Babao vs. Perez

An oral agreement that by its terms is not to be performed within one year from the making thereof, or that involves the sale of real property or an interest therein, is unenforceable under the Statute of Frauds absent a writing subscribed by the party charged; and the doctrine of part performance cannot take such an agreement out of the statute unless the agreement's terms are certain, definite, clear, unambiguous, and unequivocal, and full performance by one party has been completed within one year.

The case involves a dispute over a 156-hectare unregistered parcel of land in San Juan, Batangas, known as "Lupang Parang," which was not registered under Act 496 or the Spanish Mortgage Law. Plaintiff Bienvenido Babao was the judicial administrator of the estate of the late Santiago Babao, while defendant Florencio Perez was the judicial administrator of the estate of the late Celestina Perez. Santiago Babao married Maria Cleofe Perez, niece of Celestina Perez, in 1924. The other defendants were purchasers and actual owners of portions of the land sold by Celestina Perez through her attorney-in-fact Leovigildo Perez shortly before her death. Celestina died on August 24, 1947, and Santiago died on January 6, 1948, after which intestate proceedings were instituted for the settlement of both estates.

Santiago Babao married Maria Cleofe Perez, niece of Celestina Perez, in 1924. Celestina Perez owned a 156-hectare parcel of unregistered land in San Juan, Batangas, known as "Lupang Parang." According to the complaint, upon the marriage, Celestina and Santiago entered into a verbal agreement whereby Santiago bound himself to improve the land by leveling and clearing forest trees, planting coconuts, rice, corn, bananas, and bamboo, and to administer the land during Celestina's lifetime, all at his own expense for labor and materials. In exchange, Celestina bound herself to convey one-half of the land, with all improvements, to Santiago or his wife upon her death. Pursuant to this alleged agreement, Santiago left his position as administrator of the Llana Estate in San Juan, Batangas—where he earned P150 monthly—and began clearing and planting the land. He allegedly planted 50,000 coconut trees on 50 hectares and rice and corn on another 70 hectares, leaving 50 hectares unimproved, and administered the property from 1924 to 1946. He claimed expenses of P7,400 for clearing and improving, which, added to his foregone salary of P39,600 from 1924 to 1946, totaled P47,000.

Defendants presented a materially different account. They alleged that even before 1924, the land had already been largely cleared and cultivated through the efforts of Celestina's husband Esteban de Villa, her overseers, and tenants, using a "trusco" system under which persons were allowed to clear and plant land and were compensated according to a graduated scale of harvest division. The coconut, banana, and bamboo plants were planted not by Santiago but by tenants who were duly compensated. Santiago did not begin administering the land until 1930, when Esteban de Villa died, and he did so only in the capacity of Celestina's nephew until 1935, when Celestina became disgusted with his conduct and went to live with her nephew Bernardo Perez until her death in 1947. She then prohibited Santiago from interfering with the land and designated another person in his place. For his work from 1930 to 1935, Santiago was allegedly more than compensated, as the harvest proceeds during those years were given entirely to him and his wife, with Celestina receiving only what was barely sufficient for her maintenance.

A few days before Celestina's death, she sold approximately 127 hectares of the land through her attorney-in-fact Leovigildo Perez, who held a power of attorney executed before a notary public in the presence of Santiago Babao, who raised no objection. Celestina died on August 24, 1947, and Santiago died on January 6, 1948. Intestate proceedings were instituted for both estates, with Bienvenido Babao appointed judicial administrator of Santiago's estate and Florencio Perez appointed judicial administrator of Celestina's estate. The other defendants were purchasers and actual owners of portions of the land sold by Celestina. The plaintiff filed the present action seeking conveyance of one-half of the land, annulment of the sales as fictitious, and in the alternative, reimbursement of P47,000 for useful and necessary expenses incurred in improving the land.

• Statute of Frauds: Appellants contended that the alleged verbal agreement fell within the prohibition of the Statute of Frauds under Article 1403 of the Civil Code, as it was an agreement not to be performed within one year from the making thereof and one involving the sale of real property or an interest therein, and therefore the trial court erred in allowing the introduction of parol evidence to prove the alleged agreement over their vigorous objection.
• Dead Man's Statute: Appellants objected to the admission of testimony by plaintiff Bienvenido Babao and his mother Cleofe Perez regarding matters occurring before the death of Celestina Perez, as prohibited by Section 26(c) of Rule 123 of the Rules of Court, which bars parties or persons in whose behalf a case is prosecuted against an executor or administrator from testifying as to any matter of fact occurring before the death of the deceased.
• Validity of Sales: Appellants maintained that the sales made by Celestina Perez through her attorney-in-fact Leovigildo Perez were not fictitious but valid and genuine, executed with full knowledge and authority of Celestina, in the presence of Santiago Babao who interposed no objection to the execution of the power of attorney.

• Part Performance: Appellee argued, through the trial court's adoption of the position, that Santiago Babao had fully complied with his part of the oral contract, and that performance by one party of his part of the contract takes the case out of the Statute of Frauds, rendering parol evidence admissible.
• Fraudulent Sales: Appellee alleged that the sales of portions of the land made by Celestina Perez through her attorney-in-fact were fictitious and executed in clear violation of the oral agreement with Santiago Babao, rendering them null and void.
• Alternative Reimbursement: Appellee sought, in the alternative, judgment for P47,000 representing useful and necessary expenses incurred by Santiago Babao in improving the land pursuant to the oral agreement.

• Statute of Frauds — One-Year Rule: Whether the alleged verbal agreement falls under the Statute of Frauds as an agreement that by its terms is not to be performed within one year from the making thereof.
• Part Performance Exception: Whether the doctrine of part performance takes the alleged verbal agreement out of the operation of the Statute of Frauds.
• Statute of Frauds — Real Property: Whether the alleged verbal agreement falls under the Statute of Frauds as an agreement for the sale of real property or an interest therein.
• Dead Man's Statute: Whether the testimony of plaintiff Bienvenido Babao and his mother Cleofe Perez regarding transactions with the deceased Celestina Perez was properly admitted despite the prohibition in Section 26(c) of Rule 123.

• Statute of Frauds — One-Year Rule: Yes. The agreement fell under the Statute of Frauds because by its terms it was not to be performed within one year, Santiago's undertakings to clear, plant, and administer the land extending during Celestina's lifetime, which lasted 23 years after the alleged agreement.
• Part Performance Exception: No. The doctrine of part performance did not apply because full performance by one party within one year is required, and Santiago Babao had not fully complied with his obligations within one year; moreover, the agreement's terms were vague, ambiguous, and uncertain.
• Statute of Frauds — Real Property: Yes. The agreement also fell under paragraph (e) of Article 1403 as involving the sale of real property or an interest therein, and the doctrine of part performance could not apply for the same reasons of vagueness, ambiguity, and lack of clarity and definiteness.
• Dead Man's Statute: No. The testimony was improperly admitted. The trial court erred in allowing the testimony on the ground that fraud was alleged, because the alleged fraud was predicated on the existence of the agreement itself—a case of petitio principii—and fraud must be established by evidence aliunde before the prohibition is lifted.

• Statute of Frauds — One-Year Rule: The complaint itself established that the alleged agreement, made in 1924, contemplated obligations extending well beyond one year. Santiago Babao bound himself to clear, level, and plant 156 hectares of forest land and to administer the property during Celestina Perez's lifetime. Celestina died on August 24, 1947—23 years after the alleged agreement—and even then not all the land had been cleared and planted. The undertaking to convert a large tract of forest land into a farm and to administer it for the duration of another person's life was inherently incapable of completion within one year. Accordingly, the agreement fell squarely within paragraph (a) of Article 1403 of the Civil Code, requiring a writing subscribed by the party charged.

• Part Performance Exception: The trial court reasoned that Santiago Babao had fully complied with his part of the oral contract, thereby taking the case out of the Statute of Frauds. This reasoning was flawed because the rule requires complete performance within one year by one party, however many years may elapse before the other party performs. Nothing less than full performance within the year suffices; if anything remains to be done after the expiration of the year besides the mere payment of money, the statute applies. Santiago Babao's obligations—to clear, plant, and administer the land during Celestina's lifetime—could not have been fully performed within one year. The improvements were supposedly accomplished over a period of 23 years, and even then only a portion of the land was cleared and planted. Full performance within one year was therefore not established.

• Statute of Frauds — Real Property: Assuming arguando that the agreement also fell under paragraph (e) of Article 1403 as one involving the sale of real property or an interest therein, the doctrine of part performance still could not apply. The statute is based on equitable estoppel and operates only when adequate relief at law is unavailable. One of the essential requisites is that the parol agreement must be certain, definite, clear, unambiguous, and unequivocal in its terms, and this requisite extends to both the terms and the subject matter of the contract. The alleged agreement was vague and ambiguous: it did not specify how many hectares were to be planted to coconuts, how many to rice and corn, and what portion to bananas and bamboo trees. As appellants' counsel observed, under the agreement as alleged, Santiago would have been entitled to one-half of 156 hectares regardless of how minimal his actual planting efforts might have been—an arrangement so unfair that no sane property owner would enter into it. Celestina's promise to deliver one-half of the land upon her death was likewise incapable of certain execution. The testimony of Carlos Orense, who claimed to have been present when the agreement was made, further contradicted the appellee's version, as Orense recounted only a general statement that the land would "eventually fall in [Santiago's] hands." Because the agreement lacked the requisite certainty and definiteness, the doctrine of part performance could not be invoked to remove it from the operation of the statute.

• Dead Man's Statute: During trial, appellants objected to the testimony of plaintiff Bienvenido Babao and his mother Cleofe Perez regarding matters occurring before Celestina Perez's death, invoking Section 26(c) of Rule 123, which prohibits parties or persons in whose behalf a case is prosecuted against an executor or administrator from testifying as to any matter of fact occurring before the death of the deceased. The trial court overruled the objection, citing Ong Chua vs. Carr for the proposition that the rule does not apply where the complaint alleges fraud. This was error. In Ong Chua vs. Carr, the witness was allowed to testify because the existence of fraud was first established by sufficient and competent evidence. In the present case, however, the alleged fraud was predicated upon the existence of the very agreement the testimony sought to prove—a clear case of petitio principii. Fraud must be established by evidence aliunde, not by the same evidence the rule seeks to exclude. The reason for the rule is that "if death has closed the lips of one party, the policy of the law is to close the lips of the other," and the temptation to falsehood and concealment in such cases is considered too great to allow the surviving party to testify in his own behalf. The infringement of the rule was therefore evident.

• Statute of Frauds — Under Article 1403 of the Civil Code, certain categories of agreements must be in writing and subscribed by the party charged to be enforceable, including (a) agreements not to be performed within one year from the making thereof and (e) agreements for the sale of real property or of an interest therein. The statute aims to prevent fraud, not protect it. In this case, the alleged verbal agreement fell under both categories: it contemplated performance over 23 years and involved the conveyance of one-half of a 156-hectare parcel of land. Absent a writing, parol evidence of the agreement was inadmissible.

• Doctrine of Part Performance — Partial performance may take an oral contract out of the Statute of Frauds, but only upon satisfaction of strict requisites: (1) there must be complete performance within one year by one party, however many years may elapse before the other party performs—nothing less than full performance within the year suffices, and if anything remains to be done after the expiration of the year besides the mere payment of money, the statute applies; (2) the parol agreement must be certain, definite, clear, unambiguous, and unequivocal in its terms, with the requisite of clearness and definiteness extending to both the terms and the subject matter of the contract; (3) the oral contract must be fair, reasonable, and just in its provisions; and (4) the part performance must be clearly established by competent proof. In this case, none of these requisites was satisfied: Santiago Babao's performance extended over 23 years and was not completed within one year, and the agreement's terms were vague, ambiguous, and uncertain, failing to specify the allocation of crops among the 156 hectares.

• Dead Man's Statute — Section 26(c) of Rule 123 of the Rules of Court prohibits parties or assignors of parties, or persons in whose behalf a case is prosecuted against an executor or administrator of a deceased person, from testifying as to any matter of fact occurring before the death of such deceased person. The rationale is that "if death has closed the lips of one party, the policy of the law is to close the lips of the other," and the temptation to falsehood and concealment is considered too great to allow the surviving party to testify. The prohibition may be lifted where fraud is first established by sufficient and competent evidence aliunde, but not where the alleged fraud is predicated on the existence of the very agreement the prohibited testimony seeks to prove, as that constitutes petitio principii.

• "All that is required in such case is complete performance within the year by one party, however many tears may have to elapse before the agreement is performed by the other party. But nothing less than full performance by one party will suffice, and it has been held that, if anything remains to be done after the expiration of the year besides the mere payment of money, the statute will apply." — This passage, quoted from Corpus Juris and cited with approval, articulates the strict standard for the part performance exception to the Statute of Frauds: full performance within one year is required, and anything remaining to be done after the year—other than mere payment of money—keeps the agreement within the statute's prohibition.

• "The parol agreement relied on must be certain, definite, clear, unambiguous, and unequivocal in its terms, particularly where the agreement is between parent and child, and be clearly established by the evidence. The requisite of clearness and definiteness extends to both the terms and the subject matter of the contract." — This passage states the essential requisites for enforcing an oral contract on the ground of part performance, emphasizing that both the terms and the subject matter must be definite and certain, a standard the alleged agreement in this case failed to meet.

• "if death has closed the lips of one party, the policy of the law is to close the lips of the other." — This formulation captures the foundational rationale of the Dead Man's Statute, explaining why the law prohibits interested parties from testifying about transactions with a deceased person against the latter's estate.

• Shoemaker vs. La Tondeña, Inc., 68 Phil. 24 — Cited for the rule that when one party has fully performed within the year his obligations under an oral contract, the other party cannot avoid fulfillment by invoking the Statute of Frauds, as the statute aims to prevent, not protect, fraud. The rule on complete performance within one year was quoted with approval from this case.

• National Bank vs. Philippine Vegetable Oil Co., Phil. 857, 858 — Cited for the broad view that the Statute of Frauds applies only to agreements not to be performed on either side within a year from the making thereof, and that agreements to be fully performed on one side within the year are taken out of the statute's operation.

• Cuyugan vs. Santos, 34 Phil. 100, 101 — Cited for the principle that an oral agreement cannot be maintained on vague, uncertain, and indefinite testimony against the reasonable presumption that prudent men will execute such contracts in writing, but where the evidence is clear, convincing, and satisfactory, equity will compel parties to live up to their contract.

• Ong Chua vs. Carr, 53 Phil. 980 — Distinguished. The trial court cited this case to justify admitting testimony despite the Dead Man's Statute, on the ground that the complaint alleged fraud. The Supreme Court distinguished it, noting that in Ong Chua, the witness was allowed to testify because fraud was first established by sufficient and competent evidence, whereas in the present case the alleged fraud was predicated on the existence of the agreement itself—constituting petitio principii.

• Article 1403, Civil Code — The Statute of Frauds, paragraphs (a) and (e), providing that agreements not to be performed within one year from the making thereof and agreements for the sale of real property or of an interest therein are unenforceable by action unless the same, or some note or memorandum thereof, is in writing and subscribed by the party charged. Applied to hold the alleged verbal agreement unenforceable, as it contemplated performance over 23 years and involved the conveyance of an interest in real property, with no writing subscribed by Celestina Perez.

• Section 26(c), Rule 123, Rules of Court — The Dead Man's Statute, prohibiting parties or assignors of parties, or persons in whose behalf a case is prosecuted against an executor or administrator of a deceased person, from testifying as to any matter of fact occurring before the death of such deceased person. Applied to hold that the testimony of plaintiff Bienvenido Babao and his mother Cleofe Perez was improperly admitted, as the alleged fraud was predicated on the existence of the agreement itself rather than established by evidence aliunde.

Bengzon, Paras, C.J., Padilla, Reyes, A., Labrador, Reyes, J.B.L., and Endencia, JJ., concurred.