Guzman, Bocaling & Co. v. Bonnevie, G.R.

No. 86150 March 2, 1992

FACTS:

Africa Valdez de Reynoso leased a parcel of land to Raoul S. Bonnevie and Christopher
Bonnevie for a period of one year beginning August 8, 1976. Reynoso alleged that on November
3, 1976 she notified respondents by registered mail that she was selling the leased premises for
P600,000 and that she was giving respondents 30 days from receipt of the letter to exercise their
right of first priority to purchase the subject property as stipulated in their Contract of Lease. On
January 20, 1977, Reynoso sent another letter to the respondents informing them that the
property had been sold. Respondents wrote back to Reynoso that they did not receive her first
letter and that they had already signified their interest to purchase the property beforehand to
Reynoso’s agent and thus were constrained to refuse Reynoso’s request to terminate the lease.
Reynoso went on with the sale in favor of Guzman, Bocaling & Co. for a lesser price, and filed
an ejectment case against the Bonnevies. Respondents filed an action for annulment of the sale.
The Court of First Instance ruled in favor of the respondents, declaring the deed of sale executed
by Reynoso in favor of Guzman, Bocaling & Co. null and void. The Court of Appeals affirmed
the lower court’s decision but held that the Contract of Sale was not voidable but was
instead rescissible.

ISSUE:

1.) Did the Court of Appeals err in holding that the Contract of Sale was not voidable but was
instead rescissible?

2.) Did the Court of Appeals err in considering the petitioner as a buyer in bad faith?

HELD:

1.) No. Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The
status of creditors could be validly accorded the Bonnevies for they had substantial interests that
were prejudiced by the sale of the subject property to the petitioner without recognizing their
right of first priority under the Contract of Lease. Rescission is a remedy granted by law to the
contracting parties and even to third persons, to secure reparation for damages caused to them by
a contract, even if this should be valid, by means of the restoration of things to their condition at
the moment prior to the celebration of said contract. It is a relief allowed for the protection of
one of the contracting parties and even third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferent right created by the contract. Recission
implies a contract which, even if initially valid, produces a lesion or pecuniary damage to
someone that justifies its invalidation for reasons of equity.
2.) No. Petitioner cannot be deemed a purchaser in good faith for the record shows that it
categorically admitted it was aware of the lease in favor of the Bonnevies, who were actually
occupying the subject property at the time it was sold to petitioner. A purchaser in good faith and
for value is one who buys the property of another without notice that some other person has a
right to or interest in such property and pays a full and fair price for the same at the time of such
purchase or before he has notice of the claim or interest of some other person in the property.
Good faith connotes an honest intention to abstain from taking unconscientious advantage of
another. Tested by these principles, the petitioner cannot tenably claim to be a buyer in good
faith as it had notice of the lease of the property by the Bonnevies and such knowledge should
have cautioned it to look deeper into the agreement to determine if it involved stipulations that
would prejudice its own interests.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-31618 August 17, 1983

EFREN R. MENDOZA and INOCENCIA R. DE MENDOZA, petitioner,

vs.
PONCIANO S. REYES and THE COURT OF APPEALS, respondents.

G.R. No. L-31625 August 17, 1983

JULIA R. DE REYES, petitioner,

vs.
PONCIANO S. REYES and COURT OF APPEALS, respondents.

Conrado B. Enriquez and Elpidio G. Navarro for petitioners.

Pacifico M. Castro for respondents.

GUTIERREZ, JR., J.:

Questioned in these consolidated petitions for review on certiorari is the decision of the
Court of Appeals, now Intermediate Appellate Court, reversing the decision of the Court
of First Instance of Rizal, Quezon City Branch. The dispositive portion of the appellate
decision reads:

WHEREFORE, (a) the judgment appealed from is hereby reversed; (b) the
deed of sale executed by appellee Julia de Reyes on March 3, 1961 in
favor of appellees Efren V. Mendoza and Inocencia R. Mendoza, covering
lots 5 and 6, Block No. 132 of Subdivision Plan Psd. 14841, situated at
Retiro Street, Quezon City, is hereby declared null and void with respect
to one- half share of appellant therein; (c) the Register of Deeds of
Quezon City is hereby directed to cancel TCT Nos. 5611 0 and 56111,
now covering said lots, and to issue, in lieu thereof, certificates of title in
favor of appellant Ponciano S. Reyes for one-half (1/2) pro-indiviso and
the spouses Efren V. Mendoza and Inocencia Mendoza for one-half (1/2)
also pro-indiviso; (d) the appellees Mendozas are hereby ordered to pay
unto the appellant the accrued rentals of style properties in litigation due to
the share corresponding to said appellant, at the rate of P350.00 a month
from March 3, 1961 until the finality of this decision, with legal interest
thereon; and (e) said appellees are likewise ordered to pay unto the
appellant the amount of THREE THOUSAND (P3,000.00) PESOS as
attorney's fees, plus the costs in both instances.

This case originated with the filing of a complaint by Ponciano S. Reyes with the Court
of First Instance of Rizal docketed as Civil Case No. Q-6905, for the annulment of a
deed of sale of two parcels of land with their improvements, executed by his wife, Julia
R. De Reyes as vendor and the spouses Efren V. Mendoza and Inocencia R. De
Mendoza, as vendees. Ponciano S. Reyes averred that said properties were conjugal
properties of himself and his wife and that she had sold them to petitioners "all by
herself" and without his knowledge or consent.

Petitioners Efren V. Mendoza and Inocencia R. De Mendoza alleged in their answer that
the properties were paraphernal properties of Julia R. de Reyes and that they had
purchased the same in good faith and for adequate consideration. In a separate
answer, petitioner Julia R. De Reyes, supported the spouses Mendozas' contentions.

In its decision, the Court of First Instance of Rizal dismissed the complaint and declared
the properties in question exclusive and paraphernal properties of petitioner Julia R. De
Reyes. It ruled that she could validly dispose of the same without the consent of her
husband and that the Mendozas are innocent purchasers.

As earlier stated, the Court of Appeals reversed the decision of the court a quo.

The petitioners filed separate petitions for review on certiorari. Efren V. Mendoza and
Inocencia R. De Mendoza raised the following assignments of errors:
I

THE COURT OF APPEALS ERRED NOT MERELY IN GIVING

CREDENCE, BUT IN FACT IN CONSIDERING AT ALL, PROOF OF THE
ALLEGED CONJUGAL CHARACTER OF THE PROPERTIES l-,
QUESTION, AND IN NOT INVOKING THE DOCTRINE -E OF
ESTOPPEL TO RULE OUT ANY AND ALL SUCH PROOF
ALTOGETHER.

II

THE COURT OF APPEALS ERRED IN FINDING PETITIONERS GUILTY

OF BAD FAITH IN PURCHASING THE PROPERTIES LITIGATED FOR
WITHOUT EVIDENCE OF SUCH FACT BEING PRESENTED AND, ON
THE STRENGTH MERELY OF A SIMPLE PRESUMPTION
UNWARRANTEDLY DRAWN FROM ONE OF ITS OWN OBSCURE AND
HARDLY AUTHORITATIVE RULINGS, AND AGAINST ABUNDANT,
POSITIVE AND UNCONTRADICTED PROOF OF GOOD FAITH.

III

THE COURT OF APPEALS ERRED UPON EQUITABLE GROUNDS IN,

IN EFFECT, GIVING JUDICIAL FLAT To THE UNJUST ENRICHMENT
OR BENEFIT OF ONE PERSON AT THE EXPENSE OF ANOTHER OR
OTHERS.

On the other hand, Julia R. De Reyes made the following assignments of errors in her
petition for review.

THE COURT OF APPEALS ERRED IN DECLARING THAT THE

PROPERTIES IN QUESTION ARE THE CONJUGAL PROPERTIES OF
THE RESPONDENT PONCIANO S. REYES AND THE PETITIONER IN
SPITE OF THE CATEGORICAL JUDICIAL DECLARATION AND
ADMISSION BY SAID RESPONDENT THAT THE SAID PROPERTIES
ARE THE EXCLUSIVE AND PARAPHERNAL PROPERTIES OF HIS
WIFE, THE PETITIONER HEREIN.

THE COURT OF APPEALS ERRED IN HAVING DECIDED THE CASE

NOT IN ACCORDANCE WITH LAW AND THE APPLICABLE DECISIONS
ON THE MATTER IN THE SENSE, PARTICULARLY, THAT THE ACT
AND DECLARATION OF A PARTY AGAINST HIS INTERESTS CAN
NOT BE CONTRADICTED BY HIM, AND IN SO DOING THE DECISION
AMOUNTED TO SANCTIONING A PERJURED TESTIMONY.

On the first issue regarding the alleged paraphernal character of the disputed
properties, we find that the records sustain the findings of the Court of Appeals
The fact are:

xxx xxx xxx

... Ponciano Reyes and Julia de Reyes-to be herein referred to as

Ponciano and Julia alone for brevity-were married in 1915. The properties
in question consisting of Lots 5 and 6, Block No. 132, situated at Retiro
Street, Quezon City-plus the buildings erected thereon, were bought from
J. M. Tuason & Co., represented by Gregorio Araneta, Inc. to be herein
mentioned as "Araneta"-February, 1947 on installment basis. (Testimony
of Julia, t.s.n., p. 74, February 15, 1963). The first installment on Lot No. 5
was P69.96 and on Lot No. 6 was P102.00 (Exh. 'H' and uncontradicted
testimony of Ponciano, t.s.n., p. 4, July 20, 1964).

The spouses were always in arrears in the payment of the installments to

Araneta due to lack of money (t.s.n., pp. 5-7, July 20, 1964) so they had to
borrow money from the Rehabilitation Finance Corporation-herein after
referred to as RFC for short. Thus, on November 26, 1948, they jointly
obtained a loan of P12,000.00 from the RFC for the following exclusive
purposes only: 'to complete the construction of one-storey residential
building on 9th Street, La Loma Quezon City; and to pay the balance of
the price of the lot offered as security' which is Lot 5, (Deed of Mortgage,
Exh. 'A') l'). Out of this loan, the amount of P5,292.00 was paid to Araneta
as price of Lot 5. The corresponding deed of absolute sale thereof was
executed by Araneta on November 27, 1948 (Exh. 'A'). On October 2,
1952, the spouses secured an additional loan of P8,000.00 from the RFC
'to pay the balance of the lot herein offered (Lot No. 6) as additional
security, and to defray the expenses incurred in the repairs of the building'
as the deed of mortgage so recites (Exh. 'B- l'). From the amount of this
loan, the sum of P7,719.60, as price of Lot No. 6, was paid and the deed
of absolute sale was forthwith executed by Araneta (Exh. 'B'). In the deed
of sale, the vendee named is 'Julia de Reyes'. Her signatures appear over
the caption vendee and those of Ponciano under the phrase: 'with my
marital consent.

As a result of these sales, Transfer Certificates of Title Nos. 8550 (Exh.

'F') and 19998 (Exh. 'G') were issued for Lots 5 and 6, respectively, by the
Register of Deeds of Quezon City, in the name of "JULIA REYES married
to PONCIANO REYES." The mortgage contracts (Exhs. 'A-1' and 'B-1')
executed by the spouses in favor of the RFC were duly registered and
annotated on the said transfer Certificates of Title (Exhs. 'F' and 'G').

As promised to the RFC, the spouses built a house and later a camarin on
the two lots. The camarin was leased as a school building to the Quezon
City Elementary School of La Loma for the period of two years (1950-51)
at P500.00 a month. When the school was transferred to another place,
 the camarin was leased on December 10, 1952 to Mr. and Mrs. Mendoza,
appellees, for ten years at P600.00 a month for the first year and P700.00
for the remaining nine years. The contract of lease was signed by Julia as
lessor, with the marital consent of Ponciano. The camarin was converted
into a movie house and used as such by the lessees. (Exh. 'G').

In spite of the good rentals they had been receiving for the building, the
spouses failed to pay seasonably their obligations to the RFC so, as late
as November 28, 1958, they had to ask for an extension of 5 years from
the Development Bank of the Philippines or DBP, as successor of the
RFC, for the payment of an outstanding balance of P7,876.13 (Exh. 'D').

On March 3, 1961, while Ponciano was absent attending his farm in

Arayat, Pampanga, Julia sold absolutely the lots in question, together with
their improvements to appellees Mendozas for the sum of P80,000.00
without the knowledge and consent of Ponciano (Exh. 'I'-Mendoza). At the
same time the spouses were living separately and were not in speaking
terms. By virtue of such sale, Transfer Certificates of Title Nos. 561 10
and 56111 were subsequently issued in the name of the Mendozas.

The applicable provision of law is Article 153 of the Civil Code which provides:

ART. 153. The following are conjugal partnership property:

(1) That which is acquired by onerous title during the marriage at the
expense of the common fund, whether the acquisition be for the
partnership, or for only one of the spouses;

xxx xxx xxx

The presumption found in Article 160 of the Civil Code must also be overcome by one
who contends that the disputed property is paraphernal Article 160 provides:

ART. 160. All property of the marriage is presumed to belong to the

conjugal partnership, unless it be proved that it pertains exclusively to the
husband or to the wife.

The presumption is a strong one. As stated in Camia de Reyes v. Reyes de Ilano (63
Phil. 629, 639), "it is sufficient to prove that the property was acquired during the
marriage in order that the same may be deemed conjugal property." And in Laluan v.
Malpaya (65 SCRA 494, 504) we stated, "proof of acquisition of the property in dispute
during the marriage suffices to render the statutory presumption operative."

There is no question that the disputed property was acquired by onerous title during the
marriage. But were the funds used to buy the lot and build the improvements at the
expense of the common fund?
The records show that the funds came from loans obtained by the spouses from the
Rehabilitation Finance Corporation. Under Article 161 of the Civil Code, all debts and
obligations contracted by the husband and the wife for the benefit of the conjugal
partnership are liabilities of the partnership.

As stated in Castillo, Jr. vs. Pasco (1 1 SCRA 102, 107):

... The position thus taken by appellants is meritorous, for the reason that
the deeds show the loans to have been made by Dr. Nicanor Jacinto and
by Gabriel and Purificacion Gonzales, to both spouses Marcelo Castillo
and Macaria Pasco, as joint borrowers. The loans thus became
obligations of the conjugal partnership of both debtor spouses and the
money loaned is logically conjugal property.

Citing Palanca v. Smith Bell & Co. (9 Phil. 13 1) interpreting Par. 3, Article 1401 of the
old Civil Code, the Court in Castillo v. Pasco stated:

If money borrowed by the husband alone on the security of his wife's

property is conjugal in character, a fortiori should it be conjugal when
borrowed by both spouses. The reason obviously is that the loan becomes
an obligation of the conjugal partnership which is the one primarily bound
for its repayment.

To rebut the presumption and the evidence of the conjugal character of the property, the
petitioners have only the testimony of Julia de Reyes to offer.

Mrs. Reyes testified that she bought the two parcels of land on installment basis and
that the first payment of a little less than P2,000.00 came from her personal funds: The
receipt issued by Araneta, however, shows that the first installment on one lot was only
P69.96 and on the other lot, P102.00. Mrs. Reyes also testified that she paid the entire
purchase price and the construction of the buildings from her personal funds and money
borrowed from the Philippine National Bank. The mortgage contracts, however, show
that the properties were paid out of the loan from RFC.

As a matter of fact, Mrs. Reyes' testimony about a loan from Mrs. Rosa Borja, the sale
of a lot in Cabiao, Nueva Ecija given by her mother, and the loan from PNB only
emphasize the conjugal nature of the disputed properties because she stated that these
sums were also used to put up their gravel and sand business, a poultry farm, and a
banana plantation plus a jeepney transportation line although according to her, every
business venture handled by her husband failed. The two were establishing businesses
and buying properties together as husband and wife, in happier times.

The Court of Appeals ruled upon the testimony of Julia De Reyes as follows:

Julia's testimony that she had sold her Cabiao property to Rosa Borja is
not supported by the deed of sale (Exh. 'I') which shows that the property
 was sold to Encarnacion Goco and Mariano Robles. Again, her claim that
said Cabiao property was donated to her by her mother is negated by the
deeds of sale (Exhs. 'J' and 'K') which show that said property was
donated to her and her two brothers, Pablo and Jose del Rosario, who
afterwards sold their participation thereof to the spouses, Ponciano and
Julia.

Her claim of exclusive ownership is further belied by the Income Tax

Returns (Exhs. 'N' to 'N'- 3') which she herself prepared and filed in behalf
of the conjugal partnership wherein she made the statement that the
rentals paid by her co-appellees were income of the conjugal partnership;
and by the Income Tax Returns (Exhs. 'O' to '0-4') also filed by her for the
conjugal partnership, were she made to appear the properties in question
as capital assets of the conjugal partnership. It should be noted that Julia
did not care to deny the truth of said statements. Neither did she endeavor
to offer any explanation for such damaging averments.

Petitioners also raised the issue of estoppel in their assignments of errors. They
alleged:

Even so, petitioners would have small legal cause to dispute the
respondent Court's giving credence to the husband's pretensions did there
not also exist in the record plain and indisputable evidence that he had on
a former occasion both solemnly confirmed the paraphernal character of
the very properties now in question and disclaimed the existence of any
conjugal partnership funds or properties of himself and his wife.
(Petitioner's Brief, L-31616, p. 7).

It turns out that in 1948, Ponciano Reyes was sued in the then Municipal Court of
Manila for ejectment from a leased hotel that he was then operating. Judgment was
rendered against Reyes in favor of the lessors, the brothers named Gocheco Having
failed in a bid to garnish the rentals of the disputed buildings because the municipal
court stated that it had no jurisdiction to decide the paraphernal or conjugal nature of the
properties, the Gocheco brothers filed Civil Case No. 24772 for revival of judgment with
the Court of First Instance of Manila.

It was in this latter case where Mr. Reyes stated in his special defenses that he and his
wife never had any kind of fund which could be called conjugal partnership funds, that
they acted independently from one another whenever either one engaged in any
business, and-

That the herein plaintiff has not limited his action in the present case
against defendant Ponciano S. Reyes as he did in the original case
above-mentioned, that is, Civil Case No. 7524 of the Manila Municipal
Court which the instant case derived from, but has included the
defendant's wife Julia Reyes, with the only intended purpose and design
 of going over and against the paraphernal properties of said Julia Reyes.
(par. 4, Special Defenses, Answer, Exh. II; Petitioner's Brief, L-31618, pp.
9-10).

Article 1437 of the Civil Code on estoppel involving immovable property provides:

Art. 1437. When in a contract between third persons concerning

immovable property, one of them is misled by a person with respect to the
ownership or real right over the real estate, the latter is precluded from
asserting his legal title or interest therein, provided all these requisites are
present:

(1) There must be fraudulent representation or wrongful concealment of

facts known to the party estopped;

(2) The party precluded must intend that the other should act upon the
facts as misrepresented;

(3) The party misled must have been unaware of the true facts; and

(4) The party defrauded must have acted in accordance with the
representation.

The principle of estoppel rests on the rule that whenever a party has, by his declaration,
act or omission, intentionally and deliberately led the other to believe a particular thing
true and to act, upon such belief he cannot, in any litigation arising out of such
declaration, act or omission, be permitted to falsify it. (Sotto v. Teves, 86 SCRA 154.)

Estoppel can only be invoked between the person making the misrepresentation and
the person to whom it was addressed. It is essential that the latter shag have relied
upon the misrepresentation and had been influenced and misled thereby.

There is no showing that the respondent had intentionally and deliberately led the
petitioners Mendozas to believe what was contained in the pleading, "Exh. 11", and to
make them act upon it. As observed by the respondent, they were not even a party in
the case where the said pleadin was filed. Neither is there any assertion by the
Mendozas that the said pleading was shown to them or that they happened to see it or
to have any knowledge about it before they purchased the properties in question. The
alleged representation was never addressed to the petitioners, much less made with the
intention that they would act upon it. Moreover, there is no specific and clear reference
to the disputed lots as paraphernal in the cited answer. The petitioners cannot invoke
estoppel in these petitions.

May the Mendoza spouses be considered buyers in good faith?

The proof that the petitioners in L-31618 are purchasers in good faith comes from the
testimony of Mrs. Inocencia Mendoza herself. Mrs. Mendoza testified that Mrs. Julia R.
De Reyes assured her that the properties were paraphernal that her lawyer verified the
titles being in the name of Mrs. Julia R. De Reyes, and that she never dealt with Mr.
Ponciano Reyes when she and her husband were still renting the properties they later
purchased. On cross-examination, Mrs. Mendoza admitted that she learned of the RFC
mortgage when the lots were about to be purchased.

Property acquired during a marriage is presumed to be conjugal and the fact that the
land is later registered in the name of only one of the spouses does not destroy its
conjugal nature. (Bucoy v. Paulino, 23 SCRA 249). Section 46 of P.D. 1529, the
Property Registration Decree, reiterates the proviso in Section 70 of the former Land
Registration Act that registration cannot be construed to relieve registered land or the
owners thereof from any rights incident to the relation of husband and wife. (See also:
Marigsa v. Macabuntoc 17 Phil. 107, 109; Romero de Pratts v. Menzi & Co., Inc., 53
Phil. 51, 54; Padilla v. Padilla, 74 Phil. 377, 382-384; Vitug v. Montemayor, 91 Phil. 286,
290, 291, citing Guinguing v. Abuton, 48 Phil. 144; Sideco v. Aznar, 92 Phil. 952, 961-
962, citing Flores v. Flores, 48 Phil. 288; Guinoo v. Court of Appeals, 97 Phil. 235, 238;
Silos v. Ramos, 97 Phil. 263, 270, citing Commonwealth v. Sandiko 72 Phil. 258, 260;
and Alvarez v. Espiritu, 14 SCRA 893).

If the fact that property acquired during marriage was registered in the name of the
husband alone does not affect its conjugal nature, neither does registration in the name
of the wife. Any person who buys land registered in the married name of the wife is put
on notice about its conjugal nature.

The mortgage contracts (Exhs. "A-1 " and "B-1 ") executed by the spouses Ponciano S.
Reyes and Julia Reyes in favor of RFC were duly registered in the Registry of Deeds of
Quezon City and seasonably annotated on transfer certificates of title Nos. 8550 (Exh.
"F") and 19998 (Exh. "G"), which were issued in the name of Julia Reyes "married to
Ponciano Reyes". Their dates of inscription were November 29, 1948 and October 11,
1952, respectively. On December 10, 1952, the lots and the building were leased by
Julia, with the marital consent of Ponciano to the petitioners Mendozas The contract of
lease was registered in the Registry of Deeds and was annotated in the transfer
certificates of title on May 5, 1952. At that time, the RFC mortgages were already noted
at the back of the transfer certificates of title. The petitioners, therefore, are
unquestionably charged with notice of the existence and contents of said mortgages,
their joint execution by the spouses Ponciano Reyes and Julia Reyes and the
application of the loans to the payment to Araneta of the purchase price of the lots in
question.

Furthermore, the consent of the Ponciano Reyes to the mere lease of the properties
was demanded by the Mendozas allegedly for their own protection, yet when it came to
the deed of sale which entailed a greater transfer of rights such consent was not
required.
The final argument refers to the alleged unjust enrichment by Ponciano Reyes if the
deed of sale is nullified This petitioners admit that the benefit including that represented
by one-half of the purchase price, accrued not to the respondent but to his wife. Since
Mr. Reyes did not receive any part of the proceeds of the sale and his wife has been
aligning herself with the Mendoza couple, there could be no unjust enrichment as
alleged. The assignments of errors have no merit.

WHEREFORE, the petitions for review on certiorari are hereby DENIED for lack of
merit. The judgment of the Court of Appeals is affirmed.

SO ORDERED.

SECOND DIVISION

[G.R. No. 128120. October 20, 2004]

SWEDISH MATCH, AB, JUAN ENRIQUEZ, RENE DIZON, FRANCISCO RAPACON, FIEL
SANTOS, BETH FLORES, LAMBRTO DE LA EVA, GLORIA REYES, RODRIGO ORTIZ,
NICANOR ESCALANTE, PETER HODGSON, SAMUEL PARTOSA, HERMINDA
ASUNCION, JUANITO HERRERA, JACOBUS NICOLAAS, JOSEPH PEKELHARING (now
Representing himself without court sanction as JOOST PEKELHARING), MASSIMO ROSSI
and ED ENRIQUEZ, petitioners, vs. COURT OF APPEALS, ALS MANAGEMENT &
DEVELOPMENT CORPORATION and ANTONIO K. LITONJUA, respondents.

DECISION

TINGA, J.:

Petitioners seek a reversal of the twin Orders[1] of the Court of Appeals dated 15 November
1996[2] and 31 January 1997,[3] in CA-G.R. CV No. 35886, entitled ALS Management et al., v.
Swedish Match, AB et al. The appellate court overturned the trial courts Order[4] dismissing the
respondents complaint for specific performance and remanded the case to the trial court for
further proceedings.

Swedish Match, AB (hereinafter SMAB) is a corporation organized under the laws of Sweden
not doing business in the Philippines. SMAB, however, had three subsidiary corporations in the
Philippines, all organized under Philippine laws, to wit: Phimco Industries, Inc. (Phimco),
Provident Tree Farms, Inc., and OTT/Louie (Phils.), Inc.
Sometime in 1988, STORA, the then parent company of SMAB, decided to sell SMAB of
Sweden and the latters worldwide match, lighter and shaving products operation to Eemland
Management Services, now known as Swedish Match NV of Netherlands, (SMNV), a
corporation organized and existing under the laws of Netherlands. STORA, however, retained
for itself the packaging business.

SMNV initiated steps to sell the worldwide match and lighter businesses while retaining for itself
the shaving business. SMNV adopted a two-pronged strategy, the first being to sell its shares in
Phimco Industries, Inc. and a match company in Brazil, which proposed sale would stave-off
defaults in the loan covenants of SMNV with its syndicate of lenders. The other move was to sell
at once or in one package all the SMNV companies worldwide which were engaged in match and
lighter operations thru a global deal (hereinafter, global deal).

Ed Enriquez (Enriquez), Vice-President of Swedish Match Sociedad Anonimas (SMSA)the

management company of the Swedish Match groupwas commissioned and granted full powers to
negotiate by SMNV, with the resulting transaction, however, made subject to final approval by
the board. Enriquez was held under strict instructions that the sale of Phimco shares should be
executed on or before 30 June 1990, in view of the tight loan covenants of SMNV. Enriquez
came to the Philippines in November 1989 and informed the Philippine financial and business
circles that the Phimco shares were for sale.

Several interested parties tendered offers to acquire the Phimco shares, among whom were the
AFP Retirement and Separation Benefits System, herein respondent ALS Management &
Development Corporation and respondent Antonio Litonjua (Litonjua), the president and general
manager of ALS.

In his letter dated 3 November 1989, Litonjua submitted to SMAB a firm offer to buy all of the
latters shares in Phimco and all of Phimcos shares in Provident Tree Farm, Inc. and OTT/Louie
(Phils.), Inc. for the sum of P750,000,000.00.[5]

Through its Chief Executive Officer, Massimo Rossi (Rossi), SMAB, in its letter dated 1
December 1989, thanked respondents for their interest in the Phimco shares. Rossi informed
respondents that their price offer was below their expectations but urged them to undertake a
comprehensive review and analysis of the value and profit potentials of the Phimco shares, with
the assurance that respondents would enjoy a certain priority although several parties had
indicated their interest to buy the shares.[6]

Thereafter, an exchange of correspondence ensued between petitioners and respondents

regarding the projected sale of the Phimco shares. In his letter dated 21 May 1990, Litonjua
offered to buy the disputed shares, excluding the lighter division for US$30.6 million, which per
another letter of the same date was increased to US$36 million.[7] Litonjua stressed that the bid
amount could be adjusted subject to availability of additional information and audit verification
of the company finances.

Responding to Litonjuas offer, Rossi sent his letter dated 11 June 1990, informing the former
that ALS should undertake a due diligence process or pre-acquisition audit and review of the
draft contract for the Match and Forestry activities of Phimco at ALS convenience. However,
Rossi made it clear that at the completion of the due diligence process, ALS should submit its
final offer in US dollar terms not later than 30 June 1990, for the shares of SMAB corresponding
to ninety-six percent (96%) of the Match and Forestry activities of Phimco. Rossi added that in
case the global deal presently under negotiation for the Swedish Match Lights Group would
materialize, SMAB would reimburse up to US$20,000.00 of ALS costs related to the due
diligence process.[8]

Litonjua in a letter dated 18 June 1990, expressed disappointment at the apparent change in
SMABs approach to the bidding process. He pointed out that in their 4 June 1990 meeting, he
was advised that one final bidder would be selected from among the four contending groups as of
that date and that the decision would be made by 6 June 1990. He criticized SMABs decision to
accept a new bidder who was not among those who participated in the 25 May 1990 bidding. He
informed Rossi that it may not be possible for them to submit their final bid on 30 June 1990,
citing the advice to him of the auditing firm that the financial statements would not be completed
until the end of July. Litonjua added that he would indicate in their final offer more specific
details of the payment mechanics and consider the possibility of signing a conditional sale at that
time.[9]

Two days prior to the deadline for submission of the final bid, Litonjua again advised Rossi that
they would be unable to submit the final offer by 30 June 1990, considering that the acquisition
audit of Phimco and the review of the draft agreements had not yet been completed. He said,
however, that they would be able to finalize their bid on 17 July 1990 and that in case their bid
would turn out better than any other proponent, they would remit payment within ten (10) days
from the execution of the contracts.[10]

Enriquez sent notice to Litonjua that they would be constrained to entertain bids from other
parties in view of Litonjuas failure to make a firm commitment for the shares of Swedish Match
in Phimco by 30 June 1990.[11]

In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they signed a
conditional contract with a local group for the disposal of Phimco. He told Litonjua that his bid
would no longer be considered unless the local group would fail to consummate the transaction
on or before 15 September1990.[12]

Apparently irked by SMABs decision to junk his bid, Litonjua promptly responded by letter
dated 4 July 1990. Contrary to his prior manifestations, he asserted that, for all intents and
purposes, the US$36 million bid which he submitted on 21 May 1990 was their final bid based
on the financial statements for the year 1989. He pointed out that they submitted the best bid and
they were already finalizing the terms of the sale. He stressed that they were firmly committed to
their bid of US$36 million and if ever there would be adjustments in the bid amount, the
adjustments were brought about by SMABs subsequent disclosures and validated accounts, such
as the aspect that only ninety-six percent (96%) of Phimco shares was actually being sold and not
one-hundred percent (100%).[13]
More than two months from receipt of Litonjuas last letter, Enriquez sent a fax communication to
the former, advising him that the proposed sale of SMABs shares in Phimco with local buyers
did not materialize. Enriquez then invited Litonjua to resume negotiations with SMAB for the
sale of Phimco shares. He indicated that SMAB would be prepared to negotiate with ALS on an
exclusive basis for a period of fifteen (15) days from 26 September 1990 subject to the terms
contained in the letter. Additionally, Enriquez clarified that if the sale would not be completed at
the end of the fifteen (15)-day period, SMAB would enter into negotiations with other buyers.[14]

Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new set of terms
and conditions for the sale of the Phimco shares. He emphasized that the new offer constituted an
attempt to reopen the already perfected contract of sale of the shares in his favor. He intimated
that he could not accept the new terms and conditions contained therein.[15]

On 14 December 1990, respondents, as plaintiffs, filed before the Regional Trial Court (RTC) of
Pasig a complaint for specific performance with damages, with a prayer for the issuance of a writ
of preliminary injunction, against defendants, now petitioners. The individual defendants were
sued in their respective capacities as officers of the corporations or entities involved in the
aborted transaction.

Aside from the averments related to their principal cause of action for specific performance,
respondents alleged that the Phimco management, in utter bad faith, induced SMAB to violate its
contract with respondents. They contended that the Phimco management took an interest in
acquiring for itself the Phimco shares and that petitioners conspired to thwart the closing of such
sale by interposing various obstacles to the completion of the acquisition audit.[16] Respondents
claimed that the Phimco management maliciously and deliberately delayed the delivery of
documents to Laya Manabat Salgado & Co. which prevented them from completing the
acquisition audit in time for the deadline on 30 June 1990 set by petitioners.[17] Respondents
added that SMABs refusal to consummate the perfected sale of the Phimco shares amounted to
an abuse of right and constituted conduct which is contrary to law, morals, good customs and
public policy.[18]

Respondents prayed that petitioners be enjoined from selling or transferring the Phimco shares,
or otherwise implementing the sale or transfer thereof, in favor of any person or entity other than
respondents, and that any such sale to third parties be annulled and set aside. Respondents also
asked that petitioners be ordered to execute all documents or instruments and perform all acts
necessary to consummate the sales agreement in their favor.

Traversing the complaint, petitioners alleged that respondents have no cause of action,
contending that no perfected contract, whether verbal or written, existed between them.
Petitioners added that respondents cause of action, if any, was barred by the Statute of Frauds
since there was no written instrument or document evidencing the alleged sale of the Phimco
shares to respondents.

Petitioners filed a motion for a preliminary hearing of their defense of bar by the Statute of
Frauds, which the trial court granted. Both parties agreed to adopt as their evidence in support of
or against the motion to dismiss, as the case may be, the evidence which they adduced in support
of their respective positions on the writ of preliminary injunction incident.

In its Order dated 17 April 1991, the RTC dismissed respondents complaint.[19] It ruled that there
was no perfected contract of sale between petitioners and respondents. The court a quo said that
the letter dated 11 June 1990, relied upon by respondents, showed that petitioners did not accept
the bid offer of respondents as the letter was a mere invitation for respondents to conduct a due
diligence process or pre-acquisition audit of Phimcos match and forestry operations to enable
them to submit their final offer on 30 June 1990. Assuming that respondents bid was favored by
an oral acceptance made in private by officers of SMAB, the trial court noted, such acceptance
was merely preparatory to a formal acceptance by the SMABthe acceptance that would
eventually lead to the execution and signing of the contract of sale. Moreover, the court noted
that respondents failed to submit their final bid on the deadline set by petitioners.

Respondents appealed to the Court of Appeals, assigning the following errors:

A. THE TRIAL COURT EXCEEDED ITS AUTHORITY AND JURISDICTION WHEN IT

ERRED PROCEDURALLY IN MOTU PROPIO (sic) DISMISSING THE COMPLAINT IN
ITS ENTIRETY FOR LACK OF A VALID CAUSE OF ACTION WITHOUT THE BENEFIT
OF A FULL-BLOWN TRIAL AND ON THE MERE MOTION TO DISMISS.

B. THE TRIAL COURT ERRED IN IGNORING PLAINTIFF-APPELLANTS CAUSE OF

ACTION BASED ON TORT WHICH, HAVING BEEN SUFFICIENTLY PLEADED,
INDEPENDENTLY WARRANTED A FULL-BLOWN TRIAL.

C. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFS-APPELLANTS CAUSE OF

ACTION BASED ON PROMISSORY ESTOPPEL WHICH, HAVING BEEN SUFFICIENTLY
PLEADED, WARRANTED A FULL-BLOWN TRIAL, INDEPENDENTLY FOR THE
OTHER CAUSES OF ACTION.

D. THE TRIAL COURT JUDGE ERRED IN FORSWEARING JUDICIAL OBJECTIVITY TO

FAVOR DEFENDANTS-APPELLEES BY MAKING UNFOUNDED FINDINGS, ALL IN
VIOLATION OF PLAINTIFFS-APPELLANTS RIGHT TO DUE PROCESS.[20]

After assessing the respective arguments of the parties, the Court of Appeals reversed the trial
courts decision. It ruled that the series of written communications between petitioners and
respondents collectively constitute a sufficient memorandum of their agreement under Article
1403 of the Civil Code; thus, respondents complaint should not have been dismissed on the
ground that it was unenforceable under the Statute of Frauds. The appellate court opined that any
document or writing, whether formal or informal, written either for the purpose of furnishing
evidence of the contract or for another purpose which satisfies all the Statutes requirements as to
contents and signature would be sufficient; and, that two or more writings properly connected
could be considered together. The appellate court concluded that the letters exchanged by and
between the parties, taken together, were sufficient to establish that an agreement to sell the
disputed shares to respondents was reached.
The Court of Appeals clarified, however, that by reversing the appealed decision it was not
thereby declaring that respondents are entitled to the reliefs prayed for in their complaint, but
only that the case should not have been dismissed on the ground of unenforceability under the
Statute of Frauds. It ordered the remand of the case to the trial court for further proceedings.

Hence, this petition.

Petitioners argue that the Court of Appeals erred in failing to consider that the Statute of Frauds
requires not just the existence of any note or memorandum but that such note or memorandum
should evidence an agreement to sell; and, that in this case, there was no word, phrase, or
statement in the letters exchanged between the two parties to show or even imply that an
agreement had been reached for the sale of the shares to respondent.

Petitioners stress that respondent Litonjua made it clear in his letters that the quoted prices were
merely tentative and still subject to further negotiations between him and the seller. They point
out that there was no meeting of the minds on the essential terms and conditions of the sale
because SMAB did not accept respondents offer that consideration would be paid in Philippine
pesos. Moreover, Litonjua signified their inability to submit their final bid on 30 June 1990, at
the same time stating that the broad terms and conditions described in their meeting were
inadequate for them to make a response at that time so much so that he would have to await the
corresponding specifics. Petitioners argue that the foregoing circumstances prove that they failed
to reach an agreement on the sale of the Phimco shares.

In their Comment, respondents maintain that the Court of Appeals correctly ruled that the Statute
of Frauds does not apply to the instant case. Respondents assert that the sale of the subject shares
to them was perfected as shown by the following circumstances, namely: petitioners assured
them that should they increase their bid, the sale would be awarded to them and that they did in
fact increase their previous bid of US$30.6 million to US$36 million; petitioners orally accepted
their revised offer and the acceptance was relayed to them by Rene Dizon; petitioners directed
them to proceed with the acquisition audit and to submit a comfort letter from the United
Coconut Planters Bank (UCPB); petitioner corporation confirmed its previous verbal acceptance
of their offer in a letter dated 11 June 1990; with the prior approval of petitioners, respondents
engaged the services of Laya, Manabat, Salgado & Co., an independent auditing firm, to
immediately proceed with the acquisition audit; and, petitioner corporation reiterated its
commitment to be bound by the result of the acquisition audit and promised to reimburse
respondents cost to the extent of US$20,000.00. All these incidents, according to respondents,
overwhelmingly prove that the contract of sale of the Phimco shares was perfected.

Further, respondents argued that there was partial performance of the perfected contract on their
part. They alleged that with the prior approval of petitioners, they engaged the services of Laya,
Manabat, Salgado & Co. to conduct the acquisition audit. They averred that petitioners agreed to
be bound by the results of the audit and offered to reimburse the costs thereof to the extent of
US$20,000.00. Respondents added that in compliance with their obligations under the contract,
they have submitted a comfort letter from UCPB to show petitioners that the bank was willing to
finance the acquisition of the Phimco shares.[21]
The basic issues to be resolved are: (1) whether the appellate court erred in reversing the trial
courts decision dismissing the complaint for being unenforceable under the Statute of Frauds;
and (2) whether there was a perfected contract of sale between petitioners and respondents with
respect to the Phimco shares.

The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code[22] requires
certain contracts enumerated therein to be evidenced by some note or memorandum in order to
be enforceable. 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.[23] Evidence of the agreement cannot be received without the
writing or a secondary evidence of its contents.

The Statute, however, simply provides the method by which the contracts enumerated therein
may be proved but does not declare them invalid because they are not reduced to writing. By
law, contracts are obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present. However, when the law requires that a contract
be in some form in order that it may be valid or enforceable, or that a contract be proved in a
certain way, that requirement is absolute and indispensable.[24] Consequently, the effect of non-
compliance with the requirement of the Statute is simply that no action can be enforced unless
the requirement is complied with.[25] Clearly, the form required is for evidentiary purposes only.
Hence, if the parties permit a contract to be proved, without any objection, it is then just as
binding as if the Statute has been complied with.[26]

The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence 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.[27]

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.[28] 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.[29]

Contrary to the Court of Appeals conclusion, the exchange of correspondence between the
parties hardly constitutes the note or memorandum within the context of Article 1403 of the Civil
Code. Rossis letter dated 11 June 1990, heavily relied upon by respondents, is not complete in
itself. First, it does not indicate at what price the shares were being sold. In paragraph (5) of the
letter, respondents were supposed to submit their final offer in U.S. dollar terms, at that after the
completion of the due diligence process. The paragraph undoubtedly proves that there was as yet
no definite agreement as to the price. Second, the letter does not state the mode of payment of the
price. In fact, Litonjua was supposed to indicate in his final offer how and where payment for the
shares was planned to be made.[30]
Evidently, the trial courts dismissal of the complaint on the ground of unenforceability under the
Statute of Frauds is warranted.[31]

Even if we were to consider the letters between the parties as a sufficient memorandum for
purposes of taking the case out of the operation of the Statute the action for specific performance
would still fail.

A contract is defined as a juridical convention manifested in legal form, by virtue of which one
or more persons bind themselves in favor of another, or others, or reciprocally, to the fulfillment
of a prestation to give, to do, or not to do.[32] There can be no contract unless the following
requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject
matter of the contract; (c) cause of the obligation which is established.[33] Contracts are perfected
by mere consent, which is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract.[34]

Specifically, in the case of a contract of sale, required is the concurrence of three elements, to
wit: (a) consent or meeting of the minds, that is, consent to transfer ownership in exchange for
the price; (b) determinate subject matter, and (c) price certain in money or its equivalent.[35] Such
contract 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.[36]

In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and
consummation. Negotiation begins from the time the prospective contracting parties manifest
their interest in the contract and ends at the moment of agreement of the parties. Perfection or
birth of the contract takes place when the parties agree upon the essential elements of the
contract. Consummation occurs when the parties fulfill or perform the terms agreed upon in the
contract, culminating in the extinguishment thereof.[37]

A negotiation is formally initiated by an offer. A perfected promise merely tends to insure and
pave the way for the celebration of a future contract. An imperfect promise (policitacion), on the
other hand, is a mere unaccepted offer.[38] Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only as proposals. At any time prior to
the perfection of the contract, either negotiating party may stop the negotiation.[39] The offer, at
this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation,
such as by its mailing and not necessarily when the offeree learns of the withdrawal.[40]

An offer would require, among other things, a clear certainty on both the object and the cause or
consideration of the envisioned contract. Consent in a contract of sale should be manifested by
the meeting of the offer and the acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance absolute. A qualified acceptance
constitutes a counter-offer.[41]

Quite obviously, Litonjuas letter dated 21 May 1990, proposing the acquisition of the Phimco
shares for US$36 million was merely an offer. This offer, however, in Litonjuas own words, is
understood to be subject to adjustment on the basis of an audit of the assets, liabilities and net
worth of Phimco and its subsidiaries and on the final negotiation between ourselves.[42]
Was the offer certain enough to satisfy the requirements of the Statute of Frauds? Definitely not.

Litonjua repeatedly stressed in his letters that they would not be able to submit their final bid by
30 June 1990.[43] With indubitable inconsistency, respondents later claimed that for all intents
and purposes, the US$36 million was their final bid. If this were so, it would be inane for
Litonjua to state, as he did, in his letter dated 28 June 1990 that they would be in a position to
submit their final bid only on 17 July 1990. The lack of a definite offer on the part of respondents
could not possibly serve as the basis of their claim that the sale of the Phimco shares in their
favor was perfected, for one essential element of a contract of sale was obviously wantingthe
price certain in money or its equivalent. The price must be certain, otherwise there is no true
consent between the parties.[44] There can be no sale without a price.[45] Quite recently, this Court
reiterated the long-standing doctrine that the manner of payment of the purchase price is an
essential element before a valid and binding contract of sale can exist since the agreement on the
manner of payment goes into the price such that a disagreement on the manner of payment is
tantamount to a failure to agree on the price.[46]

Granting arguendo, that the amount of US$36 million was a definite offer, it would remain as a
mere offer in the absence of evidence of its acceptance. To produce a contract, there must be
acceptance, which may be express or implied, but it must not qualify the terms of the offer.[47]
The acceptance of an offer must be unqualified and absolute to perfect the contract.[48] In other
words, it must be identical in all respects with that of the offer so as to produce consent or
meeting of the minds.[49]

Respondents attempt to prove the alleged verbal acceptance of their US$36 million bid becomes
futile in the face of the overwhelming evidence on record that there was in the first place no
meeting of the minds with respect to the price. It is dramatically clear that the US$36 million was
not the actual price agreed upon but merely a preliminary offer which was subject to adjustment
after the conclusion of the audit of the company finances. Respondents failure to submit their
final bid on the deadline set by petitioners prevented the perfection of the contract of sale. It was
not perfected due to the absence of one essential element which was the price certain in money
or its equivalent.

At any rate, from the procedural stand point, the continuing objections raised by petitioners to
the admission of parol evidence[50] on the alleged verbal acceptance of the offer rendered any
evidence of acceptance inadmissible.

Respondents plea of partial performance should likewise fail. The acquisition audit and
submission of a comfort letter, even if considered together, failed to prove the perfection of the
contract. Quite the contrary, they indicated that the sale was far from concluded. Respondents
conducted the audit as part of the due diligence process to help them arrive at and make their
final offer. On the other hand, the submission of the comfort letter was merely a guarantee that
respondents had the financial capacity to pay the price in the event that their bid was accepted by
petitioners.

The Statute of Frauds is applicable only to contracts which are executory and not to those which
have been consummated either totally or partially.[51] If a contract has been totally or partially
performed, the exclusion of parol evidence would promote fraud or bad faith, for it would enable
the defendant to keep the benefits already derived by him from the transaction in litigation, and
at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by
him thereby.[52] This rule, however, is predicated on the fact of ratification of the contract within
the meaning of Article 1405 of the Civil Code either (1) by failure to object to the presentation of
oral evidence to prove the same, or (2) by the acceptance of benefits under them. In the instant
case, respondents failed to prove that there was partial performance of the contract within the
purview of the Statute.

Respondents insist that even on the assumption that the Statute of Frauds is applicable in this
case, the trial court erred in dismissing the complaint altogether. They point out that the
complaint presents several causes of action.

A close examination of the complaint reveals that it alleges two distinct causes of action, the first
is for specific performance[53] premised on the existence of the contract of sale, while the other is
solely for damages, predicated on the purported dilatory maneuvers executed by the Phimco
management.[54]

With respect to the first cause of action for specific performance, apart from petitioners alleged
refusal to honor the contract of salewhich has never been perfected in the first placerespondents
made a number of averments in their complaint all in support of said cause of action.
Respondents claimed that petitioners were guilty of promissory estoppel,[55] warranty breaches[56]
and tortious conduct[57] in refusing to honor the alleged contract of sale. These averments are
predicated on or at least interwoven with the existence or perfection of the contract of sale. As
there was no such perfected contract, the trial court properly rejected the averments in
conjunction with the dismissal of the complaint for specific performance.

However, respondents second cause of action due to the alleged malicious and deliberate delay
of the Phimco management in the delivery of documents necessary for the completion of the
audit on time, not being based on the existence of the contract of sale, could stand independently
of the action for specific performance and should not be deemed barred by the dismissal of the
cause of action predicated on the failed contract. If substantiated, this cause of action would
entitle respondents to the recovery of damages against the officers of the corporation responsible
for the acts complained of.

Thus, the Court cannot forthwith order dismissal of the complaint without affording respondents
an opportunity to substantiate their allegations with respect to its cause of action for damages
against the officers of Phimco based on the latters alleged self-serving dilatory maneuvers.

WHEREFORE, the petition is in part GRANTED. The appealed Decision is hereby

MODIFIED insofar as it declared the agreement between the parties enforceable under the
Statute of Frauds. The complaint before the trial court is ordered DISMISSED insofar as the
cause of action for specific performance is concerned. The case is ordered REMANDED to the
trial court for further proceedings with respect to the cause of action for damages as above
specified.
SO ORDERED.

G.R. No. 157439 July 4, 2007

MULTI-VENTURES CAPITAL and MANAGEMENT CORPORATION, Petitioner.
vs.
STALWART MANAGEMENT SERVICES CORPORATION, MARIAN G. TAJO, CESAR TAJO and ARIANA
GALANG, Respondents*

FACTS:

- As alleged by Multi-Ventures, Stalwart borrowed P9,000,000 from Multi-Ventures, with interest and for purposes of
expediency, this transaction was denominated by the parties as a sale of Land Bank bonds from Stalwart to Multi-Ventures as
shown in a Confirmation of Agreement. The Bonds, as Multi-Ventures say only serve as partial collateral for the payment
of the loan. Multi-Ventures suspects that Stalwart will renege on its loan obligation with Multi-Ventures impelling Multi-
Ventures to file the present petition before this Court for reformation in order to express the true intent of the parties, i.e., that
the ostensible sale of the bonds is actually a loan agreement.

-Countering Multi-Ventures arguments, Stalwart denied all allegations and affirmed the intent of the parties that the
transaction they had was really a sale of Land Bank bonds. Supporting this statement is the fact presented that Multi-Ventures
and Stalwart are engaged in dealing and trading government securities.

-RTC Ruling: Reformation is proper from Contract of Sale to Contract of Loan.

-CA Ruling: Reversed RTC decision. No reformation needed. The transaction was that of a sale.

ISSUE/S:

-WON the contract entered into between Multi-Ventures Capital and Management Corporation and Stalwart Management
Services Corporation is one of loan or sale?

HELD:

- The Court ruled to sustain the CA’s ruling affirming that the subject transaction between Multi-Ventures and Stalwart is that of
a sale of Land Bank bonds.

- Under Article 1359, in order that an action for reformation of instrument may prosper, the following requisites must concur:

(1) there must have been a meeting of the minds of the parties to the contract;
(2) the instrument does not express the true intention of the parties; and
(3) the failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable conduct or
accident.

-The burden of proof devolves on the party asserting that the instrument did not express the true intention of the parties and
so needs to be reformed. The presumption is that an instrument sets out the true agreement of the parties thereto and that it
was executed for valuable consideration. Multi-Ventures failed to overturn the presumption of validity of the contract and it
also failed to discharge the burden of proving that the true intention of the parties has not been expressed.
-The argument of Multi-Ventures is that the buy-back arrangement in the letter of Stalwart where it will purchase back the
bonds at 11,557,972.60 proves that the transaction between them is that of a loan. Because if it was not, why would Stalwart
pay a higher price of P11,557,972.60 when it only received as consideration therefrom was only P9,000,000?

-The Court did not find merit in the argument and said that the buy-back arrangement only corroborates the fact that the
transaction was of sale. For if the bonds were only to serve as a collateral for the loan, why would respondent offer to buy them
back from petitioner if they were not sold in the first place? Obviously, ownership of the bonds had been transferred from
respondent to petitioner on January 11, 1991; for if it were not so and the bonds were merely being held by petitioner as a
security for the payment of the alleged loan, then ownership would have remained with respondent and there would have
been no need to buy it back.

- In addition, the Court took notice of a subsequent transaction made by Multi-Ventures of using the Land Bank bonds as
collateral for an investment from AFP Mutual Benefits Association, Inc. which is evidently an act of ownership.

-Lastly, Multi-Ventures failed to establish existence of the third requisite which is, the failure of the instrument to express the
true intention of the parties is due to mistake, fraud, inequitable conduct or accident. Absent any proof of mistake, fraud,
inequitable conduct or accident, the Confirmation of Agreement dated January 11, 1991 remains the best evidence to ascertain
the real intent of the parties.