,
to vitiate consent, must be the causal (dolo causante), not merely
the incidental (dolo incidente), inducement to the making of the
contract. In Samson v. Court of Appeals, causal fraud is defined as a
deception employed by one party prior to or simultaneous to the
contract in order to secure the consent of the other.
ARTICLE 1393
ECE REALTY VS. MANDAP
ECE REALTY AND DEVELOPMENT INC., Petitioner, v. RACHEL
G. MANDAP, Respondent G.R. No. 196182 September 01, 2014
Doctrine: In order to constitute fraud that provides basis to annul
contracts, it must fulfill two conditions: First, the fraud must be dolo
causante or it must be fraud in obtaining the consent of the party. This
is referred to as causal fraud. The deceit must be serious. The fraud is
serious when it is sufficient to impress, or to lead an ordinarily prudent
person into error; that which cannot deceive a prudent person cannot
Page |2
be a ground for nullity. The circumstances of each case should be
considered, taking into account the personal conditions of the victim.
Second, the fraud must be proven by clear and convincing evidence
and not merely by a preponderance thereof.
FACTS:
1. Petitioner ECE Realty is a corporation engaged in the building and
development of condominium units. Sometime in 1995, it started the
construction of a condominium project called Central Park
Condominium Building located along Jorge St., Pasay City. However,
printed advertisements were made indicating therein that the said
project was to be built in Makati City.
2. December 1995: respondent Mandap, agreed to buy a unit from the
above project by paying a reservation fee and, thereafter,
downpayment and monthly installments. On June 18, 1996, respondent
and the representatives of petitioner executed a Contract to Sell. In the
said Contract, it was indicated that the condominium project is located
in Pasay City.
3. More than two years after the execution of the Contract to Sell,
respondent Mandap, through her counsel, wrote petitioner a letter
demanding the return of P422,500.00, representing the payments she
made, on the ground that she subsequently discovered that the
condominium project was being built in Pasay City and not in Makati
City as indicated in its printed advertisements. Instead on answering
the letter, petitioner ECE Realty sent a letter informing her that her
unit is already ready for inspection and occupancy should she decide
to move in.
4. Treating the letter as a form of denial of her demand for the return of
the sum she had paid to petitioner ECE Realty, respondent Mandap
filed a complaint with the Expanded National Capital Region Field
Office (ENCRFO) of the HLURB seeking the annulment of her
contract with petitioner, the return of her payments, and damages.

5. Sept. 30, 2005: ENCRFO dismissed the complaint and directed the
parties to resume the fulfillment of the terms and conditions of their
sales contract. ENCRFO held that the respondent failed to show
or substantiate the legal grounds that consist of a fraudulent or
malicious dealing with her by the [petitioner], such as, the latter's
employment of insidious words or machinations which induced or
entrapped her into the contract and which, without them, would not
have encouraged her to buy the unit.
6. The HLURB Board of Commissioner and the Office of the
President affirmed the decision of the ENCRFO.
7. CA reverses the decision. It annulled the contract between the
parties. ECE ordered to return the payments made with legal interest.
It held that petitioner employed fraud and machinations to induce
respondent Mandap to enter into a contract with it. It also expressed
doubt on the due execution of the Contract to Sell between the parties.
ISSUE: Whether or not ECE Realty was guilty of fraud and if so,
whether such fraud is sufficient ground to nullify its contract with
Mandap.
HELD: NO. Jurisprudence has shown that in order to constitute fraud
that provides basis to annul contracts, it must fulfill two conditions.
First, the fraud must be dolo causante or it must be fraud in obtaining
the consent of the party. This is referred to as causal fraud. The deceit
must be serious. The fraud is serious when it is sufficient to impress, or
to lead an ordinarily prudent person into error; that which cannot
deceive a prudent person cannot be a ground for nullity. The
circumstances of each case should be considered, taking into account
the personal conditions of the victim. Second, the fraud must be
proven by clear and convincing evidence and not merely by a
preponderance thereof. In the present case, this Court finds that
petitioner is guilty of false representation of a fact. This is evidenced
by its printed advertisements indicating that its subject condominium
project is located in Makati City when, in fact, it is in Pasay City.
Page |3
However, insofar as the present case is concerned, that the
misrepresentation made by petitioner in its advertisements does not
constitute causal fraud which would have been a valid basis in
annulling the Contract to Sell between petitioner and respondent. The
Housing and Land Use Arbiter found that respondent failed to show
that the essential and/or moving factor that led the [respondent] to
give her consent and agree to buy the unit was precisely the project's
advantageous or unique location in Makati [City] to the exclusion of
other places or city x x x.
Both the HLURB Board of Commissioners and the Office of the
President affirmed the finding of the Arbiter and unanimously held that
respondent failed to prove that the location of the said project was the
causal consideration or the principal inducement which led her into
buying her unit in the said condominium project. The Court finds no
cogent reason to depart from the foregoing findings and conclusion of
the above agencies. Indeed, evidence shows that respondent proceeded
to sign the Contract to Sell despite information contained therein that
the condominium is located in Pasay City. This only means that she
still agreed to buy the subject property regardless of the fact that it is
located in a place different from what she was originally informed. If
she had a problem with the property's location, she should not have
signed the Contract to Sell and, instead, immediately raised this issue
with petitioner. But she did not. It took respondent more than two
years from the execution of the Contract to Sell to demand the return
of the amount she paid on the ground that she was misled into
believing that the subject property is located in Makati City. In the
meantime, she continued to make payments. The Court is not
persuaded by the ruling of the CA which expresses doubt on the due
execution of the Contract to Sell. The fact remains that the said
Contract to Sell was notarized. It is settled that absent any clear and
convincing proof to the contrary, a notarized document enjoys the
presumption of regularity and is conclusive as to the truthfulness of its
contents. Neither does the Court agree that the presumption of
regularity accorded to the notarized Contract to Sell was overcome by
evidence to the contrary. Respondent's allegation that she signed the

said Contract to Sell with several blank spaces, and which allegedly
did not indicate the location of the condominium, was not supported
by proof.
The basic rule is that mere allegation is not evidence and is not
equivalent to proof. In addition, the fact that respondent made several
payments prior to the execution of the subject Contract to Sell is not
the kind of evidence needed to overcome such presumption of
regularity. In any case, even assuming that petitioners
misrepresentation consists of fraud which could be a ground for
annulling their Contract to Sell, respondent's act of affixing her
signature to the said Contract, after having acquired knowledge of the
property's actual location, can be construed as an implied ratification
thereof. Ratification of a voidable contract is defined under Article
1393 of the Civil Code as follows: Art. 1393. Ratification may be
effected expressly or tacitly. It is understood that there is a tacit
ratification if, with knowledge of the reason which renders the contract
voidable and such reason having ceased, the person who has a right to
invoke it should execute an act which necessarily implies an intention
to waive his right. Implied ratification may take diverse forms, such as
by silence or acquiescence; by acts showing approval or adoption of
the contract; or by acceptance and retention of benefits flowing
therefrom.
Under Article 1392 of the Civil Code, ratification extinguishes the
action to annul a voidable contract. In addition, Article 1396 of the
same Code provides that ratification cleanses the contract from all its
defects from the moment it was constituted. Hence, based on the
foregoing, the findings and conclusions of the Housing and Land Use
Arbiter, the HLURB Board of Commissioners and the Office of the
President, should be sustained.
ARTICLE 1398
VILLANUEVA V. CHIONG
Page |4
FACTS OF THE CASE:
Florentino and Elisera Chiong were married sometime in January 1960
but have been separated in fact since 1975. During their marriage, they
acquired Lot No. 997-D-1 situated at Poblacion, Dipolog City and
covered by Transfer Certificate of Title (TCT) No. (T-19393)-
2325,3 issued by the Registry of Deeds of Zamboanga del Norte.
Sometime in 1985, Florentino sold the one-half western portion of the
lot to petitioners forP8,000, payable in installments. Thereafter,
Florentino allowed petitioners to occupy4 the lot and build a store, a
shop, and a house thereon. Shortly after their last installment payment
on December 13, 1986,5 petitioners demanded from respondents the
execution of a deed of sale in their favor. Elisera, however, refused to
sign a deed of sale.
ISSUES:
(1) Is the subject lot an exclusive property of Florentino or a conjugal
property of respondents?
(2) Was its sale by Florentino without Elisera's consent valid?
RULING:
1. That the lot belongs exclusively to Florentino because of his separation
in fact from his wife, Elisera, at the time of sale dissolved their
property relations, is bereft of merit. Respondents' separation in fact
neither affected the conjugal nature of the lot nor prejudiced Elisera's
interest over it. Under Article 178 of the Civil Code, the separation in
fact between husband and wife without judicial approval shall not
affect the conjugal partnership. The lot retains its conjugal nature. All
property acquired by the spouses during the marriage is presumed to
belong to the conjugal partnership of gains, unless it is proved that it
pertains exclusively to the husband or to the wife. Petitioners' mere
insistence as to the lot's supposed exclusive nature is insufficient to
overcome such presumption when taken against all the evidence for
respondents.

2. The sale by Florentino without Elisera's consent is not, however,
void. We held that without the wifes consent, the husbands alienation
or encumbrance of conjugal property prior to the effectivity of the
Family Code on August 3, 1988 is not void, but merely voidable
Articles 166 and 173 of the Civil Code. Therefore, the effect of
annulment of the contract is to wipe it out of existence, and to restore
the parties, insofar as legally and equitably possible, to their original
situation before the contract was entered into. Strictly applying Article
1398 to the instant case, petitioners should return to respondents the
land with its fruits and respondent Florentino should return to
petitioners the sum ofP8,000, which he received as the price of the
land, together with interest thereon.On the matter of fruits and
interests, we take into consideration that petitioners have been using
the land and have derived benefit from it just as respondent Florentino
has used the price of the land in the sum of P8,000. Hence, if, as
ordered by the lower court, Florentino is to pay a reasonable amount or
legal interest for the use of the money then petitioners should also be
required to pay a reasonable amount for the use of the land. Under the
particular circumstances of this case, however, it would be equitable to
consider the two amounts as offsetting each other.
ARTICLE 1399
KATIPUNAN VS. KATIPUNAN, JR.
G.R. No. 132415, January 30, 2002
Facts:
Page |5
Respondent Braulio Katipunan Jr. is the registered owner of a
lot and a five-door apartment constructed thereon, which were
occupied by lessees. Respondent assisted by his brother petitioner
Miguel entered into a Deed of Absolute Sale with brothers Edardo
Balguma and Leopoldo Balguma, Jr. ( co-petitioners), represented by
their lawyer-father involving the subject property for a consideration
of P187,000.00. So, the title was registered in the names of the
Balguma brothers and they started collecting rentals thereon.
Later, Braulio filed a complaint for annulment of the Deed of
Absolute Sale, contending that his brother Miguel, Atty. Balguma and
Inocencio Valdez ( one of the petitioners) convinced him to work
abroad. Through insidious words and machinations, they made him
sign a document purportedly a contract of employment, which
document turned out to be a Deed of Absolute Sale. He further alleged
that he did not receive the consideration stated in the contract. He
claimed that there was evident bad faith and conspiracy in taking
advantage of his ignorance, he being only a third grader.
The RTC dismissed the complaint because Braulio failed to
prove his cause of action since he admitted that he obtained loans from
the Balgumas, he signed the Deed of Absolute Sale, and he
acknowledged selling the property and stopped collecting the rentals.
But when the case was elevated, the decision of RTC was reversed and
it was held that Braulio was incompetent, has very low I.Q., illiterate
and has a slow comprehension. The CA based its decision on
Arts.1332 and 1390 of NCC and Sec. 2, Rule 92 of the Rules of Court,
concerning the incompetence of a party in contract.
Issue:
Whether there was a valid contract of sale between the parties.
Held:
The Supreme Court found the petition devoid of merit. There
was a vitiated consent on the part of the respondent as he signed the
Deed of Absolute Sale without the remotest idea of what it was and
received no consideration thereof. The contract entered into by the
parties being voidable contract, was correctly annulled on appeal.

A contract of sale is born from the moment there is a meeting
of minds upon the thing which is the object of the contract and upon
the price. This meeting of minds speaks of the intent of the parties in
entering the contract respecting the subject matter and the
consideration thereof. Thus, the elements of a contract of a sale are
consent, object, and price in money or its equivalent. Under Art. 1330
of NCC, consent may be vitiated by any of the following: mistake,
violence, intimidation, undue influence, and fraud. The presence of
any of these vices renders the contract voidable.
A contract where one of the parties is incapable of giving
consent or where consent is vitiated by mistake, fraud, or intimidation
is not void ab initio but only voidable and is binding upon the parties
unless annulled proper court action. The effect of annulment is to
restore the parties to the status quo ante insofar as legally and
equitably possible---this much is dictated by Art. 1398 provides that
when the defect of the contract consists in the incapacity of one of the
parties, the incapacitated person is not obliged to make any restitution,
except when he has been benefited by the things or price received by
him. Thus, since the Deed of Absolute Sale between respondent
and Balguma brothers is voidable and hereby annulled, then the
restitution of the property and its fruits to respondent is just and
proper.
ARTICLE 1403
VIEWMASTER CONSTRUCTION
CORPORATION, petitioner, vs. ALLEN C. ROXAS,
STATE INVESTMENT TRUST, INC., NORTHEAST
LAND DEVELOPMENT, INC., and STATE
PROPERTIES CORPORATION, respondents.
Page |6
The facts of the case are as follows:
On September 8, 1995 Viewmaster Construction Corporation
(Viewmaster, for brevity) filed with the Regional Trial Court at
Pasig City, Branch 166, Civil Case No. 65277, a complaint for
specific performance, enforcement of implied trust and
damages against State Investment Trust, Inc., Northeast Land
Development, Inc., State Properties Corporation and Allen C.
Roxas.
It was alleged that Allen Roxas, one of the stockholders of
State Investment Trust, Inc. applied for a loan with First Metro
Investments, Inc. (FMIC, in short) in order to obtain funds to
be used by him or his agents/privies to bid for the control and
ownership of State Investment Trust, Inc. (State Investment, for
brevity) which will be held among the members of the
Chiong/Roxas family, as he had no funds of his own at the time
to satisfy the required bid deposit and/or down payment.
FMIC agreed to grant Allen Roxas the loan he requested
without any collateral, i.e., a clean loan, provided that he
procures a guarantor/surety/solidary co-debtor to secure the
payment for the said loan.
Viewmaster agreed to act as guarantor for the loan conditioned
upon the following:
a) Allen Roxas shall sell and Viewmaster shall purchase fifty
percent (50%) of the total eventual acquisitions of Roxas of the
shares of stock in State Investment and that the purchase price
to be paid by Viewmaster for the said shares shall be equivalent
to the successful bid price per share plus an additional ten
percent (10%) per share.

b) Viewmaster shall undertake to develop the parcels of land in
Balintawak, Quezon City and Las Pias consisting of twenty
thousand (20,000) square meters and seven hundred eighty-six
thousand one hundred sixty-seven (786,167) square meters,
respectively, for the property owners.
In consideration of the guaranty of Viewmaster, FMIC
delivered to Allen Roxas the aggregate principal amount of
thirty-six million five hundred thousand pesos
(P36,500,000.00).
On July 2, 1992, Viewmaster executed a Continuing Guaranty
with FMIC to secure the payment of the said loans.
As a result of the loans granted by FMIC in consideration of,
and upon the guaranty of Viewmaster, Allen Roxas eventually
gained control and ownership of State Investment.
Despite demand, Allen Roxas failed and refused to sell 50% of
his shareholdings in State Investment and to enter into a joint
venture project with Viewmaster for the purpose of developing
the two aforementioned real properties, resulting in the
institution by Viewmaster of Civil Case No. 65277 [1] with the
RTC at Pasig City.
On October 25, 1995, the defendants namely, State Investment
Trust, Inc., Northeast Land Development, Inc., State Properties
Corporation and Allen C. Roxas filed a motion to dismiss [2] the
complaint on the following grounds:
a) the claim on which the action is founded is unenforceable
under the provisions of the Statute of Frauds; and
b) the complaint states no cause of action.
Page |7
Thereafter, or on November 24, 1995, an Opposition[3] (to
Defendants "Motion to Dismiss" dated 25 October 1995) was
filed by Viewmaster.
The trial court conducted a hearing of Viewmasters application
for the issuance of a temporary restraining order/writ of
preliminary injunction.
On May 15, 1996, an order[4] was issued dismissing the
complaint and denying Viewmasters application for a
temporary restraining order/writ of preliminary injunction.
A motion for reconsideration dated May 29, 1996[5] was filed
by Viewmaster to which an opposition was filed.
In its order dated July 10, 1996,[6] the trial court reconsidered
and set aside the order of May 15, 1996 and accordingly,
reinstated the complaint and granted Viewmasters application
for a writ of preliminary injunction on a One Million
(P1,000,000.00) Pesos injunction bond.
Respondents herein filed a motion for reconsideration to which
Viewmaster filed its opposition. However, the motion was
denied for lack of sufficient merit in the order dated January
30, 1997.[7]
On March 5, 1997, the respondents filed a motion for
inhibition[8] of the presiding judge but the same was denied for
lack of sufficient merit in the order of April 11, 1997.[9]
Thereafter, CA-GR SP No. 44000,[10] a petition
for certiorari and prohibition with application for a temporary
restraining order and/or writ of preliminary injunction was filed
with the Court of Appeals.

On November 28, 1997, a decision was rendered by the Court
of Appeals, the dispositive portion of which reads as follows:
"WHEREFORE, the petition is hereby GIVEN DUE
COURSE and is GRANTED. The challenged orders
dated July 10, 1996 and January 30, 1997 denying
petitioners motion to dismiss the complaint in Civil
Case No. 65277; and order dated April 11, 1997
denying their motion for inhibition are all SET ASIDE.
The complaint is ordered dismissed. Costs against
private respondent Viewmaster.
"SO ORDERED."[11]
A motion for reconsideration was filed by Viewmaster but it
was denied in the resolution dated April 21, 1998.[12]
Hence, this petition.
The grounds adduced for the allowance of the petition are:
A party a right to judicial interference in
THE HONORABLE COURT OF APPEALS ERRED
IN HOLDING THAT THE COMPLAINT IN CIVIL
CASE NO. 65277 DOES NOT STATE A CAUSE OF
ACTION.
B such right; and (c) an act or omission on
THE HONORABLE COURT OF APPEALS ERRED
IN RULING THAT THE AGREEMENT SOUGHT TO
BE ENFORCED BY PETITIONER IS SUPPOSEDLY
UNENFORCEABLE.
C
Page |8
THE HONORABLE COURT OF APPEALS ERRED
IN HOLDING THAT THE PRESIDING JUDGE OF
THE COURT A QUO SHOULD HAVE INHIBITED
HIMSELF FROM HEARING CIVIL CASE NO.
65277.
The petition is without merit.
The test of determining the sufficiency of the statements in a
complaint as setting forth a cause of action is enunciated in the
case of Fil-Estate Golf and Development, Inc. vs. Court of
Appeals,[13] to wit:
"In determining whether or not a complaint states a
cause of action, only the allegations in the complaint
must be considered. Thus, in the recent case of Navoa
v. Court of Appeals (251 SCRA 545), we held as
follows:
`A cause of action is the fact or
combination of facts which affords a
his behalf. The requisites for a cause of
action are: (a) a right in favor of the
plaintiff by whatever means and under
whatever law it arises or is created, (b)
an obligation on the part of the
defendant to respect and not to violate
the part of the defendant constituting a
violation of the plaintiffs right or breach
of the obligation of the defendant to the
plaintiff. Briefly stated, it is the reason
why the litigation has come about; it is
the act or omission of the defendant

resulting in the violation of someones
right.
`In determining the existence of a cause
of action, only the statements in the
complaint may properly be considered.
Lack of cause of action must appear on
the face of the complaint and its
existence may be determined only by the
allegations of the complaint,
consideration of other facts being
proscribed and any attempt to prove
extraneous circumstances not being
allowed.
`If a defendant moves to dismiss the
complaint on the ground of lack of cause
of action, such as what petitioners did in
the case at bar, he is regarded as having
hypothetically admitted all the
averments thereof. The test of
sufficiency of the facts found in a
complaint as constituting a cause of
action is whether or not admitting the
facts alleged the court can render a
valid judgment upon the same in
accordance with the prayer
thereof. The hypothetical admission
extends to the relevant and material facts
well pleaded in the complaint and
inferences fairly deducible therefrom.
Hence, if the allegations in the complaint
furnish sufficient basis by which the
complaint can be maintained, the same
should not be dismissed regardless of the
Page |9
defense that may be assessed by the
defendants." (Emphasis Ours)
Based on the above, one question need be answered: Was there
a cause of action?
We reply in the negative.
Let us consider the following facts: Petitioner Viewmaster
agreed to act as the guarantor of Allen Roxas for the loan that
the latter needs from FMIC if herein respondent Allen Roxas
shall sell fifty percent (50%) of his shareholdings in State
Investment and shall undertake a joint venture project with
Plaintiff Viewmaster to co-develop the two real estate
properties in Quezon City and Las Pias, and if Roxas shall sell
and petitioner Viewmaster shall purchase fifty percent (50%) of
the latters total eventual acquisitions of shares of stock in State
Investment. These were not put into writing.
The court a quo did not err in finding that the Statute of Frauds
covers the foregoing agreements.
Article 1403 of the New Civil Code provides:
"Art. 1403. The following contracts are unenforceable,
unless they are ratified:
xxx
"(2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be
unenforceable 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 a secondary evidence of its contents:
"(a) An agreement that by its terms is not to be
performed within a year from the making thereof;
xxx
"(d) An agreement for the sale of goods, chattels or
things in action, at a price not less than five hundred
pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them,
of such things in action, or pay at the time some part of
the purchase money; but when a sale is made by auction
and entry is made by the auctioneer in his sales book, at
the time of the sale, of the amount and kind of property
sold, terms of sale, price, names of the purchasers and
person on whose account the sale is made, it is a
sufficient memorandum;"
The verbal agreement entered into between petitioner
Viewmaster and respondent Allen Roxas was an agreement that
by its terms is not to be performed within a year from the
making thereof.
To be taken out of the operation of the Statute of Frauds, the
agreement must be fully performed on one side within one year
from the making thereof.
"Contracts which by their terms are not to be performed
within one year may be taken out of the Statute of
Frauds through performance by one party thereto. In
order, however, that a partial performance of the
contract may take the case out of the operation of the
statute, it must appear clear that the full performance
P a g e | 10
has been made by one party within one year, as
otherwise the statute would apply."[14]
In the case at bar, since neither of the parties has fully
performed their obligations within the one-year period, i.e.,
Allen Roxas has not sold fifty percent (50%) of his
shareholdings in State Investment to Viewmaster and
Viewmaster has not paid the purchase price for the aforesaid
shares of stock, nor began the co-development of the two
subject real properties, then it behooves this Court to declare
that the case falls within the coverage of the Statute of Frauds.
It will not take a mathematical genius to figure out that the sale
of fifty percent (50%) of Allen Roxass shareholdings in State
Investment would amount to more than five hundred pesos
(P500.00). Thus, to be enforceable, the contract must be in
writing.
It is contended that an implied trust exists between petitioner
and Allen Roxas. The implied trust was allegedly created by
operation of law in accordance with Article 1448 of the New
Civil Code.
Quoted below is the provision referred to:
"Art. 1448. There is an implied trust when property is
sold, and the legal estate is granted to one party but the
price is paid by another for the purpose of having
the beneficial interest of the property.The former is
the trustee, while the latter is the beneficiary. However,
if the person to whom the title is conveyed is a child,
legitimate or illegitimate, of the one paying the price of
the sale, no trust is implied by law, it being disputably
presumed that there is a gift in favor of the child."
(Emphasis Ours)

From the above, it is quite clear that in order for the provisions
of Article 1448 to apply in the case at bar "the price is paid by
another for the purpose of having the beneficial interest of the
property."
It bears stressing that respondent Allen Roxas obtained a loan
from First Metro Investments, Inc. not from petitioner
Viewmaster. It was FMIC that provided the funds with which
Allen Roxas acquired the controlling interest in State
Investment Trust, Inc. FMIC lent the money to Roxas because
the latter needed the money and not to obtain any beneficial
interest in the shares of stock in State Investment. Viewmaster
merely facilitated the loan by acting as guarantor of the loan
and nothing more.
We quote with approval the finding of the court a quo:
"In the case at bench, the money which Allen Roxas
used to bid for the purchase of the shares of stock in
State Investment does not belong to Viewmaster. In
fact, the complaint clearly states that the funds were
borrowed by Allen Roxas from FMIC (which were
already fully paid). Thus, we cannot conclude that Allen
Roxas holds in trust for Viewmaster 50% of his
controlling interest in State Investment and the two
parcels of land owned by State Investments
subsidiaries.
"As correctly pointed out by petitioners, an implied
trust cannot arise if the funds used by the alleged trustee
in acquiring the alleged trust property originated from a
loan. The following citations contained in the petition
are well-taken:
`Another exception is that in which an
actual contrary intention is proved. Thus,
P a g e | 11
where a transfer of property is made to
one person and the purchase price is
advanced by another as a loan to the
transferee, a resulting trust
does not arise. xxx (IV Tolentino, Civil
Code of the Philippines [1991], p. 679)
`The general rule is that the use of
borrowed money in making a purchase
does not raise a resulting trust in favor of
the lender, even where the money is
loaned to enable the borrower to
purchase the property in question and the
borrower promises, but fails, to execute
a mortgage on the property after it is
purchased, to secure the loan. Nor does
the use of money given to one for the
purchase of the property raises a
resulting trust in the property in favor of
the donor (76 AmJur 2d. pp. 440-441).
"If an implied trust cannot exist in favor of a lender, We
cannot see our way clear how a mere guarantor, like
Viewmaster, can claim a resulting implied trust when it
issued to Allen Roxas a Continuing Guaranty.
"But Viewmaster insists that its having acted as
guarantor of Allen Roxas is the equitable consideration
of the transaction which is the foundation of the
resulting trust, citing American Jurisprudence. For had
Viewmaster not issued the Continuing Guaranty, FMIC
would not have extended any loan to Allen Roxas. In
fact, Viewmaster placed itself at risk in securing the
loan and in `inducing FMIC to grant the said loan to
Allen Roxas.

"We cannot go along with Viewmasters theory. The
`consideration referred to in its citation of American
Jurisprudence, as well as the `price specified in Article
1448 of the Civil Code, pertain to the funds, goods or
services, in consideration of which the trust property is
conveyed to the trustee. In the present case, the
`consideration or `price refers to the money which came
from a loan granted to Allen Roxas by FMIC, not to the
Continuing Guaranty executed by Viewmaster. The
Continuing Guaranty, therefore, is not the consideration
which Allen Roxas used in acquiring said shares of
stock. Consequently, no implied trust could have arisen
in favor of Viewmaster over the shares of stock in State
Investment or over the two subject lots.
"In the light of Our finding that the allegations in the
complaint fail to show the existence of an implied trust,
a `valid judgment cannot be rendered thereon in
accordance with the prayer in the complaint. Obviously,
Viewmasters demand for specific performance on the
part of Allen Roxas or his compliance with his
obligation as a supposed trustee has no legal basis."[15]
We have carefully scrutinized the allegations in the complaint
and we arrived at one conclusion: the complaint does not state
a cause of action. The facts as given are not sufficient enough
for the court to arrive at an equitable judgment.
Anent the third issue, we hold that it is no longer necessary to
discuss the same for being moot and academic.
However, we deem it best to allude to the case of Aleria, Jr. vs.
Velez[16] cited in the case of Seveses vs. Court of Appeals,[17] as
these cases have discussed the issue when a judge must inhibit
himself from a case.
P a g e | 12
"As to the prayer for inhibition, petitioner claims that
the issuance of the questioned Orders shows that
respondent Judge has already lost his impartiality or
cold neutrality to administer justice, and that petitioner
does not stand a chinamans chance of ever getting
justice before respondent Judge. Such sweeping
conclusions here do not merit consideration. The
questioned Orders, by themselves, do not sufficiently
prove bias and prejudice to disqualify respondent Judge
under Section 1, second paragraph of Rule 137 of the
Rules of Court. For such bias and prejudice, to be a
ground for disqualification, must be shown to have
stemmed from an extrajudicial source, and result in an
opinion on the merits on some basis other than what the
judge learned from his participation in the case.
Opinions formed in the course of judicial proceedings,
as long as they are based on the evidence presented and
conduct observed by the judge, even if found later on as
erroneous, do not prove personal bias or prejudice on
the part of the judge. Extrinsic evidence is required to
establish bias, bad faith, malice or corrupt purpose, in
addition to palpable error which may be inferred from
the decision or order itself. This, the petitioner herein
did not sufficiently adduce to warrant respondent
Judges inhibition or disqualification."
WHEREFORE, IN VIEW OF THE FOREGOING, the
petition is hereby DISMISSED and the decision of the Court of
Appeals in CA GR SP No. 44000 is AFFIRMED. Costs against
the petitioner.
SO ORDERED.
ARTICLE 1403

LITONJUA V. FERNANDEZ
This is a petition for review on certiorari of the Decision[1] of the
Court of Appeals in CA-G.R. CV No. 64940, which reversed and set
aside the June 23, 1999 Decision[2] of the Regional Trial Court of Pasig
City, Branch 68, in Civil Case No. 65629, as well as its Resolution
dated April 30, 2001 denying the petitioners motion for
reconsideration of the aforesaid decision.
The heirs of Domingo B. Ticzon[3] are the owners of a parcel of
land located in San Pablo City, covered by Transfer Certificate of Title
(TCT) No. T-36766 of the Register of Deeds of San Pablo City.[4] On
the other hand, the heirs of Paz Ticzon Eleosida, represented by
Gregorio T. Eleosida, are the owners of a parcel of land located in San
Pablo City, covered by TCT No. 36754, also of the Register of Deeds
of San Pablo City.[5]
The Case for the Petitioners
Sometime in September 1995, Mrs. Lourdes Alimario and Agapito
Fisico who worked as brokers, offered to sell to the petitioners,
Antonio K. Litonjua and Aurelio K. Litonjua, Jr., the parcels of land
covered by TCT Nos. 36754 and 36766. The petitioners were shown a
locator plan and copies of the titles showing that the owners of the
properties were represented by Mary Mediatrix Fernandez and
Gregorio T. Eleosida, respectively.The brokers told the petitioners that
they were authorized by respondent Fernandez to offer the property for
sale. The petitioners, thereafter, made two ocular inspections of the
property, in the course of which they saw some people gathering
coconuts.
In the afternoon of November 27, 1995, the petitioners met with
respondent Fernandez and the two brokers at the petitioners office
in Mandaluyong City.[6] The petitioners and respondent Fernandez
agreed that the petitioners would buy the property consisting of 36,742
square meters, for the price of P150 per square meter, or the total sum
P a g e | 13
of P5,098,500. They also agreed that the owners would shoulder the
capital gains tax, transfer tax and the expenses for the documentation
of the sale. The petitioners and respondent Fernandez also agreed to
meet on December 8, 1995 to finalize the sale. It was also agreed upon
that on the said date, respondent Fernandez would present a special
power of attorney executed by the owners of the property, authorizing
her to sell the property for and in their behalf, and to execute a deed of
absolute sale thereon. The petitioners would also remit the purchase
price to the owners, through respondent Fernandez. However, only
Agapito Fisico attended the meeting. He informed the petitioners that
respondent Fernandez was encountering some problems with the
tenants and was trying to work out a settlement with them. [7] After a
few weeks of waiting, the petitioners wrote respondent Fernandez
on January 5, 1995, demanding that their transaction be finalized
by January 30, 1996.[8]
When the petitioners received no response from respondent
Fernandez, the petitioners sent her another Letter[9] dated February 1,
1996, asking that the Deed of Absolute Sale covering the property be
executed in accordance with their verbal agreement dated November
27, 1995. The petitioners also demanded the turnover of the subject
properties to them within fifteen days from receipt of the said letter;
otherwise, they would have no option but to protect their interest
through legal means.
Upon receipt of the above letter, respondent Fernandez wrote the
petitioners on February 14, 1996[10] and clarified her stand on the
matter in this wise:
1) It is not true I agreed to shoulder registration fees and other
miscellaneous expenses, etc. I do not recall we ever discussed about
them. Nonetheless, I made an assurance at that time that there was no
liens/encumbrances and tenants on my property (TCT 36755).
2) It is not true that we agreed to meet on December 8, 1995 in order
to sign the Deed of Absolute Sale. The truth of the matter is that you

were the one who emphatically stated that you would prepare a
Contract to Sell and requested us to come back first week of December
as you would be leaving the country then. In fact, what you were
demanding from us was to apprise you of the status of the property,
whether we would be able to ascertain that there are really no
tenants. Ms. Alimario and I left your office, but we did not assure you
that we would be back on the first week of December.
Unfortunately, some people suddenly appeared and claiming to be
tenants for the entire properties (including those belonging to my other
relatives.) Another thing, the Barangay Captain now refuses to give a
certification that our properties are not tenanted.
Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to Mr.
Agapito that due to the appearance of alleged tenants who are
demanding for a one-hectare share, my cousin and I have thereby
changed our mind and that the sale will no longer push through. I
specifically instructed her to inform you thru your broker that we will
not be attending the meeting to be held sometime first week of
December.
In view thereof, I regret to formally inform you now that we are no
longer selling the property until all problems are fully settled. We have
not demanded and received from you any earnest money, thereby, no
obligations exist. In the meantime, we hope that in the future we will
eventually be able to transact business since we still have other
properties in San Pablo City.[11]
Appended thereto was a copy of respondent Fernandez letter to
the petitioners dated January 16, 1996, in response to the
latters January 5, 1996 letter.[12]
On April 12, 1996, the petitioners filed the instant Complaint for
specific performance with damages[13] against respondent Fernandez
and the registered owners of the property. In their complaint, the
petitioners alleged, inter alia, the following:
P a g e | 14
9. On 14 February 1996, defendant Fernandez sent a written
communication of the same date to plaintiffs enclosing therein a copy
of her 16 January 1996 letter to plaintiffs which plaintiffs never
received before. Defendant Fernandez stated in her 16 January 1996
letter that despite the meeting of minds among the parties over the
33,990 square meters of land for P150.00 per square meter on 27
November 1995, defendants suddenly had a change of heart and no
longer wished to sell the same. Paragraph 6 thereof unquestionably
shows defendants previous agreement as above-mentioned and their
unjustified breach of their obligations under it.
10. Defendants cannot unilaterally, whimsically and capriciously
cancel a perfected contract to sell.
11. Plaintiffs intended to use the subject property for their subdivision
project to support plaintiffs quarry operations, processing of aggregate
products and manufacture of construction materials. Consequently, by
reason of defendants failure to honor their just obligations, plaintiffs
suffered, and continue to suffer, actual damages, consisting in
unrealized profits and cost of money, in the amount of at least P5
Million.
12. Plaintiffs also suffered sleepless nights and mental anxiety on
account of defendants fraudulent actuations for which reason
defendants are liable to plaintiffs for moral damages in the amount of
at least P1.5 Million.
13. By reason of defendants above-described fraudulent actuations,
plaintiffs, despite their willingness and ability to pay the agreed
purchase price, have to date been unable to take delivery of the title to
the subject property. Defendants acted in a wanton, fraudulent and
malevolent manner in violating the contract to sell. By way of example
or correction for the public good, defendants are liable to plaintiff for
exemplary damages in the amount of P500,000.00.

14. Defendants bad faith and refusal to honor their just obligations to
plaintiffs constrained the latter to litigate and to engage the services of
On July 5, 1996, respondent Fernandez filed her Answer to the
complaint.[16] She claimed that while the petitioners offered to buy the
property during the meeting of November 27, 1995, she did not accept
the offer; thus, no verbal contract to sell was ever perfected. She
specifically alleged that the said contract to sell was unenforceable for
failure to comply with the statute of frauds. She also maintained that
even assuming arguendothat she had, indeed, made a commitment or
promise to sell the property to the petitioners, the same was not
binding upon her in the absence of any consideration distinct and
separate from the price. She, thus, prayed that judgment be rendered as
follows:
On September 24, 1997, the trial court, upon motion of the
petitioners, declared the other respondents in default for failure to file
their responsive pleading within the reglementary period.[18] At the pre-
trial conference held on March 2, 1998, the parties agreed that the
following issues were to be resolved by the trial court: (1) whether or
not there was a perfected contract to sell; (2) in the event that there
was, indeed, a perfected contract to sell, whether or not the
respondents breached the said contract to sell; and (3) the corollary
issue of damages.[19]
Respondent Fernandez testified that she requested Lourdes
Alimario to look for a buyer of the properties in San Pablo City on a
best offer basis. She was later informed by Alimario that the
petitioners were interested to buy the properties. On November 27,
1995, along with Alimario and another person, she met with the
petitioners in the latters office and told them that she was at the
conference merely to hear their offer, that she could not bind the
owners of the properties as she had no written authority to sell the
same. The petitioners offered to buy the property at P150 per square
meter. After the meeting, respondent Fernandez requested Joy
Marquez to secure a barangay clearance stating that the property was
P a g e | 15
free of any tenants. She was surprised to learn that the clearance could
not be secured. She contacted a cousin of hers, also one of the owners
of the property, and informed him that there was a prospective buyer
of the property but that there were tenants thereon. Her cousin told her
that he was not selling his share of the property and that he was not
agreeable to the price of P150 per square meter. She no longer
informed the other owners of the petitioners offer. Respondent
Fernandez then asked Alimario to apprise the petitioners of the
foregoing developments, through their agent, Agapito Fisico. She was
surprised to receive a letter from the petitioners dated January 5,
1996. Nonetheless, she informed the petitioners that she had changed
her mind in pursuing the negotiations in a Letter dated January 18,
1996. When she received petitioners February 1, 1996 Letter, she sent
a Reply-Letter dated February 14, 1996.
On appeal to the Court of Appeals, the respondents ascribed the
following errors to the court a quo:
I. THE LOWER COURT ERRED IN HOLDING THAT
THERE WAS A PERFECTED CONTRACT
OF SALE OF THE TWO LOTS ON NOVEMBER 27,
1995.
II. THE LOWER COURT ERRED IN NOT HOLDING
THAT THE VERBAL CONTRACT OF SALE AS
CLAIMED BY PLAINTIFFS-APPELLEES ANTONIO
LITONJUA AND AURELIO LITONJUA WAS
UNENFORCEABLE.
III. THE LOWER COURT ERRED IN HOLDING THAT
THE LETTER OF DEFENDANT-APPELLANT
FERNANDEZ DATED JANUARY 16, 1996 WAS A
CONFIRMATION OF THE PERFECTED SALE AND
CONSTITUTED AS WRITTEN EVIDENCE THEREOF.
 P a g e | 16

IV. THE LOWER COURT ERRED IN NOT HOLDING
THAT A SPECIAL POWER OF ATTORNEY WAS
REQUIRED IN ORDER THAT DEFENDANT-
APPELLANT FERNANDEZ COULD NEGOTIATE
THE SALE ON BEHALF OF THE OTHER
REGISTERED CO-OWNERS OF THE TWO LOTS.
V. THE LOWER COURT ERRED IN AWARDING
ATTORNEYS FEES IN THE DISPOSITIVE PORTION
OF THE DECISION WITHOUT STATING THE BASIS
IN THE TEXT OF SAID DECISION.[22]
On February 28, 2001, the appellate court promulgated its
decision reversing and setting aside the judgment of the trial court and
dismissing the petitioners complaint, as well as the respondents
counterclaim.[23] The appellate court ruled that the petitioners failed to
prove that a sale or a contract to sell over the property between the
petitioners and the private respondent had been perfected.
Hence, the instant petition for review on certiorari under Rule 45
of the Revised Rules of Court.
The petitioners submit the following issues for the Courts
resolution:
The general rule is that the Courts jurisdiction under Rule 45 of
the Rules of Court is limited to the review of errors of law committed
by the appellate court. As the findings of fact of the appellate court are
deemed continued, this Court is not duty-bound to analyze and
calibrate all over again the evidence adduced by the parties in the
court a quo.[25] This rule, however, is not without exceptions, such as
where the factual findings of the Court of Appeals and the trial court
are conflicting or contradictory.[26] Indeed, in this case, the findings of
the trial court and its conclusion based on the said findings contradict
those of the appellate court. However, upon careful review of the
records of this case, we find no justification to grant the petition. We,
thus, affirm the decision of the appellate court.
On the first and second assignment of errors, the petitioners assert
that there was a perfected contract of sale between the petitioners as
buyers and the respondents-owners, through respondent Fernandez, as
sellers.The petitioners contend that the perfection of the said contract
is evidenced by the January 16, 1996 Letter of respondent Fernandez.
[27]
The pertinent portions of the said letter are as follows:
[M]y cousin and I have thereby changed our mind and that the sale
will no longer push through. I specifically instructed her to inform you
thru your broker that we will not be attending the meeting to be held
sometime first week of December.

A. WHETHER OR NOT THERE WAS A PERFECTED CONTRACT
OF SALE BETWEEN THE PARTIES.
B. WHETHER OR NOT THE CONTRACT FALLS UNDER THE
COVERAGE OF THE STATUTE OF FRAUDS.
C. WHETHER OR NOT THE DEFENDANTS DECLARED IN
DEFAULT ARE BENEFITED BY THE ASSAILED DECISION OF
THE COURT OF APPEALS.[24]
The petition has no merit.
In view thereof, I regret to formally inform you now that we are no
longer selling the property until all problems are fully settled. We
have not demanded and received from you any earnest money, thereby,
no obligations exist[28]
The petitioners argue that the letter is a sufficient note or
memorandum of the perfected contract, thus, removing it from the
coverage of the statute of frauds. The letter specifically makes
reference to a sale which respondent Fernandez agreed to initially, but
which the latter withdrew because of the emergence of some people
who claimed to be tenants on both parcels of land. According to the

petitioners, the respondents-owners, in their answer to the complaint,
as well as respondent Fernandez when she testified, admitted the
authenticity and due execution of the said letter. Besides, when the
petitioner Antonio Litonjua testified on the contract of sale entered into
between themselves and the respondents-owners, the latter did not
object thereto. Consequently, the respondents-owners thereby ratified
the said contract of sale. The petitioners thus contend that the appellate
courts declaration that there was no perfected contract of sale between
the petitioners and the respondents-owners is belied by the evidence,
the pleadings of the parties, and the law.
The petitioners contention is bereft of merit. In its decision, the
appellate court ruled that the Letter of respondent Fernandez
dated January 16, 1996 is hardly the note or memorandum
contemplated under Article 1403(2)(e) of the New Civil Code, which
reads:
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in
this number. In the following cases an agreement hereafter made shall
be unenforceable 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:
(e) An agreement for the leasing for a longer period than one year,
or for the sale of real property or of an interest therein.[29]
The appellate court based its ruling on the following disquisitions:
In the case at bar, the letter dated January 16, 1996 of defendant-
appellant can hardly be said to constitute the note or memorandum
evidencing the agreement of the parties to enter into a contract of sale
as it is very clear that defendant-appellant as seller did not accept the
P a g e | 17
condition that she will be the one to pay the registration fees and
miscellaneous expenses and therein also categorically denied she had
already committed to execute the deed of sale as claimed by the
plaintiffs-appellees. The letter, in fact, stated the reasons beyond the
control of the defendant-appellant, why the sale could no longer push
through because of the problem with tenants. The trial court zeroed in
on the statement of the defendant-appellant that she and her cousin
changed their minds, thereby concluding that defendant-appellant had
unilaterally cancelled the sale or backed out of her previous
commitment. However, the tenor of the letter actually reveals a
consistent denial that there was any such commitment on the part of
defendant-appellant to sell the subject lands to plaintiffs-
appellees. When defendant-appellant used the words changed our
mind, she was clearly referring to the decision to sell the property at all
(not necessarily to plaintiffs-appellees) and not in selling the property
to herein plaintiffs-appellees as defendant-appellant had not yet made
the final decision to sell the property to said plaintiffs-appellees. This
conclusion is buttressed by the last paragraph of the subject letter
stating that we are no longer selling the property until all problems are
fully settled. To read a definite previous agreement for the sale of the
property in favor of plaintiffs-appellees into the contents of this letter
is to unduly restrict the freedom of the contracting parties to negotiate
and prejudice the right of every property owner to secure the best
possible offer and terms in such sale transactions. We believe,
therefore, that the trial court committed a reversible error in finding
that there was a perfected contract of sale or contract to sell under the
foregoing circumstances. Hence, the defendant-appellant may not be
held liable in this action for specific performance with damages.[30]
In Rosencor Development Corporation vs. Court of Appeals,
[31]
the term statute of frauds is descriptive of statutes which require
certain classes of contracts to be in writing. The statute does not
deprive the parties of the right to contract with respect to the matters
therein involved, but merely regulates the formalities of the contract
necessary to render it enforceable. The purpose of the statute is to
prevent fraud and perjury in the enforcement of obligations, depending

for their existence on the unassisted memory of witnesses, by requiring
certain enumerated contracts and transactions to be evidenced by a
writing signed by the party to be charged.The statute is satisfied or, as
it is often stated, a contract or bargain is taken within the statute by
making and executing a note or memorandum of the contract which is
sufficient to state the requirements of the statute. [32]The application of
such statute presupposes the existence of a perfected
contract. However, for a note or memorandum to satisfy the statute, it
must be complete in itself and cannot rest partly in writing and partly
in parol.The note or memorandum must contain the names of the
parties, the terms and conditions of the contract and a description of
the property sufficient to render it capable of identification. [33] Such
note or memorandum must contain the essential elements of the
contract expressed with certainty that may be ascertained from the note
or memorandum itself, or some other writing to which it refers or
within which it is connected, without resorting to parol evidence.[34] To
be binding on the persons to be charged, such note or
memorandum must be signed by the said party or by his agent duly
authorized in writing.[35]
In City of Cebu v. Heirs of Rubi,[36] we held that the exchange of
written correspondence between the parties may constitute sufficient
writing to evidence the agreement for purposes of complying with the
statute of frauds.
In this case, we agree with the findings of the appellate court that
there was no perfected contract of sale between the respondents-
owners, as sellers, and the petitioners, as buyers.
There is no documentary evidence on record that the respondents-
owners specifically authorized respondent Fernandez to sell their
properties to another, including the petitioners. Article 1878 of the
New Civil Code provides that a special power of attorney is necessary
to enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable
consideration,[37] or to create or convey real rights over immovable
P a g e | 18
property,[38] or for any other act of strict dominion.[39] Any sale of real
property by one purporting to be the agent of the registered owner
without any authority therefor in writing from the said owner is null
and void.[40] The declarations of the agent alone are generally
insufficient to establish the fact or extent of her authority.[41] In this
case, the only evidence adduced by the petitioners to prove that
respondent Fernandez was authorized by the respondents-owners is the
testimony of petitioner Antonio Litonjua that respondent Fernandez
openly represented herself to be the representative of the respondents-
owners,[42] and that she promised to present to the petitioners on
December 8, 1996 a written authority to sell the properties.
[43]
However, the petitioners claim was belied by respondent
The petitioners cannot feign ignorance of respondent Fernandez
lack of authority to sell the properties for the respondents-owners. It
must be stressed that the petitioners are noted businessmen who ought
to be very familiar with the intricacies of business transactions, such as
the sale of real property.
The settled rule is that persons dealing with an assumed agent are
bound at their peril, and if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of proof is
upon them to prove it.[45] In this case, respondent Fernandez
specifically denied that she was authorized by the respondents-owners
to sell the properties, both in her answer to the complaint and when she
testified. The Letter dated January 16, 1996 relied upon by the
petitioners was signed by respondent Fernandez alone, without any
authority from the respondents-owners. There is no evidence on record
that the respondents-owners ratified all the actuations of respondent
Fernandez in connection with her dealings with the petitioners. As
such, said letter is not binding on the respondents as owners of the
subject properties.
Contrary to the petitioners contention, the letter of January 16,
1996[46] is not a note or memorandum within the context of Article

1403(2) because it does not contain the following: (a) all the essential
terms and conditions of the sale of the properties; (b) an accurate
description of the property subject of the sale; and, (c) the names of the
respondents-owners of the properties. Furthermore, the letter made
reference to only one property, that covered by TCT No. T-36755.
We note that the petitioners themselves were uncertain as to the
specific area of the properties they were seeking to buy. In their
complaint, they alleged to have agreed to buy from the respondents-
owners 33,990 square meters of the total acreage of the two lots
consisting of 36,742 square meters. In their Letter to respondent
Fernandez dated January 5, 1996, the petitioners stated that they
agreed to buy the two lots, with a total area of 36,742 square meters.
[47]
However, in their Letter dated February 1, 1996, the petitioners
declared that they agreed to buy a portion of the properties consisting
of 33,990 square meters.[48] When he testified, petitioner Antonio
Litonjua declared that the petitioners agreed to buy from the
respondents-owners 36,742 square meters at P150 per square meter or
for the total price of P5,098,500.[49]
The failure of respondent Fernandez to object to parol evidence to
prove (a) the essential terms and conditions of the contract asserted by
the petitioners and, (b) her authority to sell the properties for the
respondents-registered owners did not and should not prejudice the
respondents-owners who had been declared in default.[50]
ARTICLE 1403
CLEMENO V. LOBREGAT
FACTS:
P a g e | 19
Spouses Nilus and Teresita Sacramento were the owner of the parcel of
land and house constructed at Madaling Araw St., Teresita Heights
Subd., Novaliches, Quezon City. Spouses Sacramento mortgaged the
property with the SSS as security for their housing loan and likewise
surrendered the owners and duplicate copies of the certificate of title.
A Deed of Absolute Sale with Assumption of Mortgage in favor of
Spouses Maria Linda Clemeno and Angel C. Clemeno, Jr. was entered
into by Spouses Sacramental with conformity of the SSS. 5 years after,
Romeo Lobregat and Angel, who were relatives by consanguinity,
entered into a verbal contract of sale over the property with the
following terms, among others, that the former would pay the purchase
price of the property in the amount of P270,000.00 inclusive of the
balance. When Lobregats counsel wrote to Angel that he had already
paid the purchase price and was ready to pay the balance, he
demanded that petitioner execute a deed of absolute sale over the
property and deliver the title. In reply, Angel stated that he ever sold
the property but instead consented to lease the property. Also, that
even if Lobregat wanted to buy the property, the same was
unenforceable, as no document was executed by them to evince the
sale. CA ruled that the contract entered into was a contract of sale
since partial payments had been made, thus, contract is partly
performed.
ISSUE:
Are the essential elements of a contract of sale present?
HELD:
Yes. The Court held that the contract between the parties is a perfected
verbal contract of sale, not a contract to sell over the subject property
with the petitioner as vendor and respondent as vendee. Sale is a
consensual contract and is perfected by mere consent, which is
manifested by a meeting of the minds as to the offer and acceptance
thereof on three elements: subject matter, price, and terms of payment
of the price. The evidence shows that upon the payment made by the
respondent of the amount of P27,000.00, the petitioners vacated their
house and delivered possession. The petitioners cannot re-acquire

ownership and recover possession thereof unless the contract is
rescinded in accordance with law. The contract of sale of the parties is
enforceable notwithstanding the fact that it was an oral agreement and
not reduced in writing.
* The contract of sale of the parties is enforceable notwithstanding
the fact that it was an oral agreement and not reduced in writing as
required by Article 1403(2) of the New Civil Code, which reads:
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in
this number. In the following cases, an agreement hereafter made shall
be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the parties
charged, or by his agent; evidence, therefore, of the agreement cannot
be received without the writing, or a secondary evidence of its
contents:
(d) An agreement for the sale of goods, chattels or things in action, at a
price not less than five hundred pesos, unless the buyer accepts and
receives part of such goods and chattels, or the evidences, or some of
them, of such things in action, or pay at the time some part of the
purchase money: but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a
sufficient memorandum;
DAO HENG BANK (NOW BDO UNIVERSAL BANK) V. LAIGO
P a g e | 20
This is so because the provision applies only to executory, and not
to completed, executed or partially executed contracts. In this case, the
contract of sale had been partially executed by the parties, with the
transfer of the possession of the property to the respondent and the
partial payments made by the latter of the purchase price thereof.
We agree with the petitioners contention that the respondent did
not pay the total purchase price of the property within the stipulated
period. Moreover, the respondent did not pay the balance of the
purchase price of the property. However, such failure to pay on the part
of the respondent was not because he could not pay, but because
petitioner Angel Clemeno, Jr. told him not to do so. The latter
instructed the respondent to continue paying the monthly amortizations
due to the SSS on the loan. Unknown to the respondent, petitioner
Angel Clemeno, Jr. wanted to increase the purchase price of the
property at the prevailing market value in 1992, and not its value in
1987 when the contract of sale was perfected.
The petitioners failed to prove their claim that a lease purchase
agreement over the property was entered into. Except for their bare
claim, they failed to adduce a morsel of documentary evidence to
prove the same. On the other hand, all the receipts issued by them on
the partial payments made by the respondent were for the purchase
price of the property, and not as rentals thereof.
ARTICLE 1403

The Spouses Lilia and Reynaldo Laigo (respondents) obtained loans
from Dao Heng Bank, Inc. (Dao Heng) in the total amount of P11
Million, to secure the payment of which they forged on October 28,
1996, November 18, 1996 and April 18, 1997 three Real Estate
Mortgages covering two parcels of land registered in the name of
respondent Lilia D. Laigo, . . . married to Reynaldo Laigo, one
containing 569 square meters and the other containing 537 square
meters.
The mortgages were duly registered in the Registry of Deeds of
Quezon City.
The loans were payable within 12 months from the execution of the
promissory notes covering the loans. As of 2000, respondents failed to
settle their outstanding obligation, drawing them to verbally offer to
cede to Dao Heng one of the two mortgaged lots by way of dacion en
pago. To appraise the value of the mortgaged lands, Dao Heng in fact
commissioned an appraiser whose fees were shouldered by it and
respondents.
There appears to have been no further action taken by the parties after
the appraisal of the properties.
Dao Heng was later to demand the settlement of respondents
obligation by letter of August 18, 2000[1] wherein it indicated that they
had an outstanding obligation of P10,385,109.92 inclusive of interests
and other charges. Respondents failed to heed the demand, however.
P a g e | 21
Dao Heng thereupon filed in September 2000 an application to
foreclose the real estate mortgages executed by respondents. The
properties subject of the mortgage were sold for P10,776,242 at a
public auction conducted on December 20, 2000 to Banco de Oro
Universal Bank (hereafter petitioner) which was the highest bidder.
It appears that respondents negotiated for the redemption of the
mortgages for by a June 29, 2001 letter[2] to them, petitioner, to which
Dao Heng had been merged, through its Vice President on Property
Management & Credit Services Department, advised respondent Lilia
Laigo as follows:
If you are agreeable to the foregoing terms and
conditions, please affix your signature showing
your conformity thereto at the space provided
below. (Emphasis and underscoring in the
original; italics supplied)
Nothing was heard from respondents, hence, petitioner by its
Manager, Property Management & Credit Services Department,
advised her by letter of December 26, 2001 [3] that in view of their
failure to conform to the conditions set by it for the redemption of the
properties, it would proceed to consolidate the titles immediately after
the expiration of the redemption period on January 2, 2002.
Six days before the expiration of the redemption period or on
December 27, 2001, respondents filed a complaint before the Regional
Trial Court (RTC) of Quezon City, for Annulment, Injunction with

Prayer for Temporary Restraining Order (TRO), praying for the
annulment of the foreclosure of the properties subject of the real estate
mortgages and for them to be allowed to deliver by way of dacion en
pago one of the mortgaged properties as full payment of [their]
mortgaged obligation and to, in the meantime, issue a TRO directing
the defendant-herein petitioner to desist from consolidating ownership
over their properties.
By respondents claim, Dao Heng verbally agreed to enter into
a dacion en pago.
In its Opposition to respondents Application for a TRO,
[4]
petitioner claimed that there was no meeting of the minds between
the parties on the settlement of respondents loan via dacion en pago.
A hearing on the application for a TRO was conducted by
Branch 215 of the RTC of Quezon City following which it denied the
same.
Petitioner thereupon filed a Motion to Dismiss the complaint
on the ground that the claim on which respondents action is founded is
unenforceable under the Statute of Frauds and the complaint states no
cause of action. Respondents opposed the motion, contending that
their delivery of the titles to the mortgaged properties constituted
partial performance of their obligation under the dacion en pago to
take it out from the coverage of the Statute of Frauds.
P a g e | 22
The trial court granted petitioners Motion to Dismiss in this
wise:
[P]laintiffs claim must be based on a document or
writing evidencing the alleged dacion en pago,
otherwise, the same cannot be enforced in an action in
court. The Court is not persuaded by plaintiffs
contention that their case is an exception to the
operation of the rule on statute of frauds because of
their partial performance of the obligation in the dacion
en pago consisting of the delivery of the titles of the
properties to the defendants. As correctly pointed out
by the defendants, the titles were not delivered to
them pursuant to the dacion en pago but by reason
of the execution of the mortgage loan agreement. If
indeed a dacion en pago agreement was entered into
between the parties, it is inconceivable that a written
document would not be drafted considering the
magnitude of the amount involved. (Emphasis and
underscoring supplied)
In ordering the reinstatement of respondents complaint, the appellate
court held that the complaint states a cause of action, respondents
having alleged that there was partial performance of the agreement to
settle their obligation via dacion en pago when they agreed to have the
properties appraised to thus place their agreement within the
exceptions provided under Article 1403 of the Civil Code on Statute of
Frauds. Thus the appellate court ratiocinated:
Particularly, in seeking exception to the application of
the Statute of Frauds, petitioners[-herein respondents]
averred partial performance of the supposed verbal
 P a g e | 23

dacion en pago. In paragraph 5 of their complaint, they

stated: As part of the agreement, defendant Dao Heng III.
Bank had the mortgaged property appraised to
determine which of the two shall be delivered as full . . . THAT THE COMPLAINT SUFFICIENTLY
payment of the mortgage obligation; Also as part of the STATED A CAUSE OF ACTION.[9]
deal, plaintiffs for their part paid P5,000.00 for the
appraisal expense. As reported by the appraiser
commissioned by Defendant Dao Heng, the appraised Generally, the presence of a cause of action is determined from the
value of the mortgaged properties were as follows: x x
x Having done so, petitioners are at least entitled to a facts alleged in the complaint.
reasonable opportunity to prove their case in the course
of a full trial, to which the respondents may equally In their complaint, respondents alleged:
present their evidence in refutation of the formers
case. (Underscoring supplied)
xxxx

Even if a complaint states a cause of action, however, a motion

Petitioners Motion for Reconsideration having been denied by the
to dismiss for insufficiency of cause of action may be granted if the
appellate court by Resolution of July 19, 2006, the present petition was
evidence discloses facts sufficient to defeat the claim and enables the
filed faulting the appellate court in ruling:
court to go beyond the disclosures in the complaint. In such instances,
I. the court can dismiss a complaint on this ground, even without a
hearing, by taking into account the discussions in said motion to
. . . THAT THE COMPLAINT ALLEGED A
SUFFICIENT CAUSE OF ACTION DESPITE THE dismiss and the disposition thereto.
ALLEGATIONS, AS WELL AS ADMISSIONS FROM
THE RESPONDENTS, THAT THERE WAS NO In its Opposition to respondents application for the issuance of
PERFECTED DACION EN PAGO CONTRACT;
a TRO, petitioner, responding to respondents allegation that it agreed
II. to the settlement of their obligation via the assignment of one of the
two mortgaged properties, alleged that there was no meeting of the
. . . THAT THE ALLEGED DACION EN PAGO IS
minds thereon:
NOT UNENFORCEABLE UNDER THE STATUTE
OF FRAUDS, DESPITE THE ABSENCE OF A
WRITTEN & BINDING CONTRACT;
 P a g e | 24

4. Plaintiffs claim that defendant Dao Heng Bank[s]

foreclosure sale of the mortgaged properties was Dacion en pago as a mode of extinguishing an existing obligation
improper because there was an agreement to dacion one
of the two (2) mortgaged properties as full settlement of partakes of the nature of sale whereby property is alienated to the
the loan obligation and that defendant Dao Heng Bank creditor in satisfaction of a debt in money. It is an objective novation
and Banco de Oro were already negotiating and of the obligation, hence, common consent of the parties is required in
colluding for the latters acquisition of the mortgaged
order to extinguish the obligation.
[properties] for the unsconscionably low price
. . . In dacion en pago, as a special mode of payment,
of P10,776.242.00 are clearly WITHOUT
the debtor offers another thing to the creditor who
BASIS. Quite to the contrary, there was no meeting of
accepts it as equivalent of payment of an outstanding
the minds between defendant Dao Heng Bank and the
debt. The undertaking really partakes in one sense of
plaintiffs to dacion any of the mortgaged properties as
the nature of sale, that is, the creditor is really buying
full settlement of the loan. Although there was a
the thing or property of the debtor, payment for which
PROPOSAL and NEGOTIATIONS to settle the loan by
is to be charged against the debtors debt. As such the
way of dacion, nothing came out of said proposal,
elements of a contract of sale, namely, consent, object
much less did the negotiations mature into the
certain, and cause or consideration must be present. In
execution of a dacion en pago instrument. Defendant
its modern concept, what actually takes place in dacion
Dao Heng Bank found the offer to settle by way of
en pago is an objective novation of the
dacion not acceptable and thus, it opted to foreclose on
obligation where the thing offered as an accepted
the mortgage.
equivalent of the performance of an obligation is
considered as the object of the contract of sale, while
The law clearly provides that the debtor of a thing
the debt is considered the purchase price. In any
cannot compel the creditor to receive a different one,
case, common
although the latter may be of the same value, or more
consent is an essential prerequisite, be it sale or
valuable than that which is due (Article 1244, New
novation, to have the effect of totally extinguishing the
Civil Code). The oblige is entitled to demand
debt or obligation. (Emphasis, italics and underscoring
fulfillment of the obligation or performance as
supplied; citation omitted)
stipulated (Palmares v. Court of Appeals, 288 SCRA
422 at p. 444 [1998]). The power to decide whether or
not to foreclose on the mortgage is the sole prerogative
of the mortgagee (Rural Bank of San Mateo, Inc. vs.
Intermediate Appellate Court, 146 SCRA 205, at 213
[1986]) Defendant Dao Heng Bank merely opted to
exercise such prerogative. (Emphasis in the original; Being likened to that of a contract of sale, dacion en pago is governed
capitalization and underscoring supplied) by the law on sales. The partial execution of a contract of sale takes the

transaction out of the provisions of the Statute of Frauds so long as the
essential requisites of consent of the contracting
parties, object and cause of the obligation concur and are clearly
established to be present.
Respondents claim that petitioners commissioning of an appraiser to
appraise the value of the mortgaged properties, his services for which
they and petitioner paid, and their delivery to petitioner of the titles to
the properties constitute partial performance of their agreement to take
the case out of the provisions on the Statute of Frauds.
There is no concrete showing, however, that after the appraisal
of the properties, petitioner approved respondents proposal to settle
their obligation via dacion en pago. The delivery to petitioner of the
titles to the properties is a usual condition sine qua non to the
execution of the mortgage, both for security and registration
purposes. For if the title to a property is not delivered to the
mortgagee, what will prevent the mortgagor from again encumbering it
also by mortgage or even by sale to a third party.
Finally, that respondents did not deny proposing to redeem the
mortgages, as reflected in petitioners June 29, 2001 letter to them,
dooms their claim of the existence of a perfected dacion en pago.
ARTICLE 1403
P a g e | 25
ESTATE OF ORLANDO LLENADO AND WENIFREDA T.
LLENADO V. LLENADO
cousin Orlando Llenado (Orlando) executed an Agreement whereby
Romeo assigned all his rights to Orlando over the unexpired portion of
the aforesaid lease contract. The parties further agreed that Orlando
shall have the option to renew the lease contract for another three years
commencing from December 3, 1980, up to December 2,
1983, renewable for another four years or up to December 2, 1987, and
that during the period that [this agreement] is enforced, the x x x
property cannot be sold, transferred, alienated or conveyed in whatever
manner to any third party.
Shortly thereafter or on June 24, 1978, Cornelio and Orlando entered
into a Supplementary Agreement amending the March 31, 1978
Agreement. Under the Supplementary Agreement, Orlando was given
an additional option to renew the lease contract for an aggregate period
of 10 years at five-year intervals, that is, from December 3, 1987 to
December 2, 1992 and from December 3, 1992 to December 2, 1997.
The said provision was inserted in order to comply with
the requirements of Mobil Philippines, Inc. for the operation of a
gasoline station which was subsequently built on the subject lot.
Upon the death of Orlando on November 7, 1983, his wife, Wenifreda
Llenado (Wenifreda), took over the operation of the gasoline station.
Meanwhile, onJanuary 29, 1987, Cornelio sold the to his children,
namely, Eduardo, Jorge, Virginia and Cornelio, Jr., through a deed of
sale. Several months thereafter or on September 7, 1987, Cornelio
passed away. Sometime in 1993, Eduardo informed Wenifreda of his
desire to take over the subject lot. However, the latter refused to vacate
the premises despite repeated demands. Thus, on September 24, 1993,
Eduardo filed a complaint for unlawful detainer
ISSUE: Are rights arising from lease contract transmissible?

Yes. Under Article 1311 of the Civil Code, the heirs are bound by the
contracts entered into by their predecessors-in-interest except when the
rights and obligations therein are not transmissible by their nature,
by stipulation or by provision of law. A contract of lease is, therefore,
generally transmissible to the heirs of the lessor or lessee. It involves a
property right and, as such, the death of a party does not excuse non-
performance of the contract. The rights and obligations pass to the
heirs of the deceased and the heir of the deceased lessor is bound to
respect the period of the lease. The same principle applies to the option
to renew the lease. As a general rule, covenants to renew a lease are
not personal but will run with the land.[ Consequently, the successors-
in-interest of the lessee are entitled to the benefits, while that of the
lessor are burdened with the duties and obligations, which
said covenants conferred and imposed on the original parties.
** Petitioner also anchors its claim over the subject lot on the alleged
verbal promise of Cornelio to Orlando that should he (Cornelio) sell
the same, Orlando would be given the first opportunity to purchase
said property. According to petitioner, this amounted to a right of first
refusal in favor of Orlando which may be proved by parole evidence
because it is not one of the contracts covered by the statute of
frauds. Considering that Cornelio sold the subject lot to respondents
Eduardo and Jorge without first offering the same to Orlandos heirs,
petitioner argues that the sale is in violation of the latters right of first
refusal and is, thus, rescissible.
The question as to whether a right of first refusal may be proved by
parole evidence has been answered in the affirmative by this Court
in Rosencor Development Corporation v. Inquing:
We have previously held that not all agreements affecting land must be
put into writing to attain enforceability. Thus, we have held that the
setting up of boundaries, the oral partition of real property, and an
agreement creating a right of way are not covered by the provisions of
P a g e | 26
the statute of frauds. The reason simply is that these agreements are
not among those enumerated in Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as unenforceable under
the statute of frauds. Furthermore, the application of Article 1403, par.
2(e) of the New Civil Code presupposes the existence of a perfected,
albeit unwritten, contract of sale. A right of first refusal, such as the
one involved in the instant case, is not by any means a perfected
contract of sale of real property. At best, it is a contractual grant, not of
the sale of the real property involved, but of the right of first refusal
over the property sought to be sold.
It is thus evident that the statute of frauds does not contemplate cases
involving a right of first refusal. As such, a right of first refusal need
not be written to be enforceable and may be proven by oral evidence.[
In the instant case, the Regional Trial Court ruled that the right of first
refusal was proved by oral evidence while the Court of Appeals
disagreed by ruling that petitioner merely relied on the allegations in
its Complaint to establish said right. We have reviewed the records and
find that no testimonial evidence was presented to prove the existence
of said right. The testimony of petitioner Wenifreda made no mention
of the alleged verbal promise given by Cornelio to Orlando. The two
remaining witnesses for the plaintiff, Michael Goco and Renato
Malindog, were representatives from the Register of Deeds of
Caloocan City who naturally were not privy to this alleged
promise. Neither was it established that respondents Eduardo and
Jorge were aware of said promise prior to or at the time of the sale of
the subject lot. On the contrary, in their answer to the Complaint,
respondents denied the existence of said promise for lack of

knowledge thereof.[38] Within these parameters, petitioners allegations
in its Complaint cannot substitute for competent proof on such a
crucial factual issue. Necessarily, petitioners claims based on this
alleged right of first refusal cannot be sustained for its existence has
not been duly established.
ARTICLE 1405
AVERIA V. AVERIA
The Statute of Frauds applies only to executory contracts and not to
contracts which are either partially or totally performed
Macaria Francisco (Macaria) was married to Marcos Averia in which
they had six children namely: petitioners Gregorio and Teresa and
respondents Domingo, Angel, Felipe and Felimon. Upon the death of
Marcos, Macaria contracted a second marriage with Roberto Romero
in which they had no children. Upon the death of Roberto, he left three
adjoining residential lots. In a Deed of Extrajudicial Partition
and Summary Settlement of the Estate of Romero, a house and lot
(Extremadura property) was apportioned to Macaria.
Macaria then filed an action for annulment of title
and damages alleging that fraud was employed by her co-heirs in
which she was represented by Atty. Mario C.R. Domingo. The case
lasted for 10 years until the Court of Appeals (CA) decided in favor of
Macaria entitling her to an additional 30 square meters of the estate of
P a g e | 27
Romero. Her son Gregorio and his family and Teresas family lived
with her in the Extremadura property until her death. After six years,
respondents Domingo, Angel, Felipe and Filemon filed an action for
judicial partition against petitioners Gregorio and Teresa.
In their defense Gregorio contends that Macaria verbally sold of her
Extramadura property to him and his wife Agripina because they were
the ones who spent for the litigation expenses in the former civil case
and that Agripina took care of her. Gregorio and co-petitioner Sylvana
claimed that Domingo sold to Gregorio and Agripina his 1/6 share in
the remaining portion of the property. Upon hearing, Gregorio
presented oral evidence to establish their claim of the sale of the
property to them by Macaria and also the sale of Domingo of his share.
The Regional Trial Court of (RTC) decided in favor of Gregorio. The
CA however, reversed the decision of the RTC on the ground that since
the sale executed by Macaria in favor of Gregorio was in violation of
the statute of frauds and it cannot be proven by oral evidence.
Issue:
Whether or not parol evidence may be admitted in proving partial
performance
Held:
With respect to the application by the appellate court of the Statute of
Frauds, Gregorio contends that the same refers only to purely
executory contracts and not to partially or completely executed
contracts as in the instant case. The finding of the CA that the
testimonies of Gregorios witnesses were timely objected to by
Domingo is not, as Gregorio insist, borne out in the records of the case
except with respect to his testimony.
Indeed, except for the testimony of petitioner Gregorio bearing on the
verbal sale to him by Macaria of the property, the testimonies of
Gregorios witnesses Sylvanna Vergara Clutario and Flora Lazaro

Rivera bearing on the same matter were not objected to by
respondents. Just as the testimonies of Gregorio, Jr. and Veronica
Bautista bearing on the receipt by respondent Domingo on July 23,
1983 from Gregorios wife of P5,000.00 representing partial payment
of the P10,000.00 valuation of his (Domingos) 1/6 share in the
property, and of the testimony of Felimon Dagondon bearing on the
receipt by Domingo of P5,000.00 from Gregorio were not objected to.
Following Article 1405 of the Civil Code, the contracts which
infringed the Statute of Frauds were ratified by the failure to object to
the presentation of parol evidence, hence, enforceable.
Contrary then to the finding of the CA, the admission of parol
evidence upon which the trial court anchored its decision in favor of
respondents is not irregular and is not foreclosed by Article 1405.
In any event, the Statute of Frauds applies only to executory contracts
and not to contracts which are either partially or totally performed. In
the case at bar, petitioners claimed that there was total performance of
the contracts, full payment of the objects thereof having already been
made and the vendee Gregorio having, even after Macarias death in
1983, continued to occupy the property until and after the filing on
January 19, 1989 of the complaint subject of the case at bar as in fact
he is still occupying it.
However it is not enough for a party to allege partial performance in
order to render the Statute of Frauds inapplicable; such partial
performance must be duly proved. 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. The partial performance may be proved by either
documentary or oral evidence.
**
P a g e | 28
Petitioners thus conclude that respondents waived any objection to the
admission of parol evidence, hence, it is admissible and
enforceable[14] following Article 1405[15] of the Civil Code.[16]
The Court finds for petitioner.
Indeed, except for the testimony of petitioner Gregorio bearing on
the verbal sale to him by Macaria of the property, the testimonies of
petitioners witnesses Sylvanna Vergara Clutario and Flora Lazaro
Rivera bearing on the same matter were not objected to by
respondents. Just as the testimonies of Gregorio, Jr. and Veronica
Bautista bearing on the receipt by respondent Domingo on July 23,
1983 from Gregorios wife of P5,000.00 representing partial payment
of the P10,000.00 valuation of his (Domingos) 1/6 share in the property,
and of the testimony of Felimon Dagondon bearing on the receipt by
Domingo of P5,000.00 from Gregorio were not objected to. Following
Article 1405 of the Civil Code,17 the contracts which infringed the
Statute of Frauds were ratified by the failure to object to the
presentation of parol evidence, hence, enforceable.
ARTICLE 1403. The following contracts are unenforceable, unless
they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth in
this number. In the following cases an agreement hereafter made
shall be unenforceable 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 a secondary evidence of
its contents:
xxx

(e) An agreement for the leasing for a longer period than one year,
or for the sale of real property or of an interest therein;
x x x (Emphasis and underscoring supplied),
Contrary then to the finding of the CA, the admission of parol
evidence upon which the trial court anchored its decision in favor of
respondents is not irregular and is not foreclosed by Article 1405.
In any event, the Statute of Frauds applies only to executory
contracts and not to contracts which are either partially or totally
performed.18 In the case at bar, petitioners claimed that there was total
performance of the contracts, full payment of the objects thereof
having already been made and the vendee Gregorio having, even after
Macarias death in 1983, continued to occupy the property until and
after the filing on January 19, 1989 of the complaint subject of the case
at bar as in fact he is still occupying it.
P a g e | 29
In proving the fact of partial or total performance, oral evidence
may be received as what the trial court in the case at bar did. Noted
civilist Arturo M. Tolentino elucidates on the matter:
The statute of frauds is not applicable to contracts which are either
totally or partially performed, on the theory that there is a wide field
for the commission of frauds in executory contracts which can only be
prevented by requiring them to be in writing, a fact which is reduced to
a minimum in executed contracts because the intention of the parties
becomes apparent by their execution, and execution concludes, in most
cases, the rights of the parties. However it is not enough for a party
to allege partial performance in order to render the Statute of
Frauds inapplicable; such partial performance must be duly
proved. 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. The
partial performance may be proved by either documentary or oral
evidence.